Shailesh J. Mehta School of ManagementIndian Institute of Technology,

Inside this Issue

IIP Decline: The Bleeding of

already anemic economy 2-4

News of last 2 weeks 5-6

Markets 7-9

Campus Buzz 10

Knowledge section 11

Check your Fin Quotient 11

FINSIGHT

Issue: Aug 19, 2012The Fortnightly Newsletter

Source:

Mint

The Economic Times

The Economist

MoneyControl.com

Business Standard

Deccan Herald

Hindustan Times

Investopedia.com

F i n s i g h t

IIP Decline: The Bleeding of already anemic economy continues

The dismal performance of the Indian industry took everyone by surprise when the IIP (Index of Industrial Production) figures reduced by 1.8% in comparison to the figures achieved last year. Though a poor show on the production front was expected, a negative growth definitely proved to be a shocker. Excerpts and valuable comments from the experts crowded the media space and quite naturally we found their opinions are in unison. Looking at the facts and figures would help us get hold of the nerve of the whole issue.

IIP: WHAT IT MEANS

IIP or Index of Industrial Production is an indicator of the short term performance of the production in the industry when compared to a reference or earlier time period.

It serves as a metric to gauze the vibrancy of the economy operating on large scale industries. It is basically a short term reference (as was stated earlier) of industrial growth and it serves this purpose till the detailed industrial survey data becomes available ASI (Annual Survey of Industries). As with all the metrics, it also follows the weighted average method, assigning weights to sectors according to their contribution. Naturally, this index is being closely watched by the market followers.

IIP: THE UNDERLYING IMPLICATION

That was the uninteresting definition part. Decryption of the message lies in another level. The earlier cover story of Finsight on “Rising Inflation in India & its ramifications” very well captured the mutual interactions of several macroeconomic factors in our country. The author apprised us of the fact, evidently, that the regulatory norms by RBI are biting into the expected supply of production by the manufacturing sector as the money to mobilise the whole manufacturing process is held ransom to the higher interest rates. Eventually, the mood of investing in India prevailing is quite negative. We need to remember that India is not at all an export-driven country; on the contrary the internal consumption boosts the growth. Hence, if the factory outputs are not quite meeting the market demands, the price will only increase, moreover exports would increase and again the trade deficit would be impacted heavily. What we see in the news headings in not far from this truth either. If we look at the agricultural sector, the implication of this equation is quite evident. Though the overall inflation has reduced to 6.87% in July, the food inflation remains raging at 10.06%. Adding salt to the injury, the agricultural production is hit and will go on showing even worse results in the face of a weak monsoon.

IIP Decline: The Bleeding of already anemic economy continues...2(cont’d)

Though it will be clichéd to state that this deadlocked scenario calls for an overhaul in the economic policies, this is a fact that is doing the rounds in the industry and the north block. The growing fiscal deficit after all is hammering down the GDP growth for long. A report in the Economic Times a few days back showed that 8 states and a couple of UTs have given their nod to welcome FDI in multi brand retail as the fund trapped country badly needs an injection of fresh inflows of investment for overall growth. But the blood-sucking coalition politics does not seem to wither away so easily. Only way to find out where this whole episode ends seems like watching the popular soap-operas that hallucinates the minds of our households!!

WHAT NUMBERS REVEAL: A PALETTE FULL OF DISAPPOINTING COLOURS

Factory outputs grew at 9.5% in June last year (FY 2011-2012). Not quite the same this year, as the main culprit behind this seems to be the manufacturing sector which constitutes more than three fourth share of the index. The slowdown in this segment has paralysed the whole production juggernaut at play. After all, a decline of 3.2% is a big blow. The capital goods sector followed the mood registering a decline of 27.9%. Some consolation (if that is the right word to use) came in the form of meagre or rather non-negative growth in mining sector (0.6%), energy sector (8.8%) fared relatively well.

CAPITAL GOODS SECTOR: A DIFFERENT STORY!CompanyQuarterly net sales (Rs cr)Amidst the news of the nosedive of IIP, one school of thought came out with their proposition that this decline does not reflect the scenario in the capital goods and consumer non-durables. Now when we talk about capital goods, essentially what it constitutes is boilers, engines, commercial vehicles, transformers etc. Notable is the fact that big players like BHEL or L&T have scored really well in terms of net sales (17% & 26% respectively). Even collectively the 17 companies in Bombay Stock exchange's capital Goods Index showed an increase of 16% net sales.

Now, does this mean the IIP data is entirely confusing? Not really. The commonly accepted notion is that the index shows the movement of products from the factory level. But an engine or turbine or a boiler for that matter can take several months to finish and the manufacturers in the power sectors' production chiefly consists of these equipments only (more than 50%).

More importantly, these companies may be involved in other functions such as design or project executions. These factors are not included in the index.

METHODOLGY OF IIP CALCULATION: A HISTORY OF GOOF-UP

In the recent past (March'12), the IIP data for January was calculated to be 6.8% after a poor show in Dec'11. The upbeat figures drew the attention of the industry and the sceptics frowned.

The hue and cry was followed by the Government revising the data to 1.1%. The Chief Statistician of India reported that the sugar output had been wrongly reported at 13.41 million tonnes whereas the actual figure was 5.81 million tonnes. Even the then Finance Minister Pranab Mukherjee stated this incident to be “totally baffling”.

Such a history and the departures of the figures from the actual scenario, discussed above, has again made way for the questions asking the way IIP is calculated.

CONCLUSION

There may be some anomalies in the calculation of IIP but the slowdown is something we cannot ignore. It is true that the capital goods sector fared well, but problems are plenty in this sector too. The power segment is facing a great predicament in supply of fuels and land acquisitions.

Experts have started talking about sub 5% growth for FY 2013 after looking at the figures at hand. Our only hope is a change of guard in the north block. PC, are you listening?

IIP Decline: The Bleeding of already anemic economy continues...3(cont’d)

By- Abhishek Banerjee , SJMSOM, M.Mgt, 1st Year

News of last 2 weeks

Indian Rupee Climbs to Three-Week

High, Bonds Gain

The Indian rupee surged to a near three-

week high against the U.S. dollar

Tuesday, tracking positive local stocks

and as global risk appetite remained

firm on hopes of strong action from the

European Central Bank to tackle the

region's debt crisis.

The rupee has gained 2% against the

U.S. dollar since July 26, after ECB

President Mario Draghi pledged to

defend the common currency and

sparked a rally in risk-sensitive assets

worldwide. India's current account

deficit, which swelled to an all-time

high of 4.2% of gross domestic product

in the last fiscal year to March 31, is seen

as the biggest weight on the rupee. The

rupee's 19% fall against the dollar over

the past 12 months is expected to

narrow the current account deficit by

discouraging imports and making

Indian exports more competitive.

PMEAC projects 6.7% growth in GDP

for FY 2012-13

The Prime Minister's Economic

Advisory Council (PMEAC) headed by

Dr. C. Rangarajan, on Friday, 17 August

2012, projected 6.7% growth in GDP in

2012/13. The GDP is projected to grow at

6.7% in 2012/13 due to the impact of

weak monsoon on agriculture and the

current reservoir storage position in

2012/13, PMEAC said in a statement.

P M E A C s a i d d e f i c i e n t

monsoon will likely have an

adverse impact on the prices of

primary food items, especially on

those where the ability of

government stocks to play a

moderating role is not there.

PMEAC has forecast inflation rate to

be within the range of 6.5% to 7% at

the end of 2012-13.

RBI to tighten intra-group banking

exposure norms

The Reserve Bank of India (RBI) has

decided to tighten banks' intra-group

exposure norms to check “unacceptable

risks” taken by banks while dealing

within a banking group. The RBI said it

becomes a concern when intra-group

t r a n s a c t i o n s a n d e x p o s u r e s

disadvantage a regulated entity that is

part of a financial group.

India to go with IFRS from April 1 next

year, says Moily

India will implement internationally

accepted reporting rules, IFRS, from

April 1 next year, Minister for Corporate

Affairs and Power Veerappa Moily has

said.

With the Government looking to

enact a new direct taxes code from

April 1, 2013, there is expectation

that thorny taxation issues under

'fair value' concept would be

resolved by that date.

News of last 2 weeks

Inflation eased to 6.87% for month of

July 2012

The annual rate of inflation based on the

Wholesale Price Index (WPI) eased to

6.87% (Provisional) for the month of

July 2012 (over July 2011) from 7.25%

(Provisional) in June 2012. Build up

inflation in the financial year so far was

2.36% compared to a build up of 3.14%

in the corresponding period of the

previous year.

The WPI inflation fell below the 7%

level for the first time since November

2009, building hopes that the central

bank will find more space to ease

monetary policy and revive industrial

growth that has slumped largely due to

high interest rates over the past couple

of years.

IIP Declined to 1.8% in June 2012

Industrial production declined 1.8% in

June 2012 compared to the level in the

month of June 2011, as per the latest data

released by the Ministry of Statistics &

P r o g r a m m e I m p l e m e n t a t i o n .

Manufacturing output, which has a

75.5% weight in the index of industrial

production, fell 3.2% in June 2012

compared to the level in the month of

June 2011. Capital-goods production

shrank 27.9% in June 2012 compared to

the level in the month of June 2011.

U n i o n F i n a n c e M i n i s t e r P .

Chidambaram recently said that a path

of financial consolidation will

b e u n v e i l e d s h o r t l y .

Government finances are under

pressure as expenses exceed

revenue, mainly because of

subsidies doled out for cheaper

supplies of food, fuel and fertilizer.

Finance ministry wants RBI to pay

seven percent interest on C R R

deposits

The finance ministry has suggested that

the Reserve Bank of India pay seven

percent interest on the mandatory

deposits parked with it by banks, one

among several measures proposed to

lower rates even if the central bank does

not ease the monetary policy. Finance

minister P Chidambaram will take a call

o n t h e p r o p o s a l , w h i c h w o u l d

eventually go to the RBI. "This is one

among the many measures we have

suggested to bring interest costs down,"

a senior finance ministry official said.

Indian banks need over Rs 1.5 lakh cr

to meet Basel III norms

Reducing its stake in public sector banks

to below 50 percent is an option before

the government to enable them meet

capital requirement norms under Basel

III , Reserve Bank of India Governor D

Subbarao has said. He said Indian

banks need to raise Rs 1.5 lakh crore to

Rs 1.75 lakh crore as capital to meet

the BASEL-III norms which are to

be implemented by March 31, 2018.

Markets

Key Highlights:

Bharti Airtel Q1 net falls 24% to Rs 762

cr QoQ

India's largest telecom operator Bharti

Airtel disappointed the street by

r e p o r t i n g l o we r - t h a n - e x p e c t e d

numbers in the quarter ended June 2011.

Consolidated net profit fell by 24.23%

quarter-on-quarter to Rs 762.2 crore.

However, net sales rose just 3.3% to Rs

19,350.1 crore from Rs 18,729.4 crore

during the same period.The stock hit a

52-week low of Rs 252.95 in intraday on

10 August 2012.

State Bank of India net profit rises

136.91% in the June 2012 quarter

SBI’s net profit surged 136.91% to Rs

3751.56 crore on 16.89% increase in

total income to Rs 32415.49 crore in

Q1 June 2012 over Q1 June 2011.The

surge in net profit was mainly due

to a sharp fall in provisions and

contingencies in Q1 June 2012.

The bank's ratio of net non-

performing assets to net

The market edged higher for the third consecutive week as the rate of

growth in inflation based on the wholesale price index (WPI) fell to the

slowest pace in nearly three years in July 2012, building hopes that the central

bank will find more space to ease monetary policy and revive industrial

growth that has slumped largely due to high interest rates over the past couple

of years.

The barometer index, BSE Sensex, jumped 133.34 points or 0.76% to settle at

17,691.08. The 50-unit S&P CNX Nifty gained 45.90 points or 0.86% to 5,366.30.

Previous week ended 10th Aug saw BSE Sensex rose 359.81 points to 17,557.74

and S&P CNX Nifty 104.70 points to settle at 5,320.40.Comments from Union

Finance Minister P Chidambaram that he intends to shortly unveil a path of fiscal

consolidation aided gains on the domestic bourses.

Key benchmark indices snapped two-day winning streak on Thursday, 16 August

2012, as investors pared expectations of further quantitative easing by the US

Federal Reserve following encouraging US economic data but closed with small

gains in choppy trade on Friday, 17 August 2012, as euro zone debt worries eased

after German Chancellor Angela Merkel said Germany will do whatever it can to

keep the euro.

assets rose to 2.22% as on 30 June 2012,

from 1.82% as on 31 March 2012, and

1.61% as on 30 June 2011.

Australian ruling on cigarette packages

burns ITC, FMCG stocks

Index heavyweight and cigarette maker

ITC declined 2.2%to Rs 261.85 after an

adverse court ruling in Australia for

cigarette makers.

Tobacco giants failed in their bid to

overturn an Australian law forcing them

to remove virtually all branding from

cigarettes packets, giving a boost to

other countries planning similar steps.

SEBI unleashes new rules to boost

MF, IPO markets

Capital market regulator unleashes a

slew of measures aimed at reviving

investors' interest in mutual funds as

well as the primary market. S E B I

announced extensive changes in its rules

for mutual funds and IPOs.

As per the new SEBI rules, investing in

mutual funds could become more

expensive, but retail investors will be

assured a minimum number of shares in

IPOs. SEBI also recommended to the

Government that equity mutual

investors should be given tax benefits

under the proposed Rajiv Gandhi Equity

Savings Scheme.

Maruti Suzuki to lift the lock-

out at Manesar plant

Maruti after market hours on

T h u r s d a y , 1 6 Au g u s t 2 0 1 2 ,

announced that the lock-out at its

Manesar facility in Haryana will be

lifted on 21 August 2012.

The company had declared a lock-out at

the Manesar plant on 21 July 2012

following large scale violence by

workmen on 18 July 2012. In the violence

a General Manager, Mr. Awanish Kumar

Dev, was burnt to death inside the plant

facilities and 96 supervisors and

managers were injured/hospitalized.

Lupin, UltraTech to replace SAI L ,

Sterlite in Nifty

UltraTech Cements Ltd shares surged

over 1% to hit its 52-week high of Rs.

1,733.40 after stock was included in the

50-share Nifty along with Lupin Ltd,

according to reports. Reports stated the

National Stock Exchange replaced

S A I L and Sterlite Industries with

Lupin and UltraTech Cement in the

benchmark 50-share. The M S C I

changes wil l take effect from

September 3 while Nifty changes

will apply from September 28,

report says.m September 28, report

says.

Markets

Markets

Currencies:

The rupee rose marginally on Friday, helped

by the euro's gains and after a government

panel forecast a lower current account deficit,

but still posted a fall for the week as high

global crude prices sparked demand for

dollars.The partially convertible rupee closed

Expectations for week ahead

The market may consolidate in a truncated week ahead amid lack of major triggers in

the near term. The stock markets remains closed on Monday, 20 August 2012, on

account of Ramzan Id.

The progress of monsoon rains will be closely watched.The monsoon has been less

than average during the current year. Rainfall across the country has been 15%

below the long-term average so far this monsoon season, which started June 1.

An India-Mauritius joint panel will discuss

a series of proposals to review the double

taxation avoidance treaty between the two

nations on 22-24 August in Mauritius.On

the global front, Greek Prime Minister

Antonis Samaras is set to meet German

Chancellor Angela Merkel in Berlin on 24

Aug 2012, and will visit French President

François Hollande on 25 Aug 2012.

at 55.73/74 per dollar as per the SBI closing rate.

Commodities:

Indian investment and jewellery demand

declined to 181.3 tonnes compared to 294.5

tonnes in corresponding period previous year.

Concerns over weak monsoon along with

inflation and higher prices affected Gold

consumption in India. COMEX Gold December

futures on NYMEX registered weekly loss of

0.2% and settled at $ 1619.4 per troy ounce.

Rising Syrian tensions and falling Crude supplies

resulted in spiraling of light sweet Crude oil prices in

world markets. Further supporting crude was the

ongoing sanctions on Iran and its nuclear program.The

Brent spot price was last recorded to be $ 115.77 per

barrel. EIA has projected Brent Crude oil to average at $

103 per barrel in second half of 2012 in its latest outlook.

Campus Buzz: MIT AITI INDIA PROGRAM, July 02, 2012 to August 09, 2012

Massachusetts Institute of Technology (MIT), Boston launched the MIT

Accelerated Information Technology Initiative (AITI) for the first time in

India on July 2, 2012 at IIT Bombay. The program, hosted by IIT Bombay

and Shailesh J. Mehta School of Management (SJMSOM), IIT Bombay is the

India launch of MIT's mobile technology start-up incubator and was offered to

40 under-graduate and management students at IIT Bombay. AITI is a

multidisciplinary group of the MIT that promotes development in emerging

regions by cultivating young technology entrepreneurs.

In I IT, AITI provided a six week course focusing on entrepreneurship and

deployment of mobile phone services and applications like SMS, USSD, Android,

and mobile web. The entrepreneurship component focused on idea generation, case

studies, market analysis, marketing, pitches, presentations, funding and networking.

Hence, forty students were selected out of a pool of several aspirants who finally got

the coveted opportunity to explore novel ideas, start businesses, build teams, find

customers, and manage cash flows for their mobile-based ventures with guidance

from their MIT-affiliated instructors.

During this program, external speakers like Gautam Shewakramani, Hiren Asudani,

Ashok Karania and others had also come in from organizations such as GSMA,

CoolAge, Mumbai Angels, Flurry India, InfoStretch, Loop Mobile, and there had also

been several guest lectures by IIT faculty.

Finally, the culminating Startup Showcase was held on August 9th at IRCC

Auditorium, SJMSOM Building on the IIT campus from 6 to 9pm where the teams

presented their work to the public. The program started with an encouraging

speech by Prof. Karuna Jain and was anchored by Mr. Sriram Emani, Speaker Series

and Startup Showcase Lead. Judges representing Mumbai Angels, Freemont

Partners, TiE Mumbai, and Google were invited to give feedback to each of the

student teams presenting, as well as determine who will receive an incubation

opportunity and potential seed funding from Freemont Partners.The winning

teams will be engaging with the Mumbai entrepreneurship community for

mentorship, feedback, and eventually, funding for implementation of their

business venture.-Aditya Das, M.Mgmt 2012-14, SJMSOM, IIT Bombay

Knowledge Section

We value your feedback

Check your fin quotient

1) In the world of trade and commerce what is special about the commissioning of

Monte dei Paschi si Siena in Italy in 1742?

2) Name the term used for depreciating a company's intangible assets?

3) Royal & Sun Alliance recently re-entered, after 29 years, to Indian financial market

and it is the first foreign insurance company started operations here through a joint

venture with an Indian company. Name the company?

4) What is known as the cost of living index which represents the goods and services

purchased by consumers?

Please provide us your opinions about the content presented here. Also, do suggest new

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to make our Finsight more interesting and purposeful.

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Our Team:

2nd year: Archish Gupta, Ashwani Kr. Dixit, Aditya Gaddam, Atul Ranjan, Abhinav

Sharma Aniket Patankar, Kashyap Rastogi

1st year: Abhishek Banerjee, Archna Choudhary, Rahul Agarwal, Aditya Das,

Alankar Tripathi, Hamdan Ali, Pranavi Jakkam

Hostile takeover - Allows a suitor to take over a target company whose

management is unwilling to agree to a merger or takeover. The bidder

continues to pursue it and makes the offer directly to the shareholder's after

having announced its firm intention to make an offer.

Sometimes a company's management will defend against unwanted hostile

takeovers by using several strategies. Some of them are:

Pac Man Defence: A defensive antitakeover tactic in which a company that is

facing a hostile takeover from another company essentially turns the tables and

attempts to purchase the would-be buyer. The target hopes that the acquiring firm

will call off the takeover attempt and look for easier pickings.

The White Knight: This is a common tactics in which the target company finds

another company to enter the scene and purchase them out and away from the

company making the hostile bid. A third company makes a friendly takeover offer to

the company facing a hostile takeover.

Other strategies include Poison Pill , Crown Jewel, Golden Parachute etc.

Rush in your entries to: finesse@sjmsom.inThe first few right entries will get their name featured in the next issue of Finsight. So hit the

quiz fast & get yourself visible.