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January 19, 2014

Volume 26


FinNiche

FinXpress

FinXpress Volume 26 Jan 19, 2014

From The Editorial A Normal Week

CONTENTS

From The Editorial In Focus: A Quarter after Dell’s Privatisation Opinion: Indian Economy in 2014 Terms of The Week: Employee Stock Option Scheme Market This Week News

Tips & Experiences

As the students get back into the groove of studies, the new term slowly moves on to become a regularity. The week saw the Lohri celebrations being played out in the amphitheater. Club FinNiche would also like to extend its warmest greetings for Lohri to all its readers. As a number of students start preparing for their upcoming final joining and others for professional examinations, the need for financial knowledge becomes paramount. Club FinNiche, as always takes up the challenge to keep you updated and sensitize you with the latest happenings around the world. This week we bring to you a review of the future of Dell after Quarter into it’s privatization. The Opinion section takes a look into the changing faces of Indian Economy in the year 2014. The Term of the Week grabs the nitty-gritty's of the Employee Stock Option Scheme. Do look over the ‘News of the Week’ section for the noteworthy news for the week. The ‘Market of the Week’ covers the latest movements in the market this preceding week. We hope you enjoy the various articles in this edition of FinXpress. We look forward to your comments, acknowledgements and your criticisms regarding our online magazine. Happy Reading!!!

Regards, The Editorial Team FinNiche Club

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. January 2014

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FinNiche

IN FOCUS

A Quarter After Dell's Privatisation The markets watched as investors led by Carl Ichan on one side collided forces with Michael Dell and Silver Lake on the other. It was a tumultuous battle which finally ended with the latter gaining control of the $57 billion behemoth - Dell Inc. There are both defenders and attackers of the move that saw the Texas based computer technology company go private for $24.4 billion. Michael Dell's plan to take the company private was motivated in part, to give him much needed flexibility to rejuvenate the company "without the obligations of public reporting, shareholder expectations, quarterly targets, and other limitations of operating as a public company". However,

year. However, Michael Dell is betting big on the PC market. He believes that not just a desktop or laptop, but PCs will now be a variety of devices and his company has great scale advantage and is gaining share in the category. In Dell’s case, some analysts suggest that once it’s private, Dell can migrate to a software and services model. That is however easier said than done. The presu me d exempl ar of su ch a transformation, IBM (IBM), still earns a surprisingly high proportion of its profit from a mainframe business that has been revived by the growth of big data and the disappearance of most of the company’s mainframe competition. Furthermore, a private Dell will likely have to service a sizable debt load, presumably hobbling any efforts to make significant acquisitions or major investments in R&D to accelerate its move into software and services.

Another notable point of concern is the piles of debt taken as financing and the increased role of Silver Lake in the day to day functioning of the company. In such a case, who would act as the real CEO? Michael Dell? Silver Lake? Or some other according to a study done between 1997 debt financer? and 2006 on 105 UK listed firms which were taken private, after layoffs and sales of However, many critics also argue that the assets, the gap in revenue per employee deal was made for Michal Dell's legacy. between these firms and a control group When Michael Dell started the company in actually widened by more than triple. Thus, 1984 for $1,000, it was his hunger for there will be lots of layoffs in the days to success that drove the company's ideology. come. It helped the company to be one of the front runners in the PC market. Thirty years The PC market is seeing a gradual decline. hence, Michael Dell is a well known name According to IDC, PC companies sold 10% in the Silicon Valley. He has advantages of fewer PCs in 2013 than they did in the a global footprint, recognition, connections preceding year. The market is facing stiff and a brand name. If he is successful in competition or more realistically being transforming Dell, he will be known as a hammered by portable substitutes like "The CEO who changed Dell". Otherwise, he smartphones, tablets and cloud computing will go down as a mere footnote in history which are seeing double digit growth every books.

January 2014

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FinNiche

OPINION

INDIAN ECONOMY IN 2014 —- By Jagriit Kalra The story of the Indian economy in 2014 could be played as a result of the coming general election. The domestic economic situation is not a pretty picture: there is no growth recovery in sight even as consumer price inflation continues to hover around double digits. So there is little room for a stimulus to economic activity right now. A monetary stimulus will be risky at this time when the Reserve Bank of India (RBI) has to calm down the inflationary fires that are left unattended for too long. A couple of more interest rate hikes in the coming months are quite possible, despite the surprise decision by the Indian central bank to not to further increase rates in December. A fiscal stimulus will also be bought with risks. The finance ministry is struggling to keep the fiscal deficit within its budgeted figure, especially since tax revenues have fallen behind targets because of the growth slowdown. So the finance ministry has to compress expenditure. The government can at best try to ease the economic situation through executive

The other possibility is that the political leadership may see the loss of economic momentum as the major reason for the voter revolt, in which case it could be tempted to pour money into populist schemes that it believes could win votes. The history lesson as well as the basic political instincts of the Congress leadership clearly suggests that Congress might yet be again tempted to throw fiscal deficit to the winds despite the presence of high inflation. Global investors will not be impressed if India lets its fiscal deficit overshoot the budgeted target or allows inflation to further drift up. Nor will global credit agencies be cheering these in any case. There are glimmers of hope, however. The current account deficit has thankfully shrunk because of administrative measures to compress gold imports as well as more robust export growth following the depreciation of the rupee as well as buying of dollars from the market. So the Indian economy seems to be in a better position than a few months ago to handle this new aftermath of instability in the financial

decisions supporting large investment markets globally. projects that have been frozen for long. Policymakers in New Delhi and Mumbai A lot depends on how the Congress party have done well to ensure that India is in a interprets the results of the recent state better position to deal with global volatility elections when it got defeated. One than it was in July. However, the big worry possibility is that they may see voter is whether India can maintain external dissatisfaction as a response to high inflation. Then there are good chances that the government will cooperate with the Indian central bank in keeping a lid on domestic demand, with a combination of higher interest rates and lower government spending.

JANUARY 2014

stability without such artificial props. The current confidence could be severely tested in the middle of 2014 a lot depends on the results of the national elections.

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FinNiche

FINANCIAL KNOWLEDGE

EMPLOYEE STOCK OPTION SCHEME —- By Vipul kumar Singh

Employee stock option scheme is an instrument used by the company to attract, retain and motivate its employees. These schemes basically involve the issue of shares at a discount as compared to the market price to its employees as part of their employee compensation. Under the Employee stock option scheme, employees and not the promoters or those employees who belong to the promoter group are given the stock option. Stock option is a right given to an employee by the employer, where on account of exercise such option the employee will get some securities (shares) in the employer company, within a stipulated period, at a pre-determined price. The major advantage of stock options is that it develops a sense of belonging to the company and thus contributes effectively to the growth of the company.

SEBI has issued guidelines for Employee Stock Option Scheme, namely SEBI, (ESOS) Guidelines 1999, as per which only those employees who are permanent employees of the company are eligible for this scheme. An employee who is a promoter or belongs to the promoter group shall not be eligible to participate in ESOS. Moreover, a director who either himself or through his relatives or body corporate, holds more than 10 per cent of the outstanding equity shares of the company, shall not be eligible. The company cannot offer any ESOS as part of its employee compensation, unless it constitutes a compensation committee which consists of directors, majority of which are independent directors. January 2014

Again, the company cannot offer any ESOS to its employees unless the shareholders approve of it by passing a special resolution at a general meeting. The notice for the meeting must be accompanied by an explanatory statement giving all particulars of ESOS such as the total number of options to be granted ,the class of employees to whom it is granted, period within which the ESOS to be exercised, the maximum number of options to be issued per employee etc. If however, in any one year, the ESOS offered to the identified employees equals or exceeds one per cent of the issued capital, then it must be approved by a special resolution of the shareholders in a general meeting. The exercise price of the shares under the ESOS is determined by the companies after conforming to accounting policies.

There is a minimum one year lock in period between the grant of options and vesting of options. And till the shares are issued on exercise of options, the shareholder does not have the right to dividend or vote. The board of Directors in their Directors Report shall give all details about the ESOS and at the AGM, shall place before the shareholders, a certificate from the auditors stating that the scheme has been implemented as per the SEBI guidelines and it accordance with the resolution of the company passed in a general meeting.

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FinNiche

FINANCIAL KNOWLEDGE

NEWS OF THE WEEK Gold will rally, but silver will do Services better Jim Rogers Indians The yellow metal took a big hit in 2013, registering its biggest drop in last three decades, as the super cycle in commodities got challenged and the basket made a U-turn.

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Singapore has hired a New Delhi-based firm to ferret out Indians who present fake documents in their work p e r m i t a p p l i c a t i o n s . Manpower Ministry has hired Dataflow Services last month to conduct random checks on education certificates, employment history and scrutinise births and marriage certificates of Indian nationals working in Singapore, The Straits Times reported today.

"There are huge shorts that have developed in precious metals as you know. So, it's overdue for a rally. We had a big drop in 2013. Everybody got negative, everybody got short. So, we are going to have a rally," says Commodities Guru Jim Rogers. Aviva appoints JP Morgan, Deutsche Bank to sell India JV stake "After the rally, the year will see it going down again and hopefully finally we will Aviva, the UK-based life insurer, has make a nice bottom and we can buy appointed JP Morgan and Deutsche gold again," he says. "I would prefer Bank to sell its stake in the Indian joint silver to gold. I am not buying either at venture Aviva Life Insurance with the moment. Silver is down 60% from Dabur's founding family members, the its all-time high, gold is down 30-35% Burmans, said two persons familiar from its all-time high. But i won;t buy with the development, adding that the just because they are down," says Jim company is valued at Rs 1,100 crore. Rogers. The insurance sector has been hobbled by slowing growth, regulatory Metal stocks may feel the heat as the restrictions and the capital-intensive China shows signs of fatigue nature of the industry. Indian investors are twitching rather nervously and glancing across the border, hoping to see the Chinese dragon breath fire again. But there's not much hope coming from the dragon: the economic data that's coming out of India's giant northern neighbour isn't all that encouraging for Dalal Street. The rally in Indian metal stocks, which surged in the July-September quarter last year on hopes of China's resilience, is seen coming to a halt. Market data shows that the ET Metal Index has .. Singapore hires Delhi-based Dataflow

January 2014

Aviva's 26% stake may be sold either to another global insurer or to the Burmans. The UK company joins a growing tribe of multinational insurers which are quitting India either because of their troubles back home, or due to their disappointment of not being allowed to raise their holding beyond 26% in India. "Aviva has given out the mandate to JP Morgan and Deutsche Bank to sell India business," said a person close to the development. The company has performed poorly, and has slipped to 13th in the rankings table with its total premium income falling 11% last fiscal to Rs 2,140 crore.

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FinNiche

FINANCIAL KNOWLEDGE

NEWS Other income cushions RIL’s Q3 net Reliance Industries reported a nearly flat profit of Rs 5,511 crore due to the falling gasproduction and refinery margi ns for the December quarter but beat analysts estimates as earnings from investments and lower finance costs compensated for a drop in operating income. However, the oil-to-retail conglomerate saw its revenues rise 10.5% to Rs 106,383 crore due to higher prices of its products and a marginal surge in volume. Life insurers grapple with spike in frauds Insurance frauds are on the rise and a number of life insurance companies are reporting a sharp increase in cases of fraud and misrepresentation of facts with respect to selling of the product. That's not all. The number of unauthorized agents purporting to represent companies has also risen exponentially. For instance, during the first half of 2013, nearly 50% of customer complaints received by PNB MetLife India was linked to fraud by unauthorized agents. "This is a big concern for the industry and regulator, and both are working to educate the customers and take action against people resorting to such malpractices," Rajesh Relan, MD and country manager, PNB MetLife India, said.

spending bill that puts conditions on continuation of American aid to Pakistan. "Goodness gracious, that is a big piece of business. That is a big bill," Obama said as he signed the bill yesterday that funds the federal government through the end of September. The 1,582-page bill passed by both the House of Representatives and the Senate requires a certification from the Secretary of State and the Defence Secretary that Pakistan is cooperating with the US in counterterrorism efforts against the Haqqani Network, Quetta Shura Taliban, Lashkar e-Tayyiba, Jaish-eMohammed, al-Qaeda, and other domestic and foreign terrorist groups. 18 killed, several stampede in Mumbai

injured

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At least 18 persons were killed in a stampede in South Mumbai area in the wee hours on Saturday , officials said. The incident occurred after 1 AM in the Malabar Hill area where an overwhelming crowd had gathered to pay last respect to the departed spiritual leader of Dawoodi Bohra community, Dr Syedna Mohammed Burhanuddin, a civic official told PTI.

The Syedna passed away here yesterday at 102. His followers had started thronging his residence at the Hill after learning of his death. Over 40 people Obama signs $1.1 trillion spending were injured in the stampede, the bill, rider for P ak istan aid sources said. The injured have been admitted to the Saifee Hospital. WASHINGTON: US President Barack Obama has signed a $1.1 trillion

January 2014

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FinNiche

FINANCIAL KNOWLEDGE

Market This Week This week market showed significant weakness as the benchmark indexes closed low. The CNX-Nifty closed at a loss of around 57 points and BSE Sensex at a loss of around 201 points. Whereas Six Sensex companies add Rs 32,064 crore in m-cap, Infosys was the top gainer and posted a 21.4% rise in net profit and raised its revenue growth outlook for this financial year. However LIC cut stake in Infosys to 3.71% and sold shares worth Rs 2,600 crore.

BSE SENSEX

SENSEX Simple Moving Averages Thirty Days Fifty Days H0undred and Fifty Days Two Hundred Days

20978.55 20824.64 20012.36 19869.31

CNX Nifty

January 2014

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FinNiche

FINANCIAL KNOWLEDGE Nifty Simple Moving Averages Thirty Days

6246.02

Fifty Days

6193.64

Hundred and Fifty Days Two Hundred Days

5954.91 5940.12

Commodities Commodity

Unit

Rs / Unit

% Change

Gold

10 grams

29265

(0.80)

Silver

1 Kg

45136

(1.33)

Crude Oil

1 bbl

5777

(-0.07)

Lending / Deposit Rates Base Rate

9.80%-10.25%

Savings Deposit Rate

4.0%

Term Deposit Rate

8.00%-9.00%

Key Policy Rates and Reserve Ratios Bank Rate Repo Rate

8.75% 7.75%

Reverse Repo Rate

6.75%

Cash Reserve Ratio Statutory Liquidity Ratio

4% 23%

Exchange Rates

January 2014

INR / 1 USD

61.54

INR / 1 Euro

83.3424

INR / 100 Jap. YEN

59.00

INR / 1 Pound Sterling

101.0841

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FinNiche

FUN CORNER

Fun Corner 1.

Fin Quiz ________ effect suggests that the stock market overreacts to relevant news, so that extreme investment performance is reversed.

2.

The book-to-market effect refers to the finding that firms with high ratios of book value to market value tend to have annual returns ______________ than returns for firms with lower ratios.

3.

Empirical findings generally show that a typical common stock mutual fund has a ______________. alpha

4.

__________ term denotes the ratio of alpha to standard deviation of residual return?

5.

X invested in a project which has a 0.8 chance of doubling his investment in a year and a 0.2 chance of halving his investment in a year. The standard deviation of the rate of return on this investment is ————?

CARTOONS Last Week Answers 1.Chicken Market 2.Dundee Mutual Funds 3.UPS 4.Asset Tripping 5. Fiat money

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Volume Publisher: Rajat Kochar

January 2014

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Finxpress january 19 2014