June 29, 2014 Volume 1 August 24, 2014 Volume 9
FinNiche
FinXpress
FinXpress Volume 9 August 24, 2014
From The Editorial Freshers Euphoria
CONTENTS
From The Editorial In Focus: End of Planning Commission Era Opinion: Monetary Policy Term of the Week: Participatory Notes Market This Week News
The end of First Term Examination for the Juniors was a relief, with some doing exceedingly well in exams, few worrying about their grades and the most excitingly awaiting for the Freshers Night. Amphi Theatre was a bliss to watch with the guys looking chivalrous and the girls trying what they did best at their styling, striking a pose and look beautiful. The party was a night to be remembered, in pictures. This week, the In Focus section talks about the End of Planning Commission Era, an institution of Government of India which formulates the nations five year plan. The Opinion gives out a complete knowledge on Monetary Policy. The term of the week describes "Participatory Notes", an instrument given by FII to foreign investors, to invest in Indian Stock Market without registering themselves under SEBI. Do have a look at the Market and News section to bring yourself up to speed with market volatility and the reasons behind it. Towards the end “Fun corner� to juggle with some in trend questions and financial parody.
Fun Corner
Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas. Happy Reading! Regards The Editorial Team Club FinNiche
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. AUGUST 2014
Page 1
FinNiche
FINANCIAL KNOWLEDGE
End of Planning Commission Era? ------ By Yojana Ranasaria
"We need a new body with a new soul....We will have to think about giving a new shape to the Planning Commission. Very soon this new institute will start working in place of the Planning Commission," Modi had said. Narendra Modi, our Prime minister, and in this capacity also the Chairman of the Planning Commission, had declared in his Independence Day address the demise of the body that was set up through an executive order in 1950 by India's first Prime Minister Jawaharlal Nehru. The new prime minister said situations have undergone a drastic change since the commission was created. He said the federal government wasn’t the only driver of economic growth and development, and
that state governments needed to be empowered to promote innovations and initiatives. He promised the creation of a new institution will facilitate by providing a platform for exchange of economic-policy ideas within government. The move to shut down the Planning Commission is part of what can be termed Modi's D-E-F mission: restoring the Dignity of state leaderships; Empowering state governments; Facilitating economic development of states An eight-member think tank may replace the Planning Commission which will consist of top notch economists, scientist and a social activist according to scientist, according to sources. Out of the eight members, 4 members will be permanent AUGUST 2014
while the rest will be on rotation basis. The outline, structure and functions of this new institution is yet to be revealed. The announcement was expected to come. The prime minister serves ex officio as the Planning Commission’s chairman. But Mr. Modi had spent his initial month in office, leaving the Commission seats unfilled. As a former chief minister of the western state of Gujarat, Mr. Modi was told at the time of his election campaigning to have a strong interest in giving state governments more space to set budget priorities and also more autonomy The enormous negativity now associated with the Planning Commission with state governments unhappy about centrallysponsored schemes, citizens frustrated with poverty lines etc. That original resolution had almost all of its entire focus on
planning. Planning is in a way dead, just waiting for the final rites The Planning Commission may be taking its last breathe and there are valid reasons for supporting the need for a revamping the entire planning structure. First, something has to intermediate between the Union government and states, not the way things have been operating now with Planning Commission perceived as being biased towards the State with Centre exercising monopoly on the federal tax system. Page 2
InFocus
Second, all finance ministries seek to reduce deficits. This is done by cutting Plan and/or capital expenditure. Some entity has to exercise pressure as a voice of the state governments and social sector ministries. Third, someone has to be a storehouse of data and improve the quality content.Not all data originates outside the government system. Fourth, someone has to devise incentive
mechanisms for desired devolutionary reforms. Humpty Dumpty received a unbirthday present. This Humpty Dumpty institution has collapsed. The Planning Commission is non-functional. But we still need an Un-planning Commission. Critics have accused the Planning Commission of gradually seizing without any right, the Finance Commission’s role as chief arbiter between the federal and state governments, all in the service of Five -Year Plans that are so well crafted but have rarely met expectations.
The Five-Year Plans pervade policy making in India, even if it hasn’t been that effective. It has its name popular. All federal expenditure is classified as either “plan expenditure” or “non-plan expenditure” depending on whether a particular expenditure is already marked for or will be allocated as per the situation
AUGUST 2014
FinNiche
demands. In fact, it may be the very language of “planning” and “planning commissions” that most offends Mr. Modi’s vision for a modern India. Even Chinese Government uses the term “guidelines” these days instead of “plan.” In India, which is quite unruly at times, it feels strangely but definitively like progress that the country’s next big economic changes will be entirely unplanned. If
one is thinking that killing the Planning Commission will completely decentralize government spending in India, he is mistaken in assuming this. Federal tax revenue, according to the country’s constitution, is first allocated to the central and then the state governments by the Finance Commission. The Planning Commission then accordingly allocates spending to states along lines laid out in its Five-Year Plan for the economy. Questions this move has raised: 1) Future of the 12th Five Year plan that is whether to scrap it or continue with it till 2017 2) Speculation about the role to allocate plan expenditure of the States to be handled by the Finance Ministry has raised the questions about its implications on the Indian Federal System 3) Will the States that are being controlled by the Opposition parties willingly accept this move
Page 3
FinNiche
OPINION
Monetary Policy —— By Abhilasha Shukla
In the Reserve bank of India monetary policy released on 5th August, on inflation, the RBI is adhering to the disinflationary path to contain CPI inflation below 8% by January next year. Further, the RESERVE BANK OF INDIA enforced its firm commitment to achieve the target of 6% CPI inflation by January 2016. This is a tough nut to crack as disinflation will have to be sustained over the medium term, primarily where GDP growth and demand is picking up. RBI stated that the risks to the have the disinflation are still on the upside and “warrants heightened state of policy preparedness if these risks materialise”.
improving growth scenario will ease demand side pressures on inflation. Industrial growth gained up momentum in May to 4.7 percent with manufacturing sector growing at 4.8 percent. Last but not the least, the RBI insisted that it aims to lower and sustain CPI inflation to 6% by January 2016. Overall, therefore, there is no place yet for a rate cut.
Recent data suggests that growth is going up and inflation is coming down. Nevertheless, the potential risks to inflation in months to come, once the base effect subsided, remain high and the RBI will stick to its call of no change in the policy rates this fiscal.
Deposit growth to accelerate in 2014-15: Growth rate in bank deposits came down to 12.9 percent year on year on July 11, 2014, from 13.8 percent as on July 12, 2013 essentially because of a reduction in financial savings and repayment of bulk deposits by public sector banks. Bank deposits are forecast to grow at about 15-16 percent in 2014-15, a little higher than that in 2013-14. With the expected changes in CPI inflation, actual returns on deposits are expected to be positive.
Credit growth is expected to improve in 2014-15 : Cumulative Bank credit growth slowed down to 13.4 percent year on year on July 11, 2014 from 14.3 percent on July 12, 2013.
Risks to inflation however, still remain. Firstly, the inflation in fruits and vegetables remains above 10%. Secondly, situation regarding monsoons is still not clear. A deficient rain in the coming days could impact the sowing pattern while excess Asset quality challenges to peak in 2014rains could adversely affect crop 15: Weak assets (Reported GNPA + 30% of outstanding restructured advances (excluding state power utilities +75% of investments in security receipts) are expected to stabilize at 5.7 percent as on March 2015, after witnessing a sharp increase to 5.6 percent as on March 2014 from 4.3 percent in March 2013. Lending rates to stay high: As there was no change in the repo rate in the policy just released the overall cost of funds for banks will remain at the higher side only and it is expected to remain that ways atleast in this production. Certain states for example fiscal. Madhya Pradesh and Orissa have already . been flooded once. Thirdly, we believe that core inflation has levelled out and the AUGUST 2014
PAGE 4
FinNiche
FINANCIAL KNOWLEDGE
Participatory Notes In Indian Stock market, foreigners (i.e. people who are living outside India except Non-Resident Indians) are not allowed to invest directly. Their involvement in Indian stock market is carried out through an intermediate which is a foreign body or institution, which have to be registered with SEBI as a foreign institutional investor.
be issued only to regulated entities and any further should also to the other regulated entities only. Thus, it is necessary to the FIIs issuing derivative instruments like PNotes to exercise the due diligence while issuing securities and it should in compliance with the ‘Know your customer’ guidelines. FIIs are required to report to SEBI on monthly basis if there is any Participatory notes (P-Notes) are more like issuance, renewal, cancellation or contract notes. P-Notes are issued by redemption of P-notes. SEBI also asks for Foreign Institutional Investors (FIIs) to the the quarterly report of P-notes. entities who are willing to invest in Indian stock market without being registered with the market regulator like Securities and Exchange board of India (SEBI). These FIIs and their sub account can then issue, deal or hold P–Notes and the underlying security against these notes are the securities which are listed on Indian stock market. As these are used outside India in order to invest in Indian stock market. Hence they are also called as offshore derivative instruments. Participatory notes are issued by FIIs to foreign investors with the complete detail of the scripts that can be bought and the corresponding expected returns for a specific period of time. If the client is satisfied with the scripts, then they deposit funds with the FIIs’ overseas branch. The Indian arm of the FII then carries with the further transactions which includes to buy the scripts in the Indian stock market and its corresponding settlement on its own account. The ultimate investors details are not revealed in the Indian market or even to SEBI. With respect to P-notes, the identity of the investor or the nature of the beneficiary remains concealed, which is not the case with FIIs’ registered with SEBI.
Why there is need to issue P-Notes? First, being to provide the anonymity, which provides large hedge funds to carry out funds remaining anonymous. Second, being ease of trading as P-notes are transferable by endorsement and subsequent delivery. Third, being tax saving as P-notes provides the way to those countries who want to take the advantage of tax laws of other country. P-notes are not issued by FIIs to Indian nationals, persons of Indian origin or the overseas corporate body which are mostly controlled by NRIs. This is done in order to ensure that P-notes should not become the safe heaven for money launderers.
However, in 2004, on recommendation of Lahiri Committee, a regulation was passed P-notes contribute by SEBI that derivative instruments should investments by FIIs.
AUGUST 2014
to
60%
of
the
Page 5
FinNiche
FINANCIAL KNOWLEDGE
Market This Week The S&P BSE Sensex rallied 140 points to touch its fresh lifetime high of 26,530.67 in trade on Tuesday. Tracking the momentum, as much as 244 stocksrose to their fresh 52-week high on the Bombay Stock Exchange. The 50-share Nifty index also rose 44 points to touch its fresh record high of 7918.55 and as much as 97 stocks rose to their fresh 52-week high on the National Stock Exchange, including names like ACC, BPCL, Cipla, Kotak, Lupin, M&M, Maruti and Tata Motors. Analysts expect the rally to continue for the Nifty and the index is poised to hit levels of 8000 in the short term, supported by strong global liquidity.
BSE SENSEX
SENSEX Simple Moving Averages Thirty Days Fifty Days Hundred Days Two Hundred Days
25822.30
25666.00 24565.60 22753.60
CNX Nifty
AUGUST 2014
Page 6
FinNiche
FINANCIAL KNOWLEDGE
Nifty Simple Moving Averages Thirty Days
7,664.38
Fifty Days
7,608.82
Hundred Days Two Hundred Days
6,886.12 6,712.70
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27813
0.24
Silver
1 Kg
41955
-0.30
Crude Oil
1 bbl
5679
-1.15
Lending / Deposit Rates Base Rate
10.00%-10.25%
Savings Deposit Rate
4.0%
Term Deposit Rate
8.00%-9.05%
Key Policy Rates and Reserve Ratios Bank Rate Repo Rate
9.00% 8.00%
Reverse Repo Rate
7.00%
Cash Reserve Ratio Statutory Liquidity Ratio
4.00% 22.00%
Exchange Rates
AUGUST 2014
INR / 1 USD
60.44
INR / 1 Euro
80.04
INR / 100 Jap. YEN
58.16
INR / 1 Pound Sterling
100.16
Page 7
FinNiche
FINANCIAL KNOWLEDGE
NEWS Sensex, Nifty hit new highs on slew of to people who invested in its collective positive factors investment scheme since 2005. Sebi, armed with Supreme Court judgment on Friday Confidence echoed in domestic market passed an order against PACL, its sentiment for the second week in a row as promoters and directors, which include heavy capital inflows, easing crude oil Tarlochan Singh, Sukhdev Singh, Gurmeet prices, strengthening rupee along with Singh and Subrata Bhattacharya. positive global cues led the BSE Sensex to end the week at near record-high and NSE Failure to comply with the order, Sebi will to close at life-time high. be barring the promoters and directors from the securities market. It will also refer the The BSE S&P Sensex resumed higher and case to the state government and local marked life time high of 26,530.67 before police to register a case against the closing the week slightly lower at company and the directors and promoters. 26,419.55, still showing a gain of 316.32 Sebi will also initiate actions against the points or 1.21 per cent. In straight two company and attach the property and ask weeks, it has zoomed 1,090.41 points or the Ministry of Corporate Affairs to initiate 4.30 per cent. winding up of the company. The NSE 50-share Nifty gained 121.50 RBI to conduct frequent term repos for points, or 1.56 per cent to log its record easy cash management closing high of 7,913.20. It registered an intra-day new peak of 7,929.05. The Reserve Bank of India (RBI) said it would conduct more frequent term repos RBI sees no big impact of weak monsoon but retained the overall borrowing limit for on growth lenders, in a bid to make borrowing more flexible without injecting additional liquidity The impact of weak monsoon so far this into markets. year on India’s farm production and economy is likely to be limited, the central The RBI said it would conduct 14-day term bank said, as rainfall levels have improved repo auctions four times during a twoconsiderably over the past one month. weekly reporting cycle, or every Tuesday and Friday, from September 5. The central In its annual report for 2013-14 released bank will also conduct 3 to 4-day term repo this week, the RBI said even if the rainfall is auctions but only from September 5 to 12. normal in rest of the monsoon season (June to September), some deficiency will stay but To further manage liquidity conditions it will not have a debilitating impact on the starting next month, the RBI said it could economy. also auction overnight variable rate repos, while saying it could also choose to sell part Sebi cracks whip on PACL's Rs 50,000-cr of the government's cash balances. investment scheme Although the intent was to provide more flexible borrowing options for lenders, the After Sahara and Sarada, market regulator impact on bond markets was muted Sebi has decided to crack the whip on because the RBI continued to cap the total Rajasthan-based real estate major Pearl amount lenders can borrow via term repos Agrotech Corporation (PACL). The company to 0.75 percent of lenders' deposits. has been asked to refund Rs 50,000 crore
AUGUST 2014
PAGE 8
FinNiche
FINANCIAL KNOWLEDGE
NEWS BSNL gets Rs 6,234 crore demand notice Four-member panel to re-examine gas from IT department pricing The Income Tax Department has served a demand notice of Rs. 6,234 crore to BSNL for allegedly under-reporting income in assessment year 2011-12.
The government has set up a four-member panel of secretaries from different ministries to work out a new gas pricing mechanism, a senior official at the oil ministry said on Friday. The first meeting of The public sector telecom firm BSNL had the panel will be held on Monday, said reported widening of loss to about Rs. Rajive Kumar, additional secretary in the oil 8,850.70 crore during 2011-12 mainly due ministry. to regulatory expenses and non-receipt of funds for its rural landlines operations. In June, India had deferred gas pricing to end September saying the complex issue BSNL posted a decline of about 6 per cent needed more discussion. India is a large in total revenue for 2011-12 to Rs. 27,933.5 importer of energy. Its net energy imports crore during the year as against Rs. amounted to 6.3 percent of gross domestic 29,687.62 crore it posted a year ago. product in the last fiscal year that ended in March. Zomato acquires Lunchtime, Obedovat for $3.25 mn Govt raises sugar import duty to 25 pct from 15 pct Online restaurant and food discovery site Zomato has acquired Lunchtime.cz and India, the world's biggest sugar consumer, Obedovat.sk, the Czech Republic’s and raised the import duty on the sweetener to Slovakia's restaurant guides, respectively, 25 percent from 15 percent as part of for a combined amount of $3.25 million. efforts to help regional mills struggling with lower prices and higher stocks. The Lunchtime and Obedovat teams will be working closely with the Zomato team In June, Food Minister Ram Vilas Paswan following this acquisition. The combined had said the import duty could be raised to product will be able to enhance the user 40 percent from 15 percent if mills pay experience with fresh, more in-depth farmers' dues, estimated at nearly 50 billion restaurant information along with lunch rupees. menus. It would also drive greater value to local restaurant businesses in the Czech Mills say a 70-percent jump in the price Republic, said Igor Treslin, Founder and that they have to pay to farmers in the CEO of Lunchtime. biggest cane-growing state of Uttar Pradesh and a meagre 7 percent rise in sugar prices Zomato has been aggressively expanding its have worsened their finances, leading to global presence over the past two quarters, cane dues. while also strengthening its presence in existing markets. It had acquired The benchmark sugar futures in India rose MenuMania, the leading restaurant 1 percent after the increase in the duty, discovery service in New Zealand, in July while shares of sugar makers such as Bajaj 2014. The latest acquisitions are a strategic Hindusthan Ltd, Shree Renuka Sugars Ltd move to establish Zomato’s presence in and Balrampur Chini Mills Ltd rose more Central and Eastern Europe. than 4 percent.
AUGUST 2014
PAGE 9
FinNiche
FUN CORNER
FUN CORNER Last Week’s Answers
FinQuiz 1.
Name the first Indian woman CEO of a Foreign Bank.
2.
What does watered capital indicate?
3.
Which name identifies a stock in the stock market?
4.
What is the term given to the clauses of bonds?
5.
Which is the term derived from the Greek word ‘ Oikanomia”?
1) Consumer Price Index 2) McGraw Hills 3) 10 years 4) Moving Average 5) Cash dividend
CARTOONS
**Rush in your entries to : finniche.imt@gmail.com
Feel free to write to us at : finniche.imt@gmail.com
The right entries will get their name featured in the next
We are on the web !
issue of FinXpress. So hit the quiz fast & get yourself
http://www.facebook.com/FinNiche
visible among 1000 odd in the campus.
http://www.imtgfinxpress.co.cc
Publisher: Shikha Sharma
AUGUST 2014
Page 10