FINANCIAL-EDGE

The White Knight

2009-08-01T06:07:00.000-07:00

In business, a white knight may be a corporation, a private company, or a person that intends to help another firm.They help the firms who face a potential risk of being taken over.When a hostile bid is made by the acquiring company, the target company looks for another company which is more suitable for it.They negotiatie with this third company for taking it over inorder to escape from being taken over by the bidding company.By doing so, they also enter into a contract of avoiding the lay offs.At the same time, they may give only a part of stake to the white knight retaining the major controlling stake.

There are many types of white knights-unfriendly or friendly. Alternatively, a grey knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder).

Now IRFs in Indian Market

2009-06-18T11:43:00.000-07:00

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) jointly agreed on enabling exchange-traded interest rate futures (IRF) this week. Interest rate futures are derivative contracts which have an interest bearing security as the underlying instrument. The introduction of this instrument will help banks, insurance companies, bond houses and provident funds manage risks arising from interest rate fluctuations in their fixed income portfolios. Foreign portfolio investors have been allowed to tradeand banks have been allowed to participate in IRFs, but limits have been put in place to keep their influence under check.

This is the second attempt to introduce IRFs. IRFs were launched over five years ago by the NSE, but did not take off due to deficiencies in product design and banks not being allowed to trade in these products. The new IRFs are based on the yield-to-maturity (YTM) curve, which is used daily by traders for their calculations. To start with, futures contracts will be based on the 10-year government bond, with a semi-annual coupon of 7%. There would be quarterly contracts worth Rs 2 lakh crore per contract. Limits have been placed on gross-open positions of clients across all contracts at 6% of the total open interest or Rs 300 crore, whichever is higher.

Source:ET

Credit Default Swap

2009-06-18T11:23:00.000-07:00

Credit Default Swaps (CDS) are fast becoming the dominant vehicle for trading credit risk.Two parties enter into an agreement whereby one party pays the other a fixed periodic coupon for the specified life of the agreement. The other party makes no payments unless a specified credit event occurs. Credit events are typically defined to include a material default, bankruptcy or debt restructuring for a specified reference asset. If such a credit event occurs, the party makes a payment to the first party, and the swap then terminates. The size of the payment is usually linked to the decline in the reference asset's market value following the credit event.

In other words it is a specific kind of counterparty agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments.If the third party defaults, the party providing insurance will have to purchase from the insured party the defaulted asset. In turn, the insurer pays the insured the remaining interest on the debt, as well as the principal.

CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money .However, there are a number of differences between CDS and insurance, for example:The buyer of a CDS does not need to own the underlying security or other form of credit exposure; in fact the buyer does not even have to suffer a loss from the default event.In contrast, to purchase insurance, the insured is generally expected to have an insurable interest such as owning a debt.Moreover, unlike insurance, CDS are unregulated

TRAILING STOP LOSS

2009-06-11T10:05:00.000-07:00

A complex stop-loss order in which the stop is set at some fixed percentage below the market price. If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change.

This technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain. It does this without requiring to pay attention to the investment on an ongoing basis.A trailing stop helps protect profits while providing downside protection.

Mechanism of Trailing loss order:

An investor decides to buy into a bull market with the possibility of losses covered by a stop loss. A prudent investor will exit the market once the perceived price is achieved losing on the chance to make any money out of the gains over and above his target. But the idea of the trailing loss order is to raise the exit barrier in the direction of trade instead of setting an absolute value on the rise. A trader using a trailing stop loss would still be hanging on to trading buy waiting for newer highs to be conquered, while the investor with the target selling would have exit the market rally by then.

When the market rises, the trailing stop loss also rises in proportion with the market, leading to escalated stop loss level. But when the market declines, the trailing stop loss doesn’t decline in line with the market. So the profits are protected under such orders. The losses are limited to the extent of the stop loss value.

Rakesh Jhunjhunwala on market gains-May'2009

2009-05-24T09:24:00.000-07:00

What's a Gold Bug?

2009-05-24T09:07:00.000-07:00

Gold Bug is an individual who is bullish on gold. Gold bugs believe that gold is still a stable source of wealth like it was during the years of the gold standard international currency system. A gold bug invests in gold for what he or she perceives as financial security in the event of a currency devaluation, and often also believes that the price of gold will continue to rise in the future. The term also refers to analysts who consistently recommend gold buy

Gold bugs view gold as a safe investment that will protect them from currency fluctuations or downturns in the financial markets. The market does continue to view gold as the traditional "safe harbor" during times of economic crisis.

The term was popularized in the 1896 US Presidential Election, when William McKinley supporters took to wearing gold lapel pins, gold neckties, and gold headbands in a demonstration of support for gold against the "silver menace", though the term's original use may have been in Edgar Allan Poe's 1843 story "The Gold-Bug," about a cryptographic treasure map.

How to review MF investments before redeeming the units?

2009-05-24T05:40:00.000-07:00

If your mutual fund investment is yielding a lower return than what you anticipated, you may be tempted to redeem your units and invest the money elsewhere. The rate of return of other funds may look enticing, but be careful: there are both pros and cons to the redemption of your MF units. Let's examine the circumstances in which liquidation of your fund units would be most optimal and when it may have negative consequences.

1. Mutual Funds Are Not Stocks

2. When Your Fund Changes

3. Change in Fund Manager

4. Change in Fund Strategy

5. Change in Fund Performance

6. When Your Personal Investment Portfolio Changes

7. The need to rebalance your portfolio

8. Need a tax break

Read here to know in details about the different circumstance..

Value at Risk (VAR or VaR)

2009-05-15T07:36:00.000-07:00

Value at Risk is a widely used measure of the risk of loss on a specific portfolio of financial assets.Value at risk has been called the "new science of risk management" A technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatilities.VaR is able to measure risk while it happens and is an important consideration when firms make trading or hedging decision.

e.g. Let 0 be the current time. With value-at-risk, we summarize a portfolio's market risk by reporting some parameter of this distribution. For example, we might report the 90%-quantile of the portfolio's single-period USD loss. This is called one-day 90% USD VaR. If a portfolio has a one-day 90% USD VaR of, say, USD 5MM, it can be expected to lose more than USD 5MM on one trading day out of ten. This is illustrated in Exhibit 1.

Example: One-Day 90% USD VaR
Exhibit 1

VaR has five main uses in finance: risk management, risk measurement, financial control, financial reporting and computing regulatory capital.A risk manager has two jobs: make people take more risk the 99% of the time it is safe to do so, and survive the other 1% of the time. VaR is the border.Common parameters for VaR are 1% and 5% probabilities and one day and two week horizons, although other combinations are in use.Although it virtually always represents a loss, VaR is conventionally reported as a positive number. A negative VaR would imply the portfolio has a high probability of making a profit, for example a one-day 5% VaR of negative $1 million implies the portfolio has a 95% chance of making $1 million or more over the next day.

To sum up,Value-at-Risk (VaR) measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level.It has 3 main components e.g.

What is the most I can - with a 95% or 99% level of confidence - expect to lose in dollars over the next month?
What is the maximum percentage I can - with 95% or 99% confidence - expect to lose over the next year?

"VAR question" has three elements: a relatively high level of confidence (typically either 95% or 99%), a time period (a day, a month or a year) and an estimate of investment loss (expressed either in dollar or percentage terms).

Dash to Trash

2009-05-14T04:22:00.000-07:00

A term relating to when investors flock to a class of securities or other assets, bidding up prices to beyond what can be justified by valuation or other fundamental measures. While the dash-to-trash effect can occur within any type of security, the phrase is typically used to describe low-quality stocks and high-yield bonds, both of which can be subject to periods of overbuying in the markets.

As the name graphically implies, investors are buying low-quality assets or assets that do not correctly price in the risks associated with them. The dash to trash often occurs near the end of a prolonged bull market, when investors begin to seek higher returns regardless of the risks involved. The longer it has been since a market downturn, the more likely that large pockets of investors feel bulletproof.

Source:Investopedia

The only thing premanent is "Change"

2009-05-14T04:20:00.000-07:00

Willingness to change is a strength, even if it means plunging part of the company into total confusion for a while.

Jack Welch

Warren Buffet-at a glance

2009-05-14T03:49:00.000-07:00

Warren Buffett, a billionaire investor is the world's second-richest person, and perhaps America's most-revered capitalist. Buffett, 78, bought Berkshire, a struggling textile mill, in 1965,whose market value is approx $145 billion at present. Berkshire owns close to 80 companies. According to Berkshire's latest proxy filing, as of February 28, Buffett owned 26.9 per cent of Berkshire in aggregate and controlled 31.8 per cent of the company's voting power. Berkshire's stock price is high, trading in the last year for high five-figure and low six-figure amounts for a Class "A" share, because there are few shares outstanding. Buffett does not believe in stock splits and encourages long-term investing.

Buffett has nearly all his net worth, estimated in March at $40 billion by Forbes magazine, invested in Berkshire. He has said every Berkshire share he has will go to philanthropies after his death. In June 2006, he pledged 85 percent of his net worth to the Bill & Melinda Gates Foundation and four family charities. He supports several charities and nonprofit offering programs for the poor, hungry and homeless.Buffett tells his shareholders that he thinks of them as "owner-partners" who will retain their part-ownership in Berkshire indefinitely.

Buffett draws a $100,000 annual salary to run Berkshire. He drinks five cans of Cherry Coke a day. Buffett has lived in the same house for a half-century, a 10-room, five-bedroom home on less than three-quarters of an acre in Omaha, near his office. The home was assessed at $727,600 last year. Buffett plays ukulele and is a bridge partner of Bill Gates, the Microsoft Corp chairman and Berkshire director.

Obamanomics

2009-05-07T02:43:00.000-07:00

Barack Obama has declared his position on many political issues through his public comments and legislative record. If leadership is defined as recognizing a crisis, addressing its challenges, and setting new directions while remaining true to one's values, then Barack Obama is already demonstrating his strengths as a leader. He has inherited an economic crisis worse than any the nation has experienced since the Great Depression.

Obamanomics is the economic philosophy of 2008 democratic presidential candidate Barack Obama. Obamanomics calls for lower tax rates for companies that meet certain criteria, such as providing decent healthcare and maintaining a U.S. workforce and headquarters. Obama's economic platform also calls for higher taxes for high-income families and investment in education, healthcare and the sciences.

Obamanomics generally stands in opposition to supply-side, or "trickle-down", economics, which holds that people should keep more of what they earn because they will spend that money, promoting economic growth. It believes that the active government intervention and monetary policy can smooth out bumps in economic cycles and promote stability.President Bush's tax cuts are scheduled to expire at the end of 2010. At that time, assuming the economy has entered a recovery, President Obama's budget will restore the top two marginal income tax rates to their 1990s levels of 36% and 39.6% for individuals earning more than $200,000 and couples earning more than $250,000. These changes will affect only the top 3% of taxpayers, the group that has enjoyed the largest gains in income and wealth over the last decade.

The real risk lies in the possibility that the economy's recovery starts later and is much weaker than the economic assumptions in the budget. In this case, President Obama will have to adjust his plans while remaining true to his values. In a very few days, he has already demonstrated that he has the leadership skills to rise to the challenge.

Art of Short selling

2009-05-07T02:25:00.000-07:00

Short selling or "shorting" is the practice of selling a financial instrument that the seller does not own at the time of the sale. If you sell a stock you don't own, you are selling short.Short selling is done with the intent of later purchasing the financial instrument at a lower price. Short-sellers attempt to profit from an expected decline in the price of a financial instrument.

Short selling allows investors to profit from falling stock prices. "Buy low, sell high" is the goal . A short sale reverses the order of a typical stock purchase: the stock is sold first and bought later.

Short selling is a marginable transaction. One needs to open a margin account to sell short. This is the same account you would use if you want to use your stocks as collateral margin to trade in the markets.When you open a margin account, you must sign an agreement with your broker. This agreement says you will maintain a cash margin or pledge your stocks as margin.

Short selling is not complex, but it's a concept that many investors have trouble understanding. But Shorting is very, very risky. The mechanics behind a short sale result in some unique risks.

Short selling is a gamble
Losses can be infinite
Shorting stocks involves using borrowed money(Margin Trading)
Short squeezes can wring the profit out of your investment
Even if you're right, it could be at the wrong time.

The two primary reasons for selling short are opportunism and portfolio protection. A short sale provides the opportunity to profit from the overpriced stock. Short sales are also used to protect an investor's portfolio against a market downturn. It protects portfolios against erosion due to a broad market decline. Short selling is essential for proper functioning of the stock market as it provides essential liquidity which in turn leads to proper price discovey.

Back to 12k

2009-05-05T10:18:00.000-07:00

The buzz was back on Dalal Street as FIIs pumped in Rs 1,417 crore to help Sensex notch its biggest single-day gain in seven months. The 30-share BSE Sensex rose 6.4%, or 731.5 points, to close at 12,134.75, with FIIs largely responsible for the spectacular surge in stock prices. Shares from the metal, banking and IT sectors were the best performers. The coincidence of a host of factors sent the domestic indices skyrocketing.Economic parameters would increasingly get better hereon.

A positive government view on P-notes in a state affidavit to the Supreme Court and strong FII inflow; optimistic manufacturing data from China, and the taking of fresh positions on the first day after F&O expiry, all this after a four-day closure of the market — served to push stocks up.

From October 2008 when the Sensex was last seen at 12k to now, only 18 of the 30 Sensex stocks have ended with gains, while the rest have declined. But what’s interesting is that this time around the rally appeared to be fairly sector-agnostic and stock-specific.

In terms of contribution to the index in its 12k-to-12k sojourn, Reliance Industries (plus 295 points) and Infosys Technologies (plus 211 points) chipped in the most, while poor performance by the beleaguered IT major Satyam Computers (minus 244 points) and L&T (minus 100 points) restrained the index.

So,BSE's benchmark Sensex finally managed to breach 12,000 mark but will it able to maintain the psychological level. Many economists and market analysts have warned that the surge in stock prices globally and in India could be a short-lived reaction to the fiscal packages announced by governments.

Investing in liquid funds

2009-05-02T13:12:00.000-07:00

A good avenue to invest for a short term and earn reasonable returns is a liquid fund. Liquid funds are ultra short-term debt funds.They invest in money market instruments such as certificate of deposits, commercial paper and treasury bills, either on an overnight basis, for 10 days or a month. Liquid funds have no entry and exit loads in most cases. These funds can be used to park cash for a short term. These funds are used to earn a definite amount in less than a year.

The income or bond funds have much longer tenures than liquid funds, and therefore have potentially more downsides as also higher returns. They are suitable for medium to long term horizons . Income funds primarily invest in different, longer tenured instruments like corporate bonds and government securities.

Compared to savings accounts, where the returns are as low as four per cent per annum, the historical returns on liquid funds have been as high as eight per cent per annum. Liquidation is easy. Investors can liquidate at a NAV (net asset value) which they consider to be lucrative, as against a normal mutual fund where the NAV just has a notional value. These funds require a minimum investment of Rs 1,000. However, some funds have a minimum investment requirement of Rs 5,000 too.

There are two kinds of liquid funds. One is a pure liquid fund and the other is liquid plus. The main difference between pure liquid and liquid plus funds is the tenure of the securities held. The instruments held by liquid plus funds have a longer tenure than those held by liquid funds. In terms of tax implications, there is a dividend distribution tax of 28.33 per cent on liquid funds, whereas 14.16 per cent is levied on liquid plus funds (in case of individual investors).

FDI can boost Retail sector

2009-05-02T12:56:00.000-07:00

Foreign direct investment in organised retail, if allowed, can bring in a flurry of economic activity to India by global players, an expert with a US-based think-tank said .

"FDI (in organised retail) is allowed in most of the countries in the world ... why not here. If the government opens it to FDI, there will be a flurry of (activity) by foreign players who will not only bring in investible funds but also global expertise and knowledge, much needed to develop this growing sector," the International Food Policy Research Institute Director (Asia) Ashok Gulati said.

FDI in multi-brand retail is not allowed in India and it is permissible only for the wholesale cash and carry firms and in the single brand retail. The organised retail is growing annually by over 70 per cent since 2002. However, since the multi-brand domestic retail sector is in the infancy stage, it has shown significant expansion on a low base.

But how soon the sector can be thrown open to the foreign players depends on "political wisdom".

Source:Economictimes

Dare,Define and Decide

2009-05-01T11:55:00.000-07:00

Qualified Institutional Placement

2009-04-30T21:55:00.000-07:00

Qualified institutional placement (QIP) is simply the means whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a Qualified Institutional Buyer (QIB).

Apart from preferential allotment, this is the only other method of private placement. However, it scores over other methods, as it does not involve many of the common procedural requirements such as the submission of pre-issue filings to the market regulator.

Why was it introduced?

The Securities and Exchange Board of India (Sebi) introduced the QIP process in 2006, to prevent listed companies in India from developing an excessive dependence on foreign capital.

The complications associated with raising capital in the domestic markets had led many companies to look at tapping the overseas markets via Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDR) to fulfil their needs. To keep a check on this process and to give a push to the domestic markets, QIPs were launched.

QIP in the news lately

The latest company which adopted the QIP route to raising capital is the cash-strapped real estate major Unitech. While Unitech has managed to garner Rs 1620 crore through QIP, the promoter holding has now come down to 51%.

There are also reports that LIC Housing Finance is mulling over a QIP where it is expected to issue shares of the value of up to 10% of its total paid up capital.

Brain Drain

2009-04-30T07:04:00.000-07:00

A slang term for a significant emigration of educated or talented individuals.It is also referred as human capital flight

This cause countries to lose valuable professionals i.e. departure of doctors, scientists, engineers or financial professionals who seek a better standard of living or who gets a better professioal opportunity outside their home country. When the intellect capital leaves, the home country is harmed in two ways.

First, expertise is lost with each emigrant, diminishing the supply of that profession.
Second, the economy is effected as each professional represents surplus spending units.

As they earn large salaries, so their departure results in significant decline in consumer spending in the nation.Counteracting the emigration of highly skilled personnel remains a key pursuit. But while some countries suffer the consequences of the so-called "brain drain", others are beginning to reap its potential benefits

An opposite situation, in which many trained and talented individuals seek entrance into a country, is called a brain gain; this may create a brain drain in the nations that the individuals are leaving.This is sometimes referred to as a 'brain transplant'.It occurs when there is a large-scale immigration of technically qualified persons.

Swine flu and sectors to get HIT or LIFT

2009-04-29T11:58:00.000-07:00

There’s a lot of uncertainty around the swine flu situation.Again, these are just some of the possible short-term effects we could see resulting from the swine flu epidemic news. Further, it’s worth remembering that at this point, even the authorities have limited information on and predictive power over the swine flu situation. Lets see the sectors which will be effected by the spread of swine flu.(Source:etfdb.com)

Sectors That Could Be Hit Hard

• Transportation sector: Travel advisories and recommendations to stay home won’t help transportation stocks.

• Energy: Fewer people flying and traveling in general could cause weaker overall demand for energy and crude oil funds.

• Equities in general: As we’ve seen in the past six months, a little bit of uncertainty can go a long way towards causing equities to tank.

Sectors That Could Get a Lift

• Pharma and Healthcare sectors: In anticipation of demand for vaccines and health services, shares of pharmaceutical and healthcare companies could appreciate.

• Gold and Commodities: In the last year precious metal ETFs have been popular buys on days when panic seemed to set in.

• Treasuries: Similarly, a flight to safety away from equities could make for inflows in bond funds thought to be very secure.

Swine Flu depresses the market

2009-04-29T11:26:00.000-07:00

The stock market had to absorb a number of unsettling headlines on financial and economic matters over the past several months. But it was news of an event outside the realm of finance—an outbreak of swine flu in Mexico and other countries—that rattled the market on Apr. 27.The outbreak of swine flu in Mexico and its spread to other countries has inevitably raised questions about the broader economic and market implications.The worst-case scenario is the sort of global flu pandemic that the World Bank estimated last year might eventually cost up to 4.8% of world gross domestic product (more than $3 trillion).

The positive sentiment in the market has been badly hit by this flu scare. Mexico is the epicentre of the crisis and the Mexican Peso has fallen in thin Asian trading, with the threat of bigger falls ahead.While the White House down plays swine flu as to not disrupt the financial system which has been seen as stabilizing over the last month it could back fire with dramatic consequences. A weak banking system who just underwent a stress test never anticipated an epidemic much less a pandemic. A sheer drop off in spending by consumers might spell doom for retailers that have struggled to survive until now.

In a reprise of what happened with the SARS panic, airline and tourism stocks are under pressure in early European trading on fears that the swine flu pandemic will curtail travel.

This will deepen the global recession and will probably have a contagion effect on export-led economies in Asia such as South Korea, Thailand, Indonesia, Malaysia, China. All of them depend on the U.S. economy to recover. The stock market will suffer, but the bond market will not be affected that much.The swine flu is undermining confidence and contributing to risk aversion in an array of assets,This is going to hurt at a time when we've had a pickup in stock markets. On the other hand, it could just be an excuse for people to take money off the table.Hence,the market rises or falls according to its own cycle of fear and greed, not the history books.

Aspirin Count Theory

2009-04-28T09:30:00.000-07:00

This is one of the interesting thoeries which I came across.I found it fascinating as it directly relates to human behaviour. It is a market theory that states stock prices and aspirin production are inversely related. The term arises from the belief that as stock prices fall people are more likely to consume medication such as Aspirin. Investopedia explains Aspirin Count Theory :As stock prices fall, more and more people need pain relievers to get through the day.

For example the Aspirin count theory would predict that as aspirin sales increase, the stock market's value decreases and vice versa. The Aspirin count theory is a lagging indicator and actually hasn't been formally tested, so it is more a humorous hypothesis than a theory.

Recession :Impact on unemployment

2009-04-28T09:12:00.000-07:00

As we know,the economic downturn has brought to the fore some stark realities, at least on the jobs front. 'Cost cutting' and 'downsizing' have become the new buzzwords.The eruption of the crisis has caused companies to compel underperformers to either pull up their socks or leave.
A recession is defined as a period of general economic decline; specifically, a decline in the country's GDP for two or more consecutive quarters.During a recession the company would either:

1. reduce unnecessary expenditure (cost optimization) and/or

2. reduce unnecessary work force (resource optimization).

Both the situations would ultimately result in unemployment. Similarly, the company would not be in a position to expand its operations. Hence the number of fresh employment positions that would be created by the company would also take a hit. This would also cause unemployment.

Recessions are often associated with downturns in the gross domestic product (GDP) of countries. The current recession, which affects most of the world, was sparked by events in Asia, but has since included many other nations in its effects. Many companies are finding that they are caught between the benefits of the recession (lower prices for components) and the problems associated with the recession (lower prices for competing products).Certainly, a sufficient proportion of the world's economies are current in recession to warrant an assessment of the potential of this situation to affect future employment levels.

Just as there are different types of employment - with their various impacts on the economy - so, too, does unemployment vary. So, do the economic theories differ in their interpretations of the character of unemployment and, more importantly, in their responses to unemployment.
There are three basic forms of unemployment:

Frictional unemployment arises from the "normal" process of turnover in the labor market: as new workers enter the market , and as existing workers quit the jobs.
Cyclical unemployment is that which varies with business conditions; for example, workers are laid off when business is bad - then rehired when conditions improve.
Structural unemployment caused by imperfect labor-market adjustment, i.e. workers and resources do not move freely to places where they are needed.

A recession in 2008 would raise the national unemployment rate by between 2.1 and 3.8 percentage points. According to Cepr, the unemployment rate and the number of unemployed - based on the historical pattern - would continue to increase through 2010 (to 6.7 percent in the case of a mild-to-moderate recession) or 2011 (to 8.4 percent in the case of a more severe economic downturn).

The last few weeks have seen a remarkable degree of consensus across most of the economics profession around the need for a sharp short-term stimulus to the economy. The goal is to avoid a recession or, in the likely event that that isn’t possible, to make the recession shorter and more shallow. By one rule of thumb, the unemployment rate has now risen enough to send a reliable signal of recession.

The nations are held at the binary decision of are we or aren’t we in recession which is a meaningless exercise, as they are not in a position to realise the fact that the unemployment rate has risen meaningfully and is apt to continue going up which implies that the economic environment is weak.All the industries irrespective of its quarter performance have rung the bells for the unemployment rate to increase significantly and the same would continue to rise in the coming 2 years ahead.

Best Employer in India-2009

2009-04-23T05:31:00.000-07:00

According to a recent study by Hewitt Associates, its sixth 'Best Employer in India Study 2009' in partnership with magazine Outlook Business, has enlisted the top 10 companies which provide the best working environment for employees.

The study states that despite wide variance in industries and company profiles, the firms share some common winning traits.

Here we take a look at the nation’s 10 best employers

1)HCL Technologies

2)Hindustan Zinc Limited

3)Taj Hotels Resorts and Palaces

4)Cisco Systems

5)ITC -- Welcomgroup

6)Intuit Technology Services Pvt Ltd

7)Eureka Forbes Ltd

8)LG Electronics India Pvt Ltd

9)Domino's Pizza India Ltd

10)Marriott Hotels India Pvt Ltd

To know more, Continue reading..

New 10 rupee coin with Unity-In-Diversity theme

2009-04-22T10:34:00.000-07:00

The 10 Rupee coins which were supposed to be released three years ago, but were delayed due to some technical issues are all set to surface in the year 2009. The Reserve Bank of India (RBI) has launched 10 Rupee coins in 2009. The 10 Rupee bimetallic coins will be available in the market soon. There is no official word yet but this is the latest buzz in the nation. It is a great idea to avoid and get purge of the old half torn ten rupee notes circulating in the market. Undeniably a coin will be trouble-free to use.

Rumours’ subsisting reflects that a limited number will be introduced and the coins will be offered in some auction websites. The 10 Rupee coin was designed by National Institute of Design (NID), Ahmedabad with the theme of Unity in Diversity. The coins are being prepared at Noida and Mumbai mints.

The new 10 Rupee coin has the lion capitol, the numeric 10 and the year of manufacturing on one side. The value of the coin is indicated on both Hindi and English.On the reverse side, is a symbolic representation of "Unity in Diversity" - Four head sharing a common body.

RBI says: Four headed symbol shall be thought of as people from all four parts of the country coming together under one banner and identifying with one nation.

Since the press release is out the year inscribed in the new Ten Rupee coin will be apparently 2009.But the issue lies in the fact that the coin may still face impediments, as the defect which existed 3 years ago still persists. Reports are that some of the coins’ outer rings may break away from their inner center piece -the outer rings are composed of Aluminum Bronze (95% copper, 6% aluminum and 2% nickel). The inner is struck from Cupro Nickel (75% copper and 25% nickel).I hope the defects get repaired by the institute so that we have the 10 rupee coin floated in the market in the same year.

S.Africa set to earn a billion rand

2009-04-19T10:22:00.000-07:00

The Indian Premier League (IPL)cricket tournament will bring an expected investment of about 1 billion rand (100 million U.S dollars) to South Africa, as said by the South African President Kgalema Motlanthe at the tournament’s opening ceremony in Cape Town. IPL is providing 10 million rand (1 million U.S. dollars) in scholarship funds for 300 students and 32 schools.

“Together, we formed the greatest partnership so that India, Brazil and South Africa could stand together and navigate a path through the unpredictable waters of globalization.”Motlanthe said choosing South Africa to host the tournament was a “tremendous vote of confidence”, but also inspired serious reflection.Nevertheless, he said choosing SA as a host showed confidence in its ability to host the IPL, the Confederations Cup and the 2010 FIFA World Cup.“It is a vote of confidence in our facilities, our telecommunications capability and our cricket-loving fans who have already snapped up all the tickets for the IPL matches.

Motlanthe said the unique aspect of the IPL tournament was that it meant some opponents now became teammates and vice versa.“In entertaining us, the IPL teaches us this important lesson in life: no task is too big, no problem is insurmountable, no disagreement or rivalry is permanent, and every challenge is an opportunity to demonstrate our character and resilience,he added.

Indian Women Entrepreneurs in limelight

2009-04-17T19:27:00.000-07:00

The country's largest private-sector banking conglomerate, ICICI Bank,is in for a major top-management shake-up with two business heads private equity arm's Renuka Ramnath and life insurance unit's Shikha Sharma likely to put in their papers soon.

Sharma is reportedly looking to join Axis Bank as its chief, while Ramnath could look at starting her own private equity venture. These developments come days ahead of Chanda Kochhar taking over as CEO and MD of ICICI Bank from K V Kamath, who would then be an non-executive chairman.

On the other end,HSBC names Naina Lal Kidwai as India head elevated from the chief executive post of Indian operations.Kidwai has been at helm of HSBC in India for the last five years.Kidwai’s responsibility as group chairperson will be to prepare a strategy to integrate its diverse businesses.

Banks image

2009-04-17T12:23:00.000-07:00

"A bank is a place that will lend you money if you can prove that you don't need it. "

-by Bob Hope

The best ETF's for now

2009-04-17T08:34:00.000-07:00

The editor of Forbes ETF Advisor Jim Lowell had presented a report on 3 Best-Buy ETFs for the Current Market.Following are the exchange-traded funds that offer you the best combination of growth and protection in these critical times:

My Favorite Mega-Cap ETF: According to the report,this ETF is likely to benefit as recession-wary investors flee to quality. It holds stocks of huge multinational companies that will benefit from the weak dollar.

Top ETF for Income: This income ETF offers the safest way which protects your money and keep it growing in recessionary times.

Great Play on Shifting Interest Rates: This ETF has a unique way to make big profits from the wildly volatile currency markets that usually accompany recessions.

Loan Poem

2009-04-16T09:55:00.000-07:00

Are you desp’rate — in need of a loan?

Friends and fam’ly won’t throw you a bone?

Don’t go on a bender.

Just use a good lender

And safeguard the stuff that you own.

-By Madeleine Begun Kane

Economic Turnaround

2009-04-16T03:08:00.000-07:00

Overused Business Buzzword-Subprime

2009-04-16T02:51:00.000-07:00

Subprime--This buzzword isn’t exactly new. But the sheer number of stories in the media about subprime mortgages has changed the word from adjective to verb status — loosely defined as the ability to completely dig one’s self into a hole and then expect a bailout.

Used in a sentence: "I completely subprimed my Algebra test yesterday. Instead of studying, I drank beer and played Xbox, and just hoped the answers would come to me. Can I still have an 'A'?"

Chances that we’ll be using this buzzword in the year 2017: Slim to none.

But you’ll definitely be using it in 2008.

Pillars of Success

2009-04-16T02:37:00.000-07:00

There are some unique traits of portfolio which makes it better and more attractive than others . A good and strong portfolio has some strong elements which it must adhere and fulfill to provide higher returns .Each investor's portfolio should be strong on all the areas , it should pass all the parameters for different requirements . These are the Pillars for a strong Portfolio or Investments.

Important Elements are :

1. Capital Appreciation

2. Liquidity

3. Risk Management

4. Goal Oriented

To know more about each element..Read here..

Cramer: Investing in Gold a Win-Win

2009-04-15T10:27:00.000-07:00

Tech Mahindra's new owner of Satyam

2009-04-15T10:05:00.000-07:00

Tech Mahindra, an Indian IT firm part owned by BT, has won the bidding to buy a 51% stake in fraud-hit Satyam Computer Services for around $579 million.Having won the auction, Pune-based Tech Mahindra will buy 31% in Stayam at 58 rupees per share, valuing the stake at around $351 million. The buyer is then required to make a mandatory cash tender offer to buy another 20% from investors at the same price.

The deal comes three months after Satyam's founder and chairman B Ramalinga Raju resigned after admitting the company's profits have been falsely inflated for several years, leading to a $1 billion hole in the balance sheet.

Tech Mahindra beat engineering firm Larsen & Toubro and private equity outfit WL Ross & Co in the auction. BT, which holds a 31% stake in the company, has backed the deal. The acquisition will boost Tech Mahindra's workforce by around 48,000 to nearly 75,000, as it looks to compete with India's biggest IT outsourcing companies Infosys, Tata Consultancy Services and Wipro.

It also gains some blue chip clients, including Citi, although Satyam has reportedly lost dozens of customers in the wake of the scandal.The bid is subject to approval from the Company Law Board.

Goldman Sachs and Avendus Capital advised Satyam on the deal. Tech Mahindra was advised by Kotak Investment Banking and UBS.

The ABCs Of Option Volatility

2009-04-11T09:24:00.000-07:00

Most options traders - from beginner to expert - are familiar with the Black-Scholes model of option pricing developed by Fisher Black and Myron Scholes in 1973. To calculate what is deemed a fair market value for any option, the model incorporates a number of variables, which include time to expiration, historical volatility and strike price. Many option traders, however, rarely assess the market value of an option before establishing a position.

This has always been a curious phenomenon, because these same traders would hardly approach buying a home or a car without looking at the fair market price of these assets. This behavior seems to result from the trader's perception that an option can explode in value if the underlying makes the intended move. Unfortunately, this kind of perception overlooks the need for value analysis.

Too often, greed and haste prevent traders from making a more careful assessment. Unfortunately for many option buyers, the expected move of the underlying may already be priced into the option's value. Indeed, many traders sorely discover that when the underlying makes the anticipated move, the option's price might decline rather than increase. This mystery of options pricing can often be explained by a look at implied volatility (IV). Let's take a look at the role that IV plays in option pricing and how traders can best take advantage of it.

Read the details..

How do companies like Moody's rate bonds?

2009-04-11T09:19:00.000-07:00

Rating the creditworthiness of a bond issuer, despite the number crunching, is as much an art form as it is a science. While companies like Moody’s and A.M. Best gather and analyze mountains of data, the rating itself comes down to the informed opinion of an analyst or a rating committee.

Not unlike your individual credit score, the organizations that rate bonds look at an issuer’s assets, debts, income, expenses and broad financial history. In addition, special attention is given to the trustworthiness of a company to repay previous bond issues on time and in full.

The major bond rating agencies each use a form of scholastic grading scale, with some variation of an "A+" denoting the best rating. In the case of Moody’s, ratings range from "Aaa" to "C". Typically, only bonds issued with a "Baa" rating or above are considered "investment grade", or appropriate for more conservative accounts and investors.

Bond ratings are reviewed every six to 12 months. However, a bond may be reviewed at any time the agency deems necessary for reasons including: missed or delayed payments to investors, issuance of new bonds, changes to an issuer’s underlying financial fundamentals, or other broad economic developments.

A good news packed within a bad one

2009-04-11T09:08:00.000-07:00

The US economy is set to emerge from recession in the second half of this year as consumer spending and the housing sector recover, but 2008 turned financial heroes to zeroes unemployment will rise well into 2010, according to a survey.

The Blue Chip Economic Indicators survey of private economists released showed that 86 percent of respondents believed that the economic downturn would be declared to have ended in the second half.

"Real GDP contracted very sharply during the first quarter of this year and will continue to shrink, albeit more slowly in the second quarter before turning very modestly higher in the third and fourth quarters," the survey said.

Much of the anticipated turnaround in the economy, now in its 16th month of recession, would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet, above-trend growth was not expected until the second half of 2010.

Gross domestic product plunged at a 6.3 percent annualized rate in the fourth quarter of 2008, the steepest quarterly decline since 1982. The economic downturn will next month become the longest U.S. recession since the Great Depression.

Continue reading...

Japan's Foreign reserves rise above $1 trillion

2009-04-07T01:27:00.000-07:00

Japan's foreign reserves exceeded $1 trillion in March, thanks to gains in the appraisal values of its US Treasury bond holdings and euro-denominated assets.The nation's foreign reserves totalled $1.02 trillion, up from $9.2 billion in the previous month.Japan held $905.53 billion in foreign securities as of March 31 while its foreign currency deposits amounted to $84.2 billion.

The nation had $7.43 billion of those deposits in foreign central banks and the Basel-based Bank for International Settlements, $20.9 billion in Japanese banks and $55.88 billion in foreign financial institutions.Gold reserves totalled $22.55 billion.

Japan was the world's second-largest holder of foreign reserves after China, according to IMF data. Japan's foreign exchange reserves consist mainly of securities and deposits denominated in foreign currencies, gold, and reserve positions and special drawing rights at the IMF.

Worst stocks become the best

2009-04-07T01:21:00.000-07:00

The recent stock market rally which has delivered close to 20% returns in just one month, has surprised many market watchers. A quick look into the stock returns reveals that laggards over the past year delivering best returns.According to BSE 500 data, which constitutes 90% of the market capitalisation on Indian bourses, the best returns came from those stocks which lost heavily in the preceding 365 days.

Dividing all the stocks in the BSE-500 in groups of fifty, showed that the top 50 stocks delivered 52% gains (on an average ) in the last 30 days and also boasted of 57% losses in the last 365 days — the worst returns.

ET reports:a stock like Financial Technologies, part of the top 50 group, definitely gained 61% in just 30 days but has incurred 58% loss in the last one-year period. This analysis not only holds true for the top 50 stocks but progressively for the next 400 stocks: As the average 30-day gains reduce, so do the average 365-day losses.

The second 50 stocks recorded 36% gains in the 30-day period but also clocked 56% losses in the one-year period .This continues for third, fourth, fifth and sixth fifty stocks.

One needs to bear in mind that India's bear markets have historically lasted 30 months on average and longer than India's bull markets. The market is more likely to crawl rather than spike out of its current trading band that is getting a bit wide," said the head of equity of a foreign brokerage.

Balloon Payment

2009-04-03T09:27:00.000-07:00

The phrase balloon payment or bullet payment refers to one of two ways for repaying a loan; the other type is called amortizing payment or Amortization (business).

With a balloon loan, a balloon payment is paid back when the loan comes to its contractual maturity – e.g., reaches the deadline set to repayment at the time the loan was granted – representing the full loan amount (also called principal). Periodic interest payments are generally made throughout the life of the loan.

Balloon payments or bullet payments are common for certain types of debt. Most bonds, for example, are non-amortizing instruments where the coupon payments cover interest only, and the full amount of the bond's face value is paid at final maturity.
Bullet payments introduce a certain amount of risk for the borrower and the lender. In many cases, the intention of the borrower is to refinance the amount of the balloon payment at the final maturity date. Refinancing risk exists at this point, since it is possible that at the time of payment, the borrower will not be able to refinance the loan; the borrower faces the risk of having insufficient liquid funds, and the lender faces the risk that the payment may be delayed.

Numbers aren't everything

2009-04-02T08:18:00.000-07:00

Steve Farber says:I have nothing against numbers. I believe in the bottom line as much as the next business person. (And, fundamentally, that’s what I am–a business person. Except maybe without the silly, stereotypical baggage).

But these days, when numbers–like profits, for example–are harder to hit, we’re tempted to focus on them even more. Obsess on them, even. Sometimes to the exclusion of the stuff that, ironically, is the precursor to the very numbers we’re trying to create. Of course, when numbers are good we get paid and rewarded accordingly.

If you focus solely on the so-called “bottom line,” however, you’ll miss something vital–call it soul, call it meaning, call it impact. Call it your legacy–that which you leave behind that means something to people, that will enable your influence and assistance to continue even after you’re gone. You know.

The good stuff of the human experience. Tom Peters once said his nightmare is to have his tombstone read, “He made budget,” a nightmare we should all share. Instead, push yourself and your company to do good work, to do important work. If you can do that, the numbers will follow. And as a bonus, your tombstone will be a whole lot more inspiring, too.

Source: stevefarber.com

Note:Steve Farber is the president of Extreme Leadership and the author of The Radical Leap: A Personal Lesson in Extreme Leadership and the recently released Greater Than Yourself: The Ultimate Lesson of True Leadership

Private Sector cuts on Ads

2009-04-02T08:01:00.000-07:00

Industry chamber Assocham said that the private sector will spend up to 35 per cent less on advertising and entertainment remuneration this fiscal due to the global financial meltdown putting severe pressure on demand and production.

"India Inc's advertisement expenses for brand promotion and entertainment remunerations for its executives to cement liaison with their clients will witness a decline of nearly 32-35 per cent in the current fiscal," Assocham President D S Rawat said, adding that the situation would be similar in the public sector.

According to the Assocham survey, corporates in automobile and FMCG sectors, during boom time, would spend 10-12 per cent of their total earnings on advertisements through electronics, print and periodicals.

Despite the electronic and print media having curtailed advertisement cost by nearly 25-30 per cent, corporate earnings have declined so much in 2008-09 that majority of them are still dithering to fix allocations for advertisement, it said.However, promotion activities and enhancement in entertainment and other allowances would pick up after the turmoil in the economy gets over, which will consume nearly 10-12 months, it added.

It sounds sensible considering the present condition as advertisement as a medium to attract consumers cannot magnetize its role as it used to.The key reason being the "money".When people dont have jobs, from where will they earn and how will they spend.Advertisement does play a role but considering the cut in its cost is a logical move by the association.

Consumer Finance in India-Part 2

2009-04-02T01:51:00.000-07:00

To complement its grand retail plans, Reliance Retail is setting up an NBFC with focus on credit cards and loans in a JV withCitigroup. Citi is likely to hold the major stake and total investment pegged is Rs. 450 crore.The NBFC would provide retail loans to customers are sale point and would ease consumer buying process by offering finance to buy goods on interest-free EMIs.

Consumer finance is a high-growth industry in India but it is doubtful whether the JV would be expanded outside the scope of Reliance Retail as due to no-compete clause with Anil Ambani, Mukesh Ambani could not enter into financial services biz as ADAG already runs Reliance Capital.

For Citigroup, it would mean joining hands with India’s largest business group and getting access to the biggest future retailer in India. While for Reliance, it would get the expertise of world’s best known financial giant and use their knowledge and experience to expand its consumer base.

Kishore Biyani’s Future group already has its consumer finance business called Future Money which provide loans for purchases made at its retail stores.

Consumer Finance in India-Part 1

2009-04-02T01:28:00.000-07:00

Consumer finance in the most basic sense of the word refers to any kind of lending to consumers. In United States it refers to the branch that is lending the amount which is actually very low than the perfect credit. It is the part of retail banking. One of the best ways to get the unsecured loans is through the consumer finance. Through consumer financing one can easily get the loans and can meet the demands and the desires. The term includes the following mentioned activities and these are as follows:
• Loans
• Indirect Finance
A RECENT poll by Asia Money has ranked HDFC Bank as the number one bank in India in categories such as customer service, back-office or post trade finance, competitive and prompt spot pricing, forex options provider for non-Asian currencies, currency strategy provider and technical analysis. The latest issue of the Asian Bankers Journal ranks HDFC Bank at No 7 in the list of strongest banks.

Consumer finance opportunity in India is one of the best available anywhere in the world. Sixty-four per cent of our GDP is domestic consumption-based. We have the youngest population in the world, demographics are changing, types of jobs are changing, and reforms are turning up which will lead to further impetus to consumer dynamics.

In addition, our loan to GDP for consumer loan is 6 per cent; in most developed countries it is 100 per cent and in marginally developed countries it is 40 per cent. So consumer finance will continue to be a major growth area.

What Now

2009-04-01T20:24:00.000-07:00

The Tobin Tax :An international tax on foreign currency transfers

2009-04-01T12:11:00.000-07:00

A Tobin tax is the suggested tax on all trade of currency across borders. Named after the economist James Tobin, the tax is intended to put a penalty on short-term speculation in currencies. The original tax rate he proposed was 1%, which was subsequently lowered to between 0.1% and 0.25%.

Tobin Taxes are excise taxes on cross-border currency transactions. They can be enacted by national legislatures, followed by multilateral cooperation for effective enforcement. The revenue should go to global priorities: basic environmental and human needs. Such taxes will help tame currency market volatility and restore national economic sovereignty.

Opinions are divided between anti-globalizationists who applaud that the Tobin tax could protect countries from spillovers of financial crises, and pro-globalizationists who stress that the tax would also constrain globalization and dry up world liquidity.

A tax to curb speculation in foreign currency exchange is an innovative and fair proposal that will contribute to restoring democratic control over national economies. We should continue to pressure our government and the UN, IMF and World Bank to take steps to implement this measure as soon as possible. The tax should be administered by an accountable democratic structure such as could be found within the UN system, with the revenue collected used for genuine social development.

Unexpected, though qualified, support for the Tobin tax has come from the multi-billionaire speculator George Soros, who stated that, while the tax goes against his personal interests, he thinks that its introduction could have positive effects on the world economy. However, he advocates a variation to the Tobin tax: Special Drawing Rights or SDRs that the rich countries would pledge for the purpose of providing international assistance

RBI extends date for liquidity to fin companies

2009-04-01T02:11:00.000-07:00

The Reserve Bank of India (RBI) said that a fund run by lender IDBI would continue to provide liquidity support to non-deposit-taking finance companies until June 30.

Earlier, the central bank had said that this funding to finance firms would be provided until March 31.

In February, the central bank had appointed Industrial Development Bank of India Stressed Asset Stabilisation Fund (IDBI-SASF) to provide liquidity support to non-deposit-taking finance companies.

IDBI-SASF, which is a special purpose vehicle, would stop making fresh purchases after Sept. 30 and recover all dues by Dec. 31, the central bank said in a statement.

Invest in consumer research to make the most

2009-04-01T02:05:00.000-07:00

In recessionary times like these, it is wise for companies’ to invest in CRM and consumer research to know what the customer really wants. No doubt the prime focus would still be to attract maximum number of people to the store, but one cannot take customers for granted. In order to induce them to actually buy, it is advisable to sell the right product at the right price.

A recent report on retail realised by consultancy firm KPMG states that the current slowdown is expected to last 12 – 18 months. Discretionary spend has taken a beating and people are spending on the basic necessities. As it is evident from the sales breakup of the large retailers, value retail is paving way for lifestyle goods. Food retailing and FMCG would be the trendsetters for the coming season. In fact private label will be the leader, be it food or grocery or apparel as margins in these are very high. Private label penetration for emerging markets continues to be at 6% as against Europe’s 23% which has the highest penetration. This is precisely the reason why private label is growing the fastest (at 17%) in these emerging markets. Back home, Trent has the highest share of private label at 90%. Retailers have been offering discounts to liquidate slow moving goods and reduce inventory.

However all hope is still not lost. Attractiveness of India’s demographic and economic environment will continue to add momentum and the future prospects for retail expansion are still very attractive. Infact this period of uncertainty is seen as an important consolidation imperative for the industry.

Source: Images Retail report,2009

Plan your finances

2009-03-30T04:30:00.000-07:00

"Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give."

By,William A. Ward

Banks -All set to grap the open opportuinity with Nano in tune

2009-03-30T04:02:00.000-07:00

Banks are charging a differential rate for booking finance for the Nano with interest rates on booking finance being higher than auto loan rates for the car. The Nano, the eagerly-awaited Rs 1-lakh car from Tata Motors has become available for booking from March 23.

Bank of India — the latest lender to announce a package for funding the Nano — has already decided on booking finance rates. BoI’s normal auto loan rates, that become applicable once the car is hypothecated to the bank and delivered, would be around 10-11%. However, at the booking stage, ie, till the delivery of the vehicle, the bank will charge 12-12.5% interest.

Private banks price their loans in the range of 11.75-13% for financing of new cars.

State Bank of India and Punjab National Bank have already announced a tie-up with Tata Motors. Earlier, SBI had announced that it was freezing interest rates on loans for purchase of all new cars at 10% for the first year. PNB said it would charge between 10.50% and 11% for the Nano — 0.5% lower than its standard rates.

Many bankers, largely from the public sector, feel that the car has the capacity to open up vast new markets as it is targeted at people who never owned a car before. Since the focus is on affordability, they felt that cheaper loans will be more effective.

How Risk Free Is The Risk-Free Rate Of Return?

2009-03-26T12:22:00.000-07:00

The risk-free rate of return is one of the most basic components of modern finance and many of its most famous theories. The capital asset pricing model (CAPM), modern portfolio theory (MPT) and the Black-Scholes model all use the risk-free rate as the primary component from which other valuations are derived. The risk-free asset only applies in theory, but its actual safety rarely comes into question until events fall far beyond the normal daily volatile markets.

An article by Michael Schmidt looks at the risk-free security in theory and in reality (as a government security), evaluating how truly risk free it is. The model assumes that investors are risk averse and will expect a certain rate of return for excess risk extending from the intercept, which is the risk-free rate of return. Find details...

MFs slowly emerging from FII dominance

2009-03-26T12:14:00.000-07:00

If FII selling is blamed for the carnage in the last one year, increased buying by domestic mutual fund houses has seen the Indian equity market bounce back recently. Between March 12 and 23, mutual fund houses net bought equities worth Rs 1319 crore against Rs 1093 crore by foreign institutional investors. In the same period, the Sensex has risen to 9424 from 8343.

However, the MFs may be trying to shore up their balance sheet for year end consideration, and so the increased buying. This is also because they had been sitting on cash for too long. But does this suggest that MFs are gaining prominence in driving the indices? Domestic institutional investors have already started showing their dominance.

Given the expansion of mutual fund industry, domestic fund houses can play a vital role in driving the market in the next five years, experts feel. For the month of February, the AUM for mutual fund industry stood at Rs 5,00,973 crore.

Source:ET

What's your habit?

2009-03-24T12:42:00.000-07:00

"It's not your salary that makes you rich, it's your spending habits. "

By, Charles A. Jaffe

Find out the most trustworthy Indian company

2009-03-23T14:20:00.000-07:00

Ratan Tata’s Tata Group is the most trustworthy business house in India.This was found in a poll conducted among domestic investors. The trustworthiness is for financial reporting. This survey is in line with the previous survey conducted by Mint. Only difference is the Tata group companies were listed separately. In this case they were clubbed together .Because, in the group companies the DNA is already set. There won’t be much of a difference between Tata Chemicals and TCS in the way they operate.
10 Most trustworthy companies in India :

Tata group
Infosys
HDFC Group
L&T
Aditya Birla Group
Bharti Airtel
Sundaram/TVS Group
ICICI Bank
Mukesh Ambani Group
Anil Ambani group

However, the poll found that many companies may have resorted to window dressing their accounts, but on a smaller scale, others were of the opinion that the financial statements presented were of quality and are not necessarily tainted because of Satyam fiasco. (source) Satyam scam has not given one but two phrases so far. First one is the Hyderabadi discount and now window dressing.

PS : Hyderabadi discount is the discount that should be given by Hyderabad based companies to factor in the cooking. Read this ..

What best should be done

2009-03-21T02:05:00.000-07:00

Mr.Jhunjhunwala- the Pied Piper of Indian bourses

2009-03-20T19:48:00.000-07:00

Rakesh Jhunjhunwala is a Chartered Accountant by qualification but an investor / trader by profession. He is one of the most famous and respected equity investors in India and manages his own portfolio as a partner in his asset management firm, Rare Enterprises. He is tagged by the media as 'India's Warren Buffet' .For a man who purchased Tata Tea for Rs 5000 when he was only fifteen years old, Rakesh Jhunjhunwala has a total networth of ap-proximately Rs 6000 crore along with his wife Rekha Jhunjhunwala.

Mr Jhunjhunwala is a canny stock picker for long term investment and reputed for his eye on macroeconomics. Much like Mr Warren Buffet, he buys into the business model of a company and for judging the longevity and growth potential, he gives top priority to 'competitive ability', 'scalability' and 'management quality' of the enterprise. According to Mr Jhunjhunwala, believing in the vision and the beliefs of the entrepreneur and validating the risks that may not be perceived by the entrepreneur are the key success factors for an investor. The typical traits to look for while identifying potential multi-baggers are - low institutional holding, under-researched and general pessimism about the stock.

Mr Jhunjhunwala has managed to identify numerous multi-baggers in the past decade, notable being Praj Industries, Crisil, Titan, Nagarjuna and PSUs like BEML and Bharat Electronics, among others. He says -A good time to sell a stock is not based on any 'price' targets, but when the 'earnings' expectations have peaked or the business model has peaked or the valuations appear ridiculously unreasonable.

Look out for “What is the Big Man bullish on?” at http://www.theequitydesk.com/rakesh_jhunjhunwala.asp

The Great Depression (1929)

2009-03-20T12:52:00.000-07:00

When: October 21, 24 and 29, 1929

Where: USA

The amount the market declined from peak to bottom: A string of terrible days led to a more than 40% drop in the market from the beginning of September 1929 to the end of October 1929. In fact, the market continued to decline until July 1932 when it bottomed out, down nearly 90% from its 1929 highs.

Synopsis: Despite the Florida crash, Americans were as bullish as ever. The stock market was guaranteed to make everyone rich as the first world war had been won, and industrialization was resulting in previously-unimaginable luxuries.

Investment bankers, brokers, traders, and sometimes owners banded together to manipulate stock prices and get out with gains. They did this by subtly acquiring large chunks of stock between them and trading them between each other for slightly more each time. When the public noticed the progression of price on the ticker tape, everyone would buy the stock. So, the market manipulators would then sell off their overpriced shares for a healthy profit. On and on the cycle went as uneducated investors turned a profit by selling the manipulated, over-priced shares to someone who wanted to have a rising stock.

During the craze before the Great Depression (details) a number of academics were predicting a crash if things didn't “calm the hell down.” The twelve-year worldwide depression came and ended only with the declaration of war. This stands as the worst financial blow to the USA ever. The crash itself, though large in its own right, was nothing compared to the ensuing graveyard market and devastating depression.

(Source:Wikipedia & Investopedia)

On Deflation

2009-03-20T12:39:00.000-07:00

"The basic prescription for preventing deflation is straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place."

"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand.. a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers."

By Ben Bernanke

Pull yourself out of the confusion

2009-03-20T06:30:00.000-07:00

With inflation slipping down to 0.44% which is a scenario of negative inflation or deflation, the investors are sweating and pulling their pants up inorder to foresee the effects of the same on the economic activities.Inflation drops because of increase in productivity but this is not the situation now.It is because of the fall in demand that prices are falling.But yes if deflation grounds in the economy, the repercussions will be low demand, lower production and weak economic growth.These prevailing conditions will discourage investments.The real interest rate difference between nominal interest rate and inflation becomes very high, making funds costlier. As demand goes down, capacity utilization of manufacturing units declines. This discourages investment in capacity expansion.

With a strong hit, the performances of the companies are surely going to be worsen so the investors need to pre plan while making investment decisions in the deflationary environment.The rule of the thumb suggest that invest in those companies whose products or services are not much affected by fall in demand. So, companies operating in health care, telecommunication and utilities like electricity distribution could be good bet to invest. Services of these companies will remain in demand even if the economy slows down.

Companies operating in sectors like snacks and beverages, health care, utilities and telecommunications can be included in the portfolio as the decline in prices lead to increase in demand in such sectors.Companies with strong balance sheets, which do not have much debt on their books, can also be considered for investment.One has to be cautious and avoid investing in companies that operate in capital goods as the performance of such firms is definitely going to dip further.The real estate companies should also be avoided. In deflation, the general perception is that the prices will further fall resulting in postponement in the purchasing decisions.This will lead to a cash starved situation for the real estate.

Read the report by ET here..

Are toxic assets really toxic?

2009-03-19T12:34:00.000-07:00

Accountants record. They don’t analyze. There isn’t a right number and a wrong number. There are just useful numbers and useless numbers. In her book Dear Mr. Buffett, Janet Tavakoli quotes an email from Warren Buffett:

“I’ve looked at the prospectuses, and they are not easy to read. If you want to understand the deal you’d have to read around 750,000 pages of documents.”

A lot of people make the argument that these assets are not toxic at some prices. Theoretically, that’s true. If there’s value in an asset – at some deep discount to par – a high-risk asset can become a low-risk investment.These toxic assets are “meta-bets”. A low price is little help if there is inadequate cash flow or collateral built into the asset. A low price can’t fix an inherent flaw in an asset. If the cash flow generating potential of the asset is almost non-existent, the asset is essentially worthless.

A lot of these toxic assets were similarly structured. They were built to fail.A bad house is a good value at some price. A risky mortgage is a good value at some price. But “meta-bets” are trickier. They can suffer from the same sort of problem Buffett described with the very worst junk bonds – you can actually take a good asset, with good cash flows and then put so much debt on top of it that the only way you can fix the problem is by restructuring the debt. In such cases, a low price is no longer enough. The terms are the problem.

Can debt be a solution to the crdeit crisis?

2009-03-19T12:24:00.000-07:00

A nagging question which is haunting the government efforts to revive a dormant financial system especially in US: Can a credit crisis which was the cause of economy slowdown be solved with more debt? The economists have firmly answered a qualified NO to the situation. According to them, it will further worsen the situation and add to the deepening depression, nothing more than this. Then what should be the next move by the Govt. to recover the situation. The government should do its best to restore bank lending to prevent an even worse economic outcome.

U.S. Treasury Secretary Timothy Geithner was only the latest to proclaim what has now become an official mantra. Without credit, which he and others call the "lifeblood" of the economy, you can kiss recovery hopes goodbye. Basically the US economic system is critically dependent on the free flow of credit.

A huge part of the Treasury's economic rescue plan is based on reviving securitization. Experts widely agree that the public sector must enlarge its role during a time of crisis to ensure that the underlying momentum of the economy does not screech to an abrupt halt."In truth, not all economies run on credit. In a legitimate economy, it is not credit that fuels spending and investment, but simply income and savings," said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut. Prudent lending is a good thing. If creditors have cut back, it is because the risks associated with an environment of turbulence dictate that they should.

Sovereign Wealth Funds - Friend Or Foe?

2009-03-08T14:42:00.000-07:00

The relative size of each circle represents the size of the fund; bigger circles for larger assets. As you can see, most of the large circles are in the upper-left corner, where transparency is lower than average and strategic focus is higher than average. It should be the goal of current and future monetary authorities to encourage sovereign wealth funds to open their books up more and promote some level of transparency.

Sovereign wealth funds create headlines as cash-rich foreign nations look to make larger and more focused investments in the modern economies of the United States and Europe. It is becoming increasingly important to understand these funds because of the increasing amount of money they hold and the power and influence this can wield.

The top five largest SWF by assets (data as of February 2008)

Abu Dhabi Investment Authority (UAE) - $875 billion
Norway Government Pension Fund (Global) - $380 billion
Government of Singapore Investment Corporation - $330 billion
Saudi Arabia 1 (no official fund name) - $300 billion
State Administration of Foreign Exchange (China) - $300 billion

Read on to familiarize yourself with one of the largest and fastest-growing pools of capital in the world.

Rs 100 cr wiping out in every 5mins from Dalal street

2009-03-08T14:31:00.000-07:00

ET reports:After a whopping loss of over Rs 40,00,000 crore in 2008, the stock market is continuing its free-fall and investors have lost an average Rs 100 crore in every five minutes of trade in first two months of 2009. Cumulatively, the total investors' wealth has got eroded by about Rs 2,82,000 crore so far this year. However, the meltdown has been less severe so far this year, as compared to 2008 when an average of Rs 100 crore was wiped off in just two minutes of trade, as per an analysis of stock market losses during 2008 and first two months of 2009.

Taking into account a trading session of five hours and 35 minutes every day (markets open at 0955 hours and close at 1530 hours), an average of Rs 20 crore has been lost in every minute of trade so far this year. This average was, however, more than double at Rs 50 crore in every minuter of trade in 2008.

However, if we take into account the price-earnings ratio, the Indian market seems to have become a bit more expensive in the first two months of 2009. It had become cheaper by more than half during 2008 by this measure. The price-earnings ratio of the Sensex currently stands at 12.82, which is higher than 12.16 at the beginning of the year. However, it had fallen sharply during 2008 from 26.94 at the end of the previous year.

RIL-RPL merger- India's 10th largest M&A deal ever

2009-03-02T10:51:00.000-08:00

The all-share merger deal valued at about Rs 8,500 crore between the two Mukesh Ambani group firms, RIL and RPL, has become probably the 10th-biggest ever for the country and the first billion-dollar deal this year.The shareholders will get one RIL share for every 16 RPL shares - which will result into issuance of 6.92 crore new shares by RIL. This is the only billion-dollar M&A deal announced by an Indian entity so far this year. Prior to this, the biggest M&A deal for the year was Quippo Telecom's 49 per cent purchase in Tata Tele's telecom tower arm for 533 milllion dollar.

The biggest-ever deal involving an Indian company so far has been Tata Steel's mega takeover of European steel major Corus for $12.2 billion, followed by British telecom giant Vodafone's purchase of controlling stake in Indian mobile service provider Hutch Essar for about $10 billion. So far, M&A deals worth about four billion dollars are estimated to have been announced in 2009 so far, while in 2008 there were deals worth over 30 billion dollars.

Cowboy Marketing

2009-02-28T08:11:00.000-08:00

A slang term to describe a situation in which a company is unaware that a marketer hired to produce legitimate opted-in email campaigns is actually using mass spam emails to promote the company's stock. This is a very unethical practice because marketers are often compensated with stock options, allowing them to capitalize on the unfounded demand they create for the stock they are promoting.

This situation occurs when the marketer values his own interest over those of its client. Smart investors should not pay attention to spam emails and/or the stocks they promote. Buying these stocks will more often than not result in losing money because once the stock's price rises, the unscrupulous parties involved will cash out, causing it to plummet and leaving legitimate investors

Boomernomics

2009-02-28T07:54:00.000-08:00

Boomernomics is an investing strategy that involves buying equities directly related to the spending behavior of baby boomers (people born between 1946 and 1964).

Investopedia explains -- Boomernomics Areas such as biotech, healthcare and luxury cars are the kinds of companies that stand to benefit from this age group. People using the boomernomics investing strategy also invest in companies that offer products such as motor homes or dentures, which are geared toward aging or retiring consumers.

Reuters-Gold,high on safe-haven buying

2009-02-20T04:59:00.000-08:00

Gold futures continued their record-breaking spree as investors poured money into the safe-haven asset due to a deepening global recession, analysts said. The benchmark April contract witnessed an all-time high of Rs 15,780, before trading 1.81 per cent higher at Rs 15,735.

In 2008, gold soared to its year-high of 14,320 rupees, up 35.1 per cent from its 2007 close, before falling to 11,290 on Oct 24. Gold has more than doubled since 2004. ""Technical breakout has already taken place at 15,676 and there could be further technical buying," Rahman added. Buying is recommended on lower levels of Rs 15,690, with a target of 15,775 and with a stop loss of 15,630, Rahman added.

Interim Budgets and the business sentiments

2009-02-17T01:43:00.000-08:00

The interim budget failed to uplift the business sentiments and positivity in the market, particularly the IT industry and banking sector IT Industry:IT industry had big expectations with Interim budget. Prior to the budget presentation the IT industry was pointing at the need for extensions of Software Technology Parks of India (STPI), Export Oriented Units(EOU) schemes, Employee Stock Ownership Plans (ESOPs) and some more Standard Operating Procedures (SOPs) with tax benefits

Banking Sector:The Government did not give any benefits to the banking sector in this year’s interim budget rather the Government indicated that the cost of borrowing might go up.

Impact on Indian stock market: Indian stock market opened on a weak note and dipped further as the Interim budget was not able to meet expectations. Bank stocks were among the worst performers on the Bombay Stock Exchange. Banking index opened weak and saw further downtrend to about 4-5%. The market closed with:

Sensex: 9305.45 (down -329.29 points)

Nifty: 2848.50 ( down -99.85 points)

What's in store in the Interim Budget?

2009-02-17T01:35:00.000-08:00

Minister for External Affairs Pranab Mukherjee in the Lok Sabha has presented the Interim Budget 2009-10 in Lok Sabha today. While presenting the budget the Minister said India remains second-fastest growing economy in the world despite the global meltdown. Pranab presented the 6th Budget of UPA govt on vote of account, which was passed in the Lok Sabha. India's economy has slipped from a growth rate of about nine per cent in the past three years, but still looks healthy compared with most developed economies, many of which are in recession.

Here are the highlights of the Interim Budget 2009-10:
- Govt. focused on farms, jobs, fiscal devolution
-Govt spent Rs.70,000 crore on 37 infrastructure projects in 2008-09
-Govt may consider additional fiscal measures in budget
-Government will need to return to deficit targets after revival
-Govt to expand employment generation schemes
-Economy grew at 9% for three straight years
-Per capital income growth at 7.4% per annum for 4yrs

-Investment as percentage of GDP rose to 39% in 2007-08 from 27.6%
-Gross domestic savings rate at 37.7% during 2007-08
-Foreign trade at 35.5% of GDP during 2007-08
-Forecasts indicate 2009 may be worse than 2008
-Refinance to banks for long term credit to infra projects
-IIFCL to refinance 60% of commercial bank loans for PPP
-FRBM targets relaxed to boost consumption demand
-Mukherjee: Steps to bring back 9% growth needed at earliest
-Mukherjee: Growth rate of exports down to 17.1% in 9 months
-Mukherjee: Need to accelerate pace of policy reforms
-Plan allocation for agriculture increased by 300% in 08-09
-India got record $32.4bn FDI in FY'08
-Defence Allocation hiked to 141,703 crore, linking it to 26/11 Mumbai terror attacks

4 History-Making Wall Street Crooks :Part 2

2009-02-16T09:37:00.000-08:00

Michael Milken

Bernard Ebbers

In my previous post I have mentioned the two great criminals who had shadowed the Wallstreet and led to darkness.The other two Michael Milken and Bernard Ebbers are next in the list with the same trend but with different approach( they are truly called as smart zeroes)

The Junk Bond King: Michael Milken:He was doing nothing more than creating a complex pyramid scheme. When one company would default, he would then refinance some more debt. Both Milken and Drexel Burnham Lambert would continue to make their fees as a result of this behavior. The company made at least half of its profits from the work of Milken. Later on, Milken also started purchasing stock in companies that he knew would become potential takeover targets. Boesky, when charged with insider trading in 1986, helped implicate both the firm and Milken in several insider trading scandals. This led to criminal charges against the firm and more than 70 charges against Milken, who pleaded guilty, was sentenced to 10 years in prison and paid $1 billion in fines.

The Financial Statement Fraudster: Bernard Ebbers was the CEO of a long-distance telecommunications company called WorldCom. Over a six-year period, the company made 63 acquisitions, the largest of which was MCI in 1997. All of these acquisitions created problems for the company inasmuch as it was difficult to integrate the old company with each new one. To keep earnings growing, the company would write off millions of dollars in losses it acquired in the current quarter and then have smaller losses going forward to create the perception that the company was making more money than it really was. When WorldCom filed for bankruptcy, it admitted that it inappropriately booked the losses from its acquisitions from 1999 to 2002. Ebbers also took personal loans from the company. He resigned as CEO in April 2002 and was later convicted of fraud, conspiracy and filing false documents with the SEC. He was sentenced to 25 years in prison

There have been criminals who have tried to disguise themselves as honest business people. Many of these crooks rose quickly to power only to have a hard crash landing in the end.

4 History-Making Wall Street Crooks: Part 1

2009-02-16T09:28:00.000-08:00

An article by Chris Seabury reflects on the interesting facts revolving around the criminals who had their shares in the Wall Street.According to the author, to fully understand the impact of these criminals on financial history, we must examine the individuals themselves, what they did and the legacy their misdeeds has left behind. While no two are alike, what these men share is the lasting effects of their crimes, which are still felt by Main Street many years later. earticle examines four of the most famous and unscrupulous Wall Street criminals: Richard Whitney, Ivan Boesky, Michael Milken and Bernard Ebbers.

The Unlucky Gambler: Richard Whitney was the president of the New York Stock Exchange (NYSE) from 1930 to 1935. On October 24, 1929 (Black Thursday), acting as an agent for a pool of bankers, he bought shares in many companies, creating a dramatic turnaround in the market. This caused him to be falsely hailed as a hero to the market, and did little to prevent its inevitable crash five days later. His fraud became perverse when he looted the NYSE's Gratuity Fund, which was supposed to pay $20,000 to each member's estate upon death.After an audit discovered the crime, he was charged with two counts of embezzlement and sentenced to five to 10 years in prison. As a result of his misdeeds, the newly formed Securities and Exchange Commission (SEC) set caps on how much debt firms can have and separated customer accounts from the property of brokerage companies.

The Market Manipulator: Ivan Boesky career on Wall Street began in 1966 as a stock analyst. In 1975, he started his own arbitrage firm, and by the 1980s, his net worth was estimated to be in the hundreds of millions. Boesky looked for companies that were takeover targets. He would then buy a stake in those companies on speculation that news of a takeover was going to be announced, then sell the shares after the announcement for a profit. Throughout the 1980s, corporate mergers and takeovers were enormously popular. Before the deals were announced, the prices of the stocks would rise as a result of someone acting on inside information that a takeover or leveraged buyout (LBO) was going to be announced. This is a sign of illegal insider trading, and Boesky's involvement in this illegal activity was discovered in 1986 .Boesky was charged with stock manipulation from inside information on November 14, 1986. He agreed to pay a $100 million fine and serve time in prison. He was also banned from trading stock professionally for life.

Is Corporate Social Responsibility Responsible?

2009-02-16T09:23:00.000-08:00

The concept of corporate social responsibility deserves to be challenged. It seems that political correctness has obfuscated the important business points. It is absolutely correct to expect that corporations should be “responsible” by creating quality products and marketing them in an ethical manner, in compliance with laws and regulations and with financials represented in an honest, transparent way to shareholders. However, the notion that the corporation should apply its assets for social purposes, rather than for the profit of its owners, the shareholders, is irresponsible.

The corporation’s goal is to act on behalf of its owners. The company’s owners--its shareholders--can certainly donate their own assets to charities that promote causes they believe in. They can buy hybrid cars to cut back on fossil fuel consumption or support organizations that train the hard-core unemployed. But it would be irresponsible for the management and directors of a company, whose stock these investors purchased, to deploy corporate assets for social causes. Read more

Humorous but True

2009-02-14T06:52:00.000-08:00

"Never base your budget requests on realistic assumptions, as this could lead to a decrease in your funding."

— Scott Adams, Dilbert

Swiss banks to announce massive losses--

2009-02-08T12:08:00.000-08:00

ET reports: Two of Switzerland's largest banks ,UBS and Credit Suisse, are set to announce combined losses for 2008 of 29 billion Swiss francs. According to the report, UBS will announce an annual loss of 21 billion Swiss francs (€14bn, $18bn), the largest in Swiss history and reflecting the fact the company was one of the banks hardest hit by the US subprime loan crisis. Last November, UBS posted a net profit of 296 million Swiss francs for the third quarter following a year of losses, but warned that a renewed loss was looming for the following quarter. Under a rescue plan unveiled in October, the Swiss government injected six billion francs in new capital to UBS and lent $54bn to the bank to transfer its non-liquid assets into a separate fund.

The massive spread of so-called "toxic" assets -- mainly linked to financial instruments now worth very little because of the US home-loan crisis -- throughout the global banking system is at the core of the crisis. Sonntag also reported that UBS would announce "5,000 to 8,000 new job cuts" adding to an earlier decision to cut 9,000 positions.The German language daily also reported that Credit Suisse would announce a loss of eight billion Swiss francs for 2008, althought the bank is not expected make any further job cuts.

World's Top 10 wealthiest CEOs--

2009-02-06T06:57:00.000-08:00

1.Warren Buffet -stake worth $35.9 bn
2.Larry Ellison-($19.7 billion)
3.Mukesh Ambani-with $16.8 billion
4.Lakshmi Niwas Mittal
5.Bernard Arnault-stake worth $12.2 billion
6.Anil Ambani-worth around $9 billion
7.Abdul Aziz Al Ghurair-$7 billion and
7. Steve Ballmer-($7 billion)
9.Sunial Bharti Mittal-$6.9-billion stake
10.Tadashi Yanal-stake worth $6 billion

Mr.Karnik - the chairman of Satyam Board

2009-02-06T06:48:00.000-08:00

Finally the board of directors of Satyam has appointed former NASSCOM chairman Kiran Karnik as the chairman of the board. The government initially appointed a three-member board with Mr Karnik, HDFC chairman Deepak Parekh and former Securities Appellate Tribunal chief C Achuthan as members. It was expanded later with the induction of three more members, CII chief mentor Tarun Das, former ICAI president TN Manoharan and LIC’s S Balakrishnan.

Karnik also serves on the board of other firms, including BPO firm EXLService Holdings. His appointment to the Satyam board had earlier led to concerns over potential conflicts of interest, but it was later clarified that EXL and Satyam don’t compete with each other. Apart from EXL, he also serves on the advisory board of venture capital firm IDG Ventures India.

IPL player pricing: Dhoni worth $1.5 mn !!

2009-02-04T01:26:00.000-08:00


The Indian Premier League (IPL) has changed the face of Indian cricket, drawing huge audiences, corporate biggies, film stars and ravishing cheerleaders from abroad. A sensation in itself, it intrigued minds at the country’s premier management institute by its pure economics. ET reports:Professor Satish Deodhar and fellowship student Siddhartha Rastogi at the Indian Institute of Management, Ahmedabad (IIM-A) are jointly working on a paper to figure out the economics of this cricketing revolution. The paper, Player pricing and valuation of cricketing attributes: Exploring the IPL Twenty20 Vision, was recently uploaded on the institute’s official website. Deodhar said, “The study aims to find what implicit process of valuation may have occurred in deciding the final bid prices of the players, when team owners bid for cricketers for a total of $42 million. Given the data on final bid prices, a host of cricketing attributes of the players, and other relevant information, we try to understand which attributes seem important and what could be their relative valuations.” The duo hopes this study will facilitate better understanding of player price formation, offer benchmark estimates for bidding for new players and underscore the predictive value of such data driven analysis. This season, Dhoni’s charisma and association is expected to work wonders with actresses. Andrew Symonds could be a crowd-puller due to the controversies he has been in, especially in the Indian context. Valuation estimates of important player attributes: An Indian player, on an avg, fetches a premium of $203,156 over foreign players A half century in any form of ICC approved match fetches $2683 An increase in T20 batting average by 1 run fetches $4658 One more stumping in any form of ICC approved match fetches $2596 An additional wicket in any form of ICC approved match fetches $377

Mutual Fund industry assets up --

2009-02-03T03:31:00.000-08:00

Source:ET

The Indian Mutual Fund industry is on front foot once again. The industry’s assets under management (AUM) have risen by about 9.5% in Jan ’09 vis-à-vis Dec ’08. This is the second consecutive monthly rise in the AUM after a series of downfalls witnessed in the last quarter of 2008. With an asset base of Rs 4,60,949 crore, the industry may still have a long way to go to regain its highest absolute peak ever of Rs 6 lakh crore. LIC Mutual Fund is once again the biggest AUM gainer in percentage terms. Other asset management companies (AMC) to have recorded significant rise in assets include IDFC, DWS Investments, Birla Sun Life, Tata, Principal, ICICI Prudential and Kotak. Each of these AMCs has recorded an increase of over 10% in their AUM.

While Reliance continues to be the largest player of the industry with an asset base of Rs 76,168 crore, followed by HDFC at Rs 51,420 crore, there has been a re-shuffling for the third position. ICICI Prudential has once again overtaken UTI to be the third largest fund house of the country.

Tax-free Dividendsnow for shareholders !!

2009-02-03T02:44:00.000-08:00

At a time when returns from the markets are tough to come by and expectations are low, a select band of companies have announced tax-free dividends for its shareholders. The list includes a host of PSU companies like SAIL, GAIL, Concor and Nalco, and also private sector companies like Cummins, Financial Technologies, Dabur and Crompton Greaves. While these companies have mostly announced interim dividends for the current financial year, since this is an attractive way of rewarding investors at a time when a large number of these investors may exit their holdings.

Also analysis based on historical stock price movement have shown that companies offering high dividend yields in a bear market tend to give superior capital appreciation in a bull market. However, market veterans pointed out that in reality not too many retail investors look at annualised dividend yields while buying into a stock. The best strategy is to look at the saleability of a stock before buying into such a stock. At times illiquid stocks also offer high dividend and investors buying those scrips because of such attractive payouts are stuck.

Christmas tree---

2009-02-02T03:41:00.000-08:00

Christmas celebrations are long gone and you may be thinking what do I have in store for it now.Well, I am talking of an options trading strategy that is generally achieved by purchasing one call option and selling two other call options at different strike prices,which is termed as Christmas Tree in the world of finance. And the reason behind the term is when drawn structurally, the strike price of the long option is located below the two successively higher written calls and loosely resembles a Christmas tree.

Investopedia explains Christmas Tree...
This strategy is used when an investor believes the stock is going to make a move higher. It is a variation of the ratio spread, so a significant upward move in the stock price will result in a very large loss due to the extra short call. The staggered strike prices for the written calls in the Christmas tree strategy reduce the amount of loss incurred when the share price rises more than expected, unlike the ratio spread, where the call options have the same strike.

The Layoff Payoff: A Severance Package

2009-02-02T03:23:00.000-08:00

Some job hunters may know how to negotiate their salaries and benefits when they are hired, but may not realize that when terminated from a job, they can negotiate how they depart. Most employers offer a severance agreement that outlines the financial terms on which the employee will leave the company. Negotiating a suitable agreement involves considering how to conduct yourself during discussions with the employer, the cash and benefits you need to survive and whether to hire legal help. Negotiating this accord can ease your transition to a new job, relieve stress and possibly provide a nice financial cushion.

However, a monetary arrangement isn't the only topic to discuss during this deal. Continuation of insurance benefits, assistance finding another job and other perks can also be bargained for. Your power in this negotiation comes from the fact that companies don't want you to bad-mouth them or sue and they may not want you to work for or share secrets with their competitors.Read more...

Debt funds--Bonds a respite to investors!!

2009-02-02T03:08:00.000-08:00

The bond investors have never seen such good times like the last year. But no one knows how long the good times will last. Income funds—those that invest in long-term securities i.e., bonds—have offered solace in times when people are asking for no more than preservation of the capital invested . Most of these funds have delivered more than 20% returns last year. The corpuses of bond funds of the major fund houses have gone up by at least ten times in last few months. There is a feeling that soft interest rates would be here for a while and this is one thing that bonds love.

Inflation is off its peak, thanks to a fall in prices of crude oil and commodities. Interest rates may fall further.GDP growth that was around 9% last year has fallen to 7.6% in second quarter of the current financial year. Add to this the lull that has engulfed the equity markets which is showing no signs of receding. A money manager has to invest somewhere, right? So, after the fall in stock prices, bonds are his next best bet.

When yields fall, bond prices rise. Most fund mangers feel that with interest rates in America nearing zero, global investors would make a beeline for higher yielding securities like Indian bonds. This could lead to a fall in yields, enabling bond funds to post good returns. But it is only a matter of time, before the focus comes back on equities.

Asset Allocation--

2009-02-02T02:22:00.000-08:00

Every rational investor seeks for an efficient portfolio(highest return from a given level of risk), in theory we come upon a certain percentage allocation for equity-based and fixed income assets that,put together, should generate a return commensurate with the amount of risk we are comfortable with.Investors are generally categorized as risk averse or risk takers.In reality,there are many grey shades along the risk-return spectrum and re-examining the investor's asset allocation defines his place on the spectrum.While asset allocation may not be the sole driver of long term performance,but it does define the range of returns and volatility within which a portfolio is expected to perform.Risk return clustering occurs at each level of asset allocation.WIth an increase in the proportion of equity in the portfolio,the dispersion of return as well as risk increases(due to the volatility of equity returns).Of course the risk and voltality can never be predicted but better the quality of the fund selection,higher the probability to get better returns.

Riak profiling is major and important step whereby an investor's capacity for taking risk is fleshed out and articulated and many investoors would find that that thier actual portfolio is not in line with their expectations.By modifying the ratio of fixed income to equity an appropriate risk return profile can be attained.

Asset allocation isn't a one time phenomenon.An investors requirements will naturally change with age ,income level etc. and these changes will be reflected in the asset allocation.Yeah but for long term investments definitely it remains unchanged.The benefits of risk profiling and asset allocation becomes apparent over a period of time for both investors as well as advisors.An ideal case orf efficient portfolio is a hypothetical construct that a few can achieve in the real world.But it bring investors as close as possiblle to their own best case scenerios if not the ideal ones.It also helos in cementing long-lasting customer relationships.

Investments available to NRIs--

2009-01-28T12:44:00.000-08:00

The government gives non-resident Indians (NRI) the opportunity to open rupee-dominated accounts in India for repatriating funds. The most popular among these are the NRE and NRO accounts. Non-Resident Indians (or NRIs) are treated as a special category of investors, given their Indian antecedents and their growing importance as a significant source of foreign capital in India. The government including regulators like the Reserve Bank of India and SEBI have been formulating and regulating investments by NRIs in Indian securities. It is therefore imperative for NRIs to understand the rules that would have bearing on their investment-making process.

NRIs can invest in shares and convertible debentures of Indian companies listed on NSE/BSE under the Portfolio Investment Scheme (PIS) route.Under this route, an NRI is permitted to invest up to a maximum of 5% of the paid-up share capital / value of each series of convertible debentures of listed Indian companies on repatriation and non-repatriation basis. The aggregate investment by all NRIs cannot exceed 10% of the paid-up share capital / value of each series of convertible debentures of the company. The aggregate ceiling of 10% can be raised to 24%, if shareholders of the Indian company pass a special resolution to that effect.

NRIs may also, without any limit, purchase on non-repatriation basis dated government securities, treasury bills, units of domestic mutual funds, units of money market mutual funds. NRIs are not permitted to make investments in Small Savings Schemes including PPF.

Another indirect mode of investment available to NRIs is by investing in India-focused offshore funds that invest as Foreign Venture Capital Investor (FVCI), Foreign Institutional Investor (FII) or Foreign Direct Investor.

Economic Crisis & Satyam Saga : Boon or Bane for India

2009-01-19T07:26:00.000-08:00

It may sound cruel to say this, but the current economic crisis in the West might have brought some unintended benefits to India. This is best illustrated by the case of Satyam. Former chairman Ramalinga Raju has already confessed to having cooked the books, and shown vastly inflated profits and cash.

This confession letter was sent on January 7 to his Board as well as the whole world. The letter came two weeks after an aborted attempt by him and his Board to inject $1.6 billion of Satyam’s cash into a real estate company owned by his family. Investors were upset, and unleashed their fury by selling Satyam stock, destroying several billion dollars of stock value.

Hastily, the company reversed its decision. Subsequently, we learnt that Raju and family had pledged their Satyam shares for huge loans, possibly to make investments in real estate. As the stock market crashed, Satyam shares crashed too. And since these shares were kept as collateral with lenders, they wanted more collateral from Raju and family. Or just cash. Nothing was forthcoming, and hence lenders were forced to liquidate the collateral (which was already degraded in value).

Extension of 5-yr tax holiday to 5-star hotels--

2009-01-18T08:29:00.000-08:00

ET reports: Industry body Assocham has asked the government to extend tax holiday for all hotel categories, including five-star, specially in the national capital keeping in mind the requirements for the 2010 Commonwealth Games. In the Budget of 2007-08, five-year tax holiday was given to two, three and four star hotels and convention centres with a seating capacity of not less than 3,000 in the NCR. "This facility needs to be extended to all categories of hotels, including five-star hotels, so that their capacity expansion takes place at a desired speed to accommodate large number of tourists expected during 2010 games," it said.

The hotel infrastructure, specially in five-star category in Delhi and NCR where majority of tourists are likely to stay, is still not taking off and therefore to speed up their capacity, five years tax holiday schemes requires to be extended, it added. As per estimates, the Commonwealth Games in 2010 is expected to attract 50,000 foreign visitors to Delhi and about 30,000 rooms would be required to accommodate these visitors. The National Capital Region, currently, has about 10,500 rooms and an additional 15,000 to 18,000 rooms are required to take care of the foreign tourists during the event.

Cramdown--

2009-01-18T08:15:00.000-08:00

Cramdown is not a word that appears anywhere in the Bankruptcy Code. Yet it is a well-known and often employed bankruptcy concept, which means, simply, obtaining confirmation of a Chapter 11 plan of reorganization over the objection of one or more dissenting classes of creditors.Cramdown allows the bankruptcy courts to modify loan terms subject to certain conditions in an attempt to have all parties come out better than they would have without such modifications. The conditions are mainly that the new terms are fair and equitable to all parties involved.

During the financial crisis of 2008, cramdown was used to help troubled mortgage borrowers by allowing the bankruptcy courts to alter mortgage terms, subject to certain conditions, in an attempt to keep borrowers from foreclosure when one or more tranches of the mortgage did not agree to loan modification.

Cramdown is accomplished by convincing the court that a plan is fair and equitable even though one or more creditors have voted against it. For a secured claim, a plan may be found to be fair and equitable if, at a minimum, it provides that the lender will retain its lien and receive deferred cash payments equal to the present value of the collateral securing the loan (i.e., a market rate of interest).

Samurai-- the market or the battlefield ??

2009-01-16T09:32:00.001-08:00

Samurai market is usually used by non-residents of Japan, with a reference to the iconic Japanese warrior - the samurai. It is the slang term for the stock market in Japan. This market is where non-Japanese entities can launch public bond issues to raise yen finance.Issuance in the samurai bond market has more than tripled over the past several years. Some observers have attributed this growth to a systematic underestimation of credit risk in the market.

This Tokyo Foreign Bond Market(the so-called Samurai market)was created in 1970,with a public offering of yen bonds by the Asian Development Bank. Japan was then one of the largest debtors of the World Bank. Supported by consecutive current account surpluses, the government decided to create the Samurai market, graduating from the World Bank and becoming a capital-exporting country.

Japan's Samurai bond market is in danger of degenerating into a junk market. The traditional dignity of the Samurai title is being threatened by the influx of dubious issues and speculative instruments into the Tokyo market.

Industry's loss is academia's gain...

2009-01-16T06:56:00.000-08:00

ET reports: Universities which until last year lost out to corporates when it came to hiring IITians can now able to get the candidates they wanted. Among the many universities shopping for faculty members is the Alfaisal University in Saudi Arabia. It has landed up at IIT-Bombay, Kanpur, Chennai and Delhi and offered an annual compensation of 1.3 lakh Saudi riyals (approximately Rs 17 lakh), apart from housing and other facilities, to students who will soon complete their master's or PhD. "Several universities from across the globe have invited our students to take up teaching assignments. About 40 to 50 PhD and master's students have taken up such offers,'' said B K Mathur, placement chairman at IIT-Kharagpur.

In contrast to the annual compensation of around Rs 19 lakh that international universities offer, at most IIT campuses an Indian educational institute recruiting students for a teaching position typically offers an annual salary of Rs 7 lakh. Texas A&M University, seeking to recruit for its Qatar campus, is scouting IIT-Madras, as is the Hyderabad-based Indian School of Business, to recruit engineers for research activities. Lt Col (Retd) Jayakumar, deputy registrar (training and placement) at IIT-Madras said that so far, "ICFAI Institute of Science and Technology has recruited 19 students and the two Middle Eastern universities are likely to declare their selection lists soon.'' IIT-Roorkee's placements chairman P K Jain said some private Indian universities like ICFAI and Thapar University, Patiala, were also among campus recruiters. . In fact, soon the IITs themselves will get busy recruiting faculty for the new institutes they are mentoring. Already, IIT-Guwahati has recruited 19 PhD qualified faculty members for the institute it is mentoring, IIT-Patna. Other mentor IITs will soon begin recruiting. None of them, however, will be able to match petro dollar salaries.

Foreign Direct Investment--

2009-01-14T11:23:00.000-08:00

Foreign direct investment refers to the investment made by an entity in an enterprise located in a different country. By virtue of making this investment, the investor gains a certain degree of influence or control over the management of the enterprise.FDI can be both outward and inward. In the case of inward FDI, the investor can enter the country by incorporating a company, either by getting into a joint venture with an Indian company or setting up a wholly owned subsidiary. Alternatively, he could retain the status of a foreign company and simply set up a liaison, project or branch office in India.

Benefits:FDI comes with benefits for both the investor and the economy where the investment in made. For the investor, this could be a chance to tap markets where he could make profits. For the economy, FDI has provided a muchneeded push in terms of injecting liquidity apart from bringing in better technology, creating more job opportunities and so on.

Difference between FDI & FII :The most visible difference would be that while FDI includes investment directly into a particular company. Foreign Institutional Investors (FIIs) are known to invest either in the primary or secondary markets, in stocks, mutual funds or via instruments such as participatory notes, dated government securities , commercial papers etcetera. There is also a greater perception of stability that is associated with FDI. In periods of market instability , FIIs are known to beat a hasty retreat leaving the market in a lurch.

Source:ET

India's Top 5 Accounting Scandals--

2009-01-11T14:21:00.000-08:00

Recently we all have been hearing about the Satyam Scandal and its impact on the image of Indian IT industry.Here below are the India's top 5 Accounting Scnadals that have shocked the Indian market.

1. CRB Capital Markets Limited (1996) ,Amount-Rs 1200 crore

Fraud: Chairman Chain Roop Bhansali, was accused of siphoning off Rs 12 billion in the CRB scam. CRB was accused of using its SBI accounts to siphon off bank funds, claiming it was encashing interest warrants and refund warrants.

2.ITC – Chitalia's Fera Violation(1996) Amount - $80 million.

Fraud: In June 1996, ED started FERA investigation into the export transactions between ITC and the Chitalia group of companies (EST Fibres) during 1990- 1995.

3.Home Trade (2002) Amount - Rs 6000 cr

Fraud: Eight co-operative banks, like Valsad People's Co-operative Bank and Navsari Co-operative Bank from South Gujarat, collectively lost over Rs 80 crore due to bad investments by the Home Trade. It was also linked to Rs 82 lakh forgery in a central government undertaking EPF scheme.

4.DSQ Software (2003) Amount - Rs.595 crore

Fraud: Dinesh Dalmia's Company DSQ Software was accused of dubious acquisitions and biased allotments made in the year 2000 & 2001.

5.Nagarjuna Finance (2003) Amount : Rs 98.37 crore

Fraud: Executives of Nagarjuna Finance, an promoted by KS Raju, was accused of failure to return about Rs 100 crore to depositors in 1997-98.

Young men are worst spenders,not women--

2009-01-10T07:03:00.000-08:00

It's always thought that the female shoppers were the ones who doled out money on the latest fashion and trends.Well, then to tell you it is certainly not correct, for it’s the guys who are the worst spenders, says a survey. Debt collection company, Dun & Bradstreet, has revealed that young men are increasingly finding themselves in trouble with debt.According to its survey, which looked at the latest September quarter debt statistics, disclosed that males in particular are getting under huge piles of debt.(Source: ET)

It has also been found that over fifty per cent of all debtors were under 34 years of age. To avoid an increase in over-indebtedness in the New Year, it is absolutely critical that consumers must pay close attention to their finances.

Standing at over 1300 dollars, the company observed that the average debt value for men was 28 per cent higher than their female counterparts.The study also revealed that men decreased their average debt by 1.2 per cent, which was still small compared with women who cut their average debt size by more than three times that level, or 3.8 per cent.

Inflation slides to 5.91%--

2009-01-09T02:52:00.000-08:00

Inflation fell for the ninth consecutive week on Friday to a 10-month low of 5.91% for the week ended December 27, owing to cheaper food and manufactured items. It stood at 3.83% a year ago. The index of food articles group declined by 0.7% as prices of jowar fell by 5%, fruits and vegetables by 3%, eggs and bajra by 1% each. In case of manufactured goods, imported edible oil became cheaper by 1%, polyester fibre by 2% and newsprint by 1%. The index of fuel remained unchanged and also there was no movement in the prices of cement and iron and steel during the week. The inflation has been declining after it touched a peak of 12.91 per cent in August last year.(Sorce:TOI)

RBI was compelled to raise the repo rate to a seven-year high of 9 per cent. The RBI now expects the inflation rate to be significantly lower than its March-end target of 7 per cent, while most analysts expect it to be close to 2 per cent. The wholesale price index is more closely watched than the consumer price index, which is published monthly, because it covers a higher number of products and is released weekly.

Satyam Accounting Scandal a big blot on Indian IT industry--

2009-01-08T09:51:00.000-08:00

An accounting fraud was the last thing investors in India would have imagined as a trigger for a reversal in investor sentiment. The Satyam accounting fiasco has come at a time when the sentiment is already brittle and is likely to affect the image of Indian companies among foreign portfolio investors. The accounting scandal that caused Satyam Computer Services Ltd. to collapse is shaking investor confidence in Indian stocks, putting an end to the market’s best start since 2000. This unfortunate development will be a short-term negative for market sentiment. The country's fourth largest IT company - after TCS, Infosys and Wipro - was for several years cooking its books by inflating revenues and profits, thus boosting its cash and bank balances; showing interest income where none existed; understating liability; and overstating debtors' position.

India’s Sensex index tumbled 7.3 percent (on Wednesday), led by a 78 percent plunge in Satyam. Satyam American depositary receipts fell $8.42, or 90 percent, to 93 cents before the opening of the New York Stock Exchange, which then halted trading in the stock.

The Satyam scandal is spurring concern that India’s corporate governance is inadequate days before the earnings reporting season starts. What is SEBI for if it can't monitor business entities? Worries of thousands of employees and investors who have been left in crisis needs to be redressed immediately. The resignation of Satyam chairman Ramalinga Raju after confessing to have forged and inflated the company's accounts for years has sparked fears among the Indian IT firms. This is shocking, painful and a good warning for other companies in the sector.

Uses for Bonds--

2009-01-08T07:34:00.000-08:00

Individuals and institutions can use bonds in many ways: from the most basic, such as for preserving principal or saving and maximizing income, to more advanced uses, like managing interest-rate risk and diversifying a portfolio. Bonds can also be an afterthought, especially during flight-to-quality events, when investors flock to the safest bonds they can find to weather financial storms. Bonds provide a predictable stream of coupon income and their full par value if held to maturity.

Top six ways that you can put bonds to work for you:

1. Preserving Principal

2. Saving

3. Managing Interest-Rate Risk

4. Diversification

5. Expense Matching/Immunization

6. Long-Term Planning

To know in details about each of them, Read here...

The Cockroach Theory !!

2009-01-07T07:25:00.000-08:00

"Cockroach Theory" --You hear about cockroaches, you see them, but do you really know the theory related to them?

The 'Cockroach Theory' is a market theory that means that "Bad news tends to be released in bunches" in the same way as seeing one cockroach is usually evidence that there are many more lurking unseen.For example, Bad news from one company in a sector may indicate worsening conditions in the sector, which will therefore mean more bad news can be expected from other companies in the sector. In other words, the fact that one comapny (one cockroach) faced financial problems indicated that many other similar businesses were likely to face the same issues.

Similarly, in the credit market, “once a few problems emerge, investors assume there are many more to come,” the FTN analysts write. “Investors have to be sensitive to credit because nothing else will destroy earnings and capital given leverage inherent in bank balance sheets….”

The name "cockroach" is used for this theory because cockroaches travel in large groups and usually are not looked upon kindly.

Indian economy tops optimism list--

2009-01-06T00:57:00.000-08:00

India has regained top slot in optimism among privately held businesses for 2009. While optimism amongst privately held businesses (PHBs) around the world slumped by 56% over the last 12 months.

Despite raging pessimism, the survey found that PHBs from 11 countries remained optimistic about the outlook for their economies, with India leading this group (+83%), and Botswana (+81%) with Brazil (+50%) also emerging on the top. Japan (-85%) and Spain (-65%) were the most pessimistic. It is the first time that pessimists have outweighed optimists about the outlook for their economy .Of the four largest trading nations, PHBs in the United States and mainland China, who together contribute over 32% of global GDP1, scored their optimism at -34% in the United States and +30% in Mainland China. Similarly, Japan and India (collectively contributing over 11% of global GDP) scored their optimism at -85% and +83% respectively. (Source:ET)

When asked to identify the most significant factors causing most concern for their business, PHBs in 33 out of the 36 economies cited a fall in consumer demand, while citing a shortage of business credit as a secondary concern.

Filter rule-- A trading strategy !!

2009-01-05T04:10:00.000-08:00

Filter rule is one of the trading strategies that benefit traders from the price movements of the stocks and fall under serial correlation strategy. A technical trading rule in which an investor buys and sells stocks if their price movement reverses direction by a minimally acceptable percentage.

Filter rules are created from analyzing the historical price trends of a security. The assumptions that is followed in this trading is that price changes are serially correlated and emerges from price momentum theory, i.e., stocks which have gone up strongly in the past are more likely to keep going up than go down.

So in conclusion, this strategy may work provided each time your bets are good. However, a good and justified way of making money from this strategy is through efficient money management. Remember, if you want to follow this strategy be prepared to get wiped off completely, and be ready with large amout of money. Evidence has suggested that filter rules are rarely successful in creating profits for the investor.

Artbitrage funds have a greater scope in 2009--

2009-01-04T09:16:00.000-08:00

If you are interested in investing in equities but fear the market volatility, the smartest way will be to invest in arbitrage funds. These mutual funds are the best performing funds among the equity category in 2008. In fact, with uncertainty still haunting the financial market, these funds are expected to create value for investors in 2009. The higher the volatility, higher the arbitrage opportunity .But investors not familiar with this type of scheme might just end up thinking that these are just other equity-oriented schemes with a different name. However, this is not so and rather it is a type of income scheme. These funds take advantage of the arbitrage opportunities between the cash and the futures market to generate fixed income.

Such funds are better suited for investors who want low risk profile funds but expect decent returns. What leads (or rather misleads) everyone to believe that arbitrage funds are risk-free is that, in arbitrage strategies, both the buying and selling transactions exactly offset each other, thus making it immune to the market fluctuations. But uncertainty prevails in almost all investment schemes and these funds are no exception.The equity market in 2008 has given a lot of opportunities for arbitrage and mutual funds have been able to capitalize on that.

In India, a host of AMCs, including SBI, JM Financial, Kotak, UTI and IDFC, offer such funds. In the last 12 months, the average returns from arbitrage funds are around 8.8%. Scheme-wise, arbitrage funds such as UTI Spread Fund and HDFC Arbitrage Fund have given a return of 10.57% and 9.37%, respectively.

As far as tax treatment is concerned, since funds are largely invested in the equity arbitrage funds attract a short term capital gain tax of 15%. But if you hold it for more than a year, you are not liable to pay any tax. For tax purposes arbitrage funds are treated as equity funds. Hence, they enjoy lower tax vis-à-vis debt funds.

There is no denying that arbitrage funds are relatively less risky as compared to pure equities. However, to slot them as "risk-free", amounts to mis-representation. Arbitrage funds do have an element of risk; so investors who are being told that arbitrage funds are less risky have been misled.But all funds in this category have in the past one year or so outperformed their benchmarks by a convincing margin and there is greater scope for introducing these products in the coming days. Thus, the investor community should take to this concept more seriously.