GST-Greater Simplicity in Taxes

The prevailing tax structure in India on the goods manufactured is complex. The design of the CENVAT and state VATs was undelrined by constraints of the Constitution, which allows neither the state nor the centre to levy taxes on a comprehensive base of all goods and services and at all points in the supply chain. The centre is constrained from levying taxes on goods beyond the point of manufacturing and the states in extending the taxes to services. This dividion of tax powers make both the CENVAT and state VAT partial in nature and contributes to their inefficiency and complexity. Further complexities involve, disputes and court challenges, the process of dispute resolution is slow and expensive; systems suffer from compliance gaps; the most starking complexity is the policy related and is due to the existence of exemptions and multiple rates and irrational structure of the levies.

For CENVAT, the starting base is narrow and is further eroded by a gamut of area-specific and conditional and unconditional exemptions. While the problem with service tax is the basic approach of levying it on specific services, where the argument of including it in the base wages on. The state VAT has the distivct problem of classifying goods to different tax schedules (the lowest rates are on precious metals, which is preposterous; whereas the rates on necessities is higher)

Looking into the problems mentioned above (which are just a few significant excerpts from many more matters), the Indian tax practioners believed that implementation of a national goods and services tax would simplify the system. The tax will operate with dual state and central rates applying to all transactions involving supply of goods and services.

The rates will be different for necessities, general items and special provision for exempted items.Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

The following Central Taxes should be subsumed under the Goods and Services Tax:

(i) Central Excise Duty
(ii) Additional Excise Duties
(iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act
(iv) Service Tax
(v) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
(vi) Special Additional Duty of Customs – 4% (SAD)
(vii) Surcharges, and
(viii) Cesses.

The following State taxes and levies would be subsumed under GST:
(i) VAT / Sales tax
(ii) Entertainment tax (unless it is levied by the local bodies).
(iii) Luxury tax
(iv) Taxes on lottery, betting and gambling.
(v) State Cesses and Surcharges in so far as they relate to supply of goods and services.
(vi) Entry tax not in lieu of Octroi.

Should the taxpayers welcome this implementation of the GST-will it improve operating costs especially in the manufacturing or is it just another hoax !
I believe yes, as there are many different taxes involves in the industry and the tax system seems highly artificial. Clubbing it together to form a uniform tax structure across the nation will helo reduce tax cascading to a great extent.
 
The implementation date on the white paper is April 1, 2010

Financial Inclusion : How to go about it...profitably ?

As all must be knowing, the hot topic of discussion during BANCON '09 was Financial Inclusion. Lets take it forward and analyse why is it necessary in India.

First of all, a catastrophic crisis like Sub-prime, which luckily did not impact India should not welcome us in the future. Yes it was a blessing in disguise that Indian banks did not went for vehement trading in debt instruments. Financial reforms spearheaded by Dr. Manmohan Singh were checked by the Leftists. But, nobody would like India to keep restraining itself. Rather, it would be better to ensure proper vigilance and then proceed.

Financial Inclusion means finance for all. Given the fact that by World Bank estimates in 2005, India had 42 percent population living on less than Rs. 21 a day in Urban areas and Rs. 14 a day in Rural areas, there is a wide scope to improve. Suppose, we work and are able to achieve our goal in coming years, then it will not only improve economic conditions, but also increase reliance of Indian economy on its own population. Thus, a sense of inclusive economy could be seen there.

Better said than done, it's a myriad task to ensure food, shelter, work for all. Microfinance, an innovative step in this regard has been doing well. Two common methods of Microfinance are : SBLP (Self help group - Bank Linkage Programme) and MFIs (Micro Finance Institutions). India has over 800 MFIs, out of which a handful have large operations. Their penetration is quite high in regions like Tamil Nadu and Andhra Pradesh. Now, they are expanding to northern regions also.

Many banks are providing loans to MFIs for lending to SHGs. A debatable issue is the rate (around 20 percent) at which the money is lent to poor people. Is that too much knowing the fact that Bank rate is around 12 percent? Should we not take risk of losing money into account ? Unlike prime debtors, poor people do not have any collateral. Nor do they have any specific place to stay. Thus, the money is lent to a team of peers to force timely repayment.

In spite of this development, the crux of the problem lies in shortage of resources in rural areas. Few want to be a first mover and go to villages, establish some basic necessities there. Most of the population is employed in agriculture. It's disheartening to see that people are demotivated to continue growing crops and rather sell their lands for hefty amount. If food price inflation is anything to go by, this attitude does not augur well for future.

Agriculture is not finding its saviour yet. Unpredictable weather, pests which affect crops severely are a deterrent. Why not have crops insured then ? Well, Govt. agency has been doing so. But it needs participation from private players with a well defined and flawless model. The idea is to create win-win situation at every sides in order to encourage entrepreneurial ventures in agriculture.

Food prices cooking !!

Within just 2 months, the prices of food had rocketed from inflation of 12.6% to 19.05%. The inflation figures are those of items that are used in raw form. When we look into the matter of items like sugar, oil, the extent of price rise is even starker. This issue has also come to the fore with the introduction of the new weekly reporting of WPI for primary articles and fuel group. Previously it was hidden by the focus on increase in price levels where manufacturers had exerted a greater impact.

The main reason of this inflation is not the monetary overheating of the economy but rather, the supply side failures. While monsoon wrecked havoc and unpredictability, the authorities were more than satisfied with mere statements of ample food reserves while the weekly inflation rates counter argued.

October and november are the months in the country when new crops arrive and prices fall due to ample supply, but this year the disappointing monsoon spoiled the party for Kharif crops and the impact on price was predictable.

The Govt. needs to import food articles in the short run. This can be offered for crops like rice. The wheat harvest is a few months away, raising hopes of good crop; but the vegetables cannot be dealt with in a short time and we have to wait for the new crops to arrive.

BANCON'09 : Celebrating the spirit of banking

The concept of banking is as old as perhaps the human civilization, although there have been multiple cosmetic surgeries and banking today has an altogether different face. BANCON'09 , the banking conclave , by Fin-niche was held in the spirit of appreciating and exploring the new paradigm shift in banking.

Spread over 2 days, BANCON'09 witnessed some of the best bankers in India sharing their experiences with the young and budding student managers of IMT Ghaziabad. The key note address by Mr Aloke Sen Gupta(IDBI), shed light on the various actors involved in establishing an infrastructure project and the risk associated with them. He explained the budding managers how they could mitigate risks during lending to corporates for the infrastructure projects.

The insightful inaugural session set the tone, and the next technical session by Mr. Sanjit Sen (VP, Tata Capitals), helped students to understand the intricacies of the capital markets. He briefly touched upon all the key components of the capital markets and the role of banks in the future market scenario.

The main event, Panel Discussion, started in the afternoon, in the serene amphitheatre of IMT Ghaziabad.

Moderated by Mr R J Masilamani ( Ex-CEO and Ex-MD, Timex), the panel consisted of  Mr. Sameer Dutt (Director, ForensicsGuru), Mr. Jayshankar P R (AGM, National Housing Bank), Mr. Bhavesh Jatania (Senior VP, Tata Capital), Prof. Vinay K. Nangia ( Head, DoMS, IIT Roorkee) and Mr. Alok Pandey (Associate Professor, IMT Ghaziabad). The topic of discussion was the financial crisis, its repercussions and the lessons learnt from it. During the discussion the panelist discussed the topic at the length and breadth and there was a consensus that financial inclusion is the need of the hour to have substantial financial development. Couple of queries from students summed up a highly insightful discussion.

If the first day was enthralling, the second day was started on an even brighter note. The guest of honour , Mr Sandeep Ghosh (Regional Director, RBI), mesmerized the IMT fraternity with a truly inspirational speech. He advised the students to develop the skills of reflective thinking and dreaming. He stressed on the development of reading, writing, speaking and listening skills among the budding student managers.

The epilogue of the wonderful 2 days event , was given by Mr Manohar Raj ( Country Head, Microfinance, HDFC Bank) . He addressed the social and financial divide in the India, and explained the role of microfinance in dealing with it. He also discussed the merits and demerits of various microfinancial models in India.

The curtains on the event came down, not before the students showed their analytical skills and understanding in the paper presentation contest. Over all it was an achievement for Fin-niche and IMT to hold a conclave of this magnitude. It gave the students an opportunity to interact with the corporate.

We thank all the faculty members , students and others who worked day in and day out to make this event a success. Looking forward to scaling new heights ... Amen !!!!

Rahul Agarwal

Interest rate : Significance

Movement in interest rates affect banks, corporate world and 'WE, THE PEOPLE'. Several factors like stock markets, foreign exchange rate, foreign investment (direct and indirect) also influence and are influenced by interest rate. Interest rates are determined by the markets, but the central's bank monetary policy also affects short-term interest rate.

Which interest rate are we talking about ? Financial market has two type of interest rates. The first type is for treasury operations, including money market and G-sec(Government Securities) rate. We can refer it as Debt/Money Market interest rate. The second type is the interest rates offered by banks for their products. This can be called as 'product rate'. Debt/MM rate becomes benchmark for several other rates. Product rate depends on factors like bank's sources of funds, deposits, internal costing methods, Non Performing Assets, loan profile etc.

Banks generally prefer a rising interest rate scenario, since they are suppose to lend to people more than they borrow by issuing bonds. This way, they can improve their yield on Net Interest Margins. For corporates, interest rates forecast help in taking important decisions like choosing debt or equity instruments to raise funds and at fixed or floating interest rates. Public can think of going for short-term or long term deposits at different types of interest rate.

If RBI adds money into the economy, the demand for bonds increases to maintain the money market equilibrium. The price of bonds increase, hence yields over a period decrease which leads to the decrease in interest rate (here Debt/MM rate). But, it is not necessary that banks follow suit with the Prime Lending Rates(PLR) and deposit rates. They may reduce product rate but it may not be in similar proportion as DM rate. The deposit rates of the banks have to compete not only with other banks (which may have different product rates) but also with the Small Savings Scheme offered by the Government.

Dubai Crisis !!

An over-leveraged Dubai may be writing a new chapter in the book of the global financial crisis of 2008-09. On Wednesday, the Dubai government said it will ask creditors of two of its flagship firms, Dubai World and real estate developer Nakheel, for a standstill on debt worth billions of dollars as a first step towards restructuring

What wil be its effect in Indian Markets ? Which all companies/industries will face the maximum brunt  ?

Will the Inidan market be able to sustain the shock ?

Implications of removing the lock-in period clause in FDIs ?

With the government planning to remove the lock-in period mandate for FDIs in the Real estate sector, investment opportunities have grown manifold. Will it be at par with the "winged capital", i.e. FIIs or will foreign investors prefer the FDI route?? Should they extend this grant to other sectors as well?? Looking forward to some indigenous thinking from all...

Bank Performance Terminology

Aggregate deposits are the total deposits of a bank at the close of the accounting year. These include deposits from public and deposits from banks. From a different angle, the aggregate deposits equal the total of all demand and time deposits. A high deposit figure signifies a bank’s brand equity, branch network and deposit mobilisation strength.

Average working funds (awf) The AWF at the beginning and at the close of an accounting year or at times worked out as fortnight or monthly average.

Working funds These are total resources (total liabilities or total assets) of a bank as on a particular date. Total resources include capital, reserves and surplus, deposits, borrowings, other liabilities and provision. There is a school of theory which maintains that working funds are equal to aggregate deposits plus borrowing. However, more pragmatic view in consonance with capital adequacy calculations is, to include all resources and not just deposits and borrowings.

Interest spread This is the excess of total interest earned over total interest expended. The ratio of interest spread to AWF shows the efficiency of bank in managing and matching interest expenditure and interest income effectively. Interest spread is critical to a bank’s success as it exerts a strong influence on its bottom line.

Equity multiplier measures financial leverage and represents both a profit and risk measurement. It compares assets with equity and large values indicate a large amount of debt financing in comparison to equity. It has impact on return on assets. A critical scrutiny of EM helps to evaluate whether capital support is proportionate to the risks assumed in the balance sheet.

Risk weighted assets The cumulative risk weighted value of assets plus risk weighted credit converted contingent liabilities, which is used as the denominator for computing the capital adequacy ratio of bank.

Capital adequacy ratio This ratio relates a bank’s core net worth to its risk-weighted assets. The ratio is internationally accepted risk-driven measure of a bank’s degree of capitalization. A higher ratio indicates that a bank is well capitalized vis-a-vis its perceived risks. It is an excellent indicator of a bank’s long term solvency.

Can You Solve

Unscramble the letters below to make meaningful words.

1.oesonjwd
2.iunedt anbk fo diani
3.ardte fiedcti
4.gorpdyi
5.adta rawoeeuhs.

Send in the solutions to finniche.imt@gmail.com.

Sender names of :
First 5 correct entries
and
3 lucky entries
will be put up on finniche’s notice board on the 19th of November by 6 PM.

Top Ten Careers in Finance

1. Private equity: The role of private equity is to raise funds from large investors and invest the money directly into businesses. The usual manner is to raise money from overseas investors and then find businesses in the growth stage. Most private equity funds 'exit' the investment after a period of time by selling their holding in the business to some other investors or doing an initial public offering of the shares of the business.

2. Investment Banking/Merchant Banking Investment banking comprises two major businesses. One is the advisory/ corporate finance role which entails mergers and acquisitions. This would entail understanding valuations, finding targets, negotiation and compliance with legal regulations. The second role is what is more popularly called equity capital markets role. This entails helping corporates raise funds from investors or the public. So it may entail working on IPOs or Institutional Offerings.

3. Fund Management: As a fund manager, one is an important decision-maker typically at a mutual fund. The fund manager has a good overall understanding of the macro factors which affect the markets as well as the micro factors about which company to invest in. He invests money in stock market, debt market, directly into companies, etc depending upon his fund mandate.

4. Equity Research & Sales: The role of equity research is to find out the correct value of the stock which is trading on the stock exchange doing various types of research namely fundamental and technical analysis. There are two types of ERs though. One is the sell-side research which belongs to a brokerage, the aim is to do research and sell investment ideas to investors so as to earn commission on trading by the investor. The second is buy-side research, which is a part of usually a buy side fund like a mutual fund. They analyse the research results of various brokerages in addition to their own research on investment ideas for the fund manager

5. Project Finance & Debt Syndication This role entails arranging for long-term finance for infrastructure and industrial projects which will take a long time to pay back. The first step is to understand the project, conduct a feasibility study, risk assessment and a detailed financial model. This is done with the purpose to rope in equity partners (known as sponsors) and lenders. Generally the lending part is done by multiple banks under leadership of the syndicate bank.

6. Financial Risk Management: Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialisation of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk. In the banking sector worldwide, the Basel Accords are generally adopted by internationally active banks for tracking, reporting and exposing operational, credit and market risks.

7. Corporate Banking This role entails the entire plethora of banking services required by corporates. Corporate can be divided into largely two sections Large Corporates and MSME which is Medium and Small enterprises. A corporate banker would thus have companies as his clients and service them. Within corporate banking some of the departments are:

Credit Borrowing to companies for their expansion and working capital requirements. Would entail doing a credit evaluation on the company and sanctioning the loanTreasury Help companies manage various types of risks such as foreign exchange, interest rate fluctuations. Treasuries also take proprietary positions to make profit in the 'forex' and bond markets.Cash Management Solutions: As most companies have a large number of customers, distributors or branch offices across the country it becomes a huge challenge to deal in money. Banks offer cash management solutions to help streamline this entire operation for its corporate customers.

8. Wealth Management: Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High net worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can be independent, certified financial planners. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective. Wealth management can be provided by banks, brokerages, independent financial advisers or multi-licensed portfolio managers whose services are designed to focus on high-net worth customers. The fallout of the events of 2008 has produced a high level of skepticism and distrust among investors, and they will demand greater transparency from their providers to understand what they own, the value of their investments and associated risks.

9. Retail Banking Also known as consumer banking, it entails dealing with products / services for individual customers. So the scope encompasses getting business for products such as credit cards, savings accounts, personal loans and auto loans. Operational roles would entail teller, authorising, clearing, remittances and customer service.

10. Corporate Finance: A career in corporate finance means you would work for a company to help it find money to run the business, grow the business, make acquisitions, plan for its financial future and manage any cash on hand. You might work for a large multinational company or a smaller player with high growth prospects. The job of the financial officer is to create value for a company. As a corporate finance professional one is typicall involved in four main activities to meet its objectives: 1) designing, implementing and monitoring financial policies, 2) planning and executing the financing programme, 3) managing cash resources, and 4) interfacing with the financial community and investors. Jobs in corporate finance are also relatively stable. Performance in these jobs counts, but your job is not going to depend on whether you're selling enough this week or getting good deals finished this quarter. Rather the key to performing well in corporate finance is to work with a long view of what's going to make your company successful. Many would argue that corporate finance jobs are the most desirable in the entire field of finance. Some of the benefits of working in corporate finance are:

· You generally work in teams which help you work with people

· It's a lot of fun to tackle business problems that really matter

· You'll have many opportunities to travel and meet people and

· The pay in corporate finance is generally quite good

Thus, a budding financial wiz should look at understanding which area interests him/her the most and build skill sets which can help take the leap into financial sector.

Is Dollar loosing its sheen ???????

Dollar losing its luster but still reigns globally - Economic times ( Nov 5,2009)

Instead of stashing dollars under their mattresses, many Brazilians now set aside money to buy euros or invest their savings locally.

The dollar has dropped about 16 per cent against a basket of currencies since early March, dragged down by worries about the ballooning US deficit.

In Russia, where the dollar was the benchmark after the collapse of the Soviet Union in the 1990s, residents are increasingly turning to the euro.

Polls show that the euro has overtaken the dollar as the preferred foreign currency for savings in Russia

Is buying of gold by India a move to diversify its forex holding or diluting Dollar holdings ?

China should drop Yuan's dollar peg: Merrill Lynch ; Economic Times (Nov 4,2009)

Does this all suggest that Dollar is in its end days and there is a need for new currency ??

Game Theory: Effect of Big Sporting Events on National Economics

Whenever there is money involved , the radars of economists start working. On this ground, games like olympic games and Commonwealth games are the areas which involve heavy investment and spending. Winning a bid for the game is a prestigious matter itself, barack obama will certainly testify that.

In order to flaunt their countries economic and social status, the spending on these games are gradually reaching astronomical figures. The Beijing Olympics spending Budget ,$40 Million, was more than the GDP of Srilanka (source: Bloomberg.com). The festive mood of the public and the government is the common feature of all the major games, but are they really economically viable. Is the level of spending justified for a nation? Lets have a look on it. I will judge it on the basis of 4 Parameters , that are considered the sacrosanct part of hosting Games

Infrastructre
Infrastructure is something on which countries start working long before they bid for games. They want to leverage on the infrastructure they have and the potential infrastructure which they can develop. But a cost-benefit analysis by Darren Mchugh ,a queensland unversity scholar, shows that generally the most expensive infrastructure projects are those projects which would not have been built in the first place if normal conditions prevail. In case of Delhi CWG , major of the infrastructure spending is done on Airports and Metro overhauling , which in anyways would have been sooner or later. But about Rs 700 crores are still been spent on the projects like over bridges and stadiums (source: www.livemint.com). According to me, these projects are over ambitious with little practical utility. In many of the places a little more planning and common sense ( which is highly uncommon!!) could have reduced spending considerably. The worst thing which we can afford are the white elephants standing after the games were over.

Tourism
Tourism and games go hand in hand. Indian tourism industry is looking towards CWG as a saviour in their efforts to recover from the dreaded recession. In anticipation of huge inflow of foreign tourists, the capacity is being added in form of extra hotels and other accomodation places. Approx 30,000 hotel rooms are added in delhi to cater the visitors ( Source: www.epaper.timesofindia.com) . Although the projections are supporting the work done, there is a catch in it. The seats in the airplanes coming to india are limited. So, the demand will definitely push the ticket price northwards during the games. History depicts that inflow of tourist are maximum shortly before games, reach peak during games, and drops sharply after games. The future of the extra capacity added , will be affected seriously. After the montreal winter olympics , every 3rd hotel which added capacity went bankrupt.

Markets
As some one quoted, "markets are the best snifer dogs". If there is an opportunity,market will definitely sense that. In this light, let us look at the markets reaction when indian won the bid for the commonwealth games. The 2010 CWG are awarded to new delhi on 13 November 2003, and the markets closed 1.68 % lower on 14th november 2003, on next day (Source: www.moneycontrol.com) . Even the construction and infrastructure scrips traded in red. So, it is clearly visible that even markets are not that optimistic of benefits of hosting an event as big as commonwealth games.

Revenue
Beijing olympics , with all its audacity managed to earn only $16 million as margin ( source: www.livemint.com) . Comparitively Los Angels had made $250 millions and Seoul $300 millions. So, the extravagant spending is not resulting in generation of high revenues. The figures of delhi are not yet out , but the projections are not very optimistic.

All said and done, hosting a game is undoubtedly a matter of national prestige and helps a country projecting its image all over the world. This is the best marketing even which a country can do. But in the increasing complexity of games, there should be an intelligent view to all the spending, The day is not far away, when we have special economists would be there knows as "Game Experts"


                                                                                                                   -By
                                                                                                                          Rahul Aggarwal
                                                                                                                          PGDM 09-11(Fin)
                                                                                                                          IMT Gzb

China's Stock xchange for SME sector

China will have a stock exchange dedicated only to SME sector from October 23rd 2009. This speaks of China's dedication to provide boost to the infrastructure and growth of its economy and government's support to industries. We always try to compare India with China or India taking over China, but are we anywhere near to it ? If India is to compete with China in terms of growth, our SME sector will necessarily have to become more robust and competitive.

Source: Doing Business Report 2010

Where China is doing everything to boost the industries, we have not done anything as evident from the stats.

 Though India is only next to China in tems of FDI Confidence but it is way behind in terms of 'Ease of Doing Business'. 

So for India to grow and compete with China, it has to overcome these bottlenecks and think ahead of China and provide boost to its industries by providing quick accesibility to funds and reducing clearnace time.

Careers in banking- A lot has changed after the financial turmoil of 2008, the careers that were highly venerated until the behemoth banks collapsed, have in today’s world lost their sheen. Careers related to investment banking, especially in the western world are looked at with mistrust. Asset managers, merchant bankers and investment bankers have the onerous task of rebuilding the lost confidence. They shall steer the world out of the gloom. A career opportunity fraught with nerve racking and number crunching hurdles and one with plenty of scope for learning and displaying your financial prowess.

New business opportunities

Labeled as the fuel for the growth of the world economy India forges ahead with a determined resolve to entrench itself as a super power in the world. This is made possible as India’s growth is underpinned by strong financial growth. As we expand and burgeon, so does the basket of opportunities in different sectors. Each business that flourishes opens up a lot more options and opportunities for other businesses. It is just that we need to tap these new growth potentials to open up more gates of opportunities and prosperity. The entrepreneurial skills of Indians have been appreciated the world over, in fact, to quote Mr. Jeff Immelt “The CEOs in India are as good as or better than any in the world”. Mr Immelt also placed the Indian ceos and entrepreneurs ahead of the Japanese.
What opportunities exist in India? How can we tap them? Is there a systematic approach that can be adopted to bolster entrepreneurial skills?

No surprise No shock

 As I had previously predicted and conjectured in one of the blogs, the Bharti-MTN deal collapsed. This does not come as a surprise at all. In fact if you ask me, this was something that was imminent. The Indian telecom czar had got his hopes high and had exercised all his strength to make the deal a success. Mr. Mittal’s meeting the prime minister thrice that week, prior to the deal was certainly not over anything modest. But as it is often said, not all is under one’s control and as destiny would have it the deal failed. The dilly dallying by MTN portended the doom and the shelving was a signal from the South African entities to say “Naah we are not interested anymore”. Whatever it involved, it sure is a lost growth opportunity at least for some time for the telecom major. Mr. Mittal had tried all that was possible to establish a transnational telecom company and to entrench AIRTEL as a world class company straddling different continents. Leading newspapers seemed to console Mr. Mittal with quotes from head honchos of different industries.

However there are a few things that Mr. Mittal can make best use of out of the failed deal. In the first place Airtel can focus all its energy on the expansion onto 3G space in India without stretching its finances. Airtel is economically and functionally empowered for bigger battles and can even look out for other deals that are not as demanding. Bharti is free to explore the nook and crannies that were unexplored till date, it can certainly ensconce its position in India by meeting domestic demands. As we say, every cloud has a silver lining; this failed deal has quite a few. Unlike other sympathizers, we won’t sing sweet and consoling rhymes for Mr. Mittal but would rather expect Mr. Mittal to marshal his formidable clout and forge ahead taking india’s telecom sector to new heights in a new direction.

Market Watch Sep 21 - Sep 25

Market Analysis

After stellar gains for the last two consecutive weeks (of 3.7% and 2.9%), the Indian markets lost some steam this week, logging in a loss of 0.3% for the week. But this comes in the backdrop of much higher declines in almost all other major indices around the world. The benchmark BSE Sensex hit a 16 month high on Tuesday, but subsequently lost the momentum to finally close the week on a marginally negative note. The Indian markets were under pressure from the weak cues emanating from the global markets. The markets closed at 16693 on Friday down by 48 compared to the last week. The broad based Nifty also closed lower compared to the last week at 4959 points.

Macro Economy

The rate of inflation more than trebled in the second week of September from its previous level as prices of daily essentials and raw food items appreciated sharply from levels prevailing a year ago. Inflation stood at 0.37% for the week ended September 12, up from 0.12% a week before when it had moved into positive territory after a space of 13 weeks. Overall, prices of raw food items increased 15.64% yearon-year during the week

under review, driven mainly by a 44.85% rise in vegetable prices. Potatoes led the list of raw food items that turned costlier at 75%, followed by pulses at 21% and rice at 17%. Processed food items continued their rising trend, with prices rising 12.68% from the year-ago level. Sugar turned dearer by 43.35%. From a weekly perspective, however, the rise in prices of

essential food items does not appear sharp except for freshwater fish which became costlier by 11%. Other food items rose in the range of 1-2% or saw a decline. The rise in inflation for the week comes despite a high base of 12.42% a year ago. Though at 0.37%, inflation does not seem too high as the rate of price rise is measured only on a yearly basis in India, the inflation rate has already crossed the psychologically important 5% mark for this fiscal so far. Rupee become marginally stronger compared to dollar from last week and was trading at Rs. 48.47 per dollar. The yellow metal on the other hand shed some shine to end at Rs 15800 per 10 grams.

Sectoral Performance

Coming to the performance of sectoral indices in India, the various indices had their fair share of both losers and gainers. The pack of gainers was led by pharmacy stocks, with the BSE-Healthcare Index ending higher by about 7.6%. The pharmacy stocks were followed in their gains by stocks forming part of the realty and FMCG sectors. Amongst the losers during the week were the BSE-Metal and BSE-IT which ended lower within a range of 3% to 3.5%. This is almost the opposite of last week, when the metal and IT spaces had performed well, and the pharma and FMCG sectors had seen comparatively much lower gains.

Market watch - Sep 14 to Sep 18

Market Analysis

Recording their consecutive weekly gain, the Indian markets were one of the top gainers amongst key markets worldwide. The benchmark index BSE Sensex ended the week higher by around 2.9% to close at 16741 points. Lesser worries about the shortfall of monsoon and high FII inflows (net investment of Rs 53 bn. during the week) are believed to be the key

reasons for the same. In fact, the net FII inflow on Friday i.e. September 18 itself stood at about Rs 27 bn.

Macro Economy

India's wholesale price index (WPI) came in a tad below the zero mark in the year to September 5 at 0.08%. This was little changed from the previous week's fall of 0.12%. The general consensus is that the figure is likely to turn positive in the coming weeks. This is not very surprising considering that crude prices have rebounded from their lows and that

deficient monsoons have hampered crop production thereby inflating food prices. The food articles index rose 14.8% in the year to August 29 and the CPI over the last year has stayed stubbornly high. It may be noted that the RBI has revised its WPI forecast for the end of FY10 to 6% from 5% predicted in July. If that turns out to be true, the likelihood of RBI

putting the brakes on its expansionary monetary policy cannot be ruled out. Rupee closed at 48.93 per dollar. The yellow metal was trading at Rs. 16045 per 10 grams.

Sectoral Performance

Coming to the performance of sectoral indices in India, barring stocks from the oil & gas space, buying activity was witnessed across sectors. The pack of gainers was led by auto stocks, with the BSE-Auto Index ending higher by about 8%. It was followed by stocks forming part of the metal and IT sectors. While the BSE-Metal Index ended higher by 7%, the BSE-IT Index ended higher by 4%. Amongst the lowest gainers during the week, were

the BSE-FMCG, BSE-PSU and BSE-Healthcare indices which ended lower within a range of 1% to 2%. The BSE-Oil & Gas Index ended the week lower by 1.5%. However, during the previous week, this index ended higher by about 5%.

Global Cues

As far as global markets are concerned, most of the Asian markets ended the week lower, while the Americas and Europe recorded gains. Leading the pack of gainers was Brazil, which recorded a gain of 4%. UK, France and US followed suit recording gains of 3%, 2.5% and 2.2% respectively. Singapore, China and Japan ended the week on a negative note, down

by about 1% each.

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Carbon Trading

CARBON TRADING
Over the last hundred years, the amount of carbon dioxide in the atmosphere has increased by 28 percent (and analysts estimate that it could rise by more than 40 percent in the next hundred years) due to increased global emissions. To check the increasing menace of greenhouse gases, Kyoto Protocol was adopted for use on 11 December 1997 in Kyoto, Japan and which entered into force on 16 February 2005. The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s ( 5.2 % below).
The six greenhouse gases to be limited are:
 Carbon dioxide
 Methane
 Nitrous oxide
 Hydro fluorocarbons
 Per fluorocarbons
 Sulphur hexafluoride
The Protocol provides for three mechanisms that enable countries or operators in developed countries to acquire greenhouse gas reduction credits
 Under Joint Implementation (JI) a developed country with relatively high costs of domestic greenhouse reduction would set up a project in another developed country.
 Under the Clean Development Mechanism (CDM) a developed country can 'sponsor' a greenhouse gas reduction project in a developing country where the cost of greenhouse gas reduction project activities is usually much lower, but the atmospheric effect is globally equivalent. The developed country would be given credits for meeting its emission reduction
targets, while the developing country would receive the capital investment and clean technology or beneficial change in land use.
 Under International Emissions Trading (IET) countries can trade in the international carbon credit market to cover their shortfall in allowances. Countries with surplus credits can sell them to countries with capped emission commitments under the Kyoto Protocol
The size of each country's annual limit in the 2008-2012 period is expressed as a percentage of its emissions level as measured in 1990 (i.e. the baseline year). A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations using any of above methods. Under UNFCCC the polluters cannot buy 100 per cent of the carbon credits they are required to reduce.
All countries have been divided into Annex -1 (industrialized or developed) and non- Annex -1 (developing like India and China). Factories or farm owner in non Annex-1 countries can get linked to UNFCC and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which they are emitting less carbon (as per standard fixed by UNFCCC) they get credited in a developing country. This is called carbon credit. These credits are bought over by the companies of
developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol.

Kyoto enables a group of several Annex I countries to join together to create a market-within-amarket. The EU elected to be treated as such a group, and created the EU Emissions Trading Scheme (ETS). The EU ETS uses EAUs (EU Allowance Units), each equivalent to a Kyoto AAU.
TRADING
Like any other asset, carbon credits are tradeable instruments with a transparent price; financial investors can buy them on the spot market for speculation purposes, or link them to futures contracts. A high volume of trading in this secondary market helps price discovery and liquidity, and in this way helps to keep down costs.
MCX (Multi Commodity Exchange, India) has entered into a strategic alliance with CCX (Chicago Climate Exchange) in September 2005 to initiate carbon trading in India. MCX can list its mini version of ECX Carbon Financial Instruments (CFI) and Chicago Climate Futures Exchange (CCFE)
Sulphur Financial Instrument (SFI) on the MCX trading platform.MCX is the futures exchange. The commodity traded on CCX is the CFI contract, each of which represents 100 metric tons of CO2 equivalents.
CFI contracts are comprised of Exchange Allowances and Exchange Offsets. Exchange Allowances are issued to emitting Members in accordance with their emission baseline and the CCX Emission Reduction Schedule. Exchange Offsets are generated by qualifying offset projects. People here are
getting price signals for the carbon for the delivery in next five years. The exchange is only for Indians and Indian companies. Every year, in the month of December, the contract expires and at that time people who have bought or sold carbon will have to give or take delivery. They can fulfil the deal prior to December too, but most people will wait until December because that is the time to meet the norms in Europe. People who are coming to buy from Indians are actually financial investors.
They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the carbon will increase and then they may make more money.

Terms in brief:
CER (certified emission reductions (CERs) - One tonne of carbon dioxide reduced through the Clean
Development Mechanism (CDM) project, when certified by a designated entity, becomes a tradable
CER
UNFCC: United Nations Framework of Climate Change Convention (UNFCCC).
CCX: Chicago Climate Exchange, Inc.

Food Prices

The food prices have shot up significantly in the last couple of months and there is a 13.3% increase as compared to mid-August last year.

The government has been prompt and has reassured us that India has a huge buffer stock of 32.3 million tonnes of rice and 25.3 million tonnes of wheat. But prices have been climbing rapidly despite this, mainly because the government machinery has not moved quickly enough to release these buffer stocks in the open market. The surge in the food prices can be principally associated with the dismal monsoon this year.

The monsoon has been erratic to say the least and as expected the farmers are bearing the brunt of the monsoon’s uncertain behaviour.

In a bid to support them, SBI has announced an array of measures. These include reduction of interest rates and concession for borrowers who pay the loan within the stipulated period.

This measure should tone down the margin of the rise in food prices and also provide some respite to the farmers and in turn the consumers.

GANESH

Want to make a call? Use Tata’s CDMA phones.

In what has been described as a "game changer" Tata Teleservices has announced that it will do away with the pulse system for charging for a telephone bill. This will be applicable only for Tata's pre-paid CDMA customers.

What does that mean exactly?

This means that irrespective of the duration, the call will cost only a fixed amount.

Further, all those businesses which rely heavily on communication, will witness a decrease in their costs. Though this decrease is not expected to be significant as compared to the profits or revenue of the business, it will nevertheless cut down on their operating costs. If this concept is extended further to international calls, the foreign trade industry will be benefitted to a very large extent.

Since the change is applicable to all markets and segments, there would not be an advantage to anyone in particular.

Ganesh

Mortgage Backed Securities + Securitization

Mortgage Backed Security - Part I




Mortgage Backed Security - Part II




Mortgage Backed Security - Part III

The H1N1 virus, better known as swine flu, is affecting more than just the health of the nation. The outbreak has instilled fears in

the minds of the general public and people are reluctant to venture out of their homes. This has affected the business at large and in

a cascade effect, the swine-flu outbreak has initiated fears that an economic recovery could be delayed if the virus spreads at the

current rate.
As governments are announcing travel advisories and recommending people to stay indoors, transportation stocks might take a hit. This

in turn will prove disastrous for the cruise, hotel and airline industries. Also, the drop in travel could cause a weak overall demand

for energy and crude oil.
However, it could have a positive effect on sectors such as pharmaceuticals and related healthcare companies, as the demand for

vaccines and health services are on the rise.
The health hazards combined with the fanatic media coverage could dent the markets in the short run.

Ganesh


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