Thursday, May 16, 2013

Nifty Intraday Update-III


discipline focus said...


Inflation Indexed bonds are bonds where the intrest you earn are equal to inflation of the corresponding year.

From retail investor point of view-
1)It will provide a good hedge against inflation, and your money not losing its value.
2) For last 5 year period, if you see inflation hovering over 10% and bank F.D. giving only 7.5-8%(pre tax) and 5-7.5%(post tax depending on your tax bracket) your money is actually losing its value.
3) Since bonds are issued by reserve bank (GOI) they are relatively much safer than any other debt instrument.

1) The bonds would be indexed on WPI not CPI- meaning that inflation would be gauged on change in prices at wholesale level not at consumer/retail level. Hence it might be that wholesale inflation is just 8% but due to middleman and other factors, the actual inflation to your pocket is 10% hence you will only get 8%
2) During periods of low inflation - If WPI falls to 2-5% you would be earning only that much interest on your investment, and at that time bank F.D. might be more lucrative or other debt instrument.
3)Risk of Government declaring bankruptcy - well it is a nightmarish scenario but has happened to other countries, hence only telling u the risk
4)Risk of deflation - If the economy suffers deflation (highly unlikely) you have a risk of negative interest on your principle again this is highly unlikely.

Regarding taxation on interest earned, its still not very clear. Will update once I know tax implication fully

rajapvt said...

Nice explanation disciplined focus. Thanks.

shriram said...

--> back

mm.. looks good , tks master !

but about the 2 extnded motives in an impulse how do we explain that ?

Renju S said...

Any idea on which platform and time will the next bullet train arrive?

STOCK4SURE said...

after 9.30
nifty is making lower high and lower low pattern

6177.3 is prev high

RainMaker said...

discipline focus said...

2) During periods of low inflation - If WPI falls to 2-5% you would be earning only that much interest on your investment, and at that time bank F.D. might be more lucrative or other debt instrument.

You got it wrong here.

What I understand is these bonds have two components annual interest as in FD's and rise in Principal amount every year based on WPI, if inflation is 2-5% as you have suggested the principal will rise by that amount. The interest component which is separate will continue to deliver the promised return every year on the initial amount ( not the increased principal). That Interest component is what RBI intends to fix thru auction.

RainMaker said...

The enhanced (inflation adjusted) Principal amount is what you get after the completion of the bond tenure. as you have already got the regular interest every year.

STOCK4SURE said...

@ Shriram

is nifty forming a bullish flag in 5 min 3 day charts

pole ht--6187-5977=210

if breaks abv 6180 the upper T/L point of flag as of now then will it trgt 6390?????/

plz confirm

STOCK4SURE said...

i guess
if today close abv 6170ns then may trgt 6235-50 range tomorrow

Nilesh Patil said...

1st 4770 – 5349 = 579
2nd 5349 – 5032 = 317 (0.55%)
3rd 5032 – 6112 = 1080 (1.86%)
4th 6112 – 5477 = 635 (0.58%)
5th 5477 – 6276 = 799 ( 1.38% of 1st ) ???
Or 5477 - 6413 = 937 (1.618% of 1st) ???

BALA said...

Thanks . So the actual interest for the bonds is the inflation rate(WPI) not the interest of the FD of the period plus inflation rate.

Whether it is trad able and will let us know the Indian lowest WPI in history

In the present scenario whether FD is better or the bonds are better. It is understood that rate is cut the bond prices will move up and if so ,like shares ,and kept for more than a year ,tax benefit is there , for the gains ( when you came to know this may also be taken care off in addition to interest)

Why when GOVT announcing some thing , they are not clearly giving information in all aspects

shriram said...

@ S4S:

Intra its a clean + WW in NS

Tgts: 6185-95

Above that we have only RES zones @ 6280

chetas said...

S4S, I was just going to ask shriram that q,

though NS making lower high lower low, intra 5mts, never closed below he ema, today and Open low is

Ilango said...

@ shriram ,

There is a guideline on alternation in corrective. But we see same corrective like Flat or irregular flat repeating in strong trends.

"Rare" may be read as "Strong trends" because strong trends where normal logic will not work; hence, one should keep updating a "break line" to trail positions.(Aggressive & conservative.)

Aggressive would be the small steep trendline.

Conservative would be the larger channel.

Atharva said...

Good afternoon Master : Any significance of 6176.. NS getting rejected fr this since morning

discipline focus said...


You raised a valid doubt,

But every bond has two componetnt-
1) The face value of bond and increase/decrease of face value
2)the intrest component
you see in point 2)I have said you would be earning that much interest on your investment, taking into account the change in your principal investment year after year, considering the value of your bond has increased to rs.1250 from rs1000, I am signifying the R.O.I. on the bond at face value of rs.1250.

This is what I understood, it might be wrong, but for further clarity I suggest-

STOCK4SURE said...

abv 6177.3
now may see some strength

STOCK4SURE said...

nifty 6184 near trgt price line of +ww pattern

sometimesbullsometimesbear said...

This is from a well knwon blog....Not pasting the link since it might be against Ilangos rules....

Inflation Indexed Bonds in India

If you buy a fixed income bond, your problem is that as inflation increases, your income remains the same and this gives you a much lower return, net of inflation. One way to solve that problem is to have bonds whose payments are linked to inflation.

RBI has allowed inflation indexed bonds (IIBs) in 2013-14, where they believe the Indian retail investor will keep their money because if Inflation should go up, income also goes up.
How does it work?

If you pay Rs. 100 for a bond that tells you it will pay 7% a year, the normal expectation is to get Rs. 7 per year, because the 7% (“coupon”) is on the Rs. 100 (“principal”).

Inflation index bonds expect to change the principal but retain the coupon at the same rate. You will get 7% but on a higher or lower principal depending on how inflation goes.

For example, a 7% “coupon” on Rs. 100 principal at a 7% inflation rate makes sense. However, should inflation go up to say 9%, then you want to get Rs. 9 per 100 instead. The way that happens is that you get 7% (same coupon) but of a higher principal – in this case, you get 7% and the principal is increased to Rs. 128.57.

On maturity if nothing changes, Rs. 128.57 will be paid to you. This becomes a capital gain. However, should the bond principal fall below Rs. 100 because inflation falls at maturity, you will get Rs. 100.

The bonds are issued by the government of India, in Indian rupees. They are as safe as bonds get.

Note: This is how I think it will work. The actual procedure has not been detailed out yet.
How do they measure inflation?

RBI will use the monthly-released WPI number. However they won’t use the most recent number – they would have used the number in Sep-Oct 2012 to finalize numbers for Feb-March 2013 and they’ll interpolate to get to the number on a certain date.

The lag is to allow for adjustments due to revisions. I’ve noted recently that WPI is adjusted often and sometimes significantly (a 0.4% change is significant and it was done for Feb WPI numbers when April numbers were released).

sometimesbullsometimesbear said...

How do I buy and sell?

This part isn’t very clear yet. The RBI conducts auctions for regular government securities. In these auctions you can buy bonds of Rs. 10,000 face value, at a price. The coupon rate is mentioned – in the first auction, the coupon rate will be determined from all the bids, and the final rate will be the rate for subsequent issuances.

To buy, you’ll have to have a demat account at least, to transfer those securities to. I believe that to bid in the auction you may need a CSGL account as well, but opinions on this are divided based on whether you are an individual or a corporate.

Even if you got a CSGL account up, you will find it difficult to sell unless you transfer your holding to a demat account. This process can take days.

To sell, you have to hope that these IIBs list either on the NSE debt segment or elsewhere. A corporate with a CSGL account could sell on the RBI’s NDS platform, but only by going through a dealer; and here, most trades are in multiples of Rs. 5 crores. (there is an “odd lot” market for smaller numbers but those generally get worse prices)

Bonds will be auctioned on the last Tuesday of every month, and the first one will be on Jun 4, 2013. Each auction will be sized at 1,000 to 2,000 crore, for a total of 12,000 to 15,000 cr. (120 to 150 bn rupees) in 2013-14. This is just 2% of the gross government borrowing in the whole year.

Bond tenures are 10 years right now. They might introduce a longer one at another time.

Can foreign investors buy? I think they might be able to, but there’s tax implications, and then FIIs will have to buy through their debt limits. More details at a later date, I suppose.
My View

Interest received is taxable so you will get actual interest that is less than inflation. Instead, if you want to hold for a long term, you should buy a mutual fund that owns such securities. On that note, I believe Mutual Fund companies should create MFs that exclusively buy and hold such bonds. The interest that MFs receive is not taxable. The gains that you make are taxable only on exit, and if you leave after a year, you can “index” your returns to inflation as well, giving you a double benefit.

Linking to the WPI is a little zany. India will be the only country that uses a wholesale price index instead of a consumer price index (CPI) for inflation indexed bonds – other countries like the US, UK, Sweden and Hong Kong use consumer prices. After all that’s what you want to protect against – retail inflation.

In April 2013, the WPI shows just 4.89% inflation, while the CPI shows 9.39%. The gap is so wide that there is no chance any retail investor will want to buy indexed bonds based on the WPI.

CPI also contains elements the WPI does not, such as housing costs, services and others. In addition, the CPI revisions have been minor, and therefore is a more reliable number.

At this point we don’t know if interest is paid once a year, or twice that is the case with other government bonds. There might be a trading case based on whether you think inflation will go up on down, though in most other government bonds rising inflation is bad for the price (they think yields will go up, and yields are inversely proportional to price); in IIBs, the price should go up or remain the same since the principal will be adjusted to reflect the change.

In all I don’t believe there will be much enthusiasm for the bonds unless:

They use the CPI
They list the bonds on the NSE/BSE for easy buying/selling.
They auction the bonds on the NSE directly – the whole CSGL/demat system is very complicated and unnecessary.
They allow the bonds to be used as collateral for multiple purposes. For instance, margins when you take futures positions, or collateral for a loan or bank guarantee.

Let’s see how it works out on June 4.

shriram said...


If NS holds 6170, pattern will transform into a CnH ??

Tgts: 6.2k / 6210 ??

BALA said...

redeeming the principal amount Say bond period 10 years) FD rate is 10% say @ the end of 10 years , WPI is 2 % say so 10% principal amount is increased and that amount will be given back ?Who will determine the interest rate and how the auctions are conducted for this by the participants (banks ,individuals?).As and when details are coming to know, blog mates please enlighten us. Please also let us know that for meeting the inflation Stok market is better or this instrument is beter. If this is better.then people will start with drawing from banks and deposit it in this what about the banks. Whether it is always open or only particular period. Any 15 G/H facility is there

shriram said...


thank u, need ur exp. in these kind of lables :-)

RainMaker said...

discipline focus said...


You raised a valid doubt,

But every bond has two componetnt-
1) The face value of bond and increase/decrease of face value
2)the intrest component

I must say that you are again wrong.

The Face value you are refering to is I understand you mean the bond price which is traded on exchange it does vary as per the prevailing interest rate which effects the effective yeild of the bond.

But the Face value is what the RBI sells at on the day one and the interest is calclated on this Face Value. And the Face value is redeemed at the end of the tenure.

RainMaker said...

So if you dont buy from RBI during initial subscription and purchase thru exchange 6 months or 12 months down the line your purchase price will change and the effective yeild will change.

But the Face value will remain same as was issued by RBI and that is what RBI will give back to you after the end of term and RBI will continue to pay the interest rate it promised at the time of issue.

RainMaker said...

Bala its all too early to say anything please wait until Oct.

Investment in stocks good ones (if you can find them) always beats inflation by good margin and is always better option for longer periods.

RainMaker said...
This comment has been removed by the author.
RainMaker said...

sometimesbullsometimesbear said...

Unless :
They allow the bonds to be used as collateral for multiple purposes. For instance, margins when you take futures positions, or collateral for a loan or bank guarantee.

I think they do allow bonds to be used as collateral with banks. Only exception is to my knowledge is bonds issued under section 54EC Capital gain Tax saving bonds.

NI3 said...

@shree ram sir
can we assume tat 6170 hold here and bounce 6200 is pending?
thanks sir

shriram said...

@ NI3

If bulls can protect 6170, nothing like it !

RainMaker said...

Below 6161 NF I see 6145 and 6115 for tomorrow

deepak pinto said...

Are we seeing a rounding bottom corrective wave between 87 and 55.
Waiting to breakout.
Observing alt hour hema red and green.

rajapvt said...

Tomorrow RBI policy???

chetas said...


yes tomorrow, but next month :)

rajapvt said...

Okay, thanks chetas.

deepak pinto said...

The round bottom also is shaping like a 7 legged diametric with last leg low 5958.

shriram said...

@ Rajiv Malik:

To answer ur ysday's Q

if u notice, once price starts trading > DhiEMA or < DLoEMA

the dat CMP-dHi or Dlo-CMP , has been obsved to have a NORMAL DISTRIBUTION

while 2Std Dev. is very wide a spread, we can easily use 1Std. Dev to estimate Day's Top with 68% confidence (1Std Dev)

Now, pl note this is basically a trick , becoz CMp-HiHoLEMA also doesnt always Resemble a perfect BELL curve & is more of a SKEWED DISTR.

But it works as an approximation, so lets says its the power of JUGAAD :-)

Ding A Dong said...


is fractal trading is same as D. Box trading?

please suggest.

Aditya Jain said...

dear sir,
sorry to trouble you and other blogmates but i wanna learn and improve myself that i why i ask questions, please bear with me all and i am sincerly thankfull to all who are part of giving and teaching new traders. please if somebody or sir can explain me how to take trades based on ema rules.

J.R.Julius said...

@Mr.Aditya Jain,
Pls gothrouth the Article Links : Quick Ref


J.R.Julius said...

@Mr.Ding A Dong,
Weekly Cam Calculated using Friday Evening Week Data H@6105.30-L@5928.45-C@6094.75

Aditya Jain said...

thank you julius sir

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