NEWSLETTER - IIM RANCHI FINANCE CLUB

01st OCTOBER 15th OCTOBER

Newsletter IIM Ranchi

Finance Club

Volume 3||Issue 4
In this Issue

Global and Indian News

Global
Fed likely to end bond buying, may
signal caution on rate hikes
ECB targets bundled-debt market to
boost economy
China services growth dips to

eight-month low in Sept as orders

sag
Nobel prize in Economics goes to

Jean Tirole for his work on

Regulatory theory
Risks to 'Abenomics' growing,

whether Japan PM raises tax or

not

1) Global and Indian News ...1-3

2) Deals Section .........4

Indian
SEBI bars DLF from
securities market for 3 years

3) Market Watch.5
4) IIMR 20 Weekly Update6
5) FinGyan .7

Narendra Modi puts Budget

team in place, appoints
Raghuram Rajans ally
Arvind Subramanian as
CEA
Four Public Sector Banks
takes steps towards BASEL
III norms as Govt. given
the nod for institutional sale

6) Finsight...8
7) Guess It!.................................9

Last Newsletter's Guess it

Winner

IMF upped its India 2014

growth forecast from 5.4%
to 5.6%
India

China overtook the US as worlds

largest economy on Purchasing
Power Parity terms
Alibaba IPO world's biggest at $25 bn

Inc's
foreign
investment doubles to
$3.02 bn in September

August industrial output

Manjeet Kumar

crawls
on
weak
investments,
consumer
demand

PGDM 2014-16

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

Global News
Fed likely to end bond buying, may signal caution on rate hikes
The Federal Reserve is likely to reassure investors later this month that it won't stand idle if global
turbulence threatens the U.S. economy, but a proposal from one top policymaker to keep on buying bonds looks to
be a bridge too far
A sharp decline in the unemployment rate over the past year had given the U.S. central bank confidence it
could bring its so-called quantitative easing of monetary policy, or QE, to an end at its next meeting on Oct. 28-29,
and it had bolstered the forecast of many officials for a mid-2015 interest rate hike. But mounting signs of
weakness overseas, particularly in euro zone powerhouse Germany, and a related drop in global stock markets
have led investors to question the central bank's resolve. Perhaps most troubling for the Fed, bond market measures
of inflation expectations has turned sharply south.

Nobel prize in Economics goes to Jean Tirole

Jean Tirole is one of the most influential economists of our time. He has made important theoritical
research contributions in a number of areas, but most of all he has clarified how to understand and regulate
industries with a few powerful firms.
Many industries are dominated by a small number of large firms or a single monopoly. Left unregulated,
such markets often produce socially undesirable resultsprices higher than those motivated by costs, or
unproductive firms that survive by blocking the entry of new and more productive ones.
The best regulation or competition policy should therefore be carefully adapted to every industry's specific
conditions. In a series of articles and books, Jean Tirole has presented a general framework for designing such
policies and applied it to a number of industries, ranging from telecommunications to banking. Drawing on these
new insights, governments can better encourage powerful firms to become more productive and, at the same time,
prevent them from harming competitors and customers.

China services growth dips to eight-month low in Sept as orders sag

China's services sector grew at its slowest pace in eight months in September after new orders shrank for
the first time since the 2008 global financial crisis, a survey showed, exposing more weakness in the world's
second-largest economy.
The official non-manufacturing Purchasing Managers' Index (PMI) edged down to 54.0 in September from
54.4 in August, the National Bureau of Statistics said, but still well above the 50-point mark demarcating growth
on the month from a contraction.

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

Indian News
Narendra Modi appoints Raghuram Rajans ally Arvind Subramanian as CEA
Ending two months of uncertainty, U.S.-based economist Arvind Subramanian has been appointed as the
Chief Economic Advisor, on a day of drama in which the finance ministry's top civil servant was sacked. Setting
out his priorities, Subramanian said: "For any economy like India, two big things are macro-economic stability
and, of course, creating the conditions for rapid investments and growth."
Subramanian's new job gives him considerable influence over the next budget, due in February, as
expectations grow for significant reforms to free up the Indian economy.

SEBI bars DLF from securities market for 3 years

The Securities and Exchange Board of India (SEBI) has barred real estate firm DLF, chairman KP Singh
and five key executives from accessing the securities market for a three years for withholding material information
on the companys subsidiaries and legal cases against them in the prospectus it filed for its initial public offering
(IPO) in 2007. The order follows a show-cause notice issued by SEBI in June 2013 to the company and its
executives in which it alleged DLF had failed to disclose related-party transactions.
Among the transactions that drew the attention of the regulator were those in which three of DLFs
subsidiaries, DLF Estate Developers (DEDL), DLF Home Developers (DHDL) and DLF Retail Developers
(DRDL) subscribed to the share capital of three companies Sudipti, Shalika and Felicite to various extents
and, subsequently, in November 2006, sold these stakes to three persons, Madhulika Basak, Niti Saxena and
Padmaja Sanka. These three persons were the wives of Surojit Basak, Joy Saxena and Ramesh Sanka, respectively,
all key management personnel of DLF. However, even after the sale of the entire shareholding in Sudipti, Shalika
and Felicite by the wholly owned subsidiaries of DLF, there was no change in the composition of the board of
directors of these three companies.

Slump is over, time for growth: IMF

The International Monetary Fund (IMF) has said India has recovered from the economic slowdown. It
expects economic growth to increase in the rest of 2014 and in 2015, spurred by a continuing pick-up in exports
and investments that it projects will more than offset the effect of an unfavorable monsoon on agricultural growth.
In the World Economic Outlook released, the IMF projected slightly stronger growth in India in 2014 than its April
Outlook projection from 5.4 per cent to 5.6 per cent and kept its 2015 projection unchanged at 6.4 per cent.
The Outlook cut its world Gross Domestic Product growth to 3.3 per cent in 2014 and 3.8 per cent in 2015.
The forecasts in April were 3.4 per cent for 2014 and 4 per cent in 2015. The Outlook, however, projects that the
uneven global recovery is likely to continue despite setbacks. World growth in the first half of 2014 was less than
the levels the IMF projected in its April Outlook, reflecting a number of negative surprises such as unexpected
weaker GDP growths in both China and the U.S. during January-April and rising geopolitical risks.

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

Deals Section
Major Companies in Action

Amazon and Future Group enter into strategic partnership

Amazon India and Future Group announce a strategic alliance that will leverage the strong
product knowledge, extensive brand portfolio and sourcing base of Future Group, and the
ecommerce platform, customer base and reach Amazon. The partnership is on the Future
Group fashion brands and will subsequently cover all other categories.
"The deal is deeper than just transactional involvement with Amazon. We are exploring
several synergies in data sharing, co-branding, cross promotion and distribution network
sharing through the partnership," confirmed Biyani, who has been quite vocal on whether
ecommerce firms' deep discounting strategy makes business sense, suggesting that offering
cheaper prices wouldn't help in the long run. "We are targeting gross merchandise sales of
Rs 6,000 crore in next 3 years through the alliance," he added.
Amazon's agreement in India also indicates its aggressive intent to spread itself across many
product areas quickly in India especially foods a relatively niche category for online retail,
which it has only recently entered. In July, the US Company announced it would invest $2
billion in India operations that exceeded gross merchandise sales of more than $1 billion
within a year of its launch.

ICICI Bank buys 5.15% stake in Hindustan Motors

Hindustan Motors said ICICI Bank has acquired 1.07 crore shares of the company, totaling
to 5.15 per cent stake.
"ICICI Bank has received 1,07,43,600 equity shares of Hindustan Motors Ltd in lieu of
settlement of Right of Recompense (RoR) payable to the lenders on the exit of HML from
the purview of corporate debt restructuring (CDR)," the filing said.
The board of Hindustan Motors had allotted securities on a preferential basis to the lenders,
banks and financial institutions, in accordance with approval of corporate debt restructuring
process.

Arcelor Mittal and Gerdau complete sale of Gallatin Steel

Arcelor Mittal and Gerdau jointly announced that they have completed the sale of their
respective 50% interests in Gallatin Steel Company ("Gallatin") to Nucor Corporation.
The sale was completed for a total cash consideration of US$770m.
Gallatin is a flat rolled mini-mill located in Gallatin County, Kentucky, USA that melts
scrap, pig iron and hot briquetted iron from various sources, and processes the material to
produce flat rolled steel. Gallatins high quality assets produce a wide range of steels from
low to high carbon grades with an annual capacity of around 1.8 million tons.

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

Market Watch
SENSEX

BSE Top Gainers (Last Week)

26108.53

Company
BHEL

109.19 (0.42%)

226.55

3.40

2,877.10

3.05

HDFC Bank

885.30

3.04

Aurobindo Pharma

953.90

19.13

BSE
Top
Losers (Last Week)
Religare
Enterprises
358.30

16.54

Hero Motocorp
Returns - Sensex
23.32% 1Week

YTD

6 Months 15.40%

1 Year

-0.70% 1Month

-2.00% 3 Months

27.90% 2 Year :

40.30% 3 Year :

2.10%
53.40%

CNX NIFTY

Company
GSFC

7779.70

TCS

31.50 (0.41%)
Returns - CNX NIFTY
YTD :

23.41% 1Week

-1.00% 1 Month

-2.50% 3 Months

1.80%

6Months:

14.80% 1 Year

28.70% 2 Year

37.40% 3 Year

52.00%

Gold - 5 Dec

27256.00

193.00

-0.7%

Silver - 5 Dec

38399.00

473.00

5095.00

230.90

Crude oil - 20 Oct

Natural gas - 28 Oct

Price % Gain

Price % Loss
118.45 14.28
2,444.90

-8.73

Sesa Sterlite

232.75

-2.76

Hindalco

139.70

-2.24

127.60 -16.14

NSE-Top Gainers (Last Week)

Suzlon Energy Ltd.
Company

13.34 -15.57
Price % Gain

Aban Offshore
Zee Entertain

556.10 -13.56
322.40
3.28

-1.22%

BHEL

226.75

3.26

14.00

-0.27%

HDFC Bank

885.25

3.07

3.70

-1.58%

NSE-Top Losers (Last Week)

Company
Dollar / Rupee
Euro / Rupee
Pound / Rupee

61.44
78.26
98.73

-0.39
-0.03
0.01

Price % Loss

-0.64%
HCL Tech

1,505.50

-9.08

TCS

2,441.15

-8.85

232.65

-2.72

-0.03%
0.01%
Sesa Sterlite

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

IIMR20 Weekly Update (Week 29)

IIMR20 Weekly Update (Week 29)
Market succumbed to a global sell-off in equities and commodities due to growth concerns emanating from debt
concerns in Europe and end of the US stimulus program in October.US markets recovered on Thursday and Friday
after slipping in opening trades owing to this. While foreign investors continued to sell on global concerns, local
investors opened their purse strings to bet on an improving growth outlook and easing inflation.
Sensex and Nifty corrected 0.7% and 1 % respectively in line with the weak trend in global markets. The CNX
Midcap Index dropped 1.42 % while BSE small-cap index was down 2.80%. IIMR20 was down 2.61%
Overall returns as of end of week 29 of IIMR20 Portfolio is 64.40% compared to CNX 500 returns of 19.71%

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

FinGyan
Over-Allotment or Green shoe Option
A provision contained in an underwriting agreement that gives the underwriter the right to sell investors more
shares than originally planned by the issuer. This would normally be done if the demand for a security issue proves
higher than expected.
Green shoe options typically allow underwriters to sell up to 15% more shares than the original number set by the
issuer, if demand conditions warrant such action. The term is derived from the fact that the Green Shoe Company,
now called Stride Rite Corp. was the first to issue this type of option.
A green shoe option can create greater profits for both the issuer and the underwriting company if demand is
greater than expected. A green shoe option can provide additional price stability to a security issue because the
underwriter has the ability to increase supply and smooth out price fluctuations if demand surges.
Underwriters use over-allotment option in the following way to bring about price stability. If the stock price drops
below the offering price, the underwriters can buy back some of the shares for less than they were sold for,
decreasing the supply and hopefully increasing the price. If the stock rises above the offering price, the
overallotment agreement allows the underwriters to buy back the excess shares at the offering price, so that they
don't lose money.

Finsight
How to predict stock movement correctly!!!
Let me tell you this by way of a story. Lets say one day you receive a newsletter sent to you by a person who
claims to have some predictive skills about the stock market. The newsletter states that Reliance Industries will go
up by more than 10% over the course of next one month. You look at it and you toss it aside, but you dont forget
to notice that after one month, it has actually gone up by 10%.
You say, Well, that can happen any time. Its a random thing.
The next newsletter comes in the beginning of next month, and this time it predicts that Reliance will fall by 10%.
Again a month passes and you notice that the second prediction has also come true.
A third prediction comes at the beginning of the next month, and this time he makes another prediction
about Reliance which also comes true. And the fourth, fifth, and the sixth prediction also turn out to be true.
You start thinking, This cant be a coincidence! This man has real predictive powers.

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

But, whats really going on? Well, its a scam. The newsletter publisher has no predictive powers. But he does
know that if he makes three different predictions about Reliance that it will go up, or down or nowhere then
one of the predictions will come true, although he has no clue which one will come true.
So he sent his first newsletter to 364,500 people. 121,500 people get the first prediction, and an equal number get
the second and the third prediction. Obviously, one third of the recipients 121,500 of them will get the correct
prediction.
The publisher drops the others and focuses on these 121,500 for the next edition. This time he divides them again
in three groups each having a size of 1/3rd or 40,500 recipients. Again, each group gets a different prediction, and
one group, will obviously get the correct prediction.
He continues this process for four more rounds by which time, he would have 500 very-impressed recipients each
of whom would have received six correct predictions in a row and you were one of them and you dont know
whats really going on. All you get to see is six correct predictions in a row.
So, when the next six predictions are offered to you, for a price of Rs.50,000, you immediately start thinking how
easy would it be for you to recover this cost from the trading profits made on the basis of the next prediction alone.
Moreover, you would get over-confident and perhaps borrow money to finance the next operation. You will also,
eventually, go broke.
Its a funny story, and the way it is told, its obvious to anybody that this is a scam. But to the gullible people,
under the influence of availability bias where they dont see what they dont see and therefore assume that
thats all that there is to see well, they go broke.
In the investment business this happens often that people go broke over-reacting to what they know, and underreacting to what they dont.
I mean just think about it Isnt mutual fund advertising a variant of the stock market newsletter scam?
When you look at mutual fund advertisement, what do you see?
You see claims like: During such and such period, our Technology/Infra/Real Estate fund was the best performing
fund in the country.
What you dont see is that the fund house has a number of funds, which may not have done as well as the one
being touted in the advert. So you are unlikely to be made available all of the facts about all of the ones. Rather,
what that will impress the most will be the one thats made available to you.
If you are in charge of designing adverts for mutual funds, you know that you must only talk about winners to take
advantage of the gullible public which will chase recent excellent performance.
Youd know that your job is essentially to exploit the readers availability bias. And if the IT fund is not doing so
well anymore because that bubble has burst, then perhaps its time to not talk about it anymore, and perhaps its
time to replace it with data pertaining to the hot Real Estate fund!

- (Words of wisdom from Prof. Sanjay Bakshi)

NEWSLETTER - IIM RANCHI FINANCE CLUB

01ST OCTOBER 15TH OCTOBER

Guess It!
Below are the 5 clues about a company. First three people to identify the company correctly
will be declared as winners in our next newsletter.
1) This Gujarat based company entered into the market after 2000 but in this small duration entered into the league
of Top 6 with highly established brands.
2) It helps the backbone of our country to increase productivity.
3) Its 5 year Sales CAGR is 25%+ , 10 year Profit CAGR is 20% + , 5 year Average ROE is close to 20%
4) The Stock has gone up over 200% in the past one year.
5) The company has a market cap of over 800 Cr

(Screener. in should be helpful!)

Email Your Response To - financeclub@iimranchi.ac.in

The First three to answer it correctly will feature in our next newsletter.

Last Issue's Answer - Balaji Amines