The Global Economic Crisis has made investors risk averse. Investors have become very selective about choosing the right stock and are looking for early gains, thereby mitigating loses in the long term. The result is corrections in stocks of compa- nies with a good dividend payout ratio, irre- spective of any increase in earnings. Dividend yield is equity dividend per share divided by the stock price. High dividend paying companies have been able to betterresist the downward price pressure and thus, are a natural choice of investors in the present volatile market. High Dividend Yield helps guard against the risks associated with Capital Appreciation in the long term. Under the present market situation, these firms have managed High Dividend Yield Companies Back in Demand Vinod gupta school of management, IIT KHARAGPUR take a cue from this and can come up with some innovative mechanisms so that subsi- dies can reach the target people. Maharashtra‟s state budget has proposed to increase the stamp duty on non-delivery based transactions in equity and commodi- ties. Stamp duty is largely subject to the state, with different states having different rates forstamp duties. Differentia l stamp duties in land transactions do not result in shifting of trans- actions from one state to another because ofimmovable characteristic of land. But with differential stamp duties on equities and com- modities transactions, volumes can shift from Maharashtra to other states with lower stamp duties. This will result not only in a revenue loss to the government but also in loss ofjobs. Jobbers, algo traders and proprietary traders may lose t heir j obs as jobs can g et shifted to states with lower tax rates. Hence, a uniform tax structure should be imposed across all the states to ensure that tax rates do not influence business. (Contributed by Harsh Bansal)correction despite their stable earnings. Forinstance, Shipping Corporation of India (SCI) has underperformed the benchmark indices by over 22% in the past three months, but is currently trading at attractive valuations offer- ing a potential dividend yield of over 6.5%. Book Value, P/E Ratio and growth prospects of the company are analysed for mid-caps and small caps that do not pay high dividends. As such, consistent performance indicators and high dividend yield are the best way to choose a stock. Thus, it is important that investors look at dividend yield in conjunction with future business prospects and cash flows of the company and if the dividend yields sustain, investors will definitely be rewarded handsomely. (Contributed by Nilesh Kumar) Indian Taxation system is undergoing a huge transformation with the introduction ofDTC (Direct Tax code) and GST (Goods and Services Tax). The new tax reforms are under discussion and will be implemented soon. Progress on GST implementation has been slow because of conflict between the state and central governments upon the revenue sharing model. With the introduc- tion of FRBM (Fiscal Responsibility and Budget Management Act), states have to reduce the huge fiscal deficit. To reduce deficit, states are undergoing tax reforms to increase tax collection. Delhi‟s state budget has proposed to increase the registration tax on diesel run passenger cars by 25%. Delhi government has proposed this tax citing the recommen- dations of Kirit Parikh Committee. Kirit Parikh committee suggests that diesel run passenger cars should pay a onetime expense to the exchequer as they take advantage of the highly subsidized fuel. It is a game-changing step and other states can Tax Reforms in State Level Budgets P a g e 1 44.70 62.98 71.70 6.82 Volume 1, Issue 6 March 26, 2011Rates This Week About Fin-o-MenalFin-o-Menal is the weekly Financial News Letter of VGSoM which is published by Finte`est, the Finance Club. Come, Take Interest in Finte`est! Editors Harish Thangaraj Lavanya Rajasekaran Dhiru Rabha Editors Note This month end special is- sue of Fin-o-Menal is a FourPage Issue. A big Thank You to the Contributors.
The Global Economic Crisis has madeinvestors risk averse. Investors havebecome very selective about choosing theright stock and are looking for early gains,thereby mitigating loses in the long term.The result is corrections in stocks of compa-nies with a good dividend payout ratio, irre-spective of any increase in earnings.Dividend yield is equity dividend per sharedivided by the stock price. High dividendpaying companies have been able to better resist the downward price pressure andthus, are a natural choice of investors in thepresent volatile market.High Dividend Yield helps guard against therisks associated with Capital Appreciation inthe long term. Under the present marketsituation, these firms have managed
H i g h D i v i d e n d Y i e l d C o m p a n i e s B a c k i n D e m a n d
V i n o d g u p t a s c h o o l o f m a n a g e m e n t , I I T K H A R A G P U R
take a cue from this and can come up withsome innovative mechanisms so that subsi-dies can reach the target people.Maharashtra‟s state budget has proposed toincrease the stamp duty on non-deliverybased transactions in equity and commodi-ties. Stamp duty is largely subject to the state,with different states having different rates for stamp duties. Differential stamp duties in landtransactions do not result in shifting of trans-
actions from one state to another because of immovable characteristic of land. But withdifferential stamp duties on equities and com-modities transactions, volumes can shift fromMaharashtra to other states with lower stampduties. This will result not only in a revenueloss to the government but also in loss of jobs. Jobbers, algo traders and proprietarytraders may lose their jobs as jobs can getshifted to states with lower tax rates. Hence, auniform tax structure should be imposedacross all the states to ensure that tax ratesdo not influence business.(Contributed by Harsh Bansal)
correction despite their stable earnings. For instance, Shipping Corporation of India (SCI)has underperformed the benchmark indicesby over 22% in the past three months, but iscurrently trading at attractive valuations offer-ing a potential dividend yield of over 6.5%.Book Value, P/E Ratio and growth prospects
of the company are analysed for mid-capsand small caps that do not pay highdividends. As such, consistent performanceindicators and high dividend yield are the bestway to choose a stock.Thus, it is important that investors look atdividend yield in conjunction with futurebusiness prospects and cash flows of thecompany and if the dividend yields sustain,investors will definitely be rewardedhandsomely. (Contributed by Nilesh Kumar)
Indian Taxation system is undergoing ahuge transformation with the introduction of DTC (Direct Tax code) and GST (Goodsand Services Tax). The new tax reforms areunder discussion and will be implementedsoon. Progress on GST implementation hasbeen slow because of conflict between thestate and central governments upon therevenue sharing model. With the introduc-tion of FRBM (Fiscal Responsibility and
Budget Management Act), states have toreduce the huge fiscal deficit. To reducedeficit, states are undergoing tax reforms toincrease tax collection.Delhi‟s state budget has proposed toincrease the registration tax on diesel runpassenger cars by 25%. Delhi governmenthas proposed this tax citing the recommen-dations of Kirit Parikh Committee. KiritParikh committee suggests that diesel runpassenger cars should pay a onetimeexpense to the exchequer as they takeadvantage of the highly subsidized fuel. It isa game-changing step and other states can
T a x R e f o r m s i n S t a t e L e v e l B u d g e t s
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44.70 62.98
71.70 6.82
Volume 1, Issue 6 March 26, 2011
Rates This Week
About Fin-o-Menal
Fin-o-Menal is theweekly Financial NewsLetter of VGSoM whichis pub l i shed byFinte` est, the FinanceClub.Come, Take Interest inFinte` est!
Editors
Harish ThangarajLavanya RajasekaranDhiru Rabha
Editors Note
This month end special is-sue of Fin-o-Menal is a Four Page Issue. A big ThankYou to the Contributors.
To protect the interest of the shareholders inthe ruthless territory of Capital markets,SEBI provides several rights as a share-
holder of a company. Basic knowledge of these rights can help in taking decisions andunderstand the implications better.Right to dividends- Every shareholder is apart owner of the company. As such theyhave the right to receive part of profit in theform of dividends.Right to benefits- Companies also rewardsits shareholders in different ways. Some-times existing shares are repurchased atrates higher than the market price. Bonusshares for the existing shareholders are alsogiven at times. New stock offerings are firstoffered to the existing shareholders in the
proportion of their existing holdings.Voting rights- Shareholders can exercisetheir voting rights in the company‟s annualgeneral meeting. This enables them toparticipate in the decision making process of
the company. These rights are proportional tothe holdings in the company. Shareholders canalso choose a proxy to vote for them. But
preferred shareholders do not have the right tovote except when their rights are gettingaffected.Disclosure of Information- Shareholdershave the right to be informed about the generalfunctioning of the company and the health of the company. The company annual reportscontaining its income statement, balancesheets, cash flow statements etc serves thepurpose. Apart from this, the minutes of thegeneral meeting has to be sent to the share-holders.Collective rights- Shareholders have the rightto appeal against the company if they suspect
some mismanagement or an attempt to alter their rights. They can form a group and appealto the Company Law Board (CLB) for investigations into the affairs of the company.(Contributed by Gautam Gogoi)
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S h a r e h o l d e r s a n d t h e i r r i g h t s
(As on March 25, 2011)
T h e r u p e e ’ s d a n c e s w i t h t h e d o l l a r
To quote American poet John Ciardi, arupee saved is 90 paisa earned. But theIndian rupee rose on Monday, from a10-week low touched in the previoussession, supported by local share gains and
dollar inflows, towards the Manganese OreIndia Ltd (MOIL) Initial Public Offering.The prognosis is that the rupee will continueto stay strong for some time to come. Thisseems to run counter to the pessimismabout our economic growth prospects andanalyst‟s dark forecasts about them. Thequestion is if the rupee will be able to main-tain its recent surge against the dollar or not,and also what strengthens the rupee‟s value-domestic conditions or global.The answer could be both but what is lessclear is which is more dominant. At a pressconference to announce changes to the for-eign policy for 2009-14 Commerce Minister Anand Sharma said that India‟s export for 2010-2011(FY 11) should touch 200 billiondollars. However, he acknowledged that thetrade deficit will be around 120 billion dollarsfor the year.Data from the US, which accounts for morethan a third of India‟s exports and foreigntrade, suggests that slowdown is inprogress. Also, fiscal tightening in Europeancountries could impact the demand for Indian exports. When all the factors aretaken together, the net effect is likely to be aworsening exchange rate or, as economists
put it, there is a greater bias for depreciationor erosion in the rupee‟s value.There is another school of thought that be-lieves that risk aversion in the developedcountries could increase the capital flows to
India. Global Equity markets are another source of capital flows, and they are doing welltoo. The recent Tsunami in Japan may as wellincrease the attractiveness of India as a desti-nation for global capital. The Ireland bail-outpackage is also a positive for rupee.The Indian market regulator on Friday re-leased the long-awaited auction details of anenhanced Foreign Institutional Investment (FII)debt limit and set the sale date on Dec 2.Dealers cheered the auction decision as theyexpect foreign investors to hedge their debtexposure in the forward dollar market, whichcan push up the premium once the auctionstarts.The Commerce Minister‟s steps-extendingStandard Operating Procedure given to ex-porters-have made people cross their fingersand wonder how India‟s fiscal balance sheetwill look like at the end of the year. If things gowell on these front-good advance tax collec-tions, for instance, the prospects of rupee maylook even brighter.That said, it may be early to believe what MissPrism said to Cecily in Oscar Wilde‟s „TheImportance Of Being Earnest‟: “The chapter on Rupee you may omit. It is somewhat toosensational.” (Contributed by Jayati Singh)
Warren Buffett said that he was earning $15 asecond every day from just his investment inGoldman Sachs during the 2008 financial cri-
sis. Having a great sense of humour, Buffetjoked that he would hide in a cave to avoid thebuy back, since he is earning millions of dollarsin dividends!Warren Buffett said that they have never ever invested in a Private Equity firm and havenever bought a business with the idea of resell-ing it. Whereas Private Equity has an exit strat-egy, Buffett mentioned that he had an entrancestrategy.On insider trading, Buffett said that Wall Streetalso has its own grey areas. Any rise in themarket always leads to chances of moneymaking and practices like insider trading occur
in other countries also. The audience askedBuffett and Ajit if they had sleepless nightspost big investment. To this they answered thatthey sleep like a baby and even wake up everyhour and cry.Buffett mentioned that he has no regrets abouthis life and considers himself to be very lucky.He mentioned that if you love your work, everyday feels as if you‟re not working. He also toldthat for tough questions in life, one should tryto find answers by oneself.He promised the audience that doing this, thelife would become very different. He also saidthat it is extremely important to have thosepeople work with you who like you as a person.Overall the interaction was quite enriching andmotivating for a soon-to-be-manager!(Contributed by Aditya Zutshi. Read more atwww.adityazutshi.com)
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T o o n o f t h e w e e k
A R e n d e z v o u s W i t h w a r r e n b u f f e t
Q u i c k Q u o t e : Money can‟t buy happiness; it can, however, rent it. — Author unknown
"Bill Gates told me that IIT is the place to look for talent "- Warren Buffet, the 80-year-old CEO of US conglomerate Berkshire Hathaway and the world’s third richest man, recalling a conver sation he had with
Bill Gates in 1991, over attracting talent from India.
Volume 1, Issue 6 March 26, 2011 Fin-0-Menal
Q u o t e U n - Q u o t e
Did You Know? Aditya Zutshi, Second year MBA, recentlyhad the opportunity to interact with WarrenBuffett, the man who's better than any other
at making money and giving it away, duringhis first visit to India. Accompanying Mr.Buffet was Mr. Ajit Jain, an alumnus of IITKharagpur and seemingly his most trustedmanager at Berkshire Hathaway. He gradu-ated in 1972 from the IIT Kharagpur andwas a resident of the Azad Hall of Resi-dence. This interaction was organized byNDTV TV Channel and was telecast live.The program named „India Questions‟ wastargeted to give an opportunity to the stu-dents to ask questions to the third richestperson in the world.Warren Buffett when asked that why he
stayed away from investing in India all theseyears, said that he stayed away from Indiaas he did not understand the Indian compa-nies so well. It was a mistake and he canmake a decision on investment in India atanytime in the future. The audience wasvery excited to hear about his plans to in-vest in India in the near future.Buffett said that on landing in India, hefound the country pretty much what he ex-pected. With booming economy and hiscompany‟s plant in Bangalore expandingvery rapidly, he found people very cordialand made some new friends in a short time.He said that he had a lot of fun too and de-spite a hectic schedule, he looks forward toall that is to come.To give an idea on how easy it is for him tomake money, Berkshire Hathaway chairman
The Great Depression wasa severe worldwide eco-
nomic depression in thedecade preceding WorldWar II. The timing of theGreat Depression variedacross nations, but in mostcountries it started inabout 1929 and lasteduntil the late 1930s or early 1940s. It was thelongest, most widespread,and deepest depression of the 20th century. Unem-ployment rose 607% andindustrial production fellnearly 50% in the US.
ing activities, like smuggling of goods, over-production in facto-ries and its subsequent non-reporting in account books thrivedbecause of the short-sightedness of the government of a so-
cialist-closed economy. All the money naturally went off thebooks and got stacked outside the nation, and kept doing so,earning even more interest. Apart from this, corruption, whichsadly has always been the corner-stone of Indian bourgeoisawakening, also is a major contributor to this pile of blackmoney, be it the kickbacks earned by our corrupt politicians or the hidden earnings of our bureaucrats.A very innovative suggestion to fight this menace of blackmoney has been coined recently by the legendary investor-philanthropist Warren Buffet. Rather than trying the age oldformula of asking the black money owners to voluntarily comeforward and declare their assets, so that the government col-lect the requisite tax amount from them and turn the moneyinto „white‟ (the voluntary disclosure scheme) or forcibly freez-
ing their identified bank-accounts, Buffet has suggested thevery opposite. He says that these mega rich people who owntons of black money must be allowed to put that money to phil-anthropic use, without questioning their identity or source of money. According to the legendary Buffet, a child who gets avaccine that can save his or her life will not question thesource of the money that paid for the vaccine. It is both inter-esting as well as a very radical idea. With the sheer amount of black money lying unproductive, it really seems very reassur-ing that how many million children may be saved from dis-eases with that money, or how many vaccines may be pro-duced or invented with that.(Contributed by Harsh Vyas)
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W a r r e n B u f f e t ’ s R a d i c a l i d e a t o d e a l w i t h i n d i a ’ s b l a c k m o n e y
Volume 1, Issue 6 March 26, 2011 Fin-0-Menal
The Swiss Banks release of the controversial data pertainingto money in their accounts whose sources have not beenverified or, more simply, BLACK MONEY, did not come as a
surprise to us Indians. In an embarrassing distinction, Indiahas got the top slot among nations by a huge margin, in theglobal list of Nations having vast amounts of black moneystacked outside the country. It is estimated that Indians haveaccumulated almost $1500 billion in various Swiss Bank ac-counts, Tax havens and nations with deliberately lax/secretivebanking laws. We are followed by Russia, a usual suspect,but at a distant $470 billion. UK with $390 Billion, Ukraine with$100 Billion and China with $96 Billion were the other major sources of black money worldwide.The money which rightfully belongs to its honest, hard-working, industrious citizens is lying in the Swiss bank ac-counts of its corrupt politicians, bureaucrats and industrialists;it must be really demoralizing and demeaning for the majority
of Indians who are really poor, without basic benefits likehealth and education. This insanely large amount of money issufficient to cover 13 times our national debt, or 40% of our total GDP (Purchasing Power Parity wise). What is even moreamazing is that if the government stops collecting taxes, thisamount is enough to sustain us for next 30 years, which ex-hibits the sheer size of this amount!There are reasons aplenty for this dubious distinction thatIndia has received. Huge amounts of money started leavingthe country into these Swiss-banks in the early 70‟s becauseof the unrealistic tax regime of the prevailing governmentswhere peak tax rates were as high as 97.5%. This was noth-ing short of “daylight robbery”. Apart from that, many prevail-
I n f l a t i o n a n d t h e I n t e r e s t r a t e c o - r e l a t i o n
Domestic and global factors are conspiring to darken India'sonce-shining growth outlook, with inflation and sluggish in-vestment likely to keep economic expansion well below thegovernment's target of 9% in the coming year. India's inflationeased less than expected in January to 8.23%, holding wellabove the Reserve Bank's comfort zone and reinforcing ex-pectations it will raise interest rates at its March policy review.The wholesale price index (WPI), the country's main inflationgauge, rose in the year through January more than the8.05%. Wholesale food prices jumped 15.7% in January com-pared with 13.6% in December, leading to fears that foodinflation was leading to sustained price rises in other sectors
of the $1.3 trillion economy. India suffers from the highestinflation of any major Asian economy even after seven ratesrises in a year and analysts doubt a 7% target for the end of March set by the Reserve Bank of India can be reached whenprice pressures are spreading from food and fuel deeper intothe economy. The strength of inflationary pressures is visiblefrom the fact that despite significantly high statistical baseeffect... headline inflation just eased by about 20 bps.The central bank said last year it would be comfortable withinflation between 5% and 6%. But it raised its forecast for theend of the current fiscal year to 7% after its last policy meet-ing in January. The RBI on Thursday raised its short-termlending and borrowing rates by 25 basis points in a bid to reinin inflation. It was the central bank's eighth rate hike since
March 2010. The short-term lending, or repo rate, has beenincreased from 6.50% to 6.75%, while the short-term borrow-ing rate (reverse repo) has been raised to 5.75% from 5.50%.Increase in rates by RBI is expected to make loans, includinghousing, auto and corporate loans, dearer. Keeping in view theliquidity situation, the central bank has kept the cash reserveratio (CRR), the amount which lenders are required to keepwith the RBI in cash, unchanged at 6%. However, the RBI hasraised inflation projection to 8% for March-end against 7% esti-mated earlier.After a slight moderation in January, headline WPI inflationreversed in February 2011, accompanied by a sharp increase
in non-food manufactured products inflation. Based on thecurrent and evolving growth and inflation scenario, the Re-serve Bank is likely to persist with the current anti-inflationarystance. The RBI has been one of the most aggressive centralbanks in Asia in unwinding its easy monetary policy, raisingpolicy rates seven times in less than a year. But the rapid con-traction hit industrial output, whose growth slowed to a 20-month low in December. Prices of government bonds fell after the inflation data, as a reaction to the rate increase at the cen-tral bank's mid-quarter policy review on March 17. The govern-ment also is increasingly worried that high inflation could eatinto growth by denting investor confidence, which is already ata low owing to the numerous scams and scandals.(Contributed by Arvind Mahor)
