financial edge - a monthly newsletter
TRANSCRIPT
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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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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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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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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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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
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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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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.
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CONTACT DETAILS
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Student Editors:
Faculties in charge of Financial Edge
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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