16 September 2013
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‘Speculators love it when Governments defend currency’ :CEO, AMBIT: Business Line
We should just forget about defending the currency and reduce interest rates by 50-to 100 basis points. ANDREW HOLLAND, CEO, AMBIT INVESTMENT ADVISORY
Local hedge funds, which allow investors to make money both from the bull and bear markets, will soon take over the portfolio management business in India, says Andrew Holland, CEO of the investment advisory business at Ambit Capital. With over 25 years of experience in the financial services industry across Asia and Europe, Andrew Holland was earlier Managing Director - Strategic Investment Group for Merrill Lynch in India. He also shares his views with Business Line on the much-feared Fed tapering and where FIIs are putting their money.
Excerpts from the
interview:
With the currency depreciating heavily this year and FIIs in exit mode, where do you think we have gone wrong and what needs to be done?
When the US announced its QE3 plan, the government held on to the view that its benefits would continue. But when there were signs that it would not, we saw the Government responding in a piecemeal fashion. This ended up choking growth.
I would be bullish if we forget about defending the currency, and reduce interest rates by 50-100 basis points. We must also increase petrol and diesel prices by Rs 5 to Rs 10 a litre. It might not be good in the short term but it is the medicine that the country needs. By doing this, at least you are trying to grow the economy and take care of the current account deficit.
What happens is that, when governments try to defend currency, the speculators just love it. In 1990, the UK Government had decided to defend the currency. They took interest rates from 10 per cent to 16 per cent before abandoning the idea. So you can’t defend something which is weak. We must try and give confidence back to India Inc to attract foreign direct investment.
Consider short strangle on Jaiprakash Associates :: Business Line
Jaiprakash Associates (Rs 39.5): The long-term outlook for Jaiprakash Associates remains negative till it stays below Rs 74.5. The stock is currently trading at a crucial level. It finds immediate resistance at Rs 49 and support at Rs 33 and the next critical support at Rs 28. In the near-term, Jaiprakash Associates is likely to move in a narrow range with a downward bias.
Jaiprakash Associates’ September futures shed 10 lakh shares in open interest on Friday despite a marginal gain in the stock price. In the last 10 trading sessions, open interest declined by over one crore shares. Option trading indicates a range of Rs 35-45 for the stock, as maximum number of open interest positions are in that range.
Strategy: Consider short strangle on Jaiprakash Associates using 45 call and 30 put that have closed at Re 1 and Rs 0.40 respectively. The market lot is 4,000 units/contract. This will entail a maximum profit of Rs 5,600.
Short strangle strategy is best suited when one expects range-bound movement in the underlying stock. As the maximum profit is the premium collected, we advise traders with high risk appetite to consider this strategy. Besides, the loss could be unlimited if Jaiprakash Associates swings wildly in one direction (either up or down). A close below Rs 28.5 or above Rs 46.5 will start impacting the position adversely.
In other words, only a gain of over 16 per cent from current levels or a decline of over 31 per cent will pinch traders. Also, writing option involves higher margin commitments. Maximum profit occurs if Jaiprakash Associates closes in the aforementioned range. Hold this position till expiry. Traders could exit if the loss hits Rs 4,500 in the position.
Alternatively, traders could consider shorting Jaiprakash Associate futures with a stop-loss at Rs 44 initially. If it closes below Rs 38.35, then the stop-loss can be shifted and held for a target of Rs 30. Again, risk averse traders could stay away from this strategy. The stop-loss mentioned is on underlying price and on a closing day basis.
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