Agriculture: Monsoon and its impact on India`s backbone

August 17, 2009, Monday, 11:07 GMT | 06:07 EST | 15:37 IST | 18:07 SGT

The share of agriculture to the gross domestic product (GDP) has dropped from 25% in 2002 to 17% currently. Yet, agriculture contributes a huge chunk to the GDP, making it a very important sector for India's growth. The performance of this sector is very crucial to the Indian economy not only with regard to GDP but also as a huge chunk of the Indian population is dependant on agriculture. Rainfall in India so far this year is 28% below par and this is a major cause of concern as the impact could be devastating. Monsoon in the northwestern region of India, the main growing area, is 40% below average. If agricultural production goes down in India then the direct impact would be a decline in the income of people. The economy as a whole and the GDP will get affected. This factor could lower production of food but raise the prices. Hence, the significance of the monsoon for the economic system cannot be under-estimated. The monsoon can directly affect government savings, public investment and foreign exchange reserves.

It is not only important for the monsoon to commence, but the time of commencement is also important. For farmers, it is highly critical to know when the onset will occur as this affects the timing of the planting of crops. If rainfall is deficient then more than two-thirds of the seedlings can die. To prevent this, the prediction systems play a very important role.

Global warming, as well known has resulted in the shift in the monsoon patterns which has adversely impacted the agriculture. Since the beginning of the monsoon, its advancement became slow into the nation. If, we see from the above charts the rainfall in the month of May 2009 was scanty over the regions but has gained momentum since the beginning of July 2009. India being an agri nation and farmers majorly relying on monsoon farmers stand handicapped if the rains are not in time. If we see the overall distribution of rainfall the northern region has not received adequate rainfall for its kharif sowing. Crops which stand at risk are as follows Paddy, pulses, bajra, cotton, Soy bean and sugarcane. Most of the farmers being small and marginal holding small lands depend entirely on the rains. They have poor irrigation facility. India, have done less on the monsoon management and rain water conservation. Power and water have been misused by many and it has been left unnoticed.

Monsoon - a major climatic occurrence No other climatic occurrence affects the lives of so many people around the world than the monsoon. Economies that are dependant on agriculture critically depend on the rains. India primarily depends on the rains for its agricultural produce as ninety-five percent of all rice is produced during monsoon. Though rice is cultivated under a variety of conditions, it performs well in the monsoon climate. The impact of an abnormal monsoon can be tremendous and the damages can cost in millions. An abnormal monsoon can result in the loss of seasonal employment, shortage of food and income, spread diseases and have an impact on agricultural growth, inflation, economic activity and overall market sentiments. Hence, an abnormally wet monsoon could be better than a dry one. India's rice production is directly proportional to the rains.

A historical snapshot of monsoon and its impact on the Indian economy In 1965-66, rainfall was about twenty percent below normal in 14 of the 32 meteorological subdivisions on India. This led to a substantial decrease in rice production and food crisis. An abnormally wet monsoon is beneficial as it improves ground water availability and allows growth of good crops.

In the recent years, 2002 witnessed one of the worst droughts resulting into loss of grain production and dragged agricultural growth. On the backdrop of this, the GDP growth slowed from 5.8 to 3.6%.

Sufficient food grain stocks - could prevent a highinflation situation

Poor rainfall can have an obvious impact on food prices, thereby impacting inflation. However, India has some respite in the form of comfortable levels of food grain stocks. In 2002-03, the release of these stocks helped to contain rise in inflation, mainly in food grains. The government has declared that it has sufficient food grain stocks to meet demand under the public distribution system (PDS) and other welfare schemes during 2009-10. Food grain stocks as on June 1 stood over 535 lakh tonnes against the government's annual requirement of 496 lakh tonnes. The break up of the food grain stocks constitutes - 204.03 lakh tonnes of rice and 331.22 lakh tonnes of wheat. At the current level of allocation, the annual requirement of food grains is around 446 lakh tonnes of PDS and about 50 lakh tonnes under other welfare schemes. Hence, even if the impact of poor rainfall in India will be negative, prices will be controlled from spiraling as India has adequate food stocks to manage the situation.

Further impetus to growth

The Indian government is aiming at a better environment for farmers. Initiatives like improving upon the value chain in terms of infrastructure facilities in rural areas, accelerated irrigation provisions, easier borrowing mechanism, increasing the warehousing/cold storage facilities to reach across the country by providing incentives etc. shall go a long way. Further, to bridge the rural-urban divide and ensure that the aam aadmi (common man) remained at the centre of the development process and its programmes and schemes, budgetary allocation for all rural-focused schemes have been increased by 45% - 144%. The aim of the Budget is to further stimulate demand in rural India, which has also been responsible for perking up many industrial sectors recently, despite the economic downturn.

Policies in favour of agricultural growth

The goal and decision of the Indian government is expected to go a long way in transforming the Indian agricultural sector. It will help in developing the spot markets, mandis and lead to better and efficient price discovery in agri commodities. We expect this to lead to steady growth in the agri commodity futures volumes on the exchanges. The development schemes announced by the government are aimed at providing support to the agricultural sector and could help boost production is respective commodities, thereby bridging the gap between demand-supply. The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is aninitial public offering (IPO) The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock,bonds, options, and futures are bought and sold With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly fromissuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case oftreasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

Types of share capital

Authorised share capital is also referred to, at times, as registered capital. It is the total of the share capital which a limited company is allowed (authorized) to issue. It presents the upper boundary for the actually issued share capital. Issued share capital is the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorized capital.

Shares outstanding are those issued shares which are not treasury shares. These are all the shares held by the investors in the company. [2] Treasury shares are those issued shares which are held by the issuing company itself, the usual result of a buyback.

Issued capital can be subdivided in another way, examining whether it has been paid for by investors:

Subscribed capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ("unsubscribed capital"). Called up share capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments.

Paid up share capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in installments ("calls-in-arrears").

Bollinger Bands
From Wikipedia, the free encyclopedia

S&P 500 with 20 day, two standard deviation Bollinger Bands, %b and BandWidth.

Bollinger Bands and the related indicators %b and BandWidth are technical analysis tools invented by John Bollinger in the 1980s. Having evolved from the concept of trading bands, Bollinger Bands can be used to measure the highness or lowness of the price relative to previous trades. Bollinger Bands consist of:

an N-period moving average (MA)

an upper band at K times an N-period standard deviation above the moving average (MA + K)

a lower band at K times an N-period standard deviation below the moving average (MA K)

Typical values for N and K are 20 and 2, respectively. The default choice for the average is a simplemoving average, but other types of averages can be employed as needed. Exponential moving averages are a common second choice. [note 1] Usually the same period is used for both the middle band and the calculation of standard deviation.[note 2]
Contents [hide]

1 Purpose 2 Indicators derived from Bollinger Bands 3 Interpretation 4 Effectiveness 5 Statistical properties 6 Bollinger Bands outside of finance 7 Notes 8 References 9 Further reading 10 External links

[edit]Purpose

The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition, prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.[2]
[edit]Indicators

derived from Bollinger Bands

There are two indicators derived from Bollinger Bands, %b and BandWidth. %b, pronounced 'percent b', is derived from the formula for Stochastics and tells you where you are in relation to the bands. %b equals 1 at the upper band and 0 at the lower band. Writing upperBB for the upper Bollinger Band, lowerBB for the lower Bollinger Band, and last for the last (price) value:

%b = (last lowerBB) / (upperBB lowerBB) BandWidth tells you how wide the Bollinger Bands are on a normalized basis. Writing the same symbols as before, and middleBB for the moving average, or middle Bollinger Band: BandWidth = (upperBB lowerBB) / middleBB Using the default parameters of a 20-period look back and plus/minus two standard deviations, BandWidth is equal to four times the 20-period coefficient of variation. Uses for %b include system building and pattern recognition. Uses for BandWidth include identification of opportunities arising from relative extremes in volatility and trend identification. In a series of lectures at The World Money Show in Hong Kong, Asian Traders Investment Conference in Singapore, the Italian Trading Forum in Rimini, Italy, The European Technical Analysis Conference in London, England and the Market Technicians Symposium in New York, USA, all in Spring of 2010, John Bollingerintroduced three new indicators based on Bollinger Bands. They are BB Impulse, which measures price change as a function of the bands, BandWidth Percent, which normalizes the width of the bands over time, and BandWidth Delta, which quantifies the changing width of the bands.
[edit]Interpretation

The use of Bollinger Bands varies widely among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band.[3]Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close together, in both instances, expecting volatility to revert back towards the average historical volatility level for the stock. When the bands lie close together a period of low volatility in stock price is indicated. When they are far apart a period of high volatility in price is indicated. When the bands have only a slight slope and lie approximately parallel for an extended time the price of a stock will be found to oscillate up and down between the bands as though in a channel.

Traders are often inclined to use Bollinger Bands with other indicators to see if there is confirmation. In particular, the use of an oscillator like Bollinger Bands will often be coupled with a non-oscillator indicator like chart patterns or a trendline; if these indicators confirm the recommendation of the Bollinger Bands, the trader will have greater evidence that what the bands forecast is correct.
[edit]Effectiveness

A recent study concluded that Bollinger Band trading strategies may be effective in the Chinese marketplace, stating: "Finally, we find significant positive returns on buy trades generated by the contrarian version of the moving-average crossover rule, the channel breakout rule, and the Bollinger Band trading rule, after accounting for transaction costs of 0.50 percent." Nauzer J. Balsara, Gary Chen and Lin Zheng The Chinese Stock Market: An Examination of the Random Walk Model and Technical Trading Rules.[4] (By "the contrarian version", they mean buying when the conventional rule mandates selling, and vice versa.) A paper by Rostan, Pierre, Thoret, Raymond and El moussadek, Abdeljalil from 2008 at SSRN uses Bollinger Bands in forecasting the yield curve.[5] Companies like Forbes suggest that the use of Bollinger Bands is a simple and often an effective strategy but stop-loss orders should be used to mitigate losses from market pressure.[6]
[edit]Statistical

properties

Security prices have no known statistical distribution, normal or otherwise; they are known to have fat tails, compared to a Normal distribution.[7] The sample sizetypically used, 20, is too small for conclusions derived from statistical techniques like the Central Limit Theorem to be reliable. Such techniques usually require the sample to be independent and identically distributed which is not the case for a time series like security prices. In point of fact, just the opposite is true; it is well recognized by practitioners that such price series are very commonly serially correlated -- that is, it is the case that the next price will be closely related to its ancestor 'most of the time'. For these three principal reasons, it is incorrect to assume that the percentage of the data that will be observed in the future outside the Bollinger Bands range will always be constrained to a certain amount. So, instead of finding about 95% of the data inside the bands, as would be the expectation with the default parameters if the data

were normally distributed, one will typically find less variance. The magnitude of how much less is a function of the security's then-volatility.
[edit]Bollinger

Bands outside of finance

In a paper published in 2006 by the Society of Photo-Optical Engineers, "Novel method for patterned fabric inspection using Bollinger Bands", Henry Y. T. Ngan and Grantham K. H. Pang present a method of using Bollinger Bands to detect defects in patterned fabrics. From the abstract: "In this paper, the upper band and lower band of Bollinger Bands, which are sensitive to any subtle change in the input data, have been developed for use to indicate the defective areas in patterned fabric."[8] The International Civil Aviation Organization is using Bollinger Bands to measure the accident rate as a safety indicator to measure efficiency of global safety initiatives.[9] %b and BandWidth are also used in this analysis.
[edit]Notes

1. ^ When the average used in the calculation of Bollinger Bands is changed from a simple moving average to an exponential or weighted moving average, it must be changed for both the calculation of the middle band and the calculation of standard deviation.
[1]

2. ^ Bollinger Bands use the population method of calculating standard deviation, thus the proper divisor for the sigma calculation is n, not n 1.

[edit]References
1. ^ Bollinger On Bollinger Bands The Seminar, DVD I ISBN 978-0-9726111-0-7 2. ^ [1] second paragraph, center column 3. ^ Technical Analysis: The Complete Resource for Financial Market Technicians by Charles D. Kirkpatrick and Julie R. Dahlquist Chapter 14 4. ^ [2] The Quarterly Journal of Business and Economics, Spring 2007 5. ^ [3] Forecasting the Interest-Rate Term Structure at SSRN 6. ^ Bollinger Band Trading John Devcic 05.11.07 7. ^ Rachev; Svetlozar T., Menn, Christian; Fabozzi, Frank J. (2005), Fat Tailed and Skewed Asset Return Distributions, Implications for Risk Management, Portfolio Selection, and Option Pricing, John Wiley, New York 8. ^ [4] Optical Engineering, Volume 45, Issue 8 9. ^ [5] ICAO Methodology for Accident Rate Calculation and Trending on SKYbary

[edit]Further

reading

Achelis, Steve. Technical Analysis from A to Z (pp. 7173). Irwin, 1995. ISBN 978-0-07-136348-8

Bollinger, John. Bollinger on Bollinger Bands. McGraw Hill, 2002. ISBN 978-007-137368-5

Cahen, Philippe. Dynamic Technical Analysis. Wiley, 2001. ISBN 978-0-47189947-1

Kirkpatrick, Charles D. II; Dahlquist, Julie R. Technical Analysis: The Complete Resource for Financial Market Technicians, FT Press, 2006. ISBN 0-13-1531131

Murphy, John J. Technical Analysis of the Financial Markets (pp. 209211). New York Institute of Finance, 1999. ISBN 0-7352-0066-1

[edit]External

links

John Bollinger's website John Bollinger's website on Bollinger Band analysis December 2008 Los Angeles Times profile of John Bollinger
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