Human Resource Management...

Astd model consist of 9 areas.....

www.prem-ashok.blogspot.com

1.Training & Development

2.Organization development

3.Organization/job design

4.Planning

5.Selection & Staffing

6.Personal research & Information System

7.Compensation/Benefits

8.Employee Assistance

9.Union/Labour Relations

www.rajshrievab.blogspot.com

BCG & McKinesy Matrix

http://www.prem-ashok.blogspot.com
The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions:market share and market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company.
WHAT IS THE MCKINSEY MATRIX?
The McKinsey Matrix is a model to perform a business portfolio analysis on the Strategic Business Units of a corporation.

to know more about BCG & McKinesy matrix go to:
http://www.12manage.com/methods_bcgmatrix.html

Blue Ocean versus Red Ocean Strategies

Blue Ocean versus Red Ocean Strategies

(1) Blue Ocean versus Red Ocean StrategiesFor the past five decades, competition was in the heart of any corporate strategy. Not only the positions of different managerial positions' naming-chief executive officer, headquarters and other military connotations-strengthen that sense, but reflects the real situation on how business management think, strategize, or envision their intervention to be able to sustain their business in highly competitive environment. In such situations, good analysis of the economic structure, that might include supply/demand ratio and the availability of resources, might generate profit for some, which are active within a specific industry, over others. But still, profit margins have limits as all would be competing on a definite demand scale. The form of strategizing within a definite economic structure, dictated by demand and availability of resources, is termed Red Ocean Strategy. As described by Kim and Mauborgne(1), Red Ocean represents all of the existing industries in a market place.
On the same note and in the past decades, the growth of the communication sector and the number of players in a market arena limited profit and at the same time facilitated the emergence of new industries that created new demand rather than served an existing one. Hence Blue Ocean describes all of the markets that do not exist, whereby the strategizing to create demand and rotate about competition for large and fast profit margins is termed Blue Ocean Strategy, according to Kim and Mauborgne. Blue Ocean Strategies are usually more risky than those developed for well known and definite markets. This is the major reason why despite the profitability margins of blue strategies, most of the world prefers to strive in a competitive yet known return to investment markets, hence contributing to the formation of a larger Red Ocean. Though the Red and Blue Ocean Strategies seem offer two different disciplines of strategizing, they are very interrelated and would constantly feed one another. That is, most of the times, it is the Red Ocean bloody competitiveness is what favors or drive entrepreneurs to foresee and create new and profitable markets. At the same time, new markets, which directly contribute to the Blue Ocean, would draw the attention of investors that want to benefit from the tested and uncovered assumptions and hence would soon turn the blue into red. The table below (adopted from the Blue Ocean Strategy paper; refer to the reference section for more details) summarizes the main difference between Red and Blue Strategies;

Red Ocean Strategy
Blue Ocean Strategy
Compete in an existing market place
Create an uncontested market place
Beat the competition
Make the competition irrelevant
Exploit existing demand
Create and capture new demand
Make the value/cost trade off
Beat the value/cost trade off
Align the whole system of a company's activities with its strategic choice
of differentiation or low cost

(2) Out of the Red and into the Blue ManagementTaking the above mentioned description of the world existing and emerging markets. And taking into consideration that the red was blue and the blue mostly emerges from the red. Change management practitioners and managerial units staff must develop management strategies that would preserve an existing/red market niche (decrease cost while maximizing value) and develop new ones that would pave the way for new profitable demand. That is, management strategies should be able to analyze moves or possible change rather than analyzing the industry or the product alone. As noticed, the blue color refers to innovation. Actually, it refers to this specific innovation that would create a new demand and/or provide alternatives for an already existing market audience. And since innovation brings along change, and change shakes an already existing equilibrium within a highly networked and connected market; it would be essential that innovation realizes several factors that it should be tested upon for it to be successful. In this regard, this research issue rotates about a four framework pillar model(2) while reflecting on a case study for the creation and success of Adobe Company within a highly saturated market with the beasts of software creators. The four pillars of the framework model are:
1. Reason Back from a Target Endgame: envisage and formulate scenarios about future market equilibrium as affected by the intervention of all of the market players as well as potential trends that might arise from the evolution of those markets. This is the major step that would lead to the creation of a successful innovation.
2. Complement Power players: Position your innovation as a complementary product to the most essential products of powerful producers in the a networked market. In this way, you can easily buy power players and hence would assist infuse your innovation rather than resisting it.
3. Offer Coordinated Switching: establish partnerships with market players that would add value to the product and assist in its dissemination and promotion. That is, distribute potential profit.
4. Preserve Flexibility: Design your product and marketing plans to be flexible. That is being able to cope with market changes and evolutions.
The four pillar framework model can be also viewed as a cycle; whereby the first two stages of the cycle are roam in the blue ocean and the two in the red one. it is important to note that blue oceans soon become red, and to maintain innovative thinking, new endgames should be always given room to for the emergence of new blue ones.
As a reflection of the theoretical model is the Adobe Acrobat Portable Document Format Software. An innovation that emerged in the early 1990's in a highly competitive software companies have either failed, remained niche players, or been preserved by giant companies such as Microsoft. In other words, Adobe is a successful blue initiative that emerged from the almost static red ocean. John Warnock and his team started by envisioning the future and elaborating a winner target endgame. They noticed that that most of the electronic documents needed the creator software for reading them, which most of the time the reader might not be interested in buying based on the frequent use. Form this endpoint, Adobe envisioned software that can assist document craters to preserve their creation and readers to be able to read any documents even if they did not possess the creators software.That is, Adobe came to complement power players such as content soft ware creator industry rather than competing with it; whereby Microsoft agreed to integrate Adobe within its software packages as it did not compete with its Office or Explorer software. And as Adobe facilitated the creation of one for all reader software, the very end-user of the software got it for free if in the reader format. This tempted users as well as distributors to adopt this program; therefore, Adobe was able to also coordinate the effort for switching to use the new program. It is also worth to mention that Adobe did not offer its reader version of the software for free. It started by selling the reader to an end-user that did not see his interest in buying the reader version of the program. Moreover, the content creators did not seem to want the product if the reader is not buying the software.
Based on this observation, and after four years of its creation, Adobe realized its benefit is from the creator and was flexible to change its strategy and offer the reader version for free. After five years of implementing this strategy Adobe was able to market more than five million creator copies and was able to disseminate more than 300 million reader-copy of its software.
The successful experience of Adobe and similar initiatives was not only because they were able to envisage the future and find their role. As their future scenarios were full of assumptions, they took the risks. Backed up by the Blue Ocean strategizing scheme, they were able to beat their assumptions and create an evolutionary multi million dollars business in an industry that had no room for new players. That is, and to relate the table presented in the previous section; Adobe was able to initiate their business in an uncontested environment, whereby they were able to rotate about competition by creating a new market demand out of an existing market audience. Furthermore, they managed to beat the value/cost trade and aligned with a whole system of sector like companies and end-users. What is most valuable of their experience is that they concentrated efforts not only to create change but facilitated a new equilibrium afterwards with existing stakeholders.
Think differently and think equilibrium if you wish to succeed infusing your innovation in an interchanging and interdependent world.

Sensex

SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETS
Download Index ConstituentsClick to search Historical Notices on Index Replacements
Introduction
For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "The Stock Exchange, Mumbai" by paying a princely amount of Re1.Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.SENSEX Calculation MethodologySENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.Dollex-30BSE also calculates a dollar-linked version of SENSEX and historical values of this index are available since its inception. (For more details click ‘Dollex series of BSE indices’)Understanding Free-float MethodologyConcept:Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market. It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and BANKEX in June 2003. While BSE TECk Index is a TMT benchmark, BANKEX is positioned as a benchmark for the banking sector stocks. SENSEX becomes the third index in India to be based on the globally accepted Free-float Methodology.Major advantages of Free-float Methodology:
A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.
Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. For example, the concentration of top five companies in SENSEX has fallen under the free-float scenario thereby making the SENSEX more diversified and broad-based.
A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-à-vis an investable index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely held companies in the index while at the same time preventing their undue influence on the index movement.
Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002. The MSCI India Standard Index, which is followed by Foreign Institutional Investors (FIIs) to track Indian equities, is also based on the Free-float Methodology. NASDAQ-100, the underlying index to the famous Exchange Traded Fund (ETF) - QQQ is based on the Free-float Methodology.Definition of Free-float:
Share holdings held by investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. In specific, the following categories of holding are generally excluded from the definition of Free-float:
Holdings by founders/directors/ acquirers which has control element
Holdings by persons/ bodies with "Controlling Interest"
Government holding as promoter/acquirer
Holdings through the FDI Route
Strategic stakes by private corporate bodies/ individuals
Equity held by associate/group companies (cross-holdings)
Equity held by Employee Welfare Trusts
Locked-in shares and shares which would not be sold in the open market in normal course.The remaining shareholders would fall under the Free-float category.Determining Free-float factors of companies:
BSE has designed a Free-float format, which is filled and submitted by all index companies on a quarterly basis with the Exchange. (Format available on www.bseindia.com) The Exchange determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format. Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.Free-float Bands:
% Free-Float
Free-Float Factor
% Free-Float
Free-Float Factor
>0 – 5%
0.05
>50 – 55%
0.55
>5 – 10%
0.10
>55 – 60%
0.60
>10 – 15%
0.15
>60 – 65%
0.65
>15 – 20%
0.20
>65 – 70%
0.70
>20 – 25%
0.25
>70 – 75%
0.75
>25 – 30%
0.30
>75 – 80%
0.80
>30 – 35%
0.35
>80 – 85%
0.85
>35 – 40%
0.40
>85 – 90%
0.90
>40 – 45%
0.45
>90 – 95%
0.95
>45 – 50%
0.50
>95 – 100%
1.00Index Closure Algorithm
The closing SENSEX on any trading day is computed taking the weighted average of all the trades on SENSEX constituents in the last 30 minutes of trading session. If a SENSEX constituent has not traded in the last 30 minutes, the last traded price is taken for computation of the Index closure. If a SENSEX constituent has not traded at all in a day, then its last day's closing price is taken for computation of Index closure. The use of Index Closure Algorithm prevents any intentional manipulation of the closing index value.Maintenance of SENSEXOne of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that replacement of stocks in Index, additional issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the historical value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values.The Index Cell of the exchange does the day-to-day maintenance of the index within the broad index policy framework set by the Index Committee. The Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a delicate balance between frequent replacements in index and maintaining its historical continuity. The Index Committee of the Exchange comprises of experts on capital markets from all major market segments. They include Academicians, Fund-managers from leading Mutual Funds, Finance-Journalists, Market Participants, Independent Governing Board members, and Exchange administration.On-Line Computation of the Index:During market hours, prices of the index scrips, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time.Adjustment for Bonus, Rights and Newly issued Capital:The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value despite the non-occurrence of any economic activity of substance. At the Index Cell of the Exchange, the base value is adjusted, which is used to alter market capitalization of the component stocks to arrive at the SENSEX value.The Index Cell of the Exchange keeps a close watch on the events that might affect the index on a regular basis and carries out daily maintenance of all the 14 Indices.
Adjustments for Rights Issues:When a company, included in the compilation of the index, issues right shares, the free-float market capitalisation of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base Market Capitalisation (see 'Base Market Capitalisation Adjustment' below).
Adjustments for Bonus Issue:When a company, included in the compilation of the index, issues bonus shares, the market capitalisation of that company does not undergo any change. Therefore, there is no change in the Base Market Capitalisation, only the 'number of shares' in the formula is updated.
Other Issues:Base Market Capitalisation Adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc.
Base Market Capitalisation Adjustment:
The formula for adjusting the Base Market Capitalisation is as follows:
New Market Capitalisation
New Base Market Capitalisation
=
Old Base Market Capitalisation
x
---------------------------------------
Old Market Capitalisation
To illustrate, suppose a company issues right shares which increases the market capitalisation of the shares of that company by say, Rs.100 crores. The existing Base Market Capitalisation (Old Base Market Capitalisation), say, is Rs.2450 crores and the aggregate market capitalisation of all the shares included in the index before the right issue is made is, say Rs.4781 crores. The "New Base Market Capitalisation " will then be:
2450 x (4781+100)
--------------------------
=
Rs.2501.24 crores
4781
This figure of 2501.24 will be used as the Base Market Capitalisation for calculating the index number from then onwards till the next base change becomes necessary.
Back

SENSEX - Scrip selection criteria:
The general guidelines for selection of constituents in SENSEX are as follows:
Listed History:The scrip should have a listing history of at least 3 months at BSE. Exception may be considered if full market capitalisation of a newly listed company ranks among top 10 in the list of BSE universe. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum listing history would not be required.
Trading Frequency:The scrip should have been traded on each and every trading day in the last three months. Exceptions can be made for extreme reasons like scrip suspension etc.
Final Rank:The scrip should figure in the top 100 companies listed by final rank. The final rank is arrived at by assigning 75% weightage to the rank on the basis of three-month average full market capitalisation and 25% weightage to the liquidity rank based on three-month average daily turnover & three-month average impact cost.
Market Capitalization Weightage:The weightage of each scrip in SENSEX based on three-month average free-float market capitalisation should be at least 0.5% of the Index.
Industry Representation:Scrip selection would generally take into account a balanced representation of the listed companies in the universe of BSE.
Track Record:In the opinion of the Committee, the company should have an acceptable track record.Index Review Frequency:The Index Committee meets every quarter to discuss index related issues. In case of a revision in the Index constituents, the announcement of the incoming and outgoing scrips is made six weeks in advance of the actual implementation of the revision of the Index.
Back
History of replacement of scrips in SENSEX
Date
Outgoing Scrips
Replaced by
01.01.1986
Bombay Burmah
Voltas

Asian Cables
Peico

Crompton Greaves
Premier Auto.

Scinda
G.E.Shipping



03.08.1992
Zenith Ltd.
Bharat Forge



19.08.1996
Ballarpur Inds.
Arvind Mills

Bharat Forge
Bajaj Auto

Bombay Dyeing
BHEL

Ceat Tyres
BSES

Century Text.
Colgate

GSFC
Guj. Amb. Cement

Hind. Motors
HPCL

Indian Organic
ICICI

Indian Rayon
IDBI

Kirloskar Cummins
IPCL

Mukand Iron
MTNL

Phlips
Ranbaxy Lab.

Premier Auto
State Bank of India

Siemens
Steel Authority of India

Voltas
Tata Chem



16.11.1998
Arvind Mills
Castrol

G. E. Shipping
Infosys Technologies

IPCL
NIIT Ltd.

Steel Authority of India
Novartis



10.04.2000
I.D.B.I
Dr. Reddy’s Laboratories

Indian Hotels
Reliance Petroleum

Tata Chem
Satyam Computers

Tata Power
Zee Telefilms



08.01.2001
Novartis
Cipla Ltd.



07.01.2002
NIIT Ltd.
HCL Technologies

Mahindra & Mahindra
Hero Honda Motors Ltd.



31.05.2002
ICICI Ltd.
ICICI Bank Ltd.



10.10.2002
Reliance Petroleum Ltd.
HDFC Ltd.



10.11.2003
Castrol India Ltd.
Bharti-Tele-Ventures Ltd.

Colgate Palomive (India) Ltd.
HDFC Bank Ltd.

Glaxo Smithkline Pharma. Ltd.
ONGC Ltd.

HCL Technologies Ltd.
Tata Power Company Ltd.

Nestle (India) Ltd.
Wipro Ltd.



19.05.2004
Larsen & Toubro Ltd.
Maruti Udyog Ltd.



27.09.2004
Mahanagar Telephone Nigam Ltd.
Larsen & Toubro Ltd.



06.06.2005
Hindustan Petroleum Corp Ltd.
National Thermal Power Corpn. Ltd.
Zee Telefilms Ltd.
Tata Consultancy Services Ltd.



12.06.2006
Tata Power Ltd.
Reliance Communiation Ventures Ltd.



09.07.2007
Hero Honda Motors Ltd.
Mahindra & Mahindra Ltd.



19.11.2007
Dr. Reddy's Laboratories Ltd.
DLF Ltd.

Other ways to raise the fund from Market?

A company can raise funds through a rights issue. In this, the company gives shares only to existing share holders at a certain ratio to the number of shares already owned. For example, in the case of SBI, one rights share is to be given for every five SBI share owned.Normally, a rights issue has the twin purposes of rewarding the shareholders of the company and raising funds. Shares are, therefore, typically offered at a 30-50 % discount to the prevailing market price. Therefore, just before a rights issue, the share price of the company goes up.

In a rights issue, how is the entitlement of shares fixed?
In a rights issue, a cut-off date is fixed, known as the record date. Rights shares are given to those share holders who own the company’s shares on the record date. For example, in case of SBI, the record date is fixed at February 4. That means, rights shares will be given to those investors who own SBI shares on February 4. If one buys an SBI share after February 4, he will not be entitled for the rights share despite the fact that the rights share will be issued after that date. Similarly, if one sells share after February 4, he will still get the rights shares of SBI.
What is offer for sale of equity shares?
In an offer for sale, equity shares of a company are offered by large shareholders, who can be promoters also, to the public. When the Government of India divests its holdings in a public sector company, for instance, it makes an offer for sale. One famous issue of this kind was ONGC's issue of around Rs 10,000 crore, in which GoI had divested its holding in the company. In an offer for sale, the money raised goes to the seller of the stake and the company is not benefited. But, this is also treated as a public issue and follows all the rules of public offerings of shares.

How is the offer price fixed?

The offer price for shares in a public offer can be fixed before the issue. It can also be discovered through gauging the demand in the market for shares at various price points. The second method is called the book-building route.
In this, the issue manager fixes a price-band rather than a single price for
the IPO and asks investors to bid for shares in that price range. The price
band is fixed on the basis of the fundamentals of the company, the
performance of share prices of other companies in the same sector on
bourses and market survey conducted by issue managers. An investor can
bid for shares at various price levels. Normally, the demand for shares at the minimum price level is the maximum. But when the market is booming, the issue is often oversubscribed
at the higher end of the band itself. In such a case, the offer price is
ultimately fixed at the upper end of the band.

What is a follow on-public offer?
When a listed company makes a public offer to raise funds, it is called a
follow-on public offer. In these cases too, the offer price can be fixed or
be discovered through book-building. Normally, the offer price is at
a 10-20% discount to the prevailing share price in the market.

What is an IPO?

When a company wants to raise money, one of the ways it can do so is
by selling its equity shares to the public। If it happens to be the first
public offer of the company, it is known as the initial public offer (IPO).
In an IPO, the promoters share in the company's equity comes down,
as the number of shares issued by the company (paid-up capital)
increases. After the IPO, the shares get listed on the stock exchange
and shareholders can trade their shareholdings on the bourses.

How to make an IPO?

To make an IPO, a company has to file a prospectus with the Securities
and Exchange Board of India (SEBI) stating the purpose of raising the
money and disclosing other details of the company and its directors.
Once it is approved by SEBI, the company files the prospectus with the
registrar of the company to initiate the process of IPO. According to
SEBI norms, a minimum of 30% of any IPO is reserved for retail
investors — those who are applying for shares worth less than
Rs 1,00,000. The shares are allotted on a pro-rata basis among
applicants. That means, if the retail investor portion of the IPO is oversubscribed by two times, every applicant will get half of the
number of shares he applied for.For large investors, whose application
size is more than Rs 1,00,000 each, there is a minimum reservation
of 10%. In this category too, shares are allotted on a pro-rata basis.

Lakshya: MBA

If you belong to the 98 per cent of MBA aspirants who fail to make it to a Top 10 B-school, it's not the end of the world. You have options, but you need to be careful and realistic in selecting a 'next best B-school'. Although there is no foolproof formula that can be applied to weigh one institute against another, here are some guidelines that should help you reach a rational and well-informed decision.
Placement StatisticsCurriculum, infrastructure and faculty don't count if the placement scene on campus sucks. Look up the 'placement' and 'validation' scores provided in the Cosmode-BW rankings (See page 84). Additionally, check for these signs of placement health on individual B-school websites and through informal channels (seniors, friends, friends of friends... word of mouth rules here!):
List ke peeche kya hai: Many institutes claim that X, Y and Z companies recruit their students. The important thing to ask is: do these companies come officially for campus placement? Students at lowly-ranked institutes often secure a summer or final placement at prestigious firms through their own efforts or contacts. The B-school claim may thus be technically correct but of little use to you, as you won't get a fair chance to try for the same job.
It's not over till it's over: The best institutes rarely take more than 2-3 days to place their students. The good ones will at least specify a 'placement week' or fortnight. If, months after the 2004 class has graduated, the institute cannot provide detailed placement statistics, you need to be aware that a job may come your way only through jugaad.
Open sesame: Watch out for vague statements like 'the following companies have recruited our students in the past'. (Why in the past, why not this year?) Institutes that lack proper placements usually beat around the bush on details like percentage of students placed, average salary, and so on.
The job profile: Even if a well-known company does officially visit a less-known campus, you need to check on one important fact - it might actually be offering a lower designation/package than on a premier campus. So while an IIM graduate might join the organisation as 'management trainee', you might be offered 'executive trainee'. That's not such a good thing after all!
Batch size: Even brand name B-schools find it hard to find great jobs for the tail end of the batch. Lower down, you can be sure the problem is worse. A batch size of 150 or 200-plus is definitely not a good sign, although at an individual level you can try and balance that out - aim to be in the top 10 per cent of your class!
Residential Rules!An MBA is more than a course of study. It's often described as a 'life-changing experience' with a good deal of that learning and growth taking place outside the classroom. A fully-residential programme is preferable to the day-scholar route, unless cost is an issue. The bonding in residential schools is much higher - giving you a networking advantage in the future. Besides, it's definitely a lot more fun!
The MBA caste systemThere's a definite hierarchy in the world of the MBA, and it looks suspiciously like our Indian caste system.The brahmins ('thinkers') : The consultants and investment bankers who are paid fancy sums to recite strategy mantras and perform restructuring havans. The kshatriyas ('leaders') : The managers who spearhead multinational brands, profit centres and teams in the business battlefield. The vaishyas ('traders') : The sales, systems and operations guys - those MBAs who actually oil the wheels of commerce.The shudras ('untouchables') : MBAs from little-known B-schools who take up jobs in little-known companies their more fortunate brethren would never touch!
Cost FactorLook at the input (money spent) and output (job expected) when making a decision between two B-Schools. If there's not much else which separates the two, how much you spend on your education could definitely be a deciding factor.
LocationB-Schools located in towns with hardly any industry are a no-no. Companies from other cities are unlikely to take the trouble of visiting a little-known campus. Also, you'll be handicapped by distance if you try to look for a job on your own.
LeadershipIf an institute boasts of a director who has earlier taught/ served as head of a top B-school, it's definitely a good sign. A well-connected and well-respected director can make all the difference when it comes to attracting good faculty and companies for placement.
FREQUENTLY ASKED QUESTIONS
Should I try for IIMs again?
Yes, if...
You got one or more interview calls from the Top 10 B-schools.
You scored somewhere above the 95th percentile and believe you can improve in your weak areas through due diligence.
You have two or more years of work experience. Only top B-schools will give you a chance at lateral placements. The other best bet for 'work ex' types is to take the GMAT and apply abroad, or to ISB.
No, if...
Your CAT score was pretty low - chances of it taking a quantum leap next time round are negligible.
You aren't the premier engineering school or general academic topper type who generally make it to the IIMs.
Time is not on your side (you are a girl facing pressure at home to get married - in that case better take what you get and do the MBA right after graduation).
Should I take up a job/join another institute offering admission and study for CAT side by side?Working is advisable as long as the job leaves you with some time for CAT prep. You could join another B-school and make your second CAT attempt, but keep in mind that chances of success are slim. So make sure you are reasonably satisfied with what you have in hand!
I am working. Should I do a part-time/distance-learning MBA programme?If you're taking it up in the hope of immediate professional enhancement, the short and cruel answer is no! (Unless your company is encouraging/sponsoring you to do so.) A part-time/distance-learning MBA might add to your own sense of confidence, and enhance your CV in the long run, but sadly, only a full-time MBA from a known institute gives you instant access to the corporate elevator. The rest have to huff and puff up the stairs.
Beyond The HypeAwareness and 'brand equity' are two completely different things. An institution's reputation is silently and intangibly built over the years; weekly full-page ads do not necessarily make a good school. Many institutes that do not advertise (except for their admission notices) are definitely worth considering over and above those that blow their trumpet loudly.
Brand ExtensionsSome B-schools have branches in multiple locations. If you are attending such an institute, join in the city where the B-school was born. The 'mother brand' will generally have better placements, infrastructure et al than the rest.One last bit of advice: when the time comes to choose between three or four schools which have offered you admission, nothing can beat actually visiting these campuses to get the true picture. Spending a few thousands now is better than spending a few lakhs later on a B-school which fails to meet basic expectations. You wouldn't buy a car without a test drive, so why not take the same trouble while making a life-long investment in an MBA?

Short Selling....

What is Short Selling
Traditionally the premise of investing is that you buy an asset and hold it
until it rises enough to make a sizable profit, it doesn't get much easier than
that. What about the times you come across a stock that you wouldn't
invest a penny in, you know that stock is doomed, a sure loser. If you
knew that the stock was going to decline wouldn't be nice to be able to
profit from its decline. Well you can profit from the decline of a stock
and although it sounds easy, there are substantial risks and pitfalls
that you need to watch out for. The mechanics of a short sale are
somewhat complicated and the investor's risks are high so it is important
that you understand the transaction before getting into it.What does it
mean to sell short?If you sell a stock you don't own, you are selling short.
(Yes, it's legal.) You are now short the stock.A short seller sells a stock
that he believes will fall in value. A short seller does not own the stock
before he sells it. Instead, he borrows it from someone who already owns it.
Later, the short seller buys back the stock he shorted and returns the
stock to close out the loan. If the stock has fallen in price since he sold
short, he can buy the stock back for less than he received for selling it.
The difference is his profit.Short selling allows investors to profit from
falling stock prices. "Buy low, sell high" is the goal of both short selling
and purchasing shares ("going long"). A short sale reverses the order
of a typical stock purchase: the stock is sold first and bought later.For
example, in March 2002, Andy thinks HLL is overvalued. He sells short
100 shares of HLL at Rs. 250 per share. The stock market crashes in
April and HLL's share price falls to Rs. 210 per share. Andy buys back
100 shares of HLL and closes out the short sale. Andy gains the difference
between the sales proceeds and the purchase costs and pockets Rs. 4,000
from the short sale, excluding transaction costs.Where Does The Broker
Get The Stock?The short answer is from other customers or the Stock
Holding Corp. of India.Short selling is a marginable transaction. In plain English,
that means you must open a margin account to sell short. This is the
same account you would use if you want to use your stocks as collateral
margin to trade in the markets.When you open a margin account, you
must sign an agreement with your broker. This agreement says you will
maintain a cash margin or pledge your stocks as margin.How Do I Sell
Short?Unlike a stock purchase transaction, which involves two parties
(the buyer and the seller), short selling involves three parties: the original owner,
the short seller, and the new buyer. The short seller borrows shares
from the original owner, and immediately sells them on the open market
to any willing buyer. To finalize ("close out") the short sale transaction,
the short seller must then go out into the stock market and buy the same
amount of shares as he sold so that the broker can return them to the
original owner.To sell short you first must set up a margin account with
your broker. A margin account allows you borrow from your brokerage
company using the value of your portfolio as collateral. The general rule is
that the value of your portfolio must equal at least 50% of the size of the
short sale transaction. In other words, If you have Rs. 100,000 worth of
stock/cash in your margin account, you can borrow Rs. 200,000 of stock
to sell short.To sell a stock short, you must borrow stock. To initiate a shor
t sale, you simply call up your broker and ask to sell short a specific number
of shares of your selected stock. Your broker then checks with the Margin
Department to see whether the shares are available or can be borrowed.
If they are available, the brokerage borrows the shares, sells them in the
open market, and puts the proceeds into your margin account. To close
out your short sale, you tell your broker that you want to buy the same
number of shares that you shorted. The broker will purchase the shares
for you using the money in your margin account, return the shares and
close out the short sale transaction.While your short sale is outstanding,
your account will be charged interest against the value of the short position.
If the stock you shorted goes up in price, or the value of the stock you are
using as collateral goes down in price, so that your collateral is less than
the "maintenance" requirement you will be required to add money to your
margin account or buy back the stock that you sold short. You must also
pay any dividends issued by the company whose stock you sold short.Why
Sell Short?The two primary reasons for selling short are opportunism and
portfolio protection. Occasionally investors see a stock that they believe
has been hyped to a ridiculously high level. They believe that the stock
price will fall when reality replaces the hype. A short sale provides the
opportunity to profit from the overpriced stock. Short sales are also used
to protect an investor's portfolio against a market downturn. By shorting
stocks that the investor believes will fall sharply when the market as a whole
falls, investors can help insulate the value of their portfolios against sudden
market drops.Short selling is also used to protect portfolios against erosion
due to a broad market decline. Short sellers make money when stock prices
fall. An investor can diversify a long portfolio by adding some short positions.
The portfolio will then have positions that make money both when prices rise
and when they fall. This reduces the volatility in the portfolio's returns and
helps protect the value of the portfolio when prices are falling.By shorting
carefully selected stocks that are priced near their peak but that will fall sharply
if the market falls, an investor can use the profits from the short sales to help
offset losses in his long position to protect the value of his portfolio.Short
selling just like long buying is essential for proper functioning of the stock
market. It provides essential liquidity which in turn leads to proper price discovery.

P

Why Participatory Notes are dangerous ?
Participatory Notes (PN), a general name used for the investment
by Foreign Institutional Investors (FIIs) through Offshore Derivative
Instruments (ODIs) such as Participatory Notes, Equity-Linked Notes,
Capped Return Notes and Participating Return Notes, have created
a storm in the stock market, with SEBI coming out with a draft
for discussion to regulate them, the RBI suggesting that they be
phased out, and the Finance Minister assuring that the Government
is not going to phase them out. First things first. Let us clearly
understand the fundamental issues. The PNs are a slap on the face
of every citizen who is an investor. For a person to invest even in
one share, several KYC (know your customer) forms have to be
filled up, and PAN numbers and proof of address, etc., provided.
For the PN investor, the system is totally silent on even elementary
information. The FIIs issue PNs to funds/companies whose identity
is not known to the Indian authorities. Hence, the PN system is
blatantly discriminatory and seems to favour ghost investors.
Any self-respecting market, if it discriminates at all, does so
against outsiders. But we have done the unthinkable. We should
recognise and internalise the fact that funds are in search of
markets, and not the other way. Given the demographic shift
in the developed markets (where pension funds have to locate
markets to get returns for longer periods) and the lack of huge
opportunities in long-term projects, it is natural that global funds
are in search of markets. The PN route, through which a section
of investors is participating in our markets, is a mystery wrapped
in a puzzle, crammed inside a conundrum and delivered through a riddle.
These are address-less funds that could be from dubious sources and the
clamour for it is intriguing, if not outright suspicious. Current Scenario
According
to the SEBI Web site, the current positio According to the SEBI Web site,
the current position of these instruments is as follows: “Currently,
34 FIIs / Sub-accounts issue ODIs. This number was 14 in March 2004.
The notional value of PNs outstanding, which was at Rs 31, 875 crore
(20 per cent of Assets Under Custody of all FIIs/Sub-Accounts) in
March 2004, increased to Rs 3,53,484 crore (51.6 per cent of AUC)
by August 2007. The value of outstanding ODIs, with underlying as
derivatives, currently stands at Rs 1,17,071 crores, which is approximately
30 per cent of total PNs outstanding. The notional value of outstanding
PNs, excluding derivatives as underlying as a percentage of AUC is 34.5
per cent at the end of August 2007.” (SEBI - Paper for Discussion on ODIs).
This implies that more than 50 per cent of the funds are flowing through
this anonymous route which needs a re-think on this entire issue.
This brings us to the question about who are the investors interested in
Indian Papers. Who uses the PN route? The first category is the regular
funds whose twin objectives are returns and more returns on a
21*7*365 basis. They are interested in India since the India story
is very good and returns are attractive compared to developed markets.
The second category is prodigal money returning. It is not a secret that
a large number of politicians/bureaucrats/business-persons have
accumulated wealth abroad. This has been accumulated by
under-invoicing/over-invoicing, by corruption in contracts and gifts
from abroad; and by not bringing in legitimate receipts. The third
category is those foreign governments/entities who would like to
acquire/control Indian entities by taking them over. The fourth
category is the terror financiers who could find this route attractive
and simple. The first category does not have any reason to use the
“anonymous” route since the aim is to earn returns /repatriate and
benefit out of interest rate and currency value arbitrage. They enter
and exit as per these calculations and are not shy ab..

First, what are PNs?
Investopedia.com defines participatory notes as “Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities.”
Brokerages buy India-based securities and then issue participatory notes to foreign investors, it adds. “Any dividends or capital gains collected from the underlying securities go back to the investors.” The kind of people/institutions that can invest in PNs can be found at http://investor.sebi.gov. in/faq.
What is key in the PN definition?
The most important part that needs to be observed in the investopedia.com definition is “investors or hedge funds that are not registered with the Securities and Exchange Board of India”. This is a big deal.
Why?
Imagine you or I try to open a demat or trading account with any firm. When anyone in India tries to open a demat or trading account, they have to give ID proof and address proof. In business it’s known as KYC, or ‘know your client’.
In essence, it means that companies, especially financial entities, should know the ‘character’ of their client. What it means is that they should know whether their client is real or someone with questionable credentials.
How does that apply to PNs?
When PNs are first sold, they are sold to someone SEBI ‘knows’ but then they are sold in the market and they can be, and are, purchased by people/institutions that SEBI does not know about. These people, who can trade them, do not have to register with SEBI or anyone. They can participate in the Indian bourses, using FIIs (foreign institutional investors) as intermediaries; but they are essentially faceless and SEBI will never know who these investors are.
Does that create any problems?
Yes, a problem for the integrity of the Indian bourses. Integrity here not only means honesty but also structural integrity.
Hypothetically, people who are against the success of India can invest large sums in the Indian market and then pull them out all of a sudden, causing mass panic.
Now, this is not to suggest that all the investments coming in through the PN route are ‘shady’ but it does certainly give us food for thought.
Are PNs massive enough to be of concern?
PNs have been exploding in India. SEBI estimates that the total foreign stake in Indian companies in August 2007 was around Rs 6.9 lakh crore, of which Rs 3.53 lakh crore (51.6 per cent of the AUC or ‘assets under custody’) is through PNs. Compared to the outstanding PNs of Rs 31,875 crore (20 per cent of total AUC) in March 2004, this is an amazing 11 times growth.
What accounts for the fast growth of PNs in recent times?
One of the reasons why PNs have grown so rapidly in India is because of the regulations that SEBI has imposed on those who can register as FIIs.
The regulations also exclude hedge funds from becoming FIIs. This means that hedge funds see PNs as a perfect conduit to investing in India. As of now there are 34 FIIs that issue PNs.
Another obvious reason for routing money through PNs is the anonymity it affords. Both the above issues have conspired to drive the massive rise in PNs.
Are there different types of PNs?
There are two kinds of PNs — spot-based, and derivatives/futures-based (also known as ODIs, offshore derivative instruments), meaning that they are based on other underlying instruments. The latter accounts for around 32-33 per cent of all total outstanding PNs.
Why did SEBI have to do what it did?
Now everyone knows that SEBI placed regulations on PNs. But it must also be stated that it resisted doing so for a while.
What happened, in essence, was that it was under considerable pressure from both the RBI (Reserve Bank of India) as well as the Finance Ministry.
Pressure!
The RBI was and is deeply concerned about the rapid appreciation of the rupee caused by huge net FII inflows. The net FII investment in India in 2007 stands at over $12 billion currently. The Finance Ministry was concerned about the galloping stock market. The Sensex went from 18,000 to 19,000 in four trading sessions and the Finance Minister expressed concern over that.
He cautioned that if there was a break in the stock market bubble, it could and would have catastrophic effects on the real economy. Obviously both were justified in forcing SEBI’s hand.
So, the market regulator brought in controls?
That’s right. The changed regulations that SEBI put in place, as you may be aware, were:
FIIs and their sub-accounts shall not issue/renew ODIs with underlying as derivatives with immediate effect. They are required to wind up the current position over 18 months.
Further issuance of ODIs by the sub-accounts of FIIs will be discontinued with immediate effect.
FIIs which are currently issuing ODIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their AUC in India of less than 40 per cent shall be allowed to issue further ODIs only at the incremental rate of 5 per cent of their AUC in India.
Those FIIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their AUC in India of more than 40 per cent shall issue PNs only against cancellation/redemption/closing out of the existing PNs of at least equivalent amount.
What next?
That’s the ‘$64,000 question’! We have already seen what will or could have happened. The markets tanked sharply and then rebounded again.
What has fundamentally changed is that it is very unlikely we will see FII inflows the way we have seen them in the past few months. That’s a near given considering that outstanding PNs account for over 51 per cent of foreign money in India. The other fact is that FIIs control most of the floating stock in the bourses.
Do they?
There have been estimates made that show FIIs, including PN-holders, owning around 15-20 per cent of stock of the top 1,000 companies in the bourses. Now consider the promoters; they own over 50 per cent but those shares rarely ever come into the market. That means that the FIIs have had a near ruling of the market. In effect, they control the market because they not only own a chunk of floating shares; they are also the most active.
If you look at the correlation between net FII flows and the market indices, there is a near-perfect positive correlation, suggesting very strongly that FIIs have a tight control on the market, if not a stranglehold.
Will the 18-month Damocles’ sword impact the markets?
Now that PNs with underlying derivatives have to be withdrawn in 18 months, it is likely that there may be some choppy sessions ahead but the volatility should pan out very soon. The volatility should reduce because derivative-based PNs are highly leveraged — something that contributes to volatility.
It should also mean that the hedge funds, which have been fairly responsible for this steep rise in the market, might exit the market because SEBI will never let them register as FIIs.
The RBI can then heave a sigh of relief because the appreciation pressure on the rupee will slacken to a large extent. The Finance Ministry too will heave a sigh of relief because the danger of a full-scale bubble bursting has reduced to a good extent, if not fully.
We had a damage-control exercise a few days ago…?
On October 21, SEBI said that sub-accounts (the mechanism through which FIIs issue PNs) could stay, provided they registered and, in effect, surrendered their anonymity. This is, however, a smart move by SEBI that will likely amount to nothing.
Why so?
SEBI knows that PNs are held by hedge funds and SEBI will not register hedge funds even if they wanted to register. (For starters, Encarta defines ‘hedge fund’ as risk-taking investment company; “an investment company that is organised as a limited partnership and uses high-risk techniques in the hope of making large profits.”)
Is the move against PNs right?
Whether SEBI’s decision to ban PNs was correct or not is a very tricky question. However, at the end of the day, the guiding principle should be whether the decision taken prevented a blow-up of the economy. Everyone will have his or her views but my view is that the decision taken was right. The question is a very philosophical one…
Philosophical? Yes, because it comes right down to the heart of the issue of capital controls. Should the Government ban certain type of flows or should there be no capital controls? On a personal level, I believe that there should be no capital controls but that this ideal should not be placed on such a high pedestal that everything else becomes subservient to it. The only thing that should be placed on a pedestal is the macroeconomic well-being of the economy and everything else should become subservient to it.
Is this what you believe weighed the most, in the PN issue?
Yes. SEBI didn't want to ban PNs for several reasons and this let the markets stretch a bit too far. Economic graveyards are littered with the dead bodies of countries that let their stock markets enter a `bubble zone'; a zone where valuations couldn't possibly be justified by fundamentals. The funny thing about bubbles is that they always burst.
What makes PNs capable of hurting the markets?
The main issue or danger regarding PNs is that they are fairly dominated by hedge funds. These funds have only one objective in mind and that is to make lots of money in a short time. I'm not saying that it's a bad objective because the lord knows everyone of us has that objective. However, the key difference is that hedge funds can move a market to their whims while small investors cannot, so there are times that their objective can run opposite to what the regulators would like.
Does India fit in the scheme of hedge fund thinking? How?
Yes, perfectly. A country like India is ideal for hedge funds. Indian bourses are fairly shallow compared to other bigger bourses and that means a relatively less amount of money can move the market. When FIIs come into India with all guns blazing, it generally means that the markets will swing upward and vice-versa causing a lot of volatility. They are not called hot money for nothing. On a comparative basis, India has a very volatile stock market.
So, should India ban FII money?
I am not suggesting for a second that India should ban FII money. They should be let in but there should also be a leash placed on them. The only thing that should matter to regulators should be the well-being of the economy. And an over-inflated market is not conducive to that ideal.
D. MURALI
http://InterviewsInsights.blogspot.com
Bio: Mr Sunil Rongala, a PhD in economics, is the co-author of `Asia in the Global Economy: Finance, Trade and Investment' (along with Mr Ramkishen S Rajan of George Mason University, US), a book to be released in 2008 (www.worldscibooks.com). Previously the Group Economist in the Chennai-based Murugappa Group, Mr Rongala is currently a research manager in an international partnership firm, in