Gain and loss

Jul 09, 2012, 07:17 IST | Alex K Mathews

India's debt limit auction saw a tepid response, which might be due to the withholding tax factor. The government had cut the withholding tax from 20 per cent to 5 per cent on foreign investment in long-term infrastructure bonds and on ECBs in sectors like power, airline, roadways etc. But decision to reduce the withholding tax on government bonds might not happen, as the demand for GoI bonds is high. But if this happens, it would be a major move for the funds when it comes t

Telecom sector, which was once the fastest growing sector in the country had shown signs of slowing down after repeated scams leading to authorities keeping watchful eye over them and proposing customer friendly measure hitting the margins of the companies. Moreover increase in the number of mobile service providers increased the competition in the sector. However, the recent reports from TRAI showed that the sector has seen an addition of 8.35 million subscribers with user base growing by 0.91 per cent in May. The number of mobile phone subscribers in India rose to 929.37 million in May with Airtel alone signing 2 million new mobile users. Decisions regarding the spectrum reserve price, clarity on license fees, revenue share and spectrum usage charge are still pending.

RBI in its board meet held in Chennai, came up with some customer friendly suggestions. It wants the bigger banks to come up with some customer friendly interest rate schemes, which will attract the lower income group who are still outside the banking sector. It also pointed out that the relatively small private banks have come up with scheme to attract customers after the deregulation of savings bank interest rate while bigger ones still remain unmoved. RBI is constantly monitoring the situation as to how the inflation would pan out, which will help them take decision on interest rates to support the slowing economy.

The central banks in Europe and China came out with measures to spur growth. China’s central bank cut interest rates for the second time in two months by 31 basis points to 6 per cent, and deposit rates will be reduced by 25 basis points to 3 per cent effective from 6th of July, 2012. Apart from that, the central bank liberalised interest rates by lowering the floor for lending rates to 70 per cent of benchmark rates, from 80 per cent previously. The European Central Bank cut interest rates to a record low. It cut the benchmark lending rate by 25 bps to 0.75 per cent. In addition to cutting the main refinancing rate, the ECB also reduced its deposit rate to zero from 0.25 per cent. ECB moved in to take strong steps as recent economic data showed that even the EU major Germany is seeing signs of economic slowdown. Gold is trading sideways after testing a high of $1623.80 and it is having support at $1572 and $1554. If the US job data is negative for the economy, then the government may take more policy easing measure, which in turn can give lift to gold price to a certain extent. The immediate resistance will be at $1620 and $1641.

Investors can also consider buying Anantraj Industries, Marico Industries, AP Paper, and Reliance Communication for the short term perspective.

Investors can buy Infosys long straddle by buying 2450 call options and put options of the same expiry. The trading position can give profits if the implied volatility of the option moves up. Otherwise large one-sided movement after the results (which is expected to come out on July 12) can give handsome returns to investors. The maximum risk is limited to the premiums we paid for buying the options.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk. 

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