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1st DEC 2007

Volume 1, Issue 7

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy
Issue Attractions

Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.
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National Headlines International Headline Corporate Interview Guest Editorial Student Editorial Pearls of Wisdom
Quiz

Peter F. Drucker

National Headlines

15 days Movements

The governments indirect tax collections grew 18.6% in October reinforcing the belief that dip in industrial output in September is a blip. Excise collections also rose 13.5% in the month. NSDL has reduced the fees it charges for all transactions, hoping that brokers will pass on the cut to investors and thus bring down the trading costs. But experts say this is very unlikely as the brokers will not hurt their already shrinking margins. The domestic steel sector is on a roll. From being fifth largest producers of steel globally, the buoyant steel market is all set to make India the second largest steel producer globally by 2015-16. In a bid to bring the recently concluded $11.1 billion Hutchison- Vodafone deal under the tax net , the Authority for Advance Ruling has held in a similar case that transaction of Indian shares between two foreign entities is liable for capital gains tax in India.

International Headlines

J.C. Flowers raised the stakes in the rescue battle for Northern Rock on Friday, offering to improve its bid but also warning it will walk away if the government won't talk with it Shares of General Motors Corp. posted the largest gain of any stock in the Dow Jones Industrial Average on Friday, reacting to this week's announcement that a mortgage lending business that has hampered the automaker's earnings this year will receive an injection of cash. Chairman Ben Bernanke hints at further interest rate cuts . Oil tumbled more than $2 to a one-month low below $89 a barrel on Friday as expectations that OPEC could agree to boost output at a meeting next week weighed on the market. Kraft Foods Inc said on Friday that it had completed its acquisition of Groupe Danone's global biscuit business, expanding the largest North American food maker's foothold in Europe and emerging markets. Motorola Inc Chief Executive Ed Zander will step down, effective Jan 1. Greg Brown, the chief operating officer, is expected to take over as CEO.

Great companies in the way they work, start with great leaders . Steve Ballmer

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Interview with Mr. Bishal Chettri

Enam Securities Pvt.Limited

Mr Bishal Chettri is presently involved in the regional Wealth Management and Corporate Banking businesses for ENAM Securities Pvt. Ltd. He shares his views about the state of the economy and stock markets in general. CCIM:With regard to the economy, the Sept IIP nos have declined Is it an indication of a slowdown in the economy? Mr Bishal Chettri :In terms of the September IIP nos on a standalone basis being an indication of a slowdown in the economy, my personal belief is no. I would want to believe it is just a blip and eventually the efforts of the RBI in influencing interest rates to a downward bias and in controlling inflation, may add a fillip to consumer demand led Industrial Production in the country. Add to that, the upswing in capex, which is focused and pegged to need, rather than ambition, the long term picture seems intact. This can be corroborated by the changing lifestyles, improved demographics, and sustained thrust on infrastructure and attempts at globalizing. Also, I would like to aver that a slowdown need not necessarily be the only possible trigger for the equity markets to correct, or enter into a downward spiral. The perceptions in valuations may be derived from a host of factors, and so the markets may correct or flare up, in the interim due to other reasons too. CCIM:At this point, would companies planning IPOs be successful? Mr Bishal Chettri : I assume this question is in the context of the current levels of the market, and whether IPOs planned around these levels will offer wealth creation to investors. Since the last couple of weeks, the barometer of the mkts, the Sensex, has hovered from 20200 levels to 18700 near abouts. Infact some of the IPOs recently concluded, were open during the all time highs of the market, for eg. Mundhra Port & SEZ, Power Grid Corporation of India Ltd, Consolidated Consortium Construction Ltd, Religare Enterprises, to name a few. All of these IPOs, along with a host of similarly placed thematic IPOs have offered handsome wealth creation opportunities to investors. Now, if you notice, Id like to draw your attention to the above listed examples, incidentally from distinctively dissimilar sectors of our economy: PSU Power Utility, Infrastructure, Real Estate, and Financial Services. Probably you will be able to see that these themes are in line with the long term India growth story and that could explain the appetite for these themes. So the question to moot would be: In spite of not being able to justify, in certain circumstances, the valuations based on current fundamentals can a theme find appetite in the perspective of favourable macro structural shifts expected to unfold in the long term?. There lies probably your answer. If these avenues, on a relative basis vis a vis global peers, offer better opportunities, agreeable risk reward balances, can they be the beneficiaries of a global shift in asset allocation? So probably, going by the testimony of recent record-breaking inflows into such themes, we will continue to see wealth creation from IPOs, as long as we are able to witness compelling themes on a global scale. Therefore immense wealth creation opportunities from IPOs should continue to exist from time to time. At the same time, it would be incorrect to paint the entire exercise of subscribing to all and sundry IPOs with the same brush. The term IPOs doesnt assume a homogenous identity. You need to separate the husk from the grains at the end of the day. Finally, a successful IPO doesnt really find a textbook definition Some of the greatest wealth creators from our country were at some point of time dubbed as unsuccessful IPOs, for e.g. Infosys, Bharti But in the long term, as things evened out, their conviction paved the way for most of the investment fraternity to accept that they were truly the best ideas to have graced this country. (Contd in the next issue)

Quiz
1.Italian oil c/o Eni has joined with Mittal to bid for which c/o? 2.Merril Lynch & c/o is planning to acquire a 49% stake in . 3.BAE systems, Europes biggest defence c/o will work with which Indian Information technology provider to develop electronic products fro combat planes and business jets 4.Which c/o is facing a number of legal cases, 8 of these related to adulteration of food items & packaging at its store chain big bazaar? 5.Software services provider I-Flex solutions has linked with which German firm to provide banking application services to German banks? (Answers will be published in the next issue)
Answers to the previous issue 1. Chuck Prince( Citi Group); Stanley ONeil (Merril Lynch) 2. Washington Mutual Inc 3. KTM Power Sports Tokio General Insurance 5. RPL 4. IFFCO

Wall street people learn nothing and forget everything . Benjamin Graham

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Guest Article: The Asian Meltdown of 1997-98: Lessons That May Be Learnt By Prof. Abraham Mathew
The flow of funds into the Indian economy at present is of some concern to all of us. Sometime back I read an absorbing article by Prof. G. Corsetti et al* positing the moral hazards that led to the Asian Crisis of 1997-98. Some of the hazards mentioned in the article include: 1.The desire of leaders to show high rates of economic growth. In the corporate sector, this led to a tradition of sovereign guarantees being granted for even unviable private projects. This ultimately meant running up unsustainable current account deficits. 2.The occasions when lenders ignore pricing signals from the market and sanction loans to various projects. If the business is not sufficiently secured against market and environmental risks, we have a huge problem on hand. 3.Poor regulatory mechanisms in the economy led to insufficient supervision over use of public resources with state banks, leading to considerable misuse of these resources. The most visible manifestation of such misuse being the growing levels of Non Performing Assets. 4.A contributory factor to further facilitate flow of low cost funds from abroad, was the haste with which capital account liberalization and financial market deregulation were introduced; besides, linking the currency to the dollar to minimize volatility. 5.International lenders tended to lend even more, when caution demands otherwise, assuring themselves that in the case of a payment default, the IMF was always there to come to the rescue of the state (a heads I win, tails the taxpayer loses attitude). In some cases, short term debts were more than 100% of foreign exchange reserves!.With stagnation in Japan, and a lack of orders for the semiconductor industry; with the strengthening of the dollar, and therefore a strong currency because of the dollar peg; and with the entry of China into the export market, the problem got aggravated. The herd mentality that sets in during a crisis led to the economies collapsing like a house of cards! The symptoms were evident long before when economists observed the low factor productivity in these economies. Besides uncertain margins, an excessive dependence on export markets like the US makes it a high risk proposition to plan huge capital investments in any one sector in the economy. We in India have very many reasons to stay awake, lest we be washed away by one of those investment floods.

Did you Know?


The word millionaire was first used by Benjamin Disraeli in his 1826 novel Vivian Grey.

Did you Know?


Money notes are not made from paper, it is made mostly from a special blend of cotton and linen. If California was a country, it would be the 5th largest economy in the world.

Did you Know?


The first credit card was issued by American Express in 1951. In 1965, CEOs earned on average 44 times more than factory workers. In 1998, CEOs earned on average 326 times more than factory workers and in 1999, they earned 419 times more than factory workers. Tourism is the world's biggest industry, affecting 240 million jobs.

Students Article:

The Private Equity Boom: Causes and Policy Issues. By Soumyaranjan Mohapatra

Stock Ratnas
ICICI BANK, BSE-532174 , NSE ICICIBANK CMP- Rs.867 TARGET PRICE- Rs.1235 RELIANCE CAPITAL, BSE-500111 , NSE RELCAPITAL CMP- Rs.1153 TARGET PRICE- Rs.1600 PENINSULA LAND, BSE-503031, NSE PENINLAND CMP- Rs.513 TARGET PRICE- Rs.815 RELIANCE COMMUNICATIONS, BSE-532712, NSE RCOM CMP- Rs.580 TARGET PRICE- Rs.723

Private equity plays a valuable role in helping transform under-performing companies. M&A and private equity deals are very strong at present, and use of leverage in deal making is accelerating sharply, as it did in the late 1980s. The process is being driven by a number of factors, particularly low yields which result from excess global liquidity. The accommodation of leverage is fungible with innovative global financial markets, and policies to fix the price of money in some parts of the world make it difficult to control supply. The arbitrage opportunity that has been opened up plays a key role in driving asset price inflation, including stock prices through private equity deals. As the LBO process moves into its mature phase, deal multiples are bid up in the industries and companies where the activity is concentrated. Strong investor demand, together with readily available finance, increases the pressure to find new deals, driving down yields. Excess concentrations of leverage can give rise to financial stability issues. However, policies that contribute to excess global liquidity are difficult to change in the short run, because domestic concerns in some countries are overridingly important. Firms and financial intermediaries therefore should be strongly encouraged to perform stress tests and to maintain strong credit checking processes, particularly with regard to the sustainability of debt at a more normal cost of capital. Credit rating agencies need to apply high standards to credit risk transfer products, and sound principles of corporate governance are required to ensure moral hazard issues do not exacerbate things

(CMP Current Market Price)

I would like to tell people that all of our products and business will go through three phases. Theres vision, patience, and execution Steve Ballmer

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Recognise these People:

(Answer will be published in the next issue)


Answer of Previous Issue: Ben Bernanke ( Fed Reserve Chairman), Rajnikant Patil ( CEO BSE)

a. Bosch b. Andhra Bank c. HDFC d. Indian Bank e. Kotak f. Uco Bank g. Mphasis h. Satyam i. Standard Chartered

Pearls Of Wisdom
Sandeep Kumar Choradia SBI Life Insurance co. Ltd Designation : Business analyst Profile: Working for Sun interface team in the IT dept. & is responsible for all accounting entries passed on to the finance and account department. Responsible for every single penny. Along with appraising. Various projects, he also automates all manual process. Deals with all generation debugging reconciliation process

How To Prepare: There will be an Aptitude test which will be similar to the MAT i.e the areas of Mathematics, Logical reasoning and English will be covered which then will be followed by a GD and an Interview. Suggestions: Basics (related field) should be strong. -: Questions can be asked from different streams, not necessarily from your specialized stream , so be open to any profile. -: Stress will be given to fundamentals in the area of specialization.

Buzz Word
Chameleon option An option that has the ability to change its structure, should certain pre-determined terms of the contract be met. Gazump A situation in which the price for real estate or land is raised to a higher price than what was previously verbally agreed upon. Greensheet An information circular prepared by an underwriter that summarizes the main components of a new issue's prospectus. Jitney - A situation in which one broker who has direct access to a stock exchange performs trades for a broker who does not have access.

Contributions made by :
Usha V Murthy Soumya Ranjan Mohapatra Bhavana Kataruka Anshu Awasthi Ravi Shekhar Ajay Dhuvri Ritesh Verma Diwakar Grover (1st yr) Manish Sinha (1st yr) Special Thanks: Prof. Abraham Mathew

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