Underdog Team CAT 2006 GD/PI Prep

[deepu]

Originally Posted by rpradeephere

Hi all..

Amazing discussions going on.

I will also get into the discussions and post stuff. I would also like to contribute whatever knowledge I have gained thru my work. I will try to make the whole thing as simple as possible.

I am into projects-sales and marketing and some part of my job revolves around taxes (like sales tax, service tax, works contract tax, blah blah), duties (excise duty, octroi etc.), VAT, commercial terms etc. To what extent are the basics of these stuff important ?

If important, we will discuss, else ll chuck it. We will continue the stock market/globalisation stuff.

RPK

hi pradeep , that stuff is important too. If not indepth, atleast it will be good if we know about the diff between them and why they are levied in the first place..

It is a case by case basis, after we are done with the globalisation questionaire we can get to this stuff.. Prepare 5 questions such that all together they cover the breath of the topic..

err i am surprised about the lack of activity today..

[deepu]

just reminding you guyz....

the questionaire is ...........

Topic - GLobalisation


1) what is globalisation ?
2) when people trade how do both sides benefit ?
3) what are positive effects of globalisation ?
4) what are negative effects of globalisation ?
5) what role do institutions like IMF, world bank and WTO play in globalisation ?

[tatimatla]

Originally Posted by deepu

just reminding you guyz....

the questionaire is ...........

Topic - GLobalisation


1) what is globalisation ?
2) when people trade how do both sides benefit ?
3) what are positive effects of globalisation ?
4) what are negative effects of globalisation ?
5) what role do institutions like IMF, world bank and WTO play in globalisation ?

Here's what I know:

1) Globalization is the change/phenomenon that occurs because of the (economic/financial) interaction of different entities located in different locations in the globe.

2. The seller sells it at a value higher than he produces/buys, to the buyer (who's from another country)...the buyer either uses it as a raw material to produce another product and sell it at a higher price or the buyer simply sells it at a profit.(the currency difference helps the latter point)


3. Loads of them here (which I think are gonna appear in Deepu's writeup)...but one thing I'd stress on is the final aim...the global village, where every part of this world lacks nothing that any other part possesses.
4. Loads here too...but I'd stress on the increasing divide between the rich and the poor.

5. IMF, WTO are institutions that aid global trade. IMF monitors the exchange rates and balance of payments, whereas WTO sets the rules and resolves disputes for Global trade.
World Bank is another international organization that provides the funds and financial advice to countries for the sake of their economic development.


@Deepu bhai...Waiting for ur writeup!

[tatimatla]

Originally Posted by rpradeephere

Hi all..

Amazing discussions going on.

I will also get into the discussions and post stuff. I would also like to contribute whatever knowledge I have gained thru my work. I will try to make the whole thing as simple as possible.

I am into projects-sales and marketing and some part of my job revolves around taxes (like sales tax, service tax, works contract tax, blah blah), duties (excise duty, octroi etc.), VAT, commercial terms etc. To what extent are the basics of these stuff important ?

If important, we will discuss, else ll chuck it. We will continue the stock market/globalisation stuff.

RPK

Bhery Bhery important...as far as I've heard, they are the cynosure of the interviewer in gen.
Dude...do post about these stuff u've mentioned...and make sure u don't inundate the knowledge...take it slowly...Time...we've got tons of it!

[deepu]

Originally Posted by tatimatla

@Deepu bhai...Waiting for ur writeup!

surprisingly i had got my writeup ready and when i logged in i saw only 1 reply. Maybe as Arun bhai told, most of the junta post from their offices and it being a weekend i shouldn't expect much activity..

So tati bhai u have to wait till tuesday for the write-up as i won't post it untill there is good amount of discussion on it..

@all - if u have any(and i stress any) doubt please bring it one. cause doubts are precursors for great discussions.. and it just occured to me, globalisation is also attached to politics.. but lets try and keep the discussion on its political side as low as possible..

[deepu]

Originally Posted by tatimatla

5. IMF, WTO are institutions that aid global trade. IMF monitors the exchange rates and balance of payments, whereas WTO sets the rules and resolves disputes for Global trade.
World Bank is another international organization that provides the funds and financial advice to countries for the sake of their economic development.

sahi but the question is about "what role these instis play".. do they encourage, spread ?? if yes then what way and how important are these insti's for its spread.. u got me right..

[god2be]

Originally Posted by deepu

sahi but the question is about "what role these instis play".. do they encourage, spread ?? if yes then what way and how important are these insti's for its spread.. u got me right..

The WTO aims to increase international trade. It intends to do so by promoting lower trade barriers and providing a platform for the negotiation of trade.





Principles of the trading system
The WTO discussions should follow these fundamental principles of trading.

1. A trading system should be free of discrimination in the sense that one country cannot privilege a particular trading partner above others within the system, nor can it discriminate against foreign products and services.
2. A trading system should tend toward more freedom, that is, toward fewer trade barriers (tariffs and non-tariff barriers).
3. A trading system should be predictable, with foreign companies and governments reassured that trade barriers will not be raised arbitrarily and that markets will remain open.
4. A trading system should tend toward greater competition.
5. A trading system should be more accommodating for less developed countries, giving them more time to adjust, greater flexibility, and more privileges.

[Source: Wikipedia]

Call or no call, i'll be around

[sunilnatraj]

Ok, since I have no idea on anything asked, I am writing this post just to get subscribed onto the thread
On a more serious note, this initiative is fantastic. I really appreciate this guys. Special thanks to Tati, Arun Uncle, Anarchy, and all those chipping in. I hope I shall not be a leech, and just end up drawing out of you guys, but hope to contribute as well.
I guess a sizeable portion of us must be engineers, and those like me are absolutely illiterate on the stock market. So, any commerce/finance stud is requested to give us his insights on the market and market forces.
Thanks, and regards,
Sunil
P.S: This reaffirms that the 2nd of Jan is just a milestone on the road to El Dorado.

[chango]

tati bhai asked me to paste this here .....

let me make one thing clear at the very beginning ..... this is going to be one long post ........ with a lot of info sourced from various places and my personal knowledge ........ so just a word of caution ...... if you dont have a passion for finance then DO NOT proceed ...... BUT if u wish to know new things and discover the lovely world of finance then do read on ...... i hope i dont disappoint you, at times i might digress frm the qs to gv extra outside info which wud b helpful neday....

I shud have asked one more qs ...... What is a mutual fund ?....... but neways more on it & related financial fundas in the coming days as these 3 qs alone will take few hours

many of u have already posted quite a bit ..... dint read all of it ..... wud rather post evrythng i feel wud suffice ........ atleast for today's qs ..... will participate more actively from 2mrw .........


1> What is the Sensex ?


At the outset, jst keep this analogy in mind ..... many of us get confused .....

BSE : SENSEX : : NSE : CNX S & P NIFTY

more on this later on.

Will give some introduction on BSE first ........


Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE(Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).
The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth.

Bullet points :-

First in India to introduce Equity Derivatives
First in India to launch a Free Float Index
First in India to launch US$ version of BSE Sensex
First in India to launch Exchange Enabled Internet Trading Platform
First in India to obtain ISO certification for Surveillance, Clearing & Settlement
First to have an exclusive facility for financial training


May 2006

Total Turnover– Rs 95819.63 Cr
Total Average Daily Rs 4355 Cr
Number of Trades 31078.24 (in 000s)
Number of scrips traded - 2460



Criteria of selection of stocks

Market Capitalisation
Liquidity
Continuity
Industry Representation
Listed History
Track Record


For the premier Stock Exchange that pioneered the stock broking activity in India , 125 years of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "Bombay Stock Exchange Limited" by paying a princely amount of Re1.
Since then, the stock market in the country has 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 measure or scale that could precisely measure the various ups and downs in the Indian stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index that subsequently became the barometer of the Indian Stock Market.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large, well-established and financially sound companies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology.

In a market capitalization weighted index, each stock in the index affects the index value in proportion to the market value of all shares outstanding. In this type of index, the equity price is weighted by the market capitalization of the company ( share price * no. of outstanding shares). Hence each constituent stock in the index affects the index value in proportion to the market value of all the outstanding shares. This index forms the underlying for a lot of index based products like index funds and index futures.

Here , Index = (current market capitalistaion / base market cap) * Base value

where,

current market cap = Sum of ( current market price * outstanding shares ) of all securities in the index

base mkt cap = Sum of ( market price * issue size ) of all securities as on base date.

Outstanding Shares = Stock currently held by investors, including restricted shares owned by the company's officers and insiders, as well as those held by the public. Shares that have been repurchased by the company are not considered outstanding stock.
They are also known as "issued shares" or "issued and outstanding".
This number is shown on company's balance sheet under the heading "Capital Stock" and is more important than the authorized shares or float. It is used in the calculation of many metrics including market capitalization and earnings per share (EPS).


From September 2003, the SENSEX is calculated on a free-float marke capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based. FTSE (London Stock Exchange), STOXX (stock index of European stocks designed by STOXX Limited) , S&P (Standard and Poor, US) and Dow Jones (NYSE) use the free-float methodology, amongst others.

As per the "free-float market capitalization" 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 = Price of Stock * number of shares.

This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

For example

Assume a one-stock index
Price of stock A is 300 on Jan 1, 2003 which is base year of the index, and the number of shares are 10000. Today stock is at 360 and number of shares are 15000
Index Today will be = [(360 * 15000) / (300 * 10000)] * 100

However, of the 15,000 shares outstanding not all will be available for trading on a daily basis. This is because the promoters will hold sizable shares to control the company. Besides, some shares may carry lock-in period; employee stock options, for instance.
Thus, experts suggest that we should weigh index by the number of shares available for trading. This number is called the free float.

The free-float method is seen as a better way of calculating market capitalization because it because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.


Due to its 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.

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, with the help of BOLT system ( BSE online trading system).

Bullet points :-

First compiled in 1986
Market Capitalisation-weighted index of 30 stocks
Base Year is 1978-79
Historic 10000 mark in Feb 2006
Total market capitalisation of 30 stocks accounts for > 38 per cent of the aggregate market capitalisation of all BSE stocks

A good index is a trade-off between diversification and liquidity. A well diversified index is more representative of the market/economy. It reflects the overall market picture as well as of different portfolios. This is achieved by diversification in such a manner that a portfolio is not vulnerable to any individual stock or industry risk. However there are diminishing returns to diversification. Going from say 10 stocks to 20 stocks gives a sharp reduction in risk. Going from 50 stocks to 100 stocks gives very little reduction in risk. Going beyond 100 stocks gives almost zero reduction in risk. Hence, there is little to gain by diversifying beyond a point. The more serious problem lies in the stocks that are taken into an index when it is broadened. If the stock is illiquid, the obsereved prices yield contaminated information and actually worsen an index. Since an illiquid stock does not reflect the current price behaviour of the market, its inclusion in the index results in an index, which reflects, delayed or stale price behaviour rather than current price behaviour of the market.


Few imp. points :-

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

The base year value adjustment ensures that additional issue of capital and other corporate announcements like bonus etc. do not destroy the value of the index

Index Cell - ensures that Sensex and all the other BSE indices maintain their benchmark properties by striking a delicate balance between high turnover in index scrips and its representative character

BSE also calculates dollar version of Sensex – Dollex-30

contd....

[chango]

.....contd


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.

The latest exclusion from the Sensex has been Tata Power Ltd. on 12th June, 2006. In its place Reliance Communication Ltd. has been included.

As on Thursday ..... the Sensex had the following stocks .....

SENSEX Constituents: 28-Nov-06

ACC Ltd.
Bajaj Auto Ltd.
Bharat Heavy Electricals Ltd.
Bharti Airtel Ltd.
Cipla Ltd.
Dr Reddy's Laboratories Ltd.
Grasim Industries Ltd.
Gujarat Ambuja Cements Ltd.