Archives: Volume 2 • Number 1 •April-May 2008

Opportunities in Indian Derivatives and Commodities Market

Derivatives market has got a tremendous potential by giving options of hedging speculation and arbitration. Indian market which is still a naïve compared to international market has got a high potential in this field due to boom in sensex and Increase in Amount of FIIs spending in the market. In addition to this the beta of Sensex is high in relation to international markets which again gives high opportunities for Indian investors of speculating in this market. This paper writes about the opportunities and recommendations in today’s Indian derivative market in comparison to their international counter parts. This paper also touches the Commodity market in India and points out the potential prospects in this segment.

Dr.Sanjeev Verma
Assistant Professor
National Institute of Industrial Engineering
Mumbai
sanjeev@nitie.edu

Rohit Chauhan
National Institute of Industrial Engineering
Mumbai

Present Indian Capital Market is known as strong & vibrant component of Indian financial system. Many governmental and non-governmental efforts are being put to bring it at par with International Financial Market. Establishment of SEBI as an apex regulatory body has proved to be a revolutionary step towards bringing the structural changes in order to regain the confidence of Indian investors & to attract the foreign investment. In this direction, the primary market has witnessed a number of reforms over the time. Major changes involved abolition of control over pricing, designing and tenure of instruments etc. SEBI has introduced various stringent disclosure norms. One important reform, which needs consideration, is “Pricing of Issue.” It is the most critical element of any public issue. Under CCI regime, all companies coming with a public issue had to price their issue based on CCI formula. It was felt to be an anti-market practice because all companies whether fundamentally sound or not had to price their issue very conservatively. As a result, all the issues coming into market were easily oversubscribed leaving few scopes for further rise in price on its listing. In 1992, CCI was abolished and companies were allowed to price their issue freely subject to some disclosure requirements. Following this, the guidelines have been provided that allow the issuer to decide the price in consultation with merchant banker. There is no price formula stipulated by SEBI. However, company and merchant banker are required to give full disclosures of the parameters which they had considered while deciding the issue price. Basically there are two modes of pricing the offer: (a) Fixed Price Method (b) Book Building Method. In case of Fixed Price offer, an issuer company is allowed to freely price the issue. The basic of issue price is disclosed in offer document. The company can mention a price band of 20% (the cap in price band should not be more than 20% of floor price) in draft offer document filed with SEBI and actual price can be determined at a later date before filing of final offer document with SEBI/ ROC. Whereas Book Building is a process by which a demand for securities proposed to be issued by a body corporate is elicited & built up and price for securities is assessed on the basis of bids obtained for quantum of securities offered. So, under Free Pricing Era, companies can freely price their issues either through Fixed Price or Book-Building. Book Building is assumed to be optimum price discovery Mechanism over last four five years. In this context, this paper is an attempt to analyse the preference of Book Building process & Fixed Price Method for pricing the issue & also an attempt has been made to study the impact of price method on the performance of the issue.

Dr.Monika Aggarwal
Assistant Professor
Gian Jyoti Institute of Management & Tech
Chandigarh
monikaaggarwal19@rediffmail.com

Asset Pricing in Indian Securities Market: The Role of Beta and Book to Market Equity Ratio

The study tests whether beta, as envisaged in CAPM, and book-to-market equity ratio {ln(BE/ME)}, as envisaged in the Fama and French (FF) model, are the determinants of the security and portfolio returns. Further the study also tests whether the intercept of the CAPM is equal to the risk-free rate of return as envisaged in the standard form of the theory. When percentage returns are considered, ln(BE/ME) explains the variation in security returns in univariate regression while the combination of beta and ln(BE/ME) explain this variation in multiple regressions. However, these variables do not explain variations in security returns when log returns are considered. The overall results, based on percentage and log returns, show that the intercept is equal to the risk-free rate of return but the beta and ln (BE/ME) factors do not explain the variation in individual security returns and portfolio returns in Indian capital market. Therefore, the factors in the FF model that are important in western market in determining the security/portfolio returns do not emerge as the important factors in the Indian market. The results of this paper help in understanding the significance of beta and book-to-market equity ratio in asset pricing in Indian market. .

Dr.T.Manjunatha
Professor
Bapuji Institute of Engineering & Tech
Davangere,Karnataka
tmmanju@yahoo.com

Reaching the Unreached- Through SHG Bank Linkage

Halving global poverty is one of the most important Millennium Development Goals (MDGs) as set out at the Millennium Summit in New York in Sept. 2000. Almost all the countries in the world including India have committed themselves to attaining the MDGs by the year 2015. India is the second most populous country having more than one billion population. Over 22% of its population is living below poverty line. Increasing access to credit has always remained at the core of government’s planning in its fight against poverty. The GOI, since independence has been making concerted efforts in this direction viz., nationalization of existing private commercial banks, massive expansion of branch network in rural areas, mandatory directed credit to priority sectors of the economy, subsidized rates of interest and creation of a new set of rural banks at district level and an apex bank for agriculture and rural development (NABARD) at national level. But the institutional structure was neither profitable in rural lending nor serving the needs of the poorest. In short, it had created a structure “quantitatively impressive but qualitatively week”(Misra, Alok, Sept. 18, 2006) The failure of financial institutions to deal with poor borrowers in an imaginative and sustainable way and the inaccessibility of these institutions to the poor is stated to be the major disadvantages of the existing system (Swaminathan, Madhura 2007). Micro credit institutions are seen as being able to rectify these weaknesses. Microfinance is the new mantra in rural finance. It has been recognized world over as an effective tool for poverty alleviation and improving socio-economic status of rural poor. Micro finance refers to the programs that provide credit or self-employment and other financial and business service, including savings and technical assistance to the poor persons (Micro Credit Summit held in US in February1997). Micro finance services are available at the doorstep of the poorest at affordable price and the institution that provides service does not give it as a charity, but as a business proposition. Sums involved are small, but the coverage is vast, which means number-wise a huge chunk of the population is covered.

Dr.Pooja Bhalla
Lecturer in Commerce
Govt.Brijindra College
Faridkot,Punjab

Gagandeep Kaur
Lecturer in Commerce
Govt.Brijindra College
Faridkot,Punjab
singhkuldeep@rediffmail.com

An Analytical Study on Equity Research of Stocks in Banking Sector

The equity market at present is booming, and with the Bull Run in our market and with FII’s pouring money into our market with Industrial expansion and Retail participants increasing, everything seems to be set right for an “EQUITY BOOM” in India. So an individual who wants to earn superior return with substantial amount of risk has to necessarily participate in equity market to get superior returns in the short span of time. Therefore this project is all about guiding those investors who would like to invest in NIFTY 50 with some useful insights about the Banking sector in the Indian market and some company specific information which would help them in selecting their stock and also it would help them in identifying the timing of the purchase, so that one can improve his odd of making money. Hence, the study is an attempt to analyze, the stock price movements based on the fundamental and technical approach in the banking sector over a period of three years and indicate the impact of various factors that affects the stock price. The fundamental analysis basically throws light on the company on a broad scale, its management, its performance over the years, its growth and its future prospects. Through the technical analysis tools like Moving average, MACD and through various trends, it is possible to suggest the short and long term trend of each stock. To conclude, some suggestions can be recommended based on the findings for an easy and profitable investment experience in the current complex investors’ world.

R.Thamaraiselvi
Lecturer
PSG Institute of Management
Coimbatore,Tamil Nadu
thamaraiselvi2007@gmail.com
 

Anupama
Management Graduate
PSG Institute of Management
Coimbatore,Tamil Nadu