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DECEMBER 28, 2014 | A FINNICHE INITIATIVE
In Focus
Do write to us at: finniche.imt@gmail.com
Japan’s Inflation Struggle| 2
Opinion Success of government to address fiscal deficit target| 4
Term of Week Contango & Backwardation | 6
Tech World Personality Rakesh Jhunjhunwala |11
Ways our smart life
changed in 2014|12
December, 28 | 2014 | Volume 27
Juniors are busy with their preparation for end term which will start tomorrow onwards. Whereas, seniors are already busy with the on going exams. We wish good luck to everyone for their exams. The common thing to everyone is bearing with the extreme cold of Delhi. Japan’s Inflation Struggle
Club FinNiche releases its weekly magazine FinXpress with the In Focus talking about the ‘Japan’s Inflation Struggle’. The Opinion gives an overview of ‘Success of government to address fiscal deficit target’.
Success of government to
The term of the week describes “Contango & Backwardation". A market is said to be in contango when the forward price of a futures contract is above the expected future spot price and backwardation is its opposite situation. Do have a look at the market section, Tech world which brings to you “Ways our smart life changed in 2014” and Personality of the week, Rakesh Jhunjhunwala.
address fiscal deficit target
Contango & Backwardation
Hope everyone likes the revamped version of magazine. 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
Rakesh Jhunjhunwala
Ways our smart life
changed in 2014
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
- By Vipul Kumar Singh
US removed the restrictions placed on travel by Modi when
Japan’s struggle with inflation continues to
Job Availability hit a 22-year high with part
hurt them. With Prime Minister Shinzo Abe
time workers increasing by 20 million for the
trying hard to curb the falling prices, it is a
first time in 30 years. No improvement in the
bad blow to his campaign to emerge from
increase in wages has been encountered
recession.
the
despite the increase in jobs, a bad signal for
continuous fall in oil prices which have
It
can
be
attributed
to
consumption which decreased to 2.5% in
highlighted the challenges faced by the central
November.
bank.
he was elected PM
Consumer Price Index’s rate of increase fell to Labor market has been the single market
0.7% in November from 0.9% in previous
which
rest
month , far from Bank of Japan’s target of 2%.
everything has been stagnant in the third
This CPI is adjusted according to the change
world’s largest economy, signaled by the sales
in food prices and impact of sales tax increase
tax increase to 8% from 5% in the month of
in April. With this news the yield fell to
April which resulted in high depth slump.
record low of 0.30% on the benchmark 10-year
Agenda includes UNGA meeting, meeting with President
Obama, CEOs of US firms as well as Indian Diaspora at the famed MSG
has
shown
improvement
government bond. Fall in the industrial output to 0.6% made the situation worse by hurting the policies to get
With the falling oil prices and reduced import
the country out of recession. This was due to
costs it is expected that Bank of Japan may be
the
major
forced to relax their terms again. This would
components such as computer chip making
high
performance
in
two
be the second time within the span of 2
equipment and boilers and consistent market
months when BOJ has tried to up the
expectation of a 08.% increase.
economy by flooding cash in the market by
government bond purchases. If analyst are
increase in the sales tax , has become
to be believed the CPI is expected in the
negative and is falling continuously.
negative
territory
if
conditions
d
not
improve on time.
Mr. Abe has effectively deferred a second sales tax increment until 2017, and taking
National bank authorities have been putting
after a conclusive race triumph not long ago
a daring face on the stoppage in expansion
and the dispatch of his new organization in
coming about because of the lower oil costs,
the not so distant future, he is attempting to
saying that less expensive rough will
recover
empower request, in the long run including
organization is required to advertise a boost
to upward weight costs. In any case
bundle worth around ÂĽ3.5 trillion ($29
economists suspect that such a transmission
billion) in the advancing days. The sum is
could require some investment to emerge
short of what 1% of Japan's yearly monetary
where utilization has been dreary. In the
yield, and economists' appraisal of the
quick future, drops in petroleum expenses
normal measures has been blended.
Article titled “A Renewed USIndia Partnership for the 21st Century�. Also releases a joint statement
focusing
on
key
aspects of strategic relationship
Meets with 11 CEOs in a breakfast meeting and 6 CEOs face to face, the next day. Assures of stability in tax law
the
economy
on
track.
His
will just force down the swelling rate. The savings funds rate in the year to March In the wake of taking office in late 2012,
was less 1.3 every penny, the first negative
Prime Minister Abe propelled a strategy
perusing in information again to 1955.
rush which networks government going
Genuine profit fell 4.3 every penny year on
through
year in November, a seventeenth successive
with
monstrous
financial
facilitating by the national bank and changes
decay
to the very managed economy. The genius
December
using
development
offer,
and
the 2009.
steepest With
tumble
these
since
situations
named
looming over the head it is important for
"Abenomics", has stalled as the April trek in
Japan to come up with and anti-recession
the business assessment imprinted customer
measures to maintain it as a third largest
using. GDP has also taken a beating after the
economy.
- By Priti Sureka
Success of the Government to address Fiscal Deficit target The forecasted Fiscal Deficit target for the fiscal year 2014-15 is 4.1% of GDP or Rs. 5.31 lakhs crore. Fiscal deficit basically represents the amount by which the receipts of central government excluding borrowings fall short of its expenditure during the relevant year. It is usually represented as a percentage of GDP. To meet the target, the Finance Minister Mr. Arun Jaitley wished to reduce to amount of subsidy bill. During the year, it reduced its major subsidy from 2.2% of GDP in 2013-14 to 2.03% of GDP in 2014-15. The recent decision taken by the NDA Government to deregulate diesel prices also aimed to reduce the amount of subsidy as reimbursement to the oil companies was one of the costliest subsidies for the Indian Government. These decisions ultimately resulted in curtailment in expenditure bringing clarity between diesel and petrol prices and having private players like Reliance Industries into the market. The fiscal deficit for the period AprilSeptember 2014 crossed Rs. 4.38 lakhs crore or to put it in another way it crossed around 82.5% of the full year estimate. If we compare the said percentage with that of corresponding period of the last year, the fiscal deficit target crossed 76% of the total estimate of 2013-14. There are also some enhancements in tax collections as various tax amendments have been implemented with tough penalty in case
of any default or any tax evasion. So overall, the receipts of the government increased.
Also talking about the deferment of the rollout of the Food Security Act, again this will act in favor of the government to address the set target as the government already set aside Rs. 1.15 lakhs crore for food subsidy. So, this year the government is confident of meeting the target as halfway through the financial year the government ran up fiscal deficit to the extent of 82.5% of its estimate.
Other factors which supported the government would be Divestment of government stake in ONGC, CIL, NHPC Huge tax refunds A stronger rupee Softer crude oil prices as this resulted in less fuel subsidy A 10% cut in non-plan expenditure Tightening spending on some programmes ( e.g. MGNREGA, a rural job programme )
However, if in case the government feels unable to meet the fiscal deficit target of 4.1% in the remaining year, it can take help from the Reserve Bank of India. The central bank is having a cash surplus of more than Rs. 1 lakh crore and is expected to earn more and higher surplus this year on account of active market interventions in the currency market. The central bank already transferred its surplus of Rs 52,600 crore to the government in the month of June this year and this is the largest transfer ever made by the RBI to the government. The central bank also transferred Rs 33,000 crore last year. But this option should be exercised by the government with much apprehension. For the time being, the government should try its own to meet the target without any help from the RBI. Rather, the liquidity support by the central bank should be used in case of any unanticipated loss which could tremendously affect the economy of the nation.
However, this sounds good but the real picture is very different. To meet the target, government also depends on policymakers. If revenue targets are not met then it is the policymakers’ call whether to cut capital spending or not. Another problem for the government is that they lack in projecting revenues to accrue. They kept on underestimating expenditures and overestimating the revenues, resulting in failure to meet fiscal deficit target in the previous years. As said by the Finance Minister, the government has to meet the fiscal deficit target of this year as many international investors and various credit rating agencies will be keeping their eye on it. Therefore, the government has to keep a tab on receipts and expenses for the next quarter in order to achieve the target as this will also help in stimulating the growth momentum.
In a commodities market, every commodity like
with transporting, storing and insurance of the
gold or natural gas has a spot price associated with
commodity. With the expiration of futures
it, which represents it’s the current delivery price.
contract, the “cost to carry� or storage cost of the
Commodities are bought and sold in two kinds of
commodity increases; hence, the commodity is
market: the cash markets and futures markets. In
priced higher in future. Thus, in other words, the
These terms are important to
cash markets, physical commodities are traded and
price of delivering an asset in the future is higher
companies
involved
in
transactions are settled in present or on the spot.
than the price of delivering it now.
commodities
hedging
and
Whereas in a futures market, the exchange or trade
speculating activities. In 1993,
takes place at a predetermined time in future. In
Normal backwardation, which is the exactly
Metallgesellschaft
more
the futures markets, the buyer enters into a forward
opposite situation to contango, occurs when the
than $ 1 billion because the
or futures contract which is basically an agreement
forward price of a futures contract is below the
hedging system deployed by
to buy or sell the commodity at a predetermined
expected future spot price. It is represented by an
price in the future, commonly known as forward or
inverted futures curve which shows that the price
futures price.
of future deliveries is below the current spot price.
lost
the company made profits on normal
backwardation
but
The higher current prices of the commodity can be
could not foresee changing
attributed to a temporary shortage in cash market
trends in contango.
due to factors such as war, weather, natural disaster or any other geopolitical event. For example, if a hurricane disrupts an oil refinery production; the current prices would be higher than the future ones due to shortage of supply at that point of time. Similarly, if the supply of silver is tight as the investors are holding on to the physical silver; the price of current contract would be higher than the later ones. The price of future deliveries would eventually fall due to expected end of disruption in supply. When we plot these A market is said to be in contango when the
prices on a graph, the resulting curve would be
forward price of a futures contract is above the
downward sloping. During backwardation, the
expected future spot price. In this case, the futures
traders expect the prices to decrease over long
curve which represents the current price of futures
term.
contract over a period of time is upward sloping which means that the buyers are willing to pay a
Thus, investors and traders should maintain
premium price for a commodity in future more
awareness of such dynamic market states by
than the expected actual price. The buyers pays a
evaluating the current or spot price and prices of
premium in order to avoid the costs associated
near and far futures contracts.
INDIAN MARKETS This week has ended in a sour note as both BSE and NSE have ended in red amidst sustained sell off by the FII’s and month end derivative contracts profit booking. In addition to this, the possibility of interest rate hike by the US federal reserve has resulted in strengthening of dollar which has had an negative impact over the capital inflows to the country. Also the government’s inability to pass key bills like GST and insurance bill during the winter session had also negatively impacted the bourses. BSE SENSEX For the second consecutive week both S&P 500 and Dow have recorded profits riding on
Open
High
Low
Close
SENSEX
27,215.19
27,370.63
27,091.38
27,208.61
NIFTY
8,204.80
8,234.55
8,147.95
8,174.10
the back of bullish macro economic accommodative
data
and measures
announced by the central bank
CNX NIFTY
COMMODITIES Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27,073.00
+1.89
Silver
1 kg
37,315.00
+2.39
Crude Oil
1 bbl
3,547.00
-0.08
EXCHANGE RATES INR/ 1 USD
63.64
INR /1 EURO
77.74
INR/ 100 JAPAN YEN
52.93
INR / 1 POUND STERLING
98.98
INTERNATIONAL MARKETS Open
High
Low
Close
NYSE Comp
10,535.52
10,919.51
10,360.03
10,890.24
NASDAQ
4,788.06
4,814.95
4,787.85
4,310.25
S&P 500
2,083.00
2,083.75
2,081.75
2,083.00
FTSE 100
6,598.18
6,618.09
6,586.05
6,609.93
CAC
4,309.40
4,316.39
4,295.02
4,295.85
DAX
9,887.24
9,922.11
9,848.06
9,922.11
NIKKEI 225
17,778.91
17,843.73
17,769.01
17,818.96
SSE 50
2,680.16
2,937.65
2,680.16
2,937.65
Hang Seng
23,290.42
23,421.10
23,290.42
23,349.34
Revival plan: SpiceJet eyes Rs. 1,200cr equity infusion, Government unimpressed Ailing budget carrier SpiceJet has told aviation ministry officials that it is hopeful of receiving an equity infusion of Rs. 1,200 crore and arranging another Rs. 600 crore through external commercial borrowings by March next year.
In an interview , Rakesh Biyani, Joint Managing Director, Future Retail, said that the festive season
was
below
the
expectations. Though the company is hopeful from the winter season sale
Ministry officials were left unimpressed by the presentation made by SpiceJet’s top management, which contained no specific details about the airline’s funding plans. SpiceJet have been asked to submit a clear cut plan by next week, giving concrete details of how and when it planned to raise capital, how it planned to sustain operations and pay various vendors. The 15-day time given to SpiceJet to make payments to the Airports Authority of India ends on December 31. Raghuram Rajan Sees High Possibility Of Returning To Strong Growth In 2 Years
period which should bring back
India is currently not in a phase of strong growth, but there is high possibility that the country will return to strong growth in next two years, and lower oil prices are helping inflation to ease, Reserve Bank of India Governor Raghuram Rajan said.
consumers in a big way.
Putting a question mark on the
Regarding the possible interest rate hikes by the U.S. Federal Reserve, Rajan said faster increase in U.S. interest rates could be a risk to global asset prices. He said expectations are that U.S. rates will rise slowly in the backdrop of low global growth.
effectiveness of government’s farm debt waiver programmes, RBI Governor Raghuram Rajan on
Saturday
said
such
schemes have constrained flow of credit to farmers.
Rajan also said the central bank is not targeting to defend the rupee at any specific level, but wants to curb volatility. He assured that India has made major improvements since the rupee volatility experienced in the July-August period last year. Swachh Bharat: Govt sets Rs 42,000 cr investment target from private sector Government has set an investment target of Rs. 42,512 crore from the private sector under Swachh Bharat Mission in urban areas. An official release said, out of the total project cost of Rs. 62,009 crore central assistance would be Rs. 14,623 crore while the states and Union territories would be required to contribute Rs. 4,874 crore. It said that the Ministry of Urban Development has withdrawn itself from appraisal and approval of various project proposals under the Swachh Bharat Mission to be implemented in all the 4,041 statutory towns and cities across the country. Under this Mission, it is targeted to build one crore individual household toilets besides 2.52 crore community toilet seats.
World Bank Approves $75 Million Project in Telangana, India - Expected to Improve Incomes and Health of Farmers The project will target small and marginal farmers in the 150 most backward mandals of Telangana covering 5,000 villages. The World Bank on December 27, approved a $75 million credit for the newly-created state of Telangana to enable the state enhance agricultural incomes of small and marginal farmers and ensure increased access to services related to health, nutrition, sanitation and social entitlements. TRAI is planning to review the freedom home
given service
to
direct-to-
providers
in
deciding subscription charges for HD channels. There are
The Telangana Rural Inclusive Growth Project will focus on increasing economic opportunities for small and marginal farmers, especially from Scheduled Caste (SC) and Scheduled Tribe (ST) households in the 150 most backward mandals (cluster of villages across gram panchayats) by helping them gain access to extension services, good quality inputs like improved seeds, market services, and institutional credit.
about 40 HD channels in the country and DTH operators
charge
premium
for
compared to normal quality channels (standard definition)
Continuing advancement,
Volkswagen's Audi to step up investments in 2015-19 on models, plants
them
with
the
major
indices
closed the week with second consecutive weekly gain as the S&P lifted by 5.9 percent in seven sessions.
Audi, which contributes 40 percent of operating profit at Europe's biggest automotive group, said on Saturday it will push up investment in car-making operations by 2 billion euros ($2.44 billion) to a record 24 billion euros over the next five years. Seventy percent of spending will be assigned to developing new models and technologies such as emission-cutting plug-in hybrid vehicles, Audi said. The brand is also working on purely electric cars to catch up with BMW and Tesla Motors . More than half of the funds will be spent on Audi's two German factories in Ingolstadt and Neckarsulm which accounted for half the carmaker's nine-month output of 1.34 million autos, Audi said, confirming a Reuters story.
Prasar Bharati trying to expand online reach, says CEO Prasar Bharati is trying to expand its online presence to reach a wider audience, its Chief Executive Officer Jawhar Sircar said on Friday.
On the other hand, the Dow increased for a seventh straight day, with its longest streak since March last year.
Referring to the young generation’s increasing use of Internet, he pointed out that if Vividh Bharati had online presence then its reach would widen. “These days the youth are listening to everything on the Internet. If Vividh Bharati goes online then listeners from California to Vancouver will be able to listen to it. We are currently conducting an experiment in this regard,” said Mr. Sircar. He was in Kolkata to launch Prasar Bhararti’s Vividh Bharati service on FM in the city. Pointing out that the FM channel would also be accessible on cell phones, Mr. Sircar said: “The Government of India is very keen on mobile FM.”
education. He started his career in 1985 when the BSE Sensex was at 150. He made his first big profit of Rs 0.5 million in 1986 when he sold 5,000 shares of Tata Tea at a price of Rs 143 which he had purchased for Rs 43 a share just 3 months prior.
5h July, 1960
Bombay University & The
Institute
of
Chartered
Jhunjhunwala is the chairman of Aptech Limited and Hungama Digital Media Entertainment Pvt. Ltd. and sits on the board of directors of various Indian companies.
Accountants of India
USD 1.90 Billion
Rakesh Jhunjhunwala is an Indian investor and trader. He is a qualified Chartered accountant. He manages his own portfolio as a partner in his asset management firm, Rare Enterprises. Jhunjhunwala was described by India Today magazine as the "pin-up boy of the current bull run" and by The Economic Times as "Pied Piper of Indian bourses". Rakesh Jhunjhunwala grew up in Mumbai, India where his father was posted as an Income Tax officer. He graduated from Sydenham College and thereafter enrolled at the Institute of Chartered Accountants of India Chartered Accountant. Career Rakesh Jhunjhunwala plunged into full-time investing soon after completing his
Investment Philosophy His stock picking strategy is influenced by George Soros' trading strategies and Marc Faber's analysis of economic history. He endorses the rule, "the trend is your friend." His investment philosophy says "Buy right and hold tight". He claims to base his trades, in part, on the business model of a company, its growth potential, and its potential for longevity. He factors in heavily the competitive ability, scalability and management quality of the enterprise. The entrepreneur, according to Jhunjhunwala, makes an invaluable difference to his expected investment returns. According to Jhunjhunwala, believing in the vision and the beliefs of the entrepreneur and evaluating risks that may not be perceived by the entrepreneur are key success factors for a trader. Jhunjhunwala considers Damani as his guru.
Radhakishan
- By Mukul Gupta
Ways Our Smart Life Changed in 2014
A lot has changed in 2014 from the technology standpoint. Although till a few years back, focus of technology was miniaturization, nowadays people want bigger and better. Following are some of the most notable changes that made our smart lives even smarter.
battery isn't big enough? Enter Portable Chargers! The newest member in our oversized pockets. One full charge would refill your phone's battery three times. Soon we will have phones rechargeable by solar energy. It's time we put global warming to good use!
Budget Smartphones: Prior to 2014, the only way to flaunt a cool high performance phone with HD screen and a quality camera was to shell out some extra money. However, thanks to Motorola's Moto E which offered all unexpected features in a sub Rs. 10,000 price tag. Soon, 2GB RAM, snapdragon quadcore processors became the not so exclusive features of smartphones. Post Moto E, there were a slew of launches including Xiaomi Redmi 1s, Android One Series, Micromax Unite 2.
Curved TVs: There was once a limit to screen dimensions. The size of the drawing room wall ofcourse. Not anymore. These super luxury items are the next step in TV technology. They offer a splendid TV viewing experience with smart functions and surround picture. Seems LCDs are old school now.
Portable Chargers: Smartphones have undoubtedly made our lives easy. From emails, to social networking, to gaming. You say it. You have it. All at the cost of a cool smartphone with a big battery. But what if
Bigger i-phones: The much awaited phablet size i-phones were launched in 2014. Late Steve Jobs once said “No ones gonna buy them�. But here we see Apple catching up to global peers in a race with no finish line. The consumer preferences are shifting and with the kind of content people are consuming on smartphones, a bigger screen is a much needed upgrade.