QIP, ADR, ADS, FCCB, P-notes, warrants

I have found information about above security classes from investopedia.

ADR is negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction.

When you own an ADR, you have the right to obtain the foreign equity it represents, although most U.S. investors find it easier to own the ADR.

An American depositary share (ADS), on the other hand, is the actual underlying share that the ADR represents. In other words, the ADS is the actual share trading, while the ADR represents a bundle of ADSs.

An IDR is the non-U.S. equivalent of an American Depositary Receipt (ADR).
A GDR is very similar to an American Depositary Receipt.

P-notes are similar to ADRs. It is investment vehicle for foreign investors which are not registered with SEBI. India based brokerages buy on behalf of foreign
investors. Indian regulators are not comfortable with anonymity of p-notes.

QIP
A designation of a securities issue given by the Securities and Exchange Board of India (SEBI) that allows an Indian-listed company to raise capital from its domestic markets without the need to submit any pre-issue filings to market regulators. The SEBI instituted the guidelines for this relatively new Indian financing avenue on May 8, 2006. This was created to stop undesirable export of domestic equity market due to preference of ADR amongst Indian companies.

A warrant, like an option, gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. However, unlike an option, an instrument of the stock exchange, a warrant is issued by a company. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of an investor holding the shares.

FCCB means foreign currency convertible bond
Issuer has advantage of lower coupon rate due to convertibility.
Buyer has advantage of stock appreciation.

Tatacomm, ratio analysis & study of financials

I went through some stock recommendations on net. Both the recommendations are negative to Tatacomm. One had downgraded it to 'SELL' from 'NEUTRAL'. Other had made it 'UNDERPERFORM'. It was said that Tatacomm has high debt-to-equity ratio. It is such a debt-ridden company that even when sensex is jumping by 500 points, it continues to tumble down. It was wrong decison to do intraday trading in such a risky stock. This signifies the importance of ratio analysis & reading through annual report. I think I should learn these skills first before doing further trades. My study of Tatacomm equity was insufficient, when I decided to do day trading in Tatacomm.

No BUY on 'Nevis Networks' ESOPs

Good investment decison is not only about buying a good stock, but it is also about not buying a bad stock. After resisting temptation to leave Nevis after being eligible for ESOP of Nevis was, now I think, a good decison.

ADR: Useful for predicting short term stock movements

ADR means American depository receipt. I always wondered until now, why ADRs are flashed on CNBC-TV18 & how they can be useful. I found a little about ADRs on investopedia.

ADRs trade just like stocks but represent shares of a foreign company trading on a foreign stock exchange. After they are listed, demand & supply determine their prices.

How ADRs can be useful to me?
Price of ADR is affected by the speculation about the future performance of company, stability of economy of home country & its currency. If political & currency scenario remains unchanged, ADR movement may help to determine the movement of market price of stock in our market as large portion of trade volume in India is contributed by FIIs. ADRs can be a good barometer of global perception of our stocks. In fact, the useful tool will be the calculation of opening price of stock by using ADR price & dollar-rupee conversion ratio. Calculated price & actual market price should be in unison; because as long as they do not move together, there is scope for arbitrage.

ADR prices are available on:
http://www.equitymaster.com/stockquotes/adr.asp

NOTE: Please check the date on the page before actually using the data.

ADR prices must also be available on the exchanges where they are traded e.g. Nasdaq, NYSE etc. Finding the link where market prices are given, on sites of these stock exchanges, remains to be done.
I cannot wait to implement my hypothesis.

Beta of stocks: Useful for traders, Not for investors!

Beta of stock is used in measuring the volatility of stock. Beta of index is 1. Beta higher than 1 means stock will give higher returns than index during bull run, but also will loose more value during downturn vis-a-vis index. Beta less than 1 indicates exactly opposite.

Beta is calculated using the historical data. It does not incorporate the risk of new news. So, fundamental analysts would find it of no use. Other thing, beta does not capture the long time change in the value of stock and fundamental analysts & value investors are generally interested in long term.
But traders who get into and out of the market quickly find it useful. Because, they need the change in their investment to be high in short time to earn good returns.

Typically, FMCG & pharma stocks have lesser beta as these businesses do not get affected by market movements much. But real estate, IT, telecommunication stocks have higher beta. I have just experienced this after watching how the market price of Bhartiartl tumbled after the announcement of merger with MTN and how it had shot up too sharply on the Golden Monday.
Realty stocks also nosedived during subprime crisis & are now up again after the announcement of FM of boosting infrastructure.

http://www.bseindia.com/about/abindices/betavalues.asp shows the betas of sensex stocks.

Other source is "yahoo india finance". After finding particulars of stock there, one should look in 'Key Statistics' and then under 'stock price history' for beta.

I found on net that "business standard" gives beta values of stocks in their Saturday edition. I will keep an eye on it, though I am going to Dapoli that day and hence might be busy.

Currently only trading, not investing!

While trading in Suzlon no analysis was done. I happened to buy it for 83.5 at the start of market,
when prices r very volatile & sold it for 90 after some days. For last few days, it is hovering around
90 mark. So, I think it was right decison to sell it early.
I know holding a stock for long enough time pays better returns, but that is not at time like this when
economic environment is not good for growth of any company. In such scenario, trading is better than investing.
Main reason for holding the stock for long time is the benefit of compounding due to successive yrs of growth.
Right now, I can see hardly any company compounding the returns of previous year. Even equalling performance of
previous yr, is achievement in current scenario. So right now, value investing does not make sense to me.
Other thing is that I want to book profits before I get into my b-school. Because after I start going to classes,
I won't be able to trade. Getting into b-school after knowing that I have booked profits, gives a better philip rather than
sitting on the stocks for long time.
But after incurring losses today, I have become skeptical about intraday-trading. I would do short/medium term trading rather than intraday trading.

Geodesic

I have also bought Geodesic after reading abt it in DNA money.
I took it for 126 & it's currently trading at 112.
I intend to hold it for long time.

27 May 2009

I traded in Tata communications stocks assuming it will rise, because it reported Q4FY09 profit(302.37) 5 times
that of Q4FY08 (56.03cr).
FY09 net profit 515.95 cr FY08 net profit 304.9 cr
Revenue, net profit & consolodated revenue all grew vis-a-vis FY08.
Company declared dividend of Rs. 4.5 per Rs. 10
Global mood was upbeat because US consumer price index was the highest since Sept08 & sharpest ever rise in 6 yrs.
Asian markets were green & sensex rose by more than 300 pts.
NSE rise to decline ratio was 11:1
On previous day, Tatacomm had plummetted from 585 to 542 i.e. by 43 pts without ne negative news & Q4FY09 results
were declared after market was closed.
I expected stock to rise in short term & hence decided to do intra-day trading in spite of the fact that net profit
was quintupled due to sale of stake in tata teleservices by tatacomm.
I did a few profit booking day trades, but stock breached the support of 538 & reached Rs.526 just after press
conference by Pranab Mukherjee; though there was no bad news for telecomm sector.
NIIT on the other hand, rallied 5% in spite of 15% dip in net profit of Q4FY09 vis-a-vis Q4FY08.
I minimised the loss by selling stock at market price. I was right in doing so becos afterwards the market price
of share reached 516.
It seems that market does not view sale of stock to Japan's DoCoMo positively.
Market did not view MTN-Airtel merger as positive development either.
I had bought BHartiartl at 866 & sold it at 894 on announcement of merger b/w bharti & MTN.
After I sold it,bharti nose dived to 810 the same day & currently trading at around 770. This is level
at which Bharti was trading before the Golden Monday. I think bhartiartl has support at this level.
I was right in timing the sale of Bharti.