Grand Alumni Reunion- reliving the good old days

The day 11/13/2010 became one of those memorable days when one gets back to reliving, re-cherishing and rekindling with not just the friends, the faculty members but the places like the dhabas, the top of the world, the classrooms, the hostels, the mess and every inch and bit of the times one considers as the best moments ever lived in life.
The day was the Grand Alumni Reunion of IIFT, a momentous occasion for people spread across different parts of the world to take time out from their highly busy & successful careers to come back to their alma mater and feel the sense of belongingness that they could only get being an inseparable part of IIFT.

The day included cultural programs from not just the IIFT students but a special cultural program by SHIVOHAM Institute of Performing Arts- Natya Dhwani, a fusion of classical and contemporary dance.
Then as per the tradition, there was Citation for Alumnus of the year - 2010 followed by presentation of the Award.

The Alumnus of the year went to Mr. D. P. Singh – Managing Director (Sara International Limited). In his address, he shared his anecdotes of the times he lived at IIFT and the kind of foundation it laid ahead for his career. Listening and connecting to his thoughts was an awe-inspiring experience for most of us. He also talked about the need for people at such pinnacle of the careers to give back to the society and to connect to their alma mater.

From the current students perspective, it was really inspiring and the best platform that they could get to interact freely at a one to one level and share ideas and gain insights about not just the careers but light-hearted chit-chats to connect being a part of the IIFT family. For an institution with such a long and glorious span of 47 years, the alumni is one of the strongest and the most fundamental institution to look up to and motivate oneself and feel the pride of being an IIFTian and say aloud with all the enthusiasm in the world GO IIFT GO !!!

Truly, it was a night to remember.

National Consulting Symposium-2010

National IT Symposium

Fin Weekly 2nd August - 8th August

group no. 7 (Cashonova Members 2012)

Ankit srivastav

Parndeep ahluwalia

Aatish kumar

Maneet tendon

Akshay subramaniam

Krishna kaushal

Industry wise analysis

1. Telecom Industry:

a) GSM operators owe Govt Rs 451 Cr: Bharti Airtel, Vodafone, Reliance Communication and other GSM telephone operators owe government over Rs 451 crore in license fee and spectrum charges.

Bharti Airtel owes the highest amount of Rs 135.11 crore in spectrum charges and another Rs 0.44 crore in license fee dues. Vodafone had an outstanding of Rs 71.77 crore towards spectrum charges while R-Comm owes Rs 48.54 crore towards license fee.

The Govt has so far collected Rs 70,000 crore from telecom operators in license and spectrum fee.

b) Zain receives $295.4 mn from Bharti for Africa sale: In June, Zain and Bharti closed a $9 billion deal for the Kuwaiti firm's African assets excluding Sudan and Morocco. Zain had received $7.87 billion after the closing, and said it would receive a further $400 million within 12 months after completing other formal requirements. The amount received is part of the $400 million, a Zain spokesman said. The remainder $100 million is expected to be received within the next ten months, the statement said.

c) Android set to overtake iPhone: Android is taking the smartphone market by storm. Android would have a 19.4 percent share of the market, compared to 15.9 percent for the 62 million iPhones that are predicted to be sold by 2012.

d) For MNCs, India's artificial intelligence is hard to ignore: For the first time in the history of IBM, a non-US lab was asked to lead a Big Bet. The mobile platform is a huge focus area for IBM with 60-80 research projects under way globally. The Indian Lab was chosen to lead this effort due to both the size of the local mobile phone market that adds nearly 10 million users every few months and the innovative research that has come from local centres.

e) Rival brands see opportunity in BlackBerry, Nokia woes: According to estimates by Strategy Analytics, the installed base of smartphones in India is about 7 million. The segment constitutes around 3% of India’s total mobile phone market. The government’s scanner on BlackBerry’s and Nokia’s messaging services may have ignited security-related concerns about the future of push email and messenger services on mobile phones in India, but the industry believes such services will not take a hit.

On the contrary, mobile phone brands like HTC, Samsung and Acer feel this could be a blessing in disguise for smartphones with similar capabilities.

2. Auto Industry:

a) Hyundai to ramp up production capacity by 12 pc: The country's second largest carmaker, Hyundai Motor India said it will increase production capacity by about 12 per cent to 6.7 lakh units per annum at its Chennai facility. The company is expecting to sell 3.4 lakh units in the domestic market this year compared to 2.9 lakh units in last year.

Earlier this week, the country's largest carmaker Maruti Suzuki India launched a 1,000cc variant of its best seller Alto, mainly to lure customers opting for Santro, i10 and General Motors' Spark. It, however, decided to continue with the 800cc Alto to offer more choices.

b) Mercedes plans to enter small towns to drive sales: On a roll following its highest-ever sales in a month and for the first seven months, luxury carmaker Mercedes Benz will aggressively target Tier II and III towns across the country as well as Indian corporates.

There is pressure building in top Indian companies like Infosys, TCS, etc, for a change in their car policies. When senior executives of these companies go abroad, they routinely use luxury cars but not in India. For Benz, the two major drivers for sales in India in the future are this mindset change among Indian companies and demand from Tier II and III towns. 15-30% of total sales is expected to come from upcountry (Tier II and III) cities. Among the states, with strong demand from smaller towns and cities are Gujarat and Kerala.

3. Service Industry:

a) Indian IT industry slams US move to hike visa fee: The Indian IT industry slammed the US government's proposal to sharply increase visa fee to raise funds for its border security needs.
The Border Security Bill, which was passed by the US senate will have a significant impact on the Indian IT sector, as it aims to raise about $600 million by increasing fee for H-1B and L-1 visas.
The proposed hike is expected to be about $4,500 per visa from $2,500 currently.
The impact on Indian IT firms is estimated could be as high as $200-250 million per year.

b) CAT 2010 duration to be increased: The test will be held over a longer test window of about 20 days in 33 cities this year. Since the duration of the test will be longer, the number of centres in which it will be conducted will come down.

c) Shortage of 1.2 mn teachers in India: Sibal: In some states, it was found that all deployment (of teachers) is done in one school while there are no teachers in others. We need to redeploy teachers so that there is equal distribution of teachers

4. Banking & Finance Industry:

a) ICICI, HDFC Bank violating norms on recovery agents: Govt: The Govt has received several complaints against private sector lenders including HDFC Bank and ICICI Bank of violating RBI guidelines on engagement of agents to recover loans. On the remedial measures, RBI has issued detailed guidelines to banks on engagement and training of recovery agents. Banks have been advised to ensures that the recovery agents are properly trained to handle with care and sensitivity particularly in aspects like hours of calling, privacy of customer information etc.

b) Banks not following RBI norms for opening no-frill accounts: FM: Government today admitted that certain banks were not following guidelines on opening no frill, zero balance accounts in rural areas and said efforts were being made to make banking facilities available to remotest part of the country through various means.

c) Govt asks banks to speed up loan disbursements under PMEGP: The government on Wednesday asked banks to speed up disbursement of loans under the Prime Minister's Employment Generation Programme (PMEGP) to meet the target of financing over 59,000 projects in the current fiscal. Under the PMEGP, urban and rural entrepreneurs in the general category can avail a subsidy of 15 per cent and 25 per cent on the project cost. In the case of weaker sections of society, a 25 per cent and 35 per cent subsidy is provided to urban and rural businessmen.

Fin Weekly 2nd August - 8th August

Group 14 of Cashonova 2012 members

GENERAL

Tata set to pick up successor; Reliance eyes shale extension

Friday, August 6, 2010: The hunt for the Ratan Tata’s successor is very much on. Vice chairman RM Krishna Kumar’s statement on the election of the successor by March 2011 has set the stage for the biggest corporate announcement. Now will it be the celebrated CEO Pepsi co. Indra Nooyi, the conservative Citibank CEO Vikram Pandit, popular Arun Sarin or the next Tata- Mr. Noel Tata, only time will tell…

On the other hand, the oil giant Reliance goes on to acquire its third shale gas asset for $392 mn. The amount of $340 mn would be paid up immediately, allowing Reliance access to a source of 3.4 trillion cubic feet of estimated gas.

Corruption clouds CWG

Thursday, August 5, 2010: It seems IOA is on a hunt for fresh talent and the deals for the big CWG coming this October seem to be the means deployed for it. For how else, can one explain an interior design firm D Art winning a Rs 93 cr deal for furniture. This aside, the political unity seems to be the benchmark for the CWG. Head IOA, Mr Kalmadi, extended an overlay contract worth Rs 231 cr . to Deepali Design and exhibits, linking long to the BJP person Sudhanshu Mittal. Now this is not all, luxury spans the games like never before, with rented water jugs costing Rs. 2145, the treadmills for Rs. 9.75 lakh which cost Rs 7 lakh for the buyout and rented tables Rs. 8776 apiece.

Fiscal deficit Cut: Govt. asks Rs 54589 cr more

Wednesday, August 4, 2010: The Rs. 1 lakh cr earning from the spectrum sale is less than enough for the government. It has asked parliament for an additional Rs 54589 cr for spending on unforeseen items like special police force for the naxal hit area, rural development, education and compensating oil companies for selling fuel below market rates. The government had actually asked for Rs.68294 cr out of which Rs. 14000 cr is to be funded from internal savings.

SEBI asks ADAG top officials to depose

Tuesday, August 3, 2010: SEBI has asked top executives from ADAG companies Reliance infra and RNRL, including Mr. Anil Ambani, to depose before it after the officials could not reply to the show cause notices issued to them. The issue seems to be concerned with Pluri, a foreign institutional investor in the two companies via participatory notes (PN). The company seems to be involved In the erstwhile investigation pertaining to siphoning off funds from the foreign accounts of the two cos and being invested in the companies via PN.

CEOs do self appraisal; IRDA puts an axe on margins

Monday, August 2, 2010: CEOs of India Inc probably are very happy with their performances. Top executives pay rose 33% against 25% profit growth in 2009, a year where employees faced salary curbs and bonus withholds. The big names include Apollo Tyre’s Omkar Kanwar, JSW Steel’s sajjan Jindal and Crompton Greaves’ Thapar among others. In an another development, private insurers face IRDA axe on margins via new Ulip guidelines. The impact could be severe as many private insurance cos look to offload nearly a million agents this year.

CORPORATE

GMR to raise $200 mn from Macquarie SBI Infra

Friday, August 6, 2010: GMR airports Holding Ltd, the wholly owned subsidiary of GMR Infrastructure, is set to raise $200 mn from MSIIL as compulsorily convertible preference shares. The equity then can be as high as 39.05% for MSIIL. GMR Airports Holding is valued now at Rs 2400 cr based on this transaction. It holds 9% in Delhi Airport. The money it will et from this investment will be spend on expanding the airport business further.

M&M may bid for Ssanyong

Thursday, August 5, 2010: M&M may bid for South Korean SUV maker Ssanyong in which it had showed interest 7 years ago but had backed out. The board is observing the movement and after some more information is obtained, the decision is likely to come up by August 10 deadline. The Mahindra group with this acquisition aims to establish as the most dominant player in the UV segment with its Scorpio, Xylo and Bolero already there in the market. Also the range of the cars made by Ssanyong is higher and hence does not clash or competes against that of the Mahindra’s existing offerings.

Tatas, Mizuho to float growth fund

Wednesday, August 4, 2010: Tata Capital and Japanese Mizuho will tie together to float growth fund in India. For investment $100 mn out of a total $500 mn will come from the partners and for the rest Japanese and the companies from the Middle East will be targeted. The fund will be managed by Akhil Awasthi along with MD Praveen kale and six other members. The companies also plan to raise another $500 mn for its other three themes, i.e. healthcare, special situation and innovation.

Gail net jumps 35%; HCL Consortium wins 1k cr project

Tuesday, August 3, 2010: Gail India has reported a net jump of 35% in profits despite paying subsidies of Rs. 445 cr this year. Going forward, the company plans to invest Rs 23k cr in expanding its existing pipeline structure. HCL Consortium is set to provide food coupon based public distribution in Madhya Pradesh. It will address nearly 10 million families and the data will be share with the UIDAI.

Biyani restructures financial services biz; HCL eyes growth

Monday, August 2, 2010: Kishore Biyani is keen to restructure its financial services business. The current equity holding in the NBFC will be divested to a new holding company, Future financials which will have ICICI veteran V Vaidyanathan as a co-promoter. Sameer Sain, the VC for the financial arms has already resigned to pave way for Mr. Vaidyanathan. HCL, a top IT company, will not compromise on margins going forward with the growth plans. The company further wishes to be proactively present in Europe to spot opportunities early and aims to bring its BPO business to profitability going forward.

ECONOMY

Foreign individuals may enter market directly

Friday, August 6, 2010: Foreign individuals may enter the market directly, if the recommendations of a report by UTI AMC chairman Mr. Sinha are to be accepted. The report suggests stricter disclosure norms with a permanent bank and trading account, but proposes to open the market directly to foreign investors. It also suggests freeing the limit structure of the sectoral investments of these players. The norm will bring about greater transparency in the system as against the already existing concept of participatory notes..

India and 4 other nations to revive Doha talks

Thursday, August 5, 2010: India has formed 11 panels which will try and expedite the failed negotiations of the Doha round. The panels will report to the various committees already in place, which will take up the matter along with China, Brazil, US and the EU team to reach a mutually beneficial agreement. Whereas India has tried earlier to bridge his gap in 2008 and via a mini minister meet in 2009, the attempts have till now eluded India. But the effort merits consideration as the expected benefit from the talks lie in the range of $282 bn.

Government keen on implementing Saral GST

Wednesday, August 4, 2010: Government is all keen to implement Saral tax regime for indirect tax es, as in the case of direct taxes so that there is high compliance. Earlier, where all the big corporate businesses were required to go mandatory audit, government now seeks to have a selective audit, which is seen as a breather. But getting the results audited by CAs would be the onus of the corporate tax players. However whether there is an agreement in the meet of the State FMS needs to be seen.

Post offices to be future banks

Tuesday, August 3, 2010: the concept of post offices bank can soon be a reality. RBI which has emphasized the need for financial inclusion sees post offices as the next big opportunity. With 1.55 lakh branches, functioning as a quasi bank taking savings and transfer of money will soon be able to provide credit. The decision however needs to be taken in consultation with the cabinet.

GST poised for further delay after BJP states opposition

Monday, August 2, 2010: BJP controlled states Gujarat and Madhya Pradesh opposed the constitutional changes required to implement GST. Currently states levy taxes on the retails levels of the goods, while Centre levies taxes on the factory gates and services. With GST, constitutional amendments need to be in place to change the structure. Government has proposed a joint council of representatives from state headed by Union finance minister to decide on the rates of GST. But this has evoked opposition from the states raising concerns of autonomy of the states in raising taxes.

BUSINESS OF BRANDS

Wooing the customers

Friday, August 6, 2010: Retailers now don’t just wait for the customer to enter and buy, or for that matter, only advertising to bring them to their stores. They now seek to build deep rooted relations with the customers. While Spencer’s has started recipe classes for the neighborhood women, Shoppers Stop is busy giving shopping and fashion tips. Another variation has the followers in Bata and Wills Lifestyle, which provide free delivery of the size of a model not found on a store and exists at any other store. The steps may have been different; the underline is still the same, wooing the customer to the stores.

Ambush marketing: a sound marketing strategy

Thursday, August 5, 2010: An interesting war of opinions is in place over the recent ambush marketing of dove over P&G’s Pantene. While one set of thinkers believe that it is the long term plan that helps the company’s brand image and these sorts of marketing tactics are just diversions. The contradiction however comes in the fact that nearly 60% of the population is below 30 in a country like India, and the youth surely does not like tired boring products. The move has to be fast and the brand should be cheeky.

Time for cash and carry retail

Wednesday, August 4, 2010: Bharti Walmart, which has two stores in Punjab, is set to open 12 stores in the next year. Carraefour, the French giant has also secured property in various cities to open cash and carry stores. Tesco, with its Indian partner, is also set to open up its retails stores this year. Currently where the organized retail market is only $25 bn of the total $450 bn, the scope for getting a pie in the market is huge. The current norms allow 100% in wholesale, 51% in single brand retail and none in multi brand retail. Metro however sees even this as a huge distribution. The wholesale market is big and there are numerous retailers in the form of the kirana owners, small restaurants and small and medium businesses.

Cars the buzz this July; VW faces supply crunch

Tuesday, August 3, 2010: July has been the month of sales for most car companies. While Maruti crossed the 1 lakh sales figure second time this year and a 33% rise in sales YoY, Hyundai registered second with a 24% growth. Toyota, due to launch Etios this December, on the other hand recorded a thousand bookings for its newly launched model Altis Diesel. VW which launched Polo seems to be facing supply crunches in India as it did not expect monthly demand to be as high as 2500 units. The company has asked the vendors to scale up capacity, but the task is difficult considering the impact on quality

Designed to Succeed

Monday, August 2, 2010: Design thinkers like Aditya Dev Sood and Manoj Kothari-who founded Onio Design- are changing the board room structures. Design thinking or changing and consolidation of brand around design and mapping of company functions is a concept in the current business scenario. Traditional problems of branding have been addressed by the thinkers by continuously engaging with people and designing a perceptual mapping which finally leads to the brand architecture. But the onus lies not only in graphical designing, but the creation of equity.

ED VIEW

Politics of protest in Kashmir

Friday, August 6, 2010: Author Najeeb Mubarki, in this editorial on Kashmir emphasizes that the recent crisis in Kashmir is a reflection of the Indian political and the public aspirations. The sheer use of force this time and the perseverance of the Kashmiris alert everyone that the ordinary Kashmiri wants a long standing solution to its sufferings and problems. The presumption that the language of force is the only one that is going to work is a misinterpretation of the young learned Kashmiri mind. The author feels that the brute force used this time, especially on children and old people is way too much and it seems that the force may have settled down this issue this time around, but is not going to be the solution going ahead.

Where the world got it wrong, India got it right

Thursday, August 5, 2010: World economy is in the fear of a double dip recession, feels Roubini, who predicted the financial crisis in the first place. The non-tightening of the policies, and rising debt in the advanced countries could lead in another panic situation as of Greece. Nearly 91 banks in Europe carry this debt and should this be defaulted, a recession is in vogue. In India , on the other hand, the scenario is just the opposite. Savings are rising and the growth is poised at 8.5 – 9%. This is going to be all the more better because this time Indian banks have reduced their exposure to foreign debt and the belief in the Indian growth story is strong.

Stocks vulnerable in short term, set to rebound

Wednesday, August 4, 2010: Author Sunil Kewalramani believes that the short term indicators of US defaults, sovereign rescheduling may have an impact on the growth of the companies and hence stocks in the current short term scenario. He however believes that like Spain’s football team, companies have also planned, thought and implemented themselves. With quarterly results of various companies rising, potential growth of the emerging economies and easy interest rates, stocks are bound to give increasing returns next quarter onwards.

Technology Vs Security

Tuesday, August 3, 2010: The growing use of technology in terrorist activities whether it be the 9/11 incident or the 26/11 Mumbai incident demands attention. With technology, a few individuals can sabotage the freedom of the whole country. Numerous examples of such concerns are visible in today’s world- ban of mobile phones, the ban of pencil export to Iraq for fear of use of graphite are some of these. But the author still remains bon-committal saying that where a knife can kill somebody, in the hands f a surgeon can save a life too. The debate meanwhile remains inconclusive.

Confused Signals

Monday, August 2, 2010: The RBI’s move to increase differentially the repo rates and reverse repo rates draws a critique from the author Mythili Bhusnurmath. The author says that the actions do not seem to reflect the commitment of controlling inflation. The reason for promoting growth doesn’t seem to go in sync as the inflation on the demand side needs to be constrained. The banks will obviously not resort to borrowing from RBI as the first resort as there are options of inter-bank borrowing already available. The fear of draining liquidity after the spectrum allocation is only a short term concern, as demand will pick up once the government starts to spend. In light of the growing monster of inflation, according to author, the issue of short term liquidity should not have impacted the long term concerns of modest inflation growth

NATIONAL MARKETING SYMPOSIUM 2010

Tezi Mandi II

How it Works

Trade in stocks in Nifty
Buy/Sell will be allowed between 5 pm – 9 am
All share prices will have to be traded at the closing NSE prices of the day
Only cash prices will be taken
Mail your trades
Excel sheet will be forwarded shortly, just fill it and send it
All will be given a fixed amount of
notional money and brokerage charges will apply

Benefits

Knowledge enhancement. It will instigate us to read finance and make an effort to understand it
Winner will get a prize money of Rs. 1000 and runners up Rs.500
It will help in trading in stocks in the real world
Applications of classroom learning in a practical way

If you are INTERESTED, please drop in a mail to tezimandi.iift@gmail.com
The game will start from the next Monday 9th August and continue till Friday 14th August
For any clarifications, please write to the above mentioned address

Regards
Ankur M. Dhebri (+91-9910847901) amdhebri@gmail.com
Saurav Tibrewal (+91-9311580251) sauravtibrewal@gmail.com

IIFT National HR Symposium 2010 a grand success

Fin Weekly 26th July - 1st August

GENERAL

R-Power stuck in D6; Noel next Tata International MD

Friday, July 30: The priority list for the next D6 gas flow does not feature R-Power as a recipient. This spells out trouble for the dreams of Anil Ambani, an ambitious 8000 mw gas power projects throughout the country. However, sources say that that list expected next year could include R-Power. The cos. that feature in the first list include GSPC’ Pipavav Project in Gujarat, GSVCL project in Hazira in Gujarat, Lanco’s project in Kondapalli District Phase III, Bawana Project, Kashipur project and GMR’s Vemagiri Project.

Noel Tata, in a move that bolsters his application for the top post scheduled to be taken over two years hence, is named the MD of Tata International in Africa. Mr. Tata has spearheaded Trent to a success story before this.

Banks take RBI cue to hike deposit rates

Thursday, July 29: After the apex body raised the key rates, the banks have taken steps to increase the deposit rate. This will help banks to get funds to carry on their investment spree, and facilitate fund management and deployment. The lending rates, however, will not be impacted since the banks benefitted from the cheap funds after the crisis and they fear a further deceleration in demand…

RBI Checks on Inflation

Wednesday, July 28: RBI, the apex body in deciding key rates hikes repo rate and reverse repo rate by 25 and 50 bps respectively. The new rates stand at 5.75% and 4.5% respectively. The rates reflect tightening of money to the banks and hence leave less money ultimately available with the public. The Governor though feels that increase in demand will offset the effect and the growth will remain sturdy…

Singh Bros out of Parkway; RBI spells growth, to curb inflation

Tuesday, July 27: Singh bros, who recently let go off Ranbaxy to concentrate on Fortis, have pulled out of Parkway. The move ensures they make Rs. 340 cr on an investment of Rs. 3800 cr. However analysts feel that this was a good move by the Singh Bros as they had already pushed the price to $3.8 per share and a price above $4 would have made the deal unviable for them. Malvinder Singh, Chairman of Fortis HealthCare, however affirmed that the group strategy of expanding in Asia, as shown by their purchases in WockHardt and Piramal HealthCare, would continue…

Trouble for Raja, CVC probes in

Monday, July 26: A. R. Raja, the telecom minister is in deep trouble. The Central Vigilance Commission, the anti- corruption body has set up an enquiry in the mishandling and alleged corrupt practices of the DoT. Some of the allegations include the loss of Rs 60000 crore loss to exchequer by allocating 2g spectrum at cheap prices, allowing two big players to operate on both the platforms, inaction against players having non-operational or notional licenses and blocking up spectrum. The probe is yet another addition to the already spiced up issue…

CORPORATE

RMW to buy out Inox; HCL Tech beats Street estimates

Friday, July 30: Reliance Media Works (RMW) has put up a bid to buy 67% stake in Inox after a bloody battle ended for Fame. The offer price is a whopping Rs 120 a share for the share which is valued at Rs 71.95 in the market. The promoters are allegedly asking Rs. 140 a share for the buy out . HCL Tech beat street estimates of a loss after peers Infosys and TCS posted decline in profits. Net Profits rose 3.7% to Rs. 341.8 cr. and net revenues up 17.8% at Rs. 3425.4 cr…

Pepsi reshuffles top team; Mahindra posts good results

Thursday, July 29: Pepsi reshuffles the top team. Praveen Someshwar will now head beverages and Punita Lal would be the CEO of the non-carbonated beverages JV with Tata Tea, a business with huge potential growth. Meanwhile M&M posted results that beat market expectations. Profits rose 40% to an impressive Rs 562 cr. and the sales were up 21 % at Rs.5124 cr. QoQ in the Apr June quarter…

RIL in news; L&T net up

Wednesday, July 28: RIL, the company with the highest weight on the bourses, is once again on expansion mode. While it drills two more wells in KG-D6 basin, its polyester business is once again being brought back to life as they acquire Bombay Dyeing plant for Rs.300 cr. The investors are yet to put their approval to the deal. Meanwhile L&T, India’s largest engineering company has posted a net profit of 15% at Rs. 666 cr. and a net sales increase by 6.5% at Rs. 7913 cr. QoQ in the FY11 first quarter…

Parkway slips ,Fortis justifies; Tech Mahindra slips the telecom ladder

Tuesday, July 27: In an exclusive interview to ET, Malvinder Singh of Fortis Healthcare justified the move to exit the bidding for Parkway against Khazanah. He agreed to his interest in parkwaty and the rationale to bid the price to $3.8 a share, but resisted the temptation to enter a bidding war in light of the shareholders’ interest. Tech Mahindra, on the other hand, grew marginally at 105 to post profits of Rs 144.31 cr. QoQ, a figure lower than expectations. Vice Chairman Vineet Nayyar, accepted that the telecom business was under pressure but emphasized that the revenues still were in comparison with peers operating in telecom segment...

Vodafone goes big on Essar; PSU disinvestment mixed

Monday, July 26: Vodafone has big plans in the mobile internet segment. It wishes to buy more stake into its JV with Essar and has valued Rs. 3400 cr as the net worth of Essar’s holding. Essar can still hold its 33% stake or may go to the public to offload its stake, but the extra premium it gets in the Vodacom price is too lucrative to be given away. In an another event, whereas the FPO for SAIL goes on hold as the necessary clearances are not secured, the FPO for Engineers India Ltd. has an FPO band set up at Rs 270 to Rs 290 per share. Notably, the government still holds 90.4% stake in the state run enterprise…

ECONOMY

Infrastructure difference between 8.5% and 10% growth: Rajan

Friday, July 30: Raghuram Rajan, economic advisor to PM, says that India can achieve 10% growth if infrastructure is given a fillip. However, given the current state India could grow at 8.5%. He emphasizes on catching the export growth, a balanced economy and controlling huge expenditure…

Core Sector grows the slowest at 3.4%

Thursday, July 29: The predecessor to the IIP numbers, core sector grew the slowest in this June at 3.4%. This has been mainly due to a drop in the cement and steel growth, which again is because of the mansoon effect. Going forward the growth scenario looks bleak as factory output too declined to register a growth of only 11.5% in may…

RBI still a big say in regulation

Wednesday, July 28: After a spat between RBI and IRDA over Ulips and the ordinance to resolve conflicts by a committee headed by Finance Minister, has now a twist again. RBI Governor will now head the committee as Vice Chairman. The dispute if between any of the four regulators, RBI, SEBI, IRDA and PRFDA will come to the committee after first reporting their dispute at a committee chaired by RBI Governor.

India’s sovereign rating upgraded; Sugar prevails over ethanol

Tuesday, July 27: Moody’s, the international rating agency has upgraded the sovereign rating of the company from Ba2 to Ba1. This has been done in the light of lower fiscal and revenue deficit expected, measures in petrol price subsidy and high expected GDP growth. The move will facilitate greater investment into the country. In news too, the EGoM have decide the price at Rs. 28 for ethanol to be paid by the oil companies to the sugar industry. Although this is higher than the price of Rs 18 as demanded by the oil companies, sugar definitely has the laugh over ethanol this time…

M-banking to be the buzz; Rupee down, IIP in transition

Monday, July 26: M-banking is probably the solution that the cabinet secretariat has in mind. In consultation with RBI, the secretariat wants the mobile services in banking to extend from merely checking balances in accounts to offer other services as mobile money transfer, extending its reach to the rural areas and tie up with mobile SPs for the same. Rupee, on the other hand slips to Rs 47 a dollar on account of macroeconomic conditions in the US and imports showing faster growth as compared to exports. The much awaited new IIP index which aims to reduce the fluctuations and changes the base year to 2004-05 is underway. Lets hope it gets implemented soon…

BUSINESS OF BRANDS

Big South Indian chains hold high; Amazon kindle gets cheaper

Friday, July 30: Big South Indian retails chains like Shri Kannan in Coimbatore, Shri Murugan in Chennai hold high in vicinity of national players like Big Bazaar and Reliance Retails. The reason among many is the familiarity and the local understanding that carry these chains among the most valuable in customers’ mind. Amazon’s e-book reader Kindle now comes at $139, a rate slash from #$189 earlier. Bless competition and free economy…

Merc to end tie up with Tata; Maruti fixes over Alto

Thursday, July 29: Mercedes is stated to have its own paint shop in India, earlier the only tie up they had left up with the Tatas. The JV that broke up finally this year with Daimler exiting 5.3% in Tatas after Tatas offloaded the share in JV around 2000-01. However, Daimler believes that the relations between the two groups are very cordial. Maruti in another setback to its cars has called back nearly 6000 Altos which were tweaked with the new engine. The engine reportedly has an oil leakage which is being fixed by recalling the Altos recently.

Desi, the call in the handset market

Wednesday, July 28: Desi brands like Micromax, Zen, Intex and Spice have hit the hardest in Nokia’s coffers. With a poised 27000 cr market in India, the local players have successfully registered their presence in the low and the mid end market. Next on the cards are the smart phone and 3G phone. With a smartphone in the vicinity of Rs 8000, Intex is going to set the market on fire and the share of the smartphone in the overall sales may well swell up to 37-40% from the current 10%...

Dabur on buying spree, Landmark makes profit

Tuesday, July 27: Dabur on its first ever overseas acquisition buys Turkish hair and skin based corporation Hobi Kozmetik for Rs 324r cr. The deal is expected to be completed by the third quarter of FY11. The company’s net profit ending first quarter FY11 was up 20.5% at Rs. 107.39 cr. QoQ. Landmark group, the owner of Lifestyle International and several other format stores as a group is expected to post profits for the first time this year in its total period of operation. This is facilitated mostly by the spring up of Lifestyle International to profits.

Kraft eyes Indian biscuits; Toyota the small car market, and Zynga the web

Monday, July 26: It seems like India is the most happening place in the business world. The cake which has recently become too big has its share for nearly everybody. Kraft, second largest foods company, is in talks with Cremica and Surya Food & Agro to mark its presence in Indian biscuits market. No wonder, they want this distribution to happen through the Cadbury’s distribution network, a company they recently acquired. Toyota, the world’s largest car maker is to come out with Etios, its small car specially designed for the Indian market. In fact, the tagline is self explanatory-“World First, India first”. For all those who love FarmVille and Mafia Wars, the maker of these online FB games, Zynga eyes the online gaming space in the coming years. Well Amazon, Google and eBay be better on their toes…

ED VIEW

Organised Retails , an option to try

Friday, July 30: Sumant Sinha, from a financial advisory firm, argues that modern retail needs a revamp and there is a need for organized retails. He believes that no doubt the efficiencies will improve, customer experience of shopping will improve and the kirana players will be able to sustain the storm. He believes a fast rate of growth may boost employment opportunities but the market needs to grow for it.

Controlling Inflation

Thursday, July 29: The RBI’s move to increase repo and reverse repo rates is welcomed by Rajan Bharti Mittal, president of FICCI and the author of the article. He admits that the industrial inflation will very well be brought under control via the move to increase rates. High rates, less borrowing, less demand and low inflation. But the primary articles inflation, especially the food inflation is supply based. Poor PDS, fluctuating monsoons have all been a reason for fluctuating prices. The measures, according to author, lie in having better supply chain, allowing foreign players in the market and improving of the public distribution system alongside better procurement mechanism.

Disaster to Success

Wednesday, July 28: The disaster story in the world has always followed innovation and improvement. Take Titanic or Chernobyl, engineers have come up with better designs and not shelved into their cocoons. The disaster of the Great Depression and the most recent one again bolster the same theory. Swaminathan Aiyer, the author, believes that the recent oil spill should call for better designs and refutes the argument that Americans wish- banning off shoring of oil completely, a move that will raise the prices many times over.

Importance of capital inflows

Tuesday, July 27: Chetan Ahya, a managing director at Morgan Stanley discusses the importance of the capital inflows into the country. Although the domestic savings serve as a huge fillip, the importance of foreign inflows should not be undermined. The author gives four reasons to support his point. Firstly, India needs capital inflows to offset its current account deficit. Currently the deficit figure stands at 2.9% of GDP. If the capital inflows slow down or dry up, exchange rates will depreciate significantly and domestic liquidity environment will tighten. Secondly, capital inflows are a high risk capital, and are an indirect indicator of the private corporate capital expenditure, a further signal of the growth. Thirdly, the current stock market is highly linked to the global equity markets. If the money is suddenly taken out or slows down, the confidence in the market falls affecting yet another source of funds for the private consumption. Fourthly, excessive capital inflows affect the cost of capital. The demand grows and if this suddenly stops, the companies face capital crisis and affects banking system in turn who are affected by defaulters and take a risk aversion mode. Safeguarding Financial Stability

Monday, July 26: Robert Shiller, the professor of economics at the Yale University, advocate the need for giving the power of avoiding the next crisis to the banks. He asserts that while the banks may not have anticipated the crisis, they worked in the right direction to control and reverse it. Although the view of the author is supported by the UK government, the US governments have worked in the opposite direction. They wish to vest the power to the Treasury Secretary, who in all political flavors may hamper the financial angle. The independence of the voter politics and a sound economy is obviously the appealing angle to the author. When in distress, let the experts handle the matter.

By

Abhishek kr. Deo Ashish Agarwal Ayush Goyal Kuldeep Kishore Rana Prashant Panwar Rohan Sreeraj sreekumar VR Shweta (2010-12 Batch)

EQUITY RESEARCH CELL

Dear All,

It has been our pleasure to announce that Cashonova 2010 has launched an equity research cell recently.

Equity Research Cell is a body of all like minded people, who are interested in Finance, especially equity research and valuation.

Objectives

1. The main objective of Equity research Cell is peer learning. Our first step will be to learn valuation and equity research from scratch. Then, we will expand ourselves to other areas which will be discussed later.

2. To prepare the 2009-11 batch for the final interviews.

3. To leverage this concept to target more finance companies in the medium to long run.

Activities

1. We will be discussing the valuation techniques discussed in D and B workshop and the book by A.Damodaran.

2. Appling those techniques to some companies and coming out with valuation figures.

3. Any other discussions which the members feel are relevant.

The cell currently has 25 members and we hope this would certainly make a difference to our b school.

Thanks and Regards,

Team Cashonova

Jeevan Raju

Karthik Krishnan

Saurav Tibrewal

Inaugural Session: “The Consumer Retention Route to Enhanced ROMI”

Keynote Speaker - Mr. Santosh Desai, MD & CEO of Future Brands


Session I: “Spoil for Choice – The Retention of Indian Youth”

Speakers:

1. Mr. Ashok Bajpai, General Manager - Taco Bell at Yum Restaurants International
2. Ms. Simeran Bhasin, Marketing Head - Fastrack & New Brands at Titan Industries
3. Mr. S Srinivas, GM Marketing - TVS Motor Company
4. Mr. Rahul Shanker, Senior Marketing Manager - Wrigley India


Session II: “Retaining the Exclusive Tag: The World of Luxury Brands”

Moderator for the Panel Discussion:

Ivan Coste-Maniere
Director - Marketing Department, Skema Business School, France
Director - MSc Luxury & Fashion Management, Skema Business School, France

Panellists:

1. Mr. Devasish Dutta, CEO - Gitanjali Lifestyle Limited & MD at MGPL Private Ltd.
2. Mr. Amit Dutta, CEO - Luxury Marketing Council India and MD & Founder at Luxury
Hues Consultancy Limited & Quintessentially Concierge India
3. Mr. Sandeep Vij, CEO - DDB Mudra Group at Mudra Communicatio
4. Ms. Ruchita Sharma, Head of Luxury Retail at the Bird Group & Head of Strategic
Planning at Globaluxia
5. Mr. Sudeep Chhabra, Head of Marketing at DLF Emporio
6. Ms. Roasie Ahluwalia, GM - Marketing Communications at Genesis Luxury Fashion
Pvt. Ltd.


Session III: “Charming their way to Consumer Loyalty – Th e Services Industry”

Speakers:

1. Abhinav Rahul, VP Corporate Communication at Max New York Life Insurance
2. Mr. Mouli Venkataraman, Head - Portfolio Planning and Insights at Nokia*
3. Mr. B Hariharan, VP Sales & Marketing at ITC Hotels*


* Confirmation Awaited

NATIONAL MARKETING SYMPOSIUM 2010

“THE CONSUMER RETENTION ROUTE TO ENHANCING ROMI”

“Loyalty cannot be blueprinted. It cannot be produced on an assembly line. In fact, it cannot be manufactured at all, for its origin is the human heart – the centre of self respect and human dignity. It is a force that will leap into being only when conditions are exactly right for it – and it is a force very sensitive to betrayal.” ~ Maurice Franks

Let us begin with a simple question: Who gives a bigger return on marketing investment – an existing consumer of your brand who must be retained for the possibility of a future repurchase; or an uninitiated user who expands your consumer base and gives you volumes?



THE THEME – NATIONAL MARKETING SYMPOSIUM 2010


“T he c onsumer ret ent ion rout e t o enhanc in g RO M I” – Understanding Brand Loyalty, Efficient Measurement of Return on Marketing Investment (ROMI) and Strategies for Consumer Retention; including low cost IMC techniques aimed at consumer retention to facilitate a greater ROMI. A brief description of the various sub-themes mentioned above is presented in the following paragraphs.

UNDERSTANDING BRAND LOYALTY


As advertising spends break records after records, rivals are leaving no stone unturned to pull your consumer away from you. Besides this, post the deregulation of the Indian economy in the 1990s, the entry of some of the biggest international players in the market has presented Consumer India with a plethora of options to choose from. As clichéd as it may sound, an understanding of the underlying factors that drive consumer loyalty is becoming increasingly important for organizations facing a competition which is stiffer than ever before.

MEASURING ROMI

ROMI – Return on Marketing Investments; is a metric used to measure the overall effectiveness of a marketing campaign to help marketers make better decisions about allocating future investments. ROMI precisely signifies profitability generated for every rupee spent on marketing activities. Some of the parameters that it takes into account are: product positioning (market share), profitability (contribution/
EBIDTA margin) and marketing philosophy and aggression (Selling & distribution).


STRATEGIES FOR CONSUMER RETENTION


A growing top line for an organisation today is not a function of an increasing consumer base alone. Consumer involvement of existing users through engagement, feedback, variants, extensions, upgrades, value addition and a unique experience has become a critical aspect for a year on year sales growth of all successful organisations. The word of mouth publicity which results from all these activities often helps in transforming brands from the ordinary to the iconic.




On August 12, 2010 at The National Marketing Symposium at IIFT; some of the best minds from the corporate world and some of the brightest students in the country will unravel the mind of the consumer who is already connected to a brand.

We welcome you to join us in this discovery.

India:Third Largest Recipient of FDI

In recent times a lot of attention has been given to FIIs and the extent to which their inflows or outflows have impacted the stock markets. But if India has to sustain its high level of growth and see more development, what it really needs is FDI. Foreign direct investment, that is. And in this regard, there are some positive developments. The United Nations Conference on Trade and Development (UNCTAD) believes that India would emerge as the third largest recipient of FDI for the three-year period ending 2012.

Infact, the country did very well in 2009 too. The FDI that it received last year totaled to US$ 34.6 bn. This catapulted it to the list of top 10 countries to have the highest FDIs. Indeed, India has been growing at a strong pace in the last few years. But there is scope for more growth. Infrastructure has to be ramped up and developments in many areas need to take place. And so, FDIs are certainly welcome. After all it is not 'hot money' prone to the whims of market movements. But is long term in nature with the potential to do the country some good.

New Dawn: Launch of Africa Business Cell

July 21, 2010 became a historic day for IIFT as it became the first B-School in India to have an exclusive Africa Business Cell. An entirely a student initiative, it aims at promoting Africa which is beyond war, genocide and famine. It primarily aims at

• Increasing awareness about the vast business opportunities in Africa among the student community of IIFT
• Enhanced interaction among IIFT faculty & students, and leading African & Indian businesses and government officials

The inauguration ceremony was followed by a panel discussion on the theme, ‘India as partner of Africa in growth.’ The panelists included The High Commissioner Designate of Rwanda, The Charge d’affaires, The Embassy of Ethiopia, The High Commissioner of Gambia, The Ambassador of Tunisia, The High Commissioner of Eritrea and The General Manager, The Triton Group.

According World Economic Forum Report (2009), between 2001 and 2008, growth in Gross Domestic Product of the continent of Africa pegged an average of 5.9% annually. This was accompanied by substantial inflows of FDI (foreign direct investment), leading to almost doubling of FDI stock between 2003 and 2007. The McKinsey Quarterly Report 2010 also speaks of how macroeconomic reforms have reduced inflation, improved regulatory environment and opened economies to international business and trade. In this context, Africa offers immense business opportunities in agricultural commodities sourcing and trading, consumer goods, oil & natural gas, automobiles, education, health care, etc.


No wonder such an initiative focusing on Africa is going to bring immense learning and growth opportunities.Kudos to the Africa Business Cell Team and IIFT.

India's Opportunity in Africa

Hello

I found this useul article in Economic Times regarding India's Opportunity in Africa.

Here is the link:

http://lite.epaper.timesofindia.com/getpage.aspx?pageid=14&pagesize=&edid=&edlabel=ETM&mydateHid=25-05-2010&pubname=&edname=&publabel=ET

Happy Reading!!

Regards,

Saurav Tibrewal

Is ICICI Bank committing a mistake in acquiring BoR?

There is a saying in the modern corporate world, “Lunch or be lunch”. The quotation is apt with the recent trend of mergers and acquisitions. ICICI Bank, India’s biggest private sector bank is all set to make its third acquisition this year. After taking over Sangli Bank and Bank of Madura, it has offered to acquire Bank of Rajasthan. After HDFC Bank acquired Centurion Bank of Punjab in 2007, it is the biggest M & A in Banking Industry.

ICICI Bank has offered a swap deal of 25:118. This means that Bank of Rajasthan shareholders will get 25 shares of ICICI Bank for every 118 shares of Bank of Rajasthan. The swap ratio will value BOR at about 3000 crores which is nearly 1.5 times its current market capitalization. I would have mentioned almost double, had this post been written two days back.

Now, let us do an analysis of the merger with the little information we have. Has ICICI Bank taken the right decision to acquire BOR?

For the merger

1. Increased number of branches and presence in Rajasthan

BOR has currently 463 branches, which will take the tally of ICICI Bank’s branches to nearly 2470 after merger. More than that, it will give the acquirer much needed sizeable presence in northwestern desert state of Rajasthan.

2. Encountering competition

ICICI Bank is facing stiff competition from HDFC Bank and also the resurging Axis Bank. To remain as the top private player, it needs to grow bigger and what better way to grow than the path of acquisition.


Against the merger

1. Expensive Deal

ICICI Bank has valued BOR at a whopping 3000 crores which is much more than its market capitalization. It values the acquired bank at 2.9 times the book value in comparison to 1.89 times, which is the Indian Banking average. At a time, where the picture of global financial world again seems to be shallow with Greece crisis, this expensive deal may decrease EPS of ICICI Bank.

The market gave its judgment on the day of announcement when the shares of ICICI bank were down by over 7% and BoR’s shares hit an upper circuit of 20%. The shareholders of BOR are to reap benefits as their per share value has been valued at Rs. 188.42 as compared to Rs. 80 on the end of17th May, the day previous to the day of announcement.

2. Cultural Differences

BOR, though being a private bank, has been managed like a public sector bank, where the jobs were safe and the productivity per employee was low.

ICICI Bank may probably pay them higher but again the expectations to perform will go up. Even, the average age of employees in BOR is around 40 as compared to young age group of ICICI Bank. BoR had a profit per employee of Rs Rs 2.89 lakh for the financial year up to March 31, 2009, compared to Rs 11 lakh for ICICI Bank.

The staff union at BOR is opposing the merger and has even threatened to take legal action against the promoters, if the merger goes ahead.

3. Ownership not transparent

Tayal Family had been the promoters of Bank of Rajasthan holding 28.6 percent stake in the bank. But according to a SEBI order, they, in coalition with related parties, set to hold 55% shares in the company. Tayal family has been barred by SEBI ti access capital markets and deal in securities.

The SEBI investigation is in progress and thus the possibility of a scam in the said bank cannot be ignored.

4. RBI guidelines violation

A penalty of Rs. 25 lakhs was imposed on them for violating RBI norms of illegal acquisition of immovable property, non compliance with Know Your Customer guidelines, deletion of certain records and data in Bank’s IT system.

Thus, in a nut shell, it can be said that all is not well with the bank and it was highly mismanaged. After the merger, ICICI Bank may have to bear the brunt of many such things.

5. Low operating income

Bank of Rajasthan’s profit has increased over the years. But still, it has a low EPS and net profit margin. The profit till nine months ended in a negative of Rs. 44 crores for nine months ended December 2009 against a profit of Rs. 117 crores in the year ended March 2009.


Thus, the above indicates the pros and cons of this merger but apparently it seems that the arguments against the merger are higher. We have seen certain expensive deals in the recent past which has affected the acquirer in a pretty big way. Will this merger also go down as one of the worst deals or will ICICI bank prove analysts and critiques wrong needs to be seen?

Logistics & Shipping Magazines, Blogs , Websites Links

Magazines

Know the risks before taking the equity call

Equity investment is associated with various kinds of risks.To be successful,an investor must identify these risks and understand their implications,says Nikhil Walavalkar

TWO planes colliding into two towers half-way across the world brought down financial markets all across the world.A fortnight-long dry spell is enough for share prices of some companies to tank.Markets are meant to react to external events.Some traders make a killing by betting on such events,but a majority of retail investors emerge losers.

Equities,by their very nature,are susceptible to all kinds of risks.The reaction of the domestic market to the financial crisis in Greece is the most recent instance of how globalisation has increased linkages between Indian and overseas markets even if there is no direct connection between the economies.

Broadly,investors have to contend with two sets of risks one pertaining to the markets or systemic risk,and the other specific to the company.Here is a look at how the risks impact returns and how to handle them.

MARKET RISKS

You cannot ignore market risks while building a portfolio.There are instances,where all the company specific factors are in place but the price is not right,making it a risky bet, says Chetan Parikh,director of Jeetay Investments.During a market rally,a boom phase creates a situation where an investor buys shares at a price far higher than what the company is worth.In a downturn it is the other way round where irrespective of a companys performance the price declines.Price volatility arising out of broad market movements is attributable to systematic risk.There is no one solution to this risk and diversification does not help.If you can keep your calm and pick stocks at lower levels then you are likely to face limited loss when the markets fall,as there is enough margin of safety.Some investors prefer to buy put options if they are worried about market health and have a huge portfolio.

MANAGEMENT RISK

Lending money to a dishonest person brings with it the risk that he may default.The same holds true for dishonest managements.There are instances where companies keep coming out with announcements of new projects followed by pump and dump operations.Despite the regulatory crackdown,investors lose their money as they are forced to exit at near-zero value.It makes sense to ask about those you are getting into business with.Track record of the management is a must check point.It makes sense to let go an opportunity from an unknown entity and instead invest in well-managed company with a good investor-friendly track record.

BUSINESS ENVIRONMENT

This comprises economic environment and regulatory framework.Corporate earnings grow along with the growth in the real economy.It makes sense to keep a track of the growth in real economy.But if the regulators decide to change the rules of the game,such changes could impact the fortunes of companies.Especially in highly-regulated businesses it is imperative that you keep a track of regulatory changes,as it may have its repercussions on margins and volumes.

RISKS RELATED TO BUSINESS MODELS

Not all companies in a sector work in the same manner.They may have focus on certain markets,certain geographies and certain customers.A pharmaceutical company engaged in contract manufacturing will have different risk-reward than that of a researchdriven company.

To gauge the possible impact of any variable on a companys earnings,investors must have a good understanding of the business model of a company.This can be acquired by visiting company website and reading annual report of the company.If you are bullish about a sector,it makes sense to diversify your holding across business models within that sector to ensure that there is less risk involved in a concentrated portfolio.

GEARING RISKS

In a rising interest scenario,a company with high level of debt faces increased risks.As the interest rates rise,the interest burden also increases,taking its toll on the bottomline and adversely impacts shareholder returns.The worst scenario happens if the existing debt of the company matures in times of credit crunch,leading to terrible situation for the company.

It makes sense to go for companies with net positive cashflows.One can also look at zero debt or nominal debt companies, says Kunj Bansal,CIO,Sanlam SMC Investment Management India.If you are keen to go for a debt ridden company,ensure that the valuations are really low to ensure that you have some margin to fall back.

GEO-POLITICAL RISKS

Though the companies you invest are listed on Indian stock exchanges,they need not earn all their revenue in India.There are many companies that earn their revenue overseas.It is better to understand the geo-political framework of the countries.Especially in countries where democratic governments do not exist the risk is high.Recent issue of volcanic ash in European skies grounded airline shares.This underlined the risk associated with such low probabilityhigh impact black swan events.Diversification is the only way out here.It makes sense to have some meaning full diversification by investing in markets sharing low correlation with each other.

FOREIGN EXCHANGE RISKS

Companies earning their revenue or paying for their raw materials in foreign currency run the risk of fluctuations in foreign exchange.At a time when the global markets are turning more integrated,it is imperative to have a close look at the foreign exchange movements.A weak local currency is helpful for an exporting company,but makes the life miserable for a company that imports its raw material but cannot Risks associated with equity markets.The only solution to this problem is to identify earnings sensitivity at various level of cross currency rates and accordingly take positions,other things remaining the same.

The reward of investing in stocks depends on how well you steer clear of risks or manage the risks that you really cannot avoid.If you find it difficult,you will be better off allowing entities such as mutual funds to manage your money.

Source: Economic Times, New Delhi, 13th May 2010

Europe in a mess

ET in the classroom

Pushing China into revaluing its currency risks toppling the global recovery from its stabilising axis. Instead, Washington should face the crisis it

These were among the risks associated with the US’ insufficient stimulus, which was designed to placate members of Congress as much as it was to revive the economy. With soaring deficits, a second stimulus appears unlikely, and, with monetary policy at its limits and inflation hawks being barely kept at bay, there is little hope of help from that department, either. So, protectionism is taking pride of place.

The US Treasury has been charged by Congress to assess whether China is a ‘currency manipulator’. Although President Barack Obama has now delayed for some months when Treasury secretary Timothy Geithner must issue his report, the very concept of currency manipulation is flawed: all governments take actions that directly or indirectly affect the exchange rate. Reckless budget deficits can lead to a weak currency; so can low interest rates. Until the recent crisis in Greece, the US benefited from a weak dollar-euro exchange rate. Should Europeans have accused the US of ‘manipulating’ the exchange rate to expand exports at its expense?

Although US politicians focus on the bilateral trade deficit with China — which is persistently large — what matters is the multilateral balance. When demands for China to adjust its exchange rate began during George W Bush’s administration, its multilateral trade surplus was small. More recently, however, China has been running a large multilateral surplus as well.

Saudi Arabia also has a bilateral and multilateral surplus: Americans want its oil, and Saudis want fewer US products. Even in absolute value, Saudi Arabia’s multilateral merchandise surplus of $212 billion in 2008 dwarfs China’s $175 billion surplus; as a percentage of GDP, Saudi Arabia’s current-account surplus, at 11.5% of GDP, is more than twice that of China. Saudi Arabia’s surplus would be far higher were it not for US armaments exports.

In a global economy with deficient aggregate demand, current-account surpluses are a problem. But China’s current-account surplus is actually less than the combined figure for Japan and Germany; as a percentage of GDP, it is 5%, compared to Germany’s 5.2%.

Many factors other than exchange rates affect a country’s trade balance. A key determinant is national savings. US’ multilateral trade deficit will not be significantly narrowed until America saves significantly more; while the Great Recession induced higher household savings (which were near zero), this has been more than offset by the increased government deficits.

ADJUSTMENT in the exchange rate is likely to shift to where the US buys its textiles and apparel: from Bangladesh or Sri Lanka, rather than China. Meanwhile, a rise in the exchange rate is likely to contribute to inequality in China, as its poor farmers face increasing competition from the US’ highly subsidised farms. This is the real trade distortion in the global economy, one in which millions of poor people in developing countries are hurt as the US helps some of the world’s richest farmers.

During the 1997-98 Asian financial crisis, the renminbi’s stability played an important role in stabilising the region. So, too, the renminbi’s stability has helped the region maintain strong growth, from which the world benefits.

Some argue that China needs to adjust its exchange rate to prevent inflation or bubbles. Inflation remains contained but, more to the point, China’s government has an arsenal of other weapons — from taxes on capital inflows and capital-gains taxes to a variety of monetary instruments — at its disposal.

But exchange rates do affect the pattern of growth, and it is in China’s interest to restructure and move away from high dependence on export-led growth. China recognises that its currency needs to appreciate over the long run, and politicising the speed at which it does so has been counterproductive. (Since it began revaluing its exchange rate in July 2005, the adjustment has been half or more of what most experts think is required.) Moreover, starting a bilateral confrontation is unwise.

Since China’s multilateral surplus is the economic issue and many countries are concerned about it, the US should seek a multilateral, rules-based solution. Imposing unilateral duties after unilaterally labelling China a currency manipulator would undermine the multilateral system, with little payoff. China might respond by imposing duties on those American products effectively directly or indirectly subsidised by the US’ massive bailouts of its banks and car companies.

No one wins from a trade war. So, the US should be wary of igniting one in the midst of an uncertain global recovery — as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere. Unfortunately, this global crisis was made in the US, and the country must look inward, not only to revive its economy, but also to prevent a recurrence.

(The author,

Joseph E Stiglitz,

is University Professor at Columbia University and recipient of the

2001 Nobel Prize in Economics)