Case study competition on "Cost of Capital'

An in house case study comeptition on 'cost of capital' was conducted for the PGP-1 batch, to make them accustom with the intricacies of the deicion making, whether to go for equity or debt and to make them understand the importance of capital structure and its implication on the firms long term vision and its survival.

Winners of the competition were Deepak Sirra, Srinath and Vishal Thakrar

Thanks to Mehul & Navjeet Siddhu for your Coordination

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Kingfisher: What went wrong?

Once rated as Asia Pacific’s most respected brand, Kingfisher Airlines reels under the pressure of rising oil prices and the price war plaguing the airline industry of India. Since its inception in 2005, India’s only 5 star accredited airline has yet to post a profit.  The situation has become so grave for India’s third largest airline that it might have to ask for a government bailout. The Income Tax authorities froze bank accounts of the airline for the non-payment of service tax arrears. The share price of the airline has plummeted from a Rs. 320 peak in 2007 to a life time low of Rs. 17.55. The company even made losses of Rs. 1,027 crores in the FY 2010-11.

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Structural reforms- Need of the hour

Unless circumstances push the Indian government into red, it has never treaded the path of structural reforms, be it 1991 balance of payments crisis or of late the impending multi pronged crisis looming large in the form of depletion of reserves, mounting fiscal deficit, alarming trade deficit. Foreign exchange reserves fell by $ 12 billion by depreciating rupee in a span of three weeks. Montek singh Ahulwalia, deputy chairman planning commission told that the fiscal deficit could swell to 5.5 percent of GDP, against the government’s target of 4.6 percent of the GDP for the year 2011-12. Finance ministry was of the opinion that it is a challenge to meet the fiscal deficit target. While the finance ministry is striving hard to contain the fiscal deficit another problem brewing in the back ground is the widening current account deficit, which might reach to a figure of 3% of GDP from 2.6% of GDP in 2010-11.

Though Indian government and the central bank have taken measures, by raising the Foreign Direct Investment limit in retailing industry, raising the limit of FII investment in G-Secs, bonds, to bail out the country in the short term if not in long term, much needed structural reforms are the need of the hour. The government has raised the FDI limit to 100% in single brand retail, to 51% in multi brand retail, though with lot of limitations in the form of restricted entry into 53 cities, and 50% of the investment should go into back end infrastructure building in the form of cold chain building and warehouse building and 30% of the sourcing should be done from the local players. While it is a good move, but retail being a state subject and opposition parties playing emotional politics, the impact of this move is a debatable subject, as to how far it will help energize the retail industry in India, and could yield the desired results. Another move aimed at meeting the dollar demand and to contain rupee fall is, Finance ministry increased the investment limit for foreign institutional investors in government securities and bonds by $ 5 billion each. But, how far these short moves will help sustain the long term growth story of India, a country which is looking to grow at double digit are questions which time can only answer.

Rupee fall might help exporters to some extent, especially the major export oriented industries, IT industry and textile industry, but the gains are only for those who receive alms in dollar denomination, and even if the receipts are in dollars many of them must have hedged their positions in the forward market and the gains depends on the position they have taken. At the same time the imports must have cost the importing companies dearer especially oil companies, many of whom are state owned. Capital goods are another component which cost more because of the depreciating rupee. According to the ministry of commerce and industry the trade deficit for April - September, 2011-12 was estimated at US $ 73461.34 million which was higher than the deficit of US $ 71119.23 million during April -September, 2010-11. And rupee expected to fall further to a low of Rs 58 vis-à-vis dollar, as expected by some of the industry analysts, may worsen the current account deficit even further.

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Yet Another quiz for the financial fanatics, from FINATIX!!

Q1)       The critical variable in the determination of the success of the active portfolio is

            A)  Alpha/systematic risk

            B)  Alpha/nonsystematic risk

            C)  Gamma/systematic risk

            D)  Gamma/nonsystematic risk

            E)  None of the above

 Q2)      In an inflationary trend, the pricing of the bank products are:

A) Decreasing trend

B) Constant

C) Increasing trend

            D) No relevance

Q3)    The Black-Litterman model is geared toward ____________ while the Treynor-Black model is geared toward ____________.

            A)  Security analysis; security analysis

            B)  Asset allocation; asset allocation

            C)  Security analysis; asset allocation

            D)  Asset allocation; security analysis

            E)  None of the above

Q4)    The tracking error of an optimized portfolio can be expressed in terms of the ____________ of the portfolio and thus reveal ____________.

            A)  Return; portfolio performance

            B)  Total risk; portfolio performance

            C)  Beta; portfolio performance

            D)  Beta; benchmark risk

            E)  Relative return; benchmark risk

 Q5)    What do activity ratios measure?

            A) How rapidly assets flow through the firm

            B) How frequently the firm’s stock is traded

            C) The employee turnover rate

            D) The profitableness of accounts receivable 

 Q6)    If interest rates rise, the price of preferred stock

           A) Is not affected

           B) Rises

           C) Falls

           D) May rise or fall 

Q7)    A negatively-sloped yield curve suggests that

         A) Short-term rates exceed long-term rates, and the Federal Reserve is following a tight monetary policy

         B) Short-term rates exceed long-term rates, and the Federal Reserve is following an easy monetary policy

         C) Long-term rates exceed short-term rates, and the Federal Reserve is following a tight monetary policy

         D) Long-term rates exceed short-term rates, and the Federal Reserve is following an easy monetary policy 

Q8)  Sutanu the trader purchases a 1-month out-of-the-money American call option on a stock. A week later,the        

       stock price is less than the call option strike price. The time value of the option is most likely would be a :

        A) A positive amount.

        B) A negative amount. 

        C) Zero.

        D) None of the above

Q9)  The trade terms "2/15, net 30" indicate that:

        A) a 2% discount is offered if payment is made within 15 days.

        B) a 15% discount is offered if payment is made within 30 days.

        C) a 2% discount is offered if payment is made within 30 days.

        D) a 30% discount is offered if payment is made within 15 days.

Q10)  Time consumed in clearing a check through the banking system is.

       A) Processing float

       B) Deposit float

       C) Collection float

       D) Availability float


Answer all the Questions correctly, to win exciting prizes ............!!!!!!!


Answers to the Quiz



1. B) 
2. D)
3. D)
4. C)
5. A)
6. C)
7. A)
8. B)
9. A)
10.A)

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SESSION ON FORENSIC ACCOUNTING AND FRAUD MANAGEMENT

Mr. Nikhil Parulkar, Head of Risk Containment Unit at Kotak Mahindra Bank, Mumbai provided us with the basic insights into the world of risk management with respect to monetary transactions on 30^th August, 2011. He is a certified forensic expert, a proven hand in examining fraud cases, and adept at recognizing the loopholes which can give room to fraud, in the banking industry. He has dealt with many fraud investigations . He has worked with Indian banking big wigs, such as ICICI and HDFC , prior to joining Kotak Mahindra apart from devoting his invaluable expertise with consulting big wig Ernst & Young. 


Mr. Nikhil started by explaining the definition of fraud. He notified the lack of proper meaning attached to the hazard known as “FRAUD” as no such peculiar definition of “FRAUD” has been underlined as per the Institute of Chartered Accountants of India better known as the ICAI. The only law that recognizes it as a wrongdoing is the IPC-420 which is for cheating. He then went on to define “FRAUD” as per the Common Wealth which involves ethics and intent as the parameters along with other factors. He explained the terminology focusing on “the guilty mind” and citing the example of Satyam.

 Mr. Nikhil then pointed out the various characteristics of “FRAUDS” apart from explaining every aspect of it. He brought to light the several consequences of the problem and the reasons affecting the susceptibility of major organizations to “FRAUD”. Here he came up with the significance of forensic accounting. Nikhil questioned whether a company falters or does not falter due to the DNA of the company or the DNA of the people who make it. He then went on to discuss the fraud triangle, fraud diamond (which is an addition of a new dimension to fraud triangle), the capability dimension, which has been the most notorious dimension, having debilitating effects as seen in the recent past. He enumerated the dimensions of fraud triangle, perceived pressure facing the individual, opportunity to commit fraud, person’s rationalization and integrity.

“Inside Job” an informative movie was screened post completion of the session, which is based on the chronicle of events and decisions which led to 2008 financial meltdown/crisis, the root cause of the financial crisis and the role of persons vested with power, how they can influence the systems was insightful and a discussion followed over the good and bad of the decisions sensitized the students towards the importance of ethics and role of corporate governance. And a pledge was taken by all the students that they will follow highest corporate governance standards where ever they work and see that their subordinates and superiors follow the ethics by being an example.

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D-Series

D-Series the brain child of FINATIX, a debating competition for the fellows having penchant for D-ism, on the current happenings in finance arena.

Keep watching the blog for the latest topics of debate daily.

The first ever debate topic--"The current debt crisis of the western world is an after shock of 2008 financial crisis or a structural fault?"

Viewers post your comments on the topic of debate

Coordinator, FINATIX

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Yet another Quiz

The answers will be published shortly. Fee free to post your answers as comments. 

Quizmasters: Saurabh Chaubey, Karthik KVR, IIM Raipur

1. What was the Japanese earthquake’s intensity? It is one of the top 10 earthquakes in the recorded history of mankind.
2. According to the World bank, what are the economic losses due to Japanese earthquake?
3. Which company topped the list of most admired company released by Fortune in 2011?
4. Which businessman is admired most by people according to Fortune?
5. What is Misery Index?
6. Name the only Indian company which was in the list of Ethisphere institute’s list of world most 110 ethical  companies.
7. Which country has highest share of food exports in its GDP?
8. Name the CEO of the large Indian bank who is being discharged of his duties today.
9. Name the Alma Mater of PepsiCo's CEO.
10. Which company's logo is this?

        

             

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Trivia

A simple quiz over the events that have unfolded recently. Answers are provided.

1. Name the two famous indices of the Tokyo Stock Exchange.
    Nikkei 225 and Topix
2. What is the problem faced by Japanese economy after the crisis?
    Appreciation of Japanese Yen
3. How many times has RBI revised its interest rates since March 2010?
    8 times
4. What is special about the Ides of March?
    15th of March when Ceaser was murdered by Brutus, Cassius and 60 other conspirators.
5. Who is the new Chairman of SEBI?
    U.K Sinha
6. Who is the first non American member of the board of Bank of America?
    Mukesh Ambani
7. Which major Japanese company has recently signed a deal with Reliance Capital to acquire a 26% stake in its life insurance?
    Nippon Life Insurance
8. Expand FCCB.
    Foreign Currency Convertible Bond
9. Which is the famous product that might be affected by the recent Japanese Crisis?
    The Apple Ipad 2
10. Name the country with the highest HDI in Africa.
     Libya

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Team Finatix

Team Finatix: From Top Left Clockwise: Ankur Dubey, Pooja Beria, Harshad Patil, Saurabh Chaubey, Karthik KVR, Varun Marwah, Nitin Kuraien, Vinay Prabhakar, Thirupathi Birudu (Coordinator) and Rahul Deshmukh

The pic was taken on the day RBI Governor Dr D Subbarao visited IIM Raipur. Finatix was in charge of organizing the event which turned out to be a huge success.

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FINGURU - Equinox 11

Team Finatix is pleased to announce the winners of the first edition of FinGuru at Equinox IIM Raipur.

And the FinGurus are:

Team Pinnacle from IIM Raipur
Ankit Kumar Ankur
Rajoo Milan
Rakesh Ranjan Jha
P Swami Vivekananda


The runnerup is Team Galacticos from Bharatidasan Institute of Management, Trichy. We thank them for coming all the way and gracing the event with their presence. Congrats to them!!

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Hello World!

Finatix is the Finance Club of IIM Raipur. Established in the founding year of IIM Raipur, Finatix aims to satisfy the Financial Fanatics by keeping them abreast with the latest in the happening field of Finance.

Why this Blog?

This blog will serve as Finatix's window to the outer world. The club's plans, events, articles, trivia etc. will be updated on a regular basis. This blog is for all the students of IIM Raipur and for anyone in general who is interested in Finance.

How to use this Blog?

It is simple. Just go through it! We are sure you will enjoy it. You can choose to follow the blog so that you are intimated whenever there is an update.

Happy Reading! 

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