finxpress_2december2012

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December 02 ,2012

Company In Focus : Barclays

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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

Anti-corruption probe:

Why we should feel sorry for Walmart

Q-Ratio

December 02 ,2012

EDITORIAL

PAGE 1 http://www.imtgfinxpress.co.cc

Dear Readers, Greetings from FinNiche! The curriculum has geared up for the first year students with fast track course keeping students busy who are intending to go for foreign exchange in the next term. Further with the upcoming final placement season for second year students, the campus is being heated up with learning and knowledge sharing. In this edition of FinXpress, we have Barclays PLC as the ‘Company in Focus’. In the ‘Term of the Week’ section, we would like to explore ‘Q-Ratio’. Moving to the ‘Markets This Week’, the Sensex and Nifty closed with their biggest weekly margin to close with a gain of 4.5% for the week. The special page features the corruption probe at Bharti Walmart. We sincerely hope that the readers will find the content engaging. We would appreciate feedback and suggestions for improvement. We look forward to keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board FinXpress

COMPANY IN FOCUS

Barclays

Barclays PLC is a British multinational banking and financial services company headquartered

in London, United Kingdom. It has operations in over 50 countries and territories across Africa, Asia,

Europe, North America and South America and around 48 million customers. As of 31 December 2010 it

had total assets of US$2.33 trillion, the fourth-largest of any bank worldwide after BNP

Paribas, Deutsche Bank and HSBC.

Barclays is a universal bank and is organized within two business clusters:

1. Corporate and Investment Banking and Wealth and Investment Management. It comprises three

business units:

1.1. Corporate banking;

1.2. Investment banking and

1.3. Wealth and investment management

2. Retail and Business Banking. It comprises four business units:

2.1. Africa Retail and Business Banking

2.2. Barclaycard (credit card and loan provision)

2.3. Europe Retail and Business Banking

2.4. UK Retail and Business Banking.

The group employs around 139,000 people. It is headed by Group chief executive Antony P. Jenkins.

Barclays has a primary listing on the London Stock Exchange (symbol BARC) and is a constituent of

the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange symbol BCS. Some of the

important deals of which Barclays has been a part of are:

In September 2008 Barclays PLC acquired Lehman Brothers under a US$1.35 billion deal.

In April 2011, Carlyle Group sold The Mill to the Company’s Barclays Private Equity.

On March 1, 2011, Barclays agreed to acquire Egg’s UK credit card assets.

In October 2011, the Company sold its retail and commercial banking operations business in Russia,

Barclays Bank LLC.

In April 2012, its investment banking division is combining its corporate finance and mergers and

acquisition groups.

In July 2012, it sold 90.4% of Sweden-based carbon project developer Tricorona back to the

Company's management.

December 02 ,2012 PAGE 2 http://www.imtgfinxpress.co.cc

Major controversies:

In February 2012 Barclays was forced to pay back £500 million in tax which it had tried to avoid. Barclays

was accused by HMRC of designing two schemes that were intended to avoid substantial amounts of tax.

In June 2012, as a result of an international investigation, Barclays Bank was fined a total of £290 million

(US$450 million) for attempting to manipulate the daily settings of London Interbank Offered Rate (Libor)

and the Euro Interbank Offered Rate (Euribor). The United States Department of Justice and Barclays

officially agreed that "the manipulation of the submissions affected the fixed rates on some occasions".

The bank was found to have made 'inappropriate submissions' of rates which formed part of the Libor and

Euribor setting processes, sometimes to make a profit, and other times to make the bank look more

secure during the financial crisis.

Market Cap: $ 47.49Bn

P/E (ttm) : 1,319.17

EPS (ttm): 0.01

Div & Yield: 0.26 (1.60%)

December 02 ,2012 PAGE 3 http://www.imtgfinxpress.co.cc

TERM OF THE WEEK : Q-Ratio

A ratio devised by James Tobin of Yale University, Nobel laureate in economics, who hypothesized that the

combined market value of all the companies on the stock market should be about equal to their

replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement

value of the firm's assets:

If the market value reflected solely the recorded assets of a company, Tobin's Q would be 1.0.

If Tobin's Q is greater than 1.0, then the market value is greater than the value of the company's recorded

assets. This suggests that the market value reflects some unmeasured or unrecorded assets of the

company. High Tobin's Q values encourage companies to invest more in capital because they are "worth"

more than the price they paid for them.

If a company's stock price (which is a measure of the company's capital market value) is $2 and the price of

the capital in the current market is $1; the company can issue shares and with the revenue invest in capital.

In this case Q>1.

On the other hand, if Tobin's Q is less than 1, the market value is less than the recorded value of the assets

of the company. This suggests that the market may be undervaluing the company. There is no straightforward balancing mechanism exists in the case of low Q ratios, i.e., when the market is

valuing an asset below its replacement cost (Q<1). When Q is less than parity, the market seems to be

saying that the deployed real assets will not earn a sufficient rate of return and that, therefore, the owners

of such assets must accept a discount to the replacement value if they desire to sell their assets in the

market. If the real assets can be sold off at replacement cost, for example via an asset liquidation, such an

action would be beneficial to shareholders because it would drive the Q ratio back up toward parity (Q->1).

In the case of the stock market as a whole, rather than a single firm, the conclusion that assets should be

liquidated does not typically apply. A low Q ratio for the entire market does not mean that blanket

redeployment of resources across the economy will create value. Instead, when market-wide Q is less than

parity, investors are probably being overly pessimistic about future asset returns.

Tobin's discoveries show us that movements in stock prices will be reflected in changes in consumption and

investment, although empirical evidence reveals that his discoveries are not as tight as one would have

thought. This is largely because firms do not blindly base fixed investment decisions on movements in the

stock price; rather they examine future interest rates and the present value of expected profits.

December 02 ,2012 PAGE 4 http://www.imtgfinxpress.co.cc

MARKET THIS WEEK

SENSEX

Sensex gained by 4.50% from last week and ended the week at 19339.9.

Simple Moving Averages

NIFTY

Nifty gained 4.50% from last week and ended the week at 5879.85.

Simple Moving Averages

30 Days 50 Days 150 Days 200 Days

18666.22 18681.28 17605.41 17579.89

30 Days 50 Days 150 Days 200 Days

5,677.23 5,677.38 5,340.25 5,335.73

MARKET THIS WEEK

December 02 ,2012 PAGE 5 http://www.imtgfinxpress.co.cc

Overview

In a truncated week, both the key indices, Sensex and Nifty, registered their biggest weekly gains in

absolute term, 833.33 points and 253.25 points respectively, in the current calendar year till now due

to strong buying activity on a slew of positive developments.

Shares of Fortis Healthcare have jumped 11.82% in two trading sessions from Rs 101.05 on 27 No-

vember 2012, after the company after market hours on 27 November 2012 said its board of directors

approved setting up a committee, which will be termed as the Issue Committee, to explore various

methods of raising funds and accordingly to secure necessary approval from shareholders. The stock

had jumped 7.57% to settle at Rs 108.70 on Thursday, 29 November 2012.

Shares of Lanco Infratech (LITL) have jumped 15.58% in four trading sessions from a recent low of Rs

12.19 on 23 November 2012, after the company during trading hours on 26 November 2012 said it

has entered into a memorandum of understanding (MoU) with the China Development Bank (CDB), a

bank owned by the government of Peoples Republic of China, to arrange $2 billion debt for the com-

pany's two power projects i.e. Anpara Phase II and Himawat, each having capacity of 2x660 mega-

watts (MW) with supercritical boiler technology. Out of the total amount of $2 billion required to be

raised, $600 million will be contributed by CDB, and CDB will syndicate the balance from Chinese

banks and FIs, LITL said in a statement.

December 02 ,2012 PAGE 6 http://www.imtgfinxpress.co.cc

Exchange Rates vs. INR

Currency Symbol Rates % Change

US Dollar $ 54.26 0.47%

Euro € 70.44 2.34%

Dirham AED 14.92 0.78%

Japanese Yen

¥ 0.654 -0.7%

Chinese Yuan

CNY 8.718 0.69%

Commodities Unit Rs. / Unit % Change

Gold 10gms. 31109 1.73%

Silver 1 Kg. 61325 3.67%

Crude Oil 1 BBL 4846 2.56%

RESERVE RATIOS

CRR 4.5%

LRR 23.0%

LENDING DEPOSIT RATE

Base Rate 9.75%-10.50%

Savings Deposit Rate 4.00%

Term Deposit Rate 8.50%-9.00%

POLICY RATIOS

Bank Rate 9.00%

Repo Rate 8.00%

Reverse Repo rate 7.00%

Marginal Standing 9.00%

NEWS OF THE WEEK

France Announces ArcelorMittal Steelworks Deal

The French government backed away on Friday from a threat to nationalise a steelworks, saying it secured promises

from the owner, ArcelorMittal, to invest and avoid any forced layoffs at the site where the company has idled two

blast furnaces. Workers at the plant said the announcement fell well short of what they had hoped from a

government that won power in May on promises to combat industrial decline and mass job losses in Europe's

second-largest economy.

Prime Minister Jean-Marc Ayrault said ArcelorMittal, under fire for mothballing the site 18 months ago, would invest

180 million Euros ($234 million) and had promised there would be no forced layoffs among some 630 workers there.

Ayrault said the two furnaces in Florange, a small town of some 11,000 people near the border with Germany, would

not be restarted for now, given weak European steel demand. ArcelorMittal would keep them in working order,

however, for future use in a test project for environmentally friendly steel production.

Ayrault said the investment would reinforce cold-steel and packaging operations at Florange and secure jobs in those

areas. ArcelorMittal had pledged its investment in Florange would not come at the expense of other sites in France.

The deal, the result of months of talks, came as the Italian Cabinet was meeting to approve a rescue plan for ILVA,

Europe's largest steel plant, which has 20,000 workers and is threatened with closure after accusations that

emissions from the site had caused an environmental "disaster." The European steel industry is struggling with

overcapacity at a time of recession in the euro area and cheap competition in emerging markets.

China's November Official Factory PMI Hits Seven-Month High

China's official manufacturing purchasing managers' index rose to a seven-month high of 50.6 in November from

50.2 in October, the National Bureau of Statistics (NBS) said on Saturday. The headline figure is in line with an

economist poll by Reuters this week, and confirms a trend toward recovering growth in the world's second-largest

economy.

A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth. While

growth accelerated for large firms for the third month in a row, medium and smaller companies saw a retrenchment,

with the decline more pronounced for the smaller firms, the NBS said in an accompanying statement. China's

economic health has improved since September, with an array of indicators from factory output to retail sales and

investment showing Beijing's pro-growth policies are starting to gain traction.

Analysts said the end of a destocking cycle and a greater pace of investment would keep driving up domestic

demand, and extend the recovery trend into the final quarter of this year. Smaller and private firms are still pleading

for greater access to credit and investment incentives, which have gone disproportionately to the state sector,

particularly since the financial crisis of 2008-2009.

China's annual economic growth dipped to 7.4 per cent in the third quarter, slowing for seven quarters in a row and

leaving the economy on course for its weakest showing since 1999. Given the recent signs of recovery, many

analysts expect the economy to snap out of its longest downward cycle since the global financial crisis, and start to

trend upwards in the fourth quarter. But economists also warn of downside risks from still cloudy external markets.

The European debt crisis and listless U.S. economy continue to crimp demand from China's two largest trade

partners.

December 02 ,2012 PAGE 7 http://www.imtgfinxpress.co.cc

FIIs Can Invest $10 bn More In Gilts, Corporate Bonds

The government on Friday decided to ease the rules for foreign investment in government securities and corporate

bonds, hoping to attract capital to fund the high current account deficit. Long-term investors such as sovereign

wealth funds, central banks of other countries, pension funds and insurance funds have been allowed to invest up to

$10 billion more in government and corporate bonds without any restriction on maturity.

The decision was taken by the high-level committee on external commercial borrowings chaired by department of

economic affairs secretary Arvind Mayaram. Foreign debt flows have become a big source of funds to bridge the

wide current account gap, which is likely to moderate only slightly to 3.7 per cent of GDP this year from all time high

4.2 per cent of GDP last year.

FDI flows in the first five months of the financial year are nearly 40 per cent less from the corresponding period last

year, forcing policymakers to find ways to make NRI deposits and overseas borrowings attractive. A slowdown in

flows could weaken the currency further, which will increase inflationary pressure, undermine sentiment and weaken

the fiscal consolidation drive by pushing up fuel and fertiliser subsidies.

Moody's Downgrades Euro Zone Rescue Funds, Keeps Negative Outlook

Credit ratings agency Moody's cut its rating for the euro zone rescue funds ESM and EFSF to Aa1 from Aaa following

its downgrade of France earlier in November, the agency said on Friday. It said the downgrade of the ESM and the

EFSF, which were created to stabilise the euro zone by providing financial assistance to euro area member states in

difficulty, was prompted by the high correlation in credit risk among the rescue funds and their largest financial

supporters.

Moody's had stripped France of its prized triple-A badge this month, cutting the sovereign credit rating on Europe's

No. 2 economy by one notch to Aa1 from Aaa. It cited an uncertain fiscal outlook and deteriorating economy.

The EFSF and ESM said in a statement late on Friday that they took note of Moody's decision but did not agree with

the agency's approach which does not sufficiently acknowledge ESM's exceptionally strong institutional framework,

political commitment and capital structure. Moody's had announced it would review the Aaa rating of the two funds

after the downgrade of France.

Government Begins Exercise to Offload 9.5% Equity in NTPC

The government on Thursday initiated the process of disinvestment in NTPC by inviting bids from merchant bankers

for 9.5 per cent stake sale in the power major, which may fetch the exchequer around Rs 12,400 crore. The merchant

bankers are required to submit their application by December 14. The government currently holds 84.50 per cent

stake in NTPC and post disinvestment Government's holding would come down to 75 per cent. The paid up equity

capital of the company, as on March 31, 2012, is Rs 8,245.46 crore.

The disinvestment would also help NTPC to comply with the minimum public shareholding norms. NTPC became a

listed company in 2004. Thereafter in 2009, government further diluted its stake in the power producer. The

government has set a target of mopping up Rs 30,000 crore through disinvestment in the current fiscal. It has already

raised over Rs 800 crore through stake sale in Hindustan Copper (HCL). The government has already initiated the

process of disinvestment of 10 per cent of its stake in NMDC and 9.3 per cent in MMTC. Besides, the Cabinet has also

okayed disinvestment of 12.1 per cent in Nalco.

December 02 ,2012 PAGE 8 http://www.imtgfinxpress.co.cc

Blackberry Maker RIM Loses Patent Dispute with Nokia

BlackBerry maker Research In Motion Ltd (RIM) has lost a dispute over the use of Nokia Oyj patents, in a case which

could halt the sale of RIM products if it does not reach a new royalties deal with the Finnish company. The Swedish

arbitrator ruled RIM was not entitled to make or sell mobile devices which can hook up to Wi-Fi networks - using

technology known in the trade as WLAN or wireless local access network systems - without first agreeing royalties

with Nokia.

The decision is a boost for Nokia which is trying to increase its royalty income as its phone business slides, and the

group said it had filed cases in the United States, Britain and Canada to enforce the arbitrator's ruling. A source close

to RIM said the arbitration ruling was unlikely to have any immediate ramifications, as Nokia still has to fight a

number of legal battles for the arbitration panel's ruling to be recognized in different countries. But analysts said RIM

would likely seek a royalty agreement with Nokia to avert any risk of sale bans.

FDI in Retail: Stringent Sourcing Norms May Add To IKEA's Woes Swedish furniture major IKEA's India plans may face a fresh jolt as the government is planning to impose stringent

conditions to ensure the retailer follows proper sourcing norms and does not rely on cheaper imports from other

countries. The Foreign Investment Promotion Board (FIPB) had earlier curtailed the company's plans of opening food

cafes at its stores and slashed the number of products it can sell in the country. The company proposes to have two

separate arms - one for front-end stores and another for sourcing.

The conditions would be specific to IKEA since it is the only single-brand retailer so far that proposes to have a

separate sourcing arm. India had diluted the 30% local sourcing norm to allow foreign retailers to fulfil it over a

period of five years. The norm also stipulates a single entity for sourcing and retailing through DIPP. IKEA, in its

application, had assured the government of complying with the condition.

EU Approves Spain's Bank Recast Plan, Opens Door for 40-Bn Aid

The European Commission gave the go ahead to Spain to overhaul its stricken nationalised banks on Wednesday and

opened the door for a nearly 40-billion Eurozone aid to be disbursed, offering hope for an end to Spain's banking

crisis.

Lenders Bankia, NCG Banco, Catalunya Banc and Banco de Valencia will need 37 billion ($48 billion) to be

recapitalised and the banks' bondholders will face losses. The approval allows the Eurozone to disburse funds from

its permanent European Stability Mechanism (ESM) fund and could mark a turning point in a banking crisis that has

dragged Spain into recession after its real estate bubble burst. Spain was given nod to receive up to 100 b from the

ESM in June. The announcement sets down one of the most far-reaching restructuring plans of any European

banking system ordered by the Commission since the start of a banking crisis in mid-2007 with the near collapse of

German lender IKB.

The European Commission said Banco de Valencia would be sold and integrated into Caixabank, and the other three

banks would need to cut their balance sheets by more than 60% over the next five years. The Bank of Spain, also,

delivered more bad news on the overall economy, saying country appears stuck in a job-killing recession in the fourth

quarter.

December 02 ,2012 PAGE 9 http://www.imtgfinxpress.co.cc

COVER STORY

The Indian unit of Walmart Stores Inc, the world's biggest retailer by sales, found itself at the centre of a

media and political firestorm after the suspension of a number of employees as a result of an

anti-corruption probe became public.

Walmart's reporting to the US authorities of possible wrongdoing by its joint venture with Bharti in India

highlights the power of governance and law enforcement in America. Within our country, this company

could have paid millions of dollars in bribes with no fallout whatsoever. While the US's Foreign Corrupt

Practices Act (FCPA) is laudable and should in theory help curb corruption around d world where American

companies do business, it will probably do the reverse. The likes of Walmart will be at a distinct

disadvantage against local rivals who will continue to bribe their way into reaching milestone number of

stores.

In effect, this will stall foreign direct investment in retail, a move desired by politicians of various hues,

giving them dual cause for celebration. Firstly, they would have protected the trader community and sec-

ondly, the "foreign hand" that sought to stop bribing will be shown its proper place.

The benefits to farmers from higher prices and lower perish of produce and to customers from more

competitive rates and a wider range of products will be blocked by corruption in India.

Walmart may have voluntarily reported possible bribes in India, as the company has been under a probe

by the US justice department following revelations in April that the company's Mexican arm had greased

palms to speed the granting of permits to open new stores. The US government has in the past couple of

years gone after Americans firms that bribe abroad and the largest fines slapped under the FCPA have

been during this period.

Walmart has to be more careful than others that have been in the same boat, as the justice department

may want to make an example of the company, given its high profile. Self-revelation of bribes paid in India

may have been spurred by a belief that it may be treated more leniently when it comes to determining the

penalty.

Wal-Mart’s joint venture has set up 18 mega stores across India, and the US company is desirous of

opening many more very rapidly because Walmart's domestic sales have slacked while overseas units

have shown a sharper growth in sales. The India fallout for Walmart will probably be restricted to the cost

of an internal investigation, which can be expensive. For Bharti, the risks lie in it having to pay

compensation on the quantum of fine in case it has indemnified Walmart, as is often the case in

foreign-local joint ventures.

Anti-corruption probe:

Why we should feel sorry for Walmart

December 02 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc

CAN YOU SOLVE IT?

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

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LAST WEEK’S ANSWERS

1) RBI

2) Crisil

3) UCO Bank

4) Muthoot Finance

5) HDFC Bank

Winner: Ajay Maheska

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December 02 ,2012 PAGE 11 http://www.imtgfinxpress.co.cc

CARTOONS:

FinQuiz

Match the following

Sesa gao Houghton International

Disney IDBI Bank

Gulf Oil Lucasfilm

SHCIL Octoplus NV

Dr. Reddy’s Lab DUSA

SUN Pharma Sterlite industries