"Indian Stock Market"

Ambani & Kotak groups plan enter commodities:

2008-04-03T21:35:00.002+05:30

The Reliance Anil Ambani group is believed to have decided to enter the commodity trading business by setting up a large exchange in the country as part of its plans to capitalise on the vast opportunities in this market.

Besides R-Adag, another corporate giant Kotak group is also mulling over setting up a commodity bourse by acquisition of some regional exchange to get the platform and other technical support, sources close to the development said.

While Kotak group officials were not available for comments, the Reliance group declined to comment on any specific plans for entering into this business.

When asked whether the group might look at entering this business, Reliance Capital’s brokerage and financial products distribution arm Reliance Money’s CEO Sudeep Bandyopadhyay told PTI on the sidelines of a conference here, “We are always open to any opportunity that come our way.”

However, he did not comment on any specific plans regarding this new business. The group is already present in the commodity brokerage business through Reliance Money.

Even as the group officials did not wish to comment, sources said the new business could have some existing bourses as well as a strategic associate as partners to gain technical, business and infrastructure support.

According to experts, this market could be in for a major overhaul with some large corporate houses waiting to start their own bourses.

Another emerging conglomerate Indiabulls group, which is present in businesses like brokerage, financial services, real estate, retail and power has already tied up with state-run trading firm MMTC to start a commodity exchange, for which it is awaiting necessary approvals.

These corporate houses are getting lured to huge growth potential in the Indian commodity market, which is already of the size of close to one trillion dollars and could gain further scale given a continuing bull run across the world in this segment for over five years now, they added.

Kotak Group has a strong presence in financial markets through its banking, brokerage and other businesses. Adag is present across diversified businesses such as telecom, power, financial services, energy, infrastructure and media.

While it was not clear which existing exchange R-Adag was looking at to gain the platform and infrastructure, sources said it may not be the bourses in Rajkot or Ahmedabad as rumoured.

According to experts, new players are being attracted to huge growth potential of commodity trading in India, which is among top five producers or consumers for most commodities.

The commodity market across the world has already seen an unprecedented bull run for about 5-7 years and this bullish trend is expected to continue for another 10 years.

Even as this bull run is being fuelled by actions in places like India and China, the country itself has not capitalised on this trend. Places like Australia, New Zealand and Indonesia have gained large economic traction from the commodity market boom.

The experts believe that entry of established corporate houses could bring in much more credibility to the commodity trading in India, which so far has remained mostly limited to large traders and has very insignificant retail participation.

Besides, domestic and foreign institutional investors are not allowed so far in this market.

The entry of big names like Anil Ambani, Kotak and Indiabulls could help create a better investment scenario in the commodity market, rather than the mostly traders-driven volumes currently.

Mutual Fund

2008-02-10T03:26:00.000+05:30

A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed.

Notes:

The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus.

It has been shown in study after study that a majority of mutual funds fail to beat the market. Also, picking mutual funds purely on the basis of past performance usually does not work.

Interesting Terms

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Fast Market

A financial market that has a combination of high volatility and heavy trading.

Notes:

A fast market is sometimes caused by a severe imbalance of trades - that is, when there are more sells than buys.

Volatility

1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time.

2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the expiration of the option.

Notes:

Volatility is typically calculated by using variance or annualized standard deviation of the price or return. A measure of the relative volatility of a stock to the market is its beta. A highly volatile market means that prices have huge swings in very short periods of time.

Volume

The number of shares or contracts traded in a security or an entire market during a given period of time. It is simply the amount of shares that trade hands from sellers to buyers as a measure of activity. If a buyer of a stock purchases 100 shares from a seller then the volume for that period increases by 100 shares based on that transaction.

Notes:

Volume is an important indicator in technical analysis as it used to measure the worth of a market move. If the markets have made strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move.

Hedge

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

Notes:

An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.

Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

Futures

A financial contract that obligates the buyer (seller) to purchase (sell and deliver) financial instruments or physical commodities at a future date, unless the holder's position is closed prior to expiration.

Notes:

Futures are often used by mutual funds and large institutions to hedge their positions when the markets are rocky, preventing large losses in value.

The primary difference between options and futures is that options provide the holder the right to buy or sell the underlying asset at expiration, while futures contracts holders are obligated to fulfill the terms of their contract.

Beta

A measure of a security's or portfolio's volatility, or systematic risk, in comparison to the market as a whole. Also known as "beta coefficient."

Notes:

Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 means that the security will be less volatile than the market. A beta greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2 it's theoretically 20% more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely most high-tech Nasdaq-based stocks have a beta greater than 1, offering the possibility of a higher rate of return but also posing more risk.

Portfolio

The group of assets - such as stocks, bonds and mutuals - held by an investor.

Notes:

To reduce their risk, investors tend to hold more than just a single stock or other asset. Think of the portfolio as a pie: each piece is divided up into specific assets such as bonds, equities, etc.

MARKET

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1. Typically refers to the equity market where stocks are traded, but can also refer to the bond, options, or commodity market.

2. People with the desire and ability to buy a specific product.

Notes:

"The market was down today'' means the value of the stock market dropped...

The STREETS

2008-02-10T02:53:00.000+05:30

Dalal Street

A term that refers to the Bombay Stock Exchange, the major stock exchange in India. The street is home not only the Bombay Stock Exchange but also a large number of other financial institutions.

Notes:

The term "Dalal Street" is used in the same way as "Wall Street" in the U.S., referring to the country's major stock exchanges and overall financial system. These terms are often seen in the financial media.

Wall Street

1. A street in lower Manhattan that is the original home of the New York Stock Exchange. The street is the historic headquarters of the largest U.S. brokerages and investment banks. Many have since relocated to other areas of Manhattan and the United States. Wall Street was named after the wooden wall Dutch colonists built in this area in 1653 to defend themselves from the British and Native Americans.

2. The collective name for the financial and investment community, which includes stock exchanges and large banks, brokerages, securities and underwriting firms, and big businesses. Some people believe that the interests of these big firms contrast those of smaller businesses, or "Main Street".

Notes:

1. Today, the Southern tip of Manhattan is known as New York's financial district, which covers Wall Street, the New York Stock Exchange, Battery Park, the Southstreet Seaport, Trinity Church and the Woolworth Building.

2. Because of their abilities to quickly raise capital through the investment community, some argue that big businesses have an unfair advantage over small businesses. Outsiders feel that Wall Street businesses are an exclusive circle made up of the powerful, greedy and corrupt. Others believe that this view is outdated. Today, there are brokerages all over the country, allowing investors free access to the same information available to Wall Street's tycoons.

Bay Street

1.The street in Toronto where the Toronto Stock Exchange (TSE) is located.

2. The collective name for the financial institutions in Toronto including stock exchanges, banks, commodity markets, money markets, etc.

Notes:

Bay Street is the Canadian version of Wall Street.

Main Street

Shorthand for "the investing public"--in the same way that "Wall Street" is used to refer to investment professionals and brokers.

Notes:

If you are investing in the market, you are considered a part of the "Main Street" fraternity.

Other'zz

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Dow Jones Industrial Average - DJIA

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

Notes:

Often referred to as "the Dow," the DJIA is the oldest and single most watched index in the world. The DJIA includes companies like General Electric, Disney, Exxon, and Microsoft.

When the TV networks say "the market is up today," they are generally referring to the Dow.

Blue Chip

A security from a well-established and financially-sound company that has demonstrated its ability to pay dividends in both good and bad times.

Notes:

These stocks are usually less risky than other stocks. The stock price of a blue chip usually closely follows the S&P 500.

The name "blue chip" came about because in the game of poker the blue chips were traditionally the most expensive ones.

Dow Jones Transportation Average - DJTA

The Dow Jones Transportation Average is a price-weighted average of 20 transportation stocks traded in the United States. The average was started back in 1884.

Notes:

This index includes airlines, railways, trucking, and delivery companies.

Dow Jones Utility Average - DJUA

The Dow Jones Utility Average is a price-weighted average of 15 utility stocks traded in the United States. The DJUA was started back in 1929.

Notes:

The utility average tends to decline when investors expect rising interest rates. Utilities tend to borrow a lot of money and, consequently, are more sensitive to changes in interest rates.

Dogs of the Dow

An investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year. The portfolio should be adjusted at the beginning of each year to include the 10 highest yielding stocks.

Notes:

The strategy was formulated in 1972 and has proven to be successful. In fact, as Dog of the Dow investors readjust their portfolios each year, it places pressure on the stocks involved.

Nasdaq

Created in 1971, the Nasdaq was the world's first electronic stock market. The Nasdaq is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stocks.

Notes:

The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation. In recent times, the acronym was dropped, and Nasdaq is now used as a proper noun.

The Nasdaq is traditionally home to many high-tech stocks. The big ones include Microsoft, Intel, Dell, and Cisco.

New York Stock Exchange - NYSE

A corporation, operated by a board of directors, responsible for listing securities, setting policies, and supervising the stock exchange and its member activities. The NYSE also oversees the transfer of members' seats on the Exchange, judging whether a potential applicant is qualified to be a specialist.

Notes:

The NYSE uses floor traders (people) to make trades, whereas the Nasdaq and many other exchanges are computer driven.

Standard and Poor's 500 Index - S&P 500

An index consisting of 500 stocks chosen for market size, liquidity and industry group representation, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities, and it is meant to reflect the risk/return characteristics of the large-cap universe.

Companies included in the index are selected by the S&P Index Committee, which is a team of analysts and economists at Standard and Poor's. The S&P 500 is a market-value weighted index, which means each stock's weight in the index is proportionate to its market value.

Notes:

The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for American stocks, but because the DJIA contains only 30 companies, most agree that the S&P 500 is a better representation of the U.S. market. In fact, to many it is the definition of the market. When you hear on the evening news that "the market was up today", the reporter is likely referring to a rise in the S&P 500.

It's tough for individual investors to buy the index - you'd have to buy 500 different stocks. However, it's extremely easy to purchase financial products based on the index, such as index funds and ETFs.

Sensex

2008-02-10T02:50:00.001+05:30

The commonly used name for the Bombay Stock Exchange Sensitive Index - an index composed of 30 of the largest and most actively traded stocks on the Bombay Stock Exchange (BSE).

Notes:

You can think of this as India's DJIA.

Securities And Exchange Board Of India - SEBI

2008-02-10T02:48:00.001+05:30

The regulatory body for the investment market in India. The purpose of this board is to maintain stable and efficient markets by creating and enforcing regulations in the market place.

Notes:

The Securities and Exchange Board of India is similar to the U.S. SEC. The SEBI is relatively new (1992) but is a vital component in improving the quality of the financial markets in India both to attract foreign investors and to protect Indian investors.

Elephants

2008-02-10T02:47:00.000+05:30

Slang for large institutions that make trades in very high volumes.

Notes:

Examples of elephants are mutual funds, pension plans, banks, and insurance companies. One elephant trade can dramatically move the market price for a security. Think of a swimming pool: if an elephant stepped into the pool, the water level (stock price) would increase considerably, and if an elephant got out of the pool, the water level (stock price) would decrease significantly. In comparison to the elephants' influence on stock prices, the effect of an individual investor is more like that of a mouse.

Contrarian investors specialize in doing the opposite of the elephants, that is, buying when institutions are selling, and selling when institutions are buying.

Foreign Institutional Investor - FII

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An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds.

Notes:

The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies.