#Fincabulary 26 – Barometer Stock

Meaning – A security whose performance is considered to be an indicator of the performance of its particular sector or industry or the market as a whole. It is also referred to as a bellwether stock.

Barometer stocks are usually large-cap equities or respected blue-chip stocks that signal a bullish market during periods of favorable performance and signal a bearish market during periods of unfavorable performance. Barometer stocks can have a large influence on the economic health of the country. Market analysts sometimes say something to the effect of, “What’s good for [barometer stock] is good for the country.”

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TOTAL RETURN INDEX

 – By Gyan Anand, T. A. PAI MANAGEMENT INSTITUTE, Manipal

 

“Sir, our scheme has beaten the nifty year on year”

“Our fund manager has a reputation for generating regular alpha”

Claims as these by investment firms, mutual funds, or insurance providers are regularly seen. The clients often fall for it as they see these claims as something done right by the managers.

However, there exists a catch to this, general understanding. The aim of this paper is to remove the exploitation done, using such claims by companies.

Stock Index

The practice of using a set of stocks to represent the performance of the market was started by Charles H Dow, a financial journalist in 1896, who built the first stock market index The Dow Jones Industrial Average, which was an average of the top 12 stocks in the market. This index was calculated by taking all of the stock prices, adding them together and then dividing them by the number of stocks.

The methodology has changed with the passage of time but the true sense of the index remains intact. Today almost all the major indexes in the world are price indexes, including likes of S&P 500, Nifty, Dow Jones, NASDAQ etc.

The index provides a benchmark against which performance of various investment opportunities is measured. It is a tool which is put to use by investors, financial managers and the likes of them to describe the market and measure performances and returns on various instruments. For instance, mutual funds create portfolios which are actively managed by portfolio managers. When an investor needs to measure which mutual fund has better performance, he needs a benchmark, this is where the ‘Indices’ come in handy. Since an index is a mathematical construct it cannot be traded directly, so various instruments try and imitate the index and if possible beat it (generate alpha).

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#Fincabulary 14 – Bagel Land

Meaning – A slang term that represents a stock or other security that is approaching zero in price.

This term is typically used to describe an asset that has fallen from grace as opposed to a penny stock or other historically cheap security. If a stock or other asset is headed towards bagel land or is approaching zero, investors generally feel that the security is nearly worthless. In such cases, a company may be nearing bankruptcy or facing major solvency issues. While returning from bagel land is possible, the likelihood that equity investors will lose their entire stakes in the company becomes very high.

#Fincabulary 11 – Champagne Stock

Meaning:  A slang term used to describe a stock that has appreciated dramatically.

A champagne stock is typically one that has at least doubled or tripled in value in a relatively short period, creating a huge profit for the company’s shareholders. The term is used because individuals who hold such stocks will often order an expensive bottle of champagne to celebrate their good fortune.

Budget Impact Analysis – Auto Sector

By Dhanyakumar M H

Expectations from Industry:

  • Cut in corporate tax from 30 to 25%
  • Implementation of the vehicle scrappage scheme
  • Incentives for hybrid and electric car production to be extended
  • Removal of connection between size of car and tax
  • Push for infrastructure to offer a quality road in the long run

What Budget has to offer?

  • Personal Income tax:
    • Increase in zero income tax slab from 2.5 lakh to 3 lakh
    • Reduction in income tax from 10% to 5% for income between 2.5 to 5 lakh

Increases in household disposable income. Provides a boost to first-time auto buyer preferably two-wheeler or entry level car.

  • Infrastructure development:
    • Better the infrastructure in the country, is an incentive and encouragement for Auto Industry
    • Budget is seen as a pro-development and this would boost the sales of MHCV, HDCV and heavy equipment
  • Goods and Service Tax:
    • Implementation of GST is confirmed, but there was no message to Auto industry regarding the removal of the link between size and taxation.
  • Rural Income and Agriculture:
    • Mission of doubling farmer income would help increase the disposable income
    • Interest waiver for 60 days due to the impact of demonetization is a welcome move
    • Expected to see a 4.1% increase in Agri output

Increase in rural income would help two wheelers, tractor and entry level car manufactures. It may also help an LCV segment of commercial vehicles.

  • Market Reaction: Advance in stocks
    • Bajaj Auto, Hero Motocorp and TVS Motor
    • M&M, Maruti Suzuki, Eicher Motors, Tata Motors and Ashok Leyland
    • Escorts and VST Tillers
    • Auto Ancillaries are also shown an advancement in stock prices

Conclusion:

Overall the budget has not met the expectation of the auto industry and there was no surprise as well. But the move towards reducing personal income tax and push for rural India is welcomed. As this would increase the disposable income, industry expects an increase in sales of two wheelers, tractors, entry level cars and finally MHCV & HDCV because of push to infrastructure development. Industry is hoping to see more revival post GST implementation as there will be zig-zag in tax structure.

Finacabulary #10- Animal Spirits

Meaning: Describes human emotion that drives consumer confidence.

A term used by John Maynard Keynes in his 1936 publication (“The General Theory of Employment, Interest and Money”), animal spirits emphasizes the importance of confidence and the ‘gut instincts’ of businessmen on their future business prospects. It also refers to the risk involved in taking decisions which invariably have an element of risk attached to it. The term itself is drawn from Latin – spiritus animales, which may be interpreted as the spirit that drives human thought, feeling and action.