InvestOcraft Magazine - NMIMS

NMIMS
MBA (Capital Markets)
COVER STORY
Jan - June 2010
Rural India - growth drivers
COVER STORY
during downturn
Rural India - growth drivers
during downturn
When the recession hit,
economies came crashing
When the recession hit,economies
down. But India had an
came crashing down.But India
ace up its sleeves. Rural
had an ace up its sleeves. Rural
India once
India oncewritten
written off
off came to the
came to the rescue.
rescue.
India’s
India’s move
move towards recovery
towards
was based on the support re-
recovery was based on
ceived from the rural areas
the support received from
and established a base towards
the rural areas and
being an economic powerhouse ...
established a base
towards being an
economic powerhouse
Other ...
Stories Inside
OtherChina Bubble
Stories Inside
Future of Dollar
China Bubble
Everonn Stock Analysis
Future of Dollar
Telecom Sector overview
Everonn Stock Analysis
Telecom Sector overview
www.investocraft.com
MBA (Capital Markets) is a two year full time programme offered by NMIMS University to cater to
the needs of requisite intellectual capital to the fast-growing financial world with a keen focus on
capital markets.
With the revolution in global capital markets empowered by increasingly sophisticated information
and technology systems, there is an acute need for trained professionals to man important roles in
all spheres of capital market activity. This includes market intermediaries such as investment
banks, brokerage houses, credit rating agencies, stock exchanges, commodity exchanges, regula-
tory bodies, asset management companies, corporate bodies to name a few.
The program is unique because it aptly integrates conceptual knowledge, contemporary inputs,
technology, information and skill development. The programme is a blend of traditional core fi-
nance subjects along with capital market related subjects such as Asset Valuation, Treasury and
Investment Banking, Asset Management, Equity Research, Industry Research, Private Equity.
In addition, the course curriculum is updated regularly by the Board of Studies in response to con-
tinuous feedback from the industry as well as students. Exercises, assignments, case studies,
classroom discussions, testing of models, research projects, seminars etc are done with real data,
even on-line data in certain cases where applicable. The programme emphasizes on practical
learning and is facilitated by a right mix of experienced visiting faculty from industry and distin-
guished in-house faculty.
Since 2006, the programme has been hosting a panel discussion on contemporary issues in capi-
tal markets called INVESTOCRAFT, in association with The Bombay Stock exchange Ltd at their
prestigious International Convention Hall. The event provides a platform where the stalwarts of the
Indian financial sector share their views on current issues of the markets and is well received by
industry and academia.
NMIMS has played the role of a worthy torchbearer in initiating such a well-designed specialized
course, which is essential as the economy begins to mature. The programme intends to create
capital market experts having managerial expertise; and has been well received and appreciated
by the industry.
Message from the Chairperson
It gives me immense pleasure to announce the release of the magazine ‘Investocraft”, a

dedicated manuscript published for the Indian economy and Capital Markets giving an insight
into the current happenings of the financial sector. The feeling of being elated gets a boost
when the realization that it is prepared by your very own students dawns upon you. The
students of Capital Markets have worked diligently to collect data and analyze the industry
ups and downs.
As the word ‘Investocraft’ suggests ‘an investing guide’, this is precisely what the students aim
it to become one day, but for starters, I am happy if the readers like the articles and find them
useful. With every passing day at this sacred place, we try to evolve students from just
listening to active participators and finally into action takers and leaders in every field. This
initiative is a realization of this fact and I am proud of it.
With the blessings of God, I wish you all the best in the ups and downs of stock market and
following trail of investments.
Regards,
Dr. Anupam Rastogi
Chairperson - MBA (Capital Markets)
NMIMS MBA Capital Markets Page 3

Investocraft Jan-June 2010
From the Editor’s Desk
We experienced some of the worst economic conditions some time back. This entire statement is
only applicable for certain countries like India who saw the bad times and then moved towards
speedy recovery. Most of the world is still in the red and economies have lost support and
confidence. Most of the steps taken to induce recovery have not displayed desired results and
countries are still trying to find their way out.
The fact that India recovered so fast and so well is truly exemplary. It has risen from the downturn
to a status where it is in the true sense a future super-power. The demographics, the economic
intricacies, the government and the bright prospects are clear signs of a promising future. All this
can be attributed to the timely steps of the government of India and other regulatory authorities.
The fiscal stimulus was injected at the right time in the right amount and already steps have been
taken to gradually withdraw it.
The budget brought in very good news for the ‘aam aadmi’. It left much more disposable income
on the hands of the people and at the same time increased duties and tax rates on certain items
to make up for the decrease in revenue. It left it to the people to decide how they wanted to spend
their money in newer ways.
Education has improved with the new Education minister promoting public private partnerships. A
new tax regime in the pipeline and is expected to come into action from 1st April 2011. The
government is looking at divesting from PSUs and in turn earning much needed revenue to bridge
the fiscal deficit. SEBI is playing a proactive role in promoting the Indian Capital Markets and at
the same time making it safe to invest.
Rural areas have emerged as Indian growth drivers. They made up for the lack in demand in the
urban areas and have provided tremendous potential to expand and move towards a more
developed India.
With this theme we present to you the first edition “Investocraft”, the biannual magazine of
NMIMS, MBA Capital Market students. The Investocraft Magazine is a mission that has been
nurtured from nascent stage of discussion to completion, all by the effort of NMIMS, MBA Capital
Markets students with expert guidance from course Chairperson, Dr. Anupam Rastogi. The
magazine wishes to capture the essence of the past few months in a concise form and take
account of the recent developments and issues relating to the finance domain. We thank all the
writers for making the reading experience an intellectual one, the design team for making the
magazine pleasing to read.
Regards,
Editorial Team – Investocraft
Editors Designed By Other Contributors

Aditya Churiwala Kajal Pradhan Nalin jain
Sachit Arora Yatin Mota

CONTENTS
The International PUT

China Bubble 6
Future of dollar As reserve Currency 9
An Indian Call
Extension of Trading time- The 9 'O' Clock Start 13
Rural india-growth driver during downturn 16 COVER STORY

Everonn Stock Anlaysis 19 STAR ARTICLE
Telecom Sector Overview 29
Fiscal Stimulus 32
Concepts and Short Notes
Double Dip recession 35

Capital Account convertibility for layman 38
GST 41
Beneficiaries of Nuclear Power in India 44
NMIMS MBA Capital Markets

Page 5
China Bubble
Indrapreet Singh Khurana,Nitin Singh
China has surprised in the past as well and

The pats on the back, the rapturous ap-
analysts have often burnt their fingers while
plause and the ‘awe’ surrounding the word
writing the ‘fate of the dragon’. So, one need
CHINA that we’ve become so accustomed to
to be dead sure before making a claim of
in recent times, has all of sudden disap-
this proposition and also when it comes to
peared. Right from playing a spoiler at the predicting the future of the Chinese econ-
Copenhagen climate summit to being
omy.
dubbed as one of the biggest human right
violator by sources like US state depart-
ment’s “annual People’s Republic of China For now let us just look at every factor with a
report” to Amnesty International and Human microscopic eye. Later we might draw con-
Rights Watch, China is now at the center of clusion.
perils of all the economic activity.
• For starters, a variety of factors consti-
tute this bubble economy, they are ex-
cessive lending, overspending or overin-
Even ‘The (Chinese) Google Story’ may be
vestment, the overvalued stocks and the
coming to a premature end with the internet
much documented real estate bubble. It
giant, which has over the years notoriously
tailored its services to suit the needs of the is a sort of state which leads to eco-
nomic and financial unsoundness. It
Chinese authority, now threatening to pull
tends to incite perilous asset market ba-
out of the country. Though what could actu-
loney and nurtures methodical malin-
ally be the final nail in the coffin for China
would be its biggest strength, its booming vestment. This gives rise to an economic
structure which relies on unrelenting
economy, which is also looking down the
credit expansion and speculation.
barrel and if the words of a majority of the
analysts and economists are anything to go
by then we can decipher that it is one giant • A parallel with the Japanese bubble of
bubble waiting to burst. the 80’s is anything but inevitable. But
the sheer size of the ‘Jupiter’ like China
makes the Japan’s bubble of the late
However, one question still lingers on in eve-
80’s look like that once used to be
rybody’s mind. Will China be able pull the
planet ‘Pluto’. Though, it is still sumptu-
rabbit out of the hat yet again?
ous preposition to compare the two, es-

China Bubble
pecially the similarities between the real monetary policy. Experts believe only deter-
estate bubble but there are certain basic mined and smart policymaking can tame the
differences one must not forget about. bubble and China’s policymakers have taken
For instance, Japan’s realty surge was a step in the right direction. Another encour-
majorly fuelled by credit whereas, in aging sign was a statement by Liu Minghang,
case of China one in four buyers pay chairman of the Chinese Banking Regulatory
cash and on an average mortgage cov- Commission (CBRC), he stated that China
ers only half of the value of the property would continue to tighten the noose and
bought. And unlike Japan, which mind- slowdown the insane lending spree it has
lessly spent its resources and went on been on recently. Along with that, CBRC
building bridges to nowhere, China is would act as a watchdog to keep an eye on
still in need of more infrastructure, even the banking activities.
if its stock and realty prices do collapse
it would only have a momentary effect
The bubble talk has had an effect and there
and not the kind of menopause we ex-
is no denying that. The air is filled with skep-
perienced in case of Japan.
ticism and the media is filled with reports
about negative value of investing in China.
Just the thought of bubble of such a mam- However, there is still an underlying sense of
moth proportions bursting would be enough optimism and confidence among the inves-
to send shivers down the spines of all the tors. This isn’t an overnight phenomenon; it’s
leading economies of the world. a direct effect of the strong basics which Chi-
nese economy has in place. Add to it strong
pillars of strength and you get a perfect rec-
Having said that if anybody can pierce
ipe to win over the investors confidence.
through it and still come out unhurt, is
China (remember the bit about China and
surprises). China began 2010- the year of Factually speaking, some important reasons
the tiger with a big surprise and if you are why investors are still standing by China can
thinking of Google then think again. It be enlisted as follows. Firstly, its robust eco-
started with an unexpected turn of events. nomic growth; over the past decade or so
The People’s Bank of China decided to raise China has been the fastest growing economy
the reserve requirement ratio (RRR) by 0.5% in the world and even in 2009 its GDP grew
to 15% and that too moments after it raised at an impressive 8.7 p.c. Secondly, its unre-
the interest rates on its one year bills in a lenting domestic consumption; even during
bid to cool down the overheating economy. the current financial crisis, the Chinese con-
Cometh the hour, cometh the man, this was sumer remained unaffected and continued
China’s first move towards tightening its to drive the economy. What obviously came

China Bubble
to the rescue was the much talked about

$586 billion stimulus package by the Chi- .Only 3 p.c. of the citizens of Peoples Repub-
nese government to encourage domestic
lic of China lives in tier-I cities like Beijing
consumption and investment, which proved and Shanghai where the prices are consoli-
to be one of the most successful stimulus
dating. The rest, a major chunk of the popu-
packages in history and made China the
lation resides in tier-II and tier-III cities where
first country to come out of the financial cri-
there are tremendous growth opportunities,
sis.
a very enticing preposition from the inves-
And lastly, its position as the land of oppor- tors’ point of view.
tunities; despite being a socialist economy, All said and done but what about the expert
China is very investor friendly. A case in
opinion? What about it? As they say people
point being China’s friendly taxation policies
who could not even say China properly a dec-
like no property tax, no capital gains tax.
ade back have suddenly become experts on
This explains why real estate is considered
it. The bubble may burst or it may not but
the prime location where the owners of
history is in favor of China. The dragon has
capital like to park their funds.
dodged the bullet in the past it may well do it
Before any thoughts of real estate bubble again. Or it could well turn out to be a bullet-
crosses your mind, let’s get this straight. proof bubble.

Future of Dollar as the Reserve Currency

Adita Churiwala , Nalin Jain
Gold were interchangeable. Either could be

used to settle debts or used as currency for
The recent recession has put opened our international transactions. The USD held an
eyes to a unique scenario. The USA was the irrevocable promise of Gold against USD on
country worst hit by the recession and the demand. However USA amassed a lot of debt
effect was visible through the way the USD in this time because of the Vietnam War and
behaved with respect to changes in value when the gold convertibility clause was in-
and liquidity. However, what is shocking to voked, USA could not honour its commitment
see is that after all the crisis the USA has and defaulted. Because of this, the gold con-
survived, this is the first time a question re- vertibility clause was removed and only the
garding the fitness of the USD to continue USD was held by countries as reserve cur-
as the reserve currency has been raised. rency. So, the USD gained a lot during the
periods of the Bretton Woods System and
the Dollar Standard.
Emergence of the USD as a reserve
The last 2 decades of the 20th century were
currency
particularly good. USA entered into an agree-
It started with the World War II. Almost all ment with oil producing nations to price oil in
countries and their colonies were engaged USD. Many countries pegged their currencies
in war. Because of this their resources were to the USD hoping to achieve the kind of sta-
strained. At this time, the USA supplied bility that the USA has enjoyed. By the year
arms and ammunitions to the Allies, and 2000, it was even said that there were more
raw materials, oil, food grains, etc to all $100 notes in Russia than in the USA. This
countries because all their resources were led to wide acceptance of USD globally. Be-
diverted towards the war. So, a lot of coun- cause of all these reasons USD gained the
tries were in huge debt towards USA. strength and popularity that it currently en-
After the World War, countries felt the need joys.
for an exchange mechanism that would aid

in international payments in terms of cur-
The USD is here to stay
rency. So, the USD was introduced as the
reserve currency along with Gold. So USD In spite of the strength it has accumulated
was equated with gold at a price of 1oz over the years questions have been raised
Gold=USD35. This meant that USD and over its strength. However, in our opinion,

the USD cannot lose its reserve currency of the US economy and wouldn’t be able to
status, at least in the foreseeable future satisfy the requirements like greater liquidity,
due the reasons stated below: strong fundamentals and a capitalist ap-
proach. Moreover the fact that it is a social-
Huge Economy: USA is the largest econ-
ist country might act against its ambition.
omy on the planet and any impact on it af-
fects the entire world. An age old saying is SDRs are also an option but it too has its
“When America sneezes, the rest of the own complications. It cannot be reserve cur-
World catches a cold”. USA is a country that rency because it is not a currency in the real
has huge consumption and a lot of coun- sense. It is a fictitious currency that exists
tries depend heavily on them. If the USD only in the books of IMF. Also it depends on
loses its reserve currency status, it will lose the status of a country in the IMF. So a coun-
its value very quickly in the market since try like USA might have huge SDR reserves
nations will want to get rid of it and stock up but countries like Zimbabwe that don’t even
with the new reserve currency. Because of have adequate representation in the IMF
this there will be an excess supply of USD would have to suffer. They would take a
which will make its value diminish greatly at longer time to develop accumulating huge
least for a short period. Exporting countries amounts of debt in the process, if they man-
will suffer since they will no longer be able age to fight off the growing internal problems
to earn what they used to. Also USA will not like inflation and external pressures
be able to honour its existing and new
debts. The USA economy will weaken sub-
.
stantially which will affect the working of a
lot of countries because they depend on
them for consumption of their services. For
example, India has USA as its second larg-
est exporter and is also a large consumer of
Indian services. If USA suffers, the Indian
economy will suffer as well as we clearly wit-
nessed during the recent recession.
Lack of Alternatives: Even if we are con-

vinced about new reserve currency, the
question arises that which currency would
be strong enough to replace the USD.
The Chinese Yuan cannot be a substitute

because the Chinese economy is only 20%

The Euro is a strong contender. The Euro- Strong Fundamentals: In spite of all the
pean Union is a strong block with a com- criticism, it is a fact that the USA is a domi-
bined USD 10 trillion economy. However, it nant figure on the map and will continue to
does not include the UK which is a large be so. This because of its impact on world
and a very important economy and missing trade and all its initiatives along with its eco-
out on the UK means missing out on a ma- nomic and military might. No country is yet
jor financial centre. Another problem is that capable of replacing the USA as a super-
in spite of being almost 10 years old, it is power because no country has the kind of
still not widely accepted around the world lifestyle that USA enjoys. The US citizens are
thus limiting its marketability and liquidity. among the highest spending people on the
No other currency is even close to large planet. Also USA is truly global because its
enough to replace the USD. companies and organizations are present all
over the world and people from all over the
world are working in the USA. Also it has al-
Disadvantages of being the reserve ways bounced back from all adversity. An
currency: A currency acting as the reserve economy that runs on consumption is defi-
currency means that the home country of nitely one that is of great importance. An-
the currency will have to undertake and is- other benefit lays in the fact that USD as a
sue a lot of debt. This is because since each reserve currency allows the US to enjoy low
country needs to have access to that cur- interest rates and reduced transaction costs.
rency, it should be widely available. For this, It enables the US to borrow large sums in its
the country will need to print a large amount own currency. Also, considering that 64% of
of notes. This could reduce the value of the the world’s reserves are in USD, it will not be
currency but this might be offset because of an easy task to find an alternative because
the huge demand. Also, it means that any most countries will not be willing to take up
step taken by the country in relation to the such amounts of debt. The recent meltdown
currency will come under international scru- was due to technical and not fundamental
tiny and there will be a lot of pressure on faults. The US economy registered a growth
that country to act in the best interest of all of 3.5% in the previous quarter.
countries and might attract unwanted inter-

ference. Also, in the short run, when the
Complications: Trying to change a reserve
country comes under economic pressure
currency will be a complicated process. Its
the currency might act differently and possi-
implications will be far reaching and will pos-
bly violently.
sibly be in effect for as long as the currency
lasts. The first problem will be to find a suit-
able alternative reserve currency that fulfils

all the requirements and is strong enough If the reserve currency were to change, the
to sustain in the long run. Also it has to be USA would have to transform its trillions of
acceptable to all countries without providing dollars of debt into profits so that it can en-
and biased benefits to certain countries. It joy the new reserve currency.
would mean making provision for the outgo-
We believe that the world is not in a position
ing currency i.e. USD, so that it does not im-
to change the reserve currency simply be-
pact the world by going out suddenly. It
cause it would need more than a recession
would have to be phased out and the substi-
to destabilize what has been built over a
tute reserve currency will have to be intro-
century. The USA economy continues to be
duced gradually. So it would cost a lot of
resilient. So the USD is unlikely to be re-
time and money.
placed unless the future brings surprises.

An Indian Call
Extension of Trading time- The 9 'O' Clock Start

Akshay Maru, Pratik Saraf, Sachit Arora
The Future-
Future- Extension of trading time
Our past-
past-A brief history of markets
Now to continue that path of creating Indian
Way back in 1977, a visionary man named bourses as one of the best, SEBI in the re-
Dhirubhai Ambani, laid the platform for In- cent times took a lot of measures to attract
dia’s first equity firm called as Reliance. further investments in the market and to in-
Flurry of IPO’s later and after numerous crease the volumes traded. One of the most
MSME came into existence the Indian stock debated and thought of measures was to
exchange has become one of the most suc- increase the trading time in our markets,
cessful markets in the world. It has in recent which SEBI did adopt after a request to do so
time attracted huge inflow of investments, was filed by both the BSE and NSE.
approximately to the tune of $12 billion- a
statistic as of mid April 2005. Around Mid-October it allowed the deriva-
tives and equity segment to be traded from 9
The Indian Stock exchange and market am to 5 pm giving both the bourses freedom
practices have undergone a sea of change to choose the amount of extension they can
in the past 20-30 years, like, earlier the afford. Hence, what followed was the race
trading in our markets used to take place between the two stock exchanges of India to
through an open outcry system (BSE and implement the new timings. Bombay Stock
regional stock exchanges) but with the ad- exchange decided to start market ten min-
vent of time another stock exchange was utes earlier at 9:45 am. Not be left behind in
born, NSE, and with it started Screen Based the ‘who leads from the front’ game, NSE
Trading System (SBTS). A revolution in our came up with the announcement of starting
trading practises. With SBTS, traders all at 9 am. Eventually the former bourse also
across the country got an equal platform to had to comply to keep itself from lagging in
trade. Anyone could access the market and volumes. Hence, with effect 4th January
place the orders from anywhere. It removed 2010, the BSE and NSE open up at 9:00a.m
the possible manipulation by the brokers to instead of 9:55am IST.
enhance their fee by selling the clients
share at a little lesser price and buying at a The main objective of extending the trading
little more than the market prices. hours Prima facie was to capture on volumes
which Indian bourses loose out due to early
Then was the first time markets took a giant start of SGX (Singapore Exchange Ltd). SGX
step towards becoming an efficient system opens at 6:30 am IST, giving the FII’s an
of trading, propelling India into the league of early shot to invest in NIFTY futures, thus
major stock index’s in the world. snatching away the volumes from our mar-
ket. What added insult to this injury was our
government’s decision to ban participatory

An Indian Call
Extension of Trading time-

time- The 9 'O' Clock Start
notes in India to check the flow of unac- in the Indian economy. At this point, SEBI,
counted money, further plummeting the vol- also pointed out the increased efficiency of
umes in bourses. The data released by SGX markets due to the live global information
on 6th January 2009 also confirms this. flow, less speculation, increased returns for
From the data it was easily deducible that domestic investors, plus it said the decision
CNX Nifty futures volume increased by to increase the trading hours is reflective of
762% in 2008, while other Asian indices regulator’s commitment to push the Indian
growth was just hovering around 16-18%. markets to match the global standards and
Also, CNX nifty generated about 20% vol- practises.
ume of the total Asian contracts executed in
DECODING THE FUTURE
SGX while, it had also jumped to become
the third most traded index amongst the Till this point we have just given SEBI’s point
Asian countries. of view on how well this decision could pan
out to be. But do these arguments really hold
Besides the primary concern of SGX, SEBI
true in the practical world? What are the ex-
also reasoned that giving India an early
pert’s views on it? Is there any downside to
start would mean synchronizing us with the
the whole early start? Lot of debates have
other markets over the world. This in turn
taken place and after a lot of analysis, we do
would provide a chance to big players to
believe that yes the other side of the coin
pick up cues from the global information
might outweigh the formers perspective, at
flow and hedge their risk appropriately. At
least for the moment.
present with just a handful of hours to man-
age the funds and any one change in a big Firstly, SEBI’s move to extend the market
economy triggering a major fall in stock timings was opposed by the brokers and
prices across the continents, institutional along with it RBI also showed some discom-
investors are always sceptical, thus specu- fort because they are not ready with the
lating on the prices to ward off their risk to RTGS at 9a.m. SEBI cannot expect banking
the minimum. With synchronization of mar- & its operation to cooperate within this short
kets, investors would feel secure and work span intimation of new timing for funds pay
according to the live information flow, rather in & payout request. Brokers feel that they
than speculating before hands. are not ready with the infrastructure as well;
the feeling is that the increase in revenue
Not just the institutions, even the small re-
would not be much more than increase in
tail Indian investors are bound to benefit by
the administration cost. As far as the human
the extension timings. As the volumes come
factor which is connected with the markets
back to the Indian bourses, the retail inves-
is concerned, it will also be put under strain
tor will be able to analyse the big players
due to the increased operation time of mar-
move and position his investment wisely,
kets. It might not matter much in small cit-
with a high probability of getting favourable
ies, but for big metros where travelling takes
returns. Previously he lost out as the trading
up a lot of time, it will be in a simple word,
strategies on international informational
inconvenient.
flow were conducted outside the Indian
markets and he couldn’t access it due to
restrictions on capital account convertibility

An Indian Call
Extension of Trading time-

time- The 9 'O' Clock Start
Secondly, the objective of extending trading

hours was to be in "Sync" with the Global because of the trading hours available for
markets. Given the present timings this is trade. The average daily turnover in the In-
possible for Asian and European Markets dian stock market for the month of January
but even if trading hours are extended till 2010 has been 79,000 cr (19% less than
5:00 pm it won't be possible for to us match the average turnover of the last 4 months
the American Markets, starting time 7 pm. and 13% less than the month of December.).
So how do we hedge risk there?
Extended trading hours was a step taken by
Thirdly, the prima facie reason given by SEBI SEBI in the right direction but they need to
was to redress the volumes which Indian take further steps to ensure that the objec-
bourses lost out to SGX, might not hold true tives set are achieved. Some learning’s can
at all. Yes the SGX-nifty has become a hot be taken from the Chicago Mercantile Ex-
trading commodity due to India’s growth, change (CME).CME is open for almost 23
but the reason Nifty derivative is traded in hours for few products. Going that way, SEBI
Singapore is due to its open markets, which could have left the cash market timings as
has comparatively lesser foreign exchange they are now, from 10 am to 3.30 pm, but
restrictions as ours. Even the margin re- increased derivative trading hours up to
quired for trading in the futures market in 11.30 pm to coincide with commodity mar-
India, which is 15% on an average is only ket timings. Even the CME did face few infra-
1.5% in SGX. When there is so much of structural problems in the beginning, but
price differential and the cost of operation is they followed a simple policy of settling the
so much cheaper why one would shift their trades of 1'st session on that very day and
operations from Singapore to India. trades of 2'nd session are settled on very
Fourth and most importantly after the in- next day!!! And slowly and simultaneously
crease in timings has taken place, what is develop the Infrastructure!
the change in volumes in Indian Stock mar- It’s a tough one for SEBI but a start can defi-
kets and SGX-Nifty? The later for sure has nitely be made, as the objectives might be
not been affected; it did saw a blip on 4th correct behind increase in Trade timings, but
January- the first day of extension- but then the implementation is faulty.
it was back to normal trading from the next
day onwards. Not taking into account the
SGX decision to extend trading in Asian de-
rivatives by an hour, we believe it is influ-
enced by a completely different set of fac-
tors.
Coming to the Indian markets, Even though
it’s almost been a month since the new ex-
change timings have been introduced, there
has been no increase in the volumes even
on the NSE. It is a fact that securities are
traded because of sentiments and not

An Indian Call-COVER STORY
Rural India-growth driver during downturn

COVER STORY
Shruti Zatakia ,Laxman Sharma
actual growth rates were released in May

The relationship between the Indian Econ- 2009, there was a pleasant surprise. The
omy and its rural sector dates back to the actual Growth rate recorded for the FY 2008-
1950s when Agriculture and allied activities 09 was 6.7 percent. Also the Economy grew
contributed to over 50 percent of India’s at a rate of 5.8 percent in the quarter ending
GDP. However over the decades, this rela- March 2009 against the estimated 5 per-
tionship came down to a mere 17.2 percent cent.
in 2008. The Service Sector in the mean-
time grew fast pace and was seen contribut- A question was then raised on the pessi-
ing almost 53 percent of the GDP in the mism shown by analysts for estimating such
year 2008, while the Primary sector was below growth rates.
ing ridiculed of a very slow growth rate. One of the few answers received was that
But all these statistics held true until all was the analysts had failed to take into view the
well in the world markets. As recession hit larger picture. They had based their esti-
the West, especially the US, there was some mates on the shrinking economic activities
very bad news for India, the fast growing of the urban areas (considering that is where
Secondary and Tertiary Sector bringing in most of the activity takes place). The esti-
most of it. All the companies whether in the mates took into account the fall in produc-
IT Sector or Financial Services Sector which tion of the Manufacturing Industry and in-
were engaged in exporting goods and ser- crease in unemployment in the urban areas
vices to the US markets suddenly saw them- but it ignored the growth in the Primary Sec-
selves faced with crisis. They saw a dip in tor (mostly rural) which showed a growth of
earnings, compounded by an increase in 2.7 percent in the quarter ending March
the cost of operation. While some shut busi- 2009. Also the growing services industry and
ness, others started cutting down costs. other activities like horticulture, poultry, fish-
Everyone witnessed what followed. Thou- eries, and others that are less dependent on
sands of employees were laid off, promo- rainfalls were completely ignored.
tions were put on hold and those who were So is it correct to state that Rural India pro-
lucky enough to be retained saw a cut in vided a cushion to the Indian Economy dur-
pay and perks. Unemployment meant a fall ing the Global Meltdown?
in the aggregate purchasing power in the
Well, to some extent yes it did. The Rural
Economy which meant a fall in Aggregate
Economy played an important role by helping
Demand and an Excess of supply. This im-
offset the negative impact of the Recession
plied a fall in prices and in time when India
in Urban India. There were several factors
entered a phase of recession.
operating in the Rural Economy which
This brought around a lot of pessimism in helped in doing so, the most important being
the Economy. Growth rates for the FY 2008- an increase in Rural Demand. As trends sug-
09 were revised and brought down to 6 per- gest, there has been a steady increase in the
cent from 8-9 percent. However, when the rural purchasing power. The Minimum Sup-

Rural India-
India-growth driver during downturn
port Price (MSP) set by the Government markets. Several FMCGs diverted their focus
grew at 10-15 percent CAGR in 2005-08 as from urban markets to rural markets. FMCG
compared to 2.5-4 percent in 2002-05. The companies focused on selling smaller packs
Government had allocated US $ 34.84 bil- of their products like shampoo sachets and
lion for the Bharat Nirman Program which ‘chhota pepsi’ to capture a large volume of
helped in developing rural infrastructure. the consumer base, several Telecom players
This has helped farmers get a fair price on offered ‘chhota recharge’ and other
their produce which has led to an increase schemes so that the average person in the
in the per capita income of the Rural Econ- rural area does not feel the pinch of spend-
omy. The latest ASSOCHAM study shows ing too much at once. Some of the facts
that the rural per capita income increased highlight the importance of rural markets as
substantially from Rs7,300 in 1981 to Rs far as FMCG sales are concerned. Rural mar-
15,300 with a CAGR of 2.5 %. Another pre- kets account for 49% of motorcycles sales,
diction shows an increase in rural income 59% of cigarettes sales and 46% of soft
from US $160 billion in 2001 to US $ 270 drinks sales in India.
billion by 2011. Moreover, Agricultural In- The other sectors which looked at this new
come is not taxed in India. This helped the market for surviving the recession were Tele-
farmers keep all of their increased income
com, Insurance, Real Estate and Banking.
resulting in a rise in the Per Capita Dispos-
Business units in each of these sectors
able Income. Other things which lead to this started remodeling their marketing mix and
rise in increasing income is the reducing product mix to suit the needs of the rural
share of agriculture in household income,
markets. Focus of such units shifted from
increase in non-farm income and increase
the 4P’s: Product, Price, Place and Promo-
of about 25% in agri-exports ,even during tion to the 4A’s: Affordability, Awareness,
the recession.
Availability and Acceptability.
Government programs like The National Ru- With about 530 million wireless telephone
ral Employment Guarantee Scheme subscribers and increasing internet services,
(NREGS) and the Agricultural loan waiver
the telecom sector without any doubt is the
amounting to nearly US$ 13.9 billion, fastest growing sector, and rural India is
helped in increasing the rural purchasing
where the growth lies because urban areas
power which led to an increase in rural de-
have a tele-density as high as 95% com-
mand. Another program under Ministry of pared to only 17% in rural areas. These
rural development-Bharat Nirman also growth prospects are supported by the fact
achieved a lot during its 1st phase which that the rural subscriber base increased by
ended in 2009 in terms of set targets.
48 million during the first half of 2009
This rural demand was backed by a change against 33 million subscriber base increase
in the consumption pattern in the rural ar- in urban areas.
eas, a direct result of the effect of Television
The focus of insurance companies has also
and Media. The people in the rural areas
gradually shifted to rural areas. The reason
were demanding more of the products and
behind this is the increased literacy level and
services which were advertised on television
hence better awareness, increased dispos-
and used by their urban counterparts. This
able income in the rural land and introduc-
attracted such companies who were at that
tion of more customized products and ser-
point in time operating in saturated urban
vices by the insurance companies suiting the

Rural India-
India-growth driver during downturn
needs of the people in the rural areas. The financial services. India gained shield during
healthcare and the pharmaceuticals indus- the recession because of the over-cautious
try also eyes a huge potential in terms of and reserved nature of banks while providing
growth in the rural sector. This is evident even micro-credit and small loans. Also, the
from the fact that government increased the efficient Indian Banking system provided the
budget of National Rural Healthcare Mission appropriate support to the Economy in times
(NRHM) by US$ 424.3 million over the in- when Banks around the world were collaps-
terim budget estimate of US$ 2.49 billion ing like a house of cards.
for 2009-10. Pharmaceutical companies
The timely monetary and credit policies of
have also increased their spending in rural
the Central Bank helped in providing the
advertising and have also increased the
much required liquidity by minimizing losses
sales force for the same.
on loans. But developing the infrastructure
Besides these main factors, other things still remains the most important priority for
that pushed the growth in the rural areas the government as good infrastructure and a
are - the trends in the rural business proc- strong economy is what will transform this
ess outsourcing under which IT/ITes majors recovery into sustainable growth.
are expanding their back-office operations
to rural areas because of lower infrastruc-
ture costs, low attrition rates and compara-
tively lesser salaries; the growth of the retail
sector in the villages which accounts for
around 40% retail market; changing expen-
diture distribution patterns i.e. more on
automobiles and consumer durables(a sur-
vey shows that around 59% of consumer
durables sales comes from rural areas); bet-
ter supply chain management-roping in
farmers as stakeholders; strong political in-
terest shown by new age politicians to work
for the betterment of rural markets and will-
ingness to invest in infrastructure, health
and education.
It is essential to also give credit to other fac-
tors that shielded India from the Recession.
Firstly, India is not as dependent on Exports
for its GDP like China. Thus a fall in exports
did not have that significant an impact as it
had on China. Moreover the savings rate in
India is 35 percent. These large domestic
savings and retained corporate earnings
helped in financing investments. Another
thing that needs to be highlighted here is
the role of the rural and micro-financing
companies in providing safe and reliable

An Indian Call-STAR ARTICLE
Everonn Systems India Ltd. - Stock Analysis

STAR ARICLE
Siddharth Chatterjee ,Santosh Kumar,Shobhit Bajpai
been phenomenal in last few years, thus

Everonn has a truly scalable and robust edu- making the sector attractive and promising
cation business model including VSAT, inter- as far as Indian growth story is concerned.
Most experts feel that this education seg-
net, and intranet capabilities. India's second- ment will flourish with leaps and bounds in
largest education company can close its gap the near future and a Sector to keep a
with market-leader Educomp through more watch at.
robust product offerings and fresh capital, in
Top –Down Approach:
our view.
In this report, to understand this sector
thoroughly we have followed a Economy-
Introduction: Sector-Industry (ESI) approach. First we will
identify the government support and role of
One of the major topics under discussion in economy to boost the growth of this sector.
the education industry today is the entry of
private players that can make this field as Secondly, we will see the major players in
competitive as any other in a free market the segment.
economy. And, lastly the particular company on which
we have produced the extensive research.
It is a fact that India has a proliferation of gov-
ernment-run educational institutions while
privately run ones are relatively fewer. This is Followings are few fact and figures about
essentially because of a strict licensing policy this sector to understand the potential and
followed by the government where private scope:
players have to meet stringent but now to The government spending on
weed out inefficient players’ government is education is close to 4.5% of
relaxing some of these rules to attract more the GDP
players of this sector.
The size of the education indus-
The adoption of cutting-edge technology espe- try is worth more than
cially Computers, IT and its training by govern- USD50 billion (2006-07).
ment and private schools may be the most India is the largest home for
visible part in this saga of change in the In- consumers of education ser-
dian education industry.
vices in the world.
This development, however, has been a result It is estimated that during 2006-
of a new awareness among Indians about the 2010, 71-million youth will
need for quality education as well as the enter the working-age popu-
knowledge of how to go about making India a lation. Here lies the signifi-
better educated country. The response of cance of vocational educa-
people alongwith government initiative has tion along with other higher

An Indian Call– STAR ARTICLE
Everonn Systems India Ltd.
education system being im-

parted in the country.
Every year, about 0.165m students
is estimated to undergo voca-
tional training apprenticeship in
state-run enterprises.
India’s population is 1120mn which is 2nd

largest behind China (~1327mn) but India is
largest education market with total target
population of 460mn (41% of total India’s
Population) falling within age group of 6-24 The above diagram succinctly explains
years. Out of 460 mn of target population, Government contribution for the Education
Sector.
only 224mn are enrolled for formal schools & Impact on sector:
colleges, so huge gap is there which means Positive impact on players operating in
huge opportunity for business who can meet the domestic sector especially to
the ever growing demand of better education. firms operating in the technical up-
gradation space for education like
To educate such a huge number is a gigantic NIIT, Aptech, Educomp, Everonn.
task & companies who have better content &
In the long-term, technology companies
delivery mechanism would be able to tap this
will benefit as more skilled labour
gigantic opportunity.
available for KPOs and tech compa-
To impart education, Govt. has planned vari- nies going forward.
ous schemes like ICT@ schools, Sarva shik- There is also a allocation of Rs 100
sha abhiyan (SSA) etc for which huge budget crore to the Ministry of Information
being allocated. and Technology to establish the Na-
tional Knowledge Network.
Total planned spend is ~ Rs 1915bn by vari- These positive steps provide necessary
ous agencies (GOI, State Govt’s & UT’s). boost and support to investors for compa-
nies in Education sector.
Reflections from the recent Union Budget: Post Budget all the companies in this sec-
tor has shown a great upward trend due to
The union government’s education sector
Government affirmative action’s and
budget allocation has seen a steady increase thereby sentiments for this sector are Bull-
in the last decade. The 2009–10 budgetary ish.
outlay is Rs. 44528 crore.

An Indian Call - STAR ARTICLE
Market Structure: founded in year 2000 by its present

CEO Mr P Kishore. Mr. Kishore is a
The market structure is still in its nascent first-generation entrepreneur and a
stage compared to other market structures pioneer in building a business
like FMCG, Capital Goods. But due to high model around computer education
value proposition this sector provides a great at schools. In July 2007 Company
opportunity for Value Investors. has raised Rs 50cr via IPO for fund-
As of now there are not many players in this ing its expansion projects into pri-
segment and following are the Leading Mar- vate & Govt. schools.
ket players in the domain in which Everonn is Everonn Education Limited is a leading
presently operational i.e. Successful IT Train- education and training company
ing and Finishing Companies offering a range of services that in-
• Educomp Sol clude
• Aptech creating educational and training con-

tent of global relevance;
• NIIT
designing and executing large learning
• Everonn Systems India Limited initiatives and
Educomp Sol is the Biggest player in terms of setting up the requisite infrastructure.
Market Capitalization of Rs.8, 756.40 Crore
With presence in 11 States, over 4,400
and with largest asset base of Rs 920.25
Computer Labs and having trained
Crore. While NIIT has the highest Sales Turn- 1.4 million students, Everonn has
over in the last financial year of around Rs built a good brand image with key
545.62 Crore. Everonn’s EBITDA margins are policy makers for Computer Educa-
comparable to the sector leader Educomp’s, tion in Schools and colleges. Eve-
however, the former’s net income margins are ronn has experience in bringing
management programs from pre-
lower because of its higher cost of capital and
mier institutions like IIMs, XLRI, IIT,
low cash reserves position. Educomp leads LIBA, MICA, MAHE, to the working
the ICT education market with 14% market professionals and students all over
share, followed by Everonn and NIIT with 7% the country.
and 6.7% market shares,respectively. Everonn has been awarded twice for its
contribution to the Indian Education
Sector with prestigious national
Everonn System India ltd (ESIL): Award “Computer Literacy Excel-
Company Info: lence Awards for Schools” in the
years 2002 and 2004 which stand
Everonn System India ltd (ESIL) is into
testimony to its commitment and
business of providing Education at
the quality the company delivers.
schools & colleges. Everonn was

Shareholding Pattern (%)

ICT @ schools Virtual & Technology
Enabled Learning
Promoters 28.3
Solutions (ViTELS)
M F / Ba nk s /I n d i a n 2.7
-Predominantly ca- -Catering to Private
FIs
tering to Govt. schools, colleges &
FII/ NRIs/ OCBs 39.5
Schools. retail
Indian Public 29.5
-Turnkey projects segment.
for Imparting com-
-Delivers specialized
Everonn’s INR500mn IPO in July 2007 puter
content through a
was 30x oversubscribed, and the stock
education under “Live & Interactive
ended up 242% on the first trading
day of listing on August 1, 2007. Eve- BOOT (Build-Own- remote delivery
ronn’s stock price has corrected 35% Operate & trans- Mechanism” (VSAT)
since the recent January 2008 peak. fer) Model.
-Also provide Testing
An equity or equity-linked capital rais-
-Having 4 3 6 4 & Placement ser-
ing plan remains the only feasible op-
tion, despite the sharp correction in (26.76% market vices
stock price. share of
-Total of 500 Virtual
Organized sector) Learning centers
schools across 12 across
On the Mutual Fund side, Everonn’s key
states.
investors include India China Pre-IPO India
Equity Fund (owned by Singapore’s
Temasek Holding), JP Morgan Asset
Management Co., Birla Sun Life Asset
Management Co., and Life Insurance
Co. Mutual Fund of India, among other
local and foreign institutional inves-
tors.
Company’s USP:
The Business Structure of Everonn is the key

differentiator for Everonn from its peers.
Broadly Everonn’s business can be classified
into two Strategic Business Units (SBU):

ViTELS Model: - Virtual Schools (V-Schools).
Everonn redefined access to education by set- - Interactive-Schools (I-Schools).

ting up Virtual and Interactive Learning class-
- Virtual Colleges (V-Colleges).
room networks across India to deliver quality
- Retail Outlets.
yet affordable education.
ICT Model:
This is achieved by providing education and
training solutions through satellite based ' Instructional & Computing Technology (ICT)
Very Small Aperture Terminal (VSAT)' technol- basically operates on a BOOT (Build –Own-
ogy. Operate- Transfer) basis entering into 3-5
This Live and Interactive Learning and Train- years contract with state govt’s.
ing Platform have redefined access to educa- In typical contract company provides every-
tion. It enables students to have interactive thing from setting up infrastructure to fur-
sessions with instructors and fellow students niture, AC, Faculty & education solution to
across the country thus truly bridging the ur-
Govt. schools.
ban - rural divide.
The key Virtual Technology-Enabled Learning

Solutions (ViTELS) Business was the major
growth driver for the company, registering a
superlative 414.4% yoy growth in Revenues
to Rs30.3cr (Rs5.9cr).
The ViTELS Business now contributes close to

70% of Everonn’s consolidated Top-line and is
expected to remain the key growth driver for
the company going forward. .
The total number of schools under Everonn’s Each school requires 5–15 computers, and
for this venture has touched 520, of which the ownership of the hardware infrastruc-
there were 104 ‘V-schools’, which the com- ture is typically transferred to the school’s
pany plans to convert entirely to ‘I-schools’ management at the end of the contract
over a period of time. Everonn has comforta- period Billing is done to state govts & typi-
bly achieved its target of 1,000 POPs (points cal billing cycle is quarterly & half yearly
of presence) in the ViTELS Business much hence makes this business Capital inten-
ahead of time and the company is expected sive & impacts return ratios.
to continue to grow this business at a robust
ICT @ school segment is basically an annu-
pace.
ity based model. Expected revenue growth
Under ViTELS there are 4 different sub units: from Rs 538.3mn in FY08 to Rs758.5mn

in FY09 & Rs 1154.7mn in FY10E with CAGR Student Teacher ratio is 41 in India which
growth of 46.47%, Total contribution to total is well above world average of 27; in such
revenue of the company is accepted to dip to a scenario use of technology would be
53% in FY09 & 47% in FY10 from current con- handy for solving shortage of teachers &
tribution of 59% in FY08 as ViTELS segment is even classroom become more exciting &
entreating way to learn creatively. Everonn
growing at much faster pace (~86% CAGR).
is filling this gap by providing a education
through virtual learning methods.
MacroEconomic Factors:
Govt spend on education as % of GDP has

increased from 2.98% in 1980-81 to 4.25% In India, 63000 schools are open for ICT
in 2000-01 & now in range of 3.5%- @ schools scheme out of total 9 lacs Govt.
3.80%,which is low in comparison to UK schools ; only 16300 schools got ICT @
(~5.4%) & US (~5.6%). schools so far by organized players, still
~46697 schools to be tapped.
Govt plans to increase public spend on edu-
cation to 5% as mentioned in National Com- Private schools are 2.8lacs in India, just
mon Minimum Programme. 0.80% covered so far which indicates big
opportunity & every player would enjoy
enough shares, key is which company
would go fast for implementation & having
better content & delivery model.
Everonn is well poised to take benefit of

this big opportunity

. company is now on better footing to

compete with Educomp's Smart-
Class product. We believe ViTELS
will be Everonn's fastest-growing
business.
Everonn Systems recorded a strong

56.5% yoy in yr 2009 compared to
year 2008, while 49.5% yoy growth
in its Consolidated Revenues for the
third quarter of financial year 2009
to Rs 43.5cr compared to Rs 29.1cr
IEIS Segment- States and Number of Schools last year.
Under Contract with Everonn:
State Government Number of

schools
West Bengal 555

.
Delhi 267
Everonn’s EBITDA Margins during
UP 223
3QFY2009 spiked by as much as
Goa 238 986bp yoy. In absolute terms, the
company’s EBITDA during the quar-
Karnataka 216
ter rose by nearly 100% yoy.
Jharkhand 206
Everonn’s Bottom-line in 3QFY2009
Andhra Pradesh 183 grew by an excellent 94.9% yoy due
mainly to the excellent performance
Andaman 12
recorded on the operating front.
Gujarat 1256
Net Margins rose by 422bp yoy and
Total schools signed up under IEIS 3156 crossed 18% during the quarter.
Going by these trends by the end of

Fundamental Analysis : year 2009 Everonn is expected to
make a Net profit of Rs 212.8mn
Recent Performance highlights: and expected a 44.74% yoy profit
equal to Rs 385.1 mn.
Everonn Systems acquired Aban Informat-
ics (P) Ltd. greatly enhances Everonn's
business prospects in the "Smart
Classrooms" business segment. The

Using Du-point analysis we can see that

PAT/Sales has increased from 9.5
in year 2007 to 16.2 in year 2009.
On the basis of Pro-forma analysis

done on Financial Statements:
Everonn is expected to record robust CAGRs

of 68% in Top-line and 61% and Bot-
tom-line, over FY2008-10E.
The ViTELS Business is expected to re-

main the key driver of Top-line growth
with a robust 128% CAGR expected in
Revenues. This will also drive higher Taking data from year 2006, Reve-
Profitability. nue has a steady growth, including
a estimated future growth of year
The company’s newer initiatives like 2010.
‘Toppers’ are likely to contribute more
significantly to its growth going ahead,
with the building of a strong content
base.
The Company has continuous falling Debt

to Equity ratio which is a positive sign
for the company i.e Debt has shown a
declining trend.
On the similar terms Operating Margin

has also shown a increasing trend
including for next 12 months also,

Key Numbers and Key Ratios
INR mn 2006 2007 2008 2009 2010F

Revenue 281.4 403.4 877.4 1320.7 2378.5
Operating Income 70.2 64.8 194.8 268.2 521.4
EBIT 98.1 95.7 187.2 341.1 599.7
EBITDA 143.7 180.1 286.3 563.2 1054.6
Net Profit 49.1 48.6 107.8 212.8 385.1
Total Share Capital Eq- 180.4 365.9 935.6 3129.7 3496.1
uity
Total Debt 268.9 235.4 151.7 82.3 285.0
Total Assets 583.9 749.0 1380.5 3641.6 4511.6
Operating Margin 24.9% 16.1% 22.2% 20.3% 21.9%
EBITDA Margin 51.1% 44.6% 32.6% 42.6% 44.3%
Net Margin 17.4% 12.0% 12.3% 16.1% 16.2%
Return On Equity 31.3% 17.8% 16.6% 10.5% 11.6%
Debt /Equity 1.49 0.64 0.16 0.03 0.08
Technical Analysis: Price based indicators are the most popu-

lar due to their simple calculation and in-
In general all technical indicators could be
terpretation.
divided into four categories:
Intraday trading traders start to pay more
a) price based indicators
and more attention to the technical indica-
b) volume based tors instead of doing the fundamental
analysis. Price based technical indicators
price based indicators : could be "Price Moving Average” this could
LTP/PreClose Wtd Avg Price 52Week-High /Low
444.90/444.15 477(jun-09) 79.30(mar 09)
444.01
2Wk Avg Qty Month Ago - Close / Net Week Ago - Close / Net
Change / % Change / %
212554 31.25 / 13.65 / 3.17

weekly or monthly average which reflects a Outlook and Valuation

very clear picture of how the stock will per-
We expect Everonn to record robust CAGRs
form in the near future.
of 68% and 61% in Top-line and Bottom-
Volume Based Indicator : line respectively, over FY2008-10E. The
As a rule the price movement is described by ViTELS Business is expected to remain the
change in price and by volume related to this key driver of Top-line growth with a robust
change. The common statement that the vol- 128% CAGR expected in Revenues. This
ume precedes the price movement puts the will also drive higher Profitability. The com-
volume into a second category of the techni- pany’s newer initiatives like Toppers are
cal studies, volume indicates the amount to
likely to contribute more significantly to its
liquidity in the stock. The below graph shows
the movement of price and volume in the last growth going ahead, with the building of a
three months of Everonn System. strong content base. We expect its ICT
Business to clock a 34% CAGR in Reve-
Total average traded Value (Rs.In Lakhs)
nues over the mentioned period. At the
484.07(BSE) and 978.82(NSE)
CMP, the stock is trading at 8.3x FY2010E
Total average traded Quantity 108,989(BSE) EPS. Given the company’s strong growth
and 220,284(NSE). trajectory and the fact that it has consis-
In spite of not being a market leader in this tently out-performed our estimates, apart
segment, enough amount volume is there in from its strong positioning to leverage on
this stock which is very good for the intraday the significant opportunities for growth
traders. prevalent in the Indian Education Sector.

An Indian Call
Telecom Sector Overview

Pratik Bora , Sugandha Sharma
mobile subscribers as its population.

With the period ending January 2010 a
Though rural india still lags as only one of 5
windfall in Telecom stocks has been ob-
people has a mobile phone, a mere
served. They all are speculated to be now in
18.46% teledensity.
Bear grip, with retail investors leading the
Technology: - In India a lot of debate is still
pack from front. The nose dive was due to sig-
going on 3G spectrum allocation whereas
nalling of call rate cuts and per second billing
order by TRAI. However these rates are pre- in Sweden 4G wireless has already made
vailing world around. Also calling and messag- its official debut. This new technology is
capable of transmitting data 10 times
ing forms only about 20 to 22% of total reve-
faster than 3G services.
nues. Yet, it’s being forecasted that Telecom
Stocks will touch newer bottoms.
Major Players and the Movements in Sup-

This article is written taking into account
side:--
ply side:
some macro factors -simple demand supply
The 9 major service providers in India are
mechanics- major drivers and long term view
of telecom sector in India. Aircel, Bharti, BSNL, Idea, MTNL, Reliance,
Spice, Tata, Vodafone.
The natural entry barrier presented to a

Facts company who wishes to join the above
league in the telecom industry is Capital
Global wireless telecommunication services
market is valued at 627.7 billion, with an an- investment. However, in order to smoothen
the entry for new players to join TRAI has
nual growth of about 5%. It boasts a volume
of 2548.6 million subscribers. provided many incentives to boost the sup-
ply side. For reference they are:
In India, we have crossed the magical figure
a) Import of specified Telecom equipment
of 500 million customer base for Wireless
and Wire line telecom subscribers. As per the is permitted at 0% custom duty.
b) Import of all capital goods for manufac-
latest data released by DoT, the average ur-
ban teledensity has crossed 100% mark in turing telecom equipment does not require
any license.
the country, indicating that urban India now
has as many

An Indian Call
c) Export income is exempt . credit card based m-payment and payment

d) Infrastructure Telecom equipment ex- of other bills. .
empted from customs duty. b) Internet Telephony: - Provision of ac-
Movements - As happens with growing busi- cessing e-mails and other internet sites
nesses, specific segments of operations are both on the mobile and with wireless land-
outsourced to cut down costs and increase line phones is quite in demand. As per the
efficiency. Same is happening within the tele- data with TRAI, a total of 32 Internet Ser-
com sector, now companies have started to vice Providers are providing this service on
demerge their tower erecting business from the various mobile phones and networks.
the core operations and began outsourcing it The 3G technology has also gained impor-
to companies like Bharti Infratel, Indus tow- tance with this services’ increasing popu-
larity .
ers,GTL Infra.
c) FM Radio services: - Live feed about lat-
Till lately the growth in industry was driven by est happenings around the world in audio
steep prices between 2-3 major players. After
form is now possible with help of FM Radio
the entry of new aggressive players and rec-
services. Also it is a good source of enter-
ommendations by TRAI, the prices of mobile
tainment with many popular programmes
services have plummeted. With every urban on air. Fitting mobile phones with the FM
Indian having a mobile in his pocket, the new
receiver is a big driver for the industry
avenue for players is rural india, which as
d) Other Premium features: - Beside the
forecasted by analysts have much juice left.
basic usage of mobile – Calling, Messaging
Therefore the aim for industry is to capture
and communicating- there are host of fea-
volumes rather than work on prices. tures recently added to increase the utility
of the mobile. Bluetooth for transferring,
Movements in Demand side/Demand drivers: storing of important files, videos and pic-
tures. In the coming year Mobile Number
Ignoring the drop in stock prices, statistics are
Portability is also expected to be func-
very bullishly signalling the growth of Telecom
tional.
industry. The 9 million mobile phones added
every month indicates a huge demand for the
telecom services. The driving forces for these With so many technological breakthroughs
numbers are varied types of features pro- at the doorstep and many other in queue,
vided in mobile telephony. the cost in telecom services is bound to fall
a) Mobile Payment services: - A bouquet of and volumes bound to go up. This is the
facilities to consumer for paying various bills inverse relation between technological in-
in an electronic way while being on the move. novation and cost in any industry. One look
Particularly noticeable are bank account and at the IT industry where innovation is high,

An Indian Call
price low and volumes high explains the the- Conclusion

ory well. The telecom technology is virtually bringing
Area of Concern all spheres of life on our finger tips, right
from calling to paying the bills, from playing
Telecom sector does not face any major bar-
games to doing business. With advance-
rier in the future, though there are some ar-
ment in technology the cost will fall and
eas of concern which should be addressed to
volume will rise. So essentially now the
avoid hampering the growth.
growth will be Q-driven(volume driven) and
a) Technological evolution and 4G wireless – not P-driven(price driven)!.
Long term evolution and WiMaX
b) Outsourcing network operations;
c) Traffic management and network testing;
d) Return on Investment for new entrants

An Indian Call
Fiscal Stimulus
Aditya Churiwala ,Nalin Jain
vice sector was hit though not as badly and

The last two years have possibly been the saw its growth rate fall from 10.9% in
most dramatic times in recent history. Never 2007-09 to 9.7% in 2008-09. During the
before has the world encountered a global same time growth of private consumer ex-
phenomenon of this magnitude and far reach- penditure fell from 8.5% to 2.9% while the
ing effects, at least not since the Great De- government consumer expenditure rose
pression. The Global Meltdown engulfed the from 7.4% to 20.2%. The trade balance as
world in fire and the frenzy that followed left per cent of GDP increased from -7.8% to -
people shaken, unconfident and considerably 10%. All said and done, it was not a very
poorer. Very few could see it coming and good time for the Indian economy.
those who did were accused of lacking vision
and faith in the economy. This is when the fiscal stimulus came into
picture. The Indian government announced
India was not as badly affected by the melt- its stimulus package in 3 phases. This was
down as the more developed nations but aimed at giving a push to the economy
such incidents do have some degree of effect which had started showing the stains of
on every economy. While it shattered many stagnation.
economies, it left India relatively weaker,
poorer and low on confidence. Based on the Keynesian Cross Diagram,
Because of the global meltdown, the GDP AD=C+I+G

growth came down from 9.0% in 2007-08 to Where AD = Aggregate Demand; C = Con-
6.7% in 2008-09. Foreign fund flows dried up sumption Expenditure; I = Investment Ex-
because the whole world was grappling penditure; G = Government Expenditure
against a liquidity crisis. External Commercial
The government aimed to increase C, I,
Borrowings (ECB) and short term funding from
and G by providing sops and extra benefits.
abroad contributed only 8.2% of the financing
It increased the consumption expenditure
needs compared to 20% a year ago. Banks
by decreasing the central Excise duty to as
were not ready to provide credit because of 2
low as 8% and providing other tax cuts
reasons: a) banks were averse to lending at a
which boosted consumer spending in sec-
time when the growth rate had fallen drasti-
tors such as autos, cement, and textiles.
cally; and b) the demand for credit itself was
The petroleum prices were also decreased
lower than before. Growth in industrial output
by 6% and then 10% to increase consump-
fell from 8.1% in 2007-08 to 3.9% in 2008-09
tion. It increased investment activity by in-
while that of agriculture fell from 4.9% in
creasing the money supply in the market
2007-08 to 1.6% in 2008-09. Even the ser-
through rate changes by the RBI. Exports

An Indian Call
Fiscal Stimulus
were promoted by providing credit facilities (M3) reduced from 20% to 16.5% Y-o-Y on
along with interest subventions. Because of 15th January 2010 indicating a fall in bank
this credit was available cheaply. The govern- credit growth. This clubbed with the Corpo-
ment increased government expenditure rate sector profitability estimates being re-
greatly and this contributed largely to the later vised upward from 7.5% to 10% is a good
GDP growth witnessed. It spent huge sign that there is a good amount of liquidity
amounts of money in developing infrastruc- with the corporate themselves. Also, since
ture and for human welfare activities. It aimed more than 90% of the government’s bor-
to spend Rs. 100000 crore on infrastructure rowing needs have been taken care of,
in the next 2 years. The rural NREGA scheme there will still be ample liquidity in spite of
is very successful program which directly the CRR hike. Because of the growth seen
passed money in the hands of the rural youth in almost areas, the RBI has changed its
thereby increasing their consumption to a stance from ‘managing the crisis’ to
new level. And as we all know that 70 % of ‘managing the recovery’.
the population is in rural areas in India. It in-
By and large if we now see the Indian
creased the demand for products like petro- Economy and its performance in the last 1
leum, FMCG products, 2 wheelers and 4 year we would observe that the steps
wheelers including tractors. taken by the government and RBI has im-
All this helped bring India back on the growth proved increased the domestic consump-
trajectory. The economy grew at 7.9% in Q2. tion to a large extent thereby decreasing
The Index of Industrial Production (IIP) rose by the effect of the global slowdown. It is very
9.1% in September 2009 compared to 6% in important to plot out an exit strategy be-
September 2008. Manufacturing output in- cause even though the economy is surely
creased 9.2% in the July-September period. coming out the slump, it has not come
14 out of the 17 industry groups of the IIP easy and cheap. In order to provide the
have shown positive growth in November benefits that we are currently enjoying, the
2009 compared to the same time in 2008. In government has had to borrow a lot of
Q3FY10 India Inc.’s topline grew by 13% and money to invest and to spend. Based on
its bottomline grew by 48.5% which is pretty the Keynesian Cross, the aggregate de-
impressive given the conditions we have mand increased substantially but in the
come out of. The automobile industry sales process the government attracted a fiscal
grew by 64% with a 348% growth in profits. deficit of 6.8% of GDP. The aim of the gov-
The steel industry sales grew by 10% with ernment is to reduce this to 3% of the GDP
profits growing by 112%. Even the power sec- by 2013. For this, the government has to
tor which has not been much of a high growth start withdrawing the fiscal stimulus.
sector saw profits grow by 36%. Due to the The government should start increasing
improving global scenario, exports started ris- the tax rates and reduce the benefits like
ing. The rural performance has been robust moratoriums and interest subventions.
but the agricultural woes have dampened the This is needed because the government
pace of growth. The growth in money supply cannot borrow forever and needs to get

An Indian Call
Fiscal Stimulus
back its major source of income. For this rea- However a differential withdrawal is
son the RBI recently increased the Cash Re- needed. We can see that the urban growth
serve Ratio (CRR) by 75 basis points. The has been restored. But it has to be given
view on this is that when the CRR was special attention. Or lets say that special
slashed, the credit offtake did not increase steps need to be taken for people from the
substantially, so when the CRR is increased it lower income groups. Because of inade-
shouldn’t have a major impact either. Also, quate monsoons this tear, the farm pro-
there was a lot of liquidity in the market. The duce did not grow much. In fact a lot of
government has taken care of the demand products saw their output decline. Being
side of the problem. However it is the supply largely an agrarian population, the rural
that is showing problems. Inflation in India is India that helped greatly in getting us out
currently 7.34%, but this includes a food price of this recession is the one that is strug-
inflation of 17.56%. This shows that apart gling now. For this, the government should
from the food inflation, the other sectors have continue with the human welfare schemes.
shown almost desirable inflation rates. Since The NREGA should be continued for a few
the government has already committed large more years. The sops given to the rural
sums to infrastructure development, that can- population should stay but those for the
not be reduced. So the time is right to gradu- urban population should start being re-
ally start withdrawing the stimulus measures. moved because the government needs its
The budget expectations are low because the source of income.
government is itself giving hints that the time The government should move forward with
has come to withdraw the stimulus measures. the objective of withdrawing the stimulus
However the process will be gradual. The logic entirely in the next 2 years if it wants to
is simple. When we introduce the steps reach the aims of limited fiscal deficit that
should have maximum impact but when we it has set for itself. But the start needs to
withdraw those steps we should be careful in be made now.
removing the steps starting from those having
the least impact. The excise rates are ex-
pected to be hiked for certain industries that
have seen substantial growth lately, like the
auto industry. The prices of petrol and diesel
are set to be revised based on the Kirti
Parekh Committee’s recommendations which
will reduce the government’s subsidy bill.
Long term capital gains tax is expected to be
introduced. The government has already
started the process of disinvestment of PSUs
which will bring in a ot of money. The agricul-
ture sector is set to receive a thrust because
the slow grow it has been experiencing.

Concept & Short Notes
Double Dip recession

Bhavya Shah
Germany has triggered a near-panic flight

One Look at macro level and we can see that from southern European debt markets by
Major economies have exhausted their fiscal warning that there will be no EU bail-outs.
as well as monetary power. In the last decade It fears the region's economic crisis has
or so, Russia, Argentina, and Ecuador de- turned dangerous and could prove "fatal"
faulted on their public debts, while Pakistan, for the entire euro zone. The spreads of
Ukraine, and Uruguay restructured their pub- German bonds and these Southern Euro
lic debt under the threat of default. Countries zone bonds have drastically moved up in
like US, UK, EU, JAPAN are all running huge the last 3 months. This is an important sig-
deficit. (Exhibit 1) nal the Interest rate needs to move higher
At the same time we have seen a recovery in very soon and quickly.
the global financial market sans an increase Talking about the developed countries like
in Money Supply and improvement in job mar- US, at the moment, cash for clunkers pro-
ket. In any economy, if the money supply is gram is not there. Hence a slump in the
decreasing or not improving, it is very difficult auto sector is sure. Another point to note is
to see a drastic real pick up in the GDP. the saving rate in US. It has gone up sig-
Hence comes the answer to all those magic nificantly signaling very poor consumer
figures you have seen these days, they simply spending going ahead as they are uncer-
are the result of money printed and injected tain about their job or future finance. Un-
by Global Central Banks. If we start from employment rates are not coming down, in
emerging economies, China has already the absence of strong JOB market no econ-
started draining liquidity from the system. On omy can perform well. Over and above fis-
12th Jan 2010, China's central bank drained cal deficit is mounting and it will be ex-
a record 200 billion Yuan ($A31.6 billion) tremely difficult for US to retain buyer inter-
from the money market through 28-day bond est in the bond if the interest rate remains
repurchase agreements to reduce the excess this much low. Ultimately, they will be
liquidity which was causing rise in the infla- forced to reverse all those monetary as
tion. Korea also followed China and now it is well as fiscal policies. That will result in
the turn of India to do the same. huge collapse of equity & commodity mar-
EURZONE is under default threat. Major sov- ket again.
ereign default can come from this area as UK is at the brink of losing AAA status. We
Portugal, Spain, Greece, Ireland are under may see UK losing its AAA status going for-
significant pressure to retain the investors.

ward as they cannot cut down their deficit by discipline and higher interest rates (to re-
imposing heavy tax of 50% or above like they ward Japanese savers properly). This will
did earlier. We have seen significant Non Per- make Japan’s defaulting unlikely.
forming Assets in UK bank's Balance Sheet so Deutsche Bank AG (NYSE: DB) economists
far from the housing sector, which is pretty who conducted the research reviewed U.S.
illiquid these days. UK Gilts yields are signal- economic history all the way back to the
ing aggressive rally going forward as nations 1850s, and found that double-dip reces-
debt rose above 67% of GDP. Over and above sions are exceedingly rare .There have only
weaker GBP and higher oil price pushing the been three episodes in which the economy
inflation higher in UK that will trash the UK has fallen back into recession within a year
into stagflationary atmosphere. of a previous recession ending. And that’s
The above issues force us to rethink whether out of 33 recessions that have taken place
there is a possibility of sustainable growth or since 1854. Two of the three double-dips
not? There is a probability that we may face happened in the years prior to World War II
Double dip recession. Double dip recession – in 1913, and again in 1920. The more
means when gross domestic product (GDP) relevant example was the double-dip re-
growth slides back to negative after a quarter cession of the early 1980s, which was
or two of positive growth. driven by the fight against double-digit in-
flation rates.
In third quarter, US saw an upturn in the GDP.
It rose 2.2% year-on-year. But sequentially, it The relation between unemployment and
rose only 0.5%. And two-thirds of this growth crashes is that the level of employment
was motor vehicle production. That reflected tends to follow stocks on a 12-month lag.
the impact of the temporary stimulus and it They do not form a perfect match (Exhibit
has to come to an end. The official numbers 2). The red numbers show the actual lags
of the fourth quarter are not yet out. The mar- of important turning points over the last
ket estimates a 4% growth. But any increase forty years. But the correlation is strong
in growth during the fourth quarter will be enough to provide one more piece of evi-
largely inventory driven. This could just be a dence that the “turn” in employment is per-
transition and may not be sustained. But one haps four months or so in the future. From
cannot predict future. 1970 to till date, there has been a continu-
ous uptrend in the Index with crashes com-
Although the scenario around looks very un-
ing at a considerable period. We expect a
certain, we all together can work out to save
growth in the long term but in short term if
from this risks upcoming.
debt restructuring fails then we may face
Japan, for instance, has the highest debt. But double dip recession.
Japanese consumers are such great savers
that they essentially owe almost all of the
debt to themselves. The country needs fiscal

Exhibit 1:
Exhibit 2:

Capital Account convertibility for layman

Ashish Gupta, Yashveer Yadav, Sachit Arora
that can be transferred in and out of the

Trade practises in our world have evolved economy for such purposes.
over a long period of time. We moved from
the barter system to exchanging salt, and Meaning and Relevance of Capital Account
then to exchanging gold. Fiat currencies too Convertibility
evolved over time. And today we have coun-
tries making payments in foreign currency What does it mean?
itself. This exchange of currency outside the Let’s delve into the details. CAC refers to the
geographic region of a country creates a dif- freedom to convert local financial assets
ference in the amount of imports and ex- into foreign financial assets and vice versa.
ports. This is reflected in the Balance of Pay- It is associated with changes of ownership in
ments (BOP) of the country. foreign/domestic financial assets and liabili-
ties and embodies the creation and liquida-
Under BOP the inflow and outflow of cash tion of claims on, or by, the rest of the world.
are categorised under ‘Current Account’ or CAC can be, and is, coexistent with restric-
Capital Account. tions other than on external payments.
The current A/c is the remittances sent or Why is it such an emotive issue for every
received for general business conducted country?
outside the country. It is the payment made
for all good and service. E.g. the money re- Sample a country, where you are allowed to
ceived by India for exports by Infosys. There invest any amount of money, increase its
is full convertibility of Current Account trans- value and then take it all out. That would be
actions in India. one Foreign Institutional Investor friendly
place, attracting the best companies of
Capital Account is the money invested in world. CAC full convertibility will mean a total
Capital or Financial Assets of a country. It is conversion of Indian currency into foreign
the payments made for transfer of capital one and back forth at the current market
across countries for purchasing a company, rate.
setting up a business, importing plant and
machinery or buying land. Any income aris- How does it affect the common man? What
ing out of capital assets, like the dividends would change if we go from Restricted Capi-
paid out by a company to foreign sharehold- tal Account Convertibility to Full Convertibil-
ers, is also included under this Capital Ac- ity?
count. The same can be said for money
Remember the last time you sent money
gained from the sale of a capital or fixed as-
abroad for your son’s studies. You must
set. However, Capital Account transactions
have been given a restriction of 100000$.
are not fully convertible. The government of
When you wanted to buy your favourite stock
India has a cap on the amount of money

in the foreign market, u would have been markets in the world. With GDP growth rate
told that a cap of 25000$ exists. Now this @ 7-9% and with the system of Full Capital
seems fine for a middle class family but not Account convertibility in place, they were
for a binge spender or an Indian corporate driving more than half of the world’s capital
who wants to setup a business abroad. The investment. It was then that a bubble of ‘hot
moment we go for full convertibility, we can money’-referred to as the huge inflow of
buy an apartment in England, invest end- money required to keep paying the ever in-
lessly abroad, Life in other words would be creasing deficits or bank loans at bay- built
good. up which ultimately led to the collapse of
these markets, further triggering a specula-
So what is Current Status of India and why is tion of currency depreciation ultimately lead-
it so? ing to withdrawal of Capital Investment from
India allows Limited Capital Account Con- these economy to prevent it from getting
vertibility. Capital Assets can be acquired or eroded.
purchased but with the permission of Re- The outflow of capital was approx $ 2 trillion
serve Bank of India a day. With such a great outflow of Capital
With the advent of Full CAC, we will become the East Asian countries plunged into crisis.
a centre of attraction for FII’s. It would give At that point the World Bank and IMF who
them an incentive to come, invest and divert just years ago were praising the East Asian
their funds later when they feel like. Money Model now warned others of committing a
will start pouring in. New projects can be hara-kiri by blindly copying them. One of the
undertaken. With the amount of money characteristic of the model was Full Capital
coming fiscal deficit can be greatly reduced. Account Convertibility. After the crisis shook
Our domestic companies can setup their the world in 1997, even the most ardent fol-
units abroad with ease. India’s foreign remit- lowers of Full CAC sensed and spoke scepti-
tances will increase. cally about it.
Yet we are reluctant to take a step forward. Tarapur Committee and India’s tryst with
The biggest factor constituted against CAC is CAC
the image of FII’s as “fair-weather friends”. Following East asian crisis and the growing
Any bad news or the fear of losing money, importance of CAC, Government of India
we would see all the investments moving setup a committee to study the relevance
out of the country leaving us, and without and implementation of CAC, which was
any measure to control them. It would leave headed by then RBI governor Mr. Tarapore.
us with one step in the future and another
step in the past, looking down upon our pre- It made the following observations in its re-
sent just like the East-Asian crisis. port
THE EAST ASIAN CRISIS Indian economy is growing rapidly; the do-
mestic savings is not adequate enough to
In 1990’s the East Asian countries such as fund the need of growing investments in
Thailand, Korea, The Phillipines, Japan, etc the country. Hence Capital Account con-
were some of the most attractive emerging

vertibility is necessary for injecting the Fiscal Deficit should hover around 3.5%
economy with fresh capital. Though it is of the GDP of the country.
inevitable it should not be taken as end in
itself but means to be realising our poten- Inflation should be brought down to 3.5
tial. %, an average of past three years.
It noted that major macro-economic causes Gross NPA’s of the public sector banking
underlined the East Asian countries crisis should be brought down to 5%.
like Current Account imbalances, overval- CRR should be approximately 3%.........(is
ued exchange rates and over dependency this it or is there more?)
on short term capital funds.
It observed the Mexican crisis of 1994-95

was a consequence of overvalued ex- ROAD AHEAD
change rate and a current account deficit
Tarapur committee recommended Full CAC
at 6.5 percent of GDP. Brazilian crisis was
to ensure total financial mobility in the coun-
also due to fiscal and weak balance of
payments try. It will help in escalating Production lev-
els, equitable distribution of capital in India
It observed that a weak economic base, and as a consequence helping in equitable
spiralling currency rates, fiscal deficit, in- distribution of Income., Full CAC is like a nec-
flation, etc were the major factors which essary evil which if implemented with strong
eroded the Foreign Exchange of a country economic base, strong banking system,
due to Full CAC. good fiscal and monetary policies, will go a
The status of CAC; for foreign corporate and long way in injecting huge investments into
foreign institutions there is quite a reason- the country and making INDIA the strongest
able amount allowed. For NRI’s and equal economy in the Asian continent. With For-
amount of convertibility is allowed but af- eign exchange at an all time high, it can be
ter strict regulatory and procedural impedi- the best time to introduce full capital ac-
ments. For non residents other than NRI’s count convertibility in a phased manner to
there is zero convertibility. realise the dream of super power by 2020.
Full CAC would mean treating all of them at

equal level and removing the tax benefits
accorded to the NRI’s viz. Non Resident
External Rupee Account, Foreign currency
Non resident Bank Scheme.
Hence, in 1997 Tara pore committee came

up with a set of indicators which should act
as a guideline for introducing the full CAC.
They are

GST
Laxman Sharma ,Anuj Parikh
The centre says that GST will come into ef-

The present indirect tax structure of CEN- fect from 1st April 2010 as was announced
VAT and VAT does not cover all the taxes lev- by the then finance minister Shri P.
ied at various levels and thus there is some Chidambaram in 2008. An Empowered com-
degree of incompleteness. The proposed tax mittee of state finance ministers was also
reform which aims at bringing in line various appointed on his request to work in coordi-
taxes at the central and the state level is the nation with the central government to pre-
Goods and Services Tax (GST). GST will treat pare a road map for the introduction of GST.
India as one market in terms of taxation - A The committee submitted its final report last
single tax rate for all goods and services in year in October.
India.
But the date, April 1 2010, seems to be
It is proposed to be a complete indirect tax tough for the introduction of the GST as a lot
levied on manufacture, sale and consump- of work remains to be done to get the Centre
tion of goods and services and is expected and the States on the same stage. States
to provide India with a world class tax struc- have a lot of work to be done like holding
ture. It also aims to improve tax collections. talks with industry associates, deciding
It will also end the differential treatment of about the GST rates and also undertake con-
the manufacturing and services sector. The stitutional amendments. Industry experts
introduction of GST will lead to abolition of feel that drafting the legislation and imple-
various taxes - central excise duty, services menting it will take time as the companies
tax, custom duties, sales tax, entertainment are not ready at the back end. Hence the
tax, luxury tax, taxes on lottery, betting and move has been postponed and will be intro-
gambling, stamp duty, taxes on transporta- duced from 1st April 2011.
tion of goods and services, octroi, entry level
The empowered committee has decided to
tax, turnover tax etc. At the same time it will
adopt two rate tax structure - a compara-
also eliminate the cascading effects of mul-
tively lower rate for the necessary items and
tiple layers of taxation. Thus the producer
items of basic importance and a standard
and the various other intermediaries in the
tax rate for others. There will also be differ-
distribution network will be required to pay
only a single indirect tax - GST. ent tax rate for precious metals and there
will also be a list of exempted items.

GST
Because of constitutional requirements on this benefit to the customers, thereby re-

there will be different tax rate for tax col- ducing the prices of the products.
lected by central and state governments i.e.
Likewise, companies will also benefit from
CGST AND SGST. The combined tax rate is
GST. The benefits accruing to companies will
expected somewhere around 12-18 %
be in more than one way. The most impor-
GST is expected to be beneficial both for the tant benefit for the companies will be in-
producer and the ultimate consumer. It will creased demand for their products. About
provide a transparent tax administration 80% of the goods are subject to minimum
and hence will reduce the chances of cor- 35-40% indirect taxes. With GST the taxes
ruption. Because of a wider base and a re- will reduce considerably, and with the reduc-
duced rate of total tax payable it is expected tion in taxes, prices will decrease, thereby
to increase the government’s revenue by increasing demand for the product. Increase
US$15 billion and also boost the economy in demand means increased revenues and
by promoting exports, increasing aggregate profits for the companies, and growth for the
demand and raise employment levels. economy.
GST is a consumption tax and is levied at Another benefit for the companies will be
the last stage, rather than being levied at lesser requirement of working capital. Com-
various levels-from manufacturer to retailer. panies need to pay excise duty on their pro-
Both the components-CGST and SGST will duction. Now GST is a consumption tax and
be levied at the point of sale. Since GST will is paid by the consumer. With this compa-
swallow most of the indirect taxes and the nies will not be required to pay excise duty.
single tax rate is expected to be much lower This would mean lesser investment in stock
than the total of various prevailing taxes, the and lesser working capital. With the reduc-
prices of the goods will come down and this tion in working capital requirements there
is where the consumer will benefit. For ex- will be lesser interest payments on the funds
ample – suppose a car retails at around Rs borrowed for the working capital and hence
5 lakhs. The company manufacturing the increased returns to shareholders. For ex-
vehicle pays somewhere around 24% of indi- ample - a company with a turnover of 100
rect taxes on it i.e. 12.5% VAT , 9% excise crores pays 9% exise duty of 9 crores. On
duty, 1-2% entry tax, 2% registration charges this 9 crores it pays an interest payments of
and CST. As per the ongoing discussion 12- say 70 lakhs (around 8%). With GST it will
18% GST is being quoted the most. If the not be required to pay this amount.
GST is say 18% there is still a saving of mini-
Still another benefit for companies will be in
mum 6% which turns out to be Rs.30,000
the form of warehouse maintenance cost.
at least. Now companies would like to pass
Companies need to pay CST (central sales

GST
tax) on transfer of goods between states. There’s no doubt that because of being
Because of this they need to maintain ware- more transparent and being unfavourable to
houses in multiple states. With GST there backward states, GST might take more time
will be abolition of CST and also the need to in implementation but because it benefits
maintain a warehouse in every state. In- everyone, it is the most preferred form of
stead they can have bigger and better ware- indirect tax throughout the world. GST is
house as per complete regional require- there in more than 150 nations around the
ments. This means companies’ mainte- world, and there are around forty prevalent
nance cost will come down and they can models. It has been there in the European
also make use of economies of scale. nations’ tax schedules for more than five
decades now and is fast becoming the pre-
Although everyone gains from the benefits
ferred form of indirect tax in the Asia-Pacific
of GST directly or indirectly, still there are
region as it encourages economic growth
certain hurdles in implementing the tax re-
and efficiency.
form. Some state governments say that the
IT systems and the administrative infrastruc-
tures will not be ready in time. Others fear
that if uniform tax rates are lower than exist-
ing rates their tax collections will be severely
affected. This is also true to some extent
because backward and less developed
states which have less demand will defi-
nitely see lesser tax collections, but most of
the states and nation as a whole will see
increased tax revenues.

Beneficiaries of Nuclear Power in India

Nishit Zota
Nuclear Power will play a vital role in making MW to 32,000 MW of nuclear power after FY
India an energy sufficient country by 2022. 2017-2018 in order to achieve the target of
The contribution of nuclear energy is essen- 417,000 MW by 2022. Such urgency will
tial because other resources will be scarce create a huge opportunity for the high end
and will not be able to live up to the expecta- engineering companies into manufacture of
tion of producing 417,000 MW by 2022. reactors and civil contracts. These compa-
India’s power requirement is expected be nies will start booking orders for nuclear-
13,00,000 MW by 2050. Limited expansion energy related materials and plants includ-
potential, shortage of coal and increasingly ing reactors by FY 2010-2011.Even if the
stringent pollution control norms will act as reactor orders would be for the foreign com-
constraints to meet the expectations panies, these foreign companies could
through thermal energy which provides the source orders to their Indian counterparts as
maximum amount of electricity in India. the cost of building reactors would be
Huge investment requirements in hydro- cheaper in India. The capital cost of Indian
electricity projects and other sources of re- PHWR’s (Pressurized Heavy Water Reactors)
newable energy will act as deterrents in ex- is USD 1.7/KW vis-à-vis USD 2000-2500/
ploiting renewable sources of energy. There- KW globally. This will provide a good oppor-
fore there is a huge dependency and ur- tunity for the domestic reactor design, engi-
gency of nuclear power generation. The ad- neering and construction companies. As per
aptation of nuclear power will reduce de- ULJK research, there will be a total opportu-
pendency on thermal plants. nity worth Rs. 1246.61 billion in engineering
& construction of reactors and civil work as-
sociated with nuclear power plants.
In India’s expected power demand of
417,000 MW by 2022, nuclear power’s con-
tribution should increase from 2% to 7% of There is an immense opportunity for high
total energy produced. After considering the end engineering companies. The potential
global average construction period of 7 opportunity is equivalent to the market
years, India will have to produce 21,000

Beneficiaries of Nuclear Power in India
capitalization of biggest engineering com- The sub-contracting orders from foreign

pany in India, i.e. BHEL. The incremental nu- counterparts to build reactors could be
clear addition till 2020 throws an opportu- around Rs. 289 to 440 billion by the next 3
nity which is larger than the m-cap of the years. Potential for these companies also lie
engineering giant L & T. These engineering in exports. Approximately 126 reactors are
companies will start booking orders for civil planned wordwide. Companies to benefit are
work associated with nuclear plant in the L&T, BHEL, NTPC, Rolta India, Gammon In-
next 3 years for capacity increment till dia, HCC, ABB, Tata Power, Reliance Infra-
2020. Companies with expertise in civil con- structure, Areva T & D,
struction will get potential orders of around Crompton Greaves.
Rs. 530 to 807 billion in the next 3 years.
So clearly India is all set to gain by promot-
ing nuclear energy in a big way.

Course Structure
TRIMESTER - I (July to Sept) - The Foundation

AREA SUBJECT
BUSINESS POLICY Management Theory & Practice
ECONOMICS Microeconomics For Managers
Financial Statement Analysis
FINANCE
Statistics for Finance
Computing for Financial Markets
HUMAN RESOURCES & BEHAVIOURAL SCIENCES Values in Management & Society
LAW Legal Aspects of Business
TRIMESTER - II (Oct - Dec) - Exploring Finance
AREA SUBJECT
ECONOMICS 012 ECO Macroeconomics
FINANCE Cost & Management Accounting
Corporate Finance I
Capital Market Laws
Mathematics For Finance
MARKETING Marketing Management
OPERATIONS Operations Management
TRIMESTER - III ( JANUARY TO APRIL) - Learning Management Basics

AREA SUBJECT
ECONOMICS Business Environment
HUMAN RESOURCES & BEHAVIOURAL SCI- Essentials of HRM
ENCES Individual & Group Behaviour in Organiza-
tions
FINANCE Financial Institutions & Markets
Corporate Finance II
Taxation
Analytics for Financial Markets

Course Structure
TRIMESTER - IV ( JULY TO SEPTEMBER) - Testing Financial Waters

AREA SUBJECT
BUSINESS POLICY Strategic Management
FINANCE Corporate Reporting
Debt & Fixed Income Securities
International Finance
Futures & Options
Portfolio Theory & Practices
Primary & Secondary Capital Markets
TRIMESTER - V ( OCTOBER TO DECEMBER) - Deeper Dive
AREA SUBJECT
FINANCE Project & Infrastructure Finance
Financial Risk Management
Computer Applications in Finance
Equity Analysis – Fundamental & Technical
Analysis
Global Capital Markets
Commodity Markets & Trading
Mergers, Acquisitions & Corporate Restruc-
turing
TRIMESTER - VI ( JANUARY TO APRIL) - Mastering Finance
AREA SUBJECT
FINANCE Seminar in Financial Economics
Market Microstructure
Behavioural Finance
Wealth Management
Venture Capital & Private Equity
SOCIAL ENTREPRENEURSHIP CELL Corporate Social Responsibility
Corporate Governance

Academic Background
Work Experience Sector Wise
Work Experience
Summer Experience Sector Wise

Comments / Feedback
Mail to : Investocraft@nmims.edu
www.investocraft.com
Centre for Capital Market Studies
MBA (Capital Markets)
SVKM”S NMIMS University
V.L. Mehta Road,
Vile Parle (W)
Mumbai - 400056

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NMIMS

MBA (Capital Markets)

It gives me immense pleasure to announce the release of the magazine ‘Investocraft”, a

Dr. Anupam Rastogi

Chairperson - MBA (Capital Markets)

NMIMS MBA Capital Markets Page 3

Editors Designed By Other Contributors

NMIMS MBA Capital Markets Page 4

The International PUT

Extension of Trading time- The 9 'O' Clock Start 13

Rural india-growth driver during downturn 16 COVER STORY

Concepts and Short Notes

Double Dip recession 35

NMIMS MBA Capital Markets

China has surprised in the past as well and

NMIMS MBA Capital Markets Page 6

NMIMS MBA Capital Markets Page 7

to the rescue was the much talked about

NMIMS MBA Capital Markets Page 8

Future of Dollar as the Reserve Currency

Gold were interchangeable. Either could be

After the World War, countries felt the need joys.

for an exchange mechanism that would aid

NMIMS MBA Capital Markets Page 9

Future of Dollar as the Reserve Currency

Lack of Alternatives: Even if we are con-

The Chinese Yuan cannot be a substitute

NMIMS MBA Capital Markets Page 10

Future of Dollar as the Reserve Currency

countries and might attract unwanted inter-

NMIMS MBA Capital Markets Page 11

Future of Dollar as the Reserve Currency

NMIMS MBA Capital Markets Page 12

Extension of Trading time- The 9 'O' Clock Start

NMIMS MBA Capital Markets Page 13

Extension of Trading time-

NMIMS MBA Capital Markets Page 14

Extension of Trading time-

Secondly, the objective of extending trading

NMIMS MBA Capital Markets Page 15

Rural India-growth driver during downturn

Shruti Zatakia ,Laxman Sharma

actual growth rates were released in May

NMIMS MBA Capital Markets Page 16

NMIMS MBA Capital Markets Page 17

NMIMS MBA Capital Markets Page 18

Everonn Systems India Ltd. - Stock Analysis

Siddharth Chatterjee ,Santosh Kumar,Shobhit Bajpai

been phenomenal in last few years, thus

NMIMS MBA Capital Markets Page 19

Everonn Systems India Ltd.

education system being im-

India’s population is 1120mn which is 2nd

NMIMS MBA Capital Markets Page 20

Everonn Systems India Ltd.

Market Structure: founded in year 2000 by its present

• Aptech creating educational and training con-

NMIMS MBA Capital Markets Page 21

Everonn Systems India Ltd.

Shareholding Pattern (%)

The Business Structure of Everonn is the key

NMIMS MBA Capital Markets Page 22

Everonn Systems India Ltd.