Niveshak Feb 12 by Zigu MBA

Niveshak THE INVESTOR

VOLUME 5 ISSUE 2

February 2012

World Economic Forum

The Great Transformation: Shaping new models

sustainable economy through innovation>> Pg. 08

A peek into the union budget pg. 14

FROM EDITOR’S DESK Niveshak Volume V ISSUE II February 2012 Faculty Mentor Prof. N. Sivasankaran

THE TEAM Editorial Team Akanksha Behl Akhil Tandon Chandan Gupta Harshali Damle Kailash V. Madan Nilkesh Patra Rakesh Agarwal Creative Team Anuroop Bhanu Venkata Abhiram M.

All images, design and artwork are copyright of IIM Shillong Finance Club ©Finance Club Indian Institute of Management Shillong www.iims-niveshak.com

Dear Niveshaks, From being the worst performer among emerging market currencies in

2011, the rupee has outperformed all emerging market currencies in 2012. Corporates will find dealing with this volatility a challenge as several forecasters are now changing their 2012 projections for the domestic currency. The rupee has gained nearly 8.2% since the beginning of the year up to February 3, which is the highest appreciation compared to other Asian currency. The BSE Sensex shot up to 6-week high on sustained foreign institutional investors (FII) inflows, low food inflation and firm overseas markets. FIIs remained net buyers. Another factor working in favour of markets is the sharp appreciation of rupee. The RBI cut CRR for banks by 50 basis points to 5.50 percent to ease tight liquidity, signalling a policy shift towards reviving growth after nearly two years of fighting inflation. With core inflation still stubbornly high, the Reserve Bank of India, as expected, left its policy repo rate unchanged at 8.50 percent for the second consecutive review. FDI in single brand has led to emergence of some global majors in Indian market. This will provide stimulus to domestic manufacturing value addition and help in technical up gradation of our small industry. Some more good news is expected on March 16, the day on which Finance Minister Mr. Pranab Mukherjee will present Annual Budget for 2012-2013 in the budget session of parliament commencing from March 12, 2012. There was some respite for international economy as well. The US unemployment rate fell to 8.3 percent in January, its lowest level in more than two years, thanks to an unexpected surge in hiring. This is the major factor which is going to help Barack Obama in the US presidential election, 2012. The financial crisis is calming down. Europe is no longer on the edge of an abyss. All the efforts must now be dedicated to the resolution of the economic crisis. This issue brings to you some more interesting and insightful reads. The cover story this month focuses on The World Economic Forum Annual Meeting in Davos. The issue also features an article on the annual union budget of India, which is going to be presented on 16th March 2012. The article of the month throws light on achieving goal of sustainable economy through innovation. This issue also features other articles on structuring the equity gap and telecom banking. The classroom section explains the concept of “Options Market”. We, the Editorial Team of Niveshak, would like to take this opportunity to thank our senior team for their valuable contribution to Niveshak. They are: Alok, Deep, Jayant, Mritunjay, Rajat, Sawan, Shashank, Tejas, Vishal and Vivek. Please join us in bidding adieu to all of them and wishing all happy times, good health and bright future in their personal and professional life. Stay Invested.

Team Niveshak

Disclaimer: The views presented are the opinion/work of the individual author and The Finance Club of IIM Shillong bears no responsibility whatsoever.

CONTENTS Cover Story

Niveshak Times

04 The Month That Was Article of the month

08 Achieving The Goal Of

Sustainable Economy Through Innovation

Bidding adieu

24 Finance Club 2010-12

11 The 2012 WEF Annual Meeting At Davos

Perspective 14 A peek into the

Union

Budget

Fingyaan

20 STRUCTURING THE EQUITY GAP

Finsight 17

When Airtel Airtel Bank...

Launches

CLASSROOM

23 Options Market

The Month That Was

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www.iims-niveshak.com

The Niveshak Times Team NIVESHAK

IIM, Shillong

Strong inflows strengthen ` to 3-month high Expectations of easing monetary policy by the central bank to boost growth has led to a surge in foreign fund flows aiding the rupee to post its fifth straight weekly gain in the week ending 3rd February. The rupee ended at 48.6850/6950 to the dollar, close to the dayâ&#x20AC;&#x2122;s high of 48.67, a level not seen since October 31. The total inflows this year has been nearly $5.8 billion in both equities and debt combined. The euphoria stems from the annual headline inflation, which slowed to a two-year low of 7.47% in December. The dollar inflows have resulted due to measures taken by the central bank to curb corporate and interbank speculation while attracting funds from non-resident Indians and foreign investors to support the rupee. Services PMI hits six month high in January Improved market sentiment and strong demand boosted the HSBC Services Business Activity index to a six month high of 58 in January from a distant 54.2 in December. The sentiment is driven by positive outlook for financial intermediation and hotels & restaurant sub-sectors that have witnessed a phenomenal growth since July 2011. However, as inflation still remains above the comfort level, the numbers have to be taken with a pinch of salt. The consensus is that it is too premature for RBI to cut rates at this moment and it would ideally wait for sustained decline in inflation before taking any action on the rate front. That has not prevented the central bank to cut cash reserve ratio by 50 bps to ease liquidity to indicate its shifting focus towards aiding growth. Overall, the HSBC composite PMI, which includes manufacturing and services, rose fastest in nine months to 59.6 from 54.7 in December. Positive outlook for IT sector in 2012 In spite of uncertain conditions in key global markets, rating agency Fitch has affirmed a

February 2012

stable outlook for the Indian information technology (IT) services sector in 2012. It considers that the strong liquidity position of the Indian IT companies would stand them in good stead in the current year. It also foresees a moderation in revenue growth in 2012 from 2011 levels as demand from key clients in US and European countries is likely to remain muted. The increased hiring by IT companies in anticipation of a better year is likely to put downward pressure on their EBIDTA margins. But, above all, the sector experienced some relief in the last quarter of 2011 by the depreciating rupee, though that rally may not be sustainable for long as seen by the reversal of the trend in early this year. The agency also mentioned that the sector would be monitored closely to update their stance depending on the margin position of the companies. Facebook to go public After a long period of eight years of existence, Mark Zuckerberg has finally decided to take his company public. Investment bankers have suggested that Facebookâ&#x20AC;&#x2122;s initial fund-raising target of $5 billion could well stretch to $10 billion based on investor demand resulting in the company valuation of up to $100 billion. This could make FB one of the most valuable internet companies of modern time. The step is a clear indication of the growing competition between Google and FB with the former launching its own version of social network called Plus. Also the paperwork involved in going public provided analysts the rare opportunity to peep into the financial details of the web giant that was created in a Harvard University dorm room. Zuckerberg agreed to cut his compensation from $1.5 million last year to $1 effective January 1, 2013, following the example of Apple founder Steve Jobs.

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European leaders looking east European leaders are beginning to recognize the financial influence of China’s huge holdings of foreign exchange reserves. In an attempt to build stronger ties with China, European leaders are making a bee-line to meet Chinese premiers, the latest being Chancellor Angela Merkel of Germany on a three-day visit. In response, Chinese Prime Minister Wen Jiabao assured greater co-operation by working with the International Monetary Fund to help shore up Europe’s finances. But he was silent on whether China was willing to drop conditions that so far have made its proposed help unappealing to European leaders. China has amassed a massive $3.18 trillion of foreign exchange reserves by the end of December, dwarfing the reserves of every other country and potentially giving it the financial firepower to make a significant contribution. China’s earlier stance of the need to buffer the risk of lending more money to Europe has not seen any amendment. As Chinese money could restore the confidence of the international investing community, the European leader might have no choice but to agree to political or trade concessions that China wants in exchange for assistance. India selects the winner of the fighter plane deal Indian government has decided to enter into a deal with French defence supplier Dassault Aviation. Their aircrafts, Mirage 2000 fighters, played a vital role for India during the Kargil conflict in 1999. The new offering by Dassault Aviation- the Rafale fighters, emerged a winner with the lowest bid among severe competition from Eurofighter Typhoon, American firms Lockheed Martin and Boeing, Swedish jet Saab Gripen and Russia’s MiG 35. French President Nicholas Sarkozy has assured of greater collaboration through transfer of technology and full support of French authorities. The deal will definitely provide a new life to the re-election bid of Mr. Sarkozy. An important term in the contract for the multi-role combat

jets ensures that half the value of the contract must be spent in India which will boost the public and private defence contractors in India. Piramal Heathcare in diversification mode

After having entered into financial services by launching two non-banking financial companies (NBFCs) and acquiring two private equity (PE) businesses Indiareit Fund Advisors Pvt Ltd and Indiareit Investment Management Company for Rs 225 crore, Piramal Healthcare Ltd. has its eyes set on the telecom sector. Piramal Healthcare picked up 5.5% stake of Essar Group in Vodafone in August 2011 and in February 2012 decided to pick up the remaining stake of Essar Group for Rs 3007 crore taking its total stake in the company to about 11 per cent. The series of purchases comes on back of the group desire to diversify into sectors that have more potential than pharma. That was one of the reasons for selling its Indian formulations business to US-based Abbott Laboratories in 2010. SC judgement on 2G is finally out The Supreme Court verdict on the 2G spectrum allocation saga appears to agree with the country’s Comptroller and Auditor General’s contention that a first-come first-served process of dispersing the licenses at “throwaway” prices led to large losses to the public exchequer compared to the alternative of auctioning them. Not wasting time after the apex court struck down 121 licences, the ministry has written to TRAI to put forward a policy and pricing mechanism for 2G services in view of the order setting auctions as the means of allocating spectrum.

The Month That Was

The Niveshak Times

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Article Market of Snapshot the Month Cover Story

Market Snapshot

Source: www.bseindia.com www.nseindia.com

MARKET CAP (IN RS. CR) BSE Mkt. Cap Index Full Mkt. Cap Index Free Float Mkt. Cap

63,57,880 29,92,574 14,78,260

LENDING / DEPOSIT RATES Base rate Deposit rate

10%-10.75% 8.5% - 9.25%

Source: www.bseindia.com

CURRENCY RATES INR / 1 USD INR / 1 Euro INR / 100 Jap. YEN INR / 1 Pound Sterling

49.33 64.84 63.25 77.41

CURRENCY MOVEMENTS

RESERVE RATIOS CRR SLR

5.50% 24%

POLICY RATES Bank Rate Repo rate Reverse Repo rate

9.50% 8.50% 7.50%

Source: www.bseindia.com 23rd January to 14th February 2012 Data as on 14th February 2012

February 2012

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BSE Index Sensex

Open 16,667

Close 17,849

% Change 7.09%

MIDCAP Smallcap AUTO BANKEX CD CG FMCG Healthcare IT METAL OIL&GAS POWER PSU REALTY TECK

5,681 6,278 8,808 10,919 5,801 9,799 4,042 6,183 5,495 11,178 8,110 2,078 7,223 1,711 3,292

6,347 6,961 10,005 12,127 6,247 10,452 4,136 6,333 6,042 12,527 8,775 2,187 7,697 1,934 3,573

11.72% 10.88% 13.59% 11.06% 7.69% 6.66% 2.33% 2.43% 9.95% 12.07% 8.20% 5.25% 6.56% 13.03% 8.54%

Article Market of Snapshot the Month Cover Story

Market Snapshot

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Achieving The Goal Of

SUSTAINABLE ECONOMY

Through

INNOVATION

Rajiv Singh & Sourabh Sahu

IIM Indore

A sustainable economy is one in which the resources are not used up faster than nature renews them and benefits are shared equitably. On one account, sustainability concerns the specification of a set of actions to be taken by present generation that will not diminish the prospects of future generations to enjoy levels of consumption, wealth, utility or welfare comparable to those enjoyed by present persons. At present, the average per capita consumption of people in the developing world is sustainable but population numbers are increasing and individuals are aspiring to high-consumption western lifestyles. The developed world population is only increasing slightly, but consumption levels are unsustainable. The challenge for sustainability is to curb and manage western consumption while raising the standard of living of the developing world without increasing its resource use and environmental impact. This must be done by using strategies and technology that break the link between economic growth on the hand and environmental damage and resource depletion on the other. However, the concept of sustainability is much broader than the concepts of sustained yield of welfare, resources or profit margins. If we see around us today, a sustainability revolution is taking place â&#x20AC;&#x201C; from an old economy that is high carbon, high pollution, waste intensive and ecologically disruptive, to a new economy that is low or zero carbon, low pollution, energy/

February 2012

resource efficient and ecologically supportive. But the question that has been lying beneath all those subtle layers of evolution is still the same - How to attain sustainable development for an economy? And it is perhaps the most important and the most daunting long-term challenge that the world faces today. It has often been forecasted that businesses, cities, communities and regions that lead this revolution will prosper because the new economy will outperform the old one. Why Sustainable development is so important for an economy? Communities, cities, counties, regions, states, provinces and nations need to undertake sustainable economic development strategies for defensive reasons, to avoid being left behind as the momentum toward a sustainable economy rapidly accelerates over the next few years. However, the positive reasons for launching a sustainable economic development strategy are even more important. A sustainable economic development strategy can guide places in evolving a culture of stewardship, innovation and action that will lead to prosperity, satisfaction, and inspiration. At the same time, a sustainable economic development strategy can be a powerful tool for regenerating low and moderate income communities. A sustainable economic development strategy provides guideposts on the way to the full real-

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social capital as it is for economic capital. Natural Capital: The economy operates within design limits inherent in the natural environment. If the economy disrupts the environment, it disrupts itself; and adds a higher financial cost to society and to individual businesses. Conversely, the sustainability revolution recognizes the economy’s dependence on the environment for fresh air, clean water, climate stability, renewable energy and a thriving ecosystem. Businesses need to derive value from the ecosystem without disrupting it. As the sustainability revolution proceeds, true cost pricing and true cost accounting to value major contributions of the natural world are emerging. Social Capital: A prosperous economy depends on a stable society with an effective workforce. The economy threatens its own foundations if it disrupts society by allowing an extreme gap to emerge between the very wealthy few and the rest of the population or by inadequately supporting society’s ability to ensure public safety, an effective educational system, a well trained workforce and an affordable health care. At the same time, a prosperous economy contributes to a stable society by creating the jobs, the opportunity for productive work and the income that people need to live satisfying lives. Economic Capital: Sustained economic prosperity requires that both the private sector and the public sector operate according to sound financial principles. Massive government budget and balance of payments deficits are not sustainable and put the borrowing countries in jeopardy to foreign lenders. At the same time, it is essential for countries to maintain and enhance their physical infrastructure. Economic capital is built

Sustainable Economic Development Strategies generate substantial economic and employment growth and sustainable business and community development by demonstrating that innovation, efficiency, and conservation in the use and reuse of all natural and human resources is the best way to increase jobs, incomes, productivity, and competitiveness

Article of Month Article of the the Month Cover Story

ization of the promise of a sustainable economy. As such, it can help create places that people will be very proud to provide for their children, and for their children’s children. Can Innovation realize a sustainable economy? Nowadays, a culture of innovation and action in relation to sustainability is increasingly becoming one of the criteria that businesses use to determine the strategic locations of their major financial investments and where they build and manage their main job-creating facilities. There is a reason for innovation to play a major part in the strategies of businesses. Over the years, new inventions and innovations in agriculture, mass production, transportation and communication during the Industrial Revolution were largely responsible for proving wrong English economist Thomas Malthus, who predicted that the world couldn’t support an exponentially increasing population. In the same vein, today’s inventors and innovators could very well prove wrong the skeptics who say that economic development and environmental protection cannot possibly go hand in hand. What should be the primary target for a sustainable economy? The sustainability revolution is based on the fundamental recognition that there are three forms of capital essential to the creation of genuine prosperity. In addition to economic capital (financial and manufactured), there are two other forms – natural and social. Any businessperson knows that, over the long run, a successful business needs to invest wisely to generate more income than expenses and to grow its capital. If a business lives off its capital, it will eventually go bankrupt. This is just as true for natural and

Article of the the Month Article of Month Cover Story

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most effectively and the economy works best when operations are transparent and guided by appropriate policies. Strategy to tackle these primary targets Sustainable economic development strategies generate substantial economic & employment growth, sustainable business and community development by demonstrating that innovation, efficiency and conservation in the use and reuse of all natural and human resources is the best way to increase jobs, incomes, productivity, and competitiveness. In addition, sustainable economic development strategies are the most cost-effective method of promoting renewable energy and clean technologies, protecting the environment and preventing harmful impacts from climate change. A sustainable economic development strategy has four key elements, referred to as the four greens: 1) Green Savings—cutting costs for businesses, families, communities and governments by efficiently using renewable resources and by reducing and reusing waste. 2) Green Opportunities—growing jobs and incomes through business development and expanding markets for resource efficiency, sustainability and clean technologies. 3) Green Talent—investing in fundamental assets such as education, research, technological innovation and modern entrepreneurial and workforce skills, because people are now the world’s most vital green economic resource. 4) Green Places—establishing sustainable transportation and infrastructure and protecting and enhancing the natural and built environment, to create more attractive, livable, healthy, vibrant, prosperous, productive and resource-efficient areas and communities. Innovation can both enhance economic growth and achieve sustainability through the development of alternatives to traditional usage of resources. The combination of drivers to reduce dependence on depleting natural resources; to reduce negative environmental impacts, notably climate change; to create significant new mar-

ket opportunities for new technologies; constitute a historically novel impetus to innovation. Conclusion The long-term solution to the model of sustainable economy is therefore to move beyond the “growth at all costs” economic model to a model that recognizes the real costs and benefits of growth. We can break our addiction to fossil fuels, over-consumption and the current economic model and create a more sustainable and desirable future that focuses on quality of life rather than merely quantity of consumption. We should aim to establish a long-term vision for the future that facilitates a cleaner and fairer future for generations to come. We envision that the measures taken will create a platform for an economy that helps to reduce worldwide carbon emissions, as well as provides attractive business opportunities to internal and external investors. The sustainable economy will become an economy, renowned for its utilization of renewable energy and innovative practices, celebrated for its commitment to zero waste practices and distinguished by a value system that goes beyond the financial. It will not be easy; it will require a new vision, for innovation with new measures and new institutions. It will require a redesign of our entire society. But it is not a sacrifice of quality of life to break this addiction. Quite the contrary, it is a sacrifice not to!

A Sustainable Economic Development Strategy can guide places in evolving a culture of stewardship, innovation, and action that can lead to prosperity, satisfaction, and inspiration

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NIVESHAK

Cover Story Article of the Month Cover Story

The 2012 WEF Annual Meeting At Davos Akanksha Behl

Team Niveshak

What is the World Economic Forum? The World Economic Forum (WEF) is a Swiss based, independent, non-profit international organization dedicated to improve the condition of the world economy by engaging corporate, political, academic and other leaders of the society to shape worldwide, local and industry agendas. The annual meeting at Davos, for which the forum is best known, brings together over 2,500 top corporate leaders, global political leaders, selected highbrows and correspondents to discuss the most pressing issues facing the world, including health and the environment. Apart from the meetings, the foundation produces a series of research reports and involves its members in sector specific initiatives. Annual Meeting 2012 The 2012 annual meeting in Davos was held from 25th January to 29th January, with the theme “The Great Transformation: Shaping New Models.” With 260 sessions, discussions and conferences, the theme echoes the need for a thoughtful renovation of the face of an unravelling universal system and haunting economic disorder. The discussions revolved around driving new models of growth and employment, leadership and innovation, sustainability and resources, and society and technology. Income Disparity- discussed for the first time in WEF Europe’s mounting debt crisis dominated the meetings. However, income disparity was one of

the top concerns this year. This was a striking turnaround as it had never been identified as an issue at the WEF before. This can be attributed largely to the Arab Spring uprisings, the Occupy Wall Street movement and other protests worldwide. There were no responses to the widening inequality gap, but an intensifying realization that economic development must include the poor, that creation of employment opportunities is critical, and that affordable food, housing, health care and education need to be an integral part of any solution. Before the start of the annual meeting, the International Monetary Fund reduced its projection for global growth in 2012 to 3.3 per cent from the 4 per cent mark it had forecast in September 2011. Many other economic forecasters also predicted a slowing economy. It is expected that Asia will continue to be the engine for global economic growth though at a comparatively slower rate, with China leading the list with 8 per cent plus growth, followed by India and Indonesia. A feeble global rescue effort and financial tightening over the past year have taken their toll on developing markets’ growth. Overall, emerging market development is expected to sustain in 2012, although at a slower pace. Domestic demand will be robust and with lower inflation, there is a possibility of both monetary and fiscal impetus in many countries. The Future of Euro Zone Coming to the Euro zone, its finance officials have guarded optimism about the latest efforts

Article Cover of the Story Month Cover Story

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to curtail the Euro zone crisis. They are certain that an arrangement to prevent a muddled Greek default is pending and that the key ingredients to resolve Europe’s sovereign debt crisis are gradually falling in line. One of Europe’s top economic official’s stated in an interview that a contract between the Greek administration and its private creditors on voluntary losses for bondholders would be complete within days and that the euro zone was showing improvement on solidifying its financial firewalls. However, in spite of the positivity, fears of a debt contagion remain. As stated by the IMF Managing Director, Christine Lagarde, “The Euro Zone crisis is not the region’s problem alone. It’s a crisis that could have collateral and spill over effects around the world.” She also said that no country is protected from the possible contagion and that it’s in everybody’s interest that the crisis is resolved effectively. Growth in developing high-growth markets Another topic that was highly discussed was the quest for growth in developing high-growth markets. Today, the search for growth prospects in emerging economies has become a necessity. The landscape of high growth consumer markets is changing rapidly. Household incomes in emerging economies will jump by more than US$8.5 trillion between 2010 and 2020—about 60 per cent of the global rise over this period. The growth in these incomes would lead to an increase in the consumption and demand. As per the Global Competitiveness Report 2011-12 published by the WEF, Singapore, Switzerland and Sweden top the rankings. The United States continues the decline it began three years ago, falling one more place to fifth position. However, the emerging economies continue to close the competitiveness gap with OECD economies. Capitalism – an important issue This year the WEF began with a debate on Capitalism. Bill Gates labelled Capitalism as a “phenomenal system” as it has generated a lot of innovation, something that no other system has achieved. According to him, there is no other sys-

tem that has improved humanity and the world is better off due to the presence of capitalism. However, as per another school of thought, capitalism in its current form does not fit the world around us anymore. British Prime Minister David Cameron said that the link between risk and reward has been broken due to years of uncontrolled “turbo capitalism”. The effect of Inequality and Youth Unemployment Economic issues dominated this year’s five-day meeting. Inequality and youth unemployment were also discussed, pushed due to demonstrations from the Occupy WEF movement in the vicinity. The Occupy movement was brought forward many a time in the discussions. It emerged as one of the key issues at the annual gathering of business and political leaders. The business leaders at least claimed that tackling the growth of inequality in the world is imperative in order to sustain in today’s environment. According to the senior economic people at the World Economic Forum, the priority for the leaders after the economic crisis should be the growing inequality. They insisted that more needs to be done to tackle excessive pay, poverty and unemployment. Economist Nouriel Roubini warned that inequality threatened social stability. Youth unemployment refers to the unemployment amongst the young, typically aged between 18 and 25 years. The issue was high on the agenda at the WEF where politicians, economists and bankers said that immediate action was necessary to rouse demand and prevent a generation from becoming alien to work. Youth unemployment is not just a problem of the West, but is also present in the emerging economies. It is said that the world is sitting on a social and economic time bomb. It is plagued by youth unemployment. Over 200 million people are jobless worldwide out of which 75 million are between the age group of 16 and 24 and every year about 40 million young people are entering the workforce. The conclusion of the discussions on joblessness was that the objective of providing young people with good quality jobs, continued education, an internship or training within four months of leav-

Economic issues dominated this year’s five-day meeting. Income disparity was one of the top concerns this year. This was a striking turnaround as it had never been identified as an issue at the WEF before

February 2012

NIVESHAK

The Euro Zone crisis is not the region’s problem alone. It’s a crisis that could have collateral and spill over effects around the world

Article of the Month Cover Story

ing school should be achieved. It is extremely im- will lead to a much bigger problem. The governportant that the capacity of the economies is in- ment will then have to take more aggressive steps creased with respect to job creation because youth to bring the situation under control. unemployment is like a ticking time bomb under The jittery oil market- yet another the global economy. Young people who were unconcern employed for a long time will Yet another issue addressed earn less throughout their enThe 2012 annual meeting of was that of the jittery oil tire lives. As a result they will the World Economic Forum market. Due to the disconbe less employable and would in Davos was held from 25th certed debt situation in lack the skills that are needed January to 29th January, the Euro zone and chances by business. Such people are with the theme “The Great of a severe slowdown in more likely to have long-term Transformation: Shaping New China, the commodity marhealth problems and it can ket risks remain concenModels.” With 260 sessions, cause social disturbance. We trated on the downside. In discussions and conferences, need to ensure that young oil markets, however, these the theme echoes the need people have the skills needed obstacles are offset by geofor a thoughtful renovation to gain meaningful employpolitical concerns, including of the face of an unravelling ment in order to ensure rapid the stand-off between Iran economic growth. universal system and hauntand the West over the foring economic disorder. The Will China’s real estate mer’s nuclear weapons prodiscussions revolved around trouble cause another gramme, growing concerns driving new models of growth recession? over the health of the Saudi and employment, leadership Another major worry for the king and the possibility of and innovation, sustainabilyear is about China’s real esa troublesome succession, ity and resources, and society tate market. There is a posand on-going unrest from sibility that the troubles in its and technology. The major isthe Arab Spring. real-estate market will spill sues talked about in the meetConclusion over to the rest of the econing were the future of the On the whole, there was a omy and cause recession. Euro Zone, income disparity, lack of a major development China is expected to face growth in developing highin dealing with the on-going slower economic growth rate growth markets, inequaleconomic crisis. However, of about 8.5 per cent this year ity and youth unemployment, this does not mean that the down from 9.2 per cent in the capitalism, China’s real estate WEF failed in its purpose. It previous year. It has been hit trouble and the jittery oil margave the highbrows and the by a “double whammy”. Both ket. The meeting provided leaders of the world a platexports and local demand are form to talk about broader endless opportunities for falling down simultaneously. issues that are affecting difprominent corporate and adLocal demand is falling due ferent strata of the economy. ministrative leaders to discuss to the problems in the realMost importantly, the anand reflect on universal issues. estate sector. So far, only the nual meeting of the World required reserve ratio has Economic Forum provided been cut down by the governendless opportunities for ment in order to lift business credit lines and help prominent corporate and administrative leaders to companies mitigate subsiding demand at home and abroad. If more property developers run into discuss and reflect on universal issues, something trouble and default on their interest payments, it that was clearly accomplished. will lead to greater non-performing loans and this

Article Perspective of the Month Cover Story

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A peek into

the Union Budget Harshali Damle

Team Niveshak

2012 has started where 2011 left off, with global growth opportunities under the threat of a distress in financial markets. The Asian economies are also vulnerable if the current financial crisis in Europe ends in a euro zone split or a series of sovereign defaults - which would create a global financial shock wave similar to that observed in 2008-2009. In this scenario, the coming budget has a major impact on India’s preparedness for the future. Therefore, all managers must be aware of the importance of a budget and its components. What is a Budget? The word budget is derived from ‘bougette’ a French word meaning ‘purse ‘. The budget is a financial plan listing all planned expenditures and revenues. This is a plan of savings, loans and expenditures for a specified period of time. A budget is an important concept in both micro and macroeconomics. Microeconomics uses a budget line to illustrate the advantages and disadvantages between two or more products. In other words, a budget is a plan expressed in financial terms of an organization for a specified time period. In summary, the purpose of the budget is to: 1) Provide an estimate of revenue and expenditure, i.e., build a financial model of how our company can do if certain events, strategies and plans are carried out. 2) Aid in the evaluation and analysis of how the real data deviates from the plan. It therefore acts as a control tool. History of the Union Budget in India There is a constitutional requirement in India (Article 112) to present to Parliament a statement of estimated income and expenditure of government for each financial year which runs from 1st April to the 31st March.

India’s first Finance Minister, Mr RK Shanmugham Chetty presented the first Financial Budget of independent India on November 26, 1947. Since then every year, the Finance Minister of the Union has presented the budget. Initially, the main attention was paid to the agriculture sector which is the primary sector of independent India. But as the economy evolved, the focus shifted from agriculture to other sectors such as industry, services, etc.

In the early fifties, the Indian budget revolved around the public sector and public finances. At that time taxes, inflation, public saving, were much talk about issues. This trend continued until the funding budget 1985-1986. Change in this approach began with Mr. Manmohan Singh, who served as Minister of Finance under the leadership of Mr. P.V. Narsimha Rao. Mr. Singh was instrumental in head starting the new phase of economic liberalization and privatization. There was a reduced government control over public sec-

.. The liberalization process that began years ago still continues and is a part of the announcement of India’s budget each year

February 2012

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loans brought up by government of India from public, termed as market loans. Some of the other components of capital receipts include borrowings by Government from Reserve Bank and loans obtained from foreign governments and bodies. The budget documents presented to Parliament include, apart from budget speech of the Finance Ministry, the following: 1) Annual Financial Statement (AFS) 2) Demand for Grants (DG) 3) Appropriation Bill 4) Finance Bill 5) Memorandum Explaining the Provisions in the Finance Bill 6) Macro-economic framework for the relevant financial year 7) Fiscal Policy Strategy Statement for the financial year 8) Medium Term Fiscal Policy Statement 9) Expenditure Budget Volume -1 10) Expenditure Budget Volume -2 11) Receipts Budget Importance of Budget for the economy Budget plays a very important role for a developing country like India. The budget of the country has an overall effect on different sectors of the economy. In a country like India, the concept of growth fear is partly fulfilled, as it is growing rapidly. However, in the current scenario, growth cannot be assumed. Also achieving the other development indicators is still far from reach. Growing inequality is the best example. In this context, Budget has its own importance and role. Indian economy is also experiencing one of its periods of weakest growths since 2002 due to both internal and external issues. The high interest rates and inflation, together with a deteriorating global economy have had an impact on business confidence and trust in government. This has depressed the private investment, which before the 2008 crisis was one of the main drivers of growth in India. The government can use this budget to lighten the mood of consumers and investors and to

The Union budget is preceded by an economic study that describes the overall direction and data on the budget and national economic performance

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tor units through disinvestment. The liberalization process that began years ago still continues and is a part of the announcement of India’s budget each year. This year the Union Budget 2012-13 will be announced by the current Finance Minister Mr Pranab Mukherjee. Union Budget- India Thus, the yearly Union budget is a comprehensive presentation of government finances. It is one of the most important economic and financial events of India. The Minister of Finance makes a report containing the government’s revenues and expenditures for a fiscal year. The Union budget is preceded by an economic study that describes the overall direction and data on the budget and national economic performance. The economic survey studies and analyzes trends in the agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign reserves and other economic factors. The budget is therefore the most extensive account of the government’s finances, in which the income from all sources and expenditures of all activities are enlisted. It comprises the revenue budget and capital budget. It also contains estimates for the next fiscal year called budgeted estimates. With some exceptions such as elections, the Minister of Finance presents the annual budget of the union in the parliament on the last business day of February. The budget must be approved by the Lok Sabha before it can enter into force on April 1. Components of the Budget The Union budget is made up mostly of Revenue Budget and Capital Budget. 1) Revenue budget: The revenue budget primarily comprises government revenue receipts like tax and expenditure met from the revenue. The tax revenues principally constitute yields of taxes and other duties imposed by the government of India. 2) Capital Budget: The capital budget primarily comprises capital receipts and payments. The primary components of capital receipts include

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promote greater confidence in the business fraternity. Economists expect most of the headwinds to decrease during 2012, which provides for a recovery during the year, but not before GDP growth has slowed considerably. One should look out for the following as major components of the budget that affect the common people in the coming budget: 1) GDP 2) Fiscal Deficit 3) Income Tax benefits 4) Steps to curb inflation - Duty on Oil 5) Corporate Tax rates - Tax Slabs and deductions available 6) Excise and service Tax rates 7) Direct Tax Code Main predictions and viewpoints for the next budget: 1) Based on the analysis conducted by CRISIL, the country is expected to have a GDP of 7% in the next year with growth of 5.8% inflation and fiscal deficit to 5.5%. 2) On the basis of estimates of CII, the governmentâ&#x20AC;&#x2122;s fiscal deficit would be in the range of 5.5-6.0% of GDP. 3) Preparatory changes for laying a foundation for GST 4) The question of the removal of STT has been raised by the representatives of the different exchanges, including BSE, NSE, MCX-SX and USE. The main improvements suggested are: 1) Efforts should also be made to increase revenues by broadening the tax net, the control of subsidies and the release of funds in disputes and litigation. 2) The government should announce a clear roadmap for the process of disinvestment in the next five years.

3) The government could also carry out a census of land and other assets locked up in central public sector units that have become economically unviable. 4) To promote foreign investment in infrastructure, easing the rules for entry of foreign funds to this sector is another option for enhancing investment. 5) A synergy of MSMEs and large companies can be promoted through tax incentives to supply inputs for small industry. 6) The Direct Tax Code and Goods and Services Tax are still being thrashed out. Establishing a clear deadline for the application can help accelerate the discussions and add comfort to investors. Therefore there is a need for the government to focus on promoting inclusive growth and development of infrastructure in the plan, through better management and utilization of resources. There is also a need to create an environment for sustained economic growth in the medium and long term. Liberalization in the banking, insurance, retail and aviation will excite investors. As a fast-track divestment, modernizing the rules of land acquisition and ending harmful government monopolies such as coal is needed. The budget is usually presented in the last day of February each year. However, with assembly elections in five States from 30 January to 3 March, Finance Minister, Pranab Mukherjee, indicated that the presentation of Union Budget 2012-13 would be on March 16, 2012. Thus, next month, our budget-makers have the opportunity to provide a sound direction to the country in the midst of crisis.

The government can use this budget to lighten the mood of consumers and investors and to promote greater confidence in the business fraternity

February 2012

NIVESHAK

Himangshu Das

NITIE, Mumbai

We always come across telecom companies launching new “Talktime” or “Top Up” offers. The day is not far when we will see them launching new fixed deposit schemes, saving offers etc. The above statement, though seems absurd will perhaps make sense as we read below. The estimated banking penetration among middle and high income groups in India is about 45% while for low income groups it is less than even 5%. Maximum financial inclusion of our human resource is crucial to tap the countries savings and investments. While Microfinance institutions do play an important role, still the penetration level is very low. Comparing this with the 76.03 % of teledensity and the projected teledensity of 84% by 2012, banks have indeed realized the role that can be played b y mobile banking in reaching out to the unbanked areas as well as the on the run customers. Hence they have tied up with leading providers like Vodafone and Airtel to cater mobile banking services. While this is a positive signal for both the telecom and banking industry in terms of revenue and reach, it has also initiated discussions about the drift in the traditional role played by the telecom sector, from that of a provider of voice and message service to everything under the network. With the provision of mobile service, mobile banking, mobile commerce, etc. these telecom companies have come a long way out of their monolithic sector and it makes sense. The dwindling returns from the stagnant and

competitive voice calls and messaging market have forced the telecom companies to look out for new business opportunities. These telecom companies will definitely target the avenues which will give them returns in the same scale as during the telecom heydays. With the consistent growth and returns of the banking industry, the telecom companies seemed to have found the perfect

ground. While the feasibility of offering the complete set of banking services right from commercial loan services to bond services will take time what customers may initially expect are a basic set of services like mobile payment, credit and charge card services. With the experience in mobile banking, the telecom companies can slowly takeover the whole umbrella of business that uses network. This will open up a whole gambit of opportunities for the operators as well as a plethora of facilities for the customers. One important sector that they will be able to finance will be the micropayments via messaging or voice call. It is imperative that carriers will try to muscle in on the mobile wallet and payments space and a slow demand of banking license by some of the telecom giants has cropped up in the industry corridors. Rogers Communications

Banks have indeed realized the role that can be played by mobile banking in reaching out to the unbanked areas as well as the on the run customers.

Finsight Article of the Month Cover Story

WHEN AIRTEL LAUNCHES AIRTEL BANK…

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NIVESHAK

Inc, one of the telecom giants in Canada has already filed papers with the federal bank to start a bank. As per Rogers the next big thing will be money transfer, whether thatâ&#x20AC;&#x2122;s paying for a subway pass or a parking meter, or sending m o n e y. The bank w o u l d primarily deal in credit and mobile payment services, as opposed to bricks and mortar bank branches that take traditional savings and loan accounts. While many big retailers have similar sort of finance divisions they are essentially extensions of their core businesses. The telecom companies are looking to position themselves in every part of the supply chain and earn return from the tons of monetary transactions between customers and companies that are happening via their network. It also makes sense for operators to offer banking products and services as people dispense with plastic and start using their mobile phones as payment devices. They want to take the control of the wallet on the phone. Banks are already getting detached from the end customer by a layer. While mobile service from a bank needs to pass through layers of technology and approval from Google, RIM , Apple etc. for future carrier bankers, we need just a phone or get online and send the money. All that is needed to know is the email address and mobile phone number. An example of an offering will be combination of prepaid phone deal with a prepaid debit card via which these telecom banks can aggressively target the under banked customer segment and

they will not need the entire expensive infrastructure like the traditional revenue. It is just new revenue. Even banks seem to have opened up to this threat and have started offering more features to move up in the value chain. An interesting trend has h a p pened in Italy where o n e of the banks sensing the threat has launched â&#x20AC;&#x153;Poste Mobileâ&#x20AC;?, an ESP(Enhanced Services Provider)-MVNO subsidiary of the Italian Postal Bank. Here the carrier just acts as a transport layer while Poste Mobile offers the various banking services and has full control on pricing as well as customer information which is stored in a separate area of the SIM card. Gauging at the benefits, Governments of certain countries like Nigeria are even vetting proposals to license operators in the mobile banking sector thereby laying the foundation of another technological revolution. The Indian Planning Commission however is not in favor of allowing telecom companies to float banking companies. The government is more in the favor of allowing

The dwindling returns from the stagnant and competitive voice calls and messaging market have forced the telecom companies to look out for new business opportunities

February 2012

NIVESHAK

FIN-Q Solutions January 2012 1. Hoshangabad, this is where the paper for the currency is manufactured 2. Guardian, Money Laundering 3. Fidelity Bond 4. Mu-Sigma, Dhiraj Rajaram 5. Laos Stock Exchange, Korea Stock Exchange

6. The parent company, DS Prabhudas and Company was the first company to be listed in the BSE

7. Moral Suasion, Jawboning 8. Predatory Dumping 9. Lazard Limited, Kodak 10. Rakesh Jhunjhunwala

ÂŠ FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

Article Finsight of the Month Cover Story

financial transactions to be done by banks to avoid any sort of financial crisis. Though not allowing the telecom companies to become banks themselves, an attempt has been made to set up a framework to allow people to undertake basic operations through cell phones. An interministerial group has recently submitted a report to Telecom Regulatory Authority of India (TRAI) recommending that people in remote areas be allowed to open accounts linked to their cellphones and withdraw money up to Rs 5,000 a day. Though the government efforts do seem noble in questioning about how a telecom company can carry out the level of security procedures that is usually done in a traditional bank, it will be better if it can propose for a think tank to study the pros and cons in this reverse process; a telecom company entering the banking services. In the days to come we might see the traditional bank getting segregated to the backend as a manager of risk and product manufacturer while the day to day customers get owned by the telecom companies, social networks and marketing organizations. Perhaps a technological and financial revolution is in the offering.

Article of the Month Cover Story FinGyaan

NIVESHAK

STRUCTURING THE EQUITY GAP

Ajay Kumar Sethi

SIIB, Pune

Equity gap refers to the difference in the supply and demand for equity between corporations and investors. It can be seen that a significant chunk (79%) of the global financial assets are invested in the developed countries. Few factors that have affected the appetite for equity includes the ageing demographic of the western world, emergence of alternative investment avenues and stringent financial regulations among others. These issues can be overcome only be improving investor sentiment towards equities through relevant and apt reforms in primary markets, use investor friendly structured products.

What is equity gap? If it can be put simply then equity gap is the difference between the investors’ appetite and the company’s requirement of funds. Company usually use this door of raising funds via equity but is the investors’ appetite towards investing in equity enough? EQUITY GAP = INVETORS APPETITE IN EQUITY – COMPANY’S NEED OF FUNDS Based on an analysis by McKinsey Quarterly, the financial assets in the world are worth 198 trillion dollars out of which around 21 percent are part of emerging markets and the rest is a part of developed economies. This tells that around 157 trillion lies with the developed world. Among these fi-

nancial assets, the household investment in equity is decreasing. Among the household portfolios in emerging markets, the proportion is around 15 percent while the household portfolios in developed countries like U.S has 42 percent contribution towards equity. The contribution towards equity is decreasing. Even the developed countries are showing less appetite for equities. Among developed nations, Japan stands out for its very low investment in equities. Despite a long tradition of equity investing by individual investors for most of the 20th century, Japanese households now hold less than 10 percent of their assets in equities, down from 30 percent before the 1989–90 crash. Because of low or negative returns over the past two decades, Japanese allo-

Fig. 1: Financial assets owned by residents, 2010 in $ trillion

February 2012

NIVESHAK

Article of the Month Cover Story FinGyaan

Fig. 2: Assets allocation by investor, 2010 in %, $ trillion

cations have never exceeded 18 percent in this period. The figures 1 and 2 tells us the proportion of investments in various countries. We can see that among the financial assets, the majority of these assets are in household portfolios. Among the 198 trillion financial assets, 85.2 trillion are in household portfolios. This makes it to around 50%. If the household appetite for investments in equity decreases, then it shows the overall picture of investments. It is approximated that the global financial assets would reach the 371 trillion by 2020. Of these assets, the contribution of emerging markets would increase from 21 percent to 36 percent while that of developing countries would come to around 64 percent. Emerging market financial assets grew 16.6 percent annually over the past decade, nearly four times the rate in mature economies. These assets stood at about $41 trillion in 2010 and constituted 21 percent of the global total, up from 7 percent in 2000. Depending on economic scenarios, we project that emerging market financial assets will grow to between 30 and 36 percent of the global total in 2020, or $114 to $141 trillion. Of these financial assets the contribution to equities, which was around 28 percent in 2010, would come down to 22 percent by 2020. Some of the reasons for decreasing attitude towards equity can be: • Ageing population in western world: Aging is the largest factor affecting investor behavior in mature economies. As investors enter retirement, they typically stop accumulating assets and begin to rely on investment income; they shift assets from equities to bank deposits and fixed-income instruments. This pattern has

led to predictions of an equity sell-off as the enormous baby boom generation in the United States and Europe enters retirement (the oldest members of this cohort reached 65 in 2011). This effect can be staggering: if investors retiring in the next ten years maintain the equity allocations of today’s retirees, equities will fall from 42 percent of US household portfolios to 40 percent in 2020—and to 38 percent by 2030. In Europe, where aging is even more pronounced, we see an even larger shift in household portfolios. • Shifts to defined contribution retirement plans: Also influencing equity allocations in mature economies are the shift to defined contribution retirement plans in Europe and rising allocations to alternative investments. In Europe, it can be seen that defined-contribution plan account owners allocate significantly less to equities than managers of defined-benefit plans. And as private pension funds close to new contributors, managers are shifting to fixed-income instruments to meet remaining liabilities. Meanwhile, institutional investors and wealthy households seeking higher returns are shifting out of public equities into “alternative” investments such as private equity funds, hedge funds, real estate and infrastructure projects. Although we estimate that some 30 percent of assets in private equity and hedge funds are public equities, the shift is still causing a net reduction in allocations to equities. • Growth of alternative investments such as Private Equity (PE) investments: It can be also seen that the alternative investments in the form of private equity investments is also on the rise. In recent times, the IGATE

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Fig. 3: Incremental demand for equities by domestic investors vs. increase in corporate equity needs, 2010-20 F $ trillion

buyout of PATNI has been largely contributed by the APAX partners (a PE firm). Also, PE firms find it suitable to invest in emerging markets because of the low valuations, thus churning out huge amount of profits from the investments. • Low returns in equity: Another factor weighing on demand for equities is weak market performance. The past decade has brought increased volatility and some of the worst ten-year returns on listed equities in more than a century. In opinion polls, Americans say they have less confidence in the stock market than in any other financial institution and believe that the market is no longer ‘fair and open’. • Regulatory changes for financial institutions: The final factor is the effect of financial industry reforms on the uses of equities by banking and insurance companies. U.S and European banks today hold $15.9 trillion of bonds and equities on their balance sheets. But new capital requirements under Basel III will prompt banks to shed risky assets, including equities and corporate bonds. Similarly, European insurers have already reduced equity allocations in anticipation of new rules, known as Solvency II, and could lower them further over the next five years. All these reasons attribute towards an estimated equity gap of 12.3 trillion. The figure 3 will provide a better view to this picture. However there are some ways through which this equity gap can be reduced: 1. Use of structured financial products Structured financial products can be a proposed solution to the emerging equity gap. Investors are losing their appetite for investing in equity but the use of structured products under proper financial regulations can be a good booster in equity environment.

February 2012

2. Initiation of secondary market Secondary market has been in operation in developed countries which supports the innovation led investments. E.g. NASDAQ is a secondary market for innovation led ventures. If such secondary markets can be introduced in emerging countries such as India, then it will not only serve as a booster for equity market but can also prove to be a nurturing ground for young entrepreneurs to make their projects count. 3. Reforming IPO markets IPO market has been in a down-trend since the successful IPO of Coal India. It may be due to the fragile policy making and implementation in India which has given rise to many political scams recently. Or it may be the European crisis which has proved to be major reason for the outflow of money invested by the FII’s. Whatever it is, the IPO market has to be well regulated to ensure generation of positive sentiments in the Indian market. The only way this equity gap can be narrowed down is by increasing the investor’s sentiments towards equity in emerging countries because emerging countries have been growing at a staggering rate of more than 16 percent. And if this growth continues, it will be very important to engross the equity investors in emerging economies and keep the markets in balance.

NIVESHAK

Options Market Nilkesh Patra

IIM Shillong

The buyers are called holders and sellers are called writers. How are these options useful with respect to stocks? Hello students. Today, we would be talking about Options. So what do you know about options? Sir, we know that there are two types of options available. They are call option and put option. An option is a security like a stock or a bond. Yes, you’re right. An option gives a buyer the right to buy or sell an asset at a specific price on or before a certain date. But this is not an obligation for the buyer. Option is a contract that deals with an asset. Most of the times, this asset is a stock or an index. That means an option derives its value from an asset. Hence, it is also called as Derivative. Sir, can you please give an example about the use of Option? Let’s consider an example. A person finds a land with all the required features for his business. Then he approaches the landlord and finds the price of the land very high, i.e. Rs. 5000000. Unfortunately, he doesn’t have enough cash to buy the land within next three months. He talks to the owner and negotiates a deal that gives him an option to buy the land in three months. The person has to pay a price of Rs.100000 as the option price. Are these options available only to buy? No, there are two types of options available. Call and Put options. A call option gives the buyer the right to buy an asset at a certain price within a certain time limit. A put option gives the seller the right to sell an asset at a certain price within a certain time limit.

The holders of the options are not obligated to buy or sell. They have the choice to exercise the option within the specified time. The call holder has a call option to buy a stock at a certain price within a certain time limit. So, he always expects the price of the stock to increase, so that he will be benefited by exercising the option by buying the stock at a low price compared to market price. Similarly, the put holder expects the price of the stock to decrease, so that he can sell the stock at a higher price. But call and put writers are obligated to buy or sell. Why would an investor use options? There are two main reasons. First one is betting on the price movements of a security. Investors not only make profits when the stock price rises, but also when the market goes down by using options. Another reason is hedging. By using options, the investor would be able to restrict his downside while enjoying the full upside in a cost-effective way. For example, options can be used as insurance for the investments against the downturn. How is the price of an option determined? The price of an option is called the premium, which is determined by the stock price, strike price and time remaining till expiration. Thanks a lot sir, for explaining the tricky concept of options to us.

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CLASSROOM FinFunda of the Month

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NIVESHAK

Sayo Nara... They were the 3rd batch of the Finance Club, they helped niveshak reach new heights. Let us listen what they have to say about their experience... ALOK AGRAWAL My experience in Finance club for last one year was just great where I got opportunities to work with some of the best minds of our batch. The thing that I loved the most is the commitment of all of us towards completing all our activities before the deadlines and the greatest regret lies in the fact that we were unable to organize an online intra B-school competition. However, I hope that in next few years some of our talented juniors will definitely achieve this dream of ours. The experience of receiving numerous articles and selecting the best amongst them was the biggest challenge that I faced during my stint at Finance Club as all these articles were written by one of the best minds of our country. I hope that in future also wherever I go I will find the same pool of talent to work with that I got in our finance club.

DEEP MEHTA Apart from finance, proposing new ideas, arguing over and over again and finally convincing the team to adopt it was a great learning experience for all of us. Once in the club, the way you tend to keep yourself updated and knowledgeable just to flaunt your awareness and impress people around will be a motivator for sure :P You definitely learn more practical stuff here than through books and lectures!

JAYANT KEJRIWAL Working for the Finance Club has been an immense learning experience. It’s an honour to be a part of Niveshak, which today is a brand in itself. One gains a lot of different perspectives while writing, editing and going through such huge number of articles every month. The response and feedback from the student fraternity of different B-schools has been our biggest motivation. Wish Niveshak many more glorious years ahead.

MRITUNJAY CHOUDHARY Membership of Finance Club is something I have cherished and will continue to do so for the rest of my life. Working with a highly talented and motivated team inspired me to make a meaningful contribution towards club activities. Niveshak, the flagship monthly magazine of club offered me a platform to share my thoughts on business world with others and understand others’ viewpoint on the same. The unabated growth of magazine’s popularity with each passing edition has made it a brand among finance enthusiasts in B-Schools across India. Niveshak motivated me to become a “Niveshak” in real life and I hope it will continue to inspire many more in times to come. My best wishes to the new club members to continue to work with the same vigor and interest that they have displayed till now.

RAJAT SETHIA It seems like only yesterday when I was inducted as part of Team Niveshak. It’s funny how time goes by so quickly. Niveshak as a magazine and a platform has added lot of value to its readers and has done the same for me. It was a great learning experience to work alongside such a wonderful team and it surely brought me closer to my passion in financial markets. Hope to see it become bigger and better in the hands of the new team.

February 2012

NIVESHAK

I have enjoyed every bit of the work and contributions done by me towards the betterment of Finance Club and Niveshak. It was a significant part of my 2 years here at IIM Shillong and truly a great honour and pride for me to be associated with such a prestigious brand name, Niveshak. It was really a great learning and enriching experience and this will be one of the memories that I would carry forward throughout my life in the future. I would like to wish the junior club members all the very best in their future endeavours and I sincerely hope that the club scales greater heights in times to come.

SHASHANK JAIN Having access to a gamut of articles written on various aspects of economy, Industries and Banking and Financial Instruments has definitely added a lot to my knowledge base. Interacting with Industry experts, interviewing great economists of India has brought a different angle to the way I think about how the world operates. Working with the team on content building, editing and most importantly ensuring all editions are released on time has been a great experience. It feels good when on visiting other B-schools or moving out in the corporate world, being a member of Team Niveshak just brings you on a completely different platform. Hope the Team continues to do the great work and Niveshak becomes a much bigger name. All the best.

TEJAS PRADHAN The past two years as a member of Finance Club have been highly memorable for me. As a part of the team, we were entrusted with the responsibility of publishing ‘Niveshak’ for one year of our term and I am glad that we were able to bring out a quality issue on time for every month of our tenure. I wish the best of luck to the new team and hope that the magazine scales greater heights in the years to come.

VISHAL GOEL Two Years with Finance Club or better put it up as Niveshak was a roller coaster ride. I am lucky that I started working in this club right after the first week in campus. The team, where everyone is as competent as the other, provided enormous brain storming occasions to learn. New things started, old things reformed, but Finance Club stayed as one of the most respectable club not only inside this institute but everywhere else. The consistency of keeping the issues on time gave Niveshak a niche which is praised across the B School fraternity. I hope that these aspects strengthen with times to come. As a team we laughed, we fought, we cursed, we praised but we remain united, or in Niveshak language - we stayed invested.

VIVEK PRIYADARSHI Being a part of Finance Club of IIM Shillong was a matter of great honor and pride as the flagship magazine of the club Niveshak is known all over India and synonymous with the name of IIM Shillong. The team was great one and each one of us helped and supported the other members and as a result we were able to deliver on time and with quality. I wish good luck to the team and hope that Finance Club and Niveshak rise to new heights in the years to come. Time just flew and now it’s time to say good bye. All the best for the future.

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SAWAN SINGAMSETTY

FIN-Q 1. X is an indicator used to forecast the trend in the stock market for the coming year based on win of old National Football League(NFL) team or old American Football League (AFL) team. 2. “Focus on the process rather than focusing on the final result,” is a popular saying. An investment manager who invests in companies that provide equipment to an industry rather than investing on the industry’s end product is set to indulge in? 3. X is the type of acquisition where the raider company makes use of borrowed funds only to meet the cost of acquisition using either its own assets or the target company’s assets as collaterals. 4. X is an annual prize given to the authors with the best corporate finance research papers published in Y. Y is published by Wiley-Blackwell on behalf of the American Finance Association. Identify X and Y. 5. X (Bank) shares its name with a famous Indian primetime television show which is presently in its fifth season. X, a Belgian multinational has a very important first in the Indian context. Identify X and its claim to fame. 6. The word X is synonymous with “endless wealth”. In modern history, it is believed that X family has the highest net worth. Identify X? 7. Another growing indicator of the growing uncertainty in the IPO Market, SEBI banned X (company) from future merchant banking assignments because X handled the IPO of Y, proceeds of which were diverted to questionable land deals. Identify X and Y. 8. X is an investment strategy wherein an investor matches the short position he has in one stock with a long position in another stock of the same sector for the purpose of creating a hedge against the sector that the two stocks are in and the overall market. 9. Denmark – 48.2% Sweden - 46.4% Italy – 43.5% Belgium – 43.2% Finland – 43.1% What is being discussed here?? 10. Connect?

All entries should be mailed at niveshak.iims@gmail.com by 27th February, 2012 23:59 hrs One lucky winner will receive cash prize of Rs. 500/-

February 2012

WINNERS Article of the Month

Prize - INR 1000/-

Rajiv Singh & Sourabh Sahu IIM Indore

FIN - Q

Prize - INR 500/-

Prince Jain

Indian Institute of Foreign Trade, New Delhi

ANNOUNCEMENTS ALL ARE INVITED Team Niveshak invite articles from B-Schools all across India. We are looking for original articles related to finance & economics. Students can also contribute puzzles and jokes related to finance & economics. References should be cited wherever necessary. The best article will be featured as the “Article of the Month” and would be awarded cash prize of Rs.1000/Instructions »» Please email your article with the file name and the subject as <Title of the Article>_<Institute Name>_<Author’s name/Group’s name> by 27 February 2012. »» Article must be sent in Microsoft Word Document (doc/docx), Font: Times New Roman, Font Size: 12, Line spacing: 1.5 »» Please ensure that the entire document has a wordcount between 1200 - 1500 »» The cover page of the article should only contain the Title of the Article, the Author’s Name and the Institute’s Name »» Mention your e-mail id/ blog if you want the readers to contact you for further discussion »» Also certain entries which could not make the cut to the Niveshak will get figured on our Blog in the ‘Specials’ section

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