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1st July 2008

Volume 2, Issue 7

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy

Issue Attractions
National Headlines International Headline Corporate Interview Faculty Editorial
Company Review /Crossword

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Global interdependence today means that economic disasters in developing countries could create a backlash on developed countries. - Atal Bihari Vajpayee, Former Indian Prime Minister

National Headlines
With the domestic airline industry losing more than Rs 24 crores a day, the

industry has approached the Government for any short term help.
BSNL, GAIL enter Top 10 advance taxpayer league . Idea to pay Rs 2,176 crores for 40.8% stake in Spice. In addition to this, Idea

Investors Check/Quiz/Buzz Words


Student Editorial

will also pay Rs 544 crores to the Spice group as non-compete fee, taking the total deal size to about Rs 2,700 crores.
6 SBIs PLR is now 12.75 % and Union Banks PLR is 13.25 % . The Wholesale Price Index-based inflation shot up further to 11.42 %, up from

previous rise of 11.05 %.


Inflation11.42 % , IIP 8.3%

Coal and coke, which account for almost 40 % share of Railways goods traffic,

15 days Movements
15500 15000
S

will attract a 5 % charge.


The BSE PSU Index , Bankex, Realty, Auto, Power and Capital Goods were the

Sense

indices that recorded their new 52-week lows.


The debt portion of AUM of the mutual funds industry increased by around 25

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%, while the share of equity fell by 14 %.

International Headlines
Taiwan's cabinet has adopted an eight-point package to support the domestic

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Gold(per gram)

Gol

stock market, which has been battered by surging oil prices and a volatile Wall Street .
To soothe anti dumping concerns US senators are going for subtler measures.

They cited signs that China recognizes the need to let its currency rise faster, which would be a welcome development for those who have long complained that Beijing keeps the yuan artificially low to give its manufacturers an advantage in global markets.
According to the head of Frances biggest listed bank BNP Paribas, the worst

6000 5900 5800 5700 5600 5500 5400 1 2 3 4 5 6 7 8 9 1011 Oil(per bbl)

Oil

of the financial crisis is over and markets should start settling from the second half of this year.
The Tourism Council of Bhutan (TCB) has decided to raise tariff for tourists from

$200 to $250. However, the revised tariff will be applicable only during the peak seasons.

There can be no liberty unless there is economic liberty - Margaret Thatcher, Former British Prime Minister

Interview with Mr. Sadanand S.B.


Position Held : Vice President-Planning, Share Microfin Limited. About Share Microfin Limited. Share Microfin Limited is a non-deposit taking NBFC, their business model is a modified replica of Grameen Bank of Mohammad Yunus, they provide micro loans to the people below poverty line and help them rise above their financial status. SML is the first Microfinance company in India, it was founded by Mr. Udaia Kumar. Our organization has an outstanding portfolio of 400 Crores and has distributed Rs. 2202.45 Crores to over 1.08 million members. Q1. Whats the status of Microfinance in India?

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ANS. Informal lending services have always played a major role in India and they have existed from a long time and are an integral part of the Indian economy. The Grameen model took this step forward, bounded with regulations that would help the poor, Microfinance has changed the lives of more than 3 million people in India. The statistical figure of over 35% of the population in India speaks about the number of people that can be targeted and can be provided financial help so that they can restart their lives all over again. The Integrated Rural Development Programme (IRDP), is considered as the worlds largest microfinance programme. It involved Commercial Banks which provided loans of less than Rs. 15,000 to poor people and in nearly 20 years, this resulted in financial assistance of around Rs. 250 billion to roughly 55 million families. The problem with IRDP was that its design incorporated a substantial element of subsidy (25-50% of each familys project cost) and this resulted in extensive malpractice and misutilization of funds. This is when organizations and co-operative societies came forward and established organizations that were able to help the poor by providing them with the necessary help for setting up their own businesses. It can see this as an initiative to promote entrepreneurship at the grass root level, which is what India needs at this very moment. We raise money from commercial banks and then in turn use them for providing loans. Q2. Why is the interest rate of Micro financial Institutions so high? ANS. This is a myth that Microfinance Institutions (MFIs) charge a rate of interest that is high and which puts pressure on the borrowers, we raise money at the rate of nearly 12 % and we provide micro loans at the door step of clients so that they do not have problems having access to credit. The transaction cost, that is, the cost involved in processing the loan includes field agents travelling to the homes of the potential customers, processing the documents, a weekly follow up, assistance provided for setting up of business etc. comes out to nearly 11% to which we add a margin of 1% and nothing more, the total adds up to 24% which is at least 60% lesser than what the loans are offered by land lords and money lenders. People see this as an opportunity and understand the benefits that they enjoy, that includes, training, follow up of members having difficulty in setting up of business and constant support and helping members within the organization. Q3. Any message that you would like to pass across to the future young budding managers? ANS. Yes, Entrepreneurship is what the country needs now, we do it at the grass root level and we believe this is a medium by which we make maximum contribution to the society. I hope, all of you someday make your dream come true and establish an organization that would bring about a revolutionary change in the society. Thank You, All the best for your future.

I take my biggest positions in stocks that are complementary to other things I am doing. - Mark Cuban, American Entrepreneur

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Solving the Measurement Mystery

By : Prof. Anirban Ghatak

Did you Know? Morarji Desai was the only Indian Finance Minister to have presented two budgets on his birthday, February 29, in 1964 and 1968. Budgets were presented at 5 pm from 1924-1998. Yashwant Sinha shifted the Budget speech to noon in 1999. The Founder of Merrill Lynch (Charles Merrill) p l a ye d se m i -p ro baseball prior to coming to Wall Street. The Lynch in the name is from Edward Lynch who was a soda fountain salesman.

How EVA and Balance score card fit together to improve strategic focus and alignment The fact that EVA and management and incentive system known as Balance Score Card (BSC from now onwards), draws the attention of interest to senior management and boards of directors is evidence that accounting framework suffers from the deficiencies in providing management not only with a way to keep score, but also an approach that closely aligns the interests of employees with those shareholders. Movements in EVA track the interest and decrease the firms economic value the primary concern of the shareholders. Exponents argue that EVA provides more useful information on the value of operations in prior periods than other measures of performance and accountability, and when EVA changes are linked to a record mechanism, it acts to harmonize with the interests of the employee and shareholders. There is a considerable scope to enhance the value of both tools by including them through a combination of tools in one application, effecting by using the EVA calculation to drive the definition of categories of measures use in BSCs financial perspective.
Double Enterprise Value
Define Mission

Calculate EVA

Grow Total Sales Revenue

Action Crate new Maintaining Sales revenue Net Cash Margin

Calculate EVA

Achieve Cut ROCE Total Targets operating costs

Stock Ratnas

Cost of Capital Revenues Cost Capital Employed

For activity For Revenue Cost For Costs Capital For Capital For Employment

Himadri Chemicals,
Ensure Investment Add Value BSC Financial Perspective

BSE- 500184, NSE HCIL CMP- Rs. 321.50 TARGET PRICE: Rs. 509 Indian Hotels, BSE 500850 NSE INDHOTEL CMP- Rs. 79.10 TARGET PRICE: Rs.146
(CMP Current Market Price)

Eva Application

So by setting goals, measuring key elements of strategic plans the BSC begins to offer to managers mechanisms to evaluate the effectiveness of strategic hypothesis as they are being applied rather than waiting for the retrospective results of a EVA calculation at the end of the period. So while EVA is efficient at tracking the relative value generating performance of an organization and its components BSC is a strong complementary tool, useful to guide the management of strategic and operational plans intended to move the quest to generate value improvements.

Economy is half the battle of life; it is not so hard to earn money as to spend it well. - C. H. Spurgeon, British Pastor, Author

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FACT FILE: Inflation in India

By : Neha Bafna 1. The average monthly inflation figures with the base of 1993-94, tells that the last time inflation was in double digit was in April-May,1995 it ruled above 11 %. 3. The lowest level of Inflation -- 1.4 per cent. (February, 2002).

2. The all-time high for inflation --16.9 per cent (February and March, 1995). 4. The mid 1990s was also the period when inflation went down dramatically . The RBI data suggests that inflation dropped gradually from 11 per cent plus in May of 1995 to 4.5 per cent in February 1996. 5. Inflation in India is calculated based on the wholesale price index (WPI). WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. 6. India is the only major country that uses a wholesale index to measure inflation. Most countries like United States, the United Kingdom, Japan, France, Canada, Singapore and China use the Consumer Price Index (CPI) as a measure of inflation. 7. WPI is published on a weekly basis and the CPI, on a monthly basis. 8. Lowest point of CRR AND REPO rate 4.5% and 6% (Q3, 2003). 9. Latest change in CRR and REPO rate 8.25% and 8.5% (july, 2008).

CROSSWORD
1 2 5 6 3 4

7 8 9

10

Across
1. Commodity banned from exports 3. 2nd Largest Chip Manufacturer 5. ADAGs Entertainment Company 7. UTI Bank was renamed as

Down 1. M&Ms Italian Automobile Partner 2. Indias 1st Hybrid Car 4. This company acquired Ranbaxy 6. Mobile to be launched by Airtel and Vodafone in India

9. Indias Largest OIL PSU 10. Owners of LEAD INDIA Campaign

8. International Cargo Company

Eliminate numerical quotas, including Management by Objectives. - W. Edwards Deming, American Statistician and Consultant

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Quiz:
1. 2. 3.
A provision that allows the president of the United States to suspend or block the foreign acquisition of a U.S.-based company for reasons of national security. A measure of the intraday net asset value (NAV) of an investment, such as an exchange-traded fund (ETF), which gives an updated measure of the value of the investment based on its assets less its liabilities. A letter given to organizations or persons of interest by external auditors regarding statutory audits, statements and reports used in a prospectus.

INVESTORS CHECK
INFLATION AND STOCK MARKET
Equities have been feeling the heat of rising inflation over the past few sessions. Unlike debt markets, which track inflation data closely, the stock market normally reacts when there is a significant change in inflation, either ways, over a period of time. What is inflation? How is it measured? Simply put, inflation is a rise in prices of several items over a period of time. It is measured through various indices and each provides specific information about the prices of items that it represents. The index could be the Wholesale Price Index (WPI) or the Consumer Price Index (CPI) for specified categories of people like agricultural workers or urban nonmanual employees. Each of the indices is created in a specific manner with a certain year as the base year and they consider the price change over a year. How does rising inflation affect the stock market? To tame inflation, the government usually hikes interest rates. This tends to make debt instruments attractive relative to equities as the former carry a lower risk (small savings instruments are risk free as they are guaranteed by the government). This results in some amount of investments shifting from equity to debt. However, high inflation is not always bad and low inflation need not always be good for equity markets, as the impact will differ for companies and sectors across different time horizons. The first thing to consider is the items where prices are rising. For example a rise in oil prices will impact a wide range of items from food products to those that require transportation. How are companies affected by rising inflation and how does an investor view the impact? A rise in prices of several items means that the input prices for production of various goods and services are rising. In these cases market analysts and fund managers will always consider the net impact on the margin of the entity that they are tracking. While there might be an increase in the input prices, it has to be considered in the backdrop of the companys ability to pass on the price hike to the end-user. If a company is able to sustain its profit margin despite high inflation, the stock price is likely to hold. If the high inflation sustains, at some stage it will lead to a chain reaction across the economy, pushing up interest rates and even affecting demand. An increase in interest rates will push up borrowing costs for corporates while lower demand will hurt growth in revenues. This is likely to impact sentiment for the stock market as a whole.

Buzz Word

Book Quotes:

Poison pill: An action taken by a company to make itself less attractive to a potential take-over bid. Asset stripping: The practice of buying a company at a lower price than its asset value, and then selling its assets. Bullet loan: A loan which is repaid in a single payment. Horse trading: A hard bargaining which ends with someone giving something in return for a concession from the other side. Descending tops: A term used by the chartists to refer to a falling market, where each peak is lower than the one

"Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that's creative." - Charles Mingus "Often the difference between a successful man and a failure is not one's better abilities or ideas, but the courage that one has to bet on his ideas, to take a calculated risk, and to act." - Maxwell Maltz

The man who does not work for the love of work but only for money is not likely to make money nor find much fun in life., Charles Schwab

Inflating Inflation
As weeks unfold, the soaring commodity and oil are the major drivers of the spiralling inflation rate to a thirteen year high at 11.42% week ended 28 June. The wholesale Price based inflation has persistently been increasing since the beginning of the current year. In the potentially growing Indian Economy the surging Inflation rates brings worries and fear to many industries and investors. The oil prices have touched $142 per barrel and expected to jump to $150-170 year end. This has adversely affected the Airline industry having an impact on the Air Turbine Fuel (ATF). The airline companies are considering importing of ATF to offset the sales tax, On an average, states levy a 21 per cent sales tax on ATF, which amounts to almost 40 per cent of airlines' operating costs. Due to which the airlines may reduce frequency as well as snap connectivity by dropping certain routes. The commodity prices are now biting to a common mans' pocket as well. The rising commodity price by 15 20% is turning a major worry. With the mounting inflation rates there is a high input cost, increasing cost of debt, which has hit many sectors like the Reality Sector resulting in the delay of many projects. Many construction companies like Unitech have postponed their projects and many more are merry for not having started.
ACROSS 1. Rice 3. AMD 5. BIG 7. AXIS 9. ONGC 10. TIMES

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Crossword Answers

DOWN 1. RENAULT 2. CIVIC 3. DAIICHI 6. IPHONE 8. UPS

Quiz Answers

1. Exon-Florio
Provision
2.

Indicative Net Asset Value iNAV

3. Comfort Letter

Did you Know?

This apparently is the worst time for Investors invested in the Capital Market, who are looking forward to closing their positions. The market Performance has been vulnerable in the recent past.

DLF has observed a 35% downward movement for the past 3 months at 451.50 (Friday). Unitech scrips are down by 30% for the previous quarter at 182.80 (closing Friday) and have reported a 51% decline in net profit at 360 crores. RIL has lost 39% from the peak price in Jan, 2008. HDFC is down by 20% in the past one month at 2236 (closing Friday).

95% of the money printed in the US each year is used to replace old money that has worn out. 45% of all printing is for $1 bills.

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

Contributions made by :
Faculty Article Editing/Compiling News Did you know, Quotes Stock Ratnas, Quiz Graphs Investors Check Interview Book Quotes, Buzz Word Company Review Student Article Crossword Coordination Prof. Anirban Ghatak Arihant Patawari Fouzia Taranum B. Anup Rajan & Ashish Poddar Sukrutha Laavanya Gnana Devi Diwakar Grover Vamsi Kanagovi Nikhil Mehta Avijit Thakral Neha Bafna Vineeth Kothari Manish Sinha