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Term of the Week : FDI & FII
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September 16 ,2012
Company In Focus
Cover Story : FDI in Retail
INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD
EDITORIAL Dear Readers, Greetings from FinNiche! With the start of the end terms of the seniors, the library and the Xerox shop is yet again crowded . Also the summer internship placement week for the juniors is fast approaching. We wish all the second year students best wishes for their end terms and the juniors for their upcoming summer internship placement week. In this edition of FinXpress, we have Coca-Cola Company as the “Company in Focus” section giving an idea of its Indian subsidiary and its financial information. In the “Term of the Week” we move to FDI & FII. In the markets section, we discuss about Sensex surpassing 18000 mark for the first time since March 14 this year . In the “special page” we will cover FDI in retails sector. We sincerely hope that the readers find our content engaging. We would appreciate feedback and suggestions for improvement. We hope to bring you more information in the future thus keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board “FinXpress”
SEPTEMBER September 16 16 ,2012 ,2012
COMPANY IN FOCUS Coca—Cola Company The Coca-Cola Company is an American multinational beverage corporation and manufacturer, retailer and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its flagship product Coca-Cola, invented in 1886 by pharmacist John Pemberton in Columbus, Georgia. The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake Coca-Cola beverage, Coca-Cola currently offers more than 500 brands in over 200 countries or territories and serves over 1.7 billion servings each day. The company operates a franchised distribution system dating from 1889 where The Coca-Cola Company only produces syrup concentrate which is then sold to various bottlers throughout the world who hold an exclusive territory. The Coca-Cola Company owns its anchor bottler in North America, Coca-Cola Refreshments.
Coca-Cola India Pvt Ltd & Hindustan Coca-Cola Beverages Pvt Ltd Coca-Cola in India is the country’s leading beverage Company with an unmatched portfolio of beverages. The Company manufactures and markets leading beverage brands like Coca-Cola, Thums Up, Fanta, Fanta Apple, Limca, Sprite, Maaza, Minute Maid, Burn, Kinley and Georgia range of tea coffee, Nestea and Fanta Fun Taste. In India, the Coca-Cola system comprises of a wholly owned subsidiary of The Coca-Cola Company namely Coca-Cola India Pvt Ltd which manufactures and sells concentrate and beverage bases and powdered beverage mixes, a Company-owned bottling entity, namely, Hindustan Coca-Cola Beverages Pvt Ltd; thirteen authorized bottling partners of The Coca-Cola Company, who are authorized to prepare, package, sell and distribute beverages under certain specified trademarks of The Coca-Cola Company; and an extensive distribution system comprising of customers, distributors and retailers. The Coca-Cola Company has invested nearly USD 1.1 billion in its operations in India since its re-entry back into India in 1992. The Coca-Cola system in India directly employs over 25,000 people including those on contract. The system has created indirect employment for more than 1,50,000 people in related industries through its vast procurement, supply and distribution system. We strive to ensure that our work environment is safe and inclusive and that there are plentiful opportunities for our people in India and across the world. The beverage industry is a major driver of economic growth. A National Council of Applied Economic Research (NCAER) study on the carbonated soft-drink industry indicates that this industry has an output multiplier effect of 2.1. This means that if one unit of output of beverage is increased, the direct and indirect effect on the economy will be twice of that. In terms of employment, the NCAER study notes that “an extra production of 1000 cases generates an extra employment of 410 man days.”
Corporate Social Responsibility The Coca-Cola Company has always placed high value on good citizenship. At the heart of business is a mission statement called the Coca-Cola Promise - “The Coca-Cola Company exists to benefit and refresh everyone that it touches.” This basic proposition entails that the Company’s business should refresh the markets, protect, preserve and enhance the environment and strengthen the community. Coca-Cola India provides extensive support for community programs across the country, with a focus on education, health and water conservation. The Company has installed more than 500 rain water harvesting structures in the country. The Company has also undertaken the rejuvenation and reconstruction of several traditional water bodies including check dams. They are also working towards providing clean drinking water to school children in Chennai and areas in West Bengal in partnership with Rotary International and UN Habitat respectively. The Company is committed to work with communities across India in its effort to contribute to mutual growth and development.
September 16 ,2012
Financial Information The Coca-Cola Company (NYSE:KO)
Indicated Annual Dividend
Earnings per Share
Market Cap ($ billion)
September 16 ,2012
TERM OF THE WEEK : FDI and FII S.No.
Foreign Direct Investment(FDI)
Investment which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin.
An investor or investment fund that is from or registered in a country outside of the one in which it is investing.
It cannot enter and exit that easily.
Can enter and withdraw from the stock market.
Targets a specific enterprise.
Increases capital availability in general.
As it cannot enter and exit easily, it is more stable.
It is less stable.
Flows into the primary market.
Flows into secondary market.
They are long term investments. It not only brings in capital but also helps in good governance practises and better management skills and even technology transfer.
They are short term investments. It helps in promoting good governance and improving accounting.
It is considered to be the most beneficial kind of foreign investment for the whole economy.
It is less preferred than FDI.
It gives some control in operation of foreign company to the foreign company.
It does not give any control in operation of foreign company.
September 16 ,2012
Foreign Institutional Investor(FII)
MARKET THIS WEEK SENSEX gained 4.41% from last week and ended at 18464.27 this week.
Simple Moving Averages 30 Days
Returns – BSE Sensex YTD
Nifty gained 4.08% from last week and ended the week at 5577.65
Simple Moving Averages 30 Days
Returns – Nifty YTD
SEPTEMBER September 16 16 ,2012 ,2012
Overview India's benchmark BSE index, the Sensex, surpassed 18,000 points for the first time since March 14, on hopes for fiscal reforms after the country's aviation minister expressed hopes the government would allow foreign direct investment into the sector. Gains in local shares on Wednesday also tracked a risk-on mood globally, after Germany's top court backed the legality of the euro zone bailout funds, although with conditions. SpiceJet Ltd rose 7.5 percent, Kingfisher Airlines advanced 8.5 percent, while Jet Airways added 4.8 percent. India's benchmark BSE index was up 0.8 percent at 17.991.84 points as of 0950 GMT, after hitting a session high of 18,007.66. The 50-share NSE index rose 0.7 percent.
Repo Rate Reverse Repo Rate
Lending Deposit Rate 10%Base Rate 10.5% Savings Deposit Rate 4% Term Deposit Rate 8%-9.25%
Exchange Rate v/s INR
US Dollar Euro
Japanese Yen Chinese Yuan
September SEPTEMBER16 16,2012 ,2012
Silver Crude Oil
1 Kg. 1 BBL
NEWS OF THE WEEK Government Allows Up To 51% FDI in Multi-Brand Retail, 100% in Single Brand The government on Friday cleared the proposal to allow up to 51 per cent Foreign Direct Investment (FDI) in multi-brand retail. The government has allowed the FDI on the condition that states will be allowed to decide whether they want to opt for it. Commerce Minister, Anand Sharma also announced 100% single brand FDI notification with the requirement of 30% local sourcing. For multi-brand retail, Cabinet Committee on Economic Affairs (CCEA) said that 50% FDI brought in shall be invested in back-end infrastructure within 3 years of FDI induction. The UPA II government ally Trinamool Congress expressed strong opposition on the government's decision. Opposition party BJP also called the FDI in retail as a "betrayal of people of country". The move would allow global firms such as Wal-Mart Stores to set up shop with a local partner and sell directly to consumers for the first time, a move which could transform the $450 billion retail market and tame inflation. Cabinet Allows Up To 49% FDI in Aviation by Foreign Carriers The government on Friday decided to allow foreign airlines to buy up to 49 per cent stake in local carriers. The foreign investment limit of 49 per cent in local airlines includes both FIIs and FDI. Civil Aviation Minister Ajit Singh said that the sector has been under financial stress and now banks will look at them favourably. Allowing 49 percent stake to foreign airlines will create access to capital, global connectivity, technology and best practices. This could lead to establishment of new airlines in India and perhaps, change in ownership structure of certain Indian carriers. All this augurs well for Indian passengers. Increased competition would lead to better offerings, greater efficiency, cheaper airfares and more power to the passenger. Earlier, the government allowed foreign investors, not related to airline business, to buy up to 49 percent stake in domestic airlines but foreign carriers were not permitted to invest. This provides a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding. Except IndiGo, all airlines have posted losses in the financial year ending on March 31. Cash-strapped Kingfisher Airlines which is burdened with a debt of over ` 7,000 crore has been in the forefront of pushing for permission to allow foreign airlines to invest. Federal Reserve's QE3 The US central bank on Thursday said it will launch a fresh round of bond-buying to stimulate the economy, purchasing $40 billion of mortgage debt each month until there is substantial improvement in the US jobs market, where 8.1 percent of Americans remain unemployed. The Federal Reserve has tried quantitative easing twice before, thus earning this round the designation QE3. To buy bonds, the Fed pays for its purchases by crediting the accounts of banks from which it buys the bonds. As money piles up in their Fed accounts, earning the paltry quarter-of-a-percentage point in interest that the Fed pays, banks may be keener to lend to companies and people. Fed bond-buying also helps the economy by pushing down borrowing costs. Massive buying of any asset tends to push up the prices and because of the way the bond market works, rising prices forces yields down. Some investors put off by the rising price of the bonds that the Fed is buying, turn to other assets, like corporate bonds - which, in turn, pushes up corporate bond prices and lowers those yields, making it cheaper for companies to borrow and spend. Critics say bond-buying enables Congress and the president to avoid dealing with looming fiscal problems by giving them a handy buyer for the nation's ever-increasing debt. Politicians in other countries have complained that the US weakens the dollar and hurts their exports, and floods their economies with capital that is hard to absorb. Lodestone Deal for Rs 1,932 Cr Is Infosys' Biggest Buy Infosys, India's second-largest software exporter announced itâ€™s biggest-ever acquisition on Monday. It would buy Lodestone Holding, a Switzerland-based consulting company specializing in business software from Germany's SAP, for about $350 million, giving it better reach in continental Europe.
September 16 ,2012
But investors hoping for meaningful deployment of Infosys' ` 20,000-crore cash pile were not overjoyed. The company's shares closed only 0.6% higher on the Bombay Stock Exchange after having run up about 10% in the last month. Following the acquisition, Infosys may revise its revenue growth guidance for the year to March 2013. This may be done while announcing earnings for the September quarter. The Bangalore-based company is projected to grow 5% in the year to March 2013, compared with 11-14% for the industry. Lodestone, with 850 employees, comes with about 200 clients in the manufacturing, automotive and life sciences sectors. Its 2011 revenues were ` 1,200 crore. It will take Infosys' SAP practice to about 10,000 professionals and $1 billion in revenues. There is only marginal overlap between clients of Infosys and Lodestone, presenting significant cross-selling opportunities. Infosys will pay two-thirds of the value of the deal when the transaction closes in October and the rest after three years. Lodestone is owned by 40 partners, most of them based in Switzerland and Germany. The revenue boost will also help Infosys stay ahead, for the time being at least, of nearest rival Cognizant Technology Solutions. Cognizant recently overtook Infosys in quarterly revenues and was expected to top it in annual sales. German Court Paves Way for European Stability Fund Germany’s Federal Constitutional Court has cleared the way for the creation of the European Stability Mechanism, the region’s much-delayed €500-billion bailout fund, as well as the fiscal compact imposing greater budgetary discipline across the region. The court in Karlsruhe rejected an application for an injunction on the ESM, allowing President Joachim Gauck to sign the necessary legislation. The legal challenge had delayed the introduction of the fund from June and left the European Financial Stability Facility, with remaining resources of around €200 billion, as the region’s only source of funds for bailing out beleaguered nations. The ruling was not without caveat and gives the German parliament, the Bundestag, a key role in any future developments. Germany’s liability is capped at €190 billion, the figure previously approved by the Bundestag. Any further increases will have to be approved by the parliament, which must be kept abreast of all developments within the fund. These conditions must be met for Germany to be able to ratify the ESM. The ruling is a major victory for Chancellor Merkel, who has pushed for the ESM despite considerable public opposition in Germany to the proposals, and in particular any increases to Germany’s already sizable liability to the Euro Zone crisis. Government Hikes Diesel Price by ` 5; Caps LPG Cylinders At 6/Year The government raised diesel prices by ` 5 a litre (excluding VAT) and also capped the number of subsidised LPG cylinder a household can get at six per year. However, PDS kerosene was left untouched. While not tampering with the retail price of petrol, the Government decided to reduce the excise duty on the fuel by ` 5.30 a litre from ` 14.35. But this benefit is not being passed on to the consumer. The Cabinet Committee on Political Affairs (CCPA), under the chairmanship of Prime Minister Manmohan Singh, took stock of the situation arising out of projected under-recoveries of ` 1,87,127 crore for current fiscal for the public sector oil retailers in the wake of high international crude oil prices and the sharp depreciation of the rupee against the dollar. The number of subsidised LPG cylinders available to each consumer in the remaining part of the current financial year will be three. While the subsidised cylinders will continue to be available at ` 399 a unit (in Delhi); the market rate will be notified by the oil companies every month.
September 16 ,2012
COVER STORY India allows FDI in retail - Facts India opened its retail sector to foreign supermarkets on Friday, a major economic reform that has been stalled for months by political gridlock and came as part of a package of measures aimed at reviving growth. The policy comes with provisos which, some analysts said, could hamper firms hoping to set up shop in the world's second-most populous country. Following are key aspects of the policy: States to Decide on Implementation Individual state governments will decide whether to allow foreign supermarket chains to enter. The Congress party-led government hopes this will take the sting out of opposition from regional parties who say the policy will destroy jobs. Opponents of the reform include Mamata Banerjee, the chief minister of West Bengal and the most powerful ally in Prime Minister Manmohan Singh's government. Sourcing from Small Companies Foreign retailers will have to source almost a third of their manufactured and processed goods from industries with a total plant and machinery investment of less than $1 million. Supermarket chains will certify compliance with this themselves. The government will reserve the first right to procure food produce from farmers before companies do, in order to provide stocks for its food subsidy schemes for poor households. Minimum Investments Foreign retailers will have to invest a minimum of $100 million, and put at least half of their total investment into so-called 'back-end' infrastructure, such as warehousing and cold storage facilities. This requirement has to be met within three years of a retailer setting up shop. The aim is to meet one of the key justifications for opening the supermarket sector to foreign players -- revamping the country's crumbling infrastructure and unclogging bottlenecks. The bottlenecks fan inflation, which has proved a major headache for the government and the Reserve Bank of India. Policymakers argue opening the sector will help ease prices for a country where hundreds of millions live in dire poverty. Big Cities Foreign retailers will only be allowed to set up shop in cities with a population of more than 1 million. In states where there are no cities with such a big population, individual state governments can choose where to allow foreign chains to open. Critics of the new retail policy, including from opposition parties and domestic traders, say opening the doors to the likes of Wal-Mart will wipe out the country's small, family-run neighbourhood stores and trigger mass unemployment. By restricting foreign firms to cities, the government hopes the supermarkets will become accessible to the country's swelling middle class, while protecting the livelihoods of shopkeepers in smaller towns and rural areas.
September 16 ,2012
CAN YOU SOLVE IT? Match the following: Coca Cola HSBC Renault Nissan VIP Hindustan Unilever
LAST WEEKâ€™S ANSWERS
Dilip G Piramal Carlos Bhosn Harish Manwani Atul Singh Sir Thomas Sutherland
SET A 1) Reliance Capital
2) Mahindra & Mahindra Bharat Doshi 3) Marico
4) HCL Technologies
5) Perfetti van Melle
Winner: Nilesh Sonar
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September 16 ,2012
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