VOLUME 5.02ISSUE 88

APRIL 16, 2011

Economics is not about things and tangible material objects; it is about men, their meanings and actions.

-Ludwig Von Mises

Rates 01

Graphs 02

News 03

National & International events in the world of finance

Contemporary ArticlesCorruption and its financial implications 04N.R. Narayana murthy’s view on corruption 05

Commodity article 06Did you Know? 08Currency namesInvestor Focus 09Allied digital services

Alumni Speak 10

A peek into the corporate world through our Alumni’s experi-ence

Buzz Words 11

RATES

01

STUDENT’S CARTOON By- Zafar Iqbal I MBA M

RepoReverse RepoCall rateInflation (as on Feb 2011.)Forex Reserve(as on 1st April 2011)91 day T-BillIIP (for February 2011)6.90 GS 2019

6.75 %5.75 %5.05%-7.0%+8.82%$ 305.486 billion

7.1443% +3.6% 8.0907-8.0907%

42

43

44

45

46

1-Apr 4-Apr 7-Apr 10-Apr 13-Apr

Rs/$

GRAPHS

02

20500

20700

20900

21100

21300

01/Apr 04/Apr 07/Apr 10/Apr 13/Apr

Gold(per 10 gram)

24000000

25000000

26000000

27000000

28000000

5600

5800

6000

6200

6400

01/Apr 04/Apr 07/Apr 10/Apr 13/Apr

future rates open interest

5400

5600

5800

6000

19,100.00

19,300.00

19,500.00

19,700.00

19,900.00

1-Apr 4-Apr 7-Apr 10-Apr 13-Apr

sensex nifty

116

119

122

125

128

01/Apr 04/Apr 07/Apr 10/Apr 13/Apr

Oil(per bbl)

INTERNATIONAL NEWS

• British consumer products giant Reckitt Benckiser has named its global marketing head

RakeshKapoor as its new chief executive, a rare appointment of an Indian to the helm of a

marquee European corporate name.

• Kapoor, a Reckitt veteran of 25 years, succeeds Bart Becht , Reckitt’s superstar chief executive

officer and the one credited with transforming a sleepy company into a brand-packed global

powerhouse.

• Tata Chemicals Ltd’s (TCL) acquisition of 25.1 percent stake in a greenfield fertiliser project

in the west central African country of Gabon has increased the Tata Group’s presence in Africa.

• The $1.3 billion ammonia-urea fertiliser complex was being set up as a joint venture between

Singapore-based Olam International Ltd and the government of Gabon.

• A Morgan Stanley property fund failed to make $3.3 billion in debt payments by a deadline

on Friday, handing over the keys to a central Tokyo office building to Blackstone and other

investors, the largest repayment failure of its kind in Japan.

NATIONAL NEWS

By- Vaibhav Nagar I MBA L

03

• Infosys co-founder K Dinesh and board director TV Mohandas Pai resigned from Infosys in

persuit of future endeavours.

• India’s business process outsourcing (BPO) sector is facing stiff competition from the likes of

Mexico, the Philippines, Malaysia, China, Canada and Ireland, which is posing a grave threat

to the growth of India’s BPO sector.

• The BPO industry is facing serious challenges vis-a-vis shortage of skilled and educated

workers as the attrition in the sector has risen phenomenally at the rate of 55 per cent with a

significant visible movement in mid and senior management levels.

• The KK Modi Group has roped in former chief of Indian Oil Corporation (IOC), SarthakBehuria

to head a group strategy body and has also formed a new ‘Family Council’ to focus on promoter

interests and enable succession planning.

• Associated Chambers of Commerce and Industry (Assocham) has said it expects the Indian

pharmaceutical industry to reach $20 billion by 2015, making it one of the world’s top 10

pharmaceuticals markets.

CORRUPTION AND ITS FINANCIAL IMPLICATIONS

By- Pavan S Rao I MBA L

Corruption, a previously neglected issue, became one of the greatest preoccupations of western powers trying to bring stability and prosperity to global markets. Corruption and development have a direct relationship. It is difficult to ascertain the exact impact of corruption on development, but, in the absence of corruption, even greater and more sustained levels of development can flourish. Also, corruption is unfavourable to the process of sustainable development. The impact of corruption on development is clearly discernable though examination of the Asian Financial Crisis of 1997. This event demonstrated that whilst development and corruption can coexist, corruption creates unsustainable inefficiencies and inherent weakness in the economy for the long term.

Corruption affects development in the following way:• Influencing Government• Predictability• Innovation• Competition & Efficiency• Government Policy

Evidence has shown the serious underlying consequences of corruption on economic growth, capital formation, poverty and inequality. Examining the alleged costs of corruption on development from both normative and empirical dimensions has shown the impact on long term sustainability of development. The findings suggest that all corruption, no matter what its form is unfavourable to long term and sustainable development. In the short term, corruption may appear to have benefits to an economy and its development, but this misappropriation of finance and government resources is contrary to long term sustainable development; there is a negative relationship between corruption and the long-term rate of economic growth.

The big scams like 2G spectrum, CWG and Adarsh society lead Finance Minister to speak out in parliament during budget. 2G scam of around `1.76 lakh crore, CWG scam of `70000 crore and Adarsh society scam were the major scams of year 2010. Apart from these about $ 1456 billion are in Swiss bank as black money shows the level of corruption in India.

Other than forming the group of ministers for fighting against corruption and black money, Finance Minister has also projected a “Five Fold Strategy” against black money. The scams have impacted Indian economy in an adverse manner, for example, if the bidding of 2G spectrum would have been done in a fair way, the revenue of government would have increased through which the fiscal deficit could have been reduced to a greater extent, although the fiscal deficit is reduced down to 5.1% from 5.4%.

In a survey conducted by KPMG: Real Estate, Constructions and Telecom ranked high on the list of most corrupt sectors. The thing here is that the innocent and hardworking Indians were only made aware of the corruption in Telecom, by Media activism, otherwise barring few Reliance and other names, the sector is not that highly corrupt.

04

KPMG survey indicated, 51% respondents expressed apprehension that rising corruption will make India less attractive for foreign investments and a whopping 90% believe corruption in India will keep markets volatile.

For every 1% rise in corruption, there is a 11% per capita reduction in FDI flow. The Government headed by Dr. Singh, is neither determined to tackle corruption nor is taking any action to prevent the transfer of black money with in the economy. The Honorable Supreme Court is directing the Government after petitions were filed by concerned citizens and the people want Dr. Singh to quit and pave way for someone else to take-over as the Prime Minister of India.

If political leaders are known for cunning and corruption, India’s greatest CEO Mr. N.R. Narayana murthy is someone who embodies honesty, simplicity and hard work. There were days when Mr. N.R. Narayana murthy lived an ordinary life of a middle class salaried employee. Some events in his life caused him to think very deeply about the economy vis - a - vis suppression of human achievement by government officials etc., such inner feelings eventually led to the foundations of Information Systems Consultants. Information System Consultants was known for its honesty and work ethics.

Infosys Technologies chairman and chief mentor Mr. N.R. Narayana Murthy came out strongly in support of Anna Hazare, saying the need of the hour was strong. If India were to have a whistleblower policy and a Lokpal which people could approach, then corruption, especially in business, would automatically fall, he said. He also believes that the current spate of corruption scandals is hurting India’s image with the global investors expressing concern about investing in India. “These are truly extraordinary times. The economy is doing pretty well, there’s a lot of confidence among people. We have won the World Cup. Foreign investments into India are doing well. Therefore the world holds us to a high standard. We are not the same India that the world saw in the 1970s and 80s. Hence, we have a responsibility to live up to the pedestal on which we have been put,’’ he said in an exclusive interview. “In the past few months, in most conversations (with CEOs or politicians across the world), there’s a reference to corruption having risen in India, of some kind of nexus between business people, politicians and bureaucracy. This is worrisome.’’ He readily admitted that business is also to blame for rising corruption. “Of course, it takes two hands to clap,’’ said Murthy adding, “But for business to become clean there should be an institutional framework. The difference I find between developed nations and countries such as India is the lack of institutions that enforce transparency, accountability and fairness. We must all work to create strong, effective institutions. Only then we would have found a sustainable solution to this problem.’’ He pointed out to a study which has said that if corruption falls in India, the GDP growth will rise 1.5%. “We are at 8.5% growth rate. If it’s 10%, we have added another

05

N.R.NARAYANA MURTHY’S VIEWS ON CORRUPTIONBy- Pavan S Rao I MBA L

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$150-billion to our economy. More jobs can be created. As tax collections rise, the government can take up more programmes in basic education, health care and nutrition.’’ Murthy, who met Hazare a couple of years ago, has been discussing this with justice J S Verma, Prashant Bhushan, Arvind Kejriwal, and Lyngdoh since last year. In early March, he met Sonia and Rahul Gandhi. “She truly appreciated the need for reducing corruption and improving the perception of India abroad. I am glad that she has made a statement supporting Hazare’s cause. Both fully subscribed to the need to work on this agenda.’’

COMMODITY: ZINC By- Soumya Sar I MBA IB

General CharacteristicsZinc is the fourth most widely used metal after steel, aluminum and copper in the world. Due to its resistance to non-acidic atmospheric corrosion zinc is instrumental in extending the life of buildings, vehicles, ships and steel goods and structures of every kind.

Zinc is a bluish-white lustrous metal. It is normally covered with a white coating on exposure to the atmosphere. It is used for alloys, electroplating, metal spraying, electrical fuses, batteries, rubber, paint, glue and matches.The primary stationary sources of zinc are electric services, petroleum refining, crude petroleum and natural gas extraction, manufacturing of fabricated rubber products, manufacturing of fabricated metal heating and plumbing products, and manufacturing of inorganic chemicals. Indoor sources include infiltration of outdoor air, smoking, cooking, and other indoor sources. The average indoor concentration of zinc is normally slightly higher than the outdoor level. Zinc occurs naturally in the earth’s crust.

Market Scenario• The Indian zinc industry entered its transformation phase with the privatisation of the largest

zinc producer, Hindustan Zinc Ltd, in favour of the Sterlite group in April 2002. The domestic zinc industry is now completely under the private sector and is in the midst of a serious expansion programme.

• Over the next five-six years, zinc demand is likely to grow at 12-15 per cent annually, against the global average of 5 per cent.

• Even if one assumes that zinc demand grows by 10 per cent and at slower 7 per cent thereafter, India would require zinc capacity of 14 lakh tpa by 2020, in order to be self-reliant. The next round of large capacity additions would.

• Buoyancy in domestic zinc demand primarily emanates from the boom in the steel industry, given that over 70 per cent of zinc is used for galvanizing. The steel industry has bright prospects with demand drivers being the construction industry and exports. Other sources for demand would be die-casting, guard rails for highways and imported-substituted zinc alloys.

Factors Influencing Zinc Market• Changes in inventory level at LME wharehouses• Economic growth rate of major consuming countries • Global growth and demand in major consuming industries • Prices of the alternative metal(s)

06

The Outlook for Zinc to 2011Zinc prices were the first of the LME metals to peak in late 2006 and prices have more or less trended lower since that time. The driver of the swing was the increase in zinc supply experienced in 2007, in reaction to the exceptionally high price environment. This took the market out of the structural deficit it saw throughout 2004-2006, initially to a near-balanced position in 2007 and eventually to a sizeable surplus last year and through to the present time, that saw LME stocks increase by 270,000 tonnes (from the start of 2008 through to mid March this year).

Market Fundamentals: However, there some positive signs emerging, particularly from the supply side that suggest that the worst is behind the market from a fundamental standpoint. Looking at LME inventories for instance, despite the increases they only represent about 2-3 weeks’ consumption, which is low from a historical perspective compared to previous downturns. Certainly we view the downside as being limited. As prices are now between the 60th and 70th percentile of the cost curve the supply response is currently gathering momentum. GFMS Metals Consulting projects a 4.3% decline in global mine output in 2009, followed by relatively modest gains in 2010 and 2011. This is based on a numbers of factors:

1. A number of the closures that have been announced can be considered permanent, or unlikely to be back in operation in the forecast period. This includes projects such as Lundin Mining’s Galmoy mine in Ireland and Teck Cominco’s Lennard Shelf operation in Australia.

2. It is always difficult to forecast the timing for the restart of capacity that has been idled in the downturn. However, some of the small scale projects were only in operation for a short period during the bull market and we doubt whether these will be brought back onstream before zinc prices have been high for some time.

3. Many of the projects that have been idled are owned by junior mining companies and raising finance may prove to be an obstacle to an early restart.

4. In China, we are not aware of any large-scale mining projects that will boost production. We have only factored in modest increases following the 4.5% rise in 2008.

5. A lot of the large-scale zinc projects under consideration are in economically and politically unstable countries and/or are in increasingly inaccessible locations. As a result, we no longer expect that projects such as Herald Resources’ Dairi mine (Indonesia) and Aim Resources’ Perkoa project (Burkina Faso) will be developed before 2012. Another reason to be cautious about the timing of new greenfield projects is that they are being developed in many cases by junior mining companies.

6. Towards the end of the forecast period, the exhaustion of existing mines may become an issue. The most notable example of this is Xstrata’s New Brunswick mine.

Following on from our analysis of the concentrate market, GFMS Metals Consulting is projecting a 2.5% decline to refined output in 2009 following the 2.9% increase in 2008. In 2010 and 2011, a relatively tight concentrate position should limit gains in production to 2.2% and 2.3% respectively.

We do not believe that there is a shortage of smelting capacity. Therefore our projections are predicated on producer restraint at the concentrate stage. Market outlook GFMS Metals Consulting forecasts a surplus of 210,000 tonnes in 2009. This surplus will overwhelmingly occur in the first and second quarters of the year. In fact, the zinc market is forecast to return to a small deficit in the second half of the year. In terms of prices, although prices are likely to retreat from the mid

07

5 08

March levels of in excess of $1,250/tonne, GFMS Metals Consulting believes the downside will be limited. Any moves back below $1,100/tonne would likely trigger a further supply response.

As the market moves to an essentially balanced position in the second half of the year, we expect prices will recover. Zinc prices are seen averaging $1,200/tonne and $1,300/tonne in Q3 and Q4 respectively leading to an average for the year of $1,150/tonne. In 2010, spot prices are expected to trade in a much wider range between $1,100-$1,800/tonne and will average $1,550/tonne over the year overall.

Source: http://www.theresourceinvestor.com/RI-archive/2009/0409-zinc.html

DID U KNOW?

1. Baht is the currency of Thailand, and also is a unit of gold measure equal to 15.244 grams.2. Dollar is the currency in several countries and regions. Its name comes from German “taler”

(thaler), a coin minted from silver in 1519 in northwest Bohemia.3. Euro is the currency of twelve European Union member states and the single currency for

over 300 million Europeans.4. Swiss franc is the currency of Switzerland and Liechtenstein. The word “franc” is believed

to derive from the Latin inscription “francorum rex” (“King of the Franks”) on early French coins, or from the French “franc”, meaning “free”.

5. Hryvnia (grivna) is the currency of Ukraine. The word “hryvnia” come from the Slavic “hryva”, which meant “neck”, and later something valuable worn around the neck, usually made of silver or gold.

6. Lev is the currency of Bulgaria. In archaic Bulgarian the word “lev” meant “lion”.7. Pound is the currency of the United Kingdom. The pound was originally the value of one

pound (weight) of sterling silver (hence “pound sterling”).8. Rand is the currency of South Africa. Its name comes from the Witwatersrand, the ridge upon

which Johannesburg is built and where most of South Africa’s gold deposits were found.9. Ruble is the currency of the Russian Federation. The word “ruble” is derived from the Russian

verb “to chop” as historically “ruble” was a piece of a certain weight chopped off a silver ingot.

10. Rupee is the currency of India. The word derives from the Sanskrit “raupya” meaning silver.

Currency names

14 CHAANAKYA VOL 4_131509

INVESTOR FOCUS By- Madhukar Das I MBA G

Allied Digital Services Indian equity market did a see saw trick in past few trading sessions starting with the ICC World Cup euphoria, then Jan Lokpal issue and rude crude. Wednesday saw a massive 2.25% gain in Sensex and similar gain in Nifty50 index. The midcaps are doing really well and it is interesting to see how technology stocks are gaining momentum.

Fundamentally Speaking Allied Digital Services is a global provider of Managed IT solutions that help optimize and transform IT infrastructure for its clients. The company supports its customers from nation-wide sales and service networks in India, USA and Australia. They have partnerships and alliances with major global firms like IBM, Microsoft, Intel, HP, NIIT, Nortel etc. The company provides enterprise computing solutions to large and mid-sized Indian corpora-tions. Other services include security management, thin client computing, storage, telecom solutions etc. Allied Digital Services has approved a buyback of a maximum of 20 lakh shares from the open market at maximum price of `140 each. The company would utilize about `28 crore for the same. The buy back process will be f inished on or before February 17, 2012. The stock fell nearly 60% following news of IT raid at Allied Digital Services in first week of February owing to FII exit. However the stock has stabilized owing to the buy back news and is poised for a bounce back as nothing material has come out of the raid. The company has healthy gross and profit margins and are in sync with the industry aver-age. The return on equity is 15.2%. The estimated net profit growth have been readjusted by the company for the next fiscal year to 19% growth (from earlier 30%). The PAT for trailing twelve months is `20.87 which translates into price to earning ratio of 4.42 which is much lower than the industry average of 29.33. P/B ratio is 0.68, much lower than industry average of 6.36. Price to sales is 0.91. The earnings for the company have grown at a CAGR of 61.5% for past three years. The current enterprise value is `106.7 per share. The stock is undervalued at current levels and can be bought for both short and medium term.

The price line makes a bot-tom triangle formation showing reversal as it has broken upper trend line.

The volume chart supports by showing a sharp drop in volume and beginning of some activity in sync with the breakout.

Simultaneously the momen-tum line has also broken above the zero level and shows signs of recovery.

MACD has crossed over after bottoming out of stock at around `71. However there is no major diver-gence seen yet.

The relative strength index weekly chart suggests the period of correction is over. The scrip was in over sold region and has crossed over the threshold line which in-dicates bear operators are waning out of the stock and bulls may set in soon.

Special points of in-terest: Since we are looking at a trading horizon of 15-30 days, we shall give more weightage to technical analysis and price trend of the stock. We shall also study the fundamental as-pects of a company to avoid getting into loss making trade posi-tions in case of movement of market in direction opposite to that of my predic-tion.

Technically Speaking

Recommendation : BUY CMP : `92.25 Target Price : `101 Stop loss : `88.7

BUY : Reliance Power CMP—`130 Target—`139 Stop Loss—`125

HCL Infosystems CMP—`109 Target—`115 Stop Loss—`106

Sell : Cosco Ltd CMP—`54 Target—`48 Stop Loss—`58

Other Picks

ALUMNI SPEAKBy- Manan Datt I MBA M

10

In this edition, we have Mr. Naveen Kulkarni, who gave us the insights about SIP and certifications.

Name: Mr. Naveen KulkarniBatch: 2004Organization: CitibankDesignation: ManagerEmail ID: kulkarni.n@citi.com

Chaanakya: What does your present job involve?Mr. Kulkarni: I am currently working with Citibank where my job basically involves providing Financial Solutions to our High Network Corporate Clients. Advising them with new market and ventures for investment.

Chaanakya: What parameters are considered before investing into any new ventures ?Mr. Kulkarni: The criteria on which an opportunity is judged are: scalability of the business (market opportunity), company’s business plan (strategy, competitive advantage), management (vision, ability) and exit flexibility.

Chaanakya: Where did you do your internship from and has it helped you in your jobs?Mr. Kulkarni: I did my internship in a Mumbai based firm called Sushil Finance, my internship involved studying one sector in the Indian market and preparing a financial model. An internship is very important as it would give you a firsthand look at how do big organization function and what a professional’s life is like. It is also a good forum to network with other people cutting across different departments to understand their work profile.

Chaanakya: As the students will be completing their summer internship projects shortly, ideally what learning should the students have taken from such a project?Mr. Kulkarni: It is very difficult to learn too much about the finer details of any business in a span of two months which is typically the period for summer internship.

Students should have ideally got a sense of the style of functioning of the corporate world and to an extent should have made up their mind on whether they would like to get into the same line of business as their summer internship project. By this, at least you would have eliminated one of the potential wrong career choices. Summer internship should be seen as your last chance of making mistakes and learning from them with least accountability, because, especially when you get into the financial industry every mistake costs money.

Chaanakya: What can you suggest to the students who are looking for a job profile as you are into now?Mr. Kulkarni: I would say be clear with your finance concepts-especially financial management. Basic things matter the most, which one tends to ignore & no one is going to ask you any rocket science in an interview. Moreover be aware about the happenings around the world; also try to form an opinion of your own.

Chaanakya: What advice would you give MBA Finance students? What should their level of preparedness be when they enter the actual business environment?Mr. Kulkarni: Every student must know that she or he is paid for specific skills that only she or he could supply. What is it that I have to add special and specific value? If one can answer the question with confidence, there is no limit to growth.

ALL THE BEST!

11

BUZZ WORDSA-D: Advance-Decline, or measurement of the number of issues trading above their previous closing prices less the number trading below their previous closing prices over a particular period. As a technical measure of market breadth, the steepness of the AD line indicates whether a strong bullor bear market is under way.

Tailgating:Purchase of a security by a broker after the broker places an order for the same security for a customer. The broker hopes to profit either because of information which the customer has or because the customer’s purchase is of sufficient size to affect security prices. This is an unethical practice.

Arrearage:In the context of investments, refers to the amount by which interest on bonds or dividends on cumulative preferred stock is due and unpaid. It is the condition of being in arrears.

Markowitz diversification:A strategy that seeks to combine in a portfolio assets with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk (variance) without sacrificing return.

Triple witching hour:The four times a year that the S&P futures contract expires at the same time as the S&P 100 index option contract and option contracts on individual stocks. It is the last trading hour on the third Friday of March, June, September, and December, when stock options, futures on stock indexes, and options on these futures expire concurrently. Massive trades in index futures, options, andunderlying stock by hedge strategists and arbitrageurs cause abnormal activity (noise) andvolatility.

Regulation D:There are two Regulation Ds. First, it refers to the exemption from the Securities Act of 1933 for Private Placements. These placements are exempt from registration and prospectus delivery requirements. Second, it refers to a Federal Reserve Board regulation that currently requires member banks to hold reserves against their net borrowings from foreign offices of other banks over a 28-day averaging period.

CROSSWORDS

Across

3. The company that alerted European Union about price fix of washing powder from P&G and Unilever4. New State Bank of India chairman who will succeed O.P. Bhatt6. The company that Hero hired as branding expert to revamp the brand

Down

1. The other name for Citizen’s Ombudsman Bill2. The social activist doing hunger strike for the clearance of lokpal bill5. The company that sold its indian business to Standard Chartered Plc.

12

By- Naveen Kulkarni I MBA N

Quiz1 a. Volvo Car Corporation2.b. $ 5 bn3 c. 25004.a. €500m5.d. 17506.a. 45

13

ANSWERS TO PREVIOUS ISSUE

TEAM

Apoorv Jhudeley

& Rajat Sikri

Editor-in-chief

Zafar Iqbal Cartoon

Vaibhav Nagar

News

Naveen Kulkarni

Crosswords & Quotes

Sumit Kumar Gupta

Graph & Rates

Amit Prakash

Book and Magazine Review

T. Deekshith Ravi Chandra &

Rao Pavan Sridhar

Student Article

Rohit Dhannawat &

Saurabh Khator

Investors check

Amit Prakash &

Chinmay Uchhrang Jethwa

ScamMandeep Kaur

Commodities Market

Richa Jain

Debate

Akshat Malik,

Geetika Gupta &

Manan Datt

Alumni Speak

Abhijeet Singh &

Anubhav Jain

Quiz & Did You Know

Gaurav Jain

Stock Watch

Madhukar Das

Investor Focus

Apurva Gupta &

Pragathi P.

Buzz Words

Kumar Gaurav &

Meenakshi Ramnath

Review CommitteeApoorv Jhudeley &

T. Deekshith Ravi Chandra

Creative Head & Design

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