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1st Oct.

2008
Volume 2, Issue 13

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

CHAANAKYA
Issue Attractions
National Headlines International Headline Corporate Interview Students Article
Investors Check/Quiz

..Tracking the Economy

Four steps to achievement: Plan purposefully. Prepare prayerfully. Proceed

positively. Pursue persistently William A. Ward


1 1 2 3 4
5 6 7

National Headlines

Indian stocks fell on 29th, with the benchmark index declining the most in two months 1000 stocks hit 52 week low. Gold imports steady despite high prices. Strengthening regulatory set up under consideration: Forwards Markets Commission Commodities slip on oil to six-and-half month low Sebi bars DGP Securities from market for a month BSE currency futures from Oct 1 The finance ministry is likely to float a discussion paper next month on the proposed new income tax law, which aims to simplify the existing law and phase out tax exemptions Insurance regulator IRDA says mutual funds would continue to sell group insurance products even as the life insurance association decided against it. RBI allows parent firms to issue exchangeable bonds

Company Review/Buzz Words


Placements Special/ Quiz Answers Faculty Comments

Inflation12.14 % , IIP 7.1% Repo Rate-9%, Reverse Repo-6% CRR- 9%

15 days Movements
14100 14000 13900 13800 13700 13600 13500 13400 13300 13200 13100 13000 15 16 17 18 19 22 23


Sensex

Sensex

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25

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International Headlines

Rs/$

Rs/$
47 46.5 46 45.5 45 1 2 3 4 5 6 7 8 9 10

India, France set to sign nuclear deal on 1st October China's landmark spacewalk mission concludes successfully USs $700 billion emergency package for the nation's financial systems fail on Monday. Electricite de France SA, the worlds biggest nuclear utility, agreed to buy British Energy Group Plc for a sweetened 12.5 billion ($23 billion) Warren Buffett bets on battered Goldman Sachs, Puts $5 billion for buying stake in the Goldman group Lehman succumbs to sub-prime crisis.Nomura buys Lehman's Europe operations Goldman, Morgan Stanley give up i-bank status Fed takes control of AIG with $85 billion bailout

Gold(per gram)
1200 1160 1120 1080 1040 1000 15 16 17 18 19 20 22 23 24 25
Gold(per gram)

Oil(per bbl)
4800 4700 4600 4500 4400 4300 4200 4100 15 16 17 18 19 20 22 23

Oil(per bbl)


25

24

People are your most valuable asset.Only people can be made to appreciate in value. Brian Tracy

Interview with Mr. K.A. Vishwanathan


Position Held : Forex Department, SBI, Hyderabad Q1. Sir, Can you tell us about your job profile? Ans. Forex Department deals with all the foreign exchange transactions that take place in a particular vicinity of a city or an area. Mostly we get clients for exchange in bulk or we get deals that require the bank to do a non fund based service. Forex Department has a higher level of activity, this is in comparison to the general banking section of any bank that exists. The various causes are the nature of transactions on a daily basis, which are usually very high and which constitute a high percentage of bank's business. Other factor is the tandem working of the department with the various businesses that deal with foreign customers. Q2. The present market conditions have witnessed a rapid change in the forex markets and their standings, underlying factor is also the constant fluctuation in the value of the rupee and it's behavior, how does the bank deal with these ? Ans. The bank majorly provides currency conversion and helps the customer get the right deal when it comes to exchange process and exchange rate, Forex Departments are constantly reacting and equip themselves from time to time to deal with the market conditions. Usually it's the customer who has to take a stand against the market and enter into a particular deal, the bank just facilitates them. Forex Department in banks are facilitators of the process and do not interfere in the decisions of the customers. Rupee appreciation has its impact on the number of transactions; the bank gets its necessary charges so to be honest there is not much of a trouble for the bank but for the customer to react to the situation. Q3. Euro has constantly been in the scanner for fluctuations without any underlying causes, any comments? Ans. Well, the European markets are matured, the essence of introducing a constant currency across a geographical region is always filled with peril. Euro came into existence at a time when European markets needed integration as part of their market appreciation. I have always maintained the valuation of local currency to the Euro was flawed, my thought builds on this and no matter the time or day, fluctuations in Euro often have been because of no particular reasons, some times it's the rumors of American Dollar being chucked out and trade being carried in Euros from now on, other times it's the genuine appreciation/depreciation of Euro, funny part is no one knows for sure or is either bothered. Everyone wants to book profits and exit transaction with Euro. American Dollar still holds the forte of being the most trusted and most traded currency Q4. Thank You Sir for the time and patience. Ans. Thank you and all the very best.

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To succeed in business it is necessary to make others see things as you see them : John H. Patterson

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CREDIT DEFAULT SWAPS

By: Kanwar Preet Singh

Did you Know? 1.The first credit card was issued in1951 by the Diners club to 200 customers who could use it at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age. 2. Word "Yahoo" is shortcut for "Yet Another Hierarchical Officious Oracle". It was coined by PhD candidates at Stanford University: David Filo and Jerry Yang. It was invented by Jonathan Swift. It represents a person who is repulsive in appearance and action and is barely human. Yahoo! Founders Jerry Yang and David Filo selected the name because they considered themselves yahoos.
Stock Ratnas
LUPI BSE- 500257, SE LUPIN CMP- Rs 720.25 TARGET PRICE: Rs. 938 OPTO CIRCUITS BSE 532391 SE OPTOCIRCUI CMP- Rs 256.10 TARGET PRICE: Rs. 463 ASHOK LEYLA D BSE- 500477 SE ASHOKLEY

When you hear that the collapse of AIG or Lehman Bros. or Bear Stearns might lead to a systemic collapse of the global financial system, the feared culprit is, largely, that once-obscure (OK, still obscure) instrument known as a credit default swap. So, what is a CDS, and why is it so dangerous? At first glance, a credit default swap seems like a perfectly sensible financial tool. It is, basically, insurance on bonds. Imagine a large bank buys some bonds issued by General Electric. The bank expects to receive a steady stream of payments from GE over the years. That's how bonds work: The issuer pays the bondholder some money every six months. But the bank figures there's a chance that GE might go bankrupt. It's a small chance, but not zero, and if it happens, the bank doesn't get any more of those payments. The bank might decide to buy a CDS, a sort of insurance policy. If GE never goes bankrupt, the bank is out whatever premium it paid for the CDS. If GE goes bankrupt and stops paying its bondholders, the bank gets money from whoever sold the CDS. Who sells these CDSs?

Banks, hedge funds, and AIG.


It's easy to see the attraction. Historically, bond issuers almost never go bankrupt. So, many banks and hedge funds figured they could make a fortune by selling CDSs, keeping the premium, and almost never having to pay out anything. In fact, beginning in the late '90s, CDSs became a great way to make a lot more money than was possible through traditional investment methods. Let's say you think GE is rock solid, that it will never default on a bond, since it hasn't in recent memory. You could buy a GE bond and make, say, a meager 6 percent interest. Or you could just sell GE credit default swaps. You get money from other banks, and all you have to give is the promise to pay if something bad happens. That's zero money down and a profit limited only by how many you can sell. business. Banks and hedge funds found that it was much easier and quicker to just buy and sell CDS contracts rather than buy and sell actual bonds. As of the end of 2007, they had grown to roughly $60 trillion in global business. So, what went wrong? Many CDSs were sold as insurance to cover those exotic financial instruments that created and spread the subprime housing crisis, details of which are covered here 1. As those mortgage-backed securities and collateralized debt obligations became nearly worthless, suddenly that seemingly low-risk event-an actual bond default-was happening daily. The banks and hedge funds selling CDSs were no longer taking in free cash; they had to pay out big money. Most banks, though, were not all that bad off, because they were simultaneously on both sides of the CDS trade. Most banks and hedge funds would buy CDS protection on the one hand and then sell CDS protection to someone else at the same time. When a bond defaulted, the banks might have to pay some money out, but they'd also be getting money back in. They netted out. Everyone, that is, except for AIG (AIG was on one side of these trades only: They sold CDS). They never bought. Once bonds started defaulting, they had to pay out and nobody was paying them. AIG seems to have thought CDS were just an extension of the insurance business. But they're not. When you insure homes or cars or lives, you can expect steady, actuarially predictable trends. If you sell enough and price things right, you know that you'll always have more premiums coming in than payments going out. That's because there is low correlation between insurance triggering events. My death doesn't, generally, hasten your death. My house burning down doesn't increase the likelihood of your house burning down. Not so with bonds. Once some bonds start defaulting, other bonds are more likely to default. The risk increases exponentially. Credit default swaps written by AIG cover more than $440 billion in bonds 2. We learned this week that AIG has nowhere near enough money to cover all of those. Their customers-those banks and hedge funds buying CDSs-started getting nervous. So did government regulators. They started to wonder if AIG has enough money to pay out all the CDS claims it will likely owe. .. Continued on page 6

CMP- Rs. 27.40 TARGET PRICE: Rs. 30


(CMP: Current market price)

"You don't make money by investing in a good company . . . You make money by investing in a company that is better than the market thinks." --- Robert Vishny, Institutional Investor, January 1997

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INVESTORS CHECK

By: Sebin Emmanuel


DLF has been witnessing a huge fall since the bourses plummeted worldwide in January-08. The technical chart for DLF shows that the 20 DAY EMA of the Closing Prices is below the 50 Day EMA, a clear indication of the strong bearish mode the stock is going through. The formation of candle sticks from mid August to early September is dominated by doji-candlesticks. This pattern vindicates the indecision in the market regarding true price of the stock. The company promoters have been coming out with stock buy-back options regularly to keep the stocks market price above its issue price of Rs.525. Currently both MACD and RSI indicate a strong bearish mode for DLF in the market. The MACD histogram of the stock has also widened, which means that the gap between the 9 DAY EMA of MACD and MACD LINE is increasing. Similarly, the stock is reaching near the oversold region of Relative Strength Index (RSI). It is a good signal to buy the stock if the investor is eyeing long-term gains. Each fall in the price is fraught with increasing volumes which means that heavy selling exists in the market for this stock. A possible formation of double bottom could be seen, the first bottom was formed in early July. If the stock breaches its previous bottom of 350 by 5% then it would indicate that the stock has not yet found a solid ground to rest. DLF has regularly breached the Support levels as rising interest rates has reduced the demand for homes and the market is facing an oversupply of real-estate properties. The Stock should be avoided for short-term trading strategies as the market is very volatile and the RealEstate stocks have been hardly hit in this turmoil.

Quiz:
1. Which Wall-Street bank was labelled as "Masters of the Universe" in the novel "Bonfire of the Vanities". 2. Which was the first private mutual fund company in India? 3. If you wanted to invest in a particular industry, what fund would you choose? 4. Sustainable moderate economic growth and a low inflation allowing for a market friendly monetary policy. Name this kind of economy.
Even if you are on the right track, you will get run over if you just sit there: Will Rogers

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Company Review: Axis Risk Consulting


Axis Risk Consulting is among the few exclusive and independent risk consulting firms in India and globally. The management team at Axis has experience in leading global teams and delivering for clients in India, North America, Europe and the Far East. Axis Risk Consulting Services Pvt. Ltd. is a joint venture between the partners of Axis and the Ambit RSM group, and was formed in September 2004. Axis is led by partners with significant background and experience in setting direction for and building consulting organizations, managing delivery by large teams to a diverse base of clients on a varied spectrum of services from assurance to business solutions. They offer consulting services to clients across the following service segments - Risk Consulting Services (Axis), Tax Advisory and Assurance (RSM) and Corporate Advisory Services (Ambit). The wide service spectrum offered by the company includes: Risk Assurance, Business Improvement, Business Risk Assessment, Sarbanes Oxley, Corporate Governance, and Business System Controls, Enterprise Risk Management, Cost Management Solutions, Revenue Risk Management, Project Risk Management, Information Systems Security, IT Internal Audit, E-Assurance. The company boasts of a global presence as the management team has serviced clients from US, UK, Japan, Australia, Singapore, China, Indonesia, France, Brazil and Holland. They serve clients across diverse industries with primary focus on ITES & BPO, Telecom, Travel and hospitality, Manufacturing, Biosciences, Retail and consumer products and Financial services.
Careers at Axis Risk Consulting Corporate culture

In building strong and lasting relationships with clients, the company believes that they depend on their people, and are thus committed to personnel development. They believe that the only way to engage and retain their highly talented staff is to keep them challenged and interested through the work they are doing. Avenues for this include job rotations, job enrichment and multi-tasking. They ensure balanced staffing allocations and a mix of assignments.
Career skills development

The company believes that they have created well defined and transparent career paths for aspiring professionals. They invest in people by imparting technical as well as soft skills. The company imparts continuous training on methodology and other deliverables while providing access to knowledge of their international partners and associates. With active career management support to their people, the company ensures that they are building skills important for personal career advancement.

Buzz Word

Depreciation Recapture: That must be reported A corporation's primary goal is to make money. as income. The amount of gain received from the sale of Government's primary role is to take a big chunk depreciable capital property Circulating Capital: The portion of an organization's
investment, which is continually used and replenished in ongoing operations Automatic Investment Plan: An investment program that allows investors to contribute small amounts of money, such as $20 a month in regular intervals. Funds are automatically deducted from the investor's checking/savings account or paycheck and invested in a retirement account or mutual fund. of that money and Larry Ellison - Money give it to

Book Quotes:

others.

Whales only get harpooned when they come to the surface, and turtles can only move forward when they stick their neck out, but investors face risk no matter what they do. Author: Charles A. Jaffe "In investing, what is comfortable is rarely profitable." -- Robert Arnott

Few people have any next, they live from hand to mouth without a plan, and are always at the end of their line:Ralph Waldo Emerson

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Continued from page 3


This week, Moody's Investors Service, the credit-rating agency, announced that it was less confident in AIG's ability to pay all its debts and would lower its credit rating. That has formal implications: It means AIG has to put up more collateral to guarantee its ability to pay. Just when AIG is in trouble for being on the hook for all those CDS debts, along comes this credit-rating problem that will force it to pay even more money. AIG didn't have more money. The company started selling things it owned-like its aircraft-leasing division 3. All of this has pushed AIG's stock price down dramatically. That makes it even harder for AIG to convince companies to give it money to pitch in. So, it's asking the government to help out. AIG might be in trouble. But what do I care? Because the global economy could, possibly, come to a halt. Banks all over the world bought CDS protection from AIG. If AIG is not able to make good on that promise of payment, then every one of those banks has lost that protection. Overnight, the banks have to buy replacement coverage at much higher rates, because the risks now are much worse than they were when AIG sold most of these CDS contracts. In short, banks all over the world are instantly worth less money. The numbers seem to be quite huge-possibly in the hundreds of billions. To cover that instantaneous loss, banks will lend out less money. That means other banks can't borrow to pay this new cost, and weaker banks might not have enough; they'll collapse. That will further shrink the global pool of money. This will likely spur a whole new round of CDS payouts-all those collapsed banks issue bonds that someone, somewhere sold CDS protection for. That new round of CDS payouts could cause another round of bank failures. Generally, with enough time, financial markets can adjust to just about anything. This, though, would be an instantaneous transformation of the global financial system. Surely, the worst part will be the confusion. CDS are largely over-the-counter instruments. That means they're not traded on an exchange. One bank just agrees with another bank to do a CDS deal. There's no reliable central repository of information. There's no way to know how exposed a bank is. Banks would have no way of knowing how badly other banks have been affected. Without any clarity, banks will likely simply stop lending to each other. Since we're only just now getting a handle on how widespread and intertwined they have become, it seems possible that AIG, alone, could bring the global economy to something of a standstill. It's also possible that it wouldn't. . .

Quiz Answers
1. Lehman Brothers 2. Kothari Pioneer 3. Sector fund 4. Goldilocks

economy

Did you Know?


American International

Group started in 1919 as an insurance agency in Shanghai, China. Its founder Starr was the first Westerner to sell insurance to the Chinese. After Asia, it went to America only in 1962. Under its legendary CEO, Hank Greenberg, it became the largest insurance company in USA and third in the world . It owns the largest aircraft leasing company in the World having a fleet of over 600 Boeings and Airbuses.
Merrill Lynch started

PLACEMENTS SPECIAL First company to visit campus CBRE For final selection in CBRE lets Congratulate:

operations in 1914 as a brokerage firm and went on to become the world's largest securities firm on the strength of its brokerage network. One lesser known fact is that the owners of this firm took up a small grocery store and built it into the third largest grocery chain, Safeway. It recently got acquired by Bank of America.
The prime minister is

ATHUL U S

ASHISH BHAGAT

VINEETH M

always the chairman of planning commission in India.

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

COMMENTS BY PROFESSORS Excellent teamwork

HOD - C.K.T. CHANDRASHEKARA

The one newsletter which is extremely regular and consistent


- Prof. GHADIALLY H. ZOHER

It highlights real time trends of the markets and can also bring out details of the economy Prof. KSHETRAGNA

Contributions made by 2nd year:


Editing/Compiling News Company Review Stock Ratnas, Investors Check Interview Students Article Coordination Arihant Patawari Chetan P. Shriya Mohammad Nimakwala Lavanya Sebin Jerry Kanwar Preet Singh 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 Paulomi & Hitesh Archana