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FinXpress
FinXpress Volume 17 Nov 17,2013
From The Editorial RISCON—The National Risk Management Conclave
CONTENTS
From The Editorial In Focus: Double Digit Inflation Opinion: Aviation Sector in India—Reasons to be optimistic Term of the Week : Financial Lease Market This Week
As the week of hectic studies ended, the weekend brought to you RISCON ‘13— The Annual Risk Management Conclave. RISCON’13 touched new highs this year, having some of the most eminent persons over at IMT. RISCON’13 was inaugurated by Sh. Sandeep Dash, Director (Finance), Planning Commission of India with Sh. S. R. Dash , Associate Professor at IMT Ghaziabad. The session was followed by a session by Sh. Sanjiv Bhasin, Ex-Capital Market Advisor at Deutsche Bank. The second day was kick-started with Encephalon, the Inter B-School Case Study competition. It was followed by the panel discussion on Tapping the Untapped Potential of Indian Economy.
News
In this edition of FinXpress, you can gain knowledge into double digit inflation in the In Focus section. Also gain an insight about the reasons to be optimistic in the aviation sector of India in the Opinion and on Financial Lease in Term of the Week. The most positive news for the market was that inflows received by the RBI touched $17.5 billion. More insights into the latest news and market can be found in the Market and News Sections.
Fun Corner
Happy Reading!!!
Regards, The Editorial Team FinNiche Club
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. November 2013
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FinNiche
In Focus
Double Digit Inflation -By Akshay Kansal
There’s never an uneventful day for the central bank governors. Indian inflation accelerated more than economists estimated in October, adding pressure on Raghuram Rajan to raise interest rates again.
On retail inflation front, prices of vegetables were up by 45.67 percent, cereals and products have gone up by 12.01 percent, egg, fish and meat went up by 11.78 percent and prices of food and beverages were up by 12.56 percent, the data showed. Naina Lal Kidwai, FICCI president believes that the positive growth in manufacturing is a sign of revival in manufacturing activity. But she expects the growth in manufacturing to be subdued in the coming months as a result of the current slowdown in domestic demand and a lack of investor optimism given the uncertainty that’ll build up with the ensuing elections.
India’s retail inflation measured by the Consumer Price Index (CPI) rose to 10.09 percent in October as compared to 9.84 percent recorded the previous month due to higher food prices. While industrial output measured by the Index of Industrial Production (IIP) grew at a sluggish two percent in September as compared to 0.43 percent the previous month. The latest macro statistics confirm that the woes for Analysts believe that weakness in the rupee Indian economy are far from over. and bottlenecks in the supply of everything from food to energy have fanned the cost of living in India even as economic growth moderates. They also predict that guv will raise the benchmark interest rate by 25 bps to 8 percent by the end of the current fiscal year. As of now, all eyes will be on the monetary policy review on 19th Dec. Let’s wait and watch.
As per ‘use-based’ classification, basic goods sector posted a growth of 5.4 percent, intermediate goods 4.1 percent, and consumer non-durables 11.3 percent. But, capital goods continue to be a big drag as evidenced by the 6.8 percent slump during the month under review. Consumer durables production fell by 10.8 percent which indicates poor demand.
November 2013
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FinNiche
Opinion
Aviation Sector in India: Reasons to be optimistic —- By Yash Asthana
It is a very well known fact that aviation sector not only brings immense benefits to communities and economies around the globe, but also is a key catalyst of economic growth, social development and tourism. India is currently the 9th largest aviation market handling 121 million domestic and 41 million international passengers. Today, more than 85 international airlines operate to India and 5 Indian carriers connect over 40 countries.
According to industry estimates, Indian aviation market is poised to become the third largest across the globe by 2020. In February 2013, the Tata Group tied up with Malaysian budget airline AirAsia. A few months later, the Foreign Investment Promotion Board swiftly cleared the group's partnership venture with Singapore International Airlines (SIA) to start a full-service airline in India by mid-2014. Competition Commission of India (CCI) on 12 November 2013 approved the proposed acquisition of 24 percent stake in the Naresh Goyal – led Indian carrier by Abu Dhabi based airline. This decision will allow the closure of long pending Jet-Etihad deal. Etihad is acquiring the stake for 2058 crore rupees in a deal that was announced in April 2013 and this will become the first -ever Foreign Direct Investment in an Indian carrier by an overseas airline. The new entrants believe they can succeed where Indian airlines have stumbled.
However, the industry is grappling with mounting losses. India's second largest airline, Jet Airways, announced its biggest ever quarter loss (Rs 891 crore) for the second quarter of 2013/14. Consultancy Centre for Asia Pacific Aviation (CAPA) estimates that Indian There have been several key airlines collectively lost more than Rs developments and investments that 3,000 crore in that quarter. should impact the sector positively Between 2007 and 2013, they lost Rs 53,648 crore, and losses for 2012/13 are pegged at Rs 10,429 crore. But Kapil Kaul, CEO of aviation consultancy CAPA (India and the Middle East), says the tide will turn in 12 to 18 months. "Post 2014/15, the industry will see a better operating environment and will return to sustainable growth," he says. That may seem hard to believe when the industry has to deal with high aviation turbine fuel (ATF) prices - oil prices have hovered around their peak of $110 a barrel - as also slack demand and rupee depreciation. But
the
future
November 2013
is
not
all
Jet
has become the first Indian airline to place an order of fuel-efficient 737 Max aircraft with the plane-maker Boeing. Boeing and Jet have recently inked a purchase agreement wherein Jet has agreed to buy 50 such planes at a cost of around US$ 5 billion. The agreement is still under negotiation (for discounts). The service of 737-Max is expected to commence by 2017.
The arrival of the Tata Group in the
sector will give Indian aviation muchneeded credibility that has gone down because of airlines like Kingfisher. According to CAPA, the Tata deals with bleak. AirAsia and SIA are likely to pave the
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Opinion
FinNiche
way for more greenfield investment, to "avoid legacy issues and ensure that they can establish low costs of operation". After 2014, the new Tata ventures are likely to stabilize and consider expansion.
nod would enable Jet expand its global footprint and become the biggest Indian carrier in terms of network. A codeshare enables two or more airlines share the same flight. Passengers will buy ticket from one airline and take a flight operated by another airline, allowing Airlines are likely to have more partners to enhance their reach across stable cash flows if carriers such as the global sky. GoAir and SpiceJet, in talks with foreign carriers, enter strategic partnerships in Furthermore, Mr K.C. Venugopal, India. GoAir has appointed investment Minister of State for Civil Aviation, has bank JP Morgan to scout for an recently informed Rajya Sabha that 17 investor. There have been reports that it new airports have been proposed for is in talks with Japanese carrier ANA, construction during the 12th Five Year and Germany's Lufthansa (although Plan. both foreign carriers have denied this). The Indian Government has also India's first ever aviation university, been visionary in terms of the talent the Rajiv Gandhi National Aviation requirement for the flourishing aviation University at Rae Bareli in Uttar industry in future. In order to address Pradesh, will start imparting training to the shortage of skilled, managerial and aspiring pilots, aircraft engineers and operational personnel in aviation, the cabin crew in September 2014. The bill to establish the aviation university educational entity is a Government (which has been already discussed organization that has been developed to above), has been forwarded to the Lok acknowledge the industry's chronic Sabha Secretariat. talent shortage. The university will induct 1,000 students by 2018 and The Government of Haryana plans to eventually, all flying schools in India will establish a cargo airport in the state by get affiliated to this university. taking up Public Private Partnership The Indian Government initiatives (PPP) mode for the green-field project at should also yield similar effects. It has Meham in Rohtak. The Haryana State introduced several policies and Industrial and Infrastructure regulatory reforms to boost private participation and investments in the Development Corporation (HSIIDC) will same. Recently, the Government allowed be the equity partner for bearing the 49 per cent FDI by foreign airlines in the cost of land acquisition for the project. sector. Indian Aviation Industry that currently accounts for 1.5 per cent of the GDP, The Government has finally given its has been instrumental in the overall nod to the US$ 900 million-Jet-Etihad economic development of the country, deal, embarking on the biggest FDI in said Mr Ajit Singh, the Minister for Civil Indian aviation sector. Not only that, Jet Aviation. He further stated that given Airways has also been allowed to go for the huge gap between potential and code-sharing with five airlines — current air travel penetration in India, American Airlines, Malaysian, Garuda of the prospects and possibilities of growth Indonesia, Vietnam Airlines and Kenya of Indian aviation market are enormous. Airways – by the aviation ministry. The
November 2013
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FinNiche
FINANCIAL KNOWLEDGE
Financial Lease —- By Mayank Swarup
A Lease is a contractual arrangement under which owner of an asset (lessor) allows the use of the asset to the user (lessee) for an agreed period of time in exchange for a regular stream of payments. The possession of the asset is usually returned to the owner at the end of the lease period, unless there is a provision for the renewal of the lease. Financial lease in particular, is usually when a Bank or NBFC procures an asset as per the requirement of the customer as against offering a debt in order to purchase the asset. If structured properly, such an arrangement can lead to substantial tax benefits. It is different from an operating lease as it involves regular payments over an obligatory non-cancellable lease period (usually the estimated service life of the asset), sufficient in total to amortize the capital outlay of the lessor and leave some profit. The lessor transfers, substantially all the risks and rewards incidental to the ownership of the asset to the lessee, whether or not the title is eventually transferred. Advantages of Financial lease to the Lessor:
2. The lessor can take tax benefit from depreciation of the asset 3 The absolute return on investment is higher than the rate of interest charged 4. In addition to monthly lease payments, the Financial institution also charges a substantial management fee 5. It is simple to negotiate and free from cumbersome procedures with faster and simple documentation. Advantages of Financial lease to the Lessee: 1. The lease enables the lessee to finance for huge investments in land, building, machinery, and so on, without increasing the debt on the balance sheet or dilution of equity 2. The monthly lease payment is tax deductible 3. Up to 100% financing, without requiring any immediate down payment 4. Leasing as a method of financing is less costly than other alternatives available 5. The lessee has an option to purchase the asset at a price which is expected to be sufficiently lower than the value at the end of the lease period 6. The lessor, being the owner, bears the risk of obsolescence and the lessee is always free to replace the asset with the latest technology
1. Lesser risk than debt as ownership of asset is with the lessor
November 2013
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FinNiche
FINANCIAL KNOWLEDGE
Market This Week After a successful Diwali run the markets took a breather and corrected from their lifetime highs. The BSE Sensex corrected by almost 425 points before ending the losing streak on Thursday on back of some good US economic data. Market veterans are still bullish on the market and are advising to hold on to the long positions. New long positions though are not advised but any dip should be utilised to enter into the market.
BSE SENSEX
SENSEX Simple Moving Averages Thirty Days Fifty Days Hundred and Fifty Days Two Hundred Days
20599.87 20223.43 19626.80 19537.08
CNX Nifty
November 2013
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FinNiche
FINANCIAL KNOWLEDGE Nifty Simple Moving Averages Thirty Days
6118.16
Fifty Days
5994.47
Hundred and Fifty Days Two Hundred Days
5874.83 5862.33
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
30332
1.69
Silver
1 Kg
46741
(3.97)
Crude Oil
1 bbl
5903
(0.52)
Lending / Deposit Rates Base Rate
9.70%-10.25%
Savings Deposit Rate
4.0%
Term Deposit Rate
7.5%-9.0%
Key Policy Rates and Reserve Ratios Bank Rate Repo Rate
8.75% 7.75%
Reverse Repo Rate
6.75%
Cash Reserve Ratio Statutory Liquidity Ratio
4% 23%
Exchange Rates INR / 1 USD
63.11
INR / 1 Euro
85.17
INR / 100 Jap. YEN
62.98
INR / 1 Pound Sterling
101.72
November 2013
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FinNiche
Financial Knowledge
NEWS US Seeks $864 Million from BofA over FIPB Clears Tata, Westland Proposal Countrywide Loans to Assemble Choppers Federal prosecutors want Bank of America Corp. to pay about $ 864 million over losses incurred by the government-run mortgage buyers Fannie Mae and Freddie Mac after they bought thousands of home loans made by Countrywide Financial during the housing boom, between Aug 2007 and May 2008. The government has accused the financial institutions of urging workers to churn out loans, accept fudged applications and hide ballooning defaults through a loan program called the Hustle which operated under the motto, "Loans Move Forward, Never Backward." Bank of America, based in Charlotte, North Carolina, denied there was fraud. Thousands of loans made through the Hustle programme were sold to Fannie and Freddie, which packaged loans into securities and sold them to investors. The co mpan ie s we re e ffe ctive ly nationalized in 2008 when they nearly collapsed from mortgage losses. Janet Yellen defends Fed Policies in Senate Hearing Janet Yellen, the woman the White House wants to run the Federal Reserve, has defended its stimulus efforts and vowed to continue them if confirmed. In her first appearance in front of Congress, she said the Fed's $85bn bo n d -bu y i n g p ro g r a m me w as a "meaningful contribution to economic growth". To be confirmed, she needs 60 votes. During the Senate Banking Committee hearing, which is often a chance for senators to tout their own individual interests, Ms Yellen was asked about everything from gold prices to "too big to fail" banks, as well as whether or not the stock market was in a bubble.
November 2013
The Foreign Investment Promotion Board (FIPB) has approved a proposal of Indian Rotocraft to assemble upgraded version of a military and civil helicopter. Indian Rotorcraft is a joint venture between Tata Sons (74 per cent) and Augusta Westland (26 per cent). As per the proposal the Indian Rotorcraft will assemble AW119Kx helicopters, an upgraded version of AW119Ke chopper. The company expects to commence production from March 2014. The issue of corruption charges on Augusta Westland's parent company Finmeccanica came up during the FIPB meeting.
Inflows through Special Swap Windows Touch $17.5 Billion: RBI The Reserve Bank has so far received USD 17.5 billion through the two special windows for swapping foreign currency non-resident (banks) deposits and overseas foreign currency borrowings by banks. The central bank operationalized these special windows on Sep 4 to prop the rupee which had fallen close to 30 per cent between April and August. The window will remain open till November 30. The special widow allows banks to swap the fresh FCNR (B) dollar funds, mobilized for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum for the tenor of the deposit. The RBI also allowed banks to borrow up to 100 per cent of Tier-I capital from overseas, which can be swapped with the central bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market.
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FinNiche
FUN CORNER
Fun Corner FinQuiz 1.
If the spread between credit period and cash discount period is lower the cost of trade credit will be ________
2.
Pricing method where the material is priced at the value that is realizable at the time of issue is _________
3.
In the presence of floatation costs the costs of external equity is _______ than the cost of existing equity capital
4.
————- means the firm has disproportionately low amount of working with respect to the level of sales
CARTOONS
Last Week Answers 1.
Hybrid
2.
Bridge
3.
Industrial & Commercial bank of China
4.
High ratio
5.
Profit, loss
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Volume 17 Publisher: Priyam
November 2013
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