Final Issue by niusheng11



March 2007
Volume 1, Issue 1                                                                        Page 2


Idea Inception          – Deepak Kundu, Rishikumar Singh

Editors                 – Daanish I.S. Gill, Johan Jose

Creativity & Design – Daanish I.S. Gill, Rajat Matta, Srinivasan Selvam

This publication is solely meant for internal circulation and not for any commercial purpose.
Volume 1, Issue 1                                                                             1 March 2007

The Finance Magazine, IIFT Kolkata

                           Blame game of global financial imbalances

                           With a huge trade surplus with USA, is
                           China holding the world’s largest economy
Inside this issue:         hostage?
                           By Gaurav Pundlik                    Page 4
Dude of the Month-    10
John Maynard
                           An Introduction to the Forex Market
                           Welcome to the market that never sleeps, Ankit Jain and Ankur Jhunjhun-
                           wala get down to the details of what is the world’s largest yet least publically
                           known market.                                                           Page 5

                           How to finance Infrastructure in India?
The lighter side:     15
Infineeti takes a
sneak peek at CAs          Can India really use its bulging Forex reserve for funding Infrastructure?
                           Gaurav Shekhar highlights the pitfalls of getting creative with India’s for-
M & A in Focus:       17
                           eign currency reserves.                                   Page 8
Tata - Corus Deal
Inside I-Banking      20

Financial Inclusion   21   Carousal Fraud
Market report         26
                           Pankaj Kothiyal and Aditya Agrawal take a look at how dubious compa-
Budget Factoids       29   nies evade VAT in the European Union.                           Page 13

Innovative ways to improve the capital markets and classroom attendance.
                                                                   Page 24
Page 4                                                                                             INFINEETI

Meet the co-ordinators
Dear Readers,

There are those who are called visionaries, who are able to predict the need and tap the aspirations of
those who feel bereft of a common podium to express their thoughts, their beliefs and their ideas. IIFT
Kolkata felt a need for a similar podium where its students, its most important asset, are able to express
their thoughts and their view-points. Ladies and Gentlemen, CASH-O-NOVA, the Finance Club at IIFT,
Kolkata proudly announces the launch of its first ever in-house magazine dedicated to the cause of devel-
opment of financial interests – “Infineeti”.

Gone are those days, when Finance heads and its managers used to work as second fiddle acting as one
of the vertical pillars of a company and acted as a support function. Now the finance heads play a very
important role in strategizing the growth of the company .The recent slew of multi-billion dollar M&As,
reflecting the growing appetite of Indian companies, brought to fore the need for dynamic and visionary
finance heads, who understand their role the best.

This magazine brings to the forefront all the happenings in and around finance. Don’t worry; we have
also taken sufficient care to ensure that the magazine is fun to read. The things which you will love are
the innovative instruments our writers have developed to keep your interest. Especially a small surprise
in the form of the finance club’s mascot somewhere in the magazine. Read it to find out.

This magazine would not have been successful without the active support of Finance club members and
our batch mates at IIFT Kolkata. We are thankful to our Director, our faculty members and our adminis-
trative staff to help us in providing some useful suggestions for the magazine.

The coordinators are particularly thankful to Daanish and Johan for their exclusive and unparalleled
support in the capacity of editors to the magazine. They have put up an excellent work and have worked
distinctively, a reflection of their own styles.

CASH-O-NOVA wishes its seniors at IIFT Delhi a happy and prosperous career. We hope they will be
our guiding lights and help us along in our endeavors.


                             Deepak Kundu                     Rishikumar Singh
Volume 1, Issue 1                                                                                       Page 5

The Editor’s Note
Dear Reader,
The thought of launching a dedicated finance periodical had long been on the minds of those involved in
the activities of the finance club here at IIFT Kolkata. Hence it is with great delight that we present to
you the maiden issue of IIFT Kolkata’s finance magazine, “Infineeti”.
Infineeti, as the name suggest is boundless in its scope, covering the entire spectrum of the ever-
expanding financial domain. Our neeti is a concerted effort to bring about a culture of financial aware-
ness and expertise amongst the students of our illustrious institute.
The debut issue starts with Gaurav Pundlik examining the critical role that China plays in keeping the
U.S. economy afloat. Ankur and Ankit team up together to further sharpen our knowledge on the often
overlooked forex market. Staying with forex, Gaurav Shekhar delves into the fallout of using India’s bur-
geoning forex reserves to finance infrastructure. Our very own editor Daanish Gill takes time away from
his editorial responsibilities to expound upon our ‘Dude of the Month’, John Maynard Keynes. Pankaj
and Aditya expose some of the sneaky techniques used by companies in the E.U. to avoid VAT (we sus-
pect this article is for your future benefit). Mergers and Acquisitions seem to be the buzzword these
days, and Sumeet gets straight into the nitty-gritty of the Tata-Corus deal. Another word that rings well
in our ears is I-Banking, which Ajay takes head-on. Deepak tries to simplify the technical, with inputs
on ‘Financial Inclusion’. We have a little fun with both editors’ miserable attendance records and find
hidden opportunity in it, as cited in an open letter to the Center Head. Rishi serves up the latest, steam-
ing financial news straight out of the capital markets. And in closing, Dipendra Tulsiyan joins in with
some interesting facts in run up to the much-awaited Union Budget.
Looking at the content and quality of the above listed contributions, the editorial & production team at
Infineeti has to stand up in applause. The final product you see before you has far exceeded any expecta-
tions, thus reaffirming our notions that this batch of IIFT Kolkata 2006-08 has some inherent talent
when it comes to magazine, and in recent times, film production.
So congratulations to all involved. To those who first dreamt of starting this magazine, to those who re-
alized that dream, to those who will read this supreme effort and spread the good word on it.

As we say quite cleverly at Infineeti, we’ve come a long way, but the possibilities at Infineeti are truly

Warm Regards,

The Editors

                                   Daanish I.S. Gill                      Johan Jose
Page 6                                       INFINEETI

“Blame Game” of Global Financial
By Gaurav Pundlik                    deficits      by
The question of “How long the        bonds using
global economy can endure the        money it gets
United States’ burgeoning trade      from its ex-
deficit” has been giving hiccups     ports.         If
to almost every trading partner      China decides
if that country. While USA           not to do so,
blames China for its underval-       that     would
ued currency, the rest of the        further weaken the dollar and           To solve this impasse, Joseph
world points towards the mas-        bring down its forex reserves           Stiglitz suggests “expenditure
sive American trade and fiscal       (presently standing at $1 tril-         cuts with increase in taxes on
deficit.                             lion). The competition benefiting       Upper-income Americans and
China’s trade surplus is the re-     out of China’s reducing its export      reduction in taxes on lower-
sult of its undervalued exchange     share would start investing in          income Americans”. If appropri-
rate.    Although    China     has   stronger currency, like the euro        ately designed such combination
strengthened it’s Yuan relative      or hold more reserves at home.          can increase the poor’s spending
to the dollar and eliminated ap-     Here again United states will           power and reduce the deficit. He
proximately $120 billion a year’s    find it difficult to finance its fis-   also draws our attention towards
trade surplus with USA, there        cal deficits, bringing the world        Keynes’ idea of adopting a new
seems to be no significant change    order to even greater instability.      international currency to reform
in America’s multilateral trade      Further exaggerating the prob-          the global monetary system that
deficit because it now buys fewer    lem was the wrong execution of a        will “really” make globalization
textiles from China and more         good idea i.e. increasing house-        work.
from Bangladesh, Cambodia and        hold savings as the US Govern-          Till then, wait and watch or...
other developing countries. How-     ment did by cutting taxes .This         BLAME?
ever stronger Yuan has made          actually reduced the national
imported American food cheaper       savings because cost to the gov-
in China, thus hitting Chinese       ernment from loss of revenue
farmers badly as they see their      was greater than the increased
incomes fall. As a counter attack-   household savings.
ing strategy, China might well
                                     One probable step the govern-
choose to divert all money
                                     ment could have taken was to
needed badly for its industrial
                                     cut its expenditure, but this
production towards agricultural
                                     would have weakened the US
subsidies so as to keep its farm-
                                     and global economy. To nullify
ers competitive. . This step could
                                     this, the Federal Reserve may
bring an imbalance in China’s
                                     have lowered interest rates to
present share of agricultural
                                     encourage     the    debt-ridden
(11.9%)     and     manufacturing                                                     Gaurav Pundlik
                                     American household to procure
(48.1%) output as part of its
                                     more credit in the form of loans
GDP; with the former increasing
                                     to pay for spending. This would
and pulling down the latter.
                                     have made the common man’s
China helps in financing US          future even more insecure.
Volume 1, Issue 1                                                                                     Page 7

An Introduction to the Forex Market

      Ankur Jhunjhunwala & Ankit
   By AnkurJhunjhunwala and Ankit Jain

   The Forex market is a nonstop cash
   market where currencies of nations
   are traded, typically via brokers. For-
   eign currencies are constantly and
   simultaneously bought and sold
   across local and global markets and
                                             -change rate of EUR/USD on Aug 26th,
   traders' investments increase or de-
                                             2003 was 1.0857. This number is also
   crease in value based upon currency
                                             referred to as a "Forex rate" or just
   movements. Foreign exchange mar-
                                             "rate" for short. If the investor had
   ket conditions can change at any
                                             bought 1000 euros on that date, he
   time in response to real-time events.
                                             would have paid 1085.70 U.S. dollars.
   The main enticements of currency
                                             One year later, the Forex rate was
   dealing to private investors and at-
                                             1.2083, which means that the value of
   tractions for short-term Forex trad-
                                             the euro (the numerator of the EUR/
   ing are:
                                             USD ratio) increased in relation to the
   •    24-hour trading, 5 days a week       U.S. dollar. The investor could now sell
        with nonstop access to global        the 1000 euros in order to receive       Ankit Jain
        Forex dealers.                       1208.30 dollars. Therefore, the investor
   •    An enormous liquid market mak-       would have USD 122.60 more than
        ing it easy to trade most curren-    what he had started one year earlier.
        cies.                                However, to know if the investor made
                                             a good investment, one needs to com-
   •    Volatile markets offering profit
                                             pare this investment option to alterna-
                                             tive investments. At the very mini-
   •    Standard instruments for control-    mum, the return on investment (ROI)
        ling risk exposure.                  should be compared to the return on a
   •    The ability to profit in rising or   "risk-free" investment. ,such as US
        falling markets.                     treasury Bond which has no default
                                             risk i.e. the U.S. government going Ankur Jhunjhunwala
   •    Leveraged trading with low mar-      bankrupt or being unable or unwilling
        gin requirements.                    to pay its debt obligation.
   •    Many options for zero commission     When trading currencies, trade only
        trading.                             when you expect the currency you are
                                             buying to increase in value relative to     One example of a
   Forex trading                             the currency you are selling. If the cur- risk-free investment
                                             rency you are buying does increase in       is long-term U.S.
                                             value, you must sell back the other cur-
                                             rency in order to lock in a profit. An
                                                                                        government bonds
   The investor's goal in Forex trading
   is to profit from foreign currency        open trade (also called an open posi-          since there is
                                                                   picture or
                                                Caption describingin which a trader has
                                             tion) is a trade                              practically no
   movements. Forex trading or cur-
   rency trading is always done in cur-      bought or graphic.a particular currency
                                                           sold                               chance of
   rency pairs. For example, the ex-         pair and has not yet sold or bought             defaulting.
Volume 1, Issue 1                                                                                 Page 8

back the equivalent amount to The exchange rate also tells a Margin
close the position.                  seller how much is received in the
However, it is estimated that any- counter or quote currency when Banks and/or online trading pro-
where from 70%-90% of the FX selling one unit of the base cur- viders need collateral to ensure
market is speculative. In other rency.                                   that the investor can pay in case
words, the person or institution For example, an exchange rate for of a loss. The collateral is called
that bought or sold the currency EUR/USD of 1.2083 specifies to the margin and is also known as
has no plan to actually take deliv- the buyer of euros that 1.2083 minimum security in Forex mar-
ery of the currency in the end; USD must be paid to obtain 1 kets. In practice, it is a deposit to
rather, they were solely speculat- euro.                                 the trader's account that is in-
ing on the movement of that par- At any given point, time and tended to cover any currency
ticular currency.                    place, if an investor buys any cur- trading losses in the future.
                                     rency and immediately sells it - Margin enables private investors
Exchange rate                        and no change in the exchange to trade in markets that have
                                     rate has occurred - the investor high minimum units of trading by
                                     will lose money. The reason for allowing traders to hold a much
Because currencies are traded in this is that the bid price, which larger position than their account
pairs and exchanged one against represents how much will be re- value. Margin trading also en-
the other when traded, the rate at ceived in the counter or quote cur- hances the rate of profit, but has
which they are exchanged is called rency when selling one unit of the the tendency to inflate rates of
the exchange rate. The majority of base currency, is always lower loss, on top of systemic risk.
the currencies are traded against than the ask price, which repre-
the US dollar (USD). The four next sents how much must be paid in
-most traded currencies are the the counter or quote currency Leveraged financing
euro (EUR), the Japanese yen when buying one unit of the base
(JPY), the British pound sterling currency. For instance, the EUR/
(GBP) and the Swiss franc (CHF). USD bid/ask currency rates at Leveraged financing, i.e., the use
These five currencies make up the your bank may be 1.2015/1.3015, of credit, such as a trade pur-
majority of the market and are representing a spread of 1000 chased on a margin, is very com-
called the major currencies or "the pips (also called points, one pip = mon in Forex. The loan/leveraged
Majors". Some sources also include 0.0001), which is very high in in the margined account is collat-
the Australian dollar (AUD) comparison to the bid/ask cur- eralized by your initial deposit.
within the group of major curren- rency rates that online Forex in- This may result in being able to
cies.                                vestors commonly encounter, such control USD 100,000 for as little
                                     as 1.2015/1.2020, with a spread of as USD 1,000. Five ways private
The first currency in the exchange
                                     5 pips. In general, smaller investors can trade in Forex di-
pair is referred to as the base cur-
                                     spreads are better for Forex in- rectly or indirectly:
rency and the second currency as
                                     vestors since even they require a      • The spot market
the counter or quote currency. The
                                     smaller movement in exchange
counter or quote currency is thus                                           • Forwards and futures
                                     rates in order to profit from a
the numerator in the ratio, and
                                     trade.                                 • Options
the base currency is the denomina-
tor. The value of the base currency                                         • Contracts for difference
(denominator) is always 1. There-                                           • Spread betting
fore, the exchange rate tells a
buyer how much of the counter or
quote currency must be paid to ob-
tain one unit of the base currency.
Volume 1, Issue 1                                                                                Page 9

A spot transaction                 both fundamental and techni- Those who contribute in giving
                                   cal— is extremely important. the information on currency deal-
                                                                     ing are hedge managers, foreign
A spot transaction is a straight-  And for people who have yet to exchange dealers located in the
forward exchange of one currency   learn how to FX trade, taking an major financial markets of the
for another. The spot rate is the  online course is paramount to get world, professional stock brokers,
current market price, also called  them off to a proper start. finance managers and a host of
the benchmark price. Spot trans-                                     other finance professionals. They
actions do not require immediate   Indeed, it can make the differ- make it their business to collect,
settlement, or payment "on the     ence between being successful analyze and disseminate informa-
spot." The settlement date, or     and getting wiped out, although tion in such a way that can be
"value date," is the second busi-  there is no guarantee that even used by forex dealers to buy /
ness day after the "deal date" (or the best newsletter analysis ser- sell / hold the forex.
"trade date") on which the trans-  vice or FOREX training course
action is agreed to by the two     will guarantee you profits or
traders. The two-day period pro-   guard you against losses.
vides time to confirm the agree-
ment and arrange the clearing That's why global FOREX trad-
and necessary debiting and cred- ing is considered to be an ex-
iting of bank accounts in various tremely speculative endeavor.
international locations.
                                    The people who do best at it will
                                    be methodical, have strong con-
                                    trol over their impulses and emo-
Although Forex trading can lead tions, are analytical to a fault,
to very profitable results, there and are all around disciplined
are risks involved: exchange rate individuals.
risks, interest rate risks, credit
risks, and country risks. Approxi-
mately 80% of all currency trans- Dedicated forex firms work on the
actions last a period of seven days analysis of the movement of the
or less, while more than 40% last forex market. Forex signals are
fewer than two days. Given the sent by a forex firm to their sub-
extremely short lifespan of the scribers in order to buy and sell
typical trade, technical indicators currencies. These signals are
heavily influence entry, exit and called entry and exit signals for
order placement decisions.          the forex dealers. The firms,
                                    which send this forex signal, do
Who earns and how they so after tedious and meticulous
earn?                               research and analysis into the
                                    currencies that their dealers are
Because such large sums of trading in. For example a firm
money can be made playing the may send the entry and exit sig-
FOREX markets, hobbyists and nals at designated time frames in
full time currency traders are real time. These will remain valid
quickly increasing in numbers. for a short period only after
                                    which they are going to be differ-
For both amateur and pro alike, ent.
getting quality FOREX(FX)
analysis of the markets —
Page 10                                                                                              INFINEETI

Financing Infrastructure through Forex
Compiled by Gaurav Shekhar            large and rising foreign ex-
                                      change reserves should be used
                                      to finance infrastructural invest-
Infrastructure, which essentially     ment has gained some credence.
is the backbone of any economic       The returns earned by foreign
activity, the support platform on     investors in India, especially
which trade is carried out, covers    those who come into the stock
a wide scope of activities like       market are quite substantial,
railways, roads, ports, aviation,     while the return earned by the                Gaurav Shekhar
logistics solutions, power, energy    Reserve Bank of India from its
solutions and telecom. It is esti-                                         central bank purchased the dol-
                                      investments in relatively liquid
mated that infrastructure alone                                            lars from. Those dollars were
                                      and safe financial assets are low.
provides a $150 billion opportu-                                           purchased as part of the current
                                      The low and declining tax GDP
nity in FDI. Where do these op-                                            means of exchange rate manage-
                                      ratio and the reductions in the
portunities lie? By 2012, it is en-                                        ment, namely, open market pur-
                                      fiscal deficit, now rendered man-
visaged that another 40,000 km                                             chases by the RBI. If it had not
                                      datory through the Fiscal Re-
will be developed—that’s invest-                                           bought those dollars, as they
                                      sponsibility and Budget Manage-
ment worth $50 billion. There                                              flowed in on the capital account
                                      ment Act, have meant that pub-
are opportunities in our ports                                             of the balance of payments in
                                      lic sector capital formation, in-
sector as well, where PPPs                                                 recent years when the current
                                      cluding investments in infra-
(Private Public partnership) for                                           account has been reflecting a
                                      structure, has been stagnant or
54 new berths to add capacity of                                           surplus, the rupee would have
                                      declining in real terms. Putting
400 million tonnes are being fi-                                           appreciated and India’s export
                                      so-called ‘idle reserves’, earning
nalized. And in airports, we ex-                                           competitiveness would have been
                                      extremely low returns, into this
pect investments of about $9 bn                                            adversely affected. Secondly, re-
through PPPs. Such partner-                                                serves held by the central bank
ships are in progress in Banga-                                            are never ‘idle’. They are in-
lore, Hyderabad, Delhi and              “Take national highways,           vested though and the more safe
Mumbai and are expected to fol-                                            and liquid the investment in-
                                        which account for just 2%          strument chosen, the lower the
low in Kolkata and Chennai.
There are also plans for five            of the road network, yet          return. Thirdly, the central bank
other Greenfield airports that          carry 40% of the traffic.”         chooses safe and liquid invest-
could involve private participa-                                           ments because it believes that it
tion. In railways, PPPs are en-                                            would be called upon to sell
visaged in new routes, railways                                            these dollars to those who in In-
                                      activity, therefore, seems a most
stations, logistics parks, cargo      promising and innovative idea.
aggregation and warehouses.           The problem is that stated in
The debate today is over the          this form, the proposal is a non-
mode of this finance                  starter, since foreign exchange
Burdened with rising interest         reserves cannot be used in this
payments on borrowing from the        manner. To start with, they re-
open market, the government           flect assets of the RBI against
finds itself increasingly short of    which it has already built rupee
funds for investment and devel-       liabilities in the form of rupee
opment purposes. In recent            payments to whosoever the
months, the idea that India’s
Volume 1, Issue 1                                                                                         Page 11

dia’s more liberalized external securities issued by the invest-
environment choose to import    ment body (in our case the                      “The central bank is not an
more. Finally, If these reservesSPV’s) at an interest rate equal                   investment agency it
are indeed to be used for infra-to the return earned by the RBI
structural purposes, there must on its investment of reserves. In                 chooses safe and liquid
                                the process, the RBI’s control
be an investor – public or private                                                investments because it
                                over money supply is not affected
– who chooses to buy these dollars                                               believes that it would be
from the central bank to financesince its net asset position is un-
                                                                                 called upon to sell these
                                changed, it does not lose out on
such imports required for new in-
vestment.                       the return, however small, it was                 dollars to those who in
Assume that such an investor earning on its assets, and the                      India’s more liberalized
may be created. We may have a government obtains access to                         external environment
scenario where the Special Pur- resources at relatively low rates                choose to import more.”
pose Vehicles cre-                                 of     interest
ated may act as                                    which it can
investors.     The                                 invest in infra-
idea, it appears, is                               structural pro-             above assumes that the govern-
for the central                                    jects.                      ment is well above its balance of
bank to issue and                                          Well the above      payment crisis and the excess
sell in the domes-                                         strategy     will   reserves represent an attempt to
tic market for ru-                                         have its share      regulate the exchange rate. The
pees a set of bonds                                        of critics. The     second argument can be coun-
whose value is                                             first argument      tered by the fact the there would
linked to the dol-                                         against     this    be a continuous rollover of dollar
lar, and which pro-                                        can be that it      -linked bonds, with new buyers
vides a yield equal                                        has created a       replacing old ones, so that the
to that earned by                                          new set of do-      total rupee value of such bonds
the RBI through investment of its       mestic claimants on the dollar         does not change. What is more,
reserves. These bonds, given their      reserves that the RBI holds. Will      the lower rates of interest paid
low yield, would be acquired by         it not disturb the stability of our    on borrowing from the central
those who want to hedge their           balance of payments. The second        bank as opposed to borrowing
future dollar payment commit-           argument can be about the long         from the open market would
ments or those who want to              term nature of funds required for      curb the rise in the interest bur-
speculate on the rupee depreciat-       Infrastructure financing. Will         den on the government’s budget
ing, since that would offer them        the counterpart dollar-linked          that is a major reason for the
capital gains. For the RBI, this        bonds issued by the RBI can            fiscal crunch.
process amounts to reducing its         have a similar maturity. Those
net asset holding through the           involved in hedging or specula-
creation of a set of liabilities, for   tion would be interested in rela-
which the capital risk and return       tively short-term investments.
is exactly matched by that on its       Finally, the whole process in-
dollar reserves. In lieu of this re-    volves an increase in the
duction, the RBI is in a position to    monetized deficit of the govern-
acquire additional assets without       ment, which has been considered
affecting the original value of its     anathema by the economic re-
high-powered money base. This it        formers. In defense what one can
is expected to do by purchasing         suggest is that the strategy
Page 12                                                                                              INFINEETI

Dude of the Month– John Maynard Keynes
By Daanish Gill                     Englishman advocated interven-
                                    tionist government policy in an
                                    age when Laissez-Faire was the
Who was he?                         norm. His iconoclastic policies
Keynes was the son                              pulled Europe and
of Neville Keynes, an                           North America out of
economics professor                             the great depression
at Cambridge Uni-                               and on the track of
versity. He enjoyed                             robust economic
an elite early educa-                           growth. Moreover, he
tion at Eton, where                             also helped frame                  Daanish Gill
he displayed talent in                          policies that helped
a wide range of sub-                            the allied nations
jects; particularly                             finance and win the
                                                Second World War.       of the micro level acts of all its
mathematics, classics
and history. His abilities were     His efforts were acknowledged       individuals. Keynes however
remarkable for their sheer diver-   when he appeared on the cover       stated that an economy can be-
sity- Keynes later is known to      of ‘Time’ magazine on 31decem-      have differently from the com-
have said that an economist         ber 1965, nineteen years after      bined behaviour of its contents-
must be a mathematician, econo-     his demise.                         in other words, an individual vir-
mist, politician and sociologist    If success at solving a nation’s    tue could translate into a collec-
all rolled into one. He entered     economic problems is too altruis-   tive vice. Macro level trends can
King’s College, Cambridge, in       tic for your tastes it would com-   overwhelm Micro lever behav-
1902, to study mathematics, but     fort you to know that he also       iour.
his interest in politics led him                                        Classical economists stated that
towards the field of economics,                                         supply created its own demand-
which he studied at Cambridge
                                           “In the long run,
                                                                        when demand was low, prices of
under A.C. Pigou and Alfred                we are all dead”             goods and services fell and de-
Marshall, both great economists             -J.M. Keynes                mand picked up due to lower
in their own right. Marshall is                                         prices. If demand was slack, pro-
believed to have prompted           made a fortune investing in the     ducers were advised to cut wages
Keynes's shift in interest from     stock markets. He made im-          or lay off employees- this would
mathematics and classics to eco-    mense amounts of money in the       lower costs of produced goods
nomics. Keynes received his B.A.    1920s but lost most of in the       and would help pep up demand.
1905 and his M.A. in 1909.          great crash of 1929, however he     Keynes rubbished this claim- if
                                    made better his loss afterwards.    all producers cut wages than the
                                                                        purchasing power of the work-
Why is he considered so
                                                                        force (who are incidentally the
great?                              What is Keynesian Econom-           consumers as well) would be
                                    ics?                                eroded thus preventing an eco-
J.M. Keynes is perhaps the most                                         nomic recovery. It was aggregate
influential economist of the                                            demand that was the crucial fac-
                                    Keynes refuted the postulates of
twentieth century; he is credited                                       tor in the short run, not aggre-
                                    Classical economists, who be-
with single handedly creating                                           gate supply. To solve this conun-
                                    lieved that an economy on a
the subject of Keynesian Eco-                                           drum, Keynes advocated eco-
                                    macro level was the aggregation
nomics. The unusually tall 6’6”                                         nomic interventionist policies
Volume 1, Issue 1                                                                                      Page 13

where the government was to          all dead."                            fiscal ‘Pump Priming’ called the
step in and stimulate the econ-      In 1932 US President Herbert          new deal that built infrastruc-
omy by fiscal policy, i.e. govern-   Hoover did just the opposite of       ture and generated jobs. When
ment spending. This spending         this, he sarcastically attacked       there was no more infrastructure
would have a multiplier effect on    Keynes findings by stating            to be built Keynes was rumored
the economy and even a modest        “Blessed are the youth, for they      to say – destroy the old roads
increase in government spending      will inherit the national debt”. In   and build new ones. The success
would multiply into a consider-      the depths of a the great depres-     of the ‘New Deal’ helped the al-
able stimulus for economic           sion, he increased taxes to bal-      lies win the Second World War
growth. Building roads, dams         ance the government’s budget.         and bring USA out of recession.
and ports would put money in         Aggregate demand already hit,         Unlike classical economists,
the hands of the working classes,    was subject to the tyranny of         Keynes did not bank on the be-
who in turn would spend it and       taxation and as disposable in-        lief that an economy approaches
kick start the economy- This         comes shrank so did the aggre-        full employment equilibrium in
practice was called ‘Pump Prim-                                   gate     the long term. He believed that
ing’. Now the obvi-                                               de-      the long term may become the
ous question arises,                                              mand     very long term. It was some
where does the gov-                                                        crazy epicurean-rock star phi-
ernment get the                                                            losophy- don’t sacrifice today at
money that it needs                                                        the altar of to-
for ‘Pump Priming’?                                                        morrow, after
Raising taxes is a no                                                      all in the long
brainer, as it would                                                       run we are all     “Blessed are
take money away                                                            dead men.         the youth, for
from the economy                                                                                they will
and hurt business                                                                              inherit the
confidence. Keynes                                                         But Keyne-
                                                                           sianism was       national debt”
answer to that was
ridiculously simple-                                                       not merely
run a deficit i.e. the                                                     “borrow, spend
government should                                                          and make merry, for the deficit
borrow to help an                                                          we shall meet tomorrow”. There
economy out of a re-                                                       is a difference between mere
cession. This would                                                        deficit spending and Keynesian-
increase the na-                                                           ism. Governments had long used
tional debt, but                                                           deficits to finance wars. But
would power an                                                             Keynesian policy is not merely
economy out of a recession giving                                          spending. Rather, it is the propo-
it an extended lease of life. I      plunging USA into a recession         sition that sometimes the econ-
know that this sounds like fiscal    within a depression. Indeed           omy needs active fiscal policy.
blasphemy but there far more         blessed are the youth for they        Further, Keynesianism recom-
that meets the taxman’s eye          will inherit the great depression.    mends counter-cyclical policies,
here. He argued that govern-                                               for example raising taxes when
                                     Unlike his predecessor, US
ments should solve short-term                                              there is abundant demand-side
                                     President F.D. Roosevelt ap-
problems rather than waiting                                               growth to cool the economy and
                                     proached the great depression
long for market forces to do it,                                           to prevent inflation, even if there
                                     with a open mind. Advised by
because "in the long run, we are                                           is a budget surplus. Classical
                                     Keynes, he started a policy of
Volume 1, Issue 1

economics, on the other hand, ar-
gues that one should cut taxes
when there are budget surpluses,
to return money to private hands.
Because deficits grow during re-
cessions, classicals call for cuts in
outlays—or, less likely, tax hikes.
On the other hand, Keynesianism
encourages increased deficits dur-
ing downturns. In the Keynesian
view, the classical policy exacer-
bates the business cycle. In the
classical view, of course, Keyne-
sianism is topsy-turvy policy, al-
most literally fiscal madness       over and the world would have
Keynesians believe that fiscal pol- probably been a predominantly           “Successful investing is antici-
icy should be directed towards the planned economy- the same as             pating the anticipations of oth-
lower-income segment of the         the planned economy that we
                                                                            ers. “
population, because that segment Indians experienced pre 1991.
is more likely to spend the money, As a person Keynes was an in-
contributing to demand, than to     exorable debater, with a wide           “The avoidance of taxes is the
save it. This however was outra-    variety of knowledge in diverse         only intellectual pursuit that still
geously mutilated by the current    fields. Bertrand Russell named          carries any reward. “
US president George W. Bush,        Keynes as the most intelligent
who in 2001 proposed a tax cut      person he had ever known, com-
for the RICHEST Americans, in       menting: "Every time I argued           “I work for a Government I de-
order to kick start the economy.    with Keynes, I felt that I took my      spise, for ends I think criminal.”
As the richest Americans got a $1 life in my hands, and I seldom
Trillion free lunch, Keynes proba- emerged without feeling some-
bly turned in his grave.            thing of a fool."
                                                                            Body of Works
His Legacy.
                                        Quotes                              ♦   The Economic Conse-
Keynes laid the foundation of                                                   quences of the Peace in
modern macro economic thought                                                   1919
and since his school of thought
                                        “By a continuing process of in-     ♦    A Revision of the Treaty in
emerged there hasn’t been an-
other great depression in the
                                        flation, government can confis-         1922
world. The prosperity of the capi-      cate, secretly and unobserved,      ♦   Treatise on Probability in
talistic world rests on the shoul-      an important part of the wealth         1921
ders of a figurative and physical       of their citizens.”
                                                                            ♦   A Tract on Monetary Re-
giant. He rescued Capitalism in
                                                                                form in 1923
her darkest hour, for the only
economy that flourished at that                                             ♦   The Treatise on Money in
                                        “Capitalism is the astounding           1930
time was the USSR. Without
Keynesianism, the world would
                                        belief that the most wickedest of
                                                                            ♦   General Theory of Employ-
have looked to communism as the         men will do the most wickedest
                                                                                ment, Interest and Money-
true way forward, man’s freedom         of things for the greatest good         His Greatest Work
over his financial affairs would be     of everyone. “
                                                                            ♦   How to Pay for the War
Page 15                                                                                             INFINEETI

Carousal Fraud– How dubious companies evade VAT in the EU
By Pankaj    Kothiyal        and    The fraudsters often insert a se-    goods. The goods are then
Aditya Agrawal                      ries of companies into the supply    shipped to a dock in the UK. No
                                    chain to make detection difficult.   VAT is charged on that ship-
                                    Goods that are easily traded and     ment. The trader now sells those
                                    have a high value and low trans-     telephones to a conspirator, for
"Bankers who hire money             port costs, such as computer         £1,100,000. He charges 17.5%
hungry geniuses should              components and mobile phones,        VAT (as is customary in the UK)
not always express sur-             are particularly attractive to       and the conspirator sends
prise   and     amazement           missing trader fraudsters. The       £1,292,500 (being the price of the
                                    goods themselves may remain in       goods plus the tax) to the trader.
when some of them turn
                                    one place, but financial transac-    This conspirator then sells the
around     with    brilliant,
                                    tions give the appearance of nu-     goods to a third conspirator for
creative, and illegal means         merous business purchases and        £1,200,000, charging VAT on
of    making       money."          sales.                               that sale. The third conspirator
Linda Davies
                                    Figures from Eurocanet, a Euro-      pays £1,410,000 to the second.
                                    pean Commission sponsored pro-       This may continue for many con-
                                    ject, released in September 2006,
Carousel Fraud                      appear to show that the United
                                    Kingdom is the main victim of
Carousel fraud is the repetitive    this fraud, having lost an esti-
(cross-border) purchase and sales   mated €12.6 billion during 2005-
transactions within a rapidly       6, followed by Spain and Italy
changing group of companies.        which each lost over €2 billion
The cross-border dimension                           during this pe-
means that VAT is                                    riod. From De-
not paid in the                                      cember 2006, the             Pankaj Kothiyal
country of origin,                                   UK is introduc-
while the company                                    ing changes to      spirators; however three will suf-
in the country of                                    the way that        fice for an example. The third
destination disap-                                   VAT is charged      trader now sells the telephones
pears without pay-                                   on certain light,   to a German company, which
ment of VAT. An                                      high-value elec-    may well be innocent. No VAT is
extensive and com-                                   tronic items, to    charged, and the sales price of
plicated chain of                                    help combat the     £1,500,000 paid by the German
transactions     in                                  fraud.              company without VAT. So far
several countries                                                        the conspirators have made a
                                                    Modus      Oper-     profit of £500,000 perfectly le-
is used to cover up                                 andi
what is actually                                                         gitimately on buying and selling
happening.                                         Consider      a       mobile telephones.
                                                   trader based in       In an honest operation the first
It involves the con-                               the UK. He buys
tinuous movement                                                         trader would pay £192,500 to
                                                   from France a         HM Revenue and Customs (the
of goods between                                   consignment of
co-operating traders in different                                        UK's VAT collection agency).
                                    mobile      telephones     for
EU member-states, resulting in      £1,000,000. He pays the French
multiple tax losses.                telephone manufacturer for the       The second trade has collected
Volume 1, Issue 1                                                                                         Page 16

£210,000 in VAT, but paid                phones can be used again and
£192,500 in VAT, and therefore           again going through the various
only has to pay the difference           buffers, each pass around the
(£17,500) to HM Revenue and              'carousel' bringing reclaimed
Customs. The third trader has            VAT to the fraudsters.
charged no tax on its sale, but
has paid £210,000 in VAT, and
can therefore reclaim £210,000           Relevance to India
from HM Revenue and Customs.              India does not face the immedi-          Aditya Agrawal
In the fraud, the first business         ate prospect of facing carousel
vanishes, without paying the             fraud, which happens because of
VAT to HM Revenue & Customs.             the system of charging the VAT
When the last business in the            on Inter-EU sale between differ-
chain collects £210,000 on the           ent countries. Under the system
export, all of the businesses can        in vogue, in the case of trade be-
vanish, £192,500 better off at the       tween two VAT registered deal-
expense of HM Revenue and                ers in different countries, the       “This entire series of
Customs. As this business is re-         sale is zero rated in the export-
                                                                              transactions can occur
moved from the vanishing party           ing state and the VAT tax is paid
it is hard for HM Revenue and            by the importing dealer at the       without the goods ever
Customs to show the links in the         point of purchase. Input-tax         leaving the dock in the
chain, and thereby refuse to re-         credit can be available on the
fund the VAT on the export.              VAT paid on imported goods              UK before being
                                         when the goods are subsequently           re-exported.”
In terminology, each business            sold. In the case of export by a
described above is called a              VAT registered dealer to a non-
"buffer". In a real case there can       registered dealer, the exporting
be many buffers, all helping to          dealer bills the VAT.
blur the link between the final
reclaim and the original im-
porter, who will vanish.
Furthermore         the   same   tele-

                                                                                     Caption describing picture or
Page 17                                                                                              INFINEETI

A lighter look at Chartered Accountants
When I told my mom that I             the time sheet. My time was put
wanted a professional woman as        down as unoccupied. She says
my wife, she got me one; a Char-      that she says that she loves me
tered Accountant. She uses LIFO       and I tell her that I love her too.
method while taking out the re-       However, she never believes
frigerated food. She thinks I am      me. She says that there is sus-
no good at figure work. Fine with     ceptibility of it being a misstate-
me, for now she handles the           ment. Duh! She wants my repre-
budget of the house. Initially she    sentation on this!
used to send me a bill at the          Last year our house accounts
month end, but when I told her        got a qualified opinion I had not              Compiled by
that I am not her client but her      kept the supporting etc. of my                 Sayak Dutta
husband, she asks for the money       purchases. Not a long time back
in advance. The expenses had          my brother's wedding was to be
been rising steadily over the         solemnized. Wedding cards had
months, so one day I snooped          been sent.
into the papers maintained in a       After some time
current file. No wonder! She was      I started receiv-
charging conveyance and over-         ing a steady
time to the house budget. She is      trickle of letters.
crazy, I tell her but she corrects    I was puzzled
me. No my darling, I am the           until my wife
auditor. I fail to see the light.     was explained
Every scrap of the paper in our       that external
house is filed. She tells me as per   evidence was
some Ordinance she must keep a        more reliable.
copy of everything for at least       She had called
ten years before destroying it. I     for confirma-
am worried. The other day we          tions from all
had an hour-long fight. Later, I      those to whom
got to know that she had charged      cards were sent.
that hour to a client of hers, in     When she cooks,
                                      my wife at times
                                      does not go by
     “I am told by one of my          recipe. Where
                                      the recipe says
    female colleagues who is
                                      add half-
    married to a CA that the          teaspoon vinegar, one tsp black       state that auditor is a synonym
  scenario is even worse when         salt or one teacup of water, she      for crazy.
  the guy is a CA. Apparently         ignores them. She says that they      The dictionary must be outdated.
                                      are not material when taken in        When we got married, she had
   he capitalized the wedding
                                      context of whole meal being pre-      given me an Engagement Letter
     expenses as preliminary                                                and I Had said how cute-how
                                      pared. She is crazy, I tell you.
  expenses and is writing it off      Surprisingly everybody calls her      sweet. Now she gives it to me
          every year.“                an auditor, instead. I checked        every year saying that her stan-
                                      the dictionary and it did not         dards state that it must be sent
Volume 1, Issue 1                                                    Page 18

anew if there is any indication
that I have misunderstood the
objective and scope of engage-
ment. Huh!
Apart from sending me the en-
gagement letter once again she
says I can't get rid off her just
like that. She says that she has
the right of being heard before I
appoint someone else. It seems I
must keep reading one local and
another English newspaper pub-       Caption describing picture or
lished and circulated in the vi-               graphic.
cinity of our house for more de-
Phew! For a minute, I thought
that we had jeopardized our go-
ing concern status. Duh! Dare I
say so??
I am told by one of my female
colleagues who is married to a
CA that the scenario is even
worse when the guy is a CA. Ap-
parently he capitalized the wed-
ding expenses as preliminary
expenses and is writing it off
every year. Also the time he
spent dating his wife before mar-
rying her is still under consid-
eration for valuation under AS-
26...valuation of intangible as-

So guys please think
twice....should u really marry a
And yes please discount it by the
appropriate rate to arrive at the
present value of the risk of doing
so !!!!!!!
Page 19                                                                                                INFINEETI

Looking into Tata’s Corus acquisition: A financial perspective
By Sumeet Sinha                       try which are below the 10%
                                      mark! Also the automobile
                                      manufacturers (which are the
The Background                        major buyers of steel) consist of a
                                      clout of 6-7 strong global players.
                                      Thus consolidation seems inevi-
The Tata Group is celebrating its
                                      table to the steel industry in a
acquisition of the Anglo-Dutch
                                      sense that it gives them better
steel firm Corus, and the cata-
                                      bargaining ability and shields
pulting of Tata Steel into world
                                      from global price volatility. Thus
steel's big-five status (by reve-
                                      it makes sense for the steel in-      merger witnessed a loss of
nue). This assumes significance
                                      dustry to consolidate, and the        €1.152 billion. Then in 2003
as it is the biggest deal from an
                                      trend on a global scale was           when Philippe Varin took charge
emerging market like India. The
                                      started by Mittal’s acquisition of    of Corus as CEO, things im-
Tata’s paid a hefty 608 pence per
                                      Arcelor in 2006 for a sum of          proved very much. Varin was
share to outbid their rivals CSN
                                      €26.9 billion (at €40.44 per          instrumental in reducing the
by a fair margin. Because of the
                                      share).                               costs by € 600 million as well as
high valuation given by the
                                      Strategy behind the game              improving the share price from
Tata’s for Corus, its shares have
                                                                            40 pence to 390 pence when
witnessed a major setback. In-        Now coming to the topic for the       Tata’s came.
fact ever since the decision to       discussion i.e. “Tata’s takeover of
purchase Corus echoed from the        Corus”, we will first try to ana-     The Tata wanted Corus for sev-
Tata board, the shares of Tata        lyze the strategic reasons for        eral strategic reasons. The urge
have witnessed a loss of almost 1                                           was so immense that they will-
crore rupees! However this is                                               ing to go as far as 630 pence per
                                       Infact ever since the decision       share for Corus (as per BW re-
definitely a myopic and short
term view of the market. If we        to purchase Corus echoed from         ports). The essential strategy for
look into the global steel indus-      the Tata board, the shares of        Corus acquisition is to ship iron
try then we have reasons to be-         Tata has witnessed a loss of        ore and/or low-cost crude steel to
lieve that the decision by the             almost 1 crore rupees!           Corus' plants in Europe, which
Tata’s was a well thought one.                                              would use their technological
Take for instance the worldwide       Tata’s decisions and then we will     know-how to turn this low-cost
prices of steel: which have wit-      look into the financial and other     raw steel into finished products
nessed extreme fluctuations on        aspects of the deal. Corus was        that can be sold to customers
account of market fragmenta-          established in 1999 following the     close to them. Corus, being the
tion. To add to the woes of the       merger of British Steel and the       second largest steelmaker in
steel manufacturers is the fact       Dutch Hoogovens. British Steel        Europe, would provide Tata
that globally both the suppliers      was in turn established in 1967       Steel access to some of
as well as buyers of steel are well   with the merger of 12 British
consolidated. For example in the      national steel plants. However
case of iron ore, the three global    ever since the inception of Corus,
players CVRD, and Rio Tinto           it was in the net of some or the
and BHP Billiton control over         other conflict or chaos. There
75% of the market and have op-        was no unanimity of the decision
erating margins of close to 40%.      amongst the Dutch and the Brit-
Contrast this with the low oper-      ish. The year following the
ating margins of the steel indus-
Volume 1, Issue 1                                                                                     Page 20

the largest steel buyers. The ac-    rate payment would depend a lot       story lets see as to how the $4.1
quisition would open new mar-        on the strength of the Corus bal-     billion could be financed by the
kets and product segments for        ance sheets.                          Tata sons. The Tata’s could pos-
Tata Steel, which would help the                                           sibly look at divesting of their
company to de-risk its busi-                                               holdings in TCS. TCS revenues
nesses through wider geographi-      The Corus picture                     crossed the $3 billion mark in
cal reach. The Tata’s have been      A look at the Corus balance           the third quarter of the 2006-
seeking to pursue a similar          sheet reveals the following pic-      2007 financial year with quar-
strategy through their much          ture.                                 terly revenue of over $ 1 billion.
smaller acquisitions of NatSteel                                           As of 31st December 2006, the
                                     •   Corus revenues for the year
in Singapore and Millennium                                                promoter group of TCS Ltd had a
                                         2004 and 2005 were $18.32
Steel in Thailand. Without going                                           shareholding of 82.49 % of the
                                         billion and $19.91 billion re-
any further in the acquisition                                             total shares of TCS. Of this the
                                         spectively. That of the Jan-
from a strategy point of view, we                                          major part was held by Tata
                                         Sep 2006 period was $14.10
will discuss as to what are the                                            sons. Since the financials of TCS
options for the Tata’s to finance                                          is strong, the Tata Sons could
                                     •   Its EBITDA margins were
the deal and its implications.                                             possibly divest a part of their
                                         10.44 and 9.34 for 2004 and
                                                                           shares in TCS to part finance the
                                         2005 respectively. That for
                                                                           deal. Assume that of the $4.1
Financing the deal: The mil-             the Jan-Sep 2006 period was
                                                                           billion, Tata sons decide to gen-
lion $ question                          only 7.96.
                                                                           erate $1billion through equity
                                     •   Its operating profits margin
As per the recent reports, Tata                                            divesting in TCS Ltd. Then as-
                                         was 7.09 and 5.89 for 2004
steel is planning to raise an SPV                                          suming the stock price of TCS as
                                         and 2005 respectively. That
to fund the financing of the deal.                                         its 52 week high of 1399 INR,
                                         for the Jan-Sep 2006 period
As per the deal, an SPV (Tata                                              Tata sons would have to divest
                                         was 5.29%.
steel UK) would be pumping in                                              close to 3.29 percent!!
                                     •   And its net profit margin was
the required fund of $12.2 bil-          4.73 and 3.63 for 2004 and
lion. Of this, the group holding         2005 respectively. That for
company will pump in $4.1 bil-                                             But Tata Sons should partly
                                         the Jan-Sep 2006 period was       divest some of their TCS
lion and the remaining 8 billion         only 1.77 percent.
would be financed after taking                                             shares. In fact they have done
loans from Standard Chartered,       Thus it appears that current          so!! ET had reported that “Tata
ABN Amro, Deutsche bank and          cash flows of Corus are barely        Sons has sold about 8.1 million
CSFB . It is reported that the       sufficient to cover this, even af-    equity shares of the software
interest on the loan would be fi-    ter considering the synergy gains     company, to an undisclosed
nanced through Corus cash            of $350 million (as claimed by        buyer. While the statement didn't
flows. Interest rates on credit      Tata Steel). If international steel   mention the price at which the
facilities for such buy-outs are     prices decline even modestly,         transaction was concluded, going
often higher than market rates       Tata Steel would have to dip into     by Thursday's closing price of Rs
because of the risks involved. At    its own cash flows or find other      1,300 per share, the value of the
an expected interest rate of 7 per   sources like an equity dilution to    deal could total up to Rs 1,035
cent per annum, the interest         service the debt. No wonders          crore ($230 million).” In fact
outgo alone would be over $650       why the investors are in tizzy        when Tata sons divested around
million per year. Along with re-     ever since the deal was made          1000 crores of their stakes in
payment of principal, the annual     public.                               TCS, rumors were abound that it
fund requirement to service this                                           was done to part finance the
                                                                           Corus deal. Through this trans-
debt would be around $1.5 bil-       Tata sons’ divestment of TCS          action, the stake of Tata sons
lion - assuming a 10-year repay-     shares                                has been reduced by 0.84%.
ment horizon. So the interest
                                     That being just one part of the
Page 21                                                                                                INFINEETI

Raising debt against Tata            lion’s share of 23.82 and 4.45
steel                                percent respectively. Other pro-
Let us look at financing the deal    moters held less than 1 percent
by taking loan against Tata          shares in Tata Steel. Suppose
Steel. Tata steel currently has a    that Tata sons decide to divest
debt-equity ratio of close to 26     around 50% of their sharehold-
percent. If it takes Rs.1000 crore   ing in Tata steel (which would
($222 million) loan, then it will    bring their share percentage
increase the debt-equity ratio to    close to 11.9 percent). By doing              Sumeet Sinha
36 percent. If it takes Rs.2000      this, Tata sons could generate
crore loan, the same figure would    close to $706 million which could
                                     be used to partly finance the         thing is that this approach may
reach 46 % which is a high figure
                                     Corus deal.                           not gel with the shareholders as
keeping in mind that it has sev-
                                                                           it reduces the EPS by close to 9
eral Brownfield projects in pipe-
line as well Greenfield ones in      Further dilution of Tata Steel
Orissa, Chhattisgarh and Jhark-                                            Conclusions
hand. Also the borrowing would                                             Thus keeping the above options
take a beating on the EPS which      Another option could be the al-
                                                                           in mind as well as their affect on
is one among the many dearest        lotment of preferential shares to
                                                                           the Tata steel statistics, there is
things to a shareholder. In fact     Tata sons. As per March 2006
                                                                           no doubt that Tata steel should
an analysis by CLSA firm re-         balance sheet of Tata steel, it
                                                                           tread a careful path while fi-
veals that a market borrowing of     had an EPS of Rs.60.4. If it de-
                                                                           nancing the Corus deal. It
$1-1.8 billion could dilute the      cides to follow an equity dilution
                                                                           should look at both the short
EPS of Tata Steel by as              through preferential allotment of
                                                                           term as well as long term impli-
much as 1.4 % in FY08.                                                     cations of the decisions. For ex-
Thus borrowing against                                                     ample as elaborated above, fi-
Tata steel would not be pru-                                               nancing the deal through market
dent keeping in mind the                                                   borrowing by Tata steel may ap-
future growth plans of the                                                 pear to be an attractive option,
company and its financials.                                                but the group should keep in
Also an area of concern                                                    mind that any such option would
would be the affect on the                                                 cut the wings of Tata steel to
shareholders. Even if Tata                                                 raise funds in the future for fi-
Steel decides to borrow,                                                   nancing their upcoming projects.
then the amount borrowed                                                   Likewise every option has a
should not exceed Rs.1000                                                  bright side as well as a dark
crores.                              shares to finance the $1 billion
                                                                           side. The best bet would be to
                                     kitty, then it has to allot a total
                                                                           finance the deal through a possi-
                                     of 98039215 shares assuming the
                                                                           ble dilution of Tata sons in TCS,
Equity dilution of Tata Sons         current market price of 459 Ru-
                                                                           and a further dilution of the eq-
in Tata Steel                        pees per share. That would how-
                                                                           uity component of the equity
The third option could be to fi-     ever bring the EPS to 51.6 Ru-
                                                                           component of Tata steel through
nance the deal through equity        pees. However this approach
                                                                           preferential allotment of shares.
dilution of Tata sons in Tata        would not negatively affect the
steel. As per 31st December 2006,    other financial aspects and ra-
the promoter group of Tata steel     tios. More ever Tata steel could
had 30.26 percent of the total       also reserve bandwidth for fu-
shares of Tata steel. Of this Tata   ture loans for its Brownfield and
sons and Tata motors held a          Greenfield projects coming in the
                                     three states. But the biggest
Volume 1, Issue 1                                                                                        Page 22

Investment Banking Mantra
Compiled by Ajay Chhabra               Commercial Bank Vs I - Bank
                                       A commercial bank may le-
In this article, we will dwell         gally take deposits for checking
upon what actually investment          and savings accounts from con-
banking is? Is it actually bank-       sumers. The federal government
ing? Is it an investment? If the       provides insurance guarantees                  Ajay Chhabra
nitty- gritty of investment bank-      on these deposits through the
ing is studied then it is clear that   Federal Deposit Insurance Cor-
                                       poration (the FDIC), on amounts      intermediary, and matches sell-
is neither of the two. In the
                                       up to $100,000. The typical com-     ers of stocks and bonds with buy-
strictest definition, investment
                                       mercial banking process is fairly    ers of stocks and bonds. If a com-
banking is the raising of funds;
                                       straightforward. You deposit         pany needs capital, it may get a
both in debt and equity, and the
                                       money into your bank and the         loan from a bank, or it may ask
division handling this in an in-
                                       bank loans that money to con-        an investment bank to sell eq-
vestment bank is often called the
                                                                            uity or debt (stocks or bonds).
                                                                            Because commercial banks al-
Banking Divi-
                                                                            ready have funds available from
sion" (IBD).
                                                                            their depositors and an invest-
Actually it is                                                              ment bank typically does not, an
the term which                                                              I-bank must spend considerable
is used to raise                                                            time finding investors in order to
capital      and                                                            obtain capital for its client.
helping      the
                                                                            The Buy-Side & The Sell-Side
companies     in
investing    and                                                            The     traditional     investment
mergers      and                                                            banking world is considered the
acquisition.                                                                “sell-side” of the securities in-
Capital essen-                                                              dustry. Why? Investment banks
tially     means                                                            create stocks and bonds, and sell
money. Compa-                                                               these securities to investors. Sell
nies need cash in order to ex-                                              is the key word, as I-banks con-
pand and grow their businesses;        sumers and companies in need of      tinually sell their firms’ capabili-
investment banks sell securities       capital (cash). Companies borrow     ties to generate corporate fi-
to public investors to raise the       to finance the growth of their       nance business, and salespeople
cash. Investment banks also act        company or meet immediate            sell securities to generate com-
as intermediaries in trading for       cash needs. The commercial           mission revenue .Who are the
the clients.                           bank generates a profit by pay-      buyers (“buy-side”) of public
                                       ing depositors a lower interest      stocks and bonds? They are indi-
The top 8 investment banks of          rate than the bank charges on        vidual investors (you and me)
the world are Goldman Sachs,           loans.                               and institutional investors, firms
Merrill Lynch, Morgan Stanley,
                                       An investment bank operates          like Fidelity and Vanguard, and
Credit Suisse first Boston, Citi-
                                       differently.   An     investment     organizations like Harvard Uni-
group’s Global Corporate Invest-
                                       bank does not have an inventory      versity and state and corporate
ment Bank, J P Morgan Chase
                                       of cash deposits to lend as a com-   pension funds. The universe of
and Lehman Brother.
                                       mercial bank does. In essence,       institutional investors is appro-
                                       an investment bank acts as an        priately called the buy-side of
                                                                            the securities industry.
Page 23                                                                                                    INFINEETI

  The main activities and units     ogy. In op-
An investment bank is split into erations,
the so-called Front Office, Mid- any error in
dle Office and Back Office.         the data of
The individual activities are de-   the trade is
scribed below:                      recorded
                                    and is cor-
Front Office: This part of I-       rected. The
bank is mainly concerned with       technology
the capital raising, sales, trading team works
research and structuring. Sales     diligently                                      Caption describing picture or
and trading is the most profit-     to develop                                                graphic.
able area of any I-Bank.            in house
Middle Office: This part is in-     software for
volved with risk management.        carrying
In risk management, the risk        out the
taken by the traders is analyzed various
and puts a cap on the upper limit front office
that a trader can trade. This pre- functions.
vents the detrimental effect of
the risk.
Back Office: This part is in-
volved in operations and technol-

Financial Inclusion                                                      Compiled by Deepak Kundu

  “The future lies with those        insurance, payments and
companies who see the poor as        remittance facilities by the for-
       their customers”              mal financial system to those
          C.K.Prahalad               who tend to be excluded .
                                     Financial exclusion in contrast
Financial inclusion can be de-       would include households who
fined as delivery of banking ser-    are denied credit in spite of
vices at an affordable cost to the   their demand.                                  Deepak Kundu
vast sections of disadvantaged       The term ‘financial exclusion’
and low-income groups.               is used in different ways. It can   point in applying for a financial
It includes households accessing     be a broad concept related to a     product because they expect to be
institutional credit including       lack of access to a range of fi-    refused, sometimes because of a
commercial banks, cooperative        nancial services or a narrow        previous experience of refusal, be-
banks, RRBs, NABARD SHG-             concept reflecting particular       cause they know someone else who
linkage and other self-help          circumstances such as: geo-         has been refused. These aspects of
groups, and credible microfi-        graphical exclusion; exclusion      exclusion are not mutually exclu-
nance institutions.                  on the grounds that charges         sive. They will overlap and rein-
                                     and prices are prohibitively        force each other, resulting in indi-
Although credit is the most im-      high; or exclusion from market-     viduals, households and communi-
portant component, financial in-     ing efforts. Self exclusion is      ties having little or no connection
clusion covers various other fi-     also important – where an indi-     to mainstream banking and finan-
nancial services such as savings,    vidual believes there is little     cial services.
Volume 1, Issue 1                                                                                     Page 24

The costs of financial exclu-        Measures by RBI
                                     The Reserve Bank of India has
Financial exclusion imposes sig-     continued to lay stress on the
nificant costs on individuals,       need for financial inclusion of
their wider neighborhood, and        the under-privileged sections,
on society as a whole. For the       who have hitherto remained
individual, some of the most im-     outside the periphery of the
portant costs associated with        banking system. Through a se-
financial exclusion include:         ries of new measures announced
                                     in its Credit Policy for 2006-07,
• Higher charges for basic fi-
                                     it has once again shown concern
nancial transactions and credit
                                     for this segment of population
– lack of access to a bank ac-
                                     which has not been unable to
count means that certain finan-                                           -vised to open in villages/wards
                                     draw benefits from the banking
cial transactions such as money                                           allocated to them. The State
                                     system despite the extensive
transfer and cheque cashing                                               Level     Bankers      Committee
                                     network of the public sector
may be more expensive.                                                    (SLBC) in each state are given
• No access to certain products                                           the responsibility to ensure the
                                     RBI has advised all the banks        implementation of the financial
or services – a range of services,
                                     to open “No frills” accounts         inclusion project by all banks, at
such as contract mobile tele-
                                     through simplified Know Your         least, in one district of that
phones, require a bank account
                                     Customer (KYC) procedures and        particular state.
for regular Direct Debits.
                                     also to offer a small Over-
                                     draft/General Credit Card not        Indian Experiment Initiative
                                     exceeding Rs. 25000/- to their       by Indian Bank:
• Lack of security in holding
and storing money – operating        customers. For self-help groups,     Indian Bank was the first Bank
solely on a cash budget leaves                                            to implement the Financial In-
                                         “RBI has advised all the         clusion Project on a pilot basis in
people more vulnerable to loss
                                        banks to open “No frills”         UT of Pondicherry where the
or theft.
                                       accounts through simplified        Bank has lead responsibility. In-
                                          Know Your Customer              dian Bank implemented the con-
• Barriers to employment – a           (KYC) procedures and also          cept first in Mangalam Village of
bank account for receipt of            to offer a small Overdraft/        Pondicherry on 30.12.05 which
wages is a basic requirement for                                          became the first village in India,
                                        General Credit Card not
most employers.                                                           where all the households in the
                                        exceeding Rs. 25000/- to
                                                                          village were provided Banking
                                            their customers.”             facilities. Indian Bank spear-
• Entrenching exclusion – hav-                                            headed the project and involved
ing no formal banking or credit                                           all the 144 bank branches of 37
history at all can be as much of      a line of credit could be consid-
                                                                          Banks operating in all the 144
a disadvantage as an impaired        ered. Also, other financial prod-
                                                                          bank branches of 37 Banks oper-
credit history in accessing cer-     ucts like life/asset/healthcare
                                                                          ating in UT of Pondicherry. Pro-
tain financial services.             insurance and mutual fund
                                                                          ject participants are: All Banks,
                                     products could be consid-
                                                                          Govt. Depts, Insurance Cos,
                                     ered.Banks have also been ad-
                                                                          NGOs & Facilitators etc.
Page 25                                                  INFINEETI

Promoting Financial Educa-
Promotion of financial literacy
enables the common man to
make informed decisions. Finan-
cial literacy has assumed impor-
tance in the changing financial
environment. It helps to make
selective decisions from a myriad
financial products and providers
available. It will provide knowl-
edge to create personal budgets
and enable to appreciate better
possible contingencies and plan
better in an appropriate manner.
As regards the global practices
in Financial education, UK has
launched a massive campaign
through its Financial Services
Authority. US also established      Source—Indian Bank
the office of Financial Education
in 2002.

Promotion of Financial Inclusion
will definitely increase the out-
reach of the Banking system,
and will bring out new business
opportunities. Contrary to gen-
eral opinion, common man offers
more opportunities if properly
Volume 1, Issue 1                                                                                    Page 26

To the Center Head                    Caution: A rouge Capital
IIFT- Kolkata
J-1/14, EP/GP Block
                                      markets reformer takes
Sector-5                              Neo– Liberalism too far !
Salt Lake City

                    Subject- Intra class trading of attendance and DGPs

        It has come to the attention of the class that a minimum 70% attendance norm has been adopted
by the administration. If what we believe is true, if ones attendance dips below 70% in any specific sub-
ject, he/she shall receive an academic DGP. A DGP as you know is a ‘Deficit Grade Point’ which trans-
lates into a 0.33 deduction in the grade point average for that subject.
However, there is a certain amount of rigidity in the system as one person may exceed the 70% cap in
one subject, but have a deficit for another subject. As a solution to this conundrum, I propose a system of
Attendance and DGP trading by which a student of IIFT may trade his surplus attendance with one who
has a deficit. Let me explain this by an illustration, if Ajay Chhabra (Roll No-2) has 100% attendance in
Business Strategy (BS) and Dipendra Tulsiyan (Roll No-17) has a 40% figure, Dipendra may purchase
the deficit of 30% from Ajay. Ajay would gladly do so as those 30% extra are lying idle on his balance
sheet contributing nothing to his earnings, in return he may be able to get the attendance credits for any
other class that he is incurring a deficit in from Dipendra.

That was a simple example; we assumed that all classes were equal. However, in the real world some
class attendance credits are rare as fundamentals of the class are weak. Boring classes, with crazed,
megalomaniacal professors will naturally have lower attendance thus the supply demand equation will
be skewed- i.e. demand for credits will outstrip supply of credits and that will drive the prices of such
credits higher. In effect these brave souls will be rewarded by the market for the risks they have taken
by attending these classes. On the other hand Harkirat Singh’s classes (IFM Classes) will enjoy high at-
tendance; this will result in higher supply than demand, which will drive down prices for IFM credits.
So how do we determine the relative prices? Well the answer is simple- let the market decide. We pro-
pose that a market be created in the former Programme Office on the 7th floor, where IIFT students may
be able to trade attendance credits. Of course finding sellers or buyers for 8-12 subjects per trimester
will be a chaotic task, to address this we propose certain outstanding students of good financial backing
may be made “Credit Brokers”. Their task will be to seek out buyers and sellers and aid transactions be-
tween them. In return for their trouble, they will receive a 1% brokerage from both parties. Now holding
a 0.01 credit for a subject makes no sense, thus we also propose a currency called a “Credit”, each class
shall start with a 100 credit face value So credit brokers may accumulate 2 credits per transaction and
be able after 50 or so transactions buy attendance for any class they fall in deficit.
Page 27                                                                                               INFINEETI

Now if BS classes are badly attended their prices may rise to say 120 credits per class, however IFM
classes may depreciate due to excess demand to 90 credits - So you and I can attend a class of BS and
sell of the attendance for 120 credits buy a 90 credit class of IFM and hold the excess 30 credits for any
future transaction.
Since an academic DGP is derived from the deficit of attendance,
for tardy investors we intend to introduce trading of DGP deriva-            “DGP are like manure,
tives whose underlying asset is the value of the DGP and the sub- spread evenly they can do
ject in which it is awarded- A high credit course DGP (Such as
ITO) will sell for a higher price, as compared to a low or zero             a lot of good but if piled
credit DGP course. Since DGPs as of now are a rare and prized               up in a little corner they
possession, only an elite club of DGP holders will be able to trade
in the market. Thus higher brokerages must be awarded to the                    will raise a stink”
Credit Brokers who shall have to apply for DGP broking licenses
from the certified authority. Our rationale in this regard is to al-
low the common student the pleasure, nay, the right to enjoy a
DGP. DGPs should no longer be the domain of a privileged elite in IIFT; small and marginal investors
should be allowed access to the market. We believe that DGPs are like manure, spread evenly they can
do a lot of good but if piled up in a little corner they will raise a stink. Trading DGPs will ensure inclu-
sive benefits to IIFTians from all walks of life and will help build an egalitarian society on the principles
of disciplinary and financial equality.

Cyclical trends
As I have seen in the past two trimesters, there is definitely a cyclical tendency in the market- in the be-
ginning of a trimester attendance is full across the boards, while during exams, bandhs, nuclear holo-
caust threats, cricket matches and rainy days attendance is patchy. To serve as a bellwether to the direc-
tion of the market, we intend to introduce an attendance based index that would serve as a general indi-
cator to gauge market movements.
For example, if attendance is low due to a late night AC Milan match there will be low “Liquidity” in the
market thus prices will spike up due to low supply and high demand and if by some miracle there is
heavy attendance in class the prices will fall as supply outstrips demand- a case of high liquidity. The
suggested market index will mirror all these trends the index will fall as a result of high attendance and
vice versa. Thus such market conditions will be termed as bearish and bullish.
High Attendance =High Liquidity = Low Demand & High Supply = Index Falls= Bearish Market
Long periods of sustained high attendance can be termed as a BEAR RAID
Low Attendance= Low Liquidity= Low Supply & High Demand = Index Rises= Bullish Market
Long periods of sustained low attendance may be termed as a BULL RUN

Initial Public Offers
There is a dilemma we face in the issue of new classes at the beginning of each trimester. How do we dis-
cover prices? To address these concerns we will consider as before on Opening day minus 1(Day T-1) all
subjects to be of 100 credits per class. Now we take a page out of the RBI’s books by reverting to a “When
Issued market”. Traders and investors may on day T-1 buy or short sell the attendance scrip of a certain
Volume 1, Issue 1                                                                                    Page 28

Proposed DGP Trading in IIFT-Kolkata
course, the buy and short transactions will be squared after the first class by when the scrip will be on
the exchange and price discovery will have taken place. This would be a huge opportunity for the specu-
lators to earn a windfall profit- information about a certain subject or instructor could be used to earn a
fortune. Hence I imagine an entire market for information will be created- speculators and investors
from Kolkata may try to find out about professors from their counterparts in Delhi and their seniors, to
see whether their fundamentals coupled with the importance of the course could help them predict prices
before the Public offer.

Vision 2008
We hope that by next year we can extend our ideas to their next level of progression. Juniors should be
given the ability to trade credits with their seniors- i.e. a first year student may be able to trade in DGP
derivatives as well as in credits for subjects that final year students are studying- purely for speculation
since they cannot attend final year classes. This will inject much needed liquidity in the market. More-
over with the increase in number of students and volume of trading, the programme office alone will not
suffice, we suggest the opening of trading terminals at strategic locations such as the water cooler, the
top floor canteen, Gulfaam’s Cigarette shop, and with time the index numbers can be posted in the eleva-
tor so as to save valuable time that can be used for not attending classes.
Sir, we stand at the crossroads of a great opportunity, for once we can harness market forces to elimi-
nate inequality- from now on the magic of supply and demand will ensue that all of us have equal 70%
attendance. Society will no longer consist of the haves and
have nots- instances of people festering with 40% attendance
and others lavished with 100% will populate only the history       “We suggest the opening of
books. Capitalism can be a force for good and we can be at its          trading terminals at
forefront. I hope these suggestions can help address the situa-
tion at hand and be of value in solving the attendance prob-        strategic locations such as
lems that mar our fraternity.
                                                                     the water cooler, the top
                                                                     floor canteen, Gulfaam’s
Yours Sincerely
                                                                     Cigarette shop, and with
Daanish I.S. Gill                                                  time the index numbers can
Roll No-14                                                          be posted in the elevator”
Editor– In-Fin-Neeti

With inputs from Rishikumar Singh
Page 29                                                                                                INFINEETI

Where are the Markets headed?
By Rishikumar Singh                   6.63% but nevertheless it is a
                                      drop. The intervention of central
“Mirror mirror on the wall, tell      bank with its repo hike of 25 ba-
me who is the most knowledge-         sis point seems to be doing it
able amongst all?”                    work now. All the major banks
Mirror: “No one”.                     have undertaken a hike in its
                                      prime lending rate. The unparal-
Alas, this is what can be said        leled demand for housing seems
about the investors who in the        to be weaning away as home                    Rishikumar Singh
frenzy of getting rich quickly        loans turn more costly lending
scuttled their hard earned            some sense to the over-
money, invested in some specula-      speculated real estate prices. I     Does that mean Indian Story
tive stocks and found themselves      was always of the view that the      is over? No. Still the markets is
in a blood-bath. Red was the col-     real estate prices are being         in its initial stage of bull run.
our of the day when this article      speculated and it was never a        Remember, much steam is left
was written. As Dalal Street          good idea to be in the stocks af-    before this bull run gets over.
fights its battle with crucial sup-   ter September 2006 run-up. May       Demographically we are better
port for NIFTY at 3750, its going     be that can infest some sense        placed and this will ensure we
to be a tough call for any techni-    into retail investors who in the     continue our growth y-o-y at a
cal analyst, leave aside me. With     run-up to make quick bucks end       decent rate. However currently
the benchmark BSE 30 at 20x of        up in the wrong stock at wrong       the signs of soft-landing seems to
its 2008E earnings, Indian mar-       time and at wrong price.             be emerging thanks to RBI rate
kets are nevertheless very ex-                                             hike.
pensive compared to its peers. It
                                                                           The Indian growth story was re-
has already taken into account         “The last bull run on NYSE          inforced by the appetite of In-
the earnings of 2009. The market        lasted for 20 years, which         dian companies and their aspira-
has fully valued all its index           saw US emerging as the            tion. Tata Steel acquired Corus
components, baring a few like
                                        world power. India’s bull          and catapulted to 5th largest
                                         run is still 4 years old.”        steel maker in the world. The
Let the sprinter take a breather.                                          rules of the game are changing.
If corrections do not come at         Can BoJ rate hike of 25 basis        The world is flat! As Tata Steel
regular intervals, expect more of     point added more fuel to the         acquires a firm larger than its
sharp and painful corrections. It     fire? Perhaps not. Because still     size, it signals the upsurge of In-
looks like all the notions of yes-    the Indian story in intact, but at   dian Companies on the global
teryears have been hit for a six.     a cost higher than its peers. Of     map. To add icing to the cake,
Investors and analysts expect         course many may argue that In-       Hindalco acquired Novelis (a loss
market-friendly budget every          dia is the second fastest growing    making entity presently but with
time leading to a major run-up        economy in the world. But they       19% market share in rolled alu-
before and few days after budget.     forget the fact, that FIIs are a     minum production) to complete
But the things look to be quite       like a herd of cattle, who just      its downstream value chain and
bearish currently. With the gov-      mop away every single penny at       hedge against possible fall in
ernment failing to reign in the       the slightest hint and risk of       aluminium price. As the maga-
prices of essential commodities,      stocks being over-priced. Hence      zine goes to press Suzlon energy
it seems the market is on slip-       they continuously scout for          belts itself to bid for German
pery ground. The inflation num-       greener pasture, which alas In-      wind turbine manufacturer RE-
bers are not encouraging at           dia cannot provide currently.        Power.
Volume 1, Issue 1                                                                                          Page 30

 No doubt the markets showed            the sectoral indices are trailing,    expect super normal gains from
thumbs down to these deals ow-          with the metal and FMCG pack          the former counter, as the car-
ing to the valuations attributed        being the underperformers since       bon credit story is intact. The
to these companies. But who ca-         last many months and the most         company trades at 3.9x against
res? We are here for long term          battered ones. FMCG generally         the entire pack average of 19x
growth strategy. A small slip           shows some nervousness every          and hence makes a compelling
cannot nail down our ambition.          year prior to budget. However         buy. Of late the stock has under-
Both the companies have set             telecom has stood the test of time,   performed the broad based in-
their vision of global dominance        and should provide great returns      dex, but it is not long before the
in future i.e. 2009-2010. The In-       thanks to the growth story of In-     markets notice its assets and
dian Telecom story was rein-            dia. The real estate and construc-    growth rate and assigns suitable
forced by the valuations placed         tion companies are in for some        value, and again you may be late
by Vodafone in the Hutch acqui-         sluggishness. The sugar sector is     in entering. The downside to this
sition. No doubt our own Indian         trying hard to come out of deep       particular scrip looks to be very
company Reliance Communica-             slumber but nothing strong seems      limited, if any. But again the
tions (a $20 billion company by         to be for them on the chart. But      suitable strategy will be to wait
MCap) could not win the battle,         my view is that since the sugar       and watch approach. I expect the
which would have catapulted it          sector has had its share of beat-     market to correct more and
into big leagues and it would           ings and underperformance, I do       hence in the next article will
have rubbed shoulders with              not expect it to dip more rela-       come out with some great picks
some of the global big names like       tively. The bottoming out is over     for all of you. Till then, be cyni-
Vodafone which is a $50 Billion         for sugar and revival may be in       cal and wary of any tips.
company). But still India at 16%        the offing.
penetration level is under-served       For short term just keep a watch
as far as telecom is concerned.         on the stock markets. Do not com-
So what should be the strat-            mit any new money into stocks.
egy of Investors?                       Hold onto your shirts if the deal
Investors are advised to hold           was at higher price. But get out of
                                        metals, FMCG and Real estate          An interesting anecdote is that a leg-
onto their shirts if they had pur-                                            endary investor in stock markets
chased at higher prices. But still      packs.
                                                                              parked his car aside the road and went
at this level I consider the mar-       For those obsessed with the con-      to a cobbler to get his shoes repaired.
kets to be overvalued. There ex-        struction stocks I still am suppor-   The gentleman with a pipe in the
ists a strong support for BSE 30        tive of capital goods and infra-      mouth was reading a business daily,
at 13300 levels and for NIFTY it        structure companies like IVRCL,       when the cobbler enquired, “Sir, have
looks at 3800. But these are lev-       Alstom Projects, Lanco Infratech,     you bought XYZ stock. Its great and
els to be tested. The charts do         Reliance Energy. But again these      will give you great returns”. The in-
indicate strong support at these        stocks are of long term and small     vestor, after his shoes were repaired,
levels. But any breach at this          investors have not much to gain in    left for exchange and offloaded all his
level can take BSE and NIFTY            short term, but in long term can      holdings. As luck would have it, the
to levels of 12750 and 3650 re-         expect more.                          markets collapsed after few days
spectively. Hence these are inter-      Going forward more momentum
esting levels to watch. Even if a       can be expected in the Telecom
rally does occur before budget or       pack and Sugar sectors (at least in
on the crucial day, I still see it as   my view and technical charts do
a blip on the radar, and nothing        support the thesis). The out of
much needs be read into it. All         pack look can be at SRF. You can
Volume 1, Issue 1                                                                                     Page 31

Budget Factoids                                                                  By Dipendra Tulsiyan

 •    India is 19th in the world in the size of its Budget expenditure, and spent
      $135 billion last year. China spent $ 424 billion and is ranked 8th, while the
      US has the largest budget at $2.46 trillion.

 •    Uttar Pradesh grabs the top position in revenue contributions of Rs 19,868
      crore to the Government while Bihar is the second highest in the list giving Rs
      11,774 crore.

 •    Morarji Desai was the only finance minister of India to present 10 Budgets, including five annual
      and one interim budget.

 •    With the upcoming Budget likely to project a GDP growth of 13.2 per cent, India will emerge as $1
      trillion economy in FY08

 •    All taxes in India are subject to an education cess, which is 2 per cent of the total tax payable.

 •    The term 'budget' is said to have come from the old French word bougette, which means 'little

 •    Out of 17 Budgets since 91-92, on 10 occasions the stock markets fell in the one month following the

 •    RK Shanmukhan Chetty presented Independent India's first Budget on November 26, 1947.

 •    Last year, Rs 89,000 crore was allocated as defence expenditure against Rs 18,854 crore 10
      years back

 •    The employees printing the Budget papers are kept in complete isolation in the Finance Ministry
      for one week before the Budget.

To top