VOLUME 4.15ISSUE 77

November 1, 2010

Economics is not about things and tangible material objects; it is about men, their meanings and actions.

-Ludwig Von Mises

Rates 01Graphs 02Student Cartoon 03News 04National & International events in the world of financeDebate 05Is Indian economy the biggest bubble?Contemporary ArticlesUniversal life insurance policy and IRDA 06 IPO Study: Coal India Ltd. 08RBI looking into MFI ‘s 10SBI Bonds 11

Scam 11Wipro Ltd. Commodities Article 12Commodities tradingDid You Know? 148 Good things about the credit crunch Investor’s Focus 17Technical and fundamental analysisAlumni Speak 18A peek into the corporate world through our Alumni’s experienceBuzz Words 19FincopediaQuiz 20Check your Financial Quotient

Rep 6.00% Reverse Repo 5.00%Call rate 4.80-8.00 %Inflation (as on 14 Oct.) +8.62%Forex Reserve $ 295.399 billion(as on 22nd Oct 2010)91 day T-Bill 6.8536%IIP (for August) +5.60%6.90 GS 2019 8.0907-8.0907%

Rates

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“Money isn’t what motivates entrepreneurs; it is ac-knowledgement—a craving for your ideas to be ac-

knowledged.”

“You know what the difference is between a dead skunk and a dead banker on the road? There’s a

skid mark by the skunk.”

“You can’t overestimate what happens when you en-courage regulators to believe that the goal of regu-

lation is not to regulate.”

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future rates open interest

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sensex nifty

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Oil(per bbl)

By- Md. Zafar Iqbal I MBA - M

student’s caRtoon

03

inteRnational news

• Millions of protesters have gathered in cities across France to demonstrate their opposition to

proposed pension reforms. The government plans to raise the retirement age from 60 to 62 and

the full state pension age from 65 to 67.

• The Group of 20 pledged to refrain from competitive devaluations and commit to market de-

termined exchange rates, a G-20 official said, citing a statement to be released after talks end in

South Korea. The International Monetary Fund will be tasked with producing a broader report

on currency policies and studying economies with persistent trade imbalances.

• The US economy expanded at a 2% annual rate in the July-September quarter. It marked an

improvement from the feeble 1.7% growth in the April-June quarter. Consumers helped boost

last quarter’s economic growth with 2.6% growth in spending.

national news

By- Vaibhav Nagar, I MBA L

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• The flow of foreign money into the stock markets continued unhindered in October with to-

tal inflows crossing $6.425 billion, the highest in a single month. In fact, FIIs have been net

buyers on every trading day since Aug 30 till Oct 29 when they sold stocks worth $125.35

million.

• Oil minister Murli Deora met Finance Minister Pranab Mukherjee to seek cash compensation

of at least ` 15000 crore for state-run oil companies which have lost over ` 31,000 crore.

• Unusual short term liquidity shortfall in the money market forced call money rate— the over-

night interest rate that a bank pays to borrow from another bank — to shoot up to a high of

about 13%, Usually repo auction, under which banks borrow money from the RBI at a pre-

fixed rate (6% now), take place on all working days of the week

• India’s overall public debt increased marginally by 2.8% to ` 27.77 lakh crore in the first

half of the current financial year, but better management saw average maturity of outstanding

long-term increase to 9.83 years at end-September 2010 from 9.71 years at end-June 2010.

The average coupon (or interest rate) of outstanding stock also dropped to 7.85% from 7.79%

over the same period. Internal debt constitutes 89.4% of the government’s total public debt.

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is indian econoMY tHe BiGGest BuBBle?

By- Sona Joseph I MBA M

Narration: During the time, when the whole world is talking about India being the next biggest economy of the world, one can’t but sit and argue the sustainability of such a claim, considering the rapid growth and the lack of expertise at a domestic level. Is the growth of India rocketed by a foreign push, bound to be stalled when the other economies dawn upon the realization of the threat of being overpowered?

By- Richa Jain I MBA L

CONSThe so called Rural economy of India is still vibrant despite the global turmoil. SEBI and other regulating bodies should be given their due credit for being precautious before every major leap. The strong banking regulatory sys-tem has also helped India to weather the storms of global credit crunch. In fact, the fall of many private banks in developed nations led people to feel insecure about investing there, which have increased the flow of NRI deposits to In-dia’s strong and government owned public sec-tor banks.

When compared with other emerging econo-mies such as China, Indian economy is less dependent on exports. Domestic consumption makes up about 75% of India’s GDP, while it accounts for less than 50% of Chinese econ-omy. Manpower is the core strength of India with our entrepreneurs doing exceedingly well in the world market. India is a breeding ground for skilled labour. China might have abundance of technical expertise, but it is at the cost of quality. Countries like the USA would not com-pletely withdraw the outsourcing system sim-ply because they lack the knowledge to carry out the job when compared to Indians. The Tata Nano car is a witness to the country possessing technical expertise and with the nuclear deal bill being passed, we are making progress in the defense field too.

Moreover, two other major components of Indian GDP, agricultural and service sectors have not been affected by the global slowdown much. Other countries like Germany and UK too consider India a potential hub, which will ensure FDI and FII to flow for few more years

PROSThe Indian economy has seen a substantially rapid growth in the last five years. As India is a cost-effective and labour-intensive economy, it has immensely benefitted from the outsourc-ing of work by developed countries and also by having strong manufacturing and export-ori-ented industrial framework. Since a large part of growth and employment can be attributed to the BPO and KPO trends, and the rise in Sensex to the investments from FDIs and FIIs, what are the chances that our country’s economy will flourish?

Can a country which does not have its own technology for gun production for the safety of its citizens, a country which imports all the de-fense technology from other developed nations, actually be termed as ‘the next big thing’? In-dia has very stringent regulations controlling the exchanges which curb and block greater amounts of investments from FIIs and FDIs. China has the technology to manufacture a gad-get at half the price offered by the US. India does not possess such technical expertise.

Will our country ever grow beyond the reli-gious issues like the Ayodhya Verdict, the po-litical dirt that is being bought to the surface during the CWG hosting, the corruption that often leads to disputes between different states within the country? With the food prices rising, increase in imports, fall in agricultural output, corrupted political governance, will our country be able to match the expectations of the world?

It is time to reconsider the chances knowing that developed nations like US has its president ask-ing his countrymen to stop outsourcing jobs to

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After much of the conflicts between IRDA and SEBI over the control of the Unit-Linked Insurance Plan (ULIP) in India, the court has finally given its nod and authentication to IRDA to regulate the ULIP’s. IRDA has taken stringent decisions in regulating the ULIP’s which has directly affected the insurance agents. To help both the customers and insurers a new policy was in the ground plan waiting for the approval from the regulatory body and that policy is Universal Life Policy (ULP). ULP are basically hybrid product with features of both traditional and unit-linked plan. It is basically not a separate category of products instead it has modified and redefined to make it unique over ULP. ULIP is presently in the evolving stage in India.

By-Naveen Kumar Kulkarni, I MBA N

uniVeRsal liFe insuRance PolicY and iRda

to come. The CWG will no doubt act as trade multiplier, though the only concern remains is to what extent. Our country has a strong foun-dation, which means that though it has tight regulations the LPG process has come about gracefully.

Our basis for claiming India to be the next big thing is slow growth backed by a strong foun-dation and a huge manpower possessing capa-bility which is growing at an average rate of 8.5%. The rest of the world has no way out other than to participate in our growth because it is the only survival route for the developed nations. The rupee value is growing stronger in comparison with the dollar value which is depreciating and this is not a short-term trend. Indian companies are acquiring foreign com-panies all over the world. This shows that In-dian companies are getting a stronger hold in the global market. Savings is the key factor that will propel India’s growth story and our people are less leveraged individually when compared to citizens of developed countries.

As we know slow and steady wins the race, it is incorrect to say that India is the Biggest Bubble.

countries like India, and requesting them to first employ their own countrymen. Will our coun-try be able to provide employment to every In-dian even when the developed nations stop pro-viding us jobs? Wouldn’t the ‘so-called’ already developed nations withdraw their investments from our country when their own survival itself will be in danger?

Will our country withstand another financial crisis in case the European countries are un-able to repay the debt, given that the market was at all-time low when the sub-prime crisis took place? Our country is known more to be a saving economy than a spending economy. The MPS is somewhere around 35%, whereas that of the USA is much lesser. Now recollect-ing the theory of spending, India will not grow given that it does not spend enough to generate enough. The government borrowing in India has already reached 50% of its GDP. History is testimony to the fact that when such borrow-ing reaches its peak (i.e. say 90-95%), a coun-try is trapped in the vicious circle of debt and then there is no way out. Considering the cur-rent scenario it would not be wrong to say that ‘India Is the Biggest Bubble’.

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The major hallmark of this policy is its flexibility in terms of• Premium amount • Tenure and • Sum assured of the insurance Some of the other salient features of this plan are • The freedom to mutate the payment of the premium over the policy’s life that means if a person

has started a monthly payment then he/she has the freedom to swap to quarterly or annually.• If the customer fails to pay the premium amount within the stipulated time then the policy is

not automatically cancelled.• But if we compare ULIP and ULP then ULP holders cannot choose the investment option as

in case of ULIP. They will not get to know the asset value of their investment.

Some companies that used to offer universal policies are Max New York Life Insurance, Reliance Life Insurance, Aviva Life Insurance and Bharti Axa Life Insurance. If you descry both sides of the coin then we can confirm that ULP is advantageous to its customers in terms of flexible payment and guarantee that policy will not lapse.

Reasons for CancellationBut now IRDA has banned the further sale of the universal life policies because of the complaints it received on the sale praxis of the insurers and its arbitrage to life companies. The other reason is its high commission structure. IRDA thinks that it needs to build a better regulatory framework for protecting policyholder’s interest.

The regulatory body drafted some guidelines to define the Variable Insurance Product also known as Universal Life Policy to make it understand it in a better way. It has asked for the insurers thoughts on the same so as to make changes or implement the same in future.

Impact on Insurance CompaniesStopping a certain policy immediately will affect the business of the company. When we consider a particular policy there will be many agents working with that policy and the policy applied by policy holder will be at different levels of acceptance and both will be affected. Some companies have been strongly hit due to this decision because Universal Life Plan (ULP) is a major part of their business. They have much of their business from ULP and one of the companies in this category is Reliance while other companies are waiting for new guidelines as they think that new guidelines may bring transparency in the system. Many companies are even requesting for different norms to different companies.

Impact on Policy HoldersThe policy holders in a way are happy as many are in a dilemma regarding the regulations of this policy. They are looking for IRDA to come out with a structured regulations to help them understand the policy in a more better and efficient manner. But IRDA is not able to convince the

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policy holders in terms of distinction between ULIP and ULP.

ConclusionWe can conclude that Universal Life Insurance which is a modification of the traditional plan which can be observed from the guidelines drafted, has not been fully accepted by the customers because of its loop holes and incomplete guidelines from the regulatory body and in this regard the regulatory body has stopped insurance companies from selling this policy until final guidelines are released to help the customers understand the policy in preferable manner.

By- Saurabh Khator, I MBA L iPo studY: coal india

INTRODUCTIONWith large number of IPO hitting the market, one may wonder what IPO is all about and how it affects the common investor when markets are at their peak level. Initial public offer(IPO) is the way company raises money from the investors for its future projects and invariantly gets listed on the stock exchange. The market from which company raises funds is called the primary market. The Primary Market is, hence, the market that provides a channel for the sale of new securities to issuers, which can be the Government or corporate, to raise resources to meet their fund raising requirements, working capital, debt repayment, acquisitions, and a host of other uses. The market in which shares are already listed and traded is called the secondary market. To explain the process of IPO, let us take into consideration Coal India IPO. Coal India- a government owned company which is going public for the first time to raise funds. It is the largest coal producing company in the world with coal mining capacity of 431 million tonnes and reserves of 53.1 billion tonnes. Government is planning to divest around 10% of their holding in the company with this IPO. The IPO is a part of government fund raising of ` 40,000 crore through disinvestment for this fiscal year. The issue size is ` 15000 crore, the largest in line till now after Reliance power IPO size of ` 11800 crore. Some analyst believes this IPO is an answer to China’s biggest IPO Agriculture bank of China (ABC) with issue size of $22.4 billion.

CONTENT First step:-When a company decides to come up with IPO it has to go through series of guidelines instituted by SEBI. The first step is to appoint the *book running lead manager (BRLM), syndicate members and registrar of the issue to carry out the whole process. In case of Coal India IPO we see the BRLM are Citigroup, Morgan Stanley, ENAM Securities, Kotak Investment Bank, Deutsche bank and Merrill Lynch Limited. Kotak Securities Limited is the syndicate member to the IPO and Link Intime India Private Limited is the registrar to the company.

Second Step:-The second step involves the preparation of *1"Draft Offer document" by Coal In-dia Ltd and the Book Building Lead Manager of the public issue. This document is submitted to SEBI for review. After reviewing this document either SEBI ask lead managers to make changes to it or approve it to go ahead with IPO processing. Road shows are carried out by BRLM for investor’s viewpoint.

Third Step: After SEBI reviews draft offer document and revert back to lead managers to make changes. It approves “draft offer document” which is now called “offer document” after SEBI ap-proval. It’s now on the issuer to decide the date and the price band of the issue.

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Fourth step: The Company now sends the offer document to the registrar of the issue and the stock exchanges it is willing to list itself. After getting the necessary approval, the price band of issue is decided in consultation with the issuer company and the date when the issue opens is also decided. After putting in date and price band the “offer document” now becomes “Red Herring prospectus” which is then printed and posted to the syndicate members for distribution to the in-vestors. In case of Coal India if we see the Red Herring prospectus the price band for the issue was ` 225-` 245 and the date of the issue as October 18, 2010 and will get closed on October 21, 2010.Coal India is 100 % Book Building Process. In coal India we see 50% being reserved for *2QIB’s (Qualified Institution Buyers), 15% for *2HNI (High Net worth Individuals) or NII and 35% for the*2 retail Investors and 1% reserved for employees of Coal India. The number of equity shares for public offer are 631,636,440 of face value of ` 10 each which puts the company market capi-talization to 1.56 lakh crore, placing it in the category of navratnas. The *3minimum order quan-tity is 25 shares and in the multiples of 25 with maximum being 400 shares for retail investors. By this IPO, Government would reduce its holding by 10% in the company. The retail investors and employees would get 5% discount on the issue price. The issue would close for FII’s and QIB’s on October 20, 2010 while for retail investors it would close on October 21, 2010.

CONCLUSIONWith issue being closed on October 21, 2010 , market witnessed record bid from FII worth 1.20 lakh crore and retail investor subscribing IPO 2.23 times which is quite a good response for IPO of this size(15000 crore). Retail Investors subscribed for 44.6 crore shares as against 20 crore shares on offer. The HNI portion was subscribed 25.4 times. Overall the coal India IPO was sub-scribed 15.2 times which shows the phenomenal response from all categories of Investors. The IPO witnessed maximum bidding on the last day as QIB’s have to keep in 100% money upfront according to recent SEBI guidelines unlike earlier where they have to pay only 10 % of the ap-plication money. So far FII have pumped in 1.08 lakh crore into market this year. The IPO is scheduled to open on November 4, 2010. The Success of this IPO sets benchmark for the coming IPO like power grid Corporation FPO and SAIL FPO worth ̀ 8000 crore each. We expect the IPO to open with ` 100 premium and advise investors to book profit and recover their investments, as we expect selling from FII’s side after Diwali and at the end of this fiscal year.

*Book running lead managers are responsible for initiating the IPO processing, helping company in road shows, creating draft offer document and get it approved by SEBI and stock exchanges and helping company to list shares at stock market. Syndicate members collect the application for shares and Registrar of the issue is mainly responsible for processing of IPO applications, allocat-ing shares to applicants based on SEBI guidelines, processing refunds through ECS or cheque and transferring allocated shares to investors Demat accounts.

*1“Draft offer document” is usually a PDF file containing information about company business, management, risk involved with the issue, company financials and the reason company is going for the IPO.

*2QIB or Qualified Institutional buyers are Financial Institutions, Banks, FII’s and Mutual Funds who are registered with SEBI. NII or HNI are the ones which are not registered with SEBI like Individual investors, NRI’s, companies, trusts etc. Retail Investor are common investor and they cannot apply for more than ` one lakh in an IPO while HNI or NII can apply for more than one lakh shares.

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*3Minimum order quantity or lot size is the minimum shares that the investor can bid for while applying for the shares. The shares are allotted on the basis of bid received in each category.Since July 2006, SEBI made PAN number mandatory for IPO applicants. Forms submitted without PAN number or wrong PAN numbers are considered as faulty application and they are not considered for IPO allotment.

RBi looKinG into MFi’s

The surge in complaints against Micro Finance Institutions (MFIs) for charging abnormally high rates of interest and using strong arm tactics to recover loans has now prompted the apex regula-tory bank, Reserve Bank of India (RBI), to form a sub-committee to look into their functioning.

The RBI Governor announced that this sub-committee will look into the functioning of the MFI sector, and what bearing they have on the RBI policy. This sub-committee will decide on how they can convince these MFIs to pass on the huge profits made by them to the borrowers by lower-ing their interest rates charged from borrowers. It may be noted that since a large number of MFIs fall outside the purview of RBI, the latter cannot regulate their interest rates.

The apex bank can only suggest to these institutions to lower their interest rates, for the better-ment of the borrowers.

Why this move?The move comes after the Andhra Pradesh Cabinet approved an ordinance to rein in these MFIs, after the hard core measures used by these institutions allegedly forced some people to commit suicide. This ordinance calls for three year sentence and ` 1 lakh penalty for MFIs, in case found harassing borrowers for recovery of loans. In addition should register with state government.

It may be noted that a bill to regulate MFIs is also being prepared, which will be tabled in the Parliament, though this too may not cap the interest rates being charged.

RBI regulation and MFI’sThe RBI regulates only those MFIs that are registered with it as non-banking finance companies. Although the registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIs in the country. The central bank, however, does not prescribe lending rates for these institutions.

Relevance of MFI’s in this contextIn wake of the financial inclusion campaign of the government, and these MFIs being institutional sources of getting credit, they have become very important, especially for the urban poor and in rural areas. Like all other states, Punjab and Haryana, too, have a large concentration of MFIs, and since these prove to be an alternative to non institutional source of finance like money lenders, they have a very important role.If the banks were to increase their penetration and reach all unbanked areas in the hinterland, these MFIs will be forced to offer credit at cheaper rates.

By- Amala Gadde, I MBA V

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wiPRo scaM

Software major Wipro’s internal investigation into embezzlement of funds by a company employee, who allegedly committed suicide after the scam came to light in December, found that the amounts involved "were not material". The Bangalore-based firm also announced changes in certain key positions in the controllership team, but did not reveal the amount of money involved in the fraud.

The fraud came to light in December last year after a banker to the firm alerted Wipro about an overdraft. An employee working with Wipro’s ‘controllership’ division, within the finance department, had embezzled about $4 million by exploiting the exclusivity of access to the company’s banking accounts. The employee siphoned off the company’s money to his personal savings accounts in multiple transactions, worth anywhere between ` 1 lakh and ` 1.2 crore, and used the money to acquire jewellery apart from investing elsewhere, including buying land.

By- Chinmay Jethwa, I MBA L

sBi Bonds By- Prateek Nangia, I MBA V

The State Bank of India's first retail bond issue of ` 1,000 crore was subscribed over 17 times on Monday (the opening day). The issue has closed on October 25.

The bond will be allotted on first-come first-serve basis. As it was oversubscribed on the first day, those who will apply on the second or third day will have no chance to get the bond. The country's largest bank floated a public issue of lower Tier II bonds on Monday worth `1000 crore. Bids by high net worth individuals were at 18 times their allotted amount, while institutional buyers ap-plied for more than 46 times their allotment, the sources said. Indian companies have raised $6 billion in international bond sales this year, more than three times the amount raised in 2009.

Allotment of bondsMarket sources said the portion reserved for high net worth individuals was subscribed by over 19 times, while that reserved for retail investors was oversubscribed 6.4 times. The bond will offer an interest of 9.25% for 10 years and 9.5% for 15 years. The sale began on Oct. 18. State Bank is selling bonds for ` 5 billion , with an option to retain oversubscription up to another ` 5 billion , according to a bank statement.

However, it has a call option — SBI can redeem the bond - after five years. But if the bond is not redeemed after five years, the bank will give an additional half a percentage point interest.

Why preference to SBI bondsAs banks are offering an interest rate of 7% to 7.5% for five year deposit, the rate offered by SBI on the bond could be termed as attractive. Citigroup, Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. The bonds are proposed to be listed on NSE. Application size for retail investors is `5 lakh.

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coMModitY tRadinGBy - Mayuri Jain, I MBA K

Before going into depth of what commodity trading is, let us first get an insight of basics of com-modity market, its history and need of commodity trading.

Commodity market: Commodity markets are markets where raw or primary products are ex-changed. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

History: The history of organized commodity derivatives in India goes back to the nineteenth century when the Cotton Trade Association started futures trading in 1875, barely about a decade after the commodity derivatives started in Chicago. Over time the derivatives market developed in several other commodities in India. Following cotton, derivatives trading started in oilseeds in Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in Bul-lion in Bombay (1920). In order to restrict the unnecessary speculation in essential commodities and prevent farmers interest government prohibited forward and options trading of commodities. As a result commodities market tumbled down. Later in 1993, economy becoming more liberal and globalized government allowed future trading in 17 commodities group. But still, commodity

Wipro declined to offer any comments, as the company is in a silent period ahead of its second quarter results later this month.

Early investigations into the embezzlement reported at Wipro, earlier this year, hinted the in-volvement of multiple officials and units within the company’s financial department. Apart from investigating how the processes were tweaked to carry out the embezzlement, E&Y, along with the internal auditors, is also examining if there were more departments and people involved in the incident. For instance, while the controllership unit, where the embezzlement happened, is re-sponsible for authorizing payments, such requests are processed by Wipro’s payments-processing department called Wividus. “The embezzlement has been happening over three years. It cannot be carried out in isolation. The objective of investigations is to identify the process improvements and even fix accountability,” said an insider requesting anonymity. He added that it was still too early to draw conclusions, since the investigation is expected to be completed by October-end only.

Audit firm Ernst & Young, apart from an internal probe committee led by Narayanan Vaghul, former chairman of ICICI and an independent director with the country’s third-biggest software exporter submitted their reports to the company’s board. Wipro filed its annual report with the US Securities and Exchange Commission for the year-ended March 2010 more than a month after the scheduled September 30 deadline, as it was waiting for the on-going investigations to be com-pleted.

Though the image of the software giant has been tarnished up to an extent, the case does not mean that it has a permeable system. However this issue has once again raised the question of impor-tance of IT security and evaluation of vendor’s security standards.

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futures trading in India remained in a state of hibernation for nearly four decades, mainly due to doubts about the benefits of derivatives. Thus government further made policy changes favour-ing commodity derivatives and it was a timely decision too, since internationally the commodity cycle was on the upswing.

Why are commodities derivatives required?It is common knowledge that prices of commodities, metals, shares and currencies fluctuate over time. This makes people feel that price changes in future can create risk for businesses. Deriva-tives are used to reduce or eliminate price risk arising from unforeseen price changes.

Two important derivatives are futures and options.(i) Commodity Futures Contracts: A futures contract is an agreement for buying or selling a com-modity for a predetermined delivery price at a specific future time. The commodity futures have existed since the Chicago Board of Trade (CBOT, www.cbot.com) was established in 1848 to bring farmers and merchants together. The major function of futures markets is to transfer price risk from hedgers to speculators. For example, suppose a farmer is expecting his crop of wheat to be ready in two months time, but is worried that the price of wheat may decline in this period. In order to minimize his risk, he can enter into a futures contract to sell his crop in two months’ time at a price determined now. This way he is able to hedge his risk arising from a possible adverse change in the price of his commodity.

(ii) Commodity Options contracts: Like futures, options are also financial instruments used for hedging and speculation. The commodity option holder has the right, but not the obligation, to buy (or sell) a specific quantity of a commodity at a specified price on or before a specified date. Option contracts involve two parties – the seller of the option writes the option in favour of the buyer (holder) who pays a certain premium to the seller as a price for the option. There are two types of commodity options: a ‘call’ option gives the holder a right to buy a commodity at an agreed price, while a ‘put’ option gives the holder a right to sell a commodity at an agreed price on or before a specified date (called expiry date).

The option holder will exercise the option only if it is beneficial to him; otherwise he will let the option lapse. For example, suppose a farmer buys a put option to sell 100 Quintals of wheat at a price of `25 per quintal and pays a ‘premium’ of `0.5 per quintal (or a total of `50). If the price of wheat declines to say `20 before expiry, the farmer will exercise his option and sell his wheat at the agreed price of `25 per quintal. However, if the market price of wheat increases to say `30 per quintal, it would be advantageous for the farmer to sell it directly in the open market at the spot price, rather than exercise his option to sell at `25 per quintal.

Present scenario:Three multi-commodity exchanges have been set up in the country, viz,• The National Commodity and Derivative Exchange Ltd (NCDEX),• The Multi Commodity Exchange of India Ltd (MCX) and • The National Multi Commodity Exchange of India Ltd (NMCE).

With the help of these stock exchanges retail investors can now trade in commodity futures with-out having physical stocks!

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The most widely traded commodities are • Industrial metals: comes in many shapes and forms, with copper being the most liquid in India, followed by nickel, lead and zinc.• Precious Metals: one of the most actively traded commodities, with gold and silver being the two most liquid ones.• Energies: Crude oil and natural gas.• Agriculture: more liquid commodities are soya bean, guar seed, and chana, while others like wheat, maize, potatoes and sugar are also traded.

Commodities are easy to understand as far as fundamentals of demand and supply are concerned. One should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option.

In fact, the size of the commodities markets in India is also quite significant. Of the country’s GDP of `13,20,730 crore (` 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent.

Currently, the various commodities across the country clock an annual turnover of `1,40,000 crore (` 1,400 billion). With the introduction of futures trading, the size of the commodities mar-ket has grown many folds here on.

did You Know?

By- Abhijeet Singh I MBA G

8 Good things about the credit crunch

It is very hard these days to watch the news or read your daily newspaper without being constantly bombarded by predictions of doom and gloom and worse days to come due to the current credit crunch. Large banks are falling like flies after a lengthy fanatical high fuelled by a long greedy lending binge. With an increasing number of large businesses collapsing and the promise of many more to come, people find themselves constantly battling with feelings of uncertainty about the future were catastrophe seems to be looming just around the corner. However, we conveniently forget about the many perks that might result out of all this misery and we seem to have a strong tendency to push aside any optimistic ideas in keeping with the general doomsday mood that the media keeps inflicting upon us. The following points might help add a pinch of salt to our general perception of life and project a flicker of light towards the end of the tunnel. 1. High InflationWith inflation edging just below 5 points, things are getting more expensive every day. Yes, we are coughing up increasing amounts of money for the daily essentials and most of our salaries will not keep up with the increase. But for those of us who have debts and mortgages -which is probably a large majority as a result of the government's last ten years economic policy- things are not as bad as it seems. With inflation figures very close to the Bank of England interest rates,

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we are paying our mortgage lenders a smaller margin of profit in real money value. For a typi-cal `100000 mortgage, inflation alone is reducing just under `5000/year of the real value of the money owed. In a few years when we eventually emerge from the other end, many people will realize that this credit crunch has reduced the required time for paying their mortgages compared to average years. 2. Lower Interest RatesNo bonus points for guessing that sooner or later, the Bank of England will have to reduce interest rates to stimulate the economy. In our modern volatile economic environment, we are in a rare situation where we can be that certain about the coming year's interest rate predictions. This is obviously good news for those of us with debts and mortgages.

3. Lower ImmigrationRemember how hard it was last year to go through a day without reading a story about the con-siderable influx of immigrants into an already saturated island with infrastructure struggling to cope with the numbers? There has been a long debate about the effects of immigration and about weighting its benefits against its social and economical impacts.

This has prompted the government to introduce major reforms to the immigration rules which came just in time for the credit crunch to score a double whammy in the same direction. A weak pound combined with an unsecure, over-saturated job market is making the UK less attractive for new immigrants and even forcing some of those already here to think about leaving. The correction of course does not happen overnight, but it seems that the system has its own way of bringing back harmony and balance equalizing immigration volumes with the country's capacity to welcome new comers. 4. Positive Environmental ImpactsWith greedy big oil inflating prices and a weak US dollar, highly oil-dependent businesses in general are becoming less competitive compared with less oil-dependent ones. There is a growing incentive for both governments and businesses to switch to greener options in addition to making research in order to find alternative energy sources more economically viable. 5. Increased ExportsIt is a no brainer that the current weak pound will increase the competitiveness of our business abroad. This will play a significant role in getting us out of the crunch and will help create new jobs on the long run. 6. Collapse of Under Performing BusinessesThey say in an up moving market, only fools manage to lose money, while in a crashing one only the best are able to survive. The credit crunch is torching through financial markets like a forest fire. It is weeding away old infrastructures with weaker less cost effective businesses leaving behind only the solid foundations. Once the fire is out, we will have a market with only the best performing useful businesses and lots of space for expansion. 7. Improved Tourism RevenueA weak sterling and high air fares have already forced many of us to consider exploring the great

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destinations that good old GB has on offer for our next holiday. It is also cheaper now for foreign tourists to visit the UK which promises a nice timely boost to the tourism industry that in turn will generate extra real revenue contributing to end the crunch. 8. Lower House PricesWe all have been complaining about over-inflated house prices during the last 5 years, but when house prices come crashing down like a wall of bricks, we complain even more. The reality is, as we all knew and conveniently ignored, we all had it coming, and a seemingly endless inflation in house prices is obviously unsustainable on the long run.

Although this crash might be bad news for those of us who need to sell and down-grade during the crunch, the majority of home owners who borrowed sensibly will not be affected even if they wanted to sell and buy a similarly priced or more expensive property.

As for first time buyers, yes they will struggle during the crunch to get a mortgage, but once this is over, they will be able to buy the same houses with smaller mortgages, and with inflation wiping even more of their mortgage costs and interest rates expectedly coming down, this might compen-sate them for the rent money they had to pay during the crunch years.

Source: www.articlebase.com

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inVestoR Focus By- Madhukar Das, I MBA G

Technically Speaking

The price chart forms morning star candlestick pattern suggesting bulls are stepping in. Also there is a 2 week double bottom forming signal-ing a short term upmove.

Stochastic chart further confirms the short term upmove. Crosses in the oversold region.

William %R crosses over –80 in oversold region. And trend divergence is reverse of price, signaling short term buy oppor-tuni ty.

Commodi ty channel index line crosses over –100 and –50 lev-els.

Volume chart shows healthy activity and is trending up for last few trading sessions.

Special points of interest:

Since we are looking at a trading horizon of 15-30 days, we shall give more weightage to technical analysis and price trend of the stock.

We shall also study the fundamental as-pects of a company to avoid getting into loss making trade positions in case of movement of market in direction opposite to that of my prediction.

Recommendation : BUY Price : ` 1025.05

Target : `1100

Stop loss : ` 980

BUY :

Gemstone Investments

CMP—` 10.40

Target—` 12.10

Stop Loss—` 9.80

Short Sell :

Zenith Infotech CMP—` 239.95

Target—` 208

Stop Loss—` 250

Indiabulls Securities

CMP—27.80

Target—` 25.10

Stop Loss—` 29

Other Picks Reliance InfrastuctureThe markets have witnessed seesaw movement in the past couple of weeks owing to fund flow in and out of Indian markets my FIIs. Fi-nance minister Pranab Mukherjee has denied any FII cap for now, it remains to be seen where the market heads in coming weeks.

Fundamentally SpeakingReliance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. It has various projects un-der public-private partnership model. They will develop Mumbai met-ro and operate it for 35 years. Also NHAI has given several orders to build, operate and transfer scheme, five major projects in Tamil Nadu and one in Rajasthan. Mega plans in pipeline for specialty real estate. Reliance Infrastructure also distributes more than 28 billion units of electricity to cover 25 million consumers across different parts of the country including Mumbai and Delhi. The current P/E is at 24.1 as against industry average of 25.3. Also the price is 21x FY2011 earnings. The September quarter sales are expected to grow by 18-20%.

aluMni sPeaKBy- Geetika Gupta, I MBA N

In this edition, we have Mr. Bipin Kumar Singh to give us insights on entrepreneurship.

Name- Mr. Bipin Kumar Singh Qualification- BBM, MBA- FinanceOrganization: RBWIDesignation- DirectorBatch- 2006 Previous organization worked in- RMPW/ PRIVATE BANKERE-mail Id: bipinsingh@wealthinsight.co.inContact Number: +91 95388 67014

Chaanakya: What does your present job involve? Mr. Bipin: It involves managing the team, hiring and conducting performance appraisals, setting up targets and continuous monitoring of the health of the company.

Chaanakya: What inspired you to venture into entrepreneurship? How has your journey been so far?Mr. Bipin: Most importantly, passion to start something new, something different was the driv-ing force behind the birth of the idea and an equally passionate team to work with encouraged me to venture into this new avenue. The road was never easy. But with the initial crunches and inevitable hurdles, it was a bit critical to stay calm and we have managed to steer clear of that so far. So, with every move, we learn some things work while others don’t. And we keep improving by the day.

Chaanakya: What, as an entrepreneur, do you expect from MBA students?Mr. Bipin: A keen ear in current affairs, good communication skills, dedication, loyalty and a spark to outperform peers are some of the essential attributes.

Chaanakya: The first year students prepare themselves to hit the corporate arena as INTERNS. What advice would you give them for getting the best out of their internship?Mr. Bipin: Keep your eyes open towards the developments in the corporate arena and try to ab-sorb as much knowledge as you can during this internship.

Chaanakya: The Students from the second year are all set to take up Placements. Your Advice… Mr. Bipin: The students must have a blend of right attitude and good presentation skills. They should move in the direction of right areas and identify opportunities and posses a knack for practical application of Business knowledge.

Chaanakya: Lastly, a few words for our Budding Managers…Mr. Bipin: Never feel that you have learnt enough to be in a job, the end result will follow pro-vided you have adopted the right path.

Thank You!!!

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Three finger boogerIt refers to a situation that gets completely botched up (typically unexpectedly) and is extremely difficult to get rid of or to get away from. It can also describe some-thing you end up with that you didn’t ask for and don’t want, but can’t get rid of.

Use: Mike got a new client referral, but it turned out that the client had all kinds of problems nobody expect-ed to have to deal with, and was a general pain in the ass. His friend that referred the client said, “Man, I’m sorry, I didn’t mean to send you a three finger booger.” Soft paper reportIt is a negative reference to a report, indicating disbelief or a lack of confidence in the report’s facts, or just gen-eral disrespect for the report or its author. It’s called the soft paper report because it needs to be written on soft paper, so that it will have another use.

Use: “Craig’s presentation had no substance; it was a soft paper report.”

Feed the ducks when they are quacking, don’t look for ducks to feedThis phrase is used in regards to looking for investors or partners. You would always rather have them come to you hungry than chase them around with the bread. Be ready for investors when they come to you showing interest; don’t go after them trying to sell.

Use: “Brian advised, rather than trying to go to every potential lender that we should whisper down the lane, as it was a small community of prospects and we should let them come to us. Then we could feed the ducks when they are quacking, rather than just looking for ducks to feed.”

Poof offeringIt refers to a type of public offering where individually owned businesses suddenly combine their ownership into a new public company. It’s called a proof offering because on one day you have four private businesses and the next day, following the public offering, you have one new public company.

Reference: Green Weenies and Due Diligence by Ron Sturgeon

BuZZ woRds

THE AMERICAN WAY

16 CHAANAKYA VOL 4_13 20

QuiZ

1. Alfa, sky bags and Footloose are brands associated with which company?

2. Asia’s largest gold refinery will come up in the Manesar, Haryana. It is jointly built by Indian owned MMTC and PAMP. PAMP belongs to which country?

3. Boeing, GE Aviation and Lockheed Martin were in news recently for

4. Which channel is going to launch a sub-brand for women, with the letter 'W' being added to its original name?

5. From chief of SpiceJet to chief of Kingfisher Airlines, who made this transition recently?

6. For the eleventh consecutive year, this brand topped Interbrand's list of 100 'Best Global Brands'. Can you name it?

7. The 'Simply Clever' ad message is associated with which automaker?

8. Recently this bank completed 150 years of its operation in India and it goes with the tag-line ‘Committed to a changing India’. Which bank is it I am talking about?

9. Microsoft research has launched a multilingual content creation tool for Wikipedia called as

10. In which country's coins you can find the following lines imprinted, 'This is the root of all evils'?

By- Deepak Jose I MBA K

cRosswoRds

Across

3. The banks that have no physical presence and conducts business over phone6. The first woman to serve as Securities and Exchange Commission’s permanent chairman8. The famous Hedge Fund owner who made $2 billion profit during recession

Down

1. Brazil stock exchange located at Sao Paulo2. He is the poster-bad-boy of dot com bubble4. The banks that are licensed by nations with low taxes and limited financial regula-tions5. The measure to know how the price of a particular stock fluctuates in relation to the whole stock market7. The only major automaker to avoid bankruptcy

21

Quiz Answers1. VIP2. Switzerland3. These 3 companies together bagged 42% of

the total defence deals.4. ESPN (The sub-brand for women will be

ESPNW)5. Sanjay Aggarwal 6. Coca-Cola 7. Skoda 8. BNP Paribas9. Wikibasha10. Vatican City

Finance-de-HuMoR

JoKes aPaRt

22

QUESTION: When does a person decide to become a stockbroker?ANSWER: When he realizes he doesn't have the charisma to succeed as an undertaker.

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