Purchasing Managers' Index

The widely tracked HSBC purchasing managers’ index (PMI) for manufacturing in India grew to 52 points in October, from September’s 30-month low of 50.2, on the back of faster expansion in new business.

What is PMI or Purchasing Managers' Index?

Purchasing Managers' Indices (PMIs) are long-established monthly data-driven snapshots of individual countries' economies. They are compiled using proprietary and highly effective market research techniques (based on interviews with senior purchasing executives) which accurately measure economic activity and report well before other comparative official and government statistics. Typically the individual reports cover one key sector per country for example manufacturing or services. PMIs are among the most closely watched surveys in the world and are essential must-have data for economic analysts, financial market players and other decision makers such as central banks that require early indicators of changing market conditions when setting interest rates.

Background

The Institute for Supply Management (ISM) is responsible for maintaining the Purchasing Managers Index (PMI), which is the headline indicator in the monthly ISM Report on Business.The ISM is a non-profit group boasting more than 40,000 members engaged in the supply management and purchasing professions.
The PMI is a composite index of five "sub-indicators", which are extracted through surveys to more than 400 purchasing managers from around the country, chosen for their geographic and industry diversification benefits. The five sub-indexes are given a weighting, as follows:

* Production level (.25)
* New orders (from customers) (.30)
* Supplier deliveries - (are they coming faster or slower?) (.15)
* Inventories (.10)
* Employment level (.20)

What it Means for Investors

PMI is a very important sentiment reading, not only for manufacturing, but also the economy as a whole.
The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the industry is expanding. If manufacturing is expanding, the general economy should be doing likewise. As such, it is considered a good indicator of future GDP levels. Many economists will adjust their GDP estimates after reading the PMI report. Another useful figure to remember is 42. An index level higher than 42%, over time, is considered the benchmark for economic (GDP) expansion. The different levels between 42 and 50 speak to the strength of that expansion. If the number falls below 42%, recession could be just around the corner.
The PMI can be considered a hybrid indicator in that is has actual data elements but also a confidence element, like the Consumer Confidence Index. Answers are subjective, and may not always relate to events as much as perceptions. Both can have value to investors looking to get a sense of actual experiences as well as see the PMI index level itself.
Bond markets may look more intently at the growth in supplier deliveries and prices paid areas of the report, as these have been historical pivot points for inflationary concerns. Bond markets will usually move in advance of an anticipated interest rate move, sending yields lower if rate cuts are expected and vice versa.

Strengths:

* Very timely, coming out on the first day of the month following the survey month
* A good predictor of future releases, such as GDP and the Bureau of Labor Statistics (BLS) manufacturing reports
* Anecdotal remarks within the release can provide a more complete perspective from actual professionals (like in the Beige Book).
* Report displays point changes from the previous report, along with the length in months of any long-term trends shown for the "sub-indicators", such as inventories or prices.
* Commodities, such as silver, steel and copper are reported individually regarding the supply tightness and price levels noted in the previous month.

Weaknesses:

* Only covers manufacturing sector - the PMI Non-Manufacturing Business Report covers many other industries in the same manner
* Survey is very subjective in its data retrieval compared to other indicators.
* Regional reports released earlier (Philly Fed, Chicago NAPM) may have high correlations and can take some of the steam out of this release.

Non Core Assets

What is a non core asset
Assets that are either not essential or simply no longer used in a company's business operations. They usually serve companies best when extra cash is needed as they can often be sold. Some businesses sell their non-core assets in order to pay down their bank debt. Non-core assets are not crucial to the continued success of a business but can still provide a valuable contribution. Non-core assets are likely to be sold by a company if the need for cash arises. Examples of non-core assets include real estate, commodities, natural resources, currencies, high-yield bonds and options. However, exactly what types of assets are considered non-core will vary from one business to another. For example, a real-estate investment trust would consider its real estate holdings as a core asset, while an oil company may not.

Market Capitalization, Free Float Market Capitalization and SENSEX calculation

RIL gained 1.2% to Rs 765.6 on the BSE, which pushed up its valuation to Rs 2,50,650 crore on Tuesday. CIL, however, lost nearly 1% to end at Rs 391.9 after which its Market Capitalization declined to Rs 2,47,538 crore. With Tuesday's gain, RIL has recovered 4.7% in the past two trading sessions

What is all about Market Capitalization??
Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the "market capitalization"!

Market Capitalization = Current share price X No. of equity shares issued

What is "free-float market capitalization"?
Shares which are not privately held i.e. shares not held by directors of the company, FDI, PE Investors, Government etc. are called as free float shares.

According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:

1. Holdings by founders/directors/ acquirers which has control element
2. Holdings by persons/ bodies with "controlling interest"
3. Government holding as promoter/acquirer
4. Holdings through the FDI Route
5. Strategic stakes by private corporate bodies/ individuals
6. Equity held by associate/group companies (cross-holdings)
7. Equity held by employee welfare trusts
8. Locked-in shares and shares which would not be sold in the open market in normal course

A simple way to understand the "free-float market cap" would be, the total cost of buying all the shares in the open market!

Finding SENSEX

First: Find out the "free-float market cap" of all the 30 companies that make up the Sensex!

Second: Add all the "free-float market cap's" of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

Suppose, for a "free-float market cap" of Rs.100,000 Cr... the Sensex value is 4000…
Then, for a "free-float market cap" of Rs.150,000 Cr... the Sensex value will be..



Please Note: Every time one of the 30 companies has a "stock split” or a "bonus" etc. appropriate changes are made in the "market cap” calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an "index committee”. This "index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.



The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalization’s of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.

Non Performing Assests - NPA, Types, Provisioning on NPAs

Introduction

All those assets which generate periodical income are called as Performing Assets (PA). While all those assets which do not generate periodical income are called as Non-Performing Assets (NPA).

If the customers do not repay principal amount and interest for a certain period of time then such loans become non-performing assets (NPA). Thus non-performing assets are basically non-performing loans.
In India, the time frame given for classifying the asset as NPA is 180 days as compared to 45 days to 90 days of international norms.

Types

NPA have been divided or classified into following four types:-

1.Standard Assets : A standard asset is a performing asset. Standard assets generate continuous income and repayments as and when they fall due. Such assets carry a normal risk and are not NPA in the real sense. So, no special provisions are required for Standard Assets.

2.Sub-Standard Assets : All those assets (loans and advances) which are considered as non-performing for a period of 18 months are called as Sub-Standard assets.

3.Doubtful Assets : All those assets which are considered as non-performing for period of more than 18 months are called as Doubtful Assets.

4.Loss Assets : All those assets which cannot be recovered are called as Loss Assets.


Provision on types of assets