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16th Nov 2008

Volume 2, Issue 16

Wealth Incorporation Christ University Institute of Management Finance Club Initiative Presents...

CHAANAKYA
Issue Attractions
National Headlines International Headline Corporate Interview Company Review/Buzz Words
Crossword/Quiz Investors Check Stock Ratnas Quiz/Crossword Answers Comments
Repo Rate-7.5% IIP - 6% Reverse Repo- 6%, Forex Reserves-$251.37bn CRR- 5.5%, Inflation Rate - 8.98%

..Tracking the Economy

There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else. John D
1 1 2 3 4
5-6 6 7 8

Rockefeller

National Headlines
Cabinet

okays bill to raise FDI in insurance to 49%. in talks to buy lotus AMC. defaults on lease rentals for 4 jets.

Religare Wipro

likely to buy Citis tech arm for $150 million.

Kingfisher Ban

unlikely on FDI in SEZ tobacco units.

Some

foreign banks stop gold supply to Indian counterparts in a bid to cut exposure to Asian Counterparts. competes for $50 million stake in Deccan Cargo. Minister asked DoT to auction 3G licenses in all zones.

ADAG

15 days Movements
10650 10500 10350 10200 10050 9900 9750 9600 9450 9300 4 6 10 11 12 14

Finance ICVL to
Sensex

Sensex

take 10% stake in Australian mining Company Gloucester Resources. plans to start co-operative dairy venture in Bihar.

ITC

Gold(per gram)
1200 1160 1120 1080 1040 1000 3 4 5 6 10 11 12 14
Gold(per gram)

International Headlines

Barack Obama elected 44th President of USA. Britain lifts ban on nuclear technology exports to India. German economy enters worst recession in 12 years. The global hedge fund industry lost $100 billion of assets in October. FIPB bars land resale by realtors with foreign joint ventures. Lupin to launch cardiac drug to tap Rs 3,600-crore market. RBI offers forex liquidity to Indian banks abroad.

Oil(per bbl)
3200 3100 3000 2900 2800 2700 2600 3 4 5 6 10 11 12 14
Oil(per bbl)


Rs/$

50 49.5 49 48.5 48 47.5 47 46.5 46 45.5 1 2 3 4 5 6 7 8


Rs/$

Success is a lousy teacher. It seduces smart people into thinking they can't lose.-Bill Gates

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Interview with Mr. Ajit Banarjee


Position Held : Head, Investments, Bharti AXA Insurance, Bangalore Q1. As a new player in the insurance sector, how do you rate your performance ? Ans. After getting the license in the month of July, we started operations in August. So as far as rating of the performance is concerned, neither much work has been done nor is it a right time to evaluate. May be by the end of this fiscal year we will be in a better position to come to terms with our set goals and performance evaluation. We are more into the casualty and property category under the general insurance and less in life insurance. All the companies have almost the same products with minor differences and so service will be the key initiator for performance evaluation and it will take time to get into the minds of the customers. Q2. How much growth do you see in the insurance sector w.r.t. the fall in the equity markets ? Ans. Not much of change, because it is important to understand that insurance is not an investment tool rather it is a social security tool. It just makes good the losses and not an instrument to make gains. With the mortality rates going up, we expect a surge in the various types of health insurance products. Q3.What are your thoughts about the kind of insurance products suitable to the Indian market ? Ans. Primarily products related to life, health, fire, motor and marine are the most popular and demanded insurance products. It also serves the purpose of an additional mode of savings. Products which provide full reimbursements or recovery of loss and damage will be of larger service to the society. Q4. How does inflation affect the premium amounts of your existing and new products of insurance ? Ans. Yes, inflation definitely takes a toll on the premiums, the intensity of effect depends on the company policies, the competition and the general market conditions. According to the current situation due to global recession the industrial production has come down, people are curbing the consumption levels to meet up the necessities so most of the insurance companies are going for a steep price cut since de-tariffing environment is prevailing as far as pricing is concerned and to catch the market, companies will provide discounts through lowering the underwriting charges. The bottom line is getting eroded even though the top line may increase. Q5.What are your thoughts about the recent government proposal to hike the FDI cap in insurance sector from 26% to 49% ? Ans. Its a very good proposal and is being welcomed by the industry. The foreign expertise and
skills, will allow for advances in actuarial science, but only if the government can ensure that these foreign companies will stay on for a longer period by limiting the relaxation in exit procedures.

Go as far as you can see; when you get there, you'll be able to see farther.- J.P.MORGA

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Company Review: WIPRO TECHNOLOGIES


Some quick facts on Wipro
Wipro is the worlds largest independent R&D Services Provider. Worlds 1st IT Services Company to use Six Sigma The pioneers in applying Lean Manufacturing techniques to IT services Wipro is a strategic partner to five of the top ten most innovative companies in the world* (*Technology Review Innovation Index 2005) 928 clients, 95000+ employees 54 development centers across the globe

Wipro reported a profit of Rs.9.96 billion ($203 million) for the second quarter of this financial year ended Sep 30, recording a 30 percent year-on-year growth to beat its own projection. IT Services revenue in dollar terms was $1.11 billion, showing a 4 percent sequential growth and 29 percent year-on-year growth. In rupee terms, revenue stood at Rs.47.50 billion, a year-on-year growth of 36 percent. Corporate Culture
Wipro makes working an enjoyable experience by providing a right balance between work and fun. Informal dress and vibrant weekends mix with a sense of teamwork inculcated from the very beginning. Initiatives like 360 degrees appraisal system and skip level feedback encourage feedback at all levels. W ipro strives to provide an environment that is stimulating with high levels of motivation, empowerment and recognition, removing obstacles that hinder creativity. In this energized atmosphere they share success while setting new standards of excellence.

Careers at Wipro
Development and Training E Learning Educational Tie-ups Wipro Leaders Program WIBGYOR (Competency Framework) ENCORE For individual growth and overall development. Through Virtual Campus, with an objective to build a vast learning community on the net. With some elite institutions for employees to grow at every step. For grooming your technical talents and also bring out the leader in you. That defines the behavioral competencies that need to be demonstrated. A basket of rewards recognizing a significant contribution from every employee.

Buzz Word
purchasing stocks following a decline in prices. single traded price is unavailable because of the rapid and large number of transactions occurring in the pit or ring.

Buy The Dips - A slang phrase regarding the practice of Our favourite holding period is forever.Warren Buffett, American Investor material objects; it is about men, their meanings and actions., Ludwig Von Mises, Austrian Economist

Book Quotes:

Fast Tape - A type of Futures Market that occurs when a Economics is not about things and tangible

Blue Chip Swap - A domestic investor purchases a foreign asset and then transfers that asset to a domestic bank It's not your salary that makes you rich, it's branch located offshore. your spending habits., Charles A. Jaffe, American, Senior columnist at Marketwatch

Live out of your imagination, not your history.-Stephen Covey

CROSSWORD:
Down
1. The percentage of fixed costs in a company's cost structure. 2.The common stock of a brand name company that has a long record of profitable growth and/or dividend payments, stable management, and a dominant position in its industry. 4.The total value of assets under management by a money manager or serviced by a financial advisor. 7. The name for the common currency of most European countries.

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Did you Know? million in U.S. Government bonds that were issued in 1790 to refinance Revolutionary War debt were the first publicly traded securities in the U.S.
The $80

Across
3. A negotiable certificate of deposit representing one or more shares with a face value denominated in US dollars and the dividends of which are also paid in US dollars. 5. The Federal Reserve Board makes decisions that impact money supply which in turn impacts interest rates, economic growth rates, and the money supply. 6. A strategy that is used in securities trading and portfolio management to reduce the risk of large losses by investing in securities that move in the opposite direction of other holdings. 8. Base rate that banks use in pricing loans for their most creditworthy customers. 9. A process undertaken by a company in an attempt to reduce its financial leverage.

Honolulu Stock Exchange which operated from 1910 to 1976 in Hawaii was the first stock exchange to be operated on American soil in the pacific ocean. Funds were first sold in the US in the 1920s. They were then called investment trusts and often were sold by unscrupulous brokers. In 1929 over $2 billion was invested.

Mutual

Quiz:
Q1.Which company does the Union Bank of India plans to have a joint venture with to form an asset management company? Q2.Which bank has a credit card branded Ascent? Q3.What is a yen-denominated bond that is issued in Japan by a nonJapanese company, called? Q4.A measure used by stock exchanges to avert panic selling?

The

First US Income Tax ran from 1861-1872. It was designed to pay for the Civil War and was a tax of 3% of income in excess of $800.

Q5.A state of the economy where the rampant borrowing of money Martha Washington causes consumers, businesses and the government to be over was the only first lady indebted which results in widespread bankruptcy and financial crisis. to appear on U.S. Q6.What is the term used for the avoidance of both inflation and high appeared on a $1 interest rates as well as a recession as an economy slows its growth silver certificate in rate? 1886 and 1891, as well as on the back of Q7.What stock has CASH for its symbol? the $1 silver Q8.Name the country which first employed credit rationing as an certificate in 1896. instrument of credit control? Charity is injurious unless it helps the recipient to become independent of it. - Sam Walton
currency. She

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INVESTORS CHECK Applying Derivative Strategies


Covered Call Strategies can be useful for generating profits in flat markets, and in some situations, can generate a higher return than their underlying assets. Let us see how leverage can be applied to increase capital efficiency and profitability. 1. ETFs purchased on margin 2. Index futures 3. Long Term Equity Anticipation Securities LEAPS Covered call strategies pair a long position with a short call position on the same security. The combination of the two positions can often result in higher and lower volatility than the underlying asset itself. For example, in a flat market the effect of the covered call premium can reduce the effect of the negative return or can make it positive too. In a rising market, the return can be positive.However, losses can be huge too if the market is too volatile in one period and less volatile in another. Applying Leverage Leverage investing means to invest using borrowed money. If the volatility of the market is low then leveraged investing can generate in better returns. For example, if an investor can borrow at 5% and expects the covered call strategy to give a return of 9%, then he can leverage in the ratio of 2 X (Rs. 200 in assets for every Rs.100 equity), then the return would be (2 X 9% - 1 X 5% = 13%). If the annualized volatility of the underlying covered call strategy increases the returns will further increase. If the rate of return is lesser than the rate of borrowing then the net will return will be a loss. Covered Calls in Margin Accounts Margin accounts allow investors to purchase securities with borrowed money, and if an investor has both margin and options available in the same account, a leveraged covered call strategy can be implemented by purchasing a stock or ETF on margin and then selling monthly covered calls. However, there are some potential pitfalls. First, margin interest rates can vary widely. One broker may be willing to loan money at 5.5% while another charges 9.5%. As shown above, higher interest rates will cut profitability significantly. Second, any investor that uses broker margin has to manage their risk carefully, as there is always the possibility that a decline in value in the underlying security can trigger a margin call and a forced sale. Margin calls occur when equity falls to 30-35% (or as the case may be) of the value of the account, which is equivalent to a maximum leverage ratio of about 3.0. (Note: margin = 100 / leverage). If the margin is 25%, then a leverage of 2X will trigger a margin call at 12.5% which bodes bad for any investor. Thus, any leverage should be taken keeping in mind the capacity to bear loss and to meet the margin calls. Covered Call With Index Futures A futures contract provides the opportunity to purchase a security for a set price in the future, and that price incorporates a cost of capital equal to the broker call rate minus the dividend yield. As a futures contract is a leveraged long investment with a favorable cost of capital, it can be used as the basis of a

INVESTORS CHECK

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. Contd.

Did you Know?


In the financial world,

covered call strategy. The investor purchases an index future and then sells the equivalent number of monthly call-option contracts on the same index. It allows the broker to use the long futures contracts as security for the covered calls. However, the mechanics of buying and holding a futures contract are very different from that of holding stock in a retail brokerage account. Instead of maintaining equity in an account, a cash account is held that serves as security for the index future, and gains and losses are settled every market day. The benefit is a higher leverage ratio, often as high as 20 for broad indexes, which creates tremendous capital efficiency. However, the burden is on the investor to ensure that they maintain sufficient margin to hold their positions, especially in periods with high market risk. Because futures contracts are designed for institutional investors, the amounts associated with futures contracts are high. For example, if the index trades at 1300 and a futures contract on the index corresponds to 250 the value of the index, then each contract is the equivalent of a Rs.325,000 leveraged investment. Leaps Covered Calls Another option is to use a LEAPS call option as security for the covered call. A LEAPS option is an option with more than nine months to expiry. The LEAPS call is purchased on the underlying security, and short calls are sold every month and bought back immediately prior to expiry. At this point, the next monthly sale is initiated and the process repeats itself until the expiration of the LEAPS position. The cost of the LEAPS option is determined like any other option. Even though LEAPS call options can be expensive, due to their high time value, the cost is typically less than purchasing the underlying security on margin. Because the goal of the investor is to minimize time decay, the LEAPS call option is generally purchased deep in the money, and this requires some cash margin to be maintained in order to hold the position. For example if the index ETF is trading at Rs.1300, a two-year LEAPS call option with a strike price of Rs.1000 would be purchased and Rs.300 cash margin held, and then a onemonth call sold with a strike price of Rs.1300, i.e. at the money. By selling the LEAPS call option at expiry, the investor can expect to capture the appreciation of the underlying security during the holding period (two years, in the above example), less any interest expenses or hedging costs. Still, any investor holding a LEAPS option should be aware that its value could fluctuate significantly from this estimate due to changes in volatility. Also, if during the next month the index suddenly gains 150, the short call option will have to be bought back before expiry so that another can be written. In addition, the cash margin requirements will also increase by Rs.150. The unpredictable timing of cash flows can make implementing a covered call strategy with LEAPS complex, especially in volatile markets. Success is a lousy teacher. It seduces smart people into thinking they can't lose.Bill Gates

Zombies, also called living dead, are companies that continue to operate even though they are bankrupt.
To commemorate the

Centennial of Independence from Spanish rule in 1998, the government of the Philippines wanted to do something special. It issued the world's largest banknote, beating the previous record (Chinas Ming Dynasty 1 Kuan). The 100,000 Piso note measures 356mm x 216mm.
T h e

h i g h e s t denomination note issued for public circulation in the United States is $10,000. The highest denomination currently in circulation is $100.
Stock Ratnas Orchid Chemical and Pharmaceuticals BSE: 524372 SE: ORCHIDCHEM TARGET PRICE: Rs.176 CMP: Rs.113.15 Indraprastha Gas IGL TARGET PRICE: Rs.130 CMP: Rs.103.9 Welspun Gujarat Stahl Rohren
BSE: BSE: SE:

53214

532144

SE: WELGUJ TARGET PRICE: Rs.160 CMP:

Rs.170.5

Nava Bharat Ventures BSE: 513023 NSE: NBVENTURES TARGET PRICE:Rs.247 CMP:Rs. 103.55

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PLACEMENT SPECIAL:

Did you Know?


I n 1984, American Express billed their Platinum Card as extremely exclusive and it had an annual fee of $250 ($484.84 in 2006 dollars). Today, the extremely exclusive card for American Express is their black Centurion card with a $2,500 annual fee The

CONGRATULATIONS FOR PLACEMENT IN AXIS BANK!!!

ASHISH AWASTHI

CHINTAN TONG

AJESH P. GEORGE

TATA CONSULTANCY SERVICES

ANUJA MURARKA

FOUZIA TARRANUM

CROSSWORD ANSWERS

term Ponzi scheme is named for the pyramid investment scheme devised by Charles Ponzi in Boston in 1920. Ponzi promised 50% returns in six months but invesors ended up losing million of dollars. In reality he was merely paying older investors with the investments made by newer investors.

Quiz Answers
1.K B C A s s e t M a n a g e m e n t Company 2.ICICI bank 3.Samurai bond 4.Circuit breaker 5.Credit Bubble 6.Soft landing Midwest 7.F i r s t Financial, Inc. 8.UK

COMMENTS
Its colorful, its nice, its attractive, and information is up-to-date, relevant and useful for up-tostudents. Fr. Thomas T.V,Director, CUIM Format wise slight improvement required content wise could be more business oriented (current scenario), language used is ok. Prof. Doreswamy AG Chaanakya is timely and its precise, more contribution should be added by juniors by writing articles. Avijit Thakral,2nd Year MBA (Finance)

Contributions made by 2nd year:


Editing/Compiling News Company Review Investors Check/Stock Ratnas Interview Coordination Arihant Patawari Chetan P. Shriya Mohammad Nimakwala Sebin Jerry Fouzia Tarannum B.

Contributions made by 1st year:


Editing/Compiling Did you know, Quiz Quotes, Book Quotes Graphs, Buzzwords Indices Communication Gyanesh Shroff Megha Garg Maria Fernandes Paloma Lobo Hitesh Archana

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