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Stories with a message....Buddha's life & Anger

Email forwards...nice management stories:

(a) A story from Buddha’s life…

Once Buddha was walking from one town to another town with a few of his followers. This was in the initial days. While they were travelling, they happened to pass a lake. They stopped there and Buddha told one of his disciples, “I am thirsty. Do get me some water from that lake there.”

The disciple walked up to the lake. When he reached it, he noticed that some people were washing clothes in the water, and right at that moment, a bullock cart started crossing through the lake. As a result, the water became very muddy, very turbid. The disciple thought, “How can I give this muddy water to Buddha to drink!” So he came back and told Buddha, “The water in there is very muddy. I don’t think it is fit to drink.”

After about half an hour, again Buddha asked the same disciple to go back to the lake and get him some water to drink. The disciple obediently went back to the lake. This time he found that the lake had absolutely clear water in it. The mud had settled down and the water above it looked fit to be had. So he collected some water in a pot and brought it to Buddha. Buddha looked at the water, and then he looked up at the disciple and said, “See what you did to make the water clean. You let it be…. and the mud settled down on its own – and you got clear water. Your mind is also like that! When it is disturbed, just let it be. Give it a little time. It will settle down on its own. You don’t have to put in any effort to calm it down. It will happen. It is effortless.” What did Buddha emphasize here? He said, “It is effortless.”

Having ‘Peace of Mind’ is not a strenuous job; it is an effortless process! When there is peace inside you, that peace permeates to the outside. It spreads around you and in the environment, such that people around start feeling that peace and grace.

(b) Don't keep distance

A saint asked his disciples, 'Why do we shout in anger? Why do people shout at each other when they are upset?'

Disciples thought for a while, one of them said, 'Because we lose our calm, we shout for that.'

'But, why to shout when the other person is just next to you?' asked the saint. 'Isn't it possible to speak to him or her with a soft voice? Why do you shout at a person when you're angry?'

Disciples gave some other answers but none satisfied the saint.

Finally he explained, 'When two people are angry at each other, their hearts distance a lot. To cover that distance they must shout to be able to hear each other. The angrier they are, the stronger they will have to shout to hear each other through that great distance.'

Then the saint asked, 'What happens when two people fall in love? They don't shout at each other but talk softly, why? Because their hearts are very close. The distance between them is very small...'

The saint continued, 'When they love each other even more, what happens? They do not speak, only whisper and they get even closer to each other in their love.

Finally they even need not whisper, they only look at each other and that's all. That is how close two people are when they love each other.'

MORAL: When you argue do not let your hearts get distant, do not say words that distance each other more, else there will come a day when the distance is so great that you will not find the path to return.
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Basics of Stock Market - 7

Let us now start analyzing a scrip's fundamental. Today being Vijayadhasami day and normally every hindu will start learning today, I thought of posting today. It will be a short posting.

There are certain key indicators that are used by investors to see whether it is worth investing in that scrip. They are:

(a) Profitability
First of all we need to see whether the company is a profit making one or a loss making one. If it is loss making, no one would be interested in the company, unless you see that the company will do better in the long run and you would like to buy now (if it is in loss, the price of that scrip would be low).

(b) Earnings per Share (EPS)
This is nothing but, how much a share earns. It is computed by dividing the Net Profit after Tax (PAT) by the totoal number of shares of that company. For example, if the PAT is Rs.10,00,000 and the number of shares is 10,000 then EPS is Rs.10.00 (Rs.10,00,000 / 10,000).

(c) Cash Earnings per Share (CEPS)
This shows how much cash a share has earned. This is computed by adding non-cash expense like Depreciation added to the PAT and divided by the number of shares of that company. For example, in our earlier example, the PAT was Rs.10,00,000 and the number of shares is 10,000. Suppose, the depreciation charge is Rs.12,000, the Cash Profit would be Rs.10,12,000 (Rs.10,00,000 + Rs.12,000). Then, the Cash Earning per Share would be Rs.10.12 (Rs.10,12,000 / 10,000).

(d) PE multiple or PE ratio.
PE stands for Price to Earning. This is computed by dividing the Current Market Price (CMP) by the EPS. This will show how many times the Earning is mutiplied. Let us continue the above example. We computed that the EPS is Rs.10.00. Assume that the CMP is Rs.45. The PE is 4.5 times (Rs.45 / Rs.10). Again, we can compare it with the other companies in the same industry/sector. Also, the sector/industry will have a PE. So, you can see where the scrip stands in terms of the industry and other company scrips. If the PE of the industry is 7.5 times, then our scrip is doing good. Lower the multiple, better the scrip value.
The current PE of Infosys is 21.37 times and the SW Industry PE is 20.34 times. Here since the PE is more than the industry average, we can say that it is slightly over-priced. The Steel industry PE is 10.62 times, while TATA Steel's PE is 8.09. So, what do you infer?

(e) Book Value
It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. Book value of a share is computed by dividing the Book Value of the net assets by the number of equity shares.

(f) Price to Book Value (PBV)
By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. PBV is computed by dividing the CMP by the Book Value per share. If the PBV is less than 1, then it means that the scrip is quoting below its Book Value and is worth investing.
CLICK HERE to see which scrips are quoting well below its Book Value
CLICK HERE to see which scrips are quoting well above its Book Value

(g) Dividend history
See how much dividend the company declares every year. This will show how the shareholders are rewarded.

(h) Dividend Yield
This is how much the scrips yields in terms of dividend. As you know the dividend, if declared,will be on the face value. For example, if the company declares dividend of 50% on a share with a face value of Rs.10, the dividend would be Rs.5 per share. (50% on Rs.10). Suppose, the CMP is Rs.25, and we buy it, when it declares dividend, we pay Rs.25 per share and get Rs.5 per share. It means that the yield is 20% (Rs.5 / Rs.25). Again, it depends on how long you hold the share. For example, if you hold it for only a month, then your annual yield would be Rs.240% (20% per month).

CLICK HERE to see the high dividend yielding scrips.

Before you start analysing, you need to know one thing. In the above analysis, we have seen how the indicators are calculated. Some base are fixed for year and the only thing that moves is the CMP. For example, the EPS remains constant throughout the period (unless the results are published), but the PE will keep changing (as CMP is changing everyday). Same is the case with BV and PBV. So, be cautious when you do your analysis.

Catch you with more analysis in the next posting.

Cheers,
Gopal


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ICWAI - Name change, impact of IFRS, Mandatory Training & CAS

Name change
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September 11 may be a worst day for the world and especially US. But, for ICWAI, Sep 11 was a great day..YES...Cost accounting body ICWAI will soon be known as Institute of Cost and Management Accountants of India (ICMAI) with the government agreeing for a change of name of the body.

"The request for name change to Institute of Cost and Management Accountants of India has been accepted in principle ... It will require amendment in the ICWAI Act. We are working on it ... Hopefully in the near future it will be done," Corporate Affairs Minister Salman Khurshid said on 11-Sep-2009.

"We are born out of the Chartered Institute of Management Accountants, London, formerly they were cost accountants, all subsidiaries have changed their names, in Bangladesh, in Pakistan... In Indian for the last several years it was stuck," Mr.G.N.Venkataraman (President of ICWAI) said.

For further reading...CLICK HERE

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Cost accounting norms to be in tune with IFRS
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Cost accounting norms prescribe Historical Cost and IFRS prescribe Fair Value. If IFRS is implemented in India, there will be a dual accounting for IFRS and the Cost Accounting records. Keeping in line with the International standards, ICWAI is gearing up in tuning their norms to bring in the necessary changes.

“IFRS would affect the structure of cost of product and hence the Institute bringing in necessary changes and preparing its members,” said ICWAI President GN Venkataraman. IFRS are interpretations and the framework for the preparation and presentation of financial statements adopted by the International Accounting Standards Board (IASB).

The ICWAI has taken this initiative at the behest of the International Federation of Accountants (IFAC), the global organisation for the accountancy profession, which is for the first time addressing costing and has come out with guidelines on the impact of IFRS on costing principles.

For further reading...CLICK HERE

Cost Accountants - This is a good news for us! Also, with the IFRS on its way, let us gear up and grab the opportunity!!!

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Mandatory training for all members of ICWAI under Continuing Education
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For Members in Practice

(i) The member should undergo minimum mandatory training of 10 hours per year w.e.f. 2009-10.
(ii) The certificate of attendance for training will have to be enclosed with the application for renewal of Certificate of Practice.

For Members in Service

(i) The member should undergo minimum mandatory training of 6 hours per year w.e.f. 2009-10.
(ii) The certificate of attendance for training will have to be enclosed with the application for renewal of membership.

The attendance of members in National Cost Convention, Regional Cost Convention, Seminars/Workshops conducted by the Institute/Regional Councils/Chapters (both paid/unpaid programme) will be reckoned against the requirement of mandatory training period under this scheme.

The requirement specified above will not apply to a member who has attained the age of 65 years.

So, guys..start attending the Institute programs.

For full guidelines, CLICK HERE

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Request for Comments on the Exposure Draft on Cost Accounting Standards
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The Council of the Institute in its meeting held on September 12, 2009 has approved the release of the Exposure Drafts on Administrative Overheads and Repairs & Maintenance Cost, as recommended by the Cost Accounting Standards Board (CASB), the standard-setting body of the Institute. The CASB’s proposed standards may be modified in light of comments received before being issued as a standard in final form.

1. Download Exposure Draft on Administrative Overheads.
2. Download Exposure Draft on Repair and Maintenance Cost.


Please submit your comments preferably by email, latest by November 13, 2009. Comments should be addressed to:

The Secretary,
Cost Accounting Standards Board
The Institute of Cost and Works Accountants of India,
ICWAI Bhawan, 3rd Floor
3, Institutional Area, Lodi Road,
New Delhi


Email responses should be sent to: casb@icwai.org

Cheers,
Gopal
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Basics of Stock Market - 6

Now let us go into the market!

The market can be classified into 2 categories - Primary & Secondary.

Primary market is the market where the new securities are issued. IPO, Rights, FPO, Private Placements are primary market

Secondary market is the market where the shares are traded on a daily basis, after they are issued in the Primary market. When we talk about buying and selling of scrips, it is in the secondary market.

Depository
A depository is like a bank, wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form. The Depository provides its services to investors through its agents called the Depository Participant (DP). These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations, amongst others,three categories of entities, i.e. Banks, Financial Institutions and SEBI registered trading members can become DPs.

In India, we have The National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Dematerialization?
Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investor’s account with his Depository Participant (DP). Following are the benefits of Electronic format:
  • quick transfer of ownership and help in deciding who will get Dividend, Rights or Bonus.
  • saves Stamp Duty
  • no need to maintain the physical form (avoiding worn out, losing them etc.,)
  • Odd lot shares (which are not market lot) can easily be maintained.
Dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable

Book-closure/Record date

Book closure refers to the closing of the register of the names of investors in the records of a company. Companies announce book closure dates from time to time. The benefits of dividends, bonus issues, rights issue accrue to investors whose name appears on the company's records as on a given date which is known
as the record date and is declared in advance by the company so that buyers have enough time to buy the shares, get them registered in the books of the company and become entitled for the benefits such as bonus,
rights, dividends etc.

With the depositories now in place, the buyers need not send shares physically to the companies for registration. This is taken care by the depository since they have the records of investor holdings as on a particular date electronically with them.

No-delivery period (NDP)?
Whenever a company announces a book closure or record date, the exchange sets up a no-delivery period for that security. During this period only trading is permitted in the security and the trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the benefit is clearly determined. So, before buying a scrip for Bonus or Dividend look out for the NDP. Recently, with the dematerialization in place, SEBI was discussing to do away with the NDP.

Ex-dividend date

The date on or after which a security begins trading without the dividend included in the price, i.e. buyers of the shares will no longer be entitled for the dividend which has been declared by the company, in case they buy on or after the ex-dividend date. For example, if the Ex-dividend date is 21st Sep 2009, you need to get the delivery before 21st Sep. Else, you will not be eligible for the Dividend.

The concept is the same for Ex-Bonus date, except for the fact that it applies for Bonus issue.

Ex-date
The first day of the no-delivery period is the ex-date. If there is any corporate benefits (like rights, bonus, dividend) announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits.

Okay...now let us get to know how to place order to buy or sell a scrip.

You need to have a trading account with an intermediary (Broker) and through him you have to transact (i.e place an order for buying or selling).

Rate at which to buy or sell

At what price you will place the order to buy or sell? To answer this question, you need to know what is a Bid and Ask price.

The ‘Ask’ (or offer) is what you need to know when you're buying i.e. this is the rate/ price at which there is seller ready to sell his stock. The seller will sell his stock if he gets the quoted “Ask’ price.

The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell.

The Ask and Bid rate is available online, as the trading in India is online. Your broking account, if it is online, you can see the Bid and Ask rate.

The total number of quantity that is available for BID or ASK will decide whether there is a selling pressure or buying pressure for the scrip. If the ASK quantity is more, there is a selling pressure and vice-versa.

How do you know at what rate you need to buy or sell?

It depends on various factors. Normally, the market trend and the fundamental of the scrip. Every morning, before the Indian markets open we can see how the US market (NASDAQ, DOW JONES) and Asian markets (NIKKEI, HANG SENG, STRAITS etc.,) was moving. This will give an indication on how the Indian market will be behaving.

Check with your broker or financial consultant, which scrip to buy and how the market will behave. Before that you need to make sure whether you are buying for Investment (Long term holding) or Trading (Short term holding).

You can see the following terms used in the rates. Let us take the example of NTPC. It was quoting around Rs.213:
  • CMP - Current Market Price (the price at which the scrip is quoting at a moment and in case the market is closed, the last traded price). In this case, it was Rs.213
  • Target price - The financial consultants will give recommendation as the target price of a scrip. It may be more or less than the CMP, depending on the situation. and if the market feels that it will go upto Rs.225, then Rs.225 becomes the target price.
  • Stop Loss - If a consultant says that the rate of NTPC will go up to Rs.225, he will also give a Stop Loss, say Rs.200. It means that though he said the scrip will go upto Rs.225, he will say that if the scrip goes down below Rs.200 and if you have bought the scrip, it is better to sell and avoid further loss. This is what is called Stop Loss
  • 52week High & Low - This is the rate the scrip has made a High and Low during the last 52 weeks (i.e a year). This indicates the maximum the scrip has gone and the low it has reached and where the CMP is quoting will decide how much it can go up or down (provided the market conditions is constant). NTPC made a high of Rs.233 and a low of Rs.113 during the last 52 weeks.
  • Open rate - It is the rate at which the scrip opened on a particular day
  • Day's high - It is the highest rate the scrip has achieved during the day.
  • Day's low - It is the lowest rate the scrip touched during the day.
  • Close rate - It is the rate at which the scrip was last traded when the market closed.
Based on the above, you can get to know the basics of the scrip's rate. But again what rate for a scrip depends on the fundamental of the scrip (EPS, PE, PBV, etc.,) which we will see in the next post.

Cheers,
Gopal
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Weekly Digest - 27 Sep 09

Friends,

I need to thank you for all your support and feedback, without which I would not have taken so much enthusiasm in blogging. It is all because of you, the ranking has gone up from 49 to 73! Normally in any ranking, lower the better. But in Indiblogger.in's IndiRank...it is higher the better. We have suggested to change the name to IndiScore, so that people can understand it better.

I got feedback from many saying that a weekly or fortnightly digest of all that happens around the world in the field of Finance, Economy, Stock Market, Money Market etc., by way of a digest. I thought weekly is a good one, thought fortnightly is better for me in terms of collating the data. Again, any news that is delayed is not an information. So, I decided to start with a weekly digest, which will be published every weekend.

I am not going to write too much on the subjects in the Weekly Digest, but give a preamble and then give the links for further reading, if you are interested in the subject.

Again, I request you to come with a name for the weekly digest. and also the categories of news that you would like to have in it. You can send in your suggestions to gopalsthoughts@gmail.com or mention in the comments. The name of the person, whose suggestion is taken will be mentioned separately in the blog, above the box showing the Indiblogger ranking.

Here is the first posting on the weekly digest:

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(a) G20 - Pittsburgh
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G20 sets course to avoid another global financial crisis

The third G20 summit since the global financial crisis unfolded a year ago concluded with a long statement from leaders that committed to continue economic stimulus spending until signs of "durable" economic recovery emerged. For further reading

Singh is King
The Indian mindset places excessive emphasis on protocol, which is often mistaken for substantive policy upgrades. Witness the preening in some quarters over Prime Minister Manmohan Singh being the first state guest at the Obama White House come November. For further reading

For more news on G20 - CLICK HERE

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(b) Investing in Silver is better than Gold
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When your books on sensible investing sell over 26 million copies and when not one, not two but three of them appear on the 10 best sellers list simultaneously in top newspapers, you surely know more than a thing or two about investing. Hence, when Robert Kiyosaki, the author of the hugely popular Rich Dad, Poor Dad series of books and the man we are referring to, spoke about his favorite investment recently; we thought it worthwhile to share the same with you. And guess what, his favorite investment is neither stocks nor gold, asset classes that are immensely popular with other investors currently. Instead, Kiyosaki lists silver as his favorite investment.

There could be some merit in his argument. After all, in addition to being a storehouse of just as gold, silver's growing use in industries such as superconductors and microcircuits, is leading to more and more demand being created while the supply remains constrained. Hence, this could lead to prices of silver growing at a faster pace than that of gold in the future, making it a better investment than gold.

However, this is not the only asset class that Kiyosaki is bullish on. He also likes real estate as unlike stocks where investors get no leverage, buying real estate does involve debt and hence, even a small rise in real estate values could lead to a significant jump in the return that an investor earns from it. However, as Kiyosaki rightly points out, if you are playing a game of debt, you've got to be a lot smarter than the average bear out there. Source : Equitymaster.com

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(c) Warren Buffett says
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"First, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen." Source : Equitymaster.com

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(d) Indian Investment Network
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Indian Investment Network, an online platform connecting entrepreneurs seeking business funding with angel investors looking to invest venture capital.
www.investmentnetwork.in is a web-based matching service for angel investors seeking investment opportunities and entrepreneurs seeking capital. This website is owned by Angel Investment Network Ltd, a London-based investment company founded in 2004. For further reading

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(e) No salary, yet Anil Ambani India's top paid
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Anil may have foregone salary or commissions for 2008-09 as part of austerity measures, yet a pay package of over Rs 52 crore -- as sitting fees and previous-year payments -- has made industrialist Anil Ambani the country's top-paid executive for the year. For further reading Source : ZeeNews

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(f) Roadblocks in GST: some states oppose giving up local taxes
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The Centre's efforts to introduce the proposed Goods and Services Tax from April 1 next year has hit roadbolocks as some states do not want local levies like purchase tax and octroi merged in the new indirect tax. For further reading. Source : ZeeNews

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(g) How does a stock exchange function?
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It is said that to be really successful in life, you need to have your fundamentals strong. But how many of us actually sit down and try to find answers to basic questions related to whatever we are interested in? For example, how many investors who play the markets regularly actually know what a stock exchange is, how did it come into being and its importance? For further reading. Source: Rediff.com

Hope you will enjoy reading these articles. Based on the feedback and suggestions, let us design the further updates.

Hoping to hear from you! Have a great weekend.

Cheers,
Gopal
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Basics of Stock Market - 5

Okay. Having seen what is a Share, Share Market, SEBI etc., let us get little deeper into the Stock Market fundamentals. Before that let us see some important terminologies that are used more frequently.

The securities market essentially has three categories of participants, namely,
  • the issuers of securities (The companies, for example L&T )
  • the investors in securities (Individuals, Foreign Financial Institutions (FII), Domestic Financial Institutions (like LIC)
  • the intermediaries, such as merchant bankers, brokers etc.
While the corporates and government raise resources from the securities market to meet their obligations, it is the households that invest their savings in the securities market along with the Institutions.

Srip /Counter : A company's share is being called like this. Those who are in the Stock Market often use this. Like - Buy this scrip. Do not enter that counter.

Market Capitalisation (Market Cap) : The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares the company has issued is called market capitalization. E.g. Company A has 10,00,000 shares issued. The current market price is Rs. 100. The market capitalisation of company A is Rs. 10,00,00,000 (Rs.10 crores)

Sensex
It is the short form for SENsitive indEX. This index represents the movement of the sensitive companies share price traded on the Bombay Stock Exchange (BSE). The base year for the index is 1978-79 and it was launched on 1-Jan-1986. The current 30 scrips (with the sectors that it represents) that make this SENSEX are:
  1. ACC Ltd. (Housing Related)
  2. Bharat Heavy Electricals Ltd. (Capital Goods)
  3. Bharti Airtel Ltd. (Telecom)
  4. DLF Ltd. (Housing Related)
  5. Grasim Industries Ltd. (Diversified)
  6. HDFC (Finance)
  7. HDFC Bank Ltd. (Finance)
  8. Hero Honda Motors Ltd. (Transport Equipments)
  9. Hindalco Industries Ltd. (Metal,Metal Products & Mining)
  10. Hindustan Unilever Ltd. (FMCG)
  11. ICICI Bank Ltd. (Finance)
  12. Infosys Technologies Ltd. (Information Technology)
  13. ITC Ltd. (FMCG)
  14. Jaiprakash Associates Ltd. (Housing Related)
  15. Larsen & Toubro Limited (Capital Goods)
  16. Mahindra & Mahindra Ltd. (Transport Equipments)
  17. Maruti Suzuki India Ltd. (Transport Equipments)
  18. NTPC Ltd. (Power)
  19. ONGC Ltd. (Oil & Gas)
  20. Reliance Communications Limited (Telecom)
  21. Reliance Industries Ltd. (Oil & Gas)
  22. Reliance Infrastructure Ltd. (Power)
  23. State Bank of India (Finance)
  24. Sterlite Industries (India) Ltd. (Metal,Metal Products & Mining)
  25. Sun Pharmaceutical Industries Ltd. (Healthcare)
  26. Tata Consultancy Services Limited (Information Technology)
  27. Tata Motors Ltd. (Transport Equipments)
  28. Tata Power Company Ltd. (Power)
  29. Tata Steel Ltd. (Metal,Metal Products & Mining)
  30. Wipro Ltd. (Information Technology)

To know more about how it is calculated, CLICK HERE (It will take you to the BSE site) - it is a bit technical one. For our understanding, if the Index goes up or down, we know the general movement of the market. You need to remember that a scrip's price will go up, even if the Index is going down. If the heavy weights pulls the market, the index will go down. Also, it is not necessary that all the Index scrips to go down to make the Index to go down.
You can see how the scrip moved (within the Index today) in the chart at the bottom of this Blog. The scrips there represents the NIFTY. Green indicates price moved upwards, Red indicates price moved downwards, White represents no movement. Darker shades of Green, Red indicates the grade of movement : 1%, 2%, 3% and so on...


This indication is with respect to the price of the last day's last traded price. For example on Friday evening, the share price of Suzlon at close was Rs95.80 and on Monday it closed at Rs.94.80 (It was down by Re.1 or 1.04%

Why they chose these 30 scrips is, they represent the market (as they are picked from various sectors and also they are actively traded).

These 30 scrips are reviewed periodically and changed accordingly, depending on the requirement. For example in 2009 the changes happened 2 times:
  • On 12-Jan-09, Satyam Computers was removed and was replaced by Sun Pharmaceutical
  • On 29-Jun-09, Ranbaxy was removed and was replaced by Hero Honda.
NIFTY
Like Sensex for BSE, the NIFTY is for National Stock Exchange (NSE). Niftfy is coined by combining NSE's Fifty shares. The list is already there in the grid (blow my blog) and for your reference I am reproducing the same.
  1. ABB Ltd. (ELECTRICAL EQUIPMENT)
  2. ACC Ltd. (CEMENT AND CEMENT PRODUCTS)
  3. Ambuja Cements Ltd. (CEMENT AND CEMENT PRODUCTS)
  4. Axis Bank Ltd. (BANKS)
  5. Bharat Heavy Electricals Ltd. (ELECTRICAL EQUIPMENT)
  6. Bharat Petroleum Corporation Ltd. (REFINERIES)
  7. Bharti Airtel Ltd. (TELECOMMUNICATION - SERVICES)
  8. Cairn India Ltd. (OIL EXPLORATION/PRODUCTION)
  9. Cipla Ltd. (PHARMACEUTICALS)
  10. DLF Ltd. (CONSTRUCTION)
  11. GAIL (India) Ltd. (GAS)
  12. Grasim Industries Ltd. (CEMENT AND CEMENT PRODUCTS)
  13. HCL Technologies Ltd. (COMPUTERS - SOFTWARE)
  14. HDFC Bank Ltd. (BANKS)
  15. Hero Honda Motors Ltd. (AUTOMOBILES - 2 AND 3 WHEELERS)
  16. Hindalco Industries Ltd. (ALUMINIUM)
  17. Hindustan Unilever Ltd. (DIVERSIFIED)
  18. Housing Development Finance Corporation Ltd. (FINANCE - HOUSING)
  19. I T C Ltd. (CIGARETTES)
  20. ICICI Bank Ltd. (BANKS)
  21. Idea Cellular Ltd. (TELECOMMUNICATION - SERVICES)
  22. Infosys Technologies Ltd. (COMPUTERS - SOFTWARE)
  23. Jindal Steel & Power Ltd. (STEEL AND STEEL PRODUCTS)
  24. Larsen & Toubro Ltd. (ENGINEERING)
  25. Mahindra & Mahindra Ltd. (AUTOMOBILES - 4 WHEELERS)
  26. Maruti Suzuki India Ltd. (AUTOMOBILES - 4 WHEELERS)
  27. NTPC Ltd. (POWER)
  28. National Aluminium Co. Ltd. (ALUMINIUM)
  29. Oil & Natural Gas Corporation Ltd. (OIL EXPLORATION/PRODUCTION)
  30. Power Grid Corporation of India Ltd. (POWER)
  31. Punjab National Bank (BANKS)
  32. Ranbaxy Laboratories Ltd. (PHARMACEUTICALS)
  33. Reliance Capital Ltd. (FINANCE)
  34. Reliance Communications Ltd. (TELECOMMUNICATION - SERVICES)
  35. Reliance Industries Ltd. (REFINERIES)
  36. Reliance Infrastructure Ltd. (POWER)
  37. Reliance Power Ltd. (POWER)
  38. Siemens Ltd. (ELECTRICAL EQUIPMENT)
  39. State Bank of India (BANKS)
  40. Steel Authority of India Ltd. (STEEL AND STEEL PRODUCTS)
  41. Sterlite Industries (India) Ltd. (METALS)
  42. Sun Pharmaceutical Industries Ltd. (PHARMACEUTICALS)
  43. Suzlon Energy Ltd. (ELECTRICAL EQUIPMENT)
  44. Tata Communications Ltd. (TELECOMMUNICATION - SERVICES)
  45. Tata Consultancy Services Ltd. (COMPUTERS - SOFTWARE)
  46. Tata Motors Ltd. (AUTOMOBILES - 4 WHEELERS)
  47. Tata Power Co. Ltd. (POWER)
  48. Tata Steel Ltd. (STEEL AND STEEL PRODUCTS)
  49. Unitech Ltd. (CONSTRUCTION)
  50. Wipro Ltd. (COMPUTERS - SOFTWARE)
Again, these scrips are reviewed periodically and changed. For more details on how it is computed and history CLICK HERE

Trading hours

It is the time the stock exchanges are open for trading in the scrips. For NSE, it is normally between 9.56am and 3.30pm (Monday to Friday).

Bulls & Bears
Bulls are those who expect the market to go up and they make money. The trend of Index (Sensex, Nifty etc.,) going upwards is called BULLISH trend or a BULL MARKET.

Bears are those who expect the market to fall, so that they can make money. This is also called short selling. To explain, if I feel the market is going to crash, I will sell my scrip which is currently trading at Rs.100 and once the scrip comes down to Rs.70 level, again I will buy the same. In this process, I have gained Rs.30 per share (Rs.100 - Rs.70) per share, while I still hold the share.
Just a days fall in the market cannot be termed as a BEARISH market. It should be a continuous one and around 20% drop in the index to be termed as a BEAR MARKET or a BEARISH trend.'

To give an example, Indian stock markets were on a BULL run till Jan 2008 and then in a BEAR run. From the election results, the markets are again in a bull phase.

How the trends are decided? This is a million dollar question to many of the investors. All I could say is that what drives the market are:
  • Investors sentiments
  • Economic condition (National as well as International)
  • Liquidity in the market
For example, when Montek Singh said the Indian agriculture will be hit due to poor monsoon, the market fell that day, but regained immediately. It is not that one day's rain that Montek said. :-)

When China was in trouble, Indian market fell, as if we are totally dependent on China.

I am not denying the fact that the all of the above has an impact, but it cannot be a momentary impact.

Trader
One who trades in scrips for making money. He stays with the scrip for a very short duration for the purpose of making profit

Investor
One who stay invested in a scrip to get profits on a long term basis.

Broker
An individual cannot directly buy or sell a scrip to another and it should be only traded through a broker. There are exceptions. For example, Father selling his shares to his son or daughter, Sale between friends, etc., these are all called off-market trasactions. For any transactions in a Stock Exchange, it should be only through a registered broker.
The broker will buy and sell the scrips on your behalf and charges fee (called brokerage) for the services. The charges will be about 0.5% of the value of the transaction.

Cost of transaction
Some of the other charges which are levied (on the transaction value) while doing the transaction in scrips are:
Securities Transaction Tax (STT) - 0.125%
Stamp Duty....................................- 0.010%
Transaction Fee..............................-0.003%

So, roughly, if you buy a scrip for Rs.100, you cost would be Rs.100.65 (in effect about 0.65% is the cost of transaction). This will differ as brokerages are different.

Why I am mention this here is, some feel that buying a share at Rs.100 and selling it at 100.50 feel that they made money. Assuming one has bought 1000 shares @ Rs.100 per share and sold it at Rs.100.50 per share, the next day. That person may be thinking that he has made Rs.500 in a day. But, he is not considering the transaction costs.
His real position is : His cost of acquisition would be Rs.100.65*1000 = Rs.1,00,650. His net sale proceeds would be Rs.101*1000 = Rs.1,01,000 less 0.65% transaction cost, i.e. Rs.100.35*1000 = Rs.1,00,350.
In effect, he made a loss of Rs.300 (Rs.1,00,350 - Rs.1,00,650).
To break-even, he should have sold the shares at Rs.101.28 (you can work back to check this)

Most of the people, new to the trading missing these hidden cost, till they see the contract note (will explain below) from the brokers.

Contract Note
In simple terms, it is the bill from the broker. When you buy or sell a scrip, you need to enter into a contract with the broker. This is required, as the broker is buying or selling on your behalf and has to be made good for any loss. So, the contract note is generated. Normally the brokers take advance from the clients and then do the transactions on their behalf.

Rest in next....cheers, Gopal
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Basics of Stock Market - 4

Let us see how the shares are issued and at what price.

At what price a Share is issued?

Every share will have a Face Value (FV). Normally it will be Rs.10. Now every company decides their own (Rs.5, Rs.2, Re.1, Rs.100). For example, if the Share Capital of a company is Rs.100,00,000, it will be either

  • 10,00,000 shares of Rs.10 each
  • 100,00,000 shares of Re.1 each
  • 20,00,000 shares of Rs.5 each

So the face value will decide how many number of shares to be issued for a given share capital.

  • If a Share is issued at that Face Value, then it is said to be issued at PAR.
  • If a Share with a Face Value of Rs.10 is issued at Rs.15, then it is issued at a Premium of Rs.5 per share (Rs.10 + Rs.5)
  • If a share with a Face Value of Rs.10 is issued at Rs.8, then it is issued at Discount of Rs.2 per share (Rs.10 - Rs.2).

To summarise, if a share is issued above its Face Value, it is an issue at PREMIUM and if issued at the face value then it is an issue at PAR and if issued below the Face Value, then it is issued at a DISCOUNT. The Adani Power corporation issue, which was priced at Rs.100 is a issue at a premium of Rs.90 (Rs.10+Rs.90). The issue price is depends on various parameters and also the demand & supply.

Okay..let us now see what are the types of Issue.

  1. Public Offer / Issue
  2. Rights Issue
  3. Bonus Issue

Again, there are 2 types of public issues:

(a) Initial Public Offer and (b) Follow-on-Public Offer

Initial Public Offer (IPO)

As the name says, it is the first ever issue of shares to the public. For example, Adani Power issue of share is an IPO. It can be either an issue of fresh shares or offer of existing shares of Promoters to the publice (atleast 25%) for the purpose of getting the shares listed in a stock exchange. As discussed earlier, listing of shares in a stock exchange gives liquidity to the holder of the shares.

Follow-on-Public Offer (FPO)

Any public offer after the IPO is an FPO. Refer Rights Issue below.

Rights Issue

This further issue of shares (after IPO or FPO) should be first made to the existing shareholders and only if the shareholders agree in a General Meeting (Annual General Meeting or Extraordinary General Meeting), then the shares can be issued to the Public. Since this is a right of the existing shareholder, it is called Rights Issue. If the shareholders decide to forego their rights and issue the shares to the Public, it will be an FPO.

Bonus Issue

This is an issue is only to the existing shareholders. As the name says, it is a Bonus (reward) to the shareholders. There is no need to pay for this share. The Reserves of the company (current year or previous years Profits, any share premium collected during the issue of shares) are capitalised and given to the existing shareholders. How it is done? Normally they look at the amount of Reserve that are available for capitalisation and the number of shares outstanding (that is the number of shares issued so far). For example, if the company is having Rs.1,00,00,000 in reserves , has 10,000 shares outstanding and want to capitalise the entire reserves, it will divide the Reserve amount by the Face Value (will explain why face value later). Let us take the face value as Rs.10 per share. Then, it is Rs.1,00,00,000 / Rs.10 = 10,00,000 shares. It is already having 10,000 shares outstanding. So each share will be eligible for 100 shares (10,00,000 / 10,000). That is every existing share will be getting 100 share as Bonus. In sharemarket parlance, they say the Bonus issue is 100:1 (that is 100 bonus shares for every 1 share held). Now let us see why the Bonus share is issued at Par? From where are we issuing the Bonus Shares? from the reserves (Profits & Share Premium). If we issue the Bonus Shares at Premium, it is nothing but transfering the Share Premium to Share Premium itself. That is why the Bonus Shares are issued at PAR (face value) and has no cost to the existing shareholder.

Apart from the above issues, there are other ways of issuing Shares for raising capital. It is called Private Placement (now you can see lot of Qualifies Institutional Placement - QIP in the news). For more details on QIP - CLICK HERE

Who is SEBI?

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India. SEBI was created for

  • protecting the interests of investors
  • promoting the development of the securities market; and
  • regulating the securities market.
SEBI's role is the regulate/control the share market and all the listed companies are governed by SEBI.

Let us get to the fundamentals of the share market in the next blog. Happy weekend.

Cheers,

Gopal

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Pranams to the teachers !

Today being the Teachers' Day, let us salute the teachers, who helped us to grow to this level and and wish them very good health and prosperity.

My sweet memories on the School, the teachers Ms.Joseph, Ms.Radha, and them to the High School - RR- Rajagopalan, Rangarajan (Tamizh) B.Radhakrishnan, PTG, TKG, KTG, Kannan (maths), Basheer (maths), KND (Desikachar), KDR (K.Dharmaraj, Accounts), SRK (Economics), Janakiraman (Navy), Madhavan (Commerce), VPKrishnamurthy, Mani (Crafts), AV (Sanskrit) and the PT masters - Karmegam, Radhakrishnan(NCC-Air wing), Selvaraj and Nammalvar (NCC-Army).

In my college - DP (Durai Pandian, Accounts), Kanakasabesan (Stats) Arun (Tamizh),  Kayaroganan (Tamizh), Suresh (English), SKR (Ramakrishnan, Income Tax), Balamurugan (Auditing), Ramasamy (Commercial Law), Kalyanaraman (Accounts), M.Sakthivelmurugan (Corporate Law), COSTING, Gopal Muralidhar (Management Accounting). They laid the seed for my higher education.

In CWA - Sundaresan, who was my guru in Costing. If I am good in costing today, the credit goes to him. Sankaranarayanan, Sethuraman, Sundaram (4 S) .

In CA - Nagarajan (Accounts), Murali (Auditing and Company Law..thanks to Murali for inspiring me in quoting the relevant sections, when you say something on Company Law), Thangapandian, Sivakumar (Standard Costing), LSS (Maths & Stats), VenkatSivakumar (Costing). My flair for Taxation increased because of T.N.Manohar & Bhupathi. Of course my friend T.G.Suresh (TGS), whom I never knew that he is a professor in my college.

In IIM - (Pofessors) - MSN, Ramesh Kumar (Mrkg), Amit Gupta, Shyamal Roy, Ganesh Prabhu, Padmini Srinivasan, Ashok Thampy. Krishna Sundar - He taught the supply chain management by a beer game. A tough person in class - cool outside. Krishnamoorthy - A chartered accountant with lot of wits & humor in his teaching. MSN- (like Microsoft Network - he builds a good network among participants). Always willing to help with a smile - even when he says NO.

It is not that only the school and college had teachers. I had good teachers in the organisations, where I worked.

My CA Articleship
  • Ramanathan - Under whom I did my CA articleship. Apart from the auditing and accounting, he exposed me to Costing for the products in the manufacturing units, for which we were the Internal Auditors.He guided me in all these areas.
Merchant Banking
  • K.Gopala Krishnan (KGK) - He taught me how to appraise projects, sell financial products and price them to the clients. He always encourage those who think out of the box.He is the one who gave me full power to run a Merchant Banking division and guided me on all stock market related areas. It was my first employment.

Kothari Group

  • R.Srinivasan (CEO- Kothari Biotech, currently with Rane group) - He is the one who given me the free hand to learn and taught me the basics of Corporate Finance.
  • Rangesh (CGM- Kothari Biotech, (currently with Orchid Chemicals). he taught me how to handle people. He is a great HR person, I have ever come across. He is also my mentor for Public Relations
  • W.R.Vasudevan (CGM-Kothari Biotech, currently with Parry). He taught me how to handle projects and monitor them. He is very patience and when he looses his cool, very difficult to face him. Nice human being.
  • Sam (Thirugnanasambandham) - GM-Kothari Biotech (Heard that he has moved out from Orchid Chemicals). He taught me how to remain cool in any circumstances. He is the one who taught me all about plants and the tissue culture. Thanks to him, I learnt the technology also. Very good teacher of plants.
Southern LPG
  • Raghavan (Rags), the CEO. Though it was a short stint in that company, I was exposed to the various aspects of the LPG/LNG imports and bottling. Withing a month of joining, I was good enough to make out project reports on my own to present to the Board.
Servion
  • T.Nataraajan (TN). SVP & CFO in Servion and currently CEO for GRT Group Hotels. My guru and mentor at a growth stage. He is the one who taught more on the Banking relationships, getting private placements. He gave the full power to run the Finance & Secretarial functions of the group and stood behind me as a great support. I enhanced my Secretarial, Legal and Finance skill under him, which paved way for my growth. He shares his knowledge with an incident in his career. A nice human being and a guide. We always call him Thalaivar.

Scope International
  • Sumanth (Head of FSSC) (currently with Infosys BPO) - You can learn how to be calm and cool, if you work with him. Nice gentleman, never jumps to conclusion. Analyse and takes a calculated risk
  • Hemant Kulkarni ( Head-FSSC) Learnt how to take quick decisions and people management skills
  • Romi Malhotra (MD of Scope, currently Chairman of Dominion)- You need to learn from him the tactics of Project Manangement and Leadership skills. Anyone who has worked with Romi will vouch for this.
  • Venkat VI (Head of Accounting operations). You need to learn from him how to handle your team members with a smile. A perfect fit for BPO (though came to Scope from controllers background).
Though I learnt a lot in my current employment, I am not mentioning anyone in particular, as it is not correct in my part, as people may think that I am doing it to please them.

Here comes the great TEACHERS & GURUs of my life - YES...

My PARENTS. Not that they gave me the life, but also guided me and guiding me all along. If not for them, I would not have reached this level in my life. Especially my father who encouraged me to study, whatever I liked and never forced anything on me. My WIFE and Daughter - They still teach me a lot on how to be patience with a soul like me. While I learn cooking from my wife, my daughter teaches me drawing.

My Athimber, who made mathematics very simple for me and every academic year I step into the school - having learnt the maths syllabus during the summer holidays.

My friends - Rengesh (since 1980), Muthuraman (since 1985), Prakash (since 1990), Sivaram (since 1999), Raja (since 1999), Pushpavaneswaran (Since 1996), Ashok (since 2002), Gopal Ramesh (since 1994), Krishnakumar (TTE) (since 1994), Suanand (since 2002) Kolazhi Ramanan (since 2004) and my CWA group (big list), who taught me what friendship is.

My heartfelt thanks to all of my gurus and teachers on this wonderful day. If I had left some names, it is not intentional - It is memory failure (I am getting old day by day). I am sure that I will gather all the names and write more about them, when I write my biography.

Cheers,
Gopal
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Andhra Pradesh CM, Shr.YSR Reddy is dead

Today all the news channels finally confirmed that Shri.YSR Reddy, the Chief Minister of Andhra Pradesh is dead in the helicopter crash. It is so sad. I can see lot of people sympathizing for YSR ( as he is called popularly).

What I could see among those in the office cafeteria , who were watching the news, said that he is a very good person. Of late very few Indian politician got this praise from educated lot. He was not looking as he is 60. I was told that he is very down to earth person and visits the villages in AP and meet up with people.

It is a sad incident. What surprises me is the technology! It took almost 20 hours to trace a helicopter!

Let us pray for the parted soul and let the soul rest in peace.

Gopal
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Basics of Stock Market - 3

Let us see what is a Stock Market
It is an organised market where the listed shares are traded. This place enables to buy or sell the shares they hold in a Company. Again only the shares of the Company, which was allowed to trade in the particular stock can be dealt with.

What is a Stock Exchange?
Stock Exchange’ is any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. A Stock exchange could be a regional stock exchange (Madras Stock Exchange, Bombay Stock Exchange, Bangalore Stock Exchange) whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges (National Stock Exchange), which are permitted to have nationwide trading since inception.

Different types of Issues.
Whenever a Company wants the shares to be listed and traded in a Stock Exchange, it has to Offer or Issue atleast 25% of the Share Capital to the public. There is a difference between Issue and Offer. Issue means issuing fresh shares and Offer means offering 25% of the existing shares. In case of an Issue, the Capital will increase. In case of an Offer the Capital remains same.

Why do companies need to issue shares to the public?
Normally a company is started by few people (known as Promoters). Over a period, they get Loans or Private Equity or Venture Capital to meet the growing needs of the business. So they invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by Securities Exchange Board of India. (SEBI). In case of Offer of shares - normally the promoters or the Private Equity player or the Venture Capitalist will offer the share to the public to get the shares listed & traded.

What is the main benefit of getting a share listed?
Listing enables liquidity, which is otherwise not available to a normal company's share.

That's all for now, as I am tied up with office work.

Cheers,
Gopal
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Request feedback on the Blog

Friends,

The only thing that is constant is Change. So, with the growing need and to look better, I tried to change the layout and contents of the blog. Would like to add some more features like Email etc., with my very little technical knowledge.
May I seek your valuable comments and feedback on the new look and also scope for improvement of this blog. Also, let me know the topics that can further be discussed.

Thank you all for your support!

Cheers,
Gopal
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