Commodities Market Updates

Monday, August 15, 2011

Important financial concepts


Net profit definition:

Often referred to as the bottom line, net profit is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). also called net income or net earnings.


                                                          OR

Amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue.



Price Earning Ratio

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:         

                                      Market value per share
                                      ------------------------
                                      Earnings per share (EPS)



Gross Profit Ratio


Gross profit divided by net sales. High ratios are favorable in that they indicate the business is earning a good return on the sale of its merchandise, although that may also invite competition.


Gross profit ratio:

                                      Gross profit
                                      --------------
                                      Net Sales

Monday, July 18, 2011

L&T Finance Holdings Ltd IPO

THE MUCH AWAITED PUBLIC ISSUE FROM L&T GROUP IS FINALLY ANNOUNCED.... PLEASE FIND THE DETAILS OF THE SAME BELOW...

BOOK RUNNING LEAD MANAGERS:
JM Financial Consultants/Citigroup Global Markets/HSBC Securities and Capital Markets/Barclays Securities/Credit Suissue Securities/Equirus Capital.

Syndicate Members:
JM Financial Services P. Ltd/SMC Global Securities Ltd/ Karvy Stock Broking Ltd/IDBI Capital Market Services Ltd.


Issue Period: July, 27 to July, 29, 2011
Issue Size : Rs. 1245 cr
Price Band: Will be announced two working days prior to the issue opens
Lot Size: Will be announced two working days prior to the issue opens

Employee Discount : Will be announced two working days prior to the issue opens

Registrar: Sharepro Services (India) Private Limited

QIB Book: 50% of Net issue size
HNI Book: 15% of Net issue size
Retail Book: 35% of Net issue size

Invest through ASBA

Watch this space for More iformation in the nere future....

Tuesday, March 8, 2011

Introduction to Futures:

A future contract is an agreement between two parties to buy or sell an underling asset at a certain price after a certain time frame. The time frame generally ranges from 1 month and beyond. Futures market is a remedy to the problems countered by the market players while participating in the forwards market. Future contracts are more standardized in nature and are traded on an exchange, compared to the forwards contract. The standardized contracts consist of an underlying asset with a standard specification like quality, quantity, location of settlement, and a definite time frame.

The noble laureate , 1990, Mr. Merton Miller says that financial futures represent the most significant financial innovation of the last twenty years.

To overcome the pertinent problem of ‘Credit risk’ in the forward contracts, a group of businessmen in Chicago formed the Chicago Board of Trade (CBOT) in 1848 with an intention to provide a centralized location to know the buyers and sellers. In the year 1865, CBOT went one step further and listed the first exchange traded financial derivatives called Futures Contracts. In the year 1919, a spin-off of the CBOT- Chicago Butter and Egg Board was recognized to trade in futures. Its name was later changed to Chicago Mercantile Exchange (CME). Both the CBOT and CME are recognized as the two largest Financial Exchanges of the modern era.

The ‘ Father of Financial Futures’, Mr LEO Melamed, then chairman of CME, was instrumental in launching the first financial derivatives in the year 1972, in the form of currency futures through the International Monetary Market (a division of CME). During the mid 80’s financial futures became most actively traded derivative instruments. In the recent years, market for financial derivatives has grown by leaps and bounds. In the class of equity derivatives, futures and options on stock indices have gained more popularity then individual stocks.

Futures Terminology:

To understand Futures one needs to be familiar with the terms given below:

a) Spot Prices: The price of the underlying asset in the market currently.

b) Futures Price: The anticipated price at which participants buy/sell the futures contract.

c) Contract Cycle: The term of the contract. Currently, India the exchange traded futures have a cycle like 1 month, 2 month and 3 month and terms generally used for the contract are Current Month, Near Month and Far Month, respectively. The contracts at NSE expire on the last Thursday of every month and a new contract bearing a 3 month expiry is introduced.

d) Expiry Date: This is the last date on which the contract is traded. Post this date the contract ceases to exist.

e) Contract Size: This is also called as the LOT SIZE of the contract. It signifies the standard quantity of the assets to be delivered under one contract.

f) Basis: It is defined as the Future price minus the spot price. In a normal market, if the future price exceeds the spot price it is assumed that the basis is positive and the underlying can reap better profits on the expiry and vice versa.

g) Cost of Carry: The relationship between the spot and the future price can be summarized in the terms of Cost of Carry. This measures the storage cost plus the interest that is paid to finance the asset less the income earned on the asset.

h) Initial Margin: It is the amount that must be deposited in the account at the time of entering (creating position) the future contract.

i) Marking-to-market: It is the difference of price between the closing prices of two trading days. This is settled everyday by the exchange. At the end of the trading day the margin account is adjusted to reflect the investor’s gain / loss depending in the future’s closing price.

j) Maintenance Margin: This is somewhat lower than the initial margin. This is set to ensure that the balance is the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and he is required to top up it with the shortfall. Before the commencement of the next trading day.

IMPORTANCE OF THE DERIVATIVE MARKET IN AN ECONOMY

Derivatives market help in increase savings and investment in the long run for the economy. The derivatives market has to bear a lot of criticism and fear in the economy but it performs a no of economic functions. These can be read as below:

1. Prices in an organized derivative market reflect the perception of the market participants about the future and lead to price discovery of the underlying asset. The prices of the derivatives converge the price of the underlying at the expiration of the contract term. This helps in discovery of not only the future price but also the current price of the asset

2. The derivatives market helps to transfer risk.

3. The derivatives help the spot market in witnessing higher trading volumes as there are more number of participants.

4. This market helps in shifting the speculation to a more controlled environment. In the absence of an organized derivative market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in this kind of mixed market.

5. Existence of an organized derivative market helps the economy by acting as a catalyst for new entrepreneurial activities. It often energizes others to create new businesses, new products and new employment opportunities in an economy.

Tuesday, February 22, 2011

Curbing inflation will be the topmost priority in FY'12: Says the Indian President


President of the Indian Democratic Republic, Hon. Smt. Pratibha Patil on 21st Feb 2011, in her address to the joint session of the Parliament (Lok sabha and the Rajya sabha) raised concerns over the rising prices of the essential commodities and said inflation posed the biggest threat to the country's
growth momentum and combating inflation will be the topmost priority of her government in the next financial year 2011-12. 

Following are few extracts of President smt. Patil's speech:

INFLATION, GROWTH

* Foremost priority in FY12 is to combat inflation.
* Deeply concerned over inflation's threat to growth.
* Inflation has been a problem in the past year.
* Need to protect common man from rising food prices.
* Prices of cereals under control now.
* Vegetable price have eased with fresh crop arrivals.
* Unseasonal Nov rains pushed up food inflation.
* Aim to sustain current economic growth momentum.
* Indian econ on a high growth trajectory.
* Steps to tackle global financial meltdown successful.
* No room for complacency on economic growth.
* Deeply concerned over inflation's impact on aam aadmi.
* Proactive steps to fight inflation have shown results.
* Raising farm yield long-term solution to tame inflation.
* Committed to give remunerative prices to farmers.
* Global economic situation "complicated".

Concentration on developing the ECONOMY & INFRASTRUCTURE

* Need to maintain momentum for wider reforms.
* Need more conducive environment to attract FDI.
* Last year was a difficult one for our country.
* Some areas have seen unacceptably high violence.
* Need to address concern on lack of probity, integrity.
* Plan 40 trln rupee invest in core sector in 12th Plan.
* Pvt sector contributed 34% of infra invest 2010.
* To extend pvt FM radio to town with over 100,000 people.
* Taking steps for broadband, mobile svc to rural areas.
* Plan to set up 806 FM radio channels in 283 cities.
* Plan to give sops for FM radio svc in J&K, northeast.
* Taking steps to push up growth in coal output.
* Aim to make coal production more environment-friendly.
* To add 20,000 MW solar capacity by 2020.
* 16,000 km road construction under progress currently.
* Giving priority to shale gas exploitation.
* Asking cos to aggressively seek coal, gas blocks abroad.
* Likely to top 2014 aim of 40% rural tele-density.
* Aim to construct 7.5 mln houses by 2014.

CORRUPTION , POLITICS

* Ministers' panel looking at steps to tackle corruption.
* Internal security scenario largely under control.
* Welcome the dawn of democracy in Egypt.
* Need to strike balance between environment, development.
* Govt committed to tackle menace of black money.
* To take all steps to bring back black money from abroad.

Sunday, February 20, 2011

What is a stock split?



A Stock split is a process where in the company decides to reduce the face value of the outstanding shares. This is usually done only when the stock is in a strong uptrend and the board of the company has a   comfortable anticipation that the stock will continue the same trend further. When a stock is quoting high in the market, there are worries that there will be fewer takers for the stock implying lower liquidity to the shares of the company. By this exercise, the company tries to provide more liquidity to the stock in the market. More often than not the when a company declares a stock split it means that particular firm is experiencing success.

Mechanics of stock split:

To do a stock split it is important to know the requirements before a stock split, as well as the general profile of the company which is announcing a split of their stock. Naturally the company must have enough unissued authorized shares to split the stock and then the board of directors must then meet and declare a stock split. If authorized shares need to be added, then the company must seek approval from shareholders, which requires a shareholder meeting for a vote to support additional shares being issued. At that point the company can announce the stock split and both the split and recording dates are set. When the split date does indeed arrive, additional shares are issued and the stock price per share is adjusted accordingly.

The average profile of a company that declares a stock split is one that is currently operating with increasing revenue and net earnings.  Typically the stock price is close to or higher than the price of the last split, is in a general uptrend and of course is expected to continue to move northwards.  In addition, business is forecasted to be very good going forward, shareholder confidence is high and basically no major legal issues are pending reconciliation. In addition, a stock split announcement is typically accompanied by other major events which could be anything such as a bonus, dividend being paid, a stock buyback program or even changes to management.

Stock splits usually attract the interest of the retail and institutional participants as they are certainly worth monitoring and when correctly identified, they provide low risk and high reward options strategies. In fact, if you can see a stock split coming when implied volatility is currently very low, then these particular situations have a tremendous chance of being highly profitable when coupled with the appropriate options strategy.