The IBS Times- August 2014 (Volume II)

UNFOLDING THE STORY OF INDIA’S FORGOTTEN STOCKS

BY SACHI KHESKANI

THE IBS TIMES August 2014, Issue No. 170, Volume No. II

REGULATION AND POLITICS IMPACT ON FINANCIAL MARKETS

BY APOORVA ANUSHA & KAUSHIK CHANDELL

CHANGING BRAND VALUES

BY ALISHA SINGH

DE-MYSTIFYING SHARE BUYBACKS

BY SAMEENA USMAN

SYNDICATE BANK FIASCO

BY AISHWARYA KOLISETTY

FinStreet, IBS Hyderabad

170

ISSUE NO.

What’s Inside

AUGUST 2014 VOLUME II

8

3

2

Letter from the Editor

Industry Overview

Vanishing Act

Food Industry

India’s Forgotten Stocks

11

15

19

Understanding

Market Watch

Controversy

21

24

28

Brand Equity

Cover Story

Brand Value Analysis

Regulatory and Political Impact on Stock Markets

Complicated

30

33

De-Mystifying Share Buybacks

Trends in Financial Markets

Growth Story

Inflation and GDP

35 Vriddhi’s Corner

Events

Adani Group

Syndicate Bank Fiasco

MD and Strategic Game

3

Bajaj Auto Limited

28

11 24

21

INTELLIGENCE BEYOND SUCCESS

“I tell the world - Come, Make In India. Sell anywhere but manufacture here. We have the skill and talent.”Mr. Narendra Modi, Honourable Prime Minister of India

Letter from the Editor

THE IBS TIMES Faculty Mentor Dr. Ravi Kumar Jain

On the Cover: New York Skyline

Team IBS Times Chaahat Khattar (Editor-in-Chief) Akshay Gupta Atharva Solanki Manisha Mohapatra Nikhil Acharya Nishtha Behl Shivam Tandon Vanika Sharma Alisha Singh Apoorva Anusha

Dear Readers, Greetings from Team FinStreet !

The IBS Times continues to get immense support from its readers all across.

Now, The IBS Times proudly stands amongst the recommended magazines on ISSUU and our readership is multiplying every minute. We are very thankful to you for your suggestions, feedbacks and most importantly for having keen interest in our magazine. We promise to deliver beyond your expectations in every issue.

The cover story for this edition is an exhaustive analysis on impact of regulation and politics on stock markets. We know how de-regulation in the west shook the world few years back and as the world is on the path of recovery, we brainstormed to understand the top influencers of stock markets.

The Independence Day speech of PM of India was the highlight of the second half of the month of August and our analyst have covered the impact of the same in our regular Market Watch section. Also, the section puts light on the performance of various financial markets in the past two weeks.

The magazine unfolds the story of forgotten stocks and stock markets of the nation and this edition of the magazine also puts light on the concept of share buybacks. The recent months also witnessed growth of Adani Group and this edition covers an analysis over the same. The magazine brings out the complexities of the relationship between GDP and inflation and the very recent Syndicate Bank fiasco.

Avik Chakrabarty Kaushik Chandell Koisetty Sai Aishwarya Manjari Navjoth Sahu Priyanka Malik Rahul Mishra Ripu Daman Tandon

The magazine also covers industry analysis on the Food Industry. This edition has synopsis on the successfully organized Management Discussion on GST and a campus wide strategic game called Duos Juegoz by Events team. The magazine includes an exhaustive report from investment point of view on Bajaj Auto Limited by Team Vriddhi Research.

Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better !

Chaahat Khattar

Sachi Kheskani Sameena Usman Srishti Karmakar Vikas Sharma

"Investment banking has, in recent years, resembled a casino, and the massive scale of gambling losses has dragged down traditional business and retail lending activities as banks try to rebuild their balance sheets. This was one aspect of modern financial liberalization that had dire consequences.”- Vince Cable

Industry Analysis

Indian Food Industry

- Ripu Daman Tandon

Food Industry is among the fastest growing industries

Table 1: Pattern for Changing Share of Indian Consumer

in India. There are many factors adding on to the

Palate (2000-2015)* [Source: SEAF]

reason for the same. It is one of the largest in terms of

Decreasing

Constant

Increasing

Wheat

Milk &Milk Products Sugar

Fruits & Vegetables

production, prospects.

consumption, India holds the 2

export nd

and

growth

largest arable land in

the world with 20 agri-climatic regions; all major 15 climates in the world exist in India and possess 46 of 60 soil types in the world. Also, India is the second largest producer of food in the world.

The food

Rice Coarse Cereals Pulses

processing sector constitutes to a share of 9-10% of the GDP (Gross Domestic Product) of India in agriculture and manufacturing.

Also, the packaged

Spices

Meat & Poultry Beverages

New Categories Functional Foods Health Foods Organic Foods

Snack Foods Out-of-Home Consumption

*the market has been growing in absolute terms for

food industry is the fifth largest in the world.

all the food categories, however the share of

Considering the unique features of the Indian Market,

expenditure on various food items is changing.

e.g. taste & preference for ‗fresh food‘ and high local availability of products implies a broader role of the food processing sector in India than just packaged food.

Though the economic growth in the past decade has led to a significant reduction in poverty raising nearly 20 million people above the poverty line, India continues to face challenges in feeding nutritious food

At an estimated value of USD 121 billion in the

to over a billion people. As per the reports by the

Financial Year 2011-12, the food processing industry

Federation of Indian Chambers of Commerce and

accounted for 32% of the total food market. The total

Industry (FICCI), the food processing industry would

food production in India is expected to double in the

need to play a central role in driving improvements in

next 10 years with the country‘s domestic market for

the country‘s nutrition situation as it is the first

food is estimated to reach USD 258 billion by the year

organized linkage between the farms and the shelves.

2015.

Though India‘s agricultural production base is

Having a huge agricultural sector, abundance

of livestock and cost competitiveness, makes India an

reasonably strong, wastage of agricultural produce is

emerging hub for the processed food.

sizeable. Also, as per the Confederations of Indian

The industry

has been witnessing a lot of attraction from the

Industry (CII), the Food Processing industry is of

foreign investors due to the size and the strategic

enormous significance for India‘s development due to

location (being close to markets of Middle East,

the vital linkages and synergies it promotes between

Africa and South East Asia).

the two pillars of the Indian Economy; Industry and Agriculture.

3|A U G U S T 2 0 1 4

As

per

Investment

the

Market

Advisors,

Analysis by SEAF largest

portion

of

India Indian

aspects and foreign investments pouring into the industry.

Investment opportunities can further arise

consumers constitutes to food – more than 30% share

with the growth in the market and further investments

of the wallet. The last decade has seen a growth in

within the industry.

consumption in the range of 7-8% per annum.

The agricultural and processed food exports stood at

A

strong relation has been observed between the growth of GDP and demand for processed foods, where it has been expected an increase in food expenditure by INR 0.41 with every rupee increase in the GDP.

USD 22,706.35 million during 2013-2014 compared to USD 21,740.58 million in 2012-2013 as per the data released by the Agricultural and Processed Food Products Exports Development Authority (APEDA).

The agricultural and processed food exports stood at

Total food processing exports from India is around

USD 22,706.35 million during 2013-2014 compared

12%.

to USD 21,740.58 million in 2012-2013 as per the data released by the Agricultural and Processed Food Products Exports Development Authority (APEDA).

Total food processing exports from India is around 12%.

Most of the stocks in the Food sector have squared off well over the past year, indicating a positive index for the market stock of the food processing industry. A positive outcome can be sensed with the growth aspects and foreign investments pouring into the industry.

Investment opportunities can further arise

with the growth in the market and further investments within the industry. The Food Processing Sector comprises of six major segments: -

Fruits & Vegetables: India is the world‘s second largest producer of fruits and vegetables.

-

Milk & Milk Products: India is largest producer of milk in the world.

-

Meat & Poultry: India is the largest producer of buffalo meat and second largest producer of goat meat.

-

Marine Products: India is the second largest producer of fish in the world.

Most of the stocks in the Food sector have squared off well over the past year, indicating a positive index for the market stock of the food processing industry. A positive outcome can be sensed with the growth 4|A UGUS T 2014

-

Grain Products: India produces around about 255.4 million tons (expected) of food grains in FY13.

-

Consumer Products: Among the fastest growing

over the past few years. These have been observed

segments in India. (Includes: Packaged food,

within the country as well as by the private Indian

Aerated Soft drinks, Packaged drinking water,

firms abroad.

Alcoholic Beverages).

Industries (MOFPI) has been making efforts to

The Ministry of Food Processing

encourage investments in the sector.

Few of the

investments have been quite noticeable, such as: Top Companies in Food Processing Sector Nestle Britannia GalxoSmithKline Consumer Healthcare Hatsun Agro KRBL Heritage Foods Kwality LT Foods REI Agro Kohinoor Foods

-

Hindustan Coca-Cola Beverages (Part of CocaCola‘s

As per, Ministry of Food Processing

Bottling

Investment

Group)

and

Jain

Irrigation, Unnati, can see an investment of INR 50crores (USD 8.42 billion) which will help farmers to grow more mango trees.

-

In a bid to expand the market in India, Café Coffee Day plans to add 150 cafes and 120 more Xpress outlets across India in FY15.

The industry constitutes of large unorganized segment as well.

The second phase of the joint venture between

-

Bisleri International has opened

up it‘s first

Industries (MOFPI), the unorganized sector accounts

overseas production unit in Dhaka, Bangladesh

for 42% of India‘s food processing industry in

through an agreement with local firm Chittagong

comparison to 25% of organized sector and 33% of

Fashion, with a production capacity of 6,000,000

small scale industries.

bottles per month.

The food industry has seen quite a few investments

-

Food Bazaar plans to tap the under-branded food & beverage segment of the domestic market. This

5|A U G U S T 2 0 1 4

-

would be done with the help of private labels

launch

offering more choices to consumers.

expected to increase investments in this sector.

The

master

franchise

for

operations

of

McDonald‘s Restaurant for West and South India, Hardcastle Restaurants, plans to enter its coffee retail format ‗McCafe‘ to the Indian Market. In the next 5 years, more than 150 McCafes are expected to set up in the Indian market.

Multinational food

processing

companies invested

2013 & was the highest in over a decade. for

17%

of

overall

It

foreign

direct

investments made in India in that period.

Even

deterred

multinational food

making investments in India.

companies

mentioned that the company would be investing USD

support from the government have been adding on to the advantage for the players in the sector. Priority businesses by the Central Government.

Few Policy Supports provided by the Government stated as: -

market.

-

facilities.

-

-

These

factors add to the growth factor of the food industry in

in the food processing infrastructure by 2015 and the 6|A UGUS T 2014

per

the

vision

2015

The Government seeks to complete

100% tax deduction of capital expenditure as investment linked tax incentive for setting up &

disposable incomes, young population, emergence of

government expects investments of USD 21.9 billion

as

these under public-private partnership mode.

This has taken place mainly due to increase in

The

Government

food parks.

preferences of the consumers in India & increasing

growth of the organized retail sector has made the

The

formulated by MOFPI, plans to establish 30 mega

connectivity has led to the changes in the taste &

Due to liberalization, the

Full Excise duty exemption has been provided for goods that are used in installation of cold storage

With a wide array of products along with global

India with the household consumption been set to

Import duty being scrapped on capital goods & raw materials for 100% export oriented units.

production capacity & develop infrastructure in India.

demand for the food processed products in India.

Units with 100% orientation to export are allowed to sell up to 50% of their produce in the domestic

5.5 billion by 2020 to more than double the

Indian market more attractive for investments.

is

Strong fundamentals in the economy and policy

Chief Executive Officer of Pepsico Inc., Indira Nooyi

double by the year 2020.

scheme

enabling it to produce raw materials at a cheaper rate.

from

In November 2013,

nuclear families & increasing urbanization.

development

India benefits from strategic & geographic locations,

though the economic growth had slowed down, it did not

infrastructure

status has been given to all the agro-processing

USD 2.14 billion in India between April-October accounted

of

operating

cold

chain

facilities

for

specific

products,

setting up and operating warehousing

facilities for storage of agricultural produce.

-

The

Government

Development launched

focuses

(R&D)

initiatives,

upgradation

of

laboratory,

R&D

scheme.

on

Research

& modernization, such

quality and

as control,

setting food

promotional

&

as it up

of

testing activity

The given Government incentives in the sector, such

especially with the fundamentals in the market and

as mega food parks, cold chain, R&D, etc, come with

support of the Government.

its own challenges.

Mapping perishability, organized

segment penetration & processing levels shows a need for improvement across the supply chain in order to uplift the market penetration of organized sector.

Especially understanding the key sectors such as Fruits & Vegetables, Diary, Seafood & Marine products, the perishability index for them is high & supply chain management provides with enormous improvements and investment opportunities. Quite an emphasis

has

infrastructure

been

within

given

the

storage by the government.

in

industry,

improving

the

especially cold

This mainly comes with

the taste and preferences for the Indian Consumers for fresh foods.

One can get a perspective on how the industry is actually shaping up.

With a number of projects and

investment pooling into the industry along with the increase in demand gives the industry a push.

Also,

with the kind of arable land India consists of along with the climatic conditions and soil types, provides the economy with a huge potential to grow. Different factors do end up playing a key role, such as increasing

disposable

income,

increasing

nuclear

families, changing lifestyles and taste & preferences.

However, varying

the industry faces its own challenges from

food

wastage,

large

distribution

channels, development of cold storage in the country and many more does make a huge impact on the industry.

The government has taken quite a few

initiatives for the development and growth which have definitely made an impact in attracting foreign investors to India. Thus, it can be said that the growth prospects look positive for the industry in the future 7|A U G U S T 2 0 1 4

Vanishing Act

India’s Forgotten Stocks

- Sachi Kheskani

statistics

of

vanishing

companies.

A

lot

of

deliberations led to legal reforms which have been discussed later in this article. Firstly, It is pertinent to know

that,

what

makes a company vanish ?

‗Vanishing companies‘ are those listed entities that have raised money from investors through initial public

offerings,

stopped

operations

and

then

disappeared.

Following criteria are adopted by SEBI to classify a company as a vanished company: It is astonishing how corporate law personifies companies with worth mentioning phrases such as "Lifting

the

companies"!

Corporate Indeed

veil"

companies

or



requirements/

"Vanishing

requirements

of

Stock

years

touch, thanks to the creativity of our legislators. Just 

No correspondence has been received by the exchange from the company for a long time.

can sue, be sued and also be liable for criminal acts.

Financial sector forms the backbone of any country,

filing

Exchange/ROC respectively for a period of 2

have got human

as humans, company being a corporate personality

Companies which have not complied with listing



No office of the company is located at the

which in a way are in the hands of its investors. In

mentioned registered office address at the time of

order to attract investors, Government policies should

Stock Exchange inspection.

be knitted in a way which is favourable, fair and transparent. SEBI the market watchdog of companies



Directors are not traceable.

in India has emerged to become the "BATMAN"

Non trading of the shares of the company on the stock

keeping the "JOKER" at bay. Just as "JOKER"

exchanges may not be considered as a reason for

vanishes in thin air, there have been many instances

suspecting a company as a vanishing company as

where companies have not complied with the legal

trading is a market phenomenon.

mandates and have flown by night. Yes! "Fly by night

A

operators" is the new terminology which is creating a

Monitoring

buzz.

Secretary, Ministry of Corporate Affairs, (MCA) and

It all began in 1996, with a public interest litigation

chairman, SEBI, was setup to resolve issues regarding

filed

the delinquent/companies/promoters and to monitor

by Midas touch where issue of vanishing

companies was brought to spotlight. After a lot of litigation, the cat was let out of bag with alarming 8|A UGUS T 2014

joint

mechanism Committee

called

Coordination

(CMC),

co-chaired

the progress in regard to action taken against

and by

Vanishing Companies under the provision of the erstwhile Companies Act,1956.

In spite of these legislative measures, there are fraudulent

companies,

which

investors.

In

approximately

India,

are

swindling 9600

the listed

companies are available for trade in Bombay Stock Exchange(BSE) and National Stock Exchange of India Ltd. (NSE), but only 2500 companies' shares are traded in BSE and approximately 800 companies shares are keenly traded in NSE, most of companies are traded only in the penny stock level. The remaining companies enjoyed benefits from the legal provisions of corporate veil from the Companies Act,1956.

Recently the Central Government has

identified nearly 229 companies which were vanished.

Out of these 128 firms have been placed under 'watch list' after they began filing their account details pursuant

to

be

being

declared

as

'vanishing

companies', government said today. However, 78

data from 11 regional bourses shows 3,669 listed companies

are

not

compliant

with

the

listing

agreement. The market capitalisation of the 4,644 companies

exclusively

listed

at

regional

stock

exchanges would be above Rs 2,00,000 crores. The combined value of ‗vanishing companies‘ could be around Rs 30,000 crores. One of the prime reasons cited by many companies for not complying with legal norms was lack of funds.

other companies remain in the list of vanishing companies,

while 32 others are currently under

In 2012, SEBI had asked all regional stock exchanges

liquidation. Prosecutions have also been filed against

to meet the criteria of Rs 100 crores minimum net

such

under

worth and Rs 1,000 crores volumes to close down

Companies Act, 2013 for non-filing of annual returns

their operations by May 2014. This move led to

and balance sheets, for misstatement in prospectus/

closure of 4 regional stock while 10 others are in the

fraudulently inducing persons to invest money/false

process of winding down. The effect of which would

statements made in the offer documents, etc. Ministry

be either voluntary delisting of companies from RSE's

is in the process of developing an early warning

or listing on NSE/BSE, which is a very positive move

system aimed at generating alerts for detecting cases

as listing agreements of the latter bourses demand

of potential fraud and malfeasance and a pilot testing

strict

was also carried out during the past financial year.

transparency.

The number of ‗vanishing companies‘ on regional

Various measures have been taken by our legislators

stock exchanges would come to around 700, however

since 1996 such as: Introduction of MCA-21, DIN-

the number could be higher than that. An analysis of

Director

firms

and

their

9|A U G U S T 2 0 1 4

promoters/directors

legal

compliances,

Identification

thereby

Number,

increasing

amendments

in

was lack of co-ordination between SEBI and MCA, but the recent amendments are a new ray of hope for investors. Let us hope Mr. Oscar Wilde is not proved right, given the case where, "The

thief

is

an

policeman is only a critic."

various

provisions

of corporate

laws,

extending

powers of SEBI, enhanced disclosure norms, setting up of SFIO (Serious Fraud Investigation Office), Auditor's

accountability

and

independence related

amendments etc. Moreover with Companies Act,2013 good

corporate governance measures have been

introduced. SEBI has proposed that all companies that come up with IPOs need to set up a monitoring agency that will look into the use of issue proceeds.

Despite

of

various

legal reforms,

the

markets

remained shallow and stunted and have lurched from one financial scandal to another over the past two decades. In 1990's every policy change in the liberalisation

process

was

pounced

upon

by

unscrupulous companies, who aided by a retinue of investment

bankers

and

consultants

diverted

thousands of crores of rupees to themselves. In the process, retail investors have been the biggest losers and the effect of their disenchantment is apparent in the slow growth of India‘s investor population. A mere roll-call of the scams of the last two decades tells the tale of frustration amongst Indian investors.

The implementation of legal compliances is the main area of concern for the coming years. Earlier there 10 | A U G U S T 2 0 1 4

artist

and the

Understanding

De-Mystifying Share Buybacks

- Sameena Usman

You must have come across phrases such as ‗so & so

D Cook (the successor of Steve Jobs), the company

large firm is issuing a share buyback program‘; ‗XYZ

spent $18 billion on its own shares in the first quarter

company‘s buybacks most profitable ever‘, of late

of 2014 and its $16-billion buyback in 2013 is known

there has been a lot of such news prevailing about

to all. The returns obtained from their buyback

some company or the other in the market, so what is

program were the highest four-month returns amongst

it, that is pushing more and more number of firms to

20 biggest quarterly repurchases by any company

buy back their own shares or why is there so much of

since 1998. Similarly, Infosys followed suit & also

a buzz around the whole ‗share buyback‘ agenda?

Microsoft

Well, before looking into the ‗Why‘, ‗How‘, ‗When‘

sketched.

& ‗Where‘, let‘s first have a gist about what a ‗share

So back to the main concern, why are more

buyback‘ actually means:

companies

Share buyback is nothing but a company investing in

what‘s the logic ? well, there are innumerable ones

its own self or rather using its cash/cash equivalents to

but the basic drive comes from the shareholder

buy its own shares. Share Buyback is the reverse of

pressure to increase their earnings and the company‘s

issue of shares by a company, i.e. the company offers

decision to actually give in to the pressure unless the

to take back its shares owned by the investors; this

company

offer can be binding or optional to the investors. This

substanstial funds for profitable investment elsewhere.

is also often termed as a stock repurchase.

Companies distribute profits in the form of cash

The consequence being that, the total number of

dividends to their shareholders while retaining some

outstanding or free float (or freely tradable) shares of

of the profits in the company, in order to improve the

the company decrease (since the company has

overall financial strength of the company or at times,

absorbed few of its own shares from the market via its

to even finance the company‘s future growth. While

buyback program), resulting in the net distributable

some companies find ways of reinvesting most of

profit to be distributed amongst a lesser number of

their retained earnings profitably, others may find that

outstanding shares which in turn means that the

some of their annual retained earnings cannot be

average earning per share is up for a boost!, which in

reinvested

turn implies an added demand for the stocks of that

shareholders.

company resulting in shooting up its value/price.

Share buybacks have become real frequent. In fact to spot the latest and the largest, Apple Inc bowed

to

shareholder pressure and

expanded its buybacks by 30$ billion under Timothy 11 | A U G U S T 2 0 1 4

had

a

hopping

is

$40

onto

billion buyback

program

the ‗buyback‘ wagon?

on a clear growth path requiring

to

produce

acceptable

returns

for

 The firm is sending out a positive signal that it actually is undervalued as of now and it sees a bright prospective in its future projects, so much so that it considers profitable to invest in its own shares!

As you must have smelled, the last one is partly strategic; there are various other strategic objectives as well behind stock re purchases, such as: This usually happens in companies or sectors with



companies can also, in some scenarios, benefit from tax advantages by adopting a buyback rather

few opportunities for organic growth. In such cases, share buybacks are used as an alternative.

than paying cash dividends and this is one of the

This is because the company feels that leaving too

reasons

much cash to be idle could be detrimental over the

buybacks as opposed to cash dividends.

longer term, especially if these are channelled to other



why

some

companies

prefer

larger

to manipulate the demand and consequently the

uses and the investment over there does not achieve

share price and also to show an effective increase

the desired results.

in EPS,

We will also look into further deeper objectives or the

shareholders as already discussed.

so called juicy strategies behind stock repurchases but



to improve return on capital, return on net worth and to enhance the long-term shareholders value;

before that we shall have a look at the surface reasons, or the basic reasons that firms give as to why they are

which is of great concern to its



to provide an additional exit route to shareholders when shares are undervalued or thinly traded.

opting for a stock repurchase program The basic reasons that a firm portrays for buying back its own stock are:  The firm needs the shares on hand so that they can be available for some executive stock options in case the executives decide to cash in.  The firm is looking for an acquisition with the aid of its own shares



to enhance consolidation of stake in the company;



to prevent unwelcome takeover bids;



to return surplus cash to shareholders;



to achieve optimum capital structure; 

to support share price during periods of sluggish market condition;

Pre –buyback

Post buyback

Profits available

Rs 200000

Rs 200000

No of shares

50,000

40,000

EPS(earnings per share)

Rs 4/-

Rs 5/-

12 | A U G U S T 2 0 1 4



to serve the equity more efficiently.

prices whenever the company feels that its

shares

are

undervalued

in

the

in

an

stock market. 

Buy

back

results

improvement in overall return on assets.

Return will go up assuming that the earnings remain constant in pre-buyback and post buyback scenario. 

Buy back would lower the P/E

In order for these objectives to work, the share

ratio ( P/E ratio: is the current market price of the

buyback mechanism should be such that it actually

stock by its earnings per share (EPS). It shows

validates these strategies or rather acts as a fuel for

the sum of money you are ready to pay for each

those objectives or proves to be beneficial for the

rupee worth of the earnings). In the wake of

firm. In order to understand the same, let‘s have a

improvement in EPS, P/E is lowered and lower

look at the mechanism of share buyback.

P/E ratio is viewed positively in the stock market.

Share buyback mechanism:

Thus, improved EPS coupled with lower P/E ratio and higher return would have an overall

Suppose company A has 50,000 outstanding shares and Rs.2,00,000/- profit available for distribution to

positive impact on the stock prices. 

its shareholders/investors, then the earning per each

Rs.5 (200000/40000=Rs. 5) Thus, it implies that buy back results in improvement in EPS. 



the

company

suitable avenues to invest in the eyes of the

Post buyback (of 10,000 shares), 200000 will have to the market i.e. Earning Per Share will now be equal to

with

may be utilized for buy back when there are no

share would be Rs.4 ( 200000/50000= Rs. 4),

be distributed among the remaining 40,000 shares in

Surplus/idle funds available

management. 

From the company perspective, buy back of shares is often seen as a tool to counter a hostile takeover bids.

Thus, firms resort to stock buybacks for their own benefits as enlisted above and sometimes a stock

Higher EPS results in higher market value of

repurchase move may be phrased as ‗a means to

shares which improves shareholders value in the

create artificial shortage of stocks‘ in the market in

long run.

order to increase their demand so that the firm‘s stock

As seen from the above, quite often buy back

prices boom up, this in a way can be viewed as

may be resorted to as a tool to pop up the stock

tactfully

13 | A U G U S T 2 0 1 4

playing

with

the

demand

and

supply

dynamics of the market in order to capitalize or maximize their returns.

But as they say, there are always two sides to a coin, buyback comes with its own set of drawbacks: A buyback can portray the message that it lacks investment ideas. Moreover, some argue that share buybacks may be widely used by management to boost their remuneration since executive pay in many countries is dependent on earnings per share and share price targets. A buyback is an easy way of influencing such indicators in the short-term and, as such, some analysts argue that buybacks in certain companies may have been carried out for the wrong reasons.

So it all sums up to saying that its ultimately the ability to correctly perceive and analyse a buyback is what matters to an investor and as from the company‘s side, a buyback is nothing short of tactful financial engineering !

14 | A U G U S T 2 0 1 4

Market Watch

Trends in Financial Markets

- Srishti Karmakar

Following the Reserve Bank easing the 20:80 gold import norms, India Bullion & Jewellers Association (IBJA) said gold prices are likely to fall to Rs 23,00024,000 per 10 grams by Diwali as it also expects the Customs duty reduction in the forthcoming Budget.

The yellow metal is likely to be on par with the global prices as the premiums will also go down due to the positive steps taken by the government, he said.

The RBI yesterday eased gold import norms by allowing select trading houses, in addition to some banks, to procure the precious metal to boost exports.

In July last year RBI had imposed severe restrictions on gold imports to check burgeoning current account deficit and depreciating rupee.

Under the 20:80 scheme an importer has to ensure that at least one-fifth, or 20 per cent, of every lot of imported gold is exclusively made available for the purpose of exports and the balance for domestic use.

the Nifty recorded fresh high of 7880.50 in trade on August 18, 2014.

The Indian markets have rallied by around 30 per cent

Special Report on Market

in US dollar terms and over 24 per cent in rupee terms

FII

so far in the years 2014, largely led by strong inflows

Growing geo-political concerns have made Indian

by FIIs, which have already pumped in over $26

Markets more attractive, at least in short-term, among

billion so far in the year 2014.

BRIC nations. Foreign flows may top $50 billion by

From an FII perspective, they are really bullish on the

FY15, if the government walks the talk with regards

Indian economy and rising geo-political concerns

to

have diverted fresh flows to Indian markets from

implementation

of

key

economic

reforms.

Benchmark indices rose to their fresh record highs with both the Sensex and the Nifty surpassing its previous lifetimes highs hit back in July. The S&P BSE Sensex hit a fresh lifetime high of 26,406.92 and

15 | A U G U S T 2 0 1 4

Russia.

There is significant amount of FII money which is coming

and

this

trend

is

going

to

continue

predominantly driven by the fact that money is

The Reserve Bank of India (RBI) kept its key policy repo rate unchanged on August 5,2014 as widely expected, and voiced a commitment to bringing down inflation that convinced many analysts that markets will have to wait until next year for the next cut in rates. The RBI left the repo rate at 8.00 percent, as expected by nearly "The upside risks to the target of ensuring CPI inflation at or below 8 percent by January 2015 remain, although overall risks are more balanced than in June," Governor Raghuram Rajan moving out of Russia and the BRICS funds are

wrote in the RBI statement on its policy review. "It is,

bringing the money into India.

therefore,

The Indian equity markets have been the biggest recipient of FII flows among emerging markets this year despite recent geopolitical tensions, swirling speculation regarding interest rate normalization by the US Federal Reserve and surging US dollar.

"Russia has become risk now and on the other side India is better placed in BRICS countries," said A K Prabhakar, Independent Market Expert.

appropriate

to

continue

maintaining

a

vigilant monetary policy stance as in June, while leaving the policy rate unchanged." Rajan stressed that the next goal was to bring inflation down to 6 percent by January 2016, while warning of upside risks to that target also.

The RBI did, however, announce steps to free up resources for banks to lend, a priority for Prime Minister Narendra Modi's government as it seeks to encourage investment in order to put momentum back

"It looks like FIIs are turning sellers in Russia on geopolitical concerns,

in sluggish economic growth.

which is favoring the Indian

markets," he added. Prabhakar expects the Nifty to hit a target of 8500 by the next month-end and 9200 by December-end. EPFR Global tracks both traditional and alternative funds globally and has $23.5 trillion in total assets. Experts believe that the absolute majority government in India will help attract more foreign investments and reduce bottlenecks in policymaking.

Now,

The central bank said it would continue

to

focus

on

spurring more lending and lowered banks' minimum bond holding requirements, known as the statutory liquidity ratio

FII flows may top $50 billion by FY15.

Monetary Policy (Bi monthly)

(SLR), by half a percentage point to 22.0 percent of deposits to free up more money for lending, effective from Aug. 9. This will spur a credit growth of Rs

16 | A U G U S T 2 0 1 4

been

calling

for

lower

interest

rates,

but

for

sustainable growth, inflation has to be conquered first, and the RBI said there were upside risks.

In June, the retail inflation rate was the lowest since the government started publishing the data series in January 2012, with the consumer price index (CPI) showing a 7.31 percent rise from a year earlier.

Following a weak start to the monsoon rains, food price inflation remains one of the biggest challenges 6500

Cr

helping

the

productive

sectors

like

for India, despite government measures to curb hoarding of food articles and setting limits on the

infrastructure borrow more.

export of onions and potatoes, two staples in Indian The RBI also cut the ceiling on debt that must be

cooking.

held-to-maturity (HTM) by lenders half a percentage Rajan said the pressure was on to meet both inflation

point to 24 percent.

targets for 2015 and 2016. "We are getting close to India's benchmark 10-year bond fell, sending its yield up 9 bps to 8.82 percent, as cuts in both the SLR and HTM are likely to pressure bond prices due to new supply.

The

partially

the end of the year when our first target has to be met," Rajan told a news conference after the review.

"We need to also be confident in reaching the 6 percent (target)."

convertible

rupee

strengthened

to

Impact of Modi’s Independence Speech

60.73/74 per dollar on August 5, partly due to the RBI's caution over the prospects for rate cuts. Rajan again reiterated a commitment to developing money markets after introducing term repos, or cash for loan transactions in 7- and 14-day increments, this year.

Inflation Targets

Stock market indices, on August 18, surged to their historic highs following frantic buying by foreign and domestic institutions as well as by retail investors.

Market analysts said Monday‘s rally was partly led by Prime Minister Narendra Modi‘s Independence Day ‗candid‘ speech where he made it clear that the

The RBI retained its economic growth forecast of 5.5 percent for 2014/15, depending on whether monsoons

bureaucracy

and

the

government

would

work

diligently for the benefit of the nation.

or geo-political tensions intensify.

There was no dampener despite the fact that Mr. Modi The crucial goal for India is the creation of enough jobs to absorb its rapidly increasing workforce, and growth of below 5 percent in each the last two years was far below what was needed. Industrialists have 17 | A U G U S T 2 0 1 4

did not make any major policy announcement as expected by the markets earlier. The easing of wholesale price index-based inflation also helped. The S&P BSE Sensex hit its all-time high of 26413.11

NSE Top Losers

BSE Top Gainers

before closing at 26391 with a gain of 288 points, up 1.10 per cent. Similarly, the broader NSE Nifty closed with a gain of 82.55 points or 1.06 per cent at 7874.25, its historic high. The Nifty had touched an intra-day high of 7880.50.

The rally was supported by banking, oil, capital goods and infrastructure stocks. Among Sensex and Nifty stocks ONGC, Cipla, Axis Bank, BHEL, Tata Motors and BPCL were the top gainers. Tata Motors surged to its 52-week high following encouraging Jaguar Land Rover sales numbers.

However, some analysts believe that favorable global conditions and the oil prices hitting 13 month low may have helped.

NSE Top Gainers

18 | A U G U S T 2 0 1 4

BSE Top Losers

Controversy

Syndicate Bank Fiasco

- Aishwarya Kolisetty

Bhushan Steel had outperformed in the last three years acquiring about 50per cent of increase in its sales and showing a positive increase in its profit levels, but the aspect that it failed to acknowledge was that the debt equity ratio that it maintained would pose a grave threat in the near future, which was the exact thing that hit back on Bhushan Steel today. The debt serving capacity of the The banking institutions have always been a shoulder

company just got burdensome year after year making

to a crying corporate with a glorious goodwill, but this

it difficult for the company to keep up, especially in

time, the bank has proved to be a friend indeed by

the era of rising interest rates. Thus the CBI placed

exploiting the company‘s needs. The power of greed

Neeraj Singhal on alleged graft charges to S K Jain.

has taken over the ethical values for the syndicate

The CBI accused S K Jain of accepting an amount of

bank which is on the hook, booked under the charges of bribery taken from Bhushan Steel. Sunken in these accusations and charges, the futures of both the companies appear tainted with the reflection of this debacle.

The act has conveniently managed to put everyone involved into deep jeopardy, as the CBI arrests Neeraj Singhal, vice chairman and managing director of Bhushan Steel Ltd in connection with Rs.50 lakh bribery scandal involving CMD of syndicate Bank, SK Jain. Bhushan Steel unable to withstand the heavy pressure of the debt repayment and to keep up with the existing paradigm of the bank, the motive behind this little dirty deal was an attempt by the bank to prevented loans of over 100 crores on Bhushan Steel and Prakash industries from being declared as nonperforming assets.

19 | A U G U S T 2 0 1 4

Rs.50 lakh and the consideration being the promise that credit limit of Prakash Industries and Bhushan Steel would be increased. The two cases that Jain was booked under included receiving a bribe up to 50 lakh and also using his power to tamper with the credit limit of some companies.

Forthwith to the smack down, the stocks started demonstrating its fallout. Syndicate bank which was trading at Rs.136.60 started trading at 5.5 per cent lower and hit a low of 134.70 and as far as Bhushan steel is concerned, it traded at 7 per cent lower at Rs.376 and hit low of Rs.359.20 and by the end of the week Bhushan Steel drastically went down by 44 per cent to Rs.219.35.

after the activities of Mr. Jain were keenly observed for the past six months.

The era of competition has taken over the sanity of people‘s

mind

leaving

it

for

the

quantitative

achievements to harness it. When personal benefits is the big concern, breaking all the laws and ties also seems legitimate. The only factor that is yet to be determined is that to what extent humanity can be tossed So the question that stands here is that how important is a credit limit? Is it important enough that stooping down to such inferior levels to rectify it seems legit to the parties? A credit limit defines the maximum amount of credit a bank is willing to grant its customer without the necessity of completing the approval process on a continuous basis. The main aspect here is that the evaluation of the financial status of the company has to be accurate and appropriate and thus the establishment of a credit period that complies with all the aspects would minimize the risk exposure and maximize the revenue inflow. The challenge faced by the lenders here is that undue increase in the credit limit to the customers will show an immense amount of access to debt which may lower the chances of repayment by the customer as a result the potential customers would cast off any interest in approaching the bank.

The government on Monday suspended Syndicate Bank chairman and the managing director two days after the arrest and appointed two executive directors to take charge of the bank in the meantime and also the CBI claims to have recovered cash to the tune of Rs.21 lakh, gold worth Rs.1.68 crores and fixed deposits up to 63 lakh. The entire scam was unfolded 20 | A U G U S T 2 0 1 4

just

for

the

sake of minting currency.

Ultimately, the world is woven together and does not fragment away because of the presence of moral values. It is just a matter of time that these scams and scandals would lead to a diminution in the faith towards mankind, and as far as syndicate bank and Bhushan steel are concerned, this stymie will always be a baggage to carry along. It is a query to ponder upon so as to how much will Syndicate bank and Bhushan steel pay for their deeds and to what extent can they get away with it.

Brand Equity

Brand Value Analysis

- Alisha Singh

When we think of ―brand‖, there are umpteen number of thoughts and images that run across our mind visualising it to be a unique status symbol, credibility, quality, satisfaction and so forth. As it is rightly quoted by Ms Debbie Millman ―We use brands to project who we want to be in the world, how we want people to perceive us and how we want to feel about ourselves‖.

Evolution of Brand: Branding like any other concept, has evolved with time, from the days when sheep of one herd were ―branded‖ in order to be distinctive from another herd to the present phase where each and every item be it

agile learners who will quickly adapt to the current market scenario and understand the best practices.

clothes, water, food and so forth are branded we have traversed a long way. Some of the earliest-known

Analysis of Leading Indian Brands:

brands were discovered by the English ceramist

According to various surveys, there are some Indian

Josiah Wedgwood and the French fashion designer

brands

Rose Bertin. Since time immemorial, there has been

performance.

drastic development of knowledge, procedures, and

TATA (+16%, INR 598.37 Bn)

which

have

been

consistent

in

their

theories with respect to branding. Contemporary branding theories gathered momentum during the mid-20th century, primarily due to the development of commercials in mass media.

When it comes to vying for the position for India‘s most valuable brand, the Tata Group leads the way.

Tata‘s brand value is 80% higher than that of the second most valuable brand in the country, which

India with Respect to Brands:

indicates the extent to which the group has managed

A quick review through Best Indian Brands depicts

to permeate across the entire country. The group

strong, respected businesses that are expanding their

which began its operations in 1907 by being India‘s

brand

becoming

first Iron and Steel manufacturer has now expanded

umpteen

across 7 sectors through various companies. Tata

numbers of Indian businesses that have made astute

brand value has increased up to 16% when compared

acquisitions of great brands from across the world, so

to the previous year. Tata Consultancy Services

clearly brand value is understood and India is full of

(TCS), the group‘s flag bearer had another stellar

values

household

and

names.

some

are

Moreover

rapidly

there

are

year; the company leveraged its values of integrity 21 | A U G U S T 2 0 1 4

and excellence, to make difference to the lives of the

to bring in 4G services to India in 2015, the world‘s

common man. While Tata Motors is set to arrest

second largest cellular market. Reliance has always

decline in commercial vehicle sales through two high

dreamt big and the company does not take to rest with

profile launches in 2014, S&P has revised Tata

just the amount of laurels achieved.

Steel‘srating from negative to stable on the back ofconsistently

good

financial performances.

Airtel (+0.2%, INR 294.77 Bn)

Tata‘s

long standing dream of competing in the airline sector too seems to be turning into reality in due course with

India‘s leading cellular provider in terms of customers as well as revenue is no longer just India‘s leading service provider. Bharti Airtel has operations in 20

the Tata-SIA launch expected later in the year.

countries across Asia and Reliance Industries (+12.5%, INR 332.67 Bn)

Africa. Globally, the

company ranks amongst the top 3 mobile service

This is India‘s most diversified corporate group which

providers in terms of number of subscribers. The

is driven by ‗Ambition‘. The ability to think out of the

brand has always welcomed the most innovative

box has been ingrained in the organisation by its

practices in the industry, it pioneered the business

founder Shri Dhirubhai Ambani and extending this

strategy of outsourcing all business operations apart

belief to the group‘s philosophy of ‗Growth is Life‘,

from marketing, sales and finance when they first

the group has managed to spread its wings across

launched in Delhi in 1995, a move which has now

multiple businesses and geographies. On the back of a

been adopted by several other operators. Early in

strong financial performance coupled

with brand

2013, the brand consolidated its position in Africa by

extensions, the brand value of the group went up by

acquiring Warid Telecom to become the second

13% from the previous year. In early 2014, Reliance

largest cellular provider in Uganda. Apart from

Industries (RIL) became the first private company in

Uganda, the company also has one of the highest

India to post a quarterly profit of USD 1 Bn which

numbers of subscribers in Nigeria. The brand has also

resulted

better

managed to promote itself through a host of activities,

petrochemical earnings and surge in US shale gas

a tie-up with Manchester United to run the ‗Airtel

business. The company‘s retail business, which posted

Rising Stars‘ soccer talent hunt has helped the brand

its first annual profit in the last fiscal year, has its eyes

further

set on French giant Carrefour‘s assets in India as part

company's DTH business also highlighted positive

of its expansion plans. Improvement in gross margins

growth on the back of a national digitization plan of

and a tight control on variable expenses helped the

the regulatory body. Having already captured the

retail contributed to the unit‘s good performance.

Indian market, the company is on the verge of being

Over the previous year, by completely acquiring the

global behemoth.

in

higher

refining

margins,

Network18 group, RIL has also brought under its kitty a host of media channels and websites. Jio Infocomm, a subsidiary, is also set to be the first Indian company 22 | A U G U S T 2 0 1 4

connect

with

the

nation‘s

youth.

The

S.B.I (STATE BANK OF INDIA +13.9%, INR 206.94 Bn)

The State Bank of India is an institution that can trace

In order to compete with global brands, the Indian

back its roots to the early 1800‘s, thus making it one

brands need to do well and carve a niche for it in

of the oldest commercial banks on the Indian

order to get noticed by the rest of the world. This is

subcontinent. The bank has utilized the past 200 odd

one of the major challenges faced by the Indian

years to reach every nook and corner of this vast

brands.

country and to make it accessible and relevant to each



Having Short Term Objective

and every Indian. The brand is a perfect example of how a strong presence has transformed into trust and eventually a high brand value. It is widely believed that the bank will be the first to make the cut of the government‘s list of ‗Too big to fail‘ banks in August 2015. The bank is also set to expand its large ATM network by adding around 4,000 ATMs by the end of this fiscal year. Despite its heritage and government

Many companies in India believe that brand building is a short-term and tactical advertising campaign, or a quick activity to refresh their logo which is a wrong approach.

We need

to

constantly educate and

encourage senior managers to see that their brands are long-term investments, rather than short-term project to boost sales numbers next month.

association, the bank has shown that it is new age

Conculsion

ready with the launch of 6 digital branches across the

India‘s historically closed borders and the sheer size

country. These branches will facilitate services such

and scale of the Indian market might have hindered its

as instant account opening, instant loan approvals,

brands‘ progress as Indian businesses had the impetus

remote expert advisors, along with interactive walls

to

grow significantly within their own domestic

and table displays, thus paving the way for other

boundary. Also India has been tied down by the

banks in India. The bank while having low digital

fetters of society which limits its ability to master the

presence, recently tripled its online presence over a

creation of demand and desire, the key components

period

The emphasis of the

that perpetuates the role that brands play in value

government on housing and infrastructure is going to

creation. But India‘s business climate is now up for a

help large lenders such as SBI and hence propel the

sea change. Global brands are now making their way

of three months.

brand to greater heights.

Challenged Faced by Top Indian Brands Although Indian brands have made it big to some an extent, they still need to traverse a long way in order to compete with other global brands. The following are some of the challenges faced by the Indian brands in today‘s scenario. 

to the Indian market vigorously competing to make a mark for themselves. Indian brands are learning their lessons fast, but some are still missing opportunities as they seek to do things in a more comfortable, localised manner than their global benchmarks. In a nutshell, ―India has led the world culturally and spiritually. It is now time for Indian brands to lead their business and so begin their world-changing

Benchmarking

23 | A U G U S T 2 0 1 4

journey‖.

Cover Story

Impact of Regulation and Politics on Stock Markets

- Apoorva Anusha & Kaushik Chandell

“I am free, no matter what rules surround me. If I find

The prohibition on unfair trade practice relating to

them tolerable, I tolerate them; if I find them too

securities, protect the financial market if during the

obnoxious, I break them. I am free because I know

course of business, anyone intentionally engage in any

that I alone am morally responsible for every thing I

act or practice which would operate as a fraud upon

do.” -By ROBERT A. HEINLEIN

any person which is in connection with the purchase or sale of any securities.

Regulation This statement is very much true for a living thing but when it comes to non-living thing, it needs something to regulate its function. When we talk about Indian Financial market lets see what is the impact of regulation on it. Regulation made by government that means various policies as well as the regulations made by the central bank of India for controlling inflation, both has its impact on Indian Financial market. Apart

Most of the regulations have positive impact on financial market but some times it creates way for those who involved in making fraud like, if an agent is entering into a transaction on behalf of his client he can easily execute on price other than the price on which the security was executed on the stock exchange or the price on which it was offset against the transaction of another clients.

from this the regulation or the guidelines issued by

Regulation by primary dealer has also impact on

Securities and Exchange Board of India for the

financial market

regulation

of securities market has a significant

suitable policy guidelines on securities transactions.

impact on the Indian Financial Market and also the

Because operational procedure and controls in relation

future challenges.

These regulation are made to

to the day to day business operations should also be

protect the interest of those who are investing or

worked out and put in place to ensure that operations

dealing with the financial markets but there is a

in securities are conducted in accordance with sound

saying by DALAI LAMA XIV – ―Know the rules, so

and acceptable business practices.

you can break them effectively‖

because dealers also

implement

The primary dealers lay down broad objectives, which

Inspite of several guidelines some manage to make

help

frauds. In prohibition against Market manipulation it

securities on their own account and on behalf of

affects entry, either directly or indirectly for the

client. But they should take prior approval for this

transactions

in

prices

of

the authority to put through deals or the procedure to

securities and thereby inducing the sale and purchase

be followed while putting through deals and adhere to

of securities by anyone. If there is no genuine trade

prudential exposure limits.

depressing

the

transactions

from the respective boards. This will clearly define

or

with

understanding

of

raising

securities

while

intention

artificially

in

them

the

transaction it also affects the pricing for the securities.

24 | A U G U S T 2 0 1 4

Reserve bank‘s regulation has a direct as well as

An example of this is the similarity between mutual

indirect impact on financial market. Indirect impact is

funds and ULIPs. The mutual fund is regulated by

through the primary dealers. It also bounds them.

SEBI where as ULIPs is regulated by IRDA. SEBI

Like, while laying down any policy guideline they

imposes different level of disclosure and ongoing

should strictly observe Reserve Bank‘s instructions on

transparency

Ready Forward Deals, Transaction through SGL

compared to the standards of disclosure required by

account, internal control or risk management system,

the IRDA.

dealings through brokers and many such instructions.

Keeping in view India‘s growing integration with

The

securities

global financial market, external sector vulnerabilities

transaction framed by the primary dealers are duly

have an increasingly large impact on India through the

certified by its management to the effect that they are

trade and capital account channels. So it is important

in accordance with the RBI guidelines and also they

that the development of an efficient and healthy

have been put in place.

financial market should also be accompanied by an

internal

policy

guidelines

on

After the share market scam in 1992 a prohibition was made on short selling of securities, which meant that any primary dealer would not be able to put through any sale transaction without actually holding the security in its portfolio i.e. under no circumstance a dealer can hold a oversold position in any security.

on

the

outcome

of mutual funds

effective regulatory mechanism.

Politics UNSTABLE

GOVERNMENT

and

UNPREDICTABLE MARKET follows an unnamed relationship which should be followed by a stock market investor who wishes to make a name for

But these securities does not protect the interest of

himself out of it. The infamous 2G scam which

those broker who are not able to sell more and a

created political instability was not only limited to

misappropriate part of transaction is made by one or

politics and power, it even created a buzz in the

few

fix

market in an adverse manner. You might know about

aggregate contract limits for each of the approved

the scam of the housing finance bribery that also took

brokers.

place in India which involved a lot of top officials and

brokers

only.

Primary

dealers

should

However we can say that these norms are not applicable to those who are dealing through other primary dealers.

The major adverse impact on

financial market and the future challenge is multiple regulators in India. With many regulators there are various

regulatory

requirements

regulatory arbitrage.

that

leads

to

PSU‘s. This too affected the stock market a lot. This is because this case dampened the domestic trading to a lot extent. The corruption in the country has led the common people to suffer a lot. Investment is a key driver of the economy, helping to augment the productivity that is so vital for sustained growth. If you want to make good money and that too by making good investment in the stocks then knowing all the important conditions of the market is very important

25 | A U G U S T 2 0 1 4

July 24, 1991 Manmohan Singh presented his first budget and the market closed on 1,485.76 points on that day. Market saw an enormous growth of 200% in just 9 months reaching a total of 4,467.32 on 22nd April 1992. This was time Harshad Mehta‘s fraud was caught and stock market began to crumble. Even after so much of ups and downs, market went up by a compounded rate of 22% in for you. You would be able to feel an increase in your self-confidence by making good money from the

Mr. Rao‘s tenure.

Short-Lived Crisis

stock market.

In this phase, India saw three Prime Ministers Atal A major add on that justifies the title is ―General Election‖. It‘s not surprising that stock markets are always nervous whenever the term election is trending around. For our study we‘ll analyze the general

Bihari Vajpayee, H.D. Dewe Gowda and Inder Kumar Gujral. When Gujral resigned in 1997, stocks had come down from where he had started. In March 1998, Atal Bihari Vajpayee became the PM leading a

election and its result from early 1989 to 2014.

coalition

The Beginning

conducted nuclear tests which had a negative impact

After Congress lost the general election of 1989, a

on stock market. Summing up to the problem, the

short lived government ran for less than one year under the leadership of Vishwanath Pratap Singh.

Chandra Shekhar became the Prime Minister in November 1990 but again his reign was also shortlived, only till June 1991. This turmoil resulted in widening of account deficit, fiscal deficit was high and to add to the problems India already had unstable international conditions with West Asia and Russia which pointed towards a difficult path for Indian economy. However market saw a rise from 800-level in June 1990 to 1,400-level in October 1990. With the assassination of former Prime Minister Mr. Rajiv Gandhi on May 21, 1991 market saw enormous

government.

Under

his

authority

India

government lost the confidence vote by just a single vote in Lok Sabha followed by the Kargil war during May-July 1999. But at the same time technology boom resulted in a positive growth and the Sensex rose from 3,300 points to 4,600 points during AprilJuly 1999. However in September 2001 the reality struck. Stock prices had crashed and Sensex fell to the level of 2,600.

Dream Run and Reality Vajpayee government lasted till May 2004 and the Sensex at that point was 5,400. However with the electoral loss Sensex slipped to about 4,500 on 17th May, 2004.

volatility. Congress won the election and formed a government with P V Narasimha Rao as Prime Minister and Manmohan Singh as Finance Minister.

26 | A U G U S T 2 0 1 4

Bulls took complete control of the market and soon the losses were recovered. With Bulls in charge

market had a dream run from mid-2004 to the

26,100.08 on that day in anticipation of new budget

beginning of 2008 reaching the new heights of 21,000

by the new government.

points

Meltdown.

It‘s a general saying of life ―Instability does not last

Following 2009 general elections, UPA came back to

long and stability is ultimately restored‖. History of

the power with Manmohan Singh once again as the

politics and financial market together conclude that

Prime Minister. Sensex saw a jump of 17% in just a

one thing market hates the most is ―uncertainty‖ and it

before

the

Global

Financial

single day i.e. on May 18, 2009. Political conditions were stable and stock market focused on improving market conditions. However, the second half of the tenure

marked

many

controversies.

The

noted

indecision adversely affected the market, economic growth slipped considerably and inflation continued its path. People saw high rise in the prices of petrol and other necessities whereas a drop in the value of Rupee.

third front. Market has always been a supporter of a single

party

with

full

majority.Bombay

Stock

Exchange has reacted to every major development in electoral scene, whether it has been positive or negative and is unafraid to show its lack of confidence to the instability of government. A week is always a long time in politics and with Modi government we have many more weeks to go. The global economic

The Change

environment has improved with the emergence of this

2014 General election not only saw the longest running phase, largest turnout but also saw Sensex and Nifty reaching new heights. People were tired of corruption, inflation and degradation. As a result on May 16, 2014 Congress tasted its worst defeat whereas BJP won the right to form the largest majority government since 1984. Market saw this as a positive change and responded accordingly. Indian rupee

never accepts the government with a left front or a

grew

stronger

after

months

of

poor

performance. Sensex broke all of its record within hours of the result being declared. On May 16th Sensex crossed record 25,000 points but closed at 24,121.74. 5th June set a new milestone as Sensex closed on 25,019.51. It was for the first time that Sensex closed above the milestone 25,000. History was created on July 7th, 2014 as Sensex crossed 26,000 points for the first time in the history and reached its peak of 26,123.55. Sensex closed at

27 | A U G U S T 2 0 1 4

new leader and we do have a stable government which is more than enough to give a big boost to the market sentiment.

With the new programs and

priorities for making the present glorious it is still too early to say whether the same can be claimed for the future or not.

Complicated Relationship

Inflation and GDP

- Priyanka Malik

Government‘s view of economy can be summed up in

Consumer

few short phrases-

between GDP & Inflation is flexible & is governed by

If it moves, tax it. If it keeps moving, regulate it. If it

the time period considered. For a shorter time period,

stops

the relationship

moving,

subsidize

it.

- RONALD REAGAN

Price

Index

(CPI).

The

relationship

is direct & positive in nature.

However, in the long run the inverse relationship gets established between the two parameters.

India has been considered as a country of unleashed potential for long. Post liberalization, increment in

GDP

growth

is

immensely

important

for

the

foreign investment & deregulation of policies has

companies to make adequate profits & for the stock

pushed India amongst the front rankers in Asia Pacific

market to work swiftly. However, too much GDP

region, unleashing its latent strengths. The economy

growth is also a negative indicator. Therefore, in short

of India is one of the fastest growing economies in the

run GDP growth is a result of inflation but, it doesn‘t

world. It‘s the tenth-largest by nominal GDP & third

increase the purchasing power. In long run GDP

largest by purchasing power parity. Two major pillars

growth initiates inflation which begets hyperinflation

of economy are GDP & Inflation as these factors not

in turn. Also, the process establishes a self sustaining

only affect the other factors like unemployment but

feedback loop with nonlinear effect of inflation.

also help us to foresee the economic condition of the

The effect of GDP & Inflation is not only interlinked

nation.

but also, affects yet another important parameter

GDP in the simplest terms is ‘the total aggregate

namely ‗unemployment‘. Increase in GDP rate also

output of an economy‘. Whereas, Inflation can be

reduces the rate of unemployment. Ironically, as the

defined as ‗either increase in prices or supply of

unemployment rate slashes it proves more of a curse

money‘. Inflation is often measured in terms of

then a boon. Higher employment rate will pressurize the demand side as the supplies try to cope, pushing the inflation bar.

Customer

dissatisfaction

also

becomes a part of the bigger picture as,

due to tight labor

market

organizations

are

compelled to raise the wages & this expense is in-turn passed on to consumers.

28 | A U G U S T 2 0 1 4

The two pillars are controlled by the expansion & contraction of the fiscal & monetary policies. There exists a trade-off between high growth & low inflation as both can‘t

occur

Tightening monetary

simultaneously.

of

the

policies

fiscal

may

&

achieve

lower rate of inflation but only at the

cost

of the

growth

rate.

Therefore, government needs to strike a right balance

Budget deficits should be kept in control for the same.

between the expansion & contraction of the policies to

The

ensure well being of the people. The hike in growth

expenditure & direct them in favor of investment.

rate because of the expansion in fiscal policies can be

Although, the growth rate & inflation can‘t be

attributed to the scope of optimum utilization of

predicted with precision but, the political stability

resources unlike their under-utilization in past.

caused by the Modi government can improvise the

According to ‗The Chakravarty Committee (RBI,

growth rate whereas RBI still continues to fight the

1985)‘ an inflation rate of 4% is an acceptable rise in

inflation.

prices or the threshold value. While the recent studies

According

according to Sarel methodology, provide a range of 4-

production of consumer durables & capital goods,

7%. RBI has a shifting perspective based on the

coupled with moderation in corporate sales & non-oil;

economic structure of the globe.

non-gold imports is indicative of continuing weakness

There exists a negative relationship between growth & inflation. Therefore, the most desired policy for India is the one with downward pressure on inflation.

Low inflation rate is an indicator of macroeconomic stability & it creates an environment conducive for investment. Also, the historical trends in India display a controlled inflation by regulating fiscal & monetary policies

wherein

several

countries

were

facing

Taking world-wide economic linkages into account, it suggested

to

should

RBI,

curtail the

unproductive

‗the ongoing contraction in

in both consumption & investment demand‘. Inflation with respect to agriculture is dependent on monsoon in

the

country.

Because

of

decline

in

the

manufacturing & mining output the growth rate was 4.7%. Whereas the expected growth rate in 2014-15 is 5-6%. However, the inflation rate is expected to fall around 8% by January 2015 & around 6% by January 2016.

Since change is an inevitable phenomenon, let‘s just

difficult times.

is

government

that

raising

public

investment

&

controlling inflation help in catalyzing the growth.

29 | A U G U S T 2 0 1 4

wait for the time to decide its course & reveal what it has in store for the entire nation.

Growth Story

Rise of Adani

- Manjari Sharma

sorter at Mahindra Bros. After 2 years he set up his own diamond brokerage outfit at Zaveri Bazaar.

His elder brother Mansukhbhai bought plastics unit in Ahmadabad in 1981 and wanted Gautam(Adani) to run it.

Adani returned to Ahmadabad and this was the beginning of Adani's journey into the global trading with the on-set of importing Polyvinyl Chloride (PVC), a key raw material for manufacturing plastics.

While working on his brother's plastics‘ unit, Adani gained valuable experience with the intricacies of Thinking big Doing Better !

Global

Gautam Adani was born in a Gujarati Jain family to

entrepreneurs were looking to enter the relatively new

Shantaben and Shantilal Adani who had migrated

and exciting sectors of Software and Telecom, but

from the town of Tharad in northern Gujarat in search

Adani ventured into what merchants and East India

of a livelihood. Adani has seven siblings, the eldest

Company used to do 1000 of years ago under the

being

his

British rule. Thus, in 1988 he started Adani Group,

in

along with its flagship company, Adani Enterprises

Ahmadabad. He was a university dropout and could

Ltd. (formerly known as Adani Exports Ltd.), as a

never complete his Bachelor‘s degree..

Partnership firm with a capital of 5 lakh and now it is

Mansukhbhai

schooling

from

Adani.

Seth

He

completed

C.N.Vidyalya

School

Trade.

During

the

country's biggest port operator.

At a nascent age of 18, he went to Mumbai with few hundred rupees and there, he worked as a diamond

30 | A U G U S T 2 0 1 4

late

1980s,

young

The Adani Group had a quiet beginning, but Adani used his skills of persuasion and etiquettes to get beneficial land allotment policies and guidelines from the bureaucrats. The small group which started with five lakh has seen an increased turnover of Rs 3,300 crore in 2000 rose upto Rs 47,000 crore in 2013 which lead to parallels being drawn with another Gujarati, the man who redefined entrepreneurship in a semi-open,

state-controlled

economy:

Dhirubhai

Ambani. "The only other group with which (Adani) can be compared

is Reliance," says Dwijendra

Tripathi, retired professor of business history at IIM Ahmadabad. "He (Adani) is called the another Big

generator:Energy,

Agro,

Metals & Minerals and

A‖. Like Ambani, Adani is also a school dropout and

Infrastructure & Logistics.

a 1st-generation entrepreneur. He started in the

Let‘s review how this empire has been established:

import-export business, before moving on to things 

1988 Started as a commodity trading firm

and then integrated, both backward and forward,



1995 Expanded into port business

around it. Like Ambani, Adani seeks scale and is



2000 Adani Wilmar was set up under a joint

more industrial. Also, he built an industrial business,

outstanding at execution. He has somewhat similar interests

in

businesses

where

deep

venture

government

connections matter, and has managed to navigate the



2006 11 MMT of coal — largest thermal coal importer in India

political economy of those spaces with purpose, while drawing a fair share of critique.



2008 Bought Bunyu Mines in Indonesia

Today, Adani Group is one of the fastest growing



2010 It increased its edible oil refining capacity

enterprises in India. It all happened as a result Adani's

upto 2.2 MT/annum which is one of the largest in

rigorous hard work as well as his entrepreneurial and

India

ambitious vision. Maintenance of world-class quality



standards and a customer focused approach helped the Adani Group to achieve revenues of $8.7 billion.

2011 Bought 10.4 billion MT of coal reserves — Carmichael mine in Australia



2011 Dahej Port became operational

globe, working for a common purpose.



2012 Reached 4,620 MW at Mundra Power Plant

Adani Enterprises

Adani Exports) has

By the year 2013-14, it has grown to become a global

sectors

integrated

Adani Group has over 10,000 employees across the

mainly

focused

(formerly on

31 | A U G U S T 2 0 1 4

four

as

revenue

infrastructure

with

business

in

key

industrial verticals –resources, logistics & energy.

that the expansion is set to continue. The holding

Mundra Port crossed 100MMT peak by working on

company of the group is Adani Enterprises Ltd and it

101.12 MMT cargoes in Financial Year 2013-14, the

is present in the Indian Stock Exchange, along with its

only

achieve this

two subsidiary companies- Adani Ports and Special

milestone in a year. When it comes to cargo handling

Economic Zone and Adani Power. Adani's growth has

Mundra Port is number one amongst all commercial

exploded in the last 10 years, funded extensively by

ports. Mr Adani's business sense and knowledge are

banks. In 2006-07, the group had revenues of Rs

unparalleled, says institutional investors and merchant

16,953 crore and debt of Rs 4,353 crore. By 2012-13,

bankers in Mumbai. "Gautam (Adani) is a completely

revenues stood at Rs 47,352 crore and debt, at Rs

hands on, execution focused entrepreneur. Mundra

61,762 crore.

port is an outstanding story of a world standard

The privatization of energy and infrastructure sector

commercial port in India to

infrastructure facility and has come up as one of India's leading ports."

opens up new opportunity for Adani as the emerging middle class consumers have an ever growing demand

Adani Enterprises, the flagship company of the Adani

for supply of goods and services. This imposes a huge

Group, showed a profit after tax of Rs 557 crore for

and growing burden on the country‘s infrastructure:

the first quarter in end June 30, 2014 with a 43 per

its ports,

cent jump in revenue. France-based CMA CGM

Government has struggled to keep pace with this

Group has joined hands with Adani Ports and Special

demand. As a result, it has invited the private sector to

Economic Zone (APSEZ) for developing a new

contribute.

common user Container Terminal at Mundra Port.

As

it

power, water and transportation. The

is

rightly

said,

with

success

comes

Gautam Adani quoted on the improved performance

responsibility. Adani Group invests more than 3% of

of his different verticals,

the profit in Corporate Social Responsibility through

government availability,

to

address rail

"With efforts of new the

concerns

infrastructure,

of

fuel

transmission

constraints, project approvals and debottlenecking of the mining sector, we see greater growth opportunities in the sectors we operate."(source BT). After proving its efficiency in India, Adani has expanded its operations in Indonesia and Australia by acquiring

the Adani Foundation.

Adani is expanding beyond Gujarat—buying for ports across India, mining coal in Chhattisgarh and power plants in Maharashtra. It has its presence in more than ten states in India and has invested more amounts outside the state of Gujarat than in the state of Gujarat. Its future plans are concrete and with the

coal mines and ports.

growing need

Since its foundation in 1988, Adani‘s revenue, assets

mergers in acquisitions abroad, Adani group is a

and

company to follow in near future.

market

capitalization

has

increased

beyond

expectations. Projections for the next few years show

32 | A U G U S T 2 0 1 4

of infrastructure in India and its

Events on Campus

Management Discussion and Strategic Game Management Discussion: GST

- Jyotika Singh & Rushabh Jalan

(CGST) and a State Goods and Services Tax (SGST)

On 7th August 2014, FinStreet held a Management

will be levied on the taxable value of a transaction.

in

All goods and services, barring a few exceptions like

Finstreet family on the topic ―GST: Still a mirage?‖.

alcohol and tobacco, will be brought into the GST

Discussion

organized

by

the

new

members

As GST implementation in India is a need of the hour we saw a decent turnout and senior batch also gave a good response by turning up for the event. We witnessed a healthy discussion and an enthusiastic audience which appreciated the knowledge imparting session.

Goods

and

Services

Taxes

is

a

comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.

GST was first started by France in 1954 to reduce fraud and smuggling. Since then, 160 countries have implemented GST.

Through a tax credit mechanism,

this tax is collected on value-added goods and services at each stage of sale or purchase in the supply

base.

It

estimates

that

implementation

of

a

comprehensive GST across goods and services will enhance the GDP by between 0.9 and 1.7 per cent.

The major sectors which GST will impact are manufacturing, retail and service Industries. GST has various

side

effects

which

include

taxation

introduction in agricultural sector and state opposition due

to

loss

of controlling

power

if GST is

implemented. The rate is expected around 14-16 per cent. After the total GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates. Currently, services are taxed at 10 per cent and the combined charge indirect taxes on most goods are

chain. The system allows the set-off of GST paid on

around 20 per cent.

the procurement of goods and services against the

The session was very interactive where the supporters

GST which is payable on the supply of goods or

and critics raised questions like how will GST effect

services. However, the end consumer bears this tax as

IT sector, what are service charges and service taxes,

he is the last person in the supply chain. Under GST,

and GST is retrospective of prospective, etc. The team

the taxation burden will be divided equitably between

catered

manufacturing and services, through a lower tax rate

Management Discussion.

by

increasing

the

tax

base

and

minimizing

exemptions. It is expected to help build a transparent and corruption-free tax administration and will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

India is planning to implement a dual GST system.

Under dual GST, a Central Goods and Services Tax 33 | A U G U S T 2 0 1 4

to

all the

queries

set

in

during

the

In the end we state The Finstreet perspective that every policy has its own pros and cons but we think GST should be implemented as it will reduce our fiscal Deficit from 4.8% in the last quarter to about 3% by 2017. It will present a simplified taxation structure to our Indian economy. This is likely to lead to more compliance and this will raise the total level of taxes in the economy. It will also lead to a fall in

costs

in

many

cases

making

several products

evaluated on the basis of the number of questions

competitive leading to benefits for the manufacturers

answered correctly.

and also making some products competitive on the

Round three was called Wallet to vault – In this round

world stage. Over a period of time the consumer will

there were ten sectors each with a rate of return and a

reap the benefits of the process through lower costs.

starting bid price. The teams who cleared round 2 had

Game: Duos Juegoz

to bid for a sector. The price at which they bought a

On 3rd September 2014, FinStreet conducted a

sector will be the equity share capital of that sector

Strategic Financial Game called Duos Juegoz (team of two) organized by the FinStreet family. We saw a satisfactory turnout of 26 teams which consisted of two

members in each team, which was highly

appreciated by the senior team. The game consisted of 3 rounds with the evaluating parameters testing the teams‘ sound knowledge of Accounts, Economics, Finance and General Awareness.

with the face value of each share at Rs. 100. Each team can raise their capital up to 400crores which includes equity and debt. The teams can raise a loan up to 300crores from FinStreet Bank. Based on the amount of loan they have raised the teams‘ needs to pay simple interest and profit after tax to the bank with tax being at 40% per annum. The teams then need to calculate their earnings Per Share for the 5th year. There was no time given for bidding but seven

Round one was called Labyrinth- 2, 30 words from the crossword puzzles were given to each team. The

minutes were given for calculations. The team with the highest EPS wins.

team members had to work together to find out the words and pair them correctly. There were 15 such pairs in the crossword puzzle and the teams with the most number of correct pairs would move on to the next round. Time limit for this round was twelve

the FinStreet team catered to all the queries asked by the participants.

Team 13 (Jaikishan and

Harkirat)

won the game with 32.82 EPS and Team 2 (Keshav Singhania and Juyufi Tayal ) were the runners up with

minutes.

Round two was called Lockman‘s Muddle- 3 sets (set A, B, C) consisting of 5 multiple choice questions were given to the teams who had cleared round one.

The correct options of these questions would unlock the phone which contained a list of certain events which had to be arranged in the correct chronological order.

The teams played the game with great enthusiasm and

There was no time limit for this round. The

teams who cracked the code and arranged most of the events in the their correct order moved onto the next round while the teams who could not crack it were 34 | A U G U S T 2 0 1 4

29.535 EPS.

Vriddhi Research’s Corner

Company in Focus: Bajaj Auto Limited

- Vighnesh P

Industry: Automobile (Two Wheelers) Market Capitalization: - Rs. 64,496.89 Cr

Market Price: - Rs. 2233 P/E:- 19.87

Industry P/E:- 23.04

P/Book value: - 6.71

Div (%): - 450% EPS: - Rs.112.16 Dividend Yield: - 2.02%

Economy Overview:

commercial vehicles. Currently India is the world‘s

With the current June 2014 quarter‘s economic

second largest two wheeler manufacturer and it is

growth reaching a 9 month peak of 5.7%, the automobile industry has risen from its slumber growth and the latest automobile sales data confirms the same. The main factors influencing automobile sector are the inflation rate, interest rates, crude oil price and

expected to become the third largest automobile industry by 2020. And due to the rising income of rural people who constitute 70% of Indian population our automobile industry and two wheeler industry in specific is awaited for an industrial upliftment. The policies provided by the government like 100% FDI

credit availability.

and The inflation rate which is currently 8.0% has been kept under control by the RBI by its liquidity adjustment facility and it further aims to reduce it to 6% by 2016, which would be a boost for automobile sector as the purchasing power of the people would increase, they could save more as well consume more.

introduction

of

GST

would

benefit

the

manufacturers and thereby benefitting the customers in the long run as they would pass on the tax benefits to the consumers thereby reducing price. The rising demand

from rural and urban youth, innovation

opportunities and rising investments would benefit the automobile industry in the near future.

The reduction in inflation will lead to reduction of the bank

lending

rates which would

help

in easy

Company Overview:

availability of loans and credit facilities from banks.

Bajaj Auto founded by Jamnalal Bajaj in 1930 in

And due to the ease in global scenarios the crude oil

Rajasthan is the world's third-largest manufacturer of

price has been reducing and is currently $100/barrel.

motorcycles and the second-largest in India, it is also

These leading economic factors and the overall

world‘s

economic growth across the world prove to be a

India‘s largest exporter of motorcycles and three-

welcoming note for the boost of automobile industry.

wheelers. Bajaj Auto‘s exports accounted for approx.

largest

three-wheeler

manufacturer

and

35% of its total sales and 47% of its exports are made

Industry Overview:

to Africa. Bajaj is present in over 50 countries all over The automobile industry is a pretty huge sector with major players like Maruti Suzuki, Tata Motors, Hero Moto Corp, Bajaj Auto, Mahindra and Mahindra etc. catering

to

various

types

of

automobiles

like

passenger cars, two wheelers, three wheelers and 35 | A U G U S T 2 0 1 4

the globe and dominant presence in Africa, Latin America and South Asia with increasing market share every year. It is a market leader in motorcycles in Colombia, Central America, Sri Lanka, Bangladesh,

Philippines, Nigeria, Uganda and Kenya. Bajaj Auto

in overseas markets like Africa and Latin America

has a strong brand strategy with products catering to

and its expanding exports growth has been benefitting

all classes of society. It is well diversified in two

Bajaj Auto in large. Its brand strategy with varied

wheeler as well as three wheeler segment.

product line catering to the premium, executive and

Pros:

economy class and

its diversification into

three

wheeler sector has been its strength. It has a huge a)

Company has a good Return on Equity (ROE)

track record: 3 years ROE 58.07%. b) Company has reduced debt.

opportunity to concentrate the Bottom of Pyramids by catering to developed

the increasing rural demand. public

transport

system

and

Under the

c) Company has been maintaining a healthy dividend payout of 40.07%.

Cons: a) Stock is trading at 6.24 times its Book value.

A Bajaj auto sale has grown at a CAGR of 13% over 2006-14 and the profit has grown at a CAGR of 18.5% over 2006-14. Its current ratio, quick ratio is above the industry average and the debt equity ratio is below the industry standard. It‘s EPS and DPS has been increasing at a constant rate. Bajaj auto provides a constant dividend which is suitable for risk averse investors. Its P/E is below the industry average P/E which proves to be a good value stock. It has a high operation profit margin of 20% in the entire two wheeler industry which proves to be a strong moat for the company.

Valuation: The relative valuation of the peers place Bajaj Auto at

introduction of quadricycle, RE60, will open up yet

Rs. 2438 and the Dividend discount model valuation

another revenue stream.

of Rs 2860.

Seeing the strong fundamentals, I recommend buying

Analyst’s Recommendation:

Bajaj Auto for a long term perspective for multiple

As we can see Bajaj Auto has been consistently doing

returns or for a short term perspective of 6 months at a

well with high operating profit margins. Its presence

target of Rs.2800.

36 | A U G U S T 2 0 1 4

The IBS Times is an academic print and is not for any commercial sale. Reliability and Responsibility for sources of data for the articles vests with the respective authors. Please feel free to drop in your suggestions or any feedback at editor.ibstimes@gmail.com Š IBS Times – FinStreet, The Official Capital Markets Club of IBS Hyderabad. All Rights Reserved

37 | A U G U S T 2 0 1 4