VOLUME 5.13ISSUE 99

OctOber 01, 2011

If a country is to be corruption free and become a nation of beautiful minds, I strongly feel there are three key societal members who can make a difference. They are the father, the

mother and the teacher. Abdul Kalam

about us

Rates 01

Graphs 02

News 03

National & International events in the world of finance

Contemporary Articles

Can low interest rates kill inflation? 04Frugality pays in difficult times 05

Investor Focus 06 Tata Consultancy Services

Investors Check 07 MCX IPo Review

Did You Know? 09

Buzz Words 10

Crossword 11

Check your Financial Quotient

C H A A N A K Y A

is the official

Finance Newsletter,

released fortnightly.

Its objective is to

keep each & everyone

abreast with the ac-

tivities & events in the

world of finance.

Rates

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RepoReverse RepoCall rateInflation (as on July 2011)Forex Reserve(as on 16th Sept 2011)91 day T-BillIIP (For July 2011)6.90 GS 2019

8.25%7.25%6.80%-8.35% +8.43% $316.763 billion

8.4364% +3.3% 8.0907-8.0907%

It’s not your salary that makes you rich, it’s your spending habits.

Charles A. Jaffe

By the time I became chairman and there was more of a feeling of urgency, there was a willingness to accept more forceful measures to try to deal with the

inflation. Paul A. Volcker

One of the great things about the market is, the mar-kets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They

don’t care whether you leave or stay. Larry Hite

46

46.5

47

47.5

48

48.5

49

49.5

50

15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

Rs/$

GRaPHs

02

25700

26400

27100

27800

28500

29200

15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

Gold(per 10 gram)

2400000

9400000

16400000

23400000

30400000

37400000

4700

4850

5000

5150

5300

5450

15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

future rates open interest

4500

4700

4900

5100

5300

5500

15,400.00

15,800.00

16,200.00

16,600.00

17,000.00

17,400.00

15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

sensex nifty

100

105

110

115

120

15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

Oil(per bbl)

By- Sumit Kumar Gupta II MBA G

inteRnational news

• German parliament approves bigger bailout fund for eurozone

• China tightens controls on production of rare-earth materials

• Banks face pressure to publish liquidity-coverage ratios

• Greek parliament adopts unpopular property tax

• Eurozone ministers delay €8 billion cash infusion for Greece

• Gruebel resigns as UBS CEO; Ermotti becomes interim chief

• Moody’s cuts credit ratings of 8 Greek banks

• Fed plan drags 10-year Treasury’s yield to all-time low

national news

By- Vaibhav Nagar II MBA L

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• Macquarie SBI Infra invested ` 893 cr in GMR Airports.

• Govt. allowed companies to trade equity for capital goods imports.

• RIL’s D6 customers face pro-rata cut due to dwindling supply.

• ICICI and HDFC were the only banks who offer teaser loans

• The Small Industries Development Bank of India (SIDBI) is working with the National

Stock Exchange (NSE) to set up a separate exchange for small and medium enterprises

(SMEs).

By- Gurjit Singh II MBA J

Can low inteRest Rate Kill inflation?

By- Dhruv Chopra, I MBA I

Every citizen of the country is bearing the brunt of the inflationary effect on the prices of every commodity now days. The Whole Sale Price Index is about to reach the double digit mark in the upcoming months and the most astonishing fact is that the Central Bank (RBI) has stated that the high inflationary effect would be felt in the market for the next two to three months from now.But in these turmoil times there came a news stating that the Chief Economic Advisor Kaushik Basu has pitched for a reduction in interest rates to maintain growth. This statement made by the Chief Economic Advisor was a sort of eye catchy statement.

He said this while referring to Turkey, which had managed to tide over the problem of high inflation by reducing interest rates in the high growth period. Basu’s comments came within days of the Reserve Bank of India (RBI) raising key interest rates by 25 basis points, the 12th increase in the last 18 months, to contain inflation, which has remained stubbornnly close to 10%.

It can be deciphered by Mr. Basu’s statement that in order to tame inflation it is not only necessary to hike the Interest rates rather thinking of something out of box, taking leads from successful models around the world and using the strategies in such ways that it leads to a successful impact is of no harm at all. But when the Chief Economic Advisor made such statements then is it really possible in a country where the scams of all magnitudes have almost sucked around 3 lac crore of rupees in the last 2 years.

To follow such successful models and to imply these strategies it is really important to even understand that Government’s role is extremely prominent. Corporate Governance and sticking to the ethics is the only way to follow the models which can lead to coming out of the vicious circle of inflationary prices all around.

In Turkey when the interest rates were lowered down people were blessed with more money in their hands and which gave them an option to invest in diversified fields and in short it boosted the economy and a stable stance of demand and supply was created in the market which directly or indirectly reduced the inflationary effect and brought the prices down at an affordable level. If our Central Bank takes such decision then it becomes the onus of the government to use the available currency for the people’s benefit and not for their own.

Also, the market perception of interest rate movement is gauged through the overnight index swap, or OIS, curve. OIS indicates the interest rate investors are willing to pay for a specific period.

Usually for a longer period/ maturity the interest rates are higher too but right now the OIS rate for one year is 7.97% as compared to the two year and the five year rates which are 7.3% and 6.93% respectively. This creates a gap (negative spread) and shows that the interest rates would follow the pattern as in 2008 the RBI did, bringing its policy rate from 9% to 3.25% between September 2008 and April 2009.

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But will RBI take such a decision? Will government be able to create a way for a clean and trustworthy mechanism? Will Anna’s movement for the corruption-free state reap the results? And will RBI think of any other step of taming this inflationary Tiger which is on a roar amid the possibility of another interest hike by the Central Bank in the upcoming months?

For answers to all these questions we need to wait till the next step taken by the Apex Bank or will it resort to the same old strategy of the interest hike which is not reaping much results?

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fRUGalitY PaYs in DiffiCUlt tiMes

By- Vinay Jain, I MBA I

Fear is looming large over double dip recession, the economies around the world are in trouble and so are the companies. In such a scenario, the worst-hit are SMEs, with their limited resources, it is difficult to survive the prolonged downtrend. Therefore, it is imperative to come up with some frugal ideas to save cost and increase the probability and business longevity.

Here are some FRUGAL IDEAS to remain in the war longer:

PROMOTIONS1. The HAPPY HIGH CUSTOMER – Include in your conversation and presentation on how a

customer was benefitted by your service. Like an instant coffee it’s an Instant advertisement.2. BE A PRO – Take community sessions, write an article for local newspaper. It makes you look

like an expert and increases your credibility and also brings attention at low-cost.3. YOU ARE MY NEIGHBOUR – Find businesses offering complimentary services; share the

advertisement cost, distribution channel and other promotion expenses jointly.

OFFICE OVERHEADS1. RRR – After KKK, it’s RRR! Reduce, Reuse and Recycle, Check Yellow pages or internet for a recycled printer cartridge supplier. Some of them are Cartridgeworld, Refill, and AbeFill etc. 2. Soft on Software – Shift to free software packages available on many websites (Download.com) , Open source software is also a good idea (ubuntu, Openoffice)3. Look for a KILL DEAL – Many times used equipments are available at very attractive prices (up to 60% discount). They would serve the purpose until business gets enough cash to get

new equipment.

INSURANCE INTELLIGENCE1. ARE YOU READY – Be ready for catastrophic situations,

analyse the risks your business is exposed to, and never scrimp on Disaster Recovery measures. It always pays in long-term.

2. Medical and Group Insurance - Choose the Medical Insurance carefully; inquire about past claims and the loss ratio of paid

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claims to premium. After all, it is not a day’s association.3. Save by association – Get a great insurance deal, by making an association with other businesses,

Insurance often offer discounts on group deal.

EMPLOYEES ECONOMICS1. GO WITH THE FLOW - Rather than paying for employees who sit

idle when business is slow, consider hiring temporary employees to handle surges in business.

2. Commission your SALES FORCE - Overhead, salaries, incentives, training costs, fringe benefits and expenses add up when you’re hiring your own sales representatives. Contracting independent manufacturers’ sales reps, paid on commission only, is less expensive and often equally effective.

3. Interns are VALUABLE - Scout for the ones who are keen on learning, and not on certificate. They often add great value to the organisation in terms of their project. Often, they could be hires for nominal or no-cost.

TAX TRICKS1. HIRE YOUR CHILDREN - If your children are at least 14 years old and pay their own taxes,

it pays to take advantage of their low-er tax bracket. “You can essentially transfer income from your business to them [to save money],”

2. BE PENNY WISE – Its good not to be pound foolish, But in recessionary time being PENNY WISE also pays, keep a track of petty expenses if they are adding a lot in total, they can be controlled

The article, lists only few of the FRUGAL ideas, you can come up with a FRUGAL IDEA too!After all, Innovation knows no boundaries…!!

1. References: Entrepreneur Magazine, March 2011.2. Graphics: Entrepreneur Magazine, March 2011.

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investoR foCUs By- Madhukar Das II MBA G

Tata Consultancy Services Markets are reacting severely to every twist and turn US and European economy is tak-ing. The Fed’s decision of moving $400 Billion from short term debt portfolio to long term spooked the world markets sending shockwaves of frenzied selling. This caused a havoc on Indian markets as well with Sensex losing 700 points in a single day, biggest fall since October, 2008. The fall was more or less reactive and markets somewhat re-covered in consequent days, however we are still in sensitive period and must use cau-tion with investments. Fundamentally Speaking Tata Consultancy Services (TCS) is the largest IT and outsourcing services provider in India. The company is a part of the most respected business house of India, Tata group. The Company's portfolio includes services such as application development and maintenance, business intelligence, enterprise solutions, IT infrastructure services, BPO, consulting and asset leveraged solutions. TCS has worldwide presence with mul-tiple locations in Americas, Europe, Asia, Australia, Middle East and Africa and en-joys a preferred services provider status for many global companies. The company re-cently launched latest BaNCS which has gone live in various worldwide location and would sere companies in Banking and Financial services sector. It acquired fresh cus-tomers in New Zealand and will enhance its presence in the region. The company is on a large scale recruitment plan which suggests that the business is expected to expand in the near term. Even in susceptible market conditions the company has managed to drive growth. Net profit rose 34% in Q1FY12 over the same quarter last year. It enjoys better margins than the industry average and has a RoE of 38.7% versus 22.2% of the industry. It is a debt free company which helps the earnings growth which has a 3 year CAGR of 19%. Developments in the Forex rates may help earning this quarter even further.

The candlestick chart has given a morning star signal. Price chart has given multi-ple patterns over past few trading sessions. Shown here is the bullish flag pat-tern.

The has been a positive move in the momentum chart.

The stochastic oscillator has made a bullish crossover in the oversold region, indicat-ing an upside in the stock price.

The commodity channel index made bullish cross overs from –100 to 100 in past few trading sessions indicating huge momentum

change in the bullish move. This is in the same periods when price chart made flag, followed by head and shoul-ders bottom and double bot-tom patterns which failed due to broader market weak-ness. This scrip should be one of the first ones to break out of bearish forces on mar-ket currently.

Special points of in-terest: We are looking at a trading horizon of 15-30 days and shall give more weightage to technical analysis and price trend of the stock. We shall also study the fundamental as-pects of a company to avoid getting into loss making trade posi-tions in case of movement of market in direction opposite to that of my predic-tion.

Technically Speaking

Recommendation : BUY CMP : `1047 Target Price : `1130 Stop loss : `990

BUY : HCL Technologies CMP—`405 Target—`435 Stop Loss—`385

Excel Crop Care CMP—`157 Target—`168 Stop Loss—`150

Sell : Aptech CMP—`117 Target—`108 Stop Loss—`120

Other Picks

Source: Company Official Website

investoRs CHeCK

MCX IPO

The MCX or Multi Commodity Exchange of India which is the leading commodity exchanges of India, has received approval from SEBI and is now planning to come out with its, Initial Public Offering or IPO. MCX is the sixth largest commodity exchange in the world with No 1 in silver and No 2 ranking in gold. It would be the first exchange in India to go public and get India at par with other countries with listed exchanges such as the US, Hong Kong, the UK, Singapore, Japan and Australia. Listing is expected to ensure the highest level of shareholder and public scrutiny, corporate governance and transparent trade practices. The share sale is expected to raise an esti-mated ` 800 crore, according to market sources.

CRISIL has given “five on five” IPO grade for MCX, which is promoted by Financial Technolo-gies India Ltd. the grade also reflects MCX’s leadership position in the Indian commodity futures market over the past four years. The entity had an 82 per cent share of the overall traded turnover in fiscal year 2010. Edelweiss Capital, Citigroup Global Markets India and Morgan Stanley India Company are the book running lead managers to the offer. The IPO price band is likely to be be-tween ` 700-` 900

What is the issue size of the MCX IPO?The issue size of MCX IPO is not known as of now.

What is the price band of MCX IPO?The price band for MCX IPO is not yet decided, it will be available just prior to the IPO opening dates. Final price will be decided through 100% book building process. Face value of each share will be at the standard INR `. 10 per share

How many shares will be sold in the MCX IPO?The total no. of shares to be sold through this IPO is around 64.3 lakh equity shares - those 6.43 million shares. That makes around 12.6% of the total equity of the company.

What are the IPO dates for MCX IPOThe IPO dates for MCX IPO are not yet decided.

How will the capital raised by MCX IPO be used?MCX is currently held by many financial institutions. Among them, some like FTIL or Finan-cial Technologies, GLG Financials Fund, State Bank of India, Alexandra Mauritius, Corporation Bank, ICICI Lombard General Insurance and Bank of Baroda are selling a part of their shares through this IPO.

FTIL which is the largest stockholder currently holding 31% shares will sell out a large portion of its holding and post IPO its share will come down to 26%.

We expect the IPO to perform well though market is quite volatile. But being leader in commod-ity exchange we can see lot of positive investor sentiments in coming days as listing date comes closer.

By- Saurabh Khator II MBA L

08

DiD YoU Know?The Indian economy is finally overcoming some of the obstacles that have traditionally been cumbersome to growth and today, India’s economic growth rate is among the fastest in the world, based largely on a flair for information technology and knowledge-based industries. As a result, India is providing an IT workforce for high tech companies around the world and is gradually on the path to becoming the “knowledge center” for the global technology economy.

Most of us know this, but here are 15 facts that you may not know. These facts are as of December 06, so some of them might have changed, especially number 6. If you have recent information, leave a comment and I will add it to the list:

1. India is one of only three countries that makes supercomputers (the US and Japan are the other two).

2. India is one of six countries that launches satellites.3. The Bombay stock exchange lists more than 6,600 companies. Only the NYSE has more.4. Eight Indian companies are listed on the NYSE; three on the NASDAQ.5. By volume of pills produced, the Indian pharmaceutical industry is the world’s second largest

after China.6. India has the second largest community of software developers, after the U.S.7. India has the second largest network of paved highways, after the U.S.8. India is the world’s largest producer of milk, and among the top five producers of sugar, cotton,

tea, coffee, spices, rubber, silk, and fish.9. 100 of the Fortune 500 companies have R&D facilities in India.10. Two million people of Indian origin live in the U.S.11. Indian-born Americans are among the most affluent and best educated of the recent immigrant

groups in the U.S.12. Thirty percent of the R&D researchers in American pharmaceutical companies are Indian

Americans.13. Nearly 49% of the high-tech startups in silicon Valley and Washington, D.C. are owned by

Indians or Indian-Americans.14. India sends more students to U.S. colleges than any country in the world. In 2004-2005, over

80,000 Indian students entered the U.S. China sent only 65,000 students during the same time.15. In a case decided by the U.S. Supreme Court, an Indian-American woman scientist, Dr. Anan-

da Chakrabaty, won the argument that persons may be granted patents for useful manufacture of living organisms. She defeated the U.S. Patent Office, that argued that living things may not be patented, thus establishing the legal foundation for the biotech industry, (Diamond vs. Chakrabaty, 1980). Dr. Chakrabaty invented a microbe that eats oil spills.

Did you know these facts about India ?Source:http://trak.in/tags/business/2007/08/02/15-little-known-facts-about-india-fact-file-knowledge-economy-growth/

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BUzzwoRDs

Shadow banking systemThe shadow banking system or the shadow financial system consists of non-depository banks and other financial entities (e.g., investment banks, hedge funds, money market funds and insurers) that grew in size dramatically after the year 2000 and play an increasingly critical role in lending businesses the money necessary to operate. By June 2008, the U.S. shadow banking system was approximately the same size as the U.S. traditional depository banking system. The equivalent of a bank run occurred within the shadow banking system during 2007-2008, when investors stopped providing funds to (or through) many entities in the system. Disruption in the shadow banking system is a key component of the ongoing subprime mortgage crisis.

DecouplingA situation in which returns on two assets or asset classes that normally move together or move separately. For example, oil and natural gas prices usually move together: when one goes up, so does the other, and vice versa. Likewise, stocks and corporate bonds usually behave the same way. Decoupling in both cases occurs when oil moves in one direction while natural gas moves in the opposite, or when stocks’ and corporate bonds’ returns diverge.

LBOA leveraged buyout is the purchase of a company using borrowed funds, with the company’s as-sets used as collateral for the borrowing (or leverage). The purchaser repays the loans out of the acquired company’s cash flow or by selling its assets. The bonds sometimes used to finance an LBO are not normally of investment grade because of the risks involved in such a deal.

Shogun BondA type of foreign-currency denominated bond that is issued in Japan by foreign entities. Organiza-tions such as the World Bank have issued such debt instruments in the past. It is also known as a “geisha bond”. For example, if a Chinese company were to issue a renminbi-denominated bond in Japan, this would be considered a shogun bond. The shogun bond market has been relatively small. In fact, from 1994 to 2003, there have been no new shogun bond issues.

Beige BookThe Beige Book, more formally called the Summary of Commentary on Current Economic Con-ditions, is a report published by the United States Federal Reserve Board eight times a year. The report is published in advance of meetings of the Federal Open Market Committee. Each report is a gathering of “anecdotal information on current economic conditions” by each Federal Reserve Bank in its district from “Bank and Branch directors and interviews with key business contacts, economists, market experts, and others.”

Crawling PegA system which permits a gradual increase or decrease in the value at which a currency’s ex-change rate is fixed or pegged to another currency or to a basket of currencies. This allows the exchange rate to adjust to changes in a country’s economy, such as changes in inflation or growth rates. Mexico and Hungary operated crawling peg systems in the 1990s which enabled them to slowly devalue their currencies.

By- Pragathi P. II MBA KApurva Gupta II MBA J

CRosswoRDs

Across

4. The company that made a JV with Pipavav Defence to make warships

6. The deal which came under I-T scrutiny for possible tax liablity

Down

1. The south african insurance company that has bought 26% stake in Shri-ram Capital

2. The company that has insured its Follow on Public Offer which is due this year

3. The online travel aganecy that has a Market capitalization higher than that of KingFisher and Jet Airways

5. The comapny that has seeked divorce from Volkswagon over Fiat spat

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By- Naveen Kulkarni I MBA N

12

answeRs to PRevioUs issUe

teaM

Apoorv Jhudeley & Rajat Sikri

Editors

Zafar Iqbal Cartoon

Vaibhav NagarNews

Naveen Kulkarni Crosswords & Quotes

Sumit Kumar Gupta Graph & Rates

Amit PrakashBook and Magazine Review

T. Deekshith Ravi Chandra & Rao Pavan sridhar

Student Article

Rohit Dhannawat &Saurabh KhatorInvestors check

Amit Prakash &Chinmay Uchhrang

JethwaScam

Mandeep Kaur Commodities Market

Richa Jain & Ritu Jadhwani

Debate

Akshat Malik, Geetika Gupta &

Manan Datt Alumni Speak

Abhijeet SinghQuiz

Anubhav Jain Did You Know

Gaurav Jain Stock Watch

Madhukar DasInvestor Focus

Apurva Gupta &Pragathi P.

Buzz Words

Kumar Gaurav & Meenakshi RamnathReview Committee

Apoorv Jhudeley & T. Deekshith Ravi ChandraCreative Head & Design

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