16st Aug 2008

Volume 2, Issue 10

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy

Issue Attractions
National Headlines International Headline Corporate Interview Students Article
Quiz/ Crossword

The key is not to prioritize what's on your schedule, but to schedule your priorities.
1 1 2 3 4
5 6

Stephen Covey, American Author and Management Consultant.

National Headlines

Company Review/Buzz Words

Investors Check

Inflation12.44 % , IIP 7.10%

15 days Movements
16000 15500 15000 14500 14000 31 1 4 5 6 7 8 11 12 13
Sensex

Sensex

ICICI Bank and HDFC hiked home loan rates by a massive 0.75 percentage points, moving quickly to preserve margins in the wake of RBI raising key interest rates. Tata Steel Ltd has posted a 21.78-per-cent rise in its standalone net profit at Rs 1,488.40 crores for the quarter-ended June 30, against Rs 1,222.11 crores logged in the same period of last year. Most of the private sector companies have already increased their contractual prices in July, in certain cases even to the extent of Rs 10,000 a tonne. However, public sector Steel Authority of India Ltd (SAIL) and Tata Steel had maintained their prices. The number of offer documents for debt schemes filed with Securities Exchange Board of India (SEBI) has increased three-fold since May. And, in the past three months, mutual funds have been net buyers of debt for around Rs 25,621 crores. Provisional figures compiled by the Directorate-General of Commercial Intelligence & Statistics (DGCI&S) and released by the Department of Commerce show that the countrys exports during June 2008 at $14.66 billion were 23.5 per cent higher than the level of $11.87 billion in June 2007. In rupee terms, exports touched Rs 62,790 crores in June 2008 which were 29.7 per cent higher than the value of exports of Rs 48,400 crores in June, 2007. An analysis of the performance of over 1500 companies reveals that their interest cover (the number of times profits cover interest costs) hovered at a discomfiting 2.2 times for the June 2008 quarter, down from 2.8 times last year. The mutual fund industry now manages assets of Rs 5,29,340.68 crores as on July end compared to Rs 5,64,752.75 crores in June.

Rs/$
43 42.5 42 41.5 31 1 2 5 6 7 9 11 12 13
Rs/$

International Headlines
In U.S., more than 272,000 homes received at least one foreclosure-related notice in July, up 55 percent from about 175,000 in the same month last year and up 8 percent from June. That means one in every 464 U.S. households received a foreclosure filing last month. Wal-Mart Stores Inc. second-quarter profit rose 17 per cent and raised its full-year forecast as the world's largest retailer benefits from low prices that are attracting financially squeezed shoppers in a challenging economy and its campaign to cut costs. Tourism in Macau, which returned to Beijing's rule in 1999, is booming on the back of visits by increasingly wealthy Chinese tourists and a massive expansion of its gambling industry. Revenues in Macau's $15 billion gaming industry overtook those of Las Vegas in late 2006. BP has reopened the gas pipeline, which turns south towards Turkey just west of the Georgian capital of Tbilisi but it is keeping the oil pipeline which continues west to Supsa closed. U.S. President George Bush made a statement that he was concerned about reports that Russian forces were blocking access to the port of Poti and blowing up Georgian vessels.

Gold(per gram)
1200
Gold(per gram)

1150 1100 1050 1000 31 1 2 5 6 7 9 11 12 13

Oil(per bbl)
5300 5100
Oil(per bbl)

4900 4700 4500 31 1 2 5 6 7 9 11 12 13

I rarely think the market is right. I believe non dividend stocks arent much more than baseball cards. They are worth what you can convince someone to pay for it. Mark Cuban

Interview with Mr. Vijayan

Position Held : Divisional Manager, Motilal Oswal, Bangalore. Q1. Sir, as a Divisional Manager, what are your responsibilites?

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Ans. Hello, I handle all the divisions of Operations in Karnataka, I look into client retention, building up the customer base, moreover I assist in training sessions conduct for the staff and help develop customer suited products. Q2. With the present market conditions, what kind of strategies have you employed to help your client to earn good returns? Ans. The volatility in the market is at a level where, every second can spell a doom, so we have to be very careful when we discuss about the investments of the client, mostly, the inhouse research we have re-align the decisions that the central office has made to suit the customers and takes a stand on profit booking, this is when it comes to clients who have signed up or signed up for trading. Otherwise, we have products that help customers invest accordingly to the levels of money committed, the last 2 quarters have been a roller coaster ride, it's been extremely interesting to watch the market trends and make effective judgments, nevertheless, with the global oil prices cooling down, the markets look bright again and it's just an other day. Q3: Sir, if I may ask, what is your opinion on Technical Analysis and Fundamental Analysis and which out of the two is better ? Ans. Motilal Oswal, has in-house tools that help the firm invest, we rely on the popular market tools but also put in our research to ensure we deliver the best of business and satisfaction to the customer, I understand that, these are part of your curriculum, in my personal opinion, it depends on the stand that you want to take on the market, obviously if you want to book profits and exit the market as soon as possible, technical analysis can help you immensely, but fundamental analysis is for investors who have a long term plan with them. So, both the analysis have a significant role to play. Q4: Sir, what essential knowledge do you think an MBA must have and your message to the students of Finance Club of Christ University through Chaanakya. Ans. It is important to understand what you want and then plan accordingly, this is the first thing we tell our customers when they trust us with their money, the same thing applies to all, It's very necessary that one has to follow the market and most importantly the macroeconomic scenario to fully understand their implications and the possible future movements of the markets. All the very best.
I have a million dollars in the stock market, because if I lose a million dollars, I dont personally care. Suze Orman, American Personal Finance author.

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SMART METRIC - P/BV or P/E

By : Manish Sinha

Did you Know?

The Dow Jones Industrial Average is an average of 30 stocks. When it started there were only 12 stocks. General Electric is the only company of the original 12 still in the index. In 2007, Germany managed to balance its budget for the first time in nearly 40 years, mainly due to an increase in sales tax and a st r o ng e r economy. In 2004 Bank of India was ordered to pay com pensati on of $82m (45m) in a case relating to the collapsed Bank of Credit and Commerce International
Stock Ratnas

P/BV is also another parameter like P/E that is commonly used to value stocks and is arrived at by dividing the market price of a share with the respective company's book value per share. Now, book value is equal to the shareholder's equity (share capital plus reserves and surplus). For the banking and finance companies, book value is calculated as 'share capital plus reserves minus miscellaneous assets not written off. This formula then takes care of the bank's NPAs and gives a correct picture. FY08 Balance Sheet of Infosys
Liabilities Equity capital Reserves & surplus Current liabilities Rs m Assets 2,860 Cash Other current 135,090 assets 41,910 Fixed assets Investments Deferred tax assets 179,860 Rs m 69,500 60,680 47,770 720 1,190 179,860

If we look at Infosys' consolidated balance sheet above for FY08, book value can be arrived at by adding Rs 2,860 m (equity capital) and Rs 135,090 m (reserves and surplus), which equals to Rs 137,950.Now, by dividing this book value (Rs 137,950 m) by the issued equity shares of the company (approx 572 m), we would arrive at the book value per share figure, which is Rs 241.2. This will be our denominator for calculating the P/BV for the Infosys stock, which currently stands at 7.01x. Because companies from the sectors like software and FMCG have low amount of tangible assets, their P/BV figures are high as compared to those of companies in the sectors like auto, engineering, steel and banking. Thus the P/BV may not be a correct indicator of valuation in companies like software and FMCG. On the other hand, old economy sectors like auto and engineering have large balance sheets, i.e., they have a large amount of fixed assets and investments. As such, P/BV is a good indicator of measuring value of stocks from these sectors. What does P/BV indicates? P/BV is a good metric to value stocks of companies in the capital-intensive industries like engineering, automobiles and banks. If a company is trading at a P/BV of less than 1, this indicates any or both of the two 1. Investors believe that the company's assets are overvalued, or

2. The company is earning a poor return on its assets.

A high P/BV indicates vice versa, i.e., markets believe the company's assets to be undervalued or that the company is earning and is expected to earn in the future a high return on its assets. What does P/BV fail to indicate? P/BV indicates the inherent value of a company and is a measure of the price that investors are ready to pay for a 'nil' growth of the company. As such, since companies in the services sectors like software and FMCG have a high growth component attached to them, P/E and not P/BV is a right measure of their valuations. P/BV should not be used for valuing companies with high amount of debts. This is because high debt marginalizes the value of a company's assets and, as such, P/BV can be misleading.

HCL INFOSYSTEMS,BSE500179 , NSE HCL- INSYS CMP- Rs. 119.45 TARGET PRICE: Rs.155 VISHAL RETAIL BSE 532867 NSEVISHALRET CMP- Rs 416.40 TARGET PRICE: Rs.485
(CMP Current Market Price)

It's easy to make a buck. It's a lot tougher to make a difference. American Television Journalist and Author

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Quiz:
1. An instrument used by companies to hedge against the risk of weatherrelated losses?

2. A market driven by forces that could be in place for many years, causing
the price of a particular investment or asset class to rise or fall over a long period of time?

3. The expenses, over and above the price of the property that buyers and
sellers normally incur to complete a real estate transaction?

4. The early rounds of funding for a start-up company, which get their
name because the first is known as Series A financing, followed by Series B financing, and so on?

CROSSWORD
1 2 3

HINTS:
Across: 1. Owner of part of the capital Across: 4. Plan or policy for a particular purpose Across: 5. Result or profit produced Across: 6. Fault or imperfection Across: 7. Company's plan of action Across: 9. Examination or investigation Across: 10. Refusal of employees to work Across: 12. Promise to fulfill conditions Down: 2. Contract or arrangement Down: 3. Money paid to owner of a copyright or patent Down: 8. Make to suit the buyer's wishes Down: 11. Break a promise or contract

10

11 12

Ask five economists and you'll get five different answers - six if one went to Harvard. Edgar R. Fiedler, American Business Economist

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Company Review
Company Profile: KPMG

By : Sukrutha

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. They have over 123,000 professionals working together to deliver value in over 140 countries worldwide. KPMG is a global network of professional services firms whose aim is to turn understanding of information, industries, and business trends into value.. KPMG in India KPMG was established in India in September 1993, and has rapidly built a significant competitive presence in the country. The firm operates from its offices in Mumbai, Pune, Delhi, Kolkata, Chennai, Bangalore and Hyderabad, and offers its clients a full range of services, including financial and business advisory, tax and regulatory, and risk advisory services. In India, KPMG has a client base of over 2000 companies. The firm's global approach to service delivery help provide value-added services to clients. The firm serves leading information technology companies and has a strong presence in the financial services sector in India while serving a number of market leaders in other industry segments. KPMG in India is one of the leading providers of risk, financial and business advisory, internal audit, corporate governance, and tax and regulatory services. With a global approach to service delivery, KPMG responds to clients' complex business challenges with seamless service across industry sectors and national boundaries. Careers at KPMG KPMG has a work environment that recognizes and rewards exceptional performance. To help its employees capitalize on the unlimited opportunities in a competitive, dynamic marketplace, KPMG has implemented several programs to attract the best and the brightest people and is striving to make KPMG a place where people will want to stay and build their professional career. Specific Career Opportunities at KPMG include:

Research Analysts / Associates Consultants - Technology Advisory Services

With a domain specific expertise in taxation, one could be a Tax Professional at KPMG. People with an Information Technology background can look forward to being Knowledge Management professionals or IT Advisory Professionals at KPMG.

Buzz Word

Book Quotes:
Kindness is the language which the deaf can hear and the blind can see. Mark Twain Stop the mindless wishing that things would be different. Rather than wasting time and emotional and spiritual energy in explaining why we dont have what we want, we can start to pursue other ways to get it. Greg Anderson

Qualifying ratio

A calculation of how much mortgage a borrower can afford, by comparing his monthly incoming against his monthly outgoing.

Landing order

A permit which allows goods to be unloaded into a bonded warehouse without paying the customs duty.

Escalator clause

A clause in a contract allowing for a regular price increases because of increased costs, or regular wage increases because of increased cost of living.

A cardinal principle of Total Quality escapes too many managers: you cannot continuously improve interdependent systems and processes until you progressively perfect interdependent, interpersonal relationships. Stephen Covey

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INVESTORS CHECK
FIIs UPDATE : FII activity in 2008
FIIs are not unabashedly bullish about the Indian stock market any more, as is evident from the $6.4 billion of net redemptions by them so far in 2008. That accounts for about 11 per cent of the cumulative investments put in by them since they first started investing in India in 1990s. In the first seven months of 2008, registrations by FIIs seeking an entry into Indian markets have continued to climb. Gross purchases by FIIs, the actual indicator of foreign investor activity in India, are greater than last year. And shareholding pattern disclosures for June show that the FIIs have increased their stakes in quite a few stocks in the mid- and small-cap spaces

Crossword Answers 1. Shareholder 2. Agreement 3. Royalty 4. Strategy 5. Yield 6. Defect 7. Policy 8. Customize 9. Survey 10. Strike 11. Breach 12. Guarantee

Quiz Answers
1. Weather Derivative 2. Secular Market 3. Closing Costs 4. Alphabet Rounds
Total FII registrations with SEBI, which were 1,219 in December 2007, were 1,457 at end-July. New registrations by FIIs, which slowed between February and April, went up significantly between May and July. January, when the stock market touched its pinnacle at 21k, saw 60 new FIIs and 151 sub-accounts being registered. The new entrants may not rush to make their first investments in Indian stocks; but the pick-up in registrations is surely indicative of sustained FII interest in the Indian markets. The moves by FIIs were company-specific and provided no signals as to their overall stance on sectors. With sufficient proof that FIIs havent deserted India, domestic investors may look for some suitable stocks to add to their portfolios at present. FII activity in F&O FIIs will now be able to take bigger leveraged bets in the Indian derivatives market, as SEBI allows them to use AAA-rated foreign Government securities as collateral to fund margin requirements. Clearing members can now accept foreign sovereign securities with triple-A ratings as collateral towards margin requirements for FII derivative transactions routed through the exchanges. This approval follows a recent enabling move by the Reserve Bank of India allowing clearing corporations and clearing members to open and maintain demat accounts with foreign depositories to pledge or transfer such securities as collateral. FII activity in the domestic derivatives market is typically a fifth of the overall trading turnover, both in the cash and derivatives market. It also offers foreign institutions an opportunity to put to use their idle holdings of any foreign Government bonds to back up their transactions in Indian stocks.

Did you Know?

The NASDAQ was started on February 8, 1971. 199 years after the New York Stock Exchange. Originally only median quotes were listed. In 1792 the Bank of the United States was first formed by A l e x a n d e r Hamilton. It was one of the first Hot issues in the U.S IPO market. Trading began before the stock was even issued (when issued).

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com

Contributions made by :
Editing/Compiling, Crossword News Company Review, Did you know, Quotes Stock Ratnas, Quiz Graphs Investors Check Interview Book Quotes, Buzz Word Students Article/ Coordination Arihant Patawari Fouzia Taranum B. Anoop Rajan & Ashish Poddar Sukrutha Laavanya Gnana Devi Diwakar Grover Vamsi Kanagovi Nikhil Mehta Manish Sinha