Archives: Volume 1 • Number 2 •June-July 2007

Financial Derivatives Markets in India - Some Glaring Issues

The financial sector reforms in the decade of 1990’s have transformed the Indian capital markets into a modern one that is vibrant and global. The year 2001 was special for the Indian capital markets as the derivatives segment was introduced. A derivative is a financial instrument, which derives its value from some other financial price. The most commonly used derivatives contracts are forwards, futures, options and swaps. With the introduction of the derivatives, the speculative trades have shifted to a more controlled environment with risk containment measures like margining, monitoring ad surveillance of the activities of various participants. Derivatives trading commenced in India in June 2000 after the SEBI granted the approval to this effect in May 2001. The stock exchanges NSE and BSE are permitted to deal in approved derivatives contracts. Derivatives are a useful tool of risk management. As a hedging mechanism, they reduce the risks ad help markets in absorbing the risk. In the recent years, there is distinctly significant growth in equity derivatives market in India. There are huge upward trends in the turnover of NSE segment. However, the trading volume in the BSE derivative segment has been decreasing since 2005. The present paper aims at reviewing the historical evolution of financial derivatives in India along with the recent trends in the derivatives segment.

Dr. R.K. Uppal
Director
ICSSR Sponsored Major Research Project
DAV College, Malout (Punjab)
rkuppal_mlt@yahoo.com

Navdeep Kumar
Lecturer
PG Dept of Commerce and Management
DAV College, Malout (Punjab)
navdeepgandotra@yahoo.com

Dividend policy decision is one of the critical determinants of shareholders wealth. Thus, it is one of the most important decisions to be taken by a financial manager. Substantial literature in the field of corporate finance is available that discuss the impact of dividend decisions on shareholders wealth. This paper approaches dividend policy from the perspective of an interactive game between corporate mangers and shareholders. Recent theories suggest that dividend policy decisions carry concealed messages from management that may influence share prices. This paper is an attempt to review the literature and explore ways for shareholders to assess dividend policy and concludes Information asymmetry dividend models specifically Linter model is most relevant in Indian context.

Sujata Kapoor
Lecturer, Finance
Institute of Management Studies
Ghaziabad
sujata_kapoor2004@rediffmail.com

Securitization: The Concept and Its Relevance to Indian Banks

The recent past has seen financial innovation in the international and the domestic market. Products and techniques like factoring, Value at risk (VaR) is becoming common in view of the changing needs of borrowers and lenders. The liberalization led to the integration of capital market, money market and debt market to the global financial market. The deepened and widened integrated financial market solely cannot rely on the conventional ways and means of financing that is why there are continuous innovations in terms of Instruments, Intermediation and Institutions. One of the most discussed about and sought after innovation is Securitization. Assets Securitization is gaining more popularity as a result of expansion of financial market. This present paper is an attempt to find out how the securitization could be instrumental to transform illiquid assets into liquid or marketable assets and how it is useful to Indian banks in the era of consolidation and cut throat competition.

Dharmendra Singh
Faculty
ICFAI Business School
Lucknow
singhdharmendra@rediffmail.com

Garima Kohli Malik
Lecturer
Amity Business School
Noida

garima26@rediffmail.com

Performance Evaluation and Future Prospects of Mutual Fund Industry in India

There is a saying that "Money talks! But sadly, for most of us it talks only when it has to say "good-bye"! Here in reference to mutual funds money fails to say good-bye. The mutual funds were started with an aim to provide a platform for enabling the common man to invest in a professionally managed and risk diversified basket of securities at relatively low cost. The term "Mutual funds" describes a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objective as laid down in the offer document. Investing in basket of securities reduces the risk because all stocks may not move in the same direction in the same portion at the same time; therefore mutual funds are least risky avenue of investment. Mutual funds issue units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profit and losses are shared by investors in proportion to their investments. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI).

Shyam Lal Dev Pandey
SCHOOL OF MANAGEMENT SCIENCES
Khushipur, Bachhaon
Varanasi, UP

shyamlaldev@gmail.com

Dr.G.S.Rathore
Reader & Dean
Department of Commerce
Uday Pratap Autonomous College
Varanasi, UP

S.P.Khare
Head of Department
SKBB Govt. P.G. College
Harak (Barabanki)

Human Resource Accounting For Effective HR Decisions

Human resource accounting (HRA) as an approach was originally defined as the process of identifying, measuring and communicating information about human resources in order to facilitate effective management within an organization. It is an extension of the accounting principles of matching costs and revenues and of organizing data to communicate relevant information in financial terms. The subject of offering measures of the values of people to the organization through human resource accounting has tempted human resource professionals and academics alike. Flamholtz and Lace (1981) have defined this approach in the following way: "Human Resource Accounting may be defined as the measurement and Reporting of the cost and value of people as organizational resources. It involves accounting for investment in people and their replacement costs, as when as accounting for the economic 'Values of people to an organization."

Dr.P.James Prem Kumar
Associate Professor
ITM Business School
Warangal Institute of Management
Hunter Road, Warangal

pjpremkumar@gmail.com

Private Players  and Life Insurance Industry

The insurance industry in India has witnessed a sea change during the last five years. The deregulation of insurance industry and setting up of the insurance regulator IRDA has led to the entry of private and foreign players in this sector. This has put an end to the age long monopoly enjoyed by LIC since 1956. Insurance industry is one of the fastest growing industries in the country. Private players with their innovative products, smart marketing, wider distribution networks and better customer service have been successful in attracting a large number of customers. Market share of private players has jumped to 28.56% in the year 2005-06 from a mere 1.35% in 2001-02. Market trend shows a faster growth for the industry with more people buying life insurance. The order of the day is either perform or perish. So, in order to satisfy and retain the customers LIC has to strive hard and get ready to compete with private players.

Pooja Bhalla
Department of Commerce
Govt. Brijindra College
Faridkot,Punjab

Gagandeep Kaur
Department of Commerce
Govt. Brijindra College
Faridkot,Punjab

Impact of Information Technology on Stock Markets

The emerging Indian market is forcing companies to segment buyers not only on traditional lines of demography and behavioral aspects but also on the basis of decision criteria. Some new segmentation parameters could be product awareness, brand awareness, value awareness, and delivery process and technology and information orientation. The information sensitive Indian buyer is today moving in the direction of increased expectation from products and services, value addition, reliability and response time. He is also more conscious of the performance and cost ration. This shift in the decision criteria, compiled with heightened awareness, will throw up new challenges for the market. This article is intended to present the impact of the information technology on market efficiency. Also, the adverse effects of the IT on stock markets are discussed.
Rapid innovation technology, especially in the field of information and communication and the liberalization of economies the world over have made corporate operations more complex. Today marketing has to deal with an entirely new set of challenges. In this present era of crumbling economic barriers and information explosion, the customer reigns supreme. He can source his products and services from any where in the world. His expectations in terms of product quality, price, ready delivery and value for money has gone up. Marketing has moved from competition to collaborative reconfiguration. The challenge before market is to meet the customer’s expectations while making healthy profits and ensuring sustainable long-term growth. The focus today is not on meeting the consumer’s expectations but on exceeding them.

D.Mahendra Kumar
Project Manager
ESN Technologies
Hyderabad
mahisam_in@yahoo.com