ICICI Bank has suffered marked to market losses of $264.3 million (about Rs 1,056 crore) on account of exposure to overseas credit derivatives and investments in fixed income assets, it was disclosed in the Rajya Sabha on Tuesday.
These losses are as on January 31, 2008, said Mr Pawan Kumar Bansal, Union Minister of State for Finance, replying to a question in the upper house.
Marked to market losses happen when the current market value of an asset is lower than its acquisition value, requiring the holder of the asset to make a provision equivalent to the difference.
Following this disclosure by the Minister, ICICI Bank shares tanked by 9.3 per cent to Rs 929 intra-day but recovered substantially later on clarification issued by the bank.
The stock ended the day at Rs 971.60, down 5.16 per cent from the previous close.
A notice to the stock exchanges later in the day said, ICICI Bank and its overseas banking subsidiaries have an aggregate exposure of $2.2 billion in credit derivatives. As on January 31, 2008, the marked-to-market losses on this portfolio were $155 million. Of this, $88 million has been provided for in its quarterly December 2007 financials.
In addition to this, the bank and its overseas banking subsidiaries have fixed income investments, whose marked-to-market losses are $108 million as on January 31, 2008. Of this, $101 million has been accounted for in the financial statement for the December quarter. “These are not sub-prime losses. We do not have any direct exposure to sub-prime market,” said Ms Chanda Kochhar, Joint Managing Director, ICICI Bank.
“We have some portfolio called CDO-CLN (collateralised debt obligation and credit linked notes) which is nothing but loans given out to corporates but held [by ICICI] in the form of securities. Since they are held in the form of securities, we have to mark them to market every quarter if interest rates go up or down. Because of the sub-prime crisis, since interest rates are moving up and spreads are widening, we have to take marked-to-market losses on these securities.”
The overseas losses of ICICI come from its investments in overseas credit derivatives and from its overseas subsidiaries’ investments in fixed income assets. These may be recoverable assets, but their current market value is lower than the price at which they were bought and the bank had to make provision for it. In other words, if ICICI has to sell these assets at today’ prices it would suffer the losses that the Minister talked about, said an analyst.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
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