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November 1, 2010

VOLUME ISSUE

4.15 77

Economics is not about things and tangible material objects; it is about men, their meanings and actions. -Ludwig Von Mises

Rates 01 Graphs 02 Student Cartoon 03 News 04 National & International events in the world of finance Debate 05 Is Indian economy the biggest bubble? Contemporary Articles Universal life insurance policy and IRDA 06 IPO Study: Coal India Ltd. 08 RBI looking into MFI ‘s 10 SBI Bonds 11 Scam Wipro Ltd. Commodities Article Commodities trading Did You Know? 11 12 14

8 Good things about the credit crunch Investor’s Focus 17 Technical and fundamental analysis Alumni Speak 18 A peek into the corporate world through our Alumni’s experience Buzz Words 19 Fincopedia Quiz 20 Check your Financial Quotient

” “You know what the difference is between a dead skunk and a dead banker on the road? There’s a skid mark by the skunk.80-8.8536% +5.0907-8.) Forex Reserve (as on 22nd Oct 2010) 91 day T-Bill IIP (for August) 6.” 01 .62% $ 295.” “You can’t overestimate what happens when you encourage regulators to believe that the goal of regulation is not to regulate.90 GS 2019 6.00 % +8.00% 5.0907% “Money isn’t what motivates entrepreneurs.60% 8.00% 4.Rates Rep Reverse Repo Call rate Inflation (as on 14 Oct. it is acknowledgement—a craving for your ideas to be acknowledged.399 billion 6.

GRaPHs Rs/$ 45 44.5 44 43.5 43 14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct 19000 18700 18400 18100 17800 14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct Oil(per bbl) 87 85 83 81 79 14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct future rates open interest 6300 28500000 6200 23100000 17700000 12300000 6000 6900000 1500000 14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct 6100 5900 sensex 20600 nifty 6300 20300 6200 20000 6100 19700 6000 19400 14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct 5900 02 .

student’s caRtoon By.M 03 .Md. Zafar Iqbal I MBA .

71 years at end-June 2010. In fact. FIIs have been net buyers on every trading day since Aug 30 till Oct 29 when they sold stocks worth $125. • The US economy expanded at a 2% annual rate in the July-September quarter.6% growth in spending. Usually repo auction.425 billion.79% over the same period. national news • The flow of foreign money into the stock markets continued unhindered in October with total inflows crossing $6.4% of the government’s total public debt.8% to ` 27. The average coupon (or interest rate) of outstanding stock also dropped to 7.83 years at end-September 2010 from 9. I MBA L • Millions of protesters have gathered in cities across France to demonstrate their opposition to proposed pension reforms. but better management saw average maturity of outstanding long-term increase to 9. 04 .77 lakh crore in the first half of the current financial year.35 million. The government plans to raise the retirement age from 60 to 62 and the full state pension age from 65 to 67. citing a statement to be released after talks end in South Korea. Unusual short term liquidity shortfall in the money market forced call money rate— the overnight interest rate that a bank pays to borrow from another bank — to shoot up to a high of about 13%.inteRnational news By. the highest in a single month. Consumers helped boost last quarter’s economic growth with 2.Vaibhav Nagar. The International Monetary Fund will be tasked with producing a broader report on currency policies and studying economies with persistent trade imbalances. under which banks borrow money from the RBI at a prefixed rate (6% now).000 crore. a G-20 official said.85% from 7. Internal debt constitutes 89.7% growth in the April-June quarter. take place on all working days of the week • India’s overall public debt increased marginally by 2. • • Oil minister Murli Deora met Finance Minister Pranab Mukherjee to seek cash compensation of at least ` 15000 crore for state-run oil companies which have lost over ` 31. • The Group of 20 pledged to refrain from competitive devaluations and commit to market determined exchange rates. It marked an improvement from the feeble 1.

the corruption that often leads to disputes between different states within the country? With the food prices rising. Countries like the USA would not completely withdraw the outsourcing system simply because they lack the knowledge to carry out the job when compared to Indians. China might have abundance of technical expertise. one can’t but sit and argue the sustainability of such a claim. and the rise in Sensex to the investments from FDIs and FIIs. what are the chances that our country’s economy will flourish? Can a country which does not have its own technology for gun production for the safety of its citizens. we are making progress in the defense field too. Will our country ever grow beyond the religious issues like the Ayodhya Verdict. The strong banking regulatory system has also helped India to weather the storms of global credit crunch. Since a large part of growth and employment can be attributed to the BPO and KPO trends. two other major components of Indian GDP. Other countries like Germany and UK too consider India a potential hub. fall in agricultural output. agricultural and service sectors have not been affected by the global slowdown much. China has the technology to manufacture a gadget at half the price offered by the US. Domestic consumption makes up about 75% of India’s GDP. corrupted political governance. when the whole world is talking about India being the next biggest economy of the world. while it accounts for less than 50% of Chinese economy. The Tata Nano car is a witness to the country possessing technical expertise and with the nuclear deal bill being passed.Sona Joseph I MBA M PROS The Indian economy has seen a substantially rapid growth in the last five years. Moreover. India does not possess such technical expertise. which will ensure FDI and FII to flow for few more years 05 . As India is a cost-effective and labour-intensive economy. which have increased the flow of NRI deposits to India’s strong and government owned public sector banks. increase in imports. In fact. a country which imports all the defense technology from other developed nations. the political dirt that is being bought to the surface during the CWG hosting. bound to be stalled when the other economies dawn upon the realization of the threat of being overpowered? By. Manpower is the core strength of India with our entrepreneurs doing exceedingly well in the world market. the fall of many private banks in developed nations led people to feel insecure about investing there. considering the rapid growth and the lack of expertise at a domestic level. Indian economy is less dependent on exports. When compared with other emerging economies such as China.Richa Jain I MBA L By. will our country be able to match the expectations of the world? It is time to reconsider the chances knowing that developed nations like US has its president asking his countrymen to stop outsourcing jobs to CONS The so called Rural economy of India is still vibrant despite the global turmoil. India is a breeding ground for skilled labour. Is the growth of India rocketed by a foreign push. SEBI and other regulating bodies should be given their due credit for being precautious before every major leap. but it is at the cost of quality.is indian econoMY tHe BiGGest BuBBle? Narration: During the time. actually be termed as ‘the next big thing’? India has very stringent regulations controlling the exchanges which curb and block greater amounts of investments from FIIs and FDIs. it has immensely benefitted from the outsourcing of work by developed countries and also by having strong manufacturing and export-oriented industrial framework.

countries like India. Considering the current scenario it would not be wrong to say that As we know slow and steady wins the race. though the only concern remains is to what extent. it is incorrect to say that India is the Biggest Bubble. Savings is the key factor that will propel India’s growth story and our people are less leveraged individually when compared to citizens of developed countries. given that the market was at all-time low when the sub-prime crisis took place? Our country is known more to be a saving economy than a spending economy. Will our country be able to provide employment to every Indian even when the developed nations stop providing us jobs? Wouldn’t the ‘so-called’ already developed nations withdraw their investments from our country when their own survival itself will be in danger? to come. It is basically not a separate category of products instead it has modified and redefined to make it unique over ULP. Our basis for claiming India to be the next big thing is slow growth backed by a strong foundation and a huge manpower possessing capability which is growing at an average rate of 8. The CWG will no doubt act as trade multiplier. ULP are basically hybrid product with features of both traditional and unit-linked plan. and requesting them to first employ their own countrymen. uniVeRsal liFe insuRance PolicY and iRda By-Naveen Kumar Kulkarni. Our country has a strong foundation. Now recollecting the theory of spending. IRDA has taken stringent decisions in regulating the ULIP’s which has directly affected the insurance agents. History is testimony to the fact that when such borrowing reaches its peak (i. The government borrowing in India has already reached 50% of its GDP. Will our country withstand another financial crisis in case the European countries are unable to repay the debt. ‘India Is the Biggest Bubble’. The rest of the world has no way out other than to participate in our growth because it is the only survival route for the developed nations. the court has finally given its nod and authentication to IRDA to regulate the ULIP’s. whereas that of the USA is much lesser. To help both the customers and insurers a new policy was in the ground plan waiting for the approval from the regulatory body and that policy is Universal Life Policy (ULP). This shows that Indian companies are getting a stronger hold in the global market. 06 . a country is trapped in the vicious circle of debt and then there is no way out.e. The rupee value is growing stronger in comparison with the dollar value which is depreciating and this is not a short-term trend. I MBA N After much of the conflicts between IRDA and SEBI over the control of the Unit-Linked Insurance Plan (ULIP) in India. which means that though it has tight regulations the LPG process has come about gracefully. Indian companies are acquiring foreign companies all over the world.5%. say 90-95%). ULIP is presently in the evolving stage in India. India will not grow given that it does not spend enough to generate enough. The MPS is somewhere around 35%.

When we consider a particular policy there will be many agents working with that policy and the policy applied by policy holder will be at different levels of acceptance and both will be affected. They are looking for IRDA to come out with a structured regulations to help them understand the policy in a more better and efficient manner. Reasons for Cancellation But now IRDA has banned the further sale of the universal life policies because of the complaints it received on the sale praxis of the insurers and its arbitrage to life companies. If you descry both sides of the coin then we can confirm that ULP is advantageous to its customers in terms of flexible payment and guarantee that policy will not lapse. Some companies that used to offer universal policies are Max New York Life Insurance. Impact on Insurance Companies Stopping a certain policy immediately will affect the business of the company. But IRDA is not able to convince the 5 CHAANAKYA VOL 4_13 07 . • But if we compare ULIP and ULP then ULP holders cannot choose the investment option as in case of ULIP. The other reason is its high commission structure. Many companies are even requesting for different norms to different companies.The major hallmark of this policy is its flexibility in terms of • Premium amount • Tenure and • Sum assured of the insurance Some of the other salient features of this plan are • The freedom to mutate the payment of the premium over the policy’s life that means if a person has started a monthly payment then he/she has the freedom to swap to quarterly or annually. • If the customer fails to pay the premium amount within the stipulated time then the policy is not automatically cancelled. They have much of their business from ULP and one of the companies in this category is Reliance while other companies are waiting for new guidelines as they think that new guidelines may bring transparency in the system. Some companies have been strongly hit due to this decision because Universal Life Plan (ULP) is a major part of their business. IRDA thinks that it needs to build a better regulatory framework for protecting policyholder’s interest. Reliance Life Insurance. Impact on Policy Holders The policy holders in a way are happy as many are in a dilemma regarding the regulations of this policy. They will not get to know the asset value of their investment. It has asked for the insurers thoughts on the same so as to make changes or implement the same in future. The regulatory body drafted some guidelines to define the Variable Insurance Product also known as Universal Life Policy to make it understand it in a better way. Aviva Life Insurance and Bharti Axa Life Insurance.

After reviewing this document either SEBI ask lead managers to make changes to it or approve it to go ahead with IPO processing. CONTENT First step:-When a company decides to come up with IPO it has to go through series of guidelines instituted by SEBI. The Primary Market is. has not been fully accepted by the customers because of its loop holes and incomplete guidelines from the regulatory body and in this regard the regulatory body has stopped insurance companies from selling this policy until final guidelines are released to help the customers understand the policy in preferable manner. To explain the process of IPO. The first step is to appoint the *book running lead manager (BRLM). Deutsche bank and Merrill Lynch Limited. This document is submitted to SEBI for review. It’s now on the issuer to decide the date and the price band of the issue.000 crore through disinvestment for this fiscal year. which can be the Government or corporate. acquisitions. let us take into consideration Coal India IPO.4 billion. Morgan Stanley. iPo studY: coal india By. Second Step:-The second step involves the preparation of *1"Draft Offer document" by Coal India Ltd and the Book Building Lead Manager of the public issue. It is the largest coal producing company in the world with coal mining capacity of 431 million tonnes and reserves of 53.Saurabh Khator. Initial public offer(IPO) is the way company raises money from the investors for its future projects and invariantly gets listed on the stock exchange. syndicate members and registrar of the issue to carry out the whole process. Kotak Investment Bank. It approves “draft offer document” which is now called “offer document” after SEBI approval.policy holders in terms of distinction between ULIP and ULP. The market in which shares are already listed and traded is called the secondary market. Road shows are carried out by BRLM for investor’s viewpoint. 7 CHAANAKYA VOL 4_13 08 . one may wonder what IPO is all about and how it affects the common investor when markets are at their peak level. debt repayment. The IPO is a part of government fund raising of ` 40. The issue size is ` 15000 crore. Government is planning to divest around 10% of their holding in the company with this IPO. Conclusion We can conclude that Universal Life Insurance which is a modification of the traditional plan which can be observed from the guidelines drafted. I MBA L INTRODUCTION With large number of IPO hitting the market.a government owned company which is going public for the first time to raise funds. the market that provides a channel for the sale of new securities to issuers. the largest in line till now after Reliance power IPO size of ` 11800 crore. Third Step: After SEBI reviews draft offer document and revert back to lead managers to make changes. In case of Coal India IPO we see the BRLM are Citigroup. The market from which company raises funds is called the primary market. hence.1 billion tonnes. Kotak Securities Limited is the syndicate member to the IPO and Link Intime India Private Limited is the registrar to the company. working capital. Some analyst believes this IPO is an answer to China’s biggest IPO Agriculture bank of China (ABC) with issue size of $22. ENAM Securities. and a host of other uses. to raise resources to meet their fund raising requirements. Coal India.

4 times. companies. trusts etc. management.440 of face value of ` 10 each which puts the company market capitalization to 1. Retail Investor are common investor and they cannot apply for more than ` one lakh in an IPO while HNI or NII can apply for more than one lakh shares. After putting in date and price band the “offer document” now becomes “Red Herring prospectus” which is then printed and posted to the syndicate members for distribution to the investors. as we expect selling from FII’s side after Diwali and at the end of this fiscal year. processing refunds through ECS or cheque and transferring allocated shares to investors Demat accounts. Retail Investors subscribed for 44.Fourth step: The Company now sends the offer document to the registrar of the issue and the stock exchanges it is willing to list itself. helping company in road shows. The HNI portion was subscribed 25. 2010 and will get closed on October 21.23 times which is quite a good response for IPO of this size(15000 crore). 2010 . 2010. risk involved with the issue. The retail investors and employees would get 5% discount on the issue price. The issue would close for FII’s and QIB’s on October 20. 2010. *2QIB or Qualified Institutional buyers are Financial Institutions. Syndicate members collect the application for shares and Registrar of the issue is mainly responsible for processing of IPO applications. In case of Coal India if we see the Red Herring prospectus the price band for the issue was ` 225-` 245 and the date of the issue as October 18. 15% for *2HNI (High Net worth Individuals) or NII and 35% for the*2 retail Investors and 1% reserved for employees of Coal India.2 times which shows the phenomenal response from all categories of Investors. NRI’s. After getting the necessary approval. CONCLUSION With issue being closed on October 21. By this IPO. In coal India we see 50% being reserved for *2QIB’s (Qualified Institution Buyers). The IPO is scheduled to open on November 4. *1“Draft offer document” is usually a PDF file containing information about company business. Overall the coal India IPO was subscribed 15.20 lakh crore and retail investor subscribing IPO 2. 09 . the price band of issue is decided in consultation with the issuer company and the date when the issue opens is also decided.56 lakh crore. The Success of this IPO sets benchmark for the coming IPO like power grid Corporation FPO and SAIL FPO worth ` 8000 crore each. creating draft offer document and get it approved by SEBI and stock exchanges and helping company to list shares at stock market. We expect the IPO to open with ` 100 premium and advise investors to book profit and recover their investments. So far FII have pumped in 1. placing it in the category of navratnas. *Book running lead managers are responsible for initiating the IPO processing.08 lakh crore into market this year. The *3minimum order quantity is 25 shares and in the multiples of 25 with maximum being 400 shares for retail investors. The number of equity shares for public offer are 631. NII or HNI are the ones which are not registered with SEBI like Individual investors. FII’s and Mutual Funds who are registered with SEBI. 2010. Banks. Coal India is 100 % Book Building Process. market witnessed record bid from FII worth 1. allocating shares to applicants based on SEBI guidelines. 2010 while for retail investors it would close on October 21.6 crore shares as against 20 crore shares on offer. The IPO witnessed maximum bidding on the last day as QIB’s have to keep in 100% money upfront according to recent SEBI guidelines unlike earlier where they have to pay only 10 % of the application money. company financials and the reason company is going for the IPO.636. Government would reduce its holding by 10% in the company.

*3Minimum order quantity or lot size is the minimum shares that the investor can bid for while applying for the shares. these MFIs will be forced to offer credit at cheaper rates. and since these prove to be an alternative to non institutional source of finance like money lenders. however. for the betterment of the borrowers. does not prescribe lending rates for these institutions. It may be noted that since a large number of MFIs fall outside the purview of RBI. Like all other states. in terms of number of companies they constitute a small percentage of the total number of MFIs in the country. Although the registered companies cover over 80 per cent of the microfinance business. and these MFIs being institutional sources of getting credit. This sub-committee will decide on how they can convince these MFIs to pass on the huge profits made by them to the borrowers by lowering their interest rates charged from borrowers. they have a very important role. It may be noted that a bill to regulate MFIs is also being prepared. Punjab and Haryana. though this too may not cap the interest rates being charged. which will be tabled in the Parliament. Reserve Bank of India (RBI). after the hard core measures used by these institutions allegedly forced some people to commit suicide.Since July 2006. RBI regulation and MFI’s The RBI regulates only those MFIs that are registered with it as non-banking finance companies. 10 . The apex bank can only suggest to these institutions to lower their interest rates. especially for the urban poor and in rural areas. If the banks were to increase their penetration and reach all unbanked areas in the hinterland. The RBI Governor announced that this sub-committee will look into the functioning of the MFI sector. have a large concentration of MFIs. the latter cannot regulate their interest rates. Why this move? The move comes after the Andhra Pradesh Cabinet approved an ordinance to rein in these MFIs. I MBA V The surge in complaints against Micro Finance Institutions (MFIs) for charging abnormally high rates of interest and using strong arm tactics to recover loans has now prompted the apex regulatory bank.Amala Gadde. Forms submitted without PAN number or wrong PAN numbers are considered as faulty application and they are not considered for IPO allotment. The shares are allotted on the basis of bid received in each category. in case found harassing borrowers for recovery of loans. This ordinance calls for three year sentence and ` 1 lakh penalty for MFIs. In addition should register with state government. to form a sub-committee to look into their functioning. Relevance of MFI’s in this context In wake of the financial inclusion campaign of the government. and what bearing they have on the RBI policy. RBi looKinG into MFi’s By. The central bank. SEBI made PAN number mandatory for IPO applicants. they have become very important. too.

within the finance department. The sale began on Oct.4 times. 11 . State Bank is selling bonds for ` 5 billion . those who will apply on the second or third day will have no chance to get the bond. the bank will give an additional half a percentage point interest. had embezzled about $4 million by exploiting the exclusivity of access to the company’s banking accounts. Allotment of bonds Market sources said the portion reserved for high net worth individuals was subscribed by over 19 times. The fraud came to light in December last year after a banker to the firm alerted Wipro about an overdraft. The Bangalore-based firm also announced changes in certain key positions in the controllership team. Citigroup.5% for five year deposit. but did not reveal the amount of money involved in the fraud.000 crore was subscribed over 17 times on Monday (the opening day). the sources said. The country's largest bank floated a public issue of lower Tier II bonds on Monday worth `1000 crore. Why preference to SBI bonds As banks are offering an interest rate of 7% to 7. As it was oversubscribed on the first day.Prateek Nangia. Indian companies have raised $6 billion in international bond sales this year. The bond will be allotted on first-come first-serve basis. Kotak Mahindra Capital and SBI Capital Markets are the managers for the issue. worth anywhere between ` 1 lakh and ` 1.after five years. while institutional buyers applied for more than 46 times their allotment.Chinmay Jethwa. Application size for retail investors is `5 lakh. The bond will offer an interest of 9. An employee working with Wipro’s ‘controllership’ division. with an option to retain oversubscription up to another ` 5 billion . The bonds are proposed to be listed on NSE. The issue has closed on October 25. I MBA L Software major Wipro’s internal investigation into embezzlement of funds by a company employee. 18. while that reserved for retail investors was oversubscribed 6. But if the bond is not redeemed after five years. The employee siphoned off the company’s money to his personal savings accounts in multiple transactions. I MBA V The State Bank of India's first retail bond issue of ` 1. according to a bank statement. it has a call option — SBI can redeem the bond . the rate offered by SBI on the bond could be termed as attractive. including buying land. found that the amounts involved "were not material".25% for 10 years and 9. However.sBi Bonds By. wiPRo scaM By. Bids by high net worth individuals were at 18 times their allotted amount. more than three times the amount raised in 2009. who allegedly committed suicide after the scam came to light in December.5% for 15 years.2 crore. and used the money to acquire jewellery apart from investing elsewhere.

is also examining if there were more departments and people involved in the incident. Audit firm Ernst & Young. Following cotton. in which they are bought and sold in standardized contracts.” said an insider requesting anonymity. commodity 12 . It cannot be carried out in isolation. Early investigations into the embezzlement reported at Wipro. The objective of investigations is to identify the process improvements and even fix accountability. Over time the derivatives market developed in several other commodities in India. In order to restrict the unnecessary speculation in essential commodities and prevent farmers interest government prohibited forward and options trading of commodities. For instance. E&Y. “The embezzlement has been happening over three years. former chairman of ICICI and an independent director with the country’s third-biggest software exporter submitted their reports to the company’s board. along with the internal auditors. Apart from investigating how the processes were tweaked to carry out the embezzlement. economy becoming more liberal and globalized government allowed future trading in 17 commodities group. is responsible for authorizing payments. Later in 1993. let us first get an insight of basics of commodity market. as the company is in a silent period ahead of its second quarter results later this month. barely about a decade after the commodity derivatives started in Chicago. Wipro filed its annual report with the US Securities and Exchange Commission for the year-ended March 2010 more than a month after the scheduled September 30 deadline. as it was waiting for the on-going investigations to be completed. apart from an internal probe committee led by Narayanan Vaghul. I MBA K Before going into depth of what commodity trading is. while the controllership unit. derivatives trading started in oilseeds in Bombay (1900). such requests are processed by Wipro’s payments-processing department called Wividus. wheat in Hapur (1913) and in Bullion in Bombay (1920). History: The history of organized commodity derivatives in India goes back to the nineteenth century when the Cotton Trade Association started futures trading in 1875. Commodity market: Commodity markets are markets where raw or primary products are exchanged. the case does not mean that it has a permeable system. since the investigation is expected to be completed by October-end only. However this issue has once again raised the question of importance of IT security and evaluation of vendor’s security standards. These raw commodities are traded on regulated commodities exchanges. As a result commodities market tumbled down. hinted the involvement of multiple officials and units within the company’s financial department. where the embezzlement happened. its history and need of commodity trading.Wipro declined to offer any comments.Mayuri Jain. raw jute and jute goods in Calcutta (1912). earlier this year. Though the image of the software giant has been tarnished up to an extent. coMModitY tRadinG By . He added that it was still too early to draw conclusions. But still.

Derivatives are used to reduce or eliminate price risk arising from unforeseen price changes. However. otherwise he will let the option lapse. Thus government further made policy changes favouring commodity derivatives and it was a timely decision too. while a ‘put’ option gives the holder a right to sell a commodity at an agreed price on or before a specified date (called expiry date). (ii) Commodity Options contracts: Like futures. If the price of wheat declines to say `20 before expiry. metals.5 per quintal (or a total of `50). the farmer will exercise his option and sell his wheat at the agreed price of `25 per quintal. since internationally the commodity cycle was on the upswing. • The Multi Commodity Exchange of India Ltd (MCX) and • The National Multi Commodity Exchange of India Ltd (NMCE). viz. to buy (or sell) a specific quantity of a commodity at a specified price on or before a specified date. For example. mainly due to doubts about the benefits of derivatives. options are also financial instruments used for hedging and speculation. if the market price of wheat increases to say `30 per quintal.futures trading in India remained in a state of hibernation for nearly four decades.cbot. www. The major function of futures markets is to transfer price risk from hedgers to speculators. This way he is able to hedge his risk arising from a possible adverse change in the price of his commodity. In order to minimize his risk. but is worried that the price of wheat may decline in this period. it would be advantageous for the farmer to sell it directly in the open market at the spot price. Two important derivatives are futures and options. With the help of these stock exchanges retail investors can now trade in commodity futures without having physical stocks! 13 .com) was established in 1848 to bring farmers and merchants together. The commodity option holder has the right. • The National Commodity and Derivative Exchange Ltd (NCDEX). suppose a farmer is expecting his crop of wheat to be ready in two months time. but not the obligation. This makes people feel that price changes in future can create risk for businesses. (i) Commodity Futures Contracts: A futures contract is an agreement for buying or selling a commodity for a predetermined delivery price at a specific future time. suppose a farmer buys a put option to sell 100 Quintals of wheat at a price of `25 per quintal and pays a ‘premium’ of `0. Why are commodities derivatives required? It is common knowledge that prices of commodities. The option holder will exercise the option only if it is beneficial to him. The commodity futures have existed since the Chicago Board of Trade (CBOT. Option contracts involve two parties – the seller of the option writes the option in favour of the buyer (holder) who pays a certain premium to the seller as a price for the option. For example. Present scenario: Three multi-commodity exchanges have been set up in the country. There are two types of commodity options: a ‘call’ option gives the holder a right to buy a commodity at an agreed price. shares and currencies fluctuate over time. rather than exercise his option to sell at `25 per quintal. he can enter into a futures contract to sell his crop in two months’ time at a price determined now.

things are getting more expensive every day. Yes.40. potatoes and sugar are also traded. did You Know? 8 Good things about the credit crunch By.207. Of the country’s GDP of `13. With the introduction of futures trading. • Precious Metals: one of the most actively traded commodities. guar seed. we conveniently forget about the many perks that might result out of all this misery and we seem to have a strong tendency to push aside any optimistic ideas in keeping with the general doomsday mood that the media keeps inflicting upon us. Commodities are easy to understand as far as fundamentals of demand and supply are concerned. In fact. pricing in commodities futures has been less volatile compared with equity and bonds. maize. 1. 14 .730 crore (` 13. while others like wheat. commodities related (and dependent) industries constitute about 58 per cent.things are not as bad as it seems. people find themselves constantly battling with feelings of uncertainty about the future were catastrophe seems to be looming just around the corner. But for those of us who have debts and mortgages -which is probably a large majority as a result of the government's last ten years economic policy.000 crore (` 1.The most widely traded commodities are • Industrial metals: comes in many shapes and forms. the size of the commodities markets in India is also quite significant. the size of the commodities market has grown many folds here on. and chana. thus providing an efficient portfolio diversification option. the various commodities across the country clock an annual turnover of `1. Historically. With an increasing number of large businesses collapsing and the promise of many more to come.400 billion). One should understand the risks and advantages of trading in commodities futures before taking a leap. with gold and silver being the two most liquid ones. Large banks are falling like flies after a lengthy fanatical high fuelled by a long greedy lending binge. lead and zinc.3 billion). The following points might help add a pinch of salt to our general perception of life and project a flicker of light towards the end of the tunnel. with copper being the most liquid in India.Abhijeet Singh I MBA G It is very hard these days to watch the news or read your daily newspaper without being constantly bombarded by predictions of doom and gloom and worse days to come due to the current credit crunch. we are coughing up increasing amounts of money for the daily essentials and most of our salaries will not keep up with the increase. With inflation figures very close to the Bank of England interest rates. • Agriculture: more liquid commodities are soya bean. Currently. • Energies: Crude oil and natural gas.20. However. followed by nickel. High Inflation With inflation edging just below 5 points.

In a few years when we eventually emerge from the other end. 7. It is weeding away old infrastructures with weaker less cost effective businesses leaving behind only the solid foundations. Improved Tourism Revenue A weak sterling and high air fares have already forced many of us to consider exploring the great 14 CHAANAKYA VOL 4_13 15 . the Bank of England will have to reduce interest rates to stimulate the economy. 6. while in a crashing one only the best are able to survive. but it seems that the system has its own way of bringing back harmony and balance equalizing immigration volumes with the country's capacity to welcome new comers. inflation alone is reducing just under `5000/year of the real value of the money owed. Once the fire is out. This has prompted the government to introduce major reforms to the immigration rules which came just in time for the credit crunch to score a double whammy in the same direction. This will play a significant role in getting us out of the crunch and will help create new jobs on the long run. The correction of course does not happen overnight. Lower Interest Rates No bonus points for guessing that sooner or later. For a typical `100000 mortgage. we are in a rare situation where we can be that certain about the coming year's interest rate predictions. we will have a market with only the best performing useful businesses and lots of space for expansion.we are paying our mortgage lenders a smaller margin of profit in real money value. many people will realize that this credit crunch has reduced the required time for paying their mortgages compared to average years. Positive Environmental Impacts With greedy big oil inflating prices and a weak US dollar. highly oil-dependent businesses in general are becoming less competitive compared with less oil-dependent ones. Increased Exports It is a no brainer that the current weak pound will increase the competitiveness of our business abroad. Lower Immigration Remember how hard it was last year to go through a day without reading a story about the considerable influx of immigrants into an already saturated island with infrastructure struggling to cope with the numbers? There has been a long debate about the effects of immigration and about weighting its benefits against its social and economical impacts. 2. This is obviously good news for those of us with debts and mortgages. There is a growing incentive for both governments and businesses to switch to greener options in addition to making research in order to find alternative energy sources more economically viable. Collapse of Under Performing Businesses They say in an up moving market. 3. 4. A weak pound combined with an unsecure. 5. The credit crunch is torching through financial markets like a forest fire. In our modern volatile economic environment. over-saturated job market is making the UK less attractive for new immigrants and even forcing some of those already here to think about leaving. only fools manage to lose money.

but once this is over. as we all knew and conveniently ignored.articlebase. 8. Lower House Prices We all have been complaining about over-inflated house prices during the last 5 years.com 16 . Although this crash might be bad news for those of us who need to sell and down-grade during the crunch. the majority of home owners who borrowed sensibly will not be affected even if they wanted to sell and buy a similarly priced or more expensive property. and a seemingly endless inflation in house prices is obviously unsustainable on the long run. yes they will struggle during the crunch to get a mortgage. and with inflation wiping even more of their mortgage costs and interest rates expectedly coming down. The reality is. but when house prices come crashing down like a wall of bricks. It is also cheaper now for foreign tourists to visit the UK which promises a nice timely boost to the tourism industry that in turn will generate extra real revenue contributing to end the crunch. As for first time buyers. this might compensate them for the rent money they had to pay during the crunch years. we all had it coming. they will be able to buy the same houses with smaller mortgages. Source: www.destinations that good old GB has on offer for our next holiday. we complain even more.

And trend divergence is reverse of price. Also there is a 2 week dou ble bottom forming signaling a short term upmove.10 Stop Loss—` 29 The price cha rt forms morning star candlestick pa ttern suggesting bulls are stepping in.Madhukar Das. Target : ` 1100 Stop loss : ` 980 17 .1 as against industry average of 25. Recommendation : BUY Price : ` 1025. William %R crosses over –80 in oversold region. Technically Speaking Other Picks BUY : Gemstone Investments CMP—` 10. Special points of interest: Volume chart shows healthy activity and is trending up for last few tra ding sessions. We shall also study the fundamental aspects of a company to avoid getting into loss making trade positions in case of movement of market in direction opposite to that of my prediction. The current P/E is at 24.40 Target—` 12. Fundamentally Speaking Reliance Infrastructure Ltd is not only India’s largest private sector enterprise in power utility but also the largest private sector player in many other infrastructure sectors of India. we shall give more weightage to technical analysis and price trend of the stock.95 Target—` 208 Stop Loss—` 250 Indiabulls Securities CMP—27. It has various projects under public-private partnership model. Also NHAI has given several orders to build. I MBA G Reliance Infrastucture The markets have witnessed seesaw movement in the past couple of weeks owing to fund flow in and out of Indian markets my FIIs. Since we are looking at a trading horizon of 15-30 days. The September quarter sales are expected to grow by 18-20%. it remains to be seen where the market heads in coming weeks. Mega plans in pipeline for specialty real estate.80 Target—` 25.10 Stop Loss—` 9. Reliance Infrastructure also distributes more than 28 billion units of electricity to cover 25 million consumers across different parts of the country including Mumbai and Delhi.inVestoR Focus By. Also the price is 21x FY2011 earnings. Finance minister Pranab Mukherjee has denied any FII cap for now. signaling short term buy opportuni ty. Crosses in the oversold region.05 Stoc hastic chart further confirms the short term upmove. Commodi ty channel index line crosses over –100 and –50 levels.80 Short Sell : Zenith Infotech CMP—` 239. operate and transfer scheme. They will develop Mumbai metro and operate it for 35 years. five major projects in Tamil Nadu and one in Rajasthan.3.

Bipin: Most importantly.aluMni sPeaK By. Chaanakya: Lastly. But with the initial crunches and inevitable hurdles. Bipin Kumar Singh to give us insights on entrepreneurship. as an entrepreneur.Finance Organization: RBWI Designation. Thank You!!! 18 .Geetika Gupta. we learn some things work while others don’t.RMPW/ PRIVATE BANKER E-mail Id: bipinsingh@wealthinsight. loyalty and a spark to outperform peers are some of the essential attributes. They should move in the direction of right areas and identify opportunities and posses a knack for practical application of Business knowledge. dedication. a few words for our Budding Managers… Mr. hiring and conducting performance appraisals. So. we have Mr. setting up targets and continuous monitoring of the health of the company.Director Batch. passion to start something new. with every move. Bipin: Never feel that you have learnt enough to be in a job. Bipin: A keen ear in current affairs.BBM. Chaanakya: The first year students prepare themselves to hit the corporate arena as INTERNS. do you expect from MBA students? Mr. Bipin: The students must have a blend of right attitude and good presentation skills. Bipin Kumar Singh Qualification.co. Your Advice… Mr. Bipin: Keep your eyes open towards the developments in the corporate arena and try to absorb as much knowledge as you can during this internship. something different was the driving force behind the birth of the idea and an equally passionate team to work with encouraged me to venture into this new avenue. MBA.2006 Previous organization worked in. What advice would you give them for getting the best out of their internship? Mr. Chaanakya: What. the end result will follow provided you have adopted the right path. Chaanakya: The Students from the second year are all set to take up Placements. And we keep improving by the day. The road was never easy. Chaanakya: What inspired you to venture into entrepreneurship? How has your journey been so far? Mr. Bipin: It involves managing the team. I MBA N In this edition.in Contact Number: +91 95388 67014 Chaanakya: What does your present job involve? Mr. it was a bit critical to stay calm and we have managed to steer clear of that so far. Name. good communication skills.Mr.

Use: “Craig’s presentation had no substance. I didn’t mean to send you a three finger booger. following the public offering. rather than just looking for ducks to feed. You would always rather have them come to you hungry than chase them around with the bread. It can also describe something you end up with that you didn’t ask for and don’t want.” Feed the ducks when they are quacking. but it turned out that the client had all kinds of problems nobody expected to have to deal with. I’m sorry. Then we could feed the ducks when they are quacking.” Soft paper report It is a negative reference to a report.” Poof offering It refers to a type of public offering where individually owned businesses suddenly combine their ownership into a new public company. don’t go after them trying to sell. or just general disrespect for the report or its author. Reference: Green Weenies and Due Diligence by Ron Sturgeon 19 . Use: Mike got a new client referral. it was a soft paper report. “Man. His friend that referred the client said. Use: “Brian advised. but can’t get rid of.BuZZ woRds THE AMERICAN WAY Three finger booger It refers to a situation that gets completely botched up (typically unexpectedly) and is extremely difficult to get rid of or to get away from. so that it will have another use. It’s called the soft paper report because it needs to be written on soft paper. and was a general pain in the ass. you have one new public company. Be ready for investors when they come to you showing interest. It’s called a proof offering because on one day you have four private businesses and the next day. don’t look for ducks to feed This phrase is used in regards to looking for investors or partners. as it was a small community of prospects and we should let them come to us. rather than trying to go to every potential lender that we should whisper down the lane. indicating disbelief or a lack of confidence in the report’s facts.

Recently this bank completed 150 years of its operation in India and it goes with the tagline ‘Committed to a changing India’. Haryana. Boeing. as Microsoft research has launched a multilingual content creation tool for Wikipedia called 10.Deepak Jose I MBA K 1. 'This is the root of all evils'? 16 CHAANAKYA VOL 4_13 20 . Which bank is it I am talking about? 9. In which country's coins you can find the following lines imprinted. Asia’s largest gold refinery will come up in the Manesar. Alfa. GE Aviation and Lockheed Martin were in news recently for 4. It is jointly built by Indian owned MMTC and PAMP. Which channel is going to launch a sub-brand for women. From chief of SpiceJet to chief of Kingfisher Airlines. PAMP belongs to which country? 3. The 'Simply Clever' ad message is associated with which automaker? 8. who made this transition recently? 6. sky bags and Footloose are brands associated with which company? 2. this brand topped Interbrand's list of 100 'Best Global Brands'.QuiZ By. with the letter 'W' being added to its original name? 5. For the eleventh consecutive year. Can you name it? 7.

The famous Hedge Fund owner who made $2 billion profit during recession Down 1. Brazil stock exchange located at Sao Paulo 2. The only major automaker to avoid bankruptcy 21 .cRosswoRds Across 3. The banks that are licensed by nations with low taxes and limited financial regulations 5. He is the poster-bad-boy of dot com bubble 4. The measure to know how the price of a particular stock fluctuates in relation to the whole stock market 7. The banks that have no physical presence and conducts business over phone 6. The first woman to serve as Securities and Exchange Commission’s permanent chairman 8.

Wikibasha 10. Vatican City 22 . These 3 companies together bagged 42% of the total defence deals. BNP Paribas 9. Switzerland 3. Skoda 8. Sanjay Aggarwal 6.Finance-de-HuMoR JoKes aPaRt QUESTION: When does a person decide to become a stockbroker? ANSWER: When he realizes he doesn't have the charisma to succeed as an undertaker. 4. ESPN (The sub-brand for women will be ESPNW) 5. Coca-Cola 7. Quiz Answers 1. VIP 2.

Zafar Iqbal Cartoon Vaibhav Nagar News Naveen Kulkarni Crosswords & Quotes Sumit Kumar Gupta Graph & Rates Amit Prakash Book and Magazine Review T.JunioR teaM Apoorv Jhudeley & Rajat Sikri Editor-in-chief Md. Geetika Gupta & Manan Datt Alumni Speak Abhijeet Singh & Deepak Jose Quiz & Did You Know Gaurav Jain & Madhukar Das Investor Focus Apurva Gupta & Pragathi P. Buzz Words Kumar Gaurav & Meenakshi Ramnath Review Committee Apoorv Jhudeley & T. Deekshith Ravi Chandra Student Article Rohit Dhannawat & Saurabh Khator Investors check Amit Prakash & Chinmay Uchhrang Jethwa Scam Mandeep Kaur & Mayuri Jain Commodities Market Richa Jain & Sona Joseph Debate Akshat Malik. Deekshith Ravi Chandra Creative Head & Design .

Rates Dhanya Anna Kurianm & Resmy Sebastian Review Committee Bhargav K. Smitha Joseph & Mohil Kapoor Alumni Speak Dorin Jane Quiz & Did You Know Mantri Ankit Atul Quotes & Buzz Words Pottim Sahiti Reddy Crosswords Vipul Jain Graph. Creative Head & Design Pradeep Thangavel Compiling and Editing 18 CHAANAKYA VOL 4_13 .senioR teaM Manesh Paul Mani Editor-in-chief Sachin Cartoon Amutha Priya D News Nivedita Tiwary Investors check Sonal Sankhla Student Article Nithya Prakash Scam Mookambigai Commodities Market Niveditha S Debate Clifford Cardoza.

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