Despite an inspirational inaugural address from new U.S. President Barack Obama, stocks failed to gain any ground and drifted lower in afternoon trade. At 2:05PM, the Dow was down 197, the Nasdaq was down 62 and the S&P 500 was down 29.
Financial stocks are weak across the board following news of a second bank bailout in the UK, big losses at RBS (NYSE: RBS) and deteriorating profits and portfolio at State Street (NYSE: STT). Bank of America (NYSE: BAC) is down 19%, JPMorgan Chase (NYSE: JPM) is down 14%, Wells Fargo (NYSE: WFC) is down 20% and Citi (NYSE: C) is down 14%.
Commenting on the dismissal state of the economy in his speech Obama said, "Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America." Obama said we will build roads and bridges, the electric grids and digital lines that feed commerce. He also said, "we will harness the sun and the winds and the soil to fuel our cars and run our factories."It remains to be seen whether Obama's speech will quiet the cable news fixation with Wright—and whether addressing race in such a head-on fashion will pay dividends, in this closely fought contest, which has seen African-American voters flock overwhelmingly to his side. Will it win over the blue-collar white males who have been trending toward his opponent, or drive them away? But if it was a roll of the dice, Obama took the gamble with gusto—and deftly sought to repurpose the Wright controversy as an engine of the kind of change he has offered as the central thrust of his candidacy.
"We can tackle race only as spectacle, as we did in the O.J. trial. Or in the wake of tragedy, as we did in the aftermath of Katrina. Or as fodder for the nightly news," he said. "We can play Reverend Wright's sermons on every channel, every day and talk about them from now until the election, and make the only question in this campaign whether or not the American people think that I somehow believe or sympathize with his most offensive words. We can pounce on some gaffe by a Hillary supporter as evidence that she's playing the race card, or we can speculate on whether white men will all flock to John McCain in the general election regardless of his policies. We can do that.
"But if we do, I can tell you that in the next election we'll be talking about some other distraction. And then another one. And then another one. And nothing will change.
"That is one option. Or, at this moment, in this election, we can come together and say, 'Not this time.' This time we want to talk about the crumbling schools that are stealing the future of black children and white children and Asian children and Hispanic children and Native American children. This time we want to reject the cynicism that tells us that these kids can't learn, that those kids who don't look like us are somebody else's problem. The children of America are not those kids, they are our kids, and we will not let them fall behind in a 21st-century economy. Not this time."
Afterward Obama's aides applauded the speech as a way to take control of the narrative on race—and weave into it the story of his own life. "He has wanted to make this speech for a long time," says David Axelrod, Obama's senior strategist. "The question was when. He knew this was the right time. The firestorm about Wright and [former representative Geraldine] Ferraro meant that race was creeping up as a kind of dominant discussion." (Ferraro, a Clinton finance committee member, resigned her post after her own comments about Obama—suggesting he would not be enjoying such success as a candidate if he were white—caused a firestorm.)
Obama dictated a first draft to his young speechwriter Jon Favreau on Saturday, then reworked the speech until 3 a.m. Monday. He went at it anew on Tuesday, tweaking away until 2 a.m. Did Obama's political aides try to warn him off the idea? "It wasn't even a discussion," says Axelrod. "He was going to do it. I know this sounds perhaps corny, but he actually believes in the fairness and good sense of the American people, and the importance of this issue. His candidacy is predicated on the fact that we can talk to each other in an honest and forthright way on this and other issues."
Thursday, January 22, 2009
Friday, January 16, 2009
Recovery Today - Asian Markets
Stock markets in Asian region closed higher on Friday 16 January 2009, showing some sign of improvement at the end of week convincing recovery from Thursday's big falls. The regional markets followed the gains on Wall Street registered last night. In the region, technology and resource stocks showed some upbeat.
On Wall Street, the stock markets showed sign of improvement despite of disappointing economic data, falling crude price and the overall financial sector. The Dow Jones Industrial Average ended higher by 12.3 points at 8,212, the Nasdaq closed higher by 22.2 points at 1,511 and the S&P 500 closed higher by 1.1 points at 843.74.
Meanwhile, news of Bank of America might require bailout money to finance the Merrill Lynch acquisition came true as U.S. officials early Friday disclosed they have agreed to provide Bank of America Corporation (BAC) with an additional $20 billion in capital and backstop losses on up to $118 billion of its assets. The announcement from the U.S. Treasury Department comes the day after the U.S. Senate moved up a vote related to the release of a second trance of funding under the controversial $700 billion Troubled Asset Relief Program and just hours before Bank of America was scheduled to release its fourth quarter earnings.
Bank of America already has received $25 billion in TARP funding but needed an additional capital injection to help it digest losses related to its acquisition of Merrill Lynch & Co.
In the commodity market, crude oil prices languished near $35 a barrel Friday in Asia as traders eyed a weakening U.S. economy and falling global demand that's sent crude down a third since last week.
Light, sweet crude for February delivery was down 47 cents at $34.93 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract fell $1.88 overnight to settle at $35.40, after trading as low as $33.20, a five-year low. Yesterday's closing is the lowest settlement since 24 December 2008.
Brent crude oil for February settlement declined 39 cents, or 0.9%, to settle at $44.69 a barrel on London's ICE Futures Europe exchange yesterday. The more-active March Brent contract rose 6 cents to $47.87 a barrel.
In the currency market, the U.S. dollar weakened against the Australian dollar, New Zealand dollar while it strengthened against the Japanese yen, South Korean won, the Singapore dollar.
In late Tokyo trades, the dollar was quoted at 90.40 yen, up 0.56 yen from Thursday's close of 89.84 yen in Tokyo.
The Hong Kong dollar was trading at HK$ 7.7586 against the dollar. Actually The Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.
In late Sydney trades, the Australian dollar was trading at US$0.6736 up from Thursday's close of US$0.6626.
In late Wellington trades, the New Zealand dollar was buying US$0.5469, up compared to US$0.5370 at close on Thursday.
In late Seoul trades, the South Korean won was trading at 1,357.50 won to the U.S. dollar on Friday, up by 34.210 won from Thursday's close of 1,391.60 won.
In Taipei, the Taiwan dollar strengthened against the US dollar as it was trading at NT$ 33.351 in the afternoon trade against the Thursday closing of NT$ 33.367
The Singapore dollar finished at 1.4856 against the previous close of 1.4940 while the Malaysian Ringgit closed Friday's deals at 3.5775.
In Manila, the Philippines peso strengthened against the dollar touching two day high. Currently, the dollar-peso pair is worth 47.12, compared to 47.11 hit in the early trade.
Coming back in equities, Japanese stock index finished the session higher, with rebound in banks and financials, exporters, and other recently battered shares, buoyed by a firm Wall Street overnight on expectation that the US government would provide fresh capital to its crisis-hit banks.
The Nikkei 225 Stock Average index gained 206.84 points, or 2.6%, to 8,230.15, while the broader Topix rose 21.9 points, or 2.8%, to 818. In a week, the Nikkei 225 stock average lost 606.65 points, or 6.87%, while the broader Topix erased 37 points, or 4.33%.
In Mainland China, the Shanghai stock index finished the session higher on hopes the government would unveil more stimulus measures before the Lunar New Year including further interest rate cuts and supportive policies to revive earnings and counter an economic slowdown.
The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, surged 34.23 points, or 1.8%, to 1,954.43. The index has gained 49.57 points, or 2.6%, in the week.
Banking stocks outperformed after China's $200 billion sovereign wealth fund said it's been buying shares in the three biggest banks, while machinery and shipbuilding climbed on hopes it will be next to receive government aid.
In Hong Kong, the benchmark index registered its first close in positive territory in seven sessions. The Hang Seng index closed up 12.55 points or 0.09% at 13,255.51. The Hang Seng China Enterprises index jumped 104.98 points or 1.49% at 7,147.34.
In Australia, the stock market finished the session higher after a firmer opening, as miners, materials and resources bounced back following the hammering yesterday. The benchmark S&P/ASX200 jumped 21.40 points, or 0.61%, to 3,550.9, while the broader All Ordinaries rose by 18.1 points, or 0.52%, to 3,494.9. In a week, the S&P/ASX200 has lost 184.8 points, or 4.95%, while All Ordinaries erased by 185.5 points, or 5.04%.
In New Zealand, stock market advanced on the last trading day of the week following the regional trend. The NZX50 ascended 0.34% or 9.325 points to close at 2752.16. The NZX 15 rose 0.35% or 17.335 points to 4980.694.
On the economic front, Prime Minister John Key promises to help small businesses survive and avoid staff lay-offs as part of his response to a prediction of soaring unemployment.
In South Korea, the stock markets registered a good rebound by closing the day on higher note after volatile trade carried on the back of news that U.S. government support for Bank of America boosted regional financials stocks, but Samsung Electronics under performed after it announced reorganization plans. The Korea Composite Stock Price Index gained 23.86 points or 2.15% closing the day at 1,135.20. For the week, market ended 3.87% or 45.76 points.
In Singapore, the Singapore share finished the session higher, with rebound in transportation and communication, services, and manufacturer, buoyed by firmer Wall Street overnight on expectation that the US government would provide fresh capital to its crisis-hit banks to prevent the year-long recession from deepening. The benchmark Straits Times Index gained 26.39 points, or 1.55%, to 1,730.45. The index has lost 75.57 points, or 4.18%, in a week.
On the economic front, the Singapore's non-oil exports slid worse-than-expected seasonal adjusted 13.1% in December from the previous month. On a year-on-year basis, NODX decreased by 21% in December 2008, following the 17% decline in the preceding month.
Singapore's National Wages Council said on Friday unemployment will be substantially higher this year, and recommended firms affected by the economic downturn institute a wage freeze or wage cuts to stay competitive and save jobs.
In Philippines, the stock market ended marginally lower, bucking regional indices, as investors chose to stay on the sidelines in response to the ominous economic outlook for the Philippines economy. The benchmark index PSEi lost 0.24% or 4.84 points to 1,950.13, while the All-share index declined 0.11% or 1.46 points to 1,238.77.
On the economic front, Fitch Ratings has forecast the Philippines' economic growth to decelerate to 2.5% in 2009, and the national government budget shortfall to widen to 2.3% of GDP. Fitch expects the country's current account to turn into a small deficit this year, and foreign reserves to decline slightly from last year's US$37.1billion.
On the positive note, remittances from Filipino workers abroad, a key driver of consumer spending, grew by 10.5% to $1.3 billion in November from a year earlier, boosting liquidity during the month. The steady stream of remittances provides the economy with much needed foreign exchange liquidity in the midst of a challenging external environment.
In Taiwan, the stock market followed the regional trend, closing the last day of the week on a higher note. Taiex - the benchmark index showed some recovery from yesterday's debacle, closing higher by 32.93 points or 0.76% at 4,353.70. The market moved in the narrow range of 4382.43 - 4313.19. For the week, the index lost 149.04, closing 3.30% lower.
In India, the key benchmark indices surged to day's high in fag end of the day's trading session on steady buying demand for index pivotals especially index heavyweight Reliance Industries that surged a little under 7%. The BSE 30-share Sensex gained 266.77 points, or 2.95% to 9,313.51, as per provisional closing. The S&P CNX Nifty advanced 91.90 points, or 3.36%, to 2,828.80
Elsewhere, Malaysia's Kula Lumpur Composite index was down 0.11% or 0.98 points to 896.47, while Indonesia's Jakarta composite increased by 20.38 points or 1.52% to 1363.88. In Thailand, the Thai Stock exchange gained 8.94 points or 2.10% to 435.20.
In the other regional markets, European shares advanced broadly on Friday, with sharp gains from oil producers, mineral extractors and banks helping shares recoup some of this week's hefty losses. The surge in banking stocks was seen after an announcement from U.S. government that it is injecting $20 billion into Bank of America and guaranteeing losses on billions more as the Charlotte giant struggles to digest the acquisition of Merrill Lynch.
On a national level, the French CAC-40 index rose 2.2% to 3,061.21, the German DAX 30 index advanced 2.1% to 4,426.30 and the U.K. FTSE 100 index climbed 1.8% to 4,196.20.
On Wall Street, the stock markets showed sign of improvement despite of disappointing economic data, falling crude price and the overall financial sector. The Dow Jones Industrial Average ended higher by 12.3 points at 8,212, the Nasdaq closed higher by 22.2 points at 1,511 and the S&P 500 closed higher by 1.1 points at 843.74.
Meanwhile, news of Bank of America might require bailout money to finance the Merrill Lynch acquisition came true as U.S. officials early Friday disclosed they have agreed to provide Bank of America Corporation (BAC) with an additional $20 billion in capital and backstop losses on up to $118 billion of its assets. The announcement from the U.S. Treasury Department comes the day after the U.S. Senate moved up a vote related to the release of a second trance of funding under the controversial $700 billion Troubled Asset Relief Program and just hours before Bank of America was scheduled to release its fourth quarter earnings.
Bank of America already has received $25 billion in TARP funding but needed an additional capital injection to help it digest losses related to its acquisition of Merrill Lynch & Co.
In the commodity market, crude oil prices languished near $35 a barrel Friday in Asia as traders eyed a weakening U.S. economy and falling global demand that's sent crude down a third since last week.
Light, sweet crude for February delivery was down 47 cents at $34.93 a barrel by midday in Singapore in electronic trading on the New York Mercantile Exchange. The contract fell $1.88 overnight to settle at $35.40, after trading as low as $33.20, a five-year low. Yesterday's closing is the lowest settlement since 24 December 2008.
Brent crude oil for February settlement declined 39 cents, or 0.9%, to settle at $44.69 a barrel on London's ICE Futures Europe exchange yesterday. The more-active March Brent contract rose 6 cents to $47.87 a barrel.
In the currency market, the U.S. dollar weakened against the Australian dollar, New Zealand dollar while it strengthened against the Japanese yen, South Korean won, the Singapore dollar.
In late Tokyo trades, the dollar was quoted at 90.40 yen, up 0.56 yen from Thursday's close of 89.84 yen in Tokyo.
The Hong Kong dollar was trading at HK$ 7.7586 against the dollar. Actually The Hong Kong dollar is pegged at HK$ 7.8 to the U.S. dollar but can trade between HK$ 7.75 and HK$7.85 to the U.S. dollar.
In late Sydney trades, the Australian dollar was trading at US$0.6736 up from Thursday's close of US$0.6626.
In late Wellington trades, the New Zealand dollar was buying US$0.5469, up compared to US$0.5370 at close on Thursday.
In late Seoul trades, the South Korean won was trading at 1,357.50 won to the U.S. dollar on Friday, up by 34.210 won from Thursday's close of 1,391.60 won.
In Taipei, the Taiwan dollar strengthened against the US dollar as it was trading at NT$ 33.351 in the afternoon trade against the Thursday closing of NT$ 33.367
The Singapore dollar finished at 1.4856 against the previous close of 1.4940 while the Malaysian Ringgit closed Friday's deals at 3.5775.
In Manila, the Philippines peso strengthened against the dollar touching two day high. Currently, the dollar-peso pair is worth 47.12, compared to 47.11 hit in the early trade.
Coming back in equities, Japanese stock index finished the session higher, with rebound in banks and financials, exporters, and other recently battered shares, buoyed by a firm Wall Street overnight on expectation that the US government would provide fresh capital to its crisis-hit banks.
The Nikkei 225 Stock Average index gained 206.84 points, or 2.6%, to 8,230.15, while the broader Topix rose 21.9 points, or 2.8%, to 818. In a week, the Nikkei 225 stock average lost 606.65 points, or 6.87%, while the broader Topix erased 37 points, or 4.33%.
In Mainland China, the Shanghai stock index finished the session higher on hopes the government would unveil more stimulus measures before the Lunar New Year including further interest rate cuts and supportive policies to revive earnings and counter an economic slowdown.
The benchmark Shanghai Composite Index, which covers both A shares and B shares on the Shanghai Stock Exchange, surged 34.23 points, or 1.8%, to 1,954.43. The index has gained 49.57 points, or 2.6%, in the week.
Banking stocks outperformed after China's $200 billion sovereign wealth fund said it's been buying shares in the three biggest banks, while machinery and shipbuilding climbed on hopes it will be next to receive government aid.
In Hong Kong, the benchmark index registered its first close in positive territory in seven sessions. The Hang Seng index closed up 12.55 points or 0.09% at 13,255.51. The Hang Seng China Enterprises index jumped 104.98 points or 1.49% at 7,147.34.
In Australia, the stock market finished the session higher after a firmer opening, as miners, materials and resources bounced back following the hammering yesterday. The benchmark S&P/ASX200 jumped 21.40 points, or 0.61%, to 3,550.9, while the broader All Ordinaries rose by 18.1 points, or 0.52%, to 3,494.9. In a week, the S&P/ASX200 has lost 184.8 points, or 4.95%, while All Ordinaries erased by 185.5 points, or 5.04%.
In New Zealand, stock market advanced on the last trading day of the week following the regional trend. The NZX50 ascended 0.34% or 9.325 points to close at 2752.16. The NZX 15 rose 0.35% or 17.335 points to 4980.694.
On the economic front, Prime Minister John Key promises to help small businesses survive and avoid staff lay-offs as part of his response to a prediction of soaring unemployment.
In South Korea, the stock markets registered a good rebound by closing the day on higher note after volatile trade carried on the back of news that U.S. government support for Bank of America boosted regional financials stocks, but Samsung Electronics under performed after it announced reorganization plans. The Korea Composite Stock Price Index gained 23.86 points or 2.15% closing the day at 1,135.20. For the week, market ended 3.87% or 45.76 points.
In Singapore, the Singapore share finished the session higher, with rebound in transportation and communication, services, and manufacturer, buoyed by firmer Wall Street overnight on expectation that the US government would provide fresh capital to its crisis-hit banks to prevent the year-long recession from deepening. The benchmark Straits Times Index gained 26.39 points, or 1.55%, to 1,730.45. The index has lost 75.57 points, or 4.18%, in a week.
On the economic front, the Singapore's non-oil exports slid worse-than-expected seasonal adjusted 13.1% in December from the previous month. On a year-on-year basis, NODX decreased by 21% in December 2008, following the 17% decline in the preceding month.
Singapore's National Wages Council said on Friday unemployment will be substantially higher this year, and recommended firms affected by the economic downturn institute a wage freeze or wage cuts to stay competitive and save jobs.
In Philippines, the stock market ended marginally lower, bucking regional indices, as investors chose to stay on the sidelines in response to the ominous economic outlook for the Philippines economy. The benchmark index PSEi lost 0.24% or 4.84 points to 1,950.13, while the All-share index declined 0.11% or 1.46 points to 1,238.77.
On the economic front, Fitch Ratings has forecast the Philippines' economic growth to decelerate to 2.5% in 2009, and the national government budget shortfall to widen to 2.3% of GDP. Fitch expects the country's current account to turn into a small deficit this year, and foreign reserves to decline slightly from last year's US$37.1billion.
On the positive note, remittances from Filipino workers abroad, a key driver of consumer spending, grew by 10.5% to $1.3 billion in November from a year earlier, boosting liquidity during the month. The steady stream of remittances provides the economy with much needed foreign exchange liquidity in the midst of a challenging external environment.
In Taiwan, the stock market followed the regional trend, closing the last day of the week on a higher note. Taiex - the benchmark index showed some recovery from yesterday's debacle, closing higher by 32.93 points or 0.76% at 4,353.70. The market moved in the narrow range of 4382.43 - 4313.19. For the week, the index lost 149.04, closing 3.30% lower.
In India, the key benchmark indices surged to day's high in fag end of the day's trading session on steady buying demand for index pivotals especially index heavyweight Reliance Industries that surged a little under 7%. The BSE 30-share Sensex gained 266.77 points, or 2.95% to 9,313.51, as per provisional closing. The S&P CNX Nifty advanced 91.90 points, or 3.36%, to 2,828.80
Elsewhere, Malaysia's Kula Lumpur Composite index was down 0.11% or 0.98 points to 896.47, while Indonesia's Jakarta composite increased by 20.38 points or 1.52% to 1363.88. In Thailand, the Thai Stock exchange gained 8.94 points or 2.10% to 435.20.
In the other regional markets, European shares advanced broadly on Friday, with sharp gains from oil producers, mineral extractors and banks helping shares recoup some of this week's hefty losses. The surge in banking stocks was seen after an announcement from U.S. government that it is injecting $20 billion into Bank of America and guaranteeing losses on billions more as the Charlotte giant struggles to digest the acquisition of Merrill Lynch.
On a national level, the French CAC-40 index rose 2.2% to 3,061.21, the German DAX 30 index advanced 2.1% to 4,426.30 and the U.K. FTSE 100 index climbed 1.8% to 4,196.20.
Bull Market
As always happens near the peak of a bubble or bull market, confidence turned to hubris, and stock valuations got well above historical norms. Some analysts even felt the internet was enough of a paradigm shift that traditional methods of valuing stocks could be thrown out altogether.
But this was certainly not the case, and the first evidence came from the companies that had been some of the darlings of the stock race upward - the large suppliers of internet trafficking equipment, such as fiber optic cabling, routers and server hardware. After rising meteorically, sales began to fall sharply by 2000, and this sales drought was then felt by those companies' suppliers, and so on across the supply chain.
Pretty soon the corporate customers realized that they had all the technology equipment they needed, and the big orders stopped coming in. A massive glut of production capacity and inventory had been created, so prices dropped hard and fast. In the end, many companies that were worth billions as little as three years earlier went belly-up, never having earned more than a few million dollars in revenue.
The only thing that allowed the market to recover from bear territory was when all that excess capacity and supply got either written off the books, or eaten up by true demand growth. This finally showed up in the growth of net earnings for the core technology suppliers in late 2002, right around when the broad market indexes finally resumed their historical upward trend.
But this was certainly not the case, and the first evidence came from the companies that had been some of the darlings of the stock race upward - the large suppliers of internet trafficking equipment, such as fiber optic cabling, routers and server hardware. After rising meteorically, sales began to fall sharply by 2000, and this sales drought was then felt by those companies' suppliers, and so on across the supply chain.
Pretty soon the corporate customers realized that they had all the technology equipment they needed, and the big orders stopped coming in. A massive glut of production capacity and inventory had been created, so prices dropped hard and fast. In the end, many companies that were worth billions as little as three years earlier went belly-up, never having earned more than a few million dollars in revenue.
The only thing that allowed the market to recover from bear territory was when all that excess capacity and supply got either written off the books, or eaten up by true demand growth. This finally showed up in the growth of net earnings for the core technology suppliers in late 2002, right around when the broad market indexes finally resumed their historical upward trend.
Nifty and Sensex Today
Early Friday in the US, Bank of America and the Treasury Department reached an agreement for an additional $20 billion in capital from the government's emergency rescue fund, along with guarantees against losses on up to $118 billion in troubled assets. The deal came just hours after American lawmakers authorised a second $350 billion package from the government's bailout fund amid mounting speculation that debt-ridden banks would need even more rescue money. Meanwhile, Obama allies unveiled a $825 billion recovery bill to help jump-start the world's largest economy. This offered the much needed boosted to stock markets across the world.
Back home, foreign funds lapped up frontline stocks that had been battered in the recent sessions, driving the key indices sharply higher. Bombay Stock Exchange's Sensex ended 3.06 per cent or 276.85 points higher at 9,323.59, after climbing to a high of 9,342.47 after opening at 9,125.65. National Stock Exchange's Nifty rose 3.35 per cent or 91.75 points to close at 2828.45. The index climbed a high of 2835.65 from a low of 2724.20 during the day.
"2950 on Nifty is the next crucial level, where some amount of profit booking will set in. On the downside, 2700 is an important support to watch out for. Given the magnitude of the fall on Thursday, today's move was expected, which was also supported by positive global markets. But the sore point of Friday's trade was the low turnover," said Hitesh Sheth, head of technical research at Prabhudas Lilladher.
The total turnover on NSE stood at Rs 7,268.79 crore compared to Rs 8,178.88 crore in Thursday's trade.
Even as frontline stocks caught the investors' fancy, they shied away from placing bets in mid and small caps. The BSE Midcap Index ended up 0.53 per cent at 3,026.83 after rising to a high of 3,046.90. BSE Smallcap Index ended almost flat at 3,412.77.
Sectorwise, oil & gas, power and metals were in demand. The BSE Oil &Gas Index rose 5 per cent on the back of strong rally in Reliance Industries.
RIL, which had lost 2.95 per cent on Thursday, staged a strong comeback on expectations that the company may settle the dispute over supply of natural gas to RNRL soon. The stock hit a high of Rs 1,221 before settling at Rs 1,218.40, still showing a hefty rise of 6.56 per cent. Other index gainers comprised NTPC (7.69%), Reliance Infrastructure (7.34%), Bharti Airtel (4.77%), Tata Power (4.89%) and ONGC (3.72%).
On the other hand, DLF (-3.51%), Grasim Industries (-1.11%), Tata Consultancy Services (-1.38%), ACC (-0.27%) and Maruti Suzuki (-0.22%) were a disappointment.
Market breadth remained positive with 1,243 advances against 1,156 declines on the BSE.
Back home, foreign funds lapped up frontline stocks that had been battered in the recent sessions, driving the key indices sharply higher. Bombay Stock Exchange's Sensex ended 3.06 per cent or 276.85 points higher at 9,323.59, after climbing to a high of 9,342.47 after opening at 9,125.65. National Stock Exchange's Nifty rose 3.35 per cent or 91.75 points to close at 2828.45. The index climbed a high of 2835.65 from a low of 2724.20 during the day.
"2950 on Nifty is the next crucial level, where some amount of profit booking will set in. On the downside, 2700 is an important support to watch out for. Given the magnitude of the fall on Thursday, today's move was expected, which was also supported by positive global markets. But the sore point of Friday's trade was the low turnover," said Hitesh Sheth, head of technical research at Prabhudas Lilladher.
The total turnover on NSE stood at Rs 7,268.79 crore compared to Rs 8,178.88 crore in Thursday's trade.
Even as frontline stocks caught the investors' fancy, they shied away from placing bets in mid and small caps. The BSE Midcap Index ended up 0.53 per cent at 3,026.83 after rising to a high of 3,046.90. BSE Smallcap Index ended almost flat at 3,412.77.
Sectorwise, oil & gas, power and metals were in demand. The BSE Oil &Gas Index rose 5 per cent on the back of strong rally in Reliance Industries.
RIL, which had lost 2.95 per cent on Thursday, staged a strong comeback on expectations that the company may settle the dispute over supply of natural gas to RNRL soon. The stock hit a high of Rs 1,221 before settling at Rs 1,218.40, still showing a hefty rise of 6.56 per cent. Other index gainers comprised NTPC (7.69%), Reliance Infrastructure (7.34%), Bharti Airtel (4.77%), Tata Power (4.89%) and ONGC (3.72%).
On the other hand, DLF (-3.51%), Grasim Industries (-1.11%), Tata Consultancy Services (-1.38%), ACC (-0.27%) and Maruti Suzuki (-0.22%) were a disappointment.
Market breadth remained positive with 1,243 advances against 1,156 declines on the BSE.
Market Opens Low Today
The market today opens sharply lower on the back of negative cues from the global markets. The heavy selling pressure witnessed across the board in the opening trade. The most selling is seen in the IT, Realty and Banking stocks. The Mid Cap and Small Cap stocks are also trading lower in the opening trade. The BSE Sensex is hovering around the 17,100 mark and the NSE Nifty is around the 5,000 mark.
The overall market breadth is extremely negative as 553 stocks are advancing whereas 1345 stocks are declining on BSE.
At 10.30AM, the BSE Sensex was down by 236.38 points at 17,102.93 and the Nifty was down by 58.75 points to 5,076.25.
The BSE Mid Cap decreased by 72.20 points to 7,129.36 and the BSE Small Cap dropped by 81.51 points to 8,645.66.
Reliance Communication reported the top gainer from the BSE Sensex pack. It is trading with a gain of 1.20% at Rs.546.75 while Infosys Technologies reported the top loser down by 3.50% at Rs.1,787.90.
BSE IT index dropped by 110.58 points to trade at 4,302.72. The major losers are Infosys Technologies, Satyam Computers, Wipro and TCS fell by (3.50%), (3.01%), (2.67%) and (2.11%) to Rs.1,787.90, Rs.474.50, Rs.485 and Rs.946.35 respectively.
BSE Bank slipped by 118.56 points to trade at 8,898.35. The top losers are ICICI Bank declined by (2.33%) to Rs.897.55, HDFC Bank decreased by (2.18%) at Rs.1,508.35 followed by PNB and SBI down by (1.29%) and (1.11%) to Rs.532.50 and Rs.1,748.80.
Infosys Technologies is trading lower by (3.05%) at Rs.1,787.90. The company’s BPO arm is aiming to make Gurgaon the hub for its KPO business. The company is setting up a large centre for ‘knowledge services. It will be operational by the end of the current financial year.
The overall market breadth is extremely negative as 553 stocks are advancing whereas 1345 stocks are declining on BSE.
At 10.30AM, the BSE Sensex was down by 236.38 points at 17,102.93 and the Nifty was down by 58.75 points to 5,076.25.
The BSE Mid Cap decreased by 72.20 points to 7,129.36 and the BSE Small Cap dropped by 81.51 points to 8,645.66.
Reliance Communication reported the top gainer from the BSE Sensex pack. It is trading with a gain of 1.20% at Rs.546.75 while Infosys Technologies reported the top loser down by 3.50% at Rs.1,787.90.
BSE IT index dropped by 110.58 points to trade at 4,302.72. The major losers are Infosys Technologies, Satyam Computers, Wipro and TCS fell by (3.50%), (3.01%), (2.67%) and (2.11%) to Rs.1,787.90, Rs.474.50, Rs.485 and Rs.946.35 respectively.
BSE Bank slipped by 118.56 points to trade at 8,898.35. The top losers are ICICI Bank declined by (2.33%) to Rs.897.55, HDFC Bank decreased by (2.18%) at Rs.1,508.35 followed by PNB and SBI down by (1.29%) and (1.11%) to Rs.532.50 and Rs.1,748.80.
Infosys Technologies is trading lower by (3.05%) at Rs.1,787.90. The company’s BPO arm is aiming to make Gurgaon the hub for its KPO business. The company is setting up a large centre for ‘knowledge services. It will be operational by the end of the current financial year.
Dollar Trading
The New Zealand dollar was buying about US76.40c this morning, having plunged on overseas markets on Saturday.
Meanwhile, the 10am opening of the sharemarket today was being nervously awaited after US stocks plummeted in last week's final session for the second day in a row.
The kiwi fell from around US78c shortly before 1am on Saturday to the US76.40c level within a few hours.
It has fallen more than 4.5c since last Tuesday when it topped US81c for the first time since being floated 22 years ago.
The kiwi was already falling when it received a big push down on Thursday as the Reserve Bank raised the official cash rate for the fourth time this year, to 8.25 per cent, but said it was unlikely to raise them further.
Saturday morning's NZ dollar plunge came as the US dollar rebounded sharply, after a fall in the previous session, as trouble in the US credit markets led investors to repatriate funds from overseas.
Worries about ongoing problems in the US subprime mortgage and corporate bond markets have led investors to shun bets in riskier assets such as foreign stocks, helping buoy the greenback as money flows back into the United States.
At the same time a so-called flight from risk has led some traders to cut their exposure to carry trades, or purchases of high yielding currencies such as the New Zealand dollar, financed by selling low-interest rate currencies like the yen or Swiss franc.
On the sharemarket, US stocks ended last week with a sharp fall for the second session in a row.
The first of the falls, in Thursday trade in the US, had been followed by a 2.1 per cent fall on the New Zealand sharemarket on Friday.
The fallout from the drop in the final US session of last week will be known once the local sharemarket opens at 10am today.
US stocks plummeted for a second day on Friday (local time) as investors continued to recoil over credit concerns reverberating through financial markets around the world.
Worries over a possible credit crunch overwhelmed data from the US government showing second-quarter US growth that was the strongest in over a year.
In a scramble for safety, investors put money into the safe haven of US government bonds.
Driving this reallocation are fears that the housing market's troubles, including the subprime mortgage sector crisis, may be turning into a broader credit crunch.
Meanwhile, the 10am opening of the sharemarket today was being nervously awaited after US stocks plummeted in last week's final session for the second day in a row.
The kiwi fell from around US78c shortly before 1am on Saturday to the US76.40c level within a few hours.
It has fallen more than 4.5c since last Tuesday when it topped US81c for the first time since being floated 22 years ago.
The kiwi was already falling when it received a big push down on Thursday as the Reserve Bank raised the official cash rate for the fourth time this year, to 8.25 per cent, but said it was unlikely to raise them further.
Saturday morning's NZ dollar plunge came as the US dollar rebounded sharply, after a fall in the previous session, as trouble in the US credit markets led investors to repatriate funds from overseas.
Worries about ongoing problems in the US subprime mortgage and corporate bond markets have led investors to shun bets in riskier assets such as foreign stocks, helping buoy the greenback as money flows back into the United States.
At the same time a so-called flight from risk has led some traders to cut their exposure to carry trades, or purchases of high yielding currencies such as the New Zealand dollar, financed by selling low-interest rate currencies like the yen or Swiss franc.
On the sharemarket, US stocks ended last week with a sharp fall for the second session in a row.
The first of the falls, in Thursday trade in the US, had been followed by a 2.1 per cent fall on the New Zealand sharemarket on Friday.
The fallout from the drop in the final US session of last week will be known once the local sharemarket opens at 10am today.
US stocks plummeted for a second day on Friday (local time) as investors continued to recoil over credit concerns reverberating through financial markets around the world.
Worries over a possible credit crunch overwhelmed data from the US government showing second-quarter US growth that was the strongest in over a year.
In a scramble for safety, investors put money into the safe haven of US government bonds.
Driving this reallocation are fears that the housing market's troubles, including the subprime mortgage sector crisis, may be turning into a broader credit crunch.
Golden Rule - Share Market Tips
Divide your Risk Capital in 10 Equal Parts.
As part of the Successful money management, it is always advised to divide your Risk Capital (which you can afford to lose) into 10 equal Parts and at any given time none of your Single Trade should have more than 3 parts of your capital in it even if you are in a winning position. At the same time always keep some spare money for any Buying Opportunity, which may come any time.
Trade ONLY in active & high Volume Stocks/ Futures.
Many Traders get stuck with stocks for want of liquidity. Always rely upon Stocks which have reasonably high volume over a period of time. High Volume are always advised for easy Entry, Exit and Stop Loss. In low volume stocks the spread is too high and chance of Stop Loss limit getting failed is too high as there would be no Buyer or seller at your Stop Loss Level.
Come Prepared with a Trading Plan
Successful traders always keep their Trading Plans ready before entering into any transactions. One must prepare a Watch List or Probable candidates for Day's trading and remain focused on the movement of those stocks only. For example a Stock 'X' is on verge of a Bullish Breakout from any pattern or stock 'Y' has declined substantially after an initial sharp upmove or stock 'Z' is close to an important support level. Successful trader would concentrate on the movement of those stocks only and enter the trade as soon as stock 'X' gives the anticipated breakout or stock 'Y' starts an upmove or stock 'Z' breaks the support level to initiate a trade for quick gains.
Never Over Trade
This is the most common mistake committed by Traders, particularly after a Streak of winning Trades. This mistake Generally not only wipes off all the profits, but puts traders in heavy losses. In order to remain in market while making consistent Profits, under no circumstances, traders should go beyond their Risk Capital.
Trade in 2 to 4 Stocks at a time with strict Stop Loss.
In a Bull move, most of the stocks move up and similarly in any Bear Move, most of the stock moves southwards. As a Trader you know this fact but can you Buy 20 Stocks and try to make profit in all the 20 stocks just because all are moving up or vice versa in a Down trend? What will happen if market reverses without any indication on any bad news? Would you be able to monitor all your trades in such situation? Smart and Successful trader would trade in 2 to 4 stocks with strict Stop Loss and keep a strict vigil to avoid any misfortune in case of any eventuality.
Sell Short as often as you go Long.
More than 90% of common investors/ Traders are 'Bulls' by nature. Because they love to see prices going up only. Stocks are bought by anybody/ corporate/ financial institutions/ Mutual Funds to make profit on rise. They have large holdings and mentally they wish and pray for the market to rise only. But facts are different. History shows that Bull Phases have shorter duration that Bear phases. So every stock that moves up will retrace back to 38%-50%-66%. Since 90% investors are Bulls by heart they normally do not book profit at higher levels to re-enter later at lower levels instead they prefer to increase their portfolio at lower levels. Successful Traders know how to capitalize such correction. They are always prepared to go 'Short' as often as they trade on 'Long' side.
Don't Trade if you are not Clear.
Many Traders, because of their daily habits trade even when there are no signals to buy or short. Normally such situation arrives after a sharp rise or decline when stocks are adjusting their values. While some stocks attempt to move up, few may be taking breather before next move. Such situation are often confusing. There is no harm in taking rest for a day or two or short period if the trend is choppy, unclear or doubtful, instead of putting your money at higher risk.
Don't expect Profit on Every Trade.
If you consider you are a smart trader who can make profit on every trade, you are 100% wrong. Always be flexible and accept the fact as soon as you realize that you are on wrong side of the trade. Simply get out of the trade without changing your strategy during the market; it may cause you double losses.
Withdraw portion of your profits.
The business of Trading is excellent as long as you are making profits. Unlike other business your losses can be unlimited and rapid if market does not move as per your expectations. While in other businesses you may have other remedial measures available but in trading it is you only who has to control it. Traders have large egos particularly after series of successful trades and their tendency to enlarge commitments in overconfidence may cause major financial set back. There fore it is must that trader must take a portion of the profit and put it in separate account. This is absolutely must for long term stability in the market.
As part of the Successful money management, it is always advised to divide your Risk Capital (which you can afford to lose) into 10 equal Parts and at any given time none of your Single Trade should have more than 3 parts of your capital in it even if you are in a winning position. At the same time always keep some spare money for any Buying Opportunity, which may come any time.
Trade ONLY in active & high Volume Stocks/ Futures.
Many Traders get stuck with stocks for want of liquidity. Always rely upon Stocks which have reasonably high volume over a period of time. High Volume are always advised for easy Entry, Exit and Stop Loss. In low volume stocks the spread is too high and chance of Stop Loss limit getting failed is too high as there would be no Buyer or seller at your Stop Loss Level.
Come Prepared with a Trading Plan
Successful traders always keep their Trading Plans ready before entering into any transactions. One must prepare a Watch List or Probable candidates for Day's trading and remain focused on the movement of those stocks only. For example a Stock 'X' is on verge of a Bullish Breakout from any pattern or stock 'Y' has declined substantially after an initial sharp upmove or stock 'Z' is close to an important support level. Successful trader would concentrate on the movement of those stocks only and enter the trade as soon as stock 'X' gives the anticipated breakout or stock 'Y' starts an upmove or stock 'Z' breaks the support level to initiate a trade for quick gains.
Never Over Trade
This is the most common mistake committed by Traders, particularly after a Streak of winning Trades. This mistake Generally not only wipes off all the profits, but puts traders in heavy losses. In order to remain in market while making consistent Profits, under no circumstances, traders should go beyond their Risk Capital.
Trade in 2 to 4 Stocks at a time with strict Stop Loss.
In a Bull move, most of the stocks move up and similarly in any Bear Move, most of the stock moves southwards. As a Trader you know this fact but can you Buy 20 Stocks and try to make profit in all the 20 stocks just because all are moving up or vice versa in a Down trend? What will happen if market reverses without any indication on any bad news? Would you be able to monitor all your trades in such situation? Smart and Successful trader would trade in 2 to 4 stocks with strict Stop Loss and keep a strict vigil to avoid any misfortune in case of any eventuality.
Sell Short as often as you go Long.
More than 90% of common investors/ Traders are 'Bulls' by nature. Because they love to see prices going up only. Stocks are bought by anybody/ corporate/ financial institutions/ Mutual Funds to make profit on rise. They have large holdings and mentally they wish and pray for the market to rise only. But facts are different. History shows that Bull Phases have shorter duration that Bear phases. So every stock that moves up will retrace back to 38%-50%-66%. Since 90% investors are Bulls by heart they normally do not book profit at higher levels to re-enter later at lower levels instead they prefer to increase their portfolio at lower levels. Successful Traders know how to capitalize such correction. They are always prepared to go 'Short' as often as they trade on 'Long' side.
Don't Trade if you are not Clear.
Many Traders, because of their daily habits trade even when there are no signals to buy or short. Normally such situation arrives after a sharp rise or decline when stocks are adjusting their values. While some stocks attempt to move up, few may be taking breather before next move. Such situation are often confusing. There is no harm in taking rest for a day or two or short period if the trend is choppy, unclear or doubtful, instead of putting your money at higher risk.
Don't expect Profit on Every Trade.
If you consider you are a smart trader who can make profit on every trade, you are 100% wrong. Always be flexible and accept the fact as soon as you realize that you are on wrong side of the trade. Simply get out of the trade without changing your strategy during the market; it may cause you double losses.
Withdraw portion of your profits.
The business of Trading is excellent as long as you are making profits. Unlike other business your losses can be unlimited and rapid if market does not move as per your expectations. While in other businesses you may have other remedial measures available but in trading it is you only who has to control it. Traders have large egos particularly after series of successful trades and their tendency to enlarge commitments in overconfidence may cause major financial set back. There fore it is must that trader must take a portion of the profit and put it in separate account. This is absolutely must for long term stability in the market.
TCS - Results
It was a good trading session towards the end of the day yesterday in the Indian share markets when the rumors of RIL and RNRL came in. The Indian markets closed in green with sensex gaining 299 points or 3.3% to close at 9370 levels and nifty closed at 2835 levels up by 90 points. But later the news came that the rumors of RIL-RNRL settlement was not true.
In the evening , the US stock markets started their day in deep red and ended with Dow losing 2.94% and Nasdaq closing down by 3.67%. Some concerns on the banks was the main cause behind this. Today morning the Asian share markets have opene weak in reaction to this and Nikkei-225 is trading down by 4%,Hang Seng is also down by about 4.38% currently. So we expect a gap down opening in the Indian markets as well. The reliance pack will mostly be down today and will drag the markets too.
In another important even of the day, TCS, India’s largest software exporter will announce its Q3 2009 results in an hour from now. You can check out the expected results of TCS Q3 2009 here. You can also watch Infosys Q3 2009 results here. TCS Q3 results can hardly pull back the markets today given then weak global cues today. The Govt has also decided not to bail out Satyam on the advise of the newly formed board directors.So lets see how the day pan out today. Look atbooking profits today at every small rally.
In the evening , the US stock markets started their day in deep red and ended with Dow losing 2.94% and Nasdaq closing down by 3.67%. Some concerns on the banks was the main cause behind this. Today morning the Asian share markets have opene weak in reaction to this and Nikkei-225 is trading down by 4%,Hang Seng is also down by about 4.38% currently. So we expect a gap down opening in the Indian markets as well. The reliance pack will mostly be down today and will drag the markets too.
In another important even of the day, TCS, India’s largest software exporter will announce its Q3 2009 results in an hour from now. You can check out the expected results of TCS Q3 2009 here. You can also watch Infosys Q3 2009 results here. TCS Q3 results can hardly pull back the markets today given then weak global cues today. The Govt has also decided not to bail out Satyam on the advise of the newly formed board directors.So lets see how the day pan out today. Look atbooking profits today at every small rally.
Raju - Satyamcomp
When Byyraju Ramalinga Raju ran the letters of his company Satyam backwards to create the seemingly innocuous Maytas a decade ago, little did he imagine that one day it would threaten to reverse his credibility itself.
Indeed, his flip-flop last week as he tried and then aborted, in less than 12 hours, a move to buy out his group companies Maytas Infrastructure and Maytas Properties for $1.6 billion to make it part of the flagship Satyam Computer Services has proved to be an embarrassment beyond repair.
Even as the corporate world wonders about the fail-safe theory of independent boards, the question that dogs investors is what triggered the transformation in Dr Jekyll.
The saga symbolises the cliché that everything that can go wrong will go wrong.
Consider the facts: the Raju family which owns barely 8.68 per cent of Satyam Computer Services—India’s fourth largest software company— put up a proposal for the acquisition of two companies Maytas Properties and Maytas Infrastructure.
The theory was that in a cyclical downturn, diversification would bring income and stabilisation to the software outfit. Both companies are owned by the Raju family—his sons, Teja and Rama, are vice-chairmen.
The price: $1.6 billion. It is an enduring mystery as to how the valuation was arrived at and if any other similar businesses were considered for acquisition.
The board, which consists of individuals like Krishna Palepu and former cabinet secretary T.R. Prasad, was chaired by independent director Mendu Rammohan Rao (dean of the Indian School of Business) and dealt with issues on unrelated diversification and valuation. It did not insist on shareholder consent as they were told it was not required by law.
In the corporate version of Believe it or Not, the board passed the proposal. It was only when investors voted with their feet, selling the stock, and the ADR listed on NYSE lost 52 per cent that a panicky Raju did the U-turn.
Interestingly, the proposal was reversed by e-mail and the man who chaired the meeting was the last to know.
In that 12 hours, Satyam shareholders saw Rs 4,333 crore wiped out. Raju, who believed in “delighting the stakeholder”, had triggered a revolt and even his offer of buyback and assurances have failed to restore market confidence. Indeed, the total market capitalisation of the company is down to Rs 10,930 crore (from Rs 15,263.11 crore before the fiasco).
Indeed, his flip-flop last week as he tried and then aborted, in less than 12 hours, a move to buy out his group companies Maytas Infrastructure and Maytas Properties for $1.6 billion to make it part of the flagship Satyam Computer Services has proved to be an embarrassment beyond repair.
Even as the corporate world wonders about the fail-safe theory of independent boards, the question that dogs investors is what triggered the transformation in Dr Jekyll.
The saga symbolises the cliché that everything that can go wrong will go wrong.
Consider the facts: the Raju family which owns barely 8.68 per cent of Satyam Computer Services—India’s fourth largest software company— put up a proposal for the acquisition of two companies Maytas Properties and Maytas Infrastructure.
The theory was that in a cyclical downturn, diversification would bring income and stabilisation to the software outfit. Both companies are owned by the Raju family—his sons, Teja and Rama, are vice-chairmen.
The price: $1.6 billion. It is an enduring mystery as to how the valuation was arrived at and if any other similar businesses were considered for acquisition.
The board, which consists of individuals like Krishna Palepu and former cabinet secretary T.R. Prasad, was chaired by independent director Mendu Rammohan Rao (dean of the Indian School of Business) and dealt with issues on unrelated diversification and valuation. It did not insist on shareholder consent as they were told it was not required by law.
In the corporate version of Believe it or Not, the board passed the proposal. It was only when investors voted with their feet, selling the stock, and the ADR listed on NYSE lost 52 per cent that a panicky Raju did the U-turn.
Interestingly, the proposal was reversed by e-mail and the man who chaired the meeting was the last to know.
In that 12 hours, Satyam shareholders saw Rs 4,333 crore wiped out. Raju, who believed in “delighting the stakeholder”, had triggered a revolt and even his offer of buyback and assurances have failed to restore market confidence. Indeed, the total market capitalisation of the company is down to Rs 10,930 crore (from Rs 15,263.11 crore before the fiasco).
Friday, January 9, 2009
Satyam - Raju
While going through Ramalinga Raju’s confession letter, what struck us apart from the revelations was this statement – “I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries.”
There isn’t a speck of falsehood in this statement. Mr. Raju has promoted Satyam and has played an integral part in shaping up the company over the years. And under his chairmanship, Satyam has grown into a leading player in the Indian IT services space.
So, with all this success (though partly inflated) under his belt, what made Mr. Raju commit the fraud and leave his reputation in tatters?
Overconfidence, perhaps!
Researchers from Wharton School (among the world’s top business schools) have some interesting insights on this aspect of corporate frauds. They believe that while confidence underlies decisive, strong leadership, overconfidence leads managers to cross the line and commit fraud.
The overly optimistic belief that promoters and executives have that they can turn their firms around before fraudulent behavior catches up with them, is at the root of such frauds. All executives do not start out thinking that they would commit fraud. But they end up being in a position where they feel that it is the only way to get out of a bad situation.
This is what the Wharton research paper talks about – “An executive believes his firm is experiencing only a bad quarter or patch of bad luck. He also believes it is in the best interest of everyone involved – management, employees, customers, creditors and shareholders – to cover up the problem in the short term so that these constituents do not misinterpret the current poor performance as a sign of the future.”
It furthers states – “In addition, he (the executive) is convinced that down the road the company will make up for the current period of poor performance. It is the optimistic executive or an overconfident executive who is more likely to have these beliefs. He may stretch the rules just a bit or engage in what you might call a 'gray area' of earnings management. But say it turns out that he was wrong and things don't turn around as expected. Then he has to make up for the prior period. That requires continuing fraudulent behavior and he has to do even more in the current quarter.”
Mr. Raju is a clear case in point. We know this from the following statement he made in his confession letter – “Every attempt to eliminate the (balance sheet) gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.”
Another theory argues that the genesis of fraud may lie on the pressure to meet quarterly expectations. It all starts with the company cooking up false numbers so that profit expectations could be met. However, slowly and steadily, things blow out of proportions. Eventually, ads Mr. Raju has done, the manager's only option is to cook the books by falsifying documents and accounting misstatements.
An overconfident manager with unrealistic beliefs about future performance is more likely to engage in fraud. This is because he is less likely to correctly anticipate the need for more glaring ‘management’ of earnings in the subsequent periods.
Thankfully, we at Equitymaster have the right people to look up to – Warren Buffett and Charlie Munger. After this episode, our belief in them has been strengthened further.
There isn’t a speck of falsehood in this statement. Mr. Raju has promoted Satyam and has played an integral part in shaping up the company over the years. And under his chairmanship, Satyam has grown into a leading player in the Indian IT services space.
So, with all this success (though partly inflated) under his belt, what made Mr. Raju commit the fraud and leave his reputation in tatters?
Overconfidence, perhaps!
Researchers from Wharton School (among the world’s top business schools) have some interesting insights on this aspect of corporate frauds. They believe that while confidence underlies decisive, strong leadership, overconfidence leads managers to cross the line and commit fraud.
The overly optimistic belief that promoters and executives have that they can turn their firms around before fraudulent behavior catches up with them, is at the root of such frauds. All executives do not start out thinking that they would commit fraud. But they end up being in a position where they feel that it is the only way to get out of a bad situation.
This is what the Wharton research paper talks about – “An executive believes his firm is experiencing only a bad quarter or patch of bad luck. He also believes it is in the best interest of everyone involved – management, employees, customers, creditors and shareholders – to cover up the problem in the short term so that these constituents do not misinterpret the current poor performance as a sign of the future.”
It furthers states – “In addition, he (the executive) is convinced that down the road the company will make up for the current period of poor performance. It is the optimistic executive or an overconfident executive who is more likely to have these beliefs. He may stretch the rules just a bit or engage in what you might call a 'gray area' of earnings management. But say it turns out that he was wrong and things don't turn around as expected. Then he has to make up for the prior period. That requires continuing fraudulent behavior and he has to do even more in the current quarter.”
Mr. Raju is a clear case in point. We know this from the following statement he made in his confession letter – “Every attempt to eliminate the (balance sheet) gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.”
Another theory argues that the genesis of fraud may lie on the pressure to meet quarterly expectations. It all starts with the company cooking up false numbers so that profit expectations could be met. However, slowly and steadily, things blow out of proportions. Eventually, ads Mr. Raju has done, the manager's only option is to cook the books by falsifying documents and accounting misstatements.
An overconfident manager with unrealistic beliefs about future performance is more likely to engage in fraud. This is because he is less likely to correctly anticipate the need for more glaring ‘management’ of earnings in the subsequent periods.
Thankfully, we at Equitymaster have the right people to look up to – Warren Buffett and Charlie Munger. After this episode, our belief in them has been strengthened further.
Tuesday, January 6, 2009
SBI Online Demat Account is not Online
Many people don’t know that they are not able to trade stocks by just opening SBI Online Demat Account. For online trading of stock they need to open a trading account. For trading account they need to use third party like Motilal Oswal trading account. eZ-trade@sbi is the gatway for trading of stocks from SBI account.
Motilal Oswal trading account is good for two reasons, first one being their low brokerage charges and the second one is their useful advices and recommendations. Account opening is hassle free and takes 10 days.
Motilal Oswal trading account is good for two reasons, first one being their low brokerage charges and the second one is their useful advices and recommendations. Account opening is hassle free and takes 10 days.
Rematerialisation
Dematerialisation:
It is the process by which a share holder can get physical certificates converted into electronic shares maintained in their client account with the Depository Participant (DP). Securities held in the dematerialised form are in fungible form, i.e. they do not bear any distinguishing features.
Rematerialisation:
It is the process of reconverting demat shares to physical shares is called rematerialisation. If one wishes to get back his securities in the physical form, one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account.
Rematerialisation Process :
Beneficial owner/shareholder submits a request to the DP for re-materialisation of its holdings in its account.
DP intimates NSDL/CDSL of the request electronically through the system.
NSDL/CDSL confirms re-materialisation request to the RTA.
RTA updates accounts and prints certificates.
NSDL/CDSL updates accounts and downloads details to DPs.
RTA dispatches certificates to investors.
What is the procedure for applying for a Duplicate Certificate?
The Shareholder has to first and foremost inform the Company of the loss of Share Certificate and file an FIR with the Police Station of his area reporting the loss of shares.
A copy of the FIR duly attested in original has to be sent to the Company along with a letter, signed by the shareholder to enable us to send him the procedure for obtaining Duplicate Shares.
The Company requires the shareholder to execute an Indemnity Bond and Affidavit on Rs.100/- and Rs.10/- Non Judicial Stamp paper as per the attached formats. The Indemnity Bond and Affidavit should be signed by the shareholder and jointholders if any and their signatures SHOULD tally with the one in the Application / Transfer Deed
It is the process by which a share holder can get physical certificates converted into electronic shares maintained in their client account with the Depository Participant (DP). Securities held in the dematerialised form are in fungible form, i.e. they do not bear any distinguishing features.
Rematerialisation:
It is the process of reconverting demat shares to physical shares is called rematerialisation. If one wishes to get back his securities in the physical form, one has to fill in the RRF (Remat Request Form) and request his DP for rematerialisation of the balances in his securities account.
Rematerialisation Process :
Beneficial owner/shareholder submits a request to the DP for re-materialisation of its holdings in its account.
DP intimates NSDL/CDSL of the request electronically through the system.
NSDL/CDSL confirms re-materialisation request to the RTA.
RTA updates accounts and prints certificates.
NSDL/CDSL updates accounts and downloads details to DPs.
RTA dispatches certificates to investors.
What is the procedure for applying for a Duplicate Certificate?
The Shareholder has to first and foremost inform the Company of the loss of Share Certificate and file an FIR with the Police Station of his area reporting the loss of shares.
A copy of the FIR duly attested in original has to be sent to the Company along with a letter, signed by the shareholder to enable us to send him the procedure for obtaining Duplicate Shares.
The Company requires the shareholder to execute an Indemnity Bond and Affidavit on Rs.100/- and Rs.10/- Non Judicial Stamp paper as per the attached formats. The Indemnity Bond and Affidavit should be signed by the shareholder and jointholders if any and their signatures SHOULD tally with the one in the Application / Transfer Deed
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