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16th MAR 2008

Volume 1, Issue 14

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy

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

Think of your faults the first part of the night when you are awake, and the faults of others the latter part of the night when you are asleep. - COGITO ERGO

National Headlines
Government to borrow 15,000 crore to fund farm loan waiver over next 24 months. Govt. to issue 9297 crore oil bonds. Personal tax collection grown to 40% over the last fiscal year. Industrial growth is just 5.3% as against 11.6% last year same time, consumer durables have degrown by 3.1%. Forex derivative losses likely to touch $ 3-5 billion. Rs 128 Trillion derivatives on banks books. Investors lost 24% value as 13 out of 18 IPOs flop in market. On March,10 for the first time in the year 2008 FII became the cash buyer buying RS 513 Cr of shares.

Inflation 5.02% , IIP 5.3 %

15 days Movements
17400 16900 16400 15900 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 15400

Sensex
Sensex

Videocon lines up RS6000 Cr. For GSM services. 2 Tata firms plan to raise $1 Billion each for future plans.

International Headlines
40.9 40.7 40.5 40.3 40.1 39.9 39.7 39.5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Rs/$

Rs/$

Dollar hits three year low against loan Yen 102.92 Yen. China tops as global FDI increased 5.1% in 07 attracting $90.4 billion while India came 2nd. Blackstone a private equity firm posted a fourth quarter loss of $170 million. Nortel Network plans to outsource 1000 jobs profitability. to India, to cut costs and return to

1190 1185 1180 1175 1170 1165 1160 1155 1150 1 2 3 4 5 6

Gold


Gold(per gram) 7 8 9 10 11 12 13 14 15 16

Volkswagen AG, European automobile manufacturer is acquiring Swedish truck maker Scania AB. Oil prices stable hovering around a record high - after reaching a record of dollar 108.21 a barrel, prices now stable around the 107 mark. Japan lends 7k crore for core sector to India. This is a 21% increase compare to last years. U.S. stocks drops on credit term oil and accentuated recession fears and the market is very close to its 2008 record low.

4300 4250 4200 4150 4100 4050 4000 3950 3900 1 2 3 4 5 6 7 8 9 Oil(per bbl) 10 11 12 13 14 15 16

Oil

Becoming wealthy is like playing Monopoly, the person who can accumulate the most assets wins the game- Noel Whittaker, Financial Planner

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Interview With K.S. Kamath


Mr. K. Shantharama Kamath, General Manager Treasury, Vijaya Bank
Q- What is your educational background & How you started your career? KSK: I have Studied B.Sc., CIB, LLB & PG diploma in Personnel Management. I joined Vijaya Bank in the year 1971 as a clerk. From a Clerk to GM, the journey of 36 years has been exciting, as I have seen the making of the Bank brick by brick. Q- What is your present role & responsibility? KSK: Being the head of Treasury, I take care of the entire investment portfolio of the bank. I supervise the investment & exposure in Forex Market, Equity, Govt. Security, Call Money market. We strictly follow the Reserves & Investments guidelines given by RBI, like caps in different investments, maintenance of CRR & SLR etc. Q- How you take the investment decisions? KSK: There are many things that has to be taken into consideration while making an investment decision like maturity matching, asset-liability matching, future expected cash in & out flow, the nature of fund, market conditions, regulatory requirement, availability of information etc. As the market is getting complex day by day, the role of a treasury manager has become very critical. Q- Do you think that the technology of your bank is advanced enough to compete with the private & foreign banks? KSK: Yes, we have all the advanced technologies in our treasury department. Real time information terminals like Reuters, Bloomberg, SWIFT & RTGS. One will be out of sync with the market if it does not have these state of the art technologies. We have 17 regional centers across the country, cumulative transactions of more than 5 crore is to be reported immediately to the treasury department. Q- What is your view of the present market? KSK: The entire global market has become excessively volatile for the past few days. Taking the case of our country the severity of volatility is more. The proposal to increase the STCG tax from 10% to 15% will no way help stabilizing the market, as the percentage increase is insignificant. And I feel the interest rate will move southward in coming days. Q- What is your take on the 60K Crore Farm Loan Waiver & how your bank has been affected? KSK: Out of the 60k crore, the exposure of RRBs & Co-operative Banks is 48k crore & that of Nationalized banks is 12k crore. I cant comment on the exposure of our bank, as I dont handle that operation. The real help can come by developing the irrigation systems, quality seed distribution, improving the farming technologies etc. & not by loan waiver. Q- What is your advice to MBA Finance students? KSK: A finance student should keep his eyes & ears open, & should track all the movements in the market. Build your basics strong & develop your own opinions about the market dynamics.

Quiz
1. A financial derivative contract that transfers credit risk from one party to another. An initial premium is paid by the buyer in exchange for potential cash flows if a given credit spread changes from its current level. 2. This term is often used when referring to management fees or other expenses paid to mutual funds, exchange-traded funds, or other pooled investment vehicles. This term represent the investment capital that the investor spends on investment fees. 3. An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an exit strategy for an illiquid investment. Lack of money is the root of all evil- George Barnard Shaw, Author.

How the Sensex is Calculated

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By: Nikhil Purohit

Did you Know?

Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media. The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. (See below: Explanation with an example) Sensex Calculation Methodology Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization

The economy of Hong Cong is believed to be the most economically free in the world. It has often been cited by economist such as Milton Friedman and the Cato Institute as an example of the benefits of laissez-faire capitalism. It has ranked as the world's freest economy in the Index of Economic Freedom for 14 consecutive years, since the inception of the index in 1995 and is first in the Economic Freedom of the World Report.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often Answers To Quiz indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Freefloat market capitalization of 30 companies in the Index by a number called the Index Divisor. 1. Credit Spread Option The Divisor is the only link to the original base period value of the Sensex. It keeps the Index 2. Foregone Earnings comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at 3. Liquidity Event which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.
Stock Ratnas

Example (provided by rediff.com reader Munish Oberoi): Suppose the Index consists of only 2 stocks: Stock A and Stock B. Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are available for trading to the general public. These 800 shares are the so-called 'free-floating' shares. Similarly, company B has 2,000 shares in total, of which 1,000 are held by the promoters and the rest 1,000 are free-floating. Now suppose the current market price of stock A is Rs 120. Thus, the 'total' market capitalization of company A is Rs 120,000 (1,000 x 120), but its free-float market capitalization is Rs 96,000 (800 x 120).Similarly, suppose the current market price of stock B is Rs 200. The total market capitalization of company B will thus be Rs 400,000 (2,000 x 200), but its free-float market cap is only Rs 200,000 (1,000 x 200).So as of today the market capitalization of the index (i.e. stocks A and B) is Rs 520,000 (Rs 120,000 + Rs 400,000); while the free-float market capitalization of the index is Rs 296,000. (Rs 96,000 + Rs 200,000).The year 1978-79 is considered the base year of the index with a value set to 100. What this means is that suppose at that time the market capitalization of the stocks that comprised the index then was, say, 60,000 (remember at that time there may have been some other stocks in the index, not A and B, but that does not matter), then we assume that an index market cap of 60,000 is equal to an index-value of 100.Thus the value of the index today is = 296,000 x 100/60,000 = 493.33This is how the Sensex is calculated. The factor 100/60000 is called index divisor.
BANK OF INDIA BSE532149 NSEBANKINDIA CMP269, TARGET466 SUZLON ENERGY BSE532667 NSESUZLON CMP270, TARGET450 ORCHID CHEMICALS BSE 524372 NSE ORCHIDCHEM CMP 219, TARGET386

Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.- Peter Lynch, Fund Manager

Foreign Exchange : Impact and Scope

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By: Prof C.S Dikshit

In a globalised world, no one can be immune from the impact of foreign exchange-favorable or unfavorable! Lets us look, the positive aspects first, though crude oil prices crossed us$100per barrel mark recently, India withstand the shock because strengthen of Indian rupee vis--vis us$ provided the cushion not only terms of Indian rupee a pleasant surprise! Same was the scenario in respect of us$ denominated debt repayments involving lesser outgoes in Indian rupees. On the flip side the stronger Indian rupee with reference to us$ meant lower rupee realization the export deals denominated us dollars. Also the stronger Indian rupee resulted in export prices from India becoming higher in terms of us$-leading in competitive disadvantage. Overall in the national context for a developing country the strengthening of its currency is a good news because generally its imports are more than its exports. Interestingly competent management of foreign exchange can significantly improve the profitability of an organization conversely poor understanding of foreign exchange related aspects can spell doom for an organization. The foreign exchange arena keeps the players on their toes- always! Be it hedging, arbitrage or netting! Split second decision, fluctuations in exchange rates, regulatory parameters in different countries, transactions involving millions of dollars- all get adrenaline going on and the pace is fanatic!! This game is not for the faint hearted and it implies Survival of the Fittest!!! Merely having raw data or digestible information is not adequate. Interpretation of these leads to knowledge. Wisdom i.e. application of knowledge is the final frontier. The foreign exchange field is omnipotent impacting all functional areas of organization marketing (for pricing), finance (for funding) and HRM (for remuneration). Though this article is appearing in finance magazine Chaanakya scope is universal for all areas of management. Foreign exchange activities involving opportunities and challenges. There is a tapestry of variables, glories defeats forecasting coping contingency management and impact of factors beyond ones control startling similarity to weather forecast meteorological department. There is a saying that whoever can control the weather, can rule the world. This seems to be apt for foreign exchange scenario in this corporate world. Do you have spirit of adventure, the mental and physical agility as well as the competence to handle this fascinating field to make money for your organization and yourself, while enjoying the excitement? Thats the million dollar question!

Letter From Our Guide


Started in September 2007, Chaanakya the fortnightly news letter, is an initiative by the self motivated students of the Christ College Institute of Management, with the purpose of providing themselves an opportunity to express their views on the important developments in the financial markets and to keep abreast of the events in this area. I am very convinced that this initiative has the potential to have lots of positive effects amidst the students today as well as tomorrow in their corporate lives. The variety in the coverage makes it an interesting and useful reading. The column Pearls of Wisdom enables the students to be in touch with their seniors and gain from their experience so far, in facing the challenges of corporate life. I am sure Chaanakya in course of time, would be a binding force for the students of CCIM and its alumni. The current issue being the 14th and the last issue for the present senior students of finance stream, I congratulate all of them for their invaluable contribution to Chaanakya. I also understand that the present junior students are in full readiness to take this initiative forward successfully and I congratulate the seniors for showing proactive-ness for preparing the juniors to get ready for this fruitful adventure. I wish each one of the students a very successful career and a very happy personal life. Always yours, T.S.Ramachandran Professor, CCIM

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Tag Lines:
The citi never sleeps - CITI BANK No FT. No Comments- Financial times dont just book it. Thomas cook it Thomas cook the power to be your best- APPLE
A. B.

A. ISE (Inter connected Stock Exchange of India) B. The Leela (Hotels, Palaces and Resorts) C. State Bank of Travancore D. PBS

C.

D.

INVESTORS CHECK
How to read an offer document Following are the must-read sections in an offer document: Risk factors: This is the first section in the offer document. It is the duty of the company to disclose all conceivable risks to performance. However, try and focus on the ones that are specific to the company (client concentration, legal disputes, heavy indebtedness, exposure to risky revenue streams) rather than general risks that affect all companies in the industry or the country (disasters, terrorist attacks, slowdown in economy). Objects of the issue: This section explains how the proceeds of the offer will be deployed. A detailed break-up of the expenses and an implementation schedule is usually provided. Reading this section will help you determine if your money will be invested in projects that will deliver higher returns than what the company is currently able to achieve. It will also tell you when these projects will begin to pay off. Business overview: If you are familiar with the industry, you can quickly skip to the business overview of the company. This section should give you a detailed picture of the various segments and markets that the company operates in, its competitive strategy and some aspects of its operational performance such as capacity utilisation, terms of joint venture agreements, existing resources and facilities and competition. Financial Statements: The consolidated profit and loss account and balance-sheet are the main financial statements you need to look at and these should be read along with the management discussion and analysis. This should provide you a basic overview of the companys revenue streams, profitability, debt and cash levels. Good offer documents would have a detailed break-up of segment sales and profitability and clearly explain factors that helped or hurt performance in each of the last three-five years. A quick scan of these basic sections should suffice and help you raise the right questions when talking to your broker/ financial adviser, rather than just take their word (remember, they could have vested interests) for it.

Buzz Word

l Balloon maturity Any large principal payment due at maturity for a bond or loan with or without a sinking fund requirement. Market clearing Total demand for loans by borrowers equals total supply of loans from lenders. The market, any market, clears at the equilibrium rate of interest or price. Take a powder Used in the context of general equities. Temporarily cancel an order or indication in a stock by a customer, while unrepresented interest still exists. Also called Back on the Shelf. Bai-kai Mainly applies to international equities. Two-sided market

Book Quotes:
The great, unreported story in globalization is about power, not ideology. It's about how finance and business regularly, continuously insert their own self-interested deals and exceptions into rules and agreements that are then announced to the public as "free trade. - William Greider Learn to adjust yourself to the conditions you have to endure, but make a point of trying to alter or correct conditions so that they are most favorable to you - William Frederick

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

Thanks !!!
This will be the last issue of Volume 1, Chaanakya, which was initiated by the finance students of 2006-08 batch. 1st April 08 will mark the beginning of Volume 2, Issue 1 and will be taken up by 2007-09 batch. Special thanks to all the senior students, especially the ones mentioned below who have strived to bring the newsletter upto this stage. Anshu Awasti, Bhavana Kataruka, Sindhu B. Navali, Savita Chacko, Simi Thomas, Usha V Murthy, Jaishree, Gopal Pai, Soumya Ranjan, Ajay Dhuvri, Lohit G, Fa. Baiju, Anand Neeraj, Eric M Samuel, Ravi Shekhar, Ritesh Verma, Mathew A Thomas, Special Thanks to our Professor and guide, Mr. T. S. Ramachandran for facilitating, guiding and encouraging the endeavor.

Contributions made by :
Article News Did you know, Quotes Stock Ratnas, Quiz Graphs Logos, Taglines & Editing Investors Check Interview Book Quotes, Buzz Word Coordination Nikhil Purohit Anup Rajan & Ashish Poddar Sukrutha Lavanya Gnana Devi Arihant Patawari Fouzia Taranum Diwakar Grover Sasmit K. Sahu Nikhil Mehta Manish Sinha