15th March 2012 Edition

ABB20120302

The Abhyaas Business Bulletin for the MBA aspirant in you.

ONGC auction gets bids for Rs 8,500 crore; disappoints
The Governments 40,000 crore disinvestment plans did not yield results as expected at the auction for the sale of its 5% stake in Oil and Natural Gas Corporation (ONGC) on 1st March. It got little relief from the lukewarm response to the auction which disappointed by getting bids for 29.22 crore shares worth about Rs 8,500 crore, only about two-third of the targeted proceeds of over Rs 12,000 crore. ONGC is a state-owned company which is also Indias largest and one of Asias biggest oil and gas producing companies, along with being one of the largest companies by market capitalization and one of the largest Indian companies in terms of profits. The Government had a 74.14% stake in ONGC and had proposed to sell 42.77crore shares at Rs 290 per share. The bidding picked some momentum in the last half of the 9.15A.M to 3.30P.M window, as compared to a bleak first hour when only 37,500 shares were sold. Off Rs 29.22 crore, 19.92 crore were earned on the NSE and 9.3 crore on the BSE. In this first stake sale that was done via the auction route, Citi, HSBC Securities, Morgan Stanley, JM, Nomura and DSP ML were the investment bankers. Life Insurance Corporation (LIC), India's largest insurer bought 37.71 crore shares representing 4.41% stake raising its total stake in the company to 9.48%. Putting in about Rs 303 a share, LIC pumped in around Rs 11,426 crore into the issue on offer. Analysts said that a poor response to the bidding could be attributed to the fact that ONGC shares were trading very close to the offer price of Rs 290 in the secondary market and even slipped below the floor price by afternoon trade. At the end of the auction, the governments holding in ONGC came down to 69.23% and it put on hold all forms of stake sales following the unenthusiastic response. What remains to be seen is if the disinvestment plans with other public sector companies like BHEL and SAIL will bring more cheer to the government or follow the same route.
What is an auction of shares? How is it different from book building process of IPO? What is the role of investment bankers in such auctions? What do you think are the reasons for the failure of this stake sale via auction route? Should the government disinvest in the wake of the response to this auction?
www.abhyaas.in

From the Editors desk:

Hello Reader, Welcome to the latest edition of the Abhyaas Business Bulletin covering all the significant business happenings in the first half of March, both nationally and internationally. The auction of ONGC shares by the government to reduce the fiscal deficit was the biggest story of this fortnight, which is the cover story. Trade was the crux of all issues this half of the month, with the government banning cotton exports and then revoking the ban; Pakistan approving the negative trade list for India and exports showing an increase in the month for January. Internationally, Lehman Brothers moving out of Bankruptcy made big news. China scaled down its GDP target first time in 7 years to 7.5%, while in contrast, the United States economy showed a marginal improvement. The questions at the end of each news article are for you to get an in-depth knowledge into the news bits being discussed. Try and answer as many as you can and feel free to write back to us for clarifications.

Happy Reading!

Index: Page 2: Stock Market and Indicators Page 3: National Business News Page 4: International Business News

(Ms. Sonal Jaiswal)

The Abhyaas Business Bulletin

15th March 2012 Edition

ABB20120302

Stock Markets across the World (1st March 14th March, 2012)

Macro Indicators
Bank Rate Repo Rate Reverse Repo Rate SLR CRR Exchange Rate(with USD) Inflation(WPI) % Change 9.50% 8.50% 7.50% 24.00% 4.75% 48.99 6.95%

Other Indicators
Crude Oil(NYMEX) Crude Oil(BRENT) Gold Price(Indian Bullion)

105.78 $/barrel
118.16 $/barrel 2660.12 INR/gm
(As on 14h Mar, 2012)

Overview
India's Sensex and Nifty advanced by 1.91% and 2.33% respectively in the last fortnight. While Japan's Nikkei index was the biggest gainer which advanced by 3.53% and closed at 10,050.52, Shanghai Composite Index was one of the bad performers compared to other global peers as it declined by 1.44%. London's FTSE 100 index traded within a range as it gained only 0.24% while NASDAQ average advanced by 2.45%. Crude oil markets remained buoyant after having a fairly volatile week. With the ongoing strains across several other OPEC and nonOPEC supply centres and with global oil demand showing limited fatigue at current price levels, the crude prices are expected to peak up in times to come.
www.abhyaas.in The Abhyaas Business Bulletin 2

15th March 2012 Edition

ABB20120302

Indias exports increase 10.1% in January 2012

Going against a trend of descending exports, Indias exports increased 10.1% to $25.347 billion in January, 2012 against the same time period last year. However, it was nowhere close to rates last year when a peak of 82% was reached in July 2011, from which it declined to 44.25% in August 2011, 36.36% in September 2011 and 6.7% in December 2011. The imports, though, rose 20.3% to $40.1 billion, leaving a trade deficit of $14.8 billion. Indian exporters enjoyed record growth last fiscal year, but have struggled in recent months due to sluggish growth in the United States and financial turbulence in the European Union, India's biggest trade partner. The cumulative value of exports for the period AprilJanuary increased to $242.79 billion, while the government has targeted increasing exports to $300 billion in the fiscal ending March 31. However, analysts say that given the sharp decline in exports growth in Q3 of the fiscal, it may not be possible to achieve the target. What is the biggest export item for India? How much export revenue does it garner? Which country is the biggest trade partner of India? What is the export proportion of Indian GDP? How does it compare with countries like China and US? Is it good to have a higher export to GDP ratio?

Govt revokes ban on cotton exports; will review shipments

The Centre lifted the ban on exports of cotton barely a week after it had banned it after a severe backlash from the UPA allies, farmers and China, Indias largest importer of cotton. On 5th March, the Directorate-General of Foreign Trade issued a notification prohibiting export of cotton with immediate effect stating depletion of domestic availability as cotton exports overshot official estimates and the government felt the need to build up buffer stock. About 130 lakh bales were registered for exports so far this season, of which nearly 95 lakh bales were shipped already against the estimated export surplus of 84 lakh bales for this season (October 2011 to September 2012). However, following intense pressure, the government of the second largest exporter of cotton buckled down revoking the ban, but not before stiff riders were put in place to discourage overseas hoarding. Now, exports of only those consignments that had been registered before the ban after scrutiny will be permitted to eliminate fictitious transactions and the issue of fresh registration certificates has been put on hold. Which country is the largest exporter of cotton? What kind of barrier is ban of exports? Is it a tariff or non tariff barrier? Which kind of barriers are considered more harmful to world trade?

RBI decreases CRR by 75 basis points

Surprising analysts and bankers alike, the Reserve Bank of India (RBI) on 9 March reduced the Cash Reserve Ratio (CRR) by 75 basis points from 5.5% to 4.75% with effect from March 10 in a bid to infuse liquidity and inject Rs 48,000 crore into the banking system to ensure smooth flow of credit to all sectors. In January 2012, the RBI had reduced the CRR by 50 basis points from 6% injecting a liquidity of Rs 31,500 crore to mitigate the tight liquidity conditions. RBI Deputy Director Subir Gokarn had earlier hinted at a possibility of a CRR cut emphasizing that the RBI will ensure that any steps it takes to address liquidity tightness in the banking system will not destabilise markets. The Central Bank now is unlikely to take any further steps in altering its policies. How would the CRR cut impact GDP growth and inflation? Is the CRR cut different from SLR cut? Why was rate cut unexpected by the markets? Is it a good signal to the market or not? Should the repo rates be decreased in the current situation or not?
www.abhyaas.in

Pakistan announces negative trade list for India

Pakistan, after days of dilly-dallying, finally announced that it would switch to the negative-list approach for trade with India and phase it out by December-end after its cabinet, chaired by Prime Minister Yousuf Gilani, approved a 1,209-strong negative list of items which cannot be exported from India. A negative list approach requires that discriminatory measures affecting all included sectors be liberalized unless specific measures are set out in the list of reservations. This means that the business opportunities for trade between the two nations is now up to 6,850 commodities, a high rise from the earlier 1,960 items in the positive list. This move will greatly help the neighbours increase bilateral trade which currently constitutes less than 1% of their respective global trade. It would also make way for Pakistan granting the Most Favoured Nation (MFN) status to India as mandated by World Trade Organization commitments.
3

The Abhyaas Business Bulletin

15th March 2012 Edition

ABB20120302

How is a negative list different from positive list with respect to foreign trade? What does MFN status mean? Does MFN correspond to zero negative list? Which countries have been granted MFN status by Pakistan? How do WTO regulations mandate Pakistan to grant MFN status to India?

Lehman Brothers exits bankruptcy, ready to pay creditors

Once the fourth largest investment bank in the U.S, Lehman Brothers (LB) whose collapse in September 2008 brought one of the worst recessions in world economy has exited from Chapter 11 of bankruptcy protection on 6th March, now ready to pay back its investors. The exit is estimated to cost the defunct bank more than $1.5 billion in terms of various fees and expenses. As part of the restructuring efforts, LB sold off many of its assets and after this exit, such sell-off will not require court permission for every asset sale. Some of its most public bankruptcy negotiations focused on its reorganization plan, as it worked to get investor groups, including Wall Street firms like Goldman Sachs Group Inc and hedge fund investors such as Paulson & Co, to agree on how much it would pay back each class of creditor. In the end, they agreed that creditors, depending on their type of debt, will receive from about 21-28 cents on the dollar, repayment beginning from 17th April. A reorganized board of directors will now take over including top executives like Owen Thomas, former CEO of Morgan Stanley Asia, who is expected to become Chairman. However, disputes surrounding the bank remain, including the bankruptcy of Lehmans UK subsidiary, to which billions of dollars of customer cash were funnelled, and multibillion-dollar lawsuits against JPMorgan Chase and Citigroup. Does exiting bankruptcy help the shareholders? Which companies acquired different assets/parts of erstwhile Lehmann Brothers? Are there any examples from India of companies that have come out of bankruptcy? Did they succeed or not?

$1.1 trillion per year by 2015. Cloud computing is Internet-based and facilitates sharing of technological resources, software and digital information. Organizations will reduce the cost of information management they previously incurred since they are now not required to own their own servers and can use the capacity leased from third parties. Is cloud computing a software or concept? How does it work? How is cloud computing different from SaaS(Software as Service)? Which is the world's biggest cloud computing firm? How could cloud computing help SMEs?

U.S Economy grows at 3% in Q4 of 2011; more than forecasted

The Commerce Department of the U.S.A, the world's largest economy grew at an annual rate of 3% in the final three months of 2011, the highest since Q2 of 2010. This was higher than the 2.8% that was initially predicted by them in January. The factors attributed to the improvement were in part to positive contributions from consumer spending, private inventory investment and government spending. What has been the traditional growth rate of US? How does it compare to that of UK and Europe? How is GDP of a country calculated? What are the different components of GDP? Which of them are the easiest and the toughest components to measure/forecast?

B School Spotlight: XIM, Bhubaneshwar

Xavier Institute of Management, Bhubaneshwar (XIMB) is a premier institute globally recognized for management education, training, research, and consulting that helps build a just and humane society. Since its inception in 1987, it has established an identity of its own, and it is getting to be known not only for its Post-Graduate Programmes but also for projects usually not found in management institutions in India. Its flagship course is the 2 year PGDM course, but it also provides specialized courses for PGDM in Human Resource Management and Rural Management. Also, Fellow Programme Management (FPM) and certificate programmes are provided by XIMB. Do visit ximb.ac.in for further details.

Cloud computing to create 14 million jobs, generate $1.1 trillion

A study commissioned by Microsoft and conducted by International Data Corporation (IDC) shows that Cloud Computing will be the- next-big-thing in the field of Information Technology. The report states that Cloud Computing will generate 14 million new jobs by 2015, with over 2 million in India, out of which 50% will be in the small and medium industry sector. The study also estimates revenues from cloud innovation to reach
www.abhyaas.in

For further info contact us at: info@abhyaas.in

4

The Abhyaas Business Bulletin