Finance Friday: India News Digest

Finance Friday is our weekly round up of buzzing stories relating to Finance and Indian Stock Market

Inflation dips to minus 1.54% , But Is the Food Getting Cheaper?

Inflation tumbled to (-) 1.54% for the week ended July 18, as compared to (-) 1.17% in the previous week, but food prices continued to rise.

The wholesale-price index based inflation remained negative for the seventh consecutive week. However, it is widely expected to rise in the coming months.

But, among primary articles, the food articles group inflation stood at 1.2% as food prices rose. During the week, prices of food items such as mutton rose by 14%, arhar by 9%, gram by 4%, and fruit and vegetables by 2%. Imported edible oil prices also increased by 4%, while coconut oil, sugar, butter, ghee and gur were expensive by 1% each.

Now, this is no secret that WPI (Wholesale Price Index) is actually not an indicator of the Price that the consumer pays. It is the CPI (Consumer Price Index) that gives an estimate of the price of the product.

So, why do we only see the talks of all WPI going down and likes? Is it supposed to create an impression that things are getting better. The so called AAM Junta is often miffed by the fact that even though the inflation is going down, there household spends aren’t.

What do you think? Shouldn’t the govt and media be straightforward with publishing these inflation numbers

Freaky Finance Jargon Buster

Circuit Breakers: The Guarding Force against Extreme Volatility

Imagine the Stock markets going berserk on account of Positive news that the ‘I am going to be made the President of India’ (Fun Intended). Jokes apart, any such news will put the Investors in a frenzy and everyone will be stalking the exchanges (BSE, NSE) placing their orders.

What happens when we do that, the overloaded systems have to boot you out to counter the load and the extremely high volumes. This is similar to how an Electrical Switch or a circuit Breaker operates and hence the name.

So, how is the circuit breaker determined?

The BSE Sensex and NSE S&P CNX Nifty indices are used as reference points to trigger the circuit breaker. During the day, if either index moves beyond prescribed limits, there is a countrywide halt in trading in equity and its derivatives markets. This limit is generally in the range of 10-20 percent.

Why a Circuit Breaker Is Needed?

Good one, more volumes is a good thing right as long as there are more buyers then sellers. No it ain’t, because a huge buy volume on a single day would mean prices shooting up the roof and heavy profit booking the other day causing a Landslide.

So, a circuit breaker ensures that no more exchange of Share occurs after a certain limit. This ensures that the sytem volumes don’t go overboard and keeps a check on the volatility.

To witness the Circuit Breakers in action, we don’t have to go far. Post Election the stock markets went crazy, with everyone going gag over the Congress’ victory.

The result, markets saw maddening volumes coupled with almost 800 point gain in a single day, despite the fact that the markets traded only for 1-2 hours at the max.Why? The Circuit Breakers to the rescue. When the benchmark indices moved up by 5%, 10% circuit breakers were applied causing a halt in the trade.

Some Buzzing Links for the week

India is hot – to the overseas investor

Of late, more and more investors are falling to India’s seductive appeal and pouring in funds.
According to Thomson Reuters data, overseas investors are the biggest buyers of new shares from India, where companies have raised more than $7.5 billion in equity so far this year, surpassing the full-year total for 2008.

India Inc to raise Rs 16,000 cr through public offers

Buoyed by the recent surge in capital markets, India Inc is planning to raise Rs 16,000 crore ($3.3 billion) through initial public offerings (IPOs) this fiscal.

Big slowdown in M&A activity in first half of 2009

The total value of deals (M&A and PE) announced in the first half of 2009 was US$7.81 billion as against US$ 23.02 billion and $50.75 billion in 2008 and 2007 respectively. The total number of M&A deals announced during H1 2009 stands at 123 with a total announced value of US$4.93 billion.
Deal values have been significantly impacted due to the lack of cross-border deals. Cross-border M&A deal values have fallen from US$42 billion in H1 2007 and US$12 billion in H1 2008 to just US$1.4 billion in H1 2009 registering a fall of more than 85% over the same period last year. Domestic deals have continued to remain buoyant with deal values clocking US$3.5 billion in H1 2009 compared to US$4.3 billion in H1 2008

[This Finance Friday News Digest is written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]