NEWS HOUR - 4th Dec to 10th Dec 2017 - FINANCE AND INVESTMENT CLUB - IIM ROHTAK

NEWS HOUR 4th Dec – 10th Dec 2017

Weekly News Magazine

In This Issue

THE PHENOMENAL STORY OF BITCOIN Report by - Vishrut Trivedi

The cryptocurrency has crossed its own benchmark, as it rallied more than $3000 in a day with its price more than doubling in 10 days. The latest rally comes on expectations that new bitcoin derivatives will boost the demand. This early speculation has raised its market value so much that it's now in the top 12 U.S. companies on the S&P500 stock index.

Bitcoin today briefly crossed the $17,000 mark in volatile Asian trading, extending its record-breaking run. In an Asian session, the digital currency attained new benchmark before falling back around $15,000 level. The cryptocurrency has soared around 70% in the last five trading days and close to 100% in last seven days.

In fact, on the Coinbase Exchange, bitcoin had rocketed above $19,000 on 7th December. The digital currency hit a high of $19,340 on that platform before notching a huge decrease. This tremendous growth seems phenomenal as bitcoin started with $1000 this year. The latest swing higher as bitcoin topped $12,000 on Dec. 5 in rapid recovery from 20% drop last week.

Meanwhile, the launch of bitcoin futures trading on two reputed, regulated and liquid exchanges, CBOE (Chicago Board Options Exchange and CME (Chicago Mercantile Exchange), is creating a flutter in the financial markets.

This launch will open the doors for institutional and retail investors who want exposure to bitcoin but for various reasons, such as aversion to risky and complex exchanges and wallets, can't trade actual bitcoin.

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The cryptocurrency has soared around 70% in the last five trading days

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Bitcoin hit a high of $19340 on Coinbase Exchange

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Bitcoin futures trading to be launched in CME and CBOE

CENTRE FIXES THE SOVEREIGN GOLD BOND RATES AT RS. 2,890 PER GRAM

Some key points

Report by - Himanshu Jatale

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Center fixes the sovereign gold bond rate at Rs. 2890 per gram

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Rs. 50 per gram discount if investor will apply online

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This scheme is in the tendem of Prime Minister’s Digital India Campaign

On Monday, December 2nd, the centre fixed Rs. 2,890 per gram as the rate of the new series of the sovereign gold bonds (SGBs). One interesting thing which has come up is that they have decided to offer a discount of Rs. 50 per gram to those investors who will apply online and make payments digitally which they finalized after consulting with the Reserve Bank of India. This step is in tandem with Prime Minister’s Digital India campaign.

The finance ministry statement stated that” For the next subscription period December 11-13 of the Series III of Sovereign Gold Bonds 2017-2018, the issue price shall be Rs. 2,890 per gram with settlement on December 18.” This current round of bond rates is spread over 12 weeks in the SGBs calendar announced till December. Every week the subscription is opened every week from Monday to Wednesday between October 9 and December 27. The settlements are made on the first business day of the next week.

Bonds in this scheme are denominated in units are one gram of gold. In a financial year, a person is allowed to invest a minimum of one gram and a maximum of 500 grams of gold in the bond.

What are SGBs? Sovereign Gold Bonds are government securities in grams of gold. Instead of holding physical gold, these bonds can be used as their substitutes. Investors pay the issue price in cash, and upon maturity, the bonds are redeemed in cash. RBI issues these bonds on behalf of Government of India. These bonds reduce the risk and cost of storage of physical gold. At the time of maturity, the investors have

DEPOSITORS ANXIOUS OVER PROPOSED FRDI BILL

Report by - Rajesh Khanna

The Financial Resolution and Deposit Insurance (FRDI) Bill is similar to the Insolvency and Bankruptcy Code which was enacted on May’16 except that former deals only with the companies in the financial sector. The FRDI is drafted to provide a comprehensive resolution to bestow with bankruptcy situations in financial

Some key points 

Government introduces new FRDI bill which is similar to Insolvency and Bankrupcy code

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The crux of the problem is bail-in provision

The crux of the problem is the bail-in provision, which apparently allows the banks to use depositor’s money to bail themselves out in case of facing emergency situations such as being on the verge of bankruptcy. There was even an online petition started against the FRDI Bill on change.org which had surprisingly received 40,000 signatures in just 24 hours. Earlier in August, Opposition parties have criticized the bill as anti-poor and disparaged that bill aims just to minimize the losses of failing financial institutions, and the proposed law would put common people’s money in jeopardy.

However, Finance Minister Arun Jaitley has junked the criticism and assured that government’s implicit guarantee to extend financing and resolution support to banks would remain unaffected. He also clarified that the proposed FRDI Bill does not carry any clause that would limit the scope of powers for the government in bailing out the financial service providers. The ministry, on its part, said the primary motive of the bill is to provide a quick, orderly and efficient resolution in support of depositors (in case of a failure) and assured the bill is far more depositor friendly than in many other jurisdictions.

Some Key Points

CREDIT DEMAND GROWTH AT ALL-TIME HIGH IN 3 YEARS Report by - ShivamAggarwal

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Credit demand growth from the banks has touched an all time high in last three years

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Demand for loans has surged 9.64% in November this year

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This wave of revival came after recapitalization of PSBs

The credit demand growth from the banks has touched an all-time high in a period of last three years, thus showing some early signs of revival in November.

In last three years, the credit demand dipped owing to many factors such as demonetization, slowdown in the economy and mounting piles of non-performing assets. But, now the banking sector emerge with new hopes as the demand for the loans in November has surged by 9.64% to Rs. 79.6 lakh crore after it touched an all-time low figure last year. The growth was 6.6% and 9.3% in the same period in 2016 and 2015 respectively. For the previous two years the loan demand was driven by the retail loans but since October this year growth has been observed in the corporate loans. This change has come after a prolonged period of contraction in the loan demand by the corporates. Non- food loan has also seen a double-digit growth since last 15 months, rising by 10% YoY. The wave of revival came after recapitalisation of the Public Sector Banks, and the growth is expected to sustain as the recapitalization would help in maintaining the credit flow to the borrowers. Though the Reserve bank has observed some weaknesses in the financial condition of some components such as real estate, they are optimistic as it is expected that the financial and the overall business condition of the services and the infrastructure sector would improve in the Q4 of the current fiscal year. This could further drive the demand for the loans in the rest

VENEZUELAN PRESIDENT NICOLAS MADURO Some Key Points Report by- Ruchit Chaudhary

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New Cryptocurrency, Petro, is launched in Venezuela

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Venezuela has joined ranks of nations such as China and Russia to announce national cryptocurrencies

Venezuelan President Nicolas Maduro has introduced the launch of Petro, Venezuela’s own cryptocurrency, in his weekly broadcast. This announcement marks the Venezuelan government’s first attempt at using digital currency for improving their economy. The value of Petro will be backed by gold as well as Venezuela’s abundant natural resources such as oil and gas.

The Venezuelan President also announced the approval a Block chain-Base observatory for the new cryptocurrency.

Venezuela has joined the ranks of nations such as China and Russia to announce national cryptocurrencies. This announcement arrives on the heels of further sanctions by the US, which is hurting their economy with Venezuela’s national currency Bolivar having lost about 57% of its value in the last month alone. Despite some reservations by the opposition party members on the implementation of this program, it is being considered as an essential step in revitalizing the Venezuelan economy.

Background on Cryptocurrency Cryptocurrency is a peer-to-peer electronic payment system which bypasses the conventional banking system. They employ algorithms for transactions which are then added to the public ledger, also called a Block chain. This entire process of transactions is known as “mining” of the cryptocurrency.

Bitcoin, which was established in 2009, was the first decentralized digital currency to be put up on the market. Bitcoin’s success and the exponential jump in its value have led to a plethora of cryptocurrencies to join the market including Peercoin, Omni, DigitalNote, and Zcash.

BHARTI AIRTEL PAT EXPECTED TO LEAP 9-FOLD BY 2020-2021

Report by - Divyansh Singh

Bharti Airtel is likely to deliver 16% CAGR in operating income, and a 9-fold leap in profit after tax between 2017-18 and 2020-21 basis it's countrywide data network, and execution said CLSA. This happened even when 57% cut in interconnect charges, and Reliance Jio Infocomm’s feature phone kept earnings in the fiscal year’s second half under pressure. Against this, Idea cellular’s cash flows are expected to remain under pressure and even worsen in the coming months due to failing operating income.

According to CLSA, Bharti Airtel is likely to achieve 7% CAGR in average revenue user over FY18-21 amid rising data adoption though it saw a 23% year on year fall to Rs145 on this key matrix following Jio’s entry in September 2016.

Bharti Airtel has already benefited from the exponential surge in data usage due to Jio’s 4g services recording a fourfold jump in data usage levels at four GB per month per subscriber. Experts say that although Airtel initially lost data customers when Jio provided free data services, it has managed to add more than 8 million subscribers since Jio started charging for its services from April. Bharti airtel’s pan India network allowed it to be agiler in responding to Reliance Jio’s tariffs leading to lower churn. Airtel’s 66 million data subscribers account for 47% of the market leader’s urban base, thus reflecting immense growth in data revenues in coming quarters. On the other hand, Idea has reported losses every quarter since Jio’s launch and 47% year on year fall in operating income in 2QFY18 combined with 48% increase in net debt to Rs. 54000 crore has resulted in Idea’s net debt to EBIDTA ratio rising to 9 times operating income.

Airtel added 22 million subscribers during Jio’s first-year operations Which is three times more than overall second in-line telecom service player Vodafone India (7 million) and twice of Idea’s 11 million during the period. The market leader’s revenue market share has also gained 100 bps or one percentage point to 33% in metro cities since Jio’s launch, whereas Idea and Vodafone saw theirs shrink by 100

Some key points 

Bharti Airtel likely to deliver 16% CAGR in operating income upto 2021

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Bharti Airtel has already benefited from the exponential surge in data usage due to Jio’s $G service revolution

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Airtel’s 66 million data subscribers account for 47% of the market leader’s urban base

Some Key points 

Export has grown with meagre rate of 1.2% year on year

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RBI should not allow sharp appreciation of rupees as it could adversely affect exports.

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India needs a structural reform to improve its export growth

INDIA NEEDS STRUCTURAL REFORMS IN EXPORTS Report by - Ashwin Ram SP

Exports have been the biggest underperformer of this year growing at a meagre rate of 1.2% year on year. The average growth rate of exports is -1.3% in FY13-17 whereas the growth rate stood at 22.5% in FY08-12. Current account deficit of India reached a four year high of 2.6 % in the first quarter of the current fiscal year.

Exports are essential drivers of growth, they create jobs, increase output and decrease the cost of financing of current account deficit. The government of India has introduced various measures to boost exports in its foreign exchange policy 2015-20 like incentives to specific sectors like apparels, footwear, duty-free procurement of the inputs needed for exports, the establishment of new logistics division. GST is also expected to smoothen the export process by simplifying the tax collection in the long run. Exports reduced from $ 310 billion in 2014-15 to $ 275 billion in 2016-2017. India maintained an export share of just 1.65 %. Slow growth in the world trade for last six years can be partly attributed to the decline. But countries like China, South Korea were able to increase their shares meanwhile other Asian countries like Vietnam, Thailand, Taiwan, Philippines, and Bangladesh are rapidly expanding their small export shares.

It is expected that new labor-intensive manufacturing jobs would move out of China due to rising wages and ageing population and India would be the most significant beneficiary. But the trend lines show that India might lose to other Asian developing countries in capturing those jobs. Export growth rates for Vietnam, South Korea, Indonesia, Malaysia, and Thailand are 23.8%, 18.4%, 17.8%, 14.2% and 11.4% respectively.

FIC Publishing Division Finance and Investment Club IIM Rohtak MDU Campus, 124001

The exchange rate of the rupee rose to a two year high of Rs63.50 per dollar in this quarter.

Foreign reserves also have reached a record high of $401 billion. This implies an expected decrease in demand for dollar and rupee could further appreciate. It is predicted that rupee could appreciate as much to Rs60 per dollar by 2018. Appreciation of rupees makes Indian goods expensive and adds to the low growth of exports. In short run, abrupt tax compliance changes due to GST have disrupted the production and supply cycle. Under GST exporters have to pay taxes to inputs, they buy from the suppliers and then claim tax refunds. Delay in tax refunds has been a major concern.

India needs a structural reform to improve its export growth. Improvement of infrastructure to facilitate faster and safer transportation, efficient procurement process, changes in labor market laws (it is noted that Indian labor-intensive firms are smaller in size compared to its Asian counterparts, they have less flexibility in their operation and harder to acquire land due to regressive law structure). RBI should not allow sharp appreciation of rupees as it could adversely affect exports. It is also argued by economists to decrease interest rate to stimu-