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16th APR 2008

Volume 2, Issue 2

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy
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Issue Attractions
National Headlines International Headline Corporate Interview Quiz Student Editorial Investors Check/Tag lines/Buzz Word

The person that turns over the most rocks wins the game. And that's always been my philosophy -Peter Lynch, American Fund Manager

National Headlines

Indian steel PSUs in London on $9 bn takeover hunt to invest into mines producing a kind of coal needed to manufacture steel and develop Indian infrastructure. Reliance Petroleum to raise $500 mn for Jamnagar refinery.

Employers will have to quote the Permanent Account Number of their employees while submitting TDS (tax deducted at source) returns to the government as tax refund has become difficult without PAN.

Inflation 7.41% , IIP 8.7%

Hyundai Motors March sales up 66 pc at 47,001 units in March as against 28,239 units in the same month last year.

15 days Movements
16500 16300 16100 15900 15700 15500 15300 15100 14900 14700 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Sensex

Sensex

IL&FS declares bonus shares in 1:2 ratio. The company's net profit rose 54.77 per cent to Rs 6.39 crore for the quarter ended December 2007 against Rs 4.13 crore same quarter previous year. Punjab govt. announces Rs 16.35 crore relief for farmers Duty cuts to cost around Rs 4K cr, fiscal deficit may go up Tatas Motors to list on Tokyo exchange Corporation Bank business rises by 32% at Rs 95,000 cr BHEL net profit up 17 pc; turnover crosses Rs 20k cr Mindtree ties up with Oracle to support the latter's Oracle's Demantra Software product

40.9 40.7 40.5

Rs/$
Rs/$

40.3 40.1 39.9 39.7 39.5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

International Headlines
Gold

1200 1180 1160 1140 1120 1100 1080 1060 1040 1020 1000

UBS world's biggest subprime loser after fresh writedowns The latest writedown, 19 billion dollars (12 billion euros), was the biggest single subprime hit so far worldwide and came on top of 18.4 billion dollars the bank had written down in 2007. Dell to save $3 billion, shut Austin plant, cut jobs over the next several years to boost profits.

Gold(per gram)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Blockbuster bids over $1 billion for Circuit City Wachovia to raise $7 billion in capital Salesforce.com to showcase Google applications Procter & Gamble plans foray into hip-hop Southwest faces $3 billion fuel bill

4300 4250 4200 4150 4100 4050 4000 3950 3900 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Oil(per bbl)

Oil

I don't envy China. I wish to emulate China. - P. Chidambaram

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Interview With Prof Bhanoji Rao


(..Continued from previous issue) Q) What is your take on FDI regulations in India? (Suggestions, if any.) Reply- FDI regulation in the country is quite investor friendly. It is the infrastructure and transaction costs that deter FDI. Also we do not combine foresight and policy. For example I dream of India being the location for all books publishing activity of the world. This would call for a pro-active FDI policy into book publishing and printing. Q) Where do you see India vis--vis the other countries you have researched like Malaysia, Philippines, Indonesia, Vietnam, Sri Lanka, etc.? (Any parameters of comparison) R- Our strength is our people and our freedom. Our horrible weakness is our lack of discipline. Many smaller nations have the discipline that is delivering results. Also we talk and promise more than deliverable.

Q) What measures of financial inclusion do you think are feasible in India especially in rural and semi urban areas? R- Micro finance to groups is a good option. The scary part is loan waivers.

Q) Under the present scenario of rising Inflation, what do you suggest the government to have a trade off between interest rate & inflation, keeping in view the fed rate cuts & expected recession in US? R- In a highly globalizing economy, inflation control takes place via currency appreciation, skill development and wage/salary competitiveness. Interest rates will become increasingly difficult to manipulate. Leaving prices to markets, increasing supplies to lower costs and prices etc are the best for the longer term.

Q) What advice would you give MBA Finance students? What should their level of preparedness be when they enter the actual business environment? R- Every student must know that she or he is paid for specific skills that only she or he could supply. What is it that I have to add special and specific value? If one can answer the question with confidence, there is no limit to growth.

Quiz
1. What is a form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future? 2. What is a deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on expenses as mortgage interest, state and local taxes, gifts, and medical expenses, throughout the year, known as? 3. What is the category of mortgages with low-documentation or no-documentation mortgages that have been abused known as? 4. An event that produces a significant change within an economy, despite occurring outside of it, is unpredictable and typically impacts supply or demand throughout the markets, is known as? 5. A risk management technique that mixes a wide variety of investments within a portfolio, yields higher returns and poses a lower risk than any individual investment, is known as?

A bank is a place that will lend you money if you can prove you don't need it. Bob Hope, American Comedian, Actor.

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7 KEY RATIOS FOR PICKING STOCKS


(..continued from previous issue)
4. Price earnings ratio (P/E)

Compiled by: Nikhil Purohit

Did you Know?

Price/Earnings Ratio (P/E) = Price of the share / Earnings per share This ratio indicates the extent to which earnings of a share are covered by its price. If P/E is 5, it means that the price of a share is 5 times its earnings. In other words, the company's EPS remaining constant, it will take you approximately five years through dividends plus capital appreciation to recover the cost of buying the share. The lower the P/E, lesser the time it will take for you to recover your investment. P/E ratio is a reflection of the market's opinion of the earnings capacity and future business prospects of a company. Companies which enjoy the confidence of investors and have a higher market standing usually command high P/E ratios. 5. Dividend and yield There are many investors who buy shares with the objective of earning a regular income from their investment. Their primary concern is with the amount that a company gives as dividends -capital appreciation being only a secondary consideration. For such investors, dividends obviously play a crucial role in their investment calculations. It is illogical to draw a distinction between capital appreciation and dividends. Money is money -- it doesn't really matter whether it comes from capital appreciation or from dividends. A wise investor is primarily concerned with the total returns on his investment -- he doesn't really care whether these returns come from capital appreciation or dividends, or through varying combinations of both. In fact, investors in high tax brackets prefer to get most of their returns through long-term capital appreciation because of tax considerations. Companies that give high dividends not only have a poor growth record but often also poor future growth prospects. If a company distributes the bulk of its earnings in the form of dividends, there will not be enough ploughback for financing future growth. On the other hand, high growth companies generally have a poor dividend record. This is because such companies use only a relatively small proportion of their earnings to pay dividends. In the long run, however, high growth companies not only offer steep capital appreciation but also end up paying higher dividends. In short, it all boils down to whether you are prepared to sacrifice a part of your immediate dividend income in the expectation of greater capital appreciation and higher dividends in the years to come and the whole issue is basically a trade-off between capital appreciation and income. Investors are not really interested in dividends but in the relationship that dividends bear to the market price of the company's shares. This relationship is expressed by the ratio called yield or dividend yield: Yield = (Dividend per share / market price per share) x 100 6. Return on Capital Employed (ROCE) Return on capital employed (ROCE) is best defined as operating profit divided by capital employed (net worth plus debt). The figure for operating profit is arrived at after adding back taxes paid, depreciation, extraordinary one-time expenses, and deducting extraordinary one-time income and other income (income not earned through mainline operations), to the net profit figure. ROCE thus reflects the overall earnings performance and operational efficiency of a company's business. It is an important basic ratio that permits an investor to make inter-company comparisons. 7. PEG ratio PEG is an important and widely used ratio for forming an estimate of the intrinsic value of a share. It tells you whether the share that you are interested in buying or selling is under-priced, fully priced or over-priced. This is based on the assumption that the higher the expected growth rate of the company, the higher will be the P/E ratio that the company's share commands in the market. Lack of money is the root of all evil George Barnard Shaw

During The Middle Ages, metal was expensive and seldom used for household wares. Dishes and pots were made of economical clay called pygg and housewives kept their savings in pygg jars which they called pygg bank or piggy bank. Over the next two hundred to three hundred years, people forgot that "pygg" referred to the earthenware material, and the piggy bank came to be associated with the animal pig instead.

Answers To Quiz
1. Liability Driven Investment LDI 2. Itemized Deduction 3. Liar Loans 4. Economic Shock 5. Diversification

Stock Ratnas ASHOK LEYLAND, BSE- 500477, NSEASHOKLEY, CMP- Rs. 37.75 TARGET PRICE: RS 38 BHEL,BSE- 500103, NSE- BHEL CMP- Rs. 1,829.95, TARGET PRICE: RS 2,100 SINTEX INDUSTRIES, BSE- 500376, NSE SATYAMCOMP CMP- Rs. 414.25 TARGET PRICE: Rs.504

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Tag Lines:
HIGHER STANDARDS BANK OF AMERICA YOUR CITI NEVER SLEEPS; BECAUSE THE CITI NEVER SLEEPS; CITI. LIVE RICHLY; THE WHOLE WORLD IN ONE BANK; WHERE MONEY LIVES - CITIBANK THINK SMALL AKAI THE POWER TO BE YOUR BEST - APPLE COMPUTERS WHATS IN YOUR WALLET? - CAPITAL ONE WE MOVE THE WORLD / COMPETITION. BAD FOR THEM. GREAT FOR YOU DHL ITS TIME FOR CLARITY - KPMG A. Axiom B. Austin Silversmith D. Legal Funding Solutions C. Grapevine

INVESTORS CHECK
Kotak Mahindra 30 Unit Scheme-Growth (Kotak 30-G). The investment objective of the scheme is to generate capital appreciation from a portfolio of predominantly equity and equity related securities. Investors with low appetite for risk can consider taking exposure to Kotak 30. The funds return over the last one year has reiterated its ability to sail through difficult phases. While this fund may not be the best option for performance chasers, consistent returns over the last few years as well as the stability showcased during volatile markets such as the present one provides a good case for investment. Holdings of the fund includes investing in companies such as RELIANCE INDUSTRIES, L&T, HDFC, BHEL, INFOSYS etc.

Suitability: Kotak 30s large-cap focus may offer a relatively safer exposure to investors wanting to enter the equity market now Performance: Kotak 30s one-year return of 38 per cent over the last one year has comfortably beaten its benchmark
S&P CNX Niftys return of 29 per cent. Over a five-year period, the fund returned 50 per cent, beating its benchmark by a clear 13 percentage points. It, however, lagged its peer, HDFC 200, over this period.

Buzz Word

Killer bees Often used in risk arbitrage. Those who aid a company in fending off a takeover bid, usually investment bankers who devise strategies to make the target less attractive or more difficult to acquire. EDGAR The Securities & Exchange Commission uses Electronic Data Gathering and Retrieval to transmit company documents such as 10-Ks, 10-Qs, quarterly reports, and other SEC filings, to investors. Debt displacement The amount of borrowing that leasing displaces. Firms that do a lot of leasing will be forced to cut back on borrowing.

Book Quotes:
Why We Want You to be Rich is not a how to book that will actually teach you how to be rich, but a book that tells you why should be rich. It's a book that puts forward a list of consequences that will inevitably come about if you choose not to pursue financial security, and counteracts these consequences with a bunch of motivational talk that will send you on your way to great riches. -Why you want to be rich.

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Contributions made by :
Logos, Taglines & Editing News Did you know, Quotes Stock Ratnas, Quiz Graphs Investors Check Interview Book Quotes, Buzz Word Article Coordination Arihant Patawari Fouzia Taranum B Anup Rajan & Ashish Poddar Sukrutha Lavanya Gnana Devi Diwakar Grover Sasmit K. Sahu Nikhil Mehta Nikhil Purohit Manish Sinha