Apr 21, 2011

Seminar: Some aspects of liquidity of stocks in the Indian stock market

Speaker :Dr.Devlina Chatterjee
Indian Institute of Science Bangalore

Background of the Speaker:

Devlina Chatterjee got her BTech in Agricultural Engineering from IIT Kharagpur in 1989. She subsequently got a PGDM (Agribusiness) from IIM Ahmedabad, MS degrees from Penn State University (Agricultural Engineering and Agricultural Economics), and her PhD in Management Studies from IISc Bangalore in 2010. She also worked in industry for a total of eight years at organizations like IFCI, New Delhi; GE Capital, Bangalore; and Antrix Corporation, Department of Space, Bangalore. Her work experience in these organizations has included evaluation of project proposals, statistical analyses of credit card business data, and contractual negotiations in the space image marketing business.

The seminar:
Dr. Chatterjee began by stating the focus of her study, the liquidity of individual stocks traded in electronic market. She went on to quote Black and Kyle to elaborate on liquidity. According to Black, a market is said to be liquid if it is continuous and efficient. Kyle gave the transactional properties of such a liquid market as tightness, depth and resilience.
As Dr. Chatterjee told, it is difficult to quantify the multidimensional nature of liquidity and a solution to this, forms the focus of her paper. Her paper delves into this by finding the relation between the various proxies which can be used to quantitatively describe liquidity.

She utilised factor analysis and survival analysis to test two models, one which measures the various macro and micro proxies to find the factors which would help quantify liquidity and second, which finds how long it takes for given order to be executed.
The data for this analysis was taken from NSE in two time intervals and covered 124 and 127 stocks in the two intervals respectively.

In the first model, the multi-dimensional nature of liquidity was studied first through factor analysis of eleven commonly used liquidity proxies – trading volume, turnover, frequency of trading, turnover ratio, price range, liquidity ratio, relative bid ask spread, order depth, market depth, immediacy, price elasticity of buy/sell. The study revealed that across two different market conditions, five factors emerged consistently: depth, spread, volume, price elasticity and relative activity. Thus the 3 transactional properties as stated by Kyle are verified.

In the second model, execution probabilities of limit orders were studied using logistic models and survival analysis. The covariates used in the analysis were price premium, volatility, relative bid-ask spread, order imbalance, trading activity, depth, relative activity in script, last traded price of stock, short term changes in trading activity, time of day and day of week.
In related prior studies, the history of the entire limit order book had been reconstructed using high-frequency data and heavy computation. Here, using much less data, the idea of hypothetical orders, and interval censoring, most appropriate distribution of survival times were obtained. The covariates which were found to determine these were price premium, closing price, log of depth, volatility, relative activity and firm order size.
Finally Dr.Chatterjee closed the presentation by observing that, both the models developed in this study made good out-of-sample predictions as well.
The seminar was wrapped up with a free-wheeling discussion between Dr. Chaterjee and the esteemed faculty of IME Dept., which churned out some interesting perspectives and left the attendees with many issues to mull over.

Contributed by:
PR & Media Cell,
IIT Kanpur

Apr 14, 2011

Finatics Lecture Series – Sustainability Strategy and Triple Bottom Line Reporting

Speaker Details: Mr. Anindya Sengupta, Manager-Sustainability & Climate Change, PricewaterhouseCoopers Pvt. Ltd.
Mr. Sengupta has been Assistant Manager in IOCL and is currently working on Greenhouse Gases credit programs, GRI-G3 Sustainability reporting.

After immensely informative sessions by Mr. Alok Sheel, Ms. Shivani Datta, and Mr. Manu Maudgal, Finatics Lecture Series came to the last lecture of the day, and one on an important emergent phenomenon of Sustainability Strategy, which is being taken up very seriously by the corporations and brands globally.
The lecture was organized into three sections: Sustainability and Triple Bottom Line basics, Sustainability Reporting and Global Reporting Initiative, and discussion of some of the related recent issues. Mr. Sengupta began with the introduction of Sustainability Strategy and explained the importance of the same in the current industry scenario. He explained how various brands are taking up this issue and utilizing it to their advantage by including it in their marketing strategies. The example given was of ‘Aquafina’ brand of bottled water and inclusion of the tagline ‘Giving back more water than we take’ on its label. He defined triple bottom line as a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. He explained the key steps of the management approach towards corporate sustainability and told how CEOs rank these issues high these days on their agendas.

In the next section, he talked about steps involved in corporate sustainability reporting (refer to the image below) which are as: Global Reporting Initiative, Sustainability Data Management, and Assurance of Sustainability Reports; and shared the sector-wise reporting standards and the broad content of such reports. He briefly discussed GRI (Global Reporting Initiative) G3 Guidelines related to the same and again the managerial issues dealing with the reporting of sustainability initiatives. He further described the key challenges faced while developing these reports, which broadly are: Sustainability awareness and capacity building, Sustainability data collating and recording system, and Strategic stakeholder consultation.

The last section of the lecture involved general discussion on the issues related to the topic. The entire session was very interactive with questions and doubts posed from the sides of both: students and faculty. What made the last section even more interactive was the discussion of some real-life scenarios and issues currently being faced by corporations in various industries. Such cases gave a good understanding of the issues to the students, and helped them realize the intricacies involved in sustainability reporting and the formulation of such strategies.
The session was closed with the concluding remarks about these issues and with the inception of the thought of how one should align himself/herself with the future needs of the environment and our responsibilities related to the same as upcoming managers.

Contributed by:
Rubal Mehta
PR & Media Cell
MBA 1st Year, IIT Kanpur

Finatics Lecture Series - Carbon Markets and Clean Development Mechanism

Speaker Details: Ms. Shivani Datta, Manager, Climate Change & Sustainability Services from Ernst & Young Pvt. Ltd.

Ms. Shivani Datta presided over the talk about CARBON MARKETS and CDM among an eager and enthusiastic student crowd. She started off her talk by reiterating the present Global concern about over-consumption of resources, contribution by industry on climate change, how the roadmap was laid particularly in the last two decades to tackle Climate Change internationally through various summits organized by UN starting off with the RIO Earth Summit and birth of UNFCCC in 1992 and how the KYOTO Protocol got its acceptance worldwide in 1997 till the end of its first commitment period in 2012. The green house gases and its global warming potential over the last century was also enumerated thereby giving a brief summary of the articles to be followed and the roles of both the developed and developing countries according to Kyoto Protocol. This is where the speaker started highlighting what CDM is, its features, specificity and the challenges faced by it.
Clean Development Mechanism which is one of the mechanisms under the Kyoto Protocol allows a country with an emission reduction commitment and to implement an emission reduction project in developing countries. Such projects allow a company to earn Certified Emission Reduction (CER) credits which is saleable in future thereby meeting the Kyoto targets.
The twin purposes of CDM are
1. To assist developing country parties in achieving sustainable development.
2. To assist developed country parties in achieving compliance with part of their quantified emission limitation and reduction commitments under Article 3.
The features of CDM were broadly CERs, Market driven, Eligibility timeline, sustainable development and GHG reduction. Another concept of Additionality was introduced which is a fundamental issue in the carbon offset market. In order to determine additionality a project should have been started after January 2000 with due consideration of CDM at the start of the project. Several questions were raised doubting whether ‘financial additionality’ exists, how it would benefit other projects and how it would help in alleviating the barriers.

The various steps involved in Additionality are
 Identification of alternatives to the project activity
 Investment analysis
 Barriers analysis
 Common practice analysis
An investment analysis is basically done considering the factors like project returns with CDM revenue and without CDM revenue, Internal Rate of Return Hurdle rate and the CDM cash flow after which the CDM Project Cycle is implemented. According to IPCC’s 4th assessment report (2007), the Global Sectoral Emissions constitutes for about 45 % by Energy Supply and Industrial emissions. A few generic CDM Possibilities are in Energy Efficient Projects, Infrastructure Projects, Renewable energy & Fuel Switch Projects, Plantation Projects. According to current statistics there are 2950 projects which are registered for CDM implementation till date and more than 5600 projects are in the pipeline.
In the final part of the talk the speaker highlighted about CER Trading and its value accretion curve and finally wound up with the challenges faced by CDM like uncertainty, evolving procedures at each Executive board meeting, stricter validation, and unclear framework after 2012 and the pricing of CER.
Finally the curtains came down with her last words quoted by Mr. Paul Kelly that “Carbon is the currency of a new world order”.

Contributed by:
Arvind Rajendran
PR & Media Cell
MBA 1st Year, IIT Kanpur

Finatics Lecture Series - Harnessing Markets for Climate Change Mitigation

Speaker : Manu Maudgal, Indo German Energy Programme, Bureau of Energy Efficiency, NewDelhi

Climate change is a burning topic, which deserves the attention of both activists and Governments together. Governments nowadays understand the challenges of climate change and they are ready to include it in their growth plans. The speaker, who holds a key position in German Society for International Cooperation (GIC), has experience in multiple roles and gave the audience an introduction to the current scenario of the crisis in the world, energy crisis, water shortage and global warming; all three occurring at the same time.

He explained the need for becoming a ‘low carbon economy’ and how it can be achieved by in three steps; neutralizing things which can be neutralized, reducing those which can be reduced and finally replacing them with which we can’t do the above two. He also raised the concern, “Is producing more and consuming more” a real growth or is it just an increase in national GDP. IPCC’s prescription of restricting the increase in global temperature to 2°C by 2050 and what all is being done were also brought about in the talk.

The speaker then showed the available options to deal with the above concern by scaling up National programmes, Sectoral mechanisms and by initiating more and more Clean Development Mechanisms (CDM). Reduction in the Transaction costs by using publically accessible credible databases and internationally accepted simple monitoring and verification methodologies is also a way we can think upon. He said that this is a global concern and its high time when each and every sector of the economy should come forward and work in tandem.

In response to this concern, what exactly is already being done by the government? To answer this, he started with the Eight National Programmes as the national plan for climate change and then explained the two government schemes the REC mechanism and the PAT scheme in detail. Renewable Energy Certificate (REC) also known as a green tag is a tradeable non-tangible energy commodity which certifies that 1 megawatt-hour of electricity is generated by renewable sources. He also explicated how these REC’s can bring about more competition in the renewable energy sector and at the same time make individual states overcome geographical barriers in harnessing renewable energy. Perform Achieve and Trade (PAT) scheme is about enhancing cost effectiveness of improvements in energy efficiency in energy-intensive large industries and facilities, through certification of energy savings that can be traded. This particular scheme covers eight industrial sectors like iron & steel, railways, thermal power plants etc.
The lecture was very impressive for all the audience and throughout his speech the speaker emphasized on need to shift from “Consumption Driven Growth to Sustainable Growth”. The faculty present also added vibrancy to the lecture by raising pertinent questions which helped the audience grasp the nuances of the talk.

Contributed by:
Vishal Vivek Jacob
PR & Media Cell
MBA 1st Year, IIT Kanpur

Apr 13, 2011

Finatics Lecture Series - The Global Financial Crisis, Sustainable Growth and rise of G20

Speaker Details: Mr. Alok Sheel, Joint Secretary, Dept of Economic Affairs, Ministry of Finance, Govt of India.
Mr. Sheel has been handling Govt of India's relations with the G20, the World Bank and other multilateral financial institutions.

Mr. Sheel discussed the various aspects of global financial crisis, its causes, structural changes through the world economy and the rise of G20. Besides this, some key takeaways or lessons learn in terms of policies implemented during crisis and its significance for India, the ways in which this recession has affected the globe and how can G20 help world back on its pre-crisis growth curve were discussed.

The major incidents which preceded this crisis were low cost of capital, increasing risk tolerance, low interest rate which discourage savings and encouraged leverage and finally, lax financial regulation from US government. But, the major event which triggered of this domino effect was US subprime housing crisis. Although, subprime housing loans form a very small part of US housing market, which in turn is a small part of US financial sector, it caused a crisis which US has never witnessed since the great depression of 1929. The major reason for that is most of the things were inter-related in this globalized world. The fact that most of the subprime mortgages were mixed with various other securities to launch Collateralized Debt Obligations or CDOs which were frequently traded among the various wall street bankers is well illustrated by the below picture. The problem with these loans were that they were distributed to many of the people who were incapable of paying them. They bought houses using these loans thinking the prices can only go in one direction, northwards. But, they suddenly found themselves in a soup when the interest rates of their floating rate loans increased. Suddenly, their housing equity became negative which forced them to leave the house as it was worth less than what they had to pay for. Also, during the short boom when their housing equity was positive, Wall Street firms left no stone unturned in saddling these guys with debt.

Another reason given for this crisis has been globalization. The capital which aids globalization is highly mobile and keeps on shifting to search for low cost raw material, cheap labor. This has lead to China becoming a manufacturing hub with more than 40% of US companies profit coming from that region. But, the problem with this kind of growth is immobility of labor because of which their employment suffers. The corporations and their few owners earn lot of profits from outsourcing, but, the local employees are left behind without jobs and sources of income. They are forced to lead their lives on borrowed money. This has been one of the reasons why US debt has increased to the highest ever peace time level i.e. more than 80% of the GDP in late 2000s.

Another reason for this great crisis is the runaway increase in size of largely unregulated US “credit default swaps market” and the repeal of “Glass Steagall Act”. The credit default swaps market grew to more than the size of US stock market, US mortgage security market US treasuries market combined together as demonstrated in the picture below.

Apart from this, the Glass Steagall Act which was introduced in 1933 to stop speculation in market after the great depression was withdrawn in 1980.

This recession was tackled by using various fiscal and monetary stimulus as per Keynesian economics. These included various quantitative easing measures like reducing interest rates to effective zero and purchasing short term government bonds. The problem with such policies are most of the tools have been blunted by rampant globalization and lack of market levers which are still controlled by the government. But, the coordinated efforts at the G20 levels ensured a coherent policy response at the world level has definitely stymied this crisis.

The aftermath of this crisis has been increased leverage across all the countries and cyclical debt traps may extend beyond the PIGS. According to Ken Rogoff, “the current debt levels in developed countries are unsustainable and are impairing growth. The most part of US debt is financed by countries like China and India, by maintaining sufficient foreign reserve of globally accepted currency. This is a kind of paradox as in classical economics funds are supposed to flow downhill, but, in this they are flowing uphill from developing to developed economics who are trying to fuel their consumption driven growth through high levels of public debt.

According to most of the experts, India can become a biggest economy of the world. As per William Buiter, “India can surpass China as largest economy by 2050”. This can happen due to India’s younger population and Indian government emphasis on developing knowledge based economy. According to the Economist, “India will add 136 million new workers as compared to 23 million expected from China”. To achieve this, India must use G20 forum to its advantage by ensuring greater roles and responsibility for itself at the world level.

The audience was really appreciative of the depth and breadth of knowledge and the ease with which Mr. Sheel conveyed complex financial situations and brought a fresh perspective to it. Finatics lecture series started off with a flourish thanks to him.

Covered by - Neeraj Agarwal
PR & Media Cell
MBA 1st Year, IIT Kanpur

Apr 6, 2011

Finatics - MBA Annual Financial Conclave

MBA, IME Department, IIT Kanpur presents

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Prizes worth 45000 to be won !!


 CDM Project Consulting, Sustainability, and Project Viability
By Ms. Shivani Datta – Manager, Climate Change & Sustainability Services, Ernst&Young

 Policy Analysis & Development for CDM, Sustainability Initiatives in Industry, and the role of regulators in carbon markets
By Mr. Manu Maudgal – Technical Expert, Indo German Energy Program, GIZ GmbH

 Environmental Finance and Green Accounting
By Mr. Anindya Sengupta – Manager, Climate Change & Sustainability Services, PriceWaterhouseCoopers

 Global perspective of macro-economic policy initiatives, challenges related to sustainability and Indian policy in G20
Mr. Alok Sheel – Joint Secretary, Department of Economic Affairs, GoI


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