19000 crossed...Whats next for Markets

All of Sudden Markets across the global went from Bear market to Bull market with a short span of 1 week started with ISM Index on September 1 in US , Economic Data coming from China and very good  IIP Data of  industrial growth at 13.8 per cent in July in India led to markets moving by over 5% to 7% within a short span.

Though they are some concernes with Data coming especially Dr.Doom commenting that ISM Data is flawed
and our own Provisional Data of IIP might not be very reliable   as commented by analysts.

So what exactly moved our markets in very short span..one reason is good IIP Data and domestic Demand coupled with Strong FII inflows Made our markets reaching 33 months High and now the same analysts are saying 20000 and 21000 for sensex is no BigDeal

And also there is talk of some Hedge funds pouring money into market when our own Domestic institutional investors are pulling out the money . To get a better understanding check the below chart

 Can see that DII were selling huges amount in last 3 days

Check this to get a look of FII flows ,whole of August and September except on last expiry day FII seems to be buying into equities

FII Net position (Total Buy -Total Sell) is very huge meaning FII are Buying more than Selling and thats what precisely is adding Fuel to the markets for now..

Looks like they might keep on doing that for some more time..untial the valuations of index becomes High and I guess we have RBI midterm policy review and Analysts are expecting a a hike of 25 to 50 bps in Repo Ratio. and do something to control inflation without effecting the growth.

I guess the current market run is due to FII and Liquidity driven rise and expect RBI to suck some amount of Liquid from market before inflation becomes too hot to handle. Lets see Tomorrow ..cya for now

Understanding Basel iii Accord

     Basel 3 Accord which was agreed by governors across the globe over this weekend to implement new set of rules to prevent another financial crisis,am not sure how its going to prevent another crisis..cause Basel 2 which was published on 2004 didnt prevent the crisis. Now its pointed by critics that basel 3 implementations got diluted for the sake of few selected countries. Will try to uncover whats this all about.

A. Tier 1 Capital

A1. BASEL II:
Tier 1 capital ratio = 4%
Core Tier 1 capital ratio = 2%

The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital

A2. BASEL III:
Tier 1 Capital Ratio = 6%
Core Tier 1 Capital Ratio (Common Equity after deductions) = 4.5%
Core Tier 1 Capital Ratio (Common Equity after deductions) before 2013 = 2%, 1st January 2013 = 3.5%, 1st January 2014 = 4%, 1st January 2015 = 4.5%

The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.

Capital Requiement :

Tier 1 capital consists largely of shareholders' equity. This is the amount paid up to originally purchase the stock (or shares) of the Bank (not the amount those shares are currently trading for on the stock exchange), retained profits subtracting accumulated losses,

Tier 2 Capital 

A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt, and more

B. Capital Conservation Buffer

B1. BASEL II:
There is no capital conservation buffer.

B2. BASEL III:
Banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%.
Capital Conservation Buffer of 2.5 percent, on top of Tier 1 capital, will be met with common equity, after the application of deductions.
Capital Conservation Buffer before 2016 = 0%, 1st January 2016 = 0.625%, 1st January 2017 = 1.25%, 1st January 2018 = 1.875%, 1st January 2019 = 2.5%

The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions.If Banks are in buffer zone then they are restricted of paying out bonuses ,share buy back,dividends etc..

C. Countercyclical Capital Buffer

C1. BASEL II:
There is no Countercyclical Capital Buffer

C2. BASEL III:
A countercyclical buffer within a range of 0% – 2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances.
Banks that have a capital ratio that is less than 2.5%, will face restrictions on payouts of dividends, share buybacks and bonuses.
The buffer will be phased in from January 2016 and will be fully effective in January 2019.
Countercyclical Capital Buffer before 2016 = 0%, 1st January 2016 = 0.625%, 1st January 2017 = 1.25%, 1st January 2018 = 1.875%, 1st January 2019 = 2.5%

 The purpose of the counter cyclical buffer is to achieve the broader macro prudential goal of protecting the banking sector from periods of excess aggregate credit growth With them, banks increase their capital in good times, not bad. And then, in bad times, they disappear: regulators can (and indeed are encouraged to) abolish the buffers immediately, if there’s some kind of credit crisis. When write-downs eat into bank capital, they eat only into the buffer, which is no longer required, rather than the underlying minimum capital requirement.

D. Capital for Systemically Important Banks only

D1. BASEL II:
There is no Capital for Systemically Important Banks
D2. BASEL III:
Systemically important banks should have loss absorbing capacity beyond the standards announced today and work continues on this issue in the Financial Stability Board and relevant Basel Committee work streams.

The Basel Committee and the FSB are developing a well integrated approach to systemically important financial institutions which could include combinations of capital surcharges, contingent capital and bail-in debt. 

Total Regulatory Capital Ratio = [Tier 1 Capital Ratio] + [Capital Conservation Buffer] + [Countercyclical Capital Buffer] + [Capital for Systemically Important Banks]

Will try to see how these rules going to effect indian banks..I have a feeling that indian banks need to maintain a higher ratio cause here in india as we have high inflation and  it will eat into banks capital...cya in next post

links which can be referenced :
http://en.wikipedia.org/wiki/Capital_requirement
http://ftalphaville.ft.com/blog/2010/09/12/340356/basel-iii-has-landed-full-details/
Bank of international settlements paper
http://blogs.reuters.com/felix-salmon/2010/07/16/basel-iii-the-incomplete-capital-buffer-proposal/

SANGUINE MEDIA: Warrants case Study

I dont know exactly what made me to look into this stock SANGUINE MEDIA way back in januray and after a simple analysis of the company's balance sheet and stock price moving in narrow range i made a decision to buy some stock in it.It never moved out from that range for long time until some events made the stock pricet zoom Its current Mcap is 7.2 Cr with a low holding of Promoters

Suddenly in july the board announced  Increase the Authorized Share Capital of the Company to Rs. 120,00,00,000/- (Rupees One Hundred and Twenty Crores Only). from 15 Crores. I dont have a clue for making such a change.May be they were in expansion mode and might need additional capital?but see 6 fold increase in capital..  looks like they might be having aggressive plans going ahead

Now in August comes the surprise

Sanguine Media Ltd has informed BSE that the Board of Directors of the Company at its meeting held on September 03, 2010, approved the allotment of 10,00,00,000 Convertible Equity Warrants at an offer price of Rs. 10/- per warrant to various Allottees from whom 25% of the upfront money has been received in pursuance to the resolution passed in the Annual General Meeting held on August 18, 2010. link

Here are my observations:

• First why did they go for Warrants instead of selling the stock
• Its like head I win, tails you lose
• If they plan to sell the stock it has to be 10 or 15 % below CMP for it to be successful and there by the company will not get enough capital
• If they go for warrants then its like selling the stock with a premium here it comes around 100% premium meaning when they convert the warrants its like selling the stock to public at double the price..here company benifits not the investor who might be buying at more than 10 Rs in future..(lets see this in future)
• How ever if the warrants are never exercised then its clear profit to the company
• Allottees paid 25% amount mean they paid  25 crores to the company to buy the options
  
• Now they can improve the business with new capital which they got and hope they increase the EPS in coming quarters.
• Another doubt i had is who al got allocated with these warrants..BSE website doesn't contain any such information ...hope it will be cleared in coming days..
  
• My Feeling is that Stock Price will rise for some days till we get some clear status on exercise period and the allottes names.
  
• My Target Price is around 15 to 18 ( Time Frame based on exercise Period )Rs ///lets see if it can reach that price (My feeling is that operators might pull the stock to that price before any conversion).
  

The Era of New Normal

It has been 6 years since Goldman sachs chief economist coined the term BRICs which refers the growing economic power houses Brazil,Russia,India and China.This term is still is widely popular and used by many when talking about export,GDP,stocks etc.More about BRIC definition

Off late the market is buzzed with new word "New Normal".

More than two years after the start of the financial crisis, markets and economies are showing signs of recovery, yet the many factors affecting them remain complex and the outlook is still uncertain. PIMCO calls this the New Normal,a world in which growth prospects may be lower and long-held assumptions about portfolio allocations are being challenged

They call this is as new normal then that means there should be a old normal also right.when did it start?

It was a period characterized by declining interest rates beginning around 1982, a transition to low inflation beginning in the late 70s, accelerated use of financial leverage, increasingly complex financial innovation and loose regulation.    

 So what are effects of it ?

All of this led to a period of reliable growth of around 6%–7% nominal GDP,this  growth led to appreciation of most assets: bonds, stocks, real estate and commodities. The key to this asset appreciation was, of course, financial leverage, but also operational leverage. In an environment of consistent growth companies can gear their plants, equipment and human resources to take advantage of that predictability in order to produce returns and return on equity. That was the old normal.

   

what is New Normal?

The new scenario has a number of implications for both growth and investment. For instance, we expect nominal GDP growth rates to trend lower in the New Normal, probably around 3%–4%. And because of the financial and operational deleveraging we are seeing, returns on assets will likely be half of what they were during the previous 10–20 years. And the deleveraging, re regulation and de-globalisation that will weigh on growth is likely to be the new model in the foreseeable future.

More can be found at this location:
PIMCO+Group+Spotlight


Talks about housing bubble and its implications on economy as a whole'The New Normal' for business

The era of cheap credit, which was the fuel of the economic growth engine, is definitely behind us. The shadow banking system that helped sustain it has collapsed, and quite rightly regulators are looking at ways to shut that door for good.

 

Therefore investors should not view this world by comparing with the conditions in past and not to expect the similar kind of run in stocks,bonds,real estate etc ..

Extensible Business Reporting Language

The RBI is angry over Public Sector Banks  not using technology in there business process. Seems there are using manual inference in complying data to RBI.Can get more information at this RBI-puts-IT-challenged-PSBs-on-notice

Given the circumstances, RBI has said it will come out with a road-map, giving banks a deadline for compliance. RBI's own plans to use IT to supervise banks better and generate more frequent data hinges on banks' adoption of technology. RBI plans to introduce a new system using XBRL (Extensible Business Reporting Language) which allows its computers to communicate directly with the servers in banks and pull out the required information

Some time back  did a googly about this reporting format but  could not get much learning resources at that time.. but not this time...a place to know more about future business reporting format resource

Wall Street

Nasdaq and PricewaterhouseCoopers team up to launch an XBRL-pilot program that will allow firms to view SEC filings

So what is this all about? Its XML: the next big thing . Tags that help machines interpret data could transform e-business and simplify the exchange of information. Artcile from IBM about XML  and XBRL has the  ability to simultaneously display and reveal context of financial information is one of the primary motivations behind this language

Why will Financial Professionals Use XBRL?

Why would an Accounting or Financial professional use XBRL? Some of the benefits of using XBRL include:

• Cuts down on data manipulation
• Facilitates paper-less financial reporting
• Conforms to industry-accepted methods
• Can cut time required to perform various accounting tasks
• Major software vendors will incorporate XBRL
• Permits interchangeability of data
• Analysis of multiple company financial information improves

More can be found in the links provided