January 19, 2014

Volume 26

A Normal Week

As the students get back into the groove of studies, the new term slow-

ly moves on to become a regularity. The week saw the Lohri celebra-

tions being played out in the amphitheater. Club FinNiche would also

like to extend its warmest greetings for Lohri to all its readers. As a

number of students start preparing for their upcoming final joining and

others for professional examinations, the need for financial knowledge

becomes paramount. Club FinNiche, as always takes up the challenge

to keep you updated and sensitize you with the latest happenings

around the world.

This week we bring to you a review of the future of Dell after Quarter

into it’s privatization. The Opinion section takes a look into the chang-

ing faces of Indian Economy in the year 2014. The Term of the Week

grabs the nitty-gritty's of the Employee Stock Option Scheme. Do look

over the ‘News of the Week’ section for the noteworthy news for the

week. The ‘Market of the Week’ covers the latest movements in the

market this preceding week.

We hope you enjoy the various articles in this edition of FinXpress. We

look forward to your comments, acknowledgements and your criticisms

regarding our online magazine.

Happy Reading!!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 26

Jan 19, 2014

FinXpress

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

FinNiche

January 2014 Page 1

CONTENTS

From The Editorial

In Focus: A Quarter after

Dell’s Privatisation

Opinion: Indian Economy in

2014

Terms of The Week:

Employee Stock Option

Scheme

Market This Week

News

Tips & Experiences

Page 2

IN FOCUS

The markets watched as investors led by

Carl Ichan on one side collided forces with

Michael Dell and Silver Lake on the other. It

was a tumultuous battle which finally

ended with the latter gaining control of the

$57 billion behemoth - Dell Inc. There are

both defenders and attackers of the move

that saw the Texas based computer

technology company go private for $24.4

billion.

Michael Dell's plan to take the company

private was motivated in part, to give him

much needed flexibility to rejuvenate the

company "without the obligations of public

reporting, shareholder expectations,

quarterly targets, and other limitations of

operating as a public company". However,

according to a study done between 1997

and 2006 on 105 UK listed firms which

were taken private, after layoffs and sales of

assets, the gap in revenue per employee

between these firms and a control group

actually widened by more than triple. Thus,

there will be lots of layoffs in the days to

come.

The PC market is seeing a gradual decline.

According to IDC, PC companies sold 10%

fewer PCs in 2013 than they did in the

preceding year. The market is facing stiff

competition or more realistically being

hammered by portable substitutes like

smartphones, tablets and cloud computing

which are seeing double digit growth every

year. However, Michael Dell is betting big

on the PC market. He believes that not just

a desktop or laptop, but PCs will now be a

variety of devices and his company has

great scale advantage and is gaining share

in the category.

In Dell’s case, some analysts suggest that

once it’s private, Dell can migrate to a

software and services model. That is

however easier said than done. The

presumed exemplar of such a

transformation, IBM (IBM), still earns a

surprisingly high proportion of its profit

from a mainframe business that has been

revived by the growth of big data and the

disappearance of most of the company’s

mainframe competition. Furthermore, a

private Dell will likely have to service a

sizable debt load, presumably hobbling any

efforts to make significant acquisitions or

major investments in R&D to accelerate its

move into software and services.

Another notable point of concern is the

piles of debt taken as financing and the

increased role of Silver Lake in the day to

day functioning of the company. In such a

case, who would act as the real CEO?

Michael Dell? Silver Lake? Or some other

debt financer?

However, many critics also argue that the

deal was made for Michal Dell's legacy.

When Michael Dell started the company in

1984 for $1,000, it was his hunger for

success that drove the company's ideology.

It helped the company to be one of the front

runners in the PC market. Thirty years

hence, Michael Dell is a well known name

in the Silicon Valley. He has advantages of

a global footprint, recognition, connections

and a brand name. If he is successful in

transforming Dell, he will be known as a

"The CEO who changed Dell". Otherwise, he

will go down as a mere footnote in history

books.

FinNiche

A Quarter After Dell's Privatisation

January 2014

PAGE 3

OPINION

The story of the Indian economy in 2014

could be played as a result of the coming

general election.

The domestic economic situation is not a

pretty picture: there is no growth recovery

in sight even as consumer price inflation

continues to hover around double digits.

So there is little room for a stimulus to

economic activity right now.

A monetary stimulus will be risky at this

time when the Reserve Bank of India (RBI)

has to calm down the inflationary fires that

are left unattended for too long. A couple of

more interest rate hikes in the coming

months are quite possible, despite the

surprise decision by the Indian central

bank to not to further increase rates in

December.

A fiscal stimulus will also be bought with

risks. The finance ministry is struggling to

keep the fiscal deficit within its budgeted

figure, especially since tax revenues have

fallen behind targets because of the growth

slowdown. So the finance ministry has to

compress expenditure.

The government can at best try to ease the

economic situation through executive

decisions supporting large investment

projects that have been frozen for long.

A lot depends on how the Congress party

interprets the results of the recent state

elections when it got defeated. One

possibility is that they may see voter

dissatisfaction as a response to high

inflation. Then there are good chances that

the government will cooperate with the

Indian central bank in keeping a lid on

domestic demand, with a combination of

higher interest rates and lower government

spending.

The other possibility is that the political

leadership may see the loss of economic

momentum as the major reason for the

voter revolt, in which case it could be

tempted to pour money into populist

schemes that it believes could win votes.

The history lesson as well as the basic

political instincts of the Congress

leadership clearly suggests that Congress

might yet be again tempted to throw fiscal

deficit to the winds despite the presence of

high inflation. Global investors will not be

impressed if India lets its fiscal deficit

overshoot the budgeted target or allows

inflation to further drift up. Nor will global

credit agencies be cheering these in any

case.

There are glimmers of hope, however. The

current account deficit has thankfully

shrunk because of administrative

measures to compress gold imports as well

as more robust export growth following the

depreciation of the rupee as well as buying

of dollars from the market. So the Indian

economy seems to be in a better position

than a few months ago to handle this new

aftermath of instability in the financial

markets globally.

Policymakers in New Delhi and Mumbai

have done well to ensure that India is in a

better position to deal with global volatility

than it was in July. However, the big worry

is whether India can maintain external

stability without such artificial props.

The current confidence could be severely

tested in the middle of 2014 a lot depends

on the results of the national elections.

FinNiche

INDIAN ECONOMY IN 2014

—- By Jagriit Kalra

JANUARY 2014

Page 4

FINANCIAL KNOWLEDGE

Employee stock option scheme is an

instrument used by the company to attract,

retain and motivate its employees. These

schemes basically involve the issue of

shares at a discount as compared to the

market price to its employees as part of

their employee compensation. Under the

Employee stock option scheme, employees

and not the promoters or those employees

who belong to the promoter group are given

the stock option. Stock option is a right

given to an employee by the employer,

where on account of exercise such option

the employee will get some securities

(shares) in the employer company, within a

stipulated period, at a pre-determined

price. The major advantage of stock options

is that it develops a sense of belonging to

the company and thus contributes

effectively to the growth of the company.

SEBI has issued guidelines for Employee

Stock Option Scheme, namely SEBI, (ESOS)

Guidelines 1999, as per which only those

employees who are permanent employees of

the company are eligible for this scheme.

An employee who is a promoter or belongs

to the promoter group shall not be eligible

to participate in ESOS. Moreover, a director

who either himself or through his relatives

or body corporate, holds more than 10 per

cent of the outstanding equity shares of the

company, shall not be eligible. The

company cannot offer any ESOS as part of

its employee compensation, unless it

constitutes a compensation committee

which consists of directors, majority of

which are independent directors.

Again, the company cannot offer any ESOS

to its employees unless the shareholders

approve of it by passing a special resolution

at a general meeting. The notice for the

meeting must be accompanied by an

explanatory statement giving all

particulars of ESOS such as the total

number of options to be granted ,the class

of employees to whom it is granted, period

within which the ESOS to be exercised, the

maximum number of options to be issued

per employee etc. If however, in any one

year, the ESOS offered to the identified

employees equals or exceeds one per cent of

the issued capital, then it must be approved

by a special resolution of the shareholders

in a general meeting. The exercise price of

the shares under the ESOS is determined

by the companies after conforming to

accounting policies.

There is a minimum one year lock in period between the grant of options and vesting of options. And till the shares are issued on exercise of options, the shareholder does not have the right to dividend or vote. The board of Directors in their Directors Report shall give all details about the ESOS and at the AGM, shall place before the shareholders, a certificate from the auditors stating that the scheme has been implemented as per the SEBI guidelines and it accordance with the resolution of the company passed in a general meeting.

FinNiche

EMPLOYEE STOCK OPTION SCHEME

—- By Vipul kumar Singh

January 2014

Page 5

FINANCIAL KNOWLEDGE

Gold will rally, but silver will do

better Jim Rogers

The yellow metal took a big hit in 2013,

registering its biggest drop in last three

decades, as the super cycle in

commodities got challenged and the

basket made a U-turn.

"There are huge shorts that have

developed in precious metals as you

know. So, it's overdue for a rally. We

had a big drop in 2013. Everybody got

negative, everybody got short. So, we

are going to have a rally," says

Commodities Guru Jim Rogers.

"After the rally, the year will see it going

down again and hopefully finally we will

make a nice bottom and we can buy

gold again," he says. "I would prefer

silver to gold. I am not buying either at

the moment. Silver is down 60% from

its all-time high, gold is down 30-35%

from its all-time high. But i won;t buy

just because they are down," says Jim

Rogers.

Metal stocks may feel the heat as the

China shows signs of fatigue

Indian investors are twitching rather

nervously and glancing across the

border, hoping to see the Chinese

dragon breath fire again. But there's not

much hope coming from the dragon: the

economic data that's coming out of

India's giant northern neighbour isn't

all that encouraging for Dalal Street.

The rally in Indian metal stocks, which

surged in the July-September quarter

last year on hopes of China's resilience,

is seen coming to a halt. Market data

shows that the ET Metal Index has ..

Singapore hires Delhi-based Dataflow

Services to verify documents of

Indians

Singapore has hired a New Delhi-based

firm to ferret out Indians who

present fake documents in their work

p e r m i t a p p l i c a t i o n s .

Manpower Ministry has hired Dataflow

Services last month to conduct random

checks on education certificates,

employment history and scrutinise

births and marriage certificates of

Indian nationals working in Singapore,

The Straits Times reported today.

Aviva appoints JP Morgan, Deutsche

Bank to sell India JV stake

Aviva, the UK-based life insurer, has

appointed JP Morgan and Deutsche

Bank to sell its stake in the Indian joint

venture Aviva Life Insurance with

Dabur's founding family members, the

Burmans, said two persons familiar

with the development, adding that the

company is valued at Rs 1,100 crore.

The insurance sector has been hobbled

by slowing growth, regulatory

restrictions and the capital-intensive

nature of the industry.

Aviva's 26% stake may be sold either to

another global insurer or to the

Burmans. The UK company joins a

growing tribe of multinational insurers

which are quitting India either because

of their troubles back home, or due to

their disappointment of not being

allowed to raise their holding beyond

26% in India. "Aviva has given out the

mandate to JP Morgan and Deutsche

Bank to sell India business," said a

person close to the development. The

company has performed poorly, and has

slipped to 13th in the rankings table

with its total premium income falling

11% last fiscal to Rs 2,140 crore.

FinNiche

NEWS OF THE WEEK

January 2014

Page 6

FINANCIAL KNOWLEDGE

Other income cushions RIL’s Q3 net

Reliance Industries reported a nearly

flat profit of Rs 5,511 crore due to the

falling gasproduction and refinery margi

ns for the December quarter but beat

analysts estimates as earnings from

investments and lower finance costs

compensated for a drop in operating

income. However, the oil-to-retail

conglomerate saw its revenues rise

10.5% to Rs 106,383 crore due

to higher prices of its products and a

marginal surge in volume.

Life insurers grapple with spike in

frauds

Insurance frauds are on the rise and a

number of life insurance companies are

reporting a sharp increase in cases of

fraud and misrepresentation of facts

with respect to selling of the product.

That's not all. The number of

unauthorized agents purporting to

represent companies has also risen

exponentially. For instance, during the

first half of 2013, nearly 50% of

customer complaints received by PNB

MetLife India was linked to fraud by

unauthorized agents. "This is a big

concern for the industry and regulator,

and both are working to educate the

customers and take action against

people resorting to such malpractices,"

Rajesh Relan, MD and country

manager, PNB MetLife India, said.

Obama signs $1.1 trillion spending

bill, rider for Pakistan aid

WASHINGTON: US President Barack

Obama has signed a $1.1 trillion

spending bill that puts conditions on

continuation of American aid to

Pakistan. "Goodness gracious, that is a

big piece of business. That is a big bill,"

Obama said as he signed the bill

yesterday that funds the federal

government through the end of

September. The 1,582-page bill passed

by both the House of Representatives

and the Senate requires a certification

from the Secretary of State and the

Defence Secretary that Pakistan is co-

o p e r a t i n g w i t h t h e U S i n

counterterrorism efforts against the

Haqqani Network, Quetta Shura

Taliban, Lashkar e-Tayyiba, Jaish-e-

Mohammed, al-Qaeda, and other

domestic and foreign terrorist groups.

18 killed, several injured in a

stampede in Mumbai

At least 18 persons were killed in a

stampede in South Mumbai area in the

wee hours on Saturday , officials said.

The incident occurred after 1 AM in the

Malabar H i l l a r ea whe re an

overwhelming crowd had gathered to

pay last respect to the departed

spiritual leader of Dawoodi Bohra

community, Dr Syedna Mohammed

Burhanuddin, a civic official told PTI.

The Syedna passed away here yesterday

at 102. His followers had started

thronging his residence at the Hill after

learning of his death. Over 40 people

were injured in the stampede, the

sources said. The injured have been

admitted to the Saifee Hospital.

FinNiche

NEWS

January 2014

Page 7

FINANCIAL KNOWLEDGE FinNiche

Market This Week

This week market showed significant weakness as the benchmark indexes closed low.

The CNX-Nifty closed at a loss of around 57 points and BSE Sensex at a loss of around

201 points. Whereas Six Sensex companies add Rs 32,064 crore in m-cap, Infosys was

the top gainer and posted a 21.4% rise in net profit and raised its revenue growth

outlook for this financial year. However LIC cut stake in Infosys to 3.71% and sold

shares worth Rs 2,600 crore.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

January 2014

Thirty Days 20978.55

Fifty Days 20824.64

H0undred and Fifty Days 20012.36

Two Hundred Days 19869.31

Page 8

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 8.75%

Repo Rate 7.75%

Reverse Repo Rate 6.75%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 61.54

INR / 1 Euro 83.3424

INR / 100 Jap. YEN 59.00

INR / 1 Pound Sterling 101.0841

Commodity Unit Rs / Unit % Change

Gold 10 grams 29265 (0.80)

Silver 1 Kg 45136 (1.33)

Crude Oil 1 bbl 5777 (-0.07)

Base Rate 9.80%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 8.00%-9.00%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 6246.02

Fifty Days 6193.64

Hundred and Fifty Days 5954.91

Two Hundred Days 5940.12

Key Policy Rates and Reserve Ratios

Exchange Rates

January 2014

FinNiche

Fun Corner

Fin Quiz

1. ________ effect suggests that the stock market overreacts to relevant news, so

that extreme investment performance is reversed.

2. The book-to-market effect refers to the finding that firms with high ratios of

book value to market value tend to have annual returns ______________ than

returns for firms with lower ratios.

3. Empirical findings generally show that a typical common stock mutual fund has

a ______________. alpha

4. __________ term denotes the ratio of alpha to standard deviation of residual

return?

5. X invested in a project which has a 0.8 chance of doubling his investment in a

year and a 0.2 chance of halving his investment in a year. The standard

deviation of the rate of return on this investment is ————?

CARTOONS

FUN CORNER

Page 9

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Volume Publisher: Rajat Kochar

January 2014

Last Week Answers

1.Chicken Market

2.Dundee Mutual Funds

3.UPS

4.Asset Tripping

5. Fiat money