August 1, 2010

A FIN–NICHE PRESENTATION

Webmail: finniche.imt@gmail.com
FIN-NICHE August 1, 2010

Investing in an IPO(Initial Public Offering)

-Submitted by: Rohith Shroff
The Indian capital markets have seen a splurge in the number of
new public offerings. Even the UPA government is focussing a lot
on disinvestment. PSUs like NHPC, STJVNL, Coal India are
planning or have come out with their public offerings. People
subscribe to these issues with a generally short term perspective,
to encash on the listing gains. Some issues which were
aggressively priced (like Reliance Power) burnt the hands of the investors whereas some
promoters left a lot on the table (eg. Talwalkars , Cox & Kings).

So how will one decide which companies are good to invest and which are not. Here are
some of the parameters which you must look at while choosing an IPO.

1. The industry in which the company operates should be looked at. Try and look to
invest in sectors which are in the limelight and are performing well. For eg. Realty
and Telecommunication are in the downturn and should be avoided.

2. Understanding the market share of the company in which it operates is crucial. A

higher valuation is attributed to a market leader.

3. The future earning capacity of the company. This can be gauged by going through the
“Risk Factors”

4. Compare the P/E, Book Value, ROI (return on investment) with its industry peers.

5. In India many companies are owned and run by family

members. It is highly preferable to choose companies
where promoters don’t act as Board of Directors and are
not involved in managing the company.

6. Avoid companies which are involved in litigation relating to patent infringement and
other serious issues which may hamper the future estimates.

7. The purpose for which the company intends to raise money is vital. Most of the times,
proceeds are used to lower their burgeoning debt book. Look for companies which are
raising money for expansion plans.

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Company in Focus

SKS Micro Finance

by: Rudra chowdary

SKS Microfinance Ltd (SKSML) is the largest Microfinance

Institution (MFI) in India in terms of total value of loans outstanding,
number of borrowers, and number of branches. It is a non-deposit
taking non-banking finance company, or NBFC-ND, registered with and regulated by the
Reserve Bank of India (RBI).

It is engaged in providing microfinance services to

individuals from poor segments of rural India. Its mission
is to eradicate poverty by providing financial services to
the poor and by using its channel to provide goods and
services that the poor need. SKSML’s core business is
providing small loans exclusively to poor women
predominantly located in rural areas in India. These loans
are provided to such members essentially for use in their
small businesses or other income generating activities and not for personal consumption.

These individuals often have no, or very limited, access to loans from other sources other
than private moneylenders who charge very high rates of interest. The ultimate goal of
microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to
shocks and economic stress and improve quality of life by enabling better access to education
and healthcare. The microfinance industry has grown at a rapid pace across the world and has
created a positive impact in the lives of millions of poor people.

SKSML utilizes a village centred, group-lending model to provide unsecured loans to its
members. This model ensures credit discipline through mutual support and peer pressure
within the group to ensure individual members are
prudent in conducting their financial affairs and are
prompt in repaying their loans. Failure by an
individual member to make timely loan payments
will prevent other group members from being able to
borrow from SKSML in the future; therefore the
group will typically make the payment on behalf of a
defaulting member or, in the case of wilful default,
will use peer pressure to encourage the delinquent
member to make timely payments, effectively providing an informal joint guarantee on the
member’s loan.

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It also uses its distribution channel to help provide other services and goods that it has found
that its members need. For instance, it distributes and administers life insurance policy
products for its members and has pilot programs to provide loans to its members to purchase
select consumer products that increase their productivity.

In addition to its market leadership position and the expertise in microfinance which it has
developed, its competitive strengths includes its scalable operating model which leverages
technology, diversified product revenues, diversified
sources of capital and its pan-India distribution network. Its
strategy is to further expand its membership, loans and
product offerings by relying on these strengths. It continues
to finance its expansion by accessing multiple sources of
capital, both debt and equity, including listed debentures,
priority sector qualifying loans from banks, and equity
investments from venture capital and private equity investors, institutions and others.
Additionally, it seeks to sell or assign its portfolio loans to banks to improve its financial
position and finance its growth.

Microfinance provides the poor with long-term economic and social

benefits. Sustained access to micro-credit enables the poor to increase
household income. These economic improvements are often
accompanied by wider ranging social developments that improve the
quality of life through improved social standing for women, nutrition,
education and healthcare.

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FIN-NICHE August 1, 2010

Markets this Week

by: Srikanth Konduri

Most of the indices ended this week on a positive note. Europe suffered as a result of profit
booking. China was the biggest gainer while India’s benchmark index BSE-Sensex was the
biggest loser.

Majority of the sectoral indices showed a lacklustre performance and closed in red. BSE-PSU
index was the biggest gainer for the week followed by BSE-Consumer Durable index.

Maruti Suzuki was the biggest loser after declaring its disappointing Q1FY11 results. Even
HUL results were disappointed on the bottom line. Reliance industries reported a strong
growth of 87% YoY for its Q1 results.

Key influencers this week:

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NEWS OF THE WEEK by: Srikanth Konduri

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Medical Insurance cos. Stop cashless treatment –

How does it affect you?
-Submitted by: Karan Razdan
There is bad news for people having a mediclaim policy that entitles them to cashless
facilities. They will no longer be able to get these facilities at high-end hospitals like Apollo,
Fortis, Gangaram, Max or Medicity in Delhi, the national capital region (NCR) and the
metros of Mumbai, Bangalore and Chennai.

This move follows the malpractice followed by top

hospitals of overcharging patients. As a result of this
move, direct payment of treatment charges to 150-odd
high-end hospitals in Delhi and NCR has been stopped
from July 1. Now, policy holders will have to pay from
their own pocket despite having a valid mediclaim
policy with all premiums paid. They will then have to
reclaim the amount from the insurer, with no guarantee
that the entire amount will be reimbursed.

The insurers have been forced to take this step as they

are bleeding badly. They are making an estimated loss
of `.1,500 crore annually on a yearly premium
collection of `.6,000 crore on mediclaim policies
across the country.

The policy holders & industry bodies too have reacted sharply to the development. The
chairman of the Federation of Indian Chambers for Commerce and Industry (FICCI) health
services committee, Mr. Anjan Bose, termed it a retrograde move which will put the policy
holders, particularly the middle class patients, who do not have ready cash available with
them, at a disadvantage

These insurance companies had so far been providing cashless services at over 3,000
hospitals pan-India. But a recent study carried out by third party administrators (TPAs) found
only 350 hospitals, or just 11%, were consuming more than 80% of the total claims. It was
also found that customers were overcharged for each hospitalization, irrespective of
treatment, and were left with very little funds for their next treatment. TPAs have been asked
to convey the fresh list of hospitals to individual policyholders as also the new packages
available which are mentioned below.

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Insurance companies have also started relying on special investigating agencies to verify the
authenticity of many of the claims. Services of super-speciality consultants, auditors and
medico-legal experts are now taken to go into the depth of the matter. The work profile
includes verifying diseases, documents, medical reports and providing clinical judgement on
matters deemed suspicious. Insurance firms pay anything between `. 8 crore and `.10 crore
annually and industry experts say business is likely to grow because of the increasing number
of referrals.

Some firms also ask these agencies to carry out detailed investigation. In such instances,
specialised doctors’ help is to taken to inquire into the whole gamut of treatment, including
whether the patient had any pre-existing ailment, excess medical bills by hospitals, nature of
ailment, authenticity of medical reports and justification for the treatment.

Meanwhile, insurance watchdog Insurance Regulatory and Development Authority (IRDA)

has washed its hands of the controversy even as industry bodies stepped up efforts to find an
amicable solution to the row. IRDA has the opinion that this is a matter between the
insurance companies and the hospitals and since there is no regulatory issue, IRDA is not
looking into it as of now.

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WORDS OF THE WEEK

CURRENCY CARRY TRADE : A strategy in which an investor sells a certain currency with a
relatively low interest rate and uses the funds to purchase a different currency yielding a
higher interest rate. A trader using this strategy attempts to capture the difference between the
rates, which can often be substantial, depending on the amount of leverage used.

REINSURANCE : The practice of insurers transferring portions of risk portfolios to other

parties by some form of agreement in order to reduce the likelihood of having to pay a large
obligation resulting from an insurance claim. The intent of reinsurance is for an insurance
company to reduce the risks associated with underwritten policies by spreading risks across
alternative institutions.

Also known as "insurance for insurers" or "stop-loss insurance".

DARK POOL LIQUIDITY: The trading volume created by institutional orders that are
unavailable to the public. The bulk of dark pool liquidity is represented by block trades
facilitated away from the central exchanges.

Also referred to as the "upstairs market", or "dark liquidity", or just "dark pool."

OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC): A U.S. government agency that

assists businesses looking to invest abroad. Operated out of Washington, D.C., the Overseas
Private Investment Corporation (OPIC) helps companies investing overseas analyze and
manage risks and tries to promote development in emerging markets in addition to supporting
domestic foreign policies.

SPICE TRADER: A slang term used to describe an investor who tends to trade in high-risk
investment vehicles or markets. Spice traders prefer to invest in riskier endeavors and seek
higher risk premiums for the risk that they take on.

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CAN YOU SOLVE IT by: Rudra Chowdary

Match the companies in Group A with companies in Group B. The link is
related to Mergers and Acquisitions. Complete the chain with one of the
persons involved.

Group A Group B

A1 : Reliance Industries B1 :Sanyo Electric

A2: ICICI Bank B2: IGF Industries-Arbel Fauvet Rail (AFR)

A3 :Titagarh Wagons B3: Atlas Energy

A4: Panasonic Corp B4: Ocean Sparkle

A5: Eredene Capital B5: Bank of Rajasthan

Group C : Picture Clues

C1 C2 C3 C4 C5

Your answers should be a link between A, B and C. Like A1-B1-C1 etc.

Rush in your answers to: finniche.imt@gmail.com

The first five correct entries will be featured in the next issue of FinXpress.

Last Week’s Correct Answerers: (First Five)

 Varun Vashishth, 09FT-171

 Asmita Singh, 09FN-021
 Nakul Agarwal
 Prateek Jain, 09IB-038
 Shelly Malpani, 10DM-148

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