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1st FEB 2008

Volume 1, Issue 11

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy
Winning is not a sometime thing; it's an all time thing. You don't win once in a while, you don't do things right once in a while, you do them right all the time. Winning is habit. Unfortunately, so is losing. - Vince Lombardi

Issue Attractions
National Headlines International Headline Corporate Interview Quiz Student Editorial Pearls of Wisdom/Tag lines/Buzz Word 1 1 2 2 3 4

National Headlines
Blood bath in Indian stock market on 22 January as sensex falls by 2300 point leaking out Rs 3 trillion market loss. Trading was also suspended for an hour. RIL Q3 profit was Rs 3882 Cr. Jumps 26% from the last quarter. Based on better returns in refining front. Banks make merry in the last quarter by higher profits. Andhra bank Q3 profit rose by 17% to Rs 159.02 cr, IOB rose by 25% to Rs 308 Cr, Bank of Baroda rose by 52% to Rs 501.05 cr. BSNL lines up 40,000 Crore big bang IPO. India has the most number of PE funds among BRIC countries that is 160. China is second that has 115 than Brazil 89. The biggest turbulence in automobile industry after fords model T. Wockhardt revises the IPO price band to Rs 225260 from Rs 280310 on market woes.

Inflation 3.83 % , IIP 5.3%

15 days Movements

International Headlines
Federal Reserve may push interest rate below the pace of inflation now it will stand at 3%. Average price for a gallon of gasoline in the US fell below $3 due to less demand and slightly lower oil prices an is likely to hold steady. US economy nearly stalled in last quarter of 2007 which was 0.6 %. Growth rate for the year was just 2.2 % which is the worst figure in last five years. French bank Societe Generale on Thursday has uncovered 4.9 billion fraud one of the historys biggest by a single trader. Citi bank writes off $18 billion loss nearly $10 billion on sub-prime assault. IMF slashes US growth forecast from 4.9% in 2007 to 4.1% this year. FBI is investigating 14 companies for possible accounting fraud and insider trading offense related to subprime mortgage UBS hit by further $4 billion write down taking the total loss to $18 billion in 2007.

A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well. - Jeff Bezos

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Interview With Robert G Kahl


Robert G Kahl , CFA, MBA, CPA is the founder of Sabino Investment Management, L.L.C.
What is your investment philosophy? RGK: I look for companies that are projected to generate a large amount of free cash flow relative to the amount of money invested. I prefer to see assets on the balance sheet that support the price of the stock. There are also qualitative issues involved such as earnings predictability, financial strength, and management ability. How did Benjamin Graham change your perspective on the financial markets? RGK: After I received my MBA, I believed in efficient market theory. At UC Berkeley, efficient market theory was the guiding principle in the finance classes. People like Benjamin Graham and Warren Buffett were not even mentioned. If an investment manager outperformed the market, it must have been luck. Based upon my personal experience at that time, it made sense to me. After reading Benjamin Grahams books, I could no longer accept efficient market theory. In Benjamin Grahams books, he gives examples of companies that represent a buying opportunity and others that were clearly overvalued. Since then I have identified other companies that were undervalued and Ive been able to take advantage of those situations. I now think of the financial markets as a bell curve. On one side of the curve, you have stocks that are overvalued. At the other extreme, you have stocks that are undervalued. In the middle of the bell curve, you have many stocks that are close to a reasonable price. At times, the distribution curve may be skewed so there are many undervalued or overvalued stocks. I attempt to concentrate my clients capital among those stocks that I believe are undervalued. Do undervalued stocks entail more risk? RGK: To the contrary, I believe that they often involve less risk. Benjamin Graham wrote that the secret of sound investment was margin of safety. Value investors attempt to find companies that are selling for less than their intrinsic value. Intrinsic value is determined by the analyst based upon facts and reasonable assumptions about the future. The difference between the price and the intrinsic value of the stock provides the margin of safety. The potential for appreciation results from the tendency of the stocks price to move towards its intrinsic value over time. We cannot eliminate risk but when a stock is undervalued, the potential negative factors tend to be fully reflected in the price.

growth may not be reflected in the price.


Value investing has been a popular style in recent years. Is it a style for all seasons or should investors consider growth stocks now? RGK: In my article, Value vs. Growth The Importance of Investment Philosophy I summarized the results of ten different studies on the subject. The studies involved different time periods and some included foreign countries. The results were consistent - if you buy stocks at low ratios of price/earnings or price/book value, you should be able to beat the market by 3-4%. The vast majority of investors and money managers have ignored the results of the empirical studies to their detriment. It should be noted that many value stocks have earnings growth but investors may not be excited about the company, so the prospects for earnings growth may not be reflected in the price. (Contd...to next issue)

Quiz

Identify the Personalities (Answers in the same issue)

1.

2.

3.

4.

Sometimes you just got to give yourself what you wish someone else would give you. - Dr Phil

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Understanding Capital Account Convertibility

Did you Know?

By: Fouzia Taranum


In Germany shoes that cost 12 Marks in 1913 , were sold for 32 trillion Mark in 1923. In the Hitlors favorite beer bar, a glass of beer costed a billion Mark. All due to hyper inflation which occurred due to over printing of currency notes by govt.

Capital account convertibility (CAC), as defined by the Tarapore Committee, is the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. Simply, it allows residents to convert (buy or sell) currencies to make investments into foreign shares, properties and other assets. It is sometimes referred to as Capital Asset Liberation. CAC has 5 basic statements designed as points of action:

All types of liquid capital assets must be able to be exchanged freely, between any two
nations, with standardized exchange rates.

The amounts must be a significant amount (in excess of $500,000). Capital inflows should be invested in semi-liquid assets, to prevent churning and
excessive outflow.

Did you Know?


As per June 23, 2007 report, the inflation in Zimbabwe has risen to 11000% and rising As economy is continued to worsen, the central bank is issuing its highest denomination bank notes ever with face value of 10 million Zimbabwe dollars

Institutional investors should not use CAC to manipulate fiscal policy or exchange rates. Excessive inflows and outflows should be buffered by national banks to provide
collateral. In layman's terms, it is basically a policy that allows the easy exchange of local currency (cash) for foreign currency at low rates. This is so local merchants can easily conduct transnational business without needing foreign currency exchanges to handle small transactions. CAC is mostly a guideline to changes of ownership in foreign or domestic financial assets and liabilities. Tangentially, it covers and extends the framework of the creation and liquidation of claims on, or by the rest of the world, on local asset and currency markets. In most traditional theories of international trade, the reasoning for capital account convertibility was so that foreign investors could invest without barriers. What CAC brings with it? In the run-up to full capital account convertibility, the Tarapore committee had charted out a phased liberalization of capital inflows and outflows. Some of the recommendations of the committee in this regard were: Allowing Indian joint ventures/ wholly-owned subsidiaries to invest up to US $50 m abroad; Removal of existing requirement of repatriation of the amount of investment by way of dividend within in five years; Allowing exporters/exchange earners to keep 100% of their forex earnings in the exchange earners foreign currency accounts; Permitting individual residents to invest in financial assets abroad up to US $25,000 and gradually raising the limit to US $50,000 and US $100,000; Allowing mutual funds to invest in securities abroad within an overall limit of US $500 m in phase I, US $1 bn in phase II and US $2 bn in phase III; Giving banks greater freedom to borrow and deploy funds outside India in stages; Allowing foreign institutional investors' portfolio funds to be invested and repatriated without prior RBI scrutiny; Allowing FIIs, non-resident Indians and foreign banks full access to forward cover for their Indian assets; Permitting banks and financial institutions to participate in gold markets aboard; and Withdrawing the Reserve Bank from playing the role of the government's merchant banker.

Answers To Quiz
1. Swaraj Paul 2. Laura Ashley 3. Michael Potter 4. Robert Reich

Stock Ratnas
Spice Jet BSE500285, NSE MODILUFT CMPRs.71.85, Target priceRs. 98 Larsen & Toubro BSE500510, NSELT CMPRs. 3770, Target priceRs. 4000 Kalindee Rail Nirman BSE522269, NSEKALINDEE CMPRs. 395, Target priceRs. 592 Exide Industries BSE500086, NSEEXIDEIND CMPRs. 80.85, Target priceRs. 100 (CMPCurrent Market Price)

Everyone experiences tough times, it is a measure of your determination and dedication how you deal with them and how you can come through them.Lakshmi Mittal

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Tag Lines:
We know money - AIG Legendary reliability - APC Whats In Your Wallet? - Capital One Live Richly - Citi Quality In Everything We Do - Ernst &
Young
A. B.

Its Everywhere You Want to Be - Visa

A. HSBC B. IIFCL (Indian Infrastructure Finance Co. Ltd) C. Trillium Mutual Fund Co. D. AUL, One America Financial Partner

C.

D.

Pearls Of Wisdom
Ravi Kumar P N ( Batch-2007) pnravi_ccim@yahoo.co.in Business Analyst, i-flex solutions limited, Mumbai Phone # : 09920043294 Blog site : www.ravisblognet.com Job Profile :

How to Prepare:

Be thorough with the fundamentals & financial In GD be specific, quality is important than Be thorough with the contents of your CV and

concepts.(Banking, Accounts and risk Management) quantity. projects Suggestions: Learn something and about areas the of

Preparing Functional Specifications based on clients (Banks)

requirements Preparing test plans and data pool which will be used in

company,

its

achievements

automation testing. Assisting Automation team in developing scripts and

business .Be positive and confident, Should be flexible regarding location and timings (i-flex stands for Integrity and Flexibility)

automating the testing process

Buzz Word
Bulgea slang term used to describe a rapid advance in price within the commodity market. First in, Still Here (FISH) - an accounting buzzword that describe when companies still have inventory on hand that is not being sold due to inattention or obsolescence. While not an official type of accounting treatment, the term is named after the LIFO and FIFO accounting methods. Kitingthe act of misrepresenting the value of financial instrument for the purpose of extending credit obligations or increasing financial leverage. Loan shark an arrangement where the borrower is charged a much more higher interest rate than the market.

Book Quotes:
the unreal is more powerful than the real, because nothing is as perfect as you can imagine it. Because it only intangible ideas, concepts, belief, fantasies that last. Stone crumbles, wood rots, people, well they die. But things are as fragile a thought, a dream, a legend, they can go on and on Chuk Palahniuk Courage is the discovery that you may not win, and trying when you know you can lose Tom Krause

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

Contributions made by : (1st Year Students)


Article, Taglines & Quiz News Fouzia Taranum Anup Rajan & Ashish Poddar

(2nd Year Students)


Book Quotes, Buzz Word & Stock Ratnas Editing Graph Interview Pearls Of Wisdom Ritesh Verma Sindhu B. Navali Anshu Awasthi Ravi Sekhar M Gopal Pai M