finxpress_4november2012

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November 04 ,2012

Company In Focus : HDFC Bank

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Term of t

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Cover Sto

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Term of the Week :

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story

Do RBI rate cuts matter?

November 04 ,2012

EDITORIAL

PAGE 1 http://www.imtgfinxpress.co.cc

Dear Readers, Greetings from FinNiche! After a series of Guest lectures, Placement processes and Project presentations in the past week, the time has come for the biggest challenge of them all- the End Term examinations. Team FinNiche would like to take this opportunity to wish the First year students all the best for the same. In this edition of FinXpress, we have HDFC Bank as the ‘Company in Focus’. In the ‘Term of the Week’ section, we would like to explore ‘Exchange Traded Funds’. Moving to the ‘Markets This Week’, the Sensex closed marginally higher to close with a gain of 0.7% for the week. The special page features a review on the effect of RBI rate cuts on the economy. We sincerely hope that the readers will find the content engaging. We would appreciate feedback and suggestions for improvement. We look forward to keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board FinXpress

Ultimate Touch Beauty Parlor 10/27 Raj Nagar, Near Arun Chaat, Ph. No. 4104320

COMPANY IN FOCUS

HDFC BANK

The Housing Development Finance Corporation Limited (HDFC) was incorporated in August 1994 in the

name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced

operations as a Scheduled Commercial Bank in January 1995. The bank was amongst the first to receive an

'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of

the RBI's liberalization of the Indian Banking Industry in 1994.

The Bank has three primary business segments, namely banking, wholesale banking and treasury. The

retail banking segment serves retail customers through a branch network and other delivery channels. The

wholesale banking segment provides loans, non-fund facilities and transaction services to corporate,

public sector units, government bodies, financial institutions and medium-scale enterprises. The treasury

segment includes net interest earnings on investments portfolio of the Bank.

The Bank at present has an enviable network of 2,620 branches spread in 1,454 cities across India. All

branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through

Telephone Banking. It also has 10,316 networked ATMs across these cities. HDFC Bank's business

philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and

People.

The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research Limited

(CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit programme has been rated 'CARE

AAA (FD)' [Triple A] by CARE, which represents instruments considered to be "of the best quality, carrying

negligible investment risk". CARE has also rated the bank's Certificate of Deposit (CD) programme "PR 1+"

which represents "superior capacity for repayment of short term promissory obligations". Fitch Ratings

India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned the "AAA ( ind )" rating to the Bank's deposit

programme, with the outlook on the rating as "stable". This rating indicates "highest credit quality" where

"protection factors are very high"

HDFC Bank recently surpassed State Bank of India as the country's most valued bank with a total market

valuation of about 1,37,554 crore (Rs 1,375.54 billion).Currently, HDFC Bank doesn't have any significant

presence in the equity fund raising space in India. While its rivals like ICICI Bank and State Bank of India

featured among top 10 investment banks on Bloomberg's league tables for equity fund raising in India for

2011. Its other rival Axis Bank, recently, formed a new investment banking subsidiary Axis Capital, formed

through merger with Enam Securities. In 2010, Enam took the third position in league table for equity fund

raising in India.

November 04 ,2012 PAGE 2 http://www.imtgfinxpress.co.cc


TERM OF THE WEEK : Exchange Traded Funds

An ETF is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order. ADVANTAGES

Lower costs ETFs generally have lower costs than other investment products because most ETFs are not actively managed and because ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. ETFs typically have lower marketing, distribution and accounting expenses, and most ETFs do not have 12b-1 fees.

Buying and selling flexibility ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade.

Tax efficiency ETFs generally generate relatively low capital gains, because they typically have low turnover of their portfolio securities. While this is an advantage they share with other index funds, their tax efficiency is further enhanced because they do not have to sell securities to meet investor redemptions.

Market exposure and diversification ETFs provide an economical way to rebalance portfolio allocations and to "equitize" cash by investing it quickly. An index ETF inherently provides diversification across an entire index. ETFs offer exposure to a diverse variety of markets, including broad-based indices, broad-based international and country-specific indices, industry sector-specific indices, bond indices, and commodities.

Transparency ETFs, whether index funds or actively managed, have transparent portfolios and are priced at

frequent intervals throughout the trading day. ETFs have a lot to offer. They're flexible and low-cost, and their underlying portfolios are protected from the impact of investor trading, making them more tax-efficient than most mutual funds. There are also ETFs that address specific subsectors that regular mutual funds do not. Nevertheless, look carefully before you leap. ETFs' cost advantage isn't always as large as it might seem, and trading costs can quickly add up. Particularly if you're in the market for a fund that tracks a broad index such as the NSE Nifty, or if you wish to invest regular sums of money, it's tough to make a case yet for choosing an ETF over one of the existing low-cost mutual-fund options.



MARKET THIS WEEK

MARKET THIS WEEK

Sensex gained 0.70% from last week and ended the week at 18755.45

Nifty gained 0.60% from last week and ended the week at 5697.70

Overview

The closing hours saw the Indian equity market indices come off a bit from their day's highs but still close

the week firmly in the positive. Thus, while BSE-Sensex edged higher by around 194 points, gains on the

NSE-Nifty came in at around 53 points (up 1%). BSE Mid Cap and BSE Small Cap indices also participated in

the rally, gaining around 0.4% each respectively. From the Sensex, only around 4 stocks closed the week in

the red, with the rest closing higher.

The rupee was trading at Rs 53.8 to the dollar at the time of writing. Amongst other indices, while Asian

ones closed in the red, Europe too was trading mostly in the green.

The gains today singlehandedly took the markets to a positive ending for the week. In fact, had it not been

for Friday's rise, indices would have closed slightly in the red. The auto sector has been in sublime form all

of this week and Friday was no exception. Strong auto numbers despite the overall tepid environment is

triggering interest in the sector counters we believe. Capital goods and bank stocks also gave good

company to the auto space.



Top corporate results this week:

Steel Authority of India (SAIL)

India's largest PSU steel maker edged higher by around 2% today. The company, as per reports, is looking

to expand its production capacity to 18 m tonnes from existing 14 m tonnes by the end of the current

financial year. It should be noted that the firm is in the midst of a massive expansion programme, involving

an outlay of close to Rs 720 bn.

Marico

Marico announced its September 2012 quarter results this week. The company recorded 19% growth in

revenues driven by 14% rise in volumes. All the three business units registered healthy growth in turnover

for the quarter. The domestic consumer business grew by 19% whereas the International business posted

growth of 16%.


Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR 4.25% Base Rate 9.75%-10.50%

Repo Rate 8% SLR 23%

Savings Deposit Rate 4.00%

Reverse Repo Rate 7%

Term Deposit Rate

8.50%-9.00%

Margin Standing 9%

Exchange Rate v/s INR Commodities unit Rs./unit % change

Currency Symbol Rate % change Gold 10 gms. 30495 -0.93%

US Dollar $ 53.81 0.48% Silver 1 Kg. 58730 -1.80%

Euro € 69.02 -0.83% Crude Oil 1 BBL 4671 -1.30 %

Dirham AED 14.66 0.0%

Japanese Yen ¥ 0.67 0.0%

Chinese Yuan CNY 8.62 0.58%


NEWS OF THE WEEK

Deceleration in GDP growth has bottomed out: Montek Singh Ahluwalia

With economy showing signs of revival in the second quarter of this fiscal, Planning Commission Deputy

Chairman Montek Singh Ahluwalia has said "In the first quarter of this financial year, GDP growth was 5.5

per cent, while in last quarter of last financial year it was 5.3 per cent, so it can be said that deceleration in

growth has bottomed out". Indian economy grew at a nine-year low rate of 5.3 per cent in January-March

quarter in the last financial year and also in the last fiscal at 6.5 per cent. The economy showed signs of

recovery when it grew by 5.5 per cent in the April-June quarter of 2012-2013. Annual growth in the eight

core sector industries more than doubled to a seven-month high of 5.1 per cent in September on good

production in coal, cement and petroleum refinery sectors. Showing signs of turnaround, industrial

production measured in terms of Index of Industrial Production grew by 2.7 per cent in August, reversing

the trend of contraction witnessed during the previous two months. Ahluwalia also said the recent

steps taken by the government to revive sentiment and growth momentum in the economy will start

showing results by January.

Gold prices dip below 31k level on global cues

Gold fell to over two-month low of Rs 30,950 per 10 grams in the bullion market here on Saturday,

November 3, driven by a sharp fall in prices overseas, while silver nosedived by Rs 1,500 per kg on poor

offtake. While gold lost Rs 270 to Rs 30,950 per 10 grams, while silver shed Rs 1,500 to Rs 58,000 per kg.

Traders said sentiment weakened on global trend where precious metal's tumbled the most in more than

four months to below $1,700 an ounce as US payrolls in October rose more than forecast, easing pressure

on the Federal Reserve to expand monetary stimulus.

TCS overtakes RIL to become most valued firm

IT major TCS surpassed Reliance Industries to become the country's most valued company as its market

capitalisation soared to over Rs 2.61 lakh crore because of spurt in the share price. During the afternoon

trade, TCS commanded a market value of Rs 2,61,357 crore, the highest for any listed company in the

country. This is about Rs 833 crore more than RIL's market value of Rs 2,60,524 crore. A gain of nearly 2

per cent at Rs 1,335 in TCS's share price pushed the company to the top slot. In comparison, RIL was

trading 0.12 per cent lower at Rs 804 on the BSE. Market capitalisation of a listed company corresponds to

the cumulative market price of all its shares. This figure changes daily with the change in the stock

price. ONGC , with a market valuation of Rs 2,27,533 crore, stood at the third position, followed

by ITC (Rs 2,23,982 crore) and Coal India(Rs 2,21,988 crore).



http://www.moneycontrol.com/india/stockpricequote/computers-software/tata-consultancy-services/TCS

CAG raps Oil Ministry over Reliance's demands for KGD6 audit

The national auditor or CAG has objected to the oil ministry agreeing to Reliance Industries Limited's (RIL)

conditions to restrict a scrutiny of its accounts in connection with gas extraction from the

Krishna-Godavari D6 basin. The conditions included the fact that RIL wanted the CAG audit of the KG-D6

basin to be kept within the oil ministry and not tabled in Parliament, as is the procedure. RIL also said that

the audit should be carried out in its own premises and that it would give no other documents apart from

those prescribed in the KG-D6 contract. The ministry is understood to have told the firm that it must

provide full access to its books. RIL had also wanted an assurance from the oil ministry that no

"exceptional" procedure be inserted in the CAG audit. The Comptroller and Auditor wrote to the oil

ministry asking why it had agreed to RIL's restriction. The CAG also said that it always summon relevant

documents and papers from the oil ministry as well as the operator. It also said that the final audit report

will be presented to Parliament, which is mandated by law.

A meeting between the CAG and officials of RIL was cancelled yesterday by the oil ministry. The CAG in a

note had clarified that it had neither asked for nor cancelled the meeting. The note also said that though

the CAG doesn't audit private concerns, it will evaluate the performance of the oil ministry in connection

with RIL's contract, which is said automatically comes under review.

Reliance and its contractual terms for extracting and selling gas from the KG-D6 to the government were

put under public scrutiny earlier this week by activist-politician Arvind Kejriwal, who alleged that both the

Congress and BJP had helped RIL make extra money from it. RIL denied the allegations.

Haldia port equipment handler quits over safety concern

Port equipment operator Haldia Bulk Terminals (HBT) quit West Bengal over "poor law and order" and

"safety" concerns of its employees, prompting industry experts to raise concern over the state's growth

prospects. HBT's decision would complicate the situation at labour unrest-hit Haldia Dock Complex, which

handles an average 14 million tonnes of dry bulk cargo a year, including critical raw materials for eastern

region steel plants. HBT, a joint venture of ABG Infralogistics and French Louis Dreyfus Armatuers, was

operating at mechanised berths two and eight at the complex and handled five million tonnes of cargo per

year.



COVER STORY

To debate the relevance of the country's central bank might seem facetious or plain dumb. But too much is being made of the central bank's failure to cut policy rates. It is being accused of being dogmatic on Inflation, of not seeing the parlous state of growth. All such passion stems from assuming that the RBI's policy rates matter the way central bank action matters in the US or Europe. This assumption is fatally flawed. The RBI is largely irrelevant to large swathes of the economy.

Bank lending, defined to include credit and investment in bonds, is some 67% of the total value of economic output or GDP in India. It is about 145% in China, way above 200% in Europe and the US, and some 340% of GDP in Japan. Does this mean that India is a strange kind of economy that makes do without credit? No. India's is a market economy where credit has a hoary history and an elaborate institutional structure involving hundis and entire castes whose sole occupation was usury. Bank lending's lack of heft only means that the Indian economy draws its lifeblood from sources other than the banking system.

Since India is a market economy, the actual extent of credit here must be similar to the US and European levels. But these economies are way too over-leveraged, so our credit level must be lower. China, too, would have a large informal credit network, but probably smaller than India's. So, it would be fair to estimate India's credit requirement at about 150% of GDP. If we take out what banks lend the government, bank lending is about 50% of GDP.

In other words, banks account for only a third of the economy's credit requirements. The informal credit system takes care of the remaining two-thirds. The rates in the informal market are way above the rates in the formal market, 50% more in the larger organised segments to several times as high as formal sector rates in retail loans (a vegetable vendor who borrows Rs 900 in the morning and pays back Rs 1,000 in the evening bears an annualised rate of interest of 406%).

Indians have a culture of segmenting the credit market and creating differential interest rates for different borrowers. A chit fund, called a committee in many parts of the country, is a pool of savings available to a closed group of savers-cum-potential borrowers. The intensity of credit need within the group determines the interest rate within the chit fund. Since the savers have no ready access to another source of credit, they do not benchmark their rate against anything else. Earlier, when stock markets had badla, the interest rate on the financing needed to carry the trade forward varied from stock to stock, from trade to trade.

Do RBI rate cuts matter ?



Shopkeepers have their own system of credit and rates of interest. Property dealers and real estate players who access large amounts, typically from corrupt but powerful politicians whose power is the only guarantee against default, have their own credit framework. Farmers who borrow some from banks and the rest from the powerful coterie of buyers licensed by the Agricultural Produce Marketing Committee, have their own interest cross to bear. The small and medium enterprise sector also obtains only a tiny portion of their credit from the banking system. The rest comes from informal sources whose lending rates are way above what the banks offer.

India's credit market is both stunted and fragmented. For two-thirds of economic activity based on informal credit, a quarter of a percentage point reduction in the RBI's repo rate means next to nothing. Sure, for consumer finance and home loans, these rates do matter. For stock markets and foreign institutional investors, the central bank's policy rates serve the purpose of signalling. The biggest impact is, of course, on the biggest formal sector borrower, the government. But this apart, the RBI and its lending rates are a part of a west-centric public discourse, where suited men talk of Greece and Spain and other tardy matters, whose only purpose, as far as the bulk of the Indian economy is concerned, is to provide gender parity for the women who come and go, talking of Michelangelo.

Let us stop making a big fuss of either the credit policy or its supposed failings. The RBI needs to embrace the opportunity offered by Aadhaar-based cash transfers to begin full-fledged mobile banking in the country through new licences to joint ventures between phone companies and banks. This will extend the reach of formal finance and make policy rates more relevant to more people.

The government should focus on stepping up investment, which is stalled not so much by the cost of money as by dither in official project clearance action, owing to irrational, rent-maximising procedure and civil servants putting a premium on their own tender posteriors over the capital formation they are entrusted with.



CAN YOU SOLVE IT? Indicate in which part of the statement of cash flows

each item would appear: Operating activities (O), Investing activities (I) or

Financing activities (F). (a) Cash received from customers. (b) Cash paid to stockholders (dividends).

(c) Cash received from issuing new common stock. (d) Cash paid to suppliers.

(e) Cash paid to purchase a new office building.

CARTOONS:

**Rush in your entries to : [email protected]

The right entries will get their name featured in the next issue of FinXpress. So hit the quiz fast & get yourself visible among 1000 odd in the campus.

Feel free to write to us at : [email protected]

Drop in your suggestions to the editorial team :

Magazine design/news : [email protected]

Articles/quiz : [email protected]

LAST WEEK’S ANSWERS

SET A

1) Mustafa : Singapore

2) IKEA : Sweden

3) David Jones : Australia

4) JUSCO : Japan

Winners:

Ajay Maheska

Dhairya Parekh

Praveen Vemuri

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