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February 10, 2016

FIIs pull out $2 bn this year

According to data provided by the Securities and Exchange Board of India, foreign institutional investors (FIIs) pulled out $1.8 billion (or Rs 12,775 crore) from the Indian market between January 1 and February 5. They had taken out another $100 million (Rs 680 crore) from the markets this week, taking the selling tally to $1.9 billion.

FIIs had pulled out nearly $3 billion (Rs 11,805 crore) in the same period of 2008. In rupee terms, this is the worst-ever FII selling for the Indian markets during the start of a new year.

Risk aversion has seen global investors pull out money from across emerging markets, but the intensity of selling has been one of the highest in India. According to Bloomberg data, FII selling in other regional markets such as Indonesia, the Philippines and Taiwan has been relatively subdued at less than $500 million

Source: http://www.business-standard.com/article/markets/fiis-pull-out-2-bn-this-year-highest-since-2008-116020901307_1.html

Will ETFs crash hard?

This post relates to US markets - however over a period of time, this can happen in India also.

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“Right now, hundreds of billions of dollars are being invested in the stock market by investors who don’t know anything about the companies they own.

“They buy exchange-traded funds [ETFs] – passively managed groups of stocks – that typically track the performance of a stock market index. These ETFs distort the market.

“Some well-known stocks are so heavily bought by ETFs that their prices are completely out of line with the real value of the company. And the ETFs are set up in such a way that there is no judgment at all involved.

“They are bought automatically, almost regardless of what is actually going on in the companies themselves.”

Chris believes that the opportunities for serious investors are increasing simply because there are so many unserious investors in the market.

ETFs favor the big companies in the big indexes, such as the S&P 500. That leaves the lesser known companies often unstudied and unbought.

“Even though stock prices are generally high,” said Chris, “there are many stocks that are actually cheap. You just have to look where the ETFs are not buying.”

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Long term capital gains to be taxed?

Read at interesting article at Value Research. The highlights:

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According to reports, the PM said (at the ET Global Business Summit) - 'Why is it that subsidies going to the well-off are portrayed in a positive manner? Let me give you an example. The total revenue loss from incentives to corporate taxpayers was overR62,000 crore.' He then elaborated, 'Dividends and long-term capital gains on shares traded in stock exchanges are totally exempt from income tax even though it is not the poor who earn them. Since it is exempt, it is not even counted in the R62,000 crore.'

Generally, no one in government comments on specific taxes in the period just before the budget, and that the PM did so may just indicate that this topic has been under serious discussion and was probably at the top of his mind.

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NOTE: in most countries, capital gains are taxed so FIIs will initially threaten to leave India but will eventually not.

NIFTY monthly log chart

Long term trendline support broken?

Next support 6400


February 9, 2016

Iron condor explained for option lovers

The iron condor is a limited risk, non-directional option trading strategy that is designed to have a large probability of earning a small limited profit when the underlying security is perceived to have low volatility. The iron condor strategy can also be visualized as a combination of a bull put spread and a bear call spread.
Iron Condor Construction
Sell 1 OTM Put
Buy 1 OTM Put (Lower Strike)
Sell 1 OTM Call
Buy 1 OTM Call (Higher Strike)
Using options expiring on the same expiration month, the option trader creates an iron condor by selling a lower strike out-of-the-money put, buying an even lower strike out-of-the-money put, selling a higher strike out-of-the-money call and buying another even higher strike out-of-the-money call. This results in a net credit to put on the trade.
Limited Profit
Maximum gain for the iron condor strategy is equal to the net credit received when entering the trade. Maximum profit is attained when the underlying stock price at expiration is between the strikes of the call and put sold. At this price, all the options expire worthless.
The formula for calculating maximum profit is given below:

RELIANCE rangebound; not crossed 2009 high on monthly charts


Market outlook

Daily charts
- markets taking support around 7200 levels
- despite gap down opening, there was no selling during the day
- AD negative; VIX up
- option writing resistance 7600


Paradox of skill and luck

Michael Mauboussin discusses a very interesting concept called the paradox of skill in his book 'The Success Equation'- Untangling Skill and Luck in Business, Sports, and Investing'. “As skill improves, performance becomes more consistent, and therefore luck becomes more important,” is how Mauboussin defines the paradox of skill.

The Olympic marathon is a very good example of the same. Men run the race today about 26 minutes faster than they did 80 years back. Also, in 1932, the difference between the man who won the race and the man who came in twentieth was 40 minutes. Now its less than 10 minutes.

Now the question is how does this apply to investing? “As the market is filled with participants who are smart and have access to information and computing power, the variance of skill will decline. 

That means that stock price changes will be random and those investors who beat the market can chalk up their success to luck. And the evidence shows that the variance in mutual fund returns has shrunk over the past 60 years, just as the paradox of skill would suggest,” says Mauboussin. “I want to be clear that I believe that differential skill in investing remains, and that I don't believe that all results are from randomness. But there's little doubt that markets are highly competitive and that the basic sketch of the paradox of skill applies,” he adds.

Nassim Nicholas Taleb writes in 'Fooled by Randomness', “In real life, the larger the deviation from the norm, the larger the probability of it coming from luck rather than skills...The “reversion” for the large outliers is what has been observed in history and explained as regression to the mean. Note the larger the deviation, the more important its effect.”

Source: https://www.valueresearchonline.com/story/h2_storyView.asp?str=24177

February 8, 2016

NBCC trading in a range for 6 months


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