November 10, 2013

Volume 16

A Nostalgic week after Diwali Holidays

This past week has been quite a nostalgic affair for all of us. Hope you all

enjoyed Diwali to the fullest and are now back to IMT once again with full

energy and vigor. Term 3 has started for all juniors in its full spirit and the

final placements are about to begin for our Seniors. Its time to once again

update ourselves with the latest happenings of this dynamic and complex

financial world.

Here we bring t o you our In Focus informing you about the latest and the

most discussed about buzz of the stock markets i.e. The Twitter IPO. Con-

tinuing with it we have our Opinion Section on the latest RBI initiative on

the Wholly Owned Subsidiary. To update the people with the basket of fi-

nancial knowledge we have the Term of the Week i.e. Merger Defense

Mechanisms as well news and Market for the week.

Our Flagship Event RISCON ’13 is all set to start next week. We have

speaker sessions, panel discussion on the latest financial happening all

around the world as well inter B-School case study Encephalon to test the

financial planning acumen. Do register yourselves for the knowledge-filled

sessions. For further enquiries, contact your FinNiche representative of

your class.

We hope you enjoy the various articles in this edition of FinXpress. We look

forward to your comments, acknowledgements and your criticisms regard-

ing our online magazine. We plan to invite articles for the different sections

in FinXpress in a few weeks. Hopefully, you would write one for us!

Happy Reading!!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 16

November

10, 2013

FinXpress

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

FinNiche

November 2013 Page 1

CONTENTS

From The Editorial

In Focus: Twitter IPO

Opinion: RBI Initiative on

wholly owned subsidiary:

An Opportunity or a Threat

Term of The Week

Market This Week

News

Fun Corner

Page 2

In Focus

With the end of day 1 of Twitter’s IPO, its

stock price soar to $44.9, a 73% increase

from the initial public offering price of $26.

The company raised a modest of $1.8

billion and after the strong first day

success, Twitter became one of the most

successful IPOs of the year.

The opening bell was rung by actor Patrick

Stewart, a Boston police department

representative and a nine – year old who

sold lemonade to raise money to end child

slavery.

Twitter IPO turned out to be a stark

contrast from the initial public offering of

Facebook Inc in last May . Twitter had

incurred losses amounting to almost $134

Million in the first three quarters of this

year almost double of the net losses of the

same period reported last year. Facebook,

however, had reported $205 Million

earnings in the quarter before it went

public. There were views which suggested

that it was not the right time for Twitter to

go public as Facebook had plummeted soon

after its IPO. To make sure what they did

was right, Twitter selected Goldman Sachs

as its lead underwriter whereas Facebook

had picked Morgan Stanley. Twitter listed

on New York Stock Exchange while

Facebook listed on Nasdaq, to avoid trading

glitches in the initial hours of trading. Basis

the learning that Facebook shares had

dropped after its IPO, Twitter ensured that

its shares were sold for a price low enough

to attract interest. At the outset, the

strategies seem to have been paid off.

Yet even after such a sizzling start, the

frenzy seems to be fading away. At the close

of market on Friday, the Twitter shares

retreated. The stock closed at $41.64, 7.24

percent lower than the previous day. The

view on the company is held positive but

the price seems too high to be able to be

justified. Based on fundamental analysis,

the investors are finding hard enough to

value Twitter at $14 Billion in contrast to

the $24 Billion valuation it reached on the

first day. Concerns about a potential

bubble in the social media sector have also

been raised. Daniel Ernst of Hudson

Square Research issued a “sell”

recommendation saying that the “Bird

should be Flipped”. According to him, the

company is priced at 600 times its

projected earnings and is more than fully

valued. Certain other analysts felt that

valuation is difficult because of

uncertainties in growth of advertising and

costs of market and research borne by the

company. Wedbush, yet another analyst

issued a “neutral” recommendation.

With the significant growth in the social

media sector, the investors are overzealous

lured by the massive number of users, as

against any other sector having uncertain

profitability. Twitter being valued at no

more than $8 Billion and losses of more

than $440 Million since 2010 is gaining

popularity with over 230 Million users and

still growing exponentially. In a period

where the investors are more focused

towards the opportunities and gains than

the risk associated, the Twitter bubble

would rise or burst is yet to be seen.

FinNiche

TWITTER IPO —- By Himika Choudhary

November 2013

Page 3

Opinion

Background:

Originally foreign banks have presence in

India as branches only. As a result they

follow the rules and regulation of the parent

countries. Further their presence is limited

as they require permission from the central

bank i.e Reserve Bank of India for opening

of any new branch.

During recession it was observed that there

was not enough interconnectedness of these

banks with the Indian Government which

would have helped to reduce the liquidity

crunch during the crisis period. The lessons

learnt during the time lean in favor of

domestic incorporation of foreign banks.

RBI unveils Norms:

RBI allowed foreign banks to setup their

operations in India though a wholly-owned

independent subsidiary (WOS).

The Model:

Setting up of the WOS needs approval

from the home country and RBI.

The banks which never carried any

banking business in India and needs

to carry out now can carry out only

thorough wholly owned subsidiary.

Foreign banks which commenced

banking business in India from August

2010 onwards were required to furnish

an undertaking that they would

convert their branches into wholly

owned subsidiaries if so required by

RBI.

Foreign banks which commenced

banking business in India before

August 2010 shall have the option

either to continue their banking

business through the branch mode or

to convert those branches into a wholly

owned subsidiary.

The initial minimum paid-up voting

equity capital for a WOS shall be 5

billion

Major Opportunities:

These branches now come under the

purview of India banking systems and

hence need to follow the RBI norms.

At least 25% of their branches need to

serve the un-banked rural centers i.e. Tier

5 and Tier 6 cities. This will also increase

the money supply opportunities within the

economy

These banks will be allowed to open

branches without any prior permission

from RBI, hence acquaintance with foreign

banks will increase among the mass there

by decentralizing the banking business

which is mostly dominated by State Bank

of India.

Increased employment opportunities

for the common mass.

Also about one third of senior

management of these WOS have to be

Indian Nationals

Major Threats:

With the independence of opening

branches, the foreign banks may

dominate the Indian Banking system

WOS gets the permission to easy

merger and acquisitions of local lenders in

India which will increase the market

competition

FinNiche

RBI initiative on Wholly-Owned Subsidiary – An Opportunity or A Threat

-By Sutapa Mishra

November 2013

PAGE 4 November 2013

FINANCIAL KNOWLEDGE

A target company in case of a merger

triggers a defense mechanism when it does

not want to get acquired. This generally

happens in case of a hostile takeover. These

measures can be divided into two classes:

(1) pre-offer defenses

(2) post-offer defenses.

As the terms imply, defensive measures can

be taken either before or after a hostile offer

takes place, but most M&A legal experts

recommend that defenses be set up before

an offer occurs, because pre-offer defenses

tend to face less scrutiny in court. Thus a

company sets up pre-emptive defense

mechanisms in order to help ensure that it

remains independent or to increase its

purchase price.

Pre-Offer Defense Mechanisms

Poison Pill: In its most basic form, a poison

pill gives current shareholders the right to

purchase additional shares of stock at

extremely attractive prices (i.e., at a

discount to current market value), which

causes dilution and effectively increases the

cost to the potential acquirer. The pills are

usually triggered when a shareholder's

equity stake exceeds some threshold level

(e.g., 10%).

Staggered board: In this strategy, the board

of directors is split into roughly three equal-

sized groups. Each group is elected for a 3-

year term in a staggered system: in the first

year the first group is elected, the following

year the next group is elected, and in the

final year the third group is elected. The

implications are straight-forward. In any

particular year, a bidder can win at most

one-third of the board seats. It would take a

potential acquirer at least two years to gain

majority control of the board since the

terms are overlapping for the remaining

board members.

Restricted voting rights: Equity ownership

above some threshold level (e.g., 15% or

20%) triggers a loss of voting rights unless

approved by the board of directors. This

greatly reduces the effectiveness of a tender

offer and forces the bidder to negotiate with

the board of directors directly.

Golden parachutes: Golden parachutes are

compensation agreements between the

target and its senior management that give

the managers lucrative cash payouts if they

leave the target company after a merger.

Post-Offer Defense Mechanisms

"Just say no" defense: The first step in

avoiding a hostile takeover offer is to simply

say no. If the potential acquirer goes

directly to shareholders with a tender offer

or a proxy fight, the target can make a

public case to the shareholders concerning

why the acquirer's offer is not in the

shareholder's best interests.

Greenmail: Essentially, greenmail is a

payoff to the potential acquirer to terminate

the hostile takeover attempt. Greenmail is

an agreement that allows the target to

repurchase its shares from the acquiring

company at a premium to the market price.

The agreement is usually accompanied by a

second agreement that the acquirer will not

make another takeover attempt for a

defined period of time.

Crown jewel defense: After a hostile

takeover offer, a target may decide to sell a

subsidiary or major asset to a neutral third

party. If the hostile acquirer views this

asset as essential to the deal (i.e., a crown

jewel), then it may abandon the takeover

attempt.

FinNiche

Merger Defense Mechanisms —- By Mukul Gupta

Page 5

FINANCIAL KNOWLEDGE FinNiche

Market This Week

BSE tanked almost 600 points closing at 20,666 level amid fears of possible QE ta-

pering from FED. Financial, Oil & Gas, FMCG stocks were the biggest losers while

TATA groups gained significantly. RBI formally announced a frame work for setting

up 100% subsidiaries by foreign banks in India.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 20,504.91

Fifty Days 20,074.16

Hundred and Fifty Days 19,575.18

Two Hundred Days 19,530.53

November 2013

Page 6

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 8.75%

Repo Rate 7.75%

Reverse Repo Rate 6.75%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 62.73

INR / 1 Euro 84.06

INR / 100 Jap. YEN 63.94

INR / 1 Pound Sterling 100.92

Commodity Unit Rs / Unit % Change

Gold 10 grams 29715.00 -0.69%

Silver 1 Kg 48165.00 -0.57%

Crude Oil 1 bbl 5998.00 0.98%

Base Rate 9.8%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 8%-9.05%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 6146.20

Fifty Days 6002.64

Hundred And Fifty Days 5900.24

Two Hundred Days 5901.80

Key Policy Rates and Reserve Ratios

Exchange Rates

November 2013

Page 7

FINANCIAL KNOWLEDGE

Twitter shares soar in frenzied NYSE debut Twitter Inc shares jumped 73 percent in a frenzied trading debut that drove the seven-year-old company's market value to around $25 billion and evoked the heady days of the dot-com bubble. The strong performance on Thursday was encouraging for the venture capitalists who have backed other consumer Web startups, such as Square or Pinterest, though it sounded alarm bells for some investors who cautioned that the froth was unwarranted. The stock closed its first day of trade on the New York Stock Exchange at $44.90 a share after hitting a session-high of $50, nearly double the initial public offering price of $26 set late on Wednesday. India squeezes its oil firms to meet fiscal deficit target State-run oil companies are feeling the pain of the finance minister's determination to meet his fiscal deficit target, with officials warning that exploration is under threat and losses at oil firms could steepen. Oil Minister M. Veerappa Moily warned the Finance Minister, P. Chidambaram, that the subsidy burden placed on upstream companies was making oil fields unviable. His ministry also forecast that revenue losses further downstream at fuel retailers Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum will rise to 803.16 billion rupees in October-March, from 623.32 billion rupees in April-September. India budgeted fuel subsidies for the fiscal year to March 2014 at 650 billion rupees. The oil ministry said that is likely to be more like 1.4 trillion rupees. India’s forex reserves down $1.65 bn to $281 bn India's foreign exchange (forex) reserves declined by $1.65 billion to touch $281.29 billion for the week ended Nov 1, official data showed. The forex

reserves had risen by $1.82 billion to touch $282.95 billion for the week ended Oct 25. According to the Reserve Bank of India (RBI) Weekly Statistical Supplement, India's foreign currency assets (FCA), the biggest component of the forex reserves, decreased by $894.2 million to $253.60 billion for the week under review. RBI said the FCA expressed in US dollar terms included the effect of appreciation or depreciation of non-US currencies held in reserve such as the pound sterling, euro and yen. China Inflation hits 8-month high amid tightening fear China's annual inflation climbed to an eight-month high of 3.2 percent in October as food costs soared, fanning market worries about policy tightening as factory output and investment data pointed to signs of stabilisation in the economy. Inflation, which quickened slightly from 3.1 percent in September, was still lower than a median forecast of 3.3 percent in a Reuters poll and was below the official target of 3.5 percent for 2013. US jobs market dodges blow from government shutdown U.S. job growth unexpected ly accelerated in October as employers shrugged off a partial government shutdown, suggesting the economy was on firm footing and raising the prospect the Federal Reserve may soon decide to temper its bond-buying stimulus. Employers added 204,000 new jobs to their payrolls last month, and 60,000 more jobs were created in September and August than previously reported, the Labor Department said on Friday. The unemployment rate, however, edged up to 7.3 percent from September's nearly five-year low as federal workers were idled. Economists expect a reversal in coming months.

FinNiche

NEWS

November 2013

Page 8

FINANCIAL KNOWLEDGE

Rupee weaker after ECB rate cut The rupee is trading at 62.68/69 versus its close of 62.41/42, tracking the dollar's strength versus other Asian currencies and weakness in domestic shares. The BSE Sensex trading down 0.38 percent. Most Asian currencies trading weaker compared with the dollar. The euro struggled in early Asian trade after the ECB's surprise interest rate cut sent the

single currency plunging to near eight-week lows, but the dollar's gains were tempered ahead of the key U.S. payrolls report later on Friday. Investors to keep focus on Fed for tapering clues The U.S. stock market's rally could be put to the test next week if comments from Federal Reserve officials including Janet Yellen add to views the central bank could be scaling back its stimulus plan sooner rather than later. While next week is light on economic news, bond yields have been rising, giving further credence to the idea the Fed may soon temper its bond-buying program in the near future. With less than two months left in the year, many investors are bracing for something that could shake up the stock market and the Standard & Poor's 500's 24 percent year-to-date gain. That could come from the Fed, even if it's just that investors begin to anticipate the Fed is ready to make a move soon. India seeks Kuwait’s support for GCC free trade agreement India Friday sought Kuwait's support for early conclusion of a free trade agreement with the six-nation Gulf Cooperation Council (GCC). At an interactive meeting organised by the industry chambers here, Commerce and Industry Minister Anand Sharma urged visiting Kuwaiti Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah to play an active role for ensuring an early conclusion of the trade deal.

The interactive meeting was organised jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Confederation of Indian Industry (CII) and the Associated Chambers of Commerce and Industry (Assocham). India has been negotiating a free trade agreement with six-nation GCC grouping since 2004. The two sides had signed a framework agreement on

economic cooperation in August 2004, and have held several round of talks for the free trade agreement. Kingfisher Airlines posts $114 million loss in Q2 Kingfisher Airlines Ltd, which has been grounded for more than a year, reported yet another quarterly loss with no income from operations. Net loss was 7.16 billion rupees for its fiscal second quarter ended September 30, compared with a net loss of 7.54 billion rupees a year earlier, Kingfisher said in a filing to the stock exchanges on Friday. Kingfisher, once India's no.2 carrier and headed by flamboyant liquor baron Vijay Mallya, has not flown since October last year for want of cash. Bids to revive operations have seen little success so far. The company reiterated on Friday that it was exploring various options to recapitalise and resume operations and that talks were on with prospective investors. Uflex revenue rises to Rs. 1516 crore Flexible packaging firm Uflex said its revenue rose to Rs.1,516 crore for the quarter ended September as compared to Rs.1,250 crore recorded in the same period last year. However, the company's net profit dropped to Rs.46 crore for July-September quarter from Rs.57 crore recorded in the same period last year. The company had posted Rs.43 crore profit in the first quarter of the current financial year.

FinNiche

November 2013

FinNiche

Fun Corner

FinQuiz 1. A _________ investment has both debt and equity fea-tures.

2. A short term loan until long term financing is obtained is

called _________ loan.

3. __________ serves as the largest bank in terms of capi-

talization in the world.

4. A mortgage with low down payment is called

__________ mortgage..

5. Buying put option maximizes _______ _ in a bearish mar-

ket while putting a cap on maximum _______ that can be

incurred.

CARTOONS

FUN CORNER

Page 9

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Volume 16 Publisher: Vipul Kumar Singh

November 2013

Last Week’s answers 1. Bootstrapping 2. 2010 3. Wholesale Price Index 4. Fall 5. Shareholders, Management