FEBRUARY 15, 2015 | A FINNICHE INITIATIVE
In Focus AAP Wins Delhi Elections Way Forward? | 2
Term of Week
The finance club at IMT Ghaziabad is engaged in a constant endeavor to provide you with a practical exposure to the world of finance and the latest emerging trends in the related fields of Risk Management, Banking, Investments and non-finance topics. Do write to us at: finniche.imt@gmail.com
Opinion How to Reduce Fiscal Deficit in India | 4
Value at Risk | 6
Personality Arvind Subramanian|11
Brand World Three Mistakes and a
Gift |12
February 15, 2015 | Volume 34
This week started with the splendid victory of Aam Aadmi Party in the Delhi Assembly Election, Arvind Kejriwal thrashing all its rivals and winning outstanding 67 out of 70 seats. IMT successfully hosted the Chakravyuh, and at global level the commencement of ICC Cricket World Cup has started in Australia, with India facing its rivals Pakistan in its opening match, around 1 Billion people are expected to tune into this match. Off late AAP Wins Delhi Elections
with only two weeks left for the First Financial Budget from the Modi Government, lot of
Way Forward?
expectations and speculations are arising from the Indian Market. Club FinNiche releases its weekly magazine FinXpress, with the In Focus talking about
How to Reduce Fiscal
the ‘Winning of Arvind Kejriwal’. The Opinion gives an overview of ‘How to reduce
Deficit in India
Fiscal Deficit of India’.
Value at Risk
The term of the week describes ‘Value at Risk’, a method to measure the market risk of asset portfolios of security houses and investment banks. Do have a look at the market section, Tech world which brings to you about June—A valentine gift and Personality of the week, Arvind Subramanian. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas.
Arvind Subramanian
Three Mistakes and a Gift
Happy Reading! Regards The Editorial Team Club FinNiche
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
- By Gayatri Pandit
Arvind Kejriwal winning the Delhi Assembly Elections 2015 by landslide margin
Highlights
of
Parties’
manifesto are given, wherein the party is trying to work upon opening
of
new
schools,
colleges, installation of CCTV cameras.
Making Delhi fully Wi-Fi
Creating opportunities
more
job
Honorable Shri Arvind Kejriwal Head of Aam Aadmi Party won the Delhi Assembly election 2015 by land slide victory. Thus people of Delhi voted for stable government by giving the absolute majority to AAP. Delhi voters voted to AAP because Mr. Arvind Kejriwal has given very lucrative promises in his parties manifesto that if his party wins then he will give 700 liters of free water Chief Minister designate Arvind Kejriwal vowed to implement within 24 hours, 700 liters per day of free water to every household and 50 per cent cut in electricity tariff. He has also given following promises in his parties' manifesto: 500 New Schools in 1825 days. A School to be started in Every 3.65 days
cases in six months time period Making Delhi as Wi-Fi Delhi Creating 8 Lakh new Jobs
20 New Colleges in 1825 days. A College to be Started in every 91.25 days
Regularization and Transformation Unauthorized Colonies
1500000 CCTV Cameras. Installing A CCTV in every 2 minutes
Affordable Housing for all
2,00,000 Public Toilets. Constructing public toilet in every 13 minutes Expansion of Healthcare Infrastructure 900 new Primary Health Centers (PHCs) Constructing new PHC in every 10 days 30000 new beds in Hospitals Speedy justice by creating 47 new fast track courts and disposing all pending
of
In Situ Development of Slums regularizing slums and it will be given new roads, water supply, electricity, amenities In addition to this, women security, making contractual labors permanent, making Yamuna river pollution free, constructing new swage treatment plants, rain water harvesting, drug free Delhi, and much more etc. These are some of the high lighted promises given by AAP and in addition to this above all Shri Arvind Kejriwal stated in his manifesto that
all this change motto
that
will “Big
be
achieved
Change
without
with
infrastructure, skilled man power generating
Big
additional funds without burdening Delhi
spending�.Delhi budget isof Rs. 36700 crores.
voters.
The above promises made in manifesto. This Women
Security
making
contractual labors permanent, making
Yamuna
river
pollution free, constructing new swage treatment plants, rain water harvesting, drug free Delhi
can be achieved by controlling planned
Hence they have not stated in there manifesto,
spending to effectively minimum and with
as other parties like congress have history of
raising additional revenues from Delhi public
not fulfilling there promises given in previous
as stated in manifesto.
elections while Shri Kejriwal has shown his
which is dream of
every citizen in Delhi. If these promises are
accountability
fulfilled in next five years then it will be a
promises he made in his 49 days of Chief
great boon to Delhi.
Minister ship tenure in Delhi assembly in
are some of the key
of
fulfilling some
of
the
2014. Since no other party has this track
issues to be looked after by the
This is very large order, none of other parties
record of fulfilling of the promises of during
Aam Aadmi Party.
like BJP, CONGRESS and other parties have
there rule,
confidence that it can make and achieve above
heartedly voted AAP with absolute majority.
promises, even in five years of period that to
If these promises are not fulfilled in next five
without
practical
year rule then it will be a curse to Delhi and
problems like availability of Land, water,
an another requirement of President’s rule
electricity,
have to stabilize the capital city from dismay.
additional time
funds
and
required
to
build
Hence Delhi voters wholly
- By Mohana Krishna Kummara
First of all before getting deep into how to
One of the major income for government is Tax revenue.
India’s tax revenue base is very small. Just 3 percent of
reduce the fiscal deficit, let us first try to
Spread the Tax Net One of the major income for government is
understand what a fiscal deficit is. Fiscal
Tax revenue. India’s tax revenue base to over
deficit
the
20 percent in china and 45 percent in the US.
government’s total expenditure and the total
There should be measures taken to increase
non-debt receipts. In brief, this indicates that
the tax revenue which can reduce the fiscal
government has exhausted all the options for
deficit by a large extent.
is
the
difference
between
financing its expenditure, the only way to finance its expenditure is through debt. Thus, the total debt generated by the government to
India’s population pays income
finance activities leading to the creation of
tax, compared to over 20
national assets. If incurred year after year
percent
high fiscal deficit may become a matter to
in
china
percent in the US
and
45
worry, they cumulatively create a huge debt for the government. Now, let’s come to the problem in hand. India’s fiscal deficit is at 6.7 percent of GDP in 2013-14, which is the highest in the emerging markets. Asian average is still at only 2 percent of GDP. High inflation in the recent
First, high agricultural income could be
years is the major reasons for piling up of
brought into the tax net. A policy of excluding
India’s debt. This amount of high fiscal debt
this from the tax net does not distinguish
may lead to many macro-economic problems.
between high and low incomes, but only
Major ones are lower national income, this is
based on the occupation. This is not equitable.
because
are
Also, there may be cases where citizens may
higher than its revenues. Because of which the
disguise non-agricultural incomes also as
government is forced to take debt which
agricultural income to evade taxes.
the
government’s
spending
crowds out the private sector. Banks, pension and insurance funds have a large fraction of
Second, the multi staged appeal process
their assets in government bonds, which
hampers the tax collection. A citizen can
prevent private sectors from using these
appeal against an income-tax department
funds.
enquiry over several stages.
First, to contest the claim he can go to the commissioner. If the expected favourable outcome does not come out of it, he can then appeal to the income-tax tribunal. He can also further approach high court, Supreme Court. This means multiple stages to contest taxes in India, but if we see other countries, they tend to have only one or two stages. These multiple sages reduce the efficiency of tax collection. Third, the tax collection agencies are divided into two: Central Board of Direct Taxes (CBDT) and the Central Board of Excise and
Customs (CBEC). Again these two are under the control of ministry of finance, with little autonomy in setting their budgets or hiring staff, and limited coordination between the two boards. Cut the Strings Like the US has an independent tax authority, the Internal Revenue Service (IRS) – could evade some of the tax collection issues. This type of fully autonomous tax agency has been adopted by several developing countries in Asia, Africa and Latin America.
- By Arihant Jain
Value at Risk (VaR) is a probabilistic method
basis, it can be obtained by multiplying
of measuring the portfolio loss over a given
percent VaR by the asset value.
time period an for a given distribution of
VaR (X%) = zx% x
historical
returns.
In
other
words,
this
technique is used to evaluate the financial risk Value at Risk (VaR) is the
level in an investment or a portfolio. The risk
VaR Methods The Delta Normal Valuation Method is a
maximum loss not exceeded
manager uses this tool to ascertain the
linear method for calculating VaR, where
with a given probability defined
maximum risk that can be undertaken while
portfolio positions are replaced with linear
as the confidence level, over a
making an investment in the worst possible
exposures in the appropriate risk factor. Here
given period of time. It is
scenario.
relationship between change in portfolio
commonly used by security
value and change in risk factor is calculated VaR can be calculated for any percentage
by assuming that only one risk factor exists.
probability of loss and over any time period.
While this approach is easy to implement, it
A 1%, 5%, 10%, VaR would be denoted as
assumes a normal distribution. It also fails to
their asset portfolios (market
VaR (1%),
VaR (5%) and VaR (10%)
properly account for distributions with fat
value at risk)
respectively. The risk manager selects the X
tails, either because of unidentified time
percent probability of interest and the time
variation in risk or unidentified risk factors
period over which VaR will me measured.
and/or correlations.
houses or investment banks to measure the market risk of
Generally the time period selected is one day. Under
Delta Normal Method
Historic
Simulation
Method,
a
number of past daily returns are accumulated
Historic Simulation
Calculating VaR Basic assumption while calculating VaR is
Method
that the asset returns conform to a standard
lowest X% returns are identified and the
normal distribution, where mean (µ) is 0 and
highest of those returns is the 1-day X% VaR.
standard deviation (
Monte Carlo Simulation
Approach
and ranked from highest to lowest. The
is equal to 1 and is
The calculations in this method though
perfectly symmetrical. VaR can be calculated
simple but will not be possible if historic data
by the following formula:
is unavailable.
VaR (X%) = zx% x Here, zx% is the critical z-value based on the
The Monte Carlo Simulation Approach
normal distribution and the selected X%
revalues a portfolio for a large number of risk
probability. Thus, critical values for 10%, 5%
factor values, randomly selected from a
and 1% lower tail probabilities will be –1.28,
normal distribution. It refers to computer
-1.65 and -2.33 respectively.
software that generates n number of possible
The resulting VaR estimate would be the
outcomes from the distributions of inputs
percentage loss in asset value that would only
specified by the user. It is considered to be the
be exceeded X% of the time.
most powerful model as it can account for
Moreover, if VaR is to be calculated on rupee
both linear and non-linear risks.
INDIAN MARKETS The investors are optimistic despite the drubbing of BJP in the Delhi Elections. Analysts expect that the central government would push ahead with the economic reforms, when it unveils it’s budget later this month. Shares of manufacturing and infrastructure companies would particularly be affected by the budget. The Sensex managed to touch the psychological 29000 mark. Nifty recorded a gain of almost 2.5%. SBI Q3 Net Profit up by 30% as shares surged.
Open
High
Low
Close
SENSEX
28227.39
29142.39
28089.39
29094.93
NIFTY
8590.75
8819.70
8190.80
8805.50
Mahindra and Mahindra gained 5% and was the second best performing stock.
Government administer
is the
ready
to
“bitter
BSE SENSEX
medicine”.
CNX NIFTY
COMMODITIES Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
26691.00
0.65
Silver
1 kg
38204.00
2.63
Crude Oil
1 bbl
3294.00
3.91
EXCHANGE RATES INR/ 1 USD
62.14
INR /1 EURO
71.05
INR/ 100 JAPAN YEN
52.34
INR / 1 POUND STERLING
95.78
INTERNATIONAL MARKETS
Open
High
Low
Close
NYSE Comp
10822.16
11044.42
10808.37
11042.69
NASDAQ
4729.02
4893.84
4720.97
4893.84
S&P 500
2049.18
2096.99
2044.18
2096.99
FTSE 100
6831.67
6883.48
6787.04
6873.52
CAC
4655.10
4765.86
4641.99
4759.36
DAX
10663.51
10628.13
10995.90
10963.40
NIKKEI 225
17648.50
17997.02
17566.93
17913.36
SSE 50
2332.07
2314.02
2540.34
2427.77
Hang Seng
24504.48
24697.07
24236.94
24682.54
ICICI Prudential Life Insurance plans to sell 5% stake ICICI Prudential Life Insurance has decided to sell 5% stake to financial investors, private equity firms and sovereign wealth funds. Anticipating increase in the foreign investment cap in the sector to 49%, ICICI Prudential is looking to sell the stake. It is the biggest private
sector life insurer having 11.4% market share. An estimated amount of $6 billion could be raised by the sale. Analysts believe that this sale is an attempt to understand the valuation for the planned IPO which can happen in near future. However, the deal will be concluded after the changes in foreign investment policy in the insurance sector is passed by both the Google Capital is considering the Indian Start-up boom and it will hire a team and invest in
houses of parliament. Currently, only Government has increased the limit from 26% to 49%, but approval of both the houses is pending. Several investors are keeping their watch as it is interesting to see the biggest private player taking some action in response to a policy change by government.
the growing companies which have drawn the attention of big investors across the world. It
Snapdeal is looking to raise funds worth $400 million
has also been predicted that in next 3-7 years about 30% of
Just four months after SoftBank made an investment in Snapdeal making it the largest
the world’s billion-dollar compa-
shareholder of the e-commerce marketplace, Snapdeal is again looking to raise some funds
nies will
worth $400 million or Rs. 2500 crore. Snapdel last raised money in the month of October
be from India. The has
2014, now as the interest of the shareholders is increasing it is planning to raise more funds.
already met 25 start-ups in less
Another reason behind such plan can be to compete against large strategic e-commerce
Capital
than a week.
team
players like Alibaba. Till now SoftBank is the largest investor in Snapdeal, now it will be interesting to see the source of such funding whether it will be domestic or international source. However, some US-based hedge funds are interested for making such investment.
Growth of index of industrial production slows down The index of industrial production rose by just 1.17% in December, while the same recorded a growth of 3.9% in the previous month. The reason for this was poor performance of the mining sector and sub-par manufacturing. Manufacturing has a weight of 75% in IIP and it just grew by 2.1% in December . Mining shrank by 3.5%. Easing of interest rates may help the industry. Both government and RBI should consider this as it remains an area of concern which hasn’t witnessed any improvement as such.
Consumer Inflation rose to 5.11% Consumer Inflation in January was 5.11% whereas it was 4.28% in December. A revamped GDP numbers showed the increasing growth of Indian economy, on the other hand a revamped consumer inflation index showed an increase in the month January 2015.
Changes in the interest rates will decide inflation. However, RBI is expected wait for the budget before deciding on interest rates. On the other hand, retail inflation is still below RBI’s target of 6% of
March and below expectations, but upcoming budget will be a
deciding factor for RBI for further interest rate cuts. Change in the base year has significantly affected GDP growth forecast and the same has made RBI governor Raghuram Rajan cautious regarding monetary policy.
India’s exports declined by 11.2% In January, exports of the country fell 11.2% being the most in two and half years. Whereas,
because of reduction in global crude oil India’s import bill was lower and this ultimately led to narrow the trade deficit. But, exports need to grow at an average rate of 14% in the next two coming months to meet the fiscal target of $340 billion. The demand in EU and Japan is decreasing because of worse economic situation. Gold imports were up to the expected level of $1.5 billion. Gems and jewellery exports contracted by 3.73%. Pharmaceuticals exports also fell poorly. Therefore, India need to clear big projects and improve exports to meet the fiscal deficit target.
Q3 net profit of SBI rises by 30%
State bank of India recorded a jump of 30% in net profit amounting to Rs.2,234 crore in the September-December quarter. The treasury gains from currency, derivatives and bond trading rose 286% and interest earnings of the bank increased 9.2% to Rs.13,777 crore. Expected interest rate cut post budget will help the bank in earning more money via bond trading. On the other hand, SBI did well in managing its NPAs. The same was declined to 4.9% as compared to 5.7% of the previous year. According to SBI Chairman, the growth rate for the next two quarters will remain constant.
He is a widely cited expert on the economics of India, China, and the changing balance of global economic power. IIM, Ahmedabad (MBA) University of Oxford (M. Phil, D. Phil)
India's
Turn:
Understanding
the Economic Transformation (2008)
Eclipse: Living in the Shadow of
China's
Economic
Dominance (2011)
Arvind Subramanian, a native of Tamil Nadu is an Indian economist and the current Chief Economic Adviser to the Government of India, having taken charge of the position on 16 October 2014 succeeding Raghuram Rajan. He served as the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics and a Senior Fellow at the Center for Global Development, both located in Washington DC. He was also appointed as the assistant director in the Research Department at International Monetary Fund. He served at the GATT (1988 –92) during the Uruguay Round of trade negotiations and taught at Harvard University's Kennedy School of Government (1999–2000) and at Johns Hopkins' School for Advanced International Studies (2008–10).
Arvind Subramanian is the author of two books, India's Turn: Understanding the Economic Transformation published in 2008, Eclipse: Living in the Shadow of China's Economic Dominance published in September 2011, and co-author of Who Needs to Open the Capital Account? which was published in 2012. In 2011, Foreign Policy magazine has named him as one of the world's top 100 global thinkers. He has also published or been cited in leading magazines and newspapers, including the Economist, Financial Times, Washington Post, New York Times, Wall Street Journal, Newsweek, and New York Review of Books. He contributes frequently to the Financial Times and is a columnist in India's leading financial daily, Business Standard. Arvind Subramanian's elder brother is V.S. Krishnan who is an Indian Revenue Service Officer and is presently the Chief Commissioner of Central Excise, Mumbai. In News Arvind Subramanian was recently in news when he cautioned that the new GDP data should not be used for policies in a rush. He mentioned that the new numbers have puzzled him, as these aren't corroborated by other data, including those showing a decline in imports, high interest rates and outflow of capital.
- By Shubhra Sasmit
June is a bracelet that tells the wearer how much sun dose you are exposed to if you are wearing a sunscreen, and the amount if you don’t, what is the
From first time crushes to long time relationships, 14th February becomes the seminal date in many relationships. The flurry for gifts and presents for that special someone is an exciting as well as an onerous task for many. So in addition with the cool gizmo that you can gift that special someone, we will also help you remember some of the basics that you are more than likely to forget.
right amount of sunscreen you should apply.
Can be considered as a utility
jeopardy. Three of them are:
Recharge your phone: No matter how good your plans, it’s surely going to go kaput, if your balance runs out on you in the last minute. Free Wifi on the campus and having Whatsapp on our phones has made us careless to the pitfalls of not having talk time balance on the phone. There are myriad details that you need to confirm to have that special evening and Whatsapp will only take you so far. Petrol Check: If you are one of those, who have laid your entire plans around your car or your bikes, you really don’t want to run out of petrol, even on a normal day it’s frustrating, let alone on valentine day. So, yes my friend do keep a check on that dial.
as well as a Valentine Gift.
June is a bracelet that tells the wearer how much sun dose you are exposed to if you are wearing a sunscreen, and the amount if you don’t, what is the right amount of sunscreen you should apply. It works by taking the UV readings from its sensors and then compares it with the readings that you provide in the app. It basically is for women and girls who have an independent lifestyle and is working round the clock. It acts a reader of sorts and helps you manage your skin care. In a rush to plan the perfect evening we often don’t pay attention to small insignificant details that can put the best laid plans in
Keep the Gandhis : In the day of ATM cards, credit cards, and all sort of club cards that litter our purse, we sometimes don’t feel the need to keep the Gandhis in our pocket. Believe us, having the Gandhis in our pockets can turn potential deathblows to your valentines vanish in a puff of smoke, right from the traffic inspector who makes it his mission to catch couples and harass them on this day down to that ‘adrakh chai’ that both of you love at that nukkad. Credit cards are good at the fancy restaurant, but if you are of a spontaneous kind, do keep those Gandhis. Have fun and enjoy the day…