If you have been considering applying for a credit card, you may have already been shopping around for a cheap credit card. It is hard to miss out on stories in the media regarding consumers paying high interest rates and paying high annual fees on their credit cards. So by shopping around, you no doubt want to find a card with a low rate and preferably no annual fees. Before you continue shopping, though, you may want to consider if you do want a credit card after all as well as how you plan to use it if you do get one.

The Pros of a Credit Card
There are some advantages to carrying “plastic” in your wallet on a regular basis. If you find a cheap credit card, you can simply slide it into your wallet and enjoy the peace of mind that comes with knowing you have some extra cash on hand to use as needed. You may not plan to charge new purchases to the card, but it’s nice to know that if you have the need for cash due to an emergency and are unable to get cash any other way, you can use your card. Many people also use their credit card to build up a higher credit score. By making small purchases on the card regularly and then paying the balance off in full each month, you can establish or build a great credit rating.

The Cons of a Credit Card
The cons of using credit cards are well-noted by stories covered in the media on a regular basis. There are numerous stories about people who are buried under a pile of credit card debt. Many people are carrying thousands, or even tens of thousands, of dollars in credit card debt. These are balances that may be incurring interest charges of hundreds of dollars per month in some cases, and it can take years to pay off these balances. In some cases, credit cards can lower a person’s credit rating when payments are not made regularly or when high balances are carried. Plus, because it can take so long to pay these high balances off and because interest charges and annual fees eat into your future income, credit cards can affect your long term financial future, too.

As you can see, there are some reasons to keep at least one credit card in your wallet at all times. However, you do want to find a cheap credit card with a low or no annual fee and a low interest rate. You also want to use the card responsibly and pay off the balance each month to minimize the negative aspects of using credit cards.

Related posts:

1. Ten Credit Card Precautions You Must Take
2. Consolidating Debt – What are my Options?
3. 5 Easy tips to save money- Does saving mean no spending?

What do I mean by Arbitrage

It is a kind of trading where traders earn profits by exploiting price difference of similar or identical financial products on different market or in different forms and this Arbitrage exists because of market inefficiencies.

Example: – A program can buy or sell the future stock of a commodity like gold depending upon the spread level of same product of different expiry month contract in the Indian commodity market (MCX).

Let us take the October and December contract of gold. Since current month for gold is October, under all normal circumstances, we will have more liquidity in the October contract and comparatively December contract does not have such liquidity. So in the spread trading, when we say buying a spread, it would typically mean we are buying the October contract and selling the same quantity of December contract and the price difference of gold between two contracts is known as the spread. Similarly, with sell spread we sell the current contract i.e October contract and buy the December contract. As a normal trading rule, our aim is to buy the spread at low levels and sell at high levels or vice versa. For instance-

If we are of the view that this difference will increase, i.e in absolute terms, the spread between October and December contract will decrease, so we will sell the spread at current levels. We go short on October contract and go long on December contract. After 5 days, the prices increase as follows-

Thus we make a gain of Rs 34 on gold spread. It needs to be mentioned here that this spread has equal chances of decreasing as well in which case we would have lost money on the strategy. The key in arbitrage lies in executing the buy/ sell spreads at required levels with very less impact cost. This is where technology comes into play.

How technology/algorithms can help in carrying on arbitrage

Algorithmic trading refers to automated trades executed through software programs, which do not require humans to place orders every time. There are computer programs written to buy or sell a security, currency or commodity at a given or predefined level. These programs are so fast that people, who look at various developments and decide trade, would be left way behind because a machine has done it in milliseconds. So it has become extremely difficult to earn profit for the manual traders. The future belongs to traders with superior technology in case of arbitrage business. The National Stock Exchange (NSE), which controls more than three fourths of the trading volumes, has approved applications of 200 of its members, roughly a fourth, to trade using algorithms.

In program trading we normally gives inputs like the required buy spread and sell spread to execute the trade and the number of pair quantity etc. Some algorithms do not even require any input. Algorithms can be made in such a way that the program start quoting in the illiquid market and when the system gets a fill in this illiquid market then it sends a market order in the liquid market to grab the required buy spread.

What are the advantages of using algorithms?

• Efficiency of algorithms comes from the fact that the whole process can be done in a millisecond’s time. Thus saving Time.
• Accuracy of execution improves as time lag is reduced and better prices can be quoted
• Since the system doesn’t get fatigued, continuity of process is ensured

There are so many other way to do arbitrage like calendar spread, multi exchange trade, main mini spread, different exchange of two different countries and other ways also and program trading used in those all types of arbitrage.

Author: Bratin Mukherjee, Analyst, Kredent Group

Praveen Bajaj, Head – Research, Kredent Group

Related posts:

1. All about algorithmic trading
2. Options glossary
3. Open Interest – Essential Trading Tool

In such difficult times we have to ask a few difficult questions to ourselves before committing our money to any mutual fund scheme. Here I give you three questions which you must contemplate on –

1. Do I understand the risk associated with market linked instruments like mutual fund? It may be safer than direct investment in shares but it has got its own problems and risks. Because of enough diversification, stock specific risk might be reduced but the market risk still remains.
2. How to make intelligent choices between different types of funds –balanced versus diversified equity (all stocks), open-ended versus closed-ended, SIP versus lump sum?
3. What is the objective of buying the mutual fund? For tax saving you’ve tax saver funds (ELSS), if you are bullish on a particular sector, say pharma, you have sector specific funds like “Reliance Pharma Fund”, if you want regular cash flow from your investment, you can opt for dividend option of a fund.

4 mistakes mutual fund investors should avoid

1. Not reading Offer Document Carefully: Don’t miss reading about the following things in the offer document (prospectus) of any mutual fund AMC
   1. Verify that you have received an updated version of the offer document. Otherwise, your decision will be based on out dated information, specially the historical performance of the fund.
   2. Investment objective of the fund. It can be – to generate regular income or long term capital appreciation or to closely match returns of a benchmark or something else.
   3. Risk factors should be properly evaluated against your own risk appetite. Credit risk, market risk, interest-rate risk etc. are all crucial and should be analyzed based on your expectations (protection of capital or regular flow of income or something else) from the investment.
   4. We’ve all heard that past performance is not an indication of future returns.  However, we must read the historical performance of the fund critically, looking at both the long and short-term performances.
   5. Fees and expenses include various commissions named as entry load and exit load. Though entry load is restricted by SEBI but there are certain adjustments with your NAV to compensate the middle-men. These are paid in the form of upfront and trailing commissions.
2. Choosing sectoral funds without analyzing the sector: It is very important to understand the risk-return profile of a sector fund.  Investment in sector fund has to be timed very cautiously as the return will have the seasonality effect of the underlying sector. If you have entered into the right sector at the right time and if that sector performs, your investment in the fund will give you substantial return, most of the time more than market returns. For example Reliance Diversified Power Sector Fund gave handsome returns in the period 2004-06. Downside of sector funds is that individuals like us can seldom time the market properly.  If you have not seen 2-3 market cycles, then you should remain away from sector funds.
3. Investing based on short term performance of the fund: Reading too much into 1 month, 3 months and 6 months performances, without checking the consistency of returns in longer terms like 3 years and 5 years can be very risky. Relying on researches like “last month, equity funds with higher exposure in defensive sectors like health care and FMCG, fared the best” can be misleading as the trend may be very short lived.
4. Not knowing the underlying securities of your fund: Without knowing the composition of the portfolio of your fund, it is not possible to get the desired diversification. Take an instance where you invest in a few mutual funds to obtain a diversified portfolio. However, if all these funds hold same underlying shares, bonds, etc. you are not getting the required diversification. You must also know on what sectors your fund is overweight and on what sector it is underweight, which helps you map it to your risk appetite.

Related posts:

1. Things you want to know about Exchange Traded Fund (ETFs)
2. Mutual Fund Analysis-May 2010
3. ELSS Mutual Funds

Thanks and happy reading

ASSIGNMENT – Notice to an option writer that an option has been exercised by the option holder.

AT-THE-MONEY – An option whose strike price is equal – or approximately equal – to the current market price of the underlying

BEAR SPREAD – A spread which is put on with the expectation that futures prices will decline.

BULL SPREAD – A spread which is put on with the expectation that futures prices will rise.

BUYER – The purchaser of an option, either a call option or a put option. Also referred to as the option holder.

CALL OPTION – An option which gives the option buyer the right to purchase (go “long”) the underlying futures contract

CLASS OF OPTIONS – All call options – or all put options – on the same underlying futures contract.

CLEARING CORPORATION – The Board of Trade Clearing Corporation, whose function it is to clear (match) all purchases and

CLOSING TRANSACTION – A purchase or sale that liquidates -offsets – an existing position. That is, selling an option that

COMBINATION – A position created either by purchasing both a put and a call or by writing both a put and a call on the same

COVERED OPTION – An option written against an opposite position in soybean futures.

CREDIT SPREAD – A spread in which the value of the option sold exceeds the value of the option purchased.

DEBIT SPREAD – A spread in which the value of the option purchased exceeds the value of the option sold.

DELTA – The amount by which an option’s price will change for a unit change in the underlying futures price. With the

EXERCISE – The action taken by the holder of a call if he wishes to purchase the underlying futures contract or by the holder

EXERCISE PRICE – Same as strike price.

EXPIRATION – The date after which an option may no longer be exercised. Although options expire on a specified date

FUTURES CONTRACT – A contract traded on a futures exchange for the delivery of a specified commodity or financial instrument at a future time. The contract specifies the item to be delivered and the terms and conditions of delivery.

FUTURES PRICE – The price of a particular futures contract determined by open competition between buyers and sellers

HEDGE – The buying or selling of offsetting positions in order to provide protection against an adverse change in price.

HOLDER – See Buyer.

IN-THE-MONEY – A call is said to be in-the-money if its strike price is below the current price of the underlying futures

INTRINSIC VALUE – The dollar amount that could be realized if the option were to be immediately exercised. In other

LONG - The position, which is established by the purchase of a futures contract or an option (either a call or a put) if there

MARGIN - The sum of money or securities, which must be deposited – and maintained -in order to provide protection to

MARGIN CALLS - Additional funds which a person with a futures position or the writer of an option may be called upon

NAKED WRITING - Writing a call or a put on a futures contract in which the writer has no opposite cash or futures market

OPENING TRANSACTION – A purchase or sale, which establishes a new position.

OUT-OF-THE-MONEY – A put or call option, which currently has no intrinsic value. That is, a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

PREMIUM - The price of an option – the sum of money, arrived at in the competitive market, which the option buyer pays and the option writer receives for the rights granted by the option.

PUT OPTION – An option which gives the option buyer the right to sell (go “short”) the underlying futures contract at the strike price on or before the expiration date.

PRICE SPREAD – The purchase and sale of two options covering the same futures contract with the same expiration dates but different exercise prices.

SELLER - Also known as the option writer or grantor. The sale of an option may be in connection with either an opening transaction or a closing transaction.

SERIES - All options of the same class having the same strike price.

SHORT - The position created by the sale of a futures contract or option (either a call or a put) if there is no offsetting position.

SPREAD – A position consisting of both long and short options (all calls or all puts). For example, a long position in a call with one strike price and expiration and a short position in another call with a different strike price and/or expiration.

STRADDLE - A combination in which the put and the call have the same strike price and the same expiration.

STRIKE PRICE - The price at which the holder of the call (put) may exercise his right to purchase (sell) the underlying futures contract.

TIME SPREAD - The purchase and sale of two options covering the same futures contract but with the same exercise price, but different expiration dates.

TIME VALUE - Any amount by which an option premium exceeds the option’s intrinsic value. If an option has no intrinsic value, its premium is entirely time value.

UNCOVERED OPTION – The sale of an option without a position in the underlying futures contract.

UNDERLYING FUTURES CONTRACT - The specific futures contract that can be bought or sold by the exercise of an option.

WRITING – The sale of an option in an opening transaction.

Related posts:

1. Measuring volatility through VIX
2. Open Interest – Essential Trading Tool
3. Job Opening: Options Trading with Kredent, Kolkata

What he ended up glorifying was – Highest NAV guarantee ULIP plan. The way he was pitching the product anyone could have fallen in the trap without actually understanding the product’s nitty-gritty. I thought I must write on this subject to make people aware about the actual pros and cons of this product. (Before this, read – understanding ULIP)

Understanding Highest NAV Guarantee ULIP

Let’s understand this product with the help of ICICI Prudential’s highest NAV ULIP plan – “ICICI Pru Pinnacle Super”. Following description is taken from their website -

*Highest NAV Fund B provides 110% of the “highest daily NAV” of the fund in first 7 years, guaranteed at maturity. This guarantee is applicable only at maturity and is not available on partial withdrawal, surrender and death. There will be an additional charge for the cost of investment guarantee of 0.50% per annum. This will be made by adjustment to the NAV.

Some examples of Highest NAV ULIP products

• Birla Sun Life Insurance’s Platinum Plus II
• Tata AIG’s Invest Assure APEX
• SBI Life’s SMART ULIP
• ICICI Pru Pinnacle Super
• Reliance Life Highest NAV Guarantee Plan

All these plans offer guaranteed maturity unit price.

Is Regulator Worried?

“The concern I have as a regulator is that the communication mechanism for the highest NAV products might lead to misconceptions among buyers. Therefore, it’s a risky product.” – J Hari Narayan Chairman, IRDA

Let us understand why he has made such a remark for such a hot selling insurance product. I will try to keep it as simple as possible. However, if you have any question regarding highest NAV products, leave a comment below.

Analyzing Highest NAV Products

Concepts used

Constant proportion portfolio insurance (CCPI)

Say you have a portfolio of Rs. 100 crores on which you want capital guarantee.

You must back-calculate the amount to be invested in fixed income securities to fetch Rs. 100 crores on maturity, say after 7 years. Assume the rate of interest to be 8%. The calculation will be 100 crores/(1+0.08)^7 = 58.35 crores. Thus the remaining amount 41.65 crores (=100-58.35) can be invested in risky assets.  This is an oversimplified example to explain CPPI.  Explore the concept further on Wikipedia

Dynamic Asset Allocation

It is a highly active portfolio management strategy where the fund manager looks for more profitable instruments with respect to current market direction and performance. It involves constant/frequent adjustment of investments with respect to market and instrument performances.

Highest NAV and not highest return

First of all what the insurance company promises is the highest NAV achieved during the tenure of the policy which is generally 7 years for such plans. Highest NAV will be obvious only in retrospect. Remember in this type of policies NAV doesn’t move in sync with equity markets. Any guaranteed product works for investors who do not want a risk to their principal amount, but would like a small upside of equity. Mind the word “small”. If you are looking for a Nifty or Sensex-linked return product with zero risk, that’s not realistic. Such products do not exist.

Survive the term

One has to survive the full term of the policy to be eligible for the highest NAV. Otherwise his or her survivor just gets the fund value. Other things remaining same, this product’s fund value will be lesser than simple ULIP product because of high charges attached to this policy.

Cap on Downside as well as Upside

Good thing about this product is that your initial capital is guaranteed. The fund manager of such highest NAV products is given the liberty to invest up to 100% in equity and shift the entire 100% into debt. Initially such funds start with higher equity exposure.

If the equity market moves up and so does the portfolio, such funds are likely to keep booking equity gains and moving them into debt over the tenure of the plan. This, in a way, will ensure that the equity gains are cashed in, the NAV does not go to very high levels, and the loss on account of the guarantee, if any, is minimal. Thus, it results in increase in debt proportion and decrease in equity component. This limits the probable future return from the fund as funds cannot be transferred back to equity for higher return.

If the equity market falls, insurers will move funds into debt to protect the guarantee.

Real life situation

Source : Mint Research

The above picture proves the above points. Share your experiences of ULIP plans with highest NAV guarantee.

Related posts:

1. Understanding ULIP
2. ULIPs or Mutual Funds – Comparison
3. Financial planning: Tips to help you get financial success

1. Car insurance policies – Car insurance policies vary from one provider to another; hence, it is essential that you initially make an insurance comparison of the available options. What do you need to look for in an auto insurance policy? Considerations include ease in acquiring the insurance, the fees and payment terms, benefits of the insurance package, and terms and conditions of the particular insurance.

2. Release date – It is a priority to select the insurance that can be released in just a few days’ time; if the insurance were convenient enough to acquire, then it would be able to give you what you need without waiting for a long time.

3. Amount - Insurance comparison based on the fees and payment terms can give you an idea of what you would need to pay for and how you would pay for it. Usually, car insurance can be paid for on an installment basis – making it easier on your budget. Based on your regular income, you can evaluate the payment terms that would fit your paying capacity.

4. Benefits - The benefits of the insurance simply shows you what you would be getting from the insurance package. One important benefit is the garage tie-in. If you ever get involved in a car accident, whatever fees you need to pay for will immediately be covered by the insurance – either directly (where they pay the garage) or indirectly (where you reimburse the fees) In this regard, determining which one would benefit you the most would depend on your preferences in accordance with the available policies. You also need to think about which things you actually need. Each auto owner has individual needs based on the type of car and usage.

5. Company credibility – this is very important. However low the premium and whatever the benefits offered, you must never buy auto insurance without making sure of the company’s credibility. How long has the company been in business? How big is the company? Research about the company and who is behind it. It would be better if you can check their permits as well. You should also search the net for customer reviews. You can also ask the people you know and trust about their own experiences regarding their car insurance policies.

If you have very little time in your hands, you can always search the net for information. There are several websites offering car insurance comparisons for free. Car insurance policy comparison would help you determine if a specific insurance package would be best for you. In doing so, you can possibly save more than you would normally spend, and at the same time, get the benefits you deserve.

Related posts:

1. Life insurance – What’s in it for you?
2. Making Your Car Insurance Cost Less
3. Health Insurance Industry in India – Landscape

Here is my take on recent monetary policy review-

Rates

Reserve Bank of India (RBI) continued treading on its rate hike road yet another time. This twelfth rate hike in last 18 months did not come as a surprise especially after inflation, (measured by any index, right now WPI) increased by 9.78% during August compared to 9.22% in the prior month. The repo and the reverse repo rates after the hike stand at 8.25 percent and 7.25 percent respectively while the CRR (cash reserve ratio) and the SLR (statutory liquidity ratio) rates stand unchanged at 6 percent and 24 percent respectively. There were muted expectations in the markets that policy rates might be kept at the same levels while SLR or CRR ratios might be altered. In my opinion, these ratios are used for different purposes.(Read about different policy rates and purposes) With liquidity conditions mostly in shape, barring last week when borrowing on Repo window increased to even around Rs 1,00,000 crore due to advance tax payment, RBI is unlikely to tinker with CRR or SLR atleast in the current scenario.

Banks

Commercial banks are likely to see deterioration in the NIMs. RBI has been stressing on the need to increase the deposits growth and going easy with credit growth. While credit growth has moderated to around 20% in August’11 compared to 21% in March this year, moderation is not substantial. Deposit growth still trails at 18% presently compared to 16% in March. As indicated by SBI, this increase in costs will be passed on to borrowers in a short time. With receding demand, I don’t see a lot of takers at higher rates level. Deposit rates might also see an upward revision simultaneously to stimulate the deposit growth. This, in all probabilities is likely to eat up a portion of banks’ NIMs.

Inflation

On inflation front, RBI has continued with its tough stance (RBI Statement) against inflation. However, the guidance given on inflation this time has been more optimistic than last time. In its Policy review statement, RBI has mentioned its expectations regarding softening of inflation-

• “As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12”
• “Inflationary pressures are expected to ease towards the later part of 2011-12. Stabilisation of energy prices and moderating domestic demand should facilitate this process”
• Views on normal monsoon and a record production of grains “Monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline”. This might be taken as an expectation that food prices might decrease

However, it also expects that for the coming few months, inflation will remain high. It also gives certain factors which are likely to continue adding to inflationary pressures – “….there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases. Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists”.

My Take

With growth scenario slowly also sluggish, many analysts have started expecting a pause in the rate hiking spree. Global outlook has only worsened in the recent months. Exports are unlikely to continue with the current momentum due to this. On domestic front, IIP growth has been moderating with extreme volatility. This has led Central Bank to indicate that there are downside risks to 8% growth projection in the July review.

I will take it more as an indication from RBI that the rate setting committee is prepared to see the current high levels of inflation for coming couple of months and expect it to start moderating from atleast the last quarter of the current fiscal. Stance of monetary policy has been kept unchanged clearly to keep inflationary expectations at bay. Further rate hikes cannot be ruled out but I feel that the same will be taken only if inflation figures increase beyond this point. Base effect will be pretty high from this point onwards especially during December and January due to over 130 bps Month on month increase during these months in the last fiscal. This atleast on the face will keep inflation figures under control and induce a wait and watch approach of RBI.

Author: Praveen Bajaj

Related posts:

1. RBI likely to raise rates in todays monetary policy review
2. Rates raised at RBI’s first mid-quarter review
3. India Inflation : WPI March 2010

What is Algorithmic trading

Algorithmic Trading is electronic trading where we implement various strategies or algorithms with the help of various advance mathematical models for taking transaction in financial market in a much faster way with low risk.

Here we use computer programs for executing orders following a selected algorithm or strategy and the order gets executed depending on different aspects such as timing, price or quantity of the orders and some times with out any human intervention.

What is an algorithm

Algorithms are actually a set of steps to perform a particular job or to solve a particular problem. Even if in our daily life we use algorithms to do everything. Similarly, in programming languages we at first implement algorithms depending upon what kind of job we need to do and implement the strategy by which we can perform the job step by step in a chronological order and instruct the computer through programming languages.

Let’s take a real life example:

When we need to go to a known place we at first decide in our mind how to reach the place spending less time so for this our memory implements an algorithm asking for how to reach the place by using a particular way and the particular road which road. Then we start from our place and easily reach the place.

Similarly in programming language to do different kind of job we implement different algorithms and depending upon that, we code a program in through various programming languages platform and through that we instruct the computer to do the particular job.

What type of strategies can be used through algorithm?

In financial markets, some popular strategies followed by the algorithmic traders are

Trend following- This is an investment strategy that tries to take advantage of long term moves that seem to play out in various markets.

Delta neutral strategies- In financial markets, delta neutral describes a portfolio of related financial securities, in which the portfolio value remains unchanged due to small changes in the value of the underlying security. Such a portfolio typically contains options and their corresponding underlying securities such that positive and negative delta components offset, resulting in the portfolio’s value being relatively insensitive to changes in the value of the underlying security.

Arbitrage – In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets.

Scalping- It is a method of arbitrage of small price gaps created by the bid ask spread.

Mean reversion- This is a mathematical methodology used in stock investment and other processes also. Here we calculate the average price of a stock and when the market price became less than the average price then the stock became attractive for buy and sell it on average price or above of it.

Transaction cost reduction – Here to reduce the transaction cost of large orders using high frequency trading wherein we break the transaction into several smaller orders and send to the market over time. We can name this as “iceberging” as well.

What are the abilities required to become an algorithmic trader?

To be an algorithmic trader, one needs in depth knowledge of any programming language and also interest on mathematical methods. Along with this knowledge, some behavioral skills like innovative attitude, ability to learn fast also with that interest on research jobs , risk taking ability , ability to take challenges etc. are also required to became successful in this profession

What is the scope of algorithmic trading in India

India has a competitive market for equities, futures and options, commodities, foreign exchange and currencies. But it was just two year ago that direct market access (DMA) to exchanges was allowed. Although official figures don’t exist, the consensus opinion is that about 5% of volume in equities is traded algorithmically and between 15% and 25% in future and options. Indian market is the third largest market only beaten by the US and CHINA and the growth rate is still very high so we can assume that, algorithmic trading is going to be lot more popular in Indian financial market.

Author: Bratin Mukherjee, Analyst, Kredent Group

Related posts:

1. Using technology for Arbitrage
2. Trading as a Career
3. Job Opening: Options Trading with Kredent, Kolkata

Company and business

SRS Limited is a diversified company with a business portfolio which includes cinema exhibition, food & beverages, retail & manufacturing and retailing of jewellery. SRS Limited was incorporated in August 2000 with the objective of becoming a FMCG company. Initially it came as SRS Commercial Company Limited and was later renamed to SRS Entertainment Limited in January 2005. The retail arm of the group is consolidated under two brands namely SRS Value Bazaar and SRS Fashion Wear. The Company has 23 retail stores in North India. SRS cinema operates in six cities with 11 properties having 30 screens and 7608 seats. SRS Food court runs under the SRS 7 dayz brands under the name “Punjabi Haandi” which runs 11 food courts across north and Central India.

Sectors’ summary

Film Exhibition has a huge scope of expansion. As per an industry survey, the screen density in India is less than 12 screens per million which is quite low compared to other developed countries.

Food & Beverage industry has grown significantly over the years. According to the industry source estimates, the industry will reach by $300-350 billion by 2015 from an estimated $150-200 billion in 2006-2007.

Retail Sector industry in India has grown at a CAGR of 10-12 per cent. Apart from this the industry was impacted by economic condition. In coming days it is expected to revive from the slowdown.

Gems & Jewellery market is one of the leading contributors to India’s export revenues. The Indian jewellery retail market was estimated to be about Rs. 973 billion in 2009-10. Gold jewellery accounts for around 80 per cent of the Indian jewellery market.

Objective of the issue

The company aims to raise Rs 203-227 crore through the issue of 3.5 crore equity shares of face value Rs 10 each with an issue price of Rs 58-65. Expansion across business segments being the primary aim. Various expansion plans are-

• Setting up movie screens in 15 locations across India with 51 screens and approximately 13,840 seating capacity
• Setting up of 29 new Retail stores in various locations across India
• Setting up of 17 new jewellery retail outlets by the end of 2013
• Setting up of 33 additional food & beverages outlets with an estimated area of 181,500 square feet by the end of 2013.

Risk factors

SRS Limited has had negative cash flow in the past three years. The Company’s cash flows from operating activities have been negative in the financial years ended 2009, 2010 and 2011 mainly because of increase in the Company’s operations which have resulted in substantial increase in working capital required by it. The promoters of the company are involved in certain proceedings which could affect the business. As per the financial statement as on 31 March 2011 of the company it has some contingent liabilities which may adversely affect the financial position of the company.

Key financials

Cash flow of the company for last three years:

Profit and Loss Summary of Last two years :

IPO GRADING

SRS Limited grading is done by ICRA and has been assigned ICRA IPO grade of ‘3’ to the proposed IPO reflecting average fundamentals.

OVERALL VIEW

It is advisable to subscribe to the IPO as there are huge expansion plans of the company. The company is clear about its objective and good scope of diversified sector gives a positive signal. Despite the negative cash flow, company earns a huge profit after tax which further puts a SUBSCRIBE to IPO.

Author: Satish Tayal, MBA (ISBM), is a intern at Kredent Group.

Related posts:

1. Aanjaneya Lifecare Limited
2. Muthoot Finance- Follow up note
3. SRF Limited – A Good Value Pick

It is hoped that this will spell an end to the sky high car insurance premiums which are now being offered to young male drivers, with research by MoneySupermarket.com suggesting that 5% of drivers have already been forced off the road as a result of these price rises.

However, not everyone is happy about this ruling; with it expected that female car insurance premiums will rise by up to 50%. We therefore take a closer look at these regulations, which are expected to have a cross over impact on countries outside of Europe.

Mixed opinions
The ban on gender discrimination has been welcomed by prominent members of the European insurance community such as Martin Lewis from moneysavingexpert.com, who commented: “Why should one man pay more because others behaved badly?”

This once again raises the issue of discrimination, with Lewis adding that stereotyping people on the grounds of gender is actually no different from stereotyping on the grounds of race, as it doesn’t mean that everyone classed in a particular group will act in the same way. The head of car insurance at MoneySupermarket.com, Steve Sweeney, has supported this viewpoint “Ultimately, I think people should be treated fairly based on their own individual risk profile.”

However the ruling has not been welcomed by everyone, with the AA’s Simon Douglas claiming that the majority of young male drivers will not be paying enough to cover their costs following this ruling. This is due to the fact that young male drivers are statistically ten times more likely to be involved in an accident than motorists over the age of 35.

Insurance companies are ultimately forced to pick up the bill of any claims made by these young drivers, with the additional costs now set to be spread out amongst female motorists: “If insurers are not allowed to use such an important risk factor as gender, there is an increased risk that premiums won’t cover claims costs and they will need to increase prices in aggregate to compensate for the additional risk. This is bad news for motorists generally, although of course there will be winners and losers.”

A less considered viewpoint was offered by British politician Phillip Hollobone who merely stated: “we all know that women drivers are better than men”.

Cross Atlantic impact
As has been noted by Business academic Peter Dicken, we live in an increasingly globalised world. This means that financial and legal markets are becoming intertwined and that American legislators will therefore be likely to introduce similar rules in the interests of trade harmonisation. It should also not be forgotten that many insurers that operate within America also have operations in Europe, which increases the chances of trade harmonisation efforts being made.

American consumers should therefore take a close look at what happens in Europe over the coming years as a result of this ruling so that they can be better prepared in the event of it hitting America. Whether it will ultimately be a good or bad thing remains to be seen, with opinions on the morality of this case appearing to be split even amongst the most experienced car insurance experts. However, one thing which is certain is that female car insurance premiums are set to increase.

Author Bio- This is a guest post by Mark Martin. Mark is a motoring and insurance expert from the UK. He works for price comparison website MoneySupermarket.com and is therefore up to date with the latest developments within the market. Mark is a keen motoring racing enthusiast, and has followed Formula One for all of his life.

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