It is learnt that Hindalco Industries, the flagship company of the Aditya Birla group, are on the right path even during the time of economic meltdown, all their projects are on track and they are not postponing any of their plans.

It is learnt that Power Grid Corporation of India (PGCIL) is all geared up to get a part of the supplementary USD 3-billion loan the World Bank (WB) will provide to India by July 2009.

Unitech, the realty major, in order to better manage telecom business has decided to merge all of its eight telecom subsidiaries. Each of these subsidiaries has licenses for three to four circles and together they cover all 22 telecom circles in the country.

Reliance Petroleum (RPL) announced on December 25, the commissioning of its refinery in a Special Economic Zone (SEZ) at Jamnagar, Gujarat in India, commencing its crude processing. The secondary processing units are now under synchronization and commissioning. The entire refinery complex is expected to attain full capacity shortly. _ In order to ensure uninterrupted supply of fuel for its safeguarded nuclear power plants, India will acquire up to 50% ownership in uranium mines in Russia, Kazakhstan and a few other countries. Certain new uranium mines are explored in these countries and India is ready to invest in order to acquire ownership in these mines.

Country’s largest public sector trading agency MMTC is entering into partnership with 4th currency futures exchange to pick up to 15% equity in the exchange at an investment of Rs 225 million.

The government has decided to review the PSU`s projects on fortnightly basis as SAIL`s capacity expansion plan to reach 26 million tons steel production by 2010 seems to be a dream due to its slow progress. The Department of Industrial Policy and Promotion (DIPP) in the commerce ministry suggested that the foreign direct investment (FDI) ceiling for the tobacco industry should be reduced from 100 to 74%.

Jaypee Hotels announced that it has received approval from its board of directors for the merger of the company with parent firm Jaiprakash Associates. 

Nava Bharat Ventures plans to buyback a minimum of 735,295 shares of face value Rs 2 each, for an aggregate amount not exceeding Rs 500 million. The buyback will be made at Rs 170 a share, which represents a premium of 42.44% and 42.02% to the closing price on BSE and NSE, respectively, on Dec. 11, 2008.

Mauritius-based Swiss Finance Corporation has increased its stake in Amtek Auto to over 8% following acquisition of shares from the open market. 

Life Insurance Corporation of India (LIC) has increased its stake in HDFC Bank to over 5% following acquisition of shares from the open market. LIC purchased 158,519 shares from the open market hiking its stake in the company to 5.01%.

US-based Zydus Pharmaceuticals, a subsidiary of Cadila Healthcare, has received final approval from the US Food and Drug Administration (USFDA) to market Acetazolamide capsules, in the strength of 500 mg.

Vardhman Textiles on Wednesday, December 24 said its board approved buyback of foreign currency convertible bonds (FCCBs) that were issued in 2006, subject to the approval of the Reserve Bank of India (RBI) and other terms and conditions governing the buy-back of FCCBs.

GVK Oil & Gas, a wholly owned subsidiary of GVK Power & Infrastructure, has signed a production sharing contract with the ministry of petroleum and natural gas, government of India on Dec. 22, 2008. 

Rajiv Mundra has a keen eye for the markets and he has the following post on his Google Group.

Details here Buy & go to sleep for 4-5 years!

Sensex opened with a negative gap of 242 points at 12,284 on the back of negative cues from the global markets. Sensex finally ended with a significant loss of 725 points at 11,802. The market breadth was extremely negative, as advance decline ratio pegged at 0.12

Investing in the equity market directly is exciting and rewarding over a long period.

But the volatility and the information overload make it a very difficult task.

It is important to understand that everyone has different financial goals and risk appetite. So the first step would be to be aware of your own financial goals and your risk profile before you take a d ip into the Stock Markets!

Depth and breadth of private banking space has now increased. You see significantly large private banks. And the private sector is getting market share. I feel the valuation of PSU banks continue to trade at a discount.

People are talking of reforms in financial sector in general and banks in particular. Will that increase activity in PSU bank stocks?

We have to pay for the subsidies. There is no other way than through the capital receipts. The gap can’t be filled with revenue receipts. Capital receipts can come only via disinvestment.

But, disinvestment doesn’t necessarily mean selling off. It could be like the selling of 3G licence. It could be through public sector IPOs.

Business is booming as usual. Biggest consumption and raising per capita income means they are at slight premium to the indices. From business point of view, they will feel pangs of liquidity. We are little unsure if they can quote at the non-cyclical valuations they are quoting at this point, which shouldn’t be the case

Program trading is casually defined as the use of computers in stock markets to engage in arbitrage and portfolio insurance strategies.

The term has also been defined as “a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more” without any direct reference to the use of computers. The word “program” can be interpreted in its earlier, more general meaning of a defined and pre-arranged sequence of steps, rather than specifically a computer program.

In recent times, there has been a subset of program trading called algorithmic trading. This is when a computer program takes a large order, breaks it up into small pieces (typically 100-300 shares per piece), and gradually submits these pieces to the market.

The goal is to complete the order without other market participants realizing that a large trade is in progress, because they would change their behaviour (and thus the price) to the detriment of the program trader if they recognized a large trade.

See this Wikipedia page for more details

There’s no better formula for losing money than to buy high and sell low. And data for 2008 shows people have been doing exactly this

Indian stock markets were lower by around 29% in the current year, and have since recovered around 14% from the low. Market participants cite various reasons for this performance: inflation, deteriorating macro numbers, selling by foreign institutional investors (FIIs), declining global risk appetite, and so on.

Often, I run into investors who recount their own investing experiences. Here are a few samples of varying perspectives on the stock market. First, a young graduate who has got his degree and has been working since 2003, says, “Stock markets? A place to make quick money. Hardly any downside, invest at every correction. Markets will always go up.”

Next, a gent in his late 30s who has been working for 10 years, says: “You can make money, but watch for sharp corrections, and a scam every five years.”

Third, a home maker who started investing in 2008. This lady says, “Stock markets? Stay away! The kitchen is safer! I lost money in intraday trading. Experts on the business TV channels say the markets will not rise.”

Fourth is a retired bank manager. He says, “Stock markets are highly risky! I lost money in the past, when IT stocks crashed. There’s no guaranteed income. Bank deposits are safer.”

Fifth, a gentleman in his late 40s, with a career of 20 years, says, “Stock markets are all about timing. If you time it right, you make money. If not, the volatility will kill you.”

Next, a day trader in stocks says, “I’m a daily wage earner. I leverage in futures markets. I make or break Rs 10,000 to Rs 20,000 a day.” And lastly, we have a stock market investor who says, “Buy stocks when crude oil falls, and vice versa.”

These views seem diverse, but there’s a common underlying thread: they all take an unfortunately short-term view. No one refers to stocks as a long-term wealth creation tool. The Sensex hit its 2008 intraday low of 12,595 on July 15, 2008—four days after crude oil touched its all-time high of $147/barrel. On the same day, the yield on 10-year government bonds touched a recent high of 9.55%.

Once crude oil prices started falling, due to worries about global demand and the unwinding of speculative positions, Indian markets recovered sharply. The trend to sell stocks and buy oil seems to have reversed. Oil is now 20% below its peak.

Nothing has changed significantly in the fundamentals other than sentiment and the drop in oil prices. But the stock market rallied 14% from the bottom. There could be other reasons besides oil, but crude certainly facilitated the rally. What if the trend were to reverse, so that oil prices started climbing again towards $150/barrel? Would the market fall again? If it were that easy, everyone would make money in the stock markets!

Only if the price of oil falls substantially and remains low for a long time will it translate into benefits for the economy, earnings and markets. Although crude prices are crucial to the Indian economy, it’s surprising that at every dollar drop or rise in oil, speculators take the markets up or down.

Retail investors often get carried away by short-term movements. Sometimes newer correlations between different factors emerge in stock markets, such as now, buy equity and sell oil. Such correlation trades often influence market movements in the short run, which then deviate from fundamentals.

The long-term winners are the fundamentals.

Often, stock markets are regarded as an arena for shortterm speculation, especially in a rising market. Stock markets and equity mutual funds are vehicles for long-term wealth creation. Investments in these should be made in a disciplined way, irrespective of market levels.

A retail investor should remain invested in stock markets over a few market cycles—at least five years—to create wealth. A short-term market timer is likely to lose money in the long run, unless he has the gift of predicting the future.

Goldman Sachs issued a report in 2003 predicting that India’s economy will be the world’s third largest by 2035. The report cited expected annual growth rates of 5.3% to 6.1%.Though it has been a bumpy ride as of late, India has the potential to fulfill these optimistic promises. Unfortunately, I’m about as confident in “potential” macroeconomic projections as I am in my own ability to read the future. After all, questions about economic reform, infrastructure, and education must be addressed first.

But if these projections are even close, the Indian stock market will show you the money.

China vs. India: showdown of the 21st century
The real question is: How much of these two looming giants should you have? Both are growing at accelerated rates, so it’s not a simple decision. You really need both — a good piece of China will pay off over the next few decades.

That said, I look to India to exploit an edge: its commitment to the democratic process. Yes, this may sound cliche. India’s government has long been criticized for extended periods of unremarkable reform. Yet I prefer it.

Advantage: India
Long term, India’s commitment to democracy and free markets are a massive benefit. The economies of Brazil, Taiwan, South Korea, and yes, even the United States can testify to that.

At its simplest, India is attempting to build a foundation of sustainable yet powerful growth. And it is doing it through a functional democratic process, which is accountable to its citizens.

Taking stock
When it comes down to companies, India has some specific areas of critical advantage. The IT outsourcing world has been hit before. But I think Satyam is still an intriguing investment opportunity that has been tremendously volatile as of late. The company is closing in on becoming the developing world’s first global consulting firm — similar to IBM’s (NYSE: IBM) role in the tech consulting industry. In the financial world, our Global Gains team of analysts picked up on two Indian banks (ICICI was one) that have posted strong financial performance of late. The other, HDFC (NYSE: HDB), continues to be an intriguing investment in a country that is building wealth quickly.

Attacking its own content-hungry consumers, Rediff.com has created a strong online presence that is beginning to resemble Microsoft’s (Nasdaq: MSFT) MSN site in its early years. Rediff is certainly not on the same scale of popularity or profitability yet; it may be getting there soon. If you are paying attention to SINA (Nasdaq: SINA) in China, you might want to look into Rediff.com as well.

Check out the full story on Fool

Last week BSE Sensex gained 159 points or 1.1% to 14,564 and Nifty edged up 31 points or 0.71% to 4,360

Crude Oil has touched $117 now.

FII have sold worth 1176 Cr and Domestic MF has also sold around 759 Cr during the last week.

Inflation at 12.40% was lower than 12.63% for the previous week.

Central Statistical Organisation (CSO) said Gross Domestic Product (GDP) in the fiscal first quarter grew by 7.9% as against 8.8% in the fourth quarter of the last fiscal year.

Nuclear Suppliers Group (NSG) meeting begins on 4th September would give some direction to the market. Next week’s inflation numbers would be interesting and would give the real direction of the inflation numbers.

The Draft Report of the Committee on Financial Sector Reforms headed by Professor Raghuram Rajan was issued for comment in April 2008. Among the proposals that the high-level committee made was the introduction of domestic hedge funds. The committee feels that, “The presence of hedge funds would induce greater competitive pressure for other regulated fund management channels such as mutual funds.”

This week’s article discusses the benefits of introducing hedge funds in the Indian market. It shows how hedge funds could improve asset price efficiency. Besides, such funds, by virtue of their diverse investment styles, could provide investors an opportunity to enhance their risk-adjusted portfolio returns.

Of different genreSuppose a long-only (mutual fund) manager and a hedge fund manager both have a negative view on SBI, a positive view on HDFC Bank and a neutral view on ITC.

Long-only active managers will buy ITC in the same weight as their benchmark index, may overweight HDFC Bank and may not take any exposure in SBI. There is a reason for such a strategy. Active managers strive to beat their benchmark index. But they do not take too many active bets, lest their bets go wrong. Often, active funds tail the benchmark index with few active bets. Importantly, such managers cannot short-sell to take advantage of their negative view on a stock.

Hedge fund managers’ do not suffer from such constraint. In the above example, the hedge fund manager may overweight HDFC Bank, short-sell SBI and not take any exposure in ITC.

Better still, to neutralise any market risk, the hedge fund manager may buy HDFC Bank and short-sell SBI in such a way that the market risk in HDFC Bank is offset by short-selling SBI. Often, neutralising market risk on a portfolio would mean short-selling Nifty futures.

Exploiting price inefficiency

Hedge funds identify mispriced assets and exploit any price inefficiency. One way to do this is to employ statistical arbitrage.

Suppose a hedge fund manager finds that combination of one share of HDFC Bank and two short shares of SBI (1HDFC – 2SBI) has a stable statistical distribution. If the “spread” wanders far away from its mean, a hedge fund manager would set-up this strategy with a view that the “spread” will tighten. Such relative-value strategies can help arbitrate away asset price inefficiencies in a “normal” market.

Besides, hedge funds employ strategies to arbitrage price differentials between the derivatives and the spot market. Suppose a stock is trading at Rs 1,480 in the spot market. Assume that the hedge fund manager, based on her proprietary model, believes that the futures price should be only Rs 1,470 against its current market price of Rs 1,510.

The fund manager will short the futures contract and simultaneously buy the stock in the spot market. The trade will be profitable as long as difference between the spot price and the futures price is less than Rs 40.

As more hedge funds exploit such price differentials, disconnect between the spot and derivative markets could gradually reduce. And that could attract long-term hedgers to the market.

Higher risk-adjusted returns

Hedge funds create value for investors through their diverse investment styles. Here are some examples.

Relative-value strategies such as fixed-income arbitrage and market-neutral style strive to back-out beta exposure and provide alpha returns. Such strategies typically carry lower volatility than government bonds but generate higher returns. They, hence, act as returns-enhancers when combined with a bond portfolio.

The long-short investment style (such as 130 per cent long position and 30 per cent short position in equity) is a high-risk high-return strategy. The volatility of this strategy is lower than that of the traditional equity strategy. This strategy, hence, acts as return-enhancers when combined with equity portfolios.

The managed-futures investment style primarily takes exposure in commodity futures. This style acts as a risk-diversifier for an equity portfolio.

Of course, there are risks with such investments. Hedge funds typically employ high leverage. This causes a systemic risk in the event a fund folds because of high drawdowns. Besides, monitoring such managers is important because many of them may charge alpha fees for beta exposure.

It is not surprising that the committee has recommended that hedge fund investments be offered only to those who can invest Rs 1 and above. A similar such rule exists in the US.

Conclusion

It is important to understand that arbitraging price inefficiencies does not mean that hedge funds will prevent formation of market crashes or asset price bubbles. Hedge fund managers can be as irrational as the professional long-only managers and investors.

Yet, the introduction of hedge funds will be a welcome move to the Indian markets for two reasons — such funds can provide higher risk-adjusted returns for investors and can facilitate better asset price efficiency.

(The author is an investment strategist. He can be reached at enhancek@gmail.com)