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Thesis on Marketing Practices of Mutual Funds

While attempting to learn the ongoing developments in domain of Marketing of Mutual Funds I was trying to review as much research work as possible. This search resulted in visiting the websites too that were supposed to be reservoirs of Electronic Dissertations. In this search I happened to visit  Indian ETD Repository @ INFLIBNET   available at URL   http://shodhganga.inflibnet.ac.in/.

TheShodhganga@INFLIBNET Centre provides a platform for research students to deposit their Ph.D. theses and make it available to the entire scholarly community in open access. The repository has the ability to capture, index, store, disseminate and preserve ETDs submitted by the researchers. 

All this has been attempted with a pious objective of providing online availability of electronic theses through centrally-maintained digital repositories, not only ensure easy access and archiving of Indian doctoral theses but will also help in raising the standard and quality of research. This would overcome serious problem of duplication of research and poor quality resulting from the “poor visibility” and the “unseen” factor in research output. As per the Regulation, the responsibility of hosting, maintaining and making the digital repository of Indian Electronic Theses and Dissertation (called “Shodhganga“), accessible to all institutions and universities, is assigned to the INFLIBNET Centre. UGC Notification (Minimum Standards & Procedure for Award of M.Phil. / Ph.D Degree, Regulation, 2009) dated 1st June 2009 mandates submission of electronic version of theses and dissertations by the researchers in universities with an aim to facilitate open access to Indian theses and dissertations to the academic community world-wide.

Shodhganga” is the name coined to denote digital repository of Indian Electronic Theses and Dissertations set-up by the INFLIBNET Centre. The word “Shodh” originates from Sanskrit and stands for research and discovery. The “Ganga” is the holiest, largest and longest of all rivers in Indian subcontinent. The Ganga is the symbol of India’s age-long culture and civilisation, everchanging, ever-flowing, ever-loved and revered by its people, and has held India’s heart captive and drawn uncounted millions to her banks since the dawn of history. Shodhganga stands for the reservoir of Indian intellectual output stored in a repository hosted and maintained by the INFLIBNET Centre.

The visit to such a great reservoir finally made me land on a Thesis submitted to Department of Commerce at Maharshi Dayanand University which titled very near to the issue of my search. Since the title was so much fascinating, it forced a desire in me to go through the work done in details and thus started reading through the chapters of the electronic dissertation.

I was in awe from the very first page of it, then too I continued further, as I could not afford to take it as a joke due to it being hosted on Shodhganga Network which is known as “reservoir of Indian intellectual output”.

I am just attaching the details and URL as provided on the portal, so that you can by yourselves appreciate the research work done, submitted and finally awarded a degree from one Indian University.

Please do rate this work and provide your comments on it.

URL to Visit the Page: http://shodhganga.inflibnet.ac.in/handle/10603/7794

Please use this identifier to cite or link to this item: http://hdl.handle.net/10603/7794

Further details are as below:

Title: Marketing practices of mutual funds
Researcher: Batra, Mamta
Guide(s): Jain, Neelam
Keywords: Management
mutual funds
Marketing practices
Issue Date: 28-Mar-2013
University: Maharshi Dayanand University
Award Date: n.d.
Abstract: None
Pagination: 273p.
URI: http://hdl.handle.net/10603/7794
Appears in Departments: Department of Commerce

India and Italy – Taking a New Shape

Italian foreign ministry’s announcement on Monday, March 11, 2013, that the two individuals belonging to its marine corps (Massimiliano Latorre and Salvatore Girone, who had shot dead two unarmed Indian Fishermen in Cold – Blood perhaps for adventure  and were facing trail in India Court on the Charges of Murder) would not return to India once their leave expires in view of a “formal international controversy” between the two countries. This is a response to a humane and goodwill gesture shown by Indian Court, which permitted them a leave so that they can go to their country to cast their vote. Indian court had at an earlier occasion permitted the duo to visit their home for Christmas Celebration, after availing which they reported back.

Italian Government and its citizen have always been found grossly lacking in integrity and morality. This can be inferred from a  number of instance where Indian authorities were deceived and cheated by them. If one starts from issues, that probably one that could be easily recalled by masses, one can start with role of Italian businessman Ottavio Quattrocchi during Bofors gun contract in 1990  where kickbacks were paid to earn the contract, the same was followed by a recent deal in which Chief Executive and Chairman Giuseppe Orsi of Italian defence group Finmeccanica has been found to have paid kickbacks worth $68 million to secure the contract for the sale of 12 Agusta Westland choppers to India in 2010.  This has been followed by a very serious breach of integrity by act of Government of Italy, where the government of Italy has back tracked from its own guarantee or promise that it made to Indian Supreme Court in present case where its two mariners were being tried for murder committed by them of two unarmed Indian fishermen in coastal waters of India.

Probably – Indian authorities and Public too, would have learned till now that any and every kind of interaction with Italy has, irrespective of being business or political has caused a great deal of embarrassment to the country. So why do they repeat it? Italian Government and Citizens (as Government represents them) both lack seriously on the scale of integrity. Such country needs be socially politically and economically outcast by world community. One can understand when Terror Groups back track on their promise, but here this Country is behaving worse than terrorists. Now I comprehend why Roman Empire got lost into oblivion. I expect that Consequences as told prime minister will turn visible both to Indian Citizen as well as International Community. “Our government has insisted that Italian authorities… respect the undertaking they have given to the Supreme Court and return the two accused persons to stand trial in India,” Mr. Singh said in Parliament on Wednesday. “If they do not keep their word, there will be consequences for our relations with Italy,” he added, as lawmakers cheered.

At some points I feel that Indian Constitution by the way of providing Three Pillars for having Check and Balance over each other’s powers was really a very well thought of work, at least till time Indira Gandhi had not succeeded in snatching all the powers of decision making from The President of India or to say before turning the office in just a rubber stamp which needs to be put on legislation to accord them status of being Act. But then it were, the citizens, who permitted her to do this by giving her a majority of more than two – third.

Now as a consequence of legislature being fragment it’s the Judiciary that has got some breather to act in an independent manner. They are luckily not failing in their duty and are showing the courage to let the national and international community learn that it’s the constitution that is supreme in India and promises made by any authority are meant to be kept and not broken, meaning thereby that breach will not be tolerated.

The Supreme Court of India sought to restrain Italy’s ambassador from leaving the country in response to Rome’s declaration that two Italian marines will not return to India to stand trial on murder charges. The pair are accused of shooting and killing two Indian fishermen off the coastal state Kerala last year. They deny they committed murder. Italy and India disagree over where they should stand trial, an issue that has triggered a diplomatic dispute and polarized public opinion in both countries

In January, India’s Supreme Court said the two men, Massimiliano Latorre and Salvatore Girone, will face trial in a special court in Delhi. A month later, the court agreed to an Italian government request to allow the two men to leave India and travel to Italy for four weeks to vote in elections. At the time, Mr. Mancini, the Italian ambassador to New Delhi, guaranteed to the court the marines would come back to India.

In a notice, the court said Italian Ambassador Daniele Mancini is not allowed to leave India without its permission, said India’s attorney general, Goolam E. Vahanvati, in an interview. Some individuals doubt the court’s move to be compatible with the terms of the Vienna Convention on Diplomatic Relations, an international treaty that grants diplomats immunity from criminal, civil and administrative jurisdiction in the country that hosts them.

But the case here is very different. It is Mr. Daniele Mancini (who somehow happens to be Italian Ambassador to India) who stood in court as Guarantee to the court regarding the marines returning back to India after casting their votes. There court has asked Mr. Daniele Mancini to stay put in country till mariners do not return to stand the trail as he stood the guarantee. Court never wants’ the Italian Ambassador to India stay put. But certainly court is not interested in allowing Mr. Daniele Mancini to use his position of being Italian Ambassador to India to work as camouflage in escaping from his promise by forwarding the Vienna Convention in his defense. In fact there is no need to be worried about Vienna Agreement as Italy has itself by its act of not standing to promise made has violated more than a single international pact. If Indian Government feels like, it has all the freedom to launch a military offensive on Italy, as India needs to make sure that in and around Asian continent, rogue states and elements do not dare to raise their heads. Though I am not recommending a military action on Italy, here I am just talking about the rights of India to deal with a Rouge Government or a Government which fails in keeping its promise

Any way Diplomatic immunity is for crimes punishable with fine like parking, not for crimes punishable with jail terms. So there is no diplomatic immunity for the Italian ambassador in the Italian marine bail application. By subjecting himself to the Indian court jurisdiction Mr. Ambassador loses his stand as ambassador and has a role only as a foreign citizen.

                                                                                                                  ————— Always Yours — As Usual — Saurabh Singh

Source:[Website]

Venezuela in transition: What Next after Hugo Chavez

“Chavismo” – Its Meaning and Interpretation

During the fourteen years of Hugo Chavez’s Presidency, Valenzuela was country driven by his personality more than his policies. This gave birth to a term called “Chavismo”, normally used by political commentators and contemporary historians.

In attempt to describe the meaning contained in word “Chavismo”, I would say that Chavismo didn’t encompass the political machine alone , but also a leftist ideology that, prioritized the redistribution of oil wealth to the marginalized and valued, sovereignty as something to be protected from “imperialist” powers.

Now which path will “Chavismo'” will tread can not be predicted with certainty. This is not for the first time that a powerful leader has departed. History of serious geographies are full the incidents in history. As per the testimony of History, it can be inferred, that as many other powerful leaders who departed creating a vacuum have seen their ideologies live on, though not without change.

Professor Javier Corrales, a professor of political science at Amherst College who studies Venezuela expresses his opinion with words as in quotes ahead “there is a trade-off between the degree to which a government centers, on one person, and the strength of that country’s institutions. ” Perhaps due to it being a complete sum, i.e., one, the stronger the central figure will turn, the weaker will be the fortunes of institution. It has been observed over the years, in history of nations, that any society or nation lands in crisis if it were being ruled (or governed) more by the personality of the leader than his policies and ideologies.

Hugo Chavez, a democratically elected, had to face the accusation of being authoritarianism, as his style of governance made his opponents feel that he is attempting to consolidate all the power in the presidency.

Hugo Chavez’s transformation into Everlasting Personality

The world has seen many able and honest administrations and rulers (some elected democratically, some princely in origin, some who took power with coercion, and many more of the kind ), but not all of them achieve a status of hero or legend. Such leaders are rare, but once they are there, the people do not let them go in their life time. This is irrespective of the policies adopted by such rulers.

Policies of such leader may not stand the test time, economy, prudence and other such words; despite of this such leaders have longer reigns (tenure) as compared to rulers whose policies may best fit the tests mentioned at the start of this sentence.

Perhaps, it were one of his most criticized policy by economists, who went even to the level of dubbing it as unsustainable, that earned him the status of Hero and further metamorphosed in what is now known as “Chavismo”.

It was Chavez’s dedication to putting the nation’s poor at the forefront of his policies, which made him a hero among a large sector of the population. His opponents criticized him for his freewheeling spending of oil wealth of the nations, but Venezuela’s poor saw results and elevated Chavez to hero status.

Millions of poor saw and found hope in Hugo Chavez, as they believed that this man can make earn a decent life. This hope and expectation of million of people of Venezuela is looking into the void that has resulted due to departure of their most cherished leader.

The issue haunting the ruling class, opposition and others in Venezuela most is: 1) that who will appropriate his image, 2) how his image can be used beneficially. Probably it seems that the Venezuela’s opposition may attempt to retain some aspects of legacy that has been left by Chavez and claim it to be their own. This inference is being drawn based the way opposition designed it’s last year’s electoral campaign where they promised that social missions initiated by Hugo Chavez will not be undone, they will just be fine tuned to make them more efficient and effective.

One can also deduce the same if (s)he has monitored or followed the tweets from Luis Vicente Leon, Director, Daranalisi (a polling firm). He too predicted similar thing in his tweets even prior to Hugo Chavez’s Death.

Such status, specially in Latin America means a lot. It is something that never disappears with the person who has earned such status but lasts much longer due to the weight it carries. Often it has been seen that politicians normally manipulate memories of such individual leaders, to serve their political purposes and benefits, and same may turn out the fate of Hugo Chavez too in very near future. What ever may be the fate of legacy earned and left behind by Hugo Chavez, but his memory would be a lasting one in the hearts and minds of people of Venezuela.

Two other individuals (leaders) who earned such Status in Latin America. though are no more but they are still present in the memories of people and also in expressed ideologies of some political parties (may be for their own political benefit than anything else).

Sandinismo: Augusto Sandino was the leader of a rebellion in the late 1920s and early 1930s against an American occupation. Years after Sandino was killed, Nicaraguans used his image as a symbol in their own rebellion to overthrow a dictatorship. A movement, the Sandinista National Liberation Front, was born. The current Sandinista president uses the same symbol and movement, though it has been manipulated from earlier Sandinismo.The Sandinistas are in power even today in Nicaragua, under President Daniel Ortega, though the movement has little to do with its origins. it can be inferred that this movement in Nicaragua has survived over the years and is still in vogue.

Peronism: Peronism is a movement named after Argentine President Juan Peron. Juan Peron was one of Former Presidents of Argentine. His legacy has been claimed and manipulated over the years by parties both on the political right and left.

Fidel Castro: Change in Cuba was more subtle after the passing of the torch from Fidel Castro to his brother Raul Castro. The Castros share their communist views, but after the younger Castro took office, he purged some men and has since pursued policies to somewhat open up Cuba.

It seems that in the Popularity of Hugo Chavez combined with the outpouring of tributes in the wake of his death, make a Chavista victory likely in the new elections that must be called. Maduro was named by Chavez as his preferred successor and could easily win the election, but he will have to put the movement’s unity as his priority.

There are divisions within Chavismo that have come to light as Chavez’s health faded. Some stand behind Maduro, who is close with the Cuban regime, while others side with Diosdado Cabello, the National Assembly president who is more of a nationalist. Because Chavez was never sworn in for his latest terms, there is even a debate Maduroover which of the two, constitutionally, should be the interim president.

Indian Presence at the State Funeral of Hugo Chavez: India was represented by Mr. Sachin Pilot, Union Corporate Affairs Minister at Caracas.

Probably this too is one of things that make world go round………….

                                                                                                                      ————— Always Yours — As Usual — Saurabh Singh

Source: ViewsNext.Com

One Percent versus Ninety Nine Percent: A Debate

INDIA DOESN’T NEED FDI IN RETAIL TO GROW — Joseph Stiglitz

Nobel Laureate of 2001 in Economic Joseph Stiglitz (who shared it with two more), presently Professor at University of Columbia, is  credited with starting the “1% versus 99%” debate. The Columbia University professor talks about his latest book, “The Price of Inequality”, in which he argues that economic inequality leads to instability

• The title of the book reflects a view that counters the right-wing argument that inequality may be a bad thing but to do anything about inequality is to kill the goose that lays golden eggs. Inequality is bad for economy, democracy and society. Much of the inequality in the US arises out of rent-seeking —monopoly, exploitive practices by banks and corporate exploitation of public resources. In the Indian context, you will call it corruption but we call it corruption American style, where you give away natural resources below market prices. India is doing it now but America has a long history of doing this.

There is a clear association between inequality and instability. People at the top don’t spend too much, they save a lot but people at the bottom spend everything. So you redistribute income from the bottom to the top and demand goes down. That makes an economy weak. That is what happened in the US. We would have had a weaker economy, but the Feds stepped in by creating a bubble that created more demand to offset the demand that was going down. Of course, creating a bubble was creating instability.

• Stiglitz confessed that both the IMF and the UN commission that I chaired came to the conclusion that inequality was one of the major causes for the crisis. It is not the direct, precipitating cause that bad lending was, but bad lending was a result of deregulation and the interest rates that were itself a result of inequality. If we don’t improve inequality and don’t do something else, it is going to be hard to get back to robust growth and prosperity. We are likely to have another housing bubble.

• He further opines, that in the presidential debates none of the candidates have mentioned the word ‘inequality’ as American politics is money-intensive and money-driven. Each of the candidates is expected to spend a billion dollars. When you spend so much, you have to go where the money is, and money in America is at the top. Therefore it is not a surprise that in the campaign you don’t hear a lot of discussion about inequality and the 1%. You don’t bite the hand that is feeding you in the middle of an election.

• He say that this debate may last or  may remain a phrase, he is not sure of, but it will be a part of America unless the problem of inequality gets addressed. It is just not that the top 1% get three to four times more that what they got in the 1980s, but the middle class today is worse off. When you have this degree of stagnation in the middle, there will be an expression through the political process.

• Stiglitz feels that GDP is not a real measure (or say per capita income) of development. he says that, I haven’t looked at India exactly, but it has strong implication for every country. In the case of China, if you take into account the environmental degradation and resource depletion, growth is much less than what it seems. You need that debate in India. Your GDP is going up, you have per capita highest number of billionaires but at the same time you have many people in poverty. So the GDP per capita doesn’t capture what is happening. In India, the progress in the middle and at the bottom has been less than what GDP in itself would like you to believe.

• When asked about the current issue in Indian Economy, that is FDI in retail, he puts it this way.  The advocates of FDI have probably put too much emphasis on it. India is in a different position than a small, developing country. You have a large pool of entrepreneurs. They are globally savvy, have access to global technology and they have a lot of wealth. So, if there were large returns to large-scale supermarkets, the domestic industry would have supplied it. Not having access to FDI is not an impediment in India. Wal-Mart is able to procure many goods at lower prices than others because of the huge buying power they have and will use that power to bring Chinese goods to India to displace Indian production. So the worry is not so much about the displacement of the small retail store but displacement further down the supply chain.

When an argument that ‘But big chains may create more jobs’; he told that  some of the profits of companies like Wal-Mart come from free riding on our society. They don’t provide healthcare benefits and assume that the spouses of the workers get healthcare benefits from their other employees or through some other mechanism. They might not be a good employer.

Always Yours — As Usual —- Saurabh Singh

Source: TOI

RETIREMENT AGE DE-LINKED FROM SIXTH PAY COMMISSION RECOMMENDATION GIVEN BY UGC

In yet another move to keep states happy about their autonomous status, the Center on Thursday is likely to clear the proposal of allowing them to decide on fixing the retirement age (maximum 65 years) of lecturers in colleges and universities run by state governments. Earlier, the UPA was insistent that states should enhance the lecturers’ retirement to 65 years to enable them to get 80% of the arrears burden of state governments. The arrears — at least Rs 9,000 crore —went up since the Center had asked the states in 2008 to follow the Sixth Pay Commission scales that centrally- funded institutes introduced in the same year, with retrospective effect from January 1, 2006. The Center had said it would bear 80% of the increased arrears for the first four-year period — between April 1, 2006, and March 31, 2010 — if states followed its order. Now, the government plans to foot this sum only in the form of reimbursements in “two-three” installments. This is likely to benefit around four lakh teachers across the country. The ministry cleared this proposal after a committee of secretaries, headed by cabinet secretary, supported the state governments’ demand. Sources said that there could be political reasons for states to push the need for greater autonomy as far as fixing the retirement age is concerned. “Some states might want to fix 60 or 62 years for retirement so that fresh batch of qualified people can apply for jobs, and this will also increase the scope of promotion for many lecturers,” said a senior government official. The sixth pay package for teachers, based on which the scales of centrally-funded institutes were revised, has a provision that requires increasing the retirement age to 65 years. At present, the retirement age of teachers varies across states – from 58 to 60 years.

————————–Always Yours —-  As Usual —– Saurabh Singh

 

 

 

An Introduction to Indian Stock Market Index(s) —- SENSEX & NIFTY

The time I invested since my student days, to Private Corporate Sector, and presently working with a public sector autonomous body, I got opportunity to interact with good number of individuals who either were aspiring to get into a B-School so that they can land up smoothly and get absorbed in the vacant Human Resource Positions/ existing Manpower Requirements of Corporate (Private or Public) Sector.

I met one more category of individuals [relevant to this write up], who were pursuing their Post Graduate Program at some institution or Master’s Degree Program at some University to earn their PG Diploma in Business Management or Master of Business Administration Degree.

Since at this level they happen to be very new, it is not expected of them to be expert enough to understand the complexity of Industrial and Corporate Sector. Often, I noticed that at this stage, they thought that Business Administration as probably something very near to (if, not synonymous to) knowledge domains called as Economics or Commerce.

The other component that they look as business is Stock Market Index [Sensex or NIFTY], as they often see numerous articles discussing the business scenario or economic scenario and relating these to Stock Market Index in or the other context. Specially, since 2008 onwards there has been so much volatility and lack of stability in markets that now they often make headlines in Political News Papers too.

I found them, often very curious, to learn what Stock Market Index is, how it is created, why it is there, how is it a reflection of economic scenario and many more questions of the similar kind.

The problem is that majority of such individuals, even after having earned their degree or diploma sometimes, are not aware of it. There is no use deliberating on issue that why it is so, as that is not the subject of this deliberation. So coming directly to the topic, and that is to explain the heads mentioned below:

1. History of BSE                             

2. Calculation Methodology                     

3. Scrip Selection Criteria                              

4. Free Float Methodology     

5. Definition of Free Float                           

6. Major Advantages of Free Float

7. History of NIFTY                    

8. Calculation Methodology                      

9. Scrip Selection Criteria

The same follows here onwards:

HISTORY OF BSE SENSEX

SENSEX, first compiled in 1986, was calculated on a ‘Market Capitalization-Weighted’ methodology of 30 component stocks representing large, well-established and financially sound companies across key sectors. The base year of SENSEX was taken as 1978-79. SENSEX today is widely reported in both domestic and international markets through print as well as electronic media. It is scientifically designed and is based on globally accepted construction and review methodology. Since September 1, 2003, SENSEX is being calculated on a free-float market capitalization methodology. The ‘free-float market capitalization-weighted’ methodology is a widely followed index construction methodology on which majority of global equity indices are based; all major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the free-float methodology.

The growth of the equity market in India has been phenomenal in the present decade. Right from early nineties, the stock market witnessed heightened activity in terms of various bull and bear runs. In the late nineties, the Indian market witnessed a huge frenzy in the ‘TMT’ sectors. More recently, real estate caught the fancy of the investors. SENSEX has captured all these happenings in the most judicious manner. One can identify the booms and busts of the Indian equity market through SENSEX. As the oldest index in the country, it provides the time series data over a fairly long period of time (from 1979 onwards). Small wonder, the SENSEX has become one of the most prominent brands in the country.

 

CALCULATION METHODOLOGY

SENSEX is calculated using the ‘Free-float Market Capitalization’ methodology, wherein, the level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX on a continuous basis.

 

SCRIP SELECTION CRITERIA

The general guidelines for selection of constituents in SENSEX are as follows:

  • Equities of companies listed on Bombay Stock Exchange Ltd. (excluding companies classified in Z group, listed mutual funds, scrip suspended on the last day of the month prior to review date, scrips objected by the Surveillance department of the Exchange and those that are traded under permitted category) shall be considered eligible.
  • Listing History: The scrip should have a listing history of at least three months at BSE. An exception may be granted to one month, if the average free-float market capitalization of a newly listed company ranks in the top 10 of all companies listed at BSE. In the event that a company is listed on account of a merger / demerger / amalgamation, a minimum listing history is not required.
  • The scrip should have been traded on each and every trading day in the last three months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
  • Companies that have reported revenue in the latest four quarters from its core activity are considered eligible.
  • From the list of constituents selected through Steps 1-4, the top 75 companies based on free-float market capitalisation (avg. 3 months) are selected as well as any additional companies that are in the top 75 based on full market capitalization (avg. 3 months).
  • The filtered list of constituents selected through Step 5 (which can be greater than 75 companies) is then ranked on absolute turnover (avg. 3 months).
  • Any company in the filtered, sorted list created in Step 6 that has Cumulative Turnover of >98%, are excluded, so long as the remaining list has more than 30 scrips.
  • The filtered list calculated in Step 7 is then sorted by free float market capitalization. Any company having a weight within this filtered constituent list of <0.50% shall be excluded.
  • All remaining companies will be sorted on sector and sub-sorted in the descending order of rank on free-float market capitalization.
  • Industry/Sector Representation: Scrip selection will generally attempt to maintain index sectoral weights that are broadly in-line with the overall market.
  • Track Record: In the opinion of the BSE Index Committee, all companies included within the SENSEX should have an acceptable track record.

 

UNDERSTANDING FREE FLOAT METHODOLOGY

Free-float methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market.

Subsequently all BSE indices with the exception of BSE-PSU index have adopted the free-float methodology.

 

DEFINITION OF FREE FLOAT

Shareholding of investors that would not, in the normal course come into the open market for trading are treated as ‘Controlling/ Strategic Holdings’ and hence not included in free-float. Specifically, the following categories of holding are generally excluded from the definition of Free-float:

  • Shares held by founders/directors/ acquirers which has control element
  • Shares held by persons/ bodies with ‘Controlling Interest’
  • Shares held by Government as promoter/acquirer
  • Holdings through the FDI Route
  • Strategic stakes by private corporate bodies/ individuals
  • Equity held by associate/group companies (cross-holdings)
  • Equity held by Employee Welfare Trusts
  • Locked-in shares and shares which would not be sold in the open market in normal course.

 

MAJOR ADVANTAGES OF FREE FLOAT METHODOLOGY

  • A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.
  • Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index.
  • A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-a -vis an investible index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
  • Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely-held companies in the index while at the same time preventing their undue influence on the index movement.
  • Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) – QQQ is based on the Free-float Methodology.

 

HISTORY OF NIFTY

S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds.

S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India’s first specialised company focused upon the index as a core product. IISL has a Marketing and Licensing Agreement with Standard & Poor’s (S&P), who are world leaders in index services.

  1. Traded value for the last six months of all Nifty stocks is approximately 44.89% of the traded value of all stocks on the NSE
  2. Nifty stocks represent about 58.64% of the total market capitalization as on March 31, 2008.
  3. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.15%
  4.  S&P CNX Nifty is professionally maintained and is ideal for derivatives trading

CALCULATION METHODOLOGY

S&P CNX Nifty is computed using market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, etc without affecting the index value.

SCRIP SELECTION CRITERIA

The constituents and the criteria for the selection judge the effectiveness of the index. Selection of the index set is based on the following criteria:

Liquidity (Impact Cost)

For inclusion in the index, the security should have traded at an average impact cost of 0.50% or less during the last six months for 90% of the observations for a basket size of Rs. 2 Crores.

Impact cost is cost of executing a transaction in a security in proportion to the weightage of its market capitalisation as against the index market capitalisation at any point of time. This is the percentage mark up suffered while buying / selling the desired quantity of a security compared to its ideal price (best buy + best sell) / 2

Floating Stock

Companies eligible for inclusion in S&P CNX Nifty should have at least 10% floating stock. For this purpose, floating stock shall mean stocks which are not held by the promoters and associated entities (where identifiable) of such companies.

Others
a) A company which comes out with a IPO will be eligible for inclusion in the index, if it fulfills the normal eligibility criteria for the index like impact cost, market capitalisation and floating stock, for a 3 month period instead of a 6 month period.

b) Replacement of Stock from the Index:

A stock may be replaced from an index for the following reasons:

i. Compulsory changes like corporate actions, delisting etc. In such a scenario, the stock having largest market capitalization and satisfying other requirements related to liquidity, turnover and free float will be considered for inclusion.

ii. When a better candidate is available in the replacement pool, which can replace the index stock i.e. the stock with the highest market capitalization in the replacement pool has at least twice the market capitalization of the index stock with the lowest market capitalization.

With respect to (2) above, a maximum of 10% of the index size (number of stocks in the index) may be changed in a calendar year. Changes carried out for (2) above are irrespective of changes, if any, carried out for (1) above.

Always Yours — AS Usual — Saurabh Singh

 Source: Money Control Portal

HAPPY HOLI – A FESTIVAL OF COLOURS & CELEBRATION OF VICTORY OF GOOD OVER EVIL

DELIBERATIONS ON POLITICAL ECONOMY BY A NON ECONOMIST

In the world, where knowledge domain of Economics has over simplified postulates and assumptions at it’s foundations where everything boils down to human rationally and self interest, you can certainly afford to enjoy the luxury of not being an Economist.

This helps in letting your thought process turn human. It has the liberty to be logical till things work that way and turn lateral the moment things go the other way. Your inner self will not force you to accept the postulates on which economists base their decision.

Another over simplified assumption, that ‘maximization of self interests will cumulatively lead to maximization of social interest’, has now turned man eater. Its hunger for blood has now started erupting at shorter intervals of times and subsides by sucking more blood than the previous encounter.

The attempt here is not to advocate socialism or oppose capitalism as a better and brighter school of thought or vice – versa. The efforts are being put with a wish to succeed in convincing people on existence one another ‘—ism’, which much different but nearer to truth than any of the existing ‘—isms’, be it capitalism or socialism.

‘Realism’ is a concept that is much easier to understand when compared with any of the complex fictions wrote to date and which have succeeded in convincing the humanity.

Perhaps, a student of standard five or junior school can get his curiosity satiated by getting convinced from few postulates, as mentioned below:

1. In a situation of panic people often turn dumb or even turn statue. It seems as if any ‘vacuum’ has replaced the whole thought process. In such a situation an assumption of people being logical or rational or self interested is in itself an illogical and irrational assumption. In other words, you can say that any situation that leads to getting your thought process can be said as a situation of panic.

2. It is the ‘investment’ that increases the productivity thereby leading to a surge in consumption and thus paves the path of economic development. Economic well being of society can, never ever, in long term be ensured by increasing the consumption or maintaining a status quo in the consumption level. In the long run, sustaining or increasing the consumption levels without any increase in investment, will lead to much grave consequences as it will get the economy more leveraged.

3. The state of ‘self – denial’ can never let any individual score victory over ‘death’; i.e., say save from facing the eternal truth of human mortality. State of self – denial is first symptom of the fact that individual has lost the battle and is now turning ostrich.

4. Components of any system, which are termed as sub systems, maximize their interests only to the levels where maximization of their self interest is in congruence with the goal of system and not beyond. Else the system will collapse. This leads to the inference that maximization of self interest would converge into maximization of social interest only till a limit. If the same is pursued beyond those limits, it’s bound to turn fatal for society and will even endanger its existence.

[Neither Postulates Nor Discussion Is Over – But Is Enough For The Day – More At Next Encounter]

                                                                                                         –Always Yours — As Usual — Saurabh Singh

Economic Growth- But No New Jobs:Later Half of First Decade of 21st Century India

Have 20 years of economic liberalization been kind to the poor? In particular, how have India’s Scheduled Castes and Scheduled Tribes fared since the country opened up to the forces of economic reforms? Already politically empowered, have they also been economically empowered by liberalization?

Already politically empowered, have India’s Scheduled Castes and Scheduled Tribes also been economically empowered?

An important new study by economists Viktoria Hnatkovska, Amartya Lahiri and Sourabh B. Paul examines the economic performance of SC/STs by analyzing a large mass of data from five successive rounds of the National Sample Survey from 1983 to 2005.

The study is among the first to examine the behavior of wages, consumption, education and occupation choice for SC/STs compared with the rest of the population, exploiting the large and rich NSS data.

The study’s three principal findings are striking. First, it finds significant convergence in educational attainment and occupational choice over the period of the study. In 1983, non-SC/STs had, on average, 3.62 years of schooling, against 1.41 for SC/STs, a discrepancy of 157%. By 2005, non-SC/STs had 5.6 years of schooling on average, while for SC/STs it was 3.2 years, so the percentage gap had closed to 74%. Non-SC/STs still dominate white collar employment, which tends to be higher paying than blue collar and agricultural work, but the gap has narrowed from almost three times as many non-SC/STs in 1983 to about 1.5 times as many in 2005.

Second, the report finds a “statistically significant” movement towards convergence in wages between SC/STs and everyone else. A statistically significant finding is one in which we can have confidence that the results are genuine and not an artifact of measurement. In particular, the authors find that the “wage premium” – a ratio between the wages of non-SC/STs relative to SC/STs— has steadily declined from 36% in 1983 to 21% in 2005. To put things in perspective, the corresponding wage premium for white males over black males in the U.S. has stayed constant around 30% for the last several decades.

Third, the authors find that convergence in wage levels has been caused in large measure by educational attainment of SC/STs slowly catching up with the rest, although a gap remains.

But what explains these trends? Are wages converging principally because the education gap is closing (perhaps through caste-based reservation), or are other factors such as a lessening of discrimination against SC/STs responsible?

The authors show analytically that the majority of the wage gap can be explained by demographic characteristics, such as age, experience and whether people live in a rural or urban area. But the single most important determinant of the wage gap is the gap in educational attainment, the most important demographic difference. The implication is that the narrowing wage gap is indeed a result of the narrowing education gap.

The study also finds that caste-based reservation had a “negligible” effect on the wage gap. Because of its potential policy significance, this finding must be interpreted with caution. The finding is that reservation by itself cannot account statistically for much of the narrowing wage gap.  But that, of course, doesn’t mean that reservation isn’t important. One cannot rule out that reservation indirectly has led to a narrowing of the wage gap, working through the effect of allowing SCs/STs to catch up in terms of education and occupation choice.

There is corroborating evidence on the importance of reservation. For instance, the Indian Express reported recently that SC representation in upper-tier government jobs has increased almost eightfold, from 1.64% to 12.5% in the last 45 years. ST representation has grown almost 20 times. These figures reflect, in part, reservations of 15% and 7.5% for SCs and STs, respectively.

What lies behind these optimistic results? Leaving aside the debate about how big or small a role caste-based reservation has played, there are other market-based explanations that have played an important role, which the study highlights.

The most natural explanation, which is close to the heart of every free market economist, is that 20 years of economic liberalization have reduced the importance of caste and accentuated a move towards “market meritocracy,” where wages and incomes better reflect differences in education and other characteristics, not caste.

This reflects an idea proposed by the Nobel economist Gary Becker a half-century ago, that discrimination in any form becomes costlier when the market becomes more important, and so we will see less of it.

This is a plausible explanation but isn’t the only possibility. The study also flags the increased importance of community-based social networks bringing together SC/STs. Closer integration may lead to what economists call “network externalities,” so that every member of a group benefits more from interacting with their peers than if they were on their own.

The bottom line is that there’s convergence between SC/STs and everyone else, but convergence doesn’t mean they’ve completely caught up. Nor does it mean that caste-based reservation has not or will not continue to play a role.

 

Always Yours — As Usual — Saurabh Singh

Source: http://blogs.wsj.com/indiarealtime/2011/11/28/economics-journal-are-indias-poorest-catching-up/tab/print/

 

 

WILL The Buck Stop — May be This One Works

Olympic Gold Medalist of Corruption in recent olympics Mr. Suresh Kalmadi-led CWG fiasco became India’s shame; A Raja will have made the CWG affair look petty if it turns out that he has indeed caused national loss and brought global shame for India in the 2G scam as charged. Now B S Yeddyurappa and Janardhan Reddy are BJP’s A Raja, standing accused of being the shameful faces of mafia-like corruption. Now is the time to ensure that buck must stop.

The good news is that citizens are finally refusing to accept corruption as routine anymore and are demanding immediate accountability from those who they elect. Today, for the first time in independent India’s history five corporate CEOs, one IAS officer and several senior politicians find their new address as Tihar Jail No. 1. This could well be dubbed as India’s second  independence struggle, but this time it’s not against foreign rule, but for for freedom from corruption by our own rulers, and has begun in right earnest in 2010.

There are four immediate steps, which can be taken to control corruption.

First, the government must notify the rules for the confiscation of assets of corrupt officers in the Benami Transactions (Prohibition) Act, 1988. This will allow the state to confiscate properties into an escrowed account where no claimant shows up, and if he does, then the tax laws can be invoked to inquire into the source of income for purchase of the property.

 Second, India must enact strong anti-perjury laws to stop frivolous, false complaints under oath; this would be a necessary step to prevent witnesses and complainants from frequent retractions which one currently observes in court.

Third, reversing the onus of proof. The accused must demonstrate why illegal cash
or real estate suspected to belong to them is not theirs or face confiscation. Today, the standard of evidence followed is cumbersome. Taking cues from the US system, one must trace the money trail rather than paper trails of files of decision-making.

Lastly, posting the right man for the right job. When one outstanding officer, Bishwajit Mishra, was posted in Bellary, he disciplined Reddy’s minions and recovered dues of Rs 20 crore in 10 days flat before he was transferred out.

Justice Santosh Hegde, U V Singh, Vipin Singh and their team have done yeoman service. They have painstakingly sifted through voluminous bank records of over 40 lakh entries, reconciling millions of transactions from one benami account to the other, one benami company to the other, till it reached the eventual beneficiary, as is shown in the report.

It recounts how Reddy started the ‘zero-risk system’ whereby he would use government officers to procure permits for other mining companies, ensuring safe transport of illegally mined ore to a destination of their choice. For a payment of 40% of the prevailing global market price of iron ore or sharing an equal amount in volume, he had created a different kind of single-window system – for bribes!

Companies that initially refused were later forced to sign zero-risk contracts with Reddy. Rs 40,92,88,860 was the amount paid as ‘risk amount’, Rs 62,92,36,810 was paid for illegal iron ore trading and about Rs 2,46,62,377 was paid to 617 officials in just five years.

This apart, the report says Rs 4,79,03,917 was paid to “G J Reddy Sir” by cheque (and many times more by cash). Now, the time has come to use the fullest extent of various penal provisions of the law to recover the money. Thus, perhaps for the first time, actual value has been imputed to the extent of bribery in just one sector of the economy, that too in one state.

It also appears from the report that Yeddyurappa brought enormous transparency into bribe-taking by having his sons take the bribe by cheque into a family trust, turning a blind eye to the rape of the treasury by his colleague and his own family.

He was clearly told in writing on file by his outstanding team of officers including the chief secretary and others that denotifying land after a Section 16(2) stage of Land Acquisition Act is violative of Supreme Court judgments. Yet, he brazenly went ahead, denotified it, sold it back to the same mining company and received a ‘donation’ by cheque! Despite L K Advani’s repeated sane counsel and warnings, the misdemeanour continued for he thought the buck would never stop. But it did.

 It remains to be seen that India’s second war for independence would spread further or soon the principal culprits will be forgotten, witnesses will be purchased or will ‘voluntarily’ withdraw their statements, bail would be granted by friendly judges, back-door deals for mutual protection will be struck across party lines, some elections will be won, and the same people will be back in power. And show  must keep going on and on.

These view reflect the agreement with views presented are vies of the author.

Always Yours — As Usual — Saurabh Singh

 

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