finance magazine

Volume 1; Issue 1

Issue: 1 Volume: 1

B I ZZ B UZZ

F i r m + C o m p a n y = L L P By Samir Nijhawan, ACA ………………………………………………….Page 7

Bancassurance … the new fragrance in the air By Mikku Dave ……………………………………………………………..Page 9

Future economic trends and ideas for 2010 By Parnika Rawat …………………………………………………………1

Global Economic Recovery: Where is it? By Gaurangi Prasad………………………………………………………..Page13

Financial Inclusion By Md A zaharuddin……………………………………………………….Page16

Dubai Debt Crisis By Soumika Roy Chowdhury…………………………………………….. Page 18

Talking about investments when times are tough By Harjot Kaur…………………………………………………………….Page20

Tally The Rally

Market review : December 2009 By Himanshu sharma……………………………………………………. Page 23

Analysis of Investment Avenues By Puneet Malhotra……………………………………………………….Page 26

The Sun Finally Sets For Dubai By Pankaj Ishpujani, Rahil kataria…………………………………….. ..Page 28

Mutual Fund Trading- Beginning Of New Era By Puneet Malhotra……………………………………………………….Page 30

From the horse’s mouth

Lapasation: The Big Hurdle on Life Insurance Growth

By Sachin Sodhi………………………………………………………… .Page 31

Eyes wide open …………………………….………...Page 37

Financial Novice.……………………………………Page 39

Jargon Wagon …………………………………………….Page 43

Fin is Fun

Humor in Recession

By: Gunjan Agarwal……………………………………………………...Page 45

Sections:

Volume 1; Issue 1

Amity Business School

Message by ADG sir

Amity Business School, Amity University has always

been a front runner in bringing innovation in the field of

knowledge creation. To continue the yeoman‟s service

rendered in the field of education in the past, Amity

Business School conceptualized the idea of an e-magazine

„Finomania‟. The magazine aims to inculcate the habit of

voracious reading, writing and clinically analyzing

financial news and data in students to deal to enable

them to become future leaders.

On behalf of our magnanimous visionary, our founder President Dr. Ashok K. Chauhan,

I congratulate the students of Amity Business School who have done a brilliant work to

complete this herculean task. I express my best wishes to all the stakeholders of this

endeavor and hope they will take up this innovation to the levels of global excellence.

Dr Sanjay Srivastava

ADG and Head


Amity University Uttar Pradesh

Volume 1; Issue 1


Message by HOD Finance

Finance club of Amity Business School always endeavors

to find ways to enrich students in their analytically ability

and interpretations of the international environment. This

enables them to acquire required skills and to be

competitive with other best B-Schools of the country.

E-Magazine is an effort of students of ABS finance club

in the direction of enhancement of data collection,

analysis and interpretation of the available information.

I hope this great effort by the students of ABS Finance Club under the able guidance of Prof

Yogesh Mehra will go a long way in brightening the future of our students and I hope they

will find the best places in the corporate world, and this forum will provide a launching pad

for them. In their future endeavors .

I also would like to thank and appreciate the efforts made by Ms. Prachi Makker, Faculty of

Finance, ABS who has worked 24*7 for making this effort a success.

With Best Compliments

Prof. Akhil Swami

HOD, Finance



Volume 1; Issue 1


Message from ABS Finance club Chairman

With the beginning of a new decade, an optimistic ray of hope of strong

market condition is now dominantly visible. Unlike last year when fear

of world‟s worst recession was the cynosure it is recovery which has

taken the center stage this year. Conditions have improved so well that

there is hardly anyone who is predicting a „W‟ shaped recovery, though

it is true only as far as Indian context is concerned. NSE‟s and BSE‟s

decision to open market at 9 AM has only added to this euphoria.

Students of Finance Club Amity Business School have taken an equally optimistic initiative to incorporate

the technological innovation into the pedagogy of knowledge generation. This is an attempt to attain the

zenith of professional excellence by maximum utilization of resources available. The idea of e-magazine at

zero cost to hone the skills of budding managers is a novel attempt and we bring to you the first issue.

The phenomenal response shown by the students is an indicator to ensure the perpetuity of Fin-o-mania.

We endeavored to include every one‟s article but unfortunately it is not possible. It will be our constant

endeavor to provide a space to every student to show his/her writing skills and will be rewarded

accordingly.

I would like to express my thanks to our ADG Dr. Sanjay Srivastava for promoting the e-magazine as a

prime objective. My expression of thanks goes to Prof. Akhil Swami who provided us adequate support

for the cause of knowledge creation. In the end I would like to thank all the esteemed faculty members of

“Finance & accounts” and last but not the least students who put their best effort to crystallize this epochal

event into the world of reality. I would be doing injustice if a special mention is not made to Ms. Prachi

Makker Editor-in-Chief and all the team members who have labored hard to make it a success.

Yogesh Mehra

Chairman

ABS, Finance Club,


Volume 1; Issue 1


Message from Editor-in-chief

It gives me immense pleasure to introduce to you “Fin-o-mania”, a monthly e-journal

by the Finance Club at Amity Business School. In its maiden voyage, the journal will

take you through mutual funds, economic trends, new investment avenues in the

Bizz-Buzz section. You could stop over and mull over the various financial jargons

boggling your head or if you feel that you are still a beginner when it comes to bulls,

bears and stags, the financial novice section will surely delight you or you could

rejoice in the fragrance of Bancassurance, a new vista that‟s unfolding in the

financial world.

The first edition of the journal has been made possible with the efforts and unrelenting zeal of all the

finance club members. Without the mention of my editorial panel comprising of Sonia Pahwa, Mukul

Mishra, Kanika Goel, Anup Kumar, Puneet Malhotra, Gunjan Agrawal, Namrata Agrawal, Soumika Roy

Chowdhary, Mikku Dave, Md. Azaharuddin, Samir Nijhawan, Aanchal Khurana, Shubhangi Khandelwal,

Abhishek Sinha, the editorial write-up couldn‟t have been complete. On one hand, constant mentoring by

Prof. Akhil Swami and Prof. S.K. Malhotra guided us through tough times and on the other, valuable inputs

by Ms. L.K. Dhillon ,Ms. Rabiya Sood and Ms. Priyanka Ostwal paved the way to make this journal a

reality .Not to be forgotten are the blessings from Dr. Sanjay Srivastava and Dr. Sanjeev Bansal that always

came to our rescue in this endeavor.

I am sure this journal will delight you in more than one ways.

Please let me have your views about this and any other suggestions you might have. The journal is for you.

Prachi Makker

Editor-in-chief, Finomania

[email protected]



Volume 1; Issue 1


Skim the cream of all that’s happening in the busy business world….update your BQ (Business Quotient)

…to know what’s happening on the corporate radar.

Firm+Company = LLP By Samir Nijhawan, ACA

Ever since India has transformed from a closed economy to an open economy, “Destination India” has been

the buzzword in many western countries. With the growth of the Indian economy,….Continue reading

Bancassurance … the new fragrance in the air By Mikku Dave

Evolution is a continuous process, be it the evolution of life-forms or civilizations or the economy. Our

financial institutions have undergone a tremendous change over the past decade, … Continue reading

Future economic trends and ideas for 2010 By Parnika Rawat

Business leaders today need critical knowledge about emerging trends. Leaders must learn to navigate real-

time change - whether that change comes from competitors, customers, technology …. Continue reading

Global Economic Recovery: Where is it? By Gaurangi Prasad

It would be apt to draw an analogy of the much talked about crisis, with that of a powerful nuclear

explosion which produces sound sensation only at the epicenter and then quietly … Continue Reading

Financial Inclusion By Md Azaharuddin

Before we try to understand the meaning of financial inclusion, it would be imperative to see how it is

defined. One of the most comprehensive definitions is presented here: …. Continue reading

Dubai Debt Crisis By Soumika Roy Chowdhury

Just as the world was getting ready to gear up and leave behind the worries of the U.S. crisis it was once

again rocked by the fear of default by the emirate of Dubai. Investor confidence once again shook hard and

affected most of the stock exchanges around the world … Continue Reading

Talking about investments when times are tough By Harjot Kaur

The time of recession is dangerous time for investors. Investments that seemed safe when everything was

going well, become doubtful in these times such as fail-safe banks like Citibank … Continue reading

Volume 1; Issue 1


FIRM + COMPANY = LLP THE NEW FORM OF BUSINESS ENTITY

ver since India has transformed from a closed

economy to an open economy, “Destination

India” has been the buzzword in many western

countries. With the growth of the Indian economy, the

role played by its entrepreneurs as well as its technical

and professional manpower has been acknowledged

internationally. With opportunities in abundance,

Indian entrepreneurs/ professionals earlier had the

option to explore setting up a proprietary concern,

partnership firm, or a corporate entity. Amateur

professionals or venture capitalists were forced to form

proprietary/ partnership firms on a small scale in

absence of capital required to start a large scale

corporate entity. Partnership firms were however, not

the first choice also because of the following reasons:

Unlimited liability

Lack of perpetual clause

Lack of sufficient credentials in the eyes of banks/

financial institutions as compared to corporate

entity.

Enormous compliance and administrative

requirements, managerial difficulties, difficult winding

up procedures etc were also sometimes deterrent to the

formation of the corporate entity.

To tackle with the above problems, Limited Liability

Partnership (LLP) concept of business was introduced

in India. The Limited Liability Partnership Act was

passed by the Rajya Sabha on October 24, 2008, the

Lok Sabha on December 12, 2008 and it received the

assent of the President on January 7, 2009.

LLP – The concept

LLP is an amalgam entity incorporating the best

traits of partnership firm and corporate entity. LLP,

like a private limited company, is a body corporate

having a distinct legal entity separate from its

partners. It has a perpetual succession and a

common seal. In LLP, one partner is not

responsible or liable for another partner‟s

misconduct or negligence i.e. limited liability. But

if any partner is found to have done any fraudulent

act then the liability of that partner(s) will be

unlimited.

LLP is based on following three attractions:

Limited liability

Corporate personality

Partnership flexibility

The rationale behind setting up LLP is to fill the

gap between business firms such as sole

proprietorship and partnership, which are generally

unregulated, and limited liability companies, which

are governed by the Companies Act, 1956.

Some more features of LLP:

1. The minimum no. of partners is two. There is no

maximum limit.

2. Foreign entities can also setup their business/

profession in India in LLP form.

3. Provisions have been made for corporate actions

like mergers, amalgamations etc.

4. From taxation point of view, LLP would be taxed

in the same way a partnership firm is taxed i.e. the

share of profits would be exempted in the hands of

the partners.

5. Existing partnership firm, private limited company

and unlisted public company can also be converted

into a LLP.

Likely beneficiaries of LLP:

Any two or more persons who have come together

for carrying on a lawful business with a view to

earn profit may set up an LLP. This form of entity

will be especially beneficial to:

1. SME‟s (Small & Medium Enterprises),

2. Professional firms such as Company Secretaries,

Chartered Accountants, and Advocates

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Volume 1; Issue 1


etc, and

3. Others such as enterprise in new knowledge and

technology based fields where the corporate form

is not suited, enterprises engaged in any scientific,

technical or artistic discipline, for any activity

relating to research production, design and

provision of services etc.

4. SME‟s (Small & Medium Enterprises),

5. Professional firms such as Company Secretaries,

Chartered Accountants, and Advocates etc, and

6. Others such as enterprise in new knowledge and

technology based fields where the corporate form

is not suited, enterprises engaged in any scientific,

technical or artistic discipline, for any activity

relating to research production, design and

provision of services etc.

Boon for the Sectors:

Manufacturing Sector: The manufacturing sector is dominated by SMEs,

which constitutes 95% of the industrial units in India.

Over 90% of these SMEs are proprietorships, around

2.5% are partnerships and less that 2% are companies.

The reasons for less presence of corporate form of

entity in this sector are (i) less flexibility with regard to

laws, and (ii) high compliance cost. Due to this, the

public favors the proprietorship form of business as it

takes care of the above two problems. But for this

gain, the sector is losing the credit facility given by the

bankers.

LLP could be a better business structure for the

manufacturing sector as it enjoys the dual advantage of

less compliance and at the same time higher access to

credits in the market.

Service Sector: From the customer‟s perspective, LLP would

provide a single-window shop to all people

wanting to avail professional services. From the

professional‟s perspective, LLP can provide a

platform to conduct the profession efficiently that

would in turn increase the capability to compete

with global firms and thereby make the presence

felt in international market for professional

services. For example: “Indian Partnership Act”

limits the number of partners in a firm to twenty.

This prevents the growth of professional firms

which want to compete with large entities

operating on an international scale.

The same restricts the scope of business and future

expansion plans. LLP is the solution to all these

difficulties.

Conclusion

LLP form of business entity has been in existence

in other parts of the world as well and has been

very successful in USA and UK. And now after

being introduced in India, LLP may become a

boon for the manufacturing and the service sector

of the country. It will make the Indian service

sector globally competitive. The LLP model has

the potential to effectively act as an engine of

growth for the economic development of the

country.

Written By:

Samir Nijhawan, ACA

MBA Class of 2011


Email id: [email protected]

For more details on LLP, log on to

www.llp.gov.in and www.llponline.in

References: www.llp.gov.in,

www.indianmba.com, and C.A. Journal,

mailto:[email protected]

http://www.llp.gov.in/

http://www.llponline.in/

http://www.llp.gov.in/

http://www.indianmba.com/

Volume 1; Issue 1

BANCASSURANCE The new Fragrance in the air

volution is a continuous process, be it the evolution of life-forms or civilizations or the economy. Our

financial institutions have undergone a tremendous

change over the past decade, especially the banks. Successful innovation is crucial to the competitive edge of

all businesses. But it is particularly important for banking

and financial institutions. Innovation is a key driver of

growth that surprises and delights the customer with new, differentiated and relevant benefits.

One such paradigm shift in our banking sector is –

Bancassurance. Bancassurance is defined as a distribution strategy that involves selling insurance products via a

banking sales network. The method involves various

combinations of both banking and insurance activities.

In Europe and U.S., bancassurance evolved when both the

banking and insurance industries were in a relatively mature

stage of development. Thus we can say that this concept developed out of a need to find ways to protect, grow, and

diversify income streams.

The prime objective of bancassurance is – retaining

customers by providing a full range of financial products themselves rather than losing out to other institutions

offering broader product combinations.

Whether it is the bank or the insurance company, the

advantage is that less time is spent trying to attract new

customers. It helps in freeing up the resources, avoiding

duplication, and optimizing the established relationships. An important reason for considering Bancassurance by

Banks is increased Return on Assets (ROA). One of the

best ways to increase ROA is to build fee income

through the sale of insurance products. Life insurance premium represents 55% of the world insurance

premium and as life insurance is basically a saving

market, so it is a great measure to increase deposits of banks.

Indian Scenario

The financial liberalization and financial innovations have drawn the worlds of banking and insurance closer,

de-segmenting the financial industry. Ever since

espousing of financial reforms following the recommendations of First Narasimham Committee,

present-day banks have become far more diversified.

Therefore, their entering into insurance business is justified as „insurance‟ is another financial product

required by the bank customers. recommendations of

First Narasimham Committee, present-day banks have

become far more diversified. Therefore, their entering into insurance business is justified as „insurance‟ is

another financial product required by the bank

customers. By international standards, India scores very poorly in terms of „insurance penetration ratio‟ (defined

as ratio of insurance premium to GDP), a key indicator

of the spread of insurance coverage. Thus, on one hand we have a very low insurance penetration and low

insurance density and on the other hand we have a

widely stretched and well established banking network

infrastructure. In such a contrasting situation, the best strategy is to assimilate the two systems by way of

„bancassurance strategy‟ and reap the benefits of

synergy.

Life insurance companies require immense distribution

strength and tremendous manpower to reach out to such

a huge customer base. This distribution will undergo a

sea change as various insurance companies are proposing to bring insurance products into the lives of

the common man by making them available at the most

basic financial point, the local bank branch, through Bancassurance. In our country, where the population is

above a billion and there is lack of social security

schemes, the poor penetration ratio indicates that a vast majority of population still remains outside the reach of

the insurance, especially in rural and semi-urban areas.

This clearly suggests the presence of vast potential for

tapping the insurance market particularly by widening

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Volume 1; Issue 1


the distribution channels.

As far as banking sector‟s infrastructure is concerned, only

a few countries could match with India for having largest banking network in terms of bank branches spreading

almost throughout the length and breadth of the country.

We have as many as 284 scheduled banks. Nearly 70% of

the branches are located in rural and semi urban areas and the remaining are in urban and metropolitan areas.

Further, with herculean efforts the net NPA ratio of Indian banking sector declined sharply from as high as 15.7 % to

around 1.20 per cent by 2006. Although this was a

significant achievement, diversification (such as bancassurance) promises greater scope for further

enhancement in earnings with no threat of increase in

NPAs.

In the present scenario, the banking sector whether public

or private and foreign or domestic, increased reliance on the

non-fund based business activities has become inevitable. Therefore, banks are compelled to innovate and adopt stable

alternate sources of earnings in the form of nontraditional

and fee based sources of incomes. This is reflected in the sharp increase of proportion of non-interest income to total

income in recent years.

Advantageous Position

Marketing to both existing customers (for retention and

cross selling) and non-customers (for acquisition and

awareness) is a big strength of our banks. Their proficiency in using technology and access to multiple

communications channels has resulted in improvements

in customer service, which we as customers have

experienced in recent years. Also, Indian banks have the advantage of lower cost per sales made possible by

their sizable & loyal customer base. Established banks

have significant brand awareness which is advantageous in penetrating their customer base and

markets for above-average market share.

Another important aspect which needs consideration is

that middle-income consumers get little attention from

most life insurance agents, but they comprise the bulk

of banks‟ customers. Thus through capitalizing on this channel, insurance companies/insurers can capture this

underserved market.

Bancassurance, no doubt is the new fragrance in the air,

still, persistent endeavor in search for new technology,

new products/ services/ avenues, shall always be inevitable for the growth as well as sustainability of the

banking system.

With Money as the Power,

and Consumer as the King,

through Innovations & Adoptions,

Banking Systems are metamorphosing.

Sieving pearls

from the wide plethora,

envisaging the dawn

of the new economic era.

Written By:

Mikku Dave

MBA Class of 2010


Email: [email protected]



Volume 1; Issue 1

Future economic trends and ideas: 2010 usiness leaders today need critical

knowledge about emerging trends.

Leaders must learn to navigate real-time

change - whether that change comes from competitors,

customers, technology or global economic factors.

Developing an ability to anticipate the future in the

face of uncertainty, disruptions and chaos is essential

to come back to the track which was shadowed and

came as a hurdle to the fast moving pace of

economies. Reviving the old one and adopting the new

one would help in avoiding another market meltdown

like Dubai crisis.

Understanding of future trends and preparing the

organization with calculated risk would help them in

grabbing new opportunities specially by reviving the

dormant merger & acquisition market. Organizations

should follow the pathway of basics by emphasizing

the consumer‟s requirement and putting them first. As

consumers are focusing on saving , investing and

managing money wisely , hence organizations and

banks need to change their strategies provide them

with easy solutions. The need of the hour is to

understand the impact of future economic trends by

organizations on themselves, their customers and their

businesses and then plan and prepare for the path they

want to follow.

For anticipating future trend and avoiding another

crisis it is important to understand the current

economic trend first. The economic trend of 2009

were like

investment through big government, lower direct

taxes, lower priced consumer goods, cost cutting,

deflation, unemployment and restructuring

One of the major and interesting future trends

which are likely to arise could be of increasing

demand of eco-friendly products and services

which would cause shift from disposable

consumerist culture to sustainable eco friendly one.

Thus it would be a challenge for the organizations

to prepare themselves for this kind of shift.

Another trend which I would like to emphasize is

of urbanization. Depending on the study more

than half the world's population will live in

cities. By 2050, 70% of the world will live in

cities, and of those, 3.3 billion will live in Asian

cities.

Key questions that must be integrated into future

business strategy are:

How will changing customer demographics

affect business strategy?

What are the top technologies and business

processes that will shape competitive

advantage?

How will future economic trends affect

markets?

What new opportunities does science offer?

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Volume 1; Issue 1


What role will globalization and trade play in

the future?

The world is in the midst of a major demographic

transition. Different countries and regions, however,

are at varying stages of this demographic transition.

Not only is population growth slowing, but the age

structure of the population is changing.

The technological changes and business processes

would help companies to utilize fixed assets more

efficiently and minimizing the risk of turbulence in the

market. In the coming future trend technology will be

major enabling force in the business. The integration

of business and technology will help the firms to

change the current scenario and transform the

commerce.

Whether short term or long term trend, the flow from

one price to another is what creates profits or losses.

There are four major factors which I would like to

mention that cause both short term and long term

fluctuations and create the trends. These are

governments, international transactions, speculation

and expectation, and supply and demand. These

factors are all linked as expected future conditions

shape current decisions and those current decisions

shape current trends. Government affects trends

mainly through monetary and fiscal policy. These

policies affect international transactions which in turn

affect economic strength.

Technological innovation is already becoming

accelerated since the advent of the internet. According

to some such as futurists, the internet

could be a stepping stone in both technological and

human evolution. One of the major forces of

globalization in India has been the growth of

outsourced IT and business processing outsourcing

services. Thus it is important for the organizations to

find out the impact of accelerating technology on the

trend to toward globalization, whether it would

speed up globalization or change things in

unexpected ways involving risks.

Thus it is important to understand which future

trends will have an impact on you, your organization

and your marketplace which will determine your

future success.

Written BY:

PARNIKA RAWAT

MBA Class of 2010



References:

www.financialbreathing.com/tag/future-economic-trends by Joel

http://ezinearticles.com/?Eight-Economic-Trends-of-2009


Volume 1; Issue 1


Global Economic Recovery: Where is it? t would be apt to draw an analogy of the

much talked about crisis, with that of a

powerful nuclear explosion which produces

sound sensation only at the epicenter and then quietly

begins to scale miles, turning to ashes all and sundry

and even before any human mind can predict the

remotest clue of impending death, it is wiped off the

face of the earth. Such was the magnitude, degree of

penetration and oblivious character of the recent

economic crisis. Countries, in order to figure out the

damage, quoted from official government data to

provide evidence of how the drama unfolded in the

streets, factories, business houses and fields across

the planet and the governments worldwide began

stimulating battered economies with rescue measures

but the fact was, it was still very ugly.

Now, with the first shoots of recovery mushrooming

up around the world, every single soul alive is

desperate to know the answer to one question – Is the

world really out of recession?? Or is the recovery real

or merely a mirage??

“The federal government is sending each of us a

$600 rebate.

If we spend that money at Wal-Mart, the money will

go to China

If we spend it on gasoline it will go to the Arabs

If we purchase a computer it will go to India

If we purchase fruit and vegetables it will go to

Mexico, Honduras and Guatemala

If we purchase a good car it will go to Japan

If we purchase something useless it will go to

Taiwan........whoops, sorry...............................

and none of it will help the American economy.

The only way to keep that money here at home is to

buy beer and cigarettes, since these are the only

products still produced in the USA.”

The above quote speaks volumes about how complex

an intertwining, the economies world over, have

undergone. Today, one may read about plethora of

numbers citing growth in production, profits rising

every quarter boosting public sentiments, pleasant

GDP predictions and stories of banks ready to lend

again but it isn‟t long when the positive note soon

ends in a clout of disappointment with reports of

uncertainty regarding interest rates, currency

strength, market correction, inflation, deflation,

unemployment rate, another lot of banks on the verge

of bankruptcy, the very recent Dubai crisis and so on.

As a result a general state of confusion only gets

consolidated at the end of the day. The economies

have managed to reach an interim improvement due

to either their own merit (strong government

regulation, thriving on domestic needs than exports)

or simply put did not exist prominently on the global

interlinkage map even before the crisis hence

affected but only a bit. Incontrovertibly, unless the

situation revives in US, it is always premature to

claim a permanent state of normalcy by any country

whatsoever.

To remove any of the misgivings regarding optimism

prevailing due to government spending or enhanced

support in some form or the other, it must be noted

that since the stimulus packages have already

imposed a significant fiscal burden, the new central

government would need to eschew undue populism,

failing which high fiscal deficits could again restrict

the growth of countries like India as was the case in

the mid to late 1990s.To determine whether an

economy is a survivor or still a struggler in the „post

recessionary ‟times, a mere government‟s GDP

statistics don‟t suffice. In order to award a country

with the certificate of „back on growth trajectory‟,

I

http://www.globalpost.com/dispatch/commerce/090419/world-trouble-the-sequel

Volume 1; Issue 1


scores of parameters need to be satiated and justified

like expansion of manufacturing activity, growth in

consumer spending (including the fact whether the

customer rebound is driven largely by tax breaks and

government programs or self motivated) , improved

home sales, numbers relating to unemployment

benefits claims, consumer sentiment, performance of

stock market, index of leading economic indicators

like building permits, supplier deliveries and

manufacturing orders, non-performing assets of

banks, housing stability, corporate debt, market

volatility, interest rates, inflation, mortgage

delinquencies, employment growth, US

Treasury yield curve and of course $US index against

major world currencies. Unless the above listed

fundamentals are at their right place in the right

proportion, situation will continue to be sticky.

Is the recession over?

The numbers say it all. The British economy

contracted by 0.8 percent in the second quarter of the

year as against France and Germany which have

recovered already from under the grab from

recession. Some 220,000 people lost their jobs in this

period as also the unemployment is at its highest

level since 1995.Irrational exuberance still

characterizes the Brit economy where every serious

analyst says that people who play casino with

pension funds and the housing market have learnt

nothing from the past which indicates that the crisis

might still have not reached its lowest point.

However, Russia‟s nightmare is far from being over

and is one of the worst affected countries of the

world. The government expects the economy to

shrink by 8.5 percent this year and the unemployment

rate to rise up to 18 percent. Real wages and retail

sales remain woefully low and sinking. Bank lending

has not recovered as in other countries and the

expected bad loans, as expected by private bankers, is

as high as 30 percent. In fact according to the

eminent economist Nouriel Roubini, Russia faces the

possibility of a W-shaped recovery and thereby a

second wave of crisis seems real.

In US, government stimulus spending and improved

consumer spending (largely buoyed by the cash-for-

clunkers programme) as well as a slight improvement

in housing prices finally pushed GDP into positive

territory for the first time in four quarters. Growth in

the world's largest economy only fractionally exceeds

economists' estimates. There is still widespread

concern that the figures are artificially supported and

dependent on government spending, and that there is

unlikely to be any improvement in unemployment

figures for months to come. The consumer in fact,

private demand in general, is not ready yet to pick up

the growth baton from the government.

For Canada, the recession is put to a close on paper

but in the real world things are different. The

governor of Bank of Canada has predicted

accelerated growth. The economy continues to shed

jobs with unemployment rate of 8.6 percent-highest

in 11 years.

South Africa has been a victim of the crisis not

because of the cause of it but the effect i.e. its

banking sector by and large stayed away from the sub

prime mortgage mess but Africa‟s largest economy

has been hit by the economic slowdown. Sluggish

demand for the country‟s leading exports including

platinum and cars has brought it recessionary times in

17 years. Unemployment rate is inching up even at

23.6 percent at present. The government is working

hard to lessen the woes but the time frame for the

same is likely to be counted in decades rather than

quarters.

Brazil is not yet back on the path of growth but at

least recession is crawling back. The country was

hardest hit in the industrial sector which was more

exposed to the international economies. However,

catering to the growing middle class is bringing about

betterment in the health of the domestic industries

and hence economy.

Volume 1; Issue 1


In India, all signs indicate that recession is over and

the economy is performing well ahead of Hong

Kong, Japan and Singapore. GDP forecasts have

exceeded the forecasts and analysts predict that India

may even surpass China next year in terms of growth.

As far as Japan is concerned,

although there has been recovery in various

dimensions, yet a lot of painful remnants are still

visible. Downward pressure on prices remains thus

doubt of deflation continues to persist.

Unemployment continues to be high and wages still

falling, industrial output still 23% lower than last

year thereby predicting only „moderate‟ recovery for

Japan.

Dubai disaster was an icing on the

cake in an already chaotic financial world. Global

markets, which have yet to come out of the financial

crisis that savaged many an economy, reacted sharply

and sank like a rock. Analysts now wonder whether

they are witnessing the beginning of the biggest

sovereign default. The Dubai government requested

the creditors of Dubai World (one of three

conglomerates that are backed by the emirate with a

$60 billion liability), to agree to a 'standstill' on

repayments until May 30 2010 and set the world into

much dreaded uncertainty once again.

And the winner is……China which has

all the economic indicators on the rise and strong

financial rebound so much so that its currency has

even threatened to substitute dollar as the

international currency. However the growth will

sustain itself only in the face of increased domestic

consumption and innovation rather than preset trend

of dependence upon manufacturing exports.

Written By:

Gaurangi Prasad

MBA, Class of 2010


Email:[email protected]

References

1. Global Financial Stability Report GFSR Market Update

2. http://www.imf.org/External/Pubs/FT/fmu/eng/2009/01s/index.htm

3. http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/c1.pdf

4. Long Depression: Frederick P. Miller & Agnes F. Vandome


http://www.imf.org/External/Pubs/FT/fmu/eng/2009/01s/index.htm

http://www.imf.org/External/Pubs/FT/fmu/eng/2009/01s/index.htm

http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/c1.pdf

http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/c1.pdf

Volume 1; Issue 1


Financial Inclusion efore we try to understand the meaning

of financial inclusion, it would be

imperative to see how it is defined.

One of the most comprehensive definitions is

presented here:

The process of ensuring access to financial services

and timely and adequate credit where needed by

vulnerable groups such as the weaker sections and

low income groups at an affordable cost.

-Rangarajan Committee 2008, “Committee on

Financial Inclusion in India”

Talking in simple terms financial inclusion is

ensuring a closer relationship between poor and

organized financial system.

As we can see financial inclusion (denoted by FI

hereon) talks of credit, insurance, savings account etc

and people stripped off of these facilities. Banking

and other financial services gives an opportunity of

leverage i.e. to multiply earnings by the way of using

larger units with the help of borrowings. This aides to

one of the biggest problem of our country – non-

uniform distribution of income. The rich are getting

richer and poor are getting poorer. A corporate

defaulter is riding a limousine and poor have no

option to look for.

But banks are also running on the funds of stake

holders for whom wealth maximization is the prime

objective. Therefore there is exactly no scope of any

paradox but clear profit orientation. Bankers says that

poor are un-bankable.

Talking from the supply side first some of the drives

which keep FI at bay are:

Persons are un-bankable in the

evaluation/perception of bankers, the loan amount is

too small to invite attention of the bankers, distances

are too long for servicing and supporting the

accounts and expanding branch network is not

feasible and viable, high transaction costs

particularly in dealing with a large number of small

accounts, lack of collateral security, adverse security

situation prevailing in some parts of rural India,

human resources related constraints both in terms of

inadequacy of manpower and lack of proper

orientation/expertise etc.

Now let us try to evaluate why FI has not been a

popular activity in rural India. This despite of some

measures taken by apex authority of bankers like:

Lead Bank Scheme (LBS), Regional Rural Banks, Self

Help Groups (SHGs), Micro-Finance Institutions

(MFIs), Business Facilitator/Business Correspondent

Models, No Frills accounts, Relaxation in KYC

norms, Financial Inclusion Fund (FIF), IT enabled

Banking etc.

B

Volume 1; Issue 1


Some of the demand side factors which have worked

well as constraints to keep financial exclusion

prevalent in India are:

High transaction costs at the client level due to

expenses such as travel costs, wage losses, incidental

expenses, documentation, lack of awareness, non-

availability of ideal products, easy availability of

timely and doorstep services from money

lenders/informal sources, prior experience of

rejection by/indifference of the formal banking

system.

After having understood some of the intricacies of

complexity involved in ensuring facilities of

organized finance to poor we now try to find out

what is on the other side of hedge. When Muhammad

Yunus initiated the concept of micro credit with

Grameen Bank he had just one thing in his mind

“poor always pay back”. By getting acknowledged by

Nobel Society for his efforts to prove that poor are as

much bankable as anyone else, he has been able

ignite the minds of bankers to look for newer

segments of society. In the times of slowdown rural

India turned out to be the most uncorrelated section

of the society and gave Corporate an avenue which is

profitable even at worse time. These are some of the

instances which substantiate the fact that rural India

with its growing aspiration of better life style

supplemented with growing income, are actually rich

proposition for banks unlike thought otherwise.

Credit is a Human Right

- Nobel Laureate Professor Muhammad Yunus

Written By:

Md Azaharuddin

MBA, Class of 2010



References:

Dr. D. Subbarao, Governor, Reserve Bank of India at

the Bankers‟ Club in Kolkata on December 9, 2009

The annual report on the working of the Reserve Bank

of India 2008-09

Dr. K.C.Chakrabarty, Deputy Governor, Reserve

Bank of India, „Clarity Through Debate‟ August 10th,

2009, Chennai.

Janmejaya Sinha and Arvind Subramanian, The

Next Billion Consumers, Road Map for Expanding

Financial Inclusion in India, Boston Consulting Group

Volume 1; Issue 1


Dubai Debt Crisis ust as the world was getting ready to gear up

and leave behind the worries of the U.S.

crisis it was once again rocked by the fear of

default by the emirate of Dubai. Investor confidence

once again shook hard and affected most of the stock

exchanges around the world. But the question here is

what has actually happened to shake the core of the

not-so-strong reviving global economy.

The epicenter of this brewing storm is Dubai World,

the umbrella conglomerate of most of the state

controlled companies of Dubai. The panic began on

November 25, 2009 when the investment arm of the

emirate demanded a standstill on its loan payments

due this December. The corporation has built many

properties, palm-shaped islands in the emirate at the

time when there was a property bubble in the United

States thinking that investor demand would never

reduce and the company would always ride on the

waves. But unfortunately the U.S. bubble burst and

the repercussions were felt throughout the world

wiping out demand from the real estate market just as

the sand is wiped out by the sea. As a result the state

is left with a large number of unfinished

constructions, ready-to-use properties with nobody to

rent or buy these.

The emirate, presently, has outstanding loans of $80

billion out of which Dubai World owes $59 billion.

The corporate had asked for a standstill on the

repayment of these loans till May 31, 2010 as it

wanted to go for a major corporate restructuring. This

created fear waves among all investors as they feared

that a new financial crisis was starting all over again.

As soon as the announcement was made, major stock

exchanges around the world tumbled badly as

investors were initially not aware which banks were

involved and susceptible to damage. Fear was that

the default of $59 billion would affect the U.S.

markets through exposure of the international banks.

The day the announcement was first made, the Dow

Jones industrial average lost about 155 points and oil

prices fell about 7%.

But later on Dubai declared to restructure only $26

billion of its debts which included $3.5 billion worth

Nakheel bonds.

European banks face maximum exposure in case of

default. London-based lenders HSBC

Holdings and Standard Chartered could face losses of

$611 million and $177 million respectively,

according to early estimates from analysts

at Goldman Sachs. South Korea‟s estimated exposure

is $88 million. Citigroup Inc. of U.S. had an

estimated exposure of $1.9 billion to the United

Arab Emirates as of 2008, according to a JPMorgan

research note.

In the U.S. a number of office buildings and hotels

are owned by Dubai World, including the Mandarin

Oriental hotel in New York, according to the data of

Real Capital Analytics.

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Volume 1; Issue 1


But the United States real estate market is not likely

to be affected because the proportion of the

acquisitions by the Gulf conglomerate is not

sufficient to cause any ripple effects but the banking

system is surely to go under the scanner as the fear of

possible default will make banks scale back lending

which, in turn, will lower the speed of global

recovery.

Abu Dhabi‟s $ 10 billion bailout has given a bit of

relief to the world.

The effect of this impending crisis will be limited in

the case of India because apart from a few banks like

Bank of Baroda, the Indian banking system is

relatively insulated. Remittance flows from Dubai,

which account for about 10 per cent of overall

remittances, could see a slowdown in the short term.

Capital flows may see a mild reversal turning the

equity and currency markets volatile but corporate

exposure to Dubai appears to be limited to a handful of

realty and infrastructure companies. Employment of

Indian workers employed in the Gulf may be

negatively affected. Also exports may be hurt as UAE

is the hub of India‟s major exports of gems and

jewellery, petroleum products, metals, machinery and

basmati rice. But the impact will be limited as Dubai is

majorly the transshipment hub of Indian products to be

exported to other countries. However, Indian exporters

have to become more cautious in the time to come.

They have to stop conducting trade under the open

account system and make more investigations

regarding the banks required to make the payments.

The present turmoil in the Gulf territory is not a new

crisis but aftershocks of the not yet contained global

financial crisis. It is a direct result of aligning the

emirate‟s real estate, tourism and travel development

measures to the boom in the US markets. The present

crisis will be contained successfully by the banks

without much damage to the global economy except

for shaking up the basic confidence of the investors

worldwide. This hiccup should be seen as a correction

in the lending tendencies of various investors. The

investors need to take a more long-term look at the

investment perspectives before leaping in with funds

and other credit facilities.

Written By:

Soumika Roy Chowdhury

MBA Class of 2010



REFERENCES:

http://www.breakingtravelnews.com/news/article/dubai-debt-crisis-over/

http://www.arabianbusiness.com/574684-dubai-debt-news-latest

http://www.latimes.com/business/la-fi-markets28-2009nov28,0,3567649.story

http://www.dailymail.co.uk/news/article-1231320/Dubai-debt-crisis-Fears-second-economic-crash-global-stock-markets-tumble.html

http://www.businessweek.com/investor/content/nov2009/pi20091127_711022.htm

http://www.qatarliving.com/node/347573












http://www.qatarliving.com/node/347573

Volume 1; Issue 1


TALKING ABOUT INVESTMENTS WHEN TIMES ARE TOUGH he time of recession is dangerous time for

investors. Investments that seemed safe

when everything was going well, become

doubtful in these times such as fail-safe banks like

Citibank or Bank of America which were considered

„too large to fail‟. Falling tides also expose previously

hidden wrongdoing such as Satyam fiasco.

Investors everywhere are suffering a reverse-tsunami

and all signs indicate that the tide will go on falling for

many months. They know that it is unlikely to increase

their wealth. Their priority is just to survive!

Traditional Mainline Assets:

Over the long term and in normal times equities give

the best overall return. However, high returns from

equities reflect the fact that they are most risky of the

traditional asset classes, followed by bonds and then

cash.

Recognizing this, the „golden rule‟ in asset allocation

for private investors is that the cash bonds component

of their portfolio should be the same percentage as

their age, with the balance in equities. So, a 35 year

old investor may hold < 65% of their portfolio in

equities with 25% in bonds and 10% in cash/fixed

deposits. The theory is that younger investors can

recover any losses in equities, from their future

business profits or salaries. In comparison, a retiree of

65 should hold no more than 35% in equities, with

perhaps 20% in bonds and 35% in cash.

However, as we continue to sink deeper into the worst

economic environment for over 100 years, these are

not normal times. The advice for the coming year

would be:

1.Reduce the equities component of the „golden

rule‟ by about half and concentrate this reduced

amount in „defensive stocks‟ that generate cash

from „non-discretionary‟ products or services,

including, for example food, power and health.

2. Increase the bond component, to take

advantage of capital gains generated by falling

interest rates, whilst also generating a steady

income. Bonds should be predominantly credit-

risk free like government bonds with some

higher yielding corporate bonds. The cash

component should be increased as well.

Traditional Alternative Assets:

The obvious symptom of the recession is the fall in

property prices. Since they started dropping in

early 2007, real estate values worldwide have

collapsed. In the worst hot spots like Spain and

Dubai, falling property prices have had huge

negative impact on their domestic economies.

Prices have dropped about 20% globally and most

experts believe they have a further 12% or so to

fall.

This is hardly the time to invest in property but,

when it comes, the recovery may be stronger and

quicker than expected. Also in the recovery

situation it‟s better to invest in infrastructure

companies and pharmaceutical companies.

Investors can also invest in mutual funds if they

don‟t want to go for an investment in equity shares

directly.

Currencies:

At this primary level of recovery, asset allocation

involves making the right choice between

currencies. A handsome gain in individual stocks

can easily produce a loss, if the currency in which

these investments are denominated falls relative to

the investor‟s base currency. The reverse is also

true.

T

Volume 1; Issue 1


For example, an Indian investor suffering an apparent loss 6% on his Japanese equity investment in the

three month between November and January would, in fact, have made a profit. This is because the Yen

appreciated significantly against most other currencies during this period. However, some risk-averse

investors keep their assets in bank deposits but still manage to make well above average returns simply by

moving funds between different currencies.

Conclusion:

Thus, to summarize the key to successful investing is diversification and asset allocation. Investors are

recommended to diversify their holdings in their domestic market and to allocate at least 20% to 30% of

their assets to a spread of investments outside their home base.

Written By:

Harjot Kaur

MBA Class of 2011,



Volume 1; Issue 1


“It’s a jungle out there !” as someone rightly said…and all you feel is that the bulls, bears and stags are

better off in the zoo…this section gives you more than one reason to domesticate them….!!!

Articles in this section:

Market review : Dec 2009 By Himanshu sharma

The stock market last month was direction less as one cannot easily predict the market direction due to the bad

news coming from global economies like Dubai world delayed debt payment of $59 billion and a strong

support from Indian macroeconomic factor 2nd quarter growth at 7.9 % which surprised... Continue Reading

Analysis of Investment Avenues By Puneet malhotra

2008 was the most dramatic year for those who invested in stock market, gold, real estate, mutual fund and

commodities. Global recession, job losses, failure of the investment banks, high and low crude oil prices led

to the fall of the Indian stock market of more than 50 percent from its high in January .. Continue Reading

The Sun Finally Sets For Dubai By Pankaj Ishpujani, Rahil kataria

„Sun never sets for Dubai‟ is the tagline of Dubai World a leading construction company in Dubai That

may not be the case now, as the Emirates sends investors into a helpless collapse when the government of

Dubai revealed that it planned to ask creditors of Dubai World,… Continue Reading

Mutual Fund Trading- Beginning Of New Era By Puneet Malhotra

Mutual fund trading offers investors the option to buy and sell mutual fund units through stock exchanges as

they trade the shares. Both BSE and NSE, after getting the SEBI approvals for trading of mutual funds

through the existing infrastructure of stock exchanges, launched the platforms for trading Mutual

funds….Continue Reading

Volume 1; Issue 1


Market review: December 2009 2010: A New Year Gift to Investors and Season of all time High

he stock market last month was direction

less as one cannot easily predict the market

direction due to the bad news coming from

global economies like Dubai world delayed

debt payment of $59 billion and a strong support

from Indian macroeconomic factor 2nd quarter

growth at 7.9 % which surprised the whole world.

The market was very bouncy as the benchmark index

Nifty (a basket of 50 stocks) remains range bound

between 4950–5200 as investors exercised the put

option for 4900-5100 and call option for 5200-5400.

Nifty made yearly high of 5221 on 31st Dec and got a

strong support at 4950-4970 and a resistance level at

5150-5170. On 31st Dec Sensex closes at 17464.81,

Bank Nifty closes in red whereas the IT index was

the best performer and closes at 5818 rising over 424

points.

On Nifty the top 5 gainers are Steel Authority of

India and Hindalco from Metal space and rest are

Tata Motors, NTPC and Idea Cellular. On the

bearish side the top 5 loser are from Housing

finance, Banking, infrastructure sector.

FII net investment in equity was 10233.1 Crore

with total investment of $17 billion for year 2009

and Mutual funds were the net seller of Rs 1761.9

Crore.

The Global stock market rallied over Abu Dhabi

grant of $10 billion support to Dubai but the

Indian investors looses their confidence and

selling pressure was seen on 14 as well as 15 Dec

due to the rising WPI inflation rate at 4.78% and

food price inflation over 19.83% for the third

week of December, 2009. The Index of Industrial

Production (IIP) for the month of October came

in at 10.3% against 9.6% for September which

was below expectation. The 10-year benchmark

6.90%-2019 bonds touched its all time high yield

at 7.58% levels on the fear of monetary

tightening by RBI in the first quarter of year

2010.

MONTHLY INDICES CHANGE (1 Dec -31 Dec, 2009

NIFTY 5201.05 ▲79.05

SENSEX 17464.81 ▲266

CNX IT 5818.4 ▲424

BANK NIFTY 9029.5 ▼220.5

CNX MIDCAP 7432.8 ▲163.8

T

Top 5 Gainer on Nifty Top 5 Loser on Nifty

Company % Gain Company % loss

SAIL 17.95% IDFC -8.33%

HINDALCO 12.67% PNB -7.36%

TATAMOTOR 12.52% UNITECH -7.31%

NTPC 11.97% HINDUNILVR -4.86%

IDEA 11.63% HDFCBBANK -4.84%

INSTITUTIONAL INVESTMENT (Crores)

FII 10233.1

MUTUAL FUND (till 10 dec, 2009) -1761.9

Volume 1; Issue 1


Top Three power stocks on Broker’s Radar for year 2010: JP HYDRO, GVK POWER &

NHPC. (As quoted by Zee Business)

Among the BSE sectoral index Information technology & Power was the outperformer rises by 8.44% and

5.94% respectively. The FMCG & Bankex were the worst performer looses around 2.82% and 2.36%

respectively.

Bombay stock exchange launched its first mutual fund distribution platform BSE STAR MF that would

help investors to buy and sell mutual funds units electronically through their stock brokers.

Volume 1; Issue 1


IPO listing

The Cox and Kings stock was listed on the NSE

on 11 December, 2009 which was issued at Rs

330 per share in the IPO opened at Rs 343 &

made a yearly high of Rs. 469.70.

JSW Energy was listed on 4 January, 2010,

issued at Rs.100 and opened at Rs. 106. Currently

trading above its issue price.

Godrej Properties was listed on 5 January,

2010, issued at Rs 490 and opened at Rs. 511.

Currently trading above its issue price.

Expert comments

According to George Soros “Global economic

recovery is slated to run out of steam soon and

even worse, a double-dip recession may emerge

in 2011”

Nilesh Shah, MD & CEO of Envision Capital,

said Indian equity markets seem to be in a

consolidation phase and it is quite likely that the

markets will trade broadly between 4800 and

5200. He said the positive view on the markets is

coming more from global macros rather than

domestic micros.

Narayan ramachandran, country head , morgan

stanley is bullish over real estate sector for over

10 yrs. According to him every investors must

have Gold in his portfolio which act as an

insurance against inflation and dollar. He said

“India is a capital hungry nation and has a lot of

room to absorb investment over time”

Rajesh Tambe the financial expert said “It

becomes a bubble and will soon get burst, the

biggest concern for the Govt. is rising food prices

and the market will see the next momentum after

the revision of monetary policy by RBI”

According to Montek Singh Ahluwalia the

inflation is not the concern for the Govt. but the

major concern is the rising Food and

commodities prices. Though the growth is driven

by the govt. increased expenditure on goods and

services, increased pay commission and low

interest rates.

Written by:

Himanshu sharma

MBA, Class of 2010


Email- [email protected]


Volume 1; Issue 1


Analysis of Investment Avenues 008 was the most dramatic year for those

who invested in stock market, gold, real

estate, mutual fund and commodities.

Global recession, job losses, failure of the investment

banks, high and low crude oil prices led to the fall of

the Indian stock market of more than 50 percent from

its high in January 2008. Year 2009 is the year of

grand recovery as the FII‟s make an inflow of Rs

82,000 crore in the Indian market.

During 2009, while many investors were busy

making money in the volatile stock market there were

also other investment options where you as an

investor can park your funds which are less volatile

then the stock market and offer good returns. Here‟s

a brief peak of the investment options.

Gold

The yellow metal has turned out to be an attractive

option for investment. The reason for this is the

stability factor associated despite of its volatility in

the short run. Gold posted 22.75 percent increase in

the last year and also touched its new high of Rs

18,300 per 10 gm. The demand for gold has

increased considerably over the past few months.

Many investment houses have started using it as a

hedging instrument. Many investors in the world

have accepted gold as an international currency

without it having a direct relation with any country‟s

economic condition. Gold and the US Dollar are the

investment instruments in the international market

and historically they have an inverse relationship in

the international market. The confidence has gone up

in the yellow metal because investors have lost faith

in the US Dollar due to the weakening US economy.

Real Estate

Global Recession hit the real estate hardest the sector

was worse hit from Oct 2008 to Dec 2008. As the

crisis hit globally and the expectations that the Indian

market will follow the same fate. But with the

forming of stable government and the timely action

of the government in providing a stimulus package to

the economy, coupled with the lowering of interest

rates put the economy back on the track. With the

recession the non-serious small time developers are

now out of the sector and developers changed their

strategy from the premium houses, where the profit

margin is high, towards the affordable homes, where

profit margin is low. Thus meeting the needs of

Indian middle class as their dream of owning houses

within budget getting fulfilled by excess supply and

lower interest rates.

Crude Oil

Investment in oil proved to be one of the best in 2009

for the investor as it provided return of around 71%.

Crude oil prices were around 43$/bbl in Dec 08 and

now they are hovering around the 80$/bbl mark.

Crude oil prices have surged to year high recently, as

the economy is showing its first signs of recovery.

2

Volume 1; Issue 1


The current increase in the prices could be attributed to a strong winter season in the US translating into strong

demand.

Debt Market

For the investors who don‟t want their hard earned money to be eroded by the fluctuations in the stock market

can invest in the Debt market.

Government Bonds Change over(bps)

G-sec Yields Current % 1 week 1 month 3 months 1 year

1 yr 4.39 -8 13 - 26 2 yr 6.1 -7 23 14 132 5 yr 7.26 1 21 19 191

Money market Change Over(bps)

Current % 1 week 1 month 3 month 1 year Call Rate 3.28 -2 3 2 -209 Repo Rate 2.79 -91 201 -20 -231 CBLO Rate 2.08 -125 125 -36 -266

Written By :

Puneet Malhotra

MBA Class of 2010,

Amity Business School,


Crude Price(US$/bbl) December 09 December 08 YOY

WTI 74 43.3 70.8

Brent 74.7 43.7 70.8

Short Term Instruments

Yields current% 1 week 1 month 3 month 1 year

Treasury Bills Before T-Bills 91 D 3.68 3.77 3.32 3.15 4.71 T-Bills 182 D - 4.34 - 3.8 - T-Bills-364 D 4.73 - 4.49 - 4.78


Volume 1; Issue 1


The Sun Finally Sets For Dubai un never sets for Dubai‟ is the tagline of

Dubai World a leading construction

company in Dubai That may not be the

case now, as the Emirates sends investors into a

helpless collapse when the government of Dubai

revealed that it planned to ask creditors of Dubai

World, the state-owned conglomerate, for a six-

month Extension on its debt repayments. Dubai has

$80 billion worth of debt, with the vast majority held

by Dubai World, 60 billion (approx) which owns

Nakheel, the property developer.

FALLING PALM TREES

Nakheel, which means (palm in Arabic) built the

Palm Islands in the Gulf, and was due to repay a $4

billion Islamic bond on December 14. Many believed

that there would be no difficulty doing so as Dubai

World, the Government of Dubai and Sheikh

Mohammed bin Rashid Al Maktoum, Dubai‟s

billionaire ruler, were assumed to be supporting the

developer. It now appears that nobody has the money

to repay or refinance the bond and so the other $56

billion of Dubai World‟s liabilities are also at risk.

Government intervention in the restructuring of this

commercial operation was a big concern as to how

the world market would react to this Fiasco as there

is a major chunk of investment in Dubai world from

across the globe, including many banks, investment

houses, and financial institutions.

SHOCKING THE GLOBAL MARKET

The news of the collapse of the Dubai World led to a

negative impact on the entire world. This was evident

in the stock markets across the world as they opened

on November 26, 2009.

Shares in London declined rapidly as the market

opened, After steep losses in Asia, investors panic

over banks' exposure to Dubai's growing financial

problems gathered pace.

The FTSE 100 index of leading UK shares fell by

83.46 points leading to 5,110.67 in early trading,

adding to previous day loss of 170.68 points. The

FTSE bounced back, to fall by 12 points to

5,182.13 after more than an hour of trading but all

eyes were still on American shares as there is huge

investment of American banks in this region and

the market would reopen after thanksgiving

holiday.

The Dow Jones industrial average began the day

with a loss of more than 200 points and it ended

down 154.48 points, or one and a half per cent, to

10,309.92.

The NASDAQ index fell 37.61 to end the day at

2138.44 and the broader Standard & Poor's index

of 500 stocks finished down 19.14 to 1091.49.

In Frankfurt, the Dax index fell 1.32 per cent to

5,540.34 while in France, the CAC lost 1 per cent

to 3,639.66.

A key Japanese index, the Nikkei, was 2.28 percent

or 213.61 points lower at 9,169.63 points.

The Hang Seng, a benchmark index of the Hong

Kong Stock Exchange was at 21,445.13 points,

3.45 percent or 765.28 points lower.

Barclays and Royal Bank of Scotland (RBS),

believed to have invested heavily in the region.

Barclays' shares fell 3.13 per cent to 280.94p ,

Standard Chartered lost 4.23 per cent at £14.50 and

HSBC fell by 3.64 to 679.9p.

Despite fears of exposure, it is to be noted that RBS

shares rose 5.53 per cent on that day to 34.8p after

„S

Volume 1; Issue 1


it announced it had signed an agreement to enter

the Government's Asset Protection Scheme.

IMPLICATIONS

Firstly, a review of data from the Bank for

International Settlements suggests that banks in Uk,

US, Europe and Japan are highly affected from the

crisis Due to this there will be a change in the

monetory policy of the central banks.

Extraordinary measures like increasing the interest

rates would be taken. There are concerns that if

major Western banks suffer renewed heavy losses

this will then slow the flow of their credit to other

economies that have relied on it to stimulate

growth. In the meantime it is the broader loss of

investor confidence that is having a greater global

economic and market impact.

Secondly, There have been huge falls in property

values in Dubai. A boom in property prices over

the years preceding the global crisis created asset

bubbles that exploded in the later half of 2008.

Even before this shocking announcement property

prices and rents stood as much as 60% below their

pre-crisis peaks. Furthermore, there is still a huge

oversupply problem, with 25% of Dubai's homes

lying empty, according to a recent report by

Colliers. This can surely lead to a further decrease

in the value of property as Dubai has to overcome

its liquidity crunch.

The construction sector contributes

approximately 10 percent to Dubai‟s GDP. The

delay of these projects will cause a decline of

Dubai‟s GDP.

Expert comments on this issue are to stay calm as

a default of $60 billion may cause heavy losses to

many investors but cannot lead to recession in

world market.

Written By:

Pankaj Ishpujani, Rahil kataria

MBA Class of 2011



SOURCES – Times of India, Hindunet


Volume 1; Issue 1


Mutual Fund Trading- Beginning of New Era

utual fund trading offers investors the

option to buy and sell mutual fund

units through stock exchanges as they

trade the shares. Both BSE and NSE, after getting

the SEBI approvals for trading of mutual funds

through the existing infrastructure of stock

exchanges, launched the platforms for trading Mutual

funds. National Stock Exchange launched Mutual

Fund Service System on November 30 and the

Bombay Stock Exchange launched BSE Star MF

venture on December 4. Both of these platforms are

tying more fund houses and increasing the list of

funds which can be traded on their platform. This

platform will enable to increase participation of retail

investors and volumes as the stock exchanges have

trading terminals spread in different parts of the

country and it leads than the existing distribution

network of the various asset management companies.

Mechanism of Mutual Fund Trading

Investor can now trade mutual fund units through any

member of the exchange who is registered as a

mutual fund adviser with the Association of Mutual

Funds of India (AMFI). Investors need to place their

orders for both subscription and redemption of their

units with these members. The only extra

requirement for this transaction is the demat account.

The investors can place their orders between the

trading hours i.e 9 am to 3 pm and the settlement

period is T+1 working days. Investor placing order

during a certain day will enjoy the benefit of the

same day‟s NAV.

Pros and Cons

The new mode of transaction is quicker and smoother

apart from faster this will allow investors to get a

clearer picture of their stocks and mutual fund

holdings at any point of time from a single report.

The new platform would be cost effective for the

customers and mutual fund companies. The mutual

fund companies will save on physical transaction

costs by using the new platform. The investors will

have to pay brokerage fees as against the transaction

cost levied by the distributors. The customers may

have to pay less for transactions on the new platform.

Moreover, mutual funds are expected to save Rs 18-

20 per transaction in the new system. The investors

are also able to save on repeated documentations for

transactions in mutual funds by just having the demat

account.

However, the investors need to pay the broker‟s fees

as well as fees the exchange may levy. Such fees may

mitigate the advantages of abolition of an entry load.

The investors will also have a tax obligation to fulfill

for trading on the platform. Brokers are looking for

this as an opportunity and distributors don‟t think this

mode of transaction will increase volumes

significantly.

Analysts expect the NSE‟s platform to boost mutual

fund transactions by 35-40% in 10 months.

Written By :

Puneet Malhotra

MBA Class of 2010,

Amity Business School,


M


Volume 1; Issue 1


Don’t believe us…!! Hear it straight from the mouth of the people…who have …“been there”, “done

that”…!!! Get the first hand account of all that’s happening around the world.

LAPASATION: The Big Hurdle on Life Insurance Growth

t is an unavoidable state that life insurance is

the business depends upon law of large

numbers, mortality and morbidity factors and

trend in the economy etc in this context it is very

important for life insurance to do new business and

prosper since existing polices keep maturing and

also results into other modes of termination such as

death claims, surrender, result in accident or

permanent disabilities. For example it is said that

life insurance corporation of India settles 3 claims in

the span of man‟s single breath. So it is very

important to add up new policies in the business to

maintain the exercise of law of large numbers.

Erosion of numbers of polices is due to various

natural factors. To keep the numbers at a large level

which is very important to do life insurance business

in sound and stable manner, it is very necessary to

add new polices continuously. Lapsation of policies

recognized as a great source of loss to the parties

concerned- policy holder, Life Insurance Company

and also the employee and agent.

The attempt of this article to explain the issue of

Lapsation hit the life insurance industry and to

suggest possible ways to control the same.

IRDA finding on lapsed policies

1. Lapsation rates of non medical policies are

observed to be higher than for medicals polices.

2. Unit linked products has lapse rate as 18.9% by

numbers and 10.1% by premium. These were

higher than for traditional policies.

3. Pension policies were observed to show least

lapse rates among all the categories

4. Term assurance products showed higher rate of

lapsation with respect to both number and

premium lapsed ( 28.27% by numbers and

18.95% by premium)

5. It was observed that lapse rate with respect to

both numbers and premiums were almost similar

to each other.

6. whole life showed higher lapse rate than

endowment products for with profit policies and

conserve is observed with non profit policies

7. Lapse rate (by number of policies) with respect

to mode of premium payment tended to be

higher with frequency of premium payment and

lower for monthly and salary deduction.

8. Lapse rate with respect to age at entry showed a

decreasing trend from the age group 18-22 to

around 60 years and lapse rate tended to increase

from the range below 18 to age group 18-22.

9. Lapsation rates with respect to numbers in

traditional products was observed to have

decreased from 7.69% in 2004-05 to 6.59%

2006-07 and premium

Lapse rate decreased from 6.45% to 5.63% in the

same period.

What is Lapsation?

Lapsation of policy is discontinuation of premium

payment by the policy holder during the period of

operation of the policy due to any reason other than

death of policy holders. the length of the lapse

policies can be defined as the period between the

I

Volume 1; Issue 1


month when the last premium installment was paid

and the month the policy was issued. In India, the

acceptance of the proposal for life insurance

necessitates administrative process which, together

with agents commission and medical charges, cost

of the life insurer is almost whole of first premium

and major part of second year premium.

Early lapses, therefore, pose a major financial

problem to the life insurer. It has been realized that

the phenomenon is not amendable to any simple

statistical model due to inherent stratification in the

population of lapsed policies. life insurer may have

to adopt a uniform definition for lapsation of

insurance policies to give more leeway to

policyholders on premium payments.

Facts reveal that lapsation rates – in terms of

number of policies – increased to 6.64% in 2006-07

from 5.62% in 2002-03. the lapse rate by premium

rose to 6.95% from 4.4% in 2002-03. the lapse rate

in ULIP is 18% in terms of number of policies and

10% by premium. It is also higher as compared to

traditional policies. Over 7, 52,000 polices of the

life Insurance Corporation of India alone has lapsed.

The sum insured involved in lapsed policies is in

excess of Rs 47,000 cr. Insurance regulator IRDA

has recommended a uniform grace period of 30 days

for policyholders paying their premium every

quarter, half yearly, or every

”}paying monthly premiums.

When policies lapsed before enough premium

payments are made to cover initial expenses on

procuring the policy, and gap during early policy

years in actual expenses and expenses recovery in

pricing premiums, the company has to make the this

losses from the remaining policy holders. Therefore,

the lapse rate will have effect on the financials of the

insurers.

Effects of the lapsation

1. Disturb the Bottom lines: it is the known fact

that the insurer has to spend the initial years to

procure a policy by the way of payments to

intermediaries (in form of commission, incentive

bonus to Managers, salaries of administrative

employees engaged in procuring the new

business, establishment expenses etc and it take

quite a while for insurer to recover the expense.

If the policy is lapse, especially after they are

issued, the insurer has no way to recover those

expenses, such looses lead to fall in the

profitability for the insurer – this lead to fall in

the bonus rates for the policyholders. This

further again lead to lapsation as again some

people would again dissatisfy with the fall in the

profits and this vicious circle continues. There

fore, it is very imperative that insurer control

lapsation from the very beginning.

2. Lapsation hits the income of the insurance

agents by the way of loss of commission on the

policies that are lapsed.

3. Lapsation of the policies hampers the ability of

the companies to do proper manpower planning

as company cannot accurately evaluate the staff

needed to process the proposals and also for

further processing and policy servicing.

4. Such lapsation would lead the feeling that the

company is over staffed since the total cost by

the way of salaries would be high( including the

employess needed to process the lapsation

policies also). Lapsation thus in an anti-

employee phenomenon.

5. Leads to loss of goodwill among the policy

holders as they perceive the premium paid as

lost to or forfeited by the company- while this

may be perfectly justified by legal. Contractual

and actuarial principles it remains a cause for the

policyholders to view it as money swindled by

the company.

Volume 1; Issue 1


Reasons of Lapsation

1. Wrong selling: Most of the participants

responded that they were not satisfied with the

product they were sold. The most common

refrain was that they were not explained the

features, benefits and term of the plan. They also

informed that the focus of the agent was only to

finish the sale at the time of canvassing the

policy.

2. Natural market: Many participants responded

were from the natural market of agent and Sales

mangers. They had bought the policy as an

obligation to the concerned agents or sales

mangers who were their relatives, close friends

or neighbour with an idea to help them. Some of

the agents or managers were now in terminated

conditions and did not contact the policyholders

to pay the premium to keep policies in force.

Some of them even midly against the company

for having removed the development officers or

agents from its rolls and hence were against

paying premiums.

3. Forced selling: It has been observed that

policies were sold by way of forced selling

rather than by convincing the parties about the

benefits of insurance and creating a responsible

felling in their mind so as to keep paying

premium during the policy contract. Worse still,

some parties were comparing the returns

projected by the policies with the returns

receivable by the banks and post office in their

recurring deposits schemes and arguing that the

returns from insurance is unattractive. This goes

to give the felling that the agents has not been

successful or had not attempted to explain the

concept of life insurance in its detail to the

parties since life insurance basically viewed as a

risk sharing device and the aspects of the

returns/others benefits must ideally only be

incidental to the aspect of sharing of risks.

4. Over selling: Selling the policies to the

policyholders without understanding their

financial commitments also aggravate the

lapsation. In some cases, it leaves one with the

doubt as to whether the policy was canvassed

with the policy holders interest and his insurance

needs in mind or so as to meet business targets

or commission needs of agents or sales

managers. Had there been need based selling of

life insurance, the aspect of lapsation would

have been far more controlled and minimal.

5. Bad service: Bad services in the eyes of the

policyholders have usually involved some of the

following matters, almost in all cases, where bad

services quoted as a reason of lapsation.

A. policy given is not meeting his/her

expectation;

B. agents has convinced the party for one policy

while the insurer has offered the party

another policy due to underwriting

considerations by way of a counter offer;

C. lack of follow up by agents or sales manager

for collecting of renewal premium

6. Introduction of new plans: One of the main

reasons of the lapsation is the introduction of

new plans that are perceived to be better by the

policyholders. Perhaps aided by the idea

given by the agents or managers they prefer to

take new policy and let their existing policy to

lapse.

7. Miscellaneous reasons : There are few reason

that also hit the lapsation are non receipt of

notices, ignorance no follow up by agents,

change of address, malpractices by agents or

field force, inadequate explanation of the

products- riders etc.

Volume 1; Issue 1


Trends observed in Lapse rate for the industry over the year 2002-03 to 2006-07

The total lapses and exposure during the period were as follows:

Numbers Lapses Exposed to risk Ratio

No of Policies 5.226 crore Life yrs 73.419 crore life- yrs 7.11%

Premium Rs 20,521 Crore Rs 3, 36,184 Crore 6.10%

TREND IN THE LAPSE RATE FOR THE INDUSTRY AS A WHOLE

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

Lapsation rate-

Numbers

Lapsationrate-

premium

From the above figure, industry lapse rate with respect to number of policies increased from 5.62% to 7.79%

and decreased slowly from 2004-05. Lapse rate with respect to premium increased from 4.40% to 6.95%

slowly increasing year by year excepting a small decrease in 2006-07. The lapse rate on premium basis is

lower because fewer policies with larger premium were discontinued.

SUGGESTION TO MINIMISE LAPSATION

Free look period: introduction of free look option by insurance regulator for policy holders. It provides

option to the policyholder to evaluate the policy taken by them. Eg to see whether its meets their needs,

requirement, outlook, financial commitment, financial outlook etc. if their needs not satified then they can

return the policy within the free look period after deducting some nominal charges. This has put a greater

responsibility on the insurers, agents and sales managers to sell need based selling alone. It helps company to

get regular premium on existing policies as product sold on need based. This also have possible effects on life

insurance business namely

Volume 1; Issue 1


The life insurance can also have a check by way of

free look period – the life insurer can effectively

analyze the free look cancellation that take place in

his organization and take remedial measures like

marketing activities, policy design, policy servicing

aspects, market and product segmentation etc. this

should be a major solutions as far as lapsation for

reasons are concerned.

Educate field force: Advanced education to the

agents, development officers as well as other field

force of the life insurance should be taken up in a

big way as to adverse effects to lapsation. Lapsation

is the major hit on the insurer‟s profitability. The life

insurer companies incur the huge cost in the initial

period and which goes waste and this is a drag on

the life insurance company‟s income and life funds.

Insurance agent is the primary underwriter in the life

insurance process and he/she should not deal in the

business which is likely to end up as lapsed policies.

So, it is imperative on the part of life insurance

company to educate the insurance agents, company

employees and add various models to reduce

lapsations. As a supplement to the is point, it is also

important to take corrective checks and make sure

that agents take all precautions to weed out

proposals that may lead to lapsed policies in future.

Service standards: in this competitive insurance

industry where products of all insurance companies

are more or less similar to each other. Service play

an vital role to make the real differentiation.

Following points definitely improve services

standards

a. Use of information technology to reach to the

customer at their feasibility.

b. Give them various options to pay their premium

like through ECS, debit cards, credit cards, online

payment etc

c. Online updation / changes , switching of funds

and maturity and claim process etc

d. Design good contacts and feedback form to

understand the changing needs , customer

requirement etc

e. Premium notices should be given on emails,

through Mobile SMS service, Tele reminders,

local connected area tie ups like tie up with post

offices, banks, MTNL, BSES, Easy bills etc

f.

Easy Revival norms : It is very important to easy

the revival process , which help us to reduce the

lapsation process and it will be useful to control

further lapsation and actually help in controlling the

dues on the lapsed policies from pilling up.

Normally insurance company register two types of

lapsation, if policy lapsed does not exceed six

months and second if policy lapsation time exceed

six months. During the revival process it may also

called as Minor revival and Major revival. It is very

important to educate the customer about the major

revival which need the entire medical test

requirement and all the related cost has to be born

by the customer. Few initiatives on easy revival

norms.

a. Revival incentives: waiver of handling charges

and interest rate on due premium on the revival of

lapsed policies

b. No medical charges: high risk cover lapsed

polices also given waivers on medicals test on the

revivals after consider their moral hazards,

financial requirements

c. Monetary support: it will definitely help by

giving then loan facility at subsidies rates to

revive their insurance policies.

Apart from all, it is also important to initiate special

campaign for the revival of lapsed policies and

educate the customer for the benefits of continuation

of the policies.

Increase sale of limited premium payment: it will be

beneficial for policy holders and insurance

companies if premium payment period is limited.

Most of policies lapsed after 3 to 5 years as

customer feel burden paying every year. Another

point, it increases the premium size of the policy and

customer would avoid lapsation.

Volume 1; Issue 1


Increase renewal commission and reduce FYC: It

is commonly felt that agent interest on the

particularly policy does not extend to more than

probably the first three or four years of the issue of

the policy except in cases, where the polices belong

to high risk cover or some other influential policy

holder who further give regular business. Therefore,

it is helpful to restructure the present commission

structure of insurance agents. First year commission

should by reduce and agent will get high incentive

on renewal premium payments. Few initiatives will

definitely reduce lapsation

A. First year commission should be reduced and

agent should get standard commission every year

eg: every year commission should be 5%

B. Special incentive to agents on regular renewal eg

:Give them 10% extra bonus on renewal

payments exceed 10 years.

C. Schemes on persistency score : agents should get

various benefits like awards, in kind gifts for

maintaining persistency of above 95%

Improve new business procreation control: it is

useful to have good control at the time of

introduction of new business itself to check the

incidence of lapsation. In this connection, the help

of planning department can perhaps be taken to have

analysis of lapsed cases data on state wise, area

wise, income wise, sec wise, mode wise, sum

insured wise, product wise, payment mode wise,

agent wise, manager wise basis etc to be able to

ascertain with reasonable level of accuracy as to

whether a particular policy is likely to be able to end

up as a lapsed policy or not. This analysis will be

helpful in many ways – one it arrest the introduction

of potentially lapsed policies and it keeps the agents

and managers alert the quality of business they

procure.

Conclusion:

It may be concluded that the aspect of lapsation of

life insurance is a very complex and it effects on the

profitability as well as survival of Life Insurance

Company. The following points which affect the

industry due to lapsation are as discussed bellows:

A. Lapsation also affects the bonus rate of the life

insurance companies which ultimately

dissatisfied the existing customer.

B. Lapsation hits agents renewal income and loose

their interest to work regular

C. Lapsation forfeit the purpose of law of large

numbers as risk divided among policy holders

decreased

Few facts on lapsation and its impact on the industry

1. In 2007-08 the amount of money that lapsed

(policies that has zero surrender value) and came

to insurance companies was about 23,000 crore .

if we add another 15,000 crore paid as

commission the investor money with the

company and agents goes to 38,000 crore

2. Life insurance industry have inforced policies

31cr, 20 cr policy holders. In 2006 86 lakh

policies lapsed which equal to 22% of total

policies is sold in 2006-07.

Written By:

MR. Sachin Sodhi

Designation : Assisstant Branch Head

Company: Kotak Life Insurance Limited

Email id: [email protected]

References

1. Journal of insurance institute of India Dec issue

2004

2. Journal of insurance institute of India June issue

2009

3. IRDA occasional paper 2008 topic “lapsation and

its impact on life insurance industry”.

4. Ernst and young insurance paper June 2009


Volume 1; Issue 1


Keep your eyes dilated…as this section will give you an update on the news that is making

….waves across the world wide web

http://www.momentumstockpicks.com/article-118-stock_dilution_-

_what_it_means_to_stockholders.php

Have you ever thought what is stock dilution and how does it affect the market price of a company?

This question can be answered by this article which clears all the doubts regarding the effect of dilution

on earning per share (EPS), benefits or losses which are bear by the stockholders due to fluctuations in

stocks i.e. STOCK DILUTION. It also discusses that weather the stock dilution would be beneficial to

a stock holder or not?

http://economictimes.indiatimes.com/news/economy/indicators/GST-may-push-cos-to-

rejig-shut-units/articleshow/5422248.cms

Ever wondered what GST is? How will it affect you...and what does it entail for the policymakers and

the corporate? This article is on the hot topic of GST and it tells us how the implementation of GST

will cause certain companies to rearrange themselves. Read on to learn more…

http://www.thehindubusinessline.com/2010/01/08/stories/2010010850830900.htm

As we all see that corporate is recovering from inflation and slowdown but have you ever thought how

has it affected the lower middle class? Our economies will surely be able to succeed in the turmoil of

recession, as it has been doing so far but soaring wholesale price index (WPI) and rise in prices of

everyday edibles like potatoes and sugar etc is making the common man worry about his survival. The

failure of supply chain and distribution network of edibles by the government is another aspect to worry

about. What possible steps and remedies can be taken by the government for food security is discussed

below. So read it to know more about the subject.

http://www.business-standard.com/india/news/india-2020will-we-be-like/381393/

Have you ever thought how India will look like in 2020? What would be the major topics for concern at

that time and various socio-economic factors that would effect the growth and development of it? Will

the political scenario change for good or will it become worse. What will be the changes in the thinking

http://www.momentumstockpicks.com/article-118-stock_dilution_-_what_it_means_to_stockholders.php

http://www.momentumstockpicks.com/article-118-stock_dilution_-_what_it_means_to_stockholders.php

http://economictimes.indiatimes.com/news/economy/indicators/GST-may-push-cos-to-rejig-shut-units/articleshow/5422248.cms

http://economictimes.indiatimes.com/news/economy/indicators/GST-may-push-cos-to-rejig-shut-units/articleshow/5422248.cms

http://www.thehindubusinessline.com/2010/01/08/stories/2010010850830900.htm

http://www.business-standard.com/india/news/india-2020will-we-be-like/381393/

Volume 1; Issue 1


of normal consumers? Read this article to know various interesting facts and figures which may not

seem real to some experts, but who knows about the future!!!! Let‟s wait for 2020 now.

http://economictimes.indiatimes.com/opinion/columnists/t-t-ram-mohan/A-crisis-proof-

banking-sector-/articleshow/5418626.cms

While we all talk about the crisis and slowdown, everyone says that banking sector is one of the most

affected areas of the recession in India. This is one of the most debatable topic on which various

opinions have been made but here comes this article which challenges every analysts to reframe his/her

opinion about the growth of banking sector. Various facts and examples have been given from past

records which proves that banking sector has survived well and will continue to do so. Read on further

to catch some more.

http://economictimes.indiatimes.com/opinion/columnists/swaminathan-s-a-aiyar/Fast-

growth-trickles-up-from-the-states/articleshow/5414772.cms

When we talk about the growth of India, then basically we are concentrating on the growth and

development rate of all 28 states and other union territories. The fast pace of growth of India can not be

measured by leaving or ignoring even a single state. So this article talks about all the states and their

comparative analysis of growth rates, economies, population figures etc, so as to focus on the unity and

growth statistics for India. To get more details on the topic, log on to the following link.

http://www.rediff.com/money/2007/may/28bspec.htm

This article narrates the lecture of Mr. R Narayana Murthy, which he delivered in Stern School of

Business, New York University. He talked about the experiences of his life from which he learned

lessons. These lessons led to the incorporation and growth of Infosys, a well known IT firm, which now

has a net income of more than $800 million and a market capitalization of more than $28 billion.

Know more about the success story of INFOSYS with Mr. Narayana Murthy.

Contributed by:

Kanika Goel

MBA, Class of 2011


Email : [email protected]

http://economictimes.indiatimes.com/opinion/columnists/t-t-ram-mohan/A-crisis-proof-banking-sector-/articleshow/5418626.cms

http://economictimes.indiatimes.com/opinion/columnists/t-t-ram-mohan/A-crisis-proof-banking-sector-/articleshow/5418626.cms

http://economictimes.indiatimes.com/opinion/columnists/swaminathan-s-a-aiyar/Fast-growth-trickles-up-from-the-states/articleshow/5414772.cms

http://economictimes.indiatimes.com/opinion/columnists/swaminathan-s-a-aiyar/Fast-growth-trickles-up-from-the-states/articleshow/5414772.cms

http://www.rediff.com/money/2007/may/28bspec.htm

Volume 1; Issue 1


Does a simple capital adequacy equation give you “surface tension”? Does finance make you feel

like…numbers and equations were better off …when left to Newton, Archimedes and all…!!! Don’t

worry….this section has been rightfully carved out for you!!!

Being an engineering student with almost nil

knowledge of commerce, the business section of any

newspaper seemed almost an alien language to me.

But somehow I was always interested in the

BSE/NSE, stocks, Index, etc. What exactly are these,

how stocks and shares are traded in markets, what

are these markets, how does a BSE differs from a

NSE, were just few of those numerous questions that

kept bugging me over the past few years.

Just then I met, some of my classmates who helped

me understand these terms. To understand this, we

should first know what exactly stock exchange is.

It‟s an organization which provides an individual,

financial institution or a corporation facility of

selling and purchasing of stocks. These individuals

or corporations are called shareholders.

Now what is a stock? It‟s actually the capital or the

money raised by the corporation through the issue of

shares entitling the holder or the buyer of that

particular share to an ownership interest in return.

Confused???Well, have you seen Guru? In the

movie, Abhishek Bachchan raises capital for his

company by issuing shares or part of ownership to

the general public.

I asked my friends what is our benefit or what profit

we are getting in return? They told me in return of

our investments we get dividends and capital gain.

Now we as a shareholder make capital gain or losses

by selling our shares. Here we have basically two

kinds of shareholders; Preference shareholders &

Ordinary shareholders. Preference is as its name

suggests have a predilection over ordinary or

common stockholders. They get dividend at a fixed

rate which doesn‟t vary or fluctuate as it does in case

of ordinary shareholders. Also at the time of

liquidation or the bankruptcy, its precedence is taken

into account. That means they are paid first. Since

ordinary shareholders get their dividend only after

meeting other obligations, hence they are also

referred as the owners of residue. Preference

shareholder doesn‟t have voting rights in the

company and their dividends do not vary from year

to year. It is based on a fixed pre-decided percentage.

These were some of the basics that were

needed to be cleared before knowing what BSE or

NSE is.

One of my friends gave me an excellent

example to explain a stock exchange. Let‟s say, if

you need to buy a commodity were do you go.

Obviously to the market…! Here, we draw an

analogy where this market is the stock exchange and

the buyer here is a shareholder.

Now we move on to know which stock

exchanges work in India. Basically we have two

significant stock exchanges- Bombay Stock

Exchange (BSE) and National Stock Exchange

(NSE) operating. I‟ll explain you each one by one.

Volume 1; Issue 1


Bombay Stock Exchange (BSE) is the oldest stock

exchange in India and probably whole of Asia.

Listed with more than 4700 companies it is the

largest in world. Have recently read on a website that

in terms of market capitalization it is largest in South

Asian region and 12th largest in world. Here I come

across a new but a widely used term Market

capitalization. The equity market capitalization

refers basically towards the measurement of the size

of the corporation or the business. It is calculated by

simply multiplying share value of the public

company to the number of outstanding shares. Don‟t

get confused with the term outstanding attached to

word share here. It means shares which are

authorized, issued and purchased by the investors.

So, after explaining the term Market capitalization,

when my friends told me that BSE has a Market

Cap of net worth US$ 1.79 trillion !!! I could finally

make some sense out of it !

Now Sensex is another important word that you

come across usually when studying markets. When

asked what it is, one of my friends replied that the

trend of BSE or the performance of the exchange

cannot be comfortably determined by watching the

individual performance of each 4700 listed

companies, so a group of 30 companies are selected.

Sensex is actually Bombay Stock Exchange

Sensitivity Index. The performances of the stocks of

these companies representing various sectors of the

market are observed. It is compiled and calculated on

a "Market Capitalization-Weighted" methodology

of 30 component stocks representing large, well-

established and financially sound companies across

key sectors. The base year of SENSEX was taken as

1978-79.

Now coming onto the more recent National Stock

Exchange (NSE). It was established as a stock

exchange under Securities Contracts (Regulation)

Act, 1956 in April 1993 and commenced its

operations in June 1994. It is the largest stock

exchange in India in terms of daily turnover and

trading volume. NSE has a Market cap of about US$

1.46 trillion and is an extremely fast growing stock

exchange in terms of market capitalization.

Talking about the NSE, Standard and Poor’s

CRISIL NSE Index 50 or S&P CNX Nifty is the

index containing 50 stocks accounting for 21 sectors

of the economy. The function is same as that of

Sensex.

For the complete list of BSE-30 and NSE -50, you

can anytime visit their respective websites i.e.

www.nseindia.com

www.bseindia.com

By the time my friends helped me explaining the

elementary knowledge of markets and shares, I was

now ready to understand

How to look into the index?

How to read them?

What all things an investor has in his/her mind

before buying a share?

Of course they explained me crude level of

investments and markets but at least it gave me

rough idea on how to go about things.

Frankly speaking, earlier indices, facts, figures etc.

used to scare me away but seriously friends it is

easy. We‟ll now start with how to read an index.

Let‟s study the following index section from

economics times.

http://www.nseindia.com/

http://www.bseindia.com/

Volume 1; Issue 1


I‟ll take an example to illustrate you.

Let say if an individual needs to invest in a share,

say Birla Corporation then he or she‟ll first notice

the previous closure value of 1 share of Birla Corp

i.e. Rs 308.40.

Now the investor determines that how the share

prices of the company faired the last working day.

He notices that the opening value of the share on the

trading day was Rs.317. During the day it recorded

the highest value of Rs.317.75 and the lowest value

of Rs. 304.95.

At the end of the trading day, during the closure of

market it had a value of Rs.308.25.

Also there were about 1141 different entities that

recorded an overall trade of total of 26277 volumes

or number of shares during the day.

It is followed by the Group i.e. NSE where the

companies belong to (or are listed).

Also there is a column that reads as 52 Wk H/L that

reads simply the highest value of the share in past

year i.e. Rs.381 and similarly Rs.116 as lowest.

And finally the PE column. The P/E ratio is a

financial instrument used to determine that how

much an investor is willing to pay for a stock relative

to company‟s earnings.

I‟ll give you the calculation formula for it.

P/E ratio = Current market price of the

share/ Earning per share (EPS)

For example in this case the Price to Earnings

ratio of Birla Corp. is 5.0. That means

shareholders of Birla Corp. are willing to pay Rs

5 for every Re 1 of earning that this company

generates. It‟s a very important financial tool to

compare similar sectors companies and hence

the lower the P/E value the better its return.

Now here we come across a new term that is

Earning per Share. The portion of a company's

profit allocated to each outstanding share of

Volume 1; Issue 1


common stock. Earnings per share serve as an

indicator of a company's profitability.

It is calculated as

Earning per Share= (Net income – Dividend on

preferred stock)/ Average outstanding shares

It is actually the measurement of

company‟s profit. Preference dividends are

subtracted from the net income as it reduces the

amount of profit leftover for equity share

holders.

At the end I still had a doubt in my mind. After

going through the previous section any one can

infer that it‟s better to invest in company whose

stock PE ratio is lower. To which my friend

replied that her father who seldom trades in

stocks does not completely rely on just the PE

ratio. It is indeed a very good indicator of

performance analysis of a company‟s stock but it

cannot be held as the only indicator. She further

explains this as; a company can anytime increase

its Net income by borrowing larger funds, hence

increasing EPS ratio and thereby reducing the

P/E ratio. Hence, it is better advised to initially

trade stocks under the supervision of an expert

who can advise on the dynamic nature of the

market and stock, determine the trends set in

them and finally help you invest in it. This is

why a majority of people take help from financial

institutions like banks and consultants to keep their

money safe.

With this I come to the end of this article. I have a

suggestion for you people. While preparing this

article I came across to a very good website which I

guess most of you have heard of. It‟s Sharekhan.com

which actually deals with both the investment

solutions and at the same time explains the

fundamentals of investing.

Written By:

Abhishek Sinha

MBA, Class of 2011


Email_id: [email protected]

Volume 1; Issue 1


You feel that “Green Shoe Option” is the latest discount scheme by Jimmy Choo…. Are you backward in

“forwards” and clueless in “options”? Does an SPV sound like an SUV to you? This wagon will carry you

away from your finightmare…and make Finance as simple as a shopping excursion!!

Arbitrageur

Investors who seek to exploit differences in interest rates, exchange rates and share prices between different

markets. A high-risk, high-reward business for professionals with millions to play with.

Blue Chip A term to describe a very large, well established, internationally recognized firm with stable earnings, such as a

company listed on the FSTE 100 index of the UK's largest firms

Credit scoring

A test of an individual's financial status. Points are awarded on the basis of factors that include income, home

ownership, debts and repayment history.

Derivative

A term that covers specialist financial markets such as those in options and futures

Endowment

An insurance policy that pays out a lump sum at the end of a set period or on death, whichever comes first.

Forex

The exchange rates is also known as the foreign-exchange rate, forex rate or FX rate. It is the rates between two

currencies that specifies how much one currency is worth in terms of the other.

Gearing

Borrowing, expressed as the relationship between total borrowing and the value of ordinary shares. A company

that has borrowed a lot of money is said to be highly geared.

Hedged

A means of protection or defense against financial loss. i.e. a hedge against inflation or currency swings.

Generally a securities transaction that reduces the risk on an existing investment position.

Mezzanine finance

Specialist, high-risk finance that is neither equity nor debt. Usually used in buyouts.

Net Asset Value

This is the value of a company or investment trust minus any liabilities. For example, the NAV of a company is

its asset value less liabilities

Volume 1; Issue 1


Overdraft

If more money is withdrawn from your current account than you have put in, you will go overdrawn. You can

ask the bank if they can arrange to lend you some money for a short time. This is known as an authorised

overdraft.

Penny shares

Shares with a very low price. A favourite of investment tip sheets, but few people make money because few

shares trade hands and brokers can often move prices against private investors.

Quantitative easing

The printing of new money by a country's central bank in order to increase the supply of money.

Historically, quantitative easing has been used by the Bank of Japan to fight deflation in the early 2000s.

Return on Equity

A company's net profits divided by shareholders funds, expressed as a percentage, which gives a clearer insight

into the profitability of a company and makes comparison between companies easier. However it does not take

the company's debt into account.

Surrender value

What you get if you surrender an investment-linked life assurance scheme early. It is likely to be a poor deal for

you because most policies telescope 25 years' worth of charges into the first few to pay commission so

surrendering in the first few years means you may get back less than you paid in.

Tax Code

This code tells your employer how much tax-free pay to give you during each pay period. Your tax code is

worked out from your tax allowances and other tax adjustments.

Umbrella fund

A form of unit tust registered offshore that has many sub funds for various categories of investment: Japan, US,

Smaller Companies etc. Switching between these sub funds is often free, so avoiding the initial charges that

investors would otherwise pay.

Contributed by:-

Aman Saxena

MBA, CLASS OF 2011


Reference:

www.thisismoney.co.uk

www.money-zone.net

Volume 1; Issue 1


When the only thing you find funny in Finance are your “marks”….then we feel there is still some more scope

for the laughter riot left !!! Read on further to know more

Humor in Recession RECESSION , CREDIT CRUNCH, ECONOMIC

SLOWDOWN ….We all have heard a lot of these

terms lately .But there is a lighter side to these and I

am glad to share it .

1. The US has made a new weapon that destroys

people but keeps the building standing,. Its called

the stock market.

2. Do you have any idea how cheap stocks are??

Wall Street is now being called Wal Mart Street

3. Bush was asked about the credit crunch. He said it

was his favourite candy bar.

4. M/S "Ali Baba and the Forty Thieves" are now

(being re-branded as) "Ali Baba and the Thirty

Thieves"... because of ten lay-offs!

5. "Batman and Robin" are now "Batman and

Pedro". Batman fired Robin and hired Pedro

because Pedro was willing to work twice the

hours at the same rate!

6. Iron man is now "air-pooling" with Superman to

save fuel costs!

7. "Dow Jones" is re-branded as "Down Jones".

8. The credit crunch is getting bad isn't it? I mean, I

let my brother borrow $10 a couple of weeks

back, it turns out I'm now America's third biggest

lender.

9. In Japan, the "Sumo Bank" has gone belly up.

10. A director decided to award a prize of $1000 for

the best idea for saving the company money

during the recession. It was won by a young

executive who suggested reducing the prize

money to $100.

11. "Goodyear" is now re-branded as "Badyear".

Perhaps even the "Good Day Biscuits" are now

"Bad Day Biscuits"...!

12. The problem with investment bank balance sheet

is that on the left side nothing's right and on the

right side nothing's left.

13. What worries me most about the credit crunch, is

that if one of my cheques is returned stamped

'insufficient funds'... I won't know whether that refers

to mine or the bank's... !

Volume 1; Issue 1


NEW STOCK MARKET TERMS

CEO -- Chief Embezzlement Officer.

CFO -- Corporate Fraud Officer.

BULL MARKET -- A random market movement

causing an investor to mistake himself for a financial

genius.

BEAR MARKET -- A 6 to 18 month period when the

kids get no allowance, the wife gets no jewellery.

VALUE INVESTING -- The art of buying low and

selling lower.

P/E RATIO -- The percentage of investors wetting

their pants as the market keeps crashing.

BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded

your stock.

STOCK SPLIT -- When your ex-wife and her lawyer

split your assets equally between themselves...

FINANCIAL PLANNER -- A guy whose phone has

been disconnected.

MARKET CORRECTION -- The day after you buy

stocks.

CASH FLOW-- The movement your money makes as

it disappears down the toilet.

INSTITUTIONAL INVESTOR -- Past year investor

who's now locked up in a nuthouse.

PROFIT -- An archaic word no longer in use.

Contributed By:

Gunjan Agarwal

MBA Class of 2010

Amity Business School Email: [email protected]


Volume 1; Issue 1


Cartoon Section

Volume 1; Issue 1


CREDITS

Chairman – Mr. Yogesh Mehra

Chief Mentor- Prof. Akhil Swami

Editor-in-Chief - Ms. Prachi Makker

Faculty Coordinator- Ms. Rabiya Sood

Editorial Board

Sonia Pahwa

Mukul Mishra

Kanika Goel

Anup Kumar

Puneet Malhotra

Gunjan Agrawal

Namrata Agrawal

Soumika Roy Chowdhury

Mikku Dave

Md. Azaharuddin

Samir Nijhawan, ACA

Aanchal Khurana

Shubhangi Khandelwal

Abhishek Sinha

Conceptualized and designed by - Anup Kumar, Puneet Malhotra and Gunjan Agrawal

ABS Finance Club – [email protected]

Please send all your comments and suggestions regarding the article to [email protected]


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