VOLUME 4.13ISSUE 75

October 1, 2010

Before you can really start setting financial goals, you need to determine where you stand financially.

-David Bach

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Graphs

NewsNational & International events in the world of finance

DebateIPO’s in Real Estate Sector

Contemporary ArticlesNew Inflation Calculation ProcessBull run of BSE sensexIs the Bull Run in Indian markets sustainable?

ScamBarings Bank Scandal

Buzz Words

Commodities ArticleChart Patterns & Technical Analysis of Commodities

Stock watchReliance Industries Ltd.

Alumni SpeakA peek into the corporate world through our Alum-

ni’s experience.

CrosswordsCheck your Financial Quotient.

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By Sachin, MBA - M

RepoReverse RepoCall rateInflation (as on 14 Sept.)Forex Reserve(as on 24th Sept.)91 day T-BillIIP (for July)6.90 GS 2019

6.00 %5.00 %4.50-7.25 % 8.50% $ 287.734 billion

6.2735%+13.8% 8.0907-8.0907%

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student’s caRtoon

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44.6

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15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

Rs/$

Rs/$

17500

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Gold(per 10 gram)Gold(per 10 gram)

74

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15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

Oil(per bbl) Oil(per bbl)

5,200.00

5,400.00

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6,000.00

6,200.00

19200

19500

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20100

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15-Sep 18-Sep 21-Sep 24-Sep 27-Sep

sensex nifty

11000000

17700000

24400000

31100000

37800000

44500000

5200

5400

5600

5800

6000

6200

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future rates open interest

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inteRnational news

• UShealthcarecompanyJohnson&Johnson,lookingtocatapultitselfintotheglobal

vaccinemarket,isintalkstopay$2.3billiontobuyDutchBiotechCrucell.

• EuropeanunionagreedtosignafreetradeagreementwithSouthKorea,whichisthe

firstgenerationofbilateraltradeagreementwhichwillbindEuropeandAsiatogether

inaneverclosereconomicbond.

• HSBCHoldingsPlcwillpromoteStuartGulliver,HeadofinvestmentbankingatLon-

donbasedHSBCtoCEOafterMichaelGeogheganresigned.

• PetroleoBrasileiroSAraised$70billionfromtheBrazilianGovt.andtheotherinves-

tors,intheworld’slargestsharesaleasitseekscashtodevelopoffshorefields.

• HewlettPackardCo.hassettleda legaldisputeoverOracleCorp’shiringofMark

Hurd,asthetwocompaniesmovedtopublicallymendfencesandputthecontentious

issuebehindthem.

• RBIraisedreversereporateby50bpsto5percentandreporateby25bpsto6

percent.Thisisthefifthtimethisyearthatthecentralbankhasraisedratestoreinin

highinflation.

• Todevelopthe localbondmarketandboost longtermforeign investment in infra-

structuretheGovtincreasedtheinvestmentlimitsforFII’sinGsecsandcorporate

bondsby$5billioneach.TheCapinGsecsandcorporatebondsnowstandsat$10

billionand$20billionrespectively.

• UIDAIchairmanNandanNilekanisaidUniqueIdentificationAuthorityofIndia(UID-

AI),isallsettorolloutAadhaar,theUniqueidentificationnumbertotheresidentsof

thecountrybytheendofthismonth.

• India’sFOREXreservesroseby$3.23billionintheweekendedSeptember17to

$287.73billionreflectingstrongcapitalflowsandfluctuationsinthevalueoftheglob-

alcurrenciesandthisisthebiggestriseinreservesinaweeksinceSeptember11,

2009.

national news

By Elizabeth Merin Mathew, MBA-L

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By Gaurav Jain II MBA K By Rony Thomas II MBA-N

Against:

“ANTAGONISTIC vIEw OF ENTRANTS INTO IPO’S IN REAL ESTATE SECTOR A SELF-dESTRuCTIvE MOdE AhEAd”.

The National Housing Bank (NHB), theregulator for housing finance companies,on 27th September advised lendersto exercise caution on lending to high-valueproperties,evenasitwarnedthatapotentialrealestatebubblewasbuildingasresidentialpricesinseveralregionsinthecountrywerebreachingtheirlifetimehighs.Acautiousapproachisneededtoensurethat a repeat of the crisis in the housingmarketinlate2008isnotmade.Theglobalmarkets went tumbling in 2008 as sub-primerealestatelendingintheUScreatedseveral defaults forcing the valuation ofassets crashing down by over 50 percent. Several banks and insurance firmswereonthebrinkofbankruptcyincludingCitibank andAIG. Lehman Brothers hasalready filed for chapter 11 bankruptcyprotections in theUS.Just to reduce theoccurrence the similar instances, manyreal estate companies such asMANTRI,PURVAareplanningtoventureintoinitialpublicoffering.

Forexample,thepriceshaverisen`6000persquarefeetaroundforuminBangalorein2005to`29,000todayforthesame.Projectshaveseenariselandcostsgoupfrom40 to 50 percent involved earlier totodaytotwothirdsoftheproject.Therealestatefirmsareseeking funds tofinanceland acquisitions and lock in runawaylandpricesbut their IPOsare facedwiththeprospectofpoorinvestorresponse.Atleast12 realestatefirmsaresuspendingtheiroffersdespitegettingfinalregulatoryapproval,accordingtoanalysts.Whenthe

InFavour:

“REAL ESTATE COMPANIES ENTERING IPO IS A POSITIvE MOvE”.

The market is booming and the FIIinvestmentsareflowing,sonowthequestionisastowhereistherealtysector,whichisthebackboneofthegrowthofthenation.Itiscalledbackbonebecauseofitsnecessityintheupcomingprojectsandinfrastructuredevelopment. The reality sector is comingmore andmore in the news due tomanyof the reality companiesgoing foran IPO.This can be seen as a revival of fortunesafterplumbingintothedepthsofeconomicslowdownwithatentativereturntotheInitialPublicOffering (IPO)market.Someof thepioneersforanIPOareJPinfratech,EmaarMGFLandLtd,Saharaprimecityetc.

Letusseewhat ishappeningintherealitysector. During the slow down period, thesales had decreased by 50%. So thedevelopers had to slash the prices andlaunch new residential projects at lowerrates. This was the scenario back then.Butnowtherehasbeenavisiblechangeinthescenariowithnewprojectscomingup.With all these considerations in mind, wemustaskourselvesifthecompanieswouldbeabletomanagewithouttheinitialpublicoffering.

It is said that Initial public offerings (IPOs)worth$6billion,fromrealestatefirmsareindangerwith the increasingmortgage ratesandhighprices intherealtymarket,whichwasonceflourishing.OfficialdatarevealthatonlythreerealtyIPOshavebeenlaunchedthisyear.Therealtycompaniesarelookingoutforfundssothattheycanacquirelands.Manyof the investorsalso feel that things

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iPos in Real estate sectoR

existingplayersare themselvesfinding itdifficult to sustain in the capitalmarkets,new entrants are sure to struggle for itsexistence.

The expansion in the real estate sectorwill also lead to many environmentalissuessuchasdeforestationasitinvolvesexcavationstobemadeingreenareas.

Thus, real estate firms entering IPO isdefinitelyawrongmove!!!

have improved over years and they arereturning to the market and so the IPO’swilldowell in thecomingdays.Fore.g. :-GodrejPropertiesLtd.,thefirstdevelopertosellsharesinanIPOinIndiaafteragapofalmosttwoyearsraisedRs4.69billionlastDecemberandthestockhasgainedabout3%,sinceitstradingdebut.

An IPO becomes successful when acompany provides sustainable returnsto the investor and ample liquidity in thestock.The success of upcoming IPOswilldepend on their timing and the prevalentmarketscenario.Butinthecurrentsituation,real estate companies entering into IPOwill surely yield favourable results to thecompanyaswellastheeconomyatlarge.

new inflation calculation PRocess

Overhauling the dynamics of calculating inflation (orWholesale Price Index) – It isyetanotherreformistmovementinIndia;thoughnotabigreform,butnonethelessanimportantchangetokeeppacewithcurrenttimes.

Nearlysevenyearsafterthesettingupofaworkinggroup, chaired by Mr. Abhijit Sen, member of thePlanning Commission, and two years after thepresentation of the technical report, a WholesalePrice Index series with 2004-05 as the base yearwas proposed to be launched. The Committee ofSecretaries(CoS)initsmeetingheldon9thAugust,2010approvedthereleaseofnewseriesofWholesalePrice Index (WPI) with 2004-05 as its base anddirected that itmaybe releasedonSeptember 14,2010.

Though thewaithasbeen long,onecan feelgoodthatithasbeenworththewhile,astheWPIinitsnewavatarissaidtobethebesteverconstructednotonlyintermsofthenumberofcommoditiesitcoversbutevenintermsofthenumberofpricequotationstobereliedupontoconstructtheindexatafundamentallevel.

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By Yugesh M. II MBA-L

5 CHAANAKYA VOL 4_13

HerearesomeofthebroadfeaturesofnewseriesofWPI:• Arepresentativecommoditybasketcomprising676itemshasbeenselected.• Anewweightingdiagram(newweightsfordifferentclassesofcommodities).• Thenumberofquotationsselected forcollectingpricedata for theabove items is

5482.

ThusthisnewWPIseriesincludesatotalof676itemsinclusiveofallthethreemajorcomponentsi.e.theprimaryarticles,fuel&powerandmanufacturedproductswhichareanimprovementby241itemsfromthepreviouslistcomprisingof435itemsonly.Thebasketofmanufacturedproductshassurgedfromearlier318itemsto555itemsnow.Thelistunderprimaryarticlesthatincludefood,cerealsandgrainsetc.hasgoneupfrom98to102.Thefuelandpowercategoryremainsstaticat19items.

Inadditiontothisthenewseriescomprisesofdifferentweight-agelevels,relativetothechangesintheeconomyoveraperiodoftime.Forinstance,theweightofmanufacturedproducts has surged from63.74%asper 1993-94baseprice levels to 64.97%now,retainingthelionsshare.Ontheotherhand,theweightofprimaryarticlesinthenewindexhascomedownto20.11%asagainst22.02earlier.Assuch,thefoodpriceswouldstillcompriseabigfifthofashareintheWPIindex.

A comparative statement showing the weights assigned to different classes ofcommoditiesincludedinthenewcommoditybasket,thenumberofitemsincludedinthenewcommoditybasketandthenumberofquotationsthatwillusedtocollectthepriceforthesecommodities,betweenthecurrentseriesandnewseriesforthemajorgroupsofcommoditiesaregivenbelow:

MajorGroup Weight No.ofitems No.ofQuotations

P r e s e n tBase Year2004-05

P r e v i o u sBase Year1993-94

P r e s e n tBaseYear2004-05

P rev i ousBase Year1993-94

P r e s e n tBase Year2004-05

P r e v i o u sBase Year1993-94

AllCommodities 100.000 100.000 676 435 5482 19181.PrimaryArticles 20.118 22.0253 102 98 579 455

2.Fuel&Power 14.910 14.226 19 19 72 72

3 . M a n u f a c t u r e dProducts

64.972 63.749 555 318 4831 1391

This recastof theWPIserieswasverymuch requiredasoneknows that theWPI isusedtomeasuretheinflationintheeconomyandthisisbasedonthepricemovementof thebasketofgoodsasmentionedearlier.But in India’scase thisbasketofgoodswasdecidedmorethanadecadeago.AndthemanychangesthathavetakenplaceintheconsumptionpatternofpeopleovertheseyearsmakesthepresentWPIoutdated.Duetowhich,only16-20%ofthegoodsinthecommoditybasketcontributedtotherealchangeinWPI,asrestofthegoodspresentinthebasketwerealmostoutofuse.

Furthermoreitbecamenecessarytorecasttheindextoreflectthestructuralchangesin theeconomy that have takenplaceover the last 15 years, aswell as new tastes

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andpreferencesoftheconsumersthatstandtodriveouttheoldcomponentssuchastypewriters,videocassetterecordersetc.andbringinsomenewonesinthecommoditybasket.

Therefore,advancingthebaseyear(bywhichthepriceriseismeasured)byadecadefrom1993–94to2004–05,makestheWPImoreindicativeoftheactualpricemovements.Thischoiceof2004–05asthebaseyearisbecauseitisdeemedtobeanormalyear.Interestingly,thenewWPIindexalsoincludesthemorecommonlyuseditemssuchasrefrigerator,washingmachine,microwaveoven,computerandTelevisionsetsetc.whichhavenowturnedintobasicneedsoftheconsumerfromwants.Infact,evenConsumeritemswidelyusedbymiddleclasssuchice-cream,mineralwater,readymadeandinstantfoodproducts,cannedmeat,leatherproducts,dishantennaandevenpreciousmetalslikegoldandsilverfindsitsplaceinthenewindex.Anothernotablefeatureistheinclusionofcrudepetroleumwiththepricetobeobtainedinthedomesticmarket.Astotheothercommoditiesareconcernedthepricestobecollectedwillbeatthefirstpointofbulksalein thedomesticmarket.Thus theseentire improvementsmake thenewWPIseriesamorerelevantandeffectiveindicatorofinflationbasedonmodernconsumption.

Bull Run of Bse senseX

INTRODUCTIONAsthebullruncontinuedintheBSE,themarket finally reached the psychologicallevelof20000on21stSeptember2010,afteralonggapofthirtytwomonths.Thejourney from20000(Oct2007) to20000(Sept 2010) has been a roller coasterride. Starting with the financial crisis ofLehmanBrothersandthenfollowedbytheEuropean debt crisis this year, affectingthe Indianmarkets too.However, strongsupportfromforeigninstitutionalinvestors(FII) over the last fewmonths has beenfuellingthemarket.

CONTENTForthelastfewdaysithasbeenseenthattheForeignInstitutionalInvestors(FII)areonashoppingspree.FIIhavepushedabout` 11716cr.intheBSEsensex.FII’shavebeenmainlyfocussedonthelargecapshares,asithasbeenseenthatperformanceofmidcapandsmallcaphasbeenlaggingtheperformanceofsensex.TherallyhasbeenprimarilydrivenbyFII&hasbeensupportedbytheabsenceofanynegativenewson

By: Rohit dhannawat I MBA-L

7 CHAANAKYA VOL 4_1308

theglobalmarketwhichcouldhaveaffectedsentimentsofthesharemarket.ThegainsoftheIndianmarkethaveoutpacedthatforallothermajormarketsoftheworldinrecenttimes.

ThereasonsforthesustainedFIIinflowcanbeseenbecauseofmanyfactors,suchastheoverallgrowthoftheeconomyislikelytobearound8.5%,whichisquitesatisfactory.Themonsoonhasalsobeenmoreorlessprettydecent,whichmeansthatkharifcropwillbefine.Theinflationhasbeenhighforfoodproducts,butthatismostlybecauseofthehighdemandandnowithasstartedtostabilize.Thetradedeficithasalsobeenhighforthesamereasonthatourcountryproduceslessthanitneedstokeepthegrowthinindustrialoutputup.Thebankcredit isalsoexpandingatareasonablepaceofabout20%.Thanks to the recent spectrum auctions and some disinvestment alongwith astrongForexreserveof$285billion,theIndianeconomylooksstrong.

ThelocalinvestorsdonotseemtohaveparticipatedasmuchsincemuchoftheliquidityhasbeencomingfromtheFIIs.Sensexhasrousedfrom17000pointsto20000pointsinthelast18monthsandduringthistimethefundhouseshaveemergedasthenetsellersduringthisperiod.Asagainst`50760cr.net inflowfromFIIs, fundhouseshavesoldassetsworth`11300cr.intherisingmarket.Ithasbeenmainlyduetocontinuousandrisingredemptionsatatimewhenthenetvalueoftheequityschemewereatlifetimehigh.Investorsdonotwanttotakeanymorerisk.

Many stocks are quoting substantially low price earning or P/E ratio than the levelsrecordedinOctober2007.TheP/Emismatchcouldmeanthatinvestorsarevaluingthecompaniesmorereasonablythaninthepastoritcouldalsomeanthatthestocksaregrosslyundervalued.

SensexrallyhasbeendrivenbyFIIisawellknownfact.DomesticInstitutionalInvestors(DII)werenotpartof therally isequallywell-known.Whatcomesasabitofsurprisethough is that the twoactually invest ina counter- cyclicalmanner.OnDec112007,whenBSEsensexcrossedthepsychologicallevelof20000,FIIinvested`300Cr.DII,comprisingofmutualfundsandinsurancecompanies,invested̀ 308cr.Butafterthatthetrendhasbeenquitedifferent.

OnJan152008,whenthesensexonceagainclosedabove20000points,FIIsinvested`174cr.andDIIinflowswereat`519.5cr.astheysoldequitiesinpanicfearingthatthebenchmarkwassettogoforacorrection.AgainonSept212010,whenthesensextouched20000pointsafter32months,FIIsputin`402cr.whileDIIswerenetsellersat`208cr.FromJulytoSept2010,FIIshaveinvestedover`50000cr.&DIIhavepulledoutover`11000cr.

CONCLUSIONWhat is so special with the number 20000? More than anything else it is just apsychologicalfactor.Humanshavealwaysbeenmorecomfortablewithroundnumbers.Butthequestionarisesshouldsmallinvestorsbeworriedwiththecurrentmarkettrend?

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Themarkethasbeenpartyingforpast18months.Theracefrom19000to20000pointsdidnot takeeven10 tradingsessions.Thenew investorsshouldavoidentering intothemarketnow,andcanlookforalternativessuchasSIP.Forthosewhohavebeeninmarketforalongertime,itisagoodtimeforthemtogetridofthenonperformerseveniftheprofitmarginisverylow.Andfortheperformingassets,partialprofitbookingshouldbedone.

TheBullRunisexpectedtocontinueforsomemoretime.Themarketmaygotoanewhighbeforecorrectiontakesplaceinthemarket.Thatmightbeagoodtimetodosomebuying,especiallyinundervaluedsectors.

BaRinGs Bank scandal

Barings Bank(1762to1995)wastheoldestmerchant bank in London until its collapsein 1995 after one of the bank’s employees,Nick Leeson, lost £827 million ($1.4 billion)speculating-primarilyonfuturescontract.

HistoryBaringsBankwasfoundedin1762asthe‘JohnandFrancisBaringCompany’bySirFrancisBaring,thesonofJohnBaring,originallyfromBremeninGermany.TheBaringfamilylivesinbothGermanyandEngland.

In 1806 his sonAlexanderBaring joined thefirmandtheyrenameditBaringBrothers&Co., mergingitwiththeLondonofficesofHope&Co.,whereAlexanderworkedwithHenryHope.

Baringshadalongandstoriedhistory.In1802,ithelpedfinancetheLouisianaPurchase,despitethefactthatBritainwasatwarwithFrance,andthesalehadtheeffectoffinancingNapoleon’swareffort.Technically theUnitedStatesdidnotpurchaseLouisiana fromNapoleon. Louisiana was purchased from the Baring brothers and Hope & Co. ThepaymentforthepurchasewasmadeinUSbonds,whichNapoleonsoldtoBaringsatadiscountof871/2pereach$100.Asaresult,Napoleonreceivedonly$8,831,250incashforLouisiana.AlexanderBaring,workingforHope&Co.,conferredwiththeFrenchDirectorof thePublicTreasuryFrançoisBarbé-Marbois inParisandthenwent to theUnitedStatestopickupthebondsbeforetakingthemtoFrance.

LaterdaringeffortsinunderwritinggotthefirmintoserioustroublethroughoverexposuretoArgentine andUruguayandebt, and the bank had to be rescuedby a consortiumorganizedbythegovernoroftheBankofEngland,WilliamLidderdale,inthePanicof1890.While recovery from this incidentwasswift, itdestroyed thecompany’s former

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bravado.

Its new, restrained manner made it a more appropriate representative of the Britishestablishment,andthecompanyestablishedtieswithKingGeorgeV,beginningacloserelationshipwiththeBritishmonarchythatwouldendureuntilBarings’collapse.(Diana,Princess of Wales, was the great granddaughter of one of the Barings family.) ThedescendantsoftheoriginalfivemalebranchesoftheBaringfamilywereallappointedtothepeeragewiththetitlesBaronRevelstoke,EarlofNorthbrook,BaronAshburton,BaronHowickofGlendaleandEarlofCromer.Thecompany’srestraintduringthisperiodwouldcostititspre-eminenceintheworldoffinance,butwouldlaterpaydividendswhenitsrefusaltotakeachanceonfinancingGermany’srecoveryfromWorldWarIsaveditthepainfullossesexperiencedbyotherBritishbanksattheonsetoftheGreatDepression.

DuringtheSecondWorldWar,theBritishGovernmentusedBaringstoliquidateassetsintheUnitedStatesandelsewheretohelpfinancethewareffort.AfterthewarBaringswasovertakeninsizeandinfluencebyotherbankinghouses,butremainedanimportantplayerinthemarket,untilin1995.

1995 collapse:TheBaringsBankcollapseof1995isconsideredapivotalturningpointinthehistoryofbankingandhasbecomeatextbookexampleofaccountingfraud.Overaperiodofthreeyears, Nick Leeson, a Singapore-basedmanagement employee of London’s BaringsBank, lost£827million (US$1.4billion),primarilyon futurescontractspeculation,andthroughmanipulatingtherecords,hidhisactionsuntilFebruary1995.Whenthelosseswere revealed,BaringsBank— theoldestmerchantbank in theCityofLondon, theQueen’spersonalbankandthefinancieroftheNapoleonicWars—wasforcedtodefaultonitsaccounts.

Atthetimeofthemassivetradingloss,Leesonwassupposedtobearbitraging,seekingtoprofitfromdifferencesinthepricesofNikkei-225futurescontractslistedontheOsakaSecuritiesExchangeinJapanandtheSingaporeInternationalMonetaryExchange.Sucharbitrage involves buying futures contracts ononemarket and simultaneously sellingthemonanother.Sincethemarginsonthisaresmall,thevolumestradedbyarbitrageurstendtobelarge.However,becauseoftheoffsettingmovementsofthehedgedposition,thestrategyisnotveryrisky,andcertainlywouldnothavebankruptedthebank.Insteadofhedginghispositions,however,LeesongambledonthefuturedirectionoftheJapanesemarkets.AccordingtoEddieGeorge,thegovernoroftheBankofEngland,MrLeesonbegandoingthisat theendofJanuary1995.Duetoaseriesof internalandexternalevents,hisunhedgedlossesescalatedrapidly.

Aftermath:ING,aDutchbank, purchasedBaringsBank in1995 for thenominal sumof £1andassumed all of Barings’ liabilities, forming the subsidiary ING Barings. In 2001, INGsold theU.S. basedoperations toABNAmro for $275million, and folded the rest ofINGBarings into itsEuropeanbankingdivision.This left only theassetmanagementdivision,BaringAssetManagement.InMarch2005,BAMwasthensplitandsoldbyING

toMassMutual(acquiringBAM’sinvestmentmanagementactivitiesandtherightstousetheBaringAssetManagementname)andNorthernTrust (acquiringBAM’sFinancialServicesGroup).BaringsBankthereforenolongerhasaseparatecorporateexistence,although theBarings name still lives on as theMassMutual subsidiary BaringAssetManagement.NickLeesonfledSingaporebutwasarrestedinGermanyandextraditedbacktoSingapore,wherehewasconvictedof fraudandsentencedtosixandahalfyearsimprisonment.WhileinChangiprisonhewasdiagnosedwithcancer,recoveredandwasdivorcedbyhiswife.Hewroteanautobiography,RogueTrader,coveringtheevents leading up to the collapse. Film-maker James Dearden later dramatized thebookinthefilmRogueTrader.In2006,LeesonwasappointedchiefexecutiveofficerofGalwayUnited,anassociationfootballclubinGalway,Ireland.

Green Investing Mean?Pureplaygreeninvestmentsarethosethatderiveallormostoftheirrevenuesandprof-itsfromgreenactivities.Greeninvestmentscanalsobemadeincompaniesthathaveotherlinesofbusinessbutarefocusingongreen-basedinitiativesorproductlines.

Accrual Rate Mean?Therateofinterestthatisaddedtotheprincipalofafinancialinstrumentbetweencashpaymentsofthat interest.Forexample,asix-monthbondwith interestpayablesemi-annuallywillaccruedailyinterestduringthesix-monthtermuntilitispaidinfullonthedateitbecomesdue.

Abatement Mean?Ingeneral,adecreaseintheamountoftaxationfacedbyanindividualorcompany.

Hobby Loss Mean?Anon-deductiblelossincurredasaresultofdoinganactivityforpersonalpleasurein-steadofforprofit.Ataxpayercannotdeductthehobbylossasabusinessloss.A"hobbylossrule"isusedtodetermineifanactivityisahobbyorabusiness.

Whipsaw Mean?Aconditionwhereasecurity'spriceheadsinonedirection,butthenisfollowedquicklybyamovementintheoppositedirection.

Daisy Chain Mean?Agroupofunscrupulousinvestorswho,practicingakindoffictitioustradingorwashselling,artificiallyinflatethepriceofasecuritysothattheysellitataprofit.

Fill Mean?Theactionofcompletingorsatisfyinganorderforasecurityorcommodity.Itisthebasicactintransactingstocks,bondsoranyothertypeofsecurity.

Buzz woRds

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One of the major premises of technical analysis is that history repeats itself. For thetechnician, the recurrence of identifiable patterns and formations that have precededimportantmovementsofthemarketinthepastprovideimportantcluesastotheprobabledirectionofpricemovement in the future.Chartpatternsare formations thatappearonthechartswhichprovideyouwithforecastingtoolsofimpendingpricemovement.Somepatternsaremorereliablethanothersforpriceforecasting.Noneofthechartpatternsareinfallible.Theyhaveahighprobabilityofsuccessbutarenotguaranteedtoworkallofthetime.Techniciansmustalwaysbeonthealertforchartsignsthatprovetheiranalysistobeincorrect.Aftertrendlines,supportandresistancelineshavebeendrawnonachart,oneofthemostimportantandmostdifficultdecisionsyouwillhavetomakeisdeterminingthetimingofenteringandexitingthemarketaswellasdeterminingwhenamajortopinarisingmarketoramajorbottominadecliningmarkethasoccurred.

There are two types of patterns that develop on charts, the reversal pattern and thecontinuationpattern.Reversalpatternsindicatethatanimportantreversalintrendistakingplace.Knowingwherecertainpatternsaremostlikelytooccurwithintheprevailingtrendisoneofthekeyfactorsinbeingabletorecognizeachartpattern.Someofthemostcommon reversalpatterns include theheadandshoulders: top and bottom, double tops and bottoms,tripletopsandbottoms,keyreversals,islandreversals,rounding bottoms and tops, “V” formations or spikebottomsandtops.Thereareafewimportantpointstobeconsideredwhicharecommontoallofthesereversalpatterns.

1.Theexistenceofapriormajortrendisanimportantprerequisiteforanyreversalpattern.Ifapricepatternhasnotbeenprecededbyanexistingtrend,thereisnothingtoreverseandthepatternwouldthereforebesuspect.Knowingwherechartpatternsaremostlikelytooccurwithinapricetrendisoneofthekeyfactorsinidentifyingpricepatterns.

2.Thefirstsignalofanimpendingtrendreversalisoftenthebreakingofanimportanttrendline.Thebreakingofamajortrendlinesignalsachangeintrend,notnecessarilyatrendreversal.Thebreakingofanuptrendlinemightsignalthebeginningofasidewaystrendwhichmaylaterformeitherareversalorcontinuationpattern.3.Thelargerthepatternthegreateristhepricemovementpotential.Theheightof thepatternmeasures thevolatility, thewidthof thepatternmeasures theamountoftimerequiredtobuildandcompletethepattern.Thegreatertheheightofthepattern (the volatility) and the longer it takes to build - themore important the patternbecomesandthegreaterthepotentialfortheensuingpricemove.

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cHaRt PatteRns & tecHnical analysis of commodities

4.Toppingpatternsareusuallyshorterindurationandmorevolatilethanbottoms.Price swingsatmajor topsarewider andmore violent.Topsusually take less time toformthanbottoms.For this reason it isusually lessrisky to identifyand tradebottomsthantopshoweverthetimespentinestablishingatopisgenerallyshorterthanthetimespentestablishingamarketbottom.Therefore,amarketmanagercangenerallydobetterby trading the downside of themarket rather than the upside of themarket.This hasimportantimplicationsforfarmmanagers,duetothefactthatthenaturaltendencyistotradetheformerratherthanthelatter.

5.Volumeisusuallymoreimportantontheupside.Volumeshouldgenerallyincreaseinthedirectionofthemarkettrendandisanimportantconfirmingfactorinthecompletionofallpricepatterns.Thecompletionofeachpatternshouldbeaccompaniedbyanoticeableincreaseinvolume,particularlyatmarketbottoms.Markettopstendtofallontheirownweightonceatrendreversalisunderway.Atamarketbottom, if thevolumepatterndoesnotshowasignificant increasefollowingtheupsidebreakout,theentirepricepatternshouldbequestioned.

Thesecondtypeofchartpatternisthecontinuationpattern.Continuationpatternssuggestthatmarket isonlypausing forawhilebefore theprevailing trendwill resume.Anotherdifference between reversal and continuation patterns is their time duration. Reversalpatterns usually takemuch longer to form on the chart and representmajor changesin trend.Continuationpatterns,on theotherhand,areusuallyshorter-term indurationandareoftenclassifiedasintermediatetermchartpatterns.Someofthemostcommoncontinuation patterns include; flags, ascending and descending triangles, symmetricaltriangles,pennants,gaps,andrectangles.

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stock watcH: Reliance industRies ltd.By: Saurabh Khator I MBA-L

INTRODUCTIONReliance Industries being one of the largest company by market capitalization andaccountingfor12.77%weightageinSensexismakingitspresencefeltineverysphereofhumanliferangingfrompetrochemicalstotextilesandtherecentbeingtelecomandHospitalitysector.ThoughtheSensexhasgrownbyabout14.5%thisyearandaround11.5% thismonth, Reliance has been up only by 3%, under performing themarketexpectationswhilemovinginthepricerangeof950-1050.

RELIANCE STRATEGYReliancehasalwayspursuedastrategyofbackwardverticalintegration-inpolyester,fibreintermediates,plastics,petrochemicals,petroleumrefiningandoilandgasexplorationandproduction-tobefullyintegratedalongthematerialsandenergyvaluechain.

RECENT DEVELOPMENT’S:RELIANCE FORAY INTO THE TELECOM SECTORAfter the abolishment of non-compete agreement between the two brothers,Mukesh

AmbanihasforayedintothetelecomsectorbyacquiringInfotelBroadbandforUS$1billion;whichsuccessfullywon the license forall the22 telecomcircles in the recentbiddingforWiMAXSpectrum.Withtheentry intotelecomsectorRelianceisridingonthenewwaveofdiversificationandcreatingripplesintheindustryasitisknownforthemassiveandaggressivemarketingstrategyinordertogainthemarketshare.

RELIANCE ENTERS HOSPITALITY SECTOR VIA EIHReliancepushedaheadofitsstrategyofdiversifyingbybuying14.88%stakeinEIH(EastIndiaHotels)groupinthehospitalitysectorwhichoperatesOberoiandTridentgroupofLuxuryHotels.ReliancewillcompetewithplayerssuchasIndianHotelsCoLtd-ownerof theTaj luxurychainandanarmof thesalt-to-softwareTataGroup --and ITCLtd,whichalsomakescigarettes.RelianceisalsoconsideringappointingNeetaAmbani,wifeofMukeshAmbanionboardofdirectorsofEIHwhichisheadedbyPRSOberoi.NeetaAmbani is not new to limelight andbusiness senseas she is successfullymanagingDhirubhaiInternationalSchoolandMumbaiIndians(IPLTeam).ThoughReliancehasdecidednottotakemanagementoroperationscontrolinitshandforthetimebeing,itisinwaitandwatchmoodbeforetakinganyfurthersteps,asitisnewtotheHospitalitysector.EIL is alsoplanning to comeupwith rights issueworthRs1300crore in thecomingmonths.Accordingtocurrenttakeovercode,ifRelianceincreasesitsholdingsbeyond15%,theyhavetocomeupwithanopenoffer;butwiththenewtakeovercodecomingintopracticeitisexpectedthatReliancemayincreaseitsholdingviaRightIssue.

RELIANCE PURCHASE OF SHALE GAS ASSETSRelianceindustriesrecentmoveincludesinvestmentinshalegasassets.TheMumbai-basedfirminAprilhadboughta40percentstakeinAtlasEnergyInc’sMarcellusShaleacreageforUSD1.7billion.InJune,ithadagreedtobuya45percentstakeinPioneerNaturalResourcesCo’sEagleFord shale natural gas asset inTexas for aboutUSD1.36billion.ItalsoagreedtopayUSD340millionincashtoacquirea60percentstakeintheMarcellusshale-gasacreagesheldbyCarrizoOilandGasIncanditspartnerinAugust.MukeshAmbaniinhisstatementtoshareholderssaidthat“shalegasislikelytoovertakeconventionalgasandliquidfuelsasasourceofenergyinthenextdecadeandReliancewillcommitinvestmentswithlow-costoperatorstoexpeditethedevelopmentofthisresource”.RelianceinterestinshalegascomesasitsoughtstakesinatleasttwooverseasenergycompaniessinceNovember.TheMumbai-basedcompany’sattempttobuybankruptLyondellBassellIndustriesAFwasrejectedthismonthanditmissedoutonanoilsandsblockownedbyCanada’sValueCreationInc.OnceRelianceestablishesandsucceeds inShalegasbusiness, theycangoforbig-ticketacquisitionsandbringthattechnologyandexpertisebacktoIndia.Indiaplanstooffershale-gasareasforexplorationfor thefirst time inaboutayear,afterassessingreservesandcreatingrulestotapunconventionalenergysources.

SALE OF TREASURY SHARESThemarketisalsofilledwithrumoursofRelianceplanningtosellmoretreasurysharesin thecomingmonthswhichwouldresult inhugetaxsavingasaccording to thenewDirectTaxcodecomingup,therewouldbea15percenttaxonLongtermcapitalgain.LICisalsoplanningtobuyasignificantstakethistimealso,asinearliertreasuryshare

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14 CHAANAKYA VOL 4_13

salebyRelianceitbroughtsharesworth`2600croreat1035/share.

BP AND RIL TO DISCUSS JOINT VENTURE AND ASSET SALEBPandRelianceIndustries(RIL)willsettheballrollingondivestmentandjointventureopportunities.BPisexpectedtodiscussRIL’sinterestinitsexplorationassetsinNorthAfrica,downstreamassetsinWestandSouthAfricaanditspetrochemicaloperationsinVietnam(whichBPislookingtoexit.

CONCLUSIONWithallthefactorsconsideringtheReliancerecentacquisitionofShalegasassetsanditsrecentforayintotheTelecomandHospitalitysector,theprospectsofReliancelooksgood. Reliance despite being a heavyweight is still underperforming the benchmarkSensex.The next big rally is expected to be carried out byReliance Industries Ltd.Companies like Reliance Industries with EPS of 14.80 have a lot of cash and arediversifying in variousbusinesses toearnbetter returns.Thiswill help improve theirvaluations. Reliance is currently trailing at P/E ratio of 15.39 which makes it higlyundervaluedstock.Thecurrentrecommendation is toconsiderbuyingthesharewitheverydipkeepingstoplossof950,withsupport levelat980andresistanceat1040.Therallyinmarketwasduetoconsumergoods,metalandbankingshareswithoilandgassectorbeinglaggard,sowecanseemomentumbuildingupinthesesharesandReliancebeingamajorplayerinthefield,thereiscertainlygoingtobesomeactioninthecomingdays.Theretailinvestorswithshorttermperspectiveareadvisedtomaintainastrictstoplossaswithalotoftelecomplayersalreadyexistinginmarket,itwouldnotbeeasyforReliancetopenetratecustomerbaseeasilyandwhilewithshalegasassetswhichrequirehuge initial investments, thereturnareexpected todeliverovera longperiodoftime.Soinvestorswithlongtermviewcanconsiderinvestingatcurrentlevels.

is tHe Bull Run in indian maRkets sustainaBle?

AnothermarketrallyintheIndianstockmarketwheretheretailinvestorsremainedmerespectatorsandhavemissedthetrainoncemoreisthepremiseofthisarticle.NowthebigquestioniswhetherthisBullRunwhichthemarkethaswitnessedissustainableornot!Letuslookatafewfactorswhichhaveledtothisspurtinbuyingactivity.

Themost importantfactorremainsthehugeFII inflowofmorethan$2.5billionwhichhavebeen instrumental in fuelling this rally.However it isnecessary toanalyzeas towhatmakesIndiatheshiningstarinaglobaleconomyfacedbyuncertaintyandvolatil-ity.Wehavehadabout$15billioncomingintoIndianequitiesthisyear.Themarketwassuccessfulinclosingabovethepsychologicalbarriersof6000fortheNiftyand20000fortheSensexbuthasfailedtoremainabovetheselevelsinthefollowingtradingsessions.Therearemany reasons for thisskepticismas thevaluationsseems tobeabithighatleasttodomesticinvestors.Therallyhasbeenprimarilydrivenbyconsumergoods,bankingandmetalshares.

By: Syed Azhar MBA-L

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AnotherfactoristheriseinglobalequitiesonSep21aftertheUSFederalReservein-dicatedthatitwouldcomeoutwithfurtherstimulusmeasuresandkeptkeypolicyratesunchanged.TheNiftymanagedtocloseabove6000onthatday.

NowcomingtoChinawhichhasremainedtheglobalmanufacturinghubemployinghugeeconomiesofscale,thefuturepolicyenvironmentinChinalooksbleak.Indiaontheoth-erhandisdoingitsbesttocatchupwithaveryfriendlypolicyenvironment.TherecentincreaseinFIIcapisanexampleofthistypeofpolicyenvironmentwhichpromotesin-vestments.Intheirrushtocreatemassivemanufacturingunits,withlittleregardforpriceandprofitmargins,theChinesehavefallenintoatrapofnon-performingassets(NPAs)onbankloans–theaverageNPAinChinacouldbeashighas25%.Incontrast,NPAsinIndiaarebetween1.5%and3%.StructurallytheIndianmarketisbetterthanChina.For-eigninstitutionsarenowconcernedaboutthenontransparentpricingmechanismandtheveryhighnonperformingassetsofChinesebanks.ThishasresultedinnewfundsforinvestmentsbeingdivertedtoIndiainsteadofChinabyforeigninstitutionalinvestors.AwordofcautionhereisthatifglobaleventsdonotturnouttobeasexpectedandiftheUSeconomydoesgointoadoubledipthenwemayseethepossibilityofa20%correc-tionintheshortrun.Thesensexhasshownverygoodsupportat18000levels.

However,investorshavetothinktwicebeforeenteringbankingstockswherewehavegotten a little ahead of ourselves in terms of valuations and earnings potential. TheworryingfactoristheaccelerationinbuyingactivityinthemonthofSeptember.IndiaatthispointoftimeisoneofthehighestvaluedmarketsintheworldbutUSinvestorsareunfazedbyit,aslongastheygetreturnontheirequitytheyarewillingtopayforgrowth.AccordingtoreportsIndiaislikelytoseesustainedlongtermgrowthof7%whichwillbedrivenbyIndia’sdemographics,butthegovernmentneedstodoalotmorewhenitcomestoinfrastructuredevelopment.ThisiswhereIndiahasbeenfoundstrugglingtoevenbecomparabletoChina’smassiveinfrastructuredevelopmentplans.Unlesstherearedramaticimprovementsineducationandinfrastructuredevelopmentthesustainabil-ityofthisgrowthbecomesquestionableandcanfizzleoutintoashortlivedboomcycle.

ThemarkethasbeenimprovingduetostronglyimprovingfundamentalslikeIIPnum-bers,quarterlyresultsandlowinterestratesinglobalmarkets.WiththeFedindicatingthat thenearzero interest ratesare there tostay in thenear futureUS investorsareusingthischeapcredittoinvestinemergingeconomieslikeIndia.WefindasituationwheretheglobalsavingsespeciallyoftheUSbeingdirectedtoIndiaforinvestmentandthisisnotspeculativemoneywhichwouldbetakenoutintheshortterm.

Thecurrentuptrendinthemarketisthereforesustainablebutwemayseesmallcorrec-tionsduetoprofitbookingbyretailinvestorsandfewconservativedomesticfundhousesasmanybluechipstocksaretradingattheir52weekhighs.Anysmallcorrectioncanbetakenasanopportunitytobuy.Thelasttimein2007whentheequitymarketspeakedtheyweretrailingatabout23timestheforwardearningsPE.Currentlyweareatabout19times,soacontinuationoftheuptrendtoabout24to25timestheforwardearningsPEisquitelikely.

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Althoughthemarketseemsexpensiveatcurrentlevels,investorswithathreetofiveyearinvestmenthorizonshouldnothaveaprobleminpickingstocks.Thisiscertainlynotabubbleinthemaking.SowiththeIndianeconomyexpectedtogrowatabout9%,strongcorporategovernance,possibilityofgoodmonsoonsandrobustdomesticdemandtheIndiagrowthstoryisfarfromover.

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finance-de-HumoR

Jokes aPaRtTradingonlineisjustgreat.Ifinditreallyspeedsthingsup.Inowgetmymargincalls5xfasterthanbefore

Thereareprimarily3different typesof investorswhoposton themessageboards.1.Thosewhodon'tknowanything:approx.10%2.Thosewhoknowalittle:approx.10%3.Thosewhodon'trealizetheydon'tknowanything:approx.80%

From Dimgroup.com

Inthiseditionwehavewithus,Ms.SindhuBNavali.

Ms. Sindhu B NavaliBusinessAnalyst

FidelityInvestmentsBatch:2006–08

CONTACT DETAILSMobileno:+91-9880959798

Emailid:sindhu.navali@yahoo.co.in

The following are excerpts from an interview with Ms. Sindhu B Navali., a finance alum-nus who passed out in the year 2008. She is currently working with Fidelity Investments where she has been a Business Analyst for the past 24 months. Her work profile involves data modelling, analysis, reporting and score carding, mostly dealing with Statistics.

Chaanakya:Canyouexplainindetailaboutyourroleinyourorganization?Ms. Sindhu B Navali:Asananalystmyroleistoprocuredatafromdifferentsourcesandmatchthem,createdatabaseandvalidatethedata.Thedatausuallycomefromthein-ternalvendorshoweversometimesdataalsocomesfromexternalvendors.Accordingtotherequirementswekeeponchanging.Afteranalysisisdoneweshareitwithourbusi-nesspartnersbasedonwhichthebusinessdecisionsaretaken.Finallythemodellingisdoneintermsofhowtheyareperformingandhowtheycaneffectivelyperform.

Chaanakya:Sinceyourjobinvolvesalotstatistics,whatarethevariousstatisticaltoolsthatyouhavetouseatwork?Ms. Sindhu B Navali:Yes,indeedthejobofabusinessanalysttypicallyinvolvesalotofstatistics.Iamthankfultoourprofessorsatcollege(SreejaMa’amparticularly)forhavingmademybasicsofstatisticssostrong.Itisthatknowledgewhichhascomeinveryhandyandmademyworkeasier.

ThevarioustoolsthatwehavedealwithalmostdailyatworkareSASprogrammingsoft-ware,MSExcel,CHAIDetc.

Chaanakya:Whatdoyou thinkareabsolutenecessaryrequirements fora jobprofilesimilartoyours?Ms. Sindhu B Navali:FidelityInvestmentsbasicallylooksforstudentswhoareeitherMBA-FinanceorMarketing(evendualspecialisations)orCFAforperformingtheroleswhicharecurrentlyperformedbyme.Sharpanalyticalskills,abilitytodealwithpressureandstrongbasicknowledgeofstatisticsaresomeoftheabsolutemustsforajobprofilelikethis.

alumni sPeakBy: CLIFFORd CARdOZA

MOhIL KAPOOR SMIThA JOSEPh

18

Chaanakya:Whatare thedifferentcertifications thatwillhelpstudents tounderstandyourjobrole?Ms. Sindhu B Navali:Additionalqualificationsalwaysgiveyouanupperhandbothwhilerecruitmentaswellaswhiledealingwithday todaywork.Someof thequalificationswhichcanbeveryhelpfulforajoblikethisareSAS-2ndstage,Advanced&BaseSASandalsoCFA&CAcertificationtoanextent.

Chaanakya: Howdoesyourdepartmentcontributetothebusinessoftheorganization?Ms. Sindhu B Navali:ThisdepartmentcomesunderMarketingbutwedon’tdoanysell-ing.It’smoreofamarketingresearchandstrategies.Itinvolvespreparingreportsandsharingitwiththepartners.Strategiesdependonwhatkindofanalysisandmodellingisdone.

Chaanakya:CanyoutellushowSASisusedatwork?Ms. Sindhu B Navali:SASisbasicallyaProgrammingtoolbeingused inallsortsofworkwe do to import and export the data.Various statistical aspects like regressionlogistics,means,ANOVAarealsoperformedusingit.Itsveryuserfriendlyifyouknowprogramming.SASisalsousedforUserInterface.It’snotliketheproblemsthatwedealwithinthebooksbutwelookintodifferentvariablesinreallifeandcreateanequationtosolvethem.

Chaanakya:Canyougivethestudentsfewtipsforplacements?Ms. Sindhu B Navali:ThereisageneralmisconceptionamongFinancestudentsthatcompaniesdon’tlookforgoodcommunicationskills.Goodcommunicationskillsarethebasictemplatethatallstudentsmustpossess.Apartfromthatoneshouldbeveryconfi-dentthroughouttherecruitmentprocess,companiesseeksforcandidateswhoareconfi-dentandwillingtotakeupresponsibility.AlsocompaniesexpectthestudentstobeverysoundwiththeirFinancebasics,asanemployeeyoucannotexpectbasicstobetaughttoyouduringthetrainingperiod.

Chaanakya:Finally,anymessageforthestudents............Ms. Sindhu B Navali:Iwouldjustliketoremindallthestudentsofaverysimplesaying“WherethereisawillthereisaWay.”Yourfutureandyourdestinyareallinyourhands;youandyoualonehavetheoptiontoeithermakeitorbreakit.Nothinginthisisworldisunachievable.Ifyouworkhardthatdreamjobisthereforthetaking.

Iwouldliketowishallthestudentsbestofluckfortheirplacementsandalsofortheirfuture.

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cRosswoRd

Across3. The person who filed a lawsuit accusing 11 major corporations includingApple,googleandfacebookofinfringingonhiscompany’sinternetsearchpatents.4. Acompanythatmakesafriendlytakeoveroffertoatargetcompanythatisbeingfacedwithahostiletakeoverfromaseparateparty6. WhotoppedForbesmagazine’slistofthe100richestIndians.

Down1. TaxmandetectedRs800crbogusbillinginraidonthiscompanyrecently.2. Whoisthenewlyappointedvice-chairmanofAMFIBoard?5. Amanufacturerofvehicleandlocomotivebodiesforapplicationsinrailandroadtransportationwhichropedinanchorinvestorsfor`31crat`127perequityshare.

18 CHAANAKYA VOL 4_13CHAANAKYA VOL 4_13

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