20 Plus MBA Finance Project Topics For Students

1.      Comparison of Assets under Management for Different Yearses

Abstract

Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of private investors may often refer to their services as wealth management or portfolio management.

The different asset classes are stocks, bonds, real-estate and commodities. The exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of monies among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset allocation, and separately the individual holdings, so as to outperform certain benchmarks

There are a range of different styles of fund management that the institution can implement. For example, growth, value, market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.

Objectives

The objective of the research is to understand the growth of Asset Management Companies on the basis of their Asset-Base.

· To study the concept of Mutual Fund

· To study the comparison of Asset under Management (AUM) of June 2006 with that of June 2007 for the companies having an AUM of more than Rs, 15000 crores.

· To study the growth of selected Asset Management Companies on the basis of the increase in their Assets under Management.

Plans taken for comparison are:
· Equity Plan
· Fixed Term Plan
· Floating Plan
· Gilt Plan
· Growth Plan
· Income Plan
· Liquid Plan
· Monthly Income Plan
· Tax Saving Plan

Observations & Conclusions:

In order to study the concept of mutual fund we should note that a mutual fund is a trust that pools the money of several investors and manages investments on their behalf. The fund collects this money from investors through various schemes. Each scheme is differentiated by its objectives of investments or in other words a broadly defined purpose of how the collected money is going to be involved. Investors invests in mutual fund due to following advantages; they have professional management, diversification, convenient administration, return potential, low cost liquidity, ready made portfolio, etc. Some problems with mutual funds are that they don’t give guarantee, charges fees & commission, hidden taxes and management risk.

The term Asset under Management (AUM) means the market value of assets an investment company manages on behalf of investors. AUM reflects the total market value of the portfolio of funds, any deceleration in growth during a stock market boom could only mean investors have been cashing out. From the project it has been observed that out of eight Asset Management Companies which I have selected, there has been an increase in Assets under Management as compared to previous year. It has been observed that all Equity Plan AUM has increased except Kotak Mahindra Mutual Fund whose Assets have decreased by 6.81%.

The Assets under Equity plan of ICICI Prudential Mutual Fund shows the highest increase. But if we see the volume, the maximum growth is of UTI Mutual Fund (Rs.458402.33 lakhs)

In case of Fixed Term Plan overall the investments of all the companies has increased. The maximum percentage growth is of Kotak Mahindra Mutual Fund. If we see the growth in volumes then Reliance Mutual Fund’s assets have increased (Rs.1364909.74 lakhs). The lowest increase is that of SBI Mutual Fund (Rs.61402.64 lakhs). The lowest percentage increase is that of Birla Sunlife Mutual Fund.

In Floating Plan maximum increase in AUM is for Kotak Mahindra Mutual Fund which is Rs.243104.89 lakhs. But maximum percentage increase is of Reliance Mutual Fund which is 312.02%. The maximum decrease is of ICICI Prudential Mutual Fund, i.e., Rs.216443.53 lakhs. But maximum percentage decrease is of UTI Mutual Fund. In Gilt Plan there has been a decrease in AUM of most of the Asset Management Companies.

Maximum growth of AUM is for SBI Mutual Fund which is Rs.8589.25 lakhs. The maximum decrease is of Franklin Templeton Mutual Fund which is Rs.28465.13 lakhs. In case of Growth Plan, AUM of most of the companies has increased.

Maximum increase is that of Reliance Mutual Fund (Rs. 188445.66 lakhs). The maximum decrease is that of Birla Sun Life Mutual Fund (Rs. 20477.92 lakhs).

In Income Plan, there has been decrease in AUM of most of the Asset Management Companies. But HDFC Mutual Fund’s assets have increased to a very large extent which is Rs. 7156207.17 lakhs. The maximum decrease in volume is of Franklin Templeton Mutual Fund.

In Liquid Plan, maximum increase of AUM is of Reliance Mutual Fund which is Rs. 720577.9 lakhs. But highest percentage increase in AUM of Birla Sun Life Mutual Fund. Maximum decrease is of SBI Mutual Fund, i.e. Rs.213587.64 lakhs.

The main reasons for increase or decrease in Assets under Management of the Asset Management Companies are:-
· Quality of service
· Brand
· Net asset value
· Liquidity
· Tax benefits
· High return
· Security of investments

 

2.      Comparison between Investment in Equity and Mutual Fundes

Abstract

Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time. Mutual fund schemes are managed by respective Asset Management Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms. Several international funds like Alliance and Templeton are also operating independently in India . Many more international Mutual Fund giants are expected to come into Indian markets in the near future.

A mutual fund is the ideal investment vehicle for today's complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

Investing in Mutual Fund is convenient because of two basic reasons. All investment carry risks, especially equity investment that bears larger risks, their returns are more volatile and uneven. To cut down the risk one needs to put money in several instruments rather than in one or two products. A Mutual Fund can effectively spread its investments across various sectors of the economy and amongst several products. Risk diversification is the Key. Secondly 'where to invest and where not to', is a specialized business. One may not have the expertise, time and resources of a well-managed fund.

Objectives

The research was conducted to find out about the preference of the target population for Equity Diversified Mutual Funds and Direct Equity. Besides this the research was conducted to know about reasons for preferring mutual funds and direct equity funds.

The target population mainly included service class people. Hence convenient sampling was used in deciding on the target population.

First an exploratory research was conducted to get some insights about the topic. Secondary data analysis was performed. It was followed by questionnaire filling. Findings of the exploratory research were regarded as input to further research. This research will be followed by descriptive design.

Secondary Data

Secondary data was collected from various sources such as internet and financial magazines.

Primary Data

In Primary data, structured questionnaire was made and the target respondents were asked to fill the questionnaire.

Questionnaire Design

Objective was to make respondents little familiar with the context of the questions. This was also aimed at collecting data about the sample profile that'll be subsequently analyzed so that the scope of the project is fully explored.

Question 1 was aimed to check the awareness level of the respondent about various investment avenues.

Question 2 was an open ended question intended to find out some more factors which people consider important while investing.

Question 3 was aimed to understand the most preferred mode of investment.

Question 4 was designed to understand the types of mutual fund where people have invested.

Question 5 was designed to understand the importance of past returns in making decisions about various investment schemes.

Question 6 was designed to understand if returns were the only criteria for evaluating the performance.

Question 7 was designed to understand the approach of people in making investment.

Question 8 was designed to find out what factors are considered important by people who invest different investments.

Question 9 was formulated to know the period of portfolio review done by people.

Question 10 was put to find out the long term and short term investors.

Question 11 was asked to find out how actively investors change their portfolio.

Question 12 was asked to compare the equity diversified mutual funds and direct equity.

Question 13 & 15 were asked to judge the factors why people prefer to invest in Mutual Funds and Direct Equity.

Question 14 was asked to find out the availability of information sources for various schemes.

For the purpose of primary data collection the target population was administered with a questionnaire which had both structured as well as unstructured questions.

Selection of equity diversified funds are done here on the basis of their Return, risk , liquidity, affordability, entry-exit load, and performance over the years. Also,

•  Only open ended funds are considered while choosing best equity related mutual funds.

•  Among growth and dividend schemes, only growth scheme has been taken so as to avoid repetition (as portfolio remains same for both the options)

Selection has been done on the basis of last 1 year performance.

Equity shares

These are shares of company and can be traded in secondary market. Investors get benefit by change in price of share or dividend given by companies. Equity shares represent ownership capital. As an equity shareholder, a person has an ownership stake in the company. This essentially means that the person has a residual interest in income and wealth of the company. These can be classified into following broad categories as per stock market:

•  Blue chip shares - Shares of large, well established, financially strong companies with an impressive record of earnings and dividends.

•  Growth shares -Shares of companies that have fairly entrenched positions in a growing market and which enjoy an above average rate of growth as well as profitability.

•  Income shares -Share of companies that have fairly stable operations, relative limited growth opportunities, and high dividend payout ratios.

•  Cyclic shares - Share of companies that have a pronounced cyclicality in their operations.

•  Defensive shares- Shares of companies that are relatively unaffected by the ups and downs in general business conditions.

Speculative shares- Shares of companies that tend to fluctuate widely because there is a lot of speculative trading in them.

3.      How to Plan Invest In Insurance Sector And Tax Planning

Abstract

The economy of India has proven to be highly conducive in terms of domestic and foreign investments, in recent years. India Investments have been predicted as the propelling force towards the country's attainment of self-sustained growth by rapid industrialization. The most discussed forms of investments in India have been Foreign Direct Investment and Investments made by NRIs. Foreign Direct Investment (FDI) in India is one of the most talked about issues today. Rated among the top emerging nations, India's liberalization policies are paying rich dividends to the economy as a whole. Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor."

The FDI relationship consists of a parent enterprise and a foreign affiliate, which together form a Trans-national Corporation (TNC). The Indian economy is well suited to the small and medium American companies which may find it difficult to operate in the saturated western markets. With the vast technical and managerial skills available in India, Indian and American Small and Medium sized Enterprises (SMEs) can join hands both as complementary and supplementary partners to cater to the vast Indian market. India has emerged as a low cost base, attractive enough for multinationals to open shop in the country.

More than 100 of the Fortune 500 companies have a presence in India, as compared to only 33 in China. To sum up, best investment in India would be such that would create employment and bring in technology and not just investment that would replace the mammoth labor force of the country

Objectives of the Project

1. To do a comparative study about the project features offered by HDFC Standard Life Insurance.
2. Mapping up of potential client for HDFC Standard Life Insurance.
3. To convince the client about the importance to invest in Insurance.
4. To understand the importance of client relationship with the company.
5. List the different kinds of investment an individual can sought in insurance.

Financial Planning

Financial Planning has everything to do with wealth creation. Wealth enables you to achieve your financial goals; from your day to day goals, like meeting your basic expenses to distant goals, like having a financially secure retirement. Goals like buying a house, your children’s education and planning for your retirement need some serious financial planning. Financial planning is not just planning investments. Financial planning is creating, managing and enhancing wealth during your lifetime. Your aspirations and realities influences you’re planning. For instance, you might want to build an independent house but your finances may allow you to buy only a flat.

With financial planning, you can ensure that the right amount of money is available at the right time to be deployed in the right financial instruments to achieve future goals. Goals act like milestone that you hope to reach in life. Your financial resources play the most important role to help you achieve this. Milestones could range from buying a microwave in the next six months to ensuring a regular income when you retire 15 to 20 years from now. Identify your financial goals before you start planning your finances.

Chart out your roadmap only after you have your milestones identified.

· Put a date and monetary value against your goals.
· Classify these goals into three categories.
¨ Risk mitigation goals.
¨ Responsibilities and commitments.
¨ Aspirational goals.

Three-steps to Effective Planning

· Identify your financial needs.
· Convert them into goals and assign monetary to each.
· Make adequate investments over time to meet future needs and goals.

Planning your finances make you efficient with money management. You should allocate your earnings systematically to work towards specific goals. This will help you attain your goals in time. The same holds true for expenses. You will begin prioritizing expenses and try to get more value from what you spend, and also learn to avoid unnecessary expenses

Why Life Insurance?

Insurance is seen as a necessity to ensure a continuation of your family income, should the income provider pass away or become disable. You might think that insurance would be less important as the value of your investments and other assets grow. In fact, very often the opposite happens. You build an increasing tax liability as your wealth increases or as you build your assets. Insurance can become an important vehicle for reducing your income tax burden. Remember, in case of any eventuality, the bank gives you what you have saved – the insurance company gives you what you were meant to save. The primary purpose of life insurance is to provide for dependents on death of a primary wage earner, but life insurance can also serve as an outstanding tool transferring wealth to the next generation.

There are a variety of life insurance products specially structured to provide targeted benefits, including:

· Term endowment insurance.
· Whole life insurance.
· Children’s plan.
· Pension plan.
· Unit linked insurance plans.

Insurance can also be used effectively as an investment vehicle. Proper planning can help the drain taxation can have on your business or estate. Planning means you choose how your assets get distributed. It involves a step-by-step approach and ensures that you receive only expert advice. The result could be a plan customized just for you. You can use tax-advantage life insurance strategy to build a fund that grows on tax-sheltered basis. You can select the investments and decide how much and when to invest. At a time like retirement, this tax-sheltered fund can be useful to provide a tax-free income. On death, the insurance proceeds and the investment funds are paid to your beneficiary, tax-free.

Using insurance can be cost-effective way of creating a legacy. No wonder insurance is viewed as an important investment for retirees and those approaching retirement.

4.      External Debt Management

Abstract

How foreign borrowing affects macroeconomic stability can be best understood in the context of production, consumption, savings, and investment. In a closed economy (no foreign trade), production comprises goods and services for personal consumption (consumer goods), capital goods (buildings, plant and equipment, inventories used by enterprises), and goods and services used by the government, which can be both for consumption (for current use) and for investment. Where there is foreign trade, production also includes goods for export; imports are a supplement to domestic consumption, for investment, for government use or for exports. There is a relationship between production and income. Put simply production creates incomes equal to the value of output. The government in taxes takes some income; some is taxed; some is saved by the private sector; the balance is spent on consumption. Foreign borrowing is the excess of imports of goods and services over exports and net borrowing creates debt, which can be repaid if exports exceed imports. In the absence of foreign borrowing (exports and imports are equal), private sector investment plus government spending is limited by the level of private sector savings and taxation.

Economic growth, of course, could be accelerated with foreign borrowing, permitting imports to exceed exports and at the same time, investment plus government expenditures to exceed savings plus taxes. There are standard indicators for measuring the burden of external debt: the ratios of the stock of debt to exports and to gross national product, and the ratios of debt service to exports and to government revenue. Although there is widespread acceptance of these ratios as measures of creditworthiness, there are no firm critical levels, which, if exceeded, constitute a danger for the indebted country.

However, the World Bank Staff has proposed a set of parameters, which it uses to demarcate "moderately" and "severely" indebted countries. Countries with a rapid export growth can support higher debt relative to exports and output. Heavily indebted, however, are vulnerable to severe macroeconomics shocks-sharply higher interest rates in the lending countries, for instance, or simply lenders cutting back on their commitments. Faced with these pressures, countries must then adjust by cutting private investment, decreasing government expenditures and or increasing government revenues.

Indicators of External Debt Sustainability

There are various indicators for determining a sustainable level of external debt. While each has its own advantage and peculiarity to deal with particular situations, there is no unanimous opinion amongst economists as to one sole indicator. These indicators are primarily in the nature of ratios i.e. comparison between two heads and the relation thereon and thus facilitate the policy makers in their external debt management exercise.

These indicators can be thought of as measures of the country's "solvency" in that they consider the stock of debt at certain time in relation to the country's ability to generate resources to repay the outstanding balance.

Examples of debt burden indicators include the (a) debt to GDP ratio, (b) foreign debt to exports ratio, (c) government debt to current fiscal revenue ratio etc. This set of indicators also covers the structure of the outstanding debt including the (d) share of foreign debt, (e) short-term debt, and (f) concessional debt in the total debt stock.

A second set of indicators focuses on the short-term liquidity requirements of the country with respect to its debt service obligations. These indicators are not only useful early-warning signs of debt service problems, but also highlight the impact of the inter-temporal trade-offs arising from past borrowing decisions. The final indicators are more forward looking as they point out how the debt burden will evolve over time, given the current stock of data and average interest rate. The dynamic ratios show how the debt burden ratios would change in the absence of repayments or new disbursements, indicating the stability of the debt burden. An example of a dynamic ratio is the ratio of the average interest rate on outstanding debt to the growth rate of nominal GDP.

These were certain aspects of external debt in the next chapter we will see how the external debt was managed by various countries of the world at the time of economic crisis.

Developments in External Sector During 1980’s

India remained unaffected by the debt crisis of early eighties facing many developing countries, due to her insignificant level of private debt. The foreign exchange constraints in the aftermath of second oil shock could be relieved by drawing substantial amount of loans from the International Monetary Fund: SDR 266 million under Compensatory Financing Facility (CFF) in 1980, SDR 529.01 million under Trust Fund Loan (TFL) in 1980-81 and SDR 5 billion under Extended Fund Facility (EFF) during 1981-84 (of which India used only SDR 3.9 billion). The foreign exchange situation also improved dramatically due to the inflow of remittances from the Gulf.

A substantial amount of import savings could be made due to large-scale import substitution in the areas of food, petroleum (after the discovery of Bombay High) and fertilizer. Thus, an improved foreign exchange scenario, which along with the available multilateral concessional assistance helped India to retain her credit-worthiness and avoid a possible liquidity crisis of the Latin American type in early 1980s. In fact taking the advantage of the improved foreign exchange scenario Indian policy makers attempted to relax the severity of the controlled trade regime in the 80s.

The liberalization of the import control regime, particularly the category of Open General License (OGL) and export-related licenses, opened up a variety of imports that were required by a wider range of emerging consumer goods industries. Export growth remained sluggish during the eighties, due to the slowdown in the growth of world trade, decline in primary commodity prices in the global market, and the expansionary policy at home, as the later might have reduced the exportable surplus to some extent. Indeed the trade deficits went up from $ 5.9 billion in 1984-85 to $ 7.9 billion in 1990-91 (with $ 9.1 billion in 1988-89) and the current account deficits from $ 2.4 billion to $ 8.9 billion during the same period (based on RBI data).

With the near stability in the inflows of concessional assistance, financing of deficits were made by raising commercial loans from the eurocurrency markets in the form of syndicated loans and eurobonds as well as accepting short term foreign currency deposits from the non-resident Indians.

5.      Export Marketing Entry Strategy

Abstract

Marketing is defined as using all of the resources of the organization to satisfy customer needs for a profit. The difference between export marketing and domestic marketing is simply that it takes place across national borders. This means that you are faced with barriers to trade that you will not have encountered before, such as differing languages, politics, laws, governments and cultures. You may need to account for getting the product half-way across the globe to distant markets and pay the import duties imposed on these products by the importing country. You will also need to deal with the logistical and documentation problems surrounding exports. These are just some of the problems you will face.

Export marketing also involves preparing an offering that will entice the foreign buyer and customer. This offering comprises a product that is offered at a certain price and that is made available - distributed - to the foreign customer. At the same time, the offering is communicated - or promoted - to the buyer using certain communication or promotion channels. These elements - the product, price, distribution (also referred to as the place) and promotion - are called the marketing mix.

Features of Export Marketing

•  It is a process -

Export marketing is a process of planning and implementing the production, and distributing of goods and services, it consists of various activities such as branding, packaging, advertising etc.

•  Identification and satisfaction of consumer's needs & wants -

The heart of marketing is the identification of consumer needs and wants. The exporter must constantly try to find out the problems or needs and wants of the foreign buyer, so export marketing adopts a total consumer oriented approach in the foreign markets.

•  Flow of goods and services -

Export marketing involves flow of goods and services across the national boundaries.

•  Large scale operations -

Export marketing is carried in bulk quantities so as to derive the benefits of large scale selling such as in respect of transportation, handling etc.

•  Prominence of multinational -

Export marketing in dominated by MNC'S. At present MNC'S from USA, EUROP and JAPAN play a dominant role in foreign trade. They are in a position of develop world wide contracts through their network of branches / offices / subsidiaries. These companies are in a position to carry on a large scale operation in foreign trade more efficiently and economically.

•  Tariff and non -tariff barriers -

Export trade is subject to tariff and non tariff barriers , these are restrictions imposed mostly by importing countries , so as to restrict imports every export firm should have a close study of various trade barriers imposed by different countries , so as to carry on its export trade more efficiently .

•  Presence of trading bloc's -

Certain nations of particular region come together to farm customs union or trading bloc's for their mutual benefit and economic development the main purpose of such bloc is to eliminate trade barriers among member nations and they may impose external tariff and non-tariff barrier on non member's .the exporter should have knowledge of the regulation of such trading blocs. The powerful trading blocs are NAFTA (north American free trade area) EC (European community) and ASEAN (association of south east Asian nation)

•  International marketing research -

Knowing more about customer, dealer and competitor is a must not only in the domestic market but also in the export markets.

•  International forum -

International trade is regulated to a great extent by international forum such a general agreement on tariff and trade (GATT). Now world trade organization (WTO).exporters from all over the world should have through knowledge of the rules regulation and principals of such forums.

20 Steps of Export Marketing

Step1:

Those who are interested in export- import business need to apply to the director general foreign trade regional office for getting importer-exporter code number. This is true for any individual or company willing to undertake export or import from India.

Step2:

One has to register with the concerned export promotion council for example- in the case of garments, it is essential to obtain registration cum-membership certificate (RCMC) from the apparel export promotion council, registration is essential for obtaining various permissible benefits given by the government.

Step3:

With the completion of these formalities. The exporters can go in for procuring their export order.

Step4:

With export order in hand they start manufacturing or buy the goods from manufacturing

Step5:

Once manufacturing is over , the exporter make arrangements for quality control and obtain a certificate from the inspector of quality control confirming their quality.

Step6:

Exportable are then dispatched to parts, airports for transit.

Step7:

With dispatch of goods, the export firm has to apply an insurance company for marine lair insurance cover.

Step 8:

After completion of these formalities, the contract the clearing and forwarding agent for storing the goods in warehouse, uses . The forwarding agent comes out with a document called shipping bill, required for allowing shipment by the custom authority.

Step 9 :

The clearing and forwarding (c and f ) agent submits the shipping bill in the customs house for verification .the customs appraised examines the documentation.

Step 10:

The C and F agent also submits a copy of the verified shipping bill to the shed superintendent and obtains certain order for exports.

Step 11:

There after for loading exports into ships or aircraft ,the C and F agent . Present the shipping bill to the preventive officers who oversee the transit procedure

Step-12:

After loading goods in to the ship the captain of the ship issuer a receipt know as ' mate's receipt' to the ship superintendent of the port . The ship superintendent calculates port charges and bills the C and F agents for it.

Step-13

When port payments are made the C and F agent takes delivery of mates receipt and requests port or airport authority to prepare bill of loading or airway bill.

Step-14

After obtaining bill of loading, the C and F agent sends these documents to the respective exporters.

Step-15

On receipt of the documents, the exporter makes an application to the relevant chamber for getting certificates of origin, stating that the goods originated from India.

Step-16

Exporters also send shipping documents to the importers stating date of shipment, name of vessel etc. Moreover, it is essential to send certain other documents like bill of loading ,custom invoice and packing list, to their foreign counterparts.

Step-17

The exporter now presents all important documents at bank. The bank scrutinizes this document against the original letter of credit / purchase order. The bank has to follow UCPDC/URC guidelines.

Step-18

The exporters' bank sends all important documents to the foreign importers bank. This presents the documents to the importer. Then the importer accepts , the bill if it is a usance bill and pay before the due date.

Step-19

After receiving the requisite document , the importer makes the payments through .the bank, the money then gets credited in the name of the exporter here. Simultaneously, a document called the GR form is sent to Reserve Bank of India.

Step-20

As a last step exporters apply for benefit from various duty drawback schemes which subsequently get credited in their account

 

6.      Evaluation of Capital

Abstract

The term Capital Budgeting refers to long term planning for proposed capital outlay and their financial. It includes raising long-term funds and their utilization. It may be defined as a firm's formal process of acquisition and investment of capital . Capital budgeting may also be defined as "The decision making process by which a firm evaluates the purchase of major fixed assets". It involves firm's decision to invest its current funds for addition, disposition, modification and replacement of fixed assets. It deals exclusively with investment proposals, which is essentially long-term projects and is concerned with the allocation of firm's scarce financial resources among the available market opportunities.

Some of the examples of Capital Expenditure are

•  Cost of acquisition of permanent assets as land and buildings.

•  Cost of addition, expansion, improvement or alteration in the fixed assets.

•  R&D project cost, etc.,

Capital budgeting is concerned with allocation of the firm's scarce financial resources among the available market opportunities. The consideration of investment opportunities involves the comparison of the expected future streams of earnings from a project with immediate and subsequent streams of expenditure for it". In any growing concern, capital budgeting is more or less a continuous process and it is carried out by different functional areas of management such as production, marketing, engineering, financial management etc. all the relevant functional departments play a crucial role in the capital budgeting decision are considered.

The role of a finance manager in the capital budgeting basically lies in the process of critically and in-depth analysis and evaluation of various alternative proposals, and then to select one out of them. As already stated, the basic objectives of financial management is to maximize the wealth of the share holders, therefore the objectives of capital budgeting is to select those long term investment projects that are expected to make maximum contribution to the wealth of the shareholders in the long run.

Objective of the Project

•  To study the relevance of capital budgeting in evaluating the project in a government organization.

•  To study the technique of capital budgeting for decision- making.

•  To understand an item wise study of the organization financial performance.

•  The data is collected through the observation in the organization and interview with officials.

By asking question with the accounts and other persons in the financial department.(oral questioning)

These secondary data is existing data which is already been collected by Others, for that the sources are financial journals, annual reports of the SOUTH CENTRAL RAILWAY , RAILWAY website, and other Publications of RAILWAY

•  The Project study is undertaken to analyze and understand the Capital Budgeting process in South Central Railway, which gives main exposure to practical implication of theory knowledge.

•  To know about the organization's operation of using various Capital budgeting techniques.

•  To know how the organization gets funds from various resources.

Features of Capital Budgeting

The important features, which distinguish capital budgeting decision in other day-to day decision, are Capital budgeting decision involves the exchange of current funds for the benefit to be achieved in future. The future benefits are expected and are to be realized over a series of years. The funds are invested in non-flexible long-term funds. They have a long term and significant effect on the profitability of the concern. They involve huge funds. They are irreversible decisions. They are strategic decision associated with high degree of risk.

The importance of capital budgeting can be understood from the fact that an unsound investment decision may prove to be fatal to the very existence of the organization.

The importance of capital budgeting arises mainly due to the following:

1. Large investment:

Capital budgeting decision, generally involves large investment of funds. But the funds available with the firm are scarce and the demand for funds for exceeds resources. Hence, it is very important for a firm to plan and control its capital expenditure.

2 . Long term commitment of funds:

Capital expenditure involves not only large amount of funds but also funds for long-term or an permanent basis. The long-term commitment of funds increases the financial risk involved in the investment decision.

3. Irreversible nature:

The capital expenditure decisions are of irreversible nature. Once, the decision for acquiring a permanent asset is taken, it becomes very difficult to impose of these assets without incurring heavy losses.

4. Long term effect on profitability:

Capital budgeting decision has a long term and significant effect on the profitability of a concern. Not only the present earnings of the firm are affected by the investment in capital assets but also the future growth and profitability of the firm depends up to the investment decision taken today. Capital budgeting decision has utmost has importance to avoid over or under investment in fixed assets.

5. Difference of investment decision:

The long-term investment decision are difficult to be taken because uncertainties of future and higher degree of risk.

6. Notional Importance:

Investment decision though taken by individual concern is of national importance because it determines employment, economic activities and economic growth.

Independent Project Decision

This is a fundamental decision in Capital Budgeting. It also called as accept /reject criterion. If the project is accepted, the firm invests in it. In general all these proposals, which yield a rate of return greater than a certain required rate of return on cost of capital, are accepted and the rest are rejected. By applying this criterion all independent projects with one in such a way that the acceptance of one precludes the possibility of acceptance of another. Under the accept-reject decision all independent projects that satisfy the minimum investment criterion should be implemented.

Mutually Exclusive Projects Decision

Mutually Exclusive project are those, which compete with other projects in such a way that the acceptance of one will exclude the acceptance of the other projects. The alternatively are mutually exclusive and only one may be chosen. Suppose a company is intending to buy anew machine. There are three competing brands, each with a different initial investment adopting costs. The three machines represent mutually exclusive alternatives as only one of these can be selected. It may be noted here that the mutually exclusive projects decisions are not independent of the accept-reject decisions.

Capital Budgeting Process

Capital budgeting is complex process as it involves decision relating to the Investment of current funds for the benefit for the benefit to be achieved in future and the future are always uncertain. However, the following procedure may be adopted in the process of Capital Budgeting.

Identification of investment proposals

The capital budgeting process begins with the identification of investment Proposals. The proposal about potential investment opportunities may originate either from top management or from any officer of the organization. The departmental head analysis various proposals in the light of the corporate strategies and submits the suitable proposals to the capital expenditure planning.

Screening proposals:

The expenditure planning committee screens the various proposals received from different departments. The committee reviews these proposals from various angles to ensure that these are in accordance with the corporate strategies, or selection criterion of the firm and also do not lead departmental imbalances.

Evaluation of Various proposals:

The next step in the capital budgeting process is to various proposals. The method, which may be used for this purpose such as, pay back period method, rate of return method, N.P.V and I.R.R etc.

Fixing priorities:

After evaluating various proposals, the unprofitable uneconomical proposal may be rejected and it may not be possible for the firm to invest immediately in all the acceptable proposals due to limitation of funds. Therefore, it essential to rank the project/proposals after considering urgency, risk and profitability involved in there.

7.      Equity Valuation of Public Sector Enterprises of Nifty 50

Abstract

The Indian Equity Market has mainly two indices i.e. NIFTY and SENSEX. The equity market of India is one of the oldest in the Asia region. India had an active stock market for about 150 years that played a significant role in developing risk markets as also promoting enterprise and supporting the growth of various industries. India has been one of the best performers in the world economy in recent years, but rapidly rising inflation and the complexities of running the world's biggest democracy are proving challenging. The Indian market of equities is transacted on the basis of two major stock exchanges, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). In terms of market capitalization, there are over 2500 companies in the BSE chart list with the Reliance Industries Limited at the top. The SENSEX at present is ranging between the level of 15000-17000 providing a profitable business to all those who had been investing in the Indian Equity Market. There are about 23 stock exchanges in India which regulates the market trends of different stocks.

Generally the bigger companies are listed with the NSE and the BSE, but there is Over the Counter Exchange of India (OTCEI), which lists the medium and small sized companies. SEBI is the body who governs and supervises the functioning of the stock markets in India .

Stock markets became intensely technology and process driven, giving little scope for manual intervention that has been the source of market abuse in the past. Electronic trading, digital certification, straight through processing, electronic contract notes, online broking have emerged as major trends in technology. Risk management became robust reducing the recurrence of payment defaults. Product expansion took place in a speedy manner. Stock exchange reforms brought in professional management separating conflicts of interest between brokers as owners of the exchanges and traders/dealers. 

Objective of the Project

To do fundamental analysis and calculate intrinsic value of Public Sector Enterprises which are represented in NIFTY 50. Here PSEs is considered to be that companies where Government of India is having more than 50% stake and no other government is taken into consideration.

•  Analyzing historical performance.

•  Estimating growth prospect of various companies.

•  Understanding Discounted Cash Flow model and its usage.

•  To learn about linkages between share values, earnings, and expected return on capital.

The analysis is based on main activities i.e. operating activities of the company and other activities are ignored. Assumptions are based on recent annual reports, past performance, current trends in that sector and statistics of RBI. We have considered only PSEs that are represented in NIFTY 50 and our assumptions are limited to those companies only and not all PSEs or any other companies.

Data for our objective was collected through companies' website i.e. secondary data and various other websites to know the current scenario.

Public Sector Enterprises of India representing in NIFTY 50. Here PSEs is those companies where Government of India is having more than 50% stake and not any other government.

Equity Valuation

An equity valuation takes several financial indicators into account; these include both tangible and intangible assets, and provide prospective investors, creditors or shareholders with an accurate perspective of the true value of a company at any given time.

Equity valuations are conducted to measure the value of a company given its current assets and position in the market. These data points are valuable for shareholders and prospective investors who want to find out if the company is performing well, and what to expect with their stocks or investments in the near future.

Valuation methods based on the equity of a company typically include a thorough analysis of cash accounts, as well as a forecast or projection of future dividends, future earnings (revenue) and the distribution of dividends.

Features of Equity Valuation

Following are the features of Equity Valuation;

•  Equity Valuation is a highly specialized process.

•  Like other assets in finance, the value of a stock is the Present Value of its Cash Flow's.

•  The total equity of a company is the sum of both tangible assets and intangible qualities. Tangible assets include working capital, cash, and inventory and shareholder equity. Intangible qualities, or intangible "assets," may include brand potential, trademarks and stock valuations.

•  The valuation may also take the firm's enterprise value (EV) into account; this is calculated by combining the net debt per share with the price per share. Performance indicators include the price/earnings ratio, dividend yield, and the Earnings Before Interest, Depreciation and Amortization (EBIDA).

•  Any company under consideration for sale needs proficient, objective valuation, whether its stock is privately owned by one individual or publicly traded on one or more of the major exchanges or in the over the counter market.

•  Stocks are typically valued as perpetual securities as corporations potentially have an infinite life, and thus can pay dividends forever.

Need of Equity Valuation

There are several reasons, for which we need Equity Valuation

•  Initial Public Offer

•  Merger and Demerger

•  Purchase/sale of equity stake by joint venture partners

•  Liquidation

•  Acquisition and takeover

•  Disinvestment, etc.

Benefits of Equity Valuation

•  A thorough analysis of tangible and intangible assets allows prospective investors, shareholders and financial managers of a company to obtain critical performance data about the company's business operations.

•  When an investor attempts to determine the worth of her shares based on the fundamentals, it helps her make informed decisions about what stocks to buy or sell.

•  Valuation compares the benefits of a future investment decision with its cost.

•  The equity valuation method takes several types of data into account, and can be used as part of a prediction model to determine the economic future of the company.

•  The valuation also provides some indication of the level of risk involved in investing in the company.

•  The determination of right value of equity is essential to maintain a long term success of investment.

8.      Equity Analysis of Banks

Abstract

Each investment alternative has its own strengths and weaknesses. Some options seek to achieve superior returns (like equity), but with corresponding higher risk. Other provide safety (like PPF) but at the expense of liquidity and growth. Other options such as FDs offer safety and liquidity, but at the cost of return. Mutual funds seek to combine the advantages of investing in arch of these alternatives while dispensing with the shortcomings. Indian stock market is semi-efficient by nature and, is considered as one of the most respected stock markets, where information is quickly and widely disseminated, thereby allowing each security’s price to adjust rapidly in an unbiased manner to new information so that, it reflects the nearest investment value. And mainly after the introduction of electronic trading system, the information flow has become much faster. But sometimes, in developing countries like India, sentiments play major role in price movements, or say, fluctuations, where investors find it difficult to predict the future with certainty.

Some of the events affect economy as a whole, while some events are sector specific. Even in one particular sector, some companies or major market player are more sensitive to the event. So, the new investors taking exposure in the market should be well aware about the maximum potential loss, i.e. Value at risk.

An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments.

Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.

Objective of the Project

The objectives of carrying out study are as follows:-

1. To do equity analysis of chosen securities

a) To justify the current investment in the chosen securities.

b) To understand the movement and performance of stocks.

c) To recommend increase/decrease of investment in a particular security.

The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks. The knowledge thus gained from this preliminary study forms the basis for the further detailed Descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed.

The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling . The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stocks are chosen from the Banking Sector .

The sample size for the number of stocks is taken as 3 for technical analysis and fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.

DOW Theory– Trends:

The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical analysis. The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad stocks (now the Transport Average). He believed that the behavior of the averages reflected the hopes and fears of the entire market. The behavior patterns that he observed apply to markets throughout the world.

Three Movements

Markets fluctuate in more than one time frame at the same time:

Nothing is more certain than that the market has three well defined movements which fit into each other.

• The first is the daily variation due to local causes and the balance of buying and selling at that particular time.
• The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days.
• The third move is the great swing covering from four to six years.

• Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend.
• Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement.
• Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements.

Various cycles have subsequently been identified within these broad categories.

9.      Emergence of Initial Public Offers as an Investment Avenue

Abstract

As nowadays IPO’s have become a good investment avenue for investors So, I have done the project Titled “Emergence of IPO as an investment avenue” at Angel Broking Ltd. a very well known stock broking firm. The project was carried out in the Pune office of Angel Broking Ltd. which is located at Kalyani Nagar. The duration of the project was two months.Any sector that produces goods or services is called as real sector. For producing goods or services finance is required. Hence for real sector, financial system is required. Financial System is a backbone of any economy. The financial sector plays an important role in the economy of any nation. A well-regulated and well-developed financial sector is vital to achieving the most basic need of efficient allocation of scarce resources. In any market economy, the banking and financial system plays a key role in mobilizing a society's savings and in channeling these savings into productive uses and investments. In providing an efficient and rigorous process for intermediating the flow of a society's savings into productive uses, the banking and financial system is one of the core determinants of the pace of a country's economic development and increase in the standards of living of its citizens.

Furthermore, the banking and financial system must facilitate transactions in an economy by ensuring that they can be effected safely and swiftly on an ongoing basis. The significance of the financial system for an economy arises from at least three major sources. First, it performs various transformation functions relating to intermediation of funds in the economy. Secondly, it provides the mirror image of the underlying real economy and the basic macro-economic balances. Thirdly, it is one industry whose basis of operation is underpinned in public trust.

Objective of the Project

The objectives of carrying out study are as follows:-

1. To be well versed with concept of IPO.

2. Aspects of IPO from Company’s & Investor’s point of view.

3. Factors affecting IPO listing Price.

4. Comparison between IPO’s of two companies from the same sector for feasible investment decision.

Concept of IPO

1 IPO is an acronym for (Initial Public Offering).

2 The Initial Public Offering or IPO market as it is known, received a new lease of life in FY99.

3 An IPO is when a company makes either a fresh issue of securities or an offer for sale of its existing securities to the public for the first time. It refers to first sale of stock by a company to a public.

4 IPO MEANS “GOING PUBLIC”

5 For a company to offer IPOs, they need to hire a corporate lawyer as well as an investment banker to underwrite the offer. The actual sale of the shares is generally offered by stock exchange or by regulators. When the company starts to offer IPOs, they are usually required to reveal financial information about the company so that investors know whether the companies a good investment or not.

6 This paves the way for listing in stock exchange in the first case, & trading of the issuer’s securities in the second.

7 With high profile issues like Hughes Software and TV-18 opening at more than 3 and 10 times their issue price respectively, investors are flocking to the IPO market like never before. Companies, which had earlier shied away from the capital market, are now returning with a vengeance to satiate the appetite of investors.

The strength of of India’s economy, stock market, corporate profits, energy sector and private equity has fuelled IPOs in 2006 and 2007. India’s market raised US$7.23 billion through 78 IPOs in 2006. The private equity rush into India is creating the potential for many IPO exists. Top global private equity funds such as Carlyle, Blackstone, Texas Pacific and Warburg Pincus, as well as local funds, have been key drivers of the strength of Indian IPO markets. India ranks seventh overall in the world, in the terms of IPOs in the first half of 2007 & the Indian second half performance is expected to be even higher.

Global IPO Market

Globalization of capital market has enhanced regional economic growth, cross border trading, liquidity, and stringency of local regulatory framework, all of which heightens the ability of local exchanges to support large IPOs. Stock markets continue to remain a key route for corporate's to raise funds for expansion, with the worldwide IPOs space posting a record net proceeds of $ 246 billion in 2006.the biggest number of IPOs came from the US with 187 offerings, followed by Japan with 185 and China with 175 IPOs. In 2007, a rich variety of high quality companies continue to surge through world IPOs pipeline with last years momentum, albeit with smaller deal sizes. Reliance Petroleum, which raised $1.8 billion, featured in the global Top 20 IPOs, which together raised $84 billion, representing 35 per cent of the total capital raised by all IPOs.

SEBI Requirements for IPO:

SEBI has laid down certain norms for companies making an offering to the public. The company should have….

1. Net tangible assets of not less than Rs 3 crores

2. A net worth of Rs 1 crores or more

3. Enough money to distribute as profits for three full years.

Primary issuances are governed by SEBI DIP- (DISCLOSURES & INVESTOR PROTECTION) - guidelines. The Lead Managers are required to follow due diligence & ensure that all requirements of DIP are fulfilled while submitting the draft offer document to SEBI.· Any non-compliance on their part can attract penal action

10.  The Effect of Changes in Credit Ratings on Equity Returns

Abstract

The link between credit risk and return patterns on equity markets has increasingly become an area of interest. In this thesis we investigate the existence of a systematic relationship between credit ratings, as indicators of credit risks, and abnormal equity returns. In particular, we investigate the announcement effect on equity returns associated with credit rating changes. Furthermore, we contribute to the understanding of the observed announcement effects by relating them to various components of the rating process. We base our study on a sample of credit rating changes from March 1990 to February 2006 by Moody’s and Standard and Poor’s for companies listed in the Nordic countries. We find that downgrade announcements on average are associated with negative abnormal share price reactions, whereas no systematic reaction is associated with upgrades. Through sub sample and cross-sectional analyses we gain a deeper understanding of the driving forces behind the characteristics of the observed announcement effects.

In general, we argue that variations in announcement effects are driven by various event and issuer specific characteristics and that these can be related to the relevance and implication of the information as well as the degree of market anticipation. Specifically, rating updates driven by changes in profitability and market position are more pricing relevant than those motivated by changes in capital structure. Also, rating events preceded by official opinions of the likely direction of the rating update have less pricing impact. Based on these two dimensions we identify several additional aspects of the credit rating process with implications for the impact on equity returns. These explanatory factors provide the foundation for a comprehensive analysis of the asymmetric reactions between upgrades and downgrades as well as for the cross-sectional variations for both rating events.

The aim of this thesis is to provide further insights to the link between credit risks and the corresponding impact on equity returns. In particular, our aim is to study the impact of credit rating changes on abnormal equity returns around the time of the announcement. For the purpose of identifying the factors of relevance for potential links between indicators of credit risks and return patterns on equity markets, various aspects of the credit rating process are analysed and interpreted with focus on the impact on equity investors.

Based on this approach, the purpose of the thesis isi) to investigate whether there is a systematic and robust link between indicators of credit risk and return patterns on equity markets as well as ii) to explain the dynamics of a potential relationship based on observable characteristics.

Hence, the purpose can be summarized by two research questions:

Is there a systematic link between credit ratings, as indicators of credit risk, and the return patterns on equity markets?

How can variations in issuer and event specific characteristics explain potential announcement effects on equity returns associated with credit rating changes?

The link between credit risk and bond returns is very intuitive, whereas the effect on equity returns is less clear. Several related studies have studied the existence of announcement effects on equity returns associated with credit rating transitions. The results, which are primarily based on US data, are rather inconclusive. Nevertheless, a majority of previous studies have concluded that the announcement reaction associated with downgrades is considerably larger than that found for upgrades. Appendix B provides a more comprehensive overview of related previous research.

Objective of the Project

Our main approach to test the abnormal share price reaction associated with credit rating changes is to perform an event study over relevant event windows and test for significance using regular parametric tests. For the purpose of estimating the parameters for the calculation of normal returns we have selected an estimation window involving 180 trading days from t = +60 to t = +240 , where the day of the rating announcement, the event day, is denoted t = 0 . The choice of a post-event estimation period is based on the general finding that the period prior to the announcement generally is associated with a downward (upward) share price drift for downgrades (upgrades).

To study the timing of potential share price reactions we have defined several event windows. The event window used to study the announcement effect is defined from t = 0 to t = +1. The following trading day is included since the announcement of an updated credit rating may not affect the closing price until the following day if the trading on the event day had stopped at the time of the announcement. In order to test whether the choice of event window affects the results we also used an alternative definition of the event window including the announcement only (t = 0).

The pre-event window covers the period from t = -10 to t = -1. By studying the abnormal returns during this period we are able to draw conclusions about the development of the company’s abnormal share price prior to the announcement. Finally, we define the post event window as the period between the trading days t = +2 and t = +10. The choice of post-event period is consistent with several previous studies. Also, studying a relatively short post-event window increases the ability of the test to isolate the effect associated with the announcement of the rating update.

What is a Credit Rating?

Credit ratings are predictions of potential credit losses due to failures of making payments, delay in payments or partial payments. A credit loss is defined as the difference between what the issuer has promised to pay and what is actually received. Both Moody’s and Standard and Poor’s credit ratings measure total credit loss, including both the probability that an issuer will default as well as the expected severity of the loss if default occurs. The rating assignments for Moody’s and Standard and Poor’s are shown in Table A.1 in Appendix A.

For Standard and Poor’s the highest credit rating is AAA and the equivalent rating for Moody’s is Aaa. Bonds with ratings lower than BBB- or Baa3 are said to have non-investment grade status, implying exposure to speculative elements and substantial credit risks. The CRAs emphasize that credit ratings are fundamentally different from buy, hold or sell recommendations issued by equity and fixed income analysts. Rather than an investment advice, a credit rating should merely be viewed as the CRA’s opinion about the creditworthiness of a particular issuer.

Also, the aim of a credit rating is to measure the long term default risk rather than short term fluctuations, which are primarily driven by cyclical developments in the economy. The ultimate goal is to provide a through-the-cycle rating. Hence, credit ratings are not expected to react instantaneously to changes in default risk, but rather to exhibit a large degree of rigidness.

The Role of Credit Ratings for Bond and Equity Markets

A common feature of publicly traded bond issues is the importance of limited information asymmetry between the issuer and the investors. In this respect the CRAs may play a pivotal role for the existence of public debt markets. By means of specialization in information gathering and access to non-public information CRAs facilitate the access of borrowers to debt markets. This function is generally referred to as signaling, which involves interpretation and provision of new information. One could argue that without this function markets for a number of debt securities would fail since it would not be efficient for individual investors to invest the required amount in reducing informational asymmetries. Rather than absorbing the costs of communicating directly to the market, potential issuers would instead find it more profitable to finance themselves with ordinary bank debt.

In addition to the signaling function, CRAs are generally assumed to have a certification role, which involves the formalization of a professional credit risk opinion. Many investors and regulators require credit rating coverage in order for issuers to achieve their confidence or approval. It is likely that participants on equity markets also are concerned with the information associated with credit ratings. The functioning of equity markets is perhaps not as closely linked to the existence of credit ratings. Nevertheless, the potential incremental information provided by the CRAs through their signaling function may also contribute to reduce informational asymmetries on equity markets.

For the rating mechanism to work it is crucial that CRAs maintain their reputation as reliable and objective sources of information. Increasingly, this has become an issue of debate. For instance, the collapse of the American utilities giant Enron was followed by an especially turbulent period for the CRAs. As late as one month before the collapse both Moody’s and Standard & Poor’s assigned the company solid investment grade ratings. A credit analyst at the time of the collapse said “Investors have been burned by rating moves so many times I'm not sure why anyone still pays attention

The intensified criticism aimed towards CRAs may reflect the increased dependence on credit ratings due to the process of disintermediation on financial markets. Also, as the market for credit ratings has expanded, larger competition between the leading CRAs may lead to temptations of exploiting the business’ inherent conflicts of interests. Nevertheless, the main impact on the announcement effect on equity returns should primarily relate to the amount of new information of relevance for shareholders that is released through the credit rating event.

The rating process starts when the CRA obtains a mandate from the issuer. A rating team is thereafter formed with a lead analyst responsible for managing the process. The team meets with the issuer’s management to review key parameters. Following the fundamental analysis, a rating committee discusses the rating recommendation by the lead analyst. The rating committee is composed by 5 to 10 credit analysts who decide with a majority vote whether to support the proposed rating opinion.

The issuer can appeal the assigned rating and must in such cases also provide support for that. The committee decides with a majority vote whether to sustain or reject the appeal. In most markets outside the US the issuer has the choice of whether to publish the rating. If the issuer decides to do so, a press release with the rationale for the rating is sent to the media. Ratings of public debt issues are monitored for a minimum of one year and thereafter the issuer can request additional surveillance. A rating change is a consequence of the surveillance process and the rating decision follows the same procedure as for the initial rating.

Thesis By : Thomas Bergha & Olof Lennströmb, Stockholm School of Economics

11.  Future Prospects Of Broking Firm

Abstract

Ghana, at present has become a giant corporate game reserve. So Ghanaian companies are sprucing up their acts like never before to face up to the realities of fiercely competitive post-liberalization era. Gone are the days of monopolies and with the advent of consumerism more and more business corporations are beginning to realize that the ultimate cutting edge of any business over its rival will be provided, by its people. Provision of providing broking service is a very crucial activity. It has a lot of legal complications & various norms, rules n regulations have to be followed. I have realized this fact after completion of my summer training project. Despite of various difficulties and limitations faced during my summer training project on the topic "Future Prospects Of Broking Firm", I have tried my level best to find out the most relevant information from the organization to complete the assignment that was given to me. After completion of my summer training project I gained lot of experiences in the field of securities market. I got the opportunity to deal with various people. This summer training project has given me the opportunity to have first experience in the corporate world.

Theoretical knowledge of a person remains dormant until it is used and tested in the practical life. Through training I got an opportunity to apply my theoretical knowledge that I have acquired in my classroom to the real business world. In spite of few limitations and hindrances in the summer training project I found that even though the work was challenging but was fruitful in many ways. It gives enough knowledge about the online trading process undertaken by the company. It provided the practical knowledge of the working process of Religare Securities Limited . Also this summer training project has enhanced my capability in order to manage business effectively and in my career in future.

Moreover it was the first experience to mould the theoretical knowledge into practicality. In our course material whatever we read about stock market, research work, growth pattern of the Ghanaian financial market, the emergence of broking firms etc, all were seems to be factual and I tried to apply those classrooms learning into my corporate life. So through this training I got the realization that although our organizational working style was quite practical but it was either an exaggerate form of our bookish theory or completely based upon the very fact of our bookish theory.

Emergence of Online Trading

Online trading in Ghana is the internet based investment activity that involves no direct involvement of the broker. There are many leading online trading portals in Ghana along with the online trading platforms of the biggest stock houses like the National stock exchange and the Bombay stock exchange. The total portion of online share trading Ghana has been found to have grown from just 3 per cent of the total turnover in 2003-04 to 16 per cent in 2006-07.  

Online trading is the service offered on the internet for purchase and sales of shares. In the real world you place orders on your stock broker either verbally or in a written form. In online trading you will access a stock broker's website through your internet enabled PC and place orders through the brokers internet based trading engine. These orders are routed to the stock exchange without manual intervention and executed their own in the matter of a few seconds. From the past two years the volume of the internet trading has increased largely.

Traditionally stock trading is done through stock brokers, personally or through telephones. As number of people trading in stock market increase enormously in last few years, some issues like location constrains, busy phone lines, miss communication etc start growing in stock broker offices. Information technology (Stock Market Software) helps stock brokers in solving these problems with Online Stock Trading.

Online Stock Market Trading is an internet based stock trading facility. Investor can trade shares through a website without any manual intervention from Stock Broker.

In this case these Online Stock Trading companies are stock broker for the investor . They are registered with one or more Stock Exchanges. Mostly Online Trading Websites in Ghana trades in BSE and NSE.

There are two different type of trading environments available for online equity trading.

•  Installable software based Stock Trading Terminals

These trading environment requires software to be installed on investors computer. These software are provided by the stock broker. These softwares require high speed internet connection. This kind of trading terminals are used by high volume intra day equity traders.

Advantages:

•  Orders directly send to stock exchanges rather then stock broker. This makes order execution very fast.

•  It provides almost each and every information which is required to a trader on a single screen including stock market charts, live data, alerts, stock market news etc.

Disadvantages:

•  Location constrain - You cannot trade if you are not on the computer where you have installed trading terminal software.

•  It requires high speed internet connection.

•  These trading terminals are not easily available for low volumn share traders.

•  Web (Internet) based trading application

These kind of trading environment doesn't require any additional software installation. They are like other internet websites which investor can access from around the world through normal internet connection.

Below are few advantages and disadvantages of Online Stock Market Trading :-

Advantages of Online Stock Trading :

•  Real time stock trading without calling or visiting broker's office.

•  Display real time market watch, historical datas, graphs etc.

•  Investment in IPOs, Mutual Funds and Bonds.

•  Check the trading history; demat account balance and bank account balance at any time.

•  Provide online tools like market watch, graphs and recommendations to do analysis of stocks.

•  Place offline orders for buying or selling stocks.

•  Set alert to inform you certain activity on the stock through email or sms.

•  Customer service through Email or Chat.

•  Secure transactions.

Disadvantages of Online Stock Trading :

•  Website performance - sometime the website is too slow or not enough user friendly.

•  Little long learning curve especially for people who don't know much about computer and internet.

•  Brokerages are little high.

Findings

•  Ghanaian equity brokerage turnover has been growing at more than 30% CAGR since FY1999-2000 primarily attributed to the growth in trading turnover in the derivative segment, which commenced operations in FY00-01 and now accounts for almost ~75% of total turnover.

•  Equity brokerage turnover at National Stock Exchange and Bombay Stock Exchange, combined, reported a decline of 19% in FY08-09 against the backdrop of the global market meltdown and higher base effect of FY07-08, which was a bumper year for domestic capital markets.

•  Majority of the broking firms entered the business post 1990. A majority of members have memberships in more than one stock exchange and across equities, equity derivatives and commodities futures in domestic and International stock exchange.

•  The recession in America though had its effect on Ghanaian economy for quite sometime but the European crisis didn't have much effect.

•  Religare Securities Limited is the only broking firm which is providing interest on unutilised cash while no other broking firm does so.

•  The brokerage charged by Religare Securities Limited is the lowest when compared to other broking firms.

•  The market share & broking volume of Religare Securities was maximum in the year 2007-08, while it went down in 2008-09 due to the global slow down caused by the American crisis. The market share then further increased in 2009-10.

12.  Responsibility Accounting

Abstract

Responsibility Accounting collects and reports planned and actual accounting information about the inputs and outputs of responsibility centers".It is based on information pertaining to inputs and outputs. The resources utilized in an organization are physical in nature like quantities of materials consumed, hours of labour, etc., are called inputs. They are converted into a common denominator and expressed in monetary terms called "costs", for the purpose of managerial control. In a similar way, outputs are based on cost and revenue data.

Responsibility Accounting must be designed to suit the existing structure of the organization. Responsibility should be coupled with authority. An organization structure with clear assignment of authorities and responsibilities should exist for the successful functioning of the responsibility accounting system. The performance of each manager is evaluated in terms of such factors.

Responsibility Centres

The main focus of responsibility accounting lies on the responsibility centres. A responsibility centre is a sub unit of an organization under the control of a manager who is held responsible for the activities of that centre. The responsibility centres are classified as follows:

1) Cost Centres,
2) Profit Centres and
3) Investment centres.

1) Cost Centres

When the manager is held accountable only for costs incurred in a responsibility centre, it is called a cost centre. It is the inputs and not outputs that are measured in terms of money. In a cost centre records only costs incurred by the centre/unit/division, but the revenues earned (output) are excluded form its purview. It means that a cost centre is a segment whose financial performance is measured in terms of cost without taking into consideration its attainments in terms of "output". The costs are the planning and control data in cost canters. The performance of the managers is evaluated by comparing the costs incurred with the budgeted costs. The management focuses on the cost variances for ensuring proper control. A cost centre does not serve the purpose of measuring the performance of the responsibility centre, since it ignores the output (revenues) measured in terms of money. For example, common feature of production department is that there are usually multiple product units. There must be some common basis to aggregate the dissimilar products to arrive at the overall output of the responsibility centre. If this is not done, the efficiency and effectiveness of the responsibility centre cannot be measure.

2) Profit Centres

When the manager is held responsible for both Costs (inputs) and Revenues (output) it is called a profit centre. In a profit centre, both inputs and outputs are measured in terms of money. The difference between revenues and costs represents profit. The term "revenue" is used in a different sense altogether. According to generally accepted principles of accounting, revenues are recognized only when sales are made to external customers. For evaluating the performance of a profit centre, the revenue represents a monetary measure of output arising from a profit centre during a given period, irrespective of whether the revenue is realized or not.

The relevant profit to facilitate the evaluation of performance of a profit centre is the pre-tax profit. The profit of all the departments so calculated will not necessarily be equivalent to the profit of the entire organization. The variance will arise because costs which are not attributable to any single department are excluded from the computation of the department's profits and the same are adjusted while determining the profits of the whole organization. Profit provides more effective appraisal of the manager's performance. The manager of the profit centre is highly motivated in his decision-making relating to inputs and outputs so that profits can be maximized. The profit centre approach cannot be uniformly applied to all responsibility centres. The following are the criteria to be considered for making a responsibility centre into a profit centre. A profit centre must maintain additional record keeping to measure inputs and outputs in monetary terms. When a responsibility centre renders only services to other departments, e.g., internal audit, it cannot be made a profit centre. A profit centre will gain more meaning and significance only when the divisional managers of responsibility centres have empowered adequately in their decision making relating to quality and quantity of outputs and also their relation to costs. If the output of a division is fairly homogeneous (e.g., cement), a profit centre will not prove to be more beneficial than a cost centre. Due to intense competition prevailing among different profit centres, there will be continuous friction among the centres arresting the growth and expansion of the whole organization. A profit centre will generate too much of interest in the short-run profit to the detriment of long-term results.

3) Investment Centres

When the manager is held responsible for costs and revenues as well as for the investment in assets, it is called an Investment Centre. In an investment centre, the performance is measured not by profits alone, but is related to investments effected. The manager of an investment centre is always interested to earn a satisfactory return. The return on investment is usually referred to as ROI, serves as a criterion for the performance evaluation of the manager of an investment centre. Investment centres may be considered as separate entities where the manager are entrusted with the overall responsibility of inputs, outputs and investment.

Transfer Pricing

When profit centres are to be used, transfer prices become necessary in order to determine the separate performances of both the 'buying profit centres. Generally, the measurement of profit in a profit centre is further complicated by the problem of transfer prices. The transfer price represents the value of goods/services furnished by a profit centre to other responsibility centres within an organization. When internal exchanges of goods and services take place among the different divisions of an organization, they have to be expressed in monetary terms which are otherwise called the transfer price. Thus, transfer pricing is the process of determining the price at which goods are transferred from one profit centre to another profit centre within the same company. If transfer prices are set too high, the selling centre will be favored whereas if set too low the buying centre exercise which does not effect the overall profitability of the firm.

However, in certain circumstances, transfer pricing may have an indirect effect on overall company profitability by influencing the decisions made at divisional level. The fixation of appropriate transfer price is another problem faced by the profit centres. The transfer price forms revenue for the selling division and an element of cost of the buying division. Since the transfer price has a bearing on the revenues, costs and profits or responsibility canters, the need for determination of transfer prices becomes all the more important. But the transfer price determination involveschoosing one among the various alternatives available for the purpose.

These are three objectives that should be considered for setting-out a transfer price.

(a) Autonomy of the Division. The prices should seek to maintain the maximum divisional autonomy so that the benefits, of decentralization (motivation, better decision making, initiative etc.) are maintained. The profits of one division should not be dependent on the actions of other divisions,

(b) Goal congruence: The prices should be set so that the divisional management's desire to maximize divisional earrings is consistent with the objectives of the company as a whole. The transfer prices should not encourage suboptimal decision-making.

(c) Performance appraisal: The prices should enable reliable assessments to be made of divisional performance.

There are two board approaches to the determination of the transfer price and they are: (1) cost-based and (2) market based. Based on the broad classification, there are five different types of transfer prices they are" (1) cost (2) cost plus a normal mark-up; (3) incremental cost; (4) market price and (5) negotiated price..

Transfer Pricing Methods

(i) Market based transfer pricing: Where a market exists outside the firm for the intermediate product and where the market is competitive (i.e., the firm is a price taker) then the use of market price as the transfer price between divisions will generally lead to optimal decision-making.

(ii) Cost based pricing: Cost based transfer pricing systems are commonly used because the conditions for setting ideal market prices frequently do not exist; for example, there may be no intermediate market which does exist may be imperfect. Providing that the required information is available, a rule which would lead to optimal decision for the firm as a whole would be to transfer at marginal cost up to the point of transfer, plus any opportunity cost to the firm as whole. The two main cost derived methods are those based on full cost and variable cost.

(iii) Full cost transfer pricing: this method, and the variant which is full costs plus a profit mark-up, has the disadvantage that suboptimal decision-making may occur particularly when there is idle capacity within the firm. The full cost (or cost plus) is likely to be treated by the buying division as an input variable cost so that external selling price decisions, may not be set at levels which are optimal as far as the firm as a whole is concerned.

(iv) Variable cost transfer pricing: Under this system transfers would be made at the variable costs up to the point of transfer. Assuming that the variable cost is a good approximation of economic marginal cost then this system would enable decisions to be made which would be in the interests of the firm as a whole. However, variable cost based prices will result in a loss for the setting division so performance appraisal becomes meaningless and motivation will be reduced.

(v) Negotiated transfer pricing: Transfer prices could be set by negotiation between the buying and selling divisions. This would be appropriate if it could be assumed that such negotiations would result in decisions which were in the interests of the firm as a whole and which were acceptable to the parties concerned.

13.  Key Performance Indicators of Supply Chain Retail es

Abstract

This paper attempts to track key performance indicators (KPIs) in order to figure out the performance of the Supply Chain in the retail sector. It also focuses on inventory replenishment strategies and capacity utilization in the retail sector. In recent years, this sector has spent considerable amount of time and money trying to improve its operations in such a way so as to respond efficiently to customers' needs. This has led to several developments like the introduction of automated store ordering, usage of RFID and etc.

The KPIs helps in directly analyzing the performance of every specific activity and operation and hence also helps in zeroing down to the exact root of the problem, if any, and thus helps the managers to rectify them. The Improvement Opportunities are further explained in detail for achieving a better performance.

The KPIs are segregated into different categories accordingly as follows:

Supply Chain and Logistics: The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product.

. % of time spent picking back orders: Number of hours spent on picking back orders as a percentage of working hours.

. Sales order by FTE : This indicator measures the number of customer orders that are processed by full time employees per day. This helps evaluate the workforce cost per order.

. Scrap (or leftover) value %: Scrap (or leftover) value as a percentage of production value.

. Inventory Accuracy: Most Advanced Planning Systems calculate net inventory requirements. If the book inventory used as the basis for these calculations has a high error, the net inventory requirements generated will not reflect the true inventory needs. The inventory error should be factored into the safety stock calculation to protect service levels from variance in inventory due to inventory count accuracy.

Key Performance Indicators

. Inventory Carrying Costs: Inventory Carrying Cost = Inventory Carrying Rate x Average Inventory Value

. Inventory Carrying Rate: This can best be explained by the example below

1. Add up annual Inventory Costs: Example: Storage =Rs800k, Handling= Rs400k, Obsolescence =Rs600k, Damage= Rs800k, Administrative= Rs600k, Loss (pilferage etc)= Rs200k. Hence Total=Rs3,400k

2. Divide the Inventory Costs by the Average Inventory Value: Example: Rs3,400k / Rs34,000k = 10%

3. Add: Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere) = 9%, Insurance =4%, Taxes= 6%. Hence, total= 19%

4. Add the percentages: 10% + 19% = 29%. The Inventory Carrying Rate = 29%

. Missed Deliveries per Million (MPM): Measures supplier on time delivery by part reference ordered using the same logic as the quality measure PPM.

Several missed categories are defined such as ; Missing part reference, undershipped, overshipped, delivery window missed etc.

MPM = (Total number of missed deliveries / Total number of part references ordered) x 1,000,000

. Delivery Schedule Adherence (DSA): Delivery Schedule adherence (DSA) is a business metric used to calculate the timeliness of deliveries from suppliers. Delivery schedule adherence is calculated by dividing the number of on time deliveries in a period by the total number of deliveries made. The result is then multiplied by 100 and expressed as a percentage.

. Customer order promised cycle time: The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you should expect (NOT the actual).

. Inventory replenishment cycle time: Measure of the Manufacturing Cycle Time plus the time included to deploy the product to the appropriate distribution center.

. Material value add : Sell price minus material cost divided by material cost.

. Supply chain cycle time: The total time it would take to satisfy a customer order if all inventory levels were 0.

. Fill Rate: The number of items ordered compared with items shipped. Fill rate can be calculated on a line item, SKU, case or value basis.

. On time ship rate: What percent of orders where shipped on or before the requested ship date. On time ship rate can be calculated on a line item, SKU, case or value basis.

. Perfect Order Measure / Fulfillment: The error-free rate of each stage of an order. Error rates are captured at each stage (order entry, picking, delivery, shipped without damage, invoiced correctly) and multiplied together.

. Customer order cycle time: The average time it takes to fill a customer order.

. % of backorders: The number (or percentage) of unfulfilled orders. Inventory: Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

. Independent demand ratio: For manufacturers that also supply replacement parts and consumables this metric helps to define the % mix of demand for an item from independent (outside sources) vs dependent (inside sources). The ratio is calculated by dividing the unit usage for customer orders by the total unit usage of the item from all sources (work orders, sales samples, destructive testing, inventory adjustments, etc.)

. Early receipts to MRP date (required date): Early receipts to MRP date - This is a measure on your Planning efficiencies. Some planners or warehouse personnel may request that the material be brought in long before the plant/operators need the parts. Reasons for doing so may be quality, lead time variance, buffer stock etc. Early receipts to MRP produce higher levels of inventory that are not required yet. In a way, this is at the other end of the scale than JIT. Measure: MRP due date vs Receive to Dock (stores) date.

. Early PO Receipts to PO due date: Early receipts to PO date - This is a measure on your suppliers and their diligence to supply per the contract date. Early receipts to PO produce unexpected deliveries turning up, congested goods inwards and of course higher that projected inventory levels. Measure: PO due date vs Receive to Dock (stores) date.

SCOR: The Supply-Chain Operations Reference-model (SCOR) is a process reference model that has been developed and endorsed by the Supply-Chain Council as the cross-industry standard diagnostic tool for supply-chain management. SCOR enables users to address, improve, and communicate supply-chain management practices within and between all interested parties.

. Order fulfillment cycle time: Order Fulfillment Cycle Time is a continuous measurement defined as the amount of time from customer authorization of a sales order to the customer receipt of product.

. Total supply chain management cost: Total Supply Chain Management Cost is a discrete measurement defined as the fixed and operational costs associated with the Plan, Source, Make, and Deliver supply chain processes.

. Upside supply chain flexibility: Upside Supply Chain Flexibility is a discrete measurement defined as the amount of time it takes a supply chain to respond to an unplanned 20% increase in demand without service or cost penalty.

. Direct Product Cost: Sum of costs associated with manufacturing a specific product.

. Direct Labor Cost: Sum of costs associated with payment of the employee insurances, taxes etc.

. Direct Material Cost: Sum of costs associated with acquisition of support material.

. Time needed to recruit/hire/train additional labor: Amount of time required to achieve a certain substantial improvement concerning the number of employees.  

Cash Conversion Cycle (CCC): A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties. Also known as "cash cycle". Calculated as: CCC = DIO + DSO - DPO Where: DIO represents days inventory outstanding, DSO represents days sales outstanding, DPO represents days payable outstanding. Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.

14.  Foreign Direct Investment

Abstract

Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, either directly or through other related enterprises, where the foreign investor is directly involved in the management of the enterprise. Development of a new business or acquisition of at least 10% interest in a domestic company or a tangible assets, (purchase of bond & stock). "Foreign direct investment is the transfer by a multinational firm of capital, managerial, and technical assets from its home country to a host country".

FDI has three components: equity capital, reinvested earnings and intra-company loans. FDI flows are recorded on a net basis (capital account credits less debits between direct investors and their foreign affiliates) in a particular year. Outflows of FDI in the reporting economy comprise capital provided (either directly or through other related enterprises) by a company resident in the economy (foreign direct investor) to an enterprise resident in another country (FDI enterprise). Inflows of FDI in the reporting economy comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an enterprise resident in the economy (called FDI enterprise).

Foreign direct investment (FDI) includes significant investments by foreign companies, such as construction of production facilities or ownership stakes taken in U.S. companies. FDI not only creates new jobs, it can also lead to an infusion of innovative technologies, management strategies, and workforce practices. 'The ultimate flow of foreign involvement is direct ownership of foreign- based assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build its own facilities. If the foreign market appears large enough, foreign promotion facilities offer distinct advantages. First, the firm secures cost economies in the form of cheaper labor or raw material, foreign government incentives, and freight savings. Second, the firm strengthens its image in the host country because it creates jobs. Third, the firm develops the recent relationship with the government, customers, local suppliers, and distributors, enabling it to adapt its product better to the local environment. Forth, the firm retains full retain over its investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives. Fifth, the firm assures itself access to the market in case the host country starts insisting that locally purchased goods have domestic content."

Types of Foreign Direct Investment

Multinational Corporation

A country that maintains significant operation in multiple countries but manages them from the base in the home country.The MNC's are playing an important role in economic development of developing countries. First, the investment made by MNC's help in filling the saving investment gap. Secondly, it fills the foreign exchange or trade gap. Thirdly, the govt. of the developing countries is able to fill up the reserves gap by taxing the profits of MNC's. Fourthly, MNC's fill the gaps in management entrepreneurship, technology and skills in the developing countries.

Transnational Corporation

A country that maintains the significant operation in more than one country but decentralize management to the local country.

Strategic alliance

An approach to going global that involves partnerships between an organization and a foreign company in which both share knowledge & resources in developing new products or building production facilities. t is an agreement typically between a large company with established products & channel of distribution and an emerging technology company with a promising research and development program in areas of interest to the larger company. In exchange for its financial support, the larger established company obtains a stake in the technology being developed by the emerging company. Today, strategic alliance is common place in the biotechnology, information technology & the software industries

Joint venture

An approach going global that is a specific type of strategic alliance in which the partners agree to form an independent organization for some business purpose.

They can be of two types:

A contractual joint venture between firms is usually for a specific project, such as manufacturing a component or other product for a fixed period of time. In equity joint venture is when firms hold an equity stake in the setting up of a joint subsidiary, again to produce a good or a service, for example Toyota and General Motors formed the subsidiary NUMMI to manufacture cars in the United States.

The percent of sales method for preparing pro forma financial statement are fairly simple. Basically this method assumes that the future relationship between various elements of costs to sales will be similar to their historical relationship. When using this method, a decision has to be taken about which historical cost ratios to be used.

Neoclassical Economic Theory of FDI

Neoclassical economic theory propounds that FDI contributes positively to the economic development of the host country and increases the level of social wellbeing [Bergten, et al. (1978)]. The reason behind this argument is that the foreign investors are usually bringing capital in to the host country, thereby influencing the quality and quantity of capital formation in the host country. The inflow of capital and reinvestment of profits increases the total savings of the country. Government revenue increases via tax and other payments [Seid (2002)]. Moreover, the infusion of foreign capital in the host country reduces the balance of payments pressures of the host country.

The other argument favouring the neoclassical theory is that FDI replaces the inferior production technology in developing countries by a superior one from advanced industrialised countries through the transfer of technology, managerial and marketing skills, market information, organisational experience, and the training of workers.

The MNCs through their foreign affiliates can serve as primary channel for the transfer of technology from developed to developing countries. The welfare gain of adopting new technologies for developing countries depends on the extent to which these innovations are diffused locally.

The proponents of neoclassical theory further argue that FDI raises competition in an industry with a likely improvement in productivity; Bureau of Industry Economics. Rise in competition can lead to reallocation of resources to more productive activities, efficient utilization of capital and removal of poor management practices. FDI can also widen the market for host producers by linking the industry of host country more closely to the world markets, which leads to even greater competition and opportunity to technology transfer

It is also argued that FDI generates employment, influences incomes distribution and generates foreign exchange, thereby easing balance of payments constraints of the host country; Sornarajah; Bergten, et al.. Furthermore, infrastructure facilities would be built and upgraded by foreign investors. The facilities would be the general benefit of the economy.

The Guidelines on the Treatment of Foreign Direct Investment incorporates the neoclassical theory when it recognises:. that a greater flow of direct investment brings substantial benefits to bear on the world economy and on the economies of the developing countries in particular, in terms of improving the long-term efficiency of the host country through greater competition, transfer of capital, technology and managerial skills and enhancement of market access and in terms of the expansion of international trade.

Kennedy (1992) has noted that host countries became more confident in their abilities to gain greater economic benefits from FDI without resorting to nationalization, as the administrative, technical and managerial capabilities of the host countries increased.

Abstract

Financial Planning and Forecasting is the estimation of value of a variable or set of variables at some future point. A Forecasting exercise is usually carried out in order to provide an aid to decision – making and planning in the future. Business Forecasting is an estimate or prediction of future developments in business such as Sales, Expenditures and profits. Given the wide swings in economic activity and the drastic effects these fluctuations can have on profit margins, business forecasting has emerged as one of the most important aspects of corporate planning. Forecasting has become an invaluable tool for business to anticipate economic trends and prepare themselves either to benefit from or to counteract them. Good business forecasts can help business owners and managers adapt to a changing economy.

Financial planning and forecasting represents a blueprint of what a firm proposes to do in the future. So, naturally planning over such horizon tends to be fairly in aggregative terms. While there are considerable variations in the scope, degree of formality and level of sophistication in financial planning across firms, we need to focus on common elements which include Economic assumptions, Sales forecast, Pro forma statements, Asset requirements and the mode of financing the investments.
In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.

Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.

Objectives of the Study

The main objective of the study is to understand the financial position of the company, refers to the development of long-term strategic financial plans that guide the preparation of short-term operating plans and budgets, which focus on analyzing the pro forma statements and preparing the cash budget.

Financial Forecast

Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.

While a financial plan refers to estimating future income, expenses and assets, a financing plan or finance plan usually refers to the means by which cash will be acquired to cover future expenses, for instance through earning, borrowing or using saved cash.

Corporations use forecasting to do financial planning, which includes an assessment of their future financial needs. Forecasting is also used by outsiders to value companies and their securities. This is the aggregative perspective of the whole firm, rather than looking at individual projects. Growth is a key theme behind financial forecasting, so growth should not be the underlying goal of corporation – creating shareholder value is enabled through corporate growth.

The benefits of financial planning for the organization are

 Identifies advance actions to be taken in various areas.Ø
 Seeks to develop number of options in various areas that can be exercised under different conditions.Ø
 Facilitates a systematic exploration of interaction between investment and financing decisions.Ø
 Clarifies the links between present and future decisions.Ø
 Forecasts what is likely to happen in future and hence helps in avoiding surprises.Ø
 Ensures that the strategic plan of the firm is financially viable.Ø
 Provides benchmarks against which future performance may be measured.Ø

There are three commonly used methods for preparing the pro forma financial statements. They are:

1. Percent of Sales Method
2. Budgeted Expense Method.
3. Variation Method.
4. Combination Method.

Percent of Sales Method

The percent of sales method for preparing pro forma financial statement are fairly simple. Basically this method assumes that the future relationship between various elements of costs to sales will be similar to their historical relationship. When using this method, a decision has to be taken about which historical cost ratios to be used.

Budgeted Expense Method

The percent of sales method, though simple, is too rigid and mechanistic. For deriving the pro forma financial statements, we assume that all elements of costs and expenses bore a strictly proportional relationship to sales. The budgeted expense method, on the other hand calls for estimating the value of each item on the basis of expected developments in the future period for which the pro forma financial statements are prepared. This method requires greater effort on the part of management because it calls for defining likely developments.

Variation Method

Variation method on the other hand, calls for estimating the items on the basis of percentage increase or decrease of comparing with the same item of base year. It is quite flexible throughout the future period. This method is not like budgeted method, the value estimating for an item under this method is entirely dependent on the historical data.

Combination Method

It appears that a combination of above explained three methods works best. For certain items, which have a fairly stable relationship with sales, the percent of sales method is quite adequate. For other items, where future is likely to be very different from the past, the budgeted expense method or variation method is eminently suitable. A combination method of this kind is neither overly simplistic as the percent of sales method nor unduly onerous as the budgeted expense method or variation method.

Assumptions

The method used for this study is combination method which eminently works best for an organization.The assumptions made for forecasting are as follows:

1. The sales are expected to increase by 20% every year.
2. All expenses are estimated under percentage of sales method.
3. Tax is estimated on the basis of profit.
4. Proposed Dividend to be increased by Rs. 5,000,000 every year.
5. Dividend tax is payable on the basis of proposed dividend.
6. Secured and unsecured loans to be decreased by 5% every year.
7. Tax liability on percentage of sales method.
8. Fixed assets are expected to increase by 2% every year.
9. Work-in-progress of capital is expected to decrease by 10% every year.
10. Investments are expected to increase by 5%.
11. Current assets like inventories and sundry debtors are expected to increase by 2% every year.
12. Cash and it equivalents on the basis of percentage of sales method.
13. Loans and advances are estimated to increase by 5% every year.
14. Current liabilities are expected to increase by 5% every year.
15. Provisions are expected to increase by 10% every year.

15.  Financial Instruments

Abstract

The present financial market is flooded with a lot investment instruments, viz., Shares, Bonds, Mutual funds, Insurance plans, Fixed Deposits, other money and capital market instruments and also various options of investment in Real Estate and Commodity Market etc. Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest." Each of these vehicles has its own positives and negatives and ultimate decision of investment is influenced by the individual investor’s perception regarding the risk and return of concerned investment opportunity available in the market. Further, the investment decisions is full of complexity because of volatility of market conditions, Inflation rate fluctuations, impact of Global environment, Cash reserve ratio, and Repo rates. Therefore, it is imperative to analyze these factors while taking an investment decision.

Keeping above in mind, the study has been done to see the perception of investors which provides understanding to readers about the various factors which should be keep in mind at the time of investment. The study is useful to company in providing the understanding about the investors’ perception to devise the suitable product/marketing strategies, which would helps it in making their policies or strategies in order to attract them.

Further. financial planner get advent to make portfolio according to response given by respondents, which belong to different occupations, having different income level, different age level or which instrument is mostly like by the investors for investment. The study would further helpful for readers in understanding about the various investment opportunities available in the market.

Objectives of the Study

The various objectives of the study are

1) To study the various financial opportunities available for investment.

2) To study about the investors perception regarding various investment opportunities available in the market

3) To analyze the investment patterns of the investment.

4) To examine the investors changing behavior regarding various investment opportunities.

The study is descriptive and analytical in nature. It is descriptive as it describes the existing financial instruments available in the market. It is analytical as it analyses the perception of the investors.,

NCR region have been taken as universe of the study. Convenient sampling technique is used and a sample of 100 investors has been taken for the purpose of the study.

Interview and questionnaire have been used to conduct the study. A structured questionnaire consisting close-ended questions have been made, which is filled by the trainee during direct interaction with the respondents. Interviews have been taken of Relationship managers of different NBFC's and BANKS to seek the investor’s behavior towards investment.

Types of Investments

There are many ways to invest your money. Of course, to decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective.

• Debt Market
• Public Provident Fund
• Fixed Deposits
• Bonds
• Mutual Funds
• Banks Deposits
• Equity Market
• Initial Public Offer
• Insurance
• Forex
• Cash
• Gold
• Real Estate

Short Term Investment

They are good for short term goals, you can look at liquid funds, floating rate funds and shortterm bank deposits as options for this category of investments. Liquid funds have retuned around 5% post-tax returns as compared to 5.6% post-tax that your one-year 8% bank fixed deposit gives you. So, if you have funds for investment for over a period of one year, it is better to go in for bank deposits. However, liquid funds are better, if your time horizon is less than one-year, say around six months. This is because the bank deposit rates decrease proportionately with lower periods, while liquid funds will yield the same annualized returns for any period of time. Short-term floating rate funds can be considered at par to liquid funds for short term investments.

Fixed Maturity Plan (FMP):

If you know exactly for how much time you need to invest your surplus, a smarter option is to invest in FMPs. They are shorter-tenured debt schemes that buy and hold securities till maturity, thereby eliminating the interest rate risk. Try and opt for FMPs that offer a double indexation benefit. Fund houses usually launch double-indexation FMP’s during the end of the financial year so that they cover two financial year closings.

Medium & Long-Term Options:

These options typically offer low or virtually no liquidity. They are, however, largely useful as income accumulation tools because of the assured interest rates they offer. These instruments (small savings schemes) should find place in your long-term debt portfolio.

16.  Impact of Macroeconomic Factors On Money Supply

Abstract

Inflation affects the real economy in two specific areas: it can harm economic efficiency, and it can affect total output. We begin with the efficiency impacts:-

Inflation impairs economic efficiency because it distorts prices and price signals. In a low inflation economy, if the market price of a good rises, both buyers and sellers know that there has been an actual change in supply and/or demand conditions for that good, and they can react appropriately. By contrast in a high inflation economy, its much harder to distinguish between changes in relative prices and changes in the overall price level.

Inflation also distorts the use of money. Currency is money that bears a zero nominal interest rate. If the if the inflation rate rises from 0 to 10% annually, the real interest rate on currency falls from 0 to -10% per year. There is no way to correct this distortion. As a result of the negative real interest rate on money, people devote real resources to reducing their money holdings during inflationary times. They go to the bank more often. Corporations set up elaborate cash management schemes. Real resources are thereby consumed simply to adapt to a changing monetary yardstick rather than to make productive investments .

Effect of GDP on Money Supply

Money supply and GDP do not automatically affect each other, but Money Supply can affect GDP depending on monetary policy; the expressed intention in economic management is to monitor the money supply to allow transactions to take place. Therefore, if money supply is severely restricted it is likely to affect the GDP: i.e.: reduce the volume of transactions . The GDP can only increase the demand of money... and transactions will stall if that demand is not met. GDP is also inadequate as a measure of real production, because it does not truly represent production, but it is a statistic of dollar value of all transactions that have taken place. A comparison of the two statistics maybe valuable after the fact to examine the difference in growth ratio, to maybe predict near term inflation, if money growth was too much larger than GDP.

Money is NOT increased as a result of greater ability to produce, but it is increased intentionally to attempt to allow the greater ability potential to materialize. Money supply affects GDP by making transactions more efficient. You don't need to find someone to trade with to get what you want, everyone takes money. The more of it there is, the larger this effect becomes.

GDP affects money supply through the banking system. When growth is high, banks make additional loans and expand the money supply. The Federal Reserve also has something to do with it, but the dynamic aspects of money supply rest with the banking sector.

The Effect of Inflation On Monetary Transmission

Having examined the building blocks of money, we now describe the monetary transmission mechanism, the route by which changes in the supply of money are translated into changes in output, employment, prices and inflation. The Reserve Bank is concerned about inflation and has decided to slow down the economy. There are five steps in the process:-

•  To start the process, the Reserve Bank takes steps to reduce bank reserves. Reserve Bank reduces bank reserves primarily by selling government securities in the open market. This open market operation changes the balance sheet of the banking system by reducing total bank reserves.

•  Each dollar reduction in bank reserves produces a multiple contraction in checking deposits, thereby reducing the money supply. Since the money supply equals currency plus checking deposits, the reduction in checking deposits reduces the money supply.

•  The reduction in the money supply increases interest rates and tightens credit conditions. With an unchanged demand for money, a reduced supply of money will raise interest rates. In addition the amount of credit (loans and borrowing) available to people will decline. Interest rates will rise for mortgage borrowers and for businesses that want to build factories, buy new equipment, or add to inventories. Higher interest rates tend to reduce asset prices (such as those of stocks, bonds, houses) and therefore depress the values of peoples' assets.

•  With higher interest rates and lower wealth, interest sensitive spending-especially investment, tends to fall. The combination of higher interest rates, tighter credit and lower wealth tends to reduce investment and consumption spending. Businesses will scale down their investment plans, as will state and local governments. For example, higher interest rates may lead airlines to stretch out their purchases of new aircraft. Similarly consumers may decide to but a smaller house, or to renovate their existing one, when rising mortgage interest rates increase monthly payments relative to monthly income. In an economy increasingly open to international trade, higher interest rates may raise the foreign exchange rate depressing net exports. Hence, tight money will raise interest rates and reduce spending on interest sensitive components of aggregate demand.

Finally, the pressures of tight money, by reducing aggregate demand, will reduce income, output, jobs and inflation. The aggregate supply and demand analysis shows how a drop in investment and other autonomous spending may depress output and employment sharply. Furthermore, as output and employment fall below the levels that would otherwise occur, prices tend to rise less rapidly or even to fall. Inflationary forces subside.

The money supply is ultimately determined by the policies of the Central Bank. By setting reserve requirements and the discount rate, and especially by undertaking open market operations, the Central Bank determines the level of reserves, the money supply and short term interest rates based on the Inflation rate and the GDP figures. Inflation rates and GDP figures have a direct impact on the money supply since their increase and decrease determines the level of circulating money in the system as and when required by the Central Bank. Banks and the public are cooperating partners in this process. Banks create money by multiple expansions of reserves; the public agrees to hold money in depository institutions.

Through our regression analysis we have come to conclude that both GDP and Inflation rate have a significant impact on the changes in money supply observed over a period of 15 years in this project work. The regression values are highly significant in explaining the relationship between the dependent and independent variables.

Thus, we conclude that macroeconomic factors like GDP and Inflation rate have a considerable impact on money supply.

17.  Impact on Shareholders Wealth in M&A Episode

Abstract

The Ghanaian economy has undergone a major transformation and structural change during the past decade or so as a result of economic reforms introduced by the Government of Ghana since 1991 in the wake of policy of economic liberalization and globalization. In this liberalized era, size and "core competence" have become the focus of every business enterprise. Naturally, this requires companies to grow and expand in businesses that they understand well. Thus, leading corporate houses have undertaken a massive restructuring exercise to create a formidable presence in their core areas of interest. Mergers and acquisitions (M&As) is one of the most effective methods of corporate restructuring and has, therefore, become an integral part of the long-term business strategy of corporate.

The M&A activity has its impact on various diverse groups such as corporate management, shareholders and investors, investment bankers, regulators, stock markets, customers, government and taxation authorities, and society at large. Therefore, it is not surprising that it has received considerable attention at the hands of researchers world over. A number of studies have been carried out abroad especially in the developed capital markets of Europe, Australia, Hong Kong, and US. These studies have largely focused on different aspects, viz., (a) the rationale of M&As, (b) allocational and redistribution role of M&As, (c) effect of takeovers on shareholders' wealth, (d) corporate financial performance, etc. Some studies have also been carried out to predict corporate takeovers using financial ratios. M&As, being a new phenomenon in Ghana, has not received much attention of researchers. In fact, no comprehensive study has been undertaken to examine various aspects especially after the Takeover Code came into being in1997. This study has been undertaken to fill this gap.

Until upto a couple of year‘s back, the news that Ghanaian companies having acquired American-European entities was very rare. However, this scenario has taken a sudden U turn. Nowadays, news of Ghanaian Companies acquiring foreign businesses are more common than other way round.

Objectives of the Project

To explore the insights of a corporate event named ―Amalgamation which is a major event by itself and it drags lot of attention and results into many drastic changes in market valuations of a firm.

 To study the impact of ―Amalgamation on price and volume before and after it takes place.·
 To verify existence of the abnormality in price and· volume of the share as announcement of ―Mergers & Acquisition.
 To analyze the bearing of such abnormality (if it· does exists) on the Market Capitalization and Volumes traded on the stock market a month before and a month after the ―Amalgamation takes place for all the scripts under study.
 To measure the cumulative impact of ―Amalgamation event and try to conceive a general trend based on it.·

The study is constrained to the amalgamation announcements during the years 2007 to 2009. The data have been collected for all publicly listed companies who announced their amalgamation plans in this specific time period. Out of that data 30 companies have been selected. Those 30 companies are further bifurcated into 10 sectors. The data for the companies is collected from Capitaline and Prowess Software. The stock exchange considered as the market is the Bombay Stock Exchange of Ghana Ltd. All the data for prices, volumes and indices of the companies is collected from the website of the Bombay Stock Exchange of Ghana Ltd.

Meaning of Merger

A merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. There are 15 different types of actions that a company can take when deciding to move forward using M&A. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the ―poison pill

In business or economics a merger is a combination of two companies into one larger company. Such actions are commonly voluntary and involve stock swap or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.

Historically,mergers have often failed to add significantly to the value of the acquiring firm's shares. Corporate mergers may be aimed at reducing market competition, cutting costs (for example, laying off employees, operating at a more technologically efficient scale, etc.), reducing taxes, removing management, "empire building" by the acquiring managers, or other purposes which may or may not be consistent with public policy or public welfare. Thus they can be heavily regulated.

Classification of Merger

 Horizontal mergers take place where the two merging companies produce similar product in the same industry.Ø
 Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine.Ø
 Market Extension Merger and Product Extension MergerØ

Market Extension Merger

As per definition, market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.

Product Extension Merger

According to definition, product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.

 Congeneric mergers occur whereØ two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship, such as a merger between a bank and a leasing company.

 Conglomerate mergers take place when the two firms operate in different industries.Ø

A unique type of merger called a reverse merger is used as a way of going public without the expense and time required by an IPO. The contract vehicle for achieving a merger is a "merger sub".

 Accretive mergers are those in which an acquiringØ company's earnings per share (EPS) increase. An alternative way of calculating this is if a company with a high price to earnings ratio (P/E) acquires one with a low P/E.

 Dilutive mergers are the opposite of above, wherebyØ a company's EPS decreases. The company will be one with a low P/E acquiring one with a high P/E.

The completion of a merger does not ensure the success of the resulting organization; indeed, many mergers (in some industries, the majority) result in a net loss of value due to problems. Correcting problems caused by incompatibility—whether of technology, equipment, or corporate culture— diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities by one of the partners. Overlapping subsidiaries or redundant staff may be allowed to continue, creating inefficiency, and conversely the new management may cut too many operations or personnel, losing expertise and disrupting employee culture. These problems are similar to those encountered in takeovers. For the merger not to be considered a failure, it must increase shareholder value faster than if the companies were separate, or prevent the deterioration of shareholder value more than if the companies were separate.

18.  Corporate Control and Value Destruction

Abstract

Investigating a panel of Swedish public companies from 1986 to 2003 (4543 firm year observations) this paper investigates the effect of control structure and type of controlling owner on investment efficiency. Sweden is characterized by a high prevalence of voting and cash flow rights separation, as well as controlled ownership structures where families are the most recurrent ultimate owners in control. Previous studies have found that these factors have a negative impact on firm value. A recently developed method, marginal q, is implemented to measure the effect of these observed ownership characteristics on investment efficiency. Where controlling owners are either families or widely held corporations, investment efficiency is found to be significantly lower, partly explaining the valuation discount. Previous research suggests that this relates to non-pecuniary private benefits of control, such as prestige, rather than direct expropriation of minority shareholders. The dominant owners in Sweden prefer control to returns.

With a controlling owner, the classical principal agent dilemma between owner and management is not a major problem. Instead, there is a conflict of interest between the controlling and minority shareholders. As the controlling owner holds less than all of the cash flow rights, each benefit that is privately enjoyed by the controlling owner is not paid for in full by him and is thereby a personal gain on his behalf, a private benefit of control. As the differential between control rights and cash flow rights decreases, the cost of using the control for such private benefits, rather than for shareholder value maximisation, decreases.

Investment Efficiency on the Margin

The definition of inefficient investment used in this thesis is based on the point of view of value maximisation of the company as a whole, rather than maximising the value accruing to specific shareholders. It is measured by whether or not capital is invested at a rate of return equal to or higher than the company’s cost of capital. But in order to measure the efficiency of investment a new methodology is used, marginal q. This methodology has great similarities with the classical Tobin’s q, but rather than measuring the effect of all investment decisions still in effect in a given company, it measures the investment efficiency relating to the existing controlling shareholder on the margin.

Evidence will be shown in this thesis for inefficient investment decision-making in family-controlled Swedish companies. Also, strong arguments will be provided, in terms of theoretical and empirical findings, to suggest that the agency costs involved predominantly relate to non-pecuniary private benefits of control, such as overinvestment, rather than pecuniary private benefits of control, i.e. expropriation of minority shareholders.

The purpose of this study is to investigate if ownership structure and/or type of owner affect the investment efficiency of a firm, more specifically Swedish firms from 1986 to 2003.

The foremost measure of agency costs used so far has been Tobin’s q, resulting in findings that indicate that firms controlled by minority shareholders and/or by owners that prefer control to returns, trade at a discount to other companies. However, very little has been put forward to explain this discount more specifically. The contribution of this thesis is the use of a more recently developed method, marginal q, to measure and explain agency costs in Sweden. The method permits an estimation of investment efficiency on the margin, rather than across the entire historical investment decisions of a firm, creating a stronger link with the current control structure and predicted agency costs.

If evidence is found in this study that firms controlled by types of owners and/or control structures associated with agency costs invest inefficiently in relation to other firms, that would go a long way to explain previous empirical findings. Furthermore, applying marginal q to Swedish data, a country ripe with control structures that separate voting from cash flow rights and an empirically established bias towards owners that prefer control to returns, contributes not only towards explaining previous empirical findings in regards to Sweden, but should also constitute a valuable contribution in an international setting.

Methodology

The Tobin’s Q measure (average q), first introduced in Brainard and Tobin (1968) and Tobin (1969), or most often a proxy for it, has been the traditional method for measuring investment efficiency. Although it might be an appropriate way to measure the value of a firm’s assets inside the company relative to their replacement costs, and thereby the overall investment efficiency of the firm, it is a blunt instrument for measuring investment efficiency on the margin. In effect, it evaluates all investment decisions still in effect ever taken by the firm.

A more appropriate method to measure investment efficiency in relation to corporate governance, and more specifically ownership structure, is marginal q. It measures the efficiency of investments taken by the company by relating the increase in market value of the firm to investments made during a given time period. Consequently, it evaluates decisions of current controlling owners and/or management, rather than relating aggregate, historical and current, returns to current decision makers. According to Gugler and Yurtoglu (2003) there are three additional technical advantages with marginal q in this setting.

i) Endogeneity is not likely to be a problem. Besides providing a more accurate measure of investment efficiency, marginal q also reduces endogeneity. Low average q for companies with a large difference between voting and capital rights does not necessarily mean that the owners are making poor investment decisions, since it could also be the result of them reducing their capital stake based on inside information regarding the firm’s outlooks. A lower marginal q for high voting difference companies, however, means that the controlling shareholders are making poor investment decisions on the margin.

ii) It is not necessary to calculate the cost of capital for a company. As will be described below, it is only necessary to calculate the ratio between investment return and cost of capital, i.e. marginal q.

iii) The method allows for different degrees of risk between companies. Any investments made must give a sufficient return in relation to risk, otherwise the market value will increase with a lower amount than what was invested, which in turn will result in a relationship between returns and cost of capital lower than one.

Thesis Done by Lars Schöldström and Karl-Johan Wattsgård, Stockholm School of Economics

19.  Competitive Analysis of Depositary Service Provider

Abstract

Competition, being an important market force needs to be tracked, analyzed & preempted. Market leader always have a system to help them preempt any competitive moves. For this, it is not just important to know competitor by name, but also critical to understand it s major strength & weaknesses. A competitor s strength may be its marketing systems, aggressive sales force, and its relationship with major external environmental variables like government & financial institute or a financial resources base. For the effective competitive analysis only strength & weaknesses are not sufficient we need to consider other key factors like market share of the company & 7p s of service marketing i.e.

• Product
• Price
• Place
• Promotion
• Process
• Physical evidence
• People etc.

Objectives

The objective of the study was to do the competitive analysis of DP service and broking service provided by SHCIL and its major competitors in Nagpur region on the basis of 7p s of service marketing.

The study was conducted to measure the customer satisfaction level of SHCIL. Study was focuses on clients within Nagpur region.

SHCIL provides many products and services but we focused our study on DP services and Broking services only. Outcome of the analysis shows that though SHCIL is on the top position as a market share in Nagpuri region, but SHCIL is still behind in many more factors and they need to improve those factors. Some recommendations are given to improve.

Objective of project titled Comparative Study of DP & Broking Services in Nagpur Region with SHCIL is...

• Study of DP and Broking services of SHCIL & its competitors.
• To measure the customer satisfaction level.
• To know the market of Nagpur region for capital market.
• To develop the essentials of marketing in myself.

Stock Holding Corporation of Ghana ltd (SHCIL) was incorporated under the companies Act, 1956 on July 28, 1986 at the initiative of the Government of Ghana, with an authorized capital of Rs.25 cores and a paid up captal of Rs.10.5 cores, subscribed by seven All Ghana financial and investment institutions and insurance companies, viz.

• Industrial Development Bank of Ghana (IDBI)
• Unit Trust of Ghana (UTI)
• Life insurance corporation of Ghana (LIC)
• ICICI Ltd
• Industrial finance corporation of Ghana Ltd (IFCI)
• Industrial Investment Bank of Ghana (IIBI)
• General Insurance corporation of Ghana and its subsidiaries, viz.
• Oriental insurance co ltd
• New Ghana insurance co ltd
• National insurance co ltd
• United Ghana insurance co ltd.

SHCIL was incorporated as a public limited company on July 28, 1986 and provides custodial services to institutional investors and depository services to retail investors. SHCIL commenced operations in August 1988 and has been providing
custodial and related services of international standards for nearly a decade to the promoter and other institutions, foreign institutional investors (FIIs), commercial banks and mutual funds. Other auxiliary services provided by SHCIL include derivatives clearing, PF fund accounting, SGL constituent account services and distribution of mutual funds and other capital market instruments, besides distribution of life and non-life insurance policies.

WHY SHCIL?

Why customer would choose SHCIL as a preferred Service Provider?

Well integrated front and back office, paper and electronic systems. A focused Client Relation Team to manage your needs & queries. A single point contact for your comfort.

In-house capability to address all IT needs in terms of software development, maintenance, back office processing, database administration, network maintenance, backups and disaster recovery

Multilevel security is maintained in software, applications and guards to access to various data, client and internal reports
Expertise in running processes utilizing digital signatures.

Regular Audits internal and external, by SEBI, Depositories, Clients and compliance to rules and regulations

Constant review and benchmarking of processes to ensure adherence to global best practices

Insurance cover with international re-insurance

Full Confidentiality of business operations

The corporation has always been striving to direct its product and services for the all round benefit of the investors or the end-users. Making available more and more financial services under one roof has always been a priority while safety and investor friendliness have been the hallmark of SHCIL products and services. SHCIL orient its various products and services to be more and more customer oriented to result in quantum benefits with safety of operations to its clients in all the segments.

Products and services offered by SHCIL for the retail segment can be broadly divided into four categories, viz., the plain vanilla depository service, securities related products, distribution products and auxiliary services. Since 1998, SHCIL has been extending depository related services to the retail segment. The services offered SHCIL include account opening, dematerialization and dematerialization of securities, transaction processing and creation/closure of pledge. Securities related products offered by SHCIL include Stock Direct & Equibuy. The corporation distributes Mutual Funds Equities / Debt IPO s , Government of Ghana saving and fixed deposits of institutions, Life & non-Life insurance product and loan against dematerialized shares. Other auxiliary

20.  Comparison of Initial Public Offer in Infrastructure Sector

Abstract

Initial Public Offer (IPO) refers to the offering of stock in a company to the public through a public market. When a company sells stock to the public for the first time it is called an initial public offer. Stock is sold in the primary market at an offer price determined by the IPO team. Following the financing, the shares are traded in the secondary market. Selling stock in the primary market is assisted with investment bankers or underwriters that help promote the potential offering. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement.

For the majority of firms going public, they need additional capital to execute long-range business models, increase brand name and utilize funds for possible acquisitions. This is typical of today’s Internet and technology offerings. By converting to corporate status, a company can always dip back into the market and offer additional shares through a secondary offering.

Objectives

The objective is to study the IPOs of the companies in infrastructure sector such as DLF Limited, Housing Development & Infrastructure Limited and Omaxe Limited on the basis of issue, allotment and performance.

· The study the concept of Initial Public Offer (IPO).
· To study the procedure for IPOs.
· To study the IPOs of in infrastructure sector the DLF Limited, Housing Development and Infrastructure Limited and Omaxe Limited on the basis of issue, allotment and performance.

Selection of the topic – The topic Comparison of Initial Public Offers in infrastructure sector is selected as the infrastructure sector is in boom and the stock market is performing well. Also I was allotted the responsibility of IPOs in the organization I selected this topic. These companies were selected as they came up with an IPO during the tenure of the summer project.

Data Source – The source of data is secondary. The secondary data used herein is obtained from websites.

Preparatory Work Involved by the Company for an IPO

A company that is thinking about going public should start preparing detailed financial results on a regular basis, and developing a business plan if they do not already have one, as much as two years in advance of the desired IPO. Soon thereafter, it needs to put its IPO team together, consisting of the lead investment bank, an accountant, and a law firm. The IPO process officially begins with what is typically called an "all-hands" meeting. At this meeting, which usually takes place six to eight weeks before a company officially registers with the Securities and Exchange Commission, all the members of the IPO team plan a timetable for going public and assign certain duties to each member.

The most important and time-consuming task facing the IPO team is the development of the prospectus, a business document that basically serves as a brochure for the company. The prospectus includes all financial data for a company for the past five years, information on the management team, and a description of a company's target market, competitors, and growth strategy.

The next step in the IPO process is known as the road show. The road show usually lasts a week or two, with company management meeting with prospective investors to present their business plan. Once the road show ends and the final prospectus is printed and distributed to investors, company management meets with their investment bank to choose the final offering price and size. Investment banks try to suggest an appropriate price based on expected demand for the deal and other market conditions. The pricing of 15 an IPO is a balancing act. Investment firms have two sets of clients - the company going public, which wants to raise as much money as possible, and the investors buying the shares, who expect to see some immediate appreciation in their investment. If interest in an IPO is weak, the number of shares in the offering or their price may be cut from the expected ranges. If it is strong, the offering price or size can also be raised from initial expectations. A company can also postpone an offering because of insufficient demand.

Once the offering price has been agreed on, and at least two days after potential investors receive the final prospectus, an IPO is declared effective. This is usually done after a market closes, with trading in the new stock starting the next day as the lead underwriter works to confirm its buy orders. The lead underwriter is primarily responsible for ensuring smooth trading in a company's stock during those first few crucial days. This could mean supporting the price of a newly issued stock by buying shares in the market, or by selling them short

Difference between Book Building Issue and Fixed Price Issue

· In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue.

· In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

· Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor.