DEPARTMENT OF MANAGEMENT

STUDIES

VOLUME: 16

NOVEMBER EDITION 2011

MASTERS OF FINANCIAL MANAGEMENT

FINO METRICS

NATIONAL NEWS

Petrol prices slashed; but jet fuel gets costlier:

After several hikes in petrol prices, there is some relief as the oil companies

have announced a cut in the price of petrol. The price of petrol has been

slashed by Rs 1.85 per liter. There has been an increase of a massive 3.8%

hike in jet fuel.

FII cap in government, corporate debt hiked by $5 billion:

The finance ministry raised the foreign investment limit in government

and corporate debt by $5 billion each, hoping to solve the issue of poor

investor response to government debt and the rupee depreciation.

Looking for a silver lining:

Rating agency Moody's today downgraded outlook of the Indian banking

system to negative. India’s public debt at 70% of its gross domestic prod-

uct is preventing Asia’s third-biggest economy from securing an invest-

ment-grade rating. However, India made a strong pitch to upgrade its sov-

reign rating which has remained static for seven years despite improvement

in various parameters.

India Inc confronts slowdown from once-heady growth:

Slowing growth, stubbornly high inflation, rising interest rates, polit-

ical gridlock, gloom in the West and a sliding rupee have conspired

to dampen investor and corporate sentiment in Asia's third-largest

economy.

Aircel and Edserv inc partnership:

Education support services firm Edserv announced a partnership with Air-

cel, under which subscribers of the telecom operator will be able to access

educational content on their mobiles. The company is eyeing revenues of

Rs 40 crore in the next year through this agreement and expects 2 million

students to access educational content.

INTERNATIONAL NEWS

Suzuki terminates alliance with Volkswagen:

Suzuki terminated its two-year-old alliance with Volkswagen, alleg-

ing that the German company did not honor its commitments and

said that it will sue the company if it does not return the shares of the

Japanese firm.

U.S. Economy Growing at Fastest Pace of ‘11:

The U.S. economy may end 2011 growing at its fastest clip in 18 months as

analysts increase their forecasts for the fourth quarter just a few months

after a slowdown raised concern among investors. Economists at JP Mor-

gan Chase & Co. (JPM) in New York now see gross domestic product ris-

ing 3 percent in the final quarter, up from a previous prediction of 2.5 per-

cent.

European bonds signal more pain ahead:

Investors have been on edge all week as borrowing costs remain uncom-

fortably high across Italy and Spain. One of the chief problems with the

European debt crisis is the growing realization that the ECB's bond buying

sprees aren't going to save the economy.

Kodak's Online Gallery Up for Sale:

In a bid to raise money to fund its turnaround, Eastman Kodak Co. is trying

to sell its online photo-sharing business, Kodak Gallery

The onetime film giant has approached photo-sharing websites, competitors,

private-equity firms and retailers about buying the unit, which enables users

to store their digital photos and print them out into scrapbooks, cards and

calendars for a fee.

Japan Inc steps up shift overseas as yen stays high:

A sluggish home market and energy shortages following the widespread

nuclear power shutdown sparked by the March 11 earthquake and ensu-

ing atomic crisis are also tipping the balance towards investment abroad.

PICK OF THE MONTH

SEL Manufacturing Company Limited:

SEL manufacturing Company Limited is one of the manufacturers

and exporters of all kinds of knitted garments.It is headquartered in

Ludhiana, Punjab. The Company has facilities of in house spin-

ning, knitting, dyeing, finishing and Garmenting.

The company has grown from a couple of million USD to being a

USD 300 million textile group.

Technical data:

Stock Specifications: Stock Technicals (Price in Indian Rupee)

Name of the Stock: SEL Manufacturing Company Limited.

Establishment Year: 2000

Business segment: Manufacturer and Exporter of Textiles.

Face Value: 10

52 week High: 107

52 week Low: 41

Current Market Price (CMP) 43

Stoploss: 30, No stoploss for long-term investment.

Target Price: 160 and above

Market Watch and Note : High risk High return call, Buy small quantity can average if further fall.

Call Type: Multibagger Jackpot Investment Call for Long -term, Can expect best price

in 2012 or later.

"SEL Textiles Limited" IPO will be issued shortly. Stock can zoom when IPO opens. This stock fell from

above Rs 500 level, so consider to invest for smart gains.

FACULTY SPEAK : POST OFFICE INVESTMENT REFORMS

National Post of India not only provides the postal services but also has ample opportunities of invest-

ments, predominantly for senior citizens and those who look for fixed income and tax saving instru-

ments. Since decade’s instruments such as Kisan vikas patra (KVP) and National savings certificate

(NSC), MIS and post office senior citizen savings schemes were giving same old interest rates, without

taking into consideration the inflation and the open market interest rates. It was a long standing expecta-

tion of the investors to see structural changes in the features of KVP and NSC.

As per the decision approved by Finance Minister Pranab Mukherjee, based on recommendations of the

Shyamala Gopinath Committee which was set up to look into the matter at the advice of the 13th Fi-

nance Commission on 12th November, POSA has brought in many structural changes in the post office

instruments. It has reduced the maturity period for the MIS and National Savings Certificate (NSC)

schemes to 5years from the existing 6 years and has introduced a new 10-year NSC instrument with its

interest rate pegged at 8.7%. For small savers the annual investment ceiling in PPF savings accounts has

been raised to Rs.1 lakh from the current limit of Rs. 70,000. The loans against such savings would be at

a higher interest rate of 2 per cent as against 1 per cent at present.

The Government has also scrapped the 5 per cent bonus on maturity of MIS schemes and abolished the

commission for agents on PPF and Senior Citizens Savings Schemes. Union Finance Ministry statement,

affirms that the interest rate on POSA stands increased to 4 per cent from 3.5 per cent for the current fis-

cal while deposits in schemes such as MIS and PPF will fetch attractive returns of 8.2 per cent and 8.6

per cent respectively, as compared to the existing rates of 8 per cent. While all time maturities will fetch

significantly better returns by way of higher interest rates than hitherto, the biggest gainer is set to be the

one-year fixed deposit scheme with its interest rate pegged at 7.7 per cent as compared to the prevailing

6.25 per cent.

By Prof. Suresha B,

Asst.Professor

Department of Management studies

Christ University, Bangalore - 29

KINGFISHER UNDER CRISIS

Billionaire Vijay Mallya led UB-Group currently in the eye of a storm over troubles

at its Kingfisher Airlines, has lost nearly half of its market value from its peak scaled

in the previous financial year. The cash-strapped airline cancelled 60 flights on the

12th of November taking the number to 210 since the 7th of this month, causing in-

convenience to hundreds of passengers.

In financial year 2009-10, the airline made a net loss of Rs. 1,647.22 crore. In fiscal 2010-11, the loss re-

duced, but was still a high Rs. 1,027 crore. As per stock exchange data, The stock has taken a virtually

uninterrupted hammering since the last one year, falling steadily by over 73% (the Nifty index has de-

clined by only about a fifth of that). The airlines is expected to seek between Rs 250-300crore as working

capital from the bank to continue operations. Earlier this year, Kingfisher Airlines stated that a consorti-

um of 13 lenders has taken a 23.37% stake in the company after the carrier restructured part of its

INR76.51 billion debt. As part of this, Kingfisher allotted 5.68% of shares, valued at around INR1.8 bil-

lion (USD40.7 million), to the State Bank of India on a preferential basis under the debt recast plan, ap-

proved in the late 2010. Close to one third of the airline’s debt was converted into shares and issued to

lenders and the two founder companies. The remaining debt was restructured to be repaid in nine years

instead of yearly roll-overs with a two year deferment of interest payments.

The Prime Minister Manmohan Singh has given Kingfisher airlines some reason to hope. He said that his

government would find ways to help the ailing aviation industry. Kingfisher Chairman Vijay Mallya had

approached the government for help in the first week of november but Aviation Minister Vayalar Ravi

had ruled out a bailout. Many are asking why the government should walk the extra mile in bailing out a

private airline which is facing problems as a result of management follies bad business models and poor

strategy. “Is the bleeding civil aviation sector worth saving” is a question gaining significance because of

the sharp fall in Kingfisher’s share prices and the public anger over cancellation of so many flights. It is a

pity that Kingfisher Airlines, which had an excellent track record, has suddenly reached a stage of bank-

ruptcy needing the central government to infuse soft loans to bail it out. The financial mess that the airline

is currently in is mostly due to its own misdoings and partially by the hike in fuel charges. Recently the

airline had the benefit of getting funds from public sector banks, which were made to buy its shares at a

high cost of Rs.60-70 per share when the same were available for Rs.30. Already Air India is getting bail

packages. The public funds with the banks should not be frittered away like this as it will inflate the NPA

inventory. It should be investigated why bailout packages are sought by these airlines. Since only three

percent of the country's population travel by air and rest use the rail or road network, the money should be

used to improve these infrastructures instead of bailing out any private business.

This is one ride that's turning out to be too turbulent for the king of good times.

By: Umme Salma and Kriti Singania

Umme.salmaa31@gmail.com

Kritisinghania.90@gmail.com

Energy plays a key role in the economic growth and human development. There is a strong two-way re-

lationship between economic development and human consumption. On one hand, the growth of an

economy depends on the availability of cost-effective and environmental energy sources and on the oth-

er aspect the level of economic development is dependant on the energy demand.

Its energy requirements are high and the demand is growing. India's energy intensity is much higher than

the emerging economies - the Asian countries which also includes China (energy intensity is an indicator

of how efficiently energy is used in the economy). However, since 1999, India’s energy intensity has

been decreasing and is expected to continue to decrease as our resources are limited and these are ex-

ploited optimally. This could be attributed to several factors such as demographic shift from rural to ur-

ban areas, improvement in efficiency of energy use and the emergence of substitutable fuels.

Considering all these factors, the government has given more importance to this sector in the 11th year

plan which will result in the overall expansion of the sector. The plan to establish an integrated power

grid by the ministry of power by 2012 is an ambitious objective for the country. The scarcity in availa-

bility of power in the country will affect the development of the country. Bridging the gap between de-

mand and supply is the only solution for this. For this large projects are being undertaken in different

segments. Many measures are taken to reduce the transmission and distribution losses but it is still high-

er than the world benchmark. India’s initiative to attack global players into the sector to fulfill its grow-

ing demand seems to receive further momentum. This is due to the new exploration and license policy of

the government.

Demand and Supply Scenario:

In the recent years, India's energy consumption has been growing rapidly due to the population growth

and economic development. India utilizes both exhaustible and renewable energy resources. Coal, oil

and natural gas being the three primary commercial energy resources. The required rate of energy supply

growth has not taken place in India and it does not meet the increasing demand. This has resulted in in-

creased imports to meet the energy demand.

Current Scenario:

India is now facing an energy deficit. Many policies are being developed by the ministry of

power to meet the deficit and to find alternative sources of energy particularly nuclear, solar

and wind energy. India has got an expanding market for energy and is expected to be the 2nd

largest contributor to the increase in global energy demand by 2035. It’s planning to increase

its renewable and nuclear power industries. Five nuclear reactors are under construction in

the country and 18 more reactors will be constructed by 2025. It is in the process of evolving

sustainable and equitable policies for the energy sector which will help to meet the deficit and

SECTORIAL REVIEW: ENERGY AND ECONOMIC GROWTH

in a manner which will not affect the environment.

In India industrial sector continues to be the largest consumer of energy.

But it’s decreasing gradually. This is due to their measures to use alternative sources of

energy and successful implementation of energy conservation measures. The transport

sector consumes a lot of energy since past few years. This is due to expansion of cities

and inadequate public transportation. This has led to the growth in the mechanised energy

intense private modes leading to energy inefficiency and pollution. The basic consumers of

energy are the domestic sector though the rural household still use traditional fuels. Rapid

urbanisation and diverse urban growth patterns have affected the energy use. Large use of

energy by this sector is one of the reasons for the deficit in the energy sector. The government

is taking steps like hiking the electricity charge, power cuts etc to reduce the use.

The major energy companies in India engaging in mass energy development, transformation and gen-

eration include:

Cairn Energy India

Reliance Energy India

Suzlon Energy India

GE Energy India

Focus Energy India

Unitron Energy Systems Pvt. Ltd.

Eri- Tech Limited

Synergy Renewable Energy Pvt. Ltd

Goldwyn Limited

Zenith Birla India Limited

Star Energy Group PLC

ENERGY POLICY OF INDIA:

The India energy policy states that the energy utilization must not only be from the conventional energy re-

sources like coal, petroleum, natural gas deposits but also utilise other non-conventional sources such as

wind, water, geothermal, solar etc.

The energy policy of India is striving to find solutions for finding solutions to the perishing energy sources

and also the ever increasing energy prices.

Future of Energy:

• While wind energy is the major contributor of energy now, it’s still a small contributor. In the future

major sources of energy will be coal, gas and oil.

•The energy growth in India will be more than 60% in coming 10 years.

•The petroleum use will be increased by one third by 2015. This will result in more use

of energy by the transportation sector.

•Crude oil imports are expected to increase. But oil prices are expected to increase

only by 1% over the inflation.

•Researchers are working on fusion power. This will generate temperature in millions which will help to

meet the deficit.

•Of all the energy renewable energy provides the promising path. As the 21st century is concerned clean

and sustainable energy is important. This can be achieved by using solar, biomass, wind and geothermal

energy. Steps are taken by entrepreneurs and industrialists to develop such sources as environment is the

major concern. Until recently the only concern was cost and availability of energy. But now major con-

cern is now on the carbon emission and its effect on the environment. They implement eco

friendly policies as a part of social responsibility. All these will reduce the cost of energy in the future.

It is evident that coal will continue to be the predominant form of energy in future.

Conclusion:

The energy sector is the backbone of an economy. The crisis faced by them is the concern of the nation.

The need of the hour is conservation of energy. In the recent years, the government has rightly recog-

nized the energy security concerns of the nation and more importance is being placed on energy inde-

pendence.

So it’s our responsibility to minimize the use of energy and to use more of eco friendly sources of energy

By :

Nanditha Varma

varma_nanditha@yahoo.co.in

Aditya Padi

adityapadi@gmail.com

Going into business by yourself is a difficult task especially

for people who are new to business and have no experience

in business. How to start is the first thought one can get to

start up business. What kind of business to start? Where to

set up business? What products to sell? Name of the busi-

ness? And so are the common questions related to business.

For this one has to do market research.

Most of the people who would like to start up business are students who have just finished their studies

and about to start their own business. Even though you have all the theory you want, you wouldn’t have

the practical knowledge and experience.

If you want to start your own business here is a little advice to help you with your first steps in your new

business and to access whether your idea is in fact worth spending time and money on.

Firstly you need to get some independent and impartial advice. A good busi-

ness model does not always make a good idea. You can take the advice of a

finance adviser and look to a banker who can fund for your business and do a

research about what customers prefer and then build your product. You must

check your overheads and make sure you find out ways to keep them low

which will help you gain more profits.

Make sure your product is different from the ones in the market. When you estimate a projection always

underestimate your income and overestimate outgoings, by doing this you should have a good idea of

how your business will function and how successful it will be. By this you can be successful business

men and earn better returns. Fortune favors the brave so try your hand at being an entrepreneur and have

the pleasure of being your own boss.

HOW TO SET UP YOUR OWN FIRM

Humans have gained control over almost everything he has ever desired, but even in our sophisticated

technology-based society, we still exist largely at the mercy of the weather. It affects our daily lives,

and has a great impact on business revenues and earnings.

Take any Business & you would see the vital role that weather plays in each of them, be it the energy,

tourism, construction, aviation, agriculture or entertainment industry. Weather plays a vital role in our

lives & on the decisions we make based on them.

The inadequate rainfall during monsoons would adversely affect the farmers & so would an excessive

downpour of it.

According to reports more than 25 % of the US economy is weather dependent. As William Daley has

rightly stated, "Weather is not just an environmental issue; it is a major economic factor. At least $1 tril-

lion of our economy is weather-sensitive."

The Impact of Weather on Indian Economy is also pretty significant. As agriculture is the backbone of

our Economy & if we decide to leave it at the mercy of weather, we are soon going to be left as a spine-

less nation.

The Risk faced due to weather is also kind of distinctive as it cannot be controlled & despite immense

advancement in Meteorological Sciences we still cannot estimate it accurately & consistently. Earlier,

Insurance used to be the main tool for most of the major companies to guard them against unanticipated

weather conditions but insurance generally covers high probability, low occurrence events like famine,

earthquakes, or floods. It does nothing to safe guard against reduced business demands caused due to un-

reasonable temperature variances. For example, an extremely cold summer can affect hotel or tourism

industry. Although prices might change based on the increase or decrease in demand but won’t necessari-

ly compensate for the loss in revenues caused due of the change in weather. That is where weather deriv-

ative comes in to the picture.

In the early 90’s, market pioneers began to see weather as a commodity. They realized that if they com-

puted & indexed weather in terms of monthly or average seasonal temperatures & attached an amount to

each of these index values then they could package, market & trade weather. It was very much similar to

trading of Stocks, currencies, loans, & other financial commodities. Hence, the concept of packaging

weather as a tradable commodity began to develop significantly over the years.

WEATHER DERIVATIVES

Initially, Weather derivative was started to hedge energy business, but soon the market began to ex-

pand & carter a wide range of weather risks faced by other industries as well. It attracted insurers and

reinsurers, investment banks, and hedge funds. The weather market now represents a leading edge of

convergence between the insurance market and the broader financial markets. Investment banks and

commercial banks saw weather derivatives as a financial risk management product that they could

cross-sell along with other financial products for hedging interest rate or currency risks. While com-

modity traders and hedge funds saw opportunities to trade weather on a speculative basis.

The Weather market has expanded by leaps & bounds, both in terms of growth, risks addressed & the

varied number participating nationalities. In the year 2008 -09, more than 3,800 transactions occurred

(a growth of 42% over the previous year) and that these transactions represented more than $4.8 bil-

lion of estimated exposure.

Some things just can’t be controlled or predicted - So the best you could do is insure it.

1) Layaway: A purchasing method that allows a consumer to put a product on hold by placing a deposit on

the item. Layaway allows the customer to make smaller payments on the product until the purchase price is

paid in full, rather than paying for the item with credit and adding interest to the cost. A layaway plan en-

sures that the chosen merchandise will be in stock and ready for pick-up when the final payment is made.

2) Halloween Strategy: An investment technique in which an investor sells stocks before May 1 and re-

frains from reinvesting in the stock market until October 31, in order to increase capital gains. The Hallow-

een strategy is based on the premise that most capital gains are made between October 31 (Halloween) and

May 1, and that the other six months of the year should be spent investing in other investment types or not

at all.

3) Operation Twist: The name given to a Federal Reserve monetary policy operation that involves the

purchase and sale of bonds. "Operation Twist" describes a monetary process where the Fed buys and sells

short-term and long-term bonds depending on their objective.

4) Clean Sheeting: The fraudulent act of purchasing a life insurance policy without disclosing a pre-

existing terminal illness or disease. This type of fraud is often done with both the knowledge of the pur-

chaser and the agent involved.

5) Garbatrage: An increase in price and trading volume in a particular sector of the economy that occurs

as a result of a recent takeover, which initiates a change in sentiment toward the sector.

Garbatrage is also known as "rumortrage".

6) Rump: The name given to the group of investors refusing to tender their shares into a corporate action,

such as a merger or acquisition.

7) Rumortgage: A term often used by traders to refer to increased trading caused by a takeover rumor.

1) What does Asset Tripping mean?

2) Which country's foreign market is known as 'Rembrandt Market'?

3) Which Asian nation was the first to get a world bank loan?

4) What is picking stocks that have already sunk to the bottom but still have some bounce in

them left called?

5) What are illiquid stocks that do not follow SEBI rules called ?

6) To be a success in business, be daring, be first, be different" is the guiding principle of which

business woman?