Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

Where Great Traders Begin

D for DEFLATION

Is deflation bad for Economy?

Continued on 4

India’s Stock exchange Market News Business Quiz

Some important data about Get the latest news and views Let’s check your general
major stock exchange and from Industry Knowledge!
major benchmark index

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

Letter From The Editor’s Desk

As our newsletter goes into its second edition it is high time that
the editors have a word with its coveted readers.
You all must be wondering why did the company name itself
SEED CAPITAL? What has a seed got to do with capital? Well,
my friends a seed, when it germinates symbolizes growth, zeal to
compete with its other counterparts and be vibrant. It shows the
will to learn and explore its surroundings.
We, being a novice group of student vying to make it big into the
corporate world decided to open up a company not because we
want to earn big money. It is stealth, knowledge, and experience
that we crave for. The moolah will follow later on. But
knowledge does not come that easy. One has to run behind it to
possess it. And we sooner than later have realized. So we
decided that our prime motive is to learn. Not only about the
trading but the holistic tricks of the trade. That is why we
VISION decided for this newsletter that would not only have the
company news updates but will actually contain news from all
the sectors and from all over the world. By this we keep our
quest to crave for knowing more and more continuously ticking.
To be respected and But what is the point in learning if there’s no element of fun. So
preferred business we have a section to keep our readers hooked and enjoy as well as
learn.
organization with a
motive of building Coming to more serious issues, we are managers to be and it is
very important to realize that managing things is not a single-
wealth and creating handed affair. It needs teamwork, team spirit and group
prosperity for all the cohesiveness. The newsletter is not one man’s effort. It is proper
customers and teamwork, delegation, control and improved group dynamics.
This was our yet another motive behind our creating a new
members of our company.
company
We’d like to conclude with a very hearty thanks to all our readers
for having accepted and appreciated us and congratulate my
teammates for having done their jobs so far so good. A reason to
cheer for ourselves is that we are well in our way towards what we
want to achieve.

“Knowing is not enough; we must apply. Willing is not

enough we must do.” Namit Kewat- Chief Editor
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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

MAJOR STOCK EXCHANGE AND BENCHMARK

INDEX

BSE-SENSEX 30 INDEX: The Bombay Stock Exchange

Sensitive Inde x (Sensex) is a cap-weighted index. The
selection of the index members has been made on the
basis of liquidity, depth, and floating-stock-
adjustment depth and industry representation. Sensex
has a base date and v alue of 100 in 1978-1979. The
Inde x shifted to Free-float methodology since
09/01/03.(Curre nt v alue: 18454.94)

BSE-500 index is a free-float weighted index that represents nearly 93% of the total market
capitalisation on the Bombay Stock Exchange. This index represents all 20 major industries
of the economy. 1998-99 is chosen as the base year, and within this, the date February 1,
1999 is selected as the base date for its proximity to the current period. The base value was
fixed at 1000 points. (Current Value: 7473.72)

BSE-200: The equity shares of 200 selected companies from the specified and non-
specifiedlists of this Exchange have been considered for inclusion in the sample for `BSE-
200'which is a cap-weighted index. The selection of companies has primarilybeen done on
the basis of current market capitalisation of the listed scrips on the exchange. The financial
year 1989-90 has been chosen as the base year.(Current Value: 2360.45)

BSE-100:The equity shares of 100 companies from the "Specified" and the "Non-Specified"
list of the five major stock exchanges, viz. Mumbai, Calcutta, Delhi, Ahmedabad and
Madras have been selected for the purpose of compiling the BSE National Index (BSE100)
which is a free float weighted index. The financial year 1983-84 has been chosen as the base
year. (Current Value: 9857.11)

NSE S&P CNX NIFTY INDEX: The S&P CNX Nifty, a free float market capitalization
index, is the leading index for large companies on the National Stock Exchange of India. It
consists of 50 companies representing 24 sectors of the economy. The base level is defined as
1000 on November 3, 1995. In January 2005, its level was almost 2000.
(Current Value: 5540.20)
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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

Is Deflation bad for Economy? [Seed Capital Academy]

“Deflation is a contraction on the volume of money and credit relative to available goods”

Dose fall in prices is bad news for economy? And what if it happens as the expansion in
production of goods & services; then why it is bad news? If this is true then consumer will have
large quantity of goods and services.

A general fall in prices is also a fall in fractional reserve lending. Fractional reserve lending
permits banks to generate credit that is not backed up by real savings – credit created out of
thin air.

And when these unbacked credit comes into economy it creates activities that consume, and
do not produce, real wealth and undermines the pool of real savings. Also these activities
deteriorate the performance of the various activities. Which gives rise in the banks bad loans.
Banks deals it by not renewing matured loans; i.e. which triggers a decline in the money stock.

So the reason behind decline in money stock and an economic slump is loose monetary policy
not by liquidation of debt.

But without this loose monetary policy banks will have difficulty in practicing fractional
reserve lending.

So it is the unbacked credit which reshuffles real saving from wealth generators to non-
wealth generators, which weakens the ability to grow the pool of real savings, and there by
weakens economic growth.

So declining pool weakens borrower’s ability to serve the debt. Even increase in real interest
rate will put things in proper way and remove the garbage of scarce real savings; thereby
helping the real economy.

Continued…

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

In such situation, if central bank is thinking to pump in more money into the system; i.e.
increasing the price levels(countering deflation; that is Inflation), it will worsen the situation
because pool of real savings is still declining.

So deflation is healing the economy.

Deflation is response of Inflation and in general Inflation is increase in money supply. Hence
fall in money supply leads to fall in general prices- Deflation.
So it the disappearance of money that was previously generated out of thin air, undermining
non-productive activity. Which is great news for Wealth generating activities.
But what about the “fall in economic activity” which is associated with “fall in prices”?
As we have discussed, Deflation is arresting the “impoverishment” created by the Inflation, by
strengthening the producers of wealth, and revitalizing the economy.
Hence, deflation is shattering the illusion of prosperity created by Inflation. The fact behind
this is, “there is less real wealth.”

So from above, we can conclude that “Deflation lays the foundation of economic revival”.

Did You Know…

* An IMF study by Eduardo Borensztein and Ugo Panizza counts as many as 257
sovereign defaults between 1824 and 2004. Between 1981 and 1990 alone, there
were 74 defaults.

*MCX India is World No 1 In Silver, No 2 in Gold, Copper & Natural Gas and No 3
in Crude Oil in terms of number of futures contracts traded in 2009.

* “Solwara 1” is going to be the world’s first Deep-Water mining Project. Location is

Bismarck sea, North of Papua New Guinea. And Is operated by Company Nautilus
Minerals(Canadian Company). Company hopes to start production(Ore containing
Copper and Gold) by next year.
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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

Market News:
Credit Default Swaps
The Reserve bank of India had published a draft on 5th august that allows Commercial banks,
primary dealers and NBFCs to participate in Credit Default Swap(CDS).

CDS in an instrument which allows various business entities to manage risk associated with the
bond market. CDS is a specific knife of counter-party agreement which allows the transfer of
third party credit risk from one party to another.
It is also proposed that participants have net NPAs of less than 3%.

"Keeping in view the need for development of the infrastructure sector, CDS shall be permitted
to be written on corporate bonds issued by Special Purpose Vehicle(SPV) of rated infrastructure
companies," the RBI said.

India's Coal shortage sparks import boom

With forecast that India's power consumption will double by 2020 and it could face a coal
shortfall of anything up to 200 Mt a year by 2015-about half the power sector's expected
demand-huge improvements in domestic levels and rapidly raising imports are now deemed to
be essential.

In July, Coal India announced that it would invest in its frost port terminal to handle imports.
The terminal in southeast India will open in 2013 and will be capable of handling 6Mt of coal a
year.Coal India is forming joint venture with power utility NTPC to buy fuel from overseas.
This initiative comes against a background of forecast suggesting the country's coal
consumption may rise from around 500 Mt to more than 1bn tones by 2015. For this imports
should rise as much as 150 Mt a year, more than 2.5times the level recorded over last financial
year ended in March.

Current coal output is about 535 Mt. and our overseas search of coal has extended from
Indonesia to Mozambique, Botswana and Australia.

Insurance Cover + Infrastructure Bond

First time by any insurer in World, LIC is planning to offer free cover for all buyers of its
forthcoming infrastructure bonds worth at least 5,000 Crore.
Still clarification from ministry and IRDA is yet to obtain.

The bonds will have minimum tenure of 10 years, while investors will be locked in for 5 years.
After 5 years, customer can redeem investment either through a secondary market deal or
through a buyback by the issuer.

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

Banking Sector:
Strong loan growth of 22% Year over Year(yoy) partially led by lower base of last year and
funding opportunity towards 3G and BWA. However, deposits growth was muted at 15% YoY
resulting into CD ratio improving to 73.4% vs 72.2% a quarter ago. PNB, HDFC Bank and
BoB grew loans higher than sequential industry growth.
-Core Operating Profit was up 61% YoY On a lower base. For PSU banks it grew 74% YoY.
SBI, BoB and OBC lead the pack .Overall results were better than expected with PAT growth
of 28% YoY for our coverage universe.
-The expected margins to remain robust in FY11 as banks are offsetting the impact of rising
deposit rates by increasing their BPLR. The concerns over asset quality are abating with uptick
in economic growth.
-Top Picks: SBI, ICICI Bank, HDFC Bank, BoB and Union Bank large caps. Andhra, Indian,
Federal Bank in mid caps.

Pharma Sector:

Drug company, Sun Pharma on Thursday said it has received approval from the US Food and
Drug Administration to market generic version of anti-depressant Venlafaxine hydrochloride
extended release tablets.
The shares of the company were trading at Rs 1,795.20 at the Bombay Stock Exchange in
morning trade, up by 1.65 per cent over the previous close.

Infrastructure:
RBI RELAXES RULES FOR LENDING IN INFRASTRUTURE

The Reserve Bank of India has relaxed its norms relating to the lending in the infrastructure
sector, according to a notification released on Friday.

The central bank has created a new category of non-banking finance companies known as
infrastructure finance companies taking the type of finance companies to four others being
asset finance companies, loan companies and investment companies.

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

1. In the Indian securities market, which local term is used to describe the non-convertible
portion of a party convertible debenture ?

Ans._____________________________________________________
2. At which African stock exchange is trading in the ALSI 40 index carried out?

Ans._____________________________________________________
3. If NYSE is located on wall Street, which north American stock exchange is situated
on Bay street?

Ans._____________________________________________________
4. At which European stock exchange would you find a fully automatic electronic cash
market trading system named Extra?

Ans._____________________________________________________
5. At which European stock exchange is trading in the MIBTEL index carried out?

Ans._____________________________________________________
6. Which bank’s credit cards are marketed with the tag-line, ‘FREE FOR LIFE’?

Ans._____________________________________________________
7. In which year did India resort to rupee devaluation for first time?

Ans._____________________________________________________

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

8. Customized banking Innovation is the punch line of?

Ans._____________________________________________________
9. How many bank where nationalized in 1980?

Ans._____________________________________________________

10. In 1997 , a Chicago based company named GURANTEE TRUST Life insurance
become the first company in the united-states to offer life insurance to which kind of
people?

Ans._____________________________________________________
11. Who set up the new India insurance company in 1919?

Ans._____________________________________________________

12. Which Indian financial service company has launched a new branding exercise under
which its asset financing business will be branded as equik?

Ans._____________________________________________________

13. which private sector insurance company in India has launched a personal
accident cover named shanti?

Ans._____________________________________________________

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Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

14. In 1966, which company acquired standard and Poor’s ?

Ans._____________________________________________________
15. In 1936, the French car company Citroen was sold to which tyre company?

Ans._____________________________________________________
16. To which cement group did Raymond sell its cement business?

Ans._____________________________________________________
17. Which financial institution was established in 1948?

Ans._____________________________________________________
18. How many times has financial emergency been declared in India?

Ans._____________________________________________________
19. What was the nickname for the day(s) when the Stock Market crashed?

Ans._____________________________________________________
20. What does the bear and the bull stand for?

Ans._____________________________________________________

Results Will be declared in the Finance class of 27th August and in the Next issue of Seed
Capital Newsletter.

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 Seed Capital Newsletter – Volume: 002 AUGUST 15-AUGUST 31 - 2010

WE…

We , a part of the seed capital team, have tried our

best to create an effective and informative newsletter.
But its incomplete without readership and their
valuable suggestions to improve our efforts.
Hence, we look forward to your participation in
order enhance the quality of our newsletter.

For Your Suggestions and Comments Contact:

Namit Kewat, Editorial Team
Seed Capital, EMPI B SCHOOL

pgdbm.23b09@empi.ac.in

Sheetal Arora, CEO

Seed Capital, EMPI B SCHOOL
pgdbm.44a09@empi.ac.in

Disclaimer: For internal circulation only with a purpose of class room studies and disseminating
information to the students