Niveshak September'08

JP Morgan Chase UBS Carlyle AIG Citibank State Bank of India Allianz HDFC
Sun Blackstone Mergers & Acquisitions Warren Buffet Reserve Bank of India
Inflation Kotak Mahindra Axis Bank Venture Capital Forwards Western Union pips
Federal Reserve Dollars Mortgage Finance Standard Chartered Apollo Management
Macquarie ICICI Credit Rating Sensex George Soros Hang Seng lot
SLR Kohlberg Kravis Roberts HSBC Rothschild Bonds Cerebrus Capital Nikkei
Berkshire Hathway General Atlantic Repo rate Bank of Baroda CRR NYSE
Sub Prime Crisis NSE Smith & Barney Libor Fannie Mae SWIFT Oaktree
Ernst & Young Credit Suisse HSBC Texas Pacific Group Reinsurance Euro

(The Investor)
Issue:15th September 2008. Finance Club Monthly Limited Circulation
ABN‐Amro Duetsche Goldman Sachs Fitch Peter Lynch Cathy Financial
Rabobank Clayton Dubblier & Rice I‐Bank DE Shaw European Central Bank Equity
Wells Fargo Wachovia Bank of Japan Salomon Brothers S&P Capital Account Convertiblity
Royal Bank of Canada Merrill Lynch IPO Canada Bank Lehman Brothers KPMG
Societe Generale Forex Moody’s Morgan Stanley Benjamin Graham Aviva
Royal Bank of Scotland Hedging Farallon Wealth Management PE ratio Futures
AXA Deloitte Touche n Tohmatsu Union Bank Swaps Currency Devaluation
Warbug Pincus G‐Sec Dean Witter Reynolds Bloomberg Freddie Mac PE Fund
Fiedelity Options Franklin Templeton Pound Budget Corporate Finance
2

From the Editor’s Desk
Dear Readers,
At the outset, I thank all the Students and Faculty members of IIM Shillong for
contributing to the overwhelming success of the first edition of “Niveshak”. I, on behalf of
the Niveshak Editorial team and Prof. Suvendu Bose, mentor of the Finance Club would like
to convey my special thanks to Prof. A. Dash, Prof. R. Dwivedi, Prof. B. Panda and Prof. B.
Roychoudhury for their contribution. Appreciation and encouragement mails from our
Professors, support from Prof. A. K. Dutta, Director, IIM Shillong, a place in the IIM Shillong
website and Feedback from the FPM cell of IIM Kozhikode from the very first issue took all
of us by surprise.
The team somehow brought its feet back on ground only to realize that this
appreciation brings with it lots of expectations, a responsibility to improve quality in every
step, a responsibility to create a legacy of the first batch, a responsibility to carry it forward,
a responsibility to set out in the quest for excellence, a responsibility to live up to the
reputation of the IIM brand. I think by now all of us have found enough reasons to identify
ourselves with this magazine. “Niveshak” need all your support to reach all the IIMs and
major corporate houses. “Niveshak” needs all your support to succeed in this quest for
“Excellence” and strive for “Perfection” and “Innovation” in the near future.
In this issue we have added a few new features. We have an article on PE funds by
Prof. Ashutosh Dash, contributions from many students and a comic strip. Hope you have a
pleasant reading. Best of Luck for end‐term exams.

Biswadeep Parida,
Editor – Niveshak.

Major Events of The Finance Club in the Last Month

1. The Finance Club was formed on 28th July 2008 in a kick‐off meeting in which 55
perspective members participated.
2. The Finance Club released its monthly magazine “Niveshak (The Investor)” on the
62nd Independence Day of India. Prof. Ashoke. K. Dutta released the magazine in the
presence of faculty and students. Prof. Dutta appreciated the initiative of publishing
the first magazine of IIM Shillong.
3. “Niveshak” finds its way to the IIM Shillong website.
4. Finance Club Office bearer Wenkatesh Sawanth took a session for interested
participants on Sensex on 23rd August 2008.
5. Prof. Suvendu Bose, who is also the mentor of The Finance Club, acquainted
students to the basics of Derivatives trading on 30th August 2008.

Niveshak © The Finance Club, IIM Shillong
3

Development of North‐East
IT/ITES Investments in Shillong –Dream or Reality?
By Saurav Kumar Bagchi
Whenever we hear the word “Shillong”, a hilly tourist place with beautiful landscape
comes to our mind. The thought is absolute true as the place known as “Scotland of East” is
very rich in flora and fauna and has beautiful places like Cherapunji and Mawsynram near to
it. Now the question is that can this city also become an ideal destination for investors? Let
us analyse that though we will restrict ourselves to IT/ITES related industries only.
Now a days the services industry is flourishing like anything and that is mainly due to
IT/ITES sector. The software companies like TCS, CTS, Infosys, Wipro, etc. are generating a
huge amount of revenues from its global clients and expanding like anything by setting up
bases in India. Recently TCS came up with a training centre in Guwahati only. Earlier these
companies were having their development centres in Tier I cities but now they are also
looking for newer feasible places for opening new centres.
What these IT/ITES companies look while setting up a centre in a particular place?
Man power
Tax benefits
Low real estate prices
Infrastructure in terms of power and telephone/internet connectivity
Interest of the Government
New Policies
How Shillong can meet up the above demands?
As far as the man power is concerned, there is no dearth of it as in this kind of sector
the main skill required is good communication skills in English which is no problem
for the educated people of this place. Shillong, a home to an IIM, an IIIT/ upcoming
NIT, four universities, 15 colleges will have no problem to produce good quality of
workforce required by these industries. Statistics also proves that. As per the
website “www.shillongonline.com”, about 20 per cent of the IT workforce in
Bangalore and Hyderabad, which are IT capitals, are from the North‐East. These
people leave Shillong as there is a shortage of good opportunities here. They are
eager to come back if they get right work options. Prawin Singhania, a Shillong native
working in Cognizant Technology Solutions at Kolkata says “Given a similar profile
job in Shillong, I will work in 3/4th of my current salary.”
Setting up a BPO or a software industry in North East, the companies will enjoy
financial benefits from Govt than other states in rest of India. They will get 100%
Income Tax exemption and Interest Subsidy will be made available @ 3% on working
4

capital loan under North East Industrial and Investment Promotion Policy (NEIIPP)
along with other benefits. [Source ‐ http://megindustry.nic.in/rcip/neiipp2007.htm]
The biggest problem, these companies are facing while setting up their centres is
because of very high prices of real estate. Shillong has a big advantage in this regard.
The rates can vary as per the location of the area in that city.
Location Price/Acre
Noida 4.6Cr
Chennai 5.0Cr
Kolkata 1.5Cr
Shillong 50Lakhs
[Source – Real estate websites]Rates can vary as per the location of the area in that city.
The infrastructure required is already in place though minor improvements are
required like removing power cuts.
One of the very important factors to attract investors to a particular place is that the
Government of that place should be interested in this regard which is evident in the
case of Meghalaya Government which already has a Department Of Information
Technology. The Department has even set up a Software Technology Park.
Another important factor is Shillong is going to be connected to South East Asia and
Bangladesh under the look east policy of Govt. of India. Cultural capital continuum
with South‐East Asia shall help her out in attracting investments in computer and
electronic hardware from South‐East Asia. Also the software industry can use this as
an advantage to expand their business in South East Asia.
It’s not that everything is positive about Shillong. Following are the some negatives:
The city is still lagging very much in infrastructure building. E.g. – Transport
infrastructure.
Another main problem of Shillong, even the whole NE has this problem, is that, the
people of other parts of India are very much disconnected from this region. It is
considered to be a remote region and thus the interest of investors towards this
region is not great. Also people mistakenly consider Shillong as militancy affected
zone like some other parts of North East.
But now outlook towards Shillong is changing thanks to Government both State and
Central, the advantages are offsetting the disadvantages and investor’s attitude towards
this region is changing. One of the good examples is of BPO (Hero Mindmine, S.S.
Netcom Company) set up in 2005 with around hundred employees and it today boasts
of more than five hundred people. So if the IT/ITES industry work in tandem with State
Government and set up bases here, more jobs will be created, infrastructure will be
improved, overall economic growth of the state will increase. Thus the investment in
Shillong in this sector will be a win‐win situation for both the industry and the region.
5

Private Equity Funds
Indian Entrepreneurs and the many Virtues of Private Equity
By Prof. Ashutosh Dash
The economic reforms since 1991 have brought many changes to the business
environment in which Indian companies previously operated. Liberalization paradigm,
technological changes, and creative coerce of market participants are considered to be the
main driving forces in the transformation of economic landscape of India. The policy and
institutional reforms ride the liberalization paradigm that allowed competition through the
freedom of entry and less regulatory segmentation, tolerated failures and exits; removed
government control; decreased government ownership of institutions; removed constraints
on foreign ownership and cross‐border borrowing or lending; facilitated market determine
interest rates and abandoned the distorting exchange rate regimes. The reforms initiated
during the last one and half decade have led to profound changes in the Indian Inc by
undoing some of the problems posed by the factors like industrial licensing and labour laws,
by bringing in less protective and more market friendly measures.
During this phase, different institutions have assumed the role of market players.
Pension funds, mutual funds, insurance companies, venture capital funds, micro‐finance
institutions, leasing and factoring companies channel the flow of funds in India. Increasingly
over time, the private equity funds have started gaining attention and companies have
realized that they are the most viable source of funding.
The PE Boom in India:
Though India has traditionally been rich in Land, Labour and Enterprise, Capital has
always been in severe short supply and has throttled the growth of the economy since the
country’s independence. It is only since 1991, the liberalization of the financial controls on
the country, that India began to tap into the vast pools of capital available from foreign
shores. Since then, the various types of capital raising options that have since been available
to corporate India including FDI, private equity, overseas listings and ECBs, among others.
But because of various advantages associated with it, the private equity has gained
momentum in recent years. The number and value of deals have increased sharply over the
years. The popularity of PE funds may be attributed to various factors like its timeliness, i.e.,
funds can be raised in far less time than it takes to get listed or to raise a loan; expertise and
networking capacity; and easy access for raising further resources.
Indian companies received almost no Private Equity (PE) or Venture Capital (VC)
funding a decade ago. This scenario began to change in the late 1990s with the growth of
India’s Information Technology companies and with the simultaneous dot‐com boom in
India. The Indian private equity (PE) and venture capital (VC) market roughly started in
1996‐1997 and it scaled new heights in 2000 primarily because of the success demonstrated
by India in assisting with Y2K related issues as well as the overall boom in the Information
6

Technology, Telecom and the Internet sectors, which allowed global business interactions to
become much easier. The PE investment in India came “crashing down” when NASDAQ lost
60% of its value during the second quarter of 2000 and other public markets (including
India) also declined substantially. Consequently, during 2001‐03, the VCs and PEs started
investing less money and in more mature companies in an effort to minimize the risks and
the PE market began to recover towards the end of 2004 (Aggarwal, 2006).
From 2004 onwards since India’s economy has been growing at 7%‐8% a year, and
since some sectors, including the services sector and the high‐end manufacturing sector,
have been growing at 12%‐14% a year. Indian entrepreneurs seemed to largely resort to PE
deals for fund‐raising in 2007. PE deals topped the list of fund raising sources of the
companies last year, much ahead of initial public offerings (IPOs), follow‐on offerings and
qualified institutional placements. In 2007, there were a total of 386 PE deals worth $17.14
billion, substantially higher than 302 deals amounting to $7.86 billion in 2006 and 124 deals
worth $2 billion in 2005. Bharti Airtel and GMR Infrastructure are the two notable examples
where the companies have attracted PE deals worth $1.9 billion and $1 billion respectively.
Seven out of the top ten PE deals involved real estate and infrastructure‐related companies,
according to Grant Thornton.
Spiraling of PE Funds – The Entrepreneurial Issues
The Indian PE market is different from that of Europe or the United States in that
small family‐owned and family‐managed businesses account for a high proportion of the
market and therefore investment opportunities. The average deal size in India is significantly
lower than in China or South Korea, but most of the companies are listed on Indian
exchanges, a huge number by any standard, and the rising performance of the stock market
since 2004 has resulted in substantial wealth creation for families with majority stakes in
listed companies. Early financing by VCs becoming on the lower side is perhaps unique to
India for the fact that since the Indian upper middle class has become quite affluent during
the last 7‐10 years and the entrepreneurs are relying more and more on family and friends
for seed funding. Since emerging entrepreneurs come from this upper middle class, the
need for seed funding from VCs could remain low for many years to come. Among non‐
listed family companies there has been a traditional reluctance to share ownership and
surrender control. Since at seed financing stage they manage their money at a subsequent
stage they want an active participation of PE for their ability to raise growth capital. Further,
PEs invest in companies that already have established track records of revenues and
profitability, and are usually at an inflection point in their life cycle, where an infusion of
capital greater than what the companies are generating by their own, could accelerate their
growth trajectory and improve their competitiveness,market share,profitability and viability.
The shift from the VC mentality to growth stage funding has allowed more industries
to participate in the PE goldmine. Whereas earlier, funding was heavily concentrated in the
I.T., and I.T.E.S., space, today, industries ranging from plastics, hospitality, healthcare, realty,
7

finance, among others have successfully tapped into the PE stream. Though real estate
seems to be the best beneficiary of private equity landscape in India, the other promising
sectors included information technology, banking and financial services, healthcare and
pharmaceuticals in the year 2007. The institutional support through venture and angle
financing does not only lead to growth in entrepreneurs but also creates innovation boom in
the market. The entrepreneurs in India generally lack expertise in marketing, sales and
business development areas, especially when compared to their counterparts in the
developed world (Aggarwal,2006). Furthermore, since India had socialistic economic policies
during 1947‐1992, there is a lack of good talent in marketing and sales professionals who
can thrive in an extremely competitive environment.
Many private equity funds by deploying their team members on the boards of
directors of their investee companies take active part in their activities and governance. The
portfolio companies get exposure to global standard practices in operations, human
resources management, financial planning, reporting and investor relations. Many funds are
also able to leverage the capabilities of their other investee companies or their existing
relationships in industry to synergistically enhance value across their portfolio. This
transforms companies into organizations.
The PE funds play a significant role in corporate governance in India. Although the
new Clause 49 of SEBI tries to enforce the level of director independence there has not been
significant improvement in the corporate landscape of India. The sheer number of listed
companies in India, together with those that may be preparing to list in the future, means
that a huge pool of board directors is needed if governance standards are to be raised in
India and standards of independence improved. Private equity firms recognizing the
importance of outside directors in the board try to find out qualified members who can
provide the knowledge, expertise and experience necessary to help steer a company
through its next stage of growth or towards a public offering. So the biggest challenge
before the PE firms is not only to trace a suitable executive to solve the human capital
challenge but also fits into a business that has been controlled by the founder for a long
period of time.
Conclusion:
In spite of all apprehensions, there has been demand from various sectors to
encourage PE funds to partner with Indian industrial units to facilitate flow of investments
for capacity expansion and modernization in the rupee‐hit sectors. The Indian Govt. should
declare various incentives for both foreign and Indian PE firms for investing in sectors where
there is a huge gap between the demand and supply to keep away the PE funds from
investing in their most familiar IT, telecom and Internet products and services sectors.
Did you know? ‐ The word ‘BUDGET’ is derived from the French word ‘Bougette’
meaning ‘Little Bag’.
8

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐The Undercover Economist‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
Exchange rates & Currency Devaluation: Can it Win Elections?
By Biswadeep Parida
In the summer of 1944, when World War II was still raging on, nearly 730 delegates from
44 countries met at Bretton Woods, New Hampashire, USA with a vision to ensure a stable
post‐war international economic environment, formalize and institutionalize different
elements of international trade and economic cooperation. During the first three weeks of
July 1944, they signed what is known as the Bretton Woods agreement. This agreement
gave birth to organizations like
1. The World Bank .Then IBRD was formed which is now a part of The World Bank
2. International Monetary Fund (IMF) .
3. International Trade Organization‐ The failure of ITO gave birth of Global Agreement
on Trade and Tariffs (GATT) which was later institutionalized to WTO after the
Uruguay round of talks (1986‐94).
Bretton Woods Conference and Exchange rates
Bogged down by the horrible experience of having a floating exchange rate in the 1930s,
world leaders sought to have a fixed exchange rate system. The United States played a
leading role in the new arrangement, with the value of other currencies fixed(plus/minus
One percent) in relation to the dollar and the value of the dollar fixed in terms of gold—$35
an ounce. This was famously known as gold standard. Following the Bretton Woods
agreement, US authorities took actions to hold down the growth of foreign central bank
dollar reserves to reduce the pressure for conversion of official dollar holdings into gold.
During the mid‐ to late‐1960s, the United States experienced a period of rising
inflation. Because currencies could not fluctuate to reflect the shift in relative
macroeconomic conditions between the United States and other nations, the system of
fixed exchange rates came under pressure. In 1973, the United States officially ended its
adherence to the gold standard. Many other industrialized nations also switched from a
system of fixed exchange rates to a system of floating rates. Since 1973, exchange rates for
most industrialized countries have floated, or fluctuated, according to the supply of and
demand for different currencies in international markets. Some countries and some groups
of countries, however, continue to use fixed exchange rates to help to achieve economic
goals, such as price stability.
An increase in the value of a currency is known as appreciation, and a decrease as
depreciation. Devaluation is a deliberate downward adjustment in the official exchange rate
thereby reducing the currency's value; in contrast, a revaluation is an upward change in the
currency's value.
9

For example, the present exchange rate of Indian Rupee is Rs. 40 to 1 dollar. To
devalue the Rupee, Govt of India may announce that from now on Rs 80 will be equal to $ 1.
This would make the Indian Rupee half as expensive to Americans and the U.S. dollar twice
as expensive in India. To revalue, the government might change the rate from 40 units to
one dollar to 20 units to one dollar; this would make the currency twice as expensive to
Americans and the dollar half as costly at home.
Circumstances for Devaluation
When a Govt devalues its currency, it is often because the interaction of market
forces and policy decisions has made the currency's fixed exchange rate untenable. In order
to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves,
often dollars, and be willing to spend them, to purchase all offers of its currency at the
established exchange rate. When a country is unable or unwilling to do so, then it must
devalue its currency to a level that it is able and willing to support with its foreign exchange
reserves.
A key effect of devaluation is that it makes the domestic currency cheaper relative to
other currencies. There are two implications of devaluation. First, devaluation makes the
country's exports relatively less expensive for foreigners. Second, the devaluation makes
foreign products relatively more expensive for domestic consumers, thus discouraging
imports. This may help to increase the country's exports and decrease imports, and may
therefore help to reduce the current account deficit. A government might try to use
devaluation to boost aggregate demand in the economy in an effort to fight unemployment.
Effects of Devaluation
A significant danger is that by increasing the price of imports and stimulating greater
demand for domestic products, devaluation can aggravate inflation. If this happens, the
government may have to raise interest rates to control inflation, but at the cost of slower
economic growth. Another risk of devaluation is psychological. To the extent that
devaluation is viewed as a sign of economic weakness, the creditworthiness of the nation
may be jeopardized. Thus, devaluation may dampen investor confidence in the country's
economy and hurt the country's ability to secure foreign investment.
The Indian Rupee like that of most of the developing countries is grossly
undervalued in an attempt to have a positive Balance of Payment i.e. having Exports greater
than Imports. At present, India’s Import bill is higher than our net exports. The present high
rate of inflation can by mostly attributed to high Oil Prices most of which is imported. Will it
not be better if we leave the Indian rupee free to market forces and allow it to discover its
own value? Value of our Rupee is bound to increase. This may help us to reduce our import
bill, reduce oil prices and counter inflation. Wish the Government could take a deeper look
10

into the world of Finance to realize that Currency valuation can help them control inflation
and win election. After all this is the only thing they have always wanted but the poor Indian
consumer will have something to cheer about.
The Deficit in India’s Saga of Development
(A Perspective on Inclusive Growth)
By Biswadeep Parida
We Indians are working our way to the top; we are putting in our labours, finding
new business, acquiring business globally, trying to unify our NRI strength abroad, calling
them back to home, organizing Pravasi Bhartya Sammelan, celebrating their success abroad
here at home. I dare say, lot of Indians know about ANTILLA (Ambani home) Indian Empress
(Mallya’s Yatch) or even about LNM’s London Home. Some companies (like Tata) are
aggressively acquiring global businesses and some (like Essel Propack, Suzlon and Bharat
Forge) are busy consolidating their position as No. 1 in the world. In short we are trying our
best to consolidate both our domestic as well as global strength. We want development, we
want to surge ahead leaving our competitors behind.
And yes we are growing; it can be easily seen in ever growing metros, bustling malls,
and new infrastructures coming up at fast speed and sold out even faster. The increasing
number of Mercedes, BMWs, Volvos, Audis, Lexus, Hummers on Indian roads also serve as
the progress report of development for all as it is simpler to interpret than the statistics
provided by any academician or say RBI / GOI report. We feel proud if an Indian has done
anything new, we celebrate his success even if we know we may never meet him in life.
Sobha De wrote in an article, that the boy selling newspaper shouting “ India ko Gold mila”
“India ko Gold mila” at the crossing is happy because India got a gold in the Olympics. But
somewhere if we dig deep into, may be India winning gold will enable him to sell few more
papers that will ensure a little more food on his plate for that very night.
Is this the silver lining that every cloud is said to have?
We talk of India at 75, we forecast India’s position at 2022, and we want 15% of
world trade and 30 Indian companies in the Top 100. At that point of time I will be in my 40s
and most of us now will be in late 50, what will be strengthening India at that time will be
the youths aged in their 20ies and early 30ies. This boy at the crossing will also form a part
in the future of India. Development is a process and not a destination. You need constant
energy (people) at all points of time.
We have a lot of Indians, Young Indian, Cosmopolitan Indian, filthy rich Indian, metro
sexual Indians, but what we miss in our talk is that Indian who has to put a brave fight
everyday just to ensure food for that very day, and not a square meal but for a single meal
11

that very day. How do I fit him in building India, when he sleeps under open sky with hunger
still burning in his belly?
Few days back I saw a movie in which army of 300 fended against 80000 cavalry,
reason they were mentally more prepared than these physically strong enemy. And here I
am, an Indian and my India is all set to conquer the world. When I look back I find a lot of
them still struggle to meet the basic food requirement for the day, they struggle to find
work. I dare say when the fire in the belly burns, the mind cannot think…..how do I expect
them to go ahead when they fight against poverty and hunger everyday and ensuring a
square meal makes them feel to have achieved no less than an Olympic gold medal.
Then what development I am talking about. What industry I am talking about if it
only makes Ambanis or Mittals richer. For every millionaire generated by the economy, we
have thousands of unemployed. I am not trying to play a blame game here. With such
diversity in the economy how do I consolidate my position and surge ahead? Every time we
cross the street we find more and more kids on the street. Let us ask our self‐ What have we
done for these people so that they can also help shape the future of the country?
And yes, if u have any question. History has the answer……..I got the answer from
the talisman of a man, pushed out of a train compartment 7 seas away from his own soil
changed the history of the world. I remember the first page of my CBSE book when I was in
school. I remember reading Gandhiji’s talisman: it said
"I will give you a talisman. Whenever you are in doubt or when the self becomes too much
with you, apply the following test:
Recall the face of the poorest and the weakest man whom you may have seen and ask
yourself if the step you contemplate is going to be of any use to him. Will he gain anything
by it? Will it restore him to a control over his own life and destiny? In other words, will it
lead to Swaraj for the hungry and spiritually starving millions? Then you will find your
doubts and yourself melting away."
What is this supposed to mean…………. I used to think. And today after 14 years these
lines, never read seriously, resound in my mind.
What have I done for developing a fellow Indian in my own ways? I have only cursed
the system, that’s it.
Ratan Tata has already made the “Nano”, won’t I be happy if I help at least one
Indian to buy and drive it. Is it not my responsibility that not only my house but its periphery
looks clean also? In short don’t I have any responsibility?
When fire burns it can be either used to cook food, neglected it can burn the house,
fire burning in the belly should rather burn in the mind.
12

A long look ahead, a broad look around and a deep look within will enable us to find
better ways to deal with this problem. Because the Answer to the question “We don’t have
breads?” is never “Eat cakes”. This sort of answer did spark the French revolution and we
don’t want it now. We need to take all and move ahead.
And yes we are not trying to take India to the top; we are here to regain the top
position that India once had. Most of we Indians, I think majority of them, see the growth of
India and Indians as a Rags‐to‐Riches story. A story that embodies the journey from poor to
rich, the march of an underdeveloped, poor third world country to acquiring the status of a
developing nation. But then what strikes my mind is a class in the early 90’s when I was in
school, most probably in the “Paanchvi” class. I was taught that India was once called “The
Golden Bird”.
On the eve of 60th anniversary of Indian independence, William Dalrypmle, a British
Historian wrote in “The Telegraph”, UK edition that “in the 1600s when the East Indian
Company was founded: Britain was generating 1.8% of the worlds GDP and India a
whopping 22.5%”. By 1870 the peak of Raj, Britain was generating 9.1% while India has been
reduced for the first time to the epitome of a Third World Nation, a symbol across the globe
for Famine, Poverty and Depression. We today by Building Business, Growing Our Trade,
Imparting Education and Trying to Reduce Inequality are not waiting for the eggs to hatch,
rather waiting for “The Golden Bird” to return to where it belonged…….
What is more important at this point is that every Indian should identify himself as
part of that growth story. And only then I can quote a hoarding of an Indian retail giant that
I saw a few days back. It read “Won sone ki chidiya ayegi......”
I get a lump in my throat when I see the Havells ad featuring a daily wage earner and
her kid. Did u see satisfaction in the eye of the mother, when her son hands her the
chimta made of wire so that his mother’s hand will not burn. That mother is India, that son
is an Indian and that wire is resource.
Can we try to bring out that glimmer of hope and that look of satisfaction in every
eye? That day India will not only be a developed nation but also a Happy Nation.
Did you know?

The Reserve Bank of India (RBI) was established under the Reserve Bank of India Act, 1934
on 1 April 1935 and nationalized on 1 January 1949.

Greater Fool Theory, also called 'Castle‐in‐the‐Air Theory', is the theory according to which
some investors will buy stock even if it is over‐valued, on the conviction that there will be
someone else who will buy the stock from them at higher prices.

13

--------------------The Investor’s Pick--------------------

Bill Miller
By Amit Chowdhary

“The market does reflect the available information, as the professors tell us. But just
as the funhouse mirrors don't always accurately reflect your weight, the markets don't
always accurately reflect that information. Usually they are too pessimistic when it's bad,
and too optimistic when it's good."
Bill Miller is Chairman and Chief Investment Officer of Legg Mason Capital
Management. Born in 1950, he graduated from Washington and Lee University in 1972. Bill
Miller is one of today's most renowned professional money managers. Bill Miller currently
manages the Legg Mason Value Trust and Legg Mason Opportunity Trust mutual funds. Prior
to joining Legg Mason in 1981, he served as Treasurer of the J.E. Baker Company. Under his
management Legg Mason Value Trust became the only mutual fund to outperform the S&P
500 for 15 consecutive years between 1991 and 2005.
He is a unique “Buy‐and‐hold” investor who does not let short‐term market volatility
dictate his decision‐making. The most striking feature of his fund is turnover ratio, averaging
15‐20%. It means Miller beats the market by holding stocks for an average of five to seven
years in contrast to other fund managers who hold stocks for less than one year. This gives
enough evidence that Miller’s performance is attributed more to skill than luck.
Miller believes that any stock can be a value stock if it trades at a discount to its
intrinsic value. This is his unique approach to undervalue stocks. He tries to own securities
that have been priced by the market at significant discounts to their intrinsic value. Bill
Miller says that most of hi‐tech firm look expensive because investors judge them from the
past. But he looks forward into the future. In valuing companies, Miller looks at the present
value of future cash flows. To him most of the leading hi‐tech firm is likely to make a lot of
cash flow in the future without further capital. He is focused on cash earnings than
accounting‐based valuation measures.
Miller believes that companies with higher P/Es can be great investments if their
long‐term earnings growth potential is high enough. He also likes to look for companies with
a large, existing base of customers that can be leveraged to produce further growth. He
doesn't mind taking a bit more risk to find opportunities among smaller firms with the
potential to produce superior returns.
Currently he controls a 5.4% stake in Yahoo, which makes the Legg Mason Value
Trust the Yahoo’s second‐largest shareholder. With Microsoft’s bid for Yahoo, which came
at a hefty 60 percent premium to Yahoo’s stock price at the time, proves the success of Bill
Miller’s investment again.
14

Sustainability
Carbon Trading
By M. Manjunath
Carbon Trading or more generically Emissions trading is a commercial activity to
reduce the pollution by providing economic incentives.
Carbon trading is market based mechanism to help mitigate the levels of CO2 in the
atmosphere. A central authority fixes the limit on the amount of a pollutant that can be
emitted into the environment. Now this limit becomes the permit of pollutants allowed into
the environment. This permit is devised into several smaller units and distributed to several
companies in the form of permit or credit. This permit or credit or allowances gives licenses
to emit a fix amount of pollutant into the environment. Companies that emit more amount
of CO2 need to buy the credits from those who emit less. The transfer of credits from one
company to other has monetary considerations leading to Carbon Trading. Only the
countries that have signed the Kyoto Protocol and their companies are allowed to engage in
carbon trading.
How does the system work?
Entities involved in carbon trading prepare a contract that describes the kind of
activity that they are undertaking to either reduce or offset the CO2 emission levels. The
contract may or may not be independently verified, although doing so will increase buyer
confidence and probably attract a higher price. This contractual commitment is then sold to
another entity that wishes to make use of the specified amount of the reduction or offset.
Contractual commitments can either be sold “over the counter “(OTC) which
involves bilateral trade without involving the market or through carbon trading markets
which requires the creation of “carbon sequestration certificate” to increase the confidence
level of the product being traded.
CDM/JI Projects
CDM or Clean Development Mechanism is a project which is executed in a
developing country where they cannot, on their own, afford to bring that technology change
in the existing infrastructure which can result in less carbon emissions. This will help
developing countries to get the much needed financial help and in turn help the developed
countries to meet the emission cut targets or make profits out of the excess carbon credits.
Joint Implementation, involves developed countries jointly starting a greenhouse gas
emission reduction project that earns both nations a credit.
15

Opportunity for Indian companies
India being a developing country is exempted from the requirement of adherence to
Kyoto Protocol; however it can sell Carbon credits to developed nations.
Companies can resort to non‐polluting source of energy and earn carbon credit in
the form of CER’s (Carbon Emission Reductions) to the extent to which they have cut down
the CO2 emission. The companies can then sell these CER’s to companies in developed
countries and make huge profits.
There is also role for rural India in this emerging market, the power generated by
naturally grown fuels would yield carbon credits and revenue from their sale.
Analysts peg the global carbon‐trading market at $100 billion by 2010, and the
Indian carbon market has the potential to supply 30‐50% of the projected global market of
700 million CERs by 2012.
However the opportunity does not exist forever for India. Once India is accepted as a
Developed nation, India would have to adopt strict norms to cut down the emissions.
FinToon
By Saurav K Bagchi
Dilpreet Singh Gandhi

Did you know? - Sherlock Holmes, the fictional detective, was a regular advocate of free
trade.

16

Fin‐Q
By Nilesh Bhaiya.
1. The company, Yoshida Kogyo Kabushiki Kaisha manufactures something that is
widely used by everyone in several different ways. This long name basically
translates to Yoshida Company Limited. One of their famous ad lines is, “"Whether
you realize it or not, you probably start your day with ___________." Which product
and fill in the blank? (2 answers)
2. The leading U.S. based international insurance organization, was started by a former
U.S. Army veteran in Shanghai in 1919. Founded by Cornelius Vander Starr as C.V.
Starr & Co., the insurance giant opened a New York office in 1926, specializing in
insuring risks incurred outside the U.S. by American companies. World War II forced
C.V. Starr & Co. to move headquarters to the U.S. In 1967, Maurice Greenberg took
control of the newly formed holding company for Starr's collection of insurance
companies, the _______. It went public in 1969 and was the first foreign business to
resume operations in Shanghai after World War II, and it was the first overseas
insurer to be granted a license to sell insurance in China in 1992. Which insurance
giant is it?
3. The Dow Jones Industrial Average is an average of 30 stocks. When it started there
were only 12 stocks. There is only company of the original 12 still in the index. Name
the company.
4. In a bank vault in Atlanta in the US a piece of paper that has the formula for a
product has been slashed away for close to a century now. The vault can be opened
only after approval by the board of directors of the company. Only 2 employees are
aware of the formula at any time. Name the product.
5. This powerful US Corporation asked the American government to overthrow the
government of Guatemala, and supplied two freighters for the Bay Pigs invasion. Its
ability to influence Latin American governments gave it the nickname of “The
Octopus." But what does it call itself?
6. In March 2007, this major global financial service provider announced plans to
merge with ABN AMRO, the largest bank in the Netherlands. However, it had to
abandon it bid later. This financial giant incurred a loss of around £ 8.67 billion due
to this failed takeover. Name the financial service provider.
7. On April 24, 1865, a group of Europeans founded this bank, making it the oldest Joint
Stock bank in India. Name the bank.
8. In December 1994, Orange County stunned the markets by announcing that its
investment pool had suffered a loss of $1.6 billion. This was the largest loss ever
recorded by a local government investment pool, and led to the bankruptcy of the
county shortly thereafter. The bankruptcy was result of unsupervised investment
activity of the County Treasurer. Name the person.
17

9. Sir Osborne Smith was the first Governor of the Reserve Bank of India. But, he did
not sign any Indian rupee during his tenure. Name the Governor of the RBI whose
signature was first to appear on the currency notes of the Indian rupee.
10. Name the current Governor of RBI, Chairman of SEBI and the Chairman of NSDL?

Rules: Once you get a copy of “Niveshak”, this Quiz is open. Use Wikipedia/Google/Books or
simply ask your friends, and mail the answers to Nilesh Bhaiya (nilesh08@iimshillong.in or
nileshathome@gmail.com). The winner selected through a lucky draw will get a Parker pen
and will have their names published in the next issue of “Niveshak”. There are other
consolation prizes to be won.
Last date of entry – 25 September, 2008 (end of day)

Results of August ’08 issue’s Fin‐Q
Answers to August ’08 issue’s FIN‐Q :‐
1. J. P. Morgan
2. Textile
3. Centurion Bank Of Punjab
4. Duracell
5. ICICI
6. Samurai Bonds
7. Jamie Dimon (BANK ONE)
8. Citibank – Charles Prince
Merrill Lynch – Stanley O’Neal
9. Tirupati Ladoos
10. Cerebrus Capital

WINNER: Asit K. Jain
CONSOLATION PRIZES: Mohit Khemka, Abhishek Bakshi, Dilpreet Singh Gandhi, Saurav
Bagchi, Kannan PNV, Shakshi Gupta.
The Finance Club congratulates all the winners. We expect similar kind of response to future
editions.
For any queries or suggestions contact “The Mag‐Gang”
Amit chowdhary, Biswadeep Parida, M. V. Chakradhar, Nilesh Bhaiya, P.M.W. Sawanth.
Faculty mentor: Prof. Suvendu Bose.

Niveshak September'08

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Niveshak September'08

Uploaded by

Copyright:

Available Formats

JP Morgan Chase UBS Carlyle AIG Citibank State Bank of India Allianz HDFC

--------------------The Investor’s Pick--------------------

You might also like

Niveshak September&#39;08

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Niveshak September&#39;08

Uploaded by

Copyright:

Available Formats

JP Morgan Chase UBS Carlyle AIG Citibank State Bank of India Allianz HDFC

--------------------The Investor’s Pick--------------------

You might also like

Niveshak September'08

Niveshak September'08