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2011 Stock Market Forecast

Issuance of Non-Convertible Debentures- Reserve Bank of India Directions August 2, 2010

The Reserve Bank of India (RBI) has issued directions for the agencies dealing in securities. These directions would come into effect from August 2, 2010 & would apply to Non Convertible Debentures issued by Corporates.

For the purpose of these directions a Non Convertible Debenture would include the Debentures issued with the maturity date up to one year through Private Placement.

Appointment of Debenture Trustee:

As per these RBI directions every Company issuing such NCDs should appoint a qualified Debenture Trustee (DT). A qualified DT is any entity registered with Securities & Exchange Board of India (SEBI) under SEBI (Debenture Trustees) Regulations, 1993. The DT should comply with the directions issued for Issuance of NCDs with effect from August, 2 2010. Under these directions, RBI may ask for any information as required from time to time & the DT is under obligation to provide the same.

Who Can Invest in NCDs:

As per these directions following types of Investors are allowed to invest in NCDs:

·        Any Individuals

·        Banks

·        Primary Dealers

·        Corporate bodies

·        Insurance Companies

·        Mutual Funds incorporated in India

·        Unincorporated entities

·        Non Resident Indians (NRIs)

·        Foreign Institutional Investors (FIIs, Subject to such limits as prescribed by SEBI)

The Companies issuing Non Convertible Debentures with a maturity period of upto one year should follow the Disclosure Document as prescribed by the Fixed Income

Money Market and Derivatives Association of India (FIMMDA).

Eligibility for issuing Non Convertible Debentures:

A Company can issue NCDs in it fulfills following conditions:

· The tangible Net Worth of the Company as per the latest audited Balance Sheet should be at least INR  

4crore;

· The borrower account of the issuing Company in the books of the financing banks should be classified as a  standard asset ( and not a Non Performing Asset)

· The issuing Company has been sanctioned a working Capital limit or tern loan by any bank or financial institution in India.

· The issuing Company should obtain a credit rating from credit rating agencies & the credit rating should be minimum P-2 of CRISIL or equivalent credit rating by other rating agencies

Conditions for Maturity Date of the NCD:

· The maturity date of the NCD should not be of less than 90 days from the date of issue

· The exercise dates of any Options issued with NCDs being an underlying should not fall within the 90 days   of the issue of the NCD.

Crude Oil Falls to $72 a Barrel

The Crude Oil prices dropped due to rising concerns over the delaying economic recovery in United States.   The U.S. reports on manufacturing, unemployment, home sales and construction spending are very disappointing & have contributed to fall in Crude prices.

South Korean Fund Managers increasing Equity Holding in Korean Stocks

The largest investors of South Korea’s stock market, the pension funds have increased their Equity holding in the market as the foreign investors sold out around 400 billion South Korean won.
The bullish move by the pension funds has helped the Kospi index to gain. The domestic investors started buying shares as the economic growth in South Korea surpassed the forecast of 2 percent.
According to sources the Korean Pension funds have bought equity shares valuing around 3.8 trillion till date in year 2010.

European Central Bank to Lend Euro 111 Billion to Banks for Six Days

The European Central Bank has confirmed that it would lend € 111 billion to banks for six days to help them to honor the expiry of their 12-month loans. As per sources more than 75 banks have approached the European Central Bank asking for short term funds as they need to repay Euro 442 billion of 12 month loans. Apart from this banks have also asked for additional 3 months loan from ECB. The ECB funding is at benchmark interest rate of 1 percent. The markets in Europe reacted & the European Banking Stocks fell across the board.

Introduction to Credit Default Swaps

Swap essentially is a contract between two parties (usually called ‘counter parties’) to exchange with each other cash flows spread across a period of time depending upon the terms of the swap contract.

Any swap contract involves counter parties with exactly opposite financial views about the market, stock price, interest rates etc.

Credit default swaps also involve counter parties with opposite views about the credit risks involved in holding the debt of any Corporation or any Sovereign debt security.

Risky corporate & sovereign bonds are the most recent type of securities that have benefited from the related derivative contracts. There is always inherent risk of default is involved in any bond or debt security. The default by the issuer of the bond or other debt is termed as a credit event.

China's Manufacturing Growth Slows down

Stocks in Asia declined due to concerns over the growth of China as the manufacturing growth in China is less than what was anticipated for the month of May. 

 

The Purchasing Managers’ Index (PMI) fell to 53.9 from 55.7 in April. The Purchasing Managers’ Index is an indicator of economic activity. A PMI above 50 is an indicator of economic growth whereas a PMI below 50 is an indicator of reduction in economic activity.

An Introduction to Proprietary Trading

Proprietary trading is a term used in the context of a bank or other financial institution wherein the bank or financial institution engages in trading stocks, futures, options, commodities, currencies & other derivative instruments with its own money & on its own account.

Traditionally banks & other financial institutions are engaged in accepting deposits from clients & lending the same at a higher rate to earn an income equivalent to interest rate differentials. Also Investment banks have played a major role in fund raising for its clients. Investment Banks also play a big role in helping their clients to find the buyers for stock issues. Banks have been acting as a guarantor many times for buying the shares of their clients in case the stock issue is under subscribed. Many banks also provide portfolio management services & trading facilities to their client. While providing all these services the bank or other financial institution is engaging in trading on behalf of their clients for which usually it charges fees or commission to the clients.

Option Trading: An Overview

Trading Option means buying or selling Options over the exchanges. Option trading is designed for sophisticated investors. Traders use the option trading for speculation as well as hedging.
 

The main advantage of trading option is the leverage offered by the options trading. A trader can invest in Options with very less investment instead of investing in the underlying security.

What is Option Exercise?

The purpose of this article is to throw some light on the financial logic behind the Option trading & investors’ decision to exercise or to allow the option to expire. We would discuss the logic taking an example of Equity or Stock Option in which the underlying instrument of the Option is an equity share.

Option exercise means the buyer of the option chooses to buy or sell the underlying instrument of the option contract depending upon the nature of option, either Call or Put respectively.

Introduction to Options

The purpose of this article is to introduce our readers with the basic concepts of Options. People having a good knowledge of options may find this article a simplified version but that is my main motive of writing this article. I would cover the intermediary & advanced option concepts in my coming articles. I have covered the basic structure of the Option contracts in this article to achieve ease of understanding.

What is an Option?

An Option is a derivative instrument or a financial product under the terms of which you have an option to buy or sell a particular security or other financial instrument as specified in the Option contract. This security or other financial instrument is called as “Underlying Instrument” of the Option on which the Option is based.
 

Foreign Earned Income Exclusion (FEIE) -Best Alternative to Expatriation

If you are living outside the U.S. for more than two years, then there is good news for you.

I’m referring to the “Foreign Earned Income Exclusion” (FEIE) program. Through the program, U.S. citizens living abroad are exempted up to $91,400 in earned income each year from their taxable income. For married couple it is $182,800 per year..

Please note that this is not a deduction from the taxable income but the amount of $91,400 or $182,800 as the case might be would not be considered to be income at all.

Bank of Ireland to Sell 3 Flagship Businesses

As per sources the Bank of Ireland may sell of three of its major businesses as a part of bailout agreement for receiving state aid. The bank has around 17 % owned by public & is negotiating the bail out deal with the European Union regulators.

As per the sources in Bank of Ireland it may be forced to sell following three major businesses.

What is Turbo Tax?

TurboTax is an American tax preparation software package developed by Intuit, Inc. The package was initially  developed by Chipsoft in 1980s. In 1993 Intuit took over the Chipsoft. Turbo Tax is the most popular Income Tax preparation & e filing software in United States.

Turbo tax software comes with different versions like Turbo Tax Deluxe, Turbo Tax Premier etc. The Turbo Tax software can be used to prepare both Federal & State Income Tax Returns. The good thing about this software is that it is always updated once the IRS completes the revisions to the Income Tax Forms. This software is widely used in the United States due to its step by step guidance to the tax payer & user friendly interface. Turbo Tax Deluxe is designed to handle most people’s tax needs.

Goldman Sachs CDO ( Collateralized Debt Obligation) Case

The US Securities & Exchange Commission, has filed a complaint against Goldman Sachs on April 16 alleging that the investors of Collateralized Debt Obligation issued by Goldman Sachs have been cheated by not disclosing the involvement of Paulson & Co, a Hedge Fund in creating the underlying securities.

The Securities and Exchange Commission wants to prove that the Goldman Sachs has cheated its investors by not disclosing the fact that a hedge-fund firm betting against them has a role in creating the underlying securities on which the CDO is based.

BRIC Countries: An Overview

The term BRIC is a short form of Brazil, Russia, India & China. There is so much being discussed about BRIC countries that I thought we should take an overview of what BRIC countries signify in the world of Investments.

World economies have seen many bumps & turbulence over a recent past. That is the main reason why BRIC countries have gained importance in the eyes of world wide investors.  Reducing rates of internal economical growth, reduction in domestic demand, falling markets have created major threats to the survival of Global Investors & they are searching for new avenues for investing their funds to ensure a good return on capital & also the safety for their capital.