Volume 1, Issue 6 March 26, 2011
Vinod gupta school of management, IIT KHARAGPUR
High Dividend Yield Companies Back in Demand
The Global Economic Crisis has made
investors risk averse. Investors have
become very selective about choosing the
right stock and are looking for early gains,
thereby mitigating loses in the long term.
The result is corrections in stocks of compa-
nies with a good dividend payout ratio, irre-
About Fin-o-Menal spective of any increase in earnings.
Dividend yield is equity dividend per share
Fin-o-Menal is the divided by the stock price. High dividend
weekly Financial News paying companies have been able to better
Letter of VGSoM which resist the downward price pressure and
is publ i sh ed by thus, are a natural choice of investors in the
Finte`est, the Finance present volatile market.
Club. High Dividend Yield helps guard against the
Come, Take Interest in risks associated with Capital Appreciation in
Finte`est!
the long term. Under the present market
situation, these firms have managed
Editors
Harish Thangaraj Tax Reforms in State Level Budgets
Lavanya Rajasekaran
Dhiru Rabha Indian Taxation system is undergoing a
huge transformation with the introduction of
DTC (Direct Tax code) and GST (Goods
and Services Tax). The new tax reforms are
Rates This Week under discussion and will be implemented
soon. Progress on GST implementation has
been slow because of conflict between the
state and central governments upon the
revenue sharing model. With the introduc-
44.70 62.98 tion of FRBM (Fiscal Responsibility and
Budget Management Act), states have to
reduce the huge fiscal deficit. To reduce
deficit, states are undergoing tax reforms to
increase tax collection.
Delhi‟s state budget has proposed to
71.70 6.82 increase the registration tax on diesel run
passenger cars by 25%. Delhi government
has proposed this tax citing the recommen-
Editors Note dations of Kirit Parikh Committee. Kirit
Parikh committee suggests that diesel run
This month end special is-
sue of Fin-o-Menal is a Four
passenger cars should pay a onetime
Page Issue. A big Thank expense to the exchequer as they take
You to the Contributors. advantage of the highly subsidized fuel. It is
a game-changing step and other states can
correction despite their stable earnings. For
instance, Shipping Corporation of India (SCI)
has underperformed the benchmark indices
by over 22% in the past three months, but is
currently trading at attractive valuations offer-
ing a potential dividend yield of over 6.5%.
Book Value, P/E Ratio and growth prospects
of the company are analysed for mid-caps
and small caps that do not pay high
dividends. As such, consistent performance
indicators and high dividend yield are the best
way to choose a stock.
Thus, it is important that investors look at
dividend yield in conjunction with future
business prospects and cash flows of the
company and if the dividend yields sustain,
investors will definitely be rewarded
handsomely. (Contributed by Nilesh Kumar)
take a cue from this and can come up with
some innovative mechanisms so that subsi-
dies can reach the target people.
Maharashtra‟s state budget has proposed to
increase the stamp duty on non-delivery
based transactions in equity and commodi-
ties. Stamp duty is largely subject to the state,
with different states having different rates for
stamp duties. Differential stamp duties in land
transactions do not result in shifting of trans-
actions from one state to another because of
immovable characteristic of land. But with
differential stamp duties on equities and com-
modities transactions, volumes can shift from
Maharashtra to other states with lower stamp
duties. This will result not only in a revenue
loss to the government but also in loss of
jobs. Jobbers, algo traders and proprietary
traders may lose their jobs as jobs can get
shifted to states with lower tax rates. Hence, a
uniform tax structure should be imposed
across all the states to ensure that tax rates
do not influence business.
(Contributed by Harsh Bansal)
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 Fin-0-Menal
Shareholders and their rights
Markets this week
To protect the interest of the shareholders in
Index BSE NSE the ruthless territory of Capital markets,
SEBI provides several rights as a share-
Opening holder of a company. Basic knowledge of
Value 18816 5654 these rights can help in taking decisions and
(Mar 14) understand the implications better.
Right to dividends- Every shareholder is a
Closing part owner of the company. As such they
Value 18439 5437 have the right to receive part of profit in the
(Mar 18) form of dividends.
Right to benefits- Companies also rewards
its shareholders in different ways. Some-
Change +2.00% +3.99% times existing shares are repurchased at
rates higher than the market price. Bonus
(As on March 25, 2011) shares for the existing shareholders are also
given at times. New stock offerings are first
offered to the existing shareholders in the
proportion of their existing holdings.
Commodities this week Voting rights- Shareholders can exercise
their voting rights in the company‟s annual
general meeting. This enables them to
Commodity ` Unit participate in the decision making process of
The rupee’s dances with the dollar
GOLD 20839 10 gm
To quote American poet John Ciardi, a
rupee saved is 90 paisa earned. But the
SILVER 55455 Kg Indian rupee rose on Monday, from a
10-week low touched in the previous
session, supported by local share gains and
OIL 4744 Barrel dollar inflows, towards the Manganese Ore
India Ltd (MOIL) Initial Public Offering.
The prognosis is that the rupee will continue
(As on March 25, 2011) to stay strong for some time to come. This
seems to run counter to the pessimism
about our economic growth prospects and
analyst‟s dark forecasts about them. The
Sectors this week question is if the rupee will be able to main-
tain its recent surge against the dollar or not,
and also what strengthens the rupee‟s value-
Indices Value domestic conditions or global.
The answer could be both but what is less
clear is which is more dominant. At a press
BSE IT 6344.62
conference to announce changes to the for-
eign policy for 2009-14 Commerce Minister
AUTO 8848.00 Anand Sharma said that India‟s export for
2010-2011(FY 11) should touch 200 billion
dollars. However, he acknowledged that the
BANKEX 12926.07 trade deficit will be around 120 billion dollars
for the year.
Data from the US, which accounts for more
BSE PSU 8762.11 than a third of India‟s exports and foreign
trade, suggests that slowdown is in
progress. Also, fiscal tightening in European
METAL 15842.68 countries could impact the demand for
Indian exports. When all the factors are
taken together, the net effect is likely to be a
(As on March 25, 2011) worsening exchange rate or, as economists
Volume 1, Issue 6 March 26, 2011
the company. These rights are proportional to
the holdings in the company. Shareholders can
also choose a proxy to vote for them. But
preferred shareholders do not have the right to
vote except when their rights are getting
affected.
Disclosure of Information- Shareholders
have the right to be informed about the general
functioning of the company and the health of
the company. The company annual reports
containing its income statement, balance
sheets, cash flow statements etc serves the
purpose. Apart from this, the minutes of the
general meeting has to be sent to the share-
holders.
Collective rights- Shareholders have the right
to appeal against the company if they suspect
some mismanagement or an attempt to alter
their rights. They can form a group and appeal
to the Company Law Board (CLB) for
investigations into the affairs of the company.
(Contributed by Gautam Gogoi)
put it, there is a greater bias for depreciation
or erosion in the rupee‟s value.
There is another school of thought that be-
lieves that risk aversion in the developed
countries could increase the capital flows to
India. Global Equity markets are another
source of capital flows, and they are doing well
too. The recent Tsunami in Japan may as well
increase the attractiveness of India as a desti-
nation for global capital. The Ireland bail-out
package is also a positive for rupee.
The Indian market regulator on Friday re-
leased the long-awaited auction details of an
enhanced Foreign Institutional Investment (FII)
debt limit and set the sale date on Dec 2.
Dealers cheered the auction decision as they
expect foreign investors to hedge their debt
exposure in the forward dollar market, which
can push up the premium once the auction
starts.
The Commerce Minister‟s steps-extending
Standard Operating Procedure given to ex-
porters-have made people cross their fingers
and wonder how India‟s fiscal balance sheet
will look like at the end of the year. If things go
well on these front-good advance tax collec-
tions, for instance, the prospects of rupee may
look even brighter.
That said, it may be early to believe what Miss
Prism said to Cecily in Oscar Wilde‟s „The
Importance Of Being Earnest‟: “The chapter
on Rupee you may omit. It is somewhat too
sensational.” (Contributed by Jayati Singh)
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 Fin-0-Menal
Did You Know?
The Great Depression was
a severe worldwide eco-
nomic depression in the
decade preceding World
War II. The timing of the
Great Depression varied
across nations, but in most
countries it started in
about 1929 and lasted
until the late 1930s or
early 1940s. It was the
longest, most widespread,
and deepest depression of
the 20th century. Unem-
ployment rose 607% and
industrial production fell
nearly 50% in the US.
International Markets this week
US London
Dow Jones LSE
12220 5901
Japan HongKong
Nikkei 225 Hang Seng
9536 22300
(As on March 25, 2011)
"Bill Gates told me that IIT is the place to look for talent "
- Warren Buffet, the 80-year-old CEO of US conglomerate Berkshire Hathaway and the world’s third richest man, recalling a conversation he had with
Bill Gates in 1991, over attracting talent from India.
Q u i c k Q u o t e : Money can‟t buy happiness; it can, however, rent it. — Author unknown
A Rendezvous With warren buffet
Aditya Zutshi, Second year MBA, recently
had the opportunity to interact with Warren
Buffett, the man who's better than any other
at making money and giving it away, during
his first visit to India. Accompanying Mr.
Buffet was Mr. Ajit Jain, an alumnus of IIT
Kharagpur and seemingly his most trusted
manager at Berkshire Hathaway. He gradu-
ated in 1972 from the IIT Kharagpur and
was a resident of the Azad Hall of Resi-
dence. This interaction was organized by
NDTV TV Channel and was telecast live.
The program named „India Questions‟ was
targeted to give an opportunity to the stu-
dents to ask questions to the third richest
person in the world.
Warren Buffett when asked that why he
stayed away from investing in India all these
years, said that he stayed away from India
as he did not understand the Indian compa-
nies so well. It was a mistake and he can
make a decision on investment in India at
anytime in the future. The audience was
very excited to hear about his plans to in-
vest in India in the near future.
Buffett said that on landing in India, he
found the country pretty much what he ex-
pected. With booming economy and his
company‟s plant in Bangalore expanding
very rapidly, he found people very cordial
and made some new friends in a short time.
He said that he had a lot of fun too and de-
spite a hectic schedule, he looks forward to
all that is to come.
To give an idea on how easy it is for him to
make money, Berkshire Hathaway chairman
Quote Un-Quote
Toon of the week
Volume 1, Issue 6 March 26, 2011
Warren Buffett said that he was earning $15 a
second every day from just his investment in
Goldman Sachs during the 2008 financial cri-
sis. Having a great sense of humour, Buffet
joked that he would hide in a cave to avoid the
buy back, since he is earning millions of dollars
in dividends!
Warren Buffett said that they have never ever
invested in a Private Equity firm and have
never bought a business with the idea of resell-
ing it. Whereas Private Equity has an exit strat-
egy, Buffett mentioned that he had an entrance
strategy.
On insider trading, Buffett said that Wall Street
also has its own grey areas. Any rise in the
market always leads to chances of money
making and practices like insider trading occur
in other countries also. The audience asked
Buffett and Ajit if they had sleepless nights
post big investment. To this they answered that
they sleep like a baby and even wake up every
hour and cry.
Buffett mentioned that he has no regrets about
his life and considers himself to be very lucky.
He mentioned that if you love your work, every
day feels as if you‟re not working. He also told
that for tough questions in life, one should try
to find answers by oneself.
He promised the audience that doing this, the
life would become very different. He also said
that it is extremely important to have those
people work with you who like you as a person.
Overall the interaction was quite enriching and
motivating for a soon-to-be-manager!
(Contributed by Aditya Zutshi. Read more at
www.adityazutshi.com)
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Warren Buffet’s Radical idea to deal with india’s black money
The Swiss Banks release of the controversial data pertaining
to money in their accounts whose sources have not been
verified or, more simply, BLACK MONEY, did not come as a
surprise to us Indians. In an embarrassing distinction, India
has got the top slot among nations by a huge margin, in the
global list of Nations having vast amounts of black money
stacked outside the country. It is estimated that Indians have
accumulated almost $1500 billion in various Swiss Bank ac-
counts, Tax havens and nations with deliberately lax/secretive
banking laws. We are followed by Russia, a usual suspect,
but at a distant $470 billion. UK with $390 Billion, Ukraine with
$100 Billion and China with $96 Billion were the other major
sources of black money worldwide.
The money which rightfully belongs to its honest, hard-
working, industrious citizens is lying in the Swiss bank ac-
counts of its corrupt politicians, bureaucrats and industrialists;
it must be really demoralizing and demeaning for the majority
of Indians who are really poor, without basic benefits like
health and education. This insanely large amount of money is
sufficient to cover 13 times our national debt, or 40% of our
total GDP (Purchasing Power Parity wise). What is even more
amazing is that if the government stops collecting taxes, this
amount is enough to sustain us for next 30 years, which ex-
hibits the sheer size of this amount!
There are reasons aplenty for this dubious distinction that
India has received. Huge amounts of money started leaving
the country into these Swiss-banks in the early 70‟s because
of the unrealistic tax regime of the prevailing governments
where peak tax rates were as high as 97.5%. This was noth-
ing short of “daylight robbery”. Apart from that, many prevail-
Inflation and the Interest rate co-relation
Domestic and global factors are conspiring to darken India's
once-shining growth outlook, with inflation and sluggish in-
vestment likely to keep economic expansion well below the
government's target of 9% in the coming year. India's inflation
eased less than expected in January to 8.23%, holding well
above the Reserve Bank's comfort zone and reinforcing ex-
pectations it will raise interest rates at its March policy review.
The wholesale price index (WPI), the country's main inflation
gauge, rose in the year through January more than the
8.05%. Wholesale food prices jumped 15.7% in January com-
pared with 13.6% in December, leading to fears that food
inflation was leading to sustained price rises in other sectors
of the $1.3 trillion economy. India suffers from the highest
inflation of any major Asian economy even after seven rates
rises in a year and analysts doubt a 7% target for the end of
March set by the Reserve Bank of India can be reached when
price pressures are spreading from food and fuel deeper into
the economy. The strength of inflationary pressures is visible
from the fact that despite significantly high statistical base
effect... headline inflation just eased by about 20 bps.
The central bank said last year it would be comfortable with
inflation between 5% and 6%. But it raised its forecast for the
end of the current fiscal year to 7% after its last policy meet-
ing in January. The RBI on Thursday raised its short-term
lending and borrowing rates by 25 basis points in a bid to rein
in inflation. It was the central bank's eighth rate hike since
Volume 1, Issue 6 March 26, 2011
ing activities, like smuggling of goods, over-production in facto-
ries and its subsequent non-reporting in account books thrived
because of the short-sightedness of the government of a so-
cialist-closed economy. All the money naturally went off the
books and got stacked outside the nation, and kept doing so,
earning even more interest. Apart from this, corruption, which
sadly has always been the corner-stone of Indian bourgeois
awakening, also is a major contributor to this pile of black
money, be it the kickbacks earned by our corrupt politicians or
the hidden earnings of our bureaucrats.
A very innovative suggestion to fight this menace of black
money has been coined recently by the legendary investor-
philanthropist Warren Buffet. Rather than trying the age old
formula of asking the black money owners to voluntarily come
forward and declare their assets, so that the government col-
lect the requisite tax amount from them and turn the money
into „white‟ (the voluntary disclosure scheme) or forcibly freez-
ing their identified bank-accounts, Buffet has suggested the
very opposite. He says that these mega rich people who own
tons of black money must be allowed to put that money to phil-
anthropic use, without questioning their identity or source of
money. According to the legendary Buffet, a child who gets a
vaccine that can save his or her life will not question the
source of the money that paid for the vaccine. It is both inter-
esting as well as a very radical idea. With the sheer amount of
black money lying unproductive, it really seems very reassur-
ing that how many million children may be saved from dis-
eases with that money, or how many vaccines may be pro-
duced or invented with that.
(Contributed by Harsh Vyas)
March 2010. The short-term lending, or repo rate, has been
increased from 6.50% to 6.75%, while the short-term borrow-
ing rate (reverse repo) has been raised to 5.75% from 5.50%.
Increase in rates by RBI is expected to make loans, including
housing, auto and corporate loans, dearer. Keeping in view the
liquidity situation, the central bank has kept the cash reserve
ratio (CRR), the amount which lenders are required to keep
with the RBI in cash, unchanged at 6%. However, the RBI has
raised inflation projection to 8% for March-end against 7% esti-
mated earlier.
After a slight moderation in January, headline WPI inflation
reversed in February 2011, accompanied by a sharp increase
in non-food manufactured products inflation. Based on the
current and evolving growth and inflation scenario, the Re-
serve Bank is likely to persist with the current anti-inflationary
stance. The RBI has been one of the most aggressive central
banks in Asia in unwinding its easy monetary policy, raising
policy rates seven times in less than a year. But the rapid con-
traction hit industrial output, whose growth slowed to a 20-
month low in December. Prices of government bonds fell after
the inflation data, as a reaction to the rate increase at the cen-
tral bank's mid-quarter policy review on March 17. The govern-
ment also is increasingly worried that high inflation could eat
into growth by denting investor confidence, which is already at
a low owing to the numerous scams and scandals.
(Contributed by Arvind Mahor)
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