ETF

Introduction :What do VIPERS, SPIDERS, WEBS, DIAMONDS and CUBES have in common? Well, they are all Exchange Traded Funds. VIPERS stands for Vanguard Index Participation Receipts), SPDRs is Standard & Poors Depository Receipts, pronounced "SPIDERS"), CUBES is the name given for QQQ (called so because of its three 'Q's), and tracks the technology-laden NASDAQ 100 stocks. Also, they are a new addition to the vocabulary of the Indian investor in the domestic financial markets and a new species in the kingdom of the innovative financial instruments that have become buzzwords in the turbulent stock markets. But ETFs are a novelty only in India. Exchange Traded Funds have been in vogue in the global financial markets, especially the US financial markets for a long time now and have $110 billion locked in assets under management. An index of their popularity can be gauged from the fact that about 60 per cent of the trading volumes on the American Stock Exchange comes from ETFs. It is only now that these funds are catching on in the domestic mutual fund market in Inida. UTI has launched its own ETF called SUNDERS, after Becnhmark's BeES and Prudential ICICI's SPIcE.

ETF: The History Exchange Traded Funds came into existence in 1993 when, State Street Global Advisors, together with the American Stock Exchange, developed and launched the ETF market. The name of the product was SPDRS. SPDR, which is benchmarked against the S&P 500 Index, continues to be the most successful product with over $22 billion in Assets Under Management. It currently enjoys tremendous liquidity, averaging close to $1 billion in shares changing hands every day on the American Stock Exchange. In fact, it consistently ranks as one of the most active securities on the AMEX. In addition to launching the SPDR, State Street Global Advisors and the AMEX also launched the Dow Diamonds in 1998, benchmarked against the Dow Jones Industrial Average. That year they also introduced the first sector ETFs, the Select Sector SPDRs, benchmarked against the nine sectors making up the S&P 500 Index. In 1999, they introduced the first ETF in Asia and currently they are doing the same in other major markets around the globe. Now subsequent to the roaring success of the ETF market, more and more complex instruments revolving around the ETFs are coming into being. Such an innovation are options and futures on ETFs. On November 18, 2002, EUREX (European Exchange) launched Europe's first futures and options on the most liquid ETFs.

ETF: the concept explained An Exchange Traded Fund, as the name itself suggests; is a financial instrument, tradable on a stock exchange, that invests in the stocks of an index in approximately the same proportion as held in the index. An ETF is a hybrid financial product, a cross between a stock and a mutual fund. Like a stock it can be traded on a stock exchange, and like a mutual fund it behaves like a diversified portfolio. In many ways it is an index fund, with a few subtleties that put it in a separate league. Unlike an open-ended index fund, where an investor purchases units from the fund itself and to redeem them sells the units back to the fund and thereby expanding or shrinking its corpus on each entry or exit from the fund, in an ETF is listed on an exchange ensuring that the entry or exit of investors has no effect on the fund corpus. An ETF is transacted through a broker and held in dematerialized form. An ETF is different from an Index Fund in another manner. Availability of real-time quotes is another feature present in an ETF but absent in an Index Fund where the previous days NAV is applied for buying or redeeming. This feature makes the trading of the ETFs possible. Much like the units of a mutual fund the ETF too, is divided into units called a "creation unit". The name emanates probably from the process through which one comes to acquire these units. The ETF units when purchased from the fund house are purchased by surrendering the underlying stocks in of the index the ETF tracks and thereby 'creating' the ETF unit.
How ETFs are traded The trading of the ETF is based on a well-known mechanism called arbitrage. But first, let us see how one can buy an ETF. There are two ways in which one can buy an ETF. One is through the market and the other is through the fund house that has issued the ETF. Now for the pricing mechanism: if the demand of the ETFs in the markets soars, the ETF would start trading at a premium from its intrinsic value, which should be equal in proportion to the index that it is charting. This premium would make the buyers go to the fund house where they would have to redeem their shares in the proportion held under each unit of the ETF. Such units that are bought directly from the fund house are called "creation units". But usually the lot size in which one can buy creation units is so high that only an authorized participant (market maker) or institutional investors may have the wherewithal to buy these. In such case the retail investor would have to go to the market itself to buy the units of the ETF, the decision in turn depending on the expectations of the future price movements of the ETF. In case of redemption in the market, the seller would get paid in cash and in case the fund units are taken to the issuer, the seller would get paid in kind that is the underlying shares that make up the index. ETF trading also opens up the flood gates for some more complex trading arrangements like arbitrage between the cash and futures market or simply put - short selling. But there is a hitch as far as the Indian capital markets is concerned: "shorting" is not allowed. As a proxy, one can borrow the units but that mechanism is not very efficient, as the cost of borrowing happens to range between 12 to 18 per cent depending on one's creditworthiness. Given below is a chart that explains the trading mechanism


Advantages

Tradable and Diversifiable: The ultimate selling proposition of an ETF lies in its twin feature of being tradable and diversifiable. One can trade a stock but then it is not diversifiable. Or, one can buy a mutual fund and thereby diversify but then the mutual fund would not be tradable. Alternatively, one can diversify one's risks by holding a portfolio of stocks and trade them but that would be too much of a botheration for the lay investor. This conflicts are reconciled by an ETF that is at once tradable and is a diversified portfolio too. It is these two feature, working in tandem, like the twin blades of a scissor that make it a financial product of choice.


Low cost: Just like an Index-Fund an Exchange Traded Fund does not have to incur any costs on account of active fund management because the fund is passively managed. As the ETFs are listed on the exchange, the cost of distribution is low. Furthermore, exchange traded mechanism reduces minimal collection, disbursement and other processing charges.


Transparency: Just like the index fund, the portfolio of an index fund has no mystery to it. Everybody in the participating market is aware of the stocks that it is tracking and therefore need not worry about a change in the stocks being traded in.


Makes multiple trading strategy possible: As has been said earlier, ETFs have the utility of doubling up as arbitraging instruments between the futures and cash markets. It also helps in equitizing cash, i.e., changing cash into equities, at a low cost.


A Bear market friend: In a volatile stock market, an ETF might become an instrument of choice as it is not expected to be as volatile and yet may be traded. This is borne out by the fact that the assets of US ETFs have grown from $ 96 billion in January 2003 to $118 billion in May 2003.

Disadvantages

Absence of prior active market: In India ETFs being a new instrument, there is no existing market that one could swim into immediately after buying the product. So for the liquidity to be reasonable, a large number of investors would have to buy into the idea to make adequate liquidity possible.


Large Investments: In order to deal directly with the fund houses large capital investments are required. For example in the case of Nifty BeES, a minimum creation unit size of 20000 units is required that would involve lakhs of rupees in investment. This makes ETFs a market where the institutional buyers and sellers become the big fish.


Broker Charges: Broker charges have to be paid anyway when trading in ETFs. This can be minimized by trading long but the very charm of ETFs is destroyed because it is meant for being traded more often than an index fund.


Premiums and discounts: An ETF might trade at a discount to the underlying shares. This means that although the shares might be doing very well on the bourses, yet the ETF might be traded at less than the market value of these stocks.


Does not facilitate "rupee cost averaging": An ETF is not appropriate for those investors who want to operate on the strategy of "rupee cost averaging". This is because investors investing some money into ETFs every month would have to incur brokerage costs that are not to be incurred in case of mutual fund units until and unless the scheme carries an entry load.

SIP views-(Enter your views about SIP in comments)

What is forex swap ?

Forex swap is an over the counter short term interest rate derivative instrument. A Forex swap consists of a spot foreign exchange transaction entered into at exactly the same time and for the same quantity as a forward foreign exchange transaction. The forward portion is the reverse of the spot transaction, where the spot purchase is offset by a forward selling. In this reason, surplus funds in one currency are for a while swapped into another currency for better use of liquidity. Protects against adverse movements in the forex rate, but favourable moves are renounced.
The fixed rate in this transaction is the forward rate that is locked in by the forward contract. The floating rate will be the overnight rate that is realized on a daily basis by the spot transaction. Typically, the floating side of these trades are indexed to the Overnight Index Swap (OIS) rate. This rate is an average of the rates that are paid based on a survey.
It should not be confused with a currency swap, which is a much rarer, long term transaction, governed by a slightly different set of rules.

Tax Planning

Vishwas has taken a home loan and spends around Rs 50,000 towards principal repayment. Deductions upto a limit of Rs 1 lakh can be claimed for payments towards principal repayment of housing loans. Where else can Vikas invest to avail maximum tax benefit?

Tax payers like Vishwas try to save and explore various investment avenues so that they can minimise taxes and increase their disposable income. An integral part of financial planning is tax planning, where tax payers research on tax breaks offered.

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C.

One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall. The over all limit under Section 80C is Rs 1 lakh.

Education expense of children is increasing by the day. How does it sound to know that you can claim deductions on their school fees? Under this section, there is enough provision that makes payments towards the education fees for children eligible for an income deduction. Small savings schemes are usually preferred by the risk-averse. With returns on debt instruments dropping, these deductions provide all the more reasons to remain invested. Even if the returns are not on par with returns from equity markets, it makes sense to plan and invest in them for the tax advantage.

National Savings Certificate provides eight percent interest compounded half yearly. Period of investment stands at six long years, however there is no upper limit of investment. So, if one locks-in Rs 1,000, it becomes Rs 1,601 after six years. Kisan Vikas Patra promises to double money in eight years and seven months. With no upper investment limit, the interest rate is eight percent compounded quarterly. So, if you invest Rs 1,000, it becomes Rs 2,000 in a time span of eight years and seven months.

Equity-linked savings schemes (ELSS) are a good option to consider for those with appetite for risk. ELSS tax savers are like any other diversified equity fund, but with a three-year lock-in, providing benefits under Section 80C. Suppose at the end of three years the market is seeing a great unfortunate fall. An average investor, who is keen to move out at the end of three years, may be stuck, unable to redeem at the low NAV. Hence, it is imperative that investors make a comparative analysis and pick top performers amongst numerous tax-savings funds offered by almost all fund houses.

For instance, Prudential ICICI Tax plan has benefited from its mid-cap and small-cap oriented portfolio with 97 percent of investments in equities. Taurus Libra Taxshield, ING Vysya Tax Saving Fund and DBS Chola Tax Saver Fund are some funds that have posted decent returns. New ELSS fund NFOs like HSBC Tax Saver Equity Fund, DSPML Tax Saver Fund and Lotus India Tax Plan are options worth exploring. These funds invest 80 to 100 percent of portfolio in the equity market and the rest in debt and money market instruments. If you've not yet started making investments for tax planning, it is time to get on track. Explore PF, PPF, insurance plans, ELSS, NSC, home loans and other instruments that get you benefits under Section 80C.

Exchange Traded Funds (EFT's)

There have been several developments in the mutual fund (MF) arena of late. MF houses have also introduced a variety of schemes to cater to the needs of different investors.

One such product is gold exchange-traded funds (ETFs). As these schemes get listed on the exchange in coming days and start trading, investors need to have a clear strategy of how to invest in them.

Gold ETFs have the basic characteristics of MFs but they are traded like stocks on the bourses.
This means that the fund is available for investment on the stock exchange and it can be bought and sold like a normal stock.

The ETF is normally linked to an index so that it mirrors the performance of the index and this usually makes it a passive fund. A passive fund is where the fund manager does not take decisions about the composition of the portfolio but makes the investment according to the stated guidelines.

In a gold ETF, the fund’s performance depends upon the price movement of gold. Hence, the movement in the value of the fund depends upon the movement in the gold price. This makes it a useful tool for those who want to consider gold as an investment option and gain from its price movements. Here, investors do not actually accumulate gold.

In case investors require gold, they have to sell the units from the fund and buy physical gold from the market. Once the gold units get listed, there has to be some strategy with regard to investment in such schemes. The first principle that investors should follow is that they must try to get a significant appreciation when they quote at a higher price. As the price of gold increases, the price of the funds will also rise and vice versa.

Value Investing:

Value investing is the allocation of capital to those companies that "create value" for shareholders. This is also known as intrinsic value investing; value investing emphasis on the valuation of individual companies and seeks long term return on invested capital. Value investing is one of the valuation methods based on the discounted cash flow of free cash flow to stock holders and expected dividends to estimate the absolute intrinsic economic value of a company.

Intrinsic value or Economical Value:

It is the discounted value of the cash that can be taken out of a business during the company remaining life. The calculation of intrinsic value is very subjective due to it is sensitive to interest rates and estimation of future cash flows, So, the intrinsic value of a company is an estimation instead of a precise figure. Intrinsic economic value of a company also know as "investment value" , "indicated value", "central value", "normal value", "reasonable value", "fair value", or "appraised value".

The term value is misleading as there are various values in the market, such as market value, accounting value (or book value or net worth), economic value (or intrinsic value). Market value or capitalization of a company is calculated using the stock price multiplied by the number of shares outstanding.


Price is not equivalent to value.

Pricing and stock screening method in fundamental analysis and technical analysis is not valuation. Pricing models such as conventional academic capital asset pricing model (CAPM) using beta coefficient is measurement of investment risk but not valid in valuation model.
The methods of appraising intrinsic economic value is to selecting an appropriate discount rate and forecasts the future cash flows to calculate how much the cash returns from it internal business, this process is independent from the current market price this is why the adjective "intrinsic" is using.

Pricing and screening is not valuation. Pricing models are not valuation models.
Price Investing (Pricing Model) generally refers to the use of fundamental analysis with an emphasis on absolute book value and on comparative market value using price ratios rather than on forecasts of earnings growth rates. The pricing model involve mechanical screening of financial ratios such as price to book value or P/BV, PE ratio etc...but not the discounted cash flow.

Growth Investing normally refer to use fundamental analysis to screen out companies with growth in earning and forecasts earning growth rates instead of appraisal of value. But growth does not mean creating economic value, some growth even destroy the economic value. Any company in any industry can buy growth. In the short run this may benefit the company's customers, but in the long run it is unlikely to benefit the company's stockholders. It is often contrasted with value investing as a style, but not with value investing as an approach. The two styles are like Siamese twins joined at the hip.

Price is not value. Pricing and screening is not valuation. Pricing models are not valuation models. Model labels can be misleading. Models that appear to be valuation models are sometimes pricing models. Only a close look inside at the assumptions will reveal the type of model it is. The beta coefficient is the risk factor used the conventional academic capital asset pricing model. The use of the beta factor is not valid in a valuation model. Safety of margin refer to the difference between price and value.

PPO after BPO & KPO...????

PPO is emerging trend in the economy after the BPO and KPO. IT giants like IBM, Infosys, Wipro and WNS - providing offshore services from India to clients in the developed part of the world - have got a new rival on the fast expanding BPO landscape. More importantly, the new challenger is not some thousand-employees strong Business Process Outsourcing firm, but individuals who could be sitting anywhere alone before their personal computer, but have before them an addressable market worth over 20 billion dollars in the US alone.

While outsourcing of services by medium and large-size companies from the US and Europe to low-cost countries like India has been going on for a decade now, the new trend in this space to watch out for is Person-to-Person Offshoring (PPO), says global research and analytics firm Evalueserve.


PPO consists of services that can be off shored to individual professionals by entrepreneurs seeking to bootstrap their business and can be utilised by anyone with the technology advances and growth of Internet in today's world.

All a professional requires to render these services is a PC and a reliable Internet connection. While each PPO contract is often of low value usually between $100 and $5,000 (Rs 4,000 to Rs 20,000) but due to the large number of end consumers involved, the total addressable market in the US alone has exceeded $20 billion, Evalueserve Chairman Alok Aggarwal said.

To make the things easier, there are already close to 100 websites such as Guru.com, Elance.com, RentACoder.com and GetAFreelancer.com acting as trading platforms for such services and over ten lakh professionals -- a majority of who are from India -- are already registered on these sites as PPO providers.

Guru follows a "closed auction" bidding and also provides a "SafePay Escrow" account that protects the interests of both the client and the vendor during the execution of the project.

California-based Elance.com has approximately 80,000 registered vendors and free-lance professionals, of which about 50 per cent are from low-wage countries. RentACoder.com, a Florida based marketplace, has over 175,000 registered freelancers and is focussed on IT sector.

Another such marketplace, GetAFreelancer.com has mostly IT programmers from low-wage countries as its registered freelancers. Here, the buyers decide between closed or open bidding, while it also provides a payment escrow service.

One of the fastest growing segment in the PPO market is editorial and writing services, which include writing for books, copy writing, editing, proof-reading, news articles, newsletters, press releases, translation and web content.

These tasks do not require expensive infrastructure and people can work from their homes with a broadband connection and earn between 10 and 25 dollars for an hour's work. Among other popular PPO services being offered currently, jobs like online tutoring fetch 8-40 dollar an hour.

Courtesy: Economic Times

Mother's Day A Business Anlysis....

I was chatting on net with some friend of mine. Just she asked me so what are the plans for 13 she asked? I asked her whats so special on that day? she replied oh you forgot ??? "Its Mother Day". So what the gift you are gifting by the way was her next question, to hide my ignorance i told her i celebrate it everyday. She replied OK... after chatting with her i just started thinking about this mother Day Concept........

I know Mother's day is also a gift of the globalisation, its not rather than gift its a business gimmick to promote the sales and increase the revenue. So i just searched the net for that how its making its business through the Mothers Day... As i opened my mail box was full of advertisements about the Mothers Day. So look inside of Mother's Day's Business.

The Indian' leading online portal Indiatimes.com's spoke person says “This year lot of orders are being placed for books and paintings depicting love between the mother and child. With online shopping becoming popular, net savvy people in smaller cities are also placing huge orders.

Indiaplazz.com also looking at increasing its sales to double this season in comparison to last year. So for this purpose they have introduced separate collections of gifts to mothers of different age. For instance, special range of kitchen appliances for the homemakers and L’Oreal’s anti-ageing cream for ageing mothers is available online. Moreover, for the moms on move, a range of fresh perfumes, gadgets and gizmo's are on offer.

Look at the words of chief operating officer K Vaitheeswan of Indiaplaza.in “We are expecting our sales value to go up by 250% this year compared to the corresponding period last year. Since the concept of Mother’s Day is more popular overseas, we are receiving maximum orders from NRIs who want to present gifts to their mothers in India.”


The Archies Group also not behind they are also comming with 63 new rage of products on the occasion of mother's day, says Pramod Arora exicutive officer of Archies. According to him Mother’s Day collection includes variety of thoughtful options ranging from quotations on glass and wood to ceramic mugs. All the cards and gifts are priced between Rs 30-1599.” Oriflame has also launched a range of anti-ageing extract especially for the mothers that would help in nourishing and regenerating the skin. The entire range is available between Rs 400-800.

Here our jewellery marketers are also looking at some increase in the sales during the season. Jewellery market rs has seen 8-10% growth in their sales.

D’damas and Swarovski have introduced jewellery collections exclusively for the Mother’s Day. D’damas has come up with diamond studded stylish pendants and rings ranging between Rs 5,000 and Rs 15,000.

Swarovski is offering pendants, photo frames and window ornaments priced between Rs 4,500-12,500. Besides, a double pendant threaded on a rhodium-plated chain with two hearts symbolises an inseparable duo of the mother and daughter. The company has also introduced a home decor collection for mothers that comprises three objects with a sculptural interpretation of nature.

According to D’damas chief executive officer Arun Bhatnagar, “We are offering up to 25% off on our diamond jewellery collection. We expect our sales to grow by 8-10% this month compared to the corresponding period last year.”

Happy Mothers day to all readers, just think about your gift to your mother now...!!!!
So did you get the magic or gimmick behind the mothers days celebrations.....

GSM Subscribers Touched 12.55Cr

Sustaining its aggressive growth in subscriber additions, the GSM-based cellular industry has added over 41 lakh subscribers in April with Bharti Airtel capturing 30.97 per cent of the market share.

With this, the all-India GSM subscriber base has touched 12.55 crore at the end of April 2007 compared to 12.14 crore at the end of March 2007, reflecting a growth rate of 3.40 per cent, the Cellular Operators Association of India (COAI) said in a statement.

CDMA mobile figures are yet to be out.

In April, the cellular subscriber base of Bharti touched 3.88 crore with additions of 17.51 lakh users, followed by BSNL at 2.77 crore with a market share of 22.10 per cent and additions of 3.26 lakh subscribers.

Hutch-Essar has 2.77 crore subscribers, taking its market share to 22.06 per cent and Idea with a market share of 11.60 per cent has 1.45 crore subscribers in April.

Hutch-Essar added 12.61 lakh subscribers in the month of April, while Idea added 5.52 lakh mobile users in the same month.

MTNL's GSM subscriber base in Delhi and Mumbai touched 24.83 lakh, while Spice Telecom has over 28 lakh subscribers.

Aircel's user base in April stood at 59.27 lakh, followed by Reliance Telecom's 43.47 lakh subscribers

Car Export Falls 9.5%

India's quest to become a global hub for small car manufacturing began on a wrong note this fiscal with passenger car exports during the first month of the year declining by almost 9.5 per cent.

According to figures released by Society of Indian Automobile Manufacturers (SIAM), passenger car exports from the country stood at 14,021 units compared to 15,497 units in the same month of previous fiscal.

While country's biggest carmakers, Maruti Udyog Ltd (MUL) and Hyundai Motor India Ltd (HMIL) gained exports volume, Tata Motors witnessed a dip in its overseas sales during the month.

HMIL maintained its position as the biggest car exporter from India with 11,341 units, up 4.6 per cent from the same month last year. MUL's exports during the month grew by 11.43 per cent at 1,667 units. Tata Motors overseas sales, however, declined by 11.38 per cent in April at 1,012 units compared to 1,142 units in the same month last year.

On the two-wheelers front, motorcycles fuelled the sales growth trend in overseas market while scooter exports continued to dip during the month.

What is BETA???

What is a Beta in the security market you may wonder about this? If your answer is yes its my little effort to tell you what is a beta in the security market and its importance.

Beta is a financial ratio. So before going to tell its importance I will tell you the definition of Beta to you.

Definition:

Beat is a measure of a Stock Price voitality in relation to rest of the market. So in other word Beta is Stock Price move in relation to market as a whole.

Why Beta is calculated?

Beta can be used for the purpose of decision making in regard of short term investment where the price is important factor or if you are looking to buy or sell investment in a shorter period.

How Beta is calculated?

The number is calculated for you using regression analysis. SAP500 is used as the base for the calculation of Beta. Actually there are no standard and common bases for calculation of the beta.

Stock that have a Beta greater the 1 have greater price voitality then overall market and more risk involved in it.
Stock with beat of 1 fluctuates in price at the same rate as market. So stock with beat less than I have less price votlaity then the market and less risky.

Beta and Risk:

Higher the Beta implies higher risk. Rock is always associated with return. Higher the Beat means higher the reward for your risk taking ablity. So if you accept more risk you are rewarded with higher returns than the market. But on the other hand a stock with beat below 1 may a safer investment but return will be low.

Drawback of Beta:

Beta uses historical data. The history may not be always turn true.
Beta doesn’t accounts for changes that taken in the industry or new line of business.

Credit Rating

Concept of Credit Rating:

Credit rating is concerned with pre-estimating the repayment capacity and ability of a debtor for a particular debt planned to be raised.

It enables the investor to take investment decisions by relying upon the opinion of the expert agency symbolized in indicative ‘signs’.

It only indicates a representative’s character of the particular security which does not amount to any recommendation to purchase, sell or hold that security.

It is a process by which risk associated with a credit instrument is evaluated or it transpires the degree of credit risk associated with a debt instrument.

‘High’ rating indicates the firm is healthy and the reverse position is highlighted by ‘low’ rating.

Definition:

Moody’s : “Ratings are designed exclusively for the purpose of grading bonds according to their investment qualities”.

Standard and poor’s : “..rating is a current assessment of the credit worthiness of an obliger with respect to specific obligation”.

BESIDES RATIOS FACTORS TAKEN INTO CONSIDERATION WHILE RATING IS ASSIGNED

Position in the Economy

Life cycle of Industry

Competitive Nature

Supply Factor

Volatility

Market Share

Labour Situation

Production Efficiency

Financial Structure

CREDIT RATING PROCESS OF (ICRA)

1. Assign
2. Rating team
3. Receive initial information conduct basic research
4. Meetings and visits
5. Analysis and preparation of report
6. Preview meeting
7. Rating meeting
8. Assign rating
9. Communicate the rating and rational
10. Acceptance
11. Surveillance

SYMBOLS USED AND STAND FOR

Moody’s Investor Services

Aaa - Best Quality

Aa - High Quality

A - Upper medium grade

Baa - Medium grade

Ba - Posses speculative

elements

B - Lack characteristics of

Investment

Caa - Poor standing

Ca - High Speculative

C - Lowest Grade

CRISIL

AAA - Highest Safety

AA - High Safety

A - Adequate Safety

BBB - Moderate Safety

BB - Sub moderate

B - Inadequate Safety

C - Substantial Risk

D - In default

Users of Credit Rating:

Investors

Bond Issuers

Investment banks

Broker-dealers

Governments Regulators

CREDIT RATING – A CRITIQUE

Based on an opinion which depends upon who gives the opinion and at what point of time.

Credit quality is not static and changes with time.

Depends upon the agency’s perception regarding the future of the borrower.

Past is becoming less and less of an indicator of the future and rating agencies undertake very sensitive analysis of the past.

Low rating creates a vicious cycle, as not only interest rate for that company goes up it also affects the contracts with other FIIs adversely.

FOR HAVING A GOOD CREDIT RATING

Multiple ratings should be done which helps investors by providing them additional information and acts as a check on any possible excesses by any agency.

The existence of more than one rating agency and the competition among them would improve the quality of the service and lower its cost.

The rating agencies should enjoy maximum autonomy so that each agency develops and nurtures its distinct personality and methodology.

Original Article By:

Gagan Deep Singh

Batch-2008

Edited By : Kedar
IBS Chandigarh

Equity Diversified funds gain 1.35% during the week

Equity - Diversified Funds.

The NAV returns in the equity-diversified funds category rose 1.35% during the week, ended May 04, 2007.

Among the equity-diversified funds, Magnum Comma Fund gained 3.61%. Other gainers include Tata Equity P/E Fund, which gained 3.41%, and Escorts Growth Plan gained 3.61% during the week.

On the other hand, Standard Chartered Enterprise Equity Fund declined 0.48% followed by Sundaram BNP Paribas Equity Multiplier Fund, UTI SPrEAD Fund declined 0.40% and 0.16% respectively.

Balanced Funds

Returns on balanced funds rose 0.67% during the week, with only one losers that is ICICI Prudential Blended Plan A which declined 0.21%.

On the other hand Escorts Balanced Fund gained 3.1%, Escorts Opportunities Fund gained 2.47%, Principal Child Benefits Fund-Career Builder gained 1.78% and Principal Child Benefits Fund-Future Guard Plan gained 1.76%.

Debt Funds.

The category of debt funds added 0.17% in the week ended May 04, 2007.

Among the debt funds, Escorts Income Bond gained 1.59%, Cancigo gained 1.13%, Reliance Regular Savings Fund - Hybrid Option gained 0.98% and LICMF Unit Linked Insurance Scheme gained 0.97%.

On the other hand Birla Floating Rate Fund - Short Term Plan – Institutional lost the most, among debt funds, declining 9.57% followed by UTI Capital Protection Oriented Scheme - Series I - 5 Years which declined 0.30% and HSBC Floating Rate Fund - Short Term Plan - Institutional Plus declined 0.19%.

Index Funds

Among Index funds, except Bank BeES and HDFC Index Sensex Plus Plan which declined 1.67% and 0.67% all other scheme under this category advanced.

Nifty Junior BeES gained, 3.18% followed by Birla Index Fund which gained 1.20%, ICICI Prudential Index-Nifty Plan gained 0.90% and LICMF Index Fund - Sensex Advantage Plan gained 0.86%.

ELSS Funds

ELSS Funds gained 1.17% during the week. Among the ELSS funds, the top gainer was Birla Equity Plan which gained 3.85%. Other gainers were Escorts Tax Plan that gained 3.62% and Birla Taxplan 98 gained 3.42%.

There were no losers, during the week.

Macroeconomic and Monetary Developments in 2006-07

The highlights of macroeconomic and monetary developments during 2006-07 are:

The Real Economy

The Indian economy witnessed robust growth during 2006-07 for the fourth year in succession. According to the advance estimates released by the Central Statistical Organisation (CSO), real Gross Domestic Product (GDP) growth is estimated to accelerate from 9.0 per cent in 2005-06 to 9.2 per cent in 2006-07. The acceleration in growth during 2006-07 was driven by the continued momentum in the services and the manufacturing sectors, both of which are expected to record double-digit growth. 'Agriculture and allied activities' growth, however, slowed down from 6.0 per cent in 2005-06 to 2.7 per cent in 2006-07.

According to the Third Advance Estimates, production of foodgrains during 2006-07 is likely to be 211.8 million tonnes, an increase of 1.5 per cent over the previous year.
Industrial production continued its growth momentum during April-February 2006-07, with growth accelerating to 11.1 per cent from 8.1 per cent a year ago. The manufacturing sector grew by 12.1 per cent during April-February 2006-07.

The services sector, with a growth rate of 10.7 per cent during April-December 2006 as compared with 9.8 per cent a year ago, continued to be the key driver of economic activity.
Profits after tax of RBI sample non-Government non-financial companies increased by 48.7 per cent during April-December 2006 on top of 36.8 per cent growth recorded in the corresponding period of 2005. Ratio of profits after tax to sales improved to 11.0 per cent during the quarter ended December 2006 from 8.6 per cent a year ago

Fiscal Situation

According to the revised estimates for 2006-07, the key deficit indicators of the Central Government, viz., revenue deficit, gross fiscal deficit and primary deficit, relative to GDP, at 2.0 per cent, 3.7 per cent and 0.1 per cent, respectively, were placed lower than their budgeted levels.

According to the Reserve Bank records, actual gross market borrowings through dated securities by the Central Government amounted to Rs.1,46,000 crore during 2006-07. The weighted average yield of the dated securities issued during 2006-07 increased to 7.89 per cent from 7.34 per cent during the previous year. The weighted average maturity of the dated securities issued during the year fell to 14.72 years from 16.90 years during 2005-06.

During 2006-07, revenue deficit and gross fiscal deficit of State Governments were budgeted at 0.1 per cent and 2.7 per cent, respectively, of GDP - a reduction of 0.4 percentage points and 0.5 percentage pints, respectively, over the previous year.

During 2006-07, the States raised market loans amounting to Rs.20,825 crore through auctions, with cut-off rates in the range 7.65-8.66 per cent.

The liquidity position of the States remained comfortable during 2006-07. This was reflected in the weekly average investment by the States in the 14-day Treasury Bills which increased further during 2006-07 to Rs.43,075 crore from Rs.35,278 crore in the previous year. The weekly average utilisation of WMA and overdraft by the States at Rs.234 crore in 2006-07 was lower than that of Rs.482 crore in 2005-06.

The Union Budget for 2007-08 proposes to continue the fiscal consolidation process, with the key deficit indicators as per cent of GDP budgeted to be lower in 2007-08 than in the previous year. The revenue deficit relative to GDP is budgeted to be reduced in 2007-08 by 0.5 percentage points, which is the minimum stipulated threshold limit under the FRBM Rule, 2004; therefore, a substantial correction in the revenue deficit of 1.5 percentage points would be required in 2008-09, the terminal year for meeting the FRBM target.

Monetary and Liquidity Conditions

Broad money growth accelerated to 20.8 per cent (Rs.5,67,372 crore) (year-on-year) at end-March 2007 from 17.0 per cent (Rs.3,96,881 crore) a year ago.

Non-food credit of scheduled commercial banks (SCBs) expanded by 28.0 per cent (Rs.4,10,285 crore), y-o-y, as on March 30, 2007 as compared with 31.8 per cent (Rs. 3,54,193 crore) a year ago.

Deposits exhibited sharp growth and enabled financing of sustained high demand for credit. Deposits of SCBs increased by 23.0 per cent (Rs. 4,85,210 crore) (y-o-y) as on March 30, 2007 as compared with 18.1 per cent (Rs. 3,23,913 crore) a year ago.

Reserve money expanded by 23.7 per cent (Rs.1,35,892 crore), y-o-y, as on March 31, 2007 as compared with 17.2 per cent (Rs.83,922 crore) a year ago. Adjusted for the first round effects of the hikes in the CRR, reserve money growth (y-o-y) was 18.9 per cent as on March 31, 2007.

The Reserve Bank continued to modulate market liquidity with the help of repo and reverse repos under the liquidity adjustment facility (LAF), issuance of securities under the Market Stabilisation Scheme (MSS) and the cash reserve ratio (CRR). The task of liquidity management was complicated during 2006-07 due to large variations in market liquidity on account of variations in cash balances of the Governments and capital flows.

Price Situation
Headline and core inflation remained at elevated levels in many economies during the first half of 2006-07 reflecting high commodity prices and strong demand conditions. Although headline inflation eased somewhat internationally from August 2006 levels in tandem with the softening of international crude oil prices and favourable base effects, it remains above the inflation targets/comfort zones in many economies. Many central banks continued with pre-emptive monetary tightening to mitigate the second round effects, especially in the face of continuing strong demand. Central banks in emerging market economies also raised cash reserve requirements to address concerns regarding excess liquidity arising, particularly from large external flows.

In India, prices of primary food articles and manufactured products exerted upward pressures on headline inflation in 2006-07. Wholesale price inflation was generally within the Reserve Bank's indicative projections of 5.0-5.5 per cent up to mid-November 2006 and rose above the upper end of the band thereafter. The year-on-year (y-o-y) inflation was 5.7 per cent as on March 31, 2007 as compared with 4.0 per cent a year ago.

Measures of consumer price inflation remained above the WPI inflation throughout the year, mainly reflecting the impact of higher food prices.

The Reserve Bank continued with the policy of gradual withdrawal of monetary accommodation, using various instruments at its disposal flexibly to stabilise inflationary expectations. The Government also took fiscal and supply-side measures to contain inflation.

Financial Markets

Indian financial markets remained generally orderly during most part of 2006-07. There were, however, some spells of volatility at different points of time during the year reflecting developments in liquidity conditions on account of large and sudden changes in capital flows and cash balances of the Governments.

The call money rate edged up during the year in tandem with movements in policy rates. The call rate remained mostly within the corridor set by the Reserve Bank's repo and reverse repo rates during April-November 2006. In the subsequent months, there were a few brief episodes (last week of December 2006 and second half of March 2007) of higher volatility when the call rate exceeded the repo rate significantly.

In the foreign exchange market, the Indian rupee exhibited two-way movements with a strengthening bias since mid-July 2006.
Yields in the Government securities market hardened during the year and the yield curve flattened.
Banks' deposit and lending rates edged up, especially in the second half of the year.

The External Economy

According to the Directorate General of Commercial Intelligence and Statistics (DGCI&S) data, merchandise exports recorded a growth of 19.3 per cent during April-February 2006-07 as compared with 26.3 per cent during the corresponding period of 2005-06.

Non-oil imports increased by 25.7 per cent during April-February 2006-07 as compared with 26.4 per cent during the corresponding period of 2005-06. Growth in oil imports remained high, reflecting partly the increase in volumes.

Net invisibles surplus increased to US $ 40.5 billion during the first three quarters of 2006-07 (from US $ 28.1 billion a year ago), benefiting from continued growth in exports of services and remittances.

Net invisibles surplus financed a large part of the deficit on the merchandise trade account. Current account deficit at US $ 11.8 billion during April-December 2006 was marginally lower than that in April-December 2005 (US $ 11.9 billion).

Capital flows were substantially higher, led by foreign direct investment (FDI) flows. Outward FDI flows associated with acquisitions by Indian corporates abroad also increased. Capital flows (net) increased from US $ 13.8 billion during April-December 2005 to US $ 28.0 billion during April-December 2006.

Foreign exchange reserves increased by US $ 47.6 billion during 2006-07 to US $ 199.2 billion. As on April 13, 2007, India’s foreign exchange reserves were US $203.1 billion.

Bank of Bengal & Bank of Bombay

Financial Instruments and 'Hundies' in India have a venerable history.

Paper Money, in the modern sense, traces its origins to the late eighteenth century with the issues of private banks as well as semi-government banks (the Bank of Bengal, the Bank of Bombay and the Bank of Madras alluded to as the Presidency Banks).

Among the earliest issues were those by the Bank of Hindostan (1770-1832), the General Bank in Bengal and Bahar (1773-75, established by Warren Hastings), the Bengal Bank (1784-91), amongst others. Few of these notes survive.

The Paper Currency Act of 1861 conferred upon Government of India the monopoly of Note Issue bringing to an end note issues of Private and Presidency Banks. Paper currency in India owed much to the intellectual stimulus and personal dynamism of Sir James Wilson, the first Finance Member in the Executive Council of the Viceroy of India. With the early death of Sir James, the task of issuing Government Paper Money in India devolved upon his successor Samuel Laing who substantially modified Wilson's original proposals.

Government of India continued to issue currency notes till the Reserve Bank of India was established on 1st April, 1935. When the one rupee note was reintroduced as a war time measure in August, 1940, it was issued by Government of India with the status of a coin. Government of India continued to issue Rupee one notes till 1994.

The motifs appearing on Indian currency notes reflect the changing socio-cultural ethos and the world-view of the times: buccaneering mercantilism, colonial consolidation, domineering imperialism, the grandeur of empire, to the symbols of National Independence followed up by allegories%

How to identify the Fake Note

WatermarkThe Mahatma Gandhi Series of banknotes contain the Mahatma Gandhi watermark with a light and shade effect and multi-directional lines in the watermark window.

Security ThreadRs.1000 notes introduced in October 2000 contain a readable, windowed security thread alternately visible on the obverse with the inscriptions ‘Bharat’ (in Hindi), ‘1000’ and ‘RBI’, but totally embedded on the reverse. The Rs.500 and Rs.100 notes have a security thread with similar visible features and inscription ‘Bharat’ (in Hindi), and ‘RBI’. When held against the light, the security thread on Rs.1000, Rs.500 and Rs.100 can be seen as one continuous line. The Rs.5, Rs.10, Rs.20 and Rs.50 notes contain a readable, fully embedded windowed security thread with the inscription ‘Bharat’ (in Hindi), and ‘RBI’. The security thread appears to the left of the Mahatma's portrait. Notes issued prior to the introduction of the Mahatma Gandhi Series have a plain, non-readable fully embedded security thread.
Latent ImageOn the obverse side of Rs.1000, Rs.500, Rs.100, Rs.50 and Rs.20 notes, a vertical band on the right side of the Mahatma Gandhi’s portrait contains a latent image showing the respective denominational value in numeral. The latent image is visible only when the note is held horizontally at eye level.

Microlettering This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word ‘RBI’ in Rs.5 and Rs.10. The notes of Rs.20 and above also contain the denominational value of the notes in microletters. This feature can be seen better under a magnifying glass.
Intaglio Printing
The portrait of Mahatma Gandhi, the Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints, which can be felt by touch, in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes.
Identification Mark
A special feature in intaglio has been introduced on the left of the watermark window on all notes except Rs.10/- note. This feature is in different shapes for various denominations (Rs. 20-Vertical Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.1000-Diamond) and helps the visually impaired to identify the denomination.
Fluorescence
Number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp.
Optically Variable Ink
This is a new security feature incorporated in the Rs.1000 and Rs.500 notes with revised colour scheme introduced in November 2000. The numeral 1000 and 500 on the obverse of Rs.1000 and Rs.500 notes respectively is printed in optically variable ink viz., a colour-shifting ink. The colour of the numeral 1000/500 appears green when the note is held flat but would change to blue when the note is held at an angle.
See through Register
The small floral design printed both on the front (hollow) and back (filled up) of the note in the middle of the vertical band next to the Watermark has an accurate back to back registration. The design will appear as one floral design when seen against the light.
Legal provisions against counterfeiting
Printing and circulation of forged notes are offences under Sections 489A to 489E of the Indian Penal Code and are punishable in the courts of law by fine or imprisonment or both.

Reliance Farm Fresh

The Indian retail market accounted for $ 200 billions. Food accounts for over two-thirds of the $200-billion Indian retail market. Yet, it has seen less than 1 per cent penetration by modern retail so far.
Reliance industries which always looking for new business opportunities just started a new era with its introduction of new concept stores named Reliance Fresh with opening convince store in high streets of Banjara hills of Hyderabad. Reliance Fresh is very different from what modern retail has offered in India so far and with this reliance is planning to establish strong retail network in India in food and farm sector. They have started with new eleven stores in the last week and they are thinking to add 100 more stores to their feather by the end of this year.

Let’s do a SWOT analysis on the Reliance Fresh.

Strengths:

Reliance is the first into enter into this unorganized sector of vegetables and fruits. According to them its intentions to have100% farm fresh foods in their new retail stores. It is also adding shortly a juice bar, and even a large counter for puja flowers. In fact, over 60 per cent of the floor space has been dedicated to fresh fruits and vegetables, the rest to other food products like staples, spices, bakery, etc. But reliance has decided not to add any bar soap or toothpaste and detergent in its shelves. So by using this strategy they are positioning themselves different from other players of the industries like Food world, Big Bazaar and Nilgiris. But over come the short comings of these specialized stores they are also introducing new Reliance full-fledged supermarket called Shakhari Bhandar which offers each and everything from the staple to soap. Most of the staples are under its own private label brand — ‘Reliance Select’. There is a 500g channa dal pack priced at Rs 28, a 500g urad dal pack for Rs 39, all under Reliance’s own brand. Excepting a few packets of Nestle’s Maggi, or MTR’s masalas or Pepsi’s Lays chips, there is very little shelf space given to the big brand owners in the country. Reason: private labels offer far better profit margin to the retailer than branded products of FMCG companies. Most of these outlets will need only 2,000-5,000 sq. ft. A supermarket may need as much as 8,000-10,000 sq. ft.

Weakness:

This is definitely an interesting business venture but it may miss out on the opportunity to capture a greater share of the customer’s wallet. For customers, too, this could be irksome, as they would have to visit another store to pick up essentials. Reliance could easily fix this problem by adding a few small counters for some basic non-food products. According to their official this format is not final one they are accepting the new changes which are required to attract the large number of customers.

Opportunities

Reliance wants to build a high-profitability business and food is, perhaps, the best venture to start. That is because the Indian food supply chain is grossly inefficient. There are several intermediaries, each of whom adds his own profit margin to the cost. Besides, there is huge wastage in transit. This offers potential for savings and profits. To reduce the cost and increase the profit it has been sourcing out its requirements from the farmers. For example, the leafy vegetables, brinjals, tomatoes and green chilies in the Banjara Hills outlet were sourced directly from farmers in Vantimamdi, Chevella and nearby mandals in Ranga Reddy district of Andhra Pradesh. The supply chain already has been backed by few hundred farmers the number is estimated to touch million in next five years. The main aim of the reliance is to eliminate the intermediaries in the sector and reduce the cost. Smaller stores have two advantages. They bring down the cost of real estate (and increase profits). It is easier to find space for small convenience stores in a quiet neighborhood than for supermarkets in high streets.

Threats:

This model is engineered to clock a faster turnover of inventory — Reliance expects consumers to visit the store at least twice a week for their top-up groceries. Each store will have an investment of Rs 50 lakh to Rs 60 lakh. Unlike global retailers who operate on thin margins, Reliance Retail is looking at a fairly high-margin business model. Deliberately stopped short of being a full-fledged supermarket rather, it has limited itself to a food and grocery convenience store. They also have a threat from the existing supermarkets which provides all the services to its customers. For Example Food world and Nilgiris also provides food and beverages with other personal care products. These convince are not existed in the present Reliance retail stores.
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Reliance Balance Sheet

Balance Sheet
Total Share Capital 1393.17
Net Worth 49804.26
Total Debt 21865.61
Net Block 55716.75
Investments 5846.18
Net Current Assets 3149.15
Total Assets 71669.87

Sunil Bharti Mittal, founder, Chairman and Managing Director of Bharti Group can be labelled as the most ambitious telecom entrepreneur in India. Sunil a former student of Harvard Business School, graduated from Punjab University. The son of a parliamentarian, Sunil did not want to follow his father's footsteps. He had shown an interest in business even from his teenage days. So after graduation, Sunil got together with his friend and formed a small bicycle business with borrowed capital in the1970s. But by 1979, he realized that this business would remain small. So he moved out of Ludhiana, spent a few years in Mumbai and in 1981, was running an import and distribution operation out of New Delhi and Mumbai.

By 1982, Mittal had started a full-fledged business selling portable generators imported from Japan and that gave him the chance to involve himself in activities like marketing and advertising. Things went smoothly until the government banned the import of generators as two Indian companies were awarded licenses to manufacture generators locally.

Sunil Mittal got interested in push button phones while on a trip to Taiwan, and in 1982, introduced the phones to India, replacing the old fashioned, bulky rotary phones that were in use in the country then. Bharti Telecom Limited (BTL) was incorporated and entered into a technical tie up with Siemens AG of Germany for manufacture of electronic push button phones. By the early 1990s, Mittal was making fax machines, cordless phones and other telecom gear.

The turning point came in 1992 when the Indian government was awarding licenses for mobile phone services for the first time. One of the conditions for the Delhi cellular license was that the bidder have some experience as a telecom operator. Mittal clinched a deal with the French telecom group Vivendi. Two years later, Sunil secured rights to serve New Delhi. In 1995, Bharti Cellular Limited (BCL) was formed to offer cellular services under the brand name AirTel. Within a few years Bharti became the first telecom company to cross the 2-million mobile subscriber mark. The company is also instrumental in bringing down the high STD/ISD, cellular rates in the country by rolling the countries first private national as well as international long-distance service under the brand name IndiaOne. In 2001, the company entered into a joint venture with Singapore Telecom International for a $650-million ubmarine cable project, the countries first ever undersea cable link connecting Chennai in India and Singapore.

Always on the move and making an impact and excelling in whatever he did, this clear thinking risk taker has changed the face of the Indian ICT space. For his contributions he has been honoured with several awards. He was chosen as one of the top entrepreneurs in the world for the year 2000 and amongst 'Stars Of Asia', by 'Business Week', he received IT Man of the Year Award 2002 from Dataquest and CEO Of the Year, 2002 Award (World HRD Congress). He is the member of National Council of Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce & Industry (FICCI), Chairman, Indo-US Joint Business Council, Member, Advisory Committee constituted by Ministry of IT. Mittal has to his credit the breaking up of the 100 year old monopoly of state run companies to operate telecom services in India. Now he heads a successful empire focused on different areas of business through independent Joint Venture companies with a market capitalization of approximately $ 2 billion, employing over 5,000 people and still growing. Bharti Foundation has funded over 50 schools in Madhya Pradesh and also donated Rs 200 million to IIT Delhi for building a Bharti School of Technology and Management.

In spite of his deep involvement in work, Mittal the man, is calm, seldom ruffled and very down to earth. He says he achieves a sense of detachment and peace with regular practice of yoga. He is thankful for a supportive family including a daughter and twin sons, with whom understandably he doesn't get much time to spend. His brothers Rakesh and Rajan are with him in the business.