ENagar

It has been decided to adopt the following eligibility criteria for inclusion of scrips in group ‘A’:

1. Company must have been listed for minimum period of 3 months.

Exceptions:

a. The Company can be directly listed in group ‘A’ provided the market capitalisation of a company being listed, based on its issue price, is higher than the average market capitalisation of 100th company in the existing group ‘A’ as per the ranking based on preceding 3 months data.

b. Any company permitted to be traded in F&O segment from date of its listing shall be directly listed in group ‘A’.

c. Companies listed subsequent to any corporate action involving merger/ demerger/ capital restructuring etc.

2. Companies traded for minimum 98% of the trading days in past 3 months shall be considered eligible.

3. Companies with minimum non-promoter holding of 10% as per the shareholding pattern of most recent quarter shall be considered eligible. The criteria of minimum 10% non-promoter holding shall not be applicable to public sector undertakings (PSUs).

4. The weightage of 75% and 25% shall be given to ranking on three monthly average market capitalisation and traded turnover respectively to arrive at the final ranks.

5. The list derived, based on final rank shall be screened for compliance and investigation. Based on this screening, the list of top 200 companies shall constitute group ‘A’.

6. The group re-classification shall be reviewed twice in a year i.e. February and August.

7. On inclusion of any new Company in group ‘A’ based on criteria 1(a) or 1(b) detailed above, the last company in the existing group ‘A’, based on its final rank calculated on data preceding three months shall be excluded.

8. All companies not included in group ‘A’, ‘S’ or ‘Z’ shall constitute group ‘B’. The division of group ‘B’ into group ‘B1’ and ‘B2’ is being discontinued.

9. In addition to these groups, scrips may be classified in group ‘T’ and ‘TS’ as part of the surveillance measures.

The revised list of ‘A’ group companies shall be announced through a separate circular on February 18, 2008 and it shall come into effect from March 3, 2008.

Sourced From: MoneyControl

This article is not relevant for Indian Stock market Investors.

In the US market, we often hear about Class A, Class B shares. Even wondered what they are? Let me give you an example.

Berkshire Hathaway Inc. has two classes of common stock designated Class A and Class B. A share of Class B common stock has the rights of 1/30th of a share of Class A common stock except that a Class B share has 1/200th of the voting rights of a Class A share (rather than 1/30th of the vote). Each share of a Class A common stock is convertible at any time, at the holder’s option, into 30 shares of Class B common stock. This conversion privilege does not extend in the opposite direction. That is, holders of Class B shares are not able to convert them into Class A shares.

Similarly at GOOGLE:

There is two classes of Google stock — one (Class B shares) with “super-voting” rights of 10 times those of the other (Class A) shares. This two-part equity capital structure ensures that power remains firmly in the founders’ hands. In addition, Class B shares will be convertible, whereas Class A shares will not.

What it means?
The founders use this tool to separate ownership and control of the company (i.e. they take the investor’s money without actually selling the company or giving any seat on the board.

eg: Ivar Kreuger (one of the biggest matchstick men) controlled his 600 Million Dollar empire (in 1920s) by owning just 1% of the company stocks.

Last week ICICI Bank lost 264 M$ in sub-prime lending.

Today L&T, posted over 50 M$ losses over Zinc futures.

A year ago Hexware software lost several millions on forex speculations?

Why are Indian companies taking the risky speculations. ICICI bank might be pardoned because it had taken huge quantities of US dollar bonds so it may have an intention of hedging it (but there are hundreds of analysts that are saying it was pure greed and not hedging). But what is L&T doing with Zinc futures.
Its main business is infrastructure (which requires concrete, steel), machine tools (which needs copper) and ship building ( which needs steel aluminum). But why Zinc??????

Indian CEO should realize that they should concentrate their attention in their core business and securities and trading are mere distractions. Most of the derivatives are zero sum game (i.e. losses = gain and no wealth is generated) but for them its a lose lose scenario. I.E. if their firm makes a loss, then the company stocks would be trashed, however if they make money then it won’t have any effect on the stock because stock market looks only at the future prospects of the company and these profits are not repeatable. Infact some analysts might downgrade the stock because speculative trades adds uncertainty to the company’s performance

Here is a wonderful presentation explaining what actually caused the sub-prime mess.

courtesy Jonathan J. Miller
(more…)

Sometimes this is the news which comes straight from the horses mouth.

courtesy Karthi

Latest Blockbuster “SAARE ZAMEEN PAR” ..
Premiered Yesterday at BSE and NSE..
Directed and Produced by Ambani Bros,
POWER ON.. MARKET GONE
- Forwarded by Dhruva

On a serious note, does anybody knows a decent mutual fund scheme (>6 months old, diversified and with assets >500cr) which fell by less than 10% over the last 10 days (while the market fell by over 20%) Because if so, then I should invest in that fund manager.

Everybody has read the hype created by Anil Group and if the Grey Markets are to be believed, Anil might become the Richest Man of the Planet. But have you wondered how he has created this fortune?
Let me analyze the entities in his conglomerate.

* Reliance Power:
NTPC has 30 years of fabulous track record. It is the world’s 6th Largest Power producer, World’s 2nd Most efficient Power Utility Company. It has an impeccable project execution track record and is the lowest cost Producer (highest profit margins too) of the Nation. In spite of having 26,850MW capacity of fully owned plants and 27,904MW capacity of Jointly owned plants and several plans near to commissioning, this company has a market capitalization of just 169,567.98 cr INR or 43 Billion Dollars.

Relaince Power on the other hand was valued at 30 Billion dollars at the time of IPO and looking at the hype should reach 60 Billion Dollars at the day of listing. So much hype in spite of the Group having ZERO experience in electricity production and the fact that the first revenue will come only after 18-20 months.

* Reliance Communications:
Bharti telecom (last quarter) had a revenue of 6059.89cr and Profit of 1619.15Cr.
While Reliance Communications had a revenue of 3328.39cr and a profit of 801.24cr. So how is it that a company that has half the profits of Bharti, lesser profit margins is valued almost the same as the giant? (PS: both companies are growing at almost the same rate) If I compare the results with BSNL or some International Giant, then the valuation is more screwed up.

* Reliance Energy:
Although reliance Energy and Tata Power have the same revenue (tata has higher profits), Why is it that this company is worth Twice?
They raised money for the power projects, then transferred all the contracts to Reliance Power and again raised the money. So its like selling the same asset twice.

* Reliance Capital
Same story.
A banking company with a sales of 1,400 Cr (profit is even lower) is valued at 53,000cr.

* Reliance Natural Resources
If you visit its website, it describes the company as:

Reliance Natural Resources Limited (the “Gas Based Energy Resulting Company”) was originally incorporated on the March 24, 2000, under the Companies Act, 1956 as Reliance Platforms Communications.Com Private Limited. The status of the Company changed from private limited to public limited on July 25, 2005. The name has since been changed to its present name, viz. Reliance Natural Resources Limited under Fresh Certificate of Incorporation consequent on change of name dated January 9, 2006.

In terms of the Scheme of Arrangement (”Scheme”) with Reliance Industries Limited, as sanctioned by the Hon’ble High Court of Judicature at Bombay by its Order dated December 9, 2005 and which has became effective from December 21, 2005 the Company is vested with the Gas Based Energy Undertaking of Reliance Industries Limited as defined in the Scheme.

Does it make any sense??????
Let me know if it does. The company has no assets, all it owns is exploration rights to 4 Coal Based Methane beds.
No wonder a company with an annual sales of 40Cr INR is valued at 30,000 Cr.

Call me skeptical, but what I am unable to understand is why a guy with no track record, prior experience, without any significant sales/revenue is valued at 2-3 times the peers which have shown repeatedly stellar performance.

BTW, I feel the primary reason for today’s market crash was Reliance Power issue. Usually when the market falls (significantly) the investors pump in a lot of money to build up a portfolio (and arrest the fall) while the speculators short sell in the hope that it will go down further.

Future group got over-subscribed 100 times, the Power issue got bids worth 7.52 trillion rupees (191 billion dollars), which sucked up all liquidity from the retail/HNI, and mutual funds making it impossible for people to buy any further shares. hence the bears were having a field day (which lasted for more than a week) The biggest proof of this theory is that usually when the market fluctuates a lots, the volumes increase dramatically. (because of increased intra-day activity and the fresh infusion of capital from the long term investors) However today in spite of the fact that the market fell sharply, the volumes were low… indicating a serious liquidity crisis.

It will take another 10 days before the refunds will start coming. And I do not know what will happen by then.

Basic stock market info which advanced readers can skip.

Ever wondered why your portfolio goes up while the Sensex/NIFTY are flat? Or why your portfolio does not rise in sync with the market? It might be because you are comparing it with the wrong basket/index.

BSE Sensex: represents a basket of 30 Large cap shares
S&P CNX NIFTY: represents a basket of 50 large cap shares. (about 41% of the market volume and 56% of the total market capitalization
CNX Nifty Junior: 50 most liquid stock in the market (which are not part of the NIFTY) They represent about 9% of the market capitalization and 14% of the trading volumes.
CNX IT Index: index for 20 IT stocks (96% of the market capitalization and 91% of the transaction value)
CNX Bank Index: 12 top banks (74% of the trades, 79% of the market cap)
CNX 100: top 100 stocks(66% of the market cap and 56% of the trades) for all practical purposes you can consider it as a sum of NIFTY + Nifty Junior.
S&P CNX Defty: (used only by FII) it accounts for dollar fluctuations and the nifty fluctuations… basically the value of NIFTY stocks in USD.
S&P CNX 500: top 500 companies (90% of the stock market capitalization and 80% of all trades)
CNX Midcap: 100 midcap companies. (market capitalization of the range of 1000 to 5000 cr INR)
Nifty Midcap 50: 50 midcap companies.

Now the question arises how to choose the appropriate index:
1) See if your stock is a part of any index. If so, then that index is the best choice.
2) In case of the stock being in multiple index, then choose BSE over NIFTY and NIFTY over Bank/IT index.
3) If it does not belong to any index, then see which is the core area of business and fit it accordingly.
4) otherwise check its market capitalization. i.e.
a. if it is more than 5000 cr, then its best to put it with Nifty/Sensex.
b. if between 1k to 5k crore, then choose the midcap index.

5) If it is a small cap (<1000 cr) and does not fit in any sector index too, then as a rule of thumb expect the stock to give twice the return of Sensex/NIFTY. If it does not, then you are probably taking too much risk for no additional returns.

This is the second part of the series of articles on Futures, options and derivatives. I am writing this article on request of Rambodoc.
This is a advanced topic meant for people who know the secondary market in and out and trade in lot size of 100k INR+
Also please remember that Futures is the fastest way a man can go from rags to riches (and reverse) in the stock market and wise men like Warren Buffet call them “financial weapons of mass destruction”.

Why trade in fno market?

1) Typically people make a short term investment in penny stocks, small caps and unknown companies because the stock price is usually low and fluctuations are high. So with a small increase of buying interest, you can make even 10-20% in a single day. However penny stocks exposes one to the risk of unstable management and unsustainable prices. Hence a better option is to bet in the futures of the index/blue chips. Because they are well researched and the chances of nasty surprises are negligible.
2) In secondary, typically people make money only when the market is rising. But in futures all that is required is that you correctly pick the trend and you can make money both in rising as well as falling markets.
3) Even when you have no idea whether the market will rise or fall, you can take opposite positions so that you can make money in volatile market, as well as flat market.
4) Margin/intra day trading requires you to square off the trade by the end of the day. In futures, you can have open positions for upto 3 months.
5) The margin is usually 10-15% of the trade value (lower in case of options) hence it allows you to make big bucks with a small bankroll.
6) You can generate a trading limit against your existing portfolio. (without any charges or interest cost) So effectively you can trade without having any bank roll.
7) You can leverage on market imperfections and place arbitrage and make assured money.

I have just 6 months experience (30 contracts) in trading with derivatives and I usually within a week, I either double my investment, or lose it entirely.

Now lets see how it works:
For the preview of this discussion lets take NIFTY (minifty)
The NIFTY Sensex was trading at 6157/- and has a lot size of 20.

How to make money in FUTURES:

31st Jan futures was trading at 6160/-
28th Feb was trading at 6160/-
27th March was trading at 6150/-

which is very close to the present market value.
1) If you know by those given dates, the market is going to rise/fall… then you can buy/sell accordingly of the respective month. The margin money you need to pay is 12% of the contract value (i.e. with only 14.7k, you can make upto 3 months far transactions worth 123k) and every 1% rise in the NIFTY would deliver 8.3% returns on your portfolio….
So who says Blue Chips and Sensex is boring and you can only make money in small caps?
2) Arbitrage: In this example, the future price is very close to the present price. However if the difference between the future and the present value is more than 2%, then you can buy stocks in the secondary and sell it on the future (or reverse) and make assured money. This is what all the arbitrage funds do.

How to make money in OPTIONS:
The biggest problem with derivatives is that your liability is unlimited. (i.e. going back to previous example, if the NIFTY falls by 1%, you lose 8%) This problem is solved using OPTIONS.

Put at 6200 on 31-Jan-2008 was trading at 133.00
GET at 6200 on 31-Jan-2008 was trading at 170.25

1) So your losses would be capped to 170/- in case of Get and 133/- in case of PUT. (If you buy a PUT Option at 5500, then you can reduce your loss limit significantly, similarly if you buy a GET Option at 6500/- then the price would be much lower)
2) Options which are way off the present price, can be bought at as low as 1% of the trade value. So you can make some really huge trades with just your pocket money.

3) it offers is to make money during volatile/flat market.
If you think that market is not going to change much from the present value then simultaneously write a PUT and GET option. You would make 133 + 170 = 303/- and if the market is within the range of 6200 +/- 303, then you can pocket the difference.
If you think that the market is going to be volatile (go up/down, but do not know in which direction) then buy a simultaneous put and get option. In the above example, if the market goes beyond the bound of 6200 +/-303 then you are poised to gain from the difference.

This post is formed out of the info at the back of my mind. For more details plz go a very good book forwarded by Ruhi.
That link will explain advanced positions like Bull spreads, bear spreads, butterfly spreads etc.

In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Usually they come in 2 flavors Options and Futures.

Take a farmer (the earliest form of hedging): you expect to grow wheat and expect the price to be 800 per quintal with a cost of 600/- for you. Now if the price of wheat after 6 months is 700/- , your profit reduces by half, without any fault of yours. Similarly increase of price to 900 will increase your profit by a third. So:

1) So you take the price fluctuation as an act of god and live with it (or maybe even commit suicide).
2) You fix the price with the grain merchant by having a futures contract with him. So irrespective of the market prices at the time of harvest you will be paid 790/- per quintal. You lose 10/- but it removes the uncertainty from the mind of the farmer. On the other hand the merchant earns an extra 10/- plus he is assured of the grain even if the prices go sky high. So for a small fee, all the uncertainty is transferred to a second party.
3) The farmer might not want to lose on the windfall he might make if the price rises. So he instead of the derivative, he buys an insurance policy (the option contract). This contract gives the farmer a legal option to sell at 800. For the merchant to bite this bullet he pays him a sum upfront say 15/- (which is non returnable). So if the price falls, he sell it to the merchant at 800/- and is shielded from any losses. However if the price of the wheat rises above 815/- he actually makes a profit by selling it to the open market.

Point 2 is an example of futures, while point 3 is an example of options. Together these 2 constitute the derivatives market which is used for hedging your stocks.