16th SEP 2007

Volume 1, Issue 2

Wealth Incorporation Presents

CHAANAKYA
..Tracking the Economy
Issue Attractions

National Headlines International Headline Corporate Interview Quiz Guest Editorial Student Editorial Pearls of Wisdom

1 1 2 2 3 3 4

Life is ten percent what happens to you and ninety percent how you respond to it -Lou holts b1937, American football coach

National Headlines
The Infosys incubated OnMobile is acquiring VoxMobili , Frances leading player in multi access products(telecom solutions), for about Rs. 150 crore. The Indian mining sector is set to make killing from overseas sale of ore that is likely to increase their revenues by over 100% over the last year. Spot iron ore prices have shot up from $50 per tonne to FoB price of $100 per tonne. The Ministry of Finance has shot down RBIs proposal of refinancing the offshore subsidiary of IIFCL to fund infrastructure projects , saying it would increase the cost of borrowing. It has now asked the RBI to subscribe to bonds issued by this co. Large PE funds General Atlantic , Blackstone and Warburg Pincus have shown interest in ICICI Ventures 63% stake in Infomedia the publisher of Business directory Yellow Pages and some well known niche magazines. Reliance Industries has agreed to buy the assets of Hualon Corporation , a sick Malaysian Corporation which will increase Reliances polyester capacity by 25% to 2.5 million tonne and boost its annual revenue by about $ 1 billion. Small cap companies could soon have an alternative stock exchange for trading . The Interconnected Stock Exchange of India(ISE) is being revived with an induction of foreign funds.

Inflation 3.82% , IIP(Q2)-9.6 % 15 days Movements

International Headlines
Nasdaq Stock Market Inc and Reuters Group Plc are shutting down an independent stock research venture (IRN) amid weaker than expect demand form investors. ArcelorMittal bought a 51% stake in Turkeys major steel stock holding company Rozak The worst US housing slump in 16 years may lead to mortgage companies to cut almost 1 lakh jobs, which is more than double already been cut. Two major international trade union organizations i.e. Asia Pacific Regional organization of the International Confederation of Free Trade Unions and the Brotherhood of Asian Trade Unions (BATU, the regional organization of WLC) have merged to form Asia pacific regional unit of International Trade Union Confederation (ITUC) A study of International labour organization (ILO) has commented that South Asian labour productivity has risen by 50% in the last decade. The Zimbabwe President has banned all pay rise without authorisation and given himself extra power in a bid to curb the inflation rate which currently stands at over 7600%.

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years .Warren Buffett

Page 2

Corporate Interview
Mr.Shoumitro Goswami, CEO Austal Group shares with Chaanakya his views on Indian Stock Market. Chaanakya-What do you think about the Indian Stock market? Mr.Goswami-Well Indian Stock market is no doubt one of the emerging market, in fact it is emerging at a very fast pace, it is also getting more and more efficient were the informations are taking lesser time and we are getting faster reactions from the market.

Chaanakya-Your company Austal international is into IT business, what makes the company concerned about the market? Mr.Goswami-Every business has the relation with the economy in which it functions, and no doubts that markets are good indicators of the health of the economy, also Austal is very much inclined towards starting a fund which will invest in the market. and the market has also got lot of momentum which can be understood as the market is a growing market, so it becomes necessary for the company which is planning to enter in the market to find the characteristics and tools which are proved good in the market, because every market is different in characteristics and one need to understand the tools to interpret those characteristics.

Chaanakya-What kind of fund will it be? A hedge fund? Mr.Goswami-Not exactly a HEDGE FUND but it will be a diversified fund, actually the market growth and condition is so good that any one can become a fund manager, there are diversified fields and lot of new ventures in various fields to look upon. However the fund will also hedge the risk factor so it would be more sort of a hedge and diversified fund hybrid.

Chaanakya-What would your take on stock analysis, fundamental analysis Vs. technical analysis? Mr.Goswami-For me its only the Fundamental analysis, I believe in buy and hold strategy and I also believe that for a growing market like India the best approach would be to invest in high potential companies with strong management and wait for the company growth, I know its hard to find such companies but fundamental analysis would definitely help you to identify the options. Suggestion to Investors- I would say that for a true investor anytime to enter in the market is right time, if you have done your homework fine and you are willing to stay in the market for at least one cycle of the economy then I think your investment will be able to generate decent returns because market is all about discipline and self control.

Quiz
1. Only one life insurer in India offers a policy specifically designed for women. Name the policy 2. Apollo health street has recently acquired its US based competitor for $ 170m. What is the name of the firm? 3. Recently SEBI has initiated adjudication proceedings against 20 Companies for non compliance with clause 49 norms. What is clause 49 meant for? 4. Two Indian Corporate have tied up for Air Ambulance Service. Which are they? 5. HSBC is tying up with which two other banks of India for venturing into life insurance sector. (Answers will be published in the next issue) Answers to the previous issue 1. ICICI and Korea Exim bank 2. Core Insurance Solution 3. Standard chartered, 49% 6. Benjamin Graham 4. Tata power Co Ltd 7. Hughes Software

5. Simplify the process of credit delivery to small-scale industries

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective . Warren Buffett

Page 3

US-Sub Prime Market and Interest Rate Swaps By: Prof. Ramachandran T.S.
Reams and reams of pages have been written about the now infamous US-Subprime issue in the news media in the recent past. The issue is still blowing hot and cold and it is believed that the global markets are yet to see the full impact of this problem. Adjustable Rate Mortgage is a bad word now. What is puzzling to me in this scenario is, why did the loaners not hedge their interest rate risk through Swaps. After all the interest rates did not move overnight. It moved over a period of 24 months. Are Interest Rate Swaps not available to this segment of the market-US retail mortgage market- which is suppose to be the biggest in the financial markets world? Broadly, Swaps are derivative instruments to help those who genuinely want to mitigate the interest rate or currency risks by transferring it to others who are willing to take the risks. Interest rate swaps are derivative instruments to help manage Interest Rate Risks and interest rate risk arises on account of having contracted a loan, the interest for which is payable on a floating rate basis. The interest is reset periodically (quarterly or half-yearly) as per loan agreement terms and is benchmarked to an interest rate like LIBOR or US Treasury bill that is again agreed upon in the contract. Generally the reset period is every 6 months and depending upon the movement in the bench-mark rates, the interest rate for the loan contracted also moves. In this context, we need to remember that between June 2003 (when the fed funds rate was 1%) and June 2006, the fed funds rate was raised 17 times in steps of quarter percentage point to 5.25%. Hence all the loans, which are on a floating rate basis, are bound to move up on account of their benchmark rates moving up including the US mortgage loans in general and sub primes particularly. Yes, everyone is right on hindsight. But what happened to the hedging mechanism through Interest Rate Swaps? None of the articles which I read so far on US-Sub Prime Mortgages problem dealt with hedging of interest rate risks by this market.

Did you Know?

Poised at a phenomenal growth of 500 per cent, the Indian insurance industry is expected to reach US$ 60 billion in the next four years

Did you Know?

The average AMEX card is swiped for $9,500 in charges a year, which is four times as much as a Visa or MasterCard. The average fee for merchants accepting AMEX is $2.50 per $100 charged, while it is only $2.00 per $100 charged for Visa or MasterCard

Did you Know?

The U.S. Bureau of Labor Statistics reports that the average person working 45 hours per week earns 44% more than someone who works 40 hours

Aggressive Banking and Passive Regulations By: Soumya Ranjan

Any lending carries with it some risks and traditional bankers are always cautious in taking assets on to their books, evaluating the impact on their balance sheet under different probabilistic considerations. Todays creative bankers scoff at the traditionalists and claim that with exotic financial instru-ments they have entered a new world of banking. Loans are tradable securities, to be packaged, sold and forgotten about (securitized). In the housing sector, the push in the US to raise home ownership mortgage credit reached its peak in 2004 and 2005, supported by a wide array of investors across the globe who picked up securitized credit instruments, which had been evaluated and rated by the leading global rating agencies. The problem started when with the rise in asset prices, mortgage lenders encouraged sub-prime borrowers to get loans and buy houses, a clever strategy to stimulate sanguine and ardent borrowers. The appreciation of house prices dilutes risk perception and more leverage is of no consequence; asset books get built up with hardly any margin requirement. Risk management standards lay buried in that ambience. In the sub-prime sector, the delinquency rates have risen sharply, to about 12 per cent, roughly double the recent low seen in mid-2005. The estimated loss is between $ 50 and 100 billion, roughly about 1 per cent of the US GDP. It would not have happened if the originators of the loans had not loosened their standards. In a market that is getting globally integrated, any crisis that has its roots in financial market behavior can in no way be countered by any single country acting in isolation. It is time we realise that standard conservative banking principles should not be given the go-by in the name of the new fangled, exotic kind of banking.

Stock Ratnas

UNITECH, BSE-507878, NSE -UNITECH CMP- Rs.252.5 TARGET PRICE- Rs.285 RCF,BSE-524230, NSE-RCF CMP- Rs.53.5 TARGET PRICE- Rs.65.20 AREVA T&D, BSE-522275, NSE GECALSTHOM CMP- Rs.1622.9 TARGET PRICE- Rs.1855 BALKRISHNA INDS, BSE502355, NSEBALKRISIND CMP- Rs.520 TARGET PRICE- Rs.669 (CMP Current Market Price)

You only have to do a very few things right in your life so long as you don't do too many things wrong . Warren Buffet

Page 4

Tag Lines:

Forever New Frontier- Boeing Out of Now- Dell

Get More

How Are You?- Vodafone .. And You Are Done Amazon.com

a. Fortress Hedge Fund

b. London Stock Exchange c. Cholamandalam d. Tokyo Stock Exchange e. Royal Bank of Canada f. Canaan Venture Fund g. Shanghai Stock Exchange h. Trinity Leasing i. OPEC

Pearls Of Wisdom
Pawan Bhutra ( pawan.bhutra@hdfcbank.com) Relationship Manager, HDFC Bank Job Profile : 1. Maintaining Portfolio of HNWI 2. Sales oriented job with targets Handling Portfolio i.e. from investment to basic banking requirements, around 150 HNWIs portfolio is managed ,it as a sales oriented job with good amount of targets and appraisal is purely based on past performance, as relationship manager there are 30 products to be handled (asset and liabilities), HNWIs funds are also exposed to all mutual funds.

Skills Required to Excel in the job You should know good Permutation Combination to Achieve the targets. Good Communication finance knowledge. Skills Thorough with

Update Your Knowledge Regularly You Should be Street Smart

1. Companys (HDFC) Expectations

High performance Expectations, From day 1 Targets are explained. Company also expect the employee to be ethical.

Buzz Word
Macaroni Defense an approach taken by company that does not want to be taken over, it issues large number of bonds with the condition they must be redeemed at high price if the company is taken over. Core Holding a investment that you plan to keep in your portfolio for a very long time, sometimes permanently. Casino Finance an extremely risky finance Strategy. Garbatrage an increase in price and trading volume in a particular sector of economy that results from a recent takeover creating a change in sentiment towards the sector. Aspirin Theory- A market theory that states stock prices and aspirin production are inversely (opposite) related.

Management Mantras
Discover what your customers want, and then: deliver it continuously, plus 1%! Don't ever take anything for granted, no matter how safe and secure it may seem. The day that you will have to reapply your flexibility and adaptation to change may be nearer than you think! Success entails trying to be exclusive in your efforts, and never giving up. "It's always better to fail in originality than to succeed in imitation"

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com