FINXpress JANUARY 18, 2015 | A FINNICHE INITIATIVE
Opinion
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Are surprise rate cuts the way ahead| 4
In Focus BSE Index after interest
Term of Week
rate cut| 2
Transfer Pricing| 6
Tech World Personality Dr. Kiran MajumdarShaw |11
Google Chromecast |12
FinXpress January, 18 | 2015 | Volume 30
CONTENTS InFocus | 2 BSE Index after interest rate cut
Opinion | 4 Are surprise rate cuts the
With the ongoing matches in Cricket, Football and Badminton, all teams are busy planning strategies and practicing hard to emerge as winners. Lodhi celebration brought some respite from the winter. Club FinNiche releases its weekly magazine FinXpress, 2015 with the In Focus talking about the ‘BSE Index after interest rate cut’. The Opinion gives an overview of ‘Are surprise rate cuts the way ahead?’. The term of the week describes “Transfer Pricing", setting of the price for goods and services sold between controlled legal entities. Do have a look at the market section, Tech world which brings to you about Google Chromecast and Personality of the week, Dr Kiran Mazumdar—Shaw. 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.
way ahead?’ Happy Reading! Term of the Week | 6 Transfer Pricing
Regards The Editorial Team Club FinNiche
Market this Week | 7
News | 9
Personality | 11 Dr. Kiran Mazumdar– Shaw
Tech World | 12 Google Chromecast
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
Publisher of the edition: Priti Sureka
Page 1 of 13
In Focus - By Priti Sureka
BSE Index after interest rate cut

S&P BSE Index recorded its highest single day rally in the last five years after sudden announcement of interest rate cut by the RBI.
On Thursday, January 15th RBI announced a reduction in main lending rates. On the same day, key equity benchmark indices rebounded as investors welcomed the decision of RBI.
perform well as compared to other BSE sectoral indices. Current losses in major IT companies such as Infosys, TCS and Wipro put pressure on IT shares which did not allow IT shares to perform well.
As a reaction to the cut in interest rates, S&P BSE Sensex was up 2.84% at 28,122.86 on the same day. The Sensex registered its biggest single day rally in the last five years.
The BSE Auto Index was up 2.42% as these stocks witnessed fresh buying as investors sentiments were boosted due to fall in interest rates. A fall in the repo rate will improve liquidity in housing and auto sectors. Shares of Maruti Suzuki gained around 1.5%, M&M was up 1.2%, shares of Hero Motocorp gained 1%. However, shares of Tata Motors are trading flat.
All 13 sectoral indices on BSE rallied higher. However, BSE Realty Index and BSE Bankex Index outperformed the Sensex as these were up 8.39% and 3.65% respectively. BSE Consumer Durables Index, BSE FMCG Index, BSE Healthcare Index are among the buzzing stocks. Crude oil prices have halved from the year ago level. Interest rates have been decreased unexpectedly by the RBI Governor. This will impact the margins of FMCG companies positively. On the other hand, due to decrease in interest rates, there may be an increase in consumption demand. As fall in crude oil prices helped the FMCG companies shares to perform well, on the other side the same reduction in oil prices put pressure on oil shares. ONGC declined more than 2% and RIL is down 0.7%. Whereas, BSE FMCG Index was up 1.53%. BSE IT Index and BSE Teck Index failed to
The Financial shares are very sensitive towards interest rates. As there was a reduction in the interest rates, the BSE Bankes Index outperformed the Sensex. Among the financial shares, ICICI Bank incurred loss and shares of HDFC Bank are trading flat. The shares of Axis Bank and SBI gained. BSE Metal Index overall suffered because of pressure from Chinese economy. Overall a combination of lower inflation and lower interest rates triggered the investors confidence. Talking about FMCG sector, HUL shares emerged as the top performer in the BSE FMCG Index. HUL started this year with a big high in its share price and it gained overall 13% in the first seven trading sessions
Page 2 of 13
In Focus
Of the year 2015. On the other hand, ITC turned out to be the worst performer among FMCG stocks. Decline in cigarettes volume and concerns regarding the upcoming Union Budget have been major factors affecting the share price of ITC. In such a situation, ITC shares seem to be least affected by decline in oil price and lower interest rate.
There was a slowdown in the stock market during past few sessions due to lack of any trigger from the side of government and RBI. But few days ago, announcement by RBI was enough to rebound the entire stock market. The day when BSE Sensex will be recording 30,000 seems to come near.
Such decision by RBI will also have an impact on export of the country. Maruti Suzuki gained over 1% and according to media reports, the company is aiming to achieve a 20% growth in exports of its vehicles. Not only Maruti Suzuki, other companies will increase their export target On the other side, European markets were addressing improved investors sentiments. trading mixed as many investors weighed company earnings results. Key benchmark indices in France and in UK eased by 0.47% to 0.56%. Germany’s DAX also quoted higher by 0.13%. Talking about the global market, most Asian stocks also ended higher after interest rate cut in India. Key benchmark indices of China, Hongkong, Japan, Singapore and South Korea gained.
Therefore, overall Indian as well as global stock market ended higher as a result of reduction in interest rates. Many analysts believe that RBI is likely to reduce the interest rate further in February and April 2015 and this is just a beginning of a big rate cut cycle.
Page 3 of 13
Opinion - by Mohammed Zakir Ahmed
Are Surprise Rate Cuts the way ahead? In a double surprise, RBI has added zing to the increased or decreased in line with market markets which had doubts on the timing of expectations, the market remains undisturbed as announcement of rate cut in credit policy. The first the information is already considered by the Rate cut by RBI
surprise was announcing a rate-cut between two market. Hence, a surprise policy has more impact
RBI has slashed the Repo rate
policies, as expected from the earlier policy on the market and increases its volatility.
by 25 bps from 8% to 7.75%
statement that RBI would not wait for policy cycle
on Thursday.
to end for lowering the rates if the inflation and its Curiously, the goal behind having a series of future were acceptable. The second surprise was monetary policies that ranged from 8 to 6 was to
Our Indian economist expects
the timing of announcement of cut made in the remove this ‘noise’ factor. In the past, when rate
the RBI to cut the rates by
morning just before markets opened rather than changes were announced in between policies,
another 25 bps after the end-
the usual Wednesday evening.
there would be considerable distortions in the market because of different guesses made by the
February budgert announcement.
people. change date
percentage
G-Secs, stocks, money markets, currencies all tend to be affected by such conjectures.
january 15 2015
7.750 %
january 28 2014
8.000 %
october 29 2013
7.750 %
september 20 2013
7.500 %
may 03 2013
7.250 %
march 19 2013
7.500 %
emergency measures announced concerning the
january 29 2013
7.750 %
LAF and rates to ensure that there was order. But
april 17 2012
8.000 %
by making such an announcement when things
october 25 2011
8.500 %
are going right, a new dimension has been added
september 16 2011
8.250 %
Usually, the central bank reserves the right to intervene at any time, but this is done when there are serious problems in the economy. In 2013, for example, when the rupee went down, there were
to the process of conduct of monetary policy.
Two
implications
stand
out
due
to
the
The concept of a surprise has become a routine announcement. The first is that RBI is convinced for monetary policy as there is a belief that unless that inflation has come down and will after a surprise element is present, the impact of November is put to rest as central bank expects monetary policy is minimal. When rate are CPI to stay in limit.
Page 4 of 13
Opinion
The second implication is that we can see this rate- whether or not banks lower their interest rates. Prior cut as the beginning of a series of similar rate-cuts experience says that bank lower deposit rates than during the year. The scale and pace will be largely lending rates immediately after rate cut by RBI. There determined
by
the
actual
CPI
inflation
and is always a lag between the two, but when the
expectations of the same. Assuming a normal lending rates are eventually lowered, the extent of HSBC report
monsoon, one can expect a 100 bps reduction in reduction is lower than that of deposits. The lowering
HSBC Asia Pacific rates team
interest rates during the course of the calendar year of interest rates by RBI is good news as it provides
expects credit cost to fall fur-
2015.
ther to 6—6.5% within 2-3
RBI announcement leads to two questions to be see the future actions generated by the normal
years.
asked. Whether or not industry would be happy with course of economic activity between the two policies.
clear direction to the markets. It will be interesting to
this announcement and whether banks would follow If so, the market might try to guess such action, and with rate cuts. The industry is expected to be expectation of considerable volatility in the financial satisfied since the rate cut was long overdue and has markets when such situation occurs are triggered. been under consideration for last 2-3 months, a The surprise rate cut has been manifested by lower positive sign for industry. This however might not interest rates, stronger currency and rising stock lead to fresh investments as there will be a wait and markets. watch period. Infrastructure projects would wait for further cuts as money borrowed has to be committed And at an ideological level, if we are going to pursue for a long fixed tenure. Manufacturing sector with the policy of acting on an ‘as and when when capacity utilisation of 70% due to stagnant demand, required’ basis, then should we revert to the would not hurry to invest and will wait to see a revive conventional bi-annual policy approach? in demand. On the second issue, RBI will be keenly observing
Page 5 of 13
Term of the Week - By Arihant Jain
Transfer Pricing
a. Comparable uncontrolled price method Cost of the transaction is compared with the
results
of
similarly
situated
Transfer Price
organisations for which reliable data is
Transfer pricing is the setting
available. b. Resale price method Net price at which a similar good or
of the price for goods and services sold between
service is sold or provided by the
controlled (or related) legal
organisation to an unrelated party.
entities within an enterprise
c. Cost plus method Calculate costs related with the product/
Arm’s Length Price
Transfer pricing occurs at whatever situation,
The price at which two
two organizations that are part of the same
unrelated parties would agree
multinational organisation indulge in trade
d. Profit split method Total profit recorded in the books by both
with each other. In the event that two random
the parties is calculated and the combined
to a transaction
service and add gross mark-up over that.
organizations trade with one another, the
profit is divided among the associated in
The arm's length principle is
business sector cost for the transaction will by
comparison with a similar controlled
the condition that the parties to
and large be just. This is known as "arms-
a transaction are independent
length” trading, as it is the result of bona fide
and on an equal footing
transaction in a market. This “arm’s length
e. Transactional net margin method Net profit net profit generated through
price” is normally considered to be adequate
the transaction is compared with the
for assessment purposes.
profit of a comparable trade between non
transaction in the market.
-related parties. However when two related organizations
f. Any other method prescribed by CBDT
exchange with one another, they may wish to falsely contort the cost at which the exchange
The method to be used may differ on the
is recorded, to minimize the taxation costs.
circumstances of the trade Moreover, Central
This may, for instance, help it record as much
Government has notified in its official gazette
of its benefit as could be expected in a tax
that if the difference between the “arm’s
heaven with low or zero duties.
length price” calculated by one of the above methods and the price at which transaction
The “arm’s length price” with regard to an
was concluded is up to 3 percent of the total
international trade or domestic trade, when
transaction cost, the transaction cost will be
specified by Central Government can be
treated as the “arm’s length price” for that
calculated by any of the following methods.
transaction.
Page 6 of 13
Market this Week
INDIAN MARKETS The Indian stock markets ended the week in green (+2.4%) with a major boost coming from Reserve Bank of India's decision to cut repo rate by 25 basis points. The US stock markets were down by 1.3% during the week on concerns regarding strength of the global economy and falling oil prices .The stock markets for Germany and France were the biggest gainers with respective indices up 5.4% and 4.8% over the week. The major Asian stock markets closed the week on a mixed note with China and Hong Kong gaining 2.8% and 0.8% over the week while stock markets in Japan and Singapore were down 1.9% and 1.1% respectively.
RBI Dramatic fall in oil prices is
Open
High
Low
Close
SENSEX
28056.61
28176.1
27,945.31
28129.89
NIFTY
8504.05
8,530.75
8452.25
8513.8
considered as boon for Indian economy as it helps in saving import bill by $50bn.
S&P 500 A decline in American retail
BSE SENSEX
sales combined with a slump in copper
prices
weighed
on
stock markets causing the S&P 500 to have its worst start to the year since 2009 .
CNX NIFTY
Page 7 of 13
Market this Week
COMMODITIES Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27600
0.59
Silver
1 kg
39098
2.92
Crude Oil
1 bbl
3021
0.77
EXCHANGE RATES INR/ 1 USD
61.89
INR /1 EURO
72.01
INR/ 100 JAPAN YEN
53.08
INR / 1 POUND STERLING
93.92
INTERNATIONAL MARKETS
Open
High
Low
Close
NYSE Comp
10,508.62
10,664.53
10,503.35
10660.32
NASDAQ
4,566.38
4,635.82
4,563.11
4634.38
S&P 500
1,992.25
2,020.46
1,988.12
2019.42
FTSE 100
6,498.78
6,553.20
6,443.28
6550.27
CAC
4,303.55
4,387.22
4,294.76
4379.62
DAX
9,985.51
10,207.97
9,940.64
10,167.77
NIKKEI 225
16,812.96
16,864.34
16,592.57
16864.16
SSE 50
3,343.60
3,400.32
3,340.49
3376.5
Hang Seng
24,196.8
24,253.09
24,086.21
24103.52
Page 8 of 13
News of the Week
RBI governor Raghuram Rajan cut repo rate by 25 bps: here are the reasons The long awaited rate cut was announced by Reserve bank of India’s governor Raghuram Rajan on Thursday, bringing cheer to the markets. Now the repo rate is 7.75 per cent after the cut of 25 bps. Following are the major reasons for the rate cut:
Easing of inflation: Inflation which is lower than expected is because of the sharper than expected decline in the Prices of the vegetables and fruits since September. In addition to this there was a huge fall in the crude oil prices because of geo-political issues, which are expected to remain low for at least a year.
Fiscal deficit target: Government has assured to adhere to their fiscal target of 4.1% in the current fiscal year. Raghuram Rajan said all the efforts are being made so that the government does not default on the fiscal deficit.
Inflation expectations: Inflation expectations for both near-term and long term have eased to single digits. With the current policy in place inflation may even fall below 6 per cent by January 2015,according to RBI.
India builds solar plants atop canals to save land, water India has done something in Vadodara to improve usage of solar power, it is exploring new places to install solar panels, including across the top of canals. UN Secretary General Ban Ki-moon last weekend inaugurated a “canal-top” solar energy plant in Vadodara district in India's western state of Gujarat. The two fold advantage of this is: it is cheap and efficient usage of land and also evaporation of water in the channels can be prevented.
Page 9 of 13
News of the Week
Railway finances in ‘deep trouble’: Suresh Prabhu Railway minister Suresh Parbu said that the government behemoth, Indian Railways is in deep trouble financially, because if it’s poor investment choices by compromising its services. He also said that pension fund may be used for financially supporting railways, which is already facing losses of thousands of crores. Prabu said railways may not be in a good position now, but in coming years with improved infrastructure it will be one of the drivers of Indian GDP and may even contribute 2.5% to 3% of GDP. FDI led by equities up 22.6% to Rs. 15 trillion in FY14: Foreign direct investment (FDI) flowing into the country has increased by 22.65 per cent to a sum of Rs.15,08,960 crore as of end March 2014, up from Rs.12,30,250 crore as of 2012-13. Major share of this is dominated by equity of about 93.9 per cent. FDI flowing out of the country has increased higher by 26 per cent to Rs.5,39,030 crore during the same period from Rs.4,27,900 according to the latest date released by Reserve Bank of India on Friday. Google to enter mobile-payment services, negotiating deal with Soft card: Google is in talks with mobile payments services Soft card, which may be valued below $100 million. This deal could help Google to battle against Apple and its new Apple Pay service.
Page 10 of 13
Personality of the Week
Dr. Kiran Mazumdar-Shaw - Chairperson & Managing Director, Biocon Limited
sought after biotech pioneer who has been referred to as "India's Biotech Queen" by The Economist and "India's mother of invention" by New York Times. She was conferred the Wharton- Infosys Business Transformation Award in 2006 for spearheading the Biotechnology sector in India. Nature Biotechnology has recently voted her the most influential Bio-business personality outside Europe and USA.
Born 23rd March, 1953
Education Graduate Honors degree in Zoology, Bangalore University (1973) Master Brewer from Ballarat University, Australia (1975)
Net Worth $1.2 Billion
Notable Awards 1989: Padmashri 2005: Padma Bhushan Two National Civilian Awards
Kiran Mazumdar Shaw, is a first generation entrepreneur, who has made her country proud with a globally recognized bio-pharma enterprise, Biocon, which is committed to affordable innovation to deliver world class therapeutics to the patients worldwide. As the first woman brew master of India, with a pioneering spirit to ‘make a difference’ she has leveraged her learning’s of fermentation science to pursue the road less taken and has built an innovative bio-pharma company, the first in India as the only publically listed biotech company. Her vision and work for biotechnology have drawn global recognition both for the Indian Industry and Biocon. She is a compassionate philanthropist, who beleives in empowering marginalized communities through sustainable solutions in the areas of healthcare and education. She is a much
She also serves on the Board of reputed Companies and Institutions and is also the Chairperson of Karnataka's Vision Group on Biotechnology. Kiran is also the Honorary Consul of Ireland in Bangalore. About Biocon Today, Biocon is India’s largest Biologics Company which is also the most innovative. It has developed and delievered two novel biologics, in addition to developing the world’s only pichia based recombinant human insulin, which is now available in over 50 countries. Under her leadership Biocon has become a well-recognized global brand. Biocon aims to more than double its revenues to $1 billion by 2018. Ahead of a long-awaited listing of research services arm Syngene, Biocon bought back GE Capital's 7.7% stake in it for $35 million and sold 10% to investment firm Silver Leaf Oak. Last week, Biocon was honoured at Thomson Reuters’ India Innovation Awards 2014.
Page 11 of 13
Tech World - By Arihant Jain
Google Chromecast
Launch in India 10th December 2014
Price Rs. 2,999
Memory 512 MB RAM DDR3L
Storage 2 GB
Display 1080p
Chromecast is a digital media player developed by Google. It is a thumb size media streaming device. It can play audio/video content by plugging it into the HDTV port of a TV set. The media can be directly streamed via Wi-Fi from the Internet or a local network. Media can be selected by users through mobile apps or web apps that support the Google Cast technology. Also, media can be mirrored from the Google Chrome web browser active on a laptop or a smartphone running on android. With Chromecast, phone can be used as a personalised remote control. It can be used to browse, play, pause, rewind, control the volume and even make playlists. Moreover while streaming through Chromecast, the smartphone used as remote, is free to use for other things. Any number of phones or tablets can be used for this purpose with no additional setup required. In December 2014, Chromecast was introduced in India through e-commerce
marketplace Snapdeal. in partnership with Bharti Airtel. Pros Cheaper alternative for streaming services instead of relying on cable provider Since it communicates with the cloud server, smartphone is freed for other use Smartphones can be used as a remote Cons One will have to sacrifice one of the TV's USB ports or a power outlet It supports limited applications as of now For mirroring to work, strong Wi-Fi connection is required Lack of dedicated remote means that smartphone or tablet will always be required to operate it It faces huge competition from Roku LT and the only competitive feature as of now is the low cost model and lacks in the number of channels it provides. Other competitors include Eyecast and Teewe.
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