Volume 5, Number 5, 6, May June 2011

Does A Highly Leveraged Capital Structure Of A Firm Influence Its Performance? -A Comparative Study of High and Low Leveraged FMCG Companies in India - Prof N.L.Gupta

In this article author tries to outline the leverage capital structure of a firm based on the two companies of FMCG sector. The term Leverage in general refers to a relationship between two interrelated variables. In financial analysis it represents the influence of one financial variable over some other related financial variable. Variables may be costs, output, sales, EBIT, EPS, etc. Leverage provides the framework for financing decisions of a firm. It may be defined as the

employment of an asset or source of funds for which the firm has to pay a fixed cost, or fixed return. Leverage analysis is the technique used by business firms to quantify a risk-return relationship of different alternative capital structure. The research paper is based on research conducted of 2 best companies in the FMCG sector to analyze whether capital leveraging influences the profitability of the companies. As observed through the analysis that though Marico Industries Limited is a high leveraged firm than Britannia Industries Limited, their CAGR has been approximately the same. Definitely, a high leverage firm is able to provide better Return on Equity to its shareholders but the profitability of both the companies is similar. So basically, it is the capabilities of the management to employed the capital optimally that influences profitability of the company rather than the source of capital that is required to be invested in the business strategies of the company.

Indian Banks and Base I-II: An Econometric Analysis - Dr.Meera Mehta

In this article author tries to outline the New Basel Capital Accord which is often referred to as the Basel II Accord or simply Basel II, intends to strengthen the soundness and stability of the international banking system and reduce competitive inequalities between banks. Although the Basel Capital Accord of 1988 (or Basel I) was a milestone in ensuring effective banking supervision, subsequent changes in the banking industry, financial markets, risk management and bank supervision, as well as financial crises such as that in South- East Asia and East Asia in 1997-1998, led the Basel Committee on Banking Supervision to issue a revised Basel II guidelines in June 2004. The new accord aims to overcome the anomalies of the present system. It emphasizes on banks own internal methodologies, supervisory review and market discipline. The primary objective of the new Accord is to make it more risk sensitive and thus strengthen banking systems even in periods of financial crisis. Consequently, the new proposal moves ahead of the one-size-fits-all approach and adopts a methodology for gauging capital adequacy ratios based on credit risk, while also incorporating charges for operational risk. This paper attempts to examine the various aspects of Basel II guidelines and impact of Basel II on Capital to Risk Asset ratio (CRAR), which is expected to capture the regulatory pressure on banks lending and ratio of Non-performing assets (NPAs) to total advances as measure of banks financial health. The study concludes that Basel II regulations have led to significant improvement in the risk structure of banks as their capital adequacy has improved. The NPAs for both Public sector as well as private sector banks have declined. Also there exists a negative relationship between CAR and NPAs, which clearly indicates that due to capital regulation, banks have to increase their CAR which led to the decrease in NPAs.

Factors Affecting the Capital Structure of BSE-100 Indian Firms: A Panel Data Analysis - Dr.Sumi Khare

In this article author tries to outline the factors which affecting the capital structure of BSE-100 Indian firms which are as follows: Purpose: The purpose of the study is to examine important variables that impact debt-equity choice of BSE-100 index companies. Moreover, on the basis of signs of the coefficients, the paper examines the applicability of trade-off or pecking order theories for BSE-100 index companies. Methodology: Financial data was collected over 10 years from year 2000 to 2009 for BSE listed firms using Prowess source. A Panel data analysis was used for cross-sectional time series data. Leverage defined as ratio total liabilities to total asset is taken as dependent variable. Findings: The results showed returns on assets to be most significant factor for leverage followed by profit margin on sales and DO (ratio of total depreciation to total assets).Also, pecking order theory was found to be applicable for capital structure of BSE index listed companies. Research limitations: Data for some companies is not available through prowess. Practical Implication: Capital structure is important for companies to understand how much debt they need to employ. Therefore, this study will aid companies arrive at an optimal level of debt in their capital structure.

Social Implication: Some of the big investment banks failed in United States because of high level of leverage employed by them and as a result of which, investors suffered losses. Therefore, it is essential for companies to arrive at the optimal debt equity ratio. Originality/Value: The main value of this study is the identification of the factors that influence the capital structure of BSE listed firms in India.

Volatility Estimation in the Indian Stock Market Using Heteroscedastic Models - M.P.Rajan

The Indian stock market is experiencing tremendous changes since the past few years. In the recent past, the market witnessed erratic fluctuations in stock prices. The unexpected shocks over time lead to ups and downs in the market and hence, large swings in price. This unpredictable change over time has to be measured as it represents the uncertainty and risk. The estimation of this unpredictable change, the so called volatility, is indispensable in any economy as it is an integral part of any investment or financial decisions such as asset allocations, derivative pricing or risk management. In this paper, we discuss different mathematical models to model the volatility of the stock market in general and apply it to Indian context to pin down one, that captures the irregular behavior of the Indian stock market.

Impact of Dollar Fluctuation on Gold and Crude Oil Prices - Divyang J.Joshi
In this article author tries to outline Impact of Dollar Fluctuation on Gold and Crude Oil Prices. The `/$ rate is very important for the movement of prices of Gold and Crude oil. The `/$ rate is considered as a base by the commodity traders to forecast the Gold or Crude oil movement. This gives a strong subjective background to test the existence of any such relationship in India. This paper focuses on to establish and validate the long term relationship of commodities prices (Gold & Crude Oil) with Exchange rate (`/Dollar.) in the Indian context. There are numerous traders in India who trade in commodities on the basis of relationship of `/$ exchange rate and Commodity price.

There are many other factors on which the prices of Gold and crude oil may depend. They are government policies; budget, inflation, economic and political condition of the country etc. affect the prices of Gold and Crude oil. But this study focuses only on one independent variable i.e. `/$ exchange rate. The data of `/$ weekly closing rate taken as an independent variable and the prices of Gold and Crude oil are taken as dependent variables.

The correlation-regression analysis and ADF test is used to find out relationship among `/$ exchange rate volatility v/s Gold & Crude oil. The `/$ exchange rate found stationary with the help of ADF test. The study shows the negative relationship between `/$ exchange rate and Gold and Crude oil.

Stock Market Anomalies: A Test of Calendar Effect in the Bombay Stock Exchange (BSE) - Abhijeet Chandra

Various seasonal patterns in returns have been found in the stock markets across the world. These patterns often referred to as anomalies, can be seasonal. This study examines whether calendar anomalies exist in the stock returns in the Bombay Stock Exchange (BSE). It investigates two types of calendar anomalies such as the turn-of-the-month effect and the timeof-the-month effect in returns in one of the leading stock exchanges of India. Data pertaining to the ten-year period of 1998-2007 has been used for testing the two types of calendar anomalies. Results reveal that the turn-of-the-month effect and the time-of-the-month effect have significantly existed in BSE Sensex returns. Returns in the first few days of the month are found to be positively significant compared to the remaining days of the month. Different time segments of a month, however, witness significantly varying returns. The evidence of this study strongly supports the existence of calendar effects in the returns of the BSE-Sensex. JEL Classification: C22, G28, K22.