Finxpress feb 13

February 13th, 2017

Trump Calls World Leaders, China's Xi Gets a Letter

Why RBI Kept Rates Unchanged?

Fiscal Deficit—FinWord

EDITION XVI . 14

A FinNiche Initiative

EDITORIAL

- ADYA JHA

“Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do.” - Pele.

As the nation watched the budget, economists hailed it as a budget in the right direction. Inflation is under control with CPI inflation down to 3.4% in December, 2016 from 6% in July, 2016.Tax slabs have been changed in the favour of lower income group. BHIM app was launched by the government which has been registered by 12.5 million people so far. At IMT, last week saw the launch of Chakravyuha which saw participations from B-Schools across the nation. FinNiche, in association with ICICI is organizing a workshop on ‘derivatives’, which is witnessing huge number of registrations.

This edition of FinXpress promises to provide a great insight into burning issues and an in depth analysis. We bring you the analysis of why RBI kept the rates unchanged and about Trump’s letter to Xi. This edition of FinXpress, as always promises to be a great value addition to our existing knowledge bank.

Hope to see your constant support for FinXpress.

Suggestions for improving FinXpress and criticism are most welcome.

Happy Reading!

The Editorial Team.

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CONTENTS Why RBI Kept Rates Unchanged?

2

Trump Calls World Leaders, China's Xi Gets a Letter 4 Fin-Humour

6

Market

7

Start-up Tracker

8

Fin-App

9

Fin-Word

10

Fin-Quiz

12

Life @ IMT

14

Our FinXpress

15

Sponsors

16

NATIONAL

Why RBI Kept Rates Unchanged?

ANSHUMAN NANDWANA

Expected rise in Inflation due to Oil Prices —— Expected rise in Inflation due to Metal Prices -—- Harder stance of FED on increase in interest rates thereby putting pressure on rupee —— Global Uncertainty

On Wednesday, 8th February 2017, Reserve Bank of India met for its bi-monthly monetary policy review. This policy review was the last to be helped in this financial year. Many of the economists and corporates expected for a rate cut from RBI in order to boost up growth after the impact of demonization and credit to lenders, excess funds deposited with the banks. Contrary to the expectations, RBI amazed everybody by keeping it monetary policy rates unchanged. What was more surprising is that RBI changed its stance from “accommodative” to “neutral” suggesting that RBI may not go aggressive in future rate cuts as well. All the six-members of the monetary policy committee (MPC), headed by the Reserve Bank of India (RBI) governor Urjit Patel, decided to keep the policy rate unchanged at 6.25 per cent.

Markets reacted immediately to the announcement with BSE SENSEX tanking to 29187 before reviving and closing at 28335.16. Here are 5 reasons to support RBI for keeping rates unchanged:

Expected rise in Inflation due to Oil Prices One of the reasons RBI highlighted for keeping its stance unchanged is the risk of global oil prices rising which may result in higher inflation. Within the rising profile of international commodity prices, crude oil prices firmed up with the OPEC’s agreement to curtail production. Crude oil Prices rose from a low of $47/ barrel to high of $54.8/ barrel in January. It is expected that there could be more upside movements to oil prices. Besides this, there was an increase of over 10 per cent in oil imports to India partly reflecting the rise in crude oil prices. 

2. Expected rise in Inflation due to Metal Prices Metal prices are likely to climb 11 per cent in 2017, a World Bank study said on Monday. This report gives a cue as of why RBI kept rates unchanged. “Metal prices are projected to increase by 11 per cent in 2017 due to tightening markets for most metals, especially those facing imminent resource constraints,” the World Bank study said.

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NATIONAL

“The largest gains are expected in zinc (27 per cent) and lead (18 per cent) due to mine supply constraints brought on by permanent and discretionary closures. Double-digit gains are also expected for copper, nickel, and tin,� it added. All this may have made RBI cautious of cutting rates.

3. Harder stance of FED on increase in interest rates thereby putting pressure on rupee The US Federal Reserve raised interest rates in December to target range of 0.50 to 0.75 per cent.

The US Federal Reserve sounded hawkish with respect to hike in interest rates in near future as well. The Fed's median outlook for rates rose to three quarter-point increases in 2017 from two as of September. Further rate hikes by US Fed will send out a strong indication to the currency as well as equity markets, which will bring the rupee down against the dollar. Clubbed with increasing metal and oil prices, this may have a compounding effect on inflation.

4. Bank not passing on benefits of previous rate cuts to the borrowers RBI governor Urjit Patel has been repetitively asking banks to lower lending rates. Urjit Patel said on Saturday that banks should extend the benefit of lower interest rates beyond the retail sector, indicating that lenders should pare the cost of loans for companies. Patel said banks had benefited from RBI's reduction in policy rates as well as the inflow of low-cost deposits in current and savings accounts in November and December.

"The average lending rate reduction (by banks) has been less. We feel there is some scope for further reduction in lending rates and for sectors like housing, personal, the reduction has been much more than for other sectors by the same bank," he said. Bank’s negligence in cutting rates might have prompted RBI to hold rate cuts. It would like to make sure that all the benefits from prior rate cuts should be provided to the borrower before any further easing in future.

5. Global Uncertainty RBI's decision takes into account the uncertainty surrounding the unleashing of Donald Trump's executive actions. "Global trade remains subdued due to an increasing tendency towards protectionist policies and heightened political tensions," RBI said. Not just US, RBI also considered the volatility in the financial market after Brexit. It said: "International financial markets turned volatile from mid-January on concerns regarding the 'Brexit' road-map and materialization of expectations about economic policies of the new US administration." Therefore, RBI may have felt it safe to keep interest rates unchanged in lieu of global uncertainty.

With this points in place, it seems that RBI has bring an end to cut cycle that it initiated two years ago. Much of its further actions would be decided based on how global economy develops. Till then, all of us need to be in wait and watch situation.

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INTERNATIONAL

Trump Calls World Leaders, China's Xi Gets a Letter

- KRISHANT KAUL

Donald Trump and the China through White House —— China as a currency manipulator —— Lu Kang Xi and the Trumps’s Letter

While world leaders such as Vladimir Putin, Enrique Pena Nieto and Recep Tayyip Erdogan have had phone conversations with Donald Trump since he took office, the president of the world’s second-biggest economy just received a letter. In his first direct communication since he took office, the U.S. president sent a note to Xi Jinping, saying US was seeking smoother ties.

He also thanked Xi for the congratulatory letter and wished the Chinese people a happy Year of the Rooster.

President Trump is looking forward to working with President Xi to develop a constructive relationship that will benefit both the United States and China. According to official Xinhua News Agency that cited foreign ministry spokes-

man Lu Kang, Xi appreciated Trump’s letter and is willing to work with the U.S. to advance ties and noted shared interests in promoting peace and prosperity. Trump faces pressure to fulfill his campaign promises to get tough on China, which he accuses of siphoning off American manufacturing jobs. Trump has promised to label China as a currency manipulator, to bring trade complaints against the nation and impose tariffs if it doesn’t halt what he sees as unfair trading practices.

This isn’t something unusual, prior U.S. leaders have not always rushed to chat on the phone with their Chinese counterparts. Even though Jiang Zemin’s visit to America in October 1997 led to an agreement on a hotline, former Page 4

INTERNATIONAL

President George W. Bush waited until July of his first term to speak with Jiang. By contrast, Barack Obama called Hu Jintao 11 days after his inauguration in 2009. Xi has reached out to Trump three times since his election win, including two congratulatory messages.

The development is better than nothing, yet it’s only a very small gesture, said Shi Yinhong, a foreign affairs adviser to China’s cabinet and director of the Center on American Studies at Renmin University in Beijing. So far Trump’s China policy hasn’t taken a clear shape, although all the signs so far point to a combative approach.

Trump has questioned the One-China policy which acknowledges China and Taiwan are part of the one country. He’s criticized China’s leaders for failing to do more to rein in North Korea’s nuclear ambitions.

There are a number of contentious areas where China fears Trump could go off script, the diplomat said, pointing in particular to the issue of self-ruled Taiwan, as well as trade. Trump has

upset China in December by taking a phone call from the Taiwan President Tsai Ing-wen. China considers Taiwan a wayward province with no right to formal diplomatic relations with any other country. Trump has also threatened to slap tariffs on Chinese imports, accusing Beijing of devaluing its Yuan currency and stealing US jobs.

So, finally President Donald J. Trump and President Xi Jinping of China had a lengthy telephone conversation on Thursday evening i.e.

9th Feb 2017. The two leaders discussed various topics and President Trump agreed, at the request of President Xi, to honor our "one China" policy.

Representatives of the United States and China will engage in discussions and negotiations on various issues of mutual interest. The phone call between President Trump and President Xi was extremely cordial, and both leaders extended best wishes to the people of each other's countries.

They also extended invitations to meet in their respective countries. President Trump and President Xi look forward to further talks with very successful outcomes.

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FINHUMOUR - ANKIT SURANA

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MARKET

A focus on fiscal discipline and clarity on FPI taxation reflected in the Union Budget, led to the Sensex leaping nearly 486 points .Financial and - NIDHI KUMAR realty stocks powered the show. Markets welcomed the proposals of infusing Rs 10,000 crore in public sector banks and keeping long-term (LTCG) and short-term capital gains tax (STCG) unchanged for the capital market. Shares of banks such as SBI, Union Bank of India, Bank of Baroda, PNB and Syndicate Bank climbed by up to 5.64% as a result of the announcement. The Budget also allocated a record Rs3.96 trillion to the infrastructure sector. Also, the government announced infrastructure status to affordable housing to encourage investment and offered tax sops for developers sitting on completed unsold inventories, which triggered buying in realty stocks like DLF, Godrej Properties, HDIL, Oberoi Realty, Prestige Estate Projects and Unitech. Shares of companies related to the agriculture sector such as Jain Irrigation Systems ended higher by up to 3.71% after Arun Jaitley announced a whopping Rs 1 trillion hike in credit target for the next fiscal to Rs10 trillion as part of efforts to double farm income in the next five years.

The Reserve Bank of India’s decision later to keep the policy rate unchanged, weighed heavily on the market , but the markets soon recovered. PNB, Axis Bank, ICICI etc. all ended up lower by up to 1.3% as a result of the RBI decision. Other laggards were Hero MotoCorp, Sun Pharma , ITC , Infosys etc. Sectorwise, the BSE FMCG index fell by 0.39%, healthcare 0.26% and IT 0.18%.

Given below is a Sensex graph to show the rise and fall of the index due to the turnout of the February , 17 events .

FUTURE OUTLOOK: Indian stocks have been under pressure due to a host of factors, ranging from capital outflows, global weakness, crude oil price fall, fall in exports and a weak rupee that have put pressure on investor sentiment. Foreign investors have already sold a net $1.9 billion (around Rs 13,000 crore) in shares so far this year and are expected to pull out more funds if the US Fed hikes rate again.

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STARTUP TRACKER - PRANAV GOYAL

Capital Float is an online platform that provides working capital finance to SMEs in India. It offers flexible, short-term loans that can be used to purchase inventory, service new orders or optimize cash cycles. Borrowers can apply online in minutes, select desired repayment terms and receive funds in their bank accounts in 3 days with minimal hassle. Capital Float is the trade name of Zen Lefin Pvt. Ltd., a non-banking finance company (NBFC) registered with the RBI. The company is headquartered in Bangalore. Our management team consists of experienced professionals with prior careers in blue-chip companies such as McKinsey & Company, Gokaldas Exports, Oracle, Citibank, Capital First, and Wipro. They also hold advanced degrees from leading universities around the world such as Stanford University, Princeton University, IIT Mumbai, The London School of Economics and Delhi University.

The company provides loan with a rather simple process which solves the problem of huge documentation required by the banks and financial institutions.

The process starts with applying online by filling a 10 minute online application form which is followed by uploading the required certificates digitally, so the entrepreneur is not required to physically go and furnish the documents which saves his time. After the submission and verification of documents, the entrepreneur receives instant approval within minutes and the loan is disbursed within 72 hours. So the company provides hassle free instant credit to SMEs with just the relevant documents which can be uploaded and verified digitally.

The company offers various products like Term Finance which provides a wide range of loan amount ranging from Rs. 1 Lakh to Rs. 1 cr. In term Despite running healthy growing businesses, finance, there is no penalty for repaying the loan pre entrepreneurs in India consistently struggle to maturely. The loan tenure for this type of credit raise timely credit from banks. Those that succeed ranges from 6 months to 3 years. often have to pledge personal property to fund business needs. Restrictive lending policies, It also offers Pay later finance, in which applicants inflexible collateral requirements and slow business history must be minimum 1 year and the disbursement times by formal financial institu- supplier minimum vintage must be minimum 3 tions frequently push SMEs towards informal years. Similarly the company provides various financiers; but while these lenders are quick to products to fund the working capital requirements offer funds, crippling interest rates tie down the of the SMEs by providing them hassle free loans. borrower to a chronic cycle of debt.

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FINAPP - SAMARTH AGARWAL

Betterment is the largest independent robo-advisor, helping people to better manage, protect, and grow their wealth through smarter technology. With more than 200,000 customers and over $7 billion in assets under management, the service offers a globally diversified portfolio of ETFs, designed to help provide you with the best possible expected returns for retirement planning, building wealth, and other savings goals.

With Betterment’s mobile app, you can safely and securely:  Access your account with a secure PIN log in  Securely link your checking account  Check the balance and returns of your investments in real time  Deposit and withdraw money anywhere, anytime  Manage your portfolio of stocks and bonds  Review your investing goals and account activity  Share Betterment with your friends and family With your Betterment account, you can:  Build wealth by investing in customized, diversified portfolios of stock and bond ETFs chosen for optimal expected returns.  Open a regular investment account, a Roth IRA, or traditional IRA, or manage a trust account.  Save time through automation, including tax-efficient rebalancing, automatic dividend reinvesting, and automatic deposits.  Save money. We never charge for trades or transactions. All you will ever pay is one low management cost based on your total account balance.

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FINWORD

Fiscal Deficit

- SHUBHAM ARORA

What is fiscal deficit?

Fiscal deficit is the difference between the government’s expenditures and its revenues (excluding the money it’s borrowed). A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

Considering that the Indian economy is growing between 5 to 5.5 percent in the financial year ended March 2013, fiscal deficit is definitely a challenge to the economy. According to the World Bank, growth in India is projected to rise to 6.5 percent and 6.7 percent in FY2014 and FY2015, respectively.

All said and done, India’s fiscal deficit has been the centre of debate for many occasions this year. And in April, Finance Minister, P Chidambaram has brought it down from 4.9 percent last year to 4.8 percent of the GDP in 2013-14.

What are the causes of fiscal deficit?

Government spending, inflation and lower revenue are among some of the main factors that point to fiscal deficit. The cynical nature of fiscal deficit does not only jeopardize the growth of the country but also the government’s economic management abilities.

In an ideal financial system, which has a balanced fiscal deficit, the cost of expenditure is low while production and growth is advancing. But when there is an increase in fiscal deficit it means that the government is spending too much while it is earning less. Hence, it is important that the government keeps its expenses under control.

One way the government earns money, is through taxes. For example, if the government lowered taxes or provided tax concessions to a particular group of people, then it would earn less, leading to an increase in fiscal deficit. And that’s one of the reasons why you will find the government giving a face-lift to the tax structures. In the same context, cutting of custom duty and excise duty will lead to declining revenues.

Like India, many developing countries are making an effort to resolve big fiscal deficits. On the bright side, for India, among other sources of revenue, foreign investments and inflow of remittances from Indians living overseas has helped avoid very high deficits.

Fiscal deficit does not come about only in case of creating less revenue and spending more money. Another major reason for a growing fiscal deficit can be slow economic growth or sluggish economic activities.

How fiscal deficit can be bad for India?

A large fiscal deficit is an indication that the economy is in trouble and will have reasons to worry. A high fiscal deficit could pose an inflation risk, minimize the growth of the economy, doubt the government’s abilities; it could affect the country’s sovereign rating, which in turn will limit foreign investors from looking at India as one of the investment hubs.

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FINWORD

It is believed that high fiscal deficit can be corrected. For example, if the government could not control its expenditures, it could raise taxes to cover up for the extra amount of money spent. When taxes increase, consumers will involuntarily have to cut down on their expenditure to pay the government.

Also, the government expenditure puts pressure on interest rates creating a negative impact on savings.

And yes, the Indian government can choose to import money into the country to balance the soaring fiscal deficit, but this move could appreciate the country’s currency and the government will have to pay interest on its borrowings, eventually increasing the deficit and affect the country’s economic growth. Therefore, delay in adjusting high fiscal deficit shows that the government cannot control its finances properly.

Did you know that several government projects are stalled because of high fiscal deficit? Here’s why.

When a country labors under high fiscal deficit, it limits the government’s spending capacity and this has an effect on the continuous funds various projects need. Infrastructure projects, or welfare policies, or education and healthcare projects, for example.

The trouble with high fiscal deficit is that it leads to higher interest rates, disturbing the entire economy.

Since the government is not earning much, it will have to restrict its expenses, unless it chooses to borrow.

And since the government abilities are doubted idue to its incapacity to control its profligacy, it is very difficult for the government to access loans. And even if it gets loans, they are at given at high interest rates. On the one hand, the government borrows because it does not have enough money, and on the other hand, it has to pay more for borrowing money. Hence, fiscal deficit leads to a slow progress of the nation.

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FINQUIZ

1.

[A] [B] [C]

What is a balloon payment?

Bridge Loan.

A lump-sum payment at a maturity of a balloon loan.

Payment for party balloons.

2.

[A] [B] [C]

What is an Auto Loan?

Line of credit.

A loan to purchase a vehicle.

Automatic loan

3.

[A] [B] [C] [D]

This term is derived from the Greek word 'Oikanomia' means "House Management". What is it?

Economics Housing Loan Repo Rate Trade

4.

[A] [B] [C] [D]

Gilt-edged market means Bullion Market Market of government securities Market of guns Market of pure metals

5.

[A] [B] [C] [D]

India changed over to the decimal system of coinage in April 1995 April 1957 April 1958 April 1959

6.

[A] [B] [C] [D]

The first wholly Indian Bank was set up in 1794 1894 1896 1902

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- RISHI SAXENA

FINQUIZ

7.

[A] [B] [C] [D] 8.

[A] [B] [C] [D] 9.

Those goods which have positive relationship between price and quantity demanded are called as ____________?

Veblen good Essential Goods Giffen Good Capital Good “Bad money (if not limited in quantity) drives good money out of circulation.” The above statement is from which among the following laws?

Keynes’ law Wagner’s law Gresham’s law Grimm’s law

[A] [B] [C] [D]

Which Bollywood actress has been appointed the new Brand Ambassador of the Swachh Bharat Campaign?

Anushka Sharma Deepika Padukone Aishwarya Rai Priyanka Chopra

10.

[A] [B] [C] [D]

Resurgent India Bonds were issued in US dollar, Pound Sterling and Japanese Yen Deutsche Mark Euro French Franc

Answers: 1. B 6. B

2. B 7. C

3. A 8. C

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4. B 9. A

5. B 10. B

LIFE @ IMT

“The harder the battler, the sweeter the victory.“ -Les Brown

- AFROZ I. HUSAIN

This is the month in which IMT sees a wide spectrum of batches of students at the same time in campus; alumni in the form of sports team Legends and new batch of students coming for Group Exercise & Interviews. Admission committee and IMTeam PRISM members are also actively involved in helping conduct admission procedures throughout the country.

The flagship sports fest of IMT, Chakravyuh, has also started which is seeing participation from various b-schools like IIMs, IMI, FMS, MDI, Great Lakes. It is a 72-hour nonstop sporting event which covers sports like Football, Cricket, Basketball, Badminton, Lawn-Tennis, Table Tennis, Volleyball and Throwball.

At the launch of Chakravyuh, the event was graced by the presence of Piyush Chawla who afterwards played cricket with our director Dr. Atish Chattopadhyay. There was also a performance by Prince Dance Group who demonstrated all 9 emotions of Navarasa in the form of dance. Subsequently there was a laser show which not only exhibited all the 9 rasas of Chakravyuh but also presented the legacy of IMT Ghaziabad ravishingly.

Since it’s the time of concoction of IMT students, our alumni & the newcomers, we wish all the best to all of them in life!

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