Tuesday, May 19, 2015

Gold Monetization Schem -Draft Guidelines

The below snap shot will give  a brief overview of the Gold Monetization Scheme proposed in the 2015-16 budget.

Below is the process suggested for monetizing gold
  1. Preliminary Test: 
    1.  In a Purity Testing Centre, a preliminary XRF machine-test will be conducted to tell the customer the approximate amount of pure gold.
    2. If the customer agrees, he will have to fill-up a Bank/KYC form and give his consent for melting the gold. 
    3. If the customer does not agree to the XRF machine test, he can take his jewellery back at this stage.
  2. Fire Assay Test: 
    1. After receiving the customer’s consent for melting the gold for conducting a further test of purity, at the same collection centre, the gold ornament will then be cleaned of its dirt, studs, meena etc. 
    2. The studs will be handed-over to the customer there itself. Net weight of the jewellery will be taken after such removals and told to the customer.
    3. Then, right in front of the customer the jewellery will be melted and through a fire assay, its purity will be ascertained. 
    4. These centres have viewing galleries from where the customer can see the entire process. The time taken is expected not to exceed 3-4 hours.
  3. Deposit of Gold:
    1. When the results of the fire assay are told to the customer, he has a choice of either refusing to accept, in which case he can take back the melted gold in the form of gold bars, after paying a nominal fee1 to that centre; or he may agree to deposit his gold (in which case the fee will be paid by the bank). 
    2. If the customer agrees to deposit the gold, then he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold
  • Gold Savings Account: 
    • When the customer produces the certificate of gold deposited at the Purity Testing Centre, the bank will in turn open a ‘Gold Savings Account’ for the customer and credit the ‘quantity’ of gold into the customer’s account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made. 
    • Interest payment by banks:  The bank will commit to paying an interest to the customer which will be payable after 30/60 days of opening of the Gold Savings Account. The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms. 
    • Redemption:  The customer will have the option of redemption either in cash or in gold, which will have to be exercised in the beginning itself (that is, at the time of making the deposit). 
    • Tenure:  The tenure of the deposit will be minimum 1 year and with a roll out in multiples of one year. Like a fixed deposit, breaking of lockin period will be allowed. 
    • Tax Exemption: Transfer of Gold to the Refiners In the Gold Deposit Scheme (1999), the customers received exemption from Capital Gains Tax, Wealth tax and Income Tax. Similar tax exemptions are likely to be made available to the customers in the GMS after due examination
More information can be found at Gold Monetization Scheme

Monday, September 22, 2014

Open Interest and Volume Relation

Here are some general guidelines on how the interaction of price and volume/open interest might affect value:

  • if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract. 
  • If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract. 
  • The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change. 
  • By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the days activity can be drawn.
  •  Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend ( up, down or sideways) will continue. 
  • Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end.
  •  A knowledge of open interest can prove useful toward the end of major market moves. 
  • A levelling off of steadily increasing open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
  • Price up, volume up, open interest up - bullish as it indicates traders still want to buy despite the higher price.
  • Price down, volume up, open interest up - bearish as increasing volume is driving the market lower.
  • Price up, volume down, open interest down - reduced buying interest and a possible market top.
  • Price down, volume down, open interest down - decreased selling interest at lower prices, indicating a bottom may be in place.

Open Interest
Market is Strong
Market is Weakening
Market is Weak
Market is Strengthening

Thursday, August 7, 2014

I am back from long break

Its been long time since a posted on this blog and happy that am blogging again.
Now that am back i am still thinking on what to start with.
As of now nothing seems to be coming to my mind. but am happy that i posted this blog and hope very soon i will blog here to update my knowledge and also readers knowledge :)  if at all any readers to my blog

Monday, October 15, 2012

A new forward Indicator to predict Nifty

A new indicator was developed by Nomura team called Nomura Economic Surprise Index for India (NESII) to predict the market direction using economic variables like GDP,IIP,PMI,WPI(inflation). Everyone knows that announcement of GDP , Index of Industrial Production , Purchasing managers index and Inflation will swing the market in either direction. Quants from nomura developed this "tactical tool" which can be used to predict the direction of market. 

NESII is a weekly index and has shown a strong correlation with India's financial markets and can be used to confirm the price movement.

It shows NESII and NESII 3-month moving average. If NESII goes over zero, then it could be taken as a sign of turning point and turning point which could lead the market to new highs.

How effective is this tool, only time will tell as this is no more part of Asymmetric information to market participants.

In the above pdf they have said that the index is available on Bloomberg with the ticker . I could not find any as of today, do let me know if any of you find

Monday, January 2, 2012

Paralyzed 2011 Market, Will it get worse in 2012?

What is in everyone's mind on the stock market in 2012?. There are many interesting things coming in 2012 like assembly elections in few states that includes Gateway to Delhi, growth rates decreasing in emerging countries, the Euro issue, FCCB on indian companies, NPA's of Banks. Before we go ahead into 2012 lets look at how markets performed in 2011. The below chart compares Nifty with CNX Infra and CNX Realty Index. These two were the worst performing sectors of last year with infra down by 37% and Realty down by 50%.
In the Infra sector: GMR infra was down by 52%, Suzlon was down by 65%, Voltas was down by 65%, Lanco Infra was down 85%, SCI was down by 63%, RelInfra was down by 58%, Rpower was down by 54%, Punjlloyd was down by 63%.

In the Realty Sector: we have couple of stocks which got embroiled in 2G scam that got hit badly, like the  DB Realt,a new entrant down by 74% and Unitech was down by 70%. Apart from these HDIL was down by 72% and DLF down by 36%.

In the below chart Nifty is compared with BANK Nifty that went 31% down and the PSU Bank went 40% down

Clearly,the only winner of 2011 was the FMCG sector,which was up by nearly 10%
Major contributors were HUL that went up by 33%, ITC up by 15%, Marico up by 20%, Jubliant Foods up by 20% and on the other side McDowell was down by 68%  due to the effect of Kingfisher Airlines that almost went bankrupt.

And the possible reasons for markets tanking down in 2011 are:

  • Government Paralysis
  • Loss of confidence among the FIIs that led to currency depreciation
  • Interest Rate hikes by RBI to contain Inflation
  • Euro Crisis and near recession scenario
  • Rise of NPA among Banks
  • Fiscal Deficit

It will be very challenging for few companies in 2012 to rise money to fund ongoing projects. One issue which will haunt many a companies is the FCCB redemption. Some companies have FCCB maturity in first half of the year and their Stock Prices are currently trading at 80-90 % down the conversion price. Such bond investors will not convert there bonds to stock and therefore companies would have to repay the debt in foreign currency.As Rupee is depreciated by about 15%, this makes the redemption payment for companies even more tough.
Examples : SUBEX,SUZLON,RCOM etc..

Also, the recent announcement by Govt. about borrowing plan to overshoot by another 40,000 Cr will make matters worse in coming days. I am guessing it will touch new lows in 2012 but will end up in positive by the year end. Lets see how markets open in the first day of new year tomorrow...