Readings: Private banking, Hedging woes, Commodity strategy
ICICI Bank is one of many Indian banks devising alternative investment options such as private equity (PE), structured products with a capital guarantee, and gold for high networth individuals (HNIs) at a time when returns from investments in equities and real estate have turned volatile.
Also read: India to become trillion-dollar wealth management mkt by 2012
“The bullish sentiments on the real estate market have died down. Gold is coming up as a good investment option. We are seeing growing interest from individuals to invest in 1kg gold biscuits. Traditionally, gold has always given a return in excess of 8% annually,”
Hmm. Do review the structured products in detail, before committing funds.
- Business Standard: Hedging: 120 firms caught napping
Data culled from the unaudited first quarter results reveal that these 120 companies set aside Rs 8,900 crore for currency fluctuations, exotic derivative products and mark-to-market (MTM) losses to hedge their exports.
The companies took foreign currency loans through external commercial borrowing (ECBs). This increased the cost of funds as the new accounting norms forced borrowers to make provisions for MTM losses following the rupee depreciation. Besides, the meltdown in the global equity markets hurt FCCBs issuers the most. The investors have postponed their conversion plans as shares of most high premium FCCBs are trading at a huge discount.
The MTM losses of the 120 companies show that realised losses on account of derivative products and revenue hedging are modest at Rs 1,700 crore, while the unrealised or MTM losses due to currency fluctuations are higher at Rs 7,200 crore.
Damned if you hedge, damned if you don’t.
They test combinations that iteratively buy backwardated (positive roll return) winners and short contangoed (negative roll return) losers.
Trend following rules with formation periods of one, three and 12 months and a holding period of one month (Mom1-1, Mom3-1 and Mom12-1) are the best momentum strategies.
The best roll return strategy (TS1) buys the 20% of commodities with the most positive roll returns and shorts the 20% with the most negative roll returns each month.
Time to test this on Indian commodity markets.
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