1st MAR 2008

Volume 1, Issue 13

Wealth Incorporation - A CCIM Finance Club Initiative Presents

CHAANAKYA
..Tracking the Economy

Issue Attractions
National Headlines International Headline Corporate Interview Quiz Student Editorial Investors Check/Tag lines/Buzz Word 1 1 2 2 3 4

Strange times are these in which we live when old and young are taught in falsehoods school. And the one man that dares to tell the truth is called at once a lunatic and fool. - PLATO

National Headlines
Reliance Power Board approved a bonus issue of 3:5 shares, which essentially means that the company will issue 3 shares for every 5 held which will cut the shareholders loss by 40%. HDFC Bank announced a ratio of 1:29 for the merger of Centurion Bank of Punjab (CBoP) with itself. The value of merger is said to be within Rs. 100-120 billion. Reliance energy to buy back its shares to keep the investors happy. NYSE picks up 5% stakes in MCX for $55 million. Some of the highlights of the railway budget 2008: Record breaking performance in the year as the profit reaches RS 25000 crores. Railway plant size increased from Rs. 11000 crores to Rs. 30000 crores. Fair cuts: second class sleeper 5%, AC first class 7%,AC second class 4%, and AC third class by 3%. Freight of petrol and diesel cut by 5%. Railway earned 65% revenue from freight and passenger was just 26% only. 63 new trains on different routes.

Inflation 4.07% , IIP 7.6%

15 days Movements

International Headlines
40.9 40.7 40.5 40.3 40.1 39.9 39.7 39.5 1 2 3 4 5 6 7 8 9 Rs/$

Rs/$

US Fed Chairman Ben Bernanke is of the opinion that further rate cuts may be needed due to weak growth. 20 foreign banks allowed in China to operate with corporate status. $30bn Fed auction aims to ease credit woes following aggressive rate cuts, the Federal Reserve provided $30 billion to commercial banks in the sixth such auction since December. Hyundai wins 1.6 Billion deal in Nigeria to build floating oil rig for a French client in Nigeria.

1150 1140 1130 1120 1110 1100 1090 1080 1070 1 2 3 4 5 6 Gold(per gram) 7 8

Gold

Dollar hits record low versus euro as euro leaped to $1.4982 higher from its previous record of $1.4967. Visa prepares for near-$19Billion IPO that may be one of the biggest of the IPO in US. IBM said that its board had authorized a $15 billion share buyback program that could increase 2008 earnings by up to 5 cents a share, sending its stock up 4.2 %. Standard Chartered bags in profit of $690 million in 2007 which is 71% more than the last year profit.

A good manager is best when people barely know that he exists. Not so good when people obey and acclaim him. Worse when they despise him - Lao Tzu, Chinese Philosopher

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Interview With Gokulananda Patra

Gokulananda Patra, B.COM, ACA, Deputy Manager - Finance - Underwriters Laboratories Incorporation
A brief note about the company you are working for, its clients, competitors, future growth?
Reply: My present company is known as Underwriters laboratories Inc (ULINc). This company is a leading Not for Profit product and process certification company based in Chicago, USA with a history of 115 years and presence in over 60 countries. UL carries an indomitable brand not only in USA, but across all the major countries spread across Europe and Asia. Major statistics about the company:-

21 billion UL Marks appeared on products 72,542 manufacturers produced UL certified products 19,450 types of products were evaluated by UL 99 countries with UL customers 447 million Households use UL certified products globally. 1201 Safety standards designed by UL from inception.

UL has more than 10 million customers globally. UL clientele include majority of the Fortune 500 companies spread across the globe. UL as a mark does not have any competitor as this is a trademark owned by UL INC. UL Inc with Multi-billion turnover has got a good YOY growth in terms of turnover as well as customer base. Being a knowledge driven company with a mission to build a safer world for last 100+years, UL views its future growth lies on the Engineering capability it intends to built further to retain and satisfy the ever growing needs of the customers who want to relate themselves to this great Mission. With the world growingly realizing the need for a safer world, UL sees an opportunity to work and make this happen. There lies the challenge as well as the spark to grow.

What is your view about current financial market & future prospects?
Reply: Present Financial market is very much unregulated contrary to the claims made SEBI .The recent abnormal bullish movement in stock market and then sudden fall in the sensex shows that still FIIs and some large corporate houses control the sensex and manipulate the same to their benefit. At the end of the day the market belongs to the people who deal with the scale and volume. The future of the sensex is difficult to say. Stock market is abnormally speculative now a days and one has to really be smart enough to get good return. At the end of the day it is all about timing and a person's risk taking ability which will sail him/her through. However advice to hold your stock on a long term basis ignoring periodical Up's and Down's.

Piece of advice for MBA - finance students

As a MBA student you are going to board the ship to sail India through these challenges. However which ever field be it Banking, Insurance or Retail or any other, Give your 100% and be always competitive. At the end of the day your skill as effective business managers is what matters to the economic progress of this country.

Quiz
1. Which organization has 1356 members and has the ad-line the world put stock on us. Which organization? 2. What is the theory according to which some investors will buy stock even if it is over-valued, on the conviction that there will be someone else who will buy the stock from them at higher prices? 3. What term is used in economics and finance , refers to the method of persuasion employed by the central bank to control credit expansion by the commercial banks? 4. What is the name given to a short-term loan given to a borrower to cover temporary funds shortage? 5. What is a bond denominated in a currency different from that of the country in which it is sold called? If you want quick and effective results you must put the money in - Edward Bullard

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Understanding the impact of BASEL-II norms

Did you Know?

By: Fouzia Taranum

Banking is a commodity business. The margins on the products that banks offer to its customers are extremely thin vis--vis other businesses. As a result, for banks to earn an adequate return of equity and compete for capital along with other industries, they need to be highly leveraged. The primary function of the bank's capital is to absorb any losses a bank suffers (which can be written off against bank's capital). Norms set in the Swiss town of Basel determine the ground rules for the way banks around the world account for loans they give out. These rules were formulated by the Bank for International Settlements in 1988. Essentially, these rules tell the banks how much capital the banks should have to cover up for the risk that their loans might go bad. The rules set in 1988 led the banks to differentiate among the customers it lent out money to. Different weightage was given to various forms of assets, with zero percentage weightings being given to cash, deposits with the central bank/government etc, and 100 per cent weighting to claims on private sector, fixed assets, real estate etc. The summation of these assets gave us the risk-weighted assets. Against these risk weighted assets the banks had to maintain a (Tier I + Tier II) capital of 9 per cent i.e. every Rs100 of risk assets had to be backed by Rs 9 of Tier I + Tier II capital. To put it simply the banks had to maintain a capital adequacy ratio of 9 per cent. The problem with these rules is that they do not distinguish within a category i.e. all lending to private sector is assigned a 100 per cent risk weighting, be it a company with the best credit rating or company which is in the doldrums and has a very low credit rating. This is not an efficient use of capital. The company with the best credit rating is more likely to repay the loan vis--vis the company with a low credit rating. So the bank should be setting aside a far lesser amount of capital against the risk of a company with the best credit rating defaulting vis--vis the company with a low credit rating. With the BASEL-II norms the bank can decide on the amount of capital to set aside depending on the credit rating of the company. Credit risk is not the only type of risk that banks face. These days the operational risks that banks face are huge. The various risks that come under operational risk are competition risk, technology risk, casualty risk, crime risk etc. The original BASEL rules did not take into account the operational risks. As per the BASEL-II norms, banks will have to set aside 15 per cent of net income to protect themselves against operational risks. So to be ready for the new BASEL rules the banks will have to set aside more capital because the new rules could lead to capital adequacy ratios of the banks falling. How the banks plan to go about meeting these requirements is something that remains to be seen. A few banks are planning initial public offerings to have enough capital on their books to meet these new norms.

Coins began to be used in business in India, Asia Minor, and China in the 6th century BC. But most historians agree that the ancient G r ee k s , li v i ng in w e st e r n co a st of modern Turkey, issued the world's first coins in 650 B.C.

Did you Know?

The world's highest denomination note was Hungary's 100 million B Pengo, which issued in 1946. It was worth about US $0.20 in 1946. The world's lowest denomination note was Fiji 1 penny, issued in 1942.

Answers To Quiz
1. NYSE 2. Greater Fool Theory 3. Moral Suasion 4. Bridge Loan 5. Eurobond

Stock Ratnas SOBHA DEVELOPERS, BSE-532784, NSE-SOBHA, CMP- Rs. 831.40 TARGET PRICE- 1172 TULIP IT SERVICES, BSE-532691, NSE-TULIP CMP- Rs. 975.15, TARGET PRICE- Rs.1348, TATA MOTORS, BSE-500570 NSE TATAMOTORS CMP- Rs. 707.45 TARGET PRICE- Rs.764,

Management by objectives works if you first think through your objectives. Ninety percent of the time you haven't - Peter F Drucker

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Tag Lines:
Applying Thought - WIPRO Everything is Possible - HP-Invent HPYour Right Partner - Standard Chartered Bank News you can Use. - NDTV Profit Fluent in Finance; Its our business to know your business - Barclays Think Investments. Think Kotak. - Kotak Profit from it - CNBC Growth is Life - Reliance industries
A. B.

A. Exim Bank B. Allahabad Bank C. Dena Bank D. BNP Paribus

C.

D.

INVESTORS CHECK
ULTRA TECH CEMENT: BUY POSITION The Ultra Tech Cement stock seems a reasonable investment option for investors with a medium-term investment horizon. The company has ambitious plans for capacity addition that could support volume growth, cost-saving measures that may improve margins and solid financials. Ultra Tech has a capacity of 17 million tones to which it is adding 4.9-million tonne by commissioning a unit in March this year..The company has reported an impressive performance in the recent December quarter, helped by higher realization and improved operational efficiency. While net sales inched up by 10 per cent, operating margins too expanded strongly by 3.86 percentage points. The operating profit mounted to Rs 488.62 crore, up 23 % from Rs 396.9 crore in the corresponding previous quarter. At the current market price of Rs 891, the stock trades at 13 times its FY-08 earnings which, compared to peers ACC and Ambuja Cements is at a discount. Investors with a one-two year perspective can consider exposure in the stock.

Buzz Word

Back fee The fee paid on the extension date if the buyer wishes to continue the option. Dead cat bounce A small upmove in a bear market. "Kick it out" Used in the context of general equities. "Liquidate (sell a long/cover a short) a position without regard for price. Cable Exchange rate between British pounds sterling and the U.S.$.

Book Quotes:

"We think we know what we are doing. We have always thought so. We never seem to acknowledge that we have been wrong in the past, and so might be wrong in the future. Instead, each generation writes off earlier errors as the result of bad thinking by less able minds - and then confidently embarks on fresh errors of its own." - Prey by Michael Crichton

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com

Contributions made by : (1st Year Students)

Article & logos News Did you know, Quotes Stock Ratnas, Quiz Graphs Taglines & Editing Investors Check Interview Book Quotes, Buzz Word Coordination Fouzia Taranum Anup Rajan & Ashish Poddar Sukrutha Lavanya Gnana Devi Arihant Patawari Diwakar Grover Sasmit K. Sahu Nikhil Mehta Manish Sinha