The IBS Times- Edition 167 by The IBS Times

INFOSYS UNDERGOES A MANAGEMENT MAKEOVER

BY VANIKA SHARMA

THE IBS TIMES June 2014, Issue No. 167, Volume No. I

Reliance Takes Over Network18 BY AKSHAY GUPTA

War on Gas Prices Continues BY SHIVAM TANDON

LET THE GOOD TIMES ROLL What to look out for in Union Budget 2014-15 BY NIKHIL ACHARYA

FinStreet, IBS Hyderabad

CONTENTS 2 Letter from the Editor 3 War for Gas

5 Obamacare 7 Cover Story- Union Budget

10 Infosys Undergoes a Management Makeover 12 Reliance Takes Over Network18

22 Event Coverage- India Developing Forever? 23 Vriddhiâ&#x20AC;&#x2122;s Corner- ITC Limited

14 Market Watch 17 Walmart's Tussle 19 Goods and Service Tax

INTELLIGENCE BEYOND SUCCESS

“We have to be realistic. We have to give the Indian Government some more time to get growth going. It is not going to be a turnaround immediately. It will take time (for growth to surge),”- Thomas Richardson, International Monetary Fund

Letter from the Editor

THE IBS TIMES Issue Number 167

June 2014 Faculty Mentor Dr. Ravi Kumar Jain

On The Cover- Mr. Arun Jaitley (Minister of Finance of India)

Dear Readers, Greetings from Team FinStreet ! As we gave a 360 makeover to The IBS Times couple of months back, we have got tremendous support from our readers. We thank you for your continuous interest and this issue of IBS Times is packed with much more from the world of economy and finance. Amidst relentless heat waves, June has been an eventful month. Like previous issues, our aim in this issue has been to provide insights and opinions on comtempory topics to keep our readers engaged as we conitnue our endevour of presenting our opinions through simplistic jargon free language.

Picture Source: US INPAC

Team IBS Times

Chaahat Khattar (Editor-in-Chief) Akshay Gupta Atharva Solanki

Manisha Mohapatra Nikhil Acharya Nishtha Behl Shivam Tandon

The fight for gas pricing in India has taken a new turn with ONGC alleging Reliance for stealing gas from its block and on the other hand Reliance is preparing for an international arbitration proceedings against the Government of India. In this issue, we discuss more about the much debated gas pricing in India. Also, one of our authors have written about Obamacare which quite a lot of us are inquisite to know about. The cover story of this issue deals with the expectations from upcoming Union Budget as it will be a golden opportunity for the new government to take a direct shot at the economy. Recently we saw Infosys appointing Vishal Sikka as its new CEO right after high profile exits from the company. We have discussed more into the prevailing situation at Infosys in the magazine. This issue of The IBS Times sheds light on Reliance‘s recent takeover of Network18 and its expected impact on media entertainment industry. In Market Watch, we have added many more market indicators like Price-Volume ratio, TRIN Index and have also expressed our opinion on market sentiments with deeper analysis. The issue also talks about Wal-mart‘s struggle in online retailing and how it is coping with the same. In Taxation, we have written about Goods and Service Tax and the broad framework of it. We have also included a sysnopsis on the recent Management Discussion on ‖India Developing Forecver‖ hosted by FinStreet on campus. The magazine covers an exhaustive report from investment point of view on ITC Limited by Team Vriddhi Research.

Vanika Sharma

Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better ! Chaahat Khattar

" To achieve what 1% of the world’s population has (Financial Freedom), you must be willing to do what only 1% dare to do..hard work and perseverance of highest order.”- Manoj Arora 2

Opinion

War for Gas

Energy is the new currency and every nation is still dependent on hydrocarbon fuel for their daily needs due to this a search for alternative energy sources which can provide clean source of energy to fulfill the needs of the people are in great demand. For this very purpose the Government of India opened up the energy exploration and production to the private sector in 1991. Reliance industries was one of the first companies to get the rights to explore the Krishna Godavari site off the coast of Andhra Pradesh where the company found the largest deposit of natural gas in India and the site was renamed as Dhirubai 6 or simply as D6. Mukesh Ambani is the owner of Reliance Power & Natural Gas and like any other capitalistic firm he decided to fill his own pockets rather than help the nation which was already facing a tough time because of rising inflation. The deal that UPA 2 made with the Reliance had only one beneficiary and was Reliance. Reliance profits from every side:

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 By over invoicing the capital costs paid to own affiliates without oversight, it makes substantial profits directly  By inflating project cost, it continues to get a larger share of profits for an additional time till the ―investments‖ from are recovered. Selling gas at multiple times the real cost (of which it retains a major chunk as ―recovering investment‖)

In the meanwhile fuel prices influence every aspect of life in terms of affordability and they are set to rise AGAIN. For the common man this basically means a heavy burden on his purse. Gas hike on just the power, fertilizer and LPG industries will be in the range of Rs 54,500 crore per annum. Also the costs of industry in general will go up. It is a massive loss to the nation. Already fertilizer prices are soaring. Now they will be increased again. This is a clear case of placing profit above people. On the other hand aided by a depreciating rupee, gas producers will make a ton of money. ―Every $1 increase in gas price means $73 million profit for Reliance,‖ says 3

Nageshwar. The irony: gas was meant to be a cheap, green fuel. These stats show the real face of Gas war going on in the nation. Bothe the Finance minister Mr. Chidambaram and the petroleum minister Mr.V.Moly pointed out that ONGC and oil dominate the gas production in India. Only Reliance with its partner the global giant BP are the companies to gain from the policy that was made in July 2013. Reliance war with the CAG is no secret. Even the election commission ordered deferment of an increase in gas prices that was to take effect from April 1. Saying that the decision should be left to the government that's formed after the general election, with the Aam Aadmi Party's Arvind Kejriwal taking credit for the move. The decision will put consumers and producers such as Reliance Industries and ONGC in a quandary because the hike has been stalled after the oil ministry's notification that the new rates would apply from the start of next month. The gas pricing decision was not new and that contracts and projects

already awarded prior to the model code of conduct coming into force should be honoured. "The decision to implement the new price from April 1, 2014 is part of this contractual obligation," he said. Sanjeev Prasad, executive director and co-head of Kotak Institutional Equities, said the move was unexpected. "It's unfortunate," he said. "The decision to raise gas prices was taken by the Union Cabinet last year, so now this news is very surprising." The move will discourage overseas investors, said Deepak Mahurkar, director and leader, oil and gas industry, PwC India. This decision is very inconsistent and puts a big question mark on the near-term profitability of the E&P businesses of Indian energy companies," he said. "It also sends a wrong signal to the global investor community about the policy framework and its execution process in India, although its an opportunity to better the Rangarajan formula, which many in the industry believe is not the best way to price gas in India. This will lead to a decline in the RIL stock price, said Deven Choksi, MD, KR Choksi Securities. RILs stock will correct by 4-5 per cent .This will give investors a good buying opportunity as they are looking forstocks with depth. As the war ensues on who shall retain control over D6 only time will tell what

would be the fate of Indais largest Natural gas deposit site Impact On Economy: The rise in the Gas prices have not been effective enough in solving the supply problems that the country is facing. The government itself admits that despite raising the price of natural gas by almost 300% from as low as $1.79/MMBtu to as high as $5.25/MMBtu, investments in the sector and the countryâ&#x20AC;&#x2DC;s gas output have actually dropped. The reason behind this is Reliance Industries Ltd (RIL), the company whose demands triggered the recent price increase. Auditor General report explicitly outlines how RIL reneged on its production commitments while gold-plating its investments. Can the government guarantee that a price of $8.4/MMBtu will raise gas availability?

What if history repeats itself and it does not? Will the government then find more ways to raise prices even further? How long will the government wait to react to the present problems and provide viable solutions for it. Finally I would like to point out that the BP has a stake of 30% in 21 blocks of RIL and the company one of the â&#x20AC;&#x2022;GIANTSâ&#x20AC;&#x2013; in its field made a very large FDI investment into the country and would definitely think about its owns gains than the economic conditions prevailing in an country. In the end I would like the readers to think if the government can put certain policies in place that put both the private and public sector Gas companies on the same page hence the beneficiaries of this would be the people not some corporate entity. -

Shivam Tandon

Knowledge Bank

Obamacare

What is OBAMACARE??? ObamaCare is the unofficial name for The Patient Protection and Affordable Care Act which was signed into law on March 23, 2010. ObamaCare's health care reform does a number of important things including offering Americans a number of new benefits, rights, and protections in regards to their health care, and setting up a Health Insurance Marketplace where Americans can purchase federally regulated and subsidized health insurance during open enrollment. The law also expands Medicaid, improves Medicare,requires you to have coverage in 2014 and beyond, and contains some new taxes and tax breaks, among other things.

which is the nickname for the health care reform law implemented in the State of Massachusetts by then Governor Mitt Romney. Highlights of OBAMACARE: 

The Affordable Care Act contains over a thousand pages of reforms to the insurance and health care industries in order to combat rising health care costs and to provide affordable health insurance to more

Emergence of OBAMACARE President Obama may have signed the Affordable Care Act into law, but the truth is ObamaCare is the result of decades of ideas from both sides of the isle and the health care industry. The idea of an individual mandate was first presented by current opponents of the law the Heritage Foundation in 1989. ObamaCare itself was in fact modeled after "Romney Care", 5

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Americans All Americans have access to a large number of unprecedented new benefits, rights, and protections One of the major things ObamaCare does is help individuals to get health insurance through expanding Medicaid eligibility and offering cost assistance through health insurance marketplaces. By the end of open enrollment 2014 less than

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13% of Americans were uninsured One of the major things ObamaCare does is help these individuals to get health insurance through expanding Medicaid eligibility and offering cost assistance through health insurance marketplaces. By the end of open enrollment 2014 less than 13% of Americans were uninsured.

Benefits offered OBAMACARE:

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ObamaCare offers you and your family many new benefits rights and protections on all new plans. Health plans that started after 2010 will have to switch you over to a plan that offers these benefits in 2014 Cost assistance to individuals, families and small businesses through the marketplace. Medicaid eligibility is expanded in 26 states to 138% of the federal poverty level giving millions of Americans access to healthcare. No annual or lifetime limits on healthcare. All major medical insurance is guaranteed issue, meaning you can't be denied coverage for any reason. Insurance companies can't drop you when you are sick or for making a mistake on your application.

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You can't be denied coverage for pre-existing conditions. Essential health benefits like emergency care, hospitalization, prescription drugs, and maternity and newborn care must be included on all non-grandfathered plans at no out-of-pocket limit.

Requirements OBAMACARE:

All health plans sold in 2014 must meet a new set of standards. In short they must offer all of the benefits, rights, and protections discussed on this page. If you are on a plan that doesn't offer these benefits, rights, and protections you'll have to switch to a new plan in 2015 unless you enrolled in your plan before March of 2010 (when the ACA was signed into

Program (CHIP) by 2014. In 2015 theemployer mandate expands access to work based coverage too. The 80% of Americans who already have health insurance already have access to most of the new benefits, rights and protections. Please note that private health plans issued before 2010 may not have to offer the same benefits, rights and protections as newer plans. Learn more about Grandfathered Plans. Many Americans don't realize that they have been enjoying many of ObamaCare's benefits, rights and protections since the Affordable Care Act was signed into law in 2010. Know that even if your rates went up, the quality of your health insurance has too. In a nutshell Starting January 1st of 2014, the following "Ten Essential Benefits" must be included under all insurance plans with no lifetime or annual dollar limits:

law). Plans started before the law was signed are called grandfathered plans. Who Benefits OBAMACARE?

From

Everyone benefits from ObamaCare, the 15% of Americans who do not currently have coverage will have access to quality affordable health insurance through their State's health insurance marketplace or the expansion of Medicaid and the Children's Health Insurance 6

    

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 Emergency services  Hospitalizations  Laboratory services  Maternity care  Mental health and substance abuse treatment Outpatient, or ambulatory care Pediatric care Prescription drugs Preventive care Rehabilitative and rehabilitative (helping maintain daily functioning) services Vision and dental care for children. -

Nishtha Behl

Cover Story

Union Budget- Mr. FM are You Listening? New administration, new policies, but how is the budget any different? – Or Dear Mr Finance Minister, Are you listening to the people? After the historic victory of the BJP lead National Democratic Alliance (NDA), in this years national poll, along with the excitement, there is also a lot of expectation, analysis and criticism in the air. There is a great deal riding on the this years Union budget, soon to be announced by the new Finance Minister, Mr Arun Jaitley, sometime in the first week of July‘14. Economists, analysts, market experts, members from the world of academia and all sections of society are all keen to know what sharp (or blunt) turn will Mr Modi take on the path of development for India, keeping in mind the four most biggest concerns – Growth, Inflation, Fiscal deficit and the current account deficit. Even before the election, there was a strong belief that Mr. Modi‘s focus is on creation of jobs, price control and development of industry especially the manufacturing sector, which has not seen much activity in the past year and only showed a 0.7% growth rate. Industrial production

shrank almost by 0.1% during this year, therefore pushing overall economic growth below 5% for the second year in a row. This shows how serious the BJP is about improvement and offering better opportunities to the Industrial sector, as recently the Finance Minister, Mr Jaitley visited top industrialists from all over India, to understand get their views on the Union budget. This gesture by the FM shows how keen the new administration is to get things

moving along quickly and in positive direction. The mood of the industrialists is that they want a clear and credible policies to be introduced this time to attract investment, and entice players to invest in mega projects which will enforce growth. In a recent Business standard poll, 185 CEO‘s and CFO‘s across 12 cities in India, expect positive economic prospects within the next 5 years. All eyes are on how India will balance its own budget books, 7

without hurting various classes of society. For the government, the first key focus is on fiscal consolidation. The fiscal deficit for the year end 31st March 2014 was 4.5% of the GDP. The Finance Minister has already indicated tough measures are required to counter the budget gap because a lower fiscal deficit reduces the government expenditure on interest payments and help funds for investment in social welfare programmes as well as infradevelopment. The New government is unlikely to substantially enhance the plan expenditure for 2014-15 in this budget, because it needs to keep the fiscal deficit in check. The Fiscal Responsibility and Budget Management Act had set a target for the fiscal deficit at 3% by March 2008, but this was never achieved and therefore the target was extended to 2017. The current target taken by the government is to make the fiscal deficit to 3.6% of the GDP by 2015-16. Major areas of focus and high expectations have been identified as follows: 

Subsidizaiton / Inflation – control: In every budget, the most affected people are the middle class families. The

behind schedule or stuck because of pending clearances of various ministries or departments. If these problems will be addressed quickly and effectively, all sectors will be hugely benefited from agriculture to industry, boost unemployment and help increase income for the service sector. ď&#x201A;ˇ

disparity amongst the rich and poor needs to be addressed. Those below the poverty line have never felt any change in their daily lives and those well off, have enough resources to continue maintaining their standard of living. For example the price of fluctuating global oil prices affects everything. If fuel prices increase, it indirectly increased all commodities. In a recent study it was said that the middle income group want the prices of LPG to be looked at as it plays a major role on their monthly expenditure. Similarly food has been a major contributor to price rise. High food prices have made it tougher for the central bank to lower lending rates even while economic growth is low. A key reason can be said is due to the waste of agricultural produce that needs to be curtailed. A study done by CRISIL quoted that in the financial year 2010-11, the agricultural pilferage and wastage accounted was approximately Rs 70,000/- crore, which is almost a third of the total

agricultural produce in India. Food Corporation of India, is known to maintain stockpiles of staples such as rice, wheat and sugar from bumper harvests in the previous few years, but unfortunately it has limited control over the cost of fruits and vegetables, which has the largest impact on food inflation. ď&#x201A;ˇ

Infrastructure: With population increasing, heavily congested roads, poor railway network to many parts of the country are all crucial challenges which need to be addressed to make India a global economic superpower. A 2010 Mckinsey report once quoted that India requires to build 700-900 million square meters of commercial space and residential area, 350 to 400 km of railways and subways, and at least 25000 km of roadways every year. For this to be achieved, first of all the PM needs to clear many of the hurdles that block development in this area. Projects worth over Rs 1,00,000 crores are running 8

Taxes: In the interim budget presented earlier this year in Febuary, the then Finance Minister, P. Chidambaram had lowered indirect taxes on many consumer goods and cars making them cheaper in the bid to help manufacturers. But these taxes will only be valid till 30thJune 2014, after which the polices of the new budget will be enforced. This short term lowering of taxes will be a concern for Mr Jaitley. He will be in a dilemma to either increase taxes back or close to the original levels and risk fanning inflation or continue with the lower taxes and risk lower earnings

There were rumours that there will be a restructuring of income tax slabs and increasing the exemption limit from the existing Rs 2,00,000/- to more than 3,00,000/-. In simple economic terms, increasing the tax exemption limit for all tax the tax slabs, will leave more money in the hands of the consumers. A hike in the exemption limit will increase peoples disposable income, which in turn will also boost consumption spending, savings and indirectly increase the opportunities for investment as well. A higher tax rate for the super rich might be introduced of 35% or

higher for those earning more than Rs 10 crore per annum, and a wealth tax on various assets such as paintings etc might be introduced for those who are considered relatively prosperous. Good news for senior citizens will be if they reduce the tax exemption limit age to 65 years from the current 65 years of age. The introduction of the Goods and services Tax (GST), will be a key component in the road to development. Economists and many financial experts say that the GST is one of the most ambitious indirect tax reform proposals that has been developed. The benefit will be to bring together a common market and abolish the fiscal barriers between states. 

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Education: As we know that Modi during his election campaign focused on making India into a recognised global super power. For him to achieve this, the first step is to improve the current quality of education in India. Many private universities boast about good infrastructure and facilities, but they hardly feature in the list of global top 200 schools in the world. Many say that there aren‘t enough jobs, but the question that needs to be addressed is that does India have the quality manpower required for those jobs? For this not only does investment in education need to be addressed but also a possible reduction in student loans will also be welcome. Power Crisis: Many states don‘t have the adequate

electricity supply to meet the state demand. Some states share the same supply from the same grid, and in the process have quarrels amongst each other for electricity supply and interstate funds. New mega projects should be initiated that can tackle such a situation.

rise in salaries have not helped moderate the damage done in the past few years. Keeping this in mind, experts believe that Mr Modi‘s first test of the new administration is offering a budget that will boost industry and therefore impact all sections of society.

Modi's government has promised to tackle high inflation and likewise high interest rates by reorganising the agriculture market and improving its supply chain. But these measures will take months before results actually show. The El-Nino effect the and below-average monsoon rains are not helping either, the current situation and there for the Finance Minister will have to have some tricks up his sleeve to counter all the roadblocks on the journey to development and growth.

The new government‘s top priority will be to take India back on the road to economic development and growth by improving the country's infrastructure, restoring business confidence, creating jobs for millions of unemployed and therefore creating better prospects for the growing middle class. It is considered next to impossible to present a budget that will make all sections of society happy and satisfied. A balancing act has to be done to achieve a win – win situation for both the government and the people of India. As per my expectation, the government will offer a friendly budget keeping in mind the expectations of the citizens of India who had voted them in power.

With the Modi factor thriving, many top economists believe that there are signs of liquidity of the economy improving and consumer confidence returning. Many households are controlling their spending, as rise in prices have hurt family budgets and skimpy 9

Nikhil Acharya

In Focus

Infosys Undergoes a Management Makeover The exit of BG Srinivas, the hot favourite for the CEO post in Infosys, India‘s second-largest software company, was so sudden that even his personal staff did not know about it till it was officially announced. The man who everybody expected would become the next CEO of India‘s second largest IT outsourcing company Infosys, suddenly quit the company, the joke on social media was, ―We don‘t know who is facing a bigger leadership crisis — Congress party or Infosys?‖ What does this mean for Infosys? According to insiders, another round of middle- and top-rung exits may be in the offing, especially those mentored by and those who were close to Srinivas, one of the two presidents of Infosys. Srinivas joined Infosys in 1999 and was instrumental in setting up the company‘s enterprise solutions business, which eventually became its largest horizontal unit, contributing 21% to the overall revenue. He oversaw crucial verticals such as manufacturing, banking and financial services. Prior to his departure, he was also overseeing engineering services, energy and communications, among others operations. Mr. Srinivas, who has been with Infosys for 15 years, was seen as one of the front-runners for the top post, and tipped as the most-

favoured for the job from within the company. He, along with UB Pravin Rao, was appointed as company president in January this year. The resignation has fuelled speculation that the company may have decided to go with an external candidate. That should be infuriating for a company and its iconic founder

that thought about leadership issues much more than most other Indian companies and even built the elite Infosys Leadership Institute that prepares executives for higher roles. It did build leaders by the company‘s numbers, some 1,600 of them so far. But when a dozen of the top leaders leave an average of one potential CEO or CXO-level candidate every month since founder N.R. Narayana Murthy returned to the helm to fix what was then seen as Infosys‘ growth problem and more are expected to quit in the coming weeks and months unease about what is happening at a one-time darling of the bourses and masses is bound to rise: What exactly is happening at 10

Infosys, and why? Where is it heading? How can this be happening with NRN at the helm? The exits at the top are happening despite a turnaround in Infosys‘ fortunes the company‘s growth rate has doubled to 11.5 per cent, it has won a record number of clients, 238, in the last year, and the stock price has gone up over 20 per cent is a sign that Infosys‘ troubles are something other than growth. And it seems, from the former executives of Infosys and its peers, that what‘s wrong at Infosys might have its roots in what Mr. Murthy did right in earlier years, which in fact made Brand Infosys. Infosys created stars and gave them dreams, and a feeling of entitlement. Ironically, its leadership training, again something that Mr. Murthy began with the best of intentions, may be to blame. It shows that Infosys has a deep problem of culture. TCS and Wipro do not make millionaires, and their employees do not have stars in their eyes. Infosys‘s problem is its larger-than-life leaders.‖ Is that why Mr. Murthy seems to be at ease while the rest of the world worries about the exodus from his company? Crucially, Infosys is carrying out third-party evaluations not only for CEO selection, but has extended it to lower levels. Promotions will be based on these evaluations, which

have made several executives uncertain of their future in the company. A former Infosys executive, who had the largest number of employees reporting to him, concurred. ―In the last two years, trust levels have come down. Political friction at the top flows down to lower levels, pressure is transferred. All that hurts.‖ A former Wipro senior vice president, who said he identified himself as ―part of the problem at the company and quit so that the new CEO who was coming in at the time could transform the company‖, said Mr. Murthy may be on the right track. ―Companies at different stages have to transform in different ways. At the size of Infosys, it‘s not just the CEO who must change; the next hundred senior executives must also go. The entire management must change‖. Infosys shares slump after BG Srinivas quits. Infosys Ltd shares fell as much as 8.11% on Thursday, the most since 21 August 2013, after B.G. Srinivas, president and a possible contender for the post of chief executive officer (CEO), decided to leave the IT Company. This led to eroding over Rs.14,000 crore from its market valuation. The IT bellwether‘s scrip declined by 7.81 per cent to settle at Rs.2,924.30 on the BSE. In intraday session, it had lost 8.1 per cent to Rs.2,915. At the NSE, the stock tumbled 3.43 per cent to close at Rs.2,921.30. The IT-conglomerate Infosys will appoint Vishal Sikka, 47, as the first non-founder Chief Executive

Officer and Managing Director with effect from June 14. The decision was taken by the Infosys Board of Directors. He will take over as CEO and MD from SD Shibulal on August 1, 2014. Sikka was, until recently, a member of the Executive Board of SAP AG, leading all products and driving innovation globally. Vishal Sikka joins Infosys as a CEO and MD at a time when the software services firm is no longer perceived as an industry bellwether. The company has been slogging along a low growth path relative to the growth reported by some of its peers. Its performance guidance does not mirror the state of the industry as it used to not a long while ago. Its operating margin profile, too, is no more the best among peers. An exodus of senior managers in the recent past and a higher employee attrition rate has added to its woes. ―Vishal brings valuable experience as a leader of a large, global corporation. His illustrious track record and value system make him an ideal choice to lead Infosys,‘‘ Infosys founder Narayana Murthy said. Vishal Sikka is considered to be an innovator in the global software industry. A computer scientist by training, he was key in developing and marketing SAP's flagship product, Hana. Sikka's biggest challenge as Infosys CEO will be to fill the leadership vacuum created by the exodus of senior executives, many of whom were responsible for key business sectors and winning clients, analysts said. 11

Competition has intensified and the industry model has been undergoing a shift from traditional wage arbitrage to a more complex web of remotely executable solutions that are more and more oriented towards business transformation. In the pecking order, the company has slipped to the third spot behind TCS and Cognizant. Sikka's major challenge is to re-mould the 30-year old behemoth to cater to the current as well as fast evolving landscape of deliverables. On the positive front, a cash balance of over $4 billion and relatively easy access to talent, given the company's global brand identity, will come in handy for Sikka in this challenging assignment. Also India's second-largest IT services exporter said executive chairman N.R. Narayana Murthy would step down of the company, nearly a year after he was brought in from retirement to help the company better compete with rivals including Tata Consultancy Services and Wipro. Murthy's son, Rohan Murthy, will also be leaving the company on 14 June. Murthy's tenure, during which he also brought in his son Rohan as an executive assistant, has been marred by high staff turnover and management uncertainty, factors that led to loss of market share for a company that was once a leader in India's $100-plus billion a year IT export business, and intensified investor pressure for a change of guard. -

Vanika Sharma

Acquistion

Reliance Industries Limited Takes Over Network18 India‘s largest company Reliance Industries Ltd., which is owned by India‘s richest man Mukesh Ambani, is taking over one of India‘s largest media companies–Network 18 Media and Investments Ltd. one of the biggest media houses in the country - for Rs 4,000 crore (Rs 40 billion). The acquisition will bring in exclusive content for Reliance's 4G foray. The buyout is an extension of a January 2012 pact, a complex deal through which IMT had funded Raghav Bahl-controlled Network18 to acquire full control of Hyderabad-based Eenadu TV (ETV). So let‘s talk about the history and the current scenario of this acquisition as to how it all began. In 2012, when Mukesh Ambani, chairman, RIL bailed out Raghav Bahl, founder and chairman of Network18 Group, media industry was abuzz that soon, Mr. Ambani will buy controlling stake in the media company. This turned out to be true, as gradually Ambani started making small investments in the media firm. In 2013, when Network18 hired consulting firm Ernst and Young to suggest ways to control costs, media barons did not mince words to say that since Ambani was indirectly controlling the media house, he wanted a lean structure in the company.

Came 2014, RIL has officially bought out Raghav Bahl‘s ownership. They‘ve decided to fund IMT to actually buy the stake of the Network18 promoters, and eventually will own TV18 as well.

apparently RIL has been hiring media people to potentially replace them. Rajdeep Sardesai and Sagarika Ghose will quit, as has Raghav Bahl and many other top people in the company.

This triggers a lot of SEBI regulations, so they have to make open offers to:

The RIL board approved funding of up to Rs 4,000 crore to IMT for taking control of Network18 and its subsidiary TV18. When the deal closes, IMT will own about 78% in Network 18 and 9% in TV18. To meet the regulatory requirement, the RIL arm will soon make open offers for these two listed entities and also Infomedia Press, another Network18 group arm. In all the open offers, RIL will be clubbed as a person acting in concert. The acquisition will differentiate Reliance‘s 4G business by providing a unique amalgamation at the intersection of telecom, web

• Network18 shareholders - where they now control 78% stake and have offered to buy the remaining for Rs. 41.04 per share • TV18 shareholders - RIL now has control over 55% of the company and has offered Rs. 30.18 for another 26%. • Infomedia - where RIL owns 48% now, and offers Rs. 3.92 per share for another 26%. • Lots of top management of Network18 have quit, and 12

and digital commerce via a suite of premier digital properties This takeover, once combined with RIL‘s telecom business, makes the combined group likely bigger than media baron Rupert Murdoch‘s empire in India and bigger than any other media group in India. And that should raise some serious questions about it. Telcos and even media houses have been saying that since Ambani‘s Reliance Jio Infocomm will roll out 4G services soon, he will get huge access to Network18‘s broadcast, digital and e-commerce content. In reality, however, it gives Ambani control over 17 news channels in the English, regional and business genres, including CNN-IBN, CNBC TV18 and IBN 7. However, when we talk about the gainers and the amount of merits it will offer to RIL, many journalists are furious and indignant about this acquisition where they are putting forward questions like If India‘s biggest corporate conglomerate is also India‘s biggest media company, what does it do to diversity of opinion, plurality of opinion, what it does do to unfavourable news coverage. To be sure, India has several thousand newspapers and about 900 tv channels and a thriving social media. Despite that, there are only a handful of media companies that dominate the market and mainstream media still has a significant role in setting the agenda. But what really happens when a big giant like RIL interest gets into the media business? They influence what comes out into the public, what is heard and read. You have your large business groups, conglomerates determining what people read, hear, watch. It

does raise concerns and questions about what happens to the voices of not just those who are contrary to RIL, but the marginalized. Critics of the deal have also raised concerns and reprimanded this deal as to how this will impact the media‘s coverage of India‘s newly elected government. India‘s corporate sector endorsed–and donated to–Narendra Modi and the BJP‘s election campaign. So what are the chances that media companies–owned by some of

one rule that every business or a company lives by is – the survival of the fittest. The critics are excoriating this deal by saying that it will manipulate the content of the news and it will be the death of Indian media independence. Frankly speaking, the acquisition of Network 18 will provide Reliance Industries with attractive content to provide via its 4G frequencies when it launches services later this year and only give the newcomer a competitive

those same corporate houses–will encourage independent reporting of its favored Prime Minister and government.

edge to take on Bharti Airtel and Vodafone but will also improve the current position of Network 18 given they were laying off employees every other month. There might be some rigidity and organizational structure problems but at the end of the day, with time, any organization stabilizes and given the brobdingnagian-ness of Reliance Industries, I think it will be a blessing in disguise for both RIL and Network 18.

Although the fact of the matter is that this acquisition will have the power to reach every house – the power to tell you what to read, see and hear. And also one of the major reasons for this acquisition is also that Network 18 is deep in debt (See Diagram) and the only way it can exist in long term is by a giant company taking over it. In my opinion, be it any business but 13

Akshay Gupta

Dalal Street

Market Watch It seems the Modi fever is not going to die-out soon, at least not for the next one year. Every day when we open the newspaper we find a new step, a new strategy

institutions. Both the benchmark indices Sensex and Nifty gave consistent performance. The Market Overview

The Hindustan Unilever traded at a higher price because of the strong financials. The

Infosys

stocks

Turnover

NSE

BSE

Cash

22645.27

5272.07

Futures (Rs Cr)

57562.49

236.66

Options (Rs Cr)

172289.79

88120.76

Volume (â&#x20AC;&#x2DC;000)

1329500

4926

Trades (â&#x20AC;&#x2DC;0000

9025.02

3809.98

Top Gainers on BSE

Stock name

Last traded price

% Change

Hindustan Unilever Dr. Reddys Lab Infosys Mahindra & Mahindra

634.05

0.71

2446.30 3181.65 1229.5

0.50 0.48 0.16

which aims at a better governance and a higher development. This fever has set the temperature soaring in the form of positive news coming in from different sectors and corners of the Indian economy. Stock market If we look at the market sentiments, it goes without saying how much positive are our investors both retail and foreign

went

Sensex closed at 25711 points Top Losers on BSE (early trade) and Nifty Stock name Last traded price % Change 1819.10 -4.48 closed at 7683.20 Axis Bank 2588.48 -4.42 Hero Moto Corp (intra-day), both setting 525.75 -4.40 Tata Steel new records in the NTPC 153.45 -4.30 history of Indian Hindalco Inds 162.10 -3.94 capital market on June because of the positive atmosphere 10th. But the surge was short-lived settling in with the appointment of because of the news coming in Mr. Vishal Sikka as the new CEO from Iraq of an Islamist terrorist of the company. The good news attack. This could lead to a came after top key players of possible crunch in oil-supply from Infosys left the company. the country. As a result the Sensex closed at 25228.17 points and The Tata Steel shares continued Nifty was at 7600 points. The under-performing because of the Nifty Put/Call ratio was at 1.09 decline in demand from its major with Put volume at 93 million and consumer i.e. the European market. Also because of overCall volume at 86 million. production of iron-ore from the largest producers like China has 14

also led to drastic reduction in iron-ore prices which is further adding to the woes. Also the demand from the automobile sector is not very high. Bond market The Modi fervour did not spare even the bond market. The bond yield on bench-mark 8.33% government security, maturing in November 2023, closed at 8.53% from 8.59%. The price of the security increased from Rs 101.54 to Rs 101.94. With yield inversely proportional to the market price of the bond, investors were on a buysell spree since it was a loss to

9 June Gold USD/Oz 1241 Brent crude 110.55 oil DJIA 16943.10 S&P 500 1951.27 FTSE100 6875 USD/INR 59.12 USD/JYP 102.53 USD/EUR 0.735 USD/GBP 0.595 USD/CNY 6.240

10 June 1253 109.9

11 June 1260 109.5

12 June 1261 112.46

13 June 1274 112.46

16945.92 1950.79 6873.6 59.18 102.30 0.738 0.597 6.224

16843.88 1943.89 6838.9 59.275 101.98 0.739 0.595 6.227

16734.19 1930.11 6843.1 59.278 101.70 0.738 0.590 6.218

16775.74 1936.16 6777.9 59.612 102.04 0.7384 0.589 6.209

the El Nino which may result in a decrease in output from the agriculture sector the GDP growth looks grim. Although the mining output has

4.7% in the year 2013. The reduction in CAD can be attributed to strict import norms on Gold. Also the decline in CAD was the outcome of jump in exports to 12.4% of GDP in May 2014.

NSE Price and Volume Movement

NSE

3rd June

4th June

5th June

6th June

10th June

11th June

12th June

13th June

Price

21570.93

21342.90

25334.7

26998.76

23609.74

24638.79

18474.97

22645.27

1092100

1308500

147770

1620500

1937100

1669500

1621500

1199700

(Rs cr) Volume (â&#x20AC;&#x2DC;000)

hold the bonds for a longer period as the yield declined. This could be well-supported by the fact that the FIIs brought in Rs 20,000 crores in the month of May. Also, with the given positive sentiment the government too retrained from selling the debt-securities.

Macro-Economic Indicators India witnessed some key changes in the macro-economic factors. With current GDP growth at 4.8%, one of the leading organisations like World Bank has predicted a 5.5% growth in GDP for the next year. With more than thousands of projects pending for government approval and a small rise in manufacturing output to 2.6% and

increased by 1.2% and industrial output by 2.6%, India has to buckup its own manufacturing sector. With the Communications and IT minister, Mr Ravi Shankar Prasad indicating towards a higher focus on electronics manufacturing for the year 2014-15, it is expected that the sector will get the much required boost. Indiaâ&#x20AC;&#x2DC;s foreign currency reserves increased to $312.86 billion dollars. This increase can be attributed to the rise in flow from the FIIs. As of June 2nd 2014 the FIIs have made a net investment of $ 522 million in the equity market. The current account deficit stood at 1.7% of GDP for the year 2014 which is a drastic reduction from 15

Monetary policy The RBI was strict on the monetary policy signalling that controlling core inflation is its top priority. The CRR (Cash reserve ratio) remained unchanged at 4%. The repo rate (the rate at which commercial invest in liquid securities) remained unchanged at 8%. The bank rate was kept at 9%. The only change was brought in SLR (Statutory reserve ratio) which was brought down from 23% to 22.5%. This move pumped in Rs 40000 Cr into the economy. The move was welcomed by Industry watchers but Mr KV Kamath (Non-Executive Director, ICICI bank) in a recent interview stressed on the fact that the RBI

TRIN Index

DAILY NYSE NYSE MKT NASDAQ

09/06/’14 1.02 0.62 1.08

should also think about the slow growth in the economy. The RBI has kept the interest rates on the higher side to keep a check on money-supply into the economy to keep inflation in check. The Consumer inflation as of now stands at 8.28% in May 2014 a decrease from 8.59% in April 2014. As we can see from the above table, the Indian Rupee and Chinese Yuan strengthened against US Dollars. The reason behind the strong Rupee was positive market sentiments, increase in investments by FIIs and a rise in exports. The Chinese government‘s decision to supply more money into the economy to boost growth strengthened the currency.

10/06/’14 0.75 0.74 0.60

11/06/’14 1.00 0.49 0.62

arms in 1970s. It is a short term technical analysis for stock market indicator. It is basically used in NYSE and NASDAQ. It is given as:

TRIN= Advancing declining issues Advancing volume

volume/

issues/ declining

A ratio less than 1 indicates a bullish market and a ratio above 1 indicates a bearish market. -

Manisha Mohapatra

Arms Index: The TRIN or Arms Index was developed by Richard 16

12/06/’14 1.63 0.78 1.08

13/06/’14 0.60 0.63 0.57

International Desk

Walmartâ&#x20AC;&#x2122;s Tussle with Online Retailers

Retail behemoth Walmart is always known for it's monopoly and acquiring lion's share when it comes to the revenue generation but from some time it is facing a tough competition from Amazon ,another online giant through it's logistic handling and other best management practices. Introduction AMZN +0.11% has become the runaway leader in online sales thanks to a network of more than 40 U.S. warehouses, some employing robotic assistants, which speeds orders to homes with ruthless efficiency.As it seeks to play catch-up in ecommerce, Wal-Mart Stores Inc. WMT -0.59% has concluded it doesn't want to simply clone Amazon's model since it also has to worry about supplying its stores.Instead Wal-Mart is creating

a vast new logistics system that includes building new warehouses for Web orders, but also uses workers in stores to pack and mail items to customers, because Wal-Mart has determined it is faster and cheaper to send some shipments from its more than 4,000 U.S. stores.Instead WalMart is creating a vast new logistics system that includes building new warehouses for Web orders, but also uses workers in stores to pack and mail items to customers, because Wal-Mart has determined it is faster and cheaper to send some shipments from its more than 4,000 U.S. storesWe're starting to gain traction," Chief Executive Mike Duke declared during the company's annual meeting this month. "I say starting

hasn't figured out how to economically deliver all its products into the hands of online shoppers, current and former executives say. It is a remarkable admission for the Bentonville, Ark., company, which became the world's largest retailer in part by the efficiency of its supply chain. Despite countless promises to become an online force since it got into e-commerce a decade ago, Wal-Mart has fallen far behind Amazon.Last year, Amazon posted Web sales of $61 billion, compared to an estimated $7.7 billion for Wal-Mart, according to trade publication Internet Retailer. The stakes are only getting higher for Wal-Mart. Last year, online sales rose 16% in the U.S. to $224.3 billion, and today account about 5% of overall consumergoods sales. That number is expected to double by 2017, according to Forrester Research Inc. FORR -0.42% Physical-world sales still account for $9.50 of every $10 spent, but increased just 5% from the year before. Reasons for Walmart's Failure

because we know that it's an area we still have a long ways to go." Wal-Mart is being forced to invent its own solution because it still 17

Part of WalMart's problem, according to former company executives, is that it was late to invest in Internet distribution due to a culture clash between revenuefocused online engineers at its

Walmart.com office in California and profit-driven logisticians in Arkansas. E-commerce at Wal-Mart is run as a distinct business, with its own headquarters, CEO and merchants who buy items specifically for the website. Every year, executives would start a "five-year planning exercise, but the plans were never executed and management would say the sales weren't there to justify the investment capital," says a former onlinedivision executive. "Even now e-commerce is a rounding error in the U.S. market." WalMart said it expects $10 billion in online sales this year, which would amount to about 2% of its $469 billion in annual revenue As Wal-Mart's online orders grew, it turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Wal-Mart's online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel. Solutions proposed by Walmart and road ahead .It now is vowing to solve its online problem with a distribution network that shares inventory information between 4,000 stores and 158 warehouses and

immediately sizes up the most efficient way to deliver a television or T-shirt to a customer nearby. It will build additional e-commerce distribution centers this year but declined to disclose an amount. In some cases, workers with shopping carts will pluck the items off Wal-Mart store shelves, package them and mail them out to

millions of Americans. Two-thirds of the U.S. population lives within 5 miles of a Wal-Mart, and trucks crisscrossing the country arrive daily to replenish the stores, "which can greatly reduce shipping costs," says Joel Anderson, head of Walmart.com's U.S. division. Wal-Mart is testing the concept in 35 stores and plans to expand it to 50 this year. Starting this month, it also will install lockers at a dozen stores to allow customers to pick up goods ordered online.To develop its "next generation fulfillment network," Wal-Mart has called on consultants from Deloitte & Touche to improve its 18

distribution systems. It also recently hired Jun-Sheng Li, a former trucking executive, to head its global e-commerce logistics, a newly created position. In March, it said its e-commerce investments this year would cost 9 cents a share, which works out to roughly $430 million in pretax dollars, the first time it has broken out such costs. Wal-Mart believes using stores to fulfill some online orders will save shipping costs, as those shirts or coffee pots can piggyback on regular deliveries to stores. But the process comes with serious limitations, particularly since it diverts workers' attention away from ensuring stores are clean and properly stocked, analysts say. UPS and FedEx FDX +0.76% would transport the orders from stores to customers. Neil Ashe, Wal-Mart's president of global e-commerce, says Wal-Mart has solved similar conundrums beforeâ&#x20AC;&#x201D;most notably in 2005, when it reinvented its supply chain after plunging into the freshgrocery business. Groceries now account for 55% of the company's U.S. sales. -

Atharva Solanki

Taxation

Goods and Service Tax • Surcharge; and • Education Cess and Secondary and Higher Secondary education Cess. In case of State GST following present taxes would be subsumed under State GST: • VAT/ Sales Tax; • Entertainment Tax (unless it is levied by local bodies); • Luxury Tax; • Tax on lottery; and

Post Shome Committee‘s recommendation on General Anti Avoidance Rules (GAAR) putting the same on hold for the next two years, all eyes are now on Goods and Services Tax (―GST‖) which the Government of India is poised to place as a game changing economic reform in recent times. In layman‘s language GST is the way forward for countless indirect taxes present in Indian economy. GST would introduce single taxation system in the economy. GST is nothing new to the world but it is very much new for a developing nation. Other nations such as Australia, Canada, Hong Kong, New Zealand and Singapore do have the similar system but the tax structure is varied across all the nations. First of all, it is so difficult for anybody to figure out how would this change the tax structure. The only information that most of the people possess is that GST would be a single levied upon every

single thing. The fact is that GST itself has certain bifurcations and realistically it does not have a single tax rate. The proposed tax rate of GST would range from anywhere between 12% and 20%. The broad category of taxation on various products and services has been enlisted in the recommendations of GST. GST would be implemented in two forms: State Level GST (SGST) and Central Level GST (CGST). The following taxes (currently present) would be incorporated in CGST: • Central Excise Duty; • Additional Excise Duty; • The Excise Duty levied under Medicinal and toiletries preparation Act; • Service Tax ; • Additional Custom Duty (CVD); • Special Additional Duty; 19

• State Cess and Surcharge to the extend related to supply of goods and services. Implementation of GST: The application of GST for a customer would be no different from any other tax. The customer would be concerned with the final value of goods and services and the most concerned people would be the service providers, manufacturers or anyone who is required to charge GST from the customer. The GST would broadly be no different from Value Added Tax (―VAT‖) except the fact that the tax rate would not be variable as in case of VAT. The party charging GST would get tax credits from the Government which would cancel with the tax credit the same party would have paid on cost of the product from supplier. To understand this better let us take a very example: Assuming the case of an ice-cream (it is very weird that why I always have to choose ice-cream while

explaining any policy change or structure but I love it). Following is the step wise calculation of GST: A dairy operator buys a cow from a Government animal husbandry for INR 5,000. Assuming GST at 12%, he would be INR 600 as tax to the government. Poor holy cowâ&#x20AC;Ś.The dairy operator would claim input GST credit from the Government against the cow it bought from the husbandry. Now the dairy operator extracts

milk form the cow and sells the milk for INR 10 per litre to Kwality Walls. Assuming GST again at 12%, Kwality Walls would pay INR 1.2 per litre as GST to the Government. This would provide dairy operator with output credits and for Kwality Walls it would be input credits against GST.

Further, Kwality Walls would pay GST on the machinery, infrastructure or anything which is involved in manufacturing of icecream to delivering the same to the vendor or distributor. Every single GST involved in this transaction would provide Kwality Walls with input credits. The distributor of the ice-cream will pay GST on the cost of icecream he paid to Kwality Walls and that would be input credit for the vendor and output credit for Kwality Walls.

Finally, we get to eat the icecream. Ice-cream would still come with the same old tag- MRP Inclusive of all Taxes or would be all kind of GSTs. The final net GST which the consumer would pay would be the output and final GST credits that would pertain to vendor/distributor of Kwality Walls. 20

We had talked a lot about the credits received. But what are these credits and what is the basic purpose of the same? Most of the people aware about the CENVAT credit system would be very much familiar with the same but those who are not, the system as the name suggests entitles the service provider with certain credits. Let us understand this with another example. (Sorry but I would continue with the ice-cream

example). Kwality Walls charges tax from its customers but at the same time it also pays taxes on services it avails such as on importing machines, using telephone or any other facility. This tax which Kwality Walls pays on services it avails gets added to the cost of the final product. This actually means that the customer is

also paying tax on a tax which is nothing but a cascading effect.

unrealistic to roll out a single tax regime easily across the nation.

To avoid this, government introduced the credit system where credits would be given instead of taxes to be paid by the services provider against the services it avails. These credits would be used against obtaining any kind of input used for manufacturing or providing final product. Hence this system ensures that taxes paid on input stage is offset against taxes payable at the final product stage and thus prevent cascading effect of taxes on final products.

• Other important aspect which has been raised well by state governments is the tremendous increase in revenue of central government as a result of GST. The tax base of the central would increase which is without any second thought the best way for the government to get a little away from increasing deficit but at the same time disbursing funds to state government would be quite a task and who would believe that the government in centre would not favor its local governments in states?

So basically, single taxation is an extremely broad term if analysed this way because the first party involved in manufacturing a product is not the only one paying tax. But what good about this trail is that everyone is paying one kind of tax and there is avoidance of overlapping of taxes hence, there is good sense of uniformity out there. But this is not a simple thing to implement in the World‘s largest democracy and soon to be most populous nation. • Most importantly, the current tax structure in Indian economy is too broad to be simplified. There are taxes right from 2% to 200%. Incorporating all these taxes into a simple bracket of 12% to 20% would be as difficult as it looks to the eyes. • A country where a simple increase in Foreign Direct Investment (―FDI‖) in retail ignites revolts, back outs by local political parties and at the end implementation in only few selected states, it sounds so

• The government expects to increase the tax revenues from richie riches of the country. That too those people who are into service sector and have been currently paying taxes on regular basis. The government must understand from the recent tax policies of United States of America and France where the respective governments have implemented higher taxes for extreme rich people. The problem here is that if there is a service class person earning over INR 10 Million per annum taxable income, presently he would be paying INR 3 Million as income tax. Now if the government plans to increase this tax to say INR 5 million then that same person would mitigate his taxable income towards other sources (like investments) or he would simply evade tax by availing low home take away income and increasing income from other sources such as dividends, bonuses, etc. • There would also be an increased administrative burden of the 21

government ranging from getting the GST chargers registered with the government to sorting out and managing the credit system. • In case of increased inflation rate, government would be forced to either roll back GST, lower down the rate or face the angry ever shouting parliamentarians and people at India Gate. • Also, what would happen to present Chartered Accountants and Company Secretaries? In other words, the change in the tax model would lead to change in curriculum and change in accounting fundamentals. There would be huge need of imparting knowledge and education across the industries and education institutions and bodies. Goods and Service Tax is definitely a very important step towards increasing tax base of the country which is heavily laden by all kinds of deficits. But at the same time, this would involve consensus of all sectors of the economy. There would be no harm in delaying its implementation but it should only come into force, once it gets approved from a common man‘s perspective which falls into the niche category of those 3% tax paying individuals in the country and not the lobbyists. -

Chaahat Khattar

Event’s Desk

Management Discussion on India Developing Forever? On 12th June, 2014 we at FinStreet organized a Management Discussion as a promotional event of the club and to introduce it to the batch of 2016. The title of the discussion was ―India ‗Developing‘ forever?‖ As this topic needed no introduction, the upcoming batch responded very well and we saw a heavy turnout of 140+ students of batch 20142016 and senior batch students also gave a good response by showing up for the MD. Various facets of the Indian economy and its current position were discussed by the members of the club and the junior batch. Facts about Indian economy such as contribution of the various sectors towards the GDP and also their employment levels were put forth. The reasons for low per capita income were also given a thought by the participants. The industrial sector of India has grown only 2% since independence thus we looked into the various reasons responsible for it an why did India opted for the services dominant model giving employment only to a few rather than adopting the manufacturing model providing employment opportunities to a larger chunk of the population. Present inflation, CAD, foreign reserves, population below poverty line, heath and education spending were the hot topics discussed while discussing the current scenario of India and its standing on the world development map. Various issues and the reasons which are holding back India‘s growth were also discussed. The main reasons were the internal commotion, illiteracy,

slow decision making process, late globalization, liberalization and privatization, inflation, brain drain, income inequality, lack of population control and neglecting manufacturing sector. Various prospects available for Indian economy in industrial sector were also discussed. It was analyzed that how can India be benefitted by China not performing so well and thus major manufacturing firms are choosing India as their resort for their manufacturing units making India more competitive on the international front. How the factors such as depreciating rupee, low labor and shipping cost can help India grow and become a manufacturing and exports based country. India‘s population gives it the needed resource and if utilized efficiently, it can prove to be a boon for our country. As said by The Economist after a survey that if India continues to grow at a rate of 7-8 percent it can takeover countries like France, UK, Japan, Australia, Germany etc in next 1520 years and can be known as a developed nation in next couple of decades. Thus we moved forward to present the various future prospects for India in the various fields of economy. The MD further discussed about the 'ray of hope' for the Indian economy. Issues like young Indian population, reducing CAD, scope in infrastructure growth were discussed in detail. The type of inflation experienced by India was debated among the members. Some were of the view that India is going through a period of stagflation while many were of the 22

view India has sustained well compared to other emerging nations in terms of growth and we as a nation are far from stagflationary mode.The reforms in various sectors like pharma,infrasatructure, IT, Banking, Oil and Gas, FMCG were discussed, so also the challenges in the growth of that sector. India being a major outsourcing nation fot IT, still has lot of scope for growth which would contribute to GDP in a major way. The oil and Gas and Power Sector is still a worry for India with major of the power being produced is through thermal energy and requires huge imports of coal as a fuel which adds to our CAD. The oil imports from US has always been a major contributor to CAD. Also, the political instability in iraq influences India in a major way as this leads to increase in crude oil prices.However, we are on a path to increase Hydro projects which would subsequently reduce CAD. The FMCG sector is suffering from high cost of input materials and inflation. However, the slowing Chinese economy, should give a huge impetus to Indian exports in the future. The problem of 'Impossible Trinity' surrounding India was discussed in which the RBI's policies to fight inflation and GOI's policy of growth are at loggerheads. -

Preeti Parashar & Ankur Chauhan

Vriddhi’s Corner

Company in Focus: ITC Limited Industry: FMCG An Overview on FMCG Sector: • The fast-moving consumer goods (FMCG) sector is an important contributor to India‘s GDP and it is the fourth largest sector of the Indian economy. The Indian FMCG sector has a market size of `2 trillion with rural India contributing to one third of the sector‘s revenues.

• The Indian FMCG sector is highly fragmented, volume driven and characterized by low margins. The sector has a strong MNC presence, well established distribution network and high competition between organized and unorganized players. FMCG products are branded while players incur heavy advertising, marketing, packaging and distribution costs.

Market Price: INR 332.60

last 5 years driven by rising income levels, increasing urbanisation, strong rural demand and favourable demographic trends. • The sector accounted for 1.9% of the nation‘s total FDI inflows in April 2000- September 2012. Cumulative FDI inflows into • India from April 2000 to April

2013 in the food processing sector stood at `9,000.3 crore, accounting for 0.96% of overall FDI inflows while the soaps, cosmetics and toiletries, accounting for 0.32% of overall FDI at `3,115.5 crore.

Industry Facts: • The Indian FMCG industry represents nearly 2.5% of the country‘s GDP. • The industry has tripled in size in past 10 years and has grown at ~17%CAGR in the 23

Target Price: INR 380

• Food products and personal care together make up two-third of the sector‘s revenues. • Rural India accounts for more than 700 mn consumers or 70% of the Indian population and accounts for 50% of the total FMCG market. With changing lifestyle and increasing consumer demand, the Indian FMCG market is

expected to cross $80 bn by 2026 in towns with population of up to 10 lakh. • India's labor cost is amongst the lowest in the world, after China & Indonesia, giving it a competitive

advantage over other countries. • Unilever Plc's $5.4 billion bid for a 23% stake in Hindustan Unilever is the largest Asia Pacific cross border inbound merger and acquisition (M&A) deal so far in FY‘14 and is the fifth largest India

Inbound M&A record till date.

transaction

• Excise duty on cigarette has been increased in the Union Budget for 2013-14, which would hit major

industrial conglomerates like ITC, VST Industries in the short term. Opportunities in FMCG Sector: • Untapped rural market • India is one of the world‘s biggest producers of a number of

FMCG products but the country‘s exports account for a very small proportion of the overall output. • Food-processing Industry: With 200 mn people expected to shift to processed and packaged food, 24

India needs around USD 30 bn of investment in the food processing industry. Key Concerns for the Sector: • High inflation • Rising cost of inputs

• Emergence of private labels • Counterfeits and pass-offs • Rupee depreciation may hit margins of companies • Infrastructure bottlenecks

Company History:

• Face Value: 1.00

ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Company's ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses Fast Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded Apparel, Education and Stationery Products, Incense Sticks and Safety Matches, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and Information Technology - the full stops in the Company's name Ire removed effective September 18, 2001. The Company now stands rechristened 'ITC Limited,‗ where ‗ITC‘ is today no longer an acronym or an initialised form.

• ISIN: INE154A01025

• I see ITC as an evergreen stock due to its diverse portfolio.

• Industry: CIGARETTES • Constituent Indices: CNX CONSUMPTION, CNX NIFTY, CNX FMCG INDEX, CNX 500, CNX 100, CNX 200 • Issued Cap.: 7949470840 (shares) as on 17-Apr-2014 • Free Float 195514.39(Cr)

Market

Cap.:

• Impact Cost: 0.04 as on Mar2014 Key Financials: • P/E – 33.29 • Book Value – 28.08 • Dividend(%) – 525.25% • EPS – 10.61 • P/C – 30.37 • Price/Book – 12.58 • Dividend Yield – 1.49% Analyst Recommends

Company Information:

• ITC being a scrip from a defensive sector is always a safe bet for conservative investors.

• ITC Limited Date of Listing (NSE): 23-Aug-1995

• Through technicals I can infer it‘s a range bound scrip. 25

• The revenue target for ITC is 1Lac crore by 2020 which is more than three times of present numbers (Consolidated figures) • I recommend buy on dips, at 335 levels with a target price of Rs.380. -

Sunay Kumat Equity Research Head Vriddhi Research 3.0