BY AVIK
ANALYSIS OF SECOND QUARTER FINANCIAL RESULTS CHAKRABARTY
THE IBS TIMES October 2014, Volume II, Issue No. 173
INVESTING THE WARREN BUFFET WAY BY KAUSHIK CHANDELL
THE DLF FIASCO BY KOLISETTY AISHWARYA
MYSTERY OF FALLING PRICES OF BRENT CRUDE BY SRISHTI KARMAKAR
MANIPULATING MARKETS AN INSIGHT INTO RIGGING OF CAPITAL MARKETS BY RIPU DAMAN TANDON
FinStreet, IBS Hyderabad
173
ISSUE NO.
OCTOBER 2014 VOLUME II
CONTENTS 3
Goods and Services Tax
7
From Apple to Google
9
Analysis- Second Quarter
16
13 The Warren Buffet Way 16 Cover Story: Market Rigging 19 Market Watch 21 Placement Season 2014
13
36
23 Public Sector Banking in India 25 Demystifying India’s Economy
31
29 NaMo’s New Economic Team
31 Industry Analysis: DTH Industry 34
34 Falling Brent Crude Prices 36 The DLF Fiasco 39 Company in Focus: TATA Motors
INTELLIGENCE BEYOND SUCCESS
“Responsible national action and effective international cooperation are therefore required for strengthening nuclear security to prevent vulnerable nuclear material falling into hands of non-state actors.”- Abhishek Singh, First Secretary in India's UN Mission
Letter from the Editor
THE IBS TIMES Faculty Mentor Dr. Ravi Kumar Jain Cover Picture Source: Wall Street Journal
Team IBS Times Chaahat Khattar (Editor-in-Chief) Akshay Gupta Atharva Solanki Manisha Mohapatra Nikhil Acharya Nishtha Behl Shivam Tandon Vanika Sharma Alisha Singh Apoorva Anusha Avik Chakrabarty Kaushik Chandell Kolisetty Sai Aishwarya Manjari Navjoth Sahu Priyanka Malik Rahul Mishra Ripu Daman Tandon
Dear Readers, Greetings from Team FinStreet ! We are close to touching 10,000 views and we are indebted to support and continuous interest of our readers. This issue of The IBS Times continues to follow the path of in-depth research and analysis and presenting the same to our readers in simplistic yet interesting format. Either in an unintentional manner through a wrongful click of a button or intentional rogue trading, capital markets across the globe are vulnerable to rigging. This edition of The IBS Times covers the concept of rigging with landmark historic as well as contemporary examples. We have started a new segment in the magazine namely Quarterly Updates wherein we discuss the recently announced quarterly financial results of top firms of the country. Accordingly in this issue we have analyzed the second quarter of 2014. The magazine also brings out the investment strategy and the portfolio of billionaire investor Warren Buffet. The magazine discusses the recent rejig of the economic team of the government, Goods and Services Tax, recent technologic launches, public sector banking in India and the placement season so far at top business schools of the country. This issue also puts light on the DLF fiasco and analyses the reasons for falling prices of crude oil. The magazine also gives a bird‘s eye view of India‘s present economic status. The magazine also covers industry analysis on the Direct to Home Industry. The magazine includes an exhaustive report from investment point of view on TATA Motors by Team Vriddhi Research. Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better ! Chaahat Khattar
Sachi Kheskani Sameena Usman Srishti Karmakar
“I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about.”Alan Greenspan
Policy
Goods and Services Tax
- Alisha Singh
standard rate for goods in general. There will also Goods and Services Tax (GST) is a comprehensive
be a special rate for precious metals and a list of
tax levy on manufacture, sale and consumption of
exempted items.
goods and services at a national level. Through a tax
credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in
The GST would be levied on import of goods and services into the country.
The Central GST would cater to the needs of the
the supply chain. The system allows the set-off of
Centre and State GST would administer the State
GST paid on the procurement of goods and services
issues. This would reduce unhealthy competition
against the GST which is payable on the supply of
among the centre and the states over tax revenue
goods or services. However, the end consumer bears
that was prevalent earlier and an increase in
this tax as he is the last person in the supply chain.
harmonious functioning between them.
Evolution of GST in India:
Invocation/Need for GST in India:
GST‘S evolution dates back to the presentation of
There was string of drawbacks in the existing tax
2007-08 central budget where the then finance
structure which invoked the Indian government to
Minister Mr. P. Chidambaram
adopt the concept of GST in India. They are as
announced the
introduction of GST in India from 1st April, 2010 onwards. The essential features of the Goods and
follows: Taxation at Manufacturing Level:
Services tax undertaken by the Indian government are The CENVAT is levied on goods manufactured or
as follows:
produced in India. This gives rise to valuation issues Two components were incorporated, one levied by the Centre (Central GST), and the other levied by the States (State GST), rates for which would be prescribed
appropriately
reflecting
revenue
considerations and acceptability.
The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST.
The Empowered Committee also decided to adopt a two-rate structure –a lower rate for necessary items and goods of basic importance and a
3|OCTOBER 2014
as to what constitutes manufacturing, and for determining the value on which the tax is to be levied. It is observed that limiting the tax to the point of manufacturing is a severe impediment to an efficient and neutral application of tax as manufacturing gives way to a very narrow approach. Moreover, the effective burden of tax becomes dependent on the supply chain; where in the taxable value at the point of manufacturing is relative to the value added beyond this point. It is for this reason that majority of the countries having abandoned this form of taxation has replaced it with multi-point taxation system extending to the retail level.
purchase
of
goods.
blurring
has
also
This raised
questions on the application of tax to transactions relating to tangible
property.
For
example, disputes have arisen whether leasing of equipment without transfer of possession and control to the lessee would be taxable as a service or as a deemed sale of goods. In markets
today,
goods,
services, and other types of supplies are being termed as composite bundles and offered for sale to consumers under a Exclusion of Services: The advancement in information technology and digitization has thinned the line of distinction between goods and services. Under Indian jurisprudence, goods are defined to include intangible s, e.g., copyright, and software, bringing them within the purview of state taxation. However, intangibles are often supplied under arrangements which have the appearance of a service contract. For example, software upgrades (which are goods) can be supplied as part of a contract for software repair and maintenance services. The 窶要alue-added services (VAS) also forms a part of telecommunication services which includes supplies (e.g., wallpaper for mobile phones, ring tones, jokes, cricket scores and weather reports), some of which could be considered as goods. An on-line subscription to newspapers could be viewed as a service, but online purchase and download of a magazine or a book could constitute a 4|OCTOBER 2014
variety of supply-chain arrangements. Under the current division of taxation powers, neither the Centre nor the States can apply the tax to such bundles in a seamless manner. Each can tax only parts of the bundle, creating the possibility of gaps or overlapping in taxation. Another major concern with the exclusion of services from the state taxation powers is its negative impact on the buoyancy of State tax revenues. With the growth in per capita income, services account for a growing fraction of the total consumer basket, which the states do not account for. With no powers to levy tax on incomes or the fastest growing components of consumer expenditures, the States have to rely exclusively on compliance improvements or rate increases for any buoyancy in their own-source revenues.
Tax Cascading:
Benefits of GST:
Tax cascading occurs under both Centre and State tax
Under GST, the taxation burden has been divided
structure. The most significant contributing factor to
equitably
tax cascading is the partial coverage of Central and
activities, through a lower tax rate by increasing the
State taxes. Oil and gas production and mining,
tax base and minimizing exemptions. It has helped to
agriculture, wholesale and retail trade, real estate
build
construction, and range of services remain outside the
administration. GST is levied only at the destination
ambit of the CENVAT and the service tax levied by
point and not at various points (from manufacturing to
the Centre. The exempted sectors are not allowed to
retail outlets).Previously, a manufacturer had to pay
claim any credit for the CENVAT or the service tax
tax when a finished product was moved out from a
paid on their inputs. Similarly, under the State VAT,
factory, and was again taxed at the retail outlet when
no credits are allowed for the inputs of the exempted
sold.
sectors, which include the entire service sector, real property sector, agriculture, oil and gas production and mining. Another major contributing factor to tax cascading is the Central Sales Tax (CST) on inter-
a
between
manufacturing
transparent
and
and
services
corruption-free
tax
GST has improved tax collections and has boosted India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.
state sales, collected by the origin state and for which no credit is allowed by any level of government. Tax cascading remains the most serious flaw of the current system .It increases the cost of production and puts Indian suppliers at a competitive disadvantage in the international markets. It creates a bias in favor of
It has also been estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.
imports, which do not bear the hidden burden of taxes
In the GST system, both Central and State taxes will
on production inputs. It also detracts from a neutral
be collected at the point of sale. Both components (the
application of tax to competing products. Even if the
Central and State GST) will be charged on the
statutory rate is uniform, the effective tax rate (which
manufacturing cost. This has benefited individuals as
consists of the statutory rate on finished products and
prices are likely to come down. Lower prices will lead
the implicit or hidden tax on production inputs) can
to more consumption, thereby helping companies.
vary from product to product depending on the
Recent Highlights on GST:
magnitude of the hidden tax on inputs used in their production and distribution. The intended impact of government policy towards sectors or households may be negated by the indirect or hidden taxation in a cascading system of taxes.
The Modi government has left no stone unturned to bring back GST from the zone of despair to hope. It intends to bring in this reform at the earliest because the new tax will not only help remove the cascading of the two VATs (state and Centre) and service tax
5|OCTOBER 2014
but will also not entail any tax export through the
replacement of central sales tax by the destinationbased integrated GST (IGST). It will also reduce
elimination of entry permits.
production and transactions cost of business and usher in competitive efficiency. However, the Modi government needs to pay heed to the following points: Option for the States to stay out or opt out of the GST
GST network & removal of check posts / Neutralization of Taxes / Prevention of Tax Cascading.
Classification of goods and services.
Conclusion: After a detailed analysis, It is now well-recognized
It will be appreciated that simultaneous operation of
and understood that the GST is a necessary condition
the existing VAT regime and the new GST regime
if the country has to go back to double digit GDP
negates the objective of a common market in goods
growth. It is hence of utmost importance that the GST
and services. It will also impose considerable hardship
that is to be introduced is well thought-out and is
on the industry. Further it would lead to some peculiar
introduced only upon the Central Government and the
issues such as taxability of inter-state transactions
State Governments being fully and completely ready
where, under the existing tax regime, the originating
and prepared. GST would come as an economic boon
State is empowered to collect tax whereas, under the
for our country making the lives of the people much
GST regime, it will be the consuming State which
simpler and easier bringing upon added advantage in
would demand taxes based on the destination
its wake. As we all have pinned our hopes high on
principle. Further, the dual compliance requirements
Modi government, we are sure that GST is now just at
under the two regimes would lead to complexities and
an arm‘s distance for India which would very soon
increased costs of compliance. Hence, it would be
brighten the future of our motherland.
best for the states to keep out of the GST system. Rates of Tax: The tax structure should be simple and should have minimal rates. Some are of the view that:
There should be one Standard Rate (RNR) applicable on all goods and services.
A common list of goods and services under a Concessional Rate (e.g., for basic necessities like grains, pulses, cereals, edible oils and public utilities).
A common list of exempted goods and services.
Other factors are as follows:
Uniform Laws and Simple Tax Administration
6|OCTOBER 2014
Technology
All the Way from Apple to Google
- Apoorva Anusha
Technology these days has advanced our lifestyle.
wise also it looks like how a higher-end Smartphone
Things have become so easy. Technology is being
should look like.
used everywhere and in everything. Several devices have been introduced like laptops and tablets. Each of them has their own versions with even more advanced apps.
Google is not much interested in developing hardware because as compared to its competitors it has a lower margin business. It is less in terms of advertising as well as software. Two years back the company has
The innovation in information technology has begun
already made mistake once by acquiring Motorola.
to modify the way of doing business and has created
That is why the company has decided to close the deal
value of it. Twenty years back American economists
next year and most probably Nexus 6 is the last
had never ever imagined that in span of just twenty
Smartphone by Motorola under the Google banner.
years technology can reach this height leading to tremendous growth in economy. Because its observed that as the quality of information improves, the business can operate more efficiently.
So we can say that Nexus 6 cannot be regarded as the iPhone 6 plus‘s competitor. Rather its an initiative taken by Google to prevent Samsung from wiping out smaller competitors like HTC, LG, etc. If we talk
The use of sophisticated communication technologies
about Samsung, it already runs its own app store for
in the conduct of work has become very common in
Galaxy devices.
organisational life. It facilitates communication as well
as
improves
integration
by
enhancing
productivity and service delivery.
On one hand where Nexus 6 is launched to prevent Samsung from wiping small investors, Apple Inc. has a different plan. There is no common ground to
On a bigger scale if we see, there are two main heads
compare Nexus 6 and Apple iPhone 6 plus. Apple Inc.
at present which has come up with advanced
is a hardware company and its specializing in selling
technology – Google and Apple Inc. Google has come
expensive devices at high margins.
up with nexus 6 and Android 5.0 ―lollipop‖ and Apple Inc. has launched Apple 6 plus and iPad. With the recent introduction of two phones in communication market, Google‘s Nexus 6 and Apple‘s iPhone 6 plus, an investor should be aware that both the phones have different meaning to Google and Apple Inc.
Talking about the pricing strategy of Google where it has increased the price of Nexus 6, we can say that Nexus 5 low price was used to attract people to the Nexus line up. And when people were attracted Google tried to maintain the customer base by keeping them with the user experience and providing
Nexus 6 is about double the price of its Nexus 5
them with perks. And when large numbers of people
predecessor and the only difference that Google made
were hooked, they were free to increase the price,
up is in its parts and device‘s aesthetics. Nexus 6 is
because they knew that people will spend extra
undoubtedly more polished. And not only this, look
money.
7|OCTOBER 2014
Apple Inc. stocks are reflecting the launch of Apple 6 plus and iPad. Earlier Apple Inc. had lost $23 billion since iPhone 6 was released. These two recent
launches
have
massive impact on S&P 500. Although Apple Inc. stock is still up by 23% but investors are not used to it. iPhone was believed to be the most important Android 5.0 ―lollipop‖ is also developed by Google
and ambitious product from Apple Inc. and it was
only. Its only a new version of Android mobile
believed that it will contribute half of its stock price.
operating system. This is introducing a refreshed
But this time the company‘s supremacy is in question.
notification system. It aims to improve battery consumption through a series of optimizations known as ―project volta‖. Google has announced that Nexus 4, Nexus 5, Nexus 7 and Nexus 10 will have this latest operating system.
bunch of accessibility features but there is no much change from kitkat. There are only few things inside that will open things to new audience who are struggling to use this platform before. Animation is going to play a big part in the new design. iPad is an iOS which is designed and marketed by Apple Inc. The recent model in market is iPad Air 2 and iPad Mini 3. The iPad does not employ Digital Rights Managements, but the operating system from copying. The users cannot even transfer certain outside
of
authorization. 8|OCTOBER 2014
company always offers best in class devices and so there were similar expectations about the iPhone 6 Plus. But with the rising complaints about the vulnerability of the iPhone 6 Plus, and faulty
Although Android 5.0 ―lollipop‖ has come with a
content
The general perception among Apple fans is that the
Apple‘s
platform
without
operating system, investor‘s confidence is shaking.
Quarterly Results
Analysis- Second Quarter SECOND QUARTER: Overall data from all the firms who have reported their second quarter earning shows operating profit rose 14% from a year earlier-the slowest pace in five quarters Second quarter earnings of Indian companies are trickling in and a review of the financial statements show that a sustained recovery in earnings growth remains elusive. In fact, operating profit growth in the three months ended 30 September slowed as sales remained sluggish amid tepid demand.
- Avik Chakrabarty
Refining Margin earned by its refining business while a sequentially softer GRM in quarter 1 partially offset the gain from the improvement in the petro chemical margin. The consolidated earnings grew by 2% YoY to Rs5,972 crore but remained flat QoQ. The key take away from the Q2FY2015 results was that despite a softer GRM sequentially, the spread (premium) between RIL‘s GRM and the Singapore GRM expanded to $3.5/ bbl (the highest in four years). Further, the petro chemical margin improved sequentially led by strength in the polymer and aromatic margins. The profitability of the retail
Separately, out of the 17 Nifty companies that have reported their earnings, nine have fallen short of Bloomberg consensus analysts‘ estimates, while eight managed to beat them.
business continued to improve along with a 20% revenue growth on a low base. On the negative side, despite significant traction in the shale gas volume, the profitability of the E&P business dropped due to
The September quarter last year had seen the Indian
declining
rupee depreciate sharply against the dollar, boosting
depreciation.
the earnings of exporters. The currency had weakened 5.2%in the quarter compared with 2.5% in the three month ended 30 September.
domestic
production
and
higher
RIL managed to improve its GRM spread over the regional benchmark and reported better earnings than expected by the Street. Further, the ongoing
However, trends revealed by the earnings of the early
expansion of its downstream business (a new
birds may change as many companies are yet to report
gasification plant and a refinery off-gas cracker)
their financial results.
would be the next earnings driver in the next two to
RESULTS UPDATES:
three years. While the progress of the new business (telecom) and the ability of the retail business to a
Reliance Industries Limited:
Beats estimates with better margins
gain critical mass would be monitored, a continued lack of clarity on the gas price revision remains a
In Q2FY2015, the stand-alone net profit of Reliance
hangover for the stock. Currently, the stock is
Industries Ltd (RIL) grew by 5% YoY and 2% QoQ
available at 13x and 12x FY2015E and FY2016E
to Rs5,742 crore, which was ahead of estimate. The
earnings respectively and the valuations are lower
Y-o-Y earnings growth was driven by a better Gross
than its historical average.
9|OCTOBER 2014
On
consolidated
and
stand-alone
bases
the
The net profit growth is the lowest after the March
outstanding debt stood at Rs142,084 crore and
2009 quarter, when profits declined by 4.5 per cent.
Rs79,725 crore while the cash balance stood at
Since then, the net profit growth has always been in
Rs83,456 and Rs26,162 crore respectively at the end
double-digits. It is after 21 quarters that the profit
of Q2FY2015. During the quarter, the net addition of
growth has slipped into single digits.
fixed assets was Rs44,895 crore including exchange rate
difference
capitalization.
The
capex
was
primarily on account of the ongoing expansion project in the petro chemical and refining businesses at Jamnagar, Dahej and Hazira, and the broadband and
The slower growth in this quarter can be attributed to increase in provisioning and tax. Provisions and contingencies jumped 133 per cent year-on-year to Rs 35 crore from Rs 15 crore in the same quarter last year. However, sequentially, it remained unchanged.
US shale gas businesses. Tax expenses rose this quarter by 19 per cent to Rs The new refinery off-gas cracker (ROGC) project is on track and will help RIL sharply reduce its blended
541 crore as compared to Rs 455 crore in the year-ago period.
ethylene cost. Activities in the D1-D3 and MA fields to augment production are also as per schedule. Rcluster development activity is also on stream while the phase-1 development in case of coal bed methane is more than 60% complete and on track. The company expects to extract gas from the Coal Bed
The non-banking finance company has provided Rs 83.3 crore towards deferred tax liability in the quarter on special reserves, as compared to Rs 75 crore in the June quarter. This item was introduced from the latter quarter. Gross non-performing loans reduced to 0.69 per cent of the loan portfolio at the end of the quarter
Methane block by H2FY2015.
as compared to 0.79 per cent in the same period last In August 2014, Reliance Haryana SEZ returned
year.
1383.68 acre of land which was taken for setting up special economic zones due to revision of strategic
Income from operations rose 11.4 per cent to Rs 6,533 crore. The loan book was at Rs 2.12 lakh crore as on
priorities.
September-end, up 15 per cent compared to Rs 1.85 Housing
Development
Financial
Coporation
lakh crore in the year-ago period.
(HDFC) 
In the June quarter, the loan book mix (on the Neutral Rating
incremental growth) was 86 per cent individual and
Housing Development and Finance Corporation
14 per cent non-individual. The proportion of non-
(HDFC), the country's largest home mortgage
individual had increased in this quarter. The average
financier, reported 7.2 per cent growth in net profit to
size of loans has also picked up to Rs 23.1 lakh at the
Rs 1,357 crore for the quarter ended September, as
end of September as compared to Rs 22.7 lakh in the
compared to Rs 1,266 crore in the year-ago quarter,
same period last year. The spread on loans over cost
with a rise in loans to individuals.
of borrowing was stable at 2.29 per cent, the same as
10 | O C T O B E R 2 0 1 4
in the June quarter. Net interest margin for the half-
cited the organization-wide wage hike effected from
year was four per cent.
June this year as one of the main reasons.
Wipro:
In the quarter, Wipro reported a strong 4.2 per cent

sequential growth in its largest market North America.
Recommend a Buy on the stock with a target price of 697.
In Europe business declined 4.3 per cent on quarteron-quarter basis. Financial solutions, the largest
Wipro, India's third-largest information technology (IT) Services Company, met its revenue growth forecast for IT services, but it disappointed on several parameters. In the quarter ended September 30, the Bangalore-based firm reported an eight per cent rise in net profit at Rs 2,084 crore compared to the year-
business vertical accounting for 26 per cent of the company's overall IT services business, declined 0.9 per cent whereas global media and telecom vertical dropped 1.3 per cent. However, it reported good growth in health care, life sciences & services, energy, natural resources, and utilities.
ago period. The revenue also grew eight per cent at Rs 11,680 crore on the back of strong volume growth, as well as better-than-expected performance by the global infrastructure services business.
The company also saw a drop in revenue contribution from its top-5 and top-10 clients, which came down to 12.9 per cent and 21.5 per cent, respectively. The numbers had stood at 13.4 per cent and 21.8 per cent,
Sequentially, the net profit was nearly flat while the
respectively, in the previous quarter.
revenues were up 3.8 per cent. For the quarter ending on December 31, 2014, Wipro In the IT services business, the firm posted a six per cent year-on-year growth in revenues, while it rose four per cent sequentially to Rs 10,923.5 crore. In dollar terms, the company reported $1,771.5 million in revenues, a sequential growth of 1.8 per cent slightly below the Street's estimates of two per cent. For the July-September quarter of FY15, Wipro had given a revenue growth forecast of $1,770-$1,810 million.
has guided its IT services business to be in the range of $1,808 million to $1,842 million, a growth of twofour per cent. In the September quarter, Wipro added 6,845 employees on a gross basis, which is one of the biggest additions in the recent quarters. Wipro said the hiring was made primarily as the company reported 'strong' volume growth while at the same time managing to improve the utilization. The firm improved net utilization by 150 basis points to 79.4
However, what's surprising is the company reported
per cent. The employee attrition level, though, went
sequential decline in revenues in some of its key
up marginally to 16.5 per cent, it said.
verticals including financial solutions, global media and telecom, and Europe - a key geography accounting for 28 per cent of Wipro's IT services business. On top of that, the firm reported an 80 basis point drop in its operating margin at 22 per cent, and 11 | O C T O B E R 2 0 1 4
Biocon 
Results
below
business verticals
estimates,
slowdown
across
Statins and biopharmaceuticals maker Biocons Ltd
Branded formulations and research service businesses
reported flat September quarter net profit and
to drive growth in the interim,‖ the chairman said.
marginal increae in sales.
Ultratech Cements:
Net profit at Rs. 102 crore and a 3%sales growth at Rs. 773 crore were less than expected, the predicted
Better demand environment propels earnings growth, price target revised to Rs2,935
growth of 11% and 15% in quarterly profit and sales For Q2FY2015 the company reported a revenue
was estimated.
growth of 19.5% YoY to Rs5,381.8 crore largely The growth of their core biopharma business this quarter has been muted largely due to capacity constraints and geo-political challenges in the middle east according to Biocons chairman and managing director Kiran Mazumdar-Shaw. Biocon‘s branded formulation business, which is comparatively new and small, however, grew 17%.
driven by a higher volume (up 12% YoY) and an increased realization (up 7% YoY). A higher input cost (increase in pet coke price and high freight cost) limited the growth in the OPM, which improved by 76BPS to 15.4%. Additionally, a higher other income (up 112% YoY) led to a 55% Y-o-Y growth in the reported PAT for the quarter at Rs410.1 crore, which
Clinical progress in their key global programs for
included a lower depreciation charge (adjusting for
generic
is
the same the earnings for the quarter grew by 37%
indicative of the value accretion that is realizable in
YoY to Rs361.9 crore). During the quarter the
the foreseeable future. ―We continue to be cautious
company commissioned a 1.4 MMT cement mill at
with the stock due to lack of any major nea and
Rajashree Cement, Karnataka and with this the total
medium term triggers,‖ cautions Mahida of Antique
capacity of the company increased to 60.2MMT
Broking.
(4.8MMT of capacity added from two plants of
Insulin
Glargine
and
Trastuzumab
During the quarter, Biocon acquired 7.69% stake in its subsidiary Syngene Interrnational from GE Equity International for Rs 215.38 crore. Subsequently , the company sold 10% stake in Syngene, owned by its
Jaypee Cement). The company also commissioned a 25-MW thermal power plant at Tadipatri, Andhra Pradesh, taking its total capacity of power to 733MW (ie 80% of the total requirement).
subsidiary Biocon Research Ltd BRL for Rs 380 crore
UltraTech Cement is a preferred stock in the cement
to Silver Leaf Oak, investment vehicle of PE group
space due to its strong balance sheet and pan-India
India Value Fund Advisors.
presence. However, as per media reports, the
―The strategic investment by Silver Leaf Oak in Syngene validates the strength of our research service business and sets a good valuation benchmark. Whilst we continue to invest in R&D and capacity building for insulins and antibodies portfolio, we expect 12 | O C T O B E R 2 0 1 4
company‘s plan to acquire the Holcim-Lafarge assets in the developed markets can increase its leverage and hamper Ultratech‘s valuation, considering lower growth potential in the developed markets.
Investment Strategy
The Warren Buffet Way
-Kaushik Chandell
“Rule No.1: Never lose money. Rule No.2: Never
“I'm 15 percent Fisher and 85 percent Benjamin
forget rule No.1.” -Warren Buffett
Graham.”
Who is Warren Buffett?
Buffett
American Business magnate, most successful investor of 20th century, chairman and largest shareholder of Berkshire Hathaway and a philanthropist Warren Buffett was named as the world‘s wealthiest person in 2008, third wealthiest person in 2011 and one of the world‘s most influential people in 2012 by TIME.
has
always
followed
efficient
market
hypothesis which is not supported by many of the investors. However, investors do follow that market will favor those stocks which were undervalued previously. But Buffett is not at all concerned with the activities of the stock market. In fact his famous quote ―In the short term the market is a popularity contest; in the long term it is a weighing machine‖ implicates
Born on August 30, 1930, he was the second of three children and the only son of Congressman Howard Buffett and Leila. As a child Buffett showed key interest in making and saving money. He worked at his grandfather‘s grocery store where he used to make money by selling chewing gums, coca cola, selling golf balls and stamps and by delivering newspapers.
so. When Buffett invests in a company his sole concern is how well the company can make money as a business instead of whether the market will recognize its worth or not. What does Buffett looks for before investing in a company?
Buffett took his first tax deduction at the age of 14
Warren Buffett, before investing in a company
where he deduced 35$ for the use of his bicycle and
analyzes a lot of factors out of which a few are -
watch on his paper route.
Back from his schooldays, Buffett had a keen interest in stock market. He used to spend a lot of his time in a regional stock brokerage near to his father‘s own brokerage office. At the age of 11, Buffett bought 3
Whether the company has performed well consistently in the past or not?
Buffett analyzes a company‘s ROE from the past 5 to 10 years to gauge the historical performances and compare it with other companies of the same industry.
shares of Cities Service for himself and his sisters whereas, in high school he invested in a business
ROE is calculated as: =Net Income /Shareholder‗s Equity
owned by his father. Buffett graduated with a Bachelor of Science in Business Administration and later earned a Masters in Economics from Columbia University in 1951.
Debt to Equity ratio, whether the company has avoided excess debt?
A high debt level compared to equity can result in volatile earnings. In general, investors follow a rigid
How he does it 13 | O C T O B E R 2 0 1 4
method and use only long term debt instead of total
operating histories are harder to find, intangibles play
liabilities in the calculation.
a greater role in franchise value and the blurring of
Debt/Equity ratio is calculated as: =Total Liabilities/Shareholder‘s Equity
industries' boundaries makes deep business analysis more difficult. Following were a few of the many points which
Increasing Profit Margins or not
reflected Warren Buffett‘s style of investment. Follow
If the company has a high profit margin then it
them and you can follow the Warren Buffet‘s road to
concludes that the company is executing its business
riches.
well and the management has been highly effective
Warren Buffett’s top 5 Holdings
and efficient in controlling the expenses. Whenever Warren Buffett buys shares of a specific Profit Margin is calculated as: =Net Income/Net Sales
How long the company have been around?
company, the very moment market translates the move as a vote of confidence for a firm‘s long run. However,
Buffett
does
not
make
Berkshire‘s
investment decision by himself but is accompanied by Buffett generally considers companies that have been around for 10 years which implies that the technological companies that have the IPOs in past decade are not on the Warren Buffett‘s list. Warren
two portfolio manager Todd Combs and Ted Weschler, each handling billions of dollars on their own.
Buffett has already mentioned in the past that he will
It was reported that Berkshire Hathaway shares trades
invest only in a company that he fully understands.
past 200,000$ in its second quarter portfolio. As of
now, Berkshire Hathaway holds 46 stocks for a value Question of competitive advantage
of 107.6 billion$. Following are the top 5 holdings as
Buffett looks for the offerings made by the company
of now are:
whether the company offers something different or
Wells Fargo (WFC): 22.6%
not. Any characteristic which is hard to replicate,
Coca-Cola (KO): 15.8%
Buffett calls it as competitive advantage. Wider the
American Express (AXP): 13.4%
moat, harder is for the competitor to gain market
International Business Machines (IBM): 11.8%
share.
Wal-Mart (WMT): 4.1%
The Bottom Line
Buffett‘s tenets constitute a foundation in value
1. Wells Fargo & Co.(WFC): 463,458,124 shares of the company‘s stock is held by
investing, which may be open to adaptation or
Berkshire Hathaway. It‘s is almost equal to 22.6% of
reinterpretation going forward. It is an open question
Berkshire‘s total assets managed as well as 8.80% of
as to the extent to which these tenets require
the company‘s shares outstanding.
modification in light of a future where consistent 14 | O C T O B E R 2 0 1 4
2. Coca Cola(KO):
5. Wal-Mart(WMT):
It‘s the second largest holding by Berkshire where it
Warren Buffett maintains 58,797,259 shares of the
holds a total of 400,000,000 of the company‘s stock
company‘s stock. Total portfolio holding makes up
representing a percentage of 15.8 as well as 9.10% of
for 4.1% as well as 1.82% of the company‘s shares
the company‘s share outstanding. The main inputs
outstanding. With an owners earnings of $15.1b and a
used for the discounted cash flow:
7% discount rate, 9% growth puts them at fair value
• Owner earnings of $9.4b
territory. But considering the EBIT, Wal-Mart is
• Growth rate of 7.2% • Discount rate of 7% • Terminal rate of 2%
trading at their highest level since 2005. What can be concluded? The most noticeable factor here is that the investing style of Warren Buffet can be compared with the
But the main concern here is the dropping ROE AND
shopping style of a practical, down to the earth,
ROIC.
bargain hunter. Even he maintains the same in his real
3. American Express(AXP):
life areas like he doesn‘t lives in a huge house nor he collects car or moves around in a heavy machinery.
Berkshire holds a sum of 151,610,700 shares of the company‘s stock which is the third largest for Berkshire Hathaway. Position makes up a total of 13.4% of its total portfolio and 14.32 of the company‘s share outstanding. 4. International Business Machines(IBM): 70,173,978 are the no. of shared maintained by Berkshire and it sums up a percentage of 11.8 of Berkshire‘s total portfolio as well as 6.93 of company‘s share outstanding. With IBM expanding to more B2B and Cloud services, effect on ROE has been positive and hit the range of 90%. IBM has a FCF yield of 6.8% and earning yield of 8.9% which shows that IBM is not in expensive territory. However, if these percentages drop below 5%, it‘s an indication that things will be getting a bit expensive.
15 | O C T O B E R 2 0 1 4
No matter what his critics say or whether anyone supports him or not but reality will always be that he‘s one of the richest person of the world with net worth is 68.4 billion$(as on 25.10.2014 maintained by Forbes).
Cover Story
Market Rigging
-Ripu Daman Tandon
Market manipulation has long been the dark shadow
of high speed electronic trading firms. As per him,
in the capital markets globally. These practices are
these firms use the speed advantage to gain profit at
the cause of making a firm more favourable in the
the expense of the other market participants.
capital market, than really justified by the market
High-Frequency Trading (HFT) has been a practice
forces. In other words, as defined by Financial Times,
carried out by various banks and proprietary trading
it is a situation when some companies in a market act
firms. It is a trading platform which uses powerful
together to hinder the normal working of the market
computers to transact a large number of orders at very
forces in order to gain an unfair advantage. Often
fast speed. The technology and trading methods that
these markets are not sustainable and dupe the
make this type of platform possible is legal and the
investors and attract them towards a project or a
stock exchanges on which HFT firms trade on, are
company. With trillions of dollars being exchanged
highly regulated.
by buyers and sellers in the market, there is a real
Detroit in today‘s time has been known as the case
person behind every transaction taking place whether it is buying of a barrel of oil or a Japanese Yen.
The
study on decline in the manufacturing base. However, the city was home to a type financial fakery which was becoming too common. The New York‘s Wall Street has seen quite a few market rigging practices in the recent past. One of the biggest examples being, Raj Rajaratnam,
a Sri Lankan American former
hedge fund manager and billionaire founder of the Galleon Group, a New York-based hedge fund management firm. Insider trading has been one of the least sophisticated and oldest means of rigging the market. Galleon Group has been one of the shocking add-on to this malpractice.
The employees were
caught on tape for rigging the system and the founder of the group was eventually found guilty and sentenced for 11 years. One of the serious examples that were seen of market rigging was the London Interbank Overnight Rate There has been quite a speculation that the capital markets are rigged. As quoted by Michael Lewis, the author of the book ―Flash Boys: A Wall Street Revolt‖, the U.S. stock markets are rigged in favour 16 | O C T O B E R 2 0 1 4
(LIBOR) which was being manipulated by a handful of trading firms with trillions of dollars on things like student loans payments and mortgage rates are priced
off LIBOR. LIBOR rate is used as a benchmark for
would originally decide. This process of setting the
trillions of loans, mortgages and other financial
LIBOR came under scrutiny when Barclay‘s admitted
products that are traded around the world. These rates
in June 2012 that false information was submitted by
affect almost everyone involved in the market, for
the bank in order to keep the rate low. By keeping the
example, when a loan is being taken, there is being a
rates low Barclay‘s was able to make bigger profits
spread over the borrowing such as corporate loans,
and hence, traded at an advantage over its
individual loans and margin loans.
The basic
competitors. However, it was during the credit crunch
fundamentals for the rates are set globally and on
times, when the LIBOR rate rose significantly. This
which the interests are paid on daily basis are derived
is the time when banks were alleged in hedging. This
through LIBOR.
Any manipulation of such rates
is a practice wherein, with the expectation of fall in
leads to depletion of trust in the capital markets or in
interest rates (yet at the same time you are not quite
other words, can lead to erosion of trust of bonafide
sure of the happenings), banks were alleged in
investors from the capital markets.
hedging it against the futures markets. It was alleged
In July 2014, Britain‘s Lloyds Banking Group (LBG)
that the banks were bullying, cajoling or suggesting
was fined to pay $370 million in fines to the British and U.S. regulators for its part in a global interest rate rigging scandal and for attempting to manipulate fees for a government lending scheme to help banks. One
their customers in hedging the cost of either their foreign exchanges or the cost of their interest rates in borrowing
money
or
in
doing
the
business
transactions.
of the world‘s largest bank, Lloyds became the sixth
In India, market manipulation has taken its own
financial firm that was sanctioned in the international
negative sides. The mystery of 8 year cycle has seen
rate-rigging scandal.
two of the biggest scams in the market.
The misconduct by the bank
In 1992,
occurred between May 2006 and 2009 as per the
Harshad Mehta, an Indian Stockbroker, well known
British and U.S. Regulators. As per the regulators, it
for his wealth was charged for numerous financial
was said that the traders at the bank rigged the
crimes. The scam included of Rs.1000 crores from
estimates of the borrowing costs submitted by the
the banking system to buy stocks on the Bombay
bank in order to help set the LIBOR rate. This was
Stock Exchange. The scam came into notice when the
done to benefit their trading positions in the market.
State Bank of India reported a shortfall in government
Other major banks that were fined for rigging the
securities which led to an investigation, showcasing
market were British‘s Barclays and Royal Bank of
manipulation of around Rs.3500 crores and later
Scotland, Netherland‘s Rabobank and Switzerland‘s
leading to a stock market crash by 72 percent.
biggest bank, UBS. Manipulation in the market leads
Similarly in 2001, Sensex witnessed a crash of 176
to various other consequences, such as the interest
points which was a shock to the Government of India
rates would not be as per the original market forces,
and the investors at the same time. The Ketan Parekh
eventually leading to different or manipulated rates or
scam came at a point when the Union Budget was
interests being paid other than what the market forces
acclaimed for its growth initiatives and prompted an
17 | O C T O B E R 2 0 1 4
increase of 177-points in Sensex. He can be best
bookers end for the crash and refused to reverse the
described as the Pied Piper of the Dalal Street.
trades.
During the time when the technology bubble was engulfing the world and the Indian stock market sprang to life, Ketan Parekh manipulated the stock
The market manipulations play a critical role as they can affect various aspects in the capital market. As per the study by Bahram Moazeni and Farideh
prices, by making his interest apparent. After
Assadolahi in their journal of ―Manipulation of Stock
investigations by SEBI, it was evident that the
Price and its consequences‖, stock manipulation and
promoter funds and bank funds were used to rig the market. The aftermath of it saw a few changes in the market regulations such as the trading cycle was reduced from one week to one day, badla was banned and the operators could not carry forward trade in its primitive form. Also, forward trading was formally introduced in the form of exchange-traded derivatives in enduring a well-regulated futures market. Though scams like these have hurt the markets in the past and kept the trust of many away from the capital market, these situations have also lead to better policies and making the capital markets a lot a safer to invest in.
stock
price
based
on
investor‘s
insufficient
information and asymmetric information are the main causes of market manipulations. From affecting the market forces to play in the market to the investor‘s trust by using the loopholes in the policies, these market manipulations prevent in development of the capital markets.
SEBI
requires all the listed
companies to mandatorily disclose all the required financial information which directly or indirectly affects the prices of the stock, on regular basis in order to prevent manipulation of the market. Continuously, in the market people or companies have
In 2012, in the Emkay incident at the National Stock
manipulated the market to bend the market forces
Exchange (NSE) caused a 920-point flash crash. In
towards their benefits or profits, but these incidents
an Order on October 5, 2012 a dealer at Emkay
have not stopped the stock market to grow. In order
Dealer placed an order of 17
lakh NIFTY units
to govern the market functioning and to protect the
instead of Rs.17 lakhs value of order resulting to a sell
interests of the investors, old rules have been made
order of Rs. 980 crores being entered into the systems.
stringent and new rules and regulations have been
Even-though nearly Rs.660 crores of NIFTY trade
introduced thereby, preventing manipulation and safe
was executed in seconds, it lead to a halt at the NSE
guarding bonafide investor‘s interest.
cash market.
Emkay ended with a loss of Rs.51
crores by the end of that day. The situation lead to an increase in confusion in the markets, with Emkay arguing that a trade on such a large scale constituted to an error. The NSE followed an internal probe and solely blamed Emkay and system failures at the
18 | O C T O B E R 2 0 1 4
Markets
Market Watch
-Navjoth Sahu
Stock market performance last week witnessed very
The FOMC meeting is scheduled this week, which
slight fluctuations as the festive season Diwali was
would open up the fate of the investors in the FED
around the corner to the week. Investors did not prefer
markets. The US Federal Reserve Bank, are likely to
to trade the securities at the end of the season. It was
meet on Tuesday and Wednesday.
also not auspicious for many to trade at this point of time where the year was about to end. Majority of the Indian believe that trade starting from the Diwali is considered to be auspicious and bring
green and
prosper to their families.
The Federal Open Markets Committee (FOMC) is most expected to close down the Fed's long-running bond purchasing program, known as quantitative easing or QE, this month. Also, global investors will watch out for comments on the direction of interest
Going as per last week of Stock markets show a
rates. Since last December, the US Central Bank has
upward trend of securities with S&P BSE SENSEX
been gradually scaling back its monthly bond
closing at 26851.08 points from 26434.16 and
purchases, which now stand at $15 billion per month.
similarly CNX NIFTY rose from 7896.95 points to 8014.55 points. Majorly attributed to the cut on the diesel price and the falling gold prices. Equity investors, all over the world, shook off their fears and have resumed buying last week; perhaps enticed by the sharp corrections in some stocks. Also the major push came from various regulations and policies that just launched by the present Modi Government in order to bring sustainability in the markets. The various policies include diesel regulations, gas price hike and e-auction of the cancelled coal blocks. The victory of the BJP in the Assembly elections too buoyed sentiments of the common investor.
Individually going through the sectoral indices of both the markets of BSE and NSE show a common line of increment in the points. Assessing Individually into the market Tata Motors Gain the first position with 516.95 points creating a gap of 8.66% from previous position. followed by Hero Motors and Maruti as due to the new regulation to deregulate the diesel prices, which made the people to move towards the petrol driven vehicles. Other companies showing such upward trend include Gail, Hindalco, Bajaj Auto, BHEL etc. There were also companies which showed a dramatically negative growth sign including Wipro which dip to 560.75 points making a drift of -0.89%,
Globally, markets are at their high as well, with the
ITC which dip to 350.35 with a change of -0.96%
European and US markets reversing their stocks
and INFY which dip to 3805.80 making a change of -
smartly, although the move is not convincing. The
1.25%.
move may bring a good turnaround on the equity
Money Market Review:
share prices. With the expiry of the October derivative contracts scheduled on Thursday, short-covering by traders could lend further support to the indices.
The Reserve Bank of India is to set a cut-off yield of 8.48 per cent at its 91-day treasury bill auction on Wednesday. Expected cut-off compares with a cut-off
19 | O C T O B E R 2 0 1 4
best prepared to deal with the Fed's monetary policy action to be held this Tuesday and Wednesday. According to the forecasts of IMF India mission Chief if the new government follows through with structural reforms India can see a growth of 7 percent to 8 percent. But this is not very clear yet what would be the next step after U.S. federal reserve starts reversing yield of 8.4782 per cent the previous week. The highest yield for the 91-day bills as per the poll was 8.52 per cent, while the lowest was 8.44 per cent. The RBI is expected to set a cut-off of 8.55 per cent on the 182-day t-bills, the poll showed, versus the previous 8.6177 per cent two weeks ago. The highest yield for the 182-day bills as per the poll was 8.60 per cent, while the lowest was 8.48 per cent. The RBI will sell Rs 9000crore of 91-day and Rs 6000crore of 182-day t-bills. Also the International Monetary Fund's (IMF) India Mission Chief have given a clear indication about the future growth of the markets by saying the nation being a emerging markets and BRICS countries member stands out for accomplishing the sharpest turnaround in its macro economy since U.S. Federal Bank Reserve started reversing its zero-interest monetary policy. Amongst all the economies, India is 20 | O C T O B E R 2 0 1 4
its monetary policy.
B School
Placement Season 2014
-Priyanka Malik
One of the most attractive features which enable the
construction and mining. Further, due to favorable
B-schools to enroll the students in packs is the
economic conditions the companies are coming on
lucrative jobs after the completion of the program.
board
Acquiring of the managerial skills not only rolls out
compromising on the salaries. Cognizant, JP Morgan,
several opportunities in front of the students but also
HSBC, Goldman Sachs, Bank of America Merrill
take the responsibilities and salaries to a new level
Lynch, ICICI, Accenture and Deloitte were the top
altogether. Since, the hiring trends are dependent on
recruiters with Cognizant and ICICI hiring above 100
the market trends and activities therefore; analysis of
graduates each. Also, the war for hiring the talent pool
the job market is a crucial aspect in forecasting the
was fought between the e-tailer Flipkart and Amazon.
placement trends in the B-schools.
The number of students hired and the packages
with
higher
number
of
jobs
without
offered were in the same range. Among the other hiring giants were RIL, Boston Consulting Group and Mckinsey and Co. E-commerce industry is leading the job market to resurgence. The hiring trends were favorable not just for the top graded IIMs but also others ranked below them. Revival of the job market is also evident as there is a significant hike in the PPOs (Pre-Placement Offers) and PPIs (Pre- Placement Interviews). The offers are provided not only for the IIMs but also for the institutes of the same league. Campuses such as 2013 has witnessed a comparatively slow economy. Sluggish market activities were accompanied by disappointing hiring trends. Also, the economy was
XLRI, XIM (Bhubaneswar), MDI Gurgaon, NMIMS (Narsee Monjee Institute of Management Studies) are witnessing the surge in the numbers by 20-100%.
moreover influenced domestically rather than the impact from the global activities. Whereas, 2014 was considered more promising with the formation of a Modi government elected unanimously. Finally, it can be seen that the forecasting of the bullish prospects was true and market displays positive hiring trends.
After the summer internships there are several companies which consider PPOs to be the more informed and convenient way to hire the talent pool as the companies have already invested their resources in training these students which further goes on to save the resources of accompany in the near future. Major
The sectors driving the job market include ecommerce, IT, healthcare, education, development,
21 | O C T O B E R 2 0 1 4
PPOs were seen from BFSI (Banking, Financial, Service and Insurance), FMCG( Fast Moving
Consumer Goods), telecom and conglomerates. Further, the increasing number of PPOs and PPIs are also indicative of the belief of several companies in the promising market trends. The top management institutes have reported a marginal increase in their salaries. B-schools like IIMIndore, FMS Delhi and XLRI have reported an increment of 0.24%, 1.12% and 0.3% respectively. IIM-Rhotak has reported a hike of 7% unlike IIMkozhikode with an increment of 11% as compared to the previous year. SPJIMR Mumbai reports a hike of 6.63% with the highest average salary of Rs 17.2 lakh per annum. On the other hand MDI Gurgaon reported 15.5% hike with the average salary being Rs 14.74 lakh per annum as compared to 12.8 lakh last year. IIFT has reported a figure of 15.48% increment. Given the colleges performing exceptionally well certain institutes have also reported a decrease in their average packages. IIM-Ranchi, IIT- Delhi and IMT Ghaziabad gave figures of -5.64%, -0.63% and -2.82% respectively. Since, the market seems to be promising and the future prospects appear to be bright therefore, if the students maintain their focus on delivering quality in their respective selection process; the opportunities are right up there and the campus recruitment process can turn out to be a huge success for all the B-schools of decent ranking inclusive of the tier II colleges as well.
22 | O C T O B E R 2 0 1 4
Banking
Public Sector Banking in India
-Rahul Mishra
India has a large number of PSU banks which
The PSU banks under pressure from the government
account for 70 percent of the total banking system but
have invested a lot to develop markets and, even in
are going through a critical situation of bad loans; the
the stock exchanges and other agencies. These stakes
country's PSU banks, are witnessing bad loans and
can prove to be handsome sources of cash as the
uninspiring profits, because of which they might
banks require billions in capital for the coming years
begin the sale of unwanted assets summing up billions
to comply with the Third Basel Accord of global
of dollars to help raise cash needed to meet stiff
banking rules. The major capital needs of the banks‘
regulations.
will met through the sale of shares and debt in bank
Central Bank of India a public sector bank could be first among the banks, which is planning to sell a part
themselves but the government wants the banks, to sell some of their assets.
or its entire home finance unit by the end of this
According to Industry advisers the time is most suited
December. Another state-owned bank, IDBI Bank Ltd
for sales as the Indian equity markets have risen
- which owns stakes in the country's top rated and
greatly, backed by Prime Minister Narendra Modi‘s
stock exchange agency Credit Analysis and Research
government making India the best performing stock
Ltd: could put some of its non-core stakes on sale by
market in Asia for this year. Punjab National Bank,
March. The bank is looking for the opportunity to sell
which
its family gold (stakes) as referred by Bank‘s MS
Management Company hopes to good appreciation
Raghavan.
from its assets. The major issue is finding a strategic
has
stakes
in
ICRA
and
UTI
Asset
investor as unlisted assets are less transparent and are not easy to meet the expectations
of
banks.
instance
For
the
IDBI tried to sell its 16 percent stake of CARE but the bids failed to meet
the
targets.
According to Analysts State run banks are trading
below
their
book value and a much needed
reforms
are
required to consolidate and 23 | O C T O B E R 2 0 1 4
improve
attractiveness of the banks to its investors. Another factor in PSU banks is high level of NPAs
remove the loan from the balance sheet and the amount of capital will be reduced.
(non performing assets), as compared to the private
To give a conclusion to this problem is a tough task as
sector banks. But, blaming the PSU bankers alone for
mentioned earlier PSU banks have done remarkable in
that would be partial as these banks are under scrutiny
areas where privatized banks have not yet reached
of government regulators, ministry of finance, press
though they provide better services and experience to
and other such bodies still these banks have shown a
the customers is it viable to privatized whole of the
phenomenal growth in fields like medium and small
banking sector ? We saw that United Bank of India
business enterprise, agriculture, etc. and have
was near to bankruptcy in 2013 and government has
expanded tremendously in every corner of the nation,
already asked for its merger with IDBI bank so, these
as these banks are under government intervene, are
are the issues coming up where larger PSU banks are
therefore affected by various factors, for example the
being asked to look for takeover targets but, it is more
directors or chairpersons reports to the bureaucrats
of a problem than solution because if there are NPA
who in turn report to the respective ministers and the
issues with smaller banks than it can shake the
tenure for these ministers is short lived thereby
stability of the larger bank.
neglecting the underperformance and the cause for it.
But we can see there is not much of a damage if a
The next issue is that many of the PSU banks have
smaller bank is merged with a larger bank as both will
been functioning without full time chairmen and
remain PSU bank there won‘t be privatisation so the
directors and positions remain vacant for several
services would remain same and also the operations
months and if the government wants its initiatives like
will remain the same the only unanswered question is
Jan Dhan Yojana to flourish then it needs to fill these
whether the shareholder value will increase or not? So
vacant positions.
to answer such questions we need to wait and look for
Let us now look at the other aspect also, there is a relaxation provided by RBI which will lower bank‘s cost of raising Tier 1 capital which will help big public sector banks like Bank of Baroda, SBI, Punjab National Bank attract investors. These banks will also be benefitted with lower cost of funds. So, looking at the scenario an innovative solution can be opted which is not so prominent in PSU banks but is visible in private sector banks; it is securitization or selling off a portfolio of performing loans. This will
24 | O C T O B E R 2 0 1 4
the impact of these mergers; for now we can only say that if the problem of capitalisation is solved then it would be good for the system.
Economy
Demystifying India’s Economy
-Sameena Usman
India has been rolling out a lot of whizkids through time immemorial and still continues to do so. Almost anywhere across the globe, you can drop in on any random place right from a bookstore to a renowned university or a prospering firm and likely as not be confronted by bright Indians offering sharp analysis on various fields &. economics obviously is not one that is left behind! there are Indians who are aware of how best to fight poverty, create wealth and promote innovation. Yet the performance of the Indian economy itself, over the last few decades, lags well behind most of the rest of Asia at least!
Despite, innovate efforts on increasing FDI (foreign direct investment) in india such as ‗make in India‘ campaign, is there enough surety of prosperity? Well, even if such campaigns result in a significant increase in FDI inflows, it should be kept in mind that at present FDI contributes only to 1.3% GDP (gross domestic product: total value of all finished goods & services in a country) for India which is way below the world average for countries comparable to our country in terms of GDP per capita. So for these to result in a significant overall increase in the GDP
High inflation rates (fall in the purchasing power of rupee), an almost unmanageable CAD (current account deficit: imports > exports) and the slump of our domestic currency in the international market are likely to reflect in the economic recovery of our country, if any. Yes, all the hype of
Well, citing an example, speaking of the latest,
growth rate, is a bit of a stretch. Also, a country's ability to take advantage of FDI is measured by the quality of its institutions, policies, market structures. Thus, along with the process reforms that the 'Make in India' campaign seems to emphasise on, there has to be deep policy reforms as
India being a superfast
developing economy is mere hype, or rather,
it
definitely is a developing country ,but at a ‗‘superfast pace‘‘ ? Well that‘s of sceptical concerns, even so! Are we satisfied with India always being a ‗developing‘ country no matter at what pace, or won‘t we want it to bear the fruits of finally being a ‗developed nation‘?!
well in order to see some significant improvement. But more importantly, even if we nail the growth, there is very little evidence in the Indian context that higher growth leads to a significant reduction in poverty - the key ingredient of 'achha waqt ' for the masses. To measure this, people use what is called the growth elasticity of poverty, which captures the responsiveness of poverty to economic growth (extent
Having said that, it‘s not like there are zero efforts
to which poverty falls when there is a unit increase in
being made either, but instead of focusing on the
growth). India's performance in this respect during the
minute attempts which have been successful in gold
post-liberalisation era has been worse than that of
plating the actual economic ore of our country, let‘s
China and other comparable countries.
have a look into why or what is stopping India from touching THAT peak of economic Everest!! 25 | O C T O B E R 2 0 1 4
Don‘t get disheartened as yet!, well there have been
• India is also racing its way up to becoming one of
few good indicators as well, the ones which aid in the
the largest retail markets in the world. Yet again
so mentioned ‗gold plating‘ ! Thus, flashing off the
among the star rankers, the retail industry of our
mix of Indian assets, here‘s a list of few interesting
country is at about $450 billion.
Indian economic indicators:-
• Agriculture is definitely our forte! With a globally
• India has the ninth-largest economy in the world by
second position in farm output, and also a remarkable
nominal GDP (at $1876.8) ,GDP can be defined as the
first place in the production of milk, jute and pulses.
market value of all the officially acknowledged goods
• We are also the network masters with the world's
and services that are produced in a nation within a specific time period.
third
largest
road(
4.3
mn
kilometres
of
interconnected roadways) and the fourth largest rail
• Thanks to economic-math duo! the projected GDP
network in the world, with a track length of 114,500
of our country would be at $13,716 billion, by 2030.
kilometers. And also, a national tele-density rate of
• Present-economic-data
74.15 % .
Currency :
61.28 USD/INR
GDP
1876.8 billion $ ( 3.03% of world
• Almost half of India's population is below 25 years. By 2020, the average age of an Indian is expected to
:
economy)
be 29 years. The demographics of a young population offer a distinct growth advantage
Sector wise contribution to GDP:
• Speaking of the talent pool, India has the second-
Service sector :
60% of GDP
largest pool of scientists and engineers in the world.
Industry sector:
26% of GDP
• Region wise excellence can also be seen, for
Agricultural sector: 14% of GDP.
example: Chennai, the Detroit of Asia, accounts for 35-40 per cent of India's total automobile industry.
GDP Annual growth rate:
5.63% • Few sectors have proven to be beneficial such as the
Unemployment Rate:
5.20%
aviation sector in India has attracted foreign direct
( Agriculture & textile industry are the only major
investment (FDI) worth $449.26 million in the last
employers)
one decade.
Inflation rate:
6.46%
• The term ‗sunehra bharat‘ holds true with the
Industrial production:
0.40%
official gold holdings of India at 557.7 tonnes, thus ranking 10th in gold reserves.
Our nation stands 11th in terms of factory output generation. • It also managed to grab a seat in G20 ( group of 20 major economies of the world) 26 | O C T O B E R 2 0 1 4
• India's Forex ( foreign exchange reserves) stand at $280.17 billion.
low exports, which implies higher imports and hence a higher CAD ( imports-exports). High CAD will inturn lead to high inflation thus lower business activities directly leading to low GDP of the nation! These factors can as well be worked upon by stringent and innovative policies being slowly being taken up by our present government but apart from these, there are few ailments which have struck our economy like malaria jaundice and what not ! let‘s peek into these major factors or the prominent characteristics of our economy ! Corruption Decelrates Economic Growth: Corruption is often held culprit for lower tax revenues than expected and yes, corruption is indirectly associated with lower growth rate in many instances. For example, some estimates show that only 10% of • Eight companies from India appeared in the Fortune
the public distribution system (PDS)money in India
500 ranking. Reliance Industries, Tata Motors and
reach the targeted population with the rest being all
Tata Steel also figured in list. Showing signs of
leakages. Not only do such leakages drastically reduce
industrial excellence.
the effectiveness of anti-poverty schemes, but also it
But despite all these, as already mentioned we are not able to reach that pinnacle of success owing to the
accompanied with the lack of tax revenues leads to large fiscal deficit.
factors such as high fiscal deficit(country‘s expense-
Growth?! yess!, but unequal growth?! Nay!!
income), rising farm wages, domestic supply-side
With a Gini coefficient (measure of the un-equality in
constraints, unexpected weather patterns, rise in
economic wealth within a country) of 33% , it can be
international oil prices, rupee depreciation( drastic fall
safely said that India has an unbalanced growth. The
in the value of a single rupee), volatile or
fruits of growth haven‘t reached the bottom 20 %
unpredictable
expansionary
(roughly 250 million) of our population. Locally too,
monetary policy ( increased money supply further
the difference between incomes of different states is
aiding depreciation).
spot on ! There‘s a 10 fold difference between the
The Economic Loop Hole:
richest state Goa and the poorest state Bihar. This is
capital
flows
and
Thus in simple terms, a slow economic growth ushers negative business sentiments, high interest rates and 27 | O C T O B E R 2 0 1 4
larger than the real income gap between the GDP per capita of the USA and Angola!! The fact that
differences within India are comparable to cross-
world‘s merchandise exports has improved. Trade
country differences is astounding!! The growing
was & will most definitely continue to serve as an
regional disparities have discouraged political resolve
engine of growth in the years to come.
for further economic reforms that might further amplify the inequalities.
initiate
Inflation:
judicious
economic
reforms
thereby
preventing the deceleration of growth in the country
Inflation (presently at 6.46%) is a major challenge for the economy of our country. , inflation in India is slightly high, continuous inflation impacts allocation of resources negatively, slows down growth and worsens
Hence, it is in the hands of the new government to
income
distribution.
High
wages
in
agriculture with low productivity can be inflationary. Secondly, the fiscal deficit, which is an additional source of inflation, has spilled over into the current account leading to a lot of exchange rate volatility restricting the realisation of our growth objectives. Developed economies such as US, UK and EU have been experiencing inflation lower than their central bank targets and hence, their central banks have been engaging in printing money by buying large volumes of government securities. Hence, these 3 major factors are juggling with the future of our economy, none the less there are rays of hope too as in:With standing these challenges, the Indian economy has almost quadrupled in size since 1991, growing at an average of 6%. Savings and investment rates are comparatively higher at around 31% of GDP. Also a comparatively younger population offers a distinctive growth advantage for our nation. Service sector productivity, the biggest sector in the economy , has also increased over a couple of years. Our share of the
28 | O C T O B E R 2 0 1 4
and from individualistic perspective, facing away from corruption, not giving in to working for foreign MNC‘s & thus refraining from indirectly contributing to the brain drain attempts by foreign countries, investing in our own nation, trying and using only made in India utilities , all these contributions might look minimal & unrealistic but as we all know, „‟every drop makes an ocean‟‟ so does „‟every Indian make up the Indian economy‟‟...let‟s all do our economic bit !
Politics
Unveiling The New NaMo Economic Team BJP's victory
-Sachi Kheskani
in Haryana and Maharashtra state
chief secretary of Rajasthan after the BJP government
elections has capped several days of action on the
came to power in the state last year. During this
economic front and has given Hon'ble Shri Narendra
tenure, state initiated chief labour reforms. Mehrishi
Modi plenty of room to cut through hurst of
was a joint secretary in the department of corporate
regulations and state controls. Amidst all of the
affairs in the law ministry between 2001 and 2004.
reforms, Mr Arun Jaitley puts up that "Reform is the
Between 2003 and 2004, Jaitley was law minister in
art of possible" hinting that there is more to come.
the previous NDA government. Mehrishi belongs to
While the newly formed Government takes its baby
the same Rajasthan cadre and 1978 batch as
steps, reforms are much easier now than in the later
Mayaram. Watal, also of the 1978 batch, belongs to
years may hold as a postulate. With a thumping
the Andhra Pradesh cadre. One of the two is likely to
majority Mr. Modi was elected in May on promises of
become the finance secretary. The tradition is, if the
rejuvenating the Indian economy and increasing
two most senior bureaucrats in the ministry are of the
employment
and
same batch, their ranks in the Union Public Service
economists were disappointed by his first budget and
Commission (UPSC) examination are taken into
a lack of progress in initial stage for fixing structural
consideration. If that is maintained, Watal will
economic problems. In order to quell these concerns,
become finance secretary.
opportunities,
but
investors
NaMO constituted a reform minded team at the finance ministry, which includes US based well known economist Arvind Subramanian
as chief
Economic Advisor to help formulate the next budget and policy. It all started when the new government took
over,
speculations
were
widespread
that
Mayaram and (the then) revenue secretary Rajiv Takru, considered close to the former government, would be transferred from the finance ministry. Takru was replaced by Shaktikanta Das in June and posted to the department of the Northeast region, while Mayaram continued as finance secretary, contributing to many tasks, including the Budget presented by Finance Minister Arun Jaitley in July. The budget was not very effective and criticised by many including Mr Arvind Subramanium as it did nothing to Kick Start the economy. Rajiv Mehrishi was appointed 29 | O C T O B E R 2 0 1 4
Rajasthan Chief secretary Rajiv Mehrishi will replace Mayaram, who will then take charge of Tourism Ministry. Mayaram will replace Pervez Dewan as tourism secretary on November 1,2014. However, Mayaram will chair Foreign Investment Promotion Board (FIPB) meeting on October 21 that is expected to decide on raising foreign direct investment in HDFC Bank. Mayaram‘s transfer was part of the first major shuffle of top civil servants since the NDA came to power. In all, 20 bureaucrats were moved, many at the level of secretary, the senior-most rank in a ministry. This clearly indicates that Modi wants his own team to draw up the next Budget, which will be a symbol of the new thrust on economic reforms. The timing is significant as the Prime Minister's Office and the Finance Ministry have just begun work on the first full-fledged Budget of the NDA government.
Hence, Bharatiya Janata Party-led government might
In other bureaucratic changes, Anil Swarup, a 1981
slowly transfer bureaucrats considered close to the
batch IAS officer from the Uttar Pradesh cadre, has
earlier regime, which might lead to a deliberations
been appointed as coal secretary. He was appointed as
over fixed tenures for secretaries. Mayaram was
an officer on special duty in the coal ministry. He will
brought
P
join office as secretary from November 1, after in
Chidambaram in 2012 after he replaced Pranab
office S K Srivastava retires. His selection came at a
Mukherjee as finance minister. Mayaram had worked
time when the ministry is preparing implementation
previously in the finance ministry, including in the
of the Supreme Court's decision on deallocation of
infrastructure division.
coal blocks. He was active in clearing delayed
back to
the
finance
ministry by
Now, only two of the five secretaries in the finance ministry - Financial Services Secretary G S Sandhu and Expenditure Secretary Ratan Watal - stay behind from the previous regime. In September, Aradhana Johri was appointed the new disinvestment secretary. She took charge from October 1, when Ravi Mathur
projects as head of the project monitoring group set up by the former government to revitalize investments in key sectors. His batchmate Anuj Kumar Bishnoi has been appointed as secretary, ministry of water resources, river development and Ganga rejuvenation which is one of the Prime concerns for BJP government as the neighbouring states economy
retired.
depends upon Ganga. Alok Rawat, a 1977 batch IAS Talking about qualifications of our new "CEA" who is,
Oxford-educated,
is
an
alumnus
of
IIM-
Ahmedabad and St Stephen's College. Subramanian is
officer,
has
been
appointed
secretary
in
the
department of administrative reforms and public grievances.
appointed for a tenure three years will get the rank and pay of a Secretary to Government Of India. The CEA is responsible for producing the Economic Survey, a document on the state of the economy that provides the base for drafting of the budget. He also brings out a mid-year economic update that is presented to Parliament. His focus will be on growth, investments and providing equitable growth for all Indians. An economist of international repute, Subramanian has closely worked with Reserve Bank of India Governor Raghuram Rajan during his tenure at the International Monetary Fund (IMF). One of the prime factors that made Modi take this decision was the excellent understanding Subramanian shares with Rajan. 30 | O C T O B E R 2 0 1 4
Indian economy is showing some signs of renewal and inflation has decreased rapidly, aided largely by a drop in global oil prices. Narendra Modi also begun an overhaul of obsolete labour rules, reducing power of labour inspectors and the red tape for small companies that makes India one of the most difficult places in the world to do business. Indian Bonds, shares and rupee currency all have performed strongly in response to the new economic policies. Also a reduction in Interest rate is expected as per mandate of Mr Jaitley. Lets see if remains no more a dream!
"SONE KI CHIDIYA"
Industry Overview
DTH Industry in India
-Manjari Sharma
DTH stands for Direct-To-Home television. It was
launched its services in 2007 with a drastically low
first proposed in India in 1996. At first they could not
onetime cost involved for the subscribers. The market
pass approval because there were concerns over
became quite competitive where every player came
cultural invasion and national security. In 1995
with new innovative offerings and the DTH
government felt the need to regulate Cable TV and
companies are taking huge costs upon themselves in
passed the Cable TV networks regulation Act. In
acquiring new customers. Analysis shows one clear
2001, TRAI issued a set of instructions for operating
trend among the subscribers, more company tries to
DTH. In 2003, Country‘s 1st private DTH license was
acquire new consumers; it puts a bent in the profits. In
awarded to dish TV which started operations in 2004.
this situation, Dish TV is positioned quite uniquely
However, the cable operators increase in strikes, tariff
because it already has a large consumer base to
plan, selective broadcast and poor services were the
cushion the negative effects of adding new customers.
main cause of dissatisfaction among the customers.
Let‘s have a look at the SWOT ANALYSIS of this
Thus, creating an opportunity for DTH. DTH offered better quality picture than cable TV because cable TVs in India are analog. Despite digitization, the cable transmission is still analog whereas DTH provides consumers stereophonic effects. Its network penetrates to rural areas where
industryStrengths-
Increased
high
definition
services,
declining content acquisition cost, rural penetration, and presence across almost all geographies of India, customer friendly multi-tiered regional packages, and Diversified content.
other terrestrial transmission fails. Besides enhanced picture quality, it also allows for interactive TV services such as Internet access, movie-on-demand and video conferencing. CAS was introduced in metro cities of India to provide the subscriber the choice of channel they wish to view. In the beginning Dish TV was the main player in the DTH industry and was registering growth mainly in the areas where cable TV was not available. The viewers were not ready for the cost of STB. In 2007 CAS mandate was started in selected metro cities, where subscribers had to invest in a set top box. Though it was not very successful, it provided a wider platform to the DTH and consumer became more aware and geared up to pay for the set top box. Looking at the opportunity Sun Direct 31 | O C T O B E R 2 0 1 4
Weakness- High Subscriber Acquisition Cost (SAC), low ARPU, which is an area of concern. With an increasing amount of channels, after a point of time the quality of the signal had been lowered to accommodate more channels (example BIG TV). DTH services has a problem in the monsoon season too, the cloud cover and density manages to disrupt service as India has 3 to 4 months of rains, this has yet not been rectified and exists with all DTH service providers. One-third of its revenue, not profits, is taken by the license fee, entertainment and service taxes. DTH is the only category that pays tax on the same
service
to
both
the
state
and
central
governments. On the cost front, cable players do not
need to bear any transponder or spectrum charges,
As per the regulator, a vertically aligned broadcaster
which burden the DTH players.
can be permitted to control only one distribution
Opportunities- Cutting down license fees and one time entry fees as well as better technology for STB so it‘s easy switching to some other frequencies for DTH
broadcasts
during
rainy
season.
With
platform operator. For example, Sun network owns and operates television channels under the Sun TV brand, a cable service under Sun Cable Vision (SCV cable) and a direct-to-home service under Sun Direct.
penetration of TV in India standing at approximately
Customer churn rate may negatively impact bottom
65 percent, at present the country has close to 80
line – constant attention and strategy needed to
million non-TV households, which presents a key
manage and control subscriber base.
opportunity for the television distribution players. This low level of penetration holds great potential for players to increase their subscribers and revenues. Drivers such as rising incomes, decreasing household size and rising urbanization would only provide a further leap. With the government‘s digitization mandate slowly but steadily progressing towards its target, the television distribution space is filled with prospects however, it would call for investments and improvements. All metros except Chennai have been largely digitized and the Phase-II of digitization, which covers 38 cities, is also nearing completion. Phase III and Phase IV of digitization target December 2014 for their completion. This would mean
digitization
of
additional
40-50
million
household in the balance towns.
Competition can cut revenues by forcing price-cuts and reduced margins. Also, improved quality by cable and
IPTV.
The
recently
issued
recommendations for direct to home companies by market regulator TRAI threaten to send the Rs 91,800-crore media and entertainment sector into a tail-spin, as it seeks to curb monopolies and restrict cross-holdings in distribution platforms. 32 | O C T O B E R 2 0 1 4
the government to push through DAS, despite tough resistance from thousands of small cable operators. Under DAS, the government had deadlines for conversion from analog to digital, which began with metros. Earlier, local cable operators under-reported the subscriber base so that they do not have to share the subscription fee with MSOs and broadcasters. Local cable operators realized if they did not move towards digitization, subscribers, who now had an alternative, would move to DTH. It is also aimed at promoting government's ambitious financial inclusion scheme 'Pradhan Mantri Jan Dhan Yojana', as Dish TV has announced that it will offer 10 per cent discount to subscribers paying their bill through RuPay-enabled cards.
Threats- DTH is currently a 5 player market.
operators
DTH unknowingly also played a key role in helping
2014 it is growing at a rate of about one million per year. DTH operators opine that technological edge will continue. DTH used a cautious approach to begin with and focused on rural areas. Within ten years of its launch, DTH has become a force to reckon with. Its subscribers are not just limited to rural India with over 60 percent belonging to top 20 cities. All DTH players in India are backed by large organizations with significant ability for marketing, thus creating a
language barriers and gaining acceptance with rural and urban subscribers. Currently, the future looks promising as estimation says that the Indian DTH industry is all set to grow to $3.9 billion and 63.8 million subscribers by 2017 and $5 billion and 76.6 million subscribers by 2020.
unique brand. With no intervention by the middlemen and its direct access to customers, DTH has successfully addressed the issue of accessibility. to be technologically stronger as it offers a higher bandwidth and a natural return pipe. The last decade brought remarkable changes in the Indian TV industry as DTH services were introduced, which forever changed the way people viewed and used content on television. Customers for the first time had a choice of selecting channel and paying accordingly, an option that never existed before. DTH industry outshines most markets by surpassing 33 | O C T O B E R 2 0 1 4
International
Falling Brent Crude Prices
-Srishti Karmakar Libya's oil industry has started pumping out oil again
The oil prices have not seen such a fall in the last
— with exports unexpectedly rising to about 810000
couple of years. Oil is in the middle of one of its
barrels per day in September. And, at the same time,
steepest selloffs since the financial crisis, with prices
oil demand in Asia and Europe has started to weaken
on the international market falling 18 percent since
particularly in China and Germany. So now oil prices
mid-June, to $94 a barrel on Sept. 30. There can be
are falling, from their June peak of around $115 per
two explanations either not enough demand or too
barrel down to around $85 per barrel at the end of
much supply. According to the International Energy
October.
Agency, in 2014 world demand for oil will grow only 1.5 percent. Oil prices rose throughout the 2000s because global oil demand surged especially in fast-growing China and there simply wasn't enough oil production to keep up. That led to the sharp oil spike in 2008 and subsequent recession. And once the financial crisis waned, the same dynamics returned. Oil has hovered around $100 per barrel since 2011. Since 2011, the
Brent crude, the international oil benchmark has also struggled, falling as low as $84.85 a barrel on 22nd of October. That‘s the lowest since November 2010. The abrupt acceleration of an over 26 percent slide in prices since June was triggered by three news items that epitomized the market's turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output.
US oil boom has been offset by geopolitical disruptions elsewhere. As oil prices surged, many energy companies suddenly found it profitable to start extracting oil from difficult-to-drill places. In the
The diminishing outlook for consumption is colliding with an unrelenting rise in U.S. shale oil, leading to a glut of crude that has knocked Brent lower since June.
United States, companies began using techniques like
This situation can be compared with the bubble
fracking and horizontal drilling to extract oil from
bursting crash of 2008, although there are some things
shale formation in North Dakota and Texas. That
different in this case. The 2008 crash was demand
helped foster a boom in "tight oil" production. But
driven and the sharp drop in price is being caused due
until recently this did not have much effect on the
to supply. Continued growth in U.S. shale production
global oil prices. That is because, at the same time, we
and increase in non-OPEC countries oil exports have
were also seeing all sorts of geopolitical conflicts
led to excess capacity. Slowing demand is making the
elsewhere in the world. There was a civil war in Libya
supply glut even worse. The International Energy
in2011 that hurt oil output. Iraq was a mess. The
Administration
United States and Europe slapped oil sanctions on
projections for 2014 to about 200,000 barrels per day
Iran and pinched that country's exports. But over the
from the current 700,000 barrels per day. The IEA
past month, those disruptions have started easing a bit.
forecast is the lowest since 2009.The reason behind
34 | O C T O B E R 2 0 1 4
lowered
its
crude
oil
demand
the lower projection is because of the softening
with Saudi Arabia over whether to cut output. How
Chinese and German demand and the Euro zone
OPEC responds in November could go a long way to
recovery. Total world oil demand is expect to grow at
determining the course of oil. If the group agrees to
1.05 million barrels per day this year. That is well
curtail production, oil prices might rise again (or at
below the expected increase in production from non-
least stabilize). But if OPEC lets things be, then oil
OPEC countries alone, which is anticipated to grow
prices could conceivably keep falling.
by 1.68 million barrels per day in 2014, according to KAMCO research. Dragging oil demand may continue longer than many economists would like as global economies struggle to post strong recoveries, and some nations, such as Japan, substitute oil for natural gas and alternative fuel sources. The demand is set to remain soft due to the global growth downgrade by International Monetary Fund. The strong U.S. dollar is also a key point pressuring the oil market. This is in addition to the pressures from the weak economic data from the world‘s biggest energy consumers. If the U.S. dollar were to fall, oil prices would have been supported more than what the market has seen recently. The big unknown is how OPEC might respond to this fall in prices. OPEC countries — including Saudi Arabia, Iran, Iraq, and Venezuela — still produce 40 percent of the world's oil. And OPEC members can, in theory, coordinate to cut back on production in order to prop up prices. But it's unclear whether OPEC will actually do this at its next meeting in November. For one, there are bitter divisions within the organization. Some OPEC countries need a very high price to "break even" on their budgets and pay for all the government spending they've racked up in recent years. Iran, for instance, likely needs prices at around $130 per barrel. But Saudi Arabia can probably live with prices closer to $90 per barrel. Iran is at odds
35 | O C T O B E R 2 0 1 4
Oil is still much, much pricier than it was a decade ago. And it's entirely possible that the recent drop could prove only temporary (after all, we saw price dips in 2012 and 2013, but new conflicts flared up in the Middle East and prices soon popped back up). But assuming the current drop is real and sustained it could have a very large impact around the world. But it is hardly guaranteed that world oil prices will keep falling. We might have entered a new era of oil "abundance." The world is highly unpredictable. Perhaps new conflicts will arise in oil-producing regions. Or perhaps the US oil boom will lose a bit of steam. Or perhaps something else unexpected will happen. Predicting the future is always difficult but it's especially difficult when it comes to oil.
Controversy
The DLF Fiasco
-Kolisetty Aishwarya
A huge company like DLF supposedly has everything
generation of power, recreational and hospitality
on its platter. But to get every glitter in the world, the
services and life insurance.
company might have crossed some boundaries which were out of limits for everyone. Now why exactly will the SEBI not react to such a deal when smashing such a large company can bring it amazing goodwill and reputation
plus
don‘t
forget
safeguarding
the
investors‘ interest. When a scam happens in India, it
DLF has more than 60 years of record with approximately 308msf planned projects and 55msf projects under construction. It is now spread across 15 states and 24 cities in India. The development projects include both residential and commercial complexes. The company went public in the June of 2007.
definitely has to be backed by spicy reveals that would glorify the capabilities of our countrymen in
IPO of DLF:
this very fraudulent line. Today after 7 prolonged
• On the 14th of June, 2007, the bid resulted at per
years, a well driven controversy has been brought to
share priced at Rs.550 and the IPO collected around
light and a look at it would lead to us rethinking about
RS.2944crores.
the company DLF
• Among the institutions, the FIIs bid for about 48.55 crores shares and other institutions like banks and domestic financial institutions went out for about 3.5 crores worth shares. • The mutual funds went for about 3.52 crores worth shares. In total, DLF‘s IPO passed out to be one of India‘s largest IPO‘s of those days.
About DLF:
• The HNIs which includes the corporates went for around 1.9 crores of an allowable 1.7 crores and as far
Founded by Chaudhary Raghvendra Singh in the year
as the retail part of the IPO is concerned, it witnessed
1946, DLF today is supposedly one of the largest
around 5.09 crores shares bidding, of total allowable
commercial real estate. It mainly engages in the
5.22 crores shares.
development of residential, commercial and retail properties. Right from the land acquisition to planning, execution, construction as well as marketing the real estate projects DLF undertakes all the activities. Deviating from the real estate business, this company also indulges in other activities like
36 | O C T O B E R 2 0 1 4
• Also the company allocated 10 lakhs shares for its employees and overall saw 78% had been subscribed.
the auditors are also the same despite the change in owners. Judgment: SEBI concludes as DLF under fault and goes about to ban the company and it six top executives from capital markets for the period of three years. The 6 people include the founder chairman of DLF as well. The judgment is by far one of the harshest judgment given out by SEBI till date. The judgment was backed by the accusation of deliberate suppression of important information in a huge initial public offering. DLF in action: The tip of a sharp pin will definitely wake the The Fiasco:
sleeping tiger. Now that the entire negative strikes
After almost 7 years, today the securities exchange
DLF at once the company finally decided to roar
board of India has pointed its finger at this company
back. DLF has challenged the securities Appellate
accusing it of suppressing important information
Tribunal that before the company decided to go
regarding the subsidiary companies of DLF during the
public, Mr.Kimsuk Krishna Sinha, took up the matter
IPO back in 2007. Allegedly the company had de-
to SEBI and seven years back, SEBI did not take the
subsidiarised companies which it previously owned
matter seriously which drove Mr. Sinha to court that
through a sham transaction. This was done to put a
put up SEBI to this case. Thus if SEBI had taken up
cloak on the various legal cases the companies were a
the case seriously on the first moment itself, it could
part of over land disputes that they owned. The proof
have saved many investors from investing into a
of selling at least 3 subsidiaries have been acquired
sham. DLF thus filed two appeals against the above
which were reported to be sold off to the wives of the
order.
top managers of DLF. Further enquiry showed that
2014 for DLF:
these were housewives not involved in any sort of business and the loans for the purchase were all arranged by the company itself. To this, SEBI went on to say that, although there was a change in the ownership of the subsidiaries, the subsidiaries are managed by the same executives who managed it before the ownership was changed. Also the authorized bank signatories, the registered office and 37 | O C T O B E R 2 0 1 4
After the entire set back, the stocks of DLF have been trading at around Rs110 per share. In March and June 2014, the company‘s stock price had rallied over by 50per cent. The decision of SEBI denies the company from raising low cost funds against its malls and office properties. Also the company has been facing other complications in this year as well.
downward
trend
since the beginning of this year when it could not achieve its sales target of 2.5 million square feet and
reached
its
highest at 0.44msf in Gurgaon. Taking a look at its cash flows, DLF‘s operating cash flows
have
been
• Supreme Court imposed a penalty of Rs.630 crores
significantly lowering down as it reaches rs.2734crore
on DLF in regard to the allegations of Competition
from rs.3822 core last year.
Commission of India.
The stocks of DLF have been trading all time low
• September 2014, Punjab and Haryana High court de
compared to its IPO in 2007 where per share of DLF
allocated 350 acres of its prime land in Gurgaon.
was priced at rs.550 and has reached its all-time low
• August 2014, the UP pollution Control Board sent
at Rs.110 bringing it down to one fifth of its worth.
them a notice to stop their conduction activity in Noida. • June 2014, the Riverside Luxury Project by DLF in Kochi was put on hold when the government cancelled its clearance.
The financials and overview of the company are as follows: A company that maintained a reputation for delivering best quality at minimal price is down in a pot hole today facing the worst under the watch of SEBI. So the question here stands whether the judgment and the
Apart from there allegations, the company is trapped under several minor legal cases binding the future of DLF.
allegations hold well for the company, or are they simply going to be facing hardships in the future setting an example for all the ill minded companies
Impact on DLF:
out there trying to reap shining profits out of evil
The current debt on the company stands at rs.19000
seeds?
crores and the company would face a problem to reduce its indebtedness as raising equity or REITs are no longer an option for them. Moreover the company‘s cost of borrowing is likely to increase in the future. The growth for this company is also on a 38 | O C T O B E R 2 0 1 4
Vriddhi Research’s Corner
Company in Focus: TATA Motors
- Ajay Arora
Company Overview
opportunity. Global Markets are also weak because
Tata Motors Limited is India‘s largest automobile
of problems in Euro-zone, stagnation in Germany &
company, with
INR
fear of missing GDP forecast in China. Therefore
2,32,834 crores (USD 38.9 billion) in 2013-14.
markets can take a hit from those factors, which could
Through subsidiaries and associate companies, Tata
further hamper the possibility of capital gain in
Motors has operations in the UK, South Korea,
particular stock. Investor need to very active while
Thailand, South Africa and Indonesia. Among them is
entering any stock or taking any position.
Jaguar Land Rover, the business comprising the two
• We had already witnessing a decreasing open
consolidated revenues
of
iconic British brands. It also has an industrial joint venture with Fiat in India. With over 8 million Tata vehicles plying in India, Tata Motors is the country‘s
interest with decrease in price, which is bearish signal: its major hint that stock may correct to lower level in coming trading days.
market leader in commercial vehicles and among the top in passenger vehicles. Tata cars, buses and trucks
• Negative global cues, as Indian markets are no
are being marketed in several countries in Europe,
longer isolated to global hits.
Africa, the Middle East, South Asia, South East Asia, South America, CIS and Russia.
Fundamental Rationale • Production of Nano is down by 14 percent
in
September (Y-0-Y) • Production Super Ace is down by 27 Percent in September (Y-O-Y) • Production of SUMO also come down Valuations
• Most of vehicles have seen decrease in production
As per valuations, currently stock is 5 percent
apart from the facts automobile industry has revived
overvalued. We should enter the stock if it goes below
from sluggish growth.
to 490 levels, which is the intrinsic value of stock or
• It has seen decrease in domestic sales of various
Investor can sell the future of Tata Motors stock of
vehicles whereas its competitor has market share
December Expiry. Also Investor can buy the put of
during same time.
490 of same expiry to make the gain of this 39 | O C T O B E R 2 0 1 4
huge return if one enter at corrections & holds the stock for the same time horizon. One can enter the stock if it slips below 490 levels. Rationale behind long-term Investment: • Revival in GDP numbers & favorable Inflation numbers could trigger rate cut in coming monetary policy which could be the direct beneficiary to AutoMobile Sector. • As Tata Motors is market leader in commercial vehicle, with increased industry activity Tata Motors will be hugely favored. • After deregulation of Diesel & Brent Crude reaching below 84 $ bbl will be benefitting sale of commercial vehicles in India. • Jaguar Land Rover sales volume has been growing at a CAGR of 20.08 percent from past 5 years in international market. Exports to China, which has Stock has already started correcting from 540 odd levels. As charts depict that RSI which is trading at 51 is on the downward move which is bearish signal. MACD is trading below Signal line again a bearish sign. Stochastic, Momentum & OBV every indictor is on the downward move which is confirming the trend that stock might correct to further levels. Investor should refrain in taking a new position at current levels. Stock has support has 490 level; Here investor can initiate fresh long positions. Stock is BUY for Long-term: • Although this stock is good buy for the long term taking 3 year time frame. An investor can expect a 40 | O C T O B E R 2 0 1 4
merely 5 percent in FY09 is been increased to 24 percent.
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