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S T O C K M A R K E T S Derivatives: Round Two There's good news for derivatives players in the stockmarket. After launching index futures, the first stockmarket derivative product, on June 8, 2000, the Bombay Stock Exchange (BSE) is gearing up to usher in another derivative, index options, by November, 2000. Trading in index futures entails a commitment to buy or sell a specific quantity of an underlying security within a designated time-frame at an agreed price. But index options allow the buyer the option of either buying the index (call option) or selling the index (put option) at the agreed strike price. This is how it works: a buyer who owns, say, a clutch of Sensex stocks, is afraid that in a month's time the Sensex will slide to around 4,000 points from the current level of 4,600 points. He can buy an option to sell Sensex (put option) at the current price after a month. If the Sensex actually goes down, he will suffer a loss on account of his cash holdings in the Sensex stocks. But the buyer will be able to partly or fully recover the loss by disposing of his options at the higher price. On the contrary, if the Sensex goes higher than the strike price (in this case 4,600 points), the option holder will simply not exercise his option, even as he stands to gain from price appreciation of his cash shares. Options, of course, do not come free. One has to pay a price up-front to buy an option (known as option premium), and the buyer has to incur interest cost for locking up the money. Says Manoj Vaish, 39, CEO (Derivatives Section), BSE: ''A variety of trading and hedging strategies can be constructed using options along with futures and cash market.'' The option premium and the strike prices are quoted on the exchange and get traded. But they get decided on the basis of the following: the strike price and its relation to the market price, days and time left to expiry, volatility of the index, and the cost of carrying or implicit interest cost. While the strike price, the market price, and time to expiry are given, the implicit index volatility and interest cost would be created by the market forces of demand and supply. Under the 'American Option', it is possible to exercise the option at any time before maturity. But the BSE is likely to adopt the 'European option', under which options can be sold only on maturity. Says Vaish: ''We want to keep it simple and acceptable to the traders.'' And whether or not to trade in options is, of course, an option too. Dilip Maitra F A S T - F O O D
Come October, and hungry travellers on the Delhi-Agra highway will have more than just dhabas and motels to choose from. American fast-food giant McDonald's is opening shop in a Bharat Petroleum Corporation petrol pump on the Mathura highway. The 4,000 square feet (sq ft.) pit-stop will seat 180 people and cost Rs 4 crore. Although it will be housed in a BPCL outlet, its landmark, ironically, will be the Indian Oil Refinery across the road. That's worrying nobody, though. Says Vikram Bakshi, 45, Managing Director, Connaught Plaza Restaurants, McDonald's Delhi franchisee: ''We need such strategic tie-ups in the market. It's a win-win situation for both parties.'' In a country with complex land regulations, it is easier for the Golden Arch to piggy-back on public sector undertakings such as BPCL than go solo. For one, such PSUs own huge properties, and, for another, are spread in every nook and corner of India. McDonald's will pay a fixed rent, besides a percentage of its sales to BPCL for using its facility. The first highway restaurant is being seen as a big experiment that would pave the way for further expansion. The Mathura outlet is expected to pull in foreign and domestic tourists headed to and from Agra, residents of the Indian Oil colony, and daytrippers from Mathura and Agra. Once this takes off, McDonald's next stop would be the City of Taj Mahal, Agra. However, Bakshi says, the company is determined to keep the middle class as its primary target. Next on McDonald's radar are the highways connecting Delhi to Jaipur, Chandigarh, and Dehradun. It is in talks with other state-owned giants such as Indian Oil, Hindustan Petroleum, Indian Railways, and the Airports Authority of India. Bakshi claims that all the new restaurants are breaking even from first year on because of high volumes. In the US, it was such freeway joints that made McDonald's an American staple. Will McMathuras do the same in India? Jaya Basu N E T
U S A G E By 2003, India will have 23 million Net users, says a recent National Association of Software and Service Companies (NASSCOM) survey of Net usage in India. And helping the numbers come true, says NASSCOM, will be the expected improvements in bandwidth and Net television. Although high, the numbers don't look improbable. From 1.7 lakh in November, 1998, the number of Net subscribers had soared to 10 lakh by June 30, 2000. By the end of this fiscal, another six lakh subscribers are expected to join the ranks, and, by fiscal 2002, the number will more than double to 20 lakh. Says Atul Kanwar, 37, CEO of Mantra-Online: ''Though the numbers are a little stretched, I would say they are achievable once there is easy clearance of ISP applications by dot and MTNL." The second factor which could have hampered the growth of the Net was the bandwidth problem. But with new private international gateways opening up, that issue has more or less been resolved. NASSCOM's survey, which covered 68 cities and towns, comprising 92 per cent of the Net-using population, found that more than 200 cities and towns had Net connectivity. And that by the end of fiscal 2001, there would be 80 ISPs and 12 private international gateways. However, NASSCOM's president, Dewang Mehta, cautions: ''Any delays in allowing private ISPs access to bandwidth via submarine cables will cost the nation dearly.'' There weren't any surprises in the demographics of online population. Almost half the users were in the 18-24 age group, followed by 25-39 group (28 per cent). The above-40 category made up 11 per cent of the surfers, even as teens below 18 were at 12 per cent. After the generation gap, it's now time for the digital divide. Pooja Garg F O O D S Chicken Chettinad pizza in the South, paneer makhani in the North, sardines for the East, and pudina chicken for the West. At Domino's Pizza India, regionalisation is the strategy-setter's flavour of the moment. So is the case at Dabur, whose curry pastes have a coconut and tamarind flavour for the South, and mustard for the East. South Korean electronics major LG has started selling colour televisions that have prompts in vernacular languages such as Tamil, Bengali, and Marathi. The point: India may be one big market, but its preferences are strictly parochial. Agrees Siddharth Verma, 38, CEO, Reebok India: ''Data supports the argument that segmentation should be regional rather than rural-urban.'' It may be early days yet, but regional segmentation of markets is gaining ground. According to an LG spokesperson, the 46 per cent growth it reported in the CTV segment last year-in a market that grew only 5-10 per cent-was due to the launch of regional models. Till recently, most companies demarcated markets in terms of the rural-urban divide and incomes. Even the advertising segment merely dubbed national campaigns into regional languages without addressing the culture-specific issues. But the importance of local cultures in determining purchase is now becoming increasingly clear. Points out Gautam Advani, 34, Chief (Marketing), Domino's Pizza India: ''In terms of cultures and values, consumers clearly exhibit regional trends.'' If that means a million different pizzas, so be it. Seema Shukla L I Q U I D F
U E L The recent exit from India of power majors like PowerGen, Electric De France, National Power, and Marathon International could endanger the fate of upcoming liquefied natural gas (LNG) projects (see LNG Projects: One Too Many?). That's because the power sector was estimated to account for 63 per cent of the future LNG demand-put at 51 billion cubic metres by 2005. Some projects that could get affected include Enron's $500-million unit at Dabhol; Petronet LNG's two units in Gujarat and Kerala; Gujarat Pipavav's 2.5 MTPA facility in Gujarat; Dakshin Bharat Energy Consortium's 2.5mtpa unit at Ennore, Tamil Nadu; and Tata Power-Total-GAIL combine's 3 MTPA project at Trombay. Not all need worry, though. Some have already tied up supplies. Says Suresh Mathur, 57, CEO, Petronet LNG: ''LNG projects that manage to replace naphtha or fuel expansion of existing units will not be affected.'' Target companies may include existing naphtha users like National Thermal Power Corporation's power plants at Pipavav and Gandhar, and fertiliser majors Chambal Fertiliser (Kota) and Kribhco (Hazira). Petronet is mainly targeting existing consumers in Gujarat and along the HBJ pipeline, many of whom are using liquid fuels or are short on LNG because of lower production. Given the state of affairs, experts estimate that India's LNG demand will be between 10 and 15 MTPA by 2010. In contrast, the capacity could snowball to 40 MTPA if all proposals were to materialise. Clearly, there's room enough for just two or three of them. Of course, the situation could change dramatically if the states were to reform their power distribution set-ups and improve billings. But, at the moment, that sounds like a lot of gas. Ranju Sarkar |
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