Rules: Googol--Macro Economic Simulation

Rules: Please go through these Instructions. You are allotted 10 minutes specifically for this purpose. You won’t be allowed to play this game for the next 10 minutes.

1) Each game will be played over a period of 5 year terms i.e.; 25 news items will be displayed in 25 turns.

2) You need to have maximum approval ratings[election results] in order to win the game.

3) Here are the 2 cases of the game :

· Case 1 In case if you steer the Indian Economy to a very terrible position you will be removed from the position of the Finance Minister. You can play the game again.

· Case 2: You have completed all the 25 turns of the game. Call the EFA Invigilators immediately and make sure that your final score is noted .However if you are not happy with your score you can play the game again but your previous scores will not be counted again.

4) As soon as the 120 minutes of the game is completed. You have to leave the room immediately.

5) See the Basic Definitions of the Macro Economic Variables . It will help you in the game.

6) As soon as you reach the last page the Election Result will be announced [like 10 %; 17 %, etc]. Make sure you do not mouse click or touch the keyboard when you reach this page. The results would disappear.

Basic Definitions you must know before playing the game:

GDP: The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. It is the total value of all final goods and services produced in a particular economy; the dollar value of all goods and services produced within a country’s borders in a given year.

BUDGET DEFICIT: A budget deficit occurs when an entity spends more money than it takes in. The opposite of a budget deficit is a budget surplus. Debt is essentially an accumulated flow of deficits. In other words, a deficit is a flow and debt is a stock.

An accumulated deficit over several years (or centuries) is referred to as the government debt. Government debt is usually financed by borrowing, although if a government's debt is denominated in its own currency it can print new currency to pay debts. Monetizing debts, however, can cause rapid inflation if done on a large scale. Governments can also sell assets to pay off debt. Most governments finance their debts by issuing long-term government or shorter term notes and bills. Many governments use auctions to sell government bonds.

NATIONAL DEBT :Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either government, federal, municipal government or local government.

As the government draws its income from society as a whole, government debt can be seen as an indirect debt of the taxpayers. Government debt can be categorized as internal debt, owed to lenders within the country, and external debt, owed to foreign lenders. Governments usually borrow by issuing securities, government bonds and bills. Less credit worthy countries sometimes borrow directly from supranational institutions. Some consider all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid, as government debt.

VAT: Value added tax (VAT), or goods and services tax (GST), is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes). A VAT is an indirect tax, in that the tax is collected from someone who does not bear the entire cost of the tax.

UNEMPLOYMENT BENEFITS are payments made by governments to unemployed people. It may be based on a compulsory para-governmental insurance system. Depending on the jurisdiction and the status of the person, those sums may be meagre, covering only basic needs (thus a form of basic welfare), or may compensate the lost pay somewhat proportionally to the previous earned salary. They often are part of a larger social security scheme.

Unemployment benefits are generally given only to those registering as unemployed, and often on conditions ensuring that they seek work and do not currently have a job.

APPROVAL RATING: An approval rating is a percentage determined by a polling which indicates the percentage of respondents to an opinion poll who approve of a particular person or program. Most often an approval rating is given to a political figure based on responses to a poll in which a sample of people are asked whether they approve or disapprove of that particular political figure

Googol----Macro Economic Simulation Game

Googol : Google was derived from the name “GOOGOL” which implies a very large number [10 power 100] . Here we want to see if you have the ability of impacting billion lives by acting the finance minister of India.

Every time the monetary Budget is announced a few people start criticizing the Finance Minister.

Finance Minister has got a tough role and has to go with many factors while deciding the Policies of the Country: - GDP; Inflation and Unemployment rate are the main factors which should be taken in to account for every nation. Moreover a very high value of one factor would decrease the value of the other factors. So he/she has to adjust all the three factors in such a way that the country becomes powerful.

You are considered more powerful if you are able to bring out a change in the whole industry; whole

economy. Managing a country is supposed to be a true test of leadership; on one hand you have to manage

the Country’s Deficit and on the other hand take care of your rating among the people. Some time people

might not understand your idea or motive behind your strategies...One section of the society might be happy

with your plans and the other section of the society might be annoyed as the policies applied are against

them.

As said by Sanjot Mahlia( The Yale Sponsored Guy): The ‘educated’ Indian is well aware of the

condition of the poor, the apathy of the corrupt politician and the flawed system, but is too self centred, busy in making the most of the ever ballooning stock market to be bothered about changing the system or making an effort to be part of the ‘dirty game’ that is politics. He will go to any extent to criticize the government, its policies, policy makers and the fact that elections are fought on the wrong criteria of caste and creed and that people vote for the same wrong reasons, but will do nothing more. It is perhaps talk and actions (or the lack thereof) of this sort that renders their education futile and perhaps advocates their labelling as mere literates and not educated. Needless to say these are the very same people who are presently reaping the benefits of the growth of the Indian economy. It is perhaps for the very same reason they bear an apathetical outlook towards the system and its flaws.

Managing India might bring out your true leadership skill forward. Welcome to Googol. Manage India in your 5 year terms and make it happy and prosperous in terms of Lower Unemployment rate; Lower Inflation and High GDP. [Simultaneously take care of your approval ratings]

Monkeys, Goats and Markets

There was this village where one day a man appeared and said that he wanted to buy monkeys. He said that he would pay a hundred rupees per monkey. The villagers caught all the monkeys in the neighborhood and sold them to him for a hundred rupees each. Soon another man appeared and said that he would pay two hundred rupees for each monkey. But there weren't any more monkeys around. They were all owned by the first man. So the villagers went to him and said that they were willing to take the monkeys back and return his money. But the monkey owner was unwilling to sell. The villagers raised the offer price to Rs 150 per monkey, then Rs 175 and finally to Rs 199 but the man just didn't want to sell, even though he clearly didn't have any use for the monkeys. Eventually, just to see whether he would sell, they offered him Rs 200 but he still refused.

The villagers were puzzled by this. Finally, one of them figured out that there must be someone else who was going to come to the village and offer even more money for the monkeys. Convinced that this was the real explanation, they went and offered the man Rs 300 for each monkey and sure enough the man accepted. Joyous at having landed such a good deal, they quickly paid him off before he changed his mind and took possession of the monkeys. The man went away with his money and presumably lived happily ever after. The villagers waited for the next buyer. And waited. and waited. But no one ever appeared who wanted to buy a monkey.

The story isn't over yet. In my story, there was another village nearby. In this village a man appeared one day and offered a thousand rupees each for a goat. Now goats were valuable, but not as much as a thousand rupees so the villagers sold the goats to this man. A similar thing happened here too. A second man appeared, offered two thousand for each goat, the first man refused and eventually the villagers ended up buying the goats back for Rs 3,000 each. Here too, the two men disappeared and no one ever came and offered so much money for a goat again. But there was a difference. Goats aren't monkeys. They could be milked every day and the milk was good and healthy. In fact I've heard that Gandhiji preferred goat milk. Even the goat droppings could be used as fuel, though I'm not sure of that. When the goats eventually grew too old to be milked, the villagers could kill them for mutton. All in all, it wasn't a complete disaster.

But the monkey-owners were not so lucky. Since these weren't demat monkeys, they actually had to be kept in one's house. The monkeys ate too much, shouted and shrieked all day and sometimes bit people. Eventually, when it became clear that the monkeys were worthless, their owners abandoned them and tried to forget about their losses.

And that's the moral of the story. In the stock markets today, there are good companies that are overpriced and there are worthless companies that are overpriced. If you are going to be a fool and pay absurd prices because you think that a greater fool will appear in the future, make sure you buy a goat and not a monkey.

Ten Commandments of Successful Equity Investing

1. Discipline : The first thing an investor must learn while investing in the markets is discipline. The investor needs to be disciplined as to when to buy the stock and when to sell. If there is euphoria all around and tips are flying around, investor needs to be disciplined enough to not invest at this time. That is generally the best time to book profits in existing portfolio. At the same time, if investor finds market very undervalued, but there is pessimism all over, he needs to go ahead and buy. These may turn out to be his best buys. Investor needs to be greedy when everyone is fearful and fearful when everyone is greedy. Do not go with the HERD MENTALITY. Exercise CAUTION during euphoric periods. The best mantra for making money in the stock market is “BUY when CHEAP and SELL when EXPENSIVE”.

2. LEARN before you EARN : One of the most important thing an investor needs to do is READ, READ, and READ. Before you invest your hard- earned money, read everything about the stock. Learn to read quarterly results, annual reports, read about peer companies, read about that particular industry in general. Make sure that the stock being bought is undervalued or reasonably valued. Do not chase a stock on the way up.

3. Conviction : If you have purchased a stock after thorough study, have conviction in the stock. Keep buying the stock at every fall and average your stock. When tide turns, this can give you super profits. Conviction in the stock is important.

4. Everything has a Price : Every stock has a right price. Many investors typically make the mistake of holding onto a stock for decades. But if you do make a close analysis you will generally find that the stocks had done very well when the companies were mid-caps and were growing at breathtaking speed. After becoming large-caps growth slows and there will be periods of massive overvaluation. These are the times when investor needs to book profits and rotate to less expensive stocks or wait for reasonable valuations to re-enter the stock. There are a number of stocks which have done anything for the investor’s portfolio for almost a decade.

5. Portfolio Allocation : Everyone should do a portfolio allocation according to their risk appetite/age and other factors. What is typically observed is that there will be periods when portfolio weightage completely changes without investor actively changing anything. If stock market is in an extremely bullish phase than equity pie becomes large. One should bring it back to its original allocation. That would mean booking profits when valuations are very high. Conversely, in a bearish phase the equity pie shrinks and investor needs to shift from debt to bring his equity pie to the original one. This would mean buying into equity at very low valuations. This approach really works and one needs to be disciplined in following this.

6. Diversify : Do not put all you eggs in one basket. Diversify your portfolio over different stocks/industries. Ideally no stock in your portfolio should be more than 10-15% of your holdings.

7. Give Equity Some Time : Do not invest in the stock market with a short-term perspective. Invest only surplus funds, which you will not need for a long time. Often investors are forced to sell their stocks when it is the worst time to sell, because they are leveraged. Give your stocks time. Markets will have swings and can stay bearish for long periods of time and do not accord stocks the valuations they deserve. If you have conviction, these are great times to buy. Typically, I ask people to invest with a 5-year+ horizon. This does not mean that you will be stuck with the stocks for 5 years. If during this period, stock runs ahead of fundamentals, book profits.

8. SIP : SIPping is the best way to invest in stocks. As is the nature of the markets, it gives corrections and many opportunities to buy stocks at lower prices then your previous purchases. If there is no drastic change in the prospects of the industry and the stock, have the conviction to add more quantity. SIPping brings down your average price and can help in giving stupendous returns.

9. Continuous Monitoring : Continuously monitor the health of the stock and the industry it operates in. Monitor quarterly results, announcements, etc. If something fundamentally changes with the stock or the industry take a fresh call.

10. Reward Winners : Do not try to offset your losses in losers with punishing your winners. Typically investors hold onto duds in hope of getting their price and sell their winners. This should be avoided. Don’t be afraid to admit mistake on the losers.

"HAPPY INVESTING"

E - MINI, new type of investment technique...

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Trading E-Mini contracts is exceptionally attractive because they are liquid, diversified and affordable. Plus, they trade around-the-clock.

Conventional buy-and-hold stock investing is not working in this type of market. Trading E-Minis is a great alternative to buy-and-hold investing, because you can take full advantage of the market’s volatility. Moreover, you can easily make money in a market that is going up or down.

An E-Mini is an electronically traded futures contract on the Chicago Mercantile Exchange (CME) that represents a smaller version of the standard futures contracts. E-Mini contracts are available on indices such as the S&P 500, Nasdaq 100, S&P Midcap 400 and Russell 2000. For example, the E-Mini S&P 500 futures contract is one-fifth the size of the standard S&P 500 futures contract.

E-Mini contracts have a low margin requirement which makes trading easy and affordable. You can get started for as little as $500 per contract.

E-Minis have an advantage over regular equity options trading because you can control the same amount of the stock market with less money. Stock and index options currently have high premiums due to market volatility. Consequently, your leverage and profit potential is higher with E-Minis than with options.

You would have to pay thousands of dollars in commissions to buy all of the stocks in the S&P 500, wouldn’t it make perfect sense to participate in all the stocks comprising the S&P 500 for a commission of under $10! E-Minis allow investors with small amounts of risk capital to participate in the Dow and S&P 500 at a fraction of the cost of purchasing the actual stocks outright. And, you can get started with a few thousand dollars or less.

You can make a bundle if you’re long E-Minis-and the market goes up. And, you can just as easily make money when the market goes down, if you’re short E-Minis. This adds an entirely new dimension of opportunity for investors.

With the sharp up and down moves in the stock market, there are often plenty of trading opportunities to play both on the long and short side of the market several times a day.

E-Minis are one of the most liquid investment vehicles in the world due to extremely heavy trading volume. You can trade E-Minis on your laptop anywhere in the world and once you place your order, you can usually receive your fill price back in seconds! You get virtually instant execution and reporting of your fill price which is essential for day traders.

E-Minis are incredibly exciting to trade and the profit potential is enormous, but keep in mind that they are considered speculative. E-Minis are heavily leveraged so that big profit potential has a flip side-big loss potential if the market moves against you. Please, learn all the details about trading E-Minis before investing your money!

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Bottom line: Start trading E-Minis if you’re looking for an exciting, highly versatile, efficient, and economical means of capitalizing on the daily swings in stocks.

Disinvestment: Present comfort at cost of future gains?...ET

PreScript: Here is an very interesting article i came across in Economictimes Investors's Guide dated 20 July 2009
Last week was quite phenomenal for the equity markets. The benchmark indices recouped almost their entire post-budget losses and are now within
striking range of making a new intermediate high. The sentiment seems quite bullish in the street and bulls have been helped by “positive” news flows. One of the bullish stories doing the rounds is the likely divestment of government stake in public sectors companies.

The disinvestment debate has got additional lift from the fact that the Government of India is running a huge fiscal deficit right now. Many commentators believe that the government can profitably use the proceeds from the disinvestments to plug the hole in India’s public finances and thus mitigate the adverse consequences of a soaring fiscal deficit such as higher key interest rates. Besides that the Dalal Street is liking the idea that disinvestment programme will re-ignite the dormant IPO market, broaden the investor base and provide new investment avenues to various classes of investors.

While the gains for the Street and the investors are apparent, the equation is not so straight for the government and the taxpayers. First, fiscal deficit is a gap between government’s annual revenue and annual expenditure while disinvestments proceeds are a one-time capital receipts. So latter will not solve the former, at most it will provide a temporary relief. Even if we set aside the arguments about the desirability of using capital receipts to solve a problem of inadequate revenues, government need to consider the opportunity cost of foregoing future dividend payments from PSUs if it still decides to go ahead with disinvestments.

The government owned companies are one of the most generous dividend payers on Dalal Street. On average a listed PSU pays around a third of its net profit as dividends to shareholders. In end-March 2008 this amounted to little over Rs 26,000 crore from 56 large listed PSUs. Some of the largest contributors to the kitty include Oil & Natural Gas Corp, National Thermal Power Corp, State Bank of India, BHEL, Gail, Indian Oil and Power Grid, among others. The amount was equivalent to around 30% of their combined net profit during the year. The payout ratio has been higher in the past at around 33-35 % and has declined in recent years due to poor show by oil & gas majors.

Given this the government needs to balance the benefit of disinvestment receipts today versus the cost of foregone dividends in future. The exercise will require us to estimate the future dividend receipts from PSUs and discount the amount by government’s long-term borrowing cost to get the net present value of future dividends receipts. If it turns out to be less than the estimated receipts from disinvestments (which are linked to the current market cap of listed PSUs), then latter will be a profitable proposition for the government as well as the tax payer. If not, then the exchequer and the tax payers are better off maximising dividend receipts from PSUs over the long run. In last 15 years ending FY08, the dividend payments by our sample of PSUs has been growing at a compounded annual growth rate of 28.6% per annum. It may be difficult to maintain such as high growth over a longer term. So let’s assume that over the next 30 years, the PSUs dividend grows at a slower pace of 15% per annum. The figure looks reasonable if we expect the Indian economy to grow at 7-8 % per annum during the same period.

If we discount the estimated future dividend flows by 8%, (the prevailing yield on 30-year government bond), the net present value of our sample of PSUs works to be around Rs 21 lakh crore. This is 50% higher than the current market cap of our sample of PSUs. The net present value will rise further if we assume lower discount rate (rate of interest) or increase the number of years to say 40 or 50 years.

While analysing the disinvestments programme , we should also keep in mind the fact that the voter’s expectation from the government is soaring. The government’s ability to meet the expectation is however hamstrung by a narrow tax base. For instance in FY09, the total tax revenue (central + state government) was equivalent to around 18% of the India’s GDP. The corresponding figure in most European countries is over 40%. Even in Russia, Brazil and Korea the tax ratio is around 30%.

In comparison, total public spending in FY09 was around 29% of country’s GDP. The gap between tax revenues and expenses was met through non-tax revenues and market borrowings. And given the voters aspirations for a welfare state in India, which was clearly reflected in the budget proposals, public spending will shoot up further in future. And as taxes remain unpopular and raising the tax base is fraught with its own set of difficulties, non-tax revenues including dividend receipts from PSUs will continue to play an important role in filling this gap.

So, disinvestment is not financially rewarding in the long run as it is generally accepted to be. The tax-payers are better off asking the government to maximise the dividends receipts which in other words means providing greater financial and operational flexibility to PSUs so that they could operate like a commercial entity.

A hastily drawn disinvestment programme may only provide temporary relief for a structural problem. What worse, it may sacrifice long-term public interest for short-term and narrow gains.

--

Source: http://economictimes.indiatimes.com
Thanks and Regards,
Riddhiman Jain
+91-9950675616
riddhiman.jain@gmail.com/yahoo.co.in
reddithedew@gmail.com/yahoo.co.in
f2006742@bits-pilani.ac.in

Ponzi Schemes v/s DLF.... Truth

All Ponzi schemes come to an end.The fourth-quarter results of DLF, the country's largest real estate company, prove just that.

The company's net profit fell 93% to Rs 159 crore from Rs 2,177 crore in the same period last year. This was primarily on account of sales falling 69% to Rs 1,351 crore from Rs 4,372 crore in the same period last year.

And why did sales fall? Primarily because the company's main "business model" has come undone.

Since it got re-listed on the exchanges in July 2007, DLF had been essentially boosting sales and profits by making a substantial portion of its sales to DLF Assets (DAL).
This would have been a good business strategy if DAL paid for the sales, which it did not.

For the quarter ended September 2008, the company reported total sales of Rs 3,744 crore, of which nearly 39%, or Rs 1,470 crore, were to DAL. At the same time, the receivables from DAL increased by Rs 1,446 crore, almost equal to the sales.

For the quarter ended June 30, 2008, as much as Rs 1,560 crore, or 40% of its sales were again to DAL. Interestingly, the quarter-on-quarter increase in receivables from DAL was Rs 1,450 crore, a number very close to the sales to DAL during the quarter.

Evidently, even though sales were being made to DAL, hardly any sales were actually being paid for by DAL.

In other words, the company was using aggressive accounting to boost its sales as well as profit numbers. As long as these "paper" sales to DAL kept going, the net sales and profit numbers of DLF kept growing quarter on quarter. But profit is not always cash, as any accountant will tell you.

The "business model" was akin to a Ponzi scheme, where an illusion of a successful investment scheme is created by using money being brought in by new investors to pay off the older investors.

In this instance, as long as sales to DAL kept going up, DLF kept showing increasing profits and sales. But at the same time, receivables kept going up as well.

For a Ponzi scheme to keep going, the money new investors get into the scheme should be more than the money being paid to the older investors. Similarly, for DLF revenues and profits to keep growing, the company needed to book more and more sales to DAL, which couldn't have gone on forever.

Sales to DAL fell to Rs 655 crore for the quarter ended December 31, 2008, down from Rs 2,057 crore for the quarter ended December 31, 2007. This dramatic fall led to the total income of DLF falling 59% to Rs 1,503 crore. Profit fell even more dramatically by 68% to Rs 682 crore.

And for the quarter ended March 31, 2009, sales to DAL have fallen even more dramatically to Rs 322 crore, as against Rs 1,845 crore in quarter ended March 31, 2008. This has pulled down sales and profits of DLF big time.

Clearly, accounting gimmickry to boost sales cannot continue forever.

In the March quarter, DAL paid around Rs 800 crore of the nearly Rs 5,400 crore it owed DLF as on December 31, 2008. But even after this, DAL owes around Rs 4,900 crore (Rs 5,400 crore outstanding in the last quarter - Rs 800 crore paid by DAL + Rs 323 crore of sales made to DAL during the quarter) to DLF, which is not a good sign.
DLF has suspended further sales to DAL.

The stock has rallied 66.5% since March 9, 2009, despite there being no fundamental improvement in the company's situation. Further complicating the scenario is the fact that for the first six months of this financial year, DLF has outstanding land bank payments of Rs 5,000 crore and debt refinancing needs of Rs 4,500 crore, say analysts.
In order to reduce debt, the company is trying to sell its non-core assets like its wind power business. The non-core businesses --- DLF Pramerica Life Insurance, Hotels and Power, etc --- posted a loss of Rs 163 crore for the quarter.

The downtrend in real estate prices only makes the situation even more difficult. The company, which like most real estate companies, had been holding on to prices, recently sold its Capital Greens project located at Shivaji Marg, Delhi, at Rs 4,500-5,500 per sq ft, 30-40% lower than prices of existing projects. Even though the booking amount paid by the customers will help the company improve its cash position, it may not be good enough to solve the funding problems of DLF.

Analysts say the company may also see cancellations of bookings made previously, given the state of the economy. Other than this, in the March quarter, the company gave price reset and other benefits to customers, which led to Rs 688 crore of lower revenue and a profit-before-tax impact of Rs 302 crore.

The company's situation sure does not look good.

So better move on.............

Zero Inflation!!!......A truth finally...

Long have been Inflation troubling India, now it’s the turn of Deflation..
Inflation for the week ended 28 February was recorded to be 2.43%.
Few points that I stumbled upon in these few days..
Firstly, the wholesale price index (WPI) for that week stood at 227.7, lower than the 227.8 recorded for the week ended April 5 last year. That means unless the index rises in the next five weeks, the rate of inflation will turn negative. Also, with the rabi harvest round the corner, a fall in the general price level would not be surprising.
Secondly, The reason nobody's cheering is that your shopping cart items are not getting any cheaper. The indices for food articles and foodgrains are 8% and 11% higher than a year ago, respectively. In other words, while the average rise in prices of all commodities that constitute the WPI has been less than 2.5%, these essential consumption items have seen a sharp rise in prices over the last year. As the relative less well-to-do sections spend most of their income on food, the inflation they actually feel will be closer to 8% than to 2.5%. For the bottom rung of the population, which spends almost 90% of its income on food, the situation is particularly bad. Even the lower middle class families spend almost 60% of their income on food items, the prices of which continue to rise.
Thirdly, The government, however, has more reason to worry. Even as inflation in food articles remains high, prices of industrial products have been declining. The index for organic and inorganic chemicals has fallen by 20.8% over the last year and that for non-ferrous metals by 9.7%. This clearly means that the demand for most of the industrial items is declining due to the bleak economic outlook and hence the businessmen and investments in this section will shy away or rather businessmen have already started searching for safer havens. IIP(Index for Industrial Production) is going to get a further knock and this time in the gut.
Fourthly, falling inflation will raise the demand for the treasury bonds and hence many might report capital gains and Banks, but ofcourse becomes a good pick for the coming week or so. Capital gains on bonds will lead to decline in the T bill interest rate and hence the Indian economy can expect a further rate cut from RBI. And subsequently rate cuts from all the leading banks. This leads to realty also being a very good pick.

By
Riddhiman Jain.
source :

World's Youngest CEO - Suhas Gopinath - Globals Inc.

Even though it is off the hook from the EFA articles....I found it to be interesting.....

Suhas is now 21 years old. When he was just 14, this guy from Bangalore, India founded a company called Globals, Inc in San Jose, California. The reason for trying his luck in the United States rather than his native country was because there are laws in India that prevented him — then as a minor — to start a company legally. Starting with only 4 employees, he now employs around 400 students between India and the U.S.A.
For more refer
http://www.spiegel.de/international/0,1518,482231,00.html