English is a funny language-VRK100-23Sep2011

Hyderabad, July 23, 2011

“I can talk English, I can walk English, I can laugh English because English is a very funny language,” thus spoke Amitabh Bachchan, veteran Bollywood actor, in his 1982-film ‘Namak Halaal.’ Such dialogues endeared him to millions of Indians in his hey days. No wonder his dialogues remain eternal!

This famous dialogue of Amitabh can be watched on YouTube at:

http://www.youtube.com/watch?v=XSrMb8IBsTQ

There are several versions of English the world over. Two main types are American English and British English. In India, we have our own Indian English. If we don’t use our language properly, we can also find ourselves in such funny situations. Language defines a person. With increasing globalisation, businessmen, travellers and students are exposed to several hues of English. A week ago, Infosys founder and chief mentor, N R Narayana Murthy, had exhorted the youngsters to improve their written and spoken English.

Foreigners would find it amusing if we use the word ‘prepone’ instead of ‘advance,’ because there is no such word as ‘prepone’ in English language. However, this word ‘prepone’ as the opposite of postpone is widely/wrongly used by Indians. In India, we have been mostly using British English even though, of late, we have been veering towards American English.

George Bernard Shaw once said: "England and America are two countries separated by a common language." However, we need to be aware of the main differences among the different flavours of English language. The important differences are in spelling, pronunciation, grammar, vocabulary and usage.

More and more people, including the Brits, are now being influenced by American English due to the overwhelming use of social media, like, Facebook, Twitter, and others in our daily lives. All the social media are from the US. The world’s most popular computer software MS Office also follows mostly American English. American English is racy, vibrant and more flexible. Whereas, British English is considered conservative.

In India, we love Good Day biscuits, but in the US we need to say Good Day cookies. We say ground floor whereas Americans start with first floor. In India, if we write 11/7/2011 it means July 11, 2011. But, in the US it means November 7, 2011. Americans can’t walk on ‘pavements.’

In British English r is pronounced before a vowel only, whereas in American English, r is pronounced in all positions in a word. For example, in British English, first r only is pronounced in ‘river,’ whereas in American English both the first r and the last r are pronounced. News is pronounced like ‘nyooz’ in British English, whereas in American English it can be pronounced like ‘noose.’ Watching television channels, BBC or CNN, may help in improving our knowledge of English.

Spelling differences:

British/Indian English *	American English		British/Indian English *	American English
Noun	Noun		Noun	Noun
aeroplane	airplane		nappies	diapers
aluminium	aluminum		notice board	bulletin board
autumn	fall		number plate	license plate
bank cheque	bank check		parcel	package
behaviour	behavior		pavement	sidewalk
biscuits	cookies		petrol	gasoline or gas
bonnet	hood		plough	plow
catalogue	catalog		pram	baby carriage
cemetery	memorial park		programme	program
centre	center		pyjamas	pajamas
chemist	druggist		race-course	race-track
clamour	clamor		railway	railroad
colour	color		right-angled triangle	right triangle
cutting (newspaper)	clipping		rubbish	junk
dynamo	generator		sceptic	skeptic
flat	apartment		silencer (of a car)	muffler
flavour	flavor		single ticket	one way ticket
glamour	glamor		speciality	specialty
hairdresser	beautician		sulphur	sulfur
honour	honor		sweets	candy
interval	intermission		tap	faucet
jewellery	jewelry		theatre	theater
leader	editorial		torch	flashlight
lift	elevator		tram	street car
lorry	truck		traveller	traveler
maths	math		trunk	boot
metre	meter		tyre (of a car)	tire (of a car)
motor car	automobile		waste paper basket	waste basket
motorway	highway		windscreen	windshield
mould	mold		woollen	woolen
moustache	mustache		* At times, Indians follow American words

British/Indian English	American English
Verb/sentence	Verb/sentence
	to meet with someone
to meet someone
got (past participle of get)	got or gotten (past participle)
to stay at home	to stay home
programmed	programed
to analyse	to analyze
I'll write to her	I'll write her
I'll talk to him	I'll talk with him
to black shoes	to shine shoes
to protest against something	to protest something
signalled	signaled
travelling	traveling
worshipped	worshiped
Have you got children?	Do you have children?
levelled	leveled

There have been many more divergences between them. Currency notes are called bills, in the US, for example, one dollar-bill. In Britain, it is one-dollar note. English is a universal language. It is a sponge language. It has absorbed many words from other languages. Appreciating such nuances in the language will make us a better person.

Finally…

Famous British author Oscar Wilde wrote: "We have really everything in common with America nowadays except, of course, language."

References:

1. “A University Grammar of English” by R Quirk and S Greenbaum

2. The Hindu

Personal note:

The author is a prolific writer with interests spanning from financial markets, book-reading, English and wildlife. This article on English is inspired by N R Narayana Murthy, who, a week back, exhorted youngsters to improve their written and spoken English.

Cash Management Bills and Government Borrowing-VRK100-21072011

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Cash Management Bills

Rama Krishna Vadlamudi, HYDERABAD July 21, 2011

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or,

MY BLOG: http://www.ramakrishnavadlamudi.blogspot.com/

Reserve Bank of India (RBI) had, on July 21st, 2011, issued a press release stating that they were advancing the auction of Government securities to third week of August 2011. This auction was advanced by around five weeks. This advancement has added significance in the light of the fact that the Government has been borrowing more money through the Cash Management Bills (CMB) route during this calendar year. As given in the table below, the total borrowing through CMB route since April 1st of this year is Rs 58,000 crore. Of course, this gets repaid in shorter period of less than 91 days. This CMB borrowing is in addition to money raised through the normal 91-day, 182-day and 364- day Treasury Bills.

CMB for days Auction date Total amount (Face value) Rs crore YTM %

56                   21-Jul-11         4,000                                          8.0500

56                   18-Jul-11        8,000                                           8.0500

42                  4-Jul-11           8,000                                          8.1580

35                  28-Jun-11        6,000                                         8.0923

77                   5-May-11       6,000                                          8.0017

77                  29-Apr-11       6,000                                         7.6588

49                  21-Apr-11       6,000                                         7.3722

70                  20-Apr-11       6,000                                         7.3500

63                  19-Apr-11       8,000                                         7.2743

TOTAL                                58,000

The Government has been facing some problems in keeping the fiscal deficit within the target set in the Budget 2011-12. The GDP growth is expected to decelerate this year and this in turn may adversely affect tax collections; even though the indirect tax collections between April-June 2011 were strong. The Government may face difficulties of raising the budgeted Rs 40,000 crore through the disinvestment programme owing to weak stock market, which has been languishing in a range of 17,000-19,000 for quite some time. This implication is that Government bond prices may fall and yields may go up due to the difficult fiscal situation. (Bond prices and yields move in opposite direction). The 10-year benchmark security yield is now quoting around 8.27 per cent and this yield may move up by another 20 to 25 basis points in the next few months.

NB: The following few pages explain the importance of cash management bills (CMB) with a live example of the cash management bill.

Governments, in general, are hungry for money. They always find new methods of raising money from the public, be it debt or taxes. Central Banks usually act as money managers and raise money on behalf of the Governments.

To meet temporary cash shortages on its account, Government of India had proposed to introduce a new instrument called Cash Management Bills, which are short-term in nature. Even though the guidelines for issuance of Cash Management Bills were issued in August 2009, the Government of India had started using the new instrument only in the second week of May 2010.

Let us examine the contours of this new instrument:

What is a Cash Management Bill?

A Cash Management Bill is a Government Security through which Government of India raises money in order to meet its temporary cash shortages. It is issued for a maturity of less than 91 days. It is a new type of government debt paper. Reserve Bank of India (RBI) acts as a money manager and issues these Cash Management Bills on behalf of Government of India.

Government of India (GOI) had, along with RBI, issued guidelines in August 2009 itself for the Cash Management Bills. But, it started using the new instrument since May 2010 when the first auction was conducted by RBI on behalf of GOI.

The US Treasury also issues Cash Management Bills for maturities of less than six months.

What are the salient features of Cash Management Bills?

 The maturity period will depend upon on Government’s temporary cash needs. But, the tenure of the Bills will be less than 91 days. (Effectively, the tenure can be between one day and 90 days)

 They will be issued at a discount to the face value, similar to Treasury Bills

 The settlement of the auction will be T+1 basis

 The Non-Competitive Bidding Scheme for Treasury Bills will not be extended to the Cash Management Bills

 They will be tradable and qualify for ready forward (repo) facility

 Investment in the Bills will be reckoned as an eligible investment in Government Securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949

 It will be an integral part of the Money Market

What is the difference between a T-Bill and a Cash Management Bill?

Debt obligations of the government that have maturities of one year or less are normally called Treasury Bills or T-Bills. Treasury Bills are short-term obligations of the Treasury/Government. In India, T-Bills are usually issued for maturities of 91, 182 and 364 days.

The Cash Management Bills will have the generic character of Treasury Bills. Even though Cash Management Bills will be treated as Government of India Treasury Bills technically, there is a one big difference in practice with regard to maturity period. That is:

A T-Bill can be issued for a maturity period of between 91 days and 364 days

A Cash Management Bill can be issued for maturity of between 1 day and 90 days

However, both these instruments will have the following similarities:

 These are instruments issued at a discount to the face/par value

 Both are money market instruments and form part of the money market

 Both of them are zero-coupon instruments

 They are tradable and offer ready forward (repo) facility

A Live Example of a Cash Management Bill:

A Cash Management Bill is essentially a zero-coupon instrument in the sense that it does not carry any interest rate (coupon). As a zero-coupon instrument is issued at a discount, the implicit interest for the investor (holder) will be the difference between the par value and the discounted price. The interest on this zero-coupon instrument is paid at the end of the maturity period including the price paid at the time of purchasing the instrument.

Let us see a real-life example. RBI conducted an auction for Cash Management Bills (28 days maturity) on May 18, 2010 for an amount of Rs 6,000 crore. According to the bids received from investors (typically, banks, insurance companies and pension funds), the cut-off price was set at Rs 99.70, which is the discounted price for a par value of Rs 100. The implicit interest is Re 0.30 (Rs 100 – Rs 99.70). On the date of investment, the investor would pay an amount of Rs 99.70 to RBI for a par value of Rs 100. After 28 days from the date of investment, the investor will receive par value of Rs 100 (interest of Re 0.30 plus price paid Rs 99.70) from RBI on June 16, 2010.

How is the interest calculated in percentage terms in the above example? The investor received an interest of Re 0.30 for an investment of Rs 99.70 for a holding period of 28 days. The interest in percentage terms is:

    Re 0.30          365
= ------------- x ------ x 100 = 3.9225 % (rounded off)
   Rs 99.70 28

The implicit rate of interest is 3.9225 per cent for this 28-day Cash Management Bill. Technically, this is called yield to maturity (YTM).

                                                 - - -

References:

1. RBI circular dated August 10, 2009

2. RBI press releases dated May 10, 2010 and May 17, 2010.

3. http://www.rbi.org.in/

Disclaimer: The author’s views are personal. This article was originally published on SCRIBD on June 15, 2010 and updated on July 21, 2011.

My documents relating to debt market can be read at:

http://www.scribd.com/my_document_collections/2333349

Government Securities Market & Bond Duration Management

http://www.scribd.com/doc/20833001

Bond Basics and All You Wanted to Know about Bonds

http://www.scribd.com/doc/20618363

Good Liquid Funds or Money Market Mutual Funds in India

http://www.scribd.com/doc/23073415

Market Outlook-VRK100-18072011

Market Outlook

Rama Krishna Vadlamudi, HYDERABAD July 18, 2011

www.scribd.com/vrk100

MY BLOG: http://www.ramakrishnavadlamudi.blogspot.com/


Driven by negative sentiment about Infosys’ first quarter results and weak industrial growth numbers, the stock markets were volatile last week with the Sensex shedding close to 1.5 per cent and ended at 18,562 for the week. The Nifty closed at 5,582. The industrial growth, represented by the Index of Industrial Production or IIP, has dipped to 5.6 per cent in May 2011 due to a sluggish growth in manufacturing and capital goods sectors. The 5.6 per cent growth is much lower compared to 8.5 per cent growth recorded in May last year. The investment cycle in India is experiencing a slowdown due to a variety of factors.

First Quarter results

For the April-June 2011 quarter, Infosys Limited has shown a revenue growth of 3.2 per cent and net profit growth of minus 5.3 per cent compared to January-March 2011 quarter. Even though the results matched the guidance given by the company, the market was clearly disappointed with the results and the stock was down 4 per cent the day the results were announced. The disappointment stemmed from the fact the company did not revise its estimates for the full year 2011-12. In contrast, TCS, India’s leading IT company, has posted good results with the net profit for the first quarter soaring by 27 per cent compared to the same quarter last year. The first quarter revenues shot up by 31 per cent. Unlike Infosys, TCS does not give any forecast of its revenues or profits. Among other companies, Bajaj Auto has posted good results for the first quarter with net profit rising by 21 per cent year-on-year. Sales turnover was up 23 per cent for the quarter.

Robust tax collections

Even as the industrial production is showing signs of weakness, the indirect tax collections have gone up by 30 per cent during first quarter of this fiscal. Between April-June 2011, the indirect tax (customs duty, central excise, and service tax) collections were at Rs 95,800 crore compare to Rs 73,600 crore last year. With such strong collections, the Government is confident of meeting this year’s tax targets which augurs well for the fiscal situation. However, the tax collections will be adversely impacted by the Government’s latest decision to reduce taxes on crude oil and petroleum products. Another negative could be the large increase in tax refunds this year.

Gold’s dream run continues

The rally in international gold prices continues unabated. Gold rose to $ 1,595 per ounce on Thursday before closing at $ 1,583 at the weekend. Silver rose to $ 39.4 per ounce before closing at $ 38.2. Gold prices are mostly driven by investment demand rather than jewellery. The sovereign debt crisis in Greece, Portugal and other countries is contributing to the gold’s investment demand. The London Metal Exchange (LME) has doubled delivery size for top warehouses with a view to easing backlogs in Detroit and moving aluminium faster. It is interesting to note that many LME-approved warehouses in Detroit are owned by Metro International, a Goldman Sachs group company.

Money managers for EPFO

The Employee Provident Fund Organisation (EPFO) has appointed State Bank of India, ICICI Securities Primary Dealership, Reliance Capital and HSBC Asset Management Company as fund managers to manage its Rs 3 lakh crore corpus for the next three years. SBI will manage 35 per cent of the corpus, ICICI Securities PD 25 per cent, and the other two will manage 20 per cent each.

India is at 62nd place…

According to the 2011 edition of the Global Innovation Index, India is ranked 62nd in innovation. For the year 2010, India’s rank was 56th and for 2009, it was 41st indicating that India has been losing on innovation to other competitors.

For 2011, Switzerland is at the top followed by Sweden, Singapore, Hong Kong and Finland. The important parameters for computing the innovation index are: institutions; human capital & research; infrastructure; market sophistication; and business sophistication.

Global cues

In the next few weeks, the US congress will decide on raising the US debt level. The present debt limit is $ 14.3 trillion. There are some differences over raising the debt level between the Republicans and the President. If they fail to sink their differences, the country may plunge into an economic crisis. Meanwhile, Moody’s Investor Services has warned that it would review the US rating, currently at Aaa since 1917, if the lawmakers do not raise the debt limit. Standard & Poor also gave a similar warning by putting the US on the negative watch list.

The outlook

During the fourth week of this month, the Reserve Bank of India will be reviewing its interest rate policy. It is expected that RBI will raise the policy rates by another 25 basis points. With rising interest rates, auto sales have slowed down. The real estate sector is also listless. More quarterly results are expected next week. As such, the volatility in stock markets will continue for the time being.

Top Central Bankers

Managing Director, International Monetary Fund Christine Lagarde

President, World Bank Robert B Zoellick

Governor, Bank of England Sir Mervyn King

Chairman, US Federal Reserve Ben Shalom Bernanke

President, European Central Bank Jean-Claude Trichet

Governor, Bank of Japan Masaaki Shirakawa

Governor, Reserve Bank of India Duvvuri Subbarao

Disclaimer: The author’s views are personal. The author has a vested interest in the stock markets. Before taking investment/trading decisions, consult your personal certified financial planner/adviser.

Market Outlook-VRK100-11072011

Market Outlook

Rama Krishna Vadlamudi, HYDERABAD July 11, 2011

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MY BLOG: www.ramakrishnavadlamudi.blogspot.com

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When you thought the markets were poised for a breakdown, just the opposite happened. During the middle of June 2011, the sentiment on Indian equities was very weak and most of the market people expected the stock indices to go lower. But, in a matter of one week, the sentiment turned positive suddenly, following a couple of events. When I wrote the ‘Market Outlook’ almost a month ago, I suggested that market would climb down from 18,000 Sensex level to 17,000 levels. Against my expectation, the Sensex rebounded and closed at 18,858 last week.

During the first week of this month, equities staged a rebound led by inflows from Foreign Institutional Investors (FIIs) following the Government’s decision to hike prices of heavily-subsidized diesel, kerosene and LPG. Added to the positive sentiment were: the sharp decline in international crude oil prices; and the decision by the International Monetary Fund (IMF) and the European Central Bank (ECB) to give an aid of USD 170 billion (120 billion euro) to Greece to help it out of the sovereign debt crisis.

What investors ignored

Investors, rather traders, seemed to have ignored a variety of factors. The south-west monsoon seems to be weak with the India Meteorological Department (IMD) suggesting that rainfall so far is deficient in several met sub-divisions of the country. The IMD estimates that rainfall, during this kharif season, may be five per cent below the long-term average. Inflation is at elevated levels though food inflation seems to be on the bend. Food inflation is down to 7.6 per cent due to a high base effect of last year. The policy drift in India continues with the government not being able to go ahead with policy reforms.

Commodities

Commodities prices have come off their peaks in the last one month. After touching a low of $ 90 per barrel, the Nymex crude oil rebounded to 98-level before ending the week at $ 96 per barrel. The upheaval in Libya, Syria and other Middle East countries and the supply-demand gap are likely to drive crude oil prices to higher levels in the following months. Gold prices rose to $ 1,530 per ounce while silver ended the week at $ 36 per ounce. In Mumbai, gold was quoting at around Rs 22,000 per 10 gm and silver at Rs 54,200 per kg. World cotton and wheat prices have fallen 20 per cent off their recent peaks.

Global cues

The US unemployment rate rose unexpectedly in June 2011 from 9.1 per cent to 9.2 per cent. The US jobs data softened the commodities prices. The European Central Bank raised its benchmark interest rate from 1.25 per cent to 1.5 per cent for the second time this year. China raised its benchmark interest rates for the third time this year from 6.31 per cent to 6.56 per cent. Europe continues to be troubled with its sovereign debt crisis prompting Moody’s to cut Portugal’s credit rating by four notches to ‘junk’ status.

Amidst all the gloomy news, the Nikkei – Japanese benchmark stock index, crossed 10,000 last week. Interestingly, the Nikkei was at 10,000-level when tsunami hit Japan on March 11, 2011. It is expected that Japanese companies are recovering well from post-tsunami supply chain disruptions.

Foreign Flows

Foreign Institutional Investors (FIIs) have brought in USD 1.3 billion or Rs 5,700 crore in this month alone to the Indian stock markets. The total inflows from FIIs are at USD 2.7 billion or Rs 11,700 crore for this calendar year, as per SEBI data. The Indian stock prices are heavily influenced by FII flows.

As per Reserve Bank of India (RBI) data, foreign direct investment (FDI) in India has fallen by 62 per cent to $ 7.1 billion in 2010-11 from $ 18.8 billion in 2009-10. The steep fall is attributed to a variety of reasons, like, weak investment climate in India following the issues surrounding corruption which has dented country’s image among foreign investors, slow government decision making in business deals such as Vedanta Resources acquisition of Cairn India, and policy issues in government’s new exploration licensing policy (NELP).

India’s Exports and Imports

India’s exports have been growing rapidly in the last six months. Data from the commerce ministry shows that merchandise exports in June 2011 grew strongly at 46 per cent to $ 29 billion led by engineering, oil, gems & jewellery, and cotton yarn; while imports rose to $ 42 billion led by crude oil, precious metals, gems and machinery.

Current account deficit (CAD) for 2010-11 stood at $ 44.3 billion representing 2.6 per cent of India’s gross domestic product (GDP). This is much higher than the $ 38.4 billion deficit, 2.8 per cent of GDP, recorded in 2009-10.

Hauling over the coals

The draft mining bill proposed by the government spooked the stock price of Coal India. The bill proposed that Coal India should share 26 per cent of its net profit with the people affected by the project. The proposal will adversely affect the profits of Coal India in future. As a result, the stock price of Coal India nosedived by eight per cent on July 9th and closed at Rs 362 per share. The draft bill is likely to negatively impact others firms, like, NMDC and Sesa Goa, though the impact on these iron ore miners may be lesser compared to Coal India. A peculiar feature of Indian stock market, of late, has been that whenever the Government eyes a particular sector, the stocks in that particular sector are falling heavily. Markets, in general, do not like government intervention or control/regulation. Previously, the telecom sector was beaten down in a similar fashion.

Banking results

Banks were the first to announce their first quarter (April to June 2011) results heralding the start of results season, which opened on a positive note. HDFC, the country’s biggest housing company, clocked a 22 per cent rise (quarter on quarter) in net profit to Rs 1,176 crore boosted by a healthy loan growth of 22 per cent. HDFC says the demand for housing loans is strong despite rise in interest rates. Mid-sized private sector bank, IndusInd Bank has shown a good 52 per cent rise in net profit spurred by healthy growth in non-interest income and reduced interest costs.

In other developments, State Bank of India, India’s biggest lender, has raised its base rate and benchmark prime lending rate (BPLR) by 25 basis points (0.25 per cent) each to 9.5 per cent and 14.25 per cent respectively. SBI raised deposit rates also. Several banks, including ICICI Bank, IOB and Corporation Bank, have increased their lending rates in the last one month following a series of rate hikes by Reserve Bank of India.

Banking sector seems to be bogged down with large spike in bad loans prompting the finance minister, Pranab Mukherjee to direct the public sector banks to exercise due diligence in sanctioning of new loans and taking necessary steps for recovery in bad loans. It is no wonder that the stock market finds the stocks of public sector banks unattractive compared to private sector banks. Media reports suggest that SBI is planning to raise overseas debt of $ 5 billion as its biggest stakeholder, Government of India, seems to have no interest in investing in SBI through rights issue. The government is facing funds crunch as fiscal deficit’s target for the current financial year appears to be a difficult achievement.

Reserve Bank of India has imposed a penalty of Rs 25 lakh on Citibank for violating Know Your Customer (KYC) norms. Earlier this year, the foreign bank’s relationship manager reportedly duped several corporate customers. Due to the fraud, the bank’s customers had lost hundreds of crores of rupees.

Insurance

The regulator of insurance sector, Insurance Regulatory and Development Authority (IRDA) has imposed a penalty of Rs 70 lakh on SBI Life Insurance Company for violation of guidelines on group insurance policies.

Direct Cash Transfer

The Central Government is proposing to transfer subsidies, like, fertilizers, kerosene, cooking gas, and food grains worth thousands of crores, to the needy consumers directly. As per a task force, headed by Nandan Nilekani, the government will directly transfer cash to the consumers with the help of Aadhar-linked bank account. Aadhar is a unique identification number being given by the Unique Identification Authority of India (UIDAI), a government body. The UIDAI has already issued one crore Aadhar numbers in the last nine months.

What lies ahead?

The continuing uncertainties in Europe over sovereign debt will keep the prices of commodities under check. Other factors that are negative for commodities are the unexpected rise in unemployment rate in the US and rising interest rates in China and India, two of the top importers of raw materials. Even the ECB is going to raise its interest rates further in future. However, due to fundamental factors and the political unrest in the Middle East, crude oil is likely to go up.

The important stock indices around the world have rallied in the last one or two weeks. Last week, the Sensex closed at 18,858 and the Nifty at 5,661. Last week’s closing levels for world indices are: Dow Jones – 12,657; S&P 500 – 1,344; Nasdaq – 2,860; FTSE 100 – 5,991; Dax – 7,403; Hang Seng – 22,726; and Nikkei – 10,138.

In the short term, Indian stocks are looking to be in an uptrend led by strong FII inflows. The quarterly results also may give some positive surprises, especially from private sector banks, pharma, metals and consumption-oriented sectors. However, the long term trend for Indian stocks is hazy due to concerns on problems being faced by the central government, weak south-west monsoon, inflationary concerns and the possible decline in GDP going forward. Overall, these are interesting times for Indian stock markets.

Disclaimer: The author’s views are personal. The author has a vested interest in the stock markets. Before taking investment/trading decisions, consult your personal certified financial planner/adviser.