May 2010 was a bad month for Indian stock market. Selling pressure continued almost all the trading days. But towards the end of the month some recovery also seen. Global uncertainties were the major reason behind this bear run! Doubts about the long term prospects of Euro zone countries are worrying the investors across the globe. As a result of this Indian investors also lost confidence and they engaged in bulk selling. After the global financial crisis  Euro zone crisis is the worst one and now also it is sustaining. FII sell off made a bad impact on Indian indices during May. They sold Indian equities worth Rs.9436.70 Cr. When the residues of the crisis settle down it is expected that they will come back to Indian market. However India’s growth story is still promising, Indian corporates are performing well.
Sensex closed at 16945 in May. It recorded a decrease of 3.5 percent against it’s April closing figure of 17559. Sensex traded in the range 15960-17537 during May. Nifty recorded a fall of 3.64 percent to close at 5086. Smallcap stocks can’t survive the selling pressure and they were down by 7.17 percent- the worst performance by this sector in 2010. Midcap stocks were down by 4.87 percent. All sectors except Health Care and Oil and gas were under selling pressure in May. Metal stocks plunged 14.25 percent. Whereas Reality stocks fell 11.3 percent against last month closing figure. Both banking and power sector stocks were down by 4.4 percent. Health care sector was up by 2.71 percent. Oil and gas sector recorded a growth of 2.6 percent during May.
Domestic mutual fund companies were net buyers. They bought equities worth Rs. 98.60 Cr. Indian market opened weak in June also. But traders are of the view that once the issues settle down there will be renewed buying interest. FIIs withdrew their money only to protect their capital. In the long term view, when Indian market is concerned, we have the growth potential.
Indian economy grew  8.6 per cent during the last quarter of 2009-10, mainly powered by Industry and service sectors. Now the country has an overall GDP growth of 7.4 per cent in 2009-10. Which is more than expected. Inflation eased to 9.59 percent in April. This is the second continuous month the inflation figures show a downward trend. According to reports monsoon will be on track. If this happens in line with expectation food inflation would also become lower. Which is a prime concern for Indian economy.
Indian Finance Minister Mr Pranab Mukherjee expects 8.5 percent GDP growth in 2010-11, which seems to be attainable according to present estimate. From the global financial meltdown we have learned that Indian market is capable of bounce back from any lows. Every crisis is an opportunity. Now is the time to buy good picks at moderate rate. Opportunity never knocks twice!

I have a vision for Indian stock market
My vision is that within a short span of time the percentage should be doubled. It should become a minimum of 4 percent. Only by educating people it will be possible. IFL- Institute of Financial Literacy will make this a reality. Right now no IFL started (I said this is my vision). There will be a centralized body for IFL in the national level. Branched should be there in each state. Anyone who has knowledge about share market can be a teacher for IFL. Government should fund IFL as well as stock exchanges. Education should start from high school level. Curriculum should be modified to add stock market concepts.
According to latest reports Indian economy is booming. Share market is the place where the impact of economic growth is more visible. When more and more people are participating in the market they will also get a chance to get benefited from India’s growth story.

Lessons I have learned
You can be an investor If you can invest a lump sum amount of money and is capable of forget it for many years. The problem is that you should select a potential company before investing. We have examples of Infosys and all that here, but should be more cautious while selecting the stock. I suggest the above said method for the minority.
But for the majority trading should be on a regular basis. Day trading will give you more knowledge about market. At first, set aside some amount to invest in the share market. Do thorough research and then select some stocks. For day traders it is advisable to buy the needed quantity. Set a target of 20-30 percent, when the target is achieved sell the stocks and book profit. Again start investing but this time in other stocks. With the profit try to accumulate stocks in the list. In this pattern you will get profit and can also build up a good portfolio.

When an opportunity arises act on that don’t wait for better or best. If you want money on an urgent basis don’t rely on stocks. Otherwise you have to calculate it early and should sell off all your stuff. There are charges (including brokerage) when you count your profit always consider this. You are also required to give AMC.
Don’t be panic. Ups and lows are the rules of the market. You have to show more courage when deals with turbulent times. Daily observation is not a bad idea. Carry out your own research before investing. After all money is yours. www.marketbhavishya.com is a good website for speculators, don’t always believe them but you can check it occasionally. When you commit an error admit it and correct it. Wait for opportunities and act on it.

High rate of volatility seen in Indian indices during April. Market witnessed an upward trend during the first half of the month, whereas in the second half there was continuous selling pressure. Sensex touched a height of 18047 and a low of 17277 in April. Both sensex and nifty closed just a few points above last month’s closing figure.
Considering the global scenario, Greek crisis and Goldman Sachs issue were the major ones. U.S. Securities and Exchange Commission sued Goldman Sachs Inc. for fraud tied to collateralized debt obligations. The firm is facing inquiries in UK and Germany. A 110 billion euro ($147 billion) plan to bail out Greece reduces the risk of a debt default of that country. But according to experts it will not be a complete solution for the problem. The residue of these crisis remains now and investors across the globe are more cautious.
Considering Indian market, RBI credit policy announcement was the major event. The central bank hiked the key rates by 25 basis points. The rates which are now effective are Repo-5.25%, Reverse Repo-3.75% and CRR-6%. RBI is optimistic about bringing down inflation figures which is at 9.9 percent in March. The food inflation figure is even more dangerous which is at 17.65 percent according to the latest data.
The closing figure of sensex for April is at 17559. It gained 31 points (0.18%) against it’s March closing rate. Nifty recorded a gain of 0.55 percent to close at 5278. It touched a height of 5399.65 during April. Buying interest scaled down to Smallcap and Midcap stocks. Both were up by 8.4% and 5.6% respectively. Consumer durable stocks were the major gainers, the sector was up by above 10 percent. Reality (6.6%) and Banking stocks (4.7%) were also hot favorites among investors. Oil and gas stocks were under severe selling pressure. The sector was down by 2.3 percent. Metal and Engineering stocks were also in the negative terrain. FIIs continued their buying activity in stocks, in April they bought equities worth Rs. 9361 crore. Whereas domestic institutions sold Indian equities worth Rs.1715 crore. During the last week ahead of F&O expiry the turn over in Indian market was much higher.
According to RBI estimate the final real GDP growth for 2009-10 may settle between 7.2 and 7.5 per cent. Which itself is a decent one. The Euro zone crisis is not over yet. There are reports that apart from Greece, countries like Portugal, Spain and Ireland may face difficulties in the near future. Concern about these crisis is clouding above Indian market also. Recently China hiked it’s CRR rate also. These developments may prove bad for Indian equities as well. There will be range bound movement in Indian market in the near term. Little caution is the need of the hour. At the same time an eye for opportunity is not a bad idea.

Capital Market Clippings

Market making must for SME bourse: SEBI
SEBI has made market making mandatory for the proposed small and medium enterprise (SME) exchange. Under the guidelines issued by SEBI , any member of the exchange would be eligible to act as a market maker provided the criteria laid down by the exchange are met. Market making has been made mandatory for stocks listed and traded on the SME exchange. There would not be more than five market makers for a scrip. These would be selected on the basis of objective criteria to be evolved by the exchange which would include capital adequacy, net worth, infrastructure and minimum volume of business, among others. The market maker will have to provide a two-way quote for 75 per cent of the time in a day. The quote will be monitored by the stock exchange. Further, the market maker has to inform the exchange in advance of blackout periods when the quotes are not being offered.
The Hindu Business Line, April 28, 2010

SEBI permits volatility index trading in F&O
Securities and Exchange Board of India gave a go-ahead to the stock exchanges to introduce derivative contracts on Volatility Index (VI). Volatility Index is a measure of the market’s expectation of volatility over the near term. At present, only the National Stock Exchange of India has a volatility index called India VIX. The introduction of the derivative contract based on Volatility Index would be subject to the condition that the said Volatility Index has a track record of at least one year and the relevant bourse has in place the appropriate risk management framework for such derivative contracts. The exchanges before introducing such contracts have been directed to submit contract specifications, the economic purpose it is intended to serve, details of settlement procedures and systems along with other related details. Exchanges have to also submit details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 and -0.25 respectively and actual value of the underlying, a SEBI circular said.
The Hindu Business Line, April 28, 2010

New PE valuation norms for unlisted cos
Foreign private equity firms will face stiff valuations when they decide to buy stakes in unlisted companies following a change in valuation norms by the RBI. The shares in unlisted companies will now have to be valued using a discounted cash flow model. This will remove any discretion in price-fixing and also reduce the chances of lower valuation under the earlier guidelines that fixed the price at average of two different valuations. The central bank has amended the provisions under the Foreign Exchange Management Act and a circular is expected shortly, an RBI official said. Experts think the change is significant as it would ensure that the value of Indian business that gets transferred outside of India will not be less than the consideration received. “A financial investor would typically invest at lower-than-market value depending on the risk profile of the asset. Imposition of discounted cash flow method for investments completely rules out commercial negotiations between a financial investor and the company,” said an industry official.
The Economic Times, April 26, 2010

Do away with power of attorney from clients: SEBI to brokers
Market regulator SEBI asked brokers not to refuse services to investors in case they fail to furnish power of attorney in favour of them. Power of attorney (PoA) is a legal arrangement that allows brokers to access bank and demat accounts of their clients. “No stock broker or depository participants shall deny services to a client if the client refuses to execute a PoA in their favour”, SEBI said in its new PoA guidelines. The guidelines, issued after consultation with various stakeholders, further said brokers will be prohibited from using clients account for off-market trade. SEBI came out with the guidelines in view of complaints of misuse of PoA by brokers. “In some cases, the PoA even allows a broker to open and close accounts on behalf of client and to trade on client’s accounts without the consent of clients”, it said.
The Economic Times, April 23, 2010

BSE reduces membership deposit to Rs 10-lakh
The Bombay Stock Exchange (BSE) has reduced membership deposit and fee requirements for new members in its cash and equity derivatives segments with immediate effect. The Exchange membership can be obtained by paying a deposit of Rs 10-lakh in place of the existing Rs 1-crore, the Exchange said in a press release. “By offering this exciting pricing scheme, we intend to make it affordable to all those aspiring for BSE membership,” the Exchange’s Managing Director & CEO, Madhu Kannan, said. The Exchange hoped that this new scheme would generate a good response from market participants thereby building and expanding its existing membership base to promote financial inclusion, Kannan said. In addition to the Rs 10-lakh (interest-free deposit), the member has to pay a base minimum capital of Rs 10-lakh, trade guarantee fund of Rs 10-lakh, annual subscription of Rs 25,000 plus service tax as applicable and initial contribution towards trade guarantee fund of Rs 10,000.
The Economic Times, April 22, 2010

Insurance Clippings

Life insurers must reveal commission on policies
Life insurance firms will now have to spell out to customers the commission they pay to agents on each policy. The insurance regulator has told insurers to disclose explicitly the commission in the `benefit illustration’, a document that contains the benefits due to a policyholder upon maturity of an insurance policy. A signed copy of the illustration along with the proposal form is mandatory for issuing a policy. In a circular to all life companies, the Insurance Regulatory and Development Authority (Irda) said companies will have to disclose the commission paid to agents with effect from July 1, 2010. The regulator said this will bring about enhanced transparency by providing prospective policyholders the exact amount of commission/brokerage paid by insurers.
The Economic Times, April 28, 2010

New business for life insurance industry grew 25 pc in FY2010
Led by state-owned LIC, new business for the life insurance industry recorded a growth of 25 per cent during 2009-10, overcoming the decline witnessed a year ago on account of the global financial meltdown. According to industry sources, the 23 life insurers mopped up a first year premium of Rs 1.09 lakh crore in 2009-10 compared to Rs 87,108 crore in the previous year. In 2008-09, the insurers registered a degrowth of 6 per cent.
The Economic Times, April 22, 2010

Govt examining lock-in period of 5 years for insurance cos
The government said it is examining to allow insurance companies to list after five years of operation, instead of the current 10-year norm, Parliament was informed. “The issue of reducing the lock-in period of insurance companies for initial public offer (IPO) is under examination in consultation with the Insurance Regulatory and Development Authority (IRDA) and other stake holders,” Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha. He, however, said that a final decision on this matter has not been taken yet. Last month, IRDA had said that the initial public offer guidelines for the insurance sector is likely to come out in April. “The IPO guidelines could take a month-time and SEBI will take the final call,” IRDA chairman J Hari Narayan had said.
The Economic Times, April 20, 2010

ULIPs: Finance Ministry told to resolve spat
In a thinly veiled criticism of the Finance Ministry, a Parliamentary Panel has asked it to “immediately intervene” in the deadlock between SEBI-IRDA on the ULIPs regulation matter. The Finance Ministry cannot remain a “mute spectator” to posturings of “one-upmanship” by its regulatory bodies, the Standing Committee on Finance said in a report tabled in the Lok Sabha. This comes a week after the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority, at the behest of the Finance Ministry, agreed to seek a binding legal mandate from an appropriate court to resolve the jurisdictional dispute. The Panel also expressed surprise that the regulatory jurisdiction over the Unit-Linked Insurance Policies, despite being an old product, was still hazy and not clearly defined. The Standing Committee, headed by Dr Murli Manohar Joshi, has asked the Finance Ministry to put in place comprehensive regulations for ULIPs, incorporating the concerns of both SEBI and IRDA.
The Hindu Business Line, April 20, 2010

SEBI order may not affect life insurers in near term
The ongoing SEBI-IRDA turf war is unlikely to impact life insurance companies’ business, at least for the time being. This is because April is a lean period for the companies after the busy January-March quarter. Almost 40-45 per cent of sales of insurance policies happen in the Jan-March quarter due to the tax-saving season. In contrast, the April-June quarter is comparatively lean, with around 10 per cent of the industry sales coming from this quarter. Even though SEBI issued show cause notices to the life insurance companies in January, the order barring 14 insurance companies from selling ULIPs was issued only on April 9. This ensured that there was not much impact on sales, said officials of insurance companies and distributors.More than 80 per cent of the new business premium collected by the insurance companies comes from the sale of unit-linked plans.
The Hindu Business Line, April 16, 2010

Mutual Fund Clippings

Mid-cap funds post returns of 101% over a year
Funds that focussed on mid-cap stocks have clocked impressive returns over a one-year period. The average return for the mid-cap funds category was 101 per cent (as on April 19) against the 76 per cent generated by the diversified peers. The mid-cap stocks barometer – the CNX Mid Cap – generated 104 per cent, while the BSE Midcap index has delivered generated 102 per cent against 56 per cent and 60 per cent generated by bellwether indices CNX Nifty and BSE Sensex . Despite such a stellar performance both the mid-cap indices were some way away from their all-time highs achieved in the early part of 2008. The segment bore the burnt of the market meltdown. The return divergence between mid-cap funds was however wide. The gap between the best in the category and the worst was quite wide at 42 percentage points.
The Hindu Business Line, April 28, 2010

Agent freebies: MFs under lens
Mutual fund houses have come under the scanner of market regulator Sebi for allegedly lavishing their agents and distributors with incentives like cash payouts and foreign junkets in return for higher sales. Instances of distributors of various fund houses being showered with cash incentives as also trips to locations in India and abroad have come to light, especially since the scrapping of entry-load charges from investors putting their money in mutual funds, a top Sebi official said. Besides finding such practices as unethical, Sebi is also examining whether these incentives are being funded by investors’ money in the name of fund expenses, the official noted. Strong remedial actions are said to be being contemplated for such practices and the market regulator might come out soon with appropriate guidelines in consultation with the industry body Association of Mutual Funds in India (AMFI) to tackle these issues, an industry official said.
The Economic Times, April 26, 2010

Sebi may cap PMS fees on realty fund
The Securities and Exchange Board of India (Sebi) is considering a cap on the fees charged by portfolio management service (PMS) providers for their real estate fund, sources said. Investors have complained to Sebi that most PMS providers are charging the full management fee upfront , rather than in proportion to the net invested amount. The capital market regulator recently met some of the top fund houses to understand their fee structure, and recommend changes to make it more investor-friendly. Most real estate funds collect money from their clients in phases. Assuming , a client wants to invest Rs 100 in four instalments of Rs 25, and the annual management fee is 2%. Ideally, the money manager should charge a fee of 50 paise on every instalment of Rs 25. Instead, he charges the client Rs 2 at the time of the first instalment itself.
The Economic Times, April 23, 2010

SEBI for check on mis-selling of mutual fund products
Market-regulator Securities and Exchange Board of India (SEBI), said that it is looking at the need to put a check on mis-selling of mutual fund products by the distributors through a compliance certification examination. “There is a need to put a check on distributors, who mis-sell mutual fund products in the market. By May or June, we will come out with an online test for distributors,” SEBI’s executive director, KN Vaidyanathan, told reporters. Currently, AMFI is conducting the test and accepts the registration formalities. From May onwards, the programme will be carried out by the National Institute of Securities Markets (NISM), a division of SEBI. Sebi wants to bring all financial products certification programmes under NISM. Presently, NISM conducts certification programmes for intermediaries in currency derivatives, registrar and transfer agents for stocks and registrar and share transfer agents for mutual funds.
The Economic Times, April 20, 2010

Pension schemes may be next on SEBI radar, say fund managers
Pension fund managers fear that pension schemes regulated by the Pension Fund Regulatory and Development Authority (PFRDA) could be a potential target for SEBI to assert its jurisdiction. While asserting its regulatory authority over unit-linked plans, SEBI had highlighted the investment component in them to justify its stance. Pension fund officials say that SEBI could use the same logic to assert authority over the pension schemes as well. Pension scheme for the unorganised sector provides the option to investors of investing most of the funds in equity markets. In the other schemes also, funds are invested in the equity markets. Industry experts feel that SEBI’s proactive stance in the case of ULIPs had more to do with regulating the exorbitant distributor commissions than the product. Due to this, SEBI may not look to encroach upon the jurisdiction of PFRDA as pension products do not have commission structures. Instead, they are fee-based. Also, the PFRDA Act has not been passed as yet. PFRDA has only signed investment management agreements with the pension fund managers.
The Hindu Business Line, April 15, 2010

Reserve bank governor D. Subbarao announced the annual credit policy. It was in line with expectations. It raised the key rates by 25 basis points. Another major point is that the run for banking licence for private players now become active. RBI will announce it’s guidelines for the same at it’s first quarter review.
As stated the major concern is inflation. RBI believes that the rate hike will curb inflation. Which is at 9.9 percent for March 10. After the credit policy the renewed rate structure will be the following:
CRR-6%

(which will wipe out Rs.12,500 Cr from the market, and will be effective from April 24,2010).

Repo rate-5.25%

Reverse Repo-3.75%
Central bank predicts that in FY 2011 country will grow at a rate of 8 percent. In FY 2010 the growth rate will be 7.2 (which itself is decent).
After the Goldman Sachs problem and restrictions on reality loans in China global indices tanked a lot. Indian indices followed the trend. But after the policy announcement Indian market came back in style. Buying interest seen in Reality and Banking sector. The inflation estimate by March 2011 is at 5.5 percent. Hard work in all respect is needed to achieve this goal.
Credit policy aims at growth (in a sustainable manner) but there are more shocking figures came out recently. It is 10 crore more Indians are living in poverty than in 2004. Now 37.2 percent of India’s total population lives in poverty. From 2004 onwards the UPA government rules the country. They have been more kind top the rich and the ultra rich. Their policies favored the market but poverty increased. This RBI policy, I don’t think, will address this issue. So more policy changes are needed on an urgent basis. Growth, without considering the common man, is a failure.

Repo Rate
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI.

Reverse Repo Rate
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks.

CRR Rate
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

SLR Rate
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

After the global financial crisis now it is the turn of Goldman Sachs. Goldman Sachs is the major financial services company in the world. But the common people in US do not like the company (I came to know about this from Michael Moore’s documentary ‘Capitalism: A love story’). During the days of recession the senators in the US congress also blamed Goldman Sachs.  A minority called US congress as the director board of Goldman Sachs. It is evident that big companies play a very big role in the US in it’s day to day politics. Some former treasury secretaries were ex-employees of this global major. Recent fraud charges in a way will make someone happy for sure.
US securities and Exchange commission (SEC) sued Goldman Sachs for giving improper facts. The 141 year old financial services major denied it. In it’s official statement in the website the company says they had lost $90 million in that particular deal. They reiterated that their products are not designed to make losses for the investors. But the heat is on and the global indices are tanked heavily.
Two things are clear now. One, something is fishing some where. Two, the very incident questions the credibility of the financial institutions across the globe. Stocks and commodities prices plunged after the news. Normal investors are panic now. In India also sell off happened. Goldman Sachs is facing probes in U.K and Germany. German chancellor herself made statement against the company.
Goldman has investments in almost all the major economies. It is obvious that the impact of the news will be much bigger than it is expected to have. In India alone it has investment worth Rs.2000Cr, and has stakes in 27 Indian companies. After the global financial crisis Goldman Sachs crisis will be the major one. This crisis points out the need for proper reforms in the financial services sector. Something should be done to control the panic investors, if not, another major crisis is awaiting!!!

Some facts about Goldman Sachs (Source Wikipedia)
Type                Public (NYSE: GS)
Industry        Financial Services
Founded        1869
Founder(s)    Marcus Goldman
Headquarters     New York City
Area served     Worldwide
Key people       Lloyd C. Blankfein (Chairman) & (CEO)
Products :    Investment banking, Prime brokerage, Investment management
Commercial banking, Commodities
Revenue                        US$ 45.173 billion (2009)
Operating income     US$ 2.34 billion (2008)[dated info]
Net income                    US$ 13.39 billion (2009)
Total assets                   US$ 849 billion (2009)
Total equity                    US$ 64.369 billion (2008)
Employees                         32,500 (December 2009)
Website                            GS.com