The rally is losing momentum. The reversal can be as sharp as the rally
The market opened flat on the back of mixed cues from the global arena. The Sensex was up 29 points at 19,731 at the opening and the Nifty gained 16 points at 5,924. The indices scaled the day's high in the first few minutes of trading with the Sensex at 19,770 and the Nifty at 5,929. However, the market could not sustain the gains and slipped into the red thereafter on profit booking. Amid sharp volatility, the indices made a feeble attempt to push into positive territory in mid-morning trade, but sellers had strong control and ensured that the market stayed in the red.
Trading remained range-bound in the noon session, with the benchmarks touching the day's lows at around 12.40pm. Erasing most of the gains accrued yesterday, the Sensex tanked 179 points to 19,524 and the Nifty was down 52 points at 5,856 at the intra-day lows. The indices crawled into the green for a brief moment in the last half hour, but soon slipped and closed almost unchanged, albeit with a mixed bias. The Sensex ended 15 points lower at 19,687 and the Nifty settled two points up at 5,910.
The broader markets made up for the sluggishness on the Sensex, with the BSE Mid-cap index gaining 0.79% and the BSE Small-cap index surging 1.38%.
In the sectoral space, BSE Capital Goods (up 1.58%), BSE Metal (up 1.21%), BSE TECk (up 0.61%), BSE Realty (up 0.60%) and BSE IT (up 0.51%) were the major gainers. The index losers were BSE Oil & Gas (down 0.46%), BSE Fast Moving Consumer Goods (down 0.40%) and BSE Bankex (down 0.23%).
Reliance Communications (up 1.88%), Hindalco (up 1.76%), BHEL (up 1.57%), Sterlite Industries (up 1.07%) and Cipla (up 0.85%) were the top Sensex gainers. Tata Power (down 1.29%), Infosys Technologies (down 0.91%), Bajaj Auto (down 0.90%), Mahindra & Mahindra (down 0.69%) and Jindal Steel (down 0.58%) were the top losers on the benchmark.
In the absence of any fundamentals to back the eight-day rally which ended last Thursday, and with policymakers concerned about high inflation, the market is bound to see come correction, going ahead.
The Asian pack settled mostly lower, even as three key markets were closed on account of local holidays. Concerns of increasing radiation risks as Japanese workers began dumping radioactive water from the damaged nuclear power plant weighed on investors. On the other hand, hopes of 'in-line' corporate earnings kept spirits afloat.
The Jakarta Composite declined 0.38%, the KLSE Composite lost 0.15% and the Nikkei 225 fell 1.06%. On the positive side, Straits Times gained 0.20% and Seoul Composite surged 0.69%. Markets in China, Hong Kong and Taiwan were closed today.
Back home, foreign institutional investors were net buyers of stocks worth Rs604.51 crore on Monday, whereas domestic institutional investors were net sellers of equities worth Rs389.33 crore.
Wind turbine maker Suzlon (down 1.11%) has raised its stake in German subsidiary REPower to over 95% and is now only a step away from making it a wholly-owned subsidiary by acquiring the remaining stake in the entity. Suzlon, through its subsidiary AE-Rotor Holding BV (AERH), directly and indirectly has a 95.16% stake in REpower, the company informed the Bombay Stock Exchange.
The revival in demand for the Nano in the last four months has encouraged Tata Motors (up 1.97%) to double production of the small car by up to 20,000 units a month this fiscal. Last month, the Nano sold 8,707 units, near its all-time peak of 9,000 units in July last year. Though the Sanand plant currently produces 9,000-10,000 units a month, its annual installed capacity is 2.5 lakh units.
Electrosteel Castings (ECL) (up 5.51%) has entered into a joint venture agreement with Brisbane-registered Dart Energy for exploration, development, production and sale of coal bed methane (CBM) from ECL's captive coal mine at Parbatpur in the Jharia Basin of Jharkhand.
The venture will extract methane from the 8.8-sq km mining lease area of ECL. Dart will operate the methane development and extraction exercise and will have 30% stake in the JV, while ECL will hold the balance 70% of equity in the unit.
Future Group company sets target of 100 stores in 12 months; aims to leverage its wide customer base countrywide through financial outlets that will be integrated with its large format stores
Future Capital Holdings, part of Future Group, today announced plans to launch 100 financial superstores in 12 months that will help grow its financial services business faster, by reaching more customers.
The company, which specialises in loans for homes, consumer durables, as well as loans for small and medium enterprises, has set a target to disburse Rs1,000 crore of secured loans for 2011-12 and have 100,000 customers through the stores, building a very strong fee income business through wealth management, broking and insurance businesses.
"We are planning to launch 100 such financial branches by 2012 that will meet all four basic financial needs of the customer-borrowing, investment, protection and financial planning," said V Vaidyanathan, vice-chairman and managing director, Future Group. "We will offer loans for homes, properties, gold loans. Protection for these loans will also be offered through our insurance products. To provide alternate investments to our customers we have tied up with mutual funds. And lastly, financial planning will be delivered through broking and wealth management."
The stores will be integrated with the group's retail outlets like Big Bazaar, E-zone and Hometown. The company has 200 large stores across these formats. In the first phase, it will open 100 financial superstores at these establishments, on the basis of customer footfalls, customer intersection and expectations.
The concept of retail financial stores is new in India, but it has been a highly successful model abroad, in countries like the US, Europe, Brazil and Mexico. An example is Wal-Mart, which has over 1,000 Wal-Mart money centres across its network of retail stores, providing money orders, transfers, etc.
"We are in the process of tying up with banks and our role would be as a distributor. We are mainly looking at public sector banks," Mr Vaidyanathan said. He said that the loan business was doing well. "In fact, our loan book has increased by about 100% this year, from Rs1,500 crore last year to Rs3,000 crore this year. Next year we target Rs5,000 crore. Our loan business is on the right track and of course it is funded by loans from the banking system," Mr Vaidyanathan said.
When asked about over-the-counter loan disbursals, Mr Vaidyanathan said, "For businesses like property loans it cannot be done over the counter, since verification is required and this can take 4-5 days. It may also take a little longer. Though the principal amount can be sanctioned, the loan cannot be disbursed. But for consumer durables loans we have tied up with credit bureaus and credit scoring companies, so these activities can be done over the counter."
The company's wealth management and broking service will be looked after by the company's wholly-owned subsidiary FCH Centrum Wealth Managers.
The company also said that about 300 people will be recruited for the financial retail stores.
Wealth managers continue to pitch high-risk structured products to HNIs. Each time a new set of investors get fooled
Amidst the stock market volatility, and market calls of so-called experts turning out to be frequently wrong, it is not surprising to find investors turning away from equities. Considering the losses they have incurred, market intermediaries don't want to pitch simple equities to investors, especially high-net worth investors (HNIs). One of the products that wealth managers keep coming out for HNIs has a fancy name-structured products. These invest part of the money in debt and partly in high-risk products like derivatives. All these years, the core of structured products was Nifty futures and options. But wrong calls there too have led to large losses in Nifty-based structured products sold to HNIs. So, now, structured products have another hot product at their core, one that never fails to attract Indians: gold.
These products aim to replicate the performance of gold while promising to keep your money safe. They are called gold-linked debentures. How is your capital safe? Almost 80% of the money is invested in a fixed income product in such a way that on maturity the invested part (say 80%) and the plus they get on the interest equals that of the principal. The rest 20% or so is put in gold. Not physical gold but gold futures whose value is dependent on gold.
Many investors are enticed by the investment proposition offered by these products-safety of capital and upside of gold. It is a sham.
Most investors believe that structured products are designed in a manner that equips them to deliver superior returns. Besides, they also consider them to be less risky. Structured products are not as simple as they are usually made out to be; they are quite complex. Since they use a blend of investment strategies, it is difficult for most investors to understand the strategy driving the risky part. Expectedly, investors aren't aware of the situations when the strategy might fail to deliver.
We had many instances where people have made huge losses investing in these products. A major example of this is Aditya Birla Money, the brokerage arm of Aditya Birla Group which suffered over Rs100 crore in losses on its 'Options Maxima' strategy for HNIs in 2010.
The HNI clients had put money in the so-called structured product called Options Maxima product, under the strangle strategy. The scheme promised returns of around 1%-1.5% every month based on the arbitrage opportunities through this activity, which ensured what was considered a very fair 12%-15% return annually.
A strangle involves purchase or sale of particular option derivatives that allow the holder to profit, based on how much the price of the underlying security moves, with relatively minimal exposure to the direction of price movement. It was considered "safe." Apparently, the bets were yielding good returns for both the dealer as well as the investors as long as the Nifty was moving in a range. The bets went wrong after the sharp up-move in the index in early September 2010.
The same thing may happen with these gold futures on MCX. Gold futures can be bought with a 12% margin and losses are marked to market. This means that any movement in the price of gold will increase or decrease the margin and profit/loss accordingly. Thus if the margin requirement is 12% and the prices of gold moves down by 12% your whole capital gets wiped out.
Terms like derivatives, paired trades and equity-linked debentures, among others, have enticed a lot of investors into investing in these products. A strong marketing pitch by fund houses combined with fancy terms/investment strategies leads them to believe that structured products are superior and investors are dumb if they don't get into such complex ideas yielding higher profits. However, there are certain elements that investors need to consider before investing in structured products. Some of the structured products claim to perform across market conditions. Too good to be true, isn't it? This is simply because these products have not even gone through enough back testing, to guarantee the investor any return of principal or performance.
Investments in instruments like structured products should be made only after there is a clear understanding of its investment proposition, risks involved and the returns projected. If the investor can unravel the structure and can take on the risk for that additional return, then he can consider investing in them. To deal with it, the first question an investor has to ask is: what is the maximum loss possible? If he is told, "loss is ruled out, your capital is protected", the salesperson is possibly lying.
These products have come in the market in waves and have failed to succeed at all times. They come and go and each time they enter with a core product that is hot at the moment. And this time it is the yellow metal. But even if they inflict losses each time there seems to be a market for them always. Each time there is a new set of gullible wealthy investors.