BANGALORE

nishka A FINANCIAL NEWS LETTER FROM CUIM KENGERI

where knowledge relates money

date- JANUARY 6, 2012date- JANUARY 6, 2012ISSUE-21

INDEX

ECONOMIC ROLLERS ------------------------------------------------------------------------------- 03

RBI COLUMN------------------------------------------------------------------------------------------ 04

IMPACT OF FDI IN RETAIL SECTOR--------------------------------------------------------------- 06

ASSET BACKED SECURITIZATION------------------------------------------------------------------08

GOLD: JEWELLERY OR INVESTMENT? ----------------------------------------------------------- 10

CAMPUS POLL------------------------------------------------------------------------------------------11

STOCK ANALYSIS---------------------------------------------------------------------------------------13

FINANCE BUZZ----------------------------------------------------------------------------------------- 14

FINANCE QUIZ------------------------------------------------------------------------------------------15

CROSSWORD--------------------------------------------------------------------------------------------16

PHOTO FIND---------------------------------------------------------------------------------------------17

ANSWERS-------------------------------------------------------------------------------------------------18

TEAM NISHKA------------------------------------------------------------------------------------------- 19

ECONOMIC ROLLERS

Repo Rate: 8.50% Reverse Repo Rate: 7.50% CRR: 6.0% SLR: 24% CBLO (as on 27th Dec 2011): 8.5 %: Food inflation: (as on 17th Dec 2011): 1.81% Forex Reserve (as on 16th Dec 2011): $302.1 billion IIP (for Oct 2011): -5.1% 91 Days T bills (as on 20th Dec 2011): 8.3946% 10 year G- Sec Yield (as on 20th Dec 2011): 8.4% Exports during Aug 2011: $22.3 billion Imports during Aug 2011: $35.9 billion Source: Reserve Bank Of India, Finance Ministry, Office of Economic Advisory, HDFC Securities Reports, Ministry of Commerce BY DHAWAL PARMAR I MBA B

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RBI COLOUMNRBI releases Financial Stability Report: December 2011

The Reserve Bank of India presented its half-yearly assessment of the health of India’s financial

sector in its Financial Stability Report (FSR), released on 22 Dec 2011.

Macroeconomic Environment

· All components of domestic demand (private and government, consumption and investment) have decelerated.

· Inflationary pressures remain elevated, driven by a host of factors. Exchange rate depreciation has inflationary implications. The increase in petrol and diesel prices and minimum support prices appears to be neutralising the demand moderating impact of monetary policy measures.

· Risks to the external sector have risen as imports remain high while there is some slowdown in exports.

· The fiscal position remains challenging. The additional demand for supplementary grants points to the risk of slippages.

Financial Markets

· Indian markets, particularly, equity and currency markets, remained volatile during the period under review affected by adverse developments abroad.

· Currency depreciation has been the sharpest in those countries among emerging markets which have external deficit, including India, compared to those countries which have surpluses. This would impact the Indian economy through various channels:

o Translation losses on the large and rising gross external liabilities and transaction losses on trade exposures

o Repayment/ redemption of ECB and FCCB would become costlier and refinancing at higher domestic rates might become necessary

o FIIs might stay away further affecting sentiment in equity market · Some issues in the equity market microstructure, particularly in the derivatives segment

warrant monitoring

Financial Institutions – Soundness and Resilience

· There has been some deterioration in financial soundness indicators (viz., capital adequacy and asset quality) but capital adequacy remains well above regulatory requirements and asset quality indicators continue to compare favourably with ratios in peer countries.

· Going forward, if GDP growth slows down, there could be some downstream impact on asset quality. At the same time, additional capital will need to be raised due to the compulsions of implementation of Basel III, a growing (albeit at a potentially decelerated rate) economy and financial inclusion.

· Higher provisioning requirements (due to higher slippages) and increased interest expenses has weighed on the profitability of the banking sector.

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· Urban banks and NBFCs also exhibited resilience to credit risk shocks. · The insurance and pension sectors – given their ‘long only’ and long term investment

styles typically add to the stability of financial markets.

Payment and Settlement Systems

· The RTGS system, which creates incentives for market participants to postpone payments to the latter half of the day, can increase the liquidity risk in the system and can also magnify the impact of an operational event.

Cross-sectional Exposures

· The banking system as also the financial sector is distinctly tiered. This means that some banks and institutions are much more connected than others and could have a larger source of contagion impact that in a less tiered network. Insurance companies and asset management companies as lenders would be affected by any disturbances in the banking system (which is the major borrowing segment).

Distress Dependencies between Banks

· The assessment of distress dependencies based on various indicators shows that the joint probability of distress is low at present though there is a marginal uptrend in the recent past.

BY-Devi .G 1ST

MBA SEC-D

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IMPACT OF FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR

Introduction:

Retailing, today, is the largest private industry and the second largest employer after agriculture.

Retailing sector in India has undergone significant transformation in the past 10 years. The sector

contributes to around 10 percent of GDP and 6-7 percent of employment. With over 15 million

retail outlets, India has the highest retail outlet density in the world. This sector witnessed

significant developments in the past 10 years from small unorganized family-owned retail

formats to organized retailing.

Liberalization of the economy, rise in per capita income and growing consumerism have

encouraged large business houses and manufactures to setup retail formats, real estate companies

and venture capitalist are investing in retail infrastructure. Many foreign retailers have also

entered the market through different routes such as wholesale, cash-and carry, local

manufacturing, franchising, test marketing etc. with the growth in organized retailing,

unorganized retailers are fast changing their business models and implementing new

technologies and modern accounting practice to face competition.

But the condition is not so rosy, as it seem. Strict FDI policy in India has restricted many foreign

investors to enter Indian market. Foreign Direct Investment(FDI) refers to capital inflow from

abroad that is invested in or to enhance the production capacity of the economy. FDI policy as on

October 2010, is as follows:

§ FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.

§ FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products.

§ FDI is not permitted in Multi Brand Retailing in India.

The Argument:

Antagonists of FDI in retail sector oppose the same on various grounds, like, that the entry of

large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the

unorganized retail sector employs an enormous percentage of Indian population after the

agriculture sector; secondly, that the global retailers would conspire and exercise monopolistic

power to raise prices and monopolistic (big buying) power to reduce the prices received by the

suppliers; thirdly, it would lead to asymmetrical growth in cities, causing discontent and social

tension elsewhere. Hence, both the consumers and the suppliers would lose, while the profit

margins of such retail chains would go up.

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The Advantage:

Relaxing FDI rules can spur up the competition in retail industry to a large extent due to the

current scenario of low competition and poor productivity. The policy of allowing 100% FDI in

single brand retail can benefit both the foreign retailer and the Indian partner – foreign players

get local market knowledge, while Indian companies can access global best management

practices, designs and technological knowhow.

Walmart said, “ Our investment in Indian retail industry would have gone up tremendously, only

if FDI rules would have been relaxed and made more flexible”. Its high time to allow multibrand

retailing by foreign players to give Indian consumers a world class shopping experience and they

need not go to London or Singapore for same. By allowing FDI in retail trade, India will

significantly flourish in terms of quality standards and consumer expectations, since the inflow

of FDI in retail sector is bound to pull up the quality standards and cost-competitiveness of

Indian producers in all the segments. It is therefore obvious that we should not only permit but

encourage FDI in retail trade.

Conclusion:

A start has already been made with- Walmart has a joint venture with Bharti Enterprises for

cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. It plans to have 15 stores

by March and enter new states like Andhra Pradesh , Rajasthan, Madhya Pradesh and Karnataka.

Many of the foreign brands would come to India if FDI in multi brand retail is permitted which

can be a blessing in disguise for the economy. Thus the proliferation of foreign capital into

multi-brand retailing needs to be anchored in such a way that it results in a win-win situation for

India.

By Nidhi Jaiswal I MBA ‘B’

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ASSET BACKED SECURITIZATION(The Emergence and Decline of Securitiz ation)

The product Asset-backed Securities (ABS), once alleged for its important role in financial crisis

2007-09, has gone back to anonymity. I see it nothing less than a ferocious man-eater, once “popular” for haunting a village and then forgotten to be caged. This article deals with the

definition, the process, the market and the down-fall of ABS in simple terms.. But something

everyone forgets here is that, clarity is essential for a secure future. As they say,

“If you don’t inquire, you are bound to make mistakes.”

Definition:

In simple terms, taking a bunch of assets, pooling them together, and offering them as a

collateral for third party investment. Let us take the example of mortgages. When a bank or any

financial institutions gives you a house-loan, they lend you money and in-turn they generate

money from the loan-initialization fee and the interest paid on the loan. The money for loans is mostly the money from the deposits held by the institution. As a method to diversify their risks

and to generate more cash, the concept of securitization of mortgages was put forward. The

lending institution pools together a bunch of loans and then sells them in the secondary market to

another financial investor. “My risk is now yours!”

The Process:

In the simplest terms, securitization consists of two steps 1) The originator firm sells the illiquid assets to a second company ie.Special-purpose Vehicle

(SPV), who then issues notes backed by cash flows from underlying assets.

2) Issuance of securities based on the receivables by the SPV (Issuer) through public or private

placements.

There are many reasons that lead to securitization by financial institutions: new financing

method, removal of assets from balance sheet and transfer of risk. The investors also gain as they get a chance to invest in highly rated asset pool with exposure to diverse sectors.

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Securitization Market

ABS was a fast growing instrument till the financial crisis in 2007-09.. According to Securities

Industry and Financial Market Association (SIFMA), US Research Quarterly-2010 Q3, Mortgage-backed Securities had declined from US $535.6 billion to US $442 billion between

2009 and 2010 third quarter.

Downfall: Subprime lending and the crisis

Subprime lending is the process of extending credits to borrowers above the prime rate. Such

borrowers may have bad or limited credit history making them prone to risk. Hence they might

be charged a premium or higher interest rate.20% of all mortgages originated in 2006 were considered to be subprime, a rate unthinkable just ten years ago. The banks and other lenders

were hugely dependant on the high house prices and stability of mortgage-backed securities.

Soon the prices started lowering and the value of houses went below their owing. These

borrowers defaulted on their loans, ruining the value of mortgage-backed securities. This caused

the mortgage market meltdown. Many big institutions were closed down and many saved by the

central banks.

Present and Future:

Although, the world is still in the fear of another crisis, ABS seems to be well tamed with various

rules and regulations. Regulatory policy for consumer protection, credit-rating of ABS, bank-

financial cushions and limiting proprietary trading were few effective steps. A true

understanding and review of every product should be made before it hits the market. Clarity and

simplicity are essential ingredients for stability. Also, all that glitters is not gold. Don’t evaluate an investment based solely on its’ return. It is only attractive if it provides an adequate

compensation for its risk.

By Niveda.S.S I MBA ‘B’

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GOLD: JEWELLERY OR INVESTMENT?Favoritism towards gold:

Since centuries, Gold has been the favourite among all households. It is an asset which has maintained its shine even at the times of depression and economic slowdown. Gold is a hedge against the dollar and inflation. It has a very low correlation with other asset classes like equity and debt thereby a good asset to diversify the overall portfolio. Therefore, at the time of global depression and economic slowdown, investors are looking at parking their investments safely. And gold is the obvious choice as a safe investment haven.

However, this transition has not been easy. Pledging gold has traditionally been frowned upon. Only those in dire need would go to the moneylender or the local jeweller, get stiff terms for the loan, and yet have no other choice but to settle for it. Socially, pledging gold signified a fall in one's status.

Current Scenario:

Currently, all this is fast changing with upper middle class also opting for “loan of convenience”. Gold loans up till now had been a monopoly of the South. But today, we have branches in north which have lent huge amounts of gold, even surpassing some of them in the south," said George Alexander Muthoot, MD, Muthoot Finance, among the largest players in this business with 3,400 branches across the country. The company, on a drive to increase its footprint across India, says it would not be long before it has a matching presence in the North, compared to 2,100 branches in the South.

Experts say the gold loan trend will grow as gold prices remain high. "Earlier, people pawned shares or physical assets like land. But now gold is an asset that can be converted into cash anytime. People have a feeling that gold prices will continue to increase and this will continue to boost demand for gold loans. Plus, gold loans have a national reach now, so the concept is very much prevalent. The demand for gold loans has led to a growing number of banks and NBFCs vying for a share of the pie.

Future Prospects:

The global financial crisis, which started as housing loan collapse in US, has steamrolled into a massive recession, encompassing the developed economies of US, EU, Japan. As a policy response, the US Federal Reserve and other global central banks have resorted to deficit financing and fiat-currency expansion to help stimulate their struggling economies. Increased money supply may induce hyper inflation in the economy and cause currency devaluation. Gold is a hedge against both these factors. Gold has an inverse relationship with US dollar indicating that gold can protect value against the dollar. Furthermore, the increase in demand for gold has far outstripped the global gold production. This provides a structural momentum to growth in gold prices. This implies that the supply/demand balance in gold is becoming increasingly tight. And although interim volatility cannot be ruled out, gold prices are likely to trade higher.

This has raised the chances of investments in gold . The major point will be to noe that how long this trend is going to continue and whether investment in gold will overtake its use as jewellery.

By Nidhi Jaiswal I MBA ‘B’

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CAMPUS POLL

RESPONSES NO. OF RESPONSES

YES 54

NO 10

CAN’T SAY 11

TOTAL 75

As per the survey conducted, Out of 75 respondents, 54(72%) have an opinion that

, FDI in India is a Boon for us ,whereas 10 (13.33%) say that, it is not a Boon, we

should think before accepting it , whereas 11 (14.67%) people are not sure about it.

FDI IN INDIA- A BOON?

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Anna hazare’s another hunger strike against corruption- required?

CAMPUS POLL

RESPONSES NO.OF RESPONSES

YES 40

NO 27

CAN’T SAY 10

TOTAL 75

As per the survey conducted, Out of 75 respondents, 40 (53%) have an

opinion that , Anna’s Hunger strike is required to fight against CORRUPTION ,

whereas 27 (36%) say that, always Hunger strike is not a solution for

CORRUPTION , whereas 10(14%) people are not sure about it.

By:

Pruthvi.D.C I MBA Sec- A

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STOCK ANALYSISNAVIN FLUORINE( BUY RECOMMENDATION)

MARKET CAP (RS CR) - 289.37 FACE VALUE (RS) - 10.00

*BOOK VALUE (RS) - 339.93 *P/E - 1.70

*EPS (TTM) - 174.07 *PRICE/BOOK - 0.87

DIV (%) - 150.00% INDUSTRY P/E - 5.21

*P/C - 1.58 DIV YIELD.(%) - 5.06%

FUNDAMENTAL ANALYSIS

Nishka equity research maintains a strong buy recommendation on Navin Fluorine limited .The

Company has performed exceptionally well in the last 1 year and was trading at a year’s high a

month ago. It lost some ground in the recent fall but the fundamentals are strong enough to face

it. Company has a book value of 339.93 cr and is trading at less than its book value; also the

earning per share is Rs174. The stock is trading at 1.7 times the EPS, which is very cheap if we see the industry PE of 5.21. The company regularly pays a good dividend with a yield of 5.06%

this time. The company trades on a very low debt and is performing very well since the last 2

years.

Nishka equity research recommends a buy at Rs 290 with a stop loss at Rs 275 for a target of Rs

340 in the month’s time. Also it is highly recommended to but it for a year’s time with a target of

Rs 500, which is around 65% return.

(SOURCE: Rediff.com, Moneycontrol.com, Bseindia.com)

BY : ABHISHEK JAIN (SEC : B)

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FINANCE BUZZ

Credit Crunch

An economic condition in which investment capital is difficult to obtain. Banks and investors

become wary of lending funds to corporations, which drives up the price of debt products for

borrowers.

Dragon Bond

A fixed income security issued by a firm in an Asian nation, other than Japan, which is

denominated in a foreign currency, usually U.S. dollars. The purpose of a dragon bond is to

attract funds from a larger market of foreign investors.

Fallen Angel

A stock that has fallen substantially from its all-time high.

Deer Market

A flat market. Neither a bull or bear market, a deer market is characterized by low activity, with

timid investors waiting for a sign of which way the market is going to end up moving.

Ghosting

An illegal practice whereby two or more market makers collectively attempt to influence and

change the price of a stock. Ghosting is used by corrupt companies to affect stock prices so they

can profit from the price movement.

Gorilla

A gorilla firm has large control of the pricing and availability of its products, relative to its

competitors in the industry. This often forces competitors to resort to other tactics to compete,

such as clever marketing or differentiating their offerings.

January Effect

A general increase in stock prices during the month of January. This rally is generally attributed

to an increase in buying, which follows the drop in price that typically happens in December

when investors, seeking to create tax losses to offset capital gains, prompt a sell-off.

(SOURCE- www.investopedia.com)

BY-Kumaran.S 1st

MBA SEC-B

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FINANCE QUIZ

1. Which financial services giant is referred as the "Thundering Herd"?

2. Revenue-neutral rate is a component of which kind of tax in India?

3. Currency trivia. In India where is the Paper for the currency manufactured?

4. What are the Bonds that carry low ratings with correspondingly higher yields

called?

5. Which bank became the 1st lender to raise funds in offshore Yuan in China?

6. Which country’s government long-term sovereign credit rating has downgraded

from ‘AAA’ to ‘AA+’ by credit rating agency Standard & Poor’s?

7. In context with banking in India, march 16 1949 is a date which marks?

8. Which was the first listed company on the NYSE?

9. Who founded the famous wall street journal?

10. In the financial world, what is a zombie?

BY

VISHAL BAJAJ

I MBA ‘D’

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CROSSWORD

Across

4. Mutual offsetting of claims and liabilities from identical types of transaction between two

parties (7) 5. A member of a stock exchange who was hammered and expelled from the membership for

being unable to meet financial or contractual obligation. (8) 6. The length of time a debt security has been publicly traded. (9) 7. Gold minted currency issued by People's Republic of China. (A famous cartoon character

has this name) (5) 9. In the financial markets, this can occur when investors gradually assign a higher valuation to

a particular stock or security. (10) Down

1. The individual has the intention of short-selling the stock in order to profit from a drop in

price, or purchasing the stock after the price drops. (11) 2. Independent online currency exchange that is used by corporate forex traders and other large

institutional traders (8) 3. A bankrupt or insolvent company which contributes to operate while it awaits a closure or

merger. (6) 8. An indicator used in technical analysis to determine if a financial instrument is trending in a

particular direction (Abbreviated) (3)

By Nagarajan.T I MBA ‘B’

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1

2

3

4

PHOTO FIND

By MuteebRaina I MBA ‘C’

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QUIZ ANSWERS

1. Merrill Lynch

2. Goods and services tax (GST)

3. Security paper Mill at Hoshangabad, Madhya Pradesh

4. Junk bonds

5. IDBI

6. USA

7. Banking regulation act coming in force.

8. Bank of New York

9. Dow Jones & Company

10. Zombies, also called living dead, are companies that continue to operate even though they’re

bankrupt.

ANSWERS

CR OS S W ORD ANS W ERS

A cross

4. NETTIN G— M utual offse tting of claim s and liabil ities from identical types of transact ion

betw een two p arties 5. LAM EDU C K— A me mber of a stoc k exc hange w ho w as ha mme red and expel led from the

mem bership for bein g un able to mee t fina ncia l or c ontractual obl igat ion. 6. SEA SON IN G— T he le ngth of time a d ebt secu ri ty has be en publicly t raded. 7. PA ND A— G old m inted currenc y issue d by Pe ople 's R epublic of China. 9. PRIC EC REEP— In the fina ncia l m arkets, this c an occur when inve stors gradual ly a ssign a

higher valuation to a pa rticular stoc k or se curity. D own

1. STO CK BASHER — The individual has the intent ion of short -se lling the stock in order to

profi t from a drop in price, or purch asing the stock after the p rice d rops. 2. CU RR EN EX — Inde pende nt onl ine currenc y e xchange tha t is used b y corpora te forex

traders and other la rge in st itut ional trade rs 3. ZO MBIE— A bankrupt or insolve nt com pany w hich contributes to operate w hile i t aw ai ts a

closure or me rger. 8. DMI— Direc tional Movement Index is a n indicator used in tec hnica l analysis to

determ ine i f a f inancia l instrument is t rending in a part icu lar direct ion (Abbreviated)

PHO TO FIND ANS W ERS :

1. M D Mallya -Bank O f Baroda

2. M N are ndra -Indian O verseas Bank

3. M V Tanksale -Centra l Bank of India

4. M V N air -U nion Ba nk of India

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TEAM NISHKA

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Faculty Co-ordinator: Prof. Anirban Ghatak Co-ordinators: Rishi Bansal(sec A)

Niveda(Sec B)

Editors: Karthik.R(Sec D)

Sovraj(Sec B)

Creative and Designing: Meenambika(sec C)

Siddhartha(Sec C)

RBI column: Vivek(Sec C)

Devi(sec D)

Articles: Nidhi Jaiswal(sec B)

Prashant (sec B) Prabhu Raj(sec C)

Stock Analysis: Abhishek Jain(Sec B) Arpit(Sec A)

Crossword: Nagarajan.T(Sec B)

Finance Buzz: Kumaran(Sec B)

Photo Find Muteeb(Sec C)

Economicrollers: Dhawal Parmar(Sec B)

Campus Poll: Akhilesha.K(Sec D)

Pruthvi(Sec A)

Finance Quiz: Vishal(Sec D)