Shailesh J. Mehta School of ManagementIndian Institute of Technology, Bombay

Inside this Issue

COAL-GATE: The legacy of

scams.. where does it end? 2-4

News of last 2 weeks 5-6

Markets 7-9

Knowledge section 10-11

Check your Fin Quotient 11

FINSIGHT

F I NS I GHTIssue: Sep 03, 2012The Fortnightly Newsletter

Source:

Mint

The Economic Times

The Economist

MoneyControl.com

Business Standard

Deccan Herald

Hindustan Times

Investopedia.com

COAL-GATE: THE LEGACY OF SCAMS...WHERE DOES IT END?

The political soap opera in Indian democracy once again hit the chart busters as the report by Comptrollers and Auditor General (CAG) on coal scam made it to the media. The report has been tabled on 17th august and it comes as the latest scam revelation amongst several chains of scams that has been charged against the ruling UPA coalition. This time noteworthy is the fact that our honourable Prime Minister Dr Manmohan Singh has adorned the hot seat. Let us have a cursory look at the facts related to this phenomenon.

FACT AND FIGURES

The report published on the 17th had following key highlights:

The nation faced a loss of 1.85 lakh crores

The coal fields were allotted to private companies instead of being auctioned

The policy adopted was First Come First Serve (FCFS)

142 allotments were made between July 2004 and 2006 to private and Govt. companies at a rate of Rs 50 per metric tonnes

∙

The companies which received the benefit did not start production themselves and outsourced the operations to third parties at a premium and pocketed benefits in very short time

CAG didn't mention the name of PMO and state Governments in the coal blocks allocation

22 companies have been held accused including some big names and some of them are-Tata Group, Naveen Jindal Group, Essar Group, Abhijeet Group, Laxmi Mittal's Arcelor, Vedanta

The allegations say that the coal blocks were allotted to 51 companies in 2006, 19 companies in 2007, 41 companies in 2008 and 32 companies in 2009.CAG was quoted saying, “Delay in introduction of the process of competitive bidding has rendered the existing process beneficial to the private companies. Audit has estimated financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees”. It has been also alleged that Reliance Power got undue benefit of Rs 29,033 Crores when the Government allowed the use of surplus coal from blocks allotted to Sasan power plant for its other projects.

COAL-GATE: THE LEGACY OF SCAMS...WHERE DOES IT END?

ROLE OF CBI

The Central Vigilance Commission (CVC) had asked the CBI to probe into the whole saga that happened between 2006 and 2009. The CBI had also been asked to complete inquiry within three months. According to CBI, they would not probe the PM, though he was the concerned portfolio holder in the given period. Their job would be to investigate- misconduct related to the allocation of blocks, misuse of coal blocks by private companies, roll of bureaucrats, officials, ministers who recommended the names of the companies. A CBI team met senior officials in the coal ministry and sought documents pertaining to the 12 coal blocks -- nine in Chattisgarh and three in Jharkhand-- besides action taken by the Ministry after it emerged that the mining work had not started at all.The time for filing a FIR after a Preliminary Enquiry (PE) was registered by the CBI on June one this year following a direction from the CVC ends this Saturday. The probe agency has not registered a case yet.As the three-month deadline for a probe on a PE was nearing, the CBI despatched some more teams to Jharkhand and was gathering relevant documents from other ministries and state governments too.The sources said Coal ministry officials had also informed the CBI that it had issued show cause notices to some of the firms which were allocated the mines for explaining the delay in conducting the mining work.

Some of the firms, which were allocated coal blocks in 2005, were yet to start mining. In a related development, the CBI was also examining the past areas of operation of some of the companies which were allotted coal blocks in Jharkhand, Chattisgarh and Karnataka, the sources said.

The sources claimed that some of these companies had been set up only for getting coal blocks allocated and the same was later sublet to other companies at a premium.

The agency has already questioned senior bureaucrats who were overseeing allocation of coal blocks during 2005-09, the sources said.The CBI was also examining the Comptroller and Auditor General report on coal block allocation which was tabled in Parliament last week.The agency has also questioned members of the screening committee including Secretary and Joint Secretaries in the Ministry, CBI sources said.They said the questioning of the Coal secretary, who also chairs the screening committee, was done to understand the issues involved in the allocation of coal blocks during the period and so far the agency has not found any irregularities on their part.

THE POLITICAL MELODRAMA

The political situation has long been in a tumult in our country, courtesy the policy paralysis of UPA-2, the corrupted portfolio of Congress and other players like Baba Ramdev etc. With this latest addition to the ruling party's loss of face, quite naturally the opponents are again in a war-like mode.

A complaint was given by BJP MPs like Prakash Javadekar and Hansraj Ahir to CVC. Kejriwal was heard to opine that the beneficiary companies had "nothing to do with steel cement and power. Their motive was to sell the mines". BJP senior leader Arun Jaitley spoke on Coal-gate. The points he highlighted were that UPA can well be said the “most corrupt government” in the history of our country, plethora of evidences ranging from Bofors to the newly added Coal Gate supports that and again the resignation of the PM echoed in his voice.

THE TAKE-AWAY NOTE

As the cases of corruption time and again come to the fore, doing rounds in the media, the common man continues to bear the burden associated with them. Lack of a worthy opponent, dirty coalition conundrums only adds insult to injury. One wonders where it all ends. At a time when the GDP is taking unprecedented dips since liberalisation, the burgeoning current account deficit poisoning the economy, all we hear is a loss to the national exchequer worth 1.86 Crore. Time to reflect on our suffrage rights? Well the mood seems ripe!!

COAL-GATE: THE LEGACY OF SCAMS...WHERE DOES IT END?

By- Abhishek Banerjee , SJMSOM, M.Mgt, 1st Year

News of last 2 weeks

Gross Domestic Product (GDP) grew by

5.5% in the April to June quarter of 2012

Gross Domestic Product (GDP) grew by

5.5% in the April to June quarter of 2012

versus expectations of a 5.3% growth. The

Q1 F Y 13 G D P growth matches the

reading for the January-March 2012

period, which was the slowest growth

rate since the first quarter of 2009. The

economic activities which registered

significant growth in Q1 F Y 13 were

'Construction' at 10.9%, 'Financing,

Insurance, Real Estate and Business

Services' at 10.8% and 'Community, Social

and Personal Services' at 7.9%

Sebi allows PE help to start-up IPOs for

lock-in requirement

With an aim to help companies set up by

p r o f e s s i o n a l s a n d q u a l i f i e d

entrepreneurs to tap capital market,

market regulator Sebi has allowed them

to get help from PEs and other funds to

meet share lock-in requirements. As per

regulations of Securities and Exchange

Board of India (Sebi), promoters are

required to lock-in at least 20 percent

stake in the company for at least three

years after allotment of shares in Initial

Public Offer (IPO). Besides, any holding

in excess of this minimum 20 percent

promoter stake is required to be locked in

for one year.

Apple Loses Patent Lawsuit

against Samsung in Japan

Apple Inc. lost a patent lawsuit

in Japan as a Tokyo judge ruled

that Samsung Electronics Co.

(005930) smartphones and a tablet

computer didn't infringe on an

Apple invention for synchronizing

music and video data with servers.

Apple was ordered by Tokyo District

Judge Tamotsu Shoji today to pay costs

of the lawsuit after his verdict, the latest

decision in a global dispute between the

technologies giants over patents used in

mobile devices. Samsung shares rose,

erasing earlier losses.

FM approves proposal for 49 percent

FDI in insurance, pension sectors

Finance Minister P Chidambaram has

approved a proposal floated by former

Finance Minister Pranab Mukherjee to

raise foreign direct investment (FDI)

ceiling in insurance and pension sectors

to 49 percent from the existing 26

percent to boost investor confidence.

However, a decision on the insurance

and pension bills was deferred due to

the absence of consensus in the

cabinet on the issue. The bills are

expected to be taken up for

legislation in the winter session of

the parliament if they get the

cabinet nod.

News of last 2 weeks continued..

Inflation needs to fall for RBI to cut

rates

Reserve Bank of India (RBI) Governor

Duvvuri Subbarao said on Tuesday that

inflation remains too high and needs to

fall further or risk more damage to the

economy, dismissing criticism of the

bank's hawkish policy stance. Since

cutting its main interest rate in April by a

bigger-than-expected 50 basis points to

eight percent, the RBI has stayed on hold,

drawing complaints that high rates are

burdening consumers and slowing

growth.

Govt liberalises ECB norms

India has eased overseas borrowing rules

to allow easier access to cheap dollar

funds to housing finance companies such

as H D F C , small industry financier

S I D B I and permitted non-resident

entities to provide rating enhancement

facility to Indian borrower. The move will

also help boost capital flows by allowing

even lower rated companies to raise

dollar funds. The high level committee on

external commercial borrowings (ECB)

chaired by Secretary, Department of

Economic Affairs Arvind Mayaram on

Wednesday took a number of decisions to

further liberalise the foreign borrowing

norms.

RBI bats for more FDI in

r e t a i l , i n s u r a n c e a n d

aviation

The Reserve Bank of India

(RBI) said there is a need to

further improve foreign direct

investment (F D I ) inflows in

sectors such as insurance, retail,

aviation and urban infrastructure.

The central

b a n k s a i d

this would

a u g m e n t

n o n - d e b t

c r e a t i n g

f l o w s a n d

k e e p t h e

composition

o f I n d i a ' s

external liabilities at a comfortable

level. On the apprehensions over FDI

in multi-brand retail, the RBI said

international experience on the whole

suggests that allowing FDI in retailing

space leads to increased competition.

Fiscal deficit for April-July at Rs 2.64

lakh crore

Fiscal deficit during April-July

reached 51 per cent of the budgetary

estimate of Rs 5.13 lakh crore, raising

fears of the government breaching its

fiscal deficit target of 5.1 per cent of

G D P for the current year. The

renewed concerns will discourage

the Reserve Bank of India from

easing monetary policy and give

the rating agencies reason to carry

out their threat of downgrading

India's sovereign rating to junk

grade.

Markets

The market tumbled on profit booking after gaining in the past four

consecutive weeks. Euro zone debt worries weighed on sentiment.

Investors were also concerned by the Reserve Bank of India (RBI) governor D

Subbarao's speech signalling tough policies delivered in the US on Tuesday,

28 August 2012. Key benchmark indices fell in four out of five trading sessions.

The BSE Sensex fell 353.65 points or 1.99% to 17,429.56.

The 50-unit S&P CNX Nifty fell 128.20 points or 2.38% to settle at 5,258.50. Foreign

institutional investors (FIIs) bought shares worth net Rs 10803.90 crore in August

2012 so far (till 30 August 2012). They had purchased shares worth net Rs 10272.70

crore in July 2012. The latest data showed that the nation's GDP growth languished

around its lowest in three years in Q1 June 2012.

India's gross domestic product (GDP) rose 5.5% in Q1 June 2012, data released by

the government on Friday, 31 August 2012, showed. The services sector grew 6.9%,

industry grew 3.6% and agriculture sector grew 2.9%. Manufacturing output rose

0.2% while mining sector grew 0.1% in Q1 June 2012.

Key Highlights:

Raghuram Rajan appointed as

finance ministry economic adviser

Former International Monetary Fund

(I M F ) chief economist Raghuram

Rajan took charge as chief economic

adviser in the finance ministry on

Wednesday.

Rajan, who succeeds Kaushik Basu,

has taken charge at a time when

investments and growth in the Indian

economy have slowed significantly

and economic reforms have been

stal led due to lack of polit ical

consensus.

MphasiS net up 7.2% at Rs. 208.74 cr in

May-July

IT and BPO services firm MphasiS on

Wednesday posted a rise 7.2% in net

profit at Rs. 208.74 crore for the

quarter ended July, 2012, on the

back of improved operational

performance. The company had

posted a net profit of Rs. 194.80

Markets continued..

crore in the third quarter of last fiscal.

The revenues increased to Rs. 1,355.12

crore for the quarter compared to Rs.

1,293.63 crore in the same quarter last

year, the company said.

J S W Steel cancels $275 mn fund

raising

JSW Steel Ltd has dropped plans to

raise upto $275 million through

overseas borrowings as it did not get

necessary regulatory clearances. But

the name of relevant authority who

has denied permission couldn't be

known.

Reliance Communications hits an all

time low on bourses

S h a r e p r i c e o f R e l i a n c e

Communication Ltd., the mobile

telephony arm of the Anil Ambani – led

Reliance Group, hit its lifetime low on

the bourses on 27th August 2012 when

the company's stock closed at Rs. 52.15

per share on BSE, down 3.69% from its

previous close.

R-Com has lost 93.82% of its market

value since its stock hit a lifetime high

price of Rs. 844 per share on 10 January

2008. In the same time, the

Sensex has fallen 14.11%.

HP posts mega loss after EDS

writedown

Hewlett-Packard Co. (HP) swung

to an $8.9 billion quarterly loss as

personal computer sales shrank

again and it swallowed a huge write

down linked to its $13.9 billion

purchase of Electronic Data Systems

Corp. It also on Wednesday reduced its

full-year earnings outlook slightly to

the lower end of its previous range,

responding to a faltering PC market as

well as touch economic conditions in

Europe and also China, where growth

is slowing, too. Its shares slid more

than 4% in late trading.

DLF ends innings as IPL sponsor; to

promote other sports

The country's largest realty firm DLF

has decided to end its five-year long

association with cricket tournament

Indian Premier League as the title

sponsor and did not renew its contract

that was due by last month.The

company, however, said it will

promote other sports and is currently

exploring various such platforms for

association. It had last week gifted

luxury sports utility vehicle 'Audi

Q5' to four Olympic medal

winners from Haryana.

Markets continued..

Currencies:

The Indian rupee declined on Friday,

August 31, 2012 due to risk aversion by

investors across the globe ahead of Fed

speech at Jackson Hole later on that day.

INR opened lower by 8 paise at Rs 55.71 to

a dollar and registered a high of 55.67 and

Expectations for week ahead

The market is likely to be volatile next week. Automobile and cement stocks will be

focus as companies from these two sector start unveil monthly sales volume data for

August 2012 from Saturday, 1 September 2012.

In Europe, European Central Bank (ECB) holds its monthly policy meeting on euro

area interest rates on Thursday, 6 September 2012. The ECB slashed its interest

rates to an all-time low in July. The ECB is

expected to continue its easing cycle,

probably as soon as in September, to help

the economic recovery of recession- and

crisis-ridden members of the euro zone.

COMEX Gold quotes at $1660.90, up $6.10 per

ounce on Friday. The counter has recovered from

lows of $1652 per ounce during the course of the

day. However, the MCX Gold futures are quoting

at Rs 30797, down Rs 40 per 10 grams on the day.

The yellow metal is still grappling with demand

low of 55.72 during the entire day. The euro slumped overnight to its lowest level

in a week to 1.2486 against the US dollar as the market nervously looked to

whether the U.S. Federal Reserve chief will indicate the possibility of monetary

stimulus later in the day.

Commodities:

worries from India as the local spot prices still remain very close to Rs 31000 per 10

grams in the major trading centers of the country. According to the World Gold

Council, India imported 969 tonnes gold in 2011. The council expects the country's

imports in Jan-Jun to have been just 340 tonnes, down 50% from the previous year on

bloated prices, high inflation and poor economic conditions. These factors are

unlikely to change in the near term.

Knowledge Section

Stagging:

The practice of buying initial public offerings at the offering price and then

reselling them once trading has begun, usually for a substantial profit. This is

more commonly done by institutional investors than retail investors, because

institutional investors get most of the IPO shares at the offering price. Stagging

is most profitable in a hot IPO market, when the price of an IPO often rises

dramatically above the offering price on the first day. It is also called flipping.

Liquidity preference theory:

Observation that, all else being equal, people prefer to hold on to cash (liquidity)

and that they will demand a premium for investing in non-liquid assets such as

bonds, stocks, and real estate. The theory suggests that the premium demanded for

parting with cash increases as the period (term) for getting the cash back increases.

The rate in the increase of this premium, however, slows down with the increase in

term. In the language of financial trading, this theory is expressed as "forward rates

should exceed the future spot rates." This concept was first expressed by the U.K.

preference hypothesis.

Retrocession:

It is the purchase of reinsurance by a reinsurance company. This limits the risk that a

reinsurance company must face, since it has purchased insurance against an event that

might affect a company that it had underwritten. If a reinsurance company continues

to purchase insurance it might unknowingly buy back its own risk, known as

"spiraling".

OIBDA (operating income before depreciation and amortization):

It is a financial measure similar to EBITDA, except that it uses Net Operating Income

as opposed to net income. It is calculated by adding interest, taxes, depreciation and

amortization (also known as ITDA) to the company's operating income. OIBDA is

used by companies more frequently, although it is still a non-GAAP measure. Some

companies prefer to use OIBDA because it doesn't consider non-operating income,

and therefore tends to give a better indication of income from regular operations.

Straddle:

It is the purchase or sale of an equal number of puts and calls, with the same strike

price and expiration dates. A straddle provides the opportunity to profit from a

prediction about the future volatility of the market. Long straddles are used to

profit from high volatility. Long straddles can be effective when an investor is

confident that a stock price will change dramatically, but cannot predict the

direction of the move. Short straddles represent the opposite prediction that a

stock price will not change.

Check your fin quotient

1. Who has been named as the new C.E.O. of Barclays?

2. Which organization has been recently slapped with a lawsuit for more than $1

Billion in damages by TV network New Delhi Television Ltd. (NDTV)? Why?

3. This drug maker has scrapped its potential hepatitis C treatment after

participating in a test of the drug died of heart failure. Identify this drug maker.

4. Identify company whose entire stake in Café Coffee Day has recently been

acquired by founder –chairman V.G. Siddhartha of Amalgamated Bean Coffee

Trading Co. Ltd. (ABCTL)?

5. This financial ratio tells the creditors how much of the company's short term debt

can be met by selling all the company's liquid assets at very short notice and is

calculated as current assets less inventories divided its total current liabilities.

Identify this ratio.

Rush in your entries to: finesse@sjmsom.in

The first few right entries will get their name featured in the next issue of Finsight.

So hit the quiz fast & get yourself visible.

Please provide us your opinions about the content presented here. Also, do suggest new

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Knowledge Section

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Our Team:

2nd year: Archish Gupta, Ashwani Kr. Dixit, Aditya Gaddam, Atul Ranjan, Abhinav

Sharma Aniket Patankar, Kashyap Rastogi

1st year: Abhishek Banerjee, Archna Choudhary, Rahul Agarwal, Aditya Das,

Alankar Tripathi, Hamdan Ali, Pranavi Jakkam

Continuous inventory:

It is keeping book inventory continuously in agreement with stock on hand

within specified time periods. In some cases, book inventory and stock on

hand may be reconciled as often as after each transaction, while in some

systems these two numbers may be reconciled less often. This process is useful

in keeping track of actual availability of goods and determining what the correct

time to reorder from suppliers might be. It is sometimes also called perpetual

inventory.

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