How to estimate volatility?
It is important for companies to estimate the expected volatility carefully since it provides much of the value of options--especially relatively short-term options. Even for longer term options such as most employee stock options, the level of expected volatility accounts for a significant part of the difference in the values of options on different stocks.
Volatility Definition
First, we need to agree on definition of volatility. It's basically the variation from the average value over a measurement period. If a price varies a great deal from day to day, the volatility will be high, and conversely if the day to day variation is low, the value of volatility will be low as well.
While it get pretty complicated in a hurry when you burrow into the statistics, and you factor in things like log normal returns, and stationary processes, it can be approximated by saying that if the volatility is calculated by the standard deviation of the asset prices, then approximately 2/3 of the time the price will be within one standard deviation of the average price over time.
Why Do We Care About Volatility?
One of the areas that volatility takes on greater importance is in the area of options pricing. Not to go into great detail, but an example would be call option, or the option to buy a stock or some other asset in some future period, say the next few months. If a stock price has a history of relatively large price swings, then it becomes more likely that it can exceed the "strike price" of the potentially triggering the buyer to exercise the option, or to buy and sell the stock at a profit, even though the long term average price of the stock hasn't changed. So the option seller will price the option higher for a volatile stock to compensate for this possibility.
Friday, October 1, 2010
Wednesday, September 22, 2010
Disinvestment in India
History and Statistics
During the fist five year plans government possessed 5 PSUs with investment of Rs 29 crores.At the end of the Seventh Plan in 1990,there were 244 PSUs and the investment in them had gone up to Rs.99,000 crores.The idea of disinvestment first came in 1991-1992.First only a small share of equity in was sold until 2000-2001.
During 2000-2001,there are 122 profit making enterprises with a net profit of Rs 19,000 crores.These include NTPC,ONGC,IOC,VSNL etc.111 companies bore losses with a total loss of Rs 12,839 crores.These include Hindustan Fertilizers,the Fertilizer Corporation of India(FCI), Bharat Coking Coal etc.
So instead of making extra revenue from the PSUs government was not able to get the invested capital!
Process of Disinvestment
There are two ways of disinvestment.
1.Transfer of complete management to private enterprises.
Modern Food Industries,Bharat Aluminum Company Limited (BALCO),VSNL,Centaur Hotel Airport are examples of this kind.
2.Partial selling of shares
Here government sells some part of shares.But still it retains majority of them(51% or higher).This has been adopted in majority of cases.
Advantages
1.To achieve greater inflow of private capital.
This revenue can be used to compensate the deficit finance.
2.Allows new firms to enter into the market and thus increases competition.
3.Brings the low productivity PSUs back on track thereby improving the quality of goods,eliminating excessive manpower utilization and enabling high profits.
Disadvantages
1.Loss of public interests
PSUs are resources of the nation.They belong to the people.By selling them to private companies,government is seriously affecting the people's welfare.
2.Fear of foreign control
Selling equities to foreign companies result in serious consequences shifting the nation's wealth,power and control to outsiders.
3.Issues with workers
The jobs of Lakhs of workers in the PSUs will fall in danger by privatization.
4.Less number of bidders
Even though government plans to disinvest,there are actually less number of people willing to place their bids.
Apart from these,it is the government and not PSUs who receive funds from disinvestment.This raises conflicts between the government and the employment union of the PSU.
Understanding the importance of Disinvestment,a separate wing called "Disinvestment commission" is established to deal with all the issues relating to it.
During the fist five year plans government possessed 5 PSUs with investment of Rs 29 crores.At the end of the Seventh Plan in 1990,there were 244 PSUs and the investment in them had gone up to Rs.99,000 crores.The idea of disinvestment first came in 1991-1992.First only a small share of equity in was sold until 2000-2001.
During 2000-2001,there are 122 profit making enterprises with a net profit of Rs 19,000 crores.These include NTPC,ONGC,IOC,VSNL etc.111 companies bore losses with a total loss of Rs 12,839 crores.These include Hindustan Fertilizers,the Fertilizer Corporation of India(FCI), Bharat Coking Coal etc.
So instead of making extra revenue from the PSUs government was not able to get the invested capital!
Process of Disinvestment
There are two ways of disinvestment.
1.Transfer of complete management to private enterprises.
Modern Food Industries,Bharat Aluminum Company Limited (BALCO),VSNL,Centaur Hotel Airport are examples of this kind.
2.Partial selling of shares
Here government sells some part of shares.But still it retains majority of them(51% or higher).This has been adopted in majority of cases.
Advantages
1.To achieve greater inflow of private capital.
This revenue can be used to compensate the deficit finance.
2.Allows new firms to enter into the market and thus increases competition.
3.Brings the low productivity PSUs back on track thereby improving the quality of goods,eliminating excessive manpower utilization and enabling high profits.
Disadvantages
1.Loss of public interests
PSUs are resources of the nation.They belong to the people.By selling them to private companies,government is seriously affecting the people's welfare.
2.Fear of foreign control
Selling equities to foreign companies result in serious consequences shifting the nation's wealth,power and control to outsiders.
3.Issues with workers
The jobs of Lakhs of workers in the PSUs will fall in danger by privatization.
4.Less number of bidders
Even though government plans to disinvest,there are actually less number of people willing to place their bids.
Apart from these,it is the government and not PSUs who receive funds from disinvestment.This raises conflicts between the government and the employment union of the PSU.
Understanding the importance of Disinvestment,a separate wing called "Disinvestment commission" is established to deal with all the issues relating to it.
Saturday, June 5, 2010
Thursday, April 22, 2010
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COMMITTEE IN WORKING CAPITAL FINANCE
Banks in India have been providing finance to industry and trade on the basis of security. To ensure its equitable distribution in the right channel bank credit has been subject matter of regulation and control by the government.
To regulate and control bank finance the RBI has been issuing directives and guidelines to the banks from time to time on the recommendation of certain specially constituted committee entrusted with the task of examining various aspects of bank finance to the industry.
Deheijia committee:
The national credit council constituted in October 1968. A study under the chairmanship of shri. V.t.dehejia. to examine the credit needs of industry and trade are likely to be inflated and how such trend could be checked. The bulk of bank credit is short term; the groups enquiry was primarily concerned with the inflation of the short term credit.
The group made suggestion for a change in the leading corporate and other borrowers in formulating financial plans, regulating production on a more rational basis and economising the demand for bank credit.
Tendon committee:
Reserve bank of India setup a committee under the chairmanship of shri.p.l.tandon in July 1974.
The terms of references of the committee were:
To suggest guidelines for commercial banks. (To follow up and supervise from the point of view of ensuring proper use of funds and keeping a watch on the safety of advances.)
To suggest the type of operational data and other information. (That may obtained from banks periodically from the borrowers and by the RBI from the lending banks.)
To make suggestions for prescribing inventory norms for the different industry. (Both in the private and public sector and indicate the broad criteria for deviating from these norms)
To make recommendations regarding resources for financing the minimum working capital requirement.
To suggest regarding satisfactory capital structure and sound financial basis in relating to borrowings.
Committee opinion :
Bank credit is extended on the amount of security available and not according to the level of the operation of the customer.
Bank credit instead of being taken as a supplementary to other source of finance is treated as the first source of finance.
Chore committee:
The RBI in march 1979 appointed another committee under the chairmanship of shri.k.b.chore to review the working of cash credit system in recent years with particular references to the gap between sanctioned limit and the extend of their utilisation and also to suggest alternative type of credit facility which should ensure alternative credit discipline.
To regulate and control bank finance the RBI has been issuing directives and guidelines to the banks from time to time on the recommendation of certain specially constituted committee entrusted with the task of examining various aspects of bank finance to the industry.
Deheijia committee:
The national credit council constituted in October 1968. A study under the chairmanship of shri. V.t.dehejia. to examine the credit needs of industry and trade are likely to be inflated and how such trend could be checked. The bulk of bank credit is short term; the groups enquiry was primarily concerned with the inflation of the short term credit.
The group made suggestion for a change in the leading corporate and other borrowers in formulating financial plans, regulating production on a more rational basis and economising the demand for bank credit.
Tendon committee:
Reserve bank of India setup a committee under the chairmanship of shri.p.l.tandon in July 1974.
The terms of references of the committee were:
To suggest guidelines for commercial banks. (To follow up and supervise from the point of view of ensuring proper use of funds and keeping a watch on the safety of advances.)
To suggest the type of operational data and other information. (That may obtained from banks periodically from the borrowers and by the RBI from the lending banks.)
To make suggestions for prescribing inventory norms for the different industry. (Both in the private and public sector and indicate the broad criteria for deviating from these norms)
To make recommendations regarding resources for financing the minimum working capital requirement.
To suggest regarding satisfactory capital structure and sound financial basis in relating to borrowings.
Committee opinion :
Bank credit is extended on the amount of security available and not according to the level of the operation of the customer.
Bank credit instead of being taken as a supplementary to other source of finance is treated as the first source of finance.
Chore committee:
The RBI in march 1979 appointed another committee under the chairmanship of shri.k.b.chore to review the working of cash credit system in recent years with particular references to the gap between sanctioned limit and the extend of their utilisation and also to suggest alternative type of credit facility which should ensure alternative credit discipline.
Wednesday, December 31, 2008
Its not IT slow down but Economic slowdown
TCS CEO and MD, S. Ramadorai said: “Our growth has been balanced across markets and verticals with a 9.5 per cent sequential growth in our international business during Q2 and we have improved margins significantly.” He added: “New opportunities are emerging and there are signs that our services will play a significant part in the global economic recovery. Our acquisition of Citigroup Global Services will provide another driver for growth.”
S. Mahalingam, Chief Financial Officer, said: “In a quarter where the Indian rupee and global currency has been very volatile, TCS has managed to deliver greater profitablity by achieving significant improvement in operating profits and margins. We have a sustainable business model and we remain focused on managing risks, continued growth and delivering margin improvements going forward.
“Our business model is resilient and we have demonstrated this in Q2 through volume growth, improvement in our offshore leverage, pricing, productivity as well as over 50 new client wins. We have a robust pipeline even in the current environment and our diversified market presence and full services will drive growth in the future,” said N. Chandrasekaran, Chief Operating Officer.
International business grew 9.5 per cent sequentially. While North America posted positive growth, ramp ups from recent large outsourcing wins continue to drive growth in UK and Continental Europe. Balanced growth across new growth markets like Ibero-america, APAC, Middle East and Africa helped compensate for softer growth in developed markets.
The BFSI sector continued to register positive growth despite unprecedented volatility and uncertainty in the global financial markets. The Manufacturing and Retail verticals grew as large transformation deals ramped up, while the Travel, Energy and Media verticals gained traction in new markets. While outsourcing services continued to enjoy strong demand across major markets, traditional application development and maintenance opportunities gained futher prominence in the current economic climate. Engineering services continues to experience strong demand across all markets.
“We have added over 18,000 people in the first six months of this financial year, including over 11,150 campus trainees. We remain on course to meet our annual hiring target of 30,000 to 35,000 professionals and have made 24,500 campus offers for the next financial year,” said Ajoy Mukherjee, Vice President, Head, Global Human Resources.
During Q2, there was a gross addition of 9,682 employees (net 5,328) of which 6,673 were trainees and 1,587 were lateral recruits in India and 1,422 employees were added in overseas subsidiaries and branches. The total employee base is 121,610 professionals and 52% of the workforce has more than three years experience.
The utilization rate (excluding trainees) improved to 81.1% and the attrition rate in Q2 was at 13.2% overall with 12.4% attrition rate in the IT services business and 22.7% attrition rate in BPO. Foreign nationals formed 9.2% of the total employee base and 29% were women.
S. Mahalingam, Chief Financial Officer, said: “In a quarter where the Indian rupee and global currency has been very volatile, TCS has managed to deliver greater profitablity by achieving significant improvement in operating profits and margins. We have a sustainable business model and we remain focused on managing risks, continued growth and delivering margin improvements going forward.
“Our business model is resilient and we have demonstrated this in Q2 through volume growth, improvement in our offshore leverage, pricing, productivity as well as over 50 new client wins. We have a robust pipeline even in the current environment and our diversified market presence and full services will drive growth in the future,” said N. Chandrasekaran, Chief Operating Officer.
International business grew 9.5 per cent sequentially. While North America posted positive growth, ramp ups from recent large outsourcing wins continue to drive growth in UK and Continental Europe. Balanced growth across new growth markets like Ibero-america, APAC, Middle East and Africa helped compensate for softer growth in developed markets.
The BFSI sector continued to register positive growth despite unprecedented volatility and uncertainty in the global financial markets. The Manufacturing and Retail verticals grew as large transformation deals ramped up, while the Travel, Energy and Media verticals gained traction in new markets. While outsourcing services continued to enjoy strong demand across major markets, traditional application development and maintenance opportunities gained futher prominence in the current economic climate. Engineering services continues to experience strong demand across all markets.
“We have added over 18,000 people in the first six months of this financial year, including over 11,150 campus trainees. We remain on course to meet our annual hiring target of 30,000 to 35,000 professionals and have made 24,500 campus offers for the next financial year,” said Ajoy Mukherjee, Vice President, Head, Global Human Resources.
During Q2, there was a gross addition of 9,682 employees (net 5,328) of which 6,673 were trainees and 1,587 were lateral recruits in India and 1,422 employees were added in overseas subsidiaries and branches. The total employee base is 121,610 professionals and 52% of the workforce has more than three years experience.
The utilization rate (excluding trainees) improved to 81.1% and the attrition rate in Q2 was at 13.2% overall with 12.4% attrition rate in the IT services business and 22.7% attrition rate in BPO. Foreign nationals formed 9.2% of the total employee base and 29% were women.
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