EDITORIAL I S S U E
1 4
J A N U A R Y
3 1 ,
2 0 1 6
Another momentous fortnight! With
CONTENT RBI to announce its
successful
closure
of
TEDxIMTGhaziabad,
IMT
achieved
another
landmark.
As with 10 days left for the 24th edition of much awaited sports event “CHAKRAVYUH“,
6th Bimonthly policy Review| 2
college is elated to host teams coming from all over the nation.
Why UDAY, 7th Pay Commission are ticking time bombs on states' finances | 3
a insightful session for each one you.
Zika Virus spreading at an alarming rate | 6
As always we are ready with insightful national and international articles and much more at
Recurring Mismanagement of Oil in Nigeria | 8
magazine. Please do write to us and share your ideas.
TRENDING NEWS | 10
Happy Reading!
The club FinNiche thank all the participants of ICICI Certification Course and hope that it was
We congratulate the winners of Nivesh Mantra'16 and wish all the best to the participants and finalist of Koncentrix .
your disposal. Club FinNiche welcomes any comments, suggestions or criticism regarding the
MARKET | 11
Regards
FIN-WORD | 12
The Editorial Team
PERSONALITY | 13 SPONSORS | 14
PAGE
1
Club FinNiche
NATIONAL B Y
N I S H A N T
R A T H I
RBI to announce its 6th Bimonthly policy Review On February 2, RBI will announce its sixth
a fresh big softening in commodity prices
Bimonthly policy review, the last before
like oil will keep WPI low for a long time.
presentation of union budget amid clamor
CPI is seen to be inching higher. Though
for rate cut to boost economy.
The
we can see a further drop in oil prices, the
1.25 percentage points to 6.75 per cent
Reserve Bank of India is approaching the
entire drop is not passed on to consumer
end of its rate-cutting cycle and is
due to balancing from government side and
expected to go for a final 25-bps repo rate
only a part of it will be passed on. So we
FICCI new
cut at its policy review meet.
can expect average inflation to be around
president
Current Scenario
5% handle for 2016.
Harshavardhan Neotia had
The economy growth has remained weak
Other
and a rate cut would provide an additional
decision
impetus
recovery.
RBI achieving 5 per cent 2016-17 target
According to an assessment policy easing
will depend on how weather phenomenon
cost of funds was high and further
should back up the rupee as well by
El Nino plays out, the 7th Pay Commission
attracting inflows.
impact and fiscal deficit.
reduction in interest rate
WPI
December
status quo in the forthcoming policy review
would help to propel investments
WPI as well as retail inflation has been on
and wait for the fiscal roadmap presented
rising trend. In December WPI-based
in the Budget. The current instability in
inflation stood at (-)0.73%, while retail
markets and insufficient transmission by
EBITDA growth
inflation was at 5.61%.
banks are further reasons why the RBI may
of companies
WPI recent number has been most
not rush to cut the rate. The RBI is
affected from food prices. During last
committed to getting the headline number
quarter there has been seasonal softening
down to 4% in two years from now.
in food prices, but certain buckets have
So the central bank is likely to go for a cut
seen major upside in food prices. Despite
in policy rate but during the April-June
being a non-perishable commodity, pulse
period of the year. RBI is expected to leave
prices has not been diminishing from a long
all benchmark rates unchanged in its policy
period of time. If there is some kind of
review meet on February 2 but it is likely
softening in pulses, then it combined with
to maintain a dovish stance.
SNIPPETS
In 2015 RBI reduced key policy rates by
pitched for lower interest rates saying the
was at a decade low of 3.5 per cent in 2014-15
Various macro and micro factors affect RBI policy rate
to
and
the
CPI
fledgling
readings
from
seasonal softening in other categories and
PAGE
2
scenarios
deciding
RBI
HSBC said it expects RBI to maintain
NATIONAL B Y
A B H I N E E T
A U G U S T I N E
Why UDAY, 7th Pay Commission are ticking time bombs
on states' finances SNIPPETS
7th Pay Commission
As debate continues to rage on whether
revised estimates and the budget estimates
or not the central government should ease
for 2015-16 are not known.
its fiscal deficit target to give the economy
Reserve Bank of India governor Raghuram
a
public
Rajan also flagged the issue of UDAY’s
UDAY
booster
shot
expenditure, little attention is being paid to
impact on state finances in Delhi on Friday
ICRA Study
another issue with hefty implications for
while delivering the C. D. Deshmukh
macro-economic stability.
memorial lecture. India’s combined fiscal
What will the double whammy of the
deficit, he said, was higher than that of
UDAY (Ujwal Discom Assurance Yojana),
many similar economies, except perhaps
the
Brazil.
central
turnaround
by
pushing
government’s
scheme
for
state
financial power
The International Monetary Fund estimates
distribution companies, and pay revisions
on India’s consolidated fiscal deficit show
of government employees do to the
that it has increased from 7 per cent in
finances of state governments?
2014 to 7.2 per cent in 2015. The IMF, he
After all rating agencies look not just at the
pointed out, calculates the consolidated
central government’s deficit indicators but
fiscal deficit differently, but that is what
the combined deficit of the central and all
rating agencies look at.
state governments taken together, also
The impact of the twin shocks of UDAY
called the general government deficit.
and 7th Pay Commission will not be felt in the current fiscal but could have a
PAGE
3
The latest figure on the combined fiscal
potentially damaging effect in the coming
deficit for all states that is available is for
years. The outgo on both these counts
the budget estimates (BE) of 2014-15 – 2.3
could also affect capital expenditure –
per cent of gross domestic product (GDP).
always the first to get axed in times of
Assuming the combined states fiscal deficit
stress – at a time when the economy
has remained the same in 2015-16 BE, with
needs a big capex push. Take the case of
a central government deficit of 6.2 per
UDAY, in which 15 states have agreed to
cent.
come
Sure, this is not alarming and is the lowest
memoranda of understanding (MoU) with
since 2008-09 (when the combined deficit
the central government. State governments
doubled to 8 per cent from 2006-07), but
signing up for UDAY will take over a part
remember that the state fiscal deficit figure
of the losses of their respective discoms as
is the budgeted estimate for 2014-15; the
well as 75 percent of the debt.
on
board;
three
have
signed
PAGE
4
The states will pay the lenders back by
onwards.
issuing state development loans (SDL,
A State Bank of India Ecowrap study on
sovereign securities issued to raise
the impact of UDAY shows that the
money from the market) with a maturity
resulting fiscal liability (fiscal deficit plus
of 10 to 15 years. These will be over and
discom debt as grant and loan plus net
above the statutory liquidity ratio that
interest payment) in 2015-16 would jump
banks are holding. States will get some
from 3.48 per cent of GSDP to 11.19 per
flexibility on their fiscal deficit targets for
cent in the case of Rajasthan and from
two years to enable this, but will still face
2.63 per cent to 6.37 per cent in the case
significant fiscal stress.
of Tamil Nadu. these are among the 15
A study on state finances by rating
states that have agreed to participate in
agency ICRA points out that if these
UDAY. The study notes that if all the
loans equalling 50 per cent of the discom
states in the sample sign up for UDAY
debt are issued at a coupon rate of 8.5
and issue the loans at a coupon rate of
per cent, the interest burden of states
8.5 per cent, their interest burden would
like Gujarat, Haryana, Punjab, Rajasthan
go up by Rs 1,600-5,100 crore a year
and Tamil Nadu (their discoms account
from 2016-17 onwards.
for over half the total discom debt of Rs
A State Bank of India Ecowrap study on
4.3 lakh crore) could bloat their fiscal
the impact of UDAY shows that the
deficit by up to 0.5 per cent of gross
resulting fiscal liability (fiscal deficit plus
state domestic product (GSDP). (The
discom debt as grant and loan plus net
ratio to GSDP is used in the context of
interest payment) in 2015-16 would jump
individual states, but ratio to GDP is used
from 3.48 per cent of GSDP to 11.19 per
in the macro or national context.) The
cent in the case of Rajasthan and from
impact will begin to be felt from the next
2.63 per cent to 6.37 per cent in the case
fiscal – 2016-17.
of Tamil Nadu. Imagine the likely impact
The ICRA study looks at trends in the
if more states come on board; power
2015-16
-
minister Piyush Goyal is expecting all
Karnataka, Kerala, Tamil Nadu, Gujarat,
states to. This is not to argue that UDAY
Maharashtra, Punjab, Haryana, Rajasthan
is a bad idea. Something like this is
and West Bengal. Five of these are
needed for the ailing power sector. But
among the 15 states that have agreed to
the fiscal strain that it will entail should
participate in UDAY. The study notes
not be glossed over. And what of the pay
that if all the states in the sample sign up
revisions? The ICRA study shows that of
for UDAY and issue the loans at a
the nine states, five (Karnataka, Kerala,
coupon rate of 8.5 per cent, their
Punjab, Haryana and West Bengal) have
interest burden would go up by Rs 1,600-
their own pay commissions while Tamil
5,100 crore
Nadu, Gujarat, Maharashtra and
budgets
a
of
nine
states
year from 2016-17
Rajasthan followed the Central Pay
drawing down on treasury bill holdings,
Commissions.
Only Karnataka and
which stood at Rs 140,000 crore as of 8
Kerala had revised their salaries recently,
January. But this could have other
in 2012 and 2014 respectively. The rest
undesirable effects on interest rates.
had not done so since 2006 and 2007. It
While the overall picture on state
stands to reason, then, that they will not
finances looks better than that of the
be miserly with pay hikes; they simply
Centre (all states taken together show a
cannot afford to.
revenue surplus), the performance of
Where will the money for all this come
individual states varies and this could
from?
pose macro challenges in the future.
The growth in states' own tax revenue
The Reserve Bank of India study on state
has been declining from 2011-12 – from
finances based on the budget estimates of
21 per cent that year to 11.6 per cent in
2014-15 shows that only half of the 18
2014-15 (BE). The ICRA study shows a
non-special category states had revenue
decline between 2014-15 RE and 2015-16
surpluses, while two had crossed the 3
BE for the nine states in its sample.
per cent fiscal deficit target.
Growth in sales tax also shows a similar
While
declining trend, pulled down mainly by
Commission had said that states should
lower fuel prices, according to ICRA.
bring down their debt-GSDP ratios
The increase in transfers from the centre
below 25 percent by 2014-15, 15 states
under
were above the threshold, some of them
the
Fourteenth
Finance
5
Thirteenth
Finance
Commission award will be a boon for
above 35 per cent.
state governments. As Jayanta Roy,
UDAY is necessary to get the power
Senior Vice President and Head Public
sector back into the pink of health. Pay
Finance Ratings, ICRA, points out, since
revisions cannot be avoided beyond a
the pace of growth of the Centre’s gross
point. But both could derail the country’s
tax revenues in April-November 2015
hard-won macro economic stability if
has exceeded the budget target, there is
states don’t manage their finances better.
unlikely to be a significant shortfall in
Unless they do – drastically curbing
central tax devolution to the states, as
unproductive
has been the case in the previous four
from fiscally ruinous populism and going
years.
all out to raise own revenues - the
Extra spending on UDAY and pay
ticking time bomb of precarious finances
revisions could also get constrained by
could go off a few years down the line.
the 3 per cent cap on fiscal deficit that
And that could seriously impair the India
states need to comply with. ICRA
story.
believes states could circumvent this by
PAGE
the
expenditure,
refraining
INTERNATIONAL B Y
R I S H A V
S I D D H A R T H
Zika Virus spreading at an alarming rate SNIPPETS
Zika Virus is linked with a birth defect
an emergency meeting to find ways to stop
known
the
as
microcephaly,
which
sees
transmission of the Zika virus —
children born with abnormally small brain
which
About the Zika
sizes, as well as neurological syndrome that
explosively" across the Americas. Margaret
Virus
can cause
paralysis. It is named after a
Chan, director general of the WHO, said
Why is it
forest in Uganda where it was first
in Geneva during a briefing for member
alarming now?
identified in 1947. Zika is an RNA virus
countries, "The level of alarm is extremely
which is also known as “arbovirus”
high, as is the level of uncertainty.
because
Questions abound. We need to get some
Steps taken by WHO
it
is
transmitted
through
arthropods such as mosquitoes. Other arboviruses
producing
officials
said
is
"spreading
answers quickly”.
significant
diseases are chikungunya and dengue. Both
WHO said the pathogen, which was
of them are transmitted by Aedes aegypti
virtually unheard of in the region a year
female mosquito. The Zika Virus which
ago, is spreading so fast that it could
circulated
initially
infect as many as 3 to 4 million people
thousands
of
in
years
primates
now
has
for finally
within
12
months.
Chan said those
exploded in humans.
numbers and the severity of the possible
In most patients, the Zika virus has
complications being reported - from a
relatively minor flu-like symptoms which
brain abnormality called microcephaly in
subside without much incident in no more
children to paralysis in adults - make the
than a week. It has a lower mortality rate
situation dramatically different than what
than winter flu, and seems limited to
epidemiologists
equatorial areas with high numbers of the
outbreaks of the virus.
Aedes
aegypti
biting
have
seen
with
past
mosquito. In a separate briefing with reporters
Yet the unprecedented Brazil outbreak
Thursday, U.S. officials said all states are
which began in 2014 has corresponded
now required to report Zika cases. As a
with a sudden spike in cases of microceph-
result, they expect to see a sharp increase
aly - 3,893 cases as of last week, more than
in cases involving a traveler infected while
30
abroad who becomes symptomatic after
times
greater
than
any
other
period since 2010. The PAGE
6
World
Health
returning home. But local outbreaks are Organization
announced Thursday that it will convene
unlikely here, officials said. Lawrence O. Gostin, a global health law
PAGE
7
professor at Georgetown University, said
a statement.
Chan
mobilize
"If the association between microcephaly
international resources" to curb Zika's
and Zika virus is confirmed, there will be
spread.
be
an ethical imperative to protect women
over-prepared than to wait until a Zika
of childbearing age from contracting the
epidemic spins out of control," he said in
infection," Gostin added.
needs "It
to is
"urgently far
better
to
INTERNATIONAL B Y
H E R S H
B A N U
Recurring Mismanagement of Oil in Nigeria Nigeria is the 12th largest producer of
petroleum in the world and the 8th largest exporter, and has the 10th largest proven
Reducing the balance of payment deficit by cutting imports
It also gave priority to the importation of
reserves. (The country joined OPEC in 1971).
raw materials and spare parts that were
Petroleum plays a large role in the Nigerian
needed for agriculture and industry.
economy, accounting for 40% of GDP and 80% of Government earnings. It is the United
Other economic measures by Buhari took
States' largest trading partner in sub-Saharan
the form of counter trade, currency change,
Africa and supplies a fifth of its oil (11% of oil
price reduction of goods and services.
imports). All this was intended to keep up with It is tough to survive low oil prices for a
Nigeria’s loan payments but it eventually
country
what
defaulted on its principal debt repayments,
happened during the oil boom of the 1970s,
limiting repayment to the interest portion of
Nigeria accumulated a significant foreign debt
the loans. Arrears and penalty interest
to finance major infrastructural investments.
accumulated on the unpaid principal, which
Further during 1980’s when the oil prices
increased the size of the debt.
like
Nigeria.
Lets
recall
underwent a lengthy collapse, Muhammadu Buhari (then the Head of state) reacted to
In August 1985, Major General Buhari was
the falling oil prices in the 1984 budget with a
himself overthrown in a coup led by General
series of complementary measures:
Ibrahim Babangida and other members of the ruling Supreme Military Council (SMC).
public sector workers
Long after in October 2005 Nigeria and its
Raising of Interest rates
Paris Club creditors reached an agreement in
Halting Capital Projects
which Nigeria repurchased its debt at a
Prohibition
PAGE
8
A temporary ban on recruiting federal
of
borrowing
by
State
discount of approximately 60%. Nigeria used
governments
part of its oil profits to pay the residual 40%,
15 percent cut from Shagari's 1983
freeing up at least $1.15 billion annually for
Budget
poverty reduction programs. Nigeria made
Realignment of import duties
history in April 2006 by becoming the first
African Country to completely pay off its
from shovels and rice to toothpicks. It
debt (estimated $30 billion) owed to the
hopes that this will maintain reserves and
Paris
stimulate domestic production.
Club.
completely
This
is
overcame
when
Nigeria
the almost
3
decades of loan burden.
It seems like 1980’s all over again. Indeed, Mr Buhari tried something similar the last time he was president. Then, as now, he resisted what he called the “bitter pill” of devaluation. When, as a result, foreign currency ran short, he rationed it and slashed imports by more than half. When Nigerians turned to the black market he sealed the country’s borders. When unemployment
surged
he
expelled
700,000 migrants. Now Mohammad Buhari is president again by winning a fair election last year.
Although
And once again, oil prices have slumped,
devaluation will lead to inflation, like it
from $64 a barrel on the day he was
has
sworn in to $32 eight months later.
exporters. But Nigeria’s policy of limiting
Growth probably fell by half in 2015,
imports and creating scarcity will be even
from 6.3% to little more than 3%. Oil
more inflationary. A weaker currency
accounts for 95% of export earnings, the
would spur domestic production more
government deficit will widen this year to
than import bans can and, in the long
about 3.5% of GDP. The currency, the
run, hurt consumers less. The country
naira, is under pressure. The central bank
needs foreign capital to finance its deficits
insists on an exchange rate of 197-199
but, under today’s policies, it will struggle
naira to the dollar. On the black market,
to get any. Foreign investors assume that
dollars sell for 300 naira or more.
any Nigerian asset they buy in naira now
in
Mr case
Buhari of
is
other
right
that
commodity
will cost less later, after the currency has Instead of letting the naira depreciate to
devalued. So they wait. One can assume
reflect the country’s loss of purchasing
what is next for Nigeria in this situation;
power, Mr Buhari’s government is trying
the fate of Nigeria lies in the hands of a
to keep it aloft. The central bank has
rather unlucky leader repeating his
restricted the supply of dollars and
mistakes.
banned the import of a long list of goods,
PAGE
9
TRENDING NEWS I S S U E
PAGE
10
1 4
3 1
J A N
2 0 1 6
Corporate Debt overhang worth $29
from Earth and other satellites at a rate of 1.8
trillion may spark recession
GBs per second and will be orbiting Earth at an
Strains are emerging in every corner of the
altitude of 36,000 Km.
global credit market in light of the china
The fall of Yen yet again
slowdown and the instability arising because of
Value of Yen has fallen with the Bank of Japan’s
the crude oil prices and the volatility in the
Governor Harushiko Kuroda adopting a policy
gold markets. Adding to the those problems,
of negative interest rates, minus 0.1 per cent
corporate leverage at present is at a 12–year
to be precise, risking another round of
high; and around one third of the companies
competitive devaluations. The decision is
worldwide are failing to generate high enough
undertaken to prevent a yen rally that
ROI to cover their cost of funding. Average
threatened to be the strongest since the one
spread over benchmark
government yields
that occurred in 2013 and posed to sent shock
for highly rated debt has widened to 1.84
waves across the currency markets and harm
percentage points, the most in three years.
the economic well being. Yen has now fallen
Further S&P downgraded 863 companies and
against all 16 of its major peers and is back in
more than a third of commodity and energy
the currency war with a bang. Negative rates
companies received ratings with a negative
are expected to push
outlook and even the World Bank lowered its
costs and boost exports from Japan. Taking
forecast for 2016 growth recently from 3.3 to
note of the scenario, the European Central
2.9 per cent which had led to an endless
Bank might have to ease out in March, since
speculation about whether the US, and the
upside correction of Euro Yen are likely to
whole world are about to lead into a
push the euro effective exchange rate above
recessionary phase.
the levels that spurred the governing council
Europe launches first part of space based
into action last year.
data highway
Oil rallied on false hopes for OPEC deal
Europe recently launched the first part of its
For past several days, news services have been
new space based data highway which is
reporting the interest posed by nonmember
expected
ever
nations like Russia to meet and discuss
monitoring of natural disasters such as floods,
production cuts with OPEC with the hope of
earthquakes, etc. The EDRS (European Data
preventing any further fall in oil prices
Relay Satellite), a “big data highway” costing
worldwide as has been seen in the past several
nearly €500 million and will harness new-laser
weeks. Hint of the possible deal helped oil rally
based communications technology. The ERDS
up 4 percent on 26 January, 2016. Brent crude
will relay data on oil spills or floods, sea ice, to
LCOc1 rose $1.30, or 4.1 percent, to settle at
users in Europe, the Atlantic area and Africa,
$33.10 a barrel. But the deal is not appearing
and its services will also be available to other
to be happening anytime soon since Iran is
paying customers. It’ll be relaying data to and
unlikely to be onboard with the deal.
to
deliver
faster
than
down the borrowing
MARKETS B Y
A R N A B
J A N A
Indian stocks rose nearly 2 percent on Friday, posting their first weekly gain in four, as a rebound in commodity prices and Bank of Japan's bold move to adopt negative interest rates ended a tough month for markets with a flourish. The Nifty .NSEI ended 1.87 percent higher, its biggest 3 BEST PERFORMERS
single-day percentage gain in a week. For the week, the index gained 1.9 percent, its first weekly
The Sensex .BSESN ended 1.64 percent higher on Friday. For the week, it rose 1.78 percent but
Fresenius
gain in four. It shed 4.8 percent in January in its worst monthly fell 4.77 percent in January.
Kabi Oncology Ltd.
Fame India Ltd.
Radha Madhav Corporation Ltd.
Open
High
Low
Close
SENSEX
24347.31
24911.90
24340.10
24870.69
NIFTY
7413.35
7575.65
7402.80
7563.55
BSE SENSEX
3 WORST PERFORMERS
Just Dial Ltd.
TRF Ltd.
NCL Industries Ltd.
PAGE
performance since August 2015.
11
CNX NIFTY
FIN-WORD B Y
A B H I N A
P A N D A
Golden Cross v/s Death Cross Golden Cross and Death Cross are two sides
can simply be understood in the way in which
of the same coin– former refers to a long term
these animals attack their opponents.
bull market moving forward while the latter
The golden cross appears when a short term
refers to long term bear market.
moving average crosses over a major long term
A bull market is a financial market of a group of
moving
securities in which there is a speculation of rise
interpreted as signaling a definite upturn in
in prices or they are already rising.
market price.
A bear market is a financial market containing a
Conversely, a similar downside moving average
group of securities in which there is widespread
crossover constitutes a death cross and is
pessimism
understood to indicate a signaling downturn in
inculcates
negative
sentiment
12
to
the
upside,
and
is
because of falling prices of securities which
trading volume.
escalates pessimism again.
Once the crossover occurs, the long term
Normally a fall by 20% in Dow Jones Industrial
moving average is considered a major support
Average or S&P 500 index over a period a two
level(in golden cross) or resistance level( in
months is said to have earned an entry into a
death cross) for the market from that point
bear market. A bear market should not be
forward.
confused with a correction, which is a
Either cross may occur as a signal of trend
short-term trend that has a duration of less
change, but they more frequently occur as a
than two years.
strong combination of a change in trend that
While bull markets are characterized by
has taken place. The cross over, regardless of
optimism, bear markets are characterized by
the time frame, always refers to short term
utter
moving average crossing over a major long term
pessimism
and
hence
the
names
associated are Golden and Death Cross. This
PAGE
average
moving average.
PERSONALITY B Y
S H I L P A
K U M A R I
Marvin Minsky Marvin Lee Minsky was an American scientist in the field of artificial intelligence (AI) who died last Sunday (24th Jan,2016) in Boston. He was the co-founder of the Massachusetts Institute of Technology’s artificial intelligence
laboratory and has
also written many texts on AI and philosophy. He has contributed in many breakthrough inventions like the first head-mounted graphical display in 1963 and the confocal
robots in a science and science fiction
microscope. He
Seymour
magazine called Omni. His essay was very
Papert, developed the first Logo “turtle”.
provocative and compelling in which he
The first randomly wired neural network
envisioned “remote economy” and the
learning machine, SNARC was built in 1951
term
by Minsky. He is renowned for his seminal
He
contributions to the fields of AI and
mathematics from Harvard and Princeton,
robotics to better understand human
respectively.
cognition leading to advances in machine
His book Society of Mind is considered a
intelligence.
basic
His book Perceptrons is the basis in the
structure and function, and for understand-
analysis
networks.
ing the diversity of the mechanisms
Another book of his called “ A framework
interacting in intelligence and thought. His
for representing knowledge” created a
contribution to AI is far reaching and
new paradigm in the field of programming.
legendary.
of
along
artificial
with
neural
In 1980 he wrote about tele operated
PAGE
13
“telepresence” received
text
his
for
BA
was and
exploring
coined. PhD
in
intellectual
OUR SPONSORS
PAGE
14