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Rates 01

Graphs 02

Student Cartoon 03

News 04

National & International events in the world of nance

Debate 05Is Indian economy the biggest bubble?

Contemporary ArticlesUniversal life insurance policy and IRDA 06IPO Study: Coal India Ltd. 08RBI looking into MFI s 10SBI Bonds 11

Scam 11Wipro Ltd.

Commodities Article 12Commodities trading

Did You Know? 14

8 Good things about the credit crunch

Investors Focus 17

Technical and fundamental analysis

Alumni Speak 18

A peek into the corporate world through our Alumnisexperience

Buzz Words 19

Fincopedia

Quiz 20

Check your Financial Quotient

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Rep 6.00%

Reverse Repo 5.00%Call rate 4.80-8.00 %

Ination (as on 14 Oct.) +8.62%

Forex Reserve $ 295.399 billion

(as on 22nd Oct 2010)

91 day T-Bill 6.8536%

IIP (for August) +5.60%

6.90 GS 2019 8.0907-8.0907%

Rates

01

Money isnt what motivates entrepreneurs; it is ac-

knowledgementa craving for your ideas to be ac-

knowledged.

You know what the difference is between a dead

skunk and a dead banker on the road? Theres a

skid mark by the skunk.

You cant overestimate what happens when you en-

courage regulators to believe that the goal of regu-

lation is not to regulate.

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43

43.5

44

44.5

45

14-Oct 17-Oct 20-Oct 23-Oct 26-Oct 29-Oct

Rs/$

GRaPHs

02

17800

18100

18400

18700

19000


1500000

6900000

12300000

17700000

23100000

28500000

5900

6000

6100

6200

6300


future rates open interest

5900

6000

6100

6200

6300

19400

19700

20000

20300

20600


sensex nifty

79

81

83

85

87


Oil(per bbl)

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By- Md. Zafar Iqbal I MBA - M

students caRtoon

03

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inteRnational news

Millions of protesters have gathered in cities across France to demonstrate their opposition to

proposed pension reforms. The government plans to raise the retirement age from 60 to 62 and

the full state pension age from 65 to 67.

The Group of 20 pledged to refrain from competitive devaluations and commit to market de-

termined exchange rates, a G-20 ofcial said, citing a statement to be released after talks end in

South Korea. The International Monetary Fund will be tasked with producing a broader report

on currency policies and studying economies with persistent trade imbalances.

The US economy expanded at a 2% annual rate in the July-September quarter. It marked an

improvement from the feeble 1.7% growth in the April-June quarter. Consumers helped boost

last quarters economic growth with 2.6% growth in spending.

national news

By- Vaibhav Nagar, I MBA L

04

The ow of foreign money into the stock markets continued unhindered in October with to-

tal inows crossing $6.425 billion, the highest in a single month. In fact, FIIs have been netbuyers on every trading day since Aug 30 till Oct 29 when they sold stocks worth $125.35

million.

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` 31,000 crore.

Unusual short term liquidity shortfall in the money market forced call money rate the over-

night interest rate that a bank pays to borrow from another bank to shoot up to a high of

about 13%, Usually repo auction, under which banks borrow money from the RBI at a pre-

xed rate (6% now), take place on all working days of the week

Indias overall public debt increased marginally by 2.8% to ` 27.77 lakh crore in the rst

half of the current nancial year, but better management saw average maturity of outstanding

long-term increase to 9.83 years at end-September 2010 from 9.71 years at end-June 2010.

The average coupon (or interest rate) of outstanding stock also dropped to 7.85% from 7.79%

over the same period. Internal debt constitutes 89.4% of the governments total public debt.

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05

is indian econoMY tHe BiGGest BuBBle?

By- Sona Joseph I MBA M

Narration: During the time, when the whole world is talking about India being the next biggest

economy of the world, one cant but sit and argue the sustainability of such a claim, considering

the rapid growth and the lack of expertise at a domestic level. Is the growth of India rocketed by

a foreign push, bound to be stalled when the other economies dawn upon the realization of thethreat of being overpowered?

By- Richa Jain I MBA L

CONS

The so called Rural economy of India is still

vibrant despite the global turmoil. SEBI and

other regulating bodies should be given their

due credit for being precautious before every

major leap. The strong banking regulatory sys-

tem has also helped India to weather the stormsof global credit crunch. In fact, the fall of many

private banks in developed nations led people

to feel insecure about investing there, which

have increased the ow of NRI deposits to In-

dias strong and government owned public sec-

tor banks.

When compared with other emerging econo-

mies such as China, Indian economy is lessdependent on exports. Domestic consumption

makes up about 75% of Indias GDP, while it

accounts for less than 50% of Chinese econ-

omy. Manpower is the core strength of India

with our entrepreneurs doing exceedingly well

in the world market. India is a breeding ground

for skilled labour. China might have abundance

of technical expertise, but it is at the cost of

quality. Countries like the USA would not com-

pletely withdraw the outsourcing system sim-ply because they lack the knowledge to carry

out the job when compared to Indians. The Tata

Nano car is a witness to the country possessing

technical expertise and with the nuclear deal

bill being passed, we are making progress in the

defense eld too.

Moreover, two other major components of

Indian GDP, agricultural and service sectorshave not been affected by the global slowdown

much. Other countries like Germany and UK

too consider India a potential hub, which will

ensure FDI and FII to ow for few more years

PROS

The Indian economy has seen a substantially

rapid growth in the last ve years. As India is

a cost-effective and labour-intensive economy,

it has immensely benetted from the outsourc-

ing of work by developed countries and also by

having strong manufacturing and export-ori-ented industrial framework. Since a large part

of growth and employment can be attributed to

the BPO and KPO trends, and the rise in Sensex

to the investments from FDIs and FIIs, what are

the chances that our countrys economy will

ourish?

Can a country which does not have its own

technology for gun production for the safety ofits citizens, a country which imports all the de-

fense technology from other developed nations,

actually be termed as the next big thing? In-

dia has very stringent regulations controlling

the exchanges which curb and block greater

amounts of investments from FIIs and FDIs.

China has the technology to manufacture a gad-

get at half the price offered by the US. India

does not possess such technical expertise.

Will our country ever grow beyond the reli-

gious issues like the Ayodhya Verdict, the po-

litical dirt that is being bought to the surface

during the CWG hosting, the corruption that

often leads to disputes between different states

within the country? With the food prices rising,

increase in imports, fall in agricultural output,

corrupted political governance, 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 ask-

ing his countrymen to stop outsourcing jobs to

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06

After much of the conicts between IRDA and SEBI over the control of the Unit-Linked Insurance

Plan (ULIP) in India, the court has nally given its nod and authentication to IRDA to regulate the

ULIPs. IRDA has taken stringent decisions in regulating the ULIPs which has directly affected

the insurance agents. 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). ULP are basically hybrid product with features of both traditional and unit-linked plan. It

is basically not a separate category of products instead it has modied and redened to make it

unique over ULP. ULIP is presently in the evolving stage in India.

By-Naveen Kumar Kulkarni, I MBA N

uniVeRsal liFe insuRance PolicY and iRda

to come. The CWG will no doubt act as trade

multiplier, though the only concern remains is

to what extent. Our country has a strong foun-

dation, which means that though it has tight

regulations the LPG process has come about

gracefully.

Our basis for claiming India to be the next big

thing is slow growth backed by a strong foun-

dation and a huge manpower possessing capa-

bility which is growing at an average rate of

8.5%. 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 developednations. The rupee value is growing stronger

in comparison with the dollar value which is

depreciating and this is not a short-term trend.

Indian companies are acquiring foreign com-

panies all over the world. This shows that In-

dian companies are getting a stronger hold in

the global market. Savings is the key factor that

will propel Indias growth story and our people

are less leveraged individually when compared

to citizens of developed countries.

As we know slow and steady wins the race, it is

incorrect to say that India is the Biggest Bubble.

countries like India, and requesting them to rst

employ their own countrymen. Will our coun-

try be able to provide employment to every In-

dian even when the developed nations stop pro-viding us jobs? Wouldnt the so-called already

developed nations withdraw their investments

from our country when their own survival itself

will be in danger?

Will our country withstand another nancial

crisis in case the European countries are un-

able to repay the debt, given that the market

was at all-time low when the sub-prime crisis

took place? Our country is known more to bea saving economy than a spending economy.

The MPS is somewhere around 35%, whereas

that of the USA is much lesser. Now recollect-

ing the theory of spending, India will not grow

given that it does not spend enough to generate

enough. The government borrowing in India

has already reached 50% of its GDP. History

is testimony to the fact that when such borrow-

ing reaches its peak (i.e. say 90-95%), a coun-try is trapped in the vicious circle of debt and

then there is no way out. Considering the cur-

rent scenario it would not be wrong to say that

India Is the Biggest Bubble.

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The major hallmark of this policy is its exibility 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 policys 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.

But if we compare ULIP and ULP then ULP holders cannot choose the investment option as

in case of ULIP. They will not get to know the asset value of their investment.

Some companies that used to offer universal policies are

Max New York Life Insurance, Reliance Life Insurance,Aviva Life Insurance and Bharti Axa Life Insurance. If you

descry both sides of the coin then we can conrm that ULP

is advantageous to its customers in terms of exible payment

and guarantee that policy will not lapse.

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.The other reason is its high commission structure. IRDA

thinks that it needs to build a better regulatory framework for

protecting policyholders interest.

The regulatory body drafted some guidelines to dene the Variable Insurance Product also known

as Universal Life Policy to make it understand it in a better way. It has asked for the insurers

thoughts on the same so as to make changes or implement the same in future.

Impact on Insurance Companies

Stopping a certain policy immediately will affect the business of the company. When we considera 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. Some companies

have been strongly hit due to this decision because Universal Life Plan (ULP) is a major part

of their business. 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. Many companies are even requesting for

different norms to different companies.

Impact on Policy HoldersThe policy holders in a way are happy as many are in a dilemma regarding the regulations of

this policy. They are looking for IRDA to come out with a structured regulations to help them

understand the policy in a more better and efcient manner. But IRDA is not able to convince the

07

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policy holders in terms of distinction between ULIP and ULP.

Conclusion

We can conclude that Universal Life Insurance which is a modication of the traditional plan

which can be observed from the guidelines drafted, has not been fully accepted by the customers

because of its loop holes and incomplete guidelines from the regulatory body and in this regard theregulatory body has stopped insurance companies from selling this policy until nal guidelines

are released to help the customers understand the policy in preferable manner.

By- Saurabh Khator, I MBA L

iPo studY: coal india

INTRODUCTION

With large number of IPO hitting the market, one may wonder what IPO is all about and how it

affects the common investor when markets are at their peak level. Initial public offer(IPO) is the

way company raises money from the investors for its future projects and invariantly gets listed onthe stock exchange. The market from which company raises funds is called the primary market.

The Primary Market is, hence, the market that provides a channel for the sale of new securities to

issuers, which can be the Government or corporate, to raise resources to meet their fund raising

requirements, working capital, debt repayment, acquisitions, and a host of other uses. The market

in which shares are already listed and traded is called the secondary market. To explain the process

of IPO, let us take into consideration Coal India IPO. Coal India- a government owned company

which is going public for the rst time to raise funds. It is the largest coal producing company

in the world with coal mining capacity of 431 million tonnes and reserves of 53.1 billion tonnes.

Government is planning to divest around 10% of their holding in the company with this IPO. The

IPO is a part of government fund raising of` 40,000 crore through disinvestment for this scalyear. The issue size is ` 15000 crore, the largest in line till now after Reliance power IPO size of`

11800 crore. Some analyst believes this IPO is an answer to Chinas biggest IPO Agriculture bank

of China (ABC) with issue size of $22.4 billion.

CONTENT

First step:-When a company decides to come up with IPO it has to go through series of guidelines

instituted by SEBI. The rst step is to appoint the *book running lead manager (BRLM), syndicate

members and registrar of the issue to carry out the whole process. In case of Coal India IPO we see

the BRLM are Citigroup, Morgan Stanley, ENAM Securities, Kotak Investment Bank, Deutschebank and Merrill Lynch Limited. Kotak Securities Limited is the syndicate member to the IPO and

Link Intime India Private Limited is the registrar to the company.

Second Step:-The second step involves the preparation of *1"Draft Offer document" by Coal In-

dia Ltd and the Book Building Lead Manager of the public issue. This document is submitted to

SEBI for review. After reviewing this document either SEBI ask lead managers to make changes

to it or approve it to go ahead with IPO processing. Road shows are carried out by BRLM for

investors viewpoint.

Third Step: After SEBI reviews draft offer document and revert back to lead managers to makechanges. It approves draft offer document which is now called offer document after SEBI ap-

proval. Its now on the issuer to decide the date and the price band of the issue.

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09

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. After getting the necessary approval, the price band of

issue is decided in consultation with the issuer company and the date when the issue opens is also

decided. 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 in-

vestors. 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, 2010 and will get closed on October 21, 2010.

Coal India is 100 % Book Building Process. In coal India we see 50% being reserved for *2QIBs

(Qualied Institution Buyers), 15% for *2HNI (High Net worth Individuals) or NII and 35% for

the*2 retail Investors and 1% reserved for employees of Coal India. The number of equity shares

for public offer are 631,636,440 of face value of ` 10 each which puts the company market capi-

talization to 1.56 lakh crore, placing it in the category of navratnas. The *3minimum order quan-

tity is 25 shares and in the multiples of 25 with maximum being 400 shares for retail investors. By

this IPO, Government would reduce its holding by 10% in the company. The retail investors and

employees would get 5% discount on the issue price. The issue would close for FIIs and QIBson October 20, 2010 while for retail investors it would close on October 21, 2010.

CONCLUSION

With issue being closed on October 21, 2010 , market witnessed record bid from FII worth 1.20

lakh crore and retail investor subscribing IPO 2.23 times which is quite a good response for IPO

of this size(15000 crore). Retail Investors subscribed for 44.6 crore shares as against 20 crore

shares on offer. The HNI portion was subscribed 25.4 times. Overall the coal India IPO was sub-

scribed 15.2 times which shows the phenomenal response from all categories of Investors. The

IPO witnessed maximum bidding on the last day as QIBs have to keep in 100% money upfront

according to recent SEBI guidelines unlike earlier where they have to pay only 10 % of the ap-plication money. So far FII have pumped in 1.08 lakh crore into market this year. The IPO is

scheduled to open on November 4, 2010. The Success of this IPO sets benchmark for the coming

IPO like power grid Corporation FPO and SAIL FPO worth ` 8000 crore each. We expect the IPO

to open with ` 100 premium and advise investors to book prot and recover their investments, as

we expect selling from FIIs side after Diwali and at the end of this scal year.

*Book running lead managers are responsible for initiating the IPO processing, helping company

in road shows, creating draft offer document and get it approved by SEBI and stock exchanges

and helping company to list shares at stock market. Syndicate members collect the application forshares and Registrar of the issue is mainly responsible for processing of IPO applications, allocat-

ing shares to applicants based on SEBI guidelines, processing refunds through ECS or cheque and

transferring allocated shares to investors Demat accounts.

*1Draft offer document is usually a PDF le containing information about company business,

management, risk involved with the issue, company nancials and the reason company is going

for the IPO.

*2QIB or Qualied Institutional buyers are Financial Institutions, Banks, FIIs and Mutual Funds

who are registered with SEBI. NII or HNI are the ones which are not registered with SEBI likeIndividual investors, NRIs, companies, trusts etc. 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.

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10

*3Minimum order quantity or lot size is the minimum shares that the investor can bid for while

applying for the shares. The shares are allotted on the basis of bid received in each category.Since

July 2006, SEBI made PAN number mandatory for IPO applicants. Forms submitted without PAN

number or wrong PAN numbers are considered as faulty application and they are not consideredfor IPO allotment.

RBi looKinG into MFis

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 regula-

tory bank, Reserve Bank of India (RBI), to form a sub-committee to look into their functioning.

The RBI Governor announced that this sub-committee will look into the functioning of the MFIsector, and what bearing they have on the RBI policy. This sub-committee will decide on how

they can convince these MFIs to pass on the huge prots made by them to the borrowers by lower-

ing their interest rates charged from borrowers. It may be noted that since a large number of MFIs

fall outside the purview of RBI, the latter cannot regulate their interest rates.

The apex bank can only suggest to these institutions to lower their interest rates, for the better-

ment of the borrowers.

Why this move?

The move comes after the Andhra Pradesh Cabinet approved an ordinance to rein in these MFIs,

after the hard core measures used by these institutions allegedly forced some people to commit

suicide. This ordinance calls for three year sentence and ` 1 lakh penalty for MFIs, in case found

harassing borrowers for recovery of loans. In addition should register with state government.

It may be noted that a bill to regulate MFIs is also being prepared, which will be tabled in the

Parliament, though this too may not cap the interest rates being charged.

RBI regulation and MFIs

The RBI regulates only those MFIs that are registered with it as non-banking nance companies.Although the registered companies cover over 80 per cent of the micronance business, in terms

of number of companies they constitute a small percentage of the total number of MFIs in the

country. The central bank, however, does not prescribe lending rates for these institutions.

Relevance of MFIs in this context

In wake of the nancial inclusion campaign of the government, and these MFIs being institutional

sources of getting credit, they have become very important, especially for the urban poor and in

rural areas. Like all other states, Punjab and Haryana, too, have a large concentration of MFIs, and

since these prove to be an alternative to non institutional source of nance like money lenders,

they have a very important role.If the banks were to increase their penetration and reach all unbanked areas in the hinterland,

these MFIs will be forced to offer credit at cheaper rates.

By- Amala Gadde, I MBA V

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11

wiPRo scaM

Software major Wipros internal investigation into embezzlement of funds by a company

employee, who allegedly committed suicide after the scam came to light in December, found

that the amounts involved "were not material". The Bangalore-based rm also announced

changes in certain key positions in the controllership team, but did not reveal the amount of

money involved in the fraud.

The fraud came to light in December last year after a banker to the rm alerted Wipro about

an overdraft. An employee working with Wipros controllership division, within the nance

department, had embezzled about $4 million by exploiting the exclusivity of access to thecompanys banking accounts. The employee siphoned off the companys money to his personal

savings accounts in multiple transactions, worth anywhere between ` 1 lakh and ` 1.2 crore,

and used the money to acquire jewellery apart from investing elsewhere, including buying land.

By- Chinmay Jethwa, I MBA L

sBi Bonds

By- Prateek Nangia, I MBA V

The State Bank of India's rst retail bond issue of` 1,000 crore was subscribed over 17 times on

Monday (the opening day). The issue has closed on October 25.

The bond will be allotted on rst-come rst-serve basis. As it was oversubscribed on the rst day,

those who will apply on the second or third day will have no chance to get the bond. The country's

largest bank oated a public issue of lower Tier II bonds on Monday worth `1000 crore. Bids by

high net worth individuals were at 18 times their allotted amount, while institutional buyers ap-

plied for more than 46 times their allotment, the sources said. Indian companies have raised $6

billion in international bond sales this year, more than three times the amount raised in 2009.

Allotment of bonds

Market sources said the portion reserved for high net worth individuals was subscribed by over 19

times, while that reserved for retail investors was oversubscribed 6.4 times. The bond will offeran interest of 9.25% for 10 years and 9.5% for 15 years. The sale began on Oct. 18. State Bank is

selling bonds for` 5 billion , with an option to retain oversubscription up to another` 5 billion ,

according to a bank statement.

However, it has a call option SBI can redeem the bond - after ve years. But if the bond is not

redeemed after ve years, the bank will give an additional half a percentage point interest.

Why preference to SBI bonds

As banks are offering an interest rate of 7% to 7.5% for ve year deposit, the rate offered by SBI

on the bond could be termed as attractive. Citigroup, Kotak Mahindra Capital and SBI Capital

Markets are the managers for the issue. The bonds are proposed to be listed on NSE. Application

size for retail investors is `5 lakh.

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coMModitY tRadinG

By - Mayuri Jain, I MBA K

Before going into depth of what commodity trading is, let us rst get an insight of basics of com-

modity market, its history and need of commodity trading.

Commodity market: Commodity markets are markets where raw or primary products are ex-changed. These raw commodities are traded on regulated commodities exchanges, in which they

are bought and sold in standardized contracts.

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, barely about a decade

after the commodity derivatives started in Chicago. Over time the derivatives market developed

in several other commodities in India. Following cotton, derivatives trading started in oilseeds in

Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in Bul-

lion in Bombay (1920). In order to restrict the unnecessary speculation in essential commoditiesand prevent farmers interest government prohibited forward and options trading of commodities.

As a result commodities market tumbled down. Later in 1993, economy becoming more liberal

and globalized government allowed future trading in 17 commodities group. But still, commodity

Wipro declined to offer any comments, as the company is in a silent period ahead of its second

quarter results later this month.

Early investigations into the embezzlement reported at Wipro, earlier this year, hinted the in-

volvement of multiple ofcials and units within the companys nancial department. Apart from

investigating how the processes were tweaked to carry out the embezzlement, E&Y, along with

the internal auditors, is also examining if there were more departments and people involved in

the incident. For instance, while the controllership unit, where the embezzlement happened, is re-

sponsible for authorizing payments, such requests are processed by Wipros payments-processing

department called Wividus. The embezzlement has been happening over three years. It cannot

be carried out in isolation. The objective of investigations is to identify the process improvements

and even x accountability, said an insider requesting anonymity. He added that it was still too

early to draw conclusions, since the investigation is expected to be completed by October-end

only.

Audit rm Ernst & Young, apart from an internal probe committee led by Narayanan Vaghul,

former chairman of ICICI and an independent director with the countrys third-biggest software

exporter submitted their reports to the companys board. Wipro led 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 com-

pleted.

Though the image of the software giant has been tarnished up to an extent, the case does not mean

that it has a permeable system. However this issue has once again raised the question of impor-

tance of IT security and evaluation of vendors security standards.

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13

futures trading in India remained in a state of hibernation for nearly four decades, mainly due to

doubts about the benets of derivatives. Thus government further made policy changes favour-

ing commodity derivatives and it was a timely decision too, since internationally the commodity

cycle was on the upswing.

Why are commodities derivatives required?

It is common knowledge that prices of commodities, metals, shares and currencies uctuate over

time. This makes people feel that price changes in future can create risk for businesses. Deriva-

tives are used to reduce or eliminate price risk arising from unforeseen price changes.

Two important derivatives are futures and options.

(i) Commodity Futures Contracts: A futures contract is an agreement for buying or selling a com-

modity for a predetermined delivery price at a specic future time. The commodity futures have

existed since the Chicago Board of Trade (CBOT, www.cbot.com) was established in 1848 to

bring farmers and merchants together. The major function of futures markets is to transfer pricerisk from hedgers to speculators. For example, suppose a farmer is expecting his crop of wheat to

be ready in two months time, but is worried that the price of wheat may decline in this period. In

order to minimize his risk, he can enter into a futures contract to sell his crop in two months time

at a price determined now. This way he is able to hedge his risk arising from a possible adverse

change in the price of his commodity.

(ii) Commodity Options contracts: Like futures, options are also nancial instruments used for

hedging and speculation. The commodity option holder has the right, but not the obligation, to

buy (or sell) a specic quantity of a commodity at a specied price on or before a specied date.

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. There are two

types of commodity options: a call option gives the holder a right to buy a commodity at an

agreed price, while a put option gives the holder a right to sell a commodity at an agreed price

on or before a specied date (called expiry date).

The option holder will exercise the option only if it is benecial to him; otherwise he will let the

option lapse. For example, 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`0.5 per quintal (or a total of`50). If the price

of wheat declines to say `20 before expiry, the farmer will exercise his option and sell his wheatat the agreed price of`25 per quintal. However, if the market price of wheat increases to say `30

per quintal, it would be advantageous for the farmer to sell it directly in the open market at the

spot price, rather than exercise his option to sell at `25 per quintal.

Present scenario:

Three multi-commodity exchanges have been set up in the country, viz,

The National Commodity and Derivative Exchange Ltd (NCDEX),

The Multi Commodity Exchange of India Ltd (MCX) and

The National Multi Commodity Exchange of India Ltd (NMCE).

With the help of these stock exchanges retail investors can now trade in commodity futures with-

out having physical stocks!

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14

The most widely traded commodities are

Industrial metals: comes in many shapes and forms, with copper being the most liquid in

India, followed by nickel, lead and zinc.

Precious Metals: one of the most actively traded commodities, with gold and silver beingthe two most liquid ones.

Energies: Crude oil and natural gas.

Agriculture: more liquid commodities are soya bean, guar seed, and chana, while others

like wheat, maize, potatoes and sugar are also traded.

Commodities are easy to understand as far as fundamentals of demand and supply are concerned.

One should understand the risks and advantages of trading in commodities futures before taking a

leap. Historically, pricing in commodities futures has been less volatile compared with equity and

bonds, thus providing an efcient portfolio diversication option.

In fact, the size of the commodities markets in India is also quite signicant. Of the countrys

GDP of`13,20,730 crore (` 13,207.3 billion), commodities related (and dependent) industries

constitute about 58 per cent.

Currently, the various commodities across the country clock an annual turnover of `1,40,000

crore (` 1,400 billion). With the introduction of futures trading, the size of the commodities mar-

ket has grown many folds here on.

did You Know?

By- Abhijeet Singh I MBA G

8 Good things about the credit crunch

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. Large banks are falling like ies after a lengthy fanatical high fuelled by a long greedy

lending binge. With an increasing number of large businesses collapsing and the promise of manymore to come, people nd themselves constantly battling with feelings of uncertainty about the

future were catastrophe seems to be looming just around the corner. However, 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 inicting upon us. The following points might help add a pinch of salt to our general

perception of life and project a icker of light towards the end of the tunnel.

1. High Ination

With ination edging just below 5 points, things are getting more expensive every day. Yes, we

are coughing up increasing amounts of money for the daily essentials and most of our salarieswill not keep up with the increase. 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- things

are not as bad as it seems. With ination gures very close to the Bank of England interest rates,

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we are paying our mortgage lenders a smaller margin of prot in real money value. For a typi-

cal `100000 mortgage, ination alone is reducing just under`5000/year of the real value of the

money owed. In a few years when we eventually emerge from the other end, many people will

realize that this credit crunch has reduced the required time for paying their mortgages compared

to average years.

2. Lower Interest Rates

No bonus points for guessing that sooner or later, the Bank of England will have to reduce interest

rates to stimulate the economy. In our modern volatile economic environment, we are in a rare

situation where we can be that certain about the coming year's interest rate predictions. This is

obviously good news for those of us with debts and mortgages.

3. Lower Immigration

Remember how hard it was last year to go through a day without reading a story about the con-

siderable inux 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 benets against its social and economical impacts.

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. A weak

pound combined with an unsecure, 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. The

correction of course does not happen overnight, but it seems that the system has its own way of

bringing back harmony and balance equalizing immigration volumes with the country's capacityto welcome new comers.

4. Positive Environmental Impacts

With greedy big oil inating prices and a weak US dollar, highly oil-dependent businesses in

general are becoming less competitive compared with less oil-dependent ones. There is a growing

incentive for both governments and businesses to switch to greener options in addition to making

research in order to nd alternative energy sources more economically viable.

5. Increased Exports

It is a no brainer that the current weak pound will increase the competitiveness of our business

abroad. This will play a signicant role in getting us out of the crunch and will help create new

jobs on the long run.

6. Collapse of Under Performing Businesses

They say in an up moving market, only fools manage to lose money, while in a crashing one only

the best are able to survive. The credit crunch is torching through nancial markets like a forest

re. It is weeding away old infrastructures with weaker less cost effective businesses leaving

behind only the solid foundations. Once the re is out, we will have a market with only the best

performing useful businesses and lots of space for expansion.

7. Improved Tourism Revenue

A weak sterling and high air fares have already forced many of us to consider exploring the great

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16

destinations that good old GB has on offer for our next holiday. 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.

8. Lower House Prices

We all have been complaining about over-inated house prices during the last 5 years, but when

house prices come crashing down like a wall of bricks, we complain even more. The reality is, as

we all knew and conveniently ignored, we all had it coming, and a seemingly endless ination in

house prices is obviously unsustainable on the long run.

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.

As for rst time buyers, yes they will struggle during the crunch to get a mortgage, but once this isover, they will be able to buy the same houses with smaller mortgages, and with ination wiping

even more of their mortgage costs and interest rates expectedly coming down, this might compen-

sate them for the rent money they had to pay during the crunch years.

Source: www.articlebase.com

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17

inVestoR Focus

By- Madhukar Das, I MBA G

Technically Speaking

The price chart forms morning star

candlestick pattern suggesting bulls

are stepping in. Also there is a 2week double bottom forming signal-

ing a short term upmove.

Stochastic chart further confirms

the short term upmove. Crosses inthe oversold region.

William %R crosses over 80 in

oversold region. And trend

divergence is reverse of price,

signaling short term buy oppor-tuni ty.

Commodity channel index line

crosses over 100 and 50 lev-els.

Volume chart shows healthy

activ ity and is trending up for

last few trading sessions.

Special points of

interest:

Since we are lookingat a trading horizonof 15-30 days, we

shall give moreweightage to technical

analysis and price

trend of the stock.

We shall also study

the fundamental as-pects of a company to

avoid getting into lossmaking trade positionsin case of movement

of market in direction

opposite to that of myprediction.

Recommendation : BUY

Price : ` 1025.05

Target :`

1100Stop loss : `980

BUY :Gemstone

Investments

CMP` 10.40

Target` 12.10

Stop Loss` 9.80

Short Sell :

Zenith InfotechCMP` 239.95

Target`208

Stop Loss`250

Indiabulls Securities

CMP27.80

Target` 25.10

Stop Loss` 29

Other PicksReliance InfrastuctureThe markets have witnessed seesaw movement in the past couple

of weeks owing to fund ow in and out of Indian markets my FIIs. Fi-

nance minister Pranab Mukherjee has denied any FII cap for now, it

remains to be seen where the market heads in coming weeks.

Fundamentally Speaking

Reliance Infrastructure Ltd is not only Indias largest private sector

enterprise in power utility but also the largest private sector player in

many other infrastructure sectors of India. It has various projects un-

der public-private partnership model. They will develop Mumbai met-

ro and operate it for 35 years. Also NHAI has given several orders to

build, operate and transfer scheme, ve major projects in Tamil Naduand one in Rajasthan. Mega plans in pipeline for specialty real estate.

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.

The current P/E is at 24.1 as against industry average of 25.3. Also

the price is 21x FY2011 earnings. The September quarter sales are

expected to grow by 18-20%.

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aluMni sPeaK

By- Geetika Gupta, I MBA N

In this edition, we have Mr. Bipin Kumar Singh to give us insights on entrepreneurship.

Name- Mr. Bipin Kumar Singh

Qualication- BBM, MBA- Finance

Organization: RBWI

Designation- Director

Batch- 2006

Previous organization worked in- RMPW/ PRIVATE BANKER

E-mail Id: [email protected]

Contact Number: +91 95388 67014

Chaanakya: What does your present job involve?

Mr. Bipin: It involves managing the team, hiring and conducting performance appraisals, settingup targets and continuous monitoring of the health of the company.

Chaanakya: What inspired you to venture into entrepreneurship? How has your journey been

so far?

Mr. Bipin: Most importantly, passion to start something new, something different was the driv-

ing force behind the birth of the idea and an equally passionate team to work with encouraged

me to venture into this new avenue. The road was never easy. But with the initial crunches and

inevitable hurdles, it was a bit critical to stay calm and we have managed to steer clear of that so

far. So, with every move, we learn some things work while others dont. And we keep improving

by the day.

Chaanakya: What, as an entrepreneur, do you expect from MBA students?

Mr. Bipin: A keen ear in current affairs, good communication skills, dedication, loyalty and a

spark to outperform peers are some of the essential attributes.

Chaanakya: The rst year students prepare themselves to hit the corporate arena as INTERNS.

What advice would you give them for getting the best out of their internship?

Mr. Bipin: Keep your eyes open towards the developments in the corporate arena and try to ab-

sorb as much knowledge as you can during this internship.

Chaanakya: The Students from the second year are all set to take up Placements. Your Advice

Mr. Bipin: The students must have a blend of right attitude and good presentation skills. They

should move in the direction of right areas and identify opportunities and posses a knack for

practical application of Business knowledge.

Chaanakya: Lastly, a few words for our Budding Managers

Mr. Bipin: Never feel that you have learnt enough to be in a job, the end result will follow pro-

vided you have adopted the right path.

Thank You!!!

18

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19

Three nger booger

It refers to a situation that gets completely botched up

(typically unexpectedly) and is extremely difcult toget rid of or to get away from. It can also describe some-

thing you end up with that you didnt ask for and dont

want, but cant get rid of.

Use: Mike got a new client referral, but it turned out

that the client had all kinds of problems nobody expect-

ed to have to deal with, and was a general pain in the

ass. His friend that referred the client said, Man, Im

sorry, I didnt mean to send you a three nger booger.Soft paper report

It is a negative reference to a report, indicating disbelief

or a lack of condence in the reports facts, or just gen-

eral disrespect for the report or its author. Its called the soft paper report because it needs to be

written on soft paper, so that it will have another use.

Use: Craigs presentation had no substance; it was a soft paper report.

Feed the ducks when they are quacking, dont look for ducks to feed

This phrase is used in regards to looking for investors or partners. You would always rather havethem come to you hungry than chase them around with the bread. Be ready for investors when

they come to you showing interest; dont go after them trying to sell.

Use: Brian advised, rather than trying to go to every potential lender that we should whisper

down the lane, as it was a small community of prospects and we should let them come to us. Then

we could feed the ducks when they are quacking, rather than just looking for ducks to feed.

Poof offering

It refers to a type of public offering where individually owned businesses suddenly combine their

ownership into a new public company. Its called a proof offering because on one day you havefour private businesses and the next day, following the public offering, you have one new public

company.

Reference: Green Weenies and Due Diligence by Ron Sturgeon

BuZZ woRds

THE AMERICAN WAY

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QuiZ

1. Alfa, sky bags and Footloose are brands associated with which company?

2. Asias largest gold renery will come up in the Manesar, Haryana. It is jointly built byIndian owned MMTC and PAMP. PAMP belongs to which country?

3. Boeing, GE Aviation and Lockheed Martin were in news recently for

4. Which channel is going to launch a sub-brand for women, with the letter 'W' being added

to its original name?

5. From chief of SpiceJet to chief of Kingsher Airlines, who made this transition recently?

6. For the eleventh consecutive year, this brand topped Interbrand's list of 100 'Best GlobalBrands'. Can you name it?

7. The 'Simply Clever' ad message is associated with which automaker?

8. Recently this bank completed 150 years of its operation in India and it goes with the tag-

line Committed to a changing India. Which bank is it I am talking about?

9. Microsoft research has launched a multilingual content creation tool for Wikipedia called

as

10. In which country's coins you can nd the following lines imprinted, 'This is the root of all

evils'?

By- Deepak Jose I MBA K

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cRosswoRds

Across

3. The banks that have no physical presence and conducts business over

phone

6. The rst woman to serve as Securities and Exchange Commissions

permanent chairman

8. The famous Hedge Fund owner who made $2 billion prot during recession

Down

1. Brazil stock exchange located at Sao Paulo

2. He is the poster-bad-boy of dot com bubble

4. The banks that are licensed by nations with low taxes and limited nancial regula-

tions

5. The measure to know how the price of a particular stock uctuates in relation to the

whole stock market

7. The only major automaker to avoid bankruptcy

21

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Quiz Answers1. VIP

2. Switzerland

3. These 3 companies together bagged 42% of

the total defence deals.

4. ESPN (The sub-brand for women will be

ESPNW)

5. Sanjay Aggarwal

6. Coca-Cola

7. Skoda8. BNP Paribas

9. Wikibasha

10. Vatican City

Finance-de-HuMoR

JoKes aPaRt

22

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.

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JunioR teaM

Apoorv Jhudeley

& Rajat Sikri

Editor-in-chief

Md. Zafar Iqbal

Cartoon

Vaibhav Nagar

News

Naveen Kulkarni

Crosswords & Quotes

Sumit Kumar Gupta

Graph & Rates

Amit PrakashBook and Magazine Review

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,

Geetika Gupta &

Manan DattAlumni 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

Creative Head & Design

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26/2718 CHAANAKYA VOL4_13 CHAANAKYA VOL4_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, 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, Rates

Dhanya Anna Kurianm &

Resmy Sebastian

Review Committee

Bhargav K.Creative Head & Design

Pradeep Thangavel

Compiling and Editing

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Tel: +91-80-4012 9350/9351/9355

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