finxpress_26august2012

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AUGUST 26 ,2012

Company In Focus

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Term of t

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Cover Sto

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Fun Corner

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Term of the Week

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story : Decoding FII inflows

AUGUST 26 ,2012

EDITORIAL

Dear Readers, Greetings from FinNiche! With the end terms round the corner, the happening events of various Clubs and Committees are fading and the photocopy shop’s business is increasing exponentially day by day. There is a wave of anxiety throughout the campus and the students are spending more time in the library than their rooms. Team FinNiche thereby give its best wishes to all the students of IMT Ghaziabad for their opening “End Term Examinations”. In this edition of FinXpress we have Texas Instruments Inc. in the “Company in Focus” section describing the com-pany’s structure and its progress. In the “Term of the Week” from Exchange Traded Funds we move to Hedging. In the markets section, the BSE benchmark Sensex gained for the fourth straight week on the back of rise in IT, FMCG, metal and healthcare shares. In the “special page” we will cover Decoding FII Inflows. We sincerely hope that the readers find our content engaging. We would appreciate feedback and suggestions for improvement. We hope to bring you more information in the future thus keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board “FinXpress”

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AUGUST 26 ,2012

COMPANY IN FOCUS

Texas Instruments Inc.

Introduction Texas Instruments Inc. known as TI, is an American company based in Dallas, Texas, United States which develops and commercializes semiconductor and computer technology. Texas Instruments is among the Top 20 Semiconduc-tor producing companies in the world. Texas Instruments was founded in 1951. It emerged after a reorganization of Geophysical Service. Texas Instruments designed and manufactured the first transistor radio and integrated circuit. The hand-held calculator was introduced to the world by TI. TI products include digital clocks, watches, home computers as well as various sensors. In 2007, Texas Instruments was awarded the Manufacturer of the Year for Global Supply Chain Excellence by World Trade magazine. Texas Instruments is considered to be one of the most ethical companies in the world. In 2011, Texas Instruments ranked 175 in the Fortune 500.

Structure of TI TI is made up of two main divisions: Semiconductors (SC) and Educational Technology (ET). Semiconductor products account for approximately 96 % of TI's revenue. TI's semiconductor-related product areas include digital signal processors in the TMS320 series, high speed digital-to-analog and analog-to-digital converters, power management solutions, and high performance analog circuits. TI has always been among the Top 10 of the semiconductor sales leaders. Some of its main competitors in-clude Microchip Technology, Cypress Semiconductor, Integrated Device Technology,Qualcomm, Samsung Electronics, and Xilinx. Texas Instruments produces a range of calculators, with the TI-30 being one of the most popular early calculators. TI has also developed a line of graphing calculators, the first being the TI-81, and most popular being the TI-83 Plus.

TI in India

India and Texas Instruments (TI) have had a close relationship over the years. In August 1985, TI set up a R&D facil-

ity in Bangalore and became the first global technology company to establish its presence in India. Dataquest and the

Government of India have recognized TI as the most innovative company in the country. The TI India R&D Center

was extensively involved in developing “LoCosto”, the industry’s first single chip solution for wireless handsets. The

National Association for Software & Services Companies (NASSCOM) conferred TI with the NASSCOM Award for

IT Innovation for 2007. TI India is deeply involved in developing state-of-the-art solutions for applications like wire-

less handsets, wireless infrastructure (base stations), video (security and surveillance, IP phones, set-top boxes), High

Performance Analog, etc.

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AUGUST 26 ,2012

Financial Information

TI revenue declined 2 percent, which was below the median growth rate of the competitor companies. However, TI’s revenue included a $600 million decline in revenue for wireless digital basebands, a product line for which TI has a publicly stated exit plan. Excluding baseband revenue ($1.1 billion), TI’s revenue grew 3 percent, the median as compared with competitors. Revenue grew in the company’s core businesses of Analog and Embedded Processing, up 7 percent and 2 percent respectively, resulting in market share gains for each.

Operating profit margin was 22 percent. This placed the company above median as compared with competitors. Return on invested capital was 14 percent, above the company’s cost of capital. Total shareholder return declined 9 percent, but was above the median performance of competitor comparisons.

Strategic progress

The company completed a major step in strengthening its Analog competitiveness with the acquisition of Na-tional Semiconductor, adding thousands of new analog products to its existing portfolio and increasing the com-pany’s manufacturing capability with the addition of two wafer fabs and an assembly/test facility. As a result, half the company’s revenue now comes from Analog sales and TI offers customers an unparalleled breadth of product choices. TI is focused on segments of the semiconductor market that have long-term growth potential thanks to the many and increasing number of electronic systems that require Analog and Embedded Processing technology. TI’s posi-tions, strategies, products and manufacturing capacity give the company a sustainable advantage over competitors.

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AUGUST 26 ,2012

TERM OF THE WEEK : Hedging

A hedge is an investment position intended to offset potential losses/gains that may

be incurred by a companion investment. In simple language, a hedge is used to re-

duce any substantial losses/gains suffered by an individual or an organization.

Hedging a stock price

A stock trader believes that the stock price of Company A will rise over the next month, due to the company's new

and efficient method of producing widgets. He wants to buy Company A shares to profit from their expected price

increase. But Company A is part of the highly volatile widget industry. If the trader simply bought the shares based

on his belief that the Company A shares were underpriced, the trade would be a speculation.

Since the trader is interested in the company, rather than the industry, he wants to hedge out the indus-

try risk by short selling an equal value (number of shares × price) of the shares of Company A's direct competitor,

Company B.

The first day the trader's portfolio is:

Long 1,000 shares of Company A at $1 each

Short 500 shares of Company B at $2 each

On the second day, a favorable news story about the widgets industry is published and the value of all widgets stock

goes up. Company A, however, because it is a stronger company, increases by 10%, while Company B increases by

just 5%:

Long 1,000 shares of Company A at $1.10 each: $100 gain

Short 500 shares of Company B at $2.10 each: $50 loss

(In a short position, the investor loses money when the price goes up.)

The trader might regret the hedge on day two, since it reduced his profits. But next day, an unfavorable news story is

published about the health effects of widgets, and all stocks crash and 50% is wiped off the value of the widgets in-

dustry. Nevertheless, since A is the better company, it suffers less than B:

Value of long position (Company A):

Day 1: $1,000

Day 2: $1,100

Day 3: $550 => ($1,000 − $550) = $450 loss

Value of short position (Company B):

Day 1: −$1,000

Day 2: −$1,050

Day 3: −$525 => ($1,000 − $525) = $475 profit

Without the hedge, the trader would have lost $450 (or $900 if the trader took the $1,000 he has used in short sell-

ing Company B's shares to buy Company A's shares as well). But the hedge – the short sale of Company B – gives a

profit of $475, for a net profit of $25 during a dramatic market collapse.

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AUGUST 26 ,2012

MARKET THIS WEEK

Sensex gained 0.530% from last week and ended the week at 17,783.21.

Simple Moving Averages

Returns – BSE Sensex

Nifty gained 0.36% from last week and ended the week at 5386.70

Simple Moving Averages

Returns – Nifty

30 Days 50 Days 150 Days 200 Days

17342.22 17267.71 17178.00 16907.10

YTD 15.07 % 1 Week 0.50% 1 Month 5.10% 3 Months 9.60 %

6 Months -0.80 % 1 year 9.20 % 2 Year -2.90 % 3 Year 13.80%

30 Days 50 Days 150 Days 200 Days

5,260.74 5,237.22 5,211.96 5,115.50

YTD 16.49 % 1 Week 0.40 % 1 Month 5.00% 3 Months 9.50%

6 Months -0.80 % 1 year 10.20 % 2 Year -2.20 % 3 Year 16.00 %

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AUGUST 26 ,2012

Overview

Indian stock indices have now risen for three successive weeks, fueled by steady FII inflows and amid expectations of some reforms going through. A surprise drop in inflation for July also raised hopes of a possible rate cut at next month’s RBI policy meeting. Data on indirect tax receipts and SEBI’s measures to boost the capital markets also had a positive rub-off on the markets.

However, data on exports and imports continues to be grim, serving as a cruel reminder of challenges emanating from the overseas markets. The release of the controversial CAG reports in the Parliament also re-ignited fears of a wider political backlash.

Much will hinge on the way global markets unfold. With the US economy showing resilience, the focus will be on the Eurozone and China. The current global risk-on trade has been fueled by hopes of fresh policy stimulus from both these regions. Any disappointment on that front could lead to a reversal.

Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR 4.75% Base Rate 10%-10.5%

Repo Rate 8% SLR 23%

Savings Deposit Rate 4%

Reverse Repo Rate 7%

Term Deposit Rate 8%-9.25%

Margin Standing 9%

Exchange Rate v/s INR Commodities unit Rs./unit

% change

Currency Symbol Rate %

change Gold 10 gms. 30940 2.5%

US Dollar $ 55.38 0.57% Silver 1 Kg. 53619 7.2%

Euro € 69.47 1.30% Crude Oil 1 BBL 5353 0.46%

Dirham AED 15.08 0.59%

Japanese Yen ¥ 0.704 0.10%

Chinese Yuan CNY 8.72 0.45%

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AUGUST 26 ,2012

NEWS OF THE WEEK

Apple wins $1 billion in patent suit against Samsung

Apple won $1.05 billion in a massive victory on Friday over South Korean giant, Samsung, in one of the biggest patent cases in decades -- a verdict that could have huge market repercussions. The Silicon Valley giant had claimed that its iconic iPhone and iPad had been illegally copied. The verdict affects patents on a range of Samsung products includ-ing some of its popular Galaxy smartphones and its Galaxy 10 tablet.

While the verdict was a big win for Apple, the damages are less than half the $2.5 billion compensation it sought - although that could yet be increased by the judge - and are just 1.5 percent of annual revenues from Samsung's tele-coms business.

Apple, based in Cupertino, California, sued Samsung in April 2011, and Samsung countersued as part of a battle being waged on four continents over a smartphone market valued at $219.1 billion according to Bloomberg Industries. The companies have also sued each other in the U.K., Australia and South Korea.

That phone and tablet business is the powerhouse behind Samsung's growth, earning around 70 percent of total profit. The group had net profit of $4.5 billion in April-June. The jury reached its verdict after deliberating for less than three days, examining claims of infringement by both sides.

Russia finally joins WTO, but US companies fear losing edge

After two decades of negotiations, Russia has finally joined the WTO. The lower trade barriers that come along with membership will open up new opportunities for foreign companies to do business in Russia. Across all sectors of the economy, Russia will lower import tariffs to 7%, from about 15% today, for the 155 countries in the trade organiza-tion. But American companies are guaranteed no such advantages - and may even face higher Russian tariffs than their competitors from other countries. Because of broader policy concerns about the Kremlin's crackdown on dissidents and its support for rogue governments, Congress has balked at the Obama administration's request to grant Russia permanent normal trade relation status. That status is important since the WTO requires that any country that seeks to benefit from it must apply the same trade rules to all member countries. Russia was the last major economy outside the trade group, and joining is expected to be a boon for Russian con-sumers and businesses. Exporting companies in Europe, Asia and the United States are eagerly awaiting open access to a population of 142 million people with growing incomes and an expanding middle class. The World Bank esti-mates that WTO membership will add 3 percentage points to Russia's gross domestic product once the new tariffs are phased in.

PSU banks will require Rs 4.05-4.25 trillion to meet Basel III norm, estimates RBI

The Reserve Bank of India has estimated that private and public sector banks will require capital to the tune of Rs 4.75--5 trillion by 2018 in order to adhere to the Basel III - the global regulatory standard on bank capital adequacy ratio. This was indicated by the RBI in its annual report released on Friday.

The banking regulator has said that government owned banks will require capital in the tune of Rs 4.05 to Rs 4.25 trillion. OF this, PSU banks will require Rs 1.4-1.5 trillion in form of common equity and Rs 2.65 to 2.75 trillion in form of non-equity capital. RBI has said that these projections are based on the conservative assumption that banks will show a uniform growth of 20% per annum.

Under Basel II banks have to maintain capital adequacy ratio (CAR) of 9% which includes tier I capital - core capital like equity and reserves and tier II capital. Under the Basel III accord banks have maintain Car of 8% wherein the tier I capital should be minimum 7%. However, RBI has asked Indian banks to maintain Car of 9%.

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AUGUST 26 ,2012

FIPB gives nod to eight Pharma FDI proposals

India's foreign investment approval authority has cleared eight pending proposals of foreign drug companies to buy

stakes in local companies which have been pending for several months due to lack of clarity on the new FDI norms

for pharmaceuticals sector.

The eight proposals that the Foreign Investment Promotion Board (FIPB) cleared at its meeting on Friday include

those of Pfizer Limited, B Braun, Sutures India and Ordain Health Care Global.

Foreign investment in pharmaceuticals came to a standstill last year delaying expansion plans of foreign drug makers

after the government decided to impose conditions holding up Rs 3,000-crore worth of FDI proposals. The restric-

tions were raised after health ministry, some parliamentarians, NGOs and section of the industry expressed fears

that the spate of buyouts by multinationals in recent years would threaten availability of low-cost medicines for Indi-

ans and increase dependence on costly imported drugs.

In last four years, MNCs have bought out several Indian firms which include Daiichi Sankyo's purchase of Ranbaxy and

Abbott's buyout of domestic formulation business of Piramal Healthcare.

An inter-ministerial panel had finalized the new FDI guidelines for the pharmaceuticals industry in July paving the

way for clearing the backlog. The panel suggested conditions such as commitment by the buyer to manufacture and

make available essential drugs post acquisition for five years and also to increase R&D expenditure by 5% for dis-

eases prevalent in India to allow foreign firms buy Indian companies.

Coal Mining Scam

The Comptroller and Auditor General of India (CAG) office has accused the Government of India for providing the

nation's coal deposits to private and state-run entities in an irregular and arbitrary manner instead of publicly auc-

tioning them off to the highest bidder, resulting in a loss of approximately 186,000 crore to the exchequer during

the period 2004-2009. The entities include Essar Power, Hindalco, Tata Steel, Tata Power and Jindal Steel & Power.

Delay in introduction of the process of competitive bidding has rendered the existing process beneficial to the private

companies. The CAG said it has arrived at the estimates based on the average cost of production and average sale

price of opencast mines of Coal India in the year 2010-11. The concept of allocation of captive coal blocks through

competitive bidding was announced in 2004. However, government is yet to finalize the modus operandi.

The government has pointed out that several states run by opposition parties like Chhattisgarh, West Bengal & Ra-

jasthan had opposed auction and that the BJP had agreed with the government’s policy. The BJP has countered the

argument by pointing out that minerals are centrally controlled and that the ruling party was not bound to pay heed

to the objections raised by the states.

.

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AUGUST 05 ,2012 PAGE 9 http://www.imtgfinxpress.co.cc AUGUST 26, 2012

COVER STORY

The term foreign institutional investor conjures up the image of a giant

hovering over the Indian equity market with the ability to yank up or

hammer stock prices at will.Since these investors control 40 per cent of

the freely traded stocks in the Indian market, the clout they wield is not surprising. But they are far from a cohesive

bunch.

DECONSTRUCTING FIIS

Money flowing into our country could come from various global investing institutions, such as pension funds, insur-

ance companies, sovereign wealth funds and so on. Total assets owned by these investors were $117 trillion towards

the end of 2010, according to CityUK, a consulting company that promotes the UK’s financial sector.Of these, con-

ventional assets stood at $79.3 trillion. This group was made up of pension funds with assets worth $29.9 trillion,

mutual funds with $24.7 trillion and $24.6 trillion held by insurance funds.Alternative assets such as sovereign

wealth funds ($4.2 trillion), private equity ($2.6 trillion, hedge funds ($1.8 trillion), ETFs ($1.3 trillion) and private

wealth management funds ($42.7 trillion) made up the rest of this global asset pool.

Where do these funds originate from? Investors from the US are the source of about 45 per cent of conventional

assets under management, accounting for $36 trillion. This would explain why the dollar climbs whenever investors

turn risk-averse; they take money back to the safe haven of their home country.Investors from the UK and Japan

account for an 8 per cent share. But the asset concentration is declining over the last few years.While the top five

countries accounted for about 90 per cent of global assets in 2006, this share had declined to 80 per cent by 2009.

INDIA IS DIFFERENT

A quick scan of the list of FIIs put up on the SEBI web site shows that India too has registered foreign investors from all the above categories and countries.Investors from the US dominate the list. There are also many FIIs based in off-shore financial centers such as Mauritius, Channel Island, Luxembourg and so on.But the market regulator does not provide a break-up of the amount invested by each class of FII in Indian equity or bonds. Neither is a break-up based on source country available.There is a long-standing debate regarding the nature of a large chunk of FII money flow-ing through the Mauritius route.Since many of the investment entities set up in these countries have opaque struc-tures, the ultimate owners of the funds remain hidden.Attempts to reconcile FII inflow/outflow with corresponding flows from global investment funds also show large gaps. According to a report published by BNP Paribas Securities (Asia), only one-third of the $10.3 billion of net FII inflows

into the Indian stock market in the first seven months of this calendar is explained by investments by conventional

funds.While some of the inflows could be from alternate asset funds, the report says, “Such a large quantum of

money coming from ‘non-regular’ sources lends credence to the oft-repeated conspiracy theory that a lot of FII flows

into India are, in reality, Indian money disguised as FII money.”

DECODING FII INFLOWS

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AUGUST 26 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc

CAN YOU SOLVE IT?

Match the following:

CARTOONS:

**Rush in your entries to : [email protected]

The right entries will get their name featured in the next issue of FinXpress. So hit the quiz fast & get yourself visible among 1000 odd in the campus.

Feel free to write to us at : [email protected]

Drop in your suggestions to the editorial team :

Magazine design/news : [email protected]

Articles/quiz : [email protected]

LAST WEEK’S ANSWERS

SET A

1) HSBC London

2) Citi Bank Charlotte

3) Bank of America New York

4) Grameen Bank Dhaka

5) Standard Chartered London

SET B

1. Lenovo

2. Takeover prevention strategies

Winner: Tushar Sharma

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JPMC Douglas Peterson

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Texas Instruments Stephen Almond

Crisil PratipChaudhuri

SBI Rich Templeton