INDEX

Sr. Contents Page

No. No.

1. Market Updates
Stock Market 3
Commodity Market 3
2. Glimpse of Economic Indicators
Key Indicators 4
Rupee- US$- Euro Equation 6
3. Banking News 6
4. Industry Snapshot
The Indian Entertainment & Media Industry 8
5. Voice of TIMSR
Gold: True and Honest Money 14
6. MPL (Management Premier League) 17
7. Industry Snippets 18
8. Knowledge Bank
The Mechanics of Commodity Futures 19
Interest Rate Futures 22
9. Visionaries
Prahlad Kakkar 24
10. Food for Thought
Is Stock Market Gambling? 25

11. Kit Kat Time 27

12. Contact Detail 29

1
 EDITORIAL benefited since they will be able to widen the
scope of their operation and compete with
global service providers. With the issue of LLP
Welcoming Changes
Rules 2009 and taxation norms in the Union
At the outset let me welcome Batch 2009-11 Budget 2009, a clear regulatory framework
to TIMSR family. It is always a pleasure to has been provided for the functioning of
interact with young and enthusiastic students LLPs. This initiative will lead to innovation in
who, with stars in their eyes look forward for the service sector in Indian economy.
a great career in the field of Business and
Management. Be focused, determined and The much eagerly awaited Direct Tax Code is
committed in your efforts and you will realize here which promises to bring sweeping
your dreams. The entire TIMSR family changes in our tax regime. More on it in the
comprising of top management, faculty next issue.
members, seniors students, administrative
and other staff are there to support you in Regards,
your efforts. The campus is buzzing with
events and activities along with regular Prof. Jyoti Nair
sessions viz. HR Club’s Klub Konnect and
Marketing Department’s Management
Premier League and EVOKE 2009. The
ambience is just right for the new batch to
get the feel of life at a B-School.

India has seen considerable growth in the

service sector in the recent past. A need had
been felt for an appropriate type of business
organization to combine entrepreneurial
skills, technical expertise and risk
management to promote services of
technical nature which will be economically
and commercially efficient.

Introduction of Limited Liability Partnership

Act, 2008 (LLP) which came into force with
effect from March 2009 is a right step
towards this direction. It provides an
alternative to traditional partnership. This
new form of organization calls for limited
liability for its members which will encourage
professional and technical service providers
to operate in an efficient and effective
manner. The members enjoy the freedom to
formulate the internal structure of the
organization however with limited liability.
Small and medium service providers will be

2
 MARKET UPDATE indices declined. The BSE Auto index dropped
over 4%. The BSE FMCG, Metal and Realty
STOCK MARKETS indices slipped over 3% each. Breadth was
bearish - out of over 2,765 scrips traded, over
1,600 declined. This was not enough, the
bears were running ahead of bulls again the
next day markets witnessed same set of
movement on 7th of August again market
opened with a negative gap of 70 points and
ended with a heavy downfall of 354 points.

After dropping nearly 900 points over the

sessions of 1st week of month, on 11th of
August the Sensex opened on a flat note at
15,000. The index dropped to a low of 14,864
in early morning deals. Buying at lower levels
saw the index move up to a high of 15,219 in
noon deals - an intra-day swing of over 350
points.

On 20th August, 2009 Adani Power, which

had priced its IPO at Rs 100, listed at a
premium of 5% at Rs 105. The stock moved
between a low of Rs 98 and high of Rs 108
The month of August seemed to remain before closing on a flat note at Rs 100 - its
sluggish when we talk in terms of broader IPO price. With the market to be at this kind
market indices The reason for this would be of levels buying continued from lower end of
very simple i.e. only due to bad monsoon and the market and it were headed to a one side
problems with Chinese exports. Markets saw rally which helped to touch the new 2009
the major up as well as down swings. Till 6th highs.
& 7th of August market shedded most of the
gains which has been witnessed since the COMMODITIES MARKET UPDATE
earning season.
Crude update:
th
On 6 of August: Weak global cues saw the
Sensex open with a marginal negative gap Oil ended toward $72 per barrel on 31st of
(over 20 points) at 15,881 but moved up to a August, 2009. a drop in China's key stock
high of 15,970 in early noon deals. With the index stoked worries about the country's
Met Department announcing that monsoon economy but hopes that energy demand
has been 25% below normal between June 1 would soon rebound are on track to push
and August 5, the markets tanked - the prices up about 4% in August. Prices slipped
Sensex dropped to a low of 15,443 - an intra- 1.56% last week but are set to chalk up gains
day swing of over 525 points. The Sensex of 4% in August as a raft of upbeat economic
finally closed with a huge loss of 390 points data across the globe helped offset high U.S.
(2.45%) at 15,514. The Nifty declined 109 oil inventory levels.
points (2.31%) to 4,585.All the sectoral
3
Gold Update: continue to remain in the domestic market.
Globally, too, tea prices are on the upswing.
Gold rose on 31st August, to trade around $950
per ounce on strong oil prices, which fanned Other Updates:
worries about inflation, while platinum eased
a touch in news of a mine strike in South NCDEX is all set to kick-off spot exchange in
Africa. Gujarat, adding few more commodities to
their existing basket, with 4% thrust being
State-run National Mining Development laid in Union Budget in the Agriculture sector
Corporation (NMDC) plans to produce close and emphasis being laid on creating cold
to 100,000 carats of diamonds from the chains, NCDEX is not ruling out the possibility
Panna diamond mines in Madhya Pradesh by of brining frozen foods also on their trading
2010-11, Steel Minister Virbhadra Singh said platform.
on Aug 26th.

The Panna mines were re-opened this month

after being closed for four years over GLIMPSE OF ECONOMIC
environmental issues. NMDC, a state-run unit
under the steel ministry, extracts minerals INDICATORS
across the country. (AS ON 31st AUGUST 2009)
Agriculture Commodities Update:
KEY INDICATORS
Sugar importers will have to submit a report
CASH RESERVE RATIO 5%
giving details about the quantity purchased
STATUTORY LIQUDITY 24%
by the 10th of every month to Agricultural
RATIO
and Processed Food Products Export
REPO RATE 4.75%
Development Authority (APEDA).
REVERSE REPO RATE 3.25%
The government has barred large and bulk PRIME LENDING RATE 12.75% TO 13.25%
consumers of sugar from keeping more than BANK RATE 6%
15 days of stocks with them, a move aimed at INFLATION -0.21%
checking hoarding and any price escalation FOREX RESERVE $271.95 Billion
ahead of festivals like Dussehra and Diwali.
CALL RATES 2.25%-4.30%

The directive follows sugar prices doubling to CAR (CAPITAL 9%

ADEQUACY RATIO)
Rs 35 per kg in a year's time and concerns
that the sweetener might get more Source: www.rbi.org
expensive as production has been lower this
season and a poor sugarcane crop is Wholesale price index fell 0.21 per cent in
expected in the next season. the 12 months to Aug 22, compared with the
previous week's annual decline of 0.95
Poor monsoon, production shortfall and rise percent, government data showed.
in demand will see tea prices inching
upwards. According to Producers prices will The rate turned negative for the week ended
June 6 for the first time since the new

4
wholesale price index (WPI) series started in The index of six core industries clocked 1.8%
1995. growth in July, lowest in the past five
months.
Global financial crisis has so far failed to
significantly slow down inflow of remittances Government is committed to doubling credit
in India, the Reserve Bank said. flow to micro, small and medium enterprises,
which employ 6 crores persons and
According to the World Bank estimates (July contribute 45 per cent to India's
2009), remittance flows to developing manufactured goods, Prime Minister
countries, which increased to $ 328 billion in Manmohan Singh said.
2008 from $ 285 billion in 2007, are
projected to decline by 7.3 per cent in 2009, Indian firms in July, raised over $2 billion
the RBI said. through external commercial borrowings to
fund various programmes, including overseas
Indian economy will beat pessimistic acquisitions and for importing capital goods,
estimates to notch up a 6%-plus growth in says RBI.
gross domestic product (GDP) in the June
quarter on the back of robust performances The government has agreed to infuse an
by the financial services, manufacturing and equity of Rs 5,000 crores into cash-strapped
mining sectors, according to an ET poll of Air India over the next three years subject to
eight economists. the airline's performance.

India's foreign exchange reserves climbed by The worst dry spell in nearly four decades
$932-million for the week ended August 21 pushed up food prices in India by an annual
to $271.957 billion compared to $271.025 14.5 per cent in the week to Aug 22, adding
billion in the previous week. to the worries that wholesale price inflation
is poised to accelerate in coming months.
Monsoon rains will improve slightly in final
months but will still end June-Sept season Direct tax collections grew by around 4 per
about 20% below normal, making this year's cent to Rs 87,888 crores in the first five
rainfall worst since 1972. months of this fiscal.

India's exports in FY10 are seen at almost the Cars and utility vehicle sales in India grew
same level as last year, the head of an about a third in July, their best performance
exporters' body said on. "We expect exports in a year, thanks to new launches and easier
to touch around $167 billion, almost the availability of finance, raising hopes for a
same level of last year," A. Sakthivel,
strong pick up in the coming months. The
President of Federation of Indian Export
Organizations’, said. revival, which began in February after a six-
month slide, has been mainly led by cars,
India's industrial output rose by 7 per cent in especially in the compact segment, spurred
July from a year earlier, compared to a 7.8 by launches of new models such as Maruti
per cent rise in June, commerce and industry Suzuki's Ritz premium hatchback and Tata
minister Anand Sharma said.
Motor's much-hyped Nano.

5
Maruti, India's top carmaker in which Japan's concerns about foreign fund outflows, while
Suzuki Motor Corp has a 54 percent stake, weaker regional currencies also weighed
reported a 33.4 percent jump in July sales.
The Indian rupee fell to its lowest level since
mid-July on Tuesday as weaker global
RUPEE- US$- EURO EQUATION: As on equities raised worries foreigners may start
pulling out funds from emerging market
AUGUST 31st 2009
assets including local shares.
RUPEE-DOLLAR RUPEE- EURO
The partially convertible rupee closed at
Date Rate Date Rate 49.05/06 per dollar, just off a late low of
49.06, it’s weakest since July 13. It ended 0.4
3RD 47.59 1st 68.06 percent weaker than Monday's (31st AUG)
close of 48.83/84.
10th 47.81 8th 67.90
"With equities turning negative, the rupee
17th 48.89 15th 68.81
was immediately sold. There was good
24th 48.61 22th 69.63 demand from custodians, oil firms as well as
importers. Lots of inter-bank shorts were also
28th 48.65 29th 69.89 cut," said Madhusudan Somani, head of
foreign exchange trading, at Yes Bank.
Currency Average Lowest Highest "Last couple of days we had seen decent
Rate offers above 49.00 from exporters as well as
state-run banks. We will have to see if they
RUPEE-
47.72 46.96 48.60 come this time around as well," he said,
DOLLAR adding 49.10/12 was a very important
RUPEE-
technical level.
66.85 65.94 68.08
EURO
The Dollar-Rupee was in a range bound of 47
Source: www.X-rates.com to 49 in this entire month with high of
Rs.48.60 and lows of 46.96.
From about $60 million per day in August-
September 2008, the current rate is nearly $1
billion per day in NSE and MCX-Stock BANKING NEWS
Exchange (MCX-SX).

Long-awaited merger proposal of Kerala-

The Indian rupee appreciated by 11 paisa to
based Catholic Syrian Bank (CSB) and
48.80 against the American currency in early
Federal Bank is likely in the next two to
trade today on fresh dollar selling by
three months with both lenders putting it
exporters and stability in local stocks
on fast track.
The rupee fell to a 1½ month lows early on

Canara Bank will launch 34 branches
1st September as losses in Asian stocks raised
across India on August 31, taking to 2806,
the global network of the bank.
6
 financial inclusion across country through

Unsatisfied by trebling of its share price to business correspondents.
Rs 750 since March, ICICI Bank has
embarked on an ambitious plan to double
The finance ministry has asked public
return for investors in three years. sector banks (PSBs) and the National Bank
for Agriculture & Rural Development

Reserve Bank of India (RBI) had agreed to (NABARD) to play an active role in
a maximum cap on withdrawals from containing non-performing assets (NPAs)
third-party ATMs. The central bank had of regional rural banks (RRBs).
said banks could place curbs, subject to a
minimum of five transactions a month and
Banks will soon have to shift to a new,
allow free withdrawals of up to, at least, more accurate, accounting standard
Rs 10,000 from third-party ATMs. But the where the value of assets will be based on
regulator has left it to banks to decide on current rather than historical cost.
the limits, indicating that this was the
minimum level of benefit it expected
IDBI Bank-led consortium of lenders, have
banks to provide customers. raised $ 1.1 billion loan for national carrier
Air India to purchase aircraft, a top IDBI

Private sector lender Federal Bank is Bank official said.
looking at a loan growth of 20-25 percent
in 2009/10 on a pick-up in credit off take
State-owned Special Undertaking of UTI
in infrastructure, steel and cement (SUUTI) is looking to offload part of its
sectors. stake in Axis Bank, country’s third-largest
private sector lender, within next four

ICICI Bank has asked the government not months.
to take into account overseas securities
like ADR and GDR when deciding on
SUUTI holds a 27.02% stake in the bank
whether a bank is Indian or foreign. ICICI and is looking to divest around 17%. It
Bank has little over 51 per cent of stake expects to realize Rs 6,000-7,000 crores
held by foreign institutional investors from the sale, a 13-30% premium over the
(FIIs), but it includes 29.07 per cent held Rs 870 closing price of Axis Bank share on
through ADRs alone. the National Stock Exchange.

Banking system needs consolidation to
The government has made the first
produce bigger, stronger players as its move to use the surplus funds of
current size is not fit to meet the funding commercial banks to meet its short-term
needs of a globalizing Indian industry, OP cash needs. Banks have been regularly
Bhatt (SBI CMD) said. parking the excess money, for which they
can’t find borrowers with RBI under the

State Bank of India the country's top bank, reverse-repo facility. Now in a letter to
is unlikely to raise lending rates in the next banks, the central bank has said the
six months, its chairman said on Tuesday. government will issue new shorter-tenure
treasury bills that will help the

All villages to enjoy banking in two government meet its temporary cash flow
years The Reserve Bank of India targets mismatches. The special treasury bills

7
 called Cash Management Bills (CMB) will
have maturities less than 91 days.
INDUSTRY SNAPSHOT

IndusInd Bank, one of the new generation
private sector banks in the country, has
INDIAN ENTERTAINMENT
successfully concluded its first Qualified AND MEDIA INDUSTRY
Institutional Placement (QIP) offering of
US$ 100 million. The issue received very
strong response from investors on The Indian Entertainment and Media (E&M)
opening on 11th of August, 2009 and was Industry has out-performed the Indian
swiftly over-subscribed. economy and is one of the fastest growing
sectors in India. The E&M industry generally

Housing Development Finance tends to grow faster when the economy is
Corporation Ltd (HDFC), the multi-faceted expanding. The Indian economy has been
finance company, has decided to dilute a growing at a fast clip over the last few years,
maximum 3.5 per cent equity to Qualified and the income levels too have been
Institutional Buyers (QIBs) to raise over Rs experiencing a high growth rate. Above that,
4000 crores. consumer spending is also on the rise, due to
a sustained increase in disposable incomes,

IDBI Bank has revived the proposal to sell brought about by reduction in personal
IDBI Home Finance, its wholly-owned income tax over the last decade. All these
subsidiary, to Dewan Housing Finance, factors have given an impetus to the E&M
nearly seven months after it had to put industry and are likely to contribute to the
the plans on hold due to a last-minute growth of this industry in the future. Besides
government intervention. these economic and personal income-linked
factors, there are a host of other factors that

Public Sector lender, Punjab National Bank are contributing to this high growth rate.
(PNB) planning to launch two subsidiaries
to enter new areas of business. It is set to A. Low media penetration in lower socio-
foray into investment services through its economic classes (SEC)
investment-banking subsidiary PNB B. Low ad spends
Investment Services Limited while enter C. Liberalising foreign investment regime
the factoring business through another
subsidiary - PNB Factoring. SOME IMPORTANT FACTS

State-run Indian lender Bank of Baroda Leading Consumers

aims to acquire banks in Malaysia and  Over ~1000 movies released annually
Thailand to help it expand in the region. (Largest in the world)

 ~3.2 billion movie tickets sold annually
(Largest in the world)
 ~80 million pay-TV homes (Third largest
in the world)
 ~119 million television households
 ~450 television channels
 ~Over 300 million mobile subscribers
(second largest in the world)

8
 ~Over 350 Radio Stations KEY DRIVERS
 ~6000 newspapers published, including
the world’s largest circulated daily Television
 ~10000 music tracks released annually Subscription revenues are projected to be
the key growth driver for the Indian
Poor Revenue Generators television industry over the next five years.
 Low Average Revenue per Unit (ARPUs): Subscription revenues will increase both
 Average ticket price in India : Less from the number of pay TV homes as well as
than $1 increased subscription rates. The buoyancy
 Average ticket price in US: $6 of the Indian economy will drive the homes,
 Average monthly spend on pay-TV in both in rural and urban (second TV set
India: $3.5 homes) areas to buy televisions and
 Average monthly spend on pay-TV in subscribe for the pay services. New
US: $15 distribution platforms like DTH and IPTV will
 Low Ad-GDP Ratio only increase the subscriber base and push
India: 0.55 US: 1.18 World: 0.86 up the subscription revenues.
 Low Media Penetration
TV penetration - India: 40% US: 98% Filmed entertainment
Indians love to watch movies. And
According to a recent report published by advancements in technology are helping the
Price Waterhouse Coopers, Indian E&M Indian film industry in all the spheres – film
industry grew at 10.3 per cent to reach the production, film exhibition and marketing.
size of Rs. 536.9 billion, although it has The industry is increasingly getting more
witnessed only 8% in 2009 compared to corporatized. Several film production,
16.6% compounded annual growth over the distribution and exhibition companies are
period 2004-08. The growth in Indian E&M coming out with public issues. More theatres
industry would hover around 10.5 per cent across the country are getting upgraded to
during the forecasted period 2009-13. multiplexes and initiatives to set up more
digital cinema halls in the country are already
Category CAGR CAGR 2009-13 underway. This will not only improve the
2004-08 (in %) quality of prints and thereby make film
(in %) Estimated viewing a more pleasurable experience, but
Television 17.4 11.4 also reduce piracy of prints.
Films 15.6 11.6
Print Media 13.4 5.60 Print media
Radio 36.4 18.0 A booming Indian economy, growing need
Music -1.7 -4.5 for content and government initiatives that
Animation, 22.2 have opened up the sector to foreign
Gaming & VFX investment are driving growth in the print
Out-of-Home 15.3 10.8 media. With the literate population on the
Advertising rise, more people in rural and urban areas
Online 69.9 32.0 are reading newspapers and magazines
Advertising today. Also, there is more interest in India
Total E&M 16.6 10.5 amongst the global investor community. This
Industry leads to demand for more Indian content
Source: Industry Estimates and PwC Analysis from India. Foreign media too is evincing
9
interest in investing in Indian publications. clearly demonstrated their capabilities in
And the internet today offers a new avenue successfully managing several mega national
to generate more advertising revenues. and international events over the past few
years. In fact, event managers are also
Radio developing properties around events. The
The cheapest and oldest form of growing numbers of corporate awards,
entertainment in the country, which was television and sports events are helping this
hitherto dominated by the AIR, is going to sector. With rising incomes, people are also
witness a sea-change very shortly. In 2005, spending more on wedding, parties and
the government opened up the sector to other personal functions. However, issues
foreign investment – and this is the key like high entertainment taxes in certain
factor that will drive growth in this sector. As states, lack of world-class infrastructure and
many as 338 licenses are being given out by the unorganized nature of most event
the Indian government for FM radio channels management companies, continue to
in 91 big and small towns and cities. This somewhat check the potential growth in this
deluge of radio stations will result in rising segment of the industry.
need for content and professionals. New
concepts like satellite, internet and Out-of-home advertising
community radio have also begun to hit the Outdoor media sites in India are
market. Increasingly, radio is making a predominantly owned or operated by small,
comeback in the lifestyles of Indians. local players and are typically, directly
Music marketed by them to advertisers and
The industry has been plagued by piracy and advertising agencies. However, this segment
had been showing very sluggish growth over too is witnessing a sea-change with
the last few years, both in India and globally. technological innovations. Growing billboard
However, ‘mobile music’ and ‘licensed digital advertising is fuelled by technologies such as
distribution’ services are projected to fuel light-emitting diode (LED) video billboard.
the recovery of the music industry the world- This is a segment that is seeing interesting
over. The pace of growth in mobile music technological innovations across the world
reflects the fact that consumers increasingly and is likely to evolve in India too in the
view their wireless device as an short-term.
entertainment medium, using those devices
to play games and listen to music, while Internet advertising
carriers are actively promoting ancillary An estimated 28 million Indians are currently
services such as ringtones to boost average hooked on to the internet. And this rising
revenue per user. Ringtones currently number is leading to the growth of internet
constitute the dominant component of the advertising, which today stands at
mobile music market. Licensed digital approximately INR 1 billion. The internet is
distribution services are also contributing being used for a variety of reasons, besides
significantly to growth in all regions. work, such as chatting, leisure, doing
transactions, writing blogs etc. This offers a
Live entertainment huge opportunity to marketers to sell their
This segment of the entertainment industry, products. And with broadband becoming
also known as event management, is growing increasingly popular, this segment is
at a fast and steady rate. While this industry expected to grow by leaps and bounds.
is still evolving, Indian event managers have
10
GOVERNMENT INITIATIVES approved. Further, permission has been
given for publication of 189 Indian
The Government has initiated major reform editions of foreign speciality, technical
measures, which have had a cascading effect and scientific magazines. Permission has
on the growth of the industry. also been given for publication of 106
specialties, technical and scientific
• Permitting 100 per cent foreign direct magazines by Indian entities, who have
investment (FDI) through the automatic taken FDI. Availability of Indian editions
route for film industry and advertising. of foreign scientific, technical and
• Allowing 49 per cent foreign holding in specialty periodicals at an affordable cost
cable TV and DTH. has benefited the students, professionals
• Allowing 100 per cent FDI in non-news and the scientific and technical
publications and 26 per cent FDI in news community greatly.
publications. • As a further measure of policy
• The government has allowed 100 per liberalization, Government has allowed
cent FDI in fax editions of magazines and Indian edition of foreign news magazines
newspapers. for facilitating wider readership at
• Recently, the government has allowed affordable prices. Also, Government has
companies with core business in news recently announced facsimile edition of
segment but hived off non-news international news papers to be brought
business, to raise funds from overseas to be India.
beyond the stipulated FDI limit of 26 per • Government has reviewed the print
cent. Such companies can raise and route advertisement policy and brought about
funds from overseas through its non- changes to support small and medium
news arm, which will not be calculated as newspapers. As per that policy,
foreign investment. advertisement support has been
• The FM radio sector was opened for FDI increased from 10% to 15% for Small
with a 20 per cent cap. newspapers and from 30 to 35% for
• Permitting setting up of uplinking hubs Medium newspapers, in money terms.
for satellite uplinking by private TV Minimum publication period requirement
broadcasters from Indian soil. drastically reduced from 36 months to 6
• Giving industry status to the films months for regional languages
segment. newspapers.
• Opening FM Radio operations to the
private sector. BARRIERS TO INVESTMENT IN THE
• The government has allotted US$ 50.13 INDUSTRY
million in the current Five-Year-Plan for
various development projects of the film A lot more investment can be drawn into the
industry. The funds will be utilised to set entertainment and media industry if certain
up a centre for excellence in animation, sectoral policy barriers can be addressed.
gaming and visual effects among others. Some of the issues that need to be addressed
which commonly impacts all segments and
Recent Developments need to be addressed urgently include:
• During the year 2008-09, 15 proposals for
FDI in Indian entities in the news and
current affairs sector have been
11
1. Piracy various stages. FM radio is one such example
The problem of piracy assumes a different where the incumbent All India Radio (AIR)
proportion in a country such as India with an was the sole player in the medium of both
area of 3.3 million sq. km. and a population AM and FM radio broadcasting. Limited
of over 1 billion speaking 22 different frequencies of FM broadcasting have been
languages. It impacts all segments of the opened to the private players but with a
industry especially films, music and licence fee, which is not currently applicable
television. Most of the credible efforts today to the incumbent AIR. Similarly, in television
to combat piracy have been initiated by segment, all terrestrial broadcasting rights
industry bodies themselves. On part of the continue to be with the incumbent
government, lack of empowered officers for Doordarshan.
enforcement of anti-piracy laws remains the
key issue that is encouraging the menace of 4. Content regulation
piracy. This, coupled with the lengthy legal A long-standing debate continues amongst
and arbitration process, is being viewed as a the industry members on regulation of
deterrent to the crusade against pirates. The content. Some of the issues that need to be
current Copyrights Act too is dated in terms addressed in this sphere include:
of technology improvements, and above all, • Should there be a content regulator or
it does not address the needs of the should the industry be allowed self-
electronic media which has maximum regulation under a broad framework?
instances of piracy today. The draft of the • If there needs to be one, should the
Optical Disc Law to address the need for content regulator be independent of the
regulating piracy at the manufacturing stage carriage regulator?
is still lying with the ministry for approval. • Should the content regulations be
consistent across all delivery mediums such
2. Lack of a uniform media policy for foreign as films, television, radio and print or
investment different sets of regulation should be
The sector currently lacks a consistent and evolved for each medium?
uniform media policy for foreign investment. • What should be the working mechanisms
Some of the inconsistencies include different of a content regulation in terms of
caps in foreign direct investment in various enforcement, penalties for default from
segments. This is enumerated below: prescribed guidelines etc.?

• Television distribution: DTH 49% (strategic 5. Price regulation in the television industry
FDI only 20%); cable 49% (ownership can As per a notification issued by the TRAI,
only be with India citizens). broadcast media pricing has been frozen for
• Content (news): Television and print - over a year now. Though TRAI did allow a 7
26%; Radio - Nil percent inflationary adjustment late in 2004,
• Content (non-news): Television and print - the inflationary adjustment of 4 percent in
100%; Radio 20% (only portfolio) 2005 is under a legal dispute. Such price
controls limit a broadcaster’s ability to shape
3. Level playing field with incumbents their business model, based on market
Most sectors of the Indian E&M industry demand and the competitive environment.
have traditionally operated under various Since the market has so far been efficiently
agencies of the Indian government, which regulated through competition, price
were later opened to the private players in regulation thus becomes a deterrent.
12
 issues, cases in past have dragged on for five
6. Lack of empowered regulators years or more. The dramatic growth in the
At present, the government has appointed an number of foreign broadcasting companies
independent regulator – TRAI – for only involved in double-taxation dispute cases in
television and radio. Here too, the role of the India is becoming well-known, and unless it is
regulator has been restricted to providing dealt with soon, it could become a major
recommendations on segment issues to the impediment to the Indian government’s
government, as a result the government has attempt to attract new investors.
still not acted upon several
recommendations by the regulator. Some of CONCLUSION
the key recommendations include ‘issues
relating to broadcasting and distribution of The Indian entertainment and media industry
TV channels’ of which ‘addressability in today has everything going for it - be it
distribution’ forms a significant part regulations that allow foreign investment,
impacting the largest segment of television. the impetus from the economy, the digital
Other pending recommendations include lifestyle and spending habits of the
‘digitalisation of cable TV’, ‘privatisation of consumers and the opportunities thrown
terrestrial broadcasting’, ‘licensing of satellite open by the advancements in technology. All
radio’ etc. it has to do is to cash in on the growth
potential and the opportunities. The
7. Tax treatment of foreign broadcasting government, on its part, needs to play a
companies more active role in sorting out policy-related
The tax treatment of foreign companies in impediments to growth. The industry needs
the broadcasting sector in India is emerging to fight all roadblocks- such as piracy- in a
as the single most important policy issue concerted manner, while churning out high-
deterring foreign investment in the country. quality, world class end products. The
A major issue pertains to taxation of satellite entertainment and media industry has all
segment usage fee paid by broadcasters to that it takes to be a star performer of the
foreign satellite companies. Tax assessing Indian economy.
officers have attempted to treat such a
payment as royalty income and tax the same Source:
on source rule basis. Such satellite companies  www.indiainbusiness.nic.in
do not have any office or presence in India. (Ministry of External Affairs, GOI)
 www.ibef.com
Another issue relates to foreign telecasting
companies. These foreign telecasting
companies do not have any office, business
presence or operations in India. Tax assessing
officers have been arguing that foreign
telecasting companies must have a
permanent establishment (PE) in India on
account of their agents selling air-time space
to India advertisers.
While various bilateral conventions for the
avoidance of double taxation do offer a
process for re-mediation of double-taxation
13
 WHAT IS MONEY?
VOICE OF TIMSR
If you were to ask someone 100 years ago:
what is money? They would reply: Gold
GOLD: TRUE AND HONEST
If you were to ask the same question some
MONEY? 200 or even 1000 years ago you would get
Kushagra Ladha the same
PGDM - Finance Reply: Gold
THE PROBLEM OF FLOATING CURRENCIES
If you ask someone the same question today:
What is money? The people would generally
Currencies in today’s global monetary system
look perplexed. The responses offered would
ebb and flow like anchorless buoys floating
vary widely. One person would say: Dollars,
on a sea of surging currents. Some currencies
other might say: Euro, another would say: a
rise in value while others fall in value…only to
promissory note and still another might say:
then rise and fall in value again. Meanwhile,
available credit or purchasing power. Are
as currencies change in relationship to each
they right? Let us explore…….
other, prices of goods and services, as
measured by each individual currency,
We know that money is an essential part of
change too.
human civilization. It facilitates commerce
between individuals and businesses, and
This disconcerting condition requires prudent
trade between nations. It advances markets
money managers to continually buy and sell
beyond barter and serves as a means for the
currencies and commodities just to protect
accumulation of capital. William Stanley
the principle value of their capital.
Jevons, in 1875, stated that money has four
Speculators, recognizing this ever changing
functions – it is a:
dynamic, also undertake the buying and
selling of currencies and commodities; only
they leverage their trades to exploit these • Medium of exchange
price differentials for profits. All this activity • Common measure of value
further perpetuates global monetary • Store of value
instability. • Standard of value

Yet, the general population and in particular Today money falls short in its function as
those living on fixed incomes or paycheck to store of value. If you consider just the dollar
paychecks are powerless to the effects of it has lost 95% of its value in less than 100
changing prices that results from ever years and many other currencies that were
changing currency values. For such around 100 years ago, no longer exist. In
individuals, the problem of floating other words, they became worthless.
currencies concerns every aspect of their
lives. To understand how this problem came But then the concept of money has been
to be and most importantly what you can do distorted over the last hundred years too.
about it, it is better to start with the Rather than cash in hand, it is now cash flow.
seemingly simple question: what is money? Rather than available savings, it is now
available credit. Rather than pay as you go, it
is buying now pay later. And rather than
14
wealth accumulation, it is ability to service time for use at a later date. When money is
debt. In effect, money has lost its integrity. It not true and honest, when it loses value over
is no longer true and honest. time, it not only robs a person of their
savings, it robs them of their time and, in
WHY TODAY’S MONEY IS NOT TRUE AND effect, their life. Also, because it is not true
HONEST? and honest, it spoils the notion of ‘an honest
day’s work for an honest day’s pay.’
Today’s money is not true and honest
because to does not provide a firm baseline WHAT IS TRUE AND HONEST MONEY?
for measuring the price of goods and
services. For money to be true and honest it must be a
store of value. In other words, it must retain
When a carpenter measures the length of a its value overtime. It must not rely on
cabinet as being three feet, he is certain that governments to fix its price or to determine
the length measured as three feet will always its circulation quantity. It must not be
be three feet. To the contrary, when a borrowed into existence or created out of
shopkeeper prices a 24-ounce loaf of bread thin air. And it must exact discipline from
at $3.29, he is not certain that the value of public, governments and bankers.
one loaf of bread will always be equal to
$3.29. In fact, in 1971 he would have valued Governments generally abhor true and
three 20-ounce loaves of bread equal to honest money because it demands true and
$0.89. honest limits to their size and power. True
and honest money does not allow for
Has the usefulness of a loaf of bread, on a massive deficits or the long term accrual of
per ounce basis, really changed 826 percent? debt. Because government spending on lofty
programs and wars is primarily financed
Certainly not. Rather, the baseline used to through debt, true and honest money
measure the value of a loaf of bread has imposes strict limitations on government’s
changed. It is true that prices of individual capacity to pursue such endeavors. With true
goods and services will fluctuate to account and honest money governments must be
for natural changes in supply and demand, funded through tax revenues and trade
but when money is anchored to a stable tariffs; government overreach of these, to
baseline, overall prices will by and large be their disdain, are readily detected and
stable. rectified by the populace.

Money, as a store of wealth, is also a store of THE END OF TRUE AND HONEST MONEY
an individual’s time and industriousness.
When a person goes to work to earn money It was the desire to increase in size and
they are trading their time for that money. control that led the U.S. Government, and all
Would not they rather use that time to be governments that followed, to deceive their
with their family or to engage in hobbies or citizens and terminate the use of true and
recreation? honest money. The foundation was laid in
the U.S. when the Federal Reserve Act was
Indeed yes. They have made the decision to enacted by congress in 1913. This created the
earn money today, to provide greater central bank for the U.S. Government – the
security and to possibly store up some of that U.S. Federal Reserve. And once the U.S.
15
Federal Reserve was in place, the U.S. By the late 1960’s, with the seeds of the
Government could fiddle with the supply of Great Society and Vietnam War spending
money to meet its ends. But it wasn’t until sown, expanding world money supplies
nearly 60 years later that the final trace of bloomed wild price inflation. And then
true and honest money was ultimately France, to the aversion of the United States,
eradicated. A steady process of deception no longer played their part in the charade;
would have to first take first place to subdue rather they began redeeming their dollar
the public’s understanding of money. reserves for gold. In 1971, President Richard
M. Nixon had seen enough of his country’s
First, in 1933, at the height of the Great gold disappear. Seizing the unique and
Depression, the U.S. Government, under the exceptional opportunity he had, Nixon
Gold Confiscation Act, confiscated gold defaulted on the Bretton Woods system, and
money from its citizens and replaced it with stiffed the world unconditionally. Dollars
paper Federal Reserve Notes. It became were no longer redeemable for gold; the
illegal for individuals to own gold, except for world’s currencies became wholly the fiat –
small quantities that coin collectors and paper money – of governments. Since then
dental practitioners could hold. This alone currencies have floated like anchorless
eliminated the public’s capacity to hold buoys, rising and falling on a sea of surging
government inflation of the money supply in currents. And the imbalances that have
check; they could no longer redeem inflated resulted in international trade are
paper money for gold. astounding.

Then following World War II the United HOW THIS CREATES INSTABILITY
States had the greatest market share of the
world economy and world power. And, Exports from countries with weaker
because of this, they were able to establish currencies dominate trade as their goods are
the post war monetary system of the less expensive when priced in countries with
western world on their terms. The Bretton stronger currencies. Services also migrate to
Woods system of 1944, created a pseudo countries with weaker currencies in the
gold standard where the dollar was backed phenomenon known as globalization.
by gold, at $35 per ounce, and member Countries with strong currencies, in turn,
countries pegged their currencies to the import more goods than they export and run
dollar. trade deficit. But as a trade deficit expands,
potential instability also expands, as rapid
Nonetheless, the United States progressively currency devaluation could occur should
increased its money supply in the years surplus countries panic and dump the excess
following the Bretton Woods system. And reserves they have accumulated from deficit
while member countries were allowed to countries. This arrangement of symbiotic
redeem the dollars they acquired through disharmony, which underpins the global
trade for gold bullion by the United States, it monetary system, is incredible. But this is not
was unwelcomed by the dominant world all…….
power. Rather, the United States persuaded
these member countries to inflate their Countries are now unofficially engaged in
money supplies to maintain their respectively competitive currency devaluation. In this
pegged values. bizarre global monetary system, countries
are fighting for a competitive advantage by
16
weakening their currency in world markets. The event is to test the skills of our future
Thus, while currencies fluctuate in leaders. All the skills of the participant would
relationship to each other, prices of be tested. Organised on the 14th of
commodities largely increase, as measured September, the event would be a
by each individual currency. In other words, Management Extravaganza.
no currency will protect you from the loss of
purchasing power; how much and how fast The theme of the event is ‘Innovation’. Here
will your money lose value is the real the participant teams would be “Launching a
concern. Consumer Durable Brand in 2010”. And that
is not all, they have to promote its innovative
We are currently in the countdown to the usage ways…..
launch of mass inflation- hyper inflation-
where priced increase rapidly as the currency For promoting their brands, the teams can
losses its value. At this moment consumer use various spots available in the college
prices are poised to rocket into orbit. campus. These spots have been allotted to
them through a well organized Auction. The
A WINDOW OF OPPORTUNITY teams would be also preparing a 30 second
Video Ad for their Brands.
At this moment, brought about by years of
money distortion, the world is peering The teams would also use Celebrities to
through a window of opportunity where endorse their products. The celebrities would
adjustment and reconciliation can be not be a Shahrukh or Salman Khan, rather
realized. How society reconstructs its global would be from:
monetary system is radically important to all
individuals, of all countries, of the world. And • The Faculty Team
true and honest money, money that is free of • The Admin Team
governments and that retains its value over • The Non Teaching Staff
time- is the sole hope for individuals that
desire to prosper in a free and just world. On the final day of the event, teams have to
conduct a Street Rally in the college campus
Gold has offered that hope before and it is to promote their brand and will also have to
back again. present their Brand Launch Strategies used in
front of an extremely experienced panelist.

MANAGEMENT PREMIER LEAGUE The main idea behind organizing the event is
(MPL)- SEASON 2 to equip the future leaders with the
necessary skills to cope up with the emerging
MBA is not about bookish knowledge and demands of the corporate.
boring long lectures. It is about experiencing
the practical scenarios being faced by the SAB BOLO
corporate and their working. With this SAARE BOLO
thought in mind, the second year Marketing SABHI BOLO – EK SAATH
students, referred as the Marketing Yodhas,
present to all the students of TIMSR - MP MPL MP MPL……
“Marketing Premier League (MPL)- Season 2”

17
 Bharti, MTN apprise FM of deal structure
Presented by: Bharti Airtel and South African MTN are said
Marketing Yoddhas to have appraised the Finance Ministry of
their proposed $23-billion deal structure to
Taher S. Jawadwala the end of next month recently. Moreover,
Student Coordinator Bharti and MTN are the largest telcos in India
and Africa and have been engaged in
INDUSTRY SNIPPETS exclusive talks since June 24 to form the
world’s third-largest communications firm.
However, the deal presents a complex
Banking services for every village by 2011 composition in which both firms would pay
A sub-committee of the District Consultative cash and equity for stakes in each other as
Committee (DCC) of banks under the Lead per which Bharti Airtel will get 49% in MTN
Bank Scheme would draft a road map to offer and the South African telco and its
banking services to every village with a shareholders will get 36% economic interest
population of over 2,000, at least once a in Bharti.
week on a regular basis by March 2011 has
been suggested by a committee set up by the Haryana to mull giving nod to DLF’s Rs 1,703
Reserve Bank of India (RBI). In addition, it crores project
recommended that the lead district manager For developing an Rs 1,703-crore recreation
of banks may summon a quarterly public and leisure project in Gurgaon, the Haryana
meeting at different locations in the district government will consider giving approval to
where the RBI and banks having presence in DLF which is the qualified bidder for the
the area, and other stakeholders are present leisure project in Gurgaon to the state
to generate awareness of the various banking government for its consent. It was the only
policies and regulations relating to the bidder for the 350 acres project after the bids
common man. of other parties Unitech and Malaysian based
Consortium comprising Country Heights,
World Bank boost for PSU banks Country Club of South Africa and Rajarhat IT
The Finance Ministry is in the finishing stage Park did not qualify on technical grounds.
of getting the World Bank’s approval on its However, the qualified bidder DLF has
ambitious $3 billion recapitalization plan for quoted its bid at Rs 12,000 per square meter
public sector banks who are in for a huge against the reserve price of Rs 11,978 per
fiscal dose by injecting over Rs 15000 crores square meter for the project.
into them. However, Out of a total Rs 15000
crores, the first tranche of Rs 10000 crores is India’s rain deficit could rise to 18%:
likely to be given to top public sector banks Goldman
only in March 2010, as the Finance Ministry Goldman Sachs stated that from the current
will evaluate the 3rd quarter results of these 8% rainfall deficit estimated in India, the
banks before deciding how much deficit could increase to 18% during the July-
capitalization each bank requires while the September period according to the India
remaining Rs 5000 crores will be disbursed by Meteorological Department. However, this in
March 2011. turn would see a decline in the agricultural
growth to negative 2% year-on year, down
from the previous estimate of 1.4%.
Additionally, the monsoon is an integral part
18
of the agricultural growth in India, since 60% its first quarterly review of the monetary
of cropland is not irrigated and therefore it policy.
relies mainly on the rainfall.
Relaunch of Interest Rate Futures
Wipro enters into a Strategic Partnership India reintroduced trading in interest-rate
with BP futures after a lapse of more than six years,
Wipro Technologies, the global IT services in a bid to deepen its financial markets and
business of Wipro Limited announced that it offer a hedging tool to small companies and
has entered into a five year agreement with retail investors.
BP to provide IT Applications Development The National Stock Exchange, the country's
and Maintenance (ADAM) services for BP’’s largest equity trading exchange, was the first
Fuels Value Chain and Corporate businesses to begin trading, with more than 10,000
globally. contracts exchanging hands in less than two
hours. The Bombay Stock Exchange is set to
Mahindra Satyam gets nearly 30 contracts start trading in about eight to 10 weeks.
After being taken over by Tech Mahindra in Interest-rate futures are the first major
April, Mahindra Satyam or formerly known as product to be introduced in India after the
Satyam Computer Services has announced introduction of currency futures in August
that it has bagged nearly30 IT contracts 2008. Currency futures have steadily picked
mostly in the $1 million-$20 million range up in volume, with the combined daily
from both new and existing customers. The turnover across exchanges totaling more
new deals are mostly said to have come from than $2 billion.
Asia Pacific and Europe while they are in the
areas of outsourcing related to enterprise
applications, business intelligence and
engineering services. KNOWLEDGE BANK
Government says RBI to continue easy
money policy
In order to help the economic revival Indian UNDERSTANDING THE
government said that the Reserve bank of
India would carry on with its easy money MECHANICS OF
policy. Additionally, the RBI would keep the COMMODITY FUTURES
accommodative monetary position until the
economy shows strong signs of The following is a discussion that explores
improvement. Moreover, the Indian the commodity future market: what are they
monetary authority would make certain a and how they work and the need for
monetary and interest rate regime that is innovative technology in the ever changing
consistent with price and financial stability commodity trading industry. It gives a brief
and would be supportive of taking the understanding of the opportunities and risks
economy back to the high growth trail. In involved in future trading. High volatility and
addition, key rates including the repo and rapidly escalating prices present a variety of
reverse repo rates along with the cash challenges in today’s trading organization.
reserve ratio (CRR) at 4.75%, 3.25% and 5%
respectively was left unchanged by the RBI in

19
 the delivery month the trades cancel out and
INTRODUCTION thus there is no receipt or delivery of the
Many people till date are under the commodity. Actually, only a very small
impression that commodity markets are very percentage, usually less than two percent, of
complex and difficult to understand. But, the total futures contracts that are entered
actually they are not. There are several basic into are ever settled through deliveries. For
facts that one must know and once these are the most part they are cancelled out prior to
understood one will not have much difficulty the delivery month in the manner just
in understanding the nature of future market described.
and how they function. Firstly, a commodity
market, in simple terms in nothing more or
less than a public market place where
commodities are contracted for purchase DETERMINING THE PRICES
and sale at an agreed price for delivery at a A common conception is that, the
specific date. These purchase and sales, commodity exchange, determine or establish
which are made through a broker who is a the prices at which commodity futures are
member of an organized exchange, are made bought and sold. This conception is totally
under the terms and conditions of a wrong. Prices are determined solely by the
standardized future contract. supply and demand conditions. If there are
more buyers than there are sellers, prices
The primary distinction between a futures will be forced up. If there are more sellers
market and a market in which actual than buyers, prices will be forced down.
commodities are bought and sold, either for
immediate or later delivery, is that in the Buy and sell orders, which originate from all
futures market one deals in standardized sources and are channeled to the exchange
contractual agreements only. These trading floor for execution, are actually what
agreements (more formally called future determine prices. These orders to buy and
contracts) provide for delivery of a specified sell are translated into actual purchases and
amount of a particular commodity during a sales on the exchange trading floor, and
specified future month, but involve no according to regulation this must be done by
immediate transfer of ownership of the public outcry across the trading ring or pit
commodity involved. and not by private negotiation. The prices at
which transactions are made are recorded
In other words, one can buy and sell and immediately released for distribution
commodities in a futures market regardless over a vast telecommunications network.
of whether or not one has, or owns, the Probably the best way to visualize how
particular commodity involved. When one purchases and sales are made on the floor of
deals in futures one need not be concerned a commodity exchange is to think in terms of
about having to receive delivery (for the what happens at a public auction. The
buyer) or having to make delivery (for the principle is the same, except in the futures
seller) of the actual commodity, providing of market a two-way auction is continuously
course that one does not buy or sell a future going on during trading hours. This two-way
during its delivery month. One may at any auction is made possible because of the
time cancel out a previous sale by an equal standardized futures contract, which
offsetting purchase or a previous purchase requires no description of what is being
by an equal offsetting sale. If done prior to offered at the time of sale. Also, the two-
20
way auction is made practicable because the be constantly hedged, avoiding the risk of a
inflow of both buying and selling orders to possible price decline – one that could more
the exchange floor is normally in sufficient than wipe out the storage and
volume to make buying and selling of equal merchandising profits necessary for the firm
importance. In a public auction the accent is to remain in business.
on selling.
In the above mentioned example, if the
storage firms buy cash wheat at $4 a bushel
The purpose of a commodity exchange is to and hedges this purchase with an equivalent
provide an organized marketplace in which sale of December wheat at $4.05, a 10 cent
members can freely buy and sell various break in prices between the time the hedge
commodities in which they have an interest. is placed and the time it is taken off would
The exchange itself does not operate for result in a 10 cent loss on the cash wheat
profit. It merely provides the facilities and and a 10-cent loss on the futures trade. In
ground rules for its members to trade in the event of a 10 cent advance there would
commodity futures and for non-members be a 10 cent profit on the cash and a 10 cent
also to trade by dealing through a member loss on the futures trade. In any case the
broker and paying a brokerage commission. firm would be protected against losses
resulting from price fluctuations, due to
offsetting profits and losses, unless of course
HEDGING IN FUTURES cash and futures prices should fail to
The justification of future trading is that it advance or decline by the same amount.
provides the means for those who produce Usually, however the price relationship is
or deal in cash commodities to hedge, or sufficiently close to make hedging a
insure, against unpredictable price changes. relatively safe and practical undertaking.
There are many kinds of hedges, and a few
examples can adequately explain the In connection with hedging, it must be
principles of hedging. remembered that there are unavoidable
risks when large stocks of a commodity
Take the case of a firm that is in the business subject to price fluctuation must be owned
of storing and merchandising wheat. By early and stored for extended prices. One must
June, just ahead of the new crop harvest, the assume these risks. Usually those in the
firm’s storage bins will be relatively empty. business of storing, merchandising and
As the new crop becomes available in June, processing cash commodities in large volume
July and August, these bins will again be are not in the position to assume them. They
filled and the wheat will remain in storage are in a competitive business dependent on
throughout the season until it is sold, lot-by- relatively narrow profit margins, profit
lot to those needing it. During the crop margins that can be wiped out by
movement when the firm’s inventory of cash unpredictable price changes. These risks of
wheat is being replenished, these cash price fluctuation cannot be eliminated, but
wheat purchases will be hedged by selling an they can be transferred to other by means of
equivalent amount of futures short. Then as a future market hedge.
the cash wheat is sold the hedges will be
removed by covering the future that was SPECULATION AND ITS FUNCTIONS
previously sold short. In this manner the The primary function of a commodity trader
storage firm’s inventory of cash wheat will or a speculator is to assume the risks that
21
are hedged in the future markets. To a exchange are determined solely by supply
certain extent these hedges offset one and demand conditions, which is no
another, but for the most part speculative different from the way in which prices are
traders carry the hedging load. determined in more familiar markets. In
addition, commodity margins are analogous
Although speculation in commodity futures to the down payment one generally makes in
is sometimes referred to as gambling, this is connection with a real estate transaction.
an inaccurate reference. The generally Once certain facts are understood, one can
accepted difference between gambling and see that commodity markets are an integral
speculation is that in gambling new risks are part of a well-run economy.
created which in no way contribute to the
general economic good, whereas in INTEREST RATE FUTURES
speculation there is an assumption of risks
that exist and that are a necessary part of
Interest Rate Futures means a standardized
the economy. Commodity trading falls into
interest rate derivative contract traded on a
the latter category. Everyone who trades in
commodities become a party to an recognized stock exchange to buy or sell a
enforceable, legal contract provided for notional security or any other interest
delivery of a cash commodity. Whether a bearing instrument or an index of such
commodity is finally delivered, or whether a instruments or interest rates at a specified
future contract is subsequently cancelled by future date, at a price determined at the time
an offsetting purchase or sale, is of no real
of the contract. Interest Rate Futures market
consequence. The future contract is a
legitimate contract tied to an actual means the market in which Interest Rate
commodity and those who trade in these Futures are traded.
contracts perform the economic function of
establishing a market price for the Interest Rate Futures are permitted on 10-
commodity. year notional coupon bearing Government of
India security or any other product, as may
While speculative traders assume the risks be approved by the Reserve Bank from time
that are passed on in the form of hedges, to time. Persons resident in India may
this does not mean that traders have no purchase or sell Interest Rate Futures to
choice as to the risks they assume – or that
hedge an exposure to interest rate risk or
all of the risks passed on are bad risks. The
commodity trader has complete freedom of otherwise. Interest rate futures gives an
choice and at no time is there any reason to opportunity to institutions that are placed
assume a risk that he doesn’t think is a good structurally on the long side, eg, banks and
one. One’s skill in selecting good risks and insurance companies, to hedge their
avoiding poor risks is what determine one’s exposure by shorting rates using IRF. Primary
success or failure as a commodity trader. Dealers, who play an important role in
intermediating the huge government
CONCLUSION
Commodity markets are not as commonly borrowing, are always exposed to interest
believed. In many ways, they operate just as rate risk as they underwrite government
public market places or auctions. For bond auctions and run a devolvement risk,
instance, prices of commodities on an and IRFs are useful in hedging these risks.
22
Traders and speculators also get into the fray with a maximum 12-month expiration cycle
as they can take directional calls with ease having quarterly contracts available for
and with leverage. Arbitrageurs will get a trading. However, to begin with, the
exchange will make available December 2009
new revenue stream as they can exploit the
and March 2010 contracts for trading.
potential mispricing between cash and
futures market. Corporate treasuries can use The permitted lot size for the futures
IRF to lock in to their future borrowing rates contract is Rs 2 lakh face value of
and thus reduce the cost of liabilities. Lastly, government securities equivalent to 2,000
households can hedge their interest rate units. Participants will be allowed to place a
exposures inherent in their savings and single order with the contract size not
exceeding 500 lots. However, in case the
borrowings, like home loans, through the
order size exceeds 500 lots, the members will
futures route. have to confirm to the exchange that there is
no inadvertent error and the order entry is
Features of Interest Rate Futures
genuine. On such confirmation the exchange
Standardized Interest Rate Futures contract may approve such orders, stated NSE in a
circular issued on Tuesday.
shall have the following features:

a. The contract shall be on 10-year notional The contract will be available for trading
coupon bearing Government of India from Monday to Friday from 9 am to 5 pm.
security. The members registered with Sebi for trading
b. The notional coupon shall be 7% per in currency or equity derivative segment shall
annum with semi-annual compounding. be allowed to trade in interest rate
derivatives. This will be the first exchange
The National Stock Exchange has commenced traded financial derivative contracts in India
live trading in interest rate futures contract that would be physically settled. NSE has
from August 31. The SEBI-RBI Technical already started conducting test market since
Standing Committee on interest rate futures, August 24 to make trading members familiar
which had submitted its report in June, has with the new product, besides conducting
fixed a 10-year, 7% notional coupon bearing road shows and seminars across the country.
a government security as the underlying The seller who wants to initiate delivery will
instrument. have to intimate the stock exchange two
business days prior to the actual delivery
The deliverable grade instruments will be date.
government securities maturing at 7.5 years,
but not more than 15 years from first day of Compiled by – Nisha Desai
the delivery month, which has a minimum PGDM - Finance
total outstanding of Rs 10,000 crore. The
technical committee has identified 19
government bonds that satisfy the above
criteria for the purpose of delivery. The
product will have four fixed-quarterly
contracts for the entire year ending March,
June, September and December. NSE will
commence trade on interest rate futures
23
 • 1972: Joined renowned Feature
Filmmaker Shyam Benegal, as an Asst.
VISIONARIES Director on ‘Ankur’, ‘Manthan’, ‘Bhumika’
(Award winning Hindi Feature Film).
• 1999: Was one of the few Indian
PRAHLAD KAKKAR (born March 24, 1950) is a
Directors to direct international
leading ad film director in India, most known
commercials for clients like UniLevers and
as the creator of the famous Pepsi TV
Pepsico in Burma, Vietnam, Pakistan,
commercial with Amitabh Bachchan and
Bangladesh and the Asia Pacific Region.
Sachin Tendulkar, he is also the founder-
Also started the specialty Tea House in
director of Director for Genesis Film
Bombay, the first of its kind in the
Production, one of India’s leading production
country.2000: Received the prestigious
houses, established in 1977.
Lifetime Achievement Award from IAAFA
He is known for his candid and outspoken
for his contribution to Advertising and
nature. An avid scuba diver, in 1995 he set up
Film Art.
'Lacadives', a scuba-diving school, along with
• 2003: Genesis was voted the top
his wife Mitali Kakkar at Kadmat Island, in
production house by Brand Equity in a
collaboration of the Govt. of Lakshadweep,
nationwide survey of agencies.
and in 2000, he became a CMAS 2 Star Scuba
• 2004: Continues as Director for Genesis
Diving Instructor. Plus he also runs a coffee
Film Production, one of India’s leading
shop, and Casa Amore, a wine bar and
production houses, established in 1977.
restaurant, set up in Mumbai in 2001
• 2005: Honour received from the
Prahlad Kakkar was born in Mumbai. His Advertising Club at the 38th ABBY Awards
father was a colonel in Pakistan and mother Bombay, the Distinctive Recognition
half Burmese and half Marathi, who settled Award.
in Gurgaon
Social Activities
Education
• 1994: Co-Founder Member of Reefwatch
• 1966: Graduated from Sainik School Marine Conservation an NGO involved in
Kunjpura, Karnal Marine conservation and awareness,
• 1970: Graduated with education, scientific research and data
Economics(Honors), Fergusson College, collection.
Pune • 1995: Was President of IAAFA, the
• 2000: CMAS 2 Star Scuba Diving Academy of Excellence for recognizing
Instructor and promoting technical excellence in the
field of Advertising Films in India for 5
Profile years.

• 1971: Joined advertising as an Accounts Since 1994: Has been a highly coveted
Executive in ASP, Delhi for one year and speaker for forums on Media and Films and
was subsequently transferred to the for various TV channels like NDTV, STAR TV,
Bombay office. CNBC. Has also been guest lecturer in many
• 1977: Established Genesis Film esteemed Film and Mass Communication
Production. Institutes of the country like, FTII, Symbiosis,
Sophia Polytechnic, XIC, NID.
24
 that affect the business and hence the share
prices.

FOOD FOR THOUGHT Shares are best for the long-term investor

To generate income out of shares is possible

in two ways:
IS STOCK MARKET
Wait for the dividend. This income is going to
GAMBLING? be quite low compared to the market price of
the share. Typical Indian dividend yield
Many people shy away from the stock (dividend per share/market price of share) is
market thinking it is a lot like gambling and in the range of 1% to 2%. Not quite
some even think it is gambling. The vagaries attractive.
of the stock market in the form of sudden
spurts and dizzying falls only add fuel to this The other way is to generate trading gains.
thought. This is highly risk laden as inherently share
prices follow randomness. The Random Walk
Adding fuel to the aversion is the past pain Theory says that the events in the past do
from few experiments -- many in their 40s not affect the price of the shares in the
are still not entering the market because they future. Hence, it is not possible to predict the
were hurt by the Harshad Mehta scandal! future price of shares. This means that to
generate income by trading one has to
Short-term trading versus Investing speculate. That is gambling.

The goals for any investor in the stock market In the long run (three years and above),
change very dramatically based on whether however, the scenario is different. There is
he is a short-term player or a long-term one. sufficient control for the management of the
In the short term, the market has to be company to steer it to success or failure. And
perform the role of an income generator for this will be reflected in the stock market as
the trader/investor. In the long term, it has rise or fall in the share prices.
to give capital appreciation for the investor.
As an investor in the company, we too get
The first thing to remember is that when we signs on whether to hold on to the share or
buy a stock (a share in any company), we get to let it go. In the short run companies can
a part ownership in the company. We have a fool its investors by changing some numbers
right to a part of the assets and a part of the and by making good presentations but in the
profits that the company generates. long run to compete and to grow, they have
to deliver value.
The price of the share will be reflected by the
current and future profits of the company Returns in the long run
and also by the various forces that affect the
business of the company. There are several The stock market remains the undisputed
macro-level factors such as the political, and consistent leader for returns in the long
social, and international environment too run. In spite of the economy slowing down in
India and going into a depression in many
25
parts of the world, the historical Sensex over Rs 1 crore (Rs 10 million) worth of HLL
returns are still very attractive. shares!

The Sensex was formed as an index to reflect Stock market is not a gambling arena
the stock market movements in the year
1979. The value at that time started at 100. The stock market is a tool for investing and
On August 14, 2009 this figure stood at wealth-creation. As discussed above it is a
15,400. This translates to a compounded way to create wealth in the long term. It
annual growth rate of an amazing but true should not be mixed with gambling nor
18.28%. should it be used for that purpose.

We cannot see any other asset class giving Like gambling, it might be thrilling in the
such returns over the long term. Is there a short term but too much indulgence in thrill
reason why stocks perform so well in the at the expense of strong fundamentals could
long run? Yes, there are. lead to major losses.

As business people, the promoters of the Ironically, the media and the people around
companies have an inherent reason for us always highlight the extremities rather
working towards the growth of their than focus on the fundamentals. For
companies. Also businesses need time to example, a person losing Rs 500,000 in one
grow and flourish. day is given more importance than someone
earning the same amount in three years. This
As businesses compete with each other has been the major cause of creating a
during their growth, they come out with negative picture of the stock markets.
creative, efficient and effective solutions to
our needs and problems. This creates value We need to come out this imagery and look
for us as consumers and as investors. The at the broader and long-term picture. Long-
country itself grows because of this. term investors can never lose money in the
stock market if the fundamentals are right!
Case in proof
Source: www.rediff.com
A case in proof is a Bangalore family that was
surprised by the value of shares that their
late father had accumulated. He had bought
shares of Hindustan Level Limited (now
Hindustan Unilever Ltd) consistently for over
20 years from whatever savings he could
scrap from his earnings as an executive in a
private company.

At one point in time HLL was the largest

company in India and he loved the company.
Post his retirement he continued to hold the
shares in the material form itself. After he
passed away, the family found that he had

26
KITKAT TIMES  Face Value

Quiz: 5. In an option

1. Which country ranks first in terms of  Option writer has an

India’s Foreign Trade? obligation and option buyer
has the right
 USA
 Option writer has the right
 JAPAN and option buyer has an
obligation
 UK
 Put means buy and call means
1. By which name, do we know the sell
mascot for McDonalds all over the
globe? 6. Quick Ratio is also known as

 Ronnie McDonald  Liquidity ratio

 Ronald McDonald  Current ratio

 Rocky McDonald  Acid test ratio

2. What is Beta? 7. Derivatives first emerged as tool for

 Measurement of a security or  Speculation

portfolio to the market as a
whole  Arbitraging

 Measurement of risk in the  Hedging

security
8. With which bank did the Barista
 Measurement of percentage coffee chain tie up to open Bancafe,
stocks in a portfolio the cafes inside banks?

3. What is SML? (IN STOCK EXCHANGE)  CITI Bank

 Security measurement line  HDFC Bank

 Security market line  ABN Amro

 Safe margin level 9. Name the company that Narayana

Murthy quit to start Infosys
4. Coupon payments in bonds are
discounted using?  TCS

 Coupon rate  Patni Computer System

 Yield to maturity  Reliance Industries

27
 Crossword: 3 an ownership share in the corporation;
_____ owners are not promised a certain
1 2 payment
4 Recently Tata Motors And Suzlon Energy
Issued to raise money from USA
3 4 6 True or False T-bill returns are effective risk
5 free?

6 SOLUTIONS OF AUGUST ISSUE

7
Quiz:

1. TCS
2. AV BIRLA GROUP
3. 1945
4. STEPHEN COVEY
9 5. LUCKY GOLDSTAR
6. VIJAY MALLYA
7. TO PROPERTY
8. 1,50,000
9. Lagan Jute Machinery Company Ltd
Across
10. NIKE
1 hired by corporations to represent them to
the investing public. typically _____ in the
sale of new securities to the public by
Crossword:
underwriting the issue.
ACROSS
5 11 countries in 1999 replaced their currency 1 STATEMENT
with this new universal currency. The idea 4 CONSIGNER
was to encourage trade across national 5 AMOUNT
boundaries, name the currency?
DOWN
7 It is also called closing stock of goods. 2 ALLOWS
3 WRITING
9 pooling loans into _____ securities backed
by those loans, which can then be traded like
any other security. The readers can mail us the solution of Kitkat
times at [email protected] and winners
Down name will be published in the next edition of
2 attempts to tighten the rules of corporate Financial Edge.
governance. It requires corps to have more
_____ directors (not mgrs), CFO must vouch *subject to terms & conditions.
for account statements, oversite board to
oversee auditing, auditors may only audit co.
not other services
28
 CONTACT DETAILS
Do send your suggestions/feedback to us at
[email protected]
OR
Student Editors:

Nishant Jasani PG – F 9323166287

Kushal Gada PG – F 9773376545
Noman Agashiwala PG – F 9225953253
Pankti Shah PG – F 9324715411
Kushagra Ladha PG -- F 9833384226

Faculties in charge of “Financial Edge”

Prof. Jyoti Nair HoD – Finance

Prof. Akshay Damani Assistant Professor
Prof. S. Ganga Sr. Lecturer

29