Indian Stock Markets With Joygopal Podder: No fare hikes, 52 new trains announced in India's rail budget

Wednesday, February 24, 2010

No fare hikes, 52 new trains announced in India's rail budget

Passengers were spared a fare hike, freight rates were lowered for some essential items and 52 new trains announced in India's rail budget for 2010-11 that promises a new model to promote private investment in expanding the world's second largest railroad network under a single management.

'We have saved Rs.2,000 crore ($40 million) because of the hard work of our employees and austerity measures. There will be no increase in passenger fares,' Railway Minister Mamata Banerjee told the Lok Sabha, the lower house of Parliament.

'Our objective is inclusive growth,' she said in her marathon 110-minute speech, adding that her main consideration was social responsibility of Indian Railways rather than mere commercial viability of various projects.

Accordingly, she also announced a cut in freight tariff for kerosene and grain, upgrade of 94 stations, 522 diagnostic centres, target of 1,000 km new lines, 10 auto ancillary hubs, several high-speed passenger rail corridors, six new drinking water plants and housing for all railway staff in 10 years.

'We have set our goals in the Vision 2020 document and we will achieve it,' the minister said, referring to the document unveiled in December that has targeted making over 30,000 km of routes into double or multiple lines against 18,000 km today.

'It is a fact that administrative and procedural delays discourage potential investors. We will need to overcome this. I am setting up a special task force for this,' said the minister, dressed in a white and green sari and her trademark rubber slippers.

'Special structure will be created for the new business model,' she said, emphasising: 'But we will not privatise railways. Indian Railways will remain with the government.'

At the same time, she also asked the private sector to refrain from what she called the 'typical negative approach' while dealing with the Indian Railways. 'I am sorry to say this -- this mindset has to change.'

She, nevertheless, said a special task force will be set up to clear proposals for investments within 100 days and that policy guidelines in this regard will be made easy, simple and investment friendly to attract funds to the sector.

Prime Minister Manmohan Singh, United Progressive Alliance (UPA) chairperson Sonia Gandhi, Leader of Opposition Sushma Swaraj and Finance Minister Pranab Mukherjee were among those in the house, presided over by Speaker Meira Kumar.

This was Banerjee's fourth budget of her career as railway minister and the second for the United Progressive Alliance (UPA) government in its second straight term after being voted back to office in May last year.

According to Banerjee, 117 out of the 122 new trains promised in her last budget will be flagged off by March 31, within a matter of seven months, which was a commendable effort.

Seeking to give safety issues due consideration, the minister said there were a few cases of unfortunate accidents in the past and said these would be prevented by adopting the highest level of technology and manpower training.

'Within five years, we will have 13,000 out of unmanned level crossings manned - 3,000 this fiscal and 1,000 in the coming fiscal,' she said, referring to the high number of accidents at such crossroads.

The budget came against the backdrop of the share of Indian Railways in the movement of goods, vis a vis truckers, falling from 24.07 percent in 2001-02 to 20.89 percent in 2008-09 and further to 19.32 percent in the first 10 months of this fiscal.

Yet, the minister said this fiscal will end with a net profit of Rs.1,328 crore. She added that the freight target for the coming fiscal will be 944 million tonnes.

Indian Railways runs the world's second largest network under a single management with a network of 64,099 route km to ferry 18.9 million passengers on 7,000 trains daily from 6,906 stations. It also runs 4,000 freight trains to carry 850 million tonnes of cargo.

The main highlights of the 2010-11 railway budget include:

-- No increase in passenger fares
-- Rs.100 reduction in freight per wagon for fertilisers and kerosene
-- Free travel for cancer patients in 3rd AC classes
-- Cost-sharing in public-private-partnership (PPP) mode in some gauge-conversion projects
-- Further extension of Kolkata Metro on priority basis; stations to be named after Bahadur Shah Zafar, Tagore family
-- Karmabhoomi trains to be introduced for migrant labour
-- New Janmabhoomi train between Ahmedabad and Udhampur
-- Special 'Bharat Teertha' train to be run around India to commemorate Rabindranath Tagore's 150th birth anniversary
-- Railway line to be extended from Bilaspur in Himachal Pradesh to Leh in Jammu and Kashmir
-- Andaman and Nicobar Islands to get railway line from Port Blair to Diglipur
-- Sikkim capital Gangtok to be connected by rail from Rangpo
-- 2011 being 150th anniversary of Rabindranath Tagore, special train to be run from West Bengal to Bangladesh
-- Gross earnings in 2009-10 estimated at Rs.88,281 crore
-- Working expenditure in 2009-10 estimated at Rs.83,440 crore
-- Expenses during 2010-11 estimated at Rs.87,100 crore
-- Thrust on expansion in 2010-11 with allocation of Rs.4,411 crore
-- Kashmir rail link to be extended to Sopore in the north of the valley
-- Net profit of Rs.1,328 crore in 2009-10
-- 10 automobile ancillary hubs to be created
-- Twenty-two million energy saving CFLs for lighting distributed already
-- Policy decision to employ one member of family whose land is requisitioned for railway projects
-- North-south, east-west dedicated freight corridors to be created
-- Construction of high-speed passenger rail corridors envisaged
-- More multi-functional hospitals to be set up
-- Educational facilities to be set up for children of 80,000 women families
-- Special facilities to be established for gangmen
-- Insurance facilities for licensed porters as part of railway's corporate social responsibility
-- Centre for railway research to be established with Indian Institutes of Technology and Defence Research and Development Organisation
-- Will involve unions in policy making
-- Integral Coach Factory Chennai to be further modernised
-- New wagon repair shop in Mumbai
-- Design, development and testing centre for railway wheels at Bangalore
-- Within five years, all unmanned level crossings to be manned
-- Construction of more underpasses, besides road overbridges
-- Greater coordination with state governments to protect railway property
-- Security of women passengers to be improved
-- Ex-servicemen to be employed in Railway Protection Force
-- Five sports academies to be set up
-- Astroturf to be provided for development of hockey
-- Employment opportunities for sports persons
-- Railways to be lead partner for Commonwealth Games
-- Special drive to increase passenger amenities
-- Upgrade of 94 stations
-- Six new drinking water bottling plants in PPP mode
-- Modern toilets at railway stations
-- More ticketing centres to help the public
-- Acquisition of cutting edge safety technology
-- 1,000 route km to be created
-- Special task force for clearing investment proposals in 100 days
-- New business model to be created
-- No privatisation of railways
-- But greater participation of private sector
-- 117 of 120 new trains for current fiscal to be flagged off

Stock Market Terminology...

Stock market terms you must know (this article is for new entrants to the dizzy world of stocks and stock market trading):

As a stock market investor, you will regularly come across words like Sensex, Nifty, correction, rally et al...

Also, as a regular reader of business newspapers you will come across these and a host of other terms that describe the stock market activities.

You will also come across research reports from brokerage houses that talk of buying, selling and holding of a company's share.

Let us go through a few of these terms used in routine stock market parlance.

Sensex

It is an index that represents the direction of the companies that are traded on the Bombay Stock Exchange, BSE. The word Sensex comes from sensitive index.

The Sensex captures the increase or decrease in prices of stocks of companies that it comprises. A number represents this movement. Currently, all the 30 stocks that make up the Sensex have reached a value of 14,355 points.

These companies represent the myriad sectors of the Indian economy. A few of these companies and the sector they represent are: ACC (cement), Bajaj Auto, Tata Motors, Maruti (automobile), Infosys, Wipro, TCS (information technology), ONGC, Reliance (oil & gas), ITC, HUL (fast moving consumer goods) etc.

Each company has a weight assigned to it. Companies like Reliance, Infosys, and HLL have higher weightages compared to others like HDFC, Wipro, or a BHEL.

The increase or decrease in this index, the Sensex, is the effect of a corresponding increase or decrease in the stock market price of these 30 companies.

Nifty

It is the Sensex's counterpart on the National Stock Exchange, NSE.

The only difference between the two indices (the Sensex and Nifty) is that the Nifty comprises of 50 companies and hence is more broad-based than the Sensex.

Having said that one must remember that the Sensex is the benchmark that represents Indian equity markets globally.

The Nifty 50 or the S&P CNX Nifty as the index is officially called has all the 30 Sensex stocks.

The NSE Nifty functions exactly like (explained above) the BSE Sensex.

Bull

A particular kind of investor who purchases shares in the expectation that the market price of that company's share will increase.

S/he sells her/his stock at a higher price and pockets the profit. Simply put, the bulls buy at a lower price and sell at a higher price.

For instance, if a bull buys a company's share at Rs 100, s/he would prefer selling the same stock at Rs 120 or any price higher than Rs 100 to make a profit.

Usually, a bull buys first at a lower price and sells later at a price higher than her/his cost of purchase.

Bulls are happy when the markets (the Sensex and Nifty) move upwards. A falling market takes bulls into hibernation.

Bear

Bull's counterpart is the bear.

A bear sells stocks first that s/he owns or borrows from, say a friend, and then purchases the same quantity of shares at a lower price.

If a bear sells first, say 100 shares of Ranbaxy at Rs 400, and later purchases the same number of shares at Rs 375, then her/his profit is Rs 25 (400-375) per share.

This way s/he has got back the 100 shares of Ranbaxy and simultaneously made a profit of Rs 2500. The shares can later be returned to the bear's friend if s/he had borrowed the same from a friend.

There are bears in the market that sell shares first without actually owning them unlike in the above example. Such selling is called naked short selling or going short on a stock.
Bears are happy in a falling market.

While individual investors can engage in selling first and buying later (also referred to as short selling), mutual funds and foreign institutional investors are not allowed this luxury in India yet.

Squaring off

A process whereby investors/traders buy or sell shares and later reverse their trade to complete a transaction is called squaring off of a trade.

Indian equity markets remain open between 9:55 am and 3:30 pm normally (At times there are sun outages when satellites fail to link with ground infrastructure of the two exchanges (the servers where buy and sell orders are matched). During these times the trading period is extended till 4:15 pm to compensate for the time lost in between).

If you purchase 50 shares of say Infosys and sell them later before the market closes then you have squared off your buy position.

Similarly, if you sell 100 shares of Maruti and purchase them later then you have squared off your sell position.

Equity market rules in Indian allow investors/traders to engage in day trading.

Day trading is a mechanism whereby investors/traders can buy, say 100 shares of a company as soon as the BSE, NSE opens (the working hours are 9:55 am to 3:30 pm in normal times) and sell the same amount of shares later (bulls) before the two stock exchanges close. However, a stock bought on the BSE cannot be sold on the NSE and vice-versa.

Similarly investors/traders can also sell first and buy later (bears) during the course of the day to square off their sell positions.

Rally

The word suggests the gain made by the Sensex or Nifty during the course of the day. If such gains are made on a regular basis then market participants like investors, brokers etc call it as a market rally.

If the Sensex moves from 14,000 points to 15,000 points in a span of say 14 or for that matter 20 trading sessions (the stock markets remain closed on Saturdays, Sundays and other bank holidays) then the phenomenon is referred to as a rally.

Bulls are always said to be active during a market rally.

Crash

As the word suggests, crash refers to a sudden and steep fall in the value of Sensex and Nifty.

Bears are said to be active and happy during the market crash as their style of trading (sell first and buy later) helps them make good money during a crash.

Correction

A correction (or a measured fall) in the Sensex and Nifty takes place when these indices rise for a few days and then retrace or shave off some of these gains.

Say if the markets rally from 13,000 to 14,000 points in 10 days and the again fall to 13,700 points in the next five-six days then this action is termed as a market correction.

It is like a woman/man resting for some time after running a long distance race. Like human beings the market too needs to take rest after a smart rally.

Market experts consider such corrections healthy because during this period the ownership of shares moves from weak hands (short-term investors) to strong hands (long-term investors). Corrections are generally considered as signs of strength after which the markets (the Sensex and Nifty) gets once again poised for a further rally.

Bonus shares

These are the free shares that a listed company gives its shareholders.

A bonus is declared after a discussion amongst the board members that make up the management of a company.
A bonus issue is looked upon as a way of rewarding shareholders.

For instance, let us take a company A that has made a profit of Rs 100 crore in the financial year 2007 (April 1, 2006 to March 31, 2007).

Out of this amount the company may need Rs 50 crore for say buying machinery or constructing a new warehouse. And the remaining Rs 50 crore the company puts into its reserve pool or idle cash that the company has no plans to spend.
It can then issue bonus shares out of these Rs 50 crore.

When a company declares a bonus issue it converts this idle cash into shares that are then distributed amongst its shareholders. This process is called capitalising of reserves.

A bonus is usually declared as a ratio. A bonus issue in the ratio of 1:1 means you will get one free share for every one share of the company you own.

A 2:1 bonus issue (or two for every one held) means you will get two free shares of a company for every one that you own. Similarly, a 5:1 bonus issue will give you five free shares for every one share that you own.

Dividend

It is again a way of rewarding a company's shareholders. A dividend is generally issued as a percentage of the face value of a share. Face value is the nominal price of a company's share.

A share can have different face values like Re 1, Rs 2, Rs 5, Rs 10 or Rs 100. An 80% dividend on a share of face value Rs 2 (Rs 1.6) will always be less than a dividend of 20% declared on share of face value Rs 10 (Rs 4).

Like bonus shares, dividend amount also comes from a company's free cash reserves.

Book closure date

This is the date on which a company closes its books for business after it announces a bonus or dividend. The company's registrar keeps a track of who owns how many shares of that particular company.

Any investor having shares in his/her demat account before this date becomes eligible for the bonus issue or the dividend declared.

Say a company A announces a 1:1 bonus issue and the book closure date is February 28, 2007. If you don't own this company's share and want to avail of the bonus offer then you must not only buy this share before February 28 but also make sure that the number of shares purchased by you are transferred to your account from the seller before this date.

If the ownership of shares is reflected in your account after February 28 then you will not get any bonus shares. The same is also true for dividend announcements.

This just sums up a few (but regularly applyed) terms used by stock market participants.