iCharts Discussions

[rk_a2003]

It seems someone decided to give us hints about direction of the market through freak trades in Nifty and Bank Nifty. Is it happening in individual scrip’s also?.

How kind they are? Do they want to derive some strength in their intended direction even from common traders? Market is becoming more and more mind game. No Technicals no Fundamentals wild gyrations in favor of big players (though I am enjoying it).

Or is it the reflection of confusing state of Global and Indian economy?

[pkholla]

[amitkbaid1008]

[rk_a2003]

"The suspense over the number of new banking licences to be issued by the Reserve Bank of India (RBI) has ended. Finance Minister P Chidambaram said in Bangalore on Saturday that the RBI would shortly issue seven licences.

The announcement comes a day after RBI Governor Raghuram Rajan announced the names of the three members who will assist former governor Bimal Jalan in the external committee to vet the applications shortlisted by the central bank. The Jalan panel will propose the final slate to the RBI central board.

Addressing a function at the State Bank of Mysore, Chidambaram said the new banks should not try to become clones of existing banks. “We don’t want the seven of them to look like each other with different mastheads. We want each one of them to cater to the needs of a special group of customers. You will have competition, efficiency and progress only if people attempt different things and do things differently,” he added.

Though the finance minister didn’t elaborate, the RBI had earlier talked about differentiated licensing on the lines of the US and Singapore.

Differentiated licensing could enable specialists such as infrastructure lenders or gold loan companies to do niche lending and get a regulatory treatment different to what it is for existing banks. The RBI had in August this year suggested that after years of a single-track approach to bank licensing, it could consider different types of licensing. “With the broadening and deepening of the financial sector, some banks may choose to operate in niche areas. This has certain obvious advantages in terms of managing business and also risk management. Some countries have a differentiated bank licensing regime where differentiated licences are issued specifically outlining the activities that the licensed entity can undertake,” an RBI paper had said.

While Singapore has five different kinds of licences, Hong Kong has a three-tier structure. As many as 26 firms, including top corporate houses such as Tata Sons, L&T, Reliance Group, Aditya Birla Nuvo, Bajaj, Shriram and Religare have sought banking licences. Among public sector units, India Post and IFCI have submitted applications. Microfinance institutions such as Bandhan Financial and Janalakshmi Financial, too, have expressed interest.

On his first day in office, Rajan had said the licences would be issued by January next year. He said also the RBI intended to make the banking licensing process "more frequent". The Reserve Bank had issued guidelines for the latest round of bank licences on February 22 this year and had come out with clarifications in June.

In the past 20 years, the RBI has licensed 12 private banks in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993. The guidelines were revised in January 2001 and fresh applications were invited. Kotak Mahindra Bank and YES Bank were the last two entities to get licences in 2003-04.

Meanwhile, commenting on infusing more capital into public sector banks than what was announced in Budget 2013-14, the minister said the government was waiting for banks to come up with specific plans. “Banks will be encouraged to lend more in certain sectors at lower rates to boost demand. Let each bank come up with what it can do. Then we can aggregate the demand and calculate what additional capital they require, and they will be provided that,” he added."

Get ready for some speculative activity ahead.

[pkholla]

RK, one small addition to your excellent post on banking licences
With one breath FinMin and RBI are complaining that rural areas and small towns are NOT well covered by bank branches and on the other hand it is almost 100% sure that Sahara Group will not get a licence due to its ongoing "jhanjhat" with SEBI
RBI and SEBI are there to regulate the financial sector not to kill it with over regulation and noose.
Sahara with its wide base in small towns and rural areas is ideal to give them banking experience. Strict but fair watch by RBI will ensure that there is no "gol maal"
Lets watch the headlines. Prakash Holla

[vinay28]

though Jalan committee is yet to do anything concrete about this issue, how did chiddu know/decide that there will be seven?

[rk_a2003]

The Art of Borrowing

"Borrowing money to set up a business is one of the founding principles of Capitalism. Nothing wrong with that, one may say, as long as the borrower is able to pay the interest regularly and return the principal. Of course, there are Ponzi schemes that frequently pop up in various parts of the world from time to time. Named after an enterprising businessman in the US, this refers to a sport in which you borrow from one, and then borrow from another to repay the first, and borrow from a third to repay the second, and so on. The game, on paper, can continue endlessly. But, to the chagrin of its perpetrators, the game is up once more than one lender shows up. Encyclopedias describe it as a ‘pyramid scam’ by which early investors are paid out of funds put in by later investors, who are often far more numerous, lured as they are by the ‘returns’ made by early investors.

India too gets its share of Ponzi schemes at regular intervals. While most scams of this sort are perpetrated by oversmart alecs with village buffoons as their victims, there have been instances of high-society types getting swindled as well. But by and large, these ‘schemes’ are so crazy that it leaves the rest wondering why on earth anyone would fall for them.

However, not every such scam is obvious to the undiscerning observer. In fact, if you look closely, the term could apply to some of our grand infrastructure projects—especially ‘public-private’ partnerships—that are often touted as the best thing to have happened to civilisation since Ancient Romans learnt to pave their highways.

Picture yourself as a smart alec from one of India’s many fast-growing states—Andhra, Gujarat, and now even Bihar—who happens to run a small family business and is an old pal of the local Mantriji. With suitable inputs from his ministry’s babu, Mantriji floats a scheme to put up a large power generation project, say, worth a hefty Rs 2,000 crore.

You summon a huddle of the large extended undivided family, and count your blessings, cash piles and bank accounts. Let’s say you have only Rs 100 crore. That elder who you think has been going senile scoffs and mumbles something to the effect of boys these days wanting to set up projects 20 times larger than the collective family wealth. You sigh deeply and buy him a ticket to Haridwar, Kashi, Chitrakoot or wherever. From here on, he can run the family charitable trust and generate goodwill.

The Rs 2,000 crore power project is of national importance, being of strategic value to the country’s growth, so the government has sanctioned a 12 per cent ‘guaranteed return’. This bait is to be used to get banks in. At high leverage. This implies that instead of the prudent 2:1 debt-to-equity ratio, you can stretch it to 3:1. In simple English, that means for every rupee that you put in, the bank will give you a loan of Rs 3. If you put in Rs 500 crore, banks will release Rs 1,500 crore.

Now, in a company with Rs 500 crore of equity capital, promoters need to have only a little more than Rs 250 crore worth of shares to have a controlling stake of just over 50 per cent. The rest can be dispersed among a million investors. But then, that doesn’t solve your problem. All you have is Rs 100 crore. You are Rs 150 crore short. What do you do?

*****

You appoint a Merchant Banker—guys in suits who help you raise money from capital markets. They make you incorporate a new company with Rs 100 crore in capital, its 100 million shares (of Rs 10 face value each) owned entirely by you and your family. After that, riding on the wonderful project you have bagged, they help you launch an Initial Public Offer (IPO).

You offer the public another 100 million shares at Rs 40 each, a premium of Rs 30. So what if the project has not even acquired land, leave alone plant and machinery, forget generating even a single megawatt of power? The Merchant Banker’s PR division plants helpful stories in the press extolling the virtues of the project and its promoters. Helpful stockbrokers circulate stories of the grey market premium that the yet-to-be-sold shares command. Your IPO is ‘oversubscribed’ thanks to the Standard Tricks Department of the Merchant Banker, and the shares debut on the stockmarket at Rs 50, trading at Rs 10 more than the issue price of Rs 40. The net worth of your company is now Rs 500 crore: Rs 200 crore paid-up capital (half of it yours) and Rs 300 crore in the share premium account. And you still own half the business.To meet their lending targets (and keep Mantriji happy), the banks promptly sanction Rs 1,500 crore in loans. Mantriji, a coalition partner in the state government by virtue of his three seats in the Assembly, provides support to the Chief Minister, whose party survives on a one-vote majority. Of your 50 per cent ownership, he has been given a secret 10 per cent stake. Of course, he does not own it directly but through two other local businessmen—one, a former property dealer, now a real estate company, and the other, a former tent-tamboo trader, now also a real estate company.

With Rs 2,000 crore in your kitty, you now set off to distant shores to buy power equipment. Your travels take you to Old Europe, to the not-so-old US, and finally to New China, where you settle on state-of-the-art technology for Rs 1,000 crore. Next, your travels take you to Dubai, Singapore and finally Mauritius. Here, your Merchant Bank helps you set up a company that buys this equipment for Rs 1,000 crore from your Chinese suppliers, and then sells it, in turn, to your Indian market-listed power company for Rs 1,500 crore. Thus, your Rs 100 crore investment has already generated Rs 500 crore for you in a tax haven. Satisfied, you return to India with the peace of an ascetic and spirit of a man who has travelled the world to see India succeed.

With the balance Rs 500 crore, you acquire land in a formerly ‘no-go area’ at throwaway prices from naïve tribals who are easily pleased with a third-rate hospital and worse school you set up for their upliftment (thus acquiring a do-gooder’s public image). In two years, the project is up and running. To guarantee 12 per cent returns on the Rs 2,000 crore project, the government buys electricity from you at a price that generates Rs 240 crore. You pay your banks Rs 150 crore in interest, and earn profits of Rs 90 crore on capital of Rs 200 crore. That is an earning-per-share of Rs 4.5, enough to keep your share price in a range of Rs 50-75 and your IPO investors happy.

The Rs 500 crore you ‘earned’ in Mauritius, though, has shrunk to Rs 250 crore because you had to pay off the Merchant Banker, Mantriji, his babu, the press, and a few jholawalas and sundry accomplices. But you are now the proud owner of a Rs 2,000 crore company in India, and have a neat Rs 250 crore in dollars overseas. You can now set up another infrastructure project. This time, your money enters the country as FDI from your Mauritius company.

Oh, we forgot to mention the ‘Business- man of the Year’ award that a business TV channel will give you this year. And the Bharat Sammaan to be awarded by a Hindi TV channel. It’s only a small dent in your overseas bank account. You deserve every bit of it, of course, for having brought so much investment into the country, setting up critical infra projects, putting up schools and hospitals. And those dumb Americans call such path-breaking projects Ponzi schemes!"

[pkholla]

RK: Great stuff, but I am not sure whether this article will expose a few "award-winners" like GMR, GVK, LITL, IVRCL or inspire 10 more!
Cheers, Prakash Holla
PS Going by greater fool concept, I want NF to surge to 7000+ thereby allowing me to dump the GVK and LITL that I am stuck with since 2010-11!!!

[vinay28]

Author unknown

6 trouble spots of Indian economy

Indian economy has probably crossed the stage when financial engineering could have worked to revive growth.

The latest issue of the Reserve Bank of India's annual report points to quite a few hurdles, which need to be crossed for the nation be on a sustained economic growth curve. Indian savings, the cornerstone of investments, have cracked and that is reflected in investments.

With banks remaining the key financial intermediary between the savers and entrepreneurs who build projects, bank deposits have to grow if at all investments have to happen. While the state of the power industry is well known, investments in roads and railways also lag behind substantially.

Household financial savings rate increased marginally

Household financial savings remain low as higher prices of goods eat into savings.

Life insurance funds remained sluggish and outfl ows under small savings persisted. But investment in valuables, essentially gold, declined to 2% of GDP in 2012-13 from 2.4% in 2011-12 signalling the most preferred mode of savings is also being hit.

At the same time, the financial liabilities of households increased, largely driven by acceleration in personal loans and retail credit.

New railway lines (Km)

Railway projects are handicapped by the limited availability of resources, huge throw-forward of ongoing projects, delay in land acquisition and forest clearance, law and order problems and contract failures, due to which achievement was much below the target set for new railway lines in 2012-13.

The Kakodkar committee to review the safety of Indian Railways (2012) and the Sam Pitroda committee on modernisation of Indian Railways (2012) have underscored the significance of PPP models for the expansion and growth of the sector.

Road projects awarded/completed by NHAI (Km)

Infrastructure remains a neglected baby. In the roads sector, the slump worsened with the number of road projects awarded by National Highways Authority of India slumping to 1,933 km from 6,491 km in 2011-12.

The underachievement has been largely due to environmental clearance issues.

The rising leverage of firms engaged in the sector added to the constraints. The two factors affected their financing as well... the dip in the award of new projects in FY13 is likely to hit construction of highways in the medium term.

Deposit-credit wedge remains a worry

The deposit-credit wedge has begun to widen again. Without repairing this, any aspiration to boost investments and economic growth may come to a naught.

If government's efforts to raise investments materialise, then without a corresponding bank deposits growth, interest rates could shoot up, essentially killing any recovery early.

Broad money growth was at 13.8% in FY13, higher than RBI's indicative trajectory. Credit growth, however, decelerated mainly because of dampened demand emanating from decelerated domestic growth and macroeconomic uncertainties.

Real wage growth moderates in rural areas

Money illusion is showing even on rural income, which has been propelling demand. Rising wages amid slowing growth and high infl ation could indicate the increase in wages is unmatched by productivity growth, leading to a potential wage-price spiral.

Significant increase in rural wages has been a critical factor influencing the inflation trajectory. In FY13, while nominal wage growth in rural areas exhibited some moderation, increasing inflation led to signifi cant moderation in real wage growth.

For organised manufacturing, the pace of increase in nominal wages remained in the double digits.

Relative price changes added persistence to inflation

Recent trends indicate the relative price of food remained stable up to the beginning of 2008 and then exhibited a significant upward trend. This has contributed to the persistence of inflation and also a divergence between food and non-food inflation.

The trend in the relative price of fuel also shows a secular upward trend, particularly in the recent period. While the upwardly trending relative price of food could reflect the role of both domestic demand and supply factors in keeping food inflation persistent, the relative price of fuel has trended upwards in line with rising global crude prices and the gradual adjustment of administered prices.

Despite the moderation in overall inflation, food inflation continued to remain a source of concern during 2012-13, as the average food articles inflation increased to 9.9% from 7.3% in the previous year.

[rk_a2003]

Good one Vinay. The irony is Indians are transforming to consumerist way, shedding savings orientation.

The paradox in the system is it needs consumers that too rampant consumers for propelling the growth in the economy and it also needs savings to supply finances for the growth. They are two swords which can not stay in one case. One can be either a rampant consumer or a hard core saver not both. There can not be a middle path.

US FED invented a way of printing $ continuously to crack this paradox which is leading to a catastrophe.The market economy has yet to see the worst.

[vinay28]

[vinay28]

Diesel demand drops for first time in a decade: IOC

By PTI | 5 Dec, 2013, 05.42PM IST

NEW DELHI: For the first time in more than a decade, diesel demand has declined this fiscal as monthly price hikes and increased power generation clipped consumption, Indian Oil CorporationBSE 1.51 % (IOC) Chairman R S Butola said today.

Diesel, which is India's most consumed fuel accounting for close to 45 per cent of the total petroleum product demand, has seen sales grow of 6-8 per cent since 2003-04.

But this year, it has fallen by 0.8 per cent over last year to 39.46 million tons.

"This year there has been 0.8-1 per cent degrowth," he said at the 3rd World Energy Summit here.

The deceleration in diesel demand, he said, was due to better power production which saw lesser burning of the fuel in gensets.

But the bigger reasons is the move to deregulate diesel ates through small monthly increases. "Small adjustments of 50 paise every month has brought some parity with cost," he said.

Diesel rates have risen by a cumulative Rs 6.62 per since January, leading to drop in demand.

Butola said petrol consumption had dropped when the fuel was deregulated in June 2010 but diesel continued to see rise in consumption as it was heavily subsidised thereby discouraging people to use it optimally.

Now, petrol is at par with its cost of production but the current selling price of diesel still is a Rs 9.99 a litre lower than its cost.

"We believe that market forces need to be allowed to have proper inter-play (on demand and consumption)," he said.

While diesel sales dropped in first seven months of the fiscal year that began in April, petrol consumption has risen by 10 per cent to 9.05 million tons.

Overall, fuel demand during April-October was largely unchanged at 90.576 million tons when compared with 90.233 million tons of consumption in the same period last year.

Besides losing Rs 9.99 a litre on diesel, fuel retailers are currently losing Rs 36.20 per litre on kerosene sold through the public distribution system and Rs 542.50 per 14.2-kg cylinder of domestic cooking gas (LPG), according to IOCBSE 1.51 %, the nation's largest oil refining and marketing company.

Last fiscal, diesel sales had risen 6.68 per cent to 69.08 million tons. Diesel consumption in 2003-04 was 37.07 million tons and has risen to 69.08 million tons in 2012-13.

It had recorded a 11.1 per cent growth in 2007-08.

[rk_a2003]

Today I read in ET a review of the movie "Wolf of the wall street" by Mr.Rashesh Shah,Chairman of Edelweiss Group.

He is saying that "Algorithmic trading now accounts for 90% of volumes here"...here means Indian market.It's a revelation for me.I knew that algo trading share is increasing day by day all over the world and in India too but never thought that it's having a share of 90%.

All of us need to know much more about algo,develop insights and grasp the dynamics of it if we want to survive in the market......I invite all to post there views and inputs on it.

[amitagg]

Yes RK. Its true and I share very intertesting observation.of last few week.

One scrip in cash....a psu....heaving resistance at A price "X"....if you "buy" "Y" quantity at "X" price,,,,,price won't move up a point...

But if you sell even half quantity at that price...low volumes scrip...price (we can make it move down 5-6 percent) ..."We easily"

Now the important Algo trading....I watched "Market depth" and astonishingly I cannot entirely explain in words but something happens

That difference between "bid" and "ask price" of say .15/.2 is "COnSTantly" made by up "buy" and "sell" orders of "8" and "1" share....so readers here would not understand what I am saying (neither do I ...ha ha ha) bu instead of selling shares at "X-say Z price" (within Rs 1 )...I could actually sell at "X-say Z+.4)

That is somethin was going on...actually is was "algo profit for range trade" buying O.5-O.6 ticks below, selling 1 share between bid and ask to keep price down (when buying) then selling higher when that 1 share was executed....that is happening continously for 2-4 hrs

[rk_a2003]

Thanks Amit for your interesting post,with algo domination time tested and proven methods may become redundant.

There was a consensus among analyst that the the cycles are getting compressed in markets (duration wise).This could be attributed to algo...I guess.

One point I would like to emphasize is there could be a FLASH crash and even a FLASH rise in the markets at any time.Therefore you need to put the SL immediately with out any time delay.Never leave any trade without a SL even for a sec.Make it as a practice or even as a ritual to keep SL in the system the moment you enter in to a trade.