Financial Edge - A Monthly Newsletter

8/14/2019 Financial Edge - A Monthly Newsletter

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INDEX

Sr.

No.

Contents Page

No.

1. Market Updates

Stock Market 3

Commodity Market 3

2. Glimpse of Economic Indicators

Key Indicators 4

Rupee- US$- Euro Equation 6

3. Banking News 6

4. Industry Snapshot

The Indian Entertainment & Media Industry 8

5. Voice of TIMSR

Gold: True and Honest Money 14

6. MPL (Management Premier League) 17

7. Industry Snippets 18

8. Knowledge Bank

The Mechanics of Commodity Futures 19

Interest Rate Futures 22

9. Visionaries

Prahlad Kakkar 24

10. Food for Thought

Is Stock Market Gambling? 25

11. Kit Kat Time 27

12. Contact Detail 29


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EDITORIAL

Welcoming Changes

At the outset let me welcome Batch 2009-11

to TIMSR family. It is always a pleasure to

interact with young and enthusiastic students

who, with stars in their eyes look forward fora great career in the field of Business and

Management. Be focused, determined and

committed in your efforts and you will realize

your dreams. The entire TIMSR family

comprising of top management, faculty

members, seniors students, administrative

and other staff are there to support you in

your efforts. The campus is buzzing with

events and activities along with regular

sessions viz. HR Clubs Klub Konnect andMarketing Departments Management

Premier League and EVOKE 2009. The

ambience is just right for the new batch to

get the feel of life at a B-School.

India has seen considerable growth in the

service sector in the recent past. A need had

been felt for an appropriate type of business

organization to combine entrepreneurial

skills, technical expertise and risk

management to promote services of

technical nature which will be economically

and commercially efficient.

Introduction of Limited Liability Partnership

Act, 2008 (LLP) which came into force with

effect from March 2009 is a right step

towards this direction. It provides an

alternative to traditional partnership. This

new form of organization calls for limited

liability for its members which will encourageprofessional and technical service providers

to operate in an efficient and effective

manner. The members enjoy the freedom to

formulate the internal structure of the

organization however with limited liability.

Small and medium service providers will be

benefited since they will be able to widen the

scope of their operation and compete with

global service providers. With the issue of LLP

Rules 2009 and taxation norms in the Union

Budget 2009, a clear regulatory framework

has been provided for the functioning of

LLPs. This initiative will lead to innovation in

the service sector in Indian economy.

The much eagerly awaited Direct Tax Code is

here which promises to bring sweeping

changes in our tax regime. More on it in the

next issue.

Regards,

Prof. Jyoti Nair


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MARKET UPDATE

STOCK MARKETS

The month of August seemed to remain

sluggish when we talk in terms of broader

market indices The reason for this would be

very simple i.e. only due to bad monsoon and

problems with Chinese exports. Markets saw

the major up as well as down swings. Till 6th

& 7th

of August market shedded most of the

gains which has been witnessed since the

earning season.

On 6th

of August: Weak global cues saw the

Sensex open with a marginal negative gap

(over 20 points) at 15,881 but moved up to a

high of 15,970 in early noon deals. With the

Met Department announcing that monsoonhas been 25% below normal between June 1

and August 5, the markets tanked - the

Sensex dropped to a low of 15,443 - an intra-

day swing of over 525 points. The Sensex

finally closed with a huge loss of 390 points

(2.45%) at 15,514. The Nifty declined 109

points (2.31%) to 4,585.All the sectoral

indices declined. The BSE Auto index dropped

over 4%. The BSE FMCG, Metal and Realty

indices slipped over 3% each. Breadth was

bearish - out of over 2,765 scrips traded, over

1,600 declined. This was not enough, the

bears were running ahead of bulls again the

next day markets witnessed same set of

movement on 7th of August again market

opened with a negative gap of 70 points and

ended with a heavy downfall of 354 points.

After dropping nearly 900 points over the

sessions of 1st

week of month, on 11th

of

August the Sensex opened on a flat note at

15,000. The index dropped to a low of 14,864

in early morning deals. Buying at lower levels

saw the index move up to a high of 15,219 in

noon deals - an intra-day swing of over 350points.

On 20th

August, 2009 Adani Power, which

had priced its IPO at Rs 100, listed at a

premium of 5% at Rs 105. The stock moved

between a low of Rs 98 and high of Rs 108

before closing on a flat note at Rs 100 - its

IPO price. With the market to be at this kind

of levels buying continued from lower end of

the market and it were headed to a one side

rally which helped to touch the new 2009

highs.

COMMODITIES MARKET UPDATE

Crude update:

Oil ended toward $72 per barrel on 31st of

August, 2009. a drop in China's key stock

index stoked worries about the country's

economy but hopes that energy demandwould soon rebound are on track to push

prices up about 4% in August. Prices slipped

1.56% last week but are set to chalk up gains

of 4% in August as a raft of upbeat economic

data across the globe helped offset high U.S.

oil inventory levels.


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Gold Update:

Gold rose on 31st August

, to trade around $950

per ounce on strong oil prices, which fanned

worries about inflation, while platinum eased

a touch in news of a mine strike in South

Africa.

State-run National Mining Development

Corporation (NMDC) plans to produce close

to 100,000 carats of diamonds from the

Panna diamond mines in Madhya Pradesh by

2010-11, Steel Minister Virbhadra Singh said

on Aug 26th

.

The Panna mines were re-opened this month

after being closed for four years over

environmental issues. NMDC, a state-run unitunder the steel ministry, extracts minerals

across the country.

Agriculture Commodities Update:

Sugar importers will have to submit a report

giving details about the quantity purchased

by the 10th of every month to Agricultural

and Processed Food Products Export

Development Authority (APEDA).

The government has barred large and bulk

consumers of sugar from keeping more than

15 days ofstocks with them, a move aimed at

checking hoarding and any price escalation

ahead of festivals like Dussehra and Diwali.

The directive follows sugar prices doubling to

Rs 35 per kg in a year's time and concerns

that the sweetener might get more

expensive as production has been lower thisseason and a poor sugarcane crop is

expected in the next season.

Poor monsoon, production shortfall and rise

in demand will see tea prices inching

upwards. According to Producers prices will

continue to remain in the domestic market.

Globally, too, tea prices are on the upswing.

Other Updates:

NCDEX is all set to kick-off spot exchange in

Gujarat, adding few more commodities to

their existing basket, with 4% thrust being

laid in Union Budget in the Agriculture sector

and emphasis being laid on creating cold

chains, NCDEX is not ruling out the possibility

of brining frozen foods also on their trading

platform.

GLIMPSE OF ECONOMIC

INDICATORS

(AS ON 31st

AUGUST 2009)

KEY INDICATORS

CASH RESERVE RATIO 5%

STATUTORY LIQUDITY

RATIO

24%

REPO RATE 4.75%

REVERSE REPO RATE 3.25%PRIME LENDING RATE 12.75% TO 13.25%

BANK RATE 6%

INFLATION -0.21%

FOREX RESERVE $271.95 Billion

CALL RATES 2.25%-4.30%

CAR (CAPITAL

ADEQUACY RATIO)

9%

Source: www.rbi.org

Wholesale price index fell 0.21 per cent in

the 12 months to Aug 22, compared with the

previous week's annual decline of 0.95

percent, government data showed.

The rate turned negative for the week ended

June 6 for the first time since the new


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wholesale price index (WPI) series started in

1995.

Global financial crisis has so far failed to

significantly slow down inflow of remittances

in India, the Reserve Bank said.

According to the World Bank estimates (July

2009), remittance flows to developing

countries, which increased to $ 328 billion in

2008 from $ 285 billion in 2007, are

projected to decline by 7.3 per cent in 2009,

the RBI said.

Indian economy will beat pessimistic

estimates to notch up a 6%-plus growth in

gross domestic product (GDP) in the June

quarter on the back of robust performancesby the financial services, manufacturing and

mining sectors, according to an ET poll of

eight economists.

India's foreign exchange reserves climbed by

$932-million for the week ended August 21

to $271.957 billion compared to $271.025

billion in the previous week.

Monsoon rains will improve slightly in finalmonths but will still end June-Sept season

about 20% below normal, making this year's

rainfall worst since 1972.

India's exports in FY10 are seen at almost the

same level as last year, the head of an

exporters' body said on. "We expect exports

to touch around $167 billion, almost the

same level of last year," A. Sakthivel,

President of Federation of Indian Export

Organizations, said.

India's industrial output rose by 7 per cent in

July from a year earlier, compared to a 7.8

per cent rise in June, commerce and industry

minister Anand Sharma said.

The index of six core industries clocked 1.8%

growth in July, lowest in the past five

months.

Government is committed to doubling credit

flow to micro, small and medium enterprises,

which employ 6 crores persons and

contribute 45 per cent to India's

manufactured goods, Prime Minister

Manmohan Singh said.

Indian firms in July, raised over $2 billion

through external commercial borrowings to

fund various programmes, including overseas

acquisitions and for importing capital goods,

says RBI.

The government has agreed to infuse anequity of Rs 5,000 crores into cash-strapped

Air India over the next three years subject to

the airline's performance.

The worst dry spell in nearly four decades

pushed up food prices in India by an annual

14.5 per cent in the week to Aug 22, adding

to the worries that wholesale price inflation

is poised to accelerate in coming months.

Direct tax collections grew by around 4 per

cent to Rs 87,888 crores in the first five

months of this fiscal.

Cars and utility vehicle sales in India grew

about a third in July, their best performance

in a year, thanks to new launches and easier

availability of finance, raising hopes for a

strong pick up in the coming months. The

revival, which began in February after a six-month slide, has been mainly led by cars,

especially in the compact segment, spurred

by launches of new models such as Maruti

Suzuki's Ritz premium hatchback and Tata

Motor's much-hyped Nano.


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Date Rate

1st 68.06

8th 67.90

15th 68.81

22th 69.63

29th 69.89

Maruti, India's top carmaker in which Japan's

Suzuki Motor Corp has a 54 percent stake,

reported a 33.4 percent jump in July sales.

RUPEE- US$- EURO EQUATION: As on

AUGUST 31st

2009

RUPEE-DOLLAR

Date Rate

3RD 47.59

10th 47.81

17th 48.89

24th 48.61

28th 48.65

Currency Average

Rate

Lowest Highest

RUPEE-

DOLLAR47.72 46.96 48.60

RUPEE-EURO

66.85 65.94 68.08

Source: www.X-rates.com

From about $60 million per day in August-

September 2008, the current rate is nearly $1

billion per day in NSE and MCX-Stock

Exchange (MCX-SX).

The Indian rupee appreciated by 11 paisa to48.80 against the American currency in early

trade today on fresh dollar selling by

exporters and stability in local stocks

The rupee fell to a 1 month lows early on

1st

September as losses in Asian stocks raised

concerns about foreign fund outflows, while

weaker regional currencies also weighed

The Indian rupee fell to its lowest level since

mid-July on Tuesday as weaker global

equities raised worries foreigners may start

pulling out funds from emerging market

assets including local shares.

The partially convertible rupee closed at

49.05/06 per dollar, just off a late low of

49.06, its weakest since July 13. It ended 0.4

percent weaker than Monday's (31st

AUG)

close of 48.83/84.

"With equities turning negative, the rupee

was immediately sold. There was good

demand from custodians, oil firms as well asimporters. Lots of inter-bank shorts were also

cut," said Madhusudan Somani, head of

foreign exchange trading, at Yes Bank.

"Last couple of days we had seen decent

offers above 49.00 from exporters as well as

state-run banks. We will have to see if they

come this time around as well," he said,

adding 49.10/12 was a very important

technical level.

The Dollar-Rupee was in a range bound of 47

to 49 in this entire month with high of

Rs.48.60 and lows of 46.96.

BANKING NEWS

Long-awaited merger proposal of Kerala-based Catholic Syrian Bank (CSB) and

Federal Bank is likely in the next two to

three months with both lenders putting it

on fast track.

Canara Bank will launch 34 branchesacross India on August 31, taking to 2806,

the global network of the bank.

RUPEE- EURO


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Unsatisfied by trebling of its share price toRs 750 since March, ICICI Bank has

embarked on an ambitious plan to double

return for investors in three years.

Reserve Bank of India (RBI) had agreed toa maximum cap on withdrawals from

third-party ATMs. The central bank had

said banks could place curbs, subject to a

minimum of five transactions a month and

allow free withdrawals of up to, at least,

Rs 10,000 from third-party ATMs. But the

regulator has left it to banks to decide on

the limits, indicating that this was the

minimum level of benefit it expected

banks to provide customers.

Private sector lender Federal Bank islooking at a loan growth of 20-25 percent

in 2009/10 on a pick-up in credit off take

in infrastructure, steel and cement

sectors.

ICICI Bank has asked the government notto take into account overseas securities

like ADR and GDR when deciding on

whether a bank is Indian or foreign. ICICIBank has little over 51 per cent of stake

held by foreign institutional investors

(FIIs), but it includes 29.07 per cent held

through ADRs alone.

Banking system needs consolidation toproduce bigger, stronger players as its

current size is not fit to meet the funding

needs of a globalizing Indian industry, OP

Bhatt (SBI CMD) said.

State Bank of India the country's top bank,is unlikely to raise lending rates in the next

six months, its chairman said on Tuesday.

All villages to enjoy banking in twoyears The Reserve Bank of India targets

financial inclusion across country through

business correspondents.

The finance ministry has asked publicsector banks (PSBs) and the National Bank

for Agriculture & Rural Development

(NABARD) to play an active role in

containing non-performing assets (NPAs)

of regional rural banks (RRBs).

Banks will soon have to shift to a new,more accurate, accounting standard

where the value of assets will be based on

current rather than historical cost.

IDBI Bank-led consortium of lenders, haveraised $ 1.1 billion loan for national carrier

Air India to purchase aircraft, a top IDBIBank official said.

State-owned Special Undertaking of UTI(SUUTI) is looking to offload part of its

stake in Axis Bank, countrys third-largest

private sector lender, within next four

months.

SUUTI holds a 27.02% stake in the bankand is looking to divest around 17%. Itexpects to realize Rs 6,000-7,000 crores

from the sale, a 13-30% premium over the

Rs 870 closing price of Axis Bank share on

the National Stock Exchange.

The government has made the firstmove to use the surplus funds of

commercial banks to meet its short-term

cash needs. Banks have been regularly

parking the excess money, for which they

cant find borrowers with RBI under thereverse-repo facility. Now in a letter to

banks, the central bank has said the

government will issue new shorter-tenure

treasury bills that will help the

government meet its temporary cash flow

mismatches. The special treasury bills


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called Cash Management Bills (CMB) will

have maturities less than 91 days.

IndusInd Bank, one of the new generationprivate sector banks in the country, has

successfully concluded its first Qualified

Institutional Placement (QIP) offering of

US$ 100 million. The issue received very

strong response from investors on

opening on 11th of August, 2009 and was

swiftly over-subscribed.

Housing Development FinanceCorporation Ltd (HDFC), the multi-faceted

finance company, has decided to dilute a

maximum 3.5 per cent equity to Qualified

Institutional Buyers (QIBs) to raise over Rs

4000 crores.

IDBI Bank has revived the proposal to sellIDBI Home Finance, its wholly-owned

subsidiary, to Dewan Housing Finance,

nearly seven months after it had to put

the plans on hold due to a last-minute

government intervention.

Public Sector lender, Punjab National Bank(PNB) planning to launch two subsidiariesto enter new areas of business. It is set to

foray into investment services through its

investment-banking subsidiary PNB

Investment Services Limited while enter

the factoring business through another

subsidiary - PNB Factoring.

State-run Indian lender Bank of Barodaaims to acquire banks in Malaysia and

Thailand to help it expand in the region.

INDUSTRY SNAPSHOT

INDIAN ENTERTAINMENT

AND MEDIA INDUSTRY

The Indian Entertainment and Media (E&M)

Industry has out-performed the Indian

economy and is one of the fastest growing

sectors in India. The E&M industry generally

tends to grow faster when the economy is

expanding. The Indian economy has been

growing at a fast clip over the last few years,

and the income levels too have been

experiencing a high growth rate. Above that,

consumer spending is also on the rise, due toa sustained increase in disposable incomes,

brought about by reduction in personal

income tax over the last decade. All these

factors have given an impetus to the E&M

industry and are likely to contribute to the

growth of this industry in the future. Besides

these economic and personal income-linked

factors, there are a host of other factors that

are contributing to this high growth rate.

A. Low media penetration in lower socio-economic classes (SEC)

B. Low ad spendsC. Liberalising foreign investment regimeSOME IMPORTANT FACTS

Leading Consumers

Over ~1000 movies released annually(Largest in the world)

~3.2 billion movie tickets sold annually(Largest in the world) ~80 million pay-TV homes (Third largest

in the world)

~119 million television households ~450 television channels ~Over 300 million mobile subscribers

(second largest in the world)


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~Over 350 Radio Stations ~6000 newspapers published, including

the worlds largest circulated daily

~10000 music tracks released annuallyPoor Revenue Generators

Low Average Revenue per Unit (ARPUs): Average ticket price in India : Less

than $1

Average ticket price in US: $6 Average monthly spend on pay-TV in

India: $3.5

Average monthly spend on pay-TV inUS: $15

Low Ad-GDP RatioIndia: 0.55 US: 1.18 World: 0.86

Low Media PenetrationTV penetration - India: 40% US: 98%

According to a recent report published by

Price Waterhouse Coopers, Indian E&M

industry grew at 10.3 per cent to reach the

size of Rs. 536.9 billion, although it has

witnessed only 8% in 2009 compared to

16.6% compounded annual growth over the

period 2004-08. The growth in Indian E&M

industry would hover around 10.5 per cent

during the forecasted period 2009-13.

Category CAGR

2004-08

(in %)

CAGR 2009-13

(in %)

Estimated

Television 17.4 11.4

Films 15.6 11.6

Print Media 13.4 5.60

Radio 36.4 18.0

Music -1.7 -4.5

Animation,

Gaming & VFX

22.2

Out-of-Home

Advertising

15.3 10.8

Online

Advertising

69.9 32.0

Total E&M

Industry

16.6 10.5

Source: Industry Estimates and PwC Analysis

KEY DRIVERS

Television

Subscription revenues are projected to be

the key growth driver for the Indian

television industry over the next five years.

Subscription revenues will increase both

from the number of pay TV homes as well as

increased subscription rates. The buoyancy

of the Indian economy will drive the homes,

both in rural and urban (second TV set

homes) areas to buy televisions and

subscribe for the pay services. New

distribution platforms like DTH and IPTV will

only increase the subscriber base and push

up the subscription revenues.

Filmed entertainmentIndians love to watch movies. And

advancements in technology are helping the

Indian film industry in all the spheres film

production, film exhibition and marketing.

The industry is increasingly getting more

corporatized. Several film production,

distribution and exhibition companies are

coming out with public issues. More theatres

across the country are getting upgraded to

multiplexes and initiatives to set up more

digital cinema halls in the country are already

underway. This will not only improve the

quality of prints and thereby make film

viewing a more pleasurable experience, but

also reduce piracy of prints.

Print media

A booming Indian economy, growing need

for content and government initiatives that

have opened up the sector to foreign

investment are driving growth in the printmedia. With the literate population on the

rise, more people in rural and urban areas

are reading newspapers and magazines

today. Also, there is more interest in India

amongst the global investor community. This

leads to demand for more Indian content

from India. Foreign media too is evincing


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interest in investing in Indian publications.

And the internet today offers a new avenue

to generate more advertising revenues.

Radio

The cheapest and oldest form of

entertainment in the country, which was

hitherto dominated by the AIR, is going to

witness a sea-change very shortly. In 2005,

the government opened up the sector to

foreign investment and this is the key

factor that will drive growth in this sector. As

many as 338 licenses are being given out by

the Indian government for FM radio channels

in 91 big and small towns and cities. This

deluge of radio stations will result in rising

need for content and professionals. New

concepts like satellite, internet andcommunity radio have also begun to hit the

market. Increasingly, radio is making a

comeback in the lifestyles of Indians.

Music

The industry has been plagued by piracy and

had been showing very sluggish growth over

the last few years, both in India and globally.

However, mobile music and licensed digital

distribution services are projected to fuel

the recovery of the music industry the world-over. The pace of growth in mobile music

reflects the fact that consumers increasingly

view their wireless device as an

entertainment medium, using those devices

to play games and listen to music, while

carriers are actively promoting ancillary

services such as ringtones to boost average

revenue per user. Ringtones currently

constitute the dominant component of the

mobile music market. Licensed digital

distribution services are also contributingsignificantly to growth in all regions.

Live entertainment

This segment of the entertainment industry,

also known as event management, is growing

at a fast and steady rate. While this industry

is still evolving, Indian event managers have

clearly demonstrated their capabilities in

successfully managing several mega national

and international events over the past few

years. In fact, event managers are also

developing properties around events. The

growing numbers of corporate awards,

television and sports events are helping this

sector. With rising incomes, people are also

spending more on wedding, parties and

other personal functions. However, issues

like high entertainment taxes in certain

states, lack of world-class infrastructure and

the unorganized nature of most event

management companies, continue to

somewhat check the potential growth in this

segment of the industry.

Out-of-home advertisingOutdoor media sites in India are

predominantly owned or operated by small,

local players and are typically, directly

marketed by them to advertisers and

advertising agencies. However, this segment

too is witnessing a sea-change with

technological innovations. Growing billboard

advertising is fuelled by technologies such as

light-emitting diode (LED) video billboard.

This is a segment that is seeing interestingtechnological innovations across the world

and is likely to evolve in India too in the

short-term.

Internet advertising

An estimated 28 million Indians are currently

hooked on to the internet. And this rising

number is leading to the growth of internet

advertising, which today stands at

approximately INR 1 billion. The internet is

being used for a variety of reasons, besideswork, such as chatting, leisure, doing

transactions, writing blogs etc. This offers a

huge opportunity to marketers to sell their

products. And with broadband becoming

increasingly popular, this segment is

expected to grow by leaps and bounds.


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GOVERNMENT INITIATIVES

The Government has initiated major reform

measures, which have had a cascading effect

on the growth of the industry.

Permitting 100 per cent foreign directinvestment (FDI) through the automatic

route for film industry and advertising.

Allowing 49 per cent foreign holding incable TV and DTH.

Allowing 100 per cent FDI in non-newspublications and 26 per cent FDI in news

publications.

The government has allowed 100 percent FDI in fax editions of magazines and

newspapers.

Recently, the government has allowedcompanies with core business in news

segment but hived off non-news

business, to raise funds from overseas

beyond the stipulated FDI limit of 26 per

cent. Such companies can raise and route

funds from overseas through its non-

news arm, which will not be calculated as

foreign investment.

The FM radio sector was opened for FDIwith a 20 per cent cap.

Permitting setting up of uplinking hubsfor satellite uplinking by private TV

broadcasters from Indian soil.

Giving industry status to the filmssegment.

Opening FM Radio operations to theprivate sector.

The government has allotted US$ 50.13million in the current Five-Year-Plan for

various development projects of the film

industry. The funds will be utilised to setup a centre for excellence in animation,

gaming and visual effects among others.

Recent Developments

During the year 2008-09, 15 proposals forFDI in Indian entities in the news and

current affairs sector have been

approved. Further, permission has been

given for publication of 189 Indian

editions of foreign speciality, technical

and scientific magazines. Permission has

also been given for publication of 106

specialties, technical and scientific

magazines by Indian entities, who have

taken FDI. Availability of Indian editions

of foreign scientific, technical and

specialty periodicals at an affordable cost

has benefited the students, professionals

and the scientific and technical

community greatly.

As a further measure of policyliberalization, Government has allowed

Indian edition of foreign news magazines

for facilitating wider readership at

affordable prices. Also, Government hasrecently announced facsimile edition of

international news papers to be brought

to be India.

Government has reviewed the printadvertisement policy and brought about

changes to support small and medium

newspapers. As per that policy,

advertisement support has been

increased from 10% to 15% for Small

newspapers and from 30 to 35% forMedium newspapers, in money terms.

Minimum publication period requirement

drastically reduced from 36 months to 6

months for regional languages

newspapers.

BARRIERS TO INVESTMENT IN THE

INDUSTRY

A lot more investment can be drawn into the

entertainment and media industry if certainsectoral policy barriers can be addressed.

Some of the issues that need to be addressed

which commonly impacts all segments and

need to be addressed urgently include:


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1. Piracy

The problem of piracy assumes a different

proportion in a country such as India with an

area of 3.3 million sq. km. and a population

of over 1 billion speaking 22 different

languages. It impacts all segments of the

industry especially films, music and

television. Most of the credible efforts today

to combat piracy have been initiated by

industry bodies themselves. On part of the

government, lack of empowered officers for

enforcement of anti-piracy laws remains the

key issue that is encouraging the menace of

piracy. This, coupled with the lengthy legal

and arbitration process, is being viewed as a

deterrent to the crusade against pirates. The

current Copyrights Act too is dated in terms

of technology improvements, and above all,it does not address the needs of the

electronic media which has maximum

instances of piracy today. The draft of the

Optical Disc Law to address the need for

regulating piracy at the manufacturing stage

is still lying with the ministry for approval.

2. Lack of a uniform media policy for foreign

investment

The sector currently lacks a consistent anduniform media policy for foreign investment.

Some of the inconsistencies include different

caps in foreign direct investment in various

segments. This is enumerated below:

Television distribution: DTH 49% (strategic

FDI only 20%); cable 49% (ownership can

only be with India citizens).

Content (news): Television and print -

26%; Radio - Nil

Content (non-news): Television and print -100%; Radio 20% (only portfolio)

3. Level playing field with incumbents

Most sectors of the Indian E&M industry

have traditionally operated under various

agencies of the Indian government, which

were later opened to the private players in

various stages. FM radio is one such example

where the incumbent All India Radio (AIR)

was the sole player in the medium of both

AM and FM radio broadcasting. Limited

frequencies of FM broadcasting have been

opened to the private players but with a

licence fee, which is not currently applicable

to the incumbent AIR. Similarly, in television

segment, all terrestrial broadcasting rights

continue to be with the incumbent

Doordarshan.

4. Content regulation

A long-standing debate continues amongst

the industry members on regulation of

content. Some of the issues that need to be

addressed in this sphere include:

Should there be a content regulator orshould the industry be allowed self-

regulation under a broad framework?

If there needs to be one, should the

content regulator be independent of the

carriage regulator?

Should the content regulations be

consistent across all delivery mediums such

as films, television, radio and print or

different sets of regulation should be

evolved for each medium? What should be the working mechanisms

of a content regulation in terms of

enforcement, penalties for default from

prescribed guidelines etc.?

5. Price regulation in the television industry

As per a notification issued by the TRAI,

broadcast media pricing has been frozen for

over a year now. Though TRAI did allow a 7

percent inflationary adjustment late in 2004,

the inflationary adjustment of 4 percent in2005 is under a legal dispute. Such price

controls limit a broadcasters ability to shape

their business model, based on market

demand and the competitive environment.

Since the market has so far been efficiently

regulated through competition, price

regulation thus becomes a deterrent.


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6. Lack of empowered regulators

At present, the government has appointed an

independent regulator TRAI for only

television and radio. Here too, the role of the

regulator has been restricted to providing

recommendations on segment issues to the

government, as a result the government has

still not acted upon several

recommendations by the regulator. Some of

the key recommendations include issues

relating to broadcasting and distribution of

TV channels of which addressability in

distribution forms a significant part

impacting the largest segment of television.

Other pending recommendations include

digitalisation of cable TV, privatisation of

terrestrial broadcasting, licensing of satelliteradio etc.

7. Tax treatment of foreign broadcasting

companies

The tax treatment of foreign companies in

the broadcasting sector in India is emerging

as the single most important policy issue

deterring foreign investment in the country.

A major issue pertains to taxation of satellite

segment usage fee paid by broadcasters toforeign satellite companies. Tax assessing

officers have attempted to treat such a

payment as royalty income and tax the same

on source rule basis. Such satellite companies

do not have any office or presence in India.

Another issue relates to foreign telecasting

companies. These foreign telecasting

companies do not have any office, business

presence or operations in India. Tax assessing

officers have been arguing that foreigntelecasting companies must have a

permanent establishment (PE) in India on

account of their agents selling air-time space

to India advertisers.

While various bilateral conventions for the

avoidance of double taxation do offer a

process for re-mediation of double-taxation

issues, cases in past have dragged on for five

years or more. The dramatic growth in the

number of foreign broadcasting companies

involved in double-taxation dispute cases in

India is becoming well-known, and unless it is

dealt with soon, it could become a major

impediment to the Indian governments

attempt to attract new investors.

CONCLUSION

The Indian entertainment and media industry

today has everything going for it - be it

regulations that allow foreign investment,

the impetus from the economy, the digital

lifestyle and spending habits of the

consumers and the opportunities thrown

open by the advancements in technology. Allit has to do is to cash in on the growth

potential and the opportunities. The

government, on its part, needs to play a

more active role in sorting out policy-related

impediments to growth. The industry needs

to fight all roadblocks- such as piracy- in a

concerted manner, while churning out high-

quality, world class end products. The

entertainment and media industry has all

that it takes to be a star performer of theIndian economy.

Source:

www.indiainbusiness.nic.in(Ministry of External Affairs, GOI)

www.ibef.com


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VOICE OF TIMSR

GOLD: TRUE AND HONEST

MONEY?Kushagra LadhaPGDM - Finance

THE PROBLEM OF FLOATING CURRENCIES

Currencies in todays global monetary system

ebb and flow like anchorless buoys floating

on a sea of surging currents. Some currencies

rise in value while others fall in valueonly to

then rise and fall in value again. Meanwhile,

as currencies change in relationship to each

other, prices of goods and services, as

measured by each individual currency,

change too.

This disconcerting condition requires prudent

money managers to continually buy and sell

currencies and commodities just to protect

the principle value of their capital.

Speculators, recognizing this ever changing

dynamic, also undertake the buying and

selling of currencies and commodities; onlythey leverage their trades to exploit these

price differentials for profits. All this activity

further perpetuates global monetary

instability.

Yet, the general population and in particular

those living on fixed incomes or paycheck to

paychecks are powerless to the effects of

changing prices that results from ever

changing currency values. For such

individuals, the problem of floating

currencies concerns every aspect of their

lives. To understand how this problem came

to be and most importantly what you can do

about it, it is better to start with the

seemingly simple question: what is money?

WHAT IS MONEY?

If you were to ask someone 100 years ago:

what is money? They would reply: Gold

If you were to ask the same question some

200 or even 1000 years ago you would get

the same

Reply: Gold

If you ask someone the same question today:

What is money? The people would generally

look perplexed. The responses offered would

vary widely. One person would say: Dollars,

other might say: Euro, another would say: a

promissory note and still another might say:

available credit or purchasing power. Are

they right? Let us explore.

We know that money is an essential part of

human civilization. It facilitates commerce

between individuals and businesses, and

trade between nations. It advances markets

beyond barter and serves as a means for the

accumulation of capital. William Stanley

Jevons, in 1875, stated that money has four

functions it is a:

Medium of exchange Common measure of value Store of value Standard of value

Today money falls short in its function as

store of value. If you consider just the dollar

it has lost 95% of its value in less than 100

years and many other currencies that were

around 100 years ago, no longer exist. In

other words, they became worthless.

But then the concept of money has been

distorted over the last hundred years too.

Rather than cash in hand, it is now cash flow.

Rather than available savings, it is now

available credit. Rather than pay as you go, it

is buying now pay later. And rather than


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wealth accumulation, it is ability to service

debt. In effect, money has lost its integrity. It

is no longer true and honest.

WHY TODAYS MONEY IS NOT TRUE AND

HONEST?

Todays money is not true and honest

because to does not provide a firm baseline

for measuring the price of goods and

services.

When a carpenter measures the length of a

cabinet as being three feet, he is certain that

the length measured as three feet will always

be three feet. To the contrary, when a

shopkeeper prices a 24-ounce loaf of bread

at $3.29, he is not certain that the value ofone loaf of bread will always be equal to

$3.29. In fact, in 1971 he would have valued

three 20-ounce loaves of bread equal to

$0.89.

Has the usefulness of a loaf of bread, on a

per ounce basis, really changed 826 percent?

Certainly not. Rather, the baseline used to

measure the value of a loaf of bread haschanged. It is true that prices of individual

goods and services will fluctuate to account

for natural changes in supply and demand,

but when money is anchored to a stable

baseline, overall prices will by and large be

stable.

Money, as a store of wealth, is also a store of

an individuals time and industriousness.

When a person goes to work to earn money

they are trading their time for that money.Would not they rather use that time to be

with their family or to engage in hobbies or

recreation?

Indeed yes. They have made the decision to

earn money today, to provide greater

security and to possibly store up some of that

time for use at a later date. When money is

not true and honest, when it loses value over

time, it not only robs a person of their

savings, it robs them of their time and, in

effect, their life. Also, because it is not true

and honest, it spoils the notion of an honest

days work for an honest days pay.

WHAT IS TRUE AND HONEST MONEY?

For money to be true and honest it must be a

store of value. In other words, it must retain

its value overtime. It must not rely on

governments to fix its price or to determine

its circulation quantity. It must not be

borrowed into existence or created out of

thin air. And it must exact discipline from

public, governments and bankers.

Governments generally abhor true and

honest money because it demands true and

honest limits to their size and power. True

and honest money does not allow for

massive deficits or the long term accrual of

debt. Because government spending on lofty

programs and wars is primarily financed

through debt, true and honest money

imposes strict limitations on governmentscapacity to pursue such endeavors. With true

and honest money governments must be

funded through tax revenues and trade

tariffs; government overreach of these, to

their disdain, are readily detected and

rectified by the populace.

THE END OF TRUE AND HONEST MONEY

It was the desire to increase in size and

control that led the U.S. Government, and allgovernments that followed, to deceive their

citizens and terminate the use of true and

honest money. The foundation was laid in

the U.S. when the Federal Reserve Act was

enacted by congress in 1913. This created the

central bank for the U.S. Government the

U.S. Federal Reserve. And once the U.S.


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Federal Reserve was in place, the U.S.

Government could fiddle with the supply of

money to meet its ends. But it wasnt until

nearly 60 years later that the final trace of

true and honest money was ultimately

eradicated. A steady process of deception

would have to first take first place to subdue

the publics understanding of money.

First, in 1933, at the height of the Great

Depression, the U.S. Government, under the

Gold Confiscation Act, confiscated gold

money from its citizens and replaced it with

paper Federal Reserve Notes. It became

illegal for individuals to own gold, except for

small quantities that coin collectors and

dental practitioners could hold. This alone

eliminated the publics capacity to holdgovernment inflation of the money supply in

check; they could no longer redeem inflated

paper money for gold.

Then following World War II the United

States had the greatest market share of the

world economy and world power. And,

because of this, they were able to establish

the post war monetary system of the

western world on their terms. The BrettonWoods system of 1944, created a pseudo

gold standard where the dollar was backed

by gold, at $35 per ounce, and member

countries pegged their currencies to the

dollar.

Nonetheless, the United States progressively

increased its money supply in the years

following the Bretton Woods system. And

while member countries were allowed to

redeem the dollars they acquired throughtrade for gold bullion by the United States, it

was unwelcomed by the dominant world

power. Rather, the United States persuaded

these member countries to inflate their

money supplies to maintain their respectively

pegged values.

By the late 1960s, with the seeds of the

Great Society and Vietnam War spending

sown, expanding world money supplies

bloomed wild price inflation. And then

France, to the aversion of the United States,

no longer played their part in the charade;

rather they began redeeming their dollar

reserves for gold. In 1971, President Richard

M. Nixon had seen enough of his countrys

gold disappear. Seizing the unique and

exceptional opportunity he had, Nixon

defaulted on the Bretton Woods system, and

stiffed the world unconditionally. Dollars

were no longer redeemable for gold; the

worlds currencies became wholly the fiat

paper money of governments. Since then

currencies have floated like anchorless

buoys, rising and falling on a sea of surgingcurrents. And the imbalances that have

resulted in international trade are

astounding.

HOW THIS CREATES INSTABILITY

Exports from countries with weaker

currencies dominate trade as their goods are

less expensive when priced in countries with

stronger currencies. Services also migrate tocountries with weaker currencies in the

phenomenon known as globalization.

Countries with strong currencies, in turn,

import more goods than they export and run

trade deficit. But as a trade deficit expands,

potential instability also expands, as rapid

currency devaluation could occur should

surplus countries panic and dump the excess

reserves they have accumulated from deficit

countries. This arrangement of symbiotic

disharmony, which underpins the globalmonetary system, is incredible. But this is not

all.

Countries are now unofficially engaged in

competitive currency devaluation. In this

bizarre global monetary system, countries

are fighting for a competitive advantage by


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weakening their currency in world markets.

Thus, while currencies fluctuate in

relationship to each other, prices of

commodities largely increase, as measured

by each individual currency. In other words,

no currency will protect you from the loss of

purchasing power; how much and how fast

will your money lose value is the real

concern.

We are currently in the countdown to the

launch of mass inflation- hyper inflation-

where priced increase rapidly as the currency

losses its value. At this moment consumer

prices are poised to rocket into orbit.

A WINDOW OF OPPORTUNITY

At this moment, brought about by years of

money distortion, the world is peering

through a window of opportunity where

adjustment and reconciliation can be

realized. How society reconstructs its global

monetary system is radically important to all

individuals, of all countries, of the world. And

true and honest money, money that is free of

governments and that retains its value over

time- is the sole hope for individuals thatdesire to prosper in a free and just world.

Gold has offered that hope before and it is

back again.

MANAGEMENT PREMIER LEAGUE

(MPL)- SEASON 2

MBA is not about bookish knowledge and

boring long lectures. It is about experiencing

the practical scenarios being faced by the

corporate and their working. With this

thought in mind, the second year Marketing

students, referred as the Marketing Yodhas,

present to all the students of TIMSR -

Marketing Premier League (MPL)- Season 2

The event is to test the skills of our future

leaders. All the skills of the participant would

be tested. Organised on the 14th of

September, the event would be a

Management Extravaganza.

The theme of the event is Innovation. Here

the participant teams would be Launching a

Consumer Durable Brand in 2010. And that

is not all, they have to promote its innovative

usage ways..

For promoting their brands, the teams can

use various spots available in the college

campus. These spots have been allotted to

them through a well organized Auction. The

teams would be also preparing a 30 second

Video Ad for their Brands.

The teams would also use Celebrities to

endorse their products. The celebrities would

not be a Shahrukh or Salman Khan, rather

would be from:

The Faculty Team

The Admin Team

The Non Teaching Staff

On the final day of the event, teams have to

conduct a Street Rally in the college campus

to promote their brand and will also have to

present their Brand Launch Strategies used in

front of an extremely experienced panelist.

The main idea behind organizing the event is

to equip the future leaders with the

necessary skills to cope up with the emerging

demands of the corporate.

SAB BOLO

SAARE BOLO

SABHI BOLO EK SAATH

MP MPL MP MPL


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Presented by:

Marketing Yoddhas

Taher S. Jawadwala

Student Coordinator

INDUSTRY SNIPPETS

Banking services for every village by 2011

A sub-committee of the District Consultative

Committee (DCC) of banks under the Lead

Bank Scheme would draft a road map to offer

banking services to every village with a

population of over 2,000, at least once a

week on a regular basis by March 2011 has

been suggested by a committee set up by theReserve Bank of India (RBI). In addition, it

recommended that the lead district manager

of banks may summon a quarterly public

meeting at different locations in the district

where the RBI and banks having presence in

the area, and other stakeholders are present

to generate awareness of the various banking

policies and regulations relating to the

common man.

World Bank boost for PSU banksThe Finance Ministry is in the finishing stage

of getting the World Banks approval on its

ambitious $3 billion recapitalization plan for

public sector banks who are in for a huge

fiscal dose by injecting over Rs 15000 crores

into them. However, Out of a total Rs 15000

crores, the first tranche of Rs 10000 crores is

likely to be given to top public sector banks

only in March 2010, as the Finance Ministry

will evaluate the 3rd quarter results of thesebanks before deciding how much

capitalization each bank requires while the

remaining Rs 5000 crores will be disbursed by

March 2011.

Bharti, MTN apprise FM of deal structure

Bharti Airtel and South African MTN are said

to have appraised the Finance Ministry of

their proposed $23-billion deal structure to

the end of next month recently. Moreover,

Bharti and MTN are the largest telcos in India

and Africa and have been engaged in

exclusive talks since June 24 to form the

worlds third-largest communications firm.

However, the deal presents a complex

composition in which both firms would pay

cash and equity for stakes in each other as

per which Bharti Airtel will get 49% in MTN

and the South African telco and its

shareholders will get 36% economic interest

in Bharti.

Haryana to mull giving nod to DLFs Rs 1,703crores project

For developing an Rs 1,703-crore recreation

and leisure project in Gurgaon, the Haryana

government will consider giving approval to

DLF which is the qualified bidder for the

leisure project in Gurgaon to the state

government for its consent. It was the only

bidder for the 350 acres project after the bids

of other parties Unitech and Malaysian based

Consortium comprising Country Heights,Country Club of South Africa and Rajarhat IT

Park did not qualify on technical grounds.

However, the qualified bidder DLF has

quoted its bid at Rs 12,000 per square meter

against the reserve price of Rs 11,978 per

square meter for the project.

Indias rain deficit could rise to 18%:

Goldman

Goldman Sachs stated that from the current

8% rainfall deficit estimated in India, thedeficit could increase to 18% during the July-

September period according to the India

Meteorological Department. However, this in

turn would see a decline in the agricultural

growth to negative 2% year-on year, down

from the previous estimate of 1.4%.

Additionally, the monsoon is an integral part


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of the agricultural growth in India, since 60%

of cropland is not irrigated and therefore it

relies mainly on the rainfall.

Wipro enters into a Strategic Partnership

with BP

Wipro Technologies, the global IT services

business of Wipro Limited announced that it

has entered into a five year agreement with

BP to provide IT Applications Development

and Maintenance (ADAM) services for BPs

Fuels Value Chain and Corporate businesses

globally.

Mahindra Satyam gets nearly 30 contracts

After being taken over by Tech Mahindra in

April, Mahindra Satyam or formerly known as

Satyam Computer Services has announcedthat it has bagged nearly30 IT contracts

mostly in the $1 million-$20 million range

from both new and existing customers. The

new deals are mostly said to have come from

Asia Pacific and Europe while they are in the

areas of outsourcing related to enterprise

applications, business intelligence and

engineering services.

Government says RBI to continue easy

money policyIn order to help the economic revival Indian

government said that the Reserve bank of

India would carry on with its easy money

policy. Additionally, the RBI would keep the

accommodative monetary position until the

economy shows strong signs of

improvement. Moreover, the Indian

monetary authority would make certain a

monetary and interest rate regime that is

consistent with price and financial stabilityand would be supportive of taking the

economy back to the high growth trail. In

addition, key rates including the repo and

reverse repo rates along with the cash

reserve ratio (CRR) at 4.75%, 3.25% and 5%

respectively was left unchanged by the RBI in

its first quarterly review of the monetary

policy.

Relaunch of Interest Rate Futures

India reintroduced trading in interest-rate

futures after a lapse of more than six years,

in a bid to deepen its financial markets and

offer a hedging tool to small companies and

retail investors.

The National Stock Exchange, the country's

largest equity trading exchange, was the first

to begin trading, with more than 10,000

contracts exchanging hands in less than two

hours. The Bombay Stock Exchange is set to

start trading in about eight to 10 weeks.

Interest-rate futures are the first major

product to be introduced in India after the

introduction of currency futures in August2008. Currency futures have steadily picked

up in volume, with the combined daily

turnover across exchanges totaling more

than $2 billion.

KNOWLEDGE BANK

UNDERSTANDING THE

MECHANICS OF

COMMODITY FUTURES

The following is a discussion that explores

the commodity future market: what are they

and how they work and the need for

innovative technology in the ever changing

commodity trading industry. It gives a briefunderstanding of the opportunities and risks

involved in future trading. High volatility and

rapidly escalating prices present a variety of

challenges in todays trading organization.


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INTRODUCTION

Many people till date are under the

impression that commodity markets are very

complex and difficult to understand. But,

actually they are not. There are several basic

facts that one must know and once these are

understood one will not have much difficulty

in understanding the nature of future market

and how they function. Firstly, a commodity

market, in simple terms in nothing more or

less than a public market place where

commodities are contracted for purchase

and sale at an agreed price for delivery at a

specific date. These purchase and sales,

which are made through a broker who is a

member of an organized exchange, are made

under the terms and conditions of astandardized future contract.

The primary distinction between a futures

market and a market in which actual

commodities are bought and sold, either for

immediate or later delivery, is that in the

futures market one deals in standardized

contractual agreements only. These

agreements (more formally called future

contracts) provide for delivery of a specifiedamount of a particular commodity during a

specified future month, but involve no

immediate transfer of ownership of the

commodity involved.

In other words, one can buy and sell

commodities in a futures market regardless

of whether or not one has, or owns, the

particular commodity involved. When one

deals in futures one need not be concerned

about having to receive delivery (for thebuyer) or having to make delivery (for the

seller) of the actual commodity, providing of

course that one does not buy or sell a future

during its delivery month. One may at any

time cancel out a previous sale by an equal

offsetting purchase or a previous purchase

by an equal offsetting sale. If done prior to

the delivery month the trades cancel out and

thus there is no receipt or delivery of the

commodity. Actually, only a very small

percentage, usually less than two percent, of

the total futures contracts that are entered

into are ever settled through deliveries. For

the most part they are cancelled out prior to

the delivery month in the manner just

described.

DETERMINING THE PRICES

A common conception is that, the

commodity exchange, determine or establish

the prices at which commodity futures are

bought and sold. This conception is totally

wrong. Prices are determined solely by thesupply and demand conditions. If there are

more buyers than there are sellers, prices

will be forced up. If there are more sellers

than buyers, prices will be forced down.

Buy and sell orders, which originate from all

sources and are channeled to the exchange

trading floor for execution, are actually what

determine prices. These orders to buy and

sell are translated into actual purchases andsales on the exchange trading floor, and

according to regulation this must be done by

public outcry across the trading ring or pit

and not by private negotiation. The prices at

which transactions are made are recorded

and immediately released for distribution

over a vast telecommunications network.

Probably the best way to visualize how

purchases and sales are made on the floor of

a commodity exchange is to think in terms of

what happens at a public auction. Theprinciple is the same, except in the futures

market a two-way auction is continuously

going on during trading hours. This two-way

auction is made possible because of the

standardized futures contract, which

requires no description of what is being

offered at the time of sale. Also, the two-


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way auction is made practicable because the

inflow of both buying and selling orders to

the exchange floor is normally in sufficient

volume to make buying and selling of equal

importance. In a public auction the accent is

on selling.

The purpose of a commodity exchange is to

provide an organized marketplace in which

members can freely buy and sell various

commodities in which they have an interest.

The exchange itself does not operate for

profit. It merely provides the facilities and

ground rules for its members to trade in

commodity futures and for non-members

also to trade by dealing through a member

broker and paying a brokerage commission.

HEDGING IN FUTURES

The justification of future trading is that it

provides the means for those who produce

or deal in cash commodities to hedge, or

insure, against unpredictable price changes.

There are many kinds of hedges, and a few

examples can adequately explain the

principles of hedging.

Take the case of a firm that is in the business

of storing and merchandising wheat. By early

June, just ahead of the new crop harvest, the

firms storage bins will be relatively empty.

As the new crop becomes available in June,

July and August, these bins will again be

filled and the wheat will remain in storage

throughout the season until it is sold, lot-by-

lot to those needing it. During the crop

movement when the firms inventory of cashwheat is being replenished, these cash

wheat purchases will be hedged by selling an

equivalent amount of futures short. Then as

the cash wheat is sold the hedges will be

removed by covering the future that was

previously sold short. In this manner the

storage firms inventory of cash wheat will

be constantly hedged, avoiding the risk of a

possible price decline one that could more

than wipe out the storage and

merchandising profits necessary for the firm

to remain in business.

In the above mentioned example, if the

storage firms buy cash wheat at $4 a bushel

and hedges this purchase with an equivalent

sale of December wheat at $4.05, a 10 cent

break in prices between the time the hedge

is placed and the time it is taken off would

result in a 10 cent loss on the cash wheat

and a 10-cent loss on the futures trade. In

the event of a 10 cent advance there would

be a 10 cent profit on the cash and a 10 cent

loss on the futures trade. In any case the

firm would be protected against lossesresulting from price fluctuations, due to

offsetting profits and losses, unless of course

cash and futures prices should fail to

advance or decline by the same amount.

Usually, however the price relationship is

sufficiently close to make hedging a

relatively safe and practical undertaking.

In connection with hedging, it must be

remembered that there are unavoidablerisks when large stocks of a commodity

subject to price fluctuation must be owned

and stored for extended prices. One must

assume these risks. Usually those in the

business of storing, merchandising and

processing cash commodities in large volume

are not in the position to assume them. They

are in a competitive business dependent on

relatively narrow profit margins, profit

margins that can be wiped out by

unpredictable price changes. These risks ofprice fluctuation cannot be eliminated, but

they can be transferred to other by means of

a future market hedge.

SPECULATION AND ITS FUNCTIONS

The primary function of a commodity trader

or a speculator is to assume the risks that


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are hedged in the future markets. To a

certain extent these hedges offset one

another, but for the most part speculative

traders carry the hedging load.

Although speculation in commodity futures

is sometimes referred to as gambling, this is

an inaccurate reference. The generally

accepted difference between gambling and

speculation is that in gambling new risks are

created which in no way contribute to the

general economic good, whereas in

speculation there is an assumption of risks

that exist and that are a necessary part of

the economy. Commodity trading falls into

the latter category. Everyone who trades in

commodities become a party to an

enforceable, legal contract provided fordelivery of a cash commodity. Whether a

commodity is finally delivered, or whether a

future contract is subsequently cancelled by

an offsetting purchase or sale, is of no real

consequence. The future contract is a

legitimate contract tied to an actual

commodity and those who trade in these

contracts perform the economic function of

establishing a market price for the

commodity.

While speculative traders assume the risks

that are passed on in the form of hedges,

this does not mean that traders have no

choice as to the risks they assume or that

all of the risks passed on are bad risks. The

commodity trader has complete freedom of

choice and at no time is there any reason to

assume a risk that he doesnt think is a good

one. Ones skill in selecting good risks and

avoiding poor risks is what determine onessuccess or failure as a commodity trader.

CONCLUSION

Commodity markets are not as commonly

believed. In many ways, they operate just as

public market places or auctions. For

instance, prices of commodities on an

exchange are determined solely by supply

and demand conditions, which is no

different from the way in which prices are

determined in more familiar markets. In

addition, commodity margins are analogous

to the down payment one generally makes in

connection with a real estate transaction.

Once certain facts are understood, one can

see that commodity markets are an integral

part of a well-run economy.

INTEREST RATE FUTURES

Interest Rate Futures means a standardized

interest rate derivative contract traded on a

recognized stock exchange to buy or sell a

notional security or any other interestbearing instrument or an index of such

instruments or interest rates at a specified

future date, at a price determined at the time

of the contract. Interest Rate Futures market

means the market in which Interest Rate

Futures are traded.

Interest Rate Futures are permitted on 10-

year notional coupon bearing Government of

India security or any other product, as may

be approved by the Reserve Bank from time

to time. Persons resident in India may

purchase or sell Interest Rate Futures to

hedge an exposure to interest rate risk or

otherwise. Interest rate futures gives an

opportunity to institutions that are placed

structurally on the long side, eg, banks and

insurance companies, to hedge their

exposure by shorting rates using IRF. Primary

Dealers, who play an important role in

intermediating the huge government

borrowing, are always exposed to interest

rate risk as they underwrite government

bond auctions and run a devolvement risk,

and IRFs are useful in hedging these risks.


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23

Traders and speculators also get into the fray

as they can take directional calls with ease

and with leverage. Arbitrageurs will get a

new revenue stream as they can exploit the

potential mispricing between cash and

futures market. Corporate treasuries can use

IRF to lock in to their future borrowing rates

and thus reduce the cost of liabilities. Lastly,

households can hedge their interest rate

exposures inherent in their savings and

borrowings, like home loans, through the

futures route.

Features of Interest Rate Futures

Standardized Interest Rate Futures contract

shall have the following features:

a. The contract shall be on 10-year notionalcoupon bearing Government of India

security.

b. The notional coupon shall be 7% perannum with semi-annual compounding.

The National Stock Exchange has commenced

live trading in interest rate futures contract

from August 31. The SEBI-RBI TechnicalStanding Committee on interest rate futures,

which had submitted its report in June, has

fixed a 10-year, 7% notional coupon bearing

a government security as the underlying

instrument.

The deliverable grade instruments will be

government securities maturing at 7.5 years,

but not more than 15 years from first day of

the delivery month, which has a minimum

total outstanding of Rs 10,000 crore. The

technical committee has identified 19

government bonds that satisfy the above

criteria for the purpose of delivery. The

product will have four fixed-quarterly

contracts for the entire year ending March,

June, September and December. NSE will

commence trade on interest rate futures

with a maximum 12-month expiration cycle

having quarterly contracts available for

trading. However, to begin with, the

exchange will make available December 2009

and March 2010 contracts for trading.

The permitted lot size for the futures

contract is Rs 2 lakh face value of

government securities equivalent to 2,000

units. Participants will be allowed to place a

single order with the contract size not

exceeding 500 lots. However, in case the

order size exceeds 500 lots, the members will

have to confirm to the exchange that there is

no inadvertent error and the order entry is

genuine. On such confirmation the exchange

may approve such orders, stated NSE in a

circular issued on Tuesday.

The contract will be available for trading

from Monday to Friday from 9 am to 5 pm.

The members registered with Sebi for trading

in currency or equity derivative segment shall

be allowed to trade in interest rate

derivatives. This will be the first exchange

traded financial derivative contracts in India

that would be physically settled. NSE has

already started conducting test market since

August 24 to make trading members familiar

with the new product, besides conducting

road shows and seminars across the country.

The seller who wants to initiate delivery will

have to intimate the stock exchange two

business days prior to the actual delivery

date.

Compiled by Nisha Desai

PGDM - Finance


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24

VISIONARIES

PRAHLAD KAKKAR (born March 24, 1950) is a

leading ad film director in India, most known

as the creator of the famous Pepsi TVcommercial with Amitabh Bachchan and

Sachin Tendulkar, he is also the founder-

director of Director for Genesis Film

Production, one of Indias leading production

houses, established in 1977.

He is known for his candid and outspoken

nature. An avid scuba diver, in 1995 he set up

'Lacadives', a scuba-diving school, along with

his wife Mitali Kakkar at Kadmat Island, in

collaboration of the Govt. of Lakshadweep,

and in 2000, he became a CMAS 2 Star Scuba

Diving Instructor. Plus he also runs a coffee

shop, and Casa Amore, a wine bar and

restaurant, set up in Mumbai in 2001

Prahlad Kakkar was born in Mumbai. His

father was a colonel in Pakistan and mother

half Burmese and half Marathi, who settled

in Gurgaon

Education

1966: Graduated from Sainik SchoolKunjpura, Karnal

1970: Graduated withEconomics(Honors), Fergusson College,

Pune

2000: CMAS 2 Star Scuba DivingInstructor

Profile

1971: Joined advertising as an AccountsExecutive in ASP, Delhi for one year and

was subsequently transferred to the

Bombay office.

1977: Established Genesis FilmProduction.

1972: Joined renowned FeatureFilmmaker Shyam Benegal, as an Asst.

Director on Ankur, Manthan, Bhumika

(Award winning Hindi Feature Film).

1999: Was one of the few IndianDirectors to direct international

commercials for clients like UniLevers and

Pepsico in Burma, Vietnam, Pakistan,

Bangladesh and the Asia Pacific Region.

Also started the specialty Tea House in

Bombay, the first of its kind in the

country.2000: Received the prestigious

Lifetime Achievement Award from IAAFA

for his contribution to Advertising and

Film Art.

2003: Genesis was voted the topproduction house by Brand Equity in a

nationwide survey of agencies. 2004: Continues as Director for Genesis

Film Production, one of Indias leading

production houses, established in 1977.

2005: Honour received from theAdvertising Club at the 38th ABBY Awards

Bombay, the Distinctive Recognition

Award.

Social Activities

1994: Co-Founder Member of ReefwatchMarine Conservation an NGO involved in

Marine conservation and awareness,

education, scientific research and data

collection.

1995: Was President of IAAFA, theAcademy of Excellence for recognizing

and promoting technical excellence in the

field of Advertising Films in India for 5

years.

Since 1994: Has been a highly coveted

speaker for forums on Media and Films and

for various TV channels like NDTV, STAR TV,

CNBC. Has also been guest lecturer in many

esteemed Film and Mass Communication

Institutes of the country like, FTII, Symbiosis,

Sophia Polytechnic, XIC, NID.


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25

FOOD FOR THOUGHTFOOD FOR THOUGHTFOOD FOR THOUGHTFOOD FOR THOUGHT

IS STOCK MARKET

GAMBLING?

Many people shy away from the stock

market thinking it is a lot like gambling and

some even think it is gambling. The vagaries

of the stock market in the form of sudden

spurts and dizzying falls only add fuel to this

thought.

Adding fuel to the aversion is the past pain

from few experiments -- many in their 40s

are still not entering the market because they

were hurt by the Harshad Mehta scandal!

Short-term trading versus Investing

The goals for any investor in the stock market

change very dramatically based on whether

he is a short-term player or a long-term one.In the short term, the market has to be

perform the role of an income generator for

the trader/investor. In the long term, it has

to give capital appreciation for the investor.

The first thing to remember is that when we

buy a stock (a share in any company), we get

a part ownership in the company. We have a

right to a part of the assets and a part of the

profits that the company generates.

The price of the share will be reflected by the

current and future profits of the company

and also by the various forces that affect the

business of the company. There are several

macro-level factors such as the political,

social, and international environment too

that affect the business and hence the share

prices.

Shares are best for the long-term investor

To generate income out of shares is possible

in two ways:

Wait for the dividend. This income is going to

be quite low compared to the market price of

the share. Typical Indian dividend yield

(dividend per share/market price of share) is

in the range of 1% to 2%. Not quite

attractive.

The other way is to generate trading gains.

This is highly risk laden as inherently share

prices follow randomness. The Random WalkTheory says that the events in the past do

not affect the price of the shares in the

future. Hence, it is not possible to predict the

future price of shares. This means that to

generate income by trading one has to

speculate. That is gambling.

In the long run (three years and above),

however, the scenario is different. There is

sufficient control for the management of thecompany to steer it to success or failure. And

this will be reflected in the stock market as

rise or fall in the share prices.

As an investor in the company, we too get

signs on whether to hold on to the share or

to let it go. In the short run companies can

fool its investors by changing some numbers

and by making good presentations but in the

long run to compete and to grow, they have

to deliver value.

Returns in the long run

The stock market remains the undisputed

and consistent leader for returns in the long

run. In spite of the economy slowing down in

India and going into a depression in many


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26

parts of the world, the historical Sensex

returns are still very attractive.

The Sensex was formed as an index to reflect

the stock market movements in the year

1979. The value at that time started at 100.

On August 14, 2009 this figure stood at

15,400. This translates to a compounded

annual growth rate of an amazing but true

18.28%.

We cannot see any other asset class giving

such returns over the long term. Is there a

reason why stocks perform so well in the

long run? Yes, there are.

As business people, the promoters of the

companies have an inherent reason forworking towards the growth of their

companies. Also businesses need time to

grow and flourish.

As businesses compete with each other

during their growth, they come out with

creative, efficient and effective solutions to

our needs and problems. This creates value

for us as consumers and as investors. The

country itself grows because of this.

Case in proof

A case in proof is a Bangalore family that was

surprised by the value of shares that their

late father had accumulated. He had bought

shares of Hindustan Level Limited (now

Hindustan Unilever Ltd) consistently for over

20 years from whatever savings he could

scrap from his earnings as an executive in a

private company.

At one point in time HLL was the largest

company in India and he loved the company.

Post his retirement he continued to hold the

shares in the material form itself. After he

passed away, the family found that he had

over Rs 1 crore (Rs 10 million) worth of HLL

shares!

Stock market is not a gambling arena

The stock market is a tool for investing and

wealth-creation. As discussed above it is a

way to create wealth in the long term. It

should not be mixed with gambling nor

should it be used for that purpose.

Like gambling, it might be thrilling in the

short term but too much indulgence in thrill

at the expense of strong fundamentals could

lead to major losses.

Ironically, the media and the people around

us always highlight the extremities ratherthan focus on the fundamentals. For

example, a person losing Rs 500,000 in one

day is given more importance than someone

earning the same amount in three years. This

has been the major cause of creating a

negative picture of the stock markets.

We need to come out this imagery and look

at the broader and long-term picture. Long-

term investors can never lose money in thestock market if the fundamentals are right!

Source: www.rediff.com


27/29

27

KITKAT TIMESQuiz:

1. Which country ranks first in terms ofIndias Foreign Trade?

USA JAPAN UK

1. By which name, do we know themascot for McDonalds all over the

globe?

Ronnie McDonald Ronald McDonald Rocky McDonald

2. What is Beta? Measurement of a security or

portfolio to the market as a

whole

Measurement of risk in thesecurity

Measurement of percentagestocks in a portfolio

3. What is SML? (IN STOCK EXCHANGE) Security measurement line Security market line Safe margin level

4. Coupon payments in bonds arediscounted using?

Coupon rate Yield to maturity

Face Value5. In an option

Option writer has anobligation and option buyer

has the right

Option writer has the rightand option buyer has an

obligation

Put means buy and call meanssell

6. Quick Ratio is also known as Liquidity ratio Current ratio Acid test ratio

7. Derivatives first emerged as tool for Speculation Arbitraging Hedging

8. With which bank did the Baristacoffee chain tie up to open Bancafe,

the cafes inside banks?

CITI Bank HDFC Bank ABN Amro

9. Name the company that NarayanaMurthy quit to start Infosys

TCS Patni Computer System Reliance Industries


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28

Crossword:

1 2

3 4

56

7

9

Across

1 hired by corporations to represent them to

the investing public. typically _____ in the

sale of new securities to the public by

underwriting the issue.

5 11 countries in 1999 replaced their currency

with this new universal currency. The idea

was to encourage trade across national

boundaries, name the currency?

7 It is also called closing stock of goods.

9 pooling loans into _____ securities backed

by those loans, which can then be traded like

any other security.

Down

2 attempts to tighten the rules of corporate

governance. It requires corps to have more

_____ directors (not mgrs), CFO must vouch

for account statements, oversite board to

oversee auditing, auditors may only audit co.

not other services

3 an ownership share in the corporation;

_____ owners are not promised a certain

payment

4 Recently Tata Motors And Suzlon Energy

Issued to raise money from USA

6 True or False T-bill returns are effective risk

free?

SOLUTIONS OF AUGUST ISSUE

Quiz:

1. TCS2. AV BIRLA GROUP3. 19454. STEPHEN COVEY5. LUCKY GOLDSTAR6. VIJAY MALLYA7. TO PROPERTY8. 1,50,0009. Lagan Jute Machinery Company Ltd10. NIKE

Crossword:

ACROSS1 STATEMENT

4 CONSIGNER

5 AMOUNT

DOWN

2 ALLOWS

3 WRITING

The readers can mail us the solution of Kitkat

times at [email protected] and winnersname will be published in the next edition of

Financial Edge.

*subject to terms & conditions.


29/29

CONTACT DETAILS

Do send your suggestions/feedback to us at

[email protected]

OR

Student Editors:

Faculties in charge of Financial Edge

Nishant Jasani PG F 9323166287

Kushal Gada PG F 9773376545

Noman Agashiwala PG F 9225953253

Pankti Shah PG F 9324715411

Kushagra Ladha PG -- F 9833384226

Prof. Jyoti Nair HoD Finance

Prof. Akshay Damani Assistant Professor

Prof. S. Ganga Sr. Lecturer

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