Jan 02

End of the Day Market Commentary

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Indian Stock market surges ahead of public sector banks chiefs meeting with Prime Minister Narendra Modi at gyan sangam meet. The BSE 30 stock Index ends 380 points higher at 27887.90, while Nifty gains over 110 points & ended slightly low to its important level of 8400.

Rally was led by banking stocks as gyan sangam starts from today at Pune where top bankers have gathered for disscussing long-pending reforms for improving efficiency and debt recovery. Bank Nifty hits its all time high of 19118 and became a top gainer sectorial indices.

The HSBC Manufacturing Purchasing Managers’ Index (PMI) rose to 54.5 in December from 53.3 in the previous month, its highest since end-2012, as new orders flooded in and factories kept price increases to a minimum.

BHEL gained 3 percent as it bagged a Rs 3,810 crore contract from Telangana for setting up the newly formed state’s first thermal power project.

Meanwhile USDINR pair witnessed less volatile session as pair ended at 63.29 down by 0.07 points to the previous close.

Among 50 shares of Nifty 47 were Advanced while 3 declined.

Top Nifty Gainers: HDFC (4.19%), JINDALSTEEL (3.70%), ASIANPAINT (3.59%), ICICIBANK (3.04%) and TATAMOTORS ( 3.02%).

Top Nifty Losers: BPCL (-1.14%), M&M (-1.10%), NMDC (-0.057%), RELIANCE (-0.33%) & BAJAJ-AUTO (-0.25%)

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Jan 23

Importance of Hedging

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The financial market has numerous investment instruments and all of them come with their potential of profits and exposure to risk. One of the instruments are classified as derivatives. Derivatives are those instruments that derive their values from an underlying asset. Based upon the underlying, they could be called as equity derivatives, index derivatives, currency derivatives, commodities derivatives, etc. Derivatives not only helps in price discovery but also helps in transferring the risk. The risks could be Diversifiable or systematic and Non – Diversifiable or unsystematic and to minimize this risk fund managers, investors, businesses, banks, etc. uses hedging as a tool.

Hedging is a strategy that immunizes the risk of any potential losses against any negative price movement by transferring it to someone who is willing to accept it. People who take this risk are known as speculators. Speculators create a naked position and expect the market to move in their direction, hence, benefiting them. Their profits and losses are extreme, as they do not protect their position against diversity movement of the prices.

Hedging techniques generally involve the use of a bit of complex strategies using derivatives, commonly futures and options and in some cases hybrid instruments as well. Basically, it is done by creating either a counter position in derivatives or in equity with negative correlation. In this way, the profit of one instrument is offset by the loss of the other, limiting the profits and hence, minimizing the losses.

Hedging primarily uses Futures for security against any diversity in prices. Generally, future is a pre-defined contract whose price is determined by adjusting freight, handling, storage and quality costs, along with the impact of supply and demand factors to the spot price. There is regular change in the prices of spot and futures which is known as the basis, however, the risk arising out of the difference is defined as basis risk and the difference between spot and futures prices is defined as narrowing of the basis.

When the market is characterized by contango, narrowing of basis benefits the short hedger and a widening of the basis benefits the long hedger, whereas, in a market characterized by backwardation, a narrowing of the basis benefits the long hedger and a widening of the basis benefits the short hedger. However, if the difference between spot and futures prices increases (either on negative or positive side) it is defined as widening of the basis. The impact of this movement is opposite to that as in the case of narrowing.

We can understand Hedging by an example: An investor buys 1500 shares of XYZ company at Rs. 309 for a total of Rs. 4,63,575, with a view of rise in share prices over the next few months. But there is a fear of fall in share prices due to various circumstances. As his fears, the market falls and he would incur loss so to avoid this diversity against the price movement, he can hedge this position by selling Nifty Future.

First, he needs to consider the risk associated with the shares in respect to the Index, this is known as Beta. Beta is calculated by dividing the difference in rate of return of the share minus the risk free trade by the Index rate of return minus the risk free trade. Now supposingly, the Future of Nifty is trading at Rs. 5778 and the beta of the share is calculated to 0.81, to hedge the position he needs to sell Rs. 3,73,645 worth of Nifty Future i.e. approximately 64 units. Since, Nifty Index contains 50 units in 1 lot, he can either sell 1 lot of Nifty Future or 2 .If he over-hedges and sells 2 lots and the market falls 10%, then notionally, he is at a profit of Rs. 577.8 per lot and loss of Rs. 24.90 per share but an overall profit of Rs. 20,420. In this way the investor not only saved himself from a total loss of Rs. 37,364 instead earned Rs. 20,420 as his expectations.

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Jul 11

Is Youngest Nation of the World Short on Talent?

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Globalization is leading to increasing international standardization of educational challenges and systems. International organizations increasingly emphasize a largely common program of competence development and lifelong learning and the widespread adoption of international conventions that form the normative basis for the competencies.

Work practices associated with increased employee involvement – such as the introduction of high-performance work organization involving devolved decision-making, and reliance on team-based systems – are perhaps the most important of the management practices affecting skill requirements. Self-managed teams in particular transfer management skills to front-line workers as they are exposed to the tasks other team members are performing.

Today’s competitive business environment continues to increase pressure on employers as they seek more cost structure flexibility while negotiating increasingly volatile economic cycles. Business leaders are confronting the challenge of executing business strategies and remaining competitive while simultaneously dealing with value/margin compression amid ongoing economic uncertainty.

As is becoming clear in the Human Age, securing access to the increasingly finite pool of individuals with in-demand skill sets will be fundamental to business success.

What is talent shortage?

Innovative practices at the workplace and competitive business environment are changing the demand for the types of skills needed on the job and organizations are finding it tough to meet new demands of changing economies, specifically the shortage of talented or skilled workforce.

From an economic perspective, the concept of shortage poses something of a problem. The term talent or skill shortage sometimes used to refer to a shortfall in the total number of individuals in the labour force, and sometimes denotes the possible mismatch between workers and jobs in the economy. It is defined as a situation where the numbers of workers required with a particular skill exceeds the number available in that skill area at current levels of remuneration.

Some survey has been conducted highlighting this glocal (global+local) predicament of organizations, which we will be referring ahead hereunder in order to understand the gravity of the talent shortage.

Manpower Group Talent Shortage Survey 2013

The first survey we will be referring is The Annual Talent Shortage Survey by human resource firm Manpower Group, recently surveyed over 38,000 employers across 42 countries and territories. The 2013 survey is the eighth in the series and identifies the proportion of employers who report difficulty filling positions in their organization. Employers are also asked to gauge the degree of impact talent shortages have on their organizations and which strategies they are using to overcome the skills gap.

The global results of Manpower Group’s Talent Shortage Survey reveal 35% of employers worldwide are reporting shortages, the highest level since prior to the global economic crisis. Japan has one of the gravest shortage situations with 85% employers having difficulty in finding talent. Report further revealed that apart from employers in Japan, those in Brazil (68%) are having the greatest difficulty finding the required talent, while those in South Africa (6%), Ireland (3%) and Spain (3%) report the least difficulty.

Additionally, the proportion of employers telling that talent shortages impact their client-facing abilities to a high or medium degree has swelled to well over half (54%). In fact, the increasing number of employers reporting a high or medium impact might be viewed as an encouraging sign. The uptick indicates more employers recognize the need for access to top talent; in an uncertain business environment the right skills are essential to leveraging opportunities once they appear.

The research shows that globally the roles most difficult to fill are skilled trades’ workers, engineers and sales representatives, which are unchanged from last year. It also showed that employers reported that accounting and finance and management positions are also increasingly hard to fill.

Indian Scenario

Report said that worldwide talent shortage has local impact with 61% of employers in India struggling to fill jobs in contrast to the Global Average standing at 35%. The survey report suggests that while Japan faces the critical situation in finding appropriate talent at 85%, India on the other hand observes that 61% of employers struggle to fill jobs indicating that talent shortage has been an existent problem, the situation is expected to turn worse as this problem intensifies around the world.

According to the global results, India and China are the highest-ranking countries for off shoring, ranking in first and second place, respectively. However, the study said that these countries also show some of the largest increases in talent shortages between the 2009 global low-point and the latest survey. For example, in 2009, 20% of employers in India reported difficulty filling jobs. Four years later, the figure has increased to 61%.

The study further said that employers in India have the most difficulty filling jobs in accounting and finance, IT staff and engineers, as compared to last year when IT staff, marketing/public relations/communication and engineers were the most difficult positions to fill.

The results of our research also indicate that a growing number of employers acknowledge the peril of conducting business when forward-looking talent management strategies are put on hold. As a result, nearly eight out of ten employers surveyed tell us they are taking steps to grow the talent pool and ensure access to the right skills that will help drive business results.

Aspiring Minds’ National Employability Report – Graduates 2013

India graduates more than five million graduates every year. Engineers comprise a small (but significant) part of it at around six hundred thousand, whereas the rest take up a variety of three or four year bachelor degree programs. Whereas, these were conventionally limited to Arts, Commerce and Science, a number of new programs have come up in areas of business management, hospitality, fine arts and biotechnology.

Conventionally and currently, higher studies have been considered a path to a respectful and meaningful employment. As we continue to expand capacity and diversity of courses, it is important to understand what proportion of graduates graduating every year are actually employable in India’s knowledge economy.

Delving deeper into the matter, Aspiring Minds, an employability solutions company, conducted a national audit of employability of three-year Bachelor’s Degree graduates and release the findings titled as ‘Aspiring Minds’ National Employability Report’. The survey included 60,000 students from colleges across India, slated to graduate this year.

Highlights of the Report

‘That graduation is the stepping stone to the employment market holds no good in present times’ is the highlighting fact of the report. Report reveals an astonishing fact that as many as 47% graduates in India are not employable for any industry role. Their lack of English language knowledge and cognitive skills were identified as the major obstacles to their suitability in the job market.

India churns out tens of thousands of graduates each year but less than half of them are “employable” or possess the basic skills necessary for any industry role. The alarming statistics of nearly half of the country’s graduates not being employable in the knowledge economy needs great attention with interventions at both the school and higher education levels for improving basic skills of students as well as renewing the focus on imparting vocational training alongside theoretical learning.

According to the report, the employability of graduates varies from as low as 2.2% in roles such as corporate communications/content development and 2.59% in accounting to 15.88% in sales-related jobs and 21.37% for roles in the business process outsourcing (BPO/ITeS) sector. Most of the graduates (35.95%) were found suitable for clerical/secretarial roles.

For an analyst’s role, close to 84% graduates were found to lack the right levels in cognitive ability. 90% graduates did not have required proficiency in English communication.

Another area of concern is that many graduates from accounting and information technology backgrounds remain ‘invisible’ to potential recruiters since they do not belong to the top colleges usually preferred by companies. 41% of graduates employable in accounting roles hail from colleges beyond the top 30% colleges, whereas for the IT services sector this percentage is 36%.

The employability varies from role to role based on varying degrees of proficiency required in language and cognitive skills and despite being employable, these students have no way to signal their employability to recruiters who end up recruiting only from reputed colleges and universities.

System Needs Overhauling

This existing system, apart from creating economic inefficiency, also breeds unfairness for the students. An effective means to tackle it could be to devise and employ a scalable certification to ‘discover’ the employability of students across the nation.

Since a graduation degree is considered a pathway to a job in the knowledge economy, a renewed focus on vocational training should be re-emphasized, said the report.

The objective of these skill-oriented vocational trainings should be creating a workforce empowered with the necessary and continuously upgraded skills, knowledge and internationally recognized qualifications to gain access to decent employment and ensure India’s competitiveness in the dynamic global market. It must aim at increasing the productivity and employability of workforce (wage and self-employed) both in the organized and the unorganized sectors.