By Rajesh Ganatra Let's take a look at the thirty stocks that make up the Dow Jones Industrial Average: Let's also take a look at some of the milestones of the NASDAQ Composite: Hello fellow investors, we hear about a lot of financial terms so let's take a look at some of them and what they mean: The Wilshire 5000 Total Market Index is a market-capitalization-weighted index of all of the stocks traded on U.S. Stock Markets. Let's take a look at how it has done since the Reagan era --- The Mumbai Sensex started CY2012 at 15,494 and had several closes above 18,000 during February 2012. Subsequently, there was a lull and the index sold off to the low 17,000s during July 2012 and then had a sharp run-up to the 18,500s during mid-September 2012 due to a global rally generated by actions taken by the US Federal Reserve (see below). Therefore, despite all of the volatility, the Sensex has had a very successful year - up nearly 20 percent. From March 2010 - September 2012, the Reserve Bank of India (RBI) raised India's benchmark interest rate via a series of 13 rate increases - this was a result of extremely high inflation.
Let's also take a look at the thirty stocks that comprise the Mumbai Sensex:
Acid Test - A stern measure of a company's ability to pay its short term debts, in that stock is excluded from asset value. (liquid assets/current liabilities) Also referred to as the "Quick Ratio".
Baby Bells - A common nickname given to the U.S. regional telephone companies that were formed from the breakup of AT&T ("Ma Bell") in 1984. Baby Bells were created in accordance with antitrust legislation, which is designed to create more competition within the industry.
Back Door Listing - A strategy of going public used by a company that fails to meet the criteria for listing on a stock exchange. To get onto the exchange, the company desiring to go public acquires an already listed company.
CAC 40 - The French stock market index that tracks the 40 largest French stocks based on market capitalization on the Paris Bourse (stock exchange)
Call Date - The date on which a bond can be redeemed before maturity. If the issuer feels there is a benefit to refinancing the issue, the bond may be redeemed on the call date at par or at a small premium to par
Call Premium - 1. The dollar amount over the par value of a callable fixed-income debt security that is given to holders when the security is called by the issuer. 2. The amount the purchaser of a call option must pay to the writer.
Earnest Money - A deposit made to a seller showing the buyer's good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.
Earnings Before Interest & Tax - EBIT - An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest.
Earnout - A contractual provision stating that the seller of a business is to obtain additional future compensation based on the business achieving certain future financial goals.
G7 Bond - A term used to refer to government bonds issued by a nation in the Group of Seven (G7). A G7 bond is considered relatively less risky than bonds issued by nations outside the G7. The G7 nations are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. All these nations are considered industrialized and developed countries.
GBP - The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories of South Georgia, the South Sandwich Islands and British Antarctic Territory and the UK's Crown Dependencies: the Isle of Man and the Channel Islands. The African country of Zimbabwe also uses the pound. The British pound is pegged to the Falkland Islands pound, Gibraltar pound, Saint Helenian pound, Jersey pound (JEP), Guernsey pound (GGP), Manx pounds, Scotland notes and Northern Ireland notes.
Illiquid - The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity.
Jobless Claims - The number of people who are filing or have filed to receive unemployment insurance benefits, as reported weekly by the U.S. Department of Labor.
Joint Tenancy - A type of property right where two or more people own or rent a property together, each with equal rights and obligations, until one owner dies. Upon an owner's death, that owner's interest in the property passes to the survivors without the property having to go through probate.
Kangaroo Bond - A type of foreign bond that is issued in the Australian market by non-Australian firms and is denominated in Australian currency. The bond is subject to Australian laws and regulations.
Macro Accounting - Accounting for the total or aggregate economic activities of a nation.
Macroeconomics - The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels.
Paid In Capital - The amount of capital "paid in" by investors during common or preferred stock issuances, including the par value of the shares themselves. Paid in capital represents the funds raised by the business from equity, and not from ongoing operations
Safe Asset - Assets which, in and of themselves, do not carry a high likelihood of lawsuit risk. Mere ownership of this type of asset does not expose the asset owner to a significant risk of litigation. Assets such as stocks, mutual funds, bonds, bank accounts and your personal residence are examples of safe assets.
Takeover Bid - A type of corporate action in which an acquiring company makes an offer to the target company's shareholders to buy the target company's shares in order to gain control of the business. Takeover bids can either be friendly or hostile.
Undercapitalization - When a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity.
Above Par - used to describe the price of a bond that is trading above its face value.
Below Par - used to describe the price of a bond that is trading below its face value.
Common Stock - a security that represents ownership in a corporation. This class of stock has voting right
Daily volume - the amount of a company's stock that is traded during a trading day.
Discount Rate - the rate at which individual banks borrow money from the Federal Reserve.
Dividend - amount of earnings a company pays out to its shareholders.
Dividend Yield - total amount paid in dividends divided by the the stock pric
Fair Market Value - the price that a property/asset would garner in the market place.
Fed Funds Rate - the rate at which individual banks borrow money from each other.
Hard Currency - a currency from a highly industrialized country that is widely accepted throughout the world as payment. Examples would be the US Dollar, British Pound and Euro.
Long position - the term used for an investor who owns a stock.
Market Capitalization - the total value of tradable shares in a publicly traded company (market price times number of shares outstanding).
Par - used to describe the price of a bond that is trading right at its face value
Price/Earnings Ratio - the price of a company's stock divided by its full year earnings.
Preferred stock - an ownership class that has a higher claim on the assets and earnings of a corporation than compared to Common stock. Dividends on Preferred stock are paid before common, but Preferred stockholders generally do not have voting rights.
S-8 filing - A SEC filing required for companies wishing to issue equity to their employees.
Safe Haven - an investment that is expected to retain its value or even increase its value in times of market volatility
Same-Store Sales - a statistic used in retail industry analysis that compares the sales of stores that have been open for at least one year
Scripophily - the hobby of collecting antique bond and stock certificates
Short selling - the technique used to profit from a stock's decline. The short-seller "borrows" the shares, sells them in the marketplace and then hopes for the underlying stock to drop so that the shares can be "returned" at a lower price, and the difference is the profit.
Ticker Symbol - the code for a stock that trades on the stock market - it may be 1, 2, 3 or 4 letters long.
Zero Coupon Bond - a bond bought at a price lower than face value (par), with the face value being repaid at the time of maturity. It does not make periodic interest payments, hence the term "Zero Coupon Bond".
Despite all of the headwinds of high inflation and interest rates, the markets held their own during those timeframes and on April 17th, 2012, the RBI cut interest rates for the first time in three years by 50 basis points (0.50 percent) so India's benchmark interest rate is now 8 percent. The Indian Rupee has been extremely weak against the US$ during CY2012 – the currency hit historical lows of 57.33 per $ during July 2012 but subsequently recovered to the 54.25-54.50 level during mid-September 2012.
Actor Salman Khan has earned over INR 100 Crore in the films Dabangg, Ready, Bodyguard and Ek Tha Tiger and he was the top tax-payer in Bollywood during the July 2012-September 2012 quarter --- he paid INR 8 Crore in taxes during the aforesaid quarter, compared to INR 5 Crore in the year ago period. Actress Katrina Kaif paid INR 2.60 Crore during July 2012-September 2012, compared to 1.70 Crore in the year ago period. Aamir Khan's earnings flow seems to have changed due to his mega reality show “Satyamev Jayate” - he paid INR 3.25 Crore in taxes during July 2012-September 2012 compared to INR 4.50 Crore in the prior year period. Saif Ali Khan's films Agent Vinod and Cocktail had mixed reviews at the box office and he paid INR 3 Crore during July 2012-September 2012 compared to INR 1.7 Crore in the prior year period. Kareena Kapoor’s latest film is Heroine and she paid INR 2.2 Crore for July 2012-September 2012 vs. INR 1.5 Crore in the prior year period. Akshay Kumar Paid INR 7.5 Crore for July 2012-September 2012 compared to INR 5 Crore in the same period a year ago. Amitabh Bachchan paid INR 5 Crore during the July 2012-September 2012 quarter, compared to the INR 1.4 Crore paid in the same prior year period.
Bachchan has just started hosting the new season of “Kaun Banega Crorepati” and had only one release during CY2012 called Department, which did not fare well at the box office. Daughter-in-law Aishwarya Rai Bachchan paid INR 3 Crore in taxes during the July 2012-September quarter, compared to the INR 1.1 Crore she paid in the same prior year period. It is interesting to note that although she paid higher taxes this year, Aishwarya has not graced the silver screen since Guzaarish, which was released in 2010. Although Shah Rukh Khan has not had any major releases this year, he also recently made a tax payment of INR 5 Crore. India's "Master Blaster", Sachin Tendulkar, paid INR 2 Crore in taxes during the July 2012-September quarter, compared to the INR 1.75 Crore he paid in the same prior year period.
The Pakistani equity market was in the 13,500 range during early summer and it quickly reclaimed the 14,000 level and hovered around the 14,500 level during mid-July 2012. The bullish run continued during late August 2012-early September 2012 and the index soared to the 15,500 level. Like the Indian Rupee, the Pakistani Rupee was very weak against the US $ throughout 2012 --- it languished in the 92.00-94.00 level for most of the year and even touched 94.75 to the US $ during July 2012. During mid-September 2012, The European Parliament gave a go-ahead for temporary trade incentives with Pakistan, two years after announcing the plans to help Pakistan recover from the devastating floods of 2010. Under the trade agreement, Pakistan's total exports to the Euro-Zone could be boosted by US $900 million and the Euro-Zone will benefit by importing 75 types of goods duty-free.
This truly extraordinary measure which will be in place until the end of CY2013, will include fabrics, garments, linens, ethanol and leather goods. In order to assist the business community, the Pakistani government has cut in half the recently imposed Gas Infrastructure Development Surcharge (GIDS) and economists indicated that after the reduction, the government would only able to collect GIDS of PKR 13 billion per annum instead of the intended PKR 26 billion per annum, however, the compromise in revenue would be worth it because it would help the textile, cement and fertilizer makers.
The U.S. Markets were choppy during the summer of 2012 but then put together a nice winning streak in mid-September 2012- the Dow exceeded 13,500, the NASDAQ Composite surpassed 3,170 and the S&P 500 traded above 1,450. Looking at those three headline numbers, the major market indices are at multi-year highs and just looking at them, it would be incredibly hard to believe that the "Great Recession" even took place, but indeed it has and the U.S. economy has undergone a lot of change in the past five years.
The economy added only 96,000 "non-farm" payrolls during August 2012 and the unemployment rate registered a reading of 8.1 percent that month. Although the economy has been adding jobs each month, the pace of growth has been much lower when compared to 1Q2012 and strong concerns remain about the labor market and the durability and longevity of the U.S. Economic Recovery.
In addition to the softening labor market, the housing market continues to be quite soft, and there are continued concerns about the financial and political condition of the Euro Zone. If some nations were to depart the Euro Zone or if the continent were to slip back into recession, that would have major ramifications for the global economy.
The US Dollar held steady against most major foreign currencies but gained a bit ground against the Euro and British Pound--- during mid-September 2012, €1 equaled $1.30 (compared with $1.32-$1.33 a few months ago) and £1 equaled $1.62 (essentially the same as a few months ago). The US$ was below par against the Canadian Dollar, Australian Dollar and the Swiss Franc.
During mid-September 2012, Crude Oil hovered around $95-$100 per barrel due to heightened tensions in the Middle East, especially with several Embassies of the United States coming under fire. During mid-September 2012, Gold was hovering around $1,770 per ounce and Silver was trading around $34.00-$35.00 per ounce.
There have been six Fed meetings so far this year and no moves on interest rates were made; the remaining two meetings will be held on October 23-24 and December 11. At the September 2012 meeting, the Fed announced that it would undertake the third round of "quantitative easing -QE3" (buying of government and government-agency securities with newly created money) at the rate of $40 billion per month and the Fed Funds rate will most likely be kept at the historically low levels of 0.00%-0.25% until at least mid-2015. Although additional stimulus was expected by the markets in some way, shape or form, the markets still rallied quite nicely upon release of the news by the Fed. QE1 and QE2 were undertaken during the depths of the recession and the "million-dollar question" is that will all of the newly created money by the Fed by QE indeed create an inflation problem and a decline in the 'real value' of people's savings when the economy picks back up? Only time will tell.
The European Central Bank (ECB) and Japan's central bank (Bank of Japan) have recently undertaken their own sets of QE as well.
Special Note: This article contains the ideas and thoughts of its author and it does not necessarily imply the viewpoints of "Saathee" magazine, this website or its principals.
All graphs in this article are courtesy of data procured from Yahoo! Finance and Bloomberg.
By Rajesh Ganatra
Let's take a look at the thirty stocks that make up the Dow Jones Industrial Average:
Let's also take a look at some of the milestones of the NASDAQ Composite:
Hello fellow investors, we hear about a lot of financial terms so let's take a look at some of them and what they mean:
The Wilshire 5000 Total Market Index is a market-capitalization-weighted index of all of the stocks traded on U.S. Stock Markets. Let's take a look at how it has done since the Reagan era ---
The Mumbai Sensex started CY2012 at 15,494 and had several closes above 18,000 during February 2012. Subsequently, there was a lull and the index sold off to the low 17,000s during July 2012 and then had a sharp run-up to the 18,500s during mid-September 2012 due to a global rally generated by actions taken by the US Federal Reserve (see below). Therefore, despite all of the volatility, the Sensex has had a very successful year - up nearly 20 percent. From March 2010 - September 2012, the Reserve Bank of India (RBI) raised India's benchmark interest rate via a series of 13 rate increases - this was a result of extremely high inflation.