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APRIL 24, 2005
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Fashionably Chinese
China, say marketers, the kind who believe in touchy-feely research, is better understood not by all the statistics that forever hold economists in thrall, but by what is actually going on in such arenas as fashion. So, what's going on anyway? Here's an attempt to find out. Through a thoroughly unscientific sample survey of China's fashion scene.


Versace
It's a name everyone who can spell 'fashion' has heard of, but a name very few in India can explain the actual significance of.

More Net Specials
Business Today,  April 10, 2005
 
 
Slick Future
Crude oil futures is an opportunity you don't want slipping out of your hands.

The introduction of crude oil futures on the multi-commodity exchange (MCX) on February 9, 2005, has given Indian investors an opportunity to trade in arguably the most heavily-traded commodity in the world, oil. And the response has been sufficiently positive, with volumes having crossed Rs 100 crore per day already. Of course, that's peanuts compared to the staggering $22 trillion (Rs 9,68,00,000 crore) the world's leading commodity exchange, the New York Mercantile Exchange (NYMEX), trades on the commodity every single day. Then, NYMEX began trading in crude oil futures in 1983.

Investor Profile

On the MCX, 50 per cent of the volumes have been corporate in nature, with investor interest largely coming from traders and speculators. Says Rajni Panicker, Head (Research), Refco Commodities: "This product is meant for all investors, as crude oil is the best bet against inflation. Also, it attracts a lot of speculators, since crude oil is influenced to a large extent by global political and economic situations." Adds Anjani Sinha, CEO, MCX India: "It works very well for hedgers-if prices go up, they gain from futures' profit, and if prices go down, the loss is offset by savings on consumption. Hedgers protect themselves against the risk of price fall through crude oil futures."

However, it's not just corporates and speculators who can take advantage of crude oil futures. The MCX, by allowing individual investors to start off with a 100-barrel contract by paying only 5 per cent margin money, has ensured that the common retail investor also gets a shoo-in. But while for speculators this is just another instrument to punt on, retail investors should take expert advice from commodity brokers before putting their money in.

Investing In Crude Futures

The rules of the game are simple. The minimum you can buy on one contract is 100 barrels of crude. So if crude price is at Rs 2,200 a barrel, the total value of the contract is Rs 2,20,000, of which you pay 5 per cent, or Rs 11,000, to get the contract. If a month later, crude prices rise to Rs 2,400 per barrel, you make a clean profit of Rs 20,000 (Rs 200 per barrel for 100 barrels). Of course, if prices move the other way, you have to shell out the difference (see Crude Facts: Spot Vs. Futures for a more detailed example). In case of additional volatility (sudden price spike upwards or downwards), a special margin is determined by the MCX and imposed on both buy and sell positions for three days. As an investor in crude oil futures, therefore, you have to keep a sharp eye out for price movements, both domestic and international, as well as for other factors that could influence prices.

What are these factors? "Any economic or political uncertainty has a bearing on crude oil prices," says Panicker. That would include interest rate movements, OPEC (Organisation of Petroleum Exporting Countries) announcements, terrorism-related incidents, inflation, even war. "It would also be vital to keep an eye on price determinants like the international demand and supply situation, any unrest in the oil producing countries and any related development in the us (the world's largest consumer of oil)," says Sinha of MCX India.

As for the current outlook, global events have brought about a significant rise in the price of crude recently, with prices touching $57 (Rs 2,508) on March 21, 2005, up from around $48 (Rs 2,112) a month ago. At the time of writing, crude prices were quoting at around $54 (Rs 2,376) a barrel. With global indicators in favour of buying at this point in time, its time for you to get into crude futures.

Crude Facts: Spot Vs. Futures
Gaurav, a businessman (hypothetical, of course), decides to invest in crude looking at the current volatility and in anticipation of a further price rise. He has available Rs 25,000 in cash, which he can invest in either of two ways: buy crude from the spot market, or buy crude futures.

Spot Market

At a price of, say, Rs 2,000 per barrel, Rs 25,000 will fetch him only 12 barrels of crude in the spot market, with Rs 1,000 left over. The problem with buying from the spot market is that if Gaurav doesn't sell these 12 barrels on the same day (price rise or not), he has to take delivery of the barrels. Assuming he does that, and assuming that a month later the crude price rises to Rs 2,250 per barrel, Gaurav can get Rs 27,000 for the 12 barrels for a gain of Rs 3,000.

Crude Futures

Futures are a better option for Gaurav, since as a relatively small investor, he would not be interested in taking delivery. So, he buys two one-month contracts of 100 barrels each, that's 200 barrels of crude futures, on MCX. Here, for 200 barrels worth Rs 4,00,000 (at Rs 2,000 per barrel), he has to shell out only Rs 20,000, which is the 5 per cent margin money required. A month later, when the price moves up to Rs 2,250 per barrel, 200 barrels fetch him a profit of Rs 50,000 (at Rs 250 per barrel for 200 barrels).

That may sound alluring, but if profits can be manifold, so can potential losses. For instance, a Rs 250 fall in the crude price would see Gaurav lose Rs 3,000 if he had bought from the spot market, but a neat Rs 30,000 (that's Rs 50,000, the total difference in price, less the Rs 20,000 margin money he paid earlier) if he had bought futures. Even if he wants to extend the futures contract by another month, he has to pay his dues (Rs 30,000) first, and then another 5 per cent margin money (on the new price) for the next month. Investing in crude futures, therefore, requires immaculate knowledge of the industry, and some daring.

 

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