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1st SEP 2007

Volume 1, Issue 1

Wealth Incorporation Presents

CHAANAKYA
..Tracking the Economy
"Do not think that you will begin to act in a great way at some future time; begin now. Do not think that you will act in a great way when you reach a different environment; act in a great way where you are now. Do not think that you will begin to act in a great way when you begin to deal with great things; begin to deal in a great way with small things." -- Wallace D. Wattles
Issue Attractions

National Headlines International Headline Corporate Interview Quiz Guest Editorial Student Editorial Pearls of Wisdom

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National Headlines
WIPRO has signed a definitive agreement to acquire the Nasdaq listed INFOCROSSING for $600 million- this is Indias biggest tech takeover. The government and SEBI have come around to the view that the current norms for delisting of shares featuring a reverse book building process should not be revamped. SEBI has approved changes to rules governing ESOPs, which will allow nominee directors to accept this as a compensation. In order to plug imports, the government has reduced the duty on Integrated Circuits (ICs) from 4% to zero. Due to high CENVAT overflow, most motherboard manufacturers in India had started importing from China. Despite continuing opposition from the Private Courier Industry, the Centre has revived work on amendments to the Postal Bill, which will prevent the former from carrying any letter or parcel below 150gm and also seeks to limit FDI in the sector to 49%. Power Grid Corporation of India, the countrys biggest transmission utility, has fixed a price band of Rs. 44-52 for its IPO and sale of government equity to raise between 2500-3000 crore.

Inflation- 4.10 % , IIP(Q2)-11.0 % 15 days Movements

International Headlines
Temasek Holdings, the Singapore government-owned investment agency, has approached Nasdaq to buy its 30% stake, worth 1.6 billion dollars, in the London Stock Exchange. The Hong Kong based Mulitex holdings plans to acquire a 10% stake in the Mumbai based Effort BPO. The worlds largest 24 hour convenience retailer 7 Eleven is set to make its foray into Indian markets. UK-based financial services and Real Estate Company Dawnay Day is planning to raise a $200-million India specific private equity (PE) fund. Japans central bank, Bank of Japan decided to keep the interest rates unchanged. The decision was probably prompted by current worries about a U.S. credit crunch that has affected markets worldwide. Blackstone acquires 50.1% stake in Gokaldas Exports far $165 million, also puts an open offer for 20% of share in the company. Lehman shuts sub prime unit. 1200 employees to be laid off.

Its only when the tide goes out that you learn whos been swimming naked.Warren Buffett

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Corporate Interview
Mr. Srikant Bhagavat , the founder of the Hexagon Capital Advisors Pvt. Ltd, shares his views on the recent hue and cry surrounding the US sub-prime, the current state of the economy and the market. CCIM: Is the market over reacting to the US sub-prime default issue? Mr. Srikant Bhagavat: Market must react to the news, and thats what is happening presently. This reaction is mainly due to the indirect impact of the American and European markets. The investors in these markets are mainly short term investors who have high leverage and invest by borrowing money. Their major strategy is to invest in emerging economies and mainly invest with an aim of Hedge Funds Risk. Once they fall short of liquidity they liquidate investments where they are earning high returns. The present effect is an indirect effect not a direct impact. CCIM: With the current trend , do you think the boom period is coming to an end? Mr. Srikant Bhagavat: No. India is still left with minimum two more years before the recession period starts. This is not an indication of the slowing down of the economy. The RBI is playing a major role in keeping tab on the economy by monitoring and controlling the interest rates. Once the interest rates start showing negative signs, those will be the early indication of the slowing down of the economy. CCIM: Are the current prices of stocks getting adjusted to reflect their true value? Mr. Srikant Bhagavat: All stocks were not overrated, only expectations were running high in the stock market. Due to the volatility some of the good stocks trading at a lower price can be grabbed. CCIM: Do you mean to say this is the right time to enter into the market? Mr. Srikant Bhagavat: Yes, this is the opportunity to get into the market with a long term perspective and buying stocks to hold for a long duration. Mr. Srikant Bhagavat advices not to go by the current media hype and collective paranoid phenomenon but instead invest with a long term view and buy boldly. He says that students must do a thorough research and study facts, until fully convinced about any market related story and than make an investment decision. Take a complete view of where you stand and than make a decision. Mr. Srikant Bhagavats prediction for the next fortnight With the present instability in the government and other anti-social elements being active, anything is possible. A minimum of 3 years period is required to come out with a proper prediction as this will give the opportunity to see through all uncertainties.

Quiz
1. An Indian bank has tied up with a foreign Exim bank for a line of credit of $ 200 m.. Which are the two banks we are talking of? 2. Finance ministry has asked PSU insurance companies to implement CIS by September. What is CIS? 3. Which bank is going to acquire stakes in UTI securities and how much? 4. Recently S&P ratings has downgraded a $300m senior unsecured bond of a company from BB+ to BB-. Which company are we talking about? 5. SBI has recently launched SSIs card with a credit limit of Rs. 5 lakh for small-scale industries. The purpose of the card is to? 6. Who authored "Security Analysis" the bible of fundamental analysis. He is also the mentor of Warren Buffett. 7. Name the first company to come out with a public offer through the book-building route. (Answers will be published in the next issue)

Wide diversification is only required when investors do not understand what they are doing. Warren Buffett

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SMEs and Mergers looking beyond


By Prof. Anirban Ghatak, CCIM
Did you Know? For the last 2 years there is an significant increase in M&A, MBO (Management buy outs) and MBI (Management buy ins) in the SMEs sector as they are looking for growth, spurred by a relatively stable economy, available funds and low cost borrowings.. It involves huge private deals and the typical transaction values in the SMEs market range from 250,000 to 5m or more. Deals from 10m to 100m tend to be advised by M&A boutiques. The current trend of highly leveraged deals will continue as the lenders are keen to back acquisition, where most of the money is borrowed and a larger element is unsecured. This implies there are plenty of buyers available with ready access to funds. Apart from this retirement sales, more acquisitions will happen because SMEs want to buy out competitors, diversify into new areas or new markets, or increase market share. The other attributes can be 'increasing entrepreneurial spirit', partly encouraged by the current capital gains tax taper relief legislation, Is M&A in the SME market sector good for the economy? Off course Yes, as the young companies have to move on and grow - and that's good for owners, employees and for the economy. So as the conclusion we can say that M&A can help smaller businesses to grow faster than they would relying on organic growth. MBI and MBO can offer challenging new opportunities for able managers that will be the future trend too.
A Native American tribe in South Dakota collects bottle caps left by campers, using them as currency. Several banks in the area now recognize the caps as legal tender.

Did you Know?

The future of Private Equity Investments in India


By Soumya Ranjan
With a nearly double digit growth rate, well developed financial markets and an over increasing pool of budding entrepreneurs, India has emerged as one of the hotspots for Private Equity (PE) firms. In 2008 the number of PE deals emanating from India will be around 300 and the value of the deals will be around $7.5 billion. This figure is expected to touch at least $10 billion by 2010. The biggest names in the PE business like Blackstone, Carlyle, General Atlantic and Britain Actis Partners along with local firms such as IDFCPE, ICICI Ventures and UTI Ventures are active in the PE space. The Blackstone group was involved in two deals with significant stake buyout in Gokaldas Exports and Nagarjuna C o n s t r u c t i o n C o m p a n y . Another important aspect of the Indian PE market is that the average fund size and the average deal size of the PE players has increased substantially. For the PE firms entry and exit has become relatively easy with the developments in the capital markets. The Indian PE market is still small and nascent. Indias investment share is only 6%7% of the global pie. Private investments in public enterprises (PIPE) constitutes nearly 40% of the deal flow in India in contrast to less then 10% in the U.S. Indian PE players still see themselves as Venture Capitalist players where as in abroad they see themselves as strategic investors. With many PE firms looking out for investments in the developing and emerging economies and India having the right mix, Indian PE market is all set to grow in the next couple of years.

In every year since 2000, stocks rated "sell" by Wall Street have outperformed stocks rated "buy" or "hold." Over the past four years, stocks that the Street has been telling you to sell have risen 19% per year on average. Meanwhile, the "buys" and "holds" have risen just 7%.

Did you Know?


The term "bank teller" originated in the wake of the 1929 stock market crash, when banks began hiring lowpaid workers to "tell" throngs of frantic depositors that their money was gone

Stock Ratnas
CICI BANK, BSE-532174, NSE-ICICIBANK CMP- Rs.862 TARGET PRICE- Rs.1235 RELIANCE CAPITAL,BSE500111, NSERELCAPITAL CMP- Rs.1146 TARGET PRICE- Rs.1400 PENINSULA LAND, BSE503031, NSEPENINLAND CMP- Rs.456 TARGET PRICE- Rs.719 RELIANCE COMM, BSE532712, NSE-RCOM CMP- Rs.520 TARGET PRICE- Rs.669 (CMP Current Market Price)

Buzz Word
Counterfeit- A practice of imitating currency, documents, certificates with intent to deceptively represent its content . Asset Stripping- the process of buying an undervalued company with the intent to sell off its assets for a profit. The individual assets of the company . Seigniorage- The difference between the value of money and the cost to produce it . Fiat Money- Money that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. Warren Buffet

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Tag Lines:

Live Richly- Citi Group See Your Financial Life in TotalMerrill Lynch

We

One Client at a Time- Morgan Stanley Audit.Tax.Advisory KPMG

a. Jp Morgan Chase b. State Bank of Pakistan c. Sundaram BNP Paribas Mutual Fund d. Peoples Bank of China e. Barclays Bank f. Bank of America g. Fortis Bank h. Corus How to prepare for the interview: Interview was focused on various derivatives strategies (practical aspects) along with their payoff matrix. Valuation of bond was the 2nd most important area. It focused from basics to valuation.

Pearls Of Wisdom
Aiyappan VR ( aiyappan.vr@rediffmail.com) Analyst, Infosys BPO Job Profile : 1. Processing: Accounts for 60-70% of the job 2. Other research

Practical aspects of SAPM ( Portfolio selection and justification) In processing, data regarding the US bond market is collected from RBI and central bank of various countries. Research is being carried Guidelines to help out with Deutsche bank which provides the information and 1. Follow any business paper regularly requirement to be carried out. The information needs to be 2. For those planning for equity firms, tracking one processed and a page document is thereafter presented to the industry and its companies is a must Deutsche bank.

Opening remarks
On the occasion of the release of Chaanakya the finance newsletter, initiated by the students of CCIM, I convey my best wishes for this initiative. It is initiatives like this which helps a student to link his knowledge with current developments and remain abreast of the ever changing external environment. May this humble newsletter mark the birth of a professional magazine in the field of finance. Prof. H. A. C. Poppen

On the occasion of the release of Chaanakya, the Finance news letter initiated by the students of CCIM, I
convey my hearty wishes for this initiative. The seed is sown; and it would also be our responsibility to ensure that it grows into a big tree to give fruits to all of those who touch it. Prof. T. S.Ramachandran

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com