February 24, 2009

Readings: Eastern Europe, Bear markets, Wealth management

Filed under: economics, portfolio-management, statistics — Kaushik @ 12:59 pm

Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region’s GDP. Good luck. The credit window has slammed shut.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights. Its $16bn rescue of Ukraine has unravelled. The country — facing a 12% contraction in GDP after the collapse of steel prices — is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia’s central bank governor has declared his economy “clinically dead” after it shrank 10.5% in the fourth quarter.

Leading the race, the newly launched SMC Wealth Management Services is promoting their portfolio management scheme - the arbitrage scheme, perhaps first of its kind in the wealth management space. Under this scheme, ‘basket trading’ is one of the main strategies used to generate reasonable returns.

Basket trading is a single order to buy or sell a set of 15 or more securities taking advantage of the difference between the sum total of weightages of those stocks and the index level under which stocks are enlisted.

Yay, now you can pay 15 times the brokerage!

February 19, 2009

NSE Turnover - What’s a broker to do?

Filed under: statistics, trading — Kaushik @ 8:41 pm

As the table below shows, the cash segment turnover at the NSE has dropped to abysmal levels. Note that the daily turnover peaked during late 2007 / early 2008 at ~ Rs 25,000 crore. Since then, we are looking at a 70% drop in volumes. How are the brokers surviving?

Feb 2009
Date No. of securities traded No of trades Traded quantity (lakhs) Traded Value (Rs.crore)
02-Feb-2009 1238 5566656 6432.16 8446.36
03-Feb-2009 1234 6073654 6731.77 9225.95
04-Feb-2009 1233 5636424 7447.1 7899.12
05-Feb-2009 1234 5174648 6958.35 6924.81
06-Feb-2009 1255 5301375 6245.4 7010.67
09-Feb-2009 1234 5281055 5991.22 7871.16
10-Feb-2009 1240 6143784 7262.66 9723.82
11-Feb-2009 1232 5472609 7046.68 8339.55
12-Feb-2009 1240 5495916 6808.97 7995.29
13-Feb-2009 1243 5191821 6117.47 8227.31
16-Feb-2009 1236 5240046 6174.96 8019.41
17-Feb-2009 1230 4443831 4931.98 7142.14
18-Feb-2009 1229 5069671 5102.94 7742.77
19-Feb-2009 1230 4371366 4542.22 6739.07

F&O turnover is equally bad, hovering between Rs 30,000 & Rs 35,000 crore on most days.

Where are the FIIs? Retail punters? Direct market access & algorithmic trading?

December 14, 2008

Madoff’s Mark = Taleb’s Turkey

Filed under: statistics — Kaushik @ 9:57 pm

It is hard to not link the two - the folks who invested with Bernard Madoff on the basis of his steady, positive, non-volatile returns and Taleb’s Thanksgiving Turkey:

My classical metaphor: A Turkey is fed for a 1000 days—every days confirms to its statistical department that the human race cares about its welfare “with increased statistical significance”. On the 1001st day, the turkey has a surprise.

December 10, 2008

Readings: Volatility bubble, India’s stimulus, Citadel siege

Filed under: economics, statistics — Kaushik @ 8:50 am


We’ve had our own little bubble in India, with the ATR on the Nifty spiking to over 9%.

Hundreds of SMEs have raised external commercial borrowings over the past few years when the cost of borrowing in the international market was very low. Some had not hedged the foreign exchange risk or had hedged under ‘knock-in knock-out’ (KIKO) agreements. Many hedges made under these KIKO contracts are lapsing due to the sharp movement in the rupee in such a short time.

. . . the RBI has relaxed norms for loans to “viable units facing temporary cash flow problems”. We believe that this change in norm will reduce the transparency of banks’ balance sheet. This will likely lower the market’s comfort in the asset quality of the banking system and dampen investor sentiment towards Indian banks.

. . . we believe that the real economy data for 1Q09 could be a major surprise for the market. We see risk of industrial production declining on a year-on-year basis for a few months in 1H09. We think that there could be greater risk of banking sector stress due to a sharp increase in NPLs. The vicious loop of rising credit defaults, a shrinking risk capital pool, slowing growth and rising unemployment is unveiling.

. . . the story of how Citadel clawed its way back from the abyss is a cautionary tale for any investor who would try his hand at making money in volatile markets. The firm’s horrific downturn provides a lesson about the way raw human emotions like panic can trump even the smartest mathematical models. More important, the tactics the hedge fund used to survive - preventing its investors from withdrawing en masse and opening up its books - may become trends for hedge funds in the future. 

But what will Citadel look like at that time? It will be a leaner shop, possibly with fewer assets under management. It will obviously hold on to cash cows such as its options and stock-trading platforms. Griffin says the firm will engage in far fewer complex trading strategies - that long-short equities will be its core: “I think we’re looking at a period of time going forward where the market will value simplicity.” 

Right now, there are plenty of opportunities Citadel would love to pounce on: loads of cheap stocks, undervalued deals - the kind of thing Griffin obsessively seeks out. He says, in fact, he plans to start a convertible-arbitrage fund again as soon as he can.

December 5, 2008

Country P/Es: Undervalued?

Filed under: statistics — Kaushik @ 7:54 am

Bespoke: Country Estimated P/E Ratios and Dividend Yields


Problem is that the bottom is going to drop out of the ‘E’ in P/E.

December 1, 2008

Turn-over turning over

Filed under: statistics — Kaushik @ 5:32 pm

Today’s turnover statistics at the NSE:

  • Cash segment: Rs 8392 cr
  • F&O segment: Rs 32155 cr (Single stock futures at 7363 cr!)

This is abysmal. This on a day when the Nifty had a 150-point (5.5%) intraday range. What happens when the volatility dies down? I’ve written before about how this isn’t good for traders or brokers.

Take a look at some of these 2003-2004 articles:

These talk about the plights of small & mid sized brokers, especially with the advent of online trading. And remember that this is 2003; the big drop in the markets happened in 2000 & 2001. Can’t imagine a pleasant 2009/2010 for the (thousands of) brokers / sub-brokers in India.

PS: FIIs net purchases were 28 cr. DIIs net purchases were 49 cr. WTF?

November 28, 2008

November F&O expiry complete

Filed under: statistics — Kaushik @ 4:20 pm

NSE Turnover

  • ~9.7k crore in CM
  • ~45k crore in F&O

Excellent, considering the situation in Mumbai. I’m quite glad to see how well our capital markets have functioned both through the credit crisis as well as the past two days.

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.