Wednesday 26 February 2014

How to lose Rs 1.3 Lac in two days of trading

Most of the times, I write on serious business, investments and trading strategies. However, this time around I could not stop myself from letting go what happened in the last two trading sessions of the commodities markets. This is with reference to the expiry of the February series contract of Natural Gas. Although, my sympathies with those who lost big money by trading in that contract, I would like to highlight the high risk and manipulation game played by operators in the markets.
 
 
 
For starters, the MCX Natural Gas February futures zoomed as much as 30 per cent in the month of February at its highest point of Rs 402.70 - registered on 24 February, 2014. The corresponding February futures in the United States (US) soared by nearly 31 per cent, and topped at $ 6.378 on 20 February, 2014 (investing on natural gas). The fundamental reason for such an unprecedented rise in Natural Gas futures was the severe cold weather in US, which resulted into sub-zero temperatures on numerous occasions leading to higher usage of gas for heating purpose. In US, heaters are used to warm houses in order to beat the cold outside.
 
Now coming to the trading aspect, on an average the MCX Natural Gas open interest stands around 10,000-12,000 contracts, which was again the case around 14 February 2014, when the open interest for the February series stood at 12,297 contracts. The real action began post that. In the following three trading sessions, the prices jumped by 3.9 per cent (17 Feb), 1 per cent (18 Feb) and 11.3 per cent (19 Feb) – a staggering 17 per cent gain in just three days and the open interest from 12,297 contracts surged to 19,023 contracts – indicating aggressive long positions by punters (read operators). During the same period, the MCX Natural Gas March futures gained 1.4 per cent (17 Feb), 0.3 per cent (18 Feb) and 4.5 per cent (19 Feb) – a total gain of mere 6.4 per cent when compared to the near 17 per cent surge for the February contract.  The open interest for the March series also moved higher 2,628 contracts to 7,499 contracts. The reason for dis-parity in prices was that the short-term demand for Gas was higher in US, and the same may recede once the cold wave eases.
 
 
 
However, back in India, the traders who had short Natural Gas at lower levels of Rs 330-or so, and not placed any stop loss, were left in lurch with the only option - HOPE. Some of them may have ended up cutting losses at highs of Rs 380-390 odd levels, as the open interest dropped from 19,023 lots to 15,175 odd lots in the next two trading sessions for the February series. Just imagine, a trader buys MCX Natural Gas February futures at the highest point (Rs 402.7) on 24 February. The person if exited at the lowest point yesterday on expiry (Rs 297.6) would have lost a whopping Rs 1.31 lakh in just two trading sessions. Hence, trading is always said to be a risk business, and trades should be done with strict stop losses.

Tuesday 18 February 2014

FM Cuts Exicse Duty on Car, Read in Case you Intend to Buy a Car in the Near Future

The Finance minister in his last Budget for the UPA-II government finally offered some good news for the investors and common-man. Good news in terms for people at least who intend to buy a two-wheeler or car in the near future. And also good news for people who want to benefit by trading in the stock markets by betting on the short-term trading opportunities.

Firstly What the Announcements

The Finance minister was quite liberally by proposing lowering of the excise duty on the bikes (two-wheelers) and four wheelers (cars) across the segments. For the records, P Chidambaram proposed to
- reduce excise duty on small cars from 12 per cent to 8 per cent
- reduce excise duty on medium cars from 24 per cent to 20 per cent
- reduce excise duty for sport utility vehicles (SUVs) from 30 per cent to 24 per cent
- reduce excise duty on two-wheelers to 8 per cent
 
Auto Mobile Industry
 

Impact of the News

Following the announcement of the proposal, as per reports in Indian newspapers select auto companies like Tata Motors and Maruti have shown intent of cutting prices. However, will the bigger question remain, that will the new government continue to support the revised excise duty? Also, will the benefits of lower excise duty be good enough to see a spike in demand.

Meanwhile, from the market perspective auto and auto ancillary stocks rallied smartly in trades yesterday (17 February) and also continue to perform well today. Mahindra & Mahindra which is a major player in the SUV segment, and also has plans of major boost in the two-wheeler segment was arguably the biggest beneficiary. As a result of which, the stock yesterday rallied nearly 3 per cent. Maruti and Hero MotoCorp also ended with smart gains. Among other stocks - Force Motors and Igarshi Motors are some of the stocks which are buzzing with activity in the last two trading sessions.
 
The broader market trend has been negative for auto stocks - with two-wheeler majors Hero MotoCorp and Bajaj Auto - both trading below the key short-term (20-day) and medium-term moving averages. Also, India's largest car-maker Maruti is also trading below the key moving averages. Only Mahindra & Mahindra and Tata Motors are trading above the key moving averages.

Common-man point of view

Truly, if you are planning to buy a car, then this is just the ideal time. Check out for the latest price reduction on your choice of car, you may end up saving 4-6 per cent on the cost price. Also, in case, you can wait, then you can consider waiting till 1 April, when the RBI (Reserve Bank of India) will meet to review the monetary policy. Chances, are pretty high that the RBI may keep rates unchanged following the recent economic data - which saw a drop in monthly CPI inflation. The news of fall in inflation was accompanied by contraction in IIP growth, which again is seen a precursor for the RBI to hold rates. On the contrary, the Central Bank may surprise the street with a rate cut. Hence, in case you plan to take a loan for buying your favourite car, then it is advisable to wait till April to you plan to buy your car. Not only will you enjoy the benefit of lower cost due to cut in excise duty, but may also cherish a positive surprise in lower interest rates in case the RBI bites the bullet and cuts the lending rates. You may end up saving on your EMI.

Visit MarketOnMobile for the latest news and developments on the corporate and economic front and also track the stock markets trends on day-to-day basis.

Wednesday 12 February 2014

Planning to Buy Gold, Wait you may get it Cheaper

Planning to buy Gold, then you have a reason to be patient as prices may decline in the near future if import duty is reduced.

In the calendar year 2013 - the government was blazing all its guns to bring down the India’s record ($ 87.8 billion) current account deficit. The aim is bring down the CAD to below $ 50 billion by the end of the fiscal year. One of the most important measures implemented during the fire-fighting effort was hiking the import duty on Gold so as to discourage imports and reduce the forex outflows.

The move seems to have been paid off largely off late. And if January trade deficits numbers are to be go by, then the trade deficit is back in single-digits at $ 9.92 billion - thanks to 77 per cent fall in bullion (Gold + Silver) imports.
Gold bars
It may be recalled that the government had hiked in the import duty on Gold from 4 per cent to 10 per cent in a staggered manner during the period of January to August 2013. Following which, Gold imports have shown remarkable decline as per expectations.

According to the World Gold Council report, Gold demand in the September quarter fell by 32 per cent to 148 tonnes against 219 tonnes during the same period a year ago. Jewellery demand dropped by 23 per cent to 105 tonnes (136 tonnes) due to import restrictions. Data for December quarter is awaited.

The Jewellers body has been requesting for lowering the import duty on Gold and also relaxation of the 80:20 scheme, wherein 20 per cent of the imports has to leave India as exports of processed gold.
With elections round the corner - it won’t be surprising to expect a duty cut on Gold imports soon enough. Also, recently the Congress chief Sonia Gandhi had asked for the Commerce ministry to look into the above mentioned Jewellers demands.

The case seems tilted in favour of a likely cut in import duty for Gold. The quantum could be similar to what the hikes were last year - i.e. a 2 per cent duty cut. This could very much translate into at least Rs 500 decline in current prices of Gold. Any further or higher than 2 per cent reduction in Gold duty will trigger a sharper fall in Gold prices. Hence, buyers should be patient for now; the yellow metal may just get somewhat cheaper. To keep a tab on the latest Gold price in India visit Market On Mobile.