July 27, 2014 Volume 5
FinNiche
FinXpress
FinXpress Volume 5 July 27, 2014
From The Editorial Countdown to Survivor 6.0
CONTENTS
From The Editorial In Focus: Is Ukraine crisis a new Cold War Opinion: 10K Cr: A New wave in the making? Term of the Week: Working Capital Market This Week News Fun Corner
The buzz of events is all over the IMT campus. With different clubs and committees striving for the success of their events, Club FinNiche is all set to host their ice breaking event “SURVIVOR 6.0” to be held on 3rd and 4th August 2014. The roar of the event is all over the campus and club FinNiche invites participants and assures them a great experience. This week, the In Focus section makes a comprehensive coverage about the Ukraine crisis, how it started and why it is still a big predicament. The Opinion makes a critical analysis of one of the section of Budget 2014 on Allocation of 10,000 Cr to motivate fresh ideas to increase startups in India. The term of the week describes "Working Capital", a term most commonly used as a measure of company’s efficiency and its short term financial health. Do have a look at the Market and News section to bring yourself up to speed with market volatility and the reasons behind it. Towards the end “Fun corner” to juggle with some in trend questions and financial parody. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas. Happy Reading! Regards The Editorial Team Club FinNiche
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. July 2014
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FinNiche
FINANCIAL KNOWLEDGE
Is the Ukraine crisis a new Cold War? ------ By Rishabh Agrawal and Gaurav Manaktala
Introduction:
view point that sees Ukraine as part of
Ukraine is one of the largest countries greater Russia, and they feel that they are within Europe, and is wedged between the victim of encroachment. It is unlikely to Russia and Europe. Until 1991, the country happen that Ukraine will get Crimea back. was a part of Soviet Union, and since then has been a poor democracy with a very In addition to that government buildings in weak economy. Anti government protests three Ukrainian cities were seized on April started in the winter of 2013 has since then 6 by pro-Russian protesters. This incident made the region deal with crisis. is similar to what happened in Crimea and thus raised fears that Russia will attempt to The most recent incident which enhanced the crisis was the shot down of Malaysian passenger airplane MH17 on July 17. ProRussian separatist rebels are accused of downing the plane. This all began as an internal crisis in November 2013, when President Viktor Yanukovych rejected a deal with the European Union. This sparked protests throughout the country. The three major incidents that have happened since seize this parts of Ukraine as well. then are: (i) In February 2014, President Why is Russia so obsessed with Ukraine? Yanukovych was run out from the country; (ii) In March Russia invaded and annexed Ukraine has a lot of native Russians and Crimea; (iii) Pro-Russia separatist rebels in they have always felt a special historical eastern
Ukraine
have
brought
the connection
to
Ukraine, which
plays
a
relationship between Russia and the West central role in Russian national mythology. to its lowest point since the Cold War. This Tsarist leaders in Russia puts forward the is somewhat related to Ukraine’s history of idea that the country’s cultural roots go Russian domination.
back to the ancient Greeks who settled on the Crimean peninsula. While these are
The population is more or less evenly mostly false stories, but it is true that divided between into two groups, one who Russia's see Ukraine as a part of Europe, and others empire
first had
its
iteration capital
as in
a
great
present-day
who see it as inherently linked to Russia. Ukraine. Meanwhile, in Russia, there’s a common July 2014
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FinNiche
FINANCIAL KNOWLEDGE
A special connection with Ukraine and divided Europe between west and east and perhaps the reacquisition of the country is then divided much of the world. It included not just about historic links but about wars on every continent, and raised a very reacquiring Russia's rightful place as a serious risk of global war. This is not true great power. It is also about righting the in today’s era. The United States is much injustices done too many Russians and more powerful and influential than Russia; perhaps the territory under the control of none of the democracies are at risk. Adding an unworthy Ukrainian government. Above to the point Crimea’s take over by Russia was deeply criticized by almost the entire world. The actions taken by Russia has been described as the behaviour of a weak country
by
Russia
is
President strong
Obama,
enough
to
though annex
neighbouring countries. President Putin is definitely acting as if he is in competition with the west. He certainly wants to portray Russia’s assertiveness. In 2008, the country fought a brief war with the former Soviet republic of Georgia in 2008; it also set up a Eurasian trade union, all, it is about preventing Ukraine from so as to become a competitor to the falling
under
the
prey
of
Western European Union; it is also protecting the
conspiracy to indirectly harm Russia. Is the Ukraine crisis a new Cold War? The Cold War was a global struggle for predominant influence between two, which were approximately unequal powers. It
July 2014
Syrian government. Still, this competition is limited to former Soviet
republics
and
Syria,
but
it
is
nowhere near the global conflict of the Cold War.
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FinNiche
OPINION
10K Crores: A New wave in the making? —— By Arijit Samaddar
Time will testify the fact whether Budget
This fund will act as a catalyst to fetch
2014 carries the pill to revitalize India’s
private capital by way of providing
slowed-down economy. But for the first
equity, quasi equity, soft loans and
time
other
in
Indian
history
such
a
great
risk
capital
for
startup
emphasize was posed on Entrepreneurship.
companies
In the budget Finance Minister announced
India is currently witnessing boom in
to set up a fund of Rs.10000 Cr to catalyze
tech-entrepreneurship. This fund will
the capital flow to startups and SMEs
bolster the attempt made by other
( Small and Medium Enterprises). Before
segments also
judging whether this grand move actually
The rider that the Startup needs to be
signals
country’s
Indian which caters to the domestic
entrepreneurship ecosystem let us check
market ensures proper utilization of
the present scenario:
the fund
‘acche
din’
for
EY G20 Entrepreneurship Barometer 2013 provides a great insight as it weighs G20 countries in five different categories. In the segment ‘Access to funding’ India stands at rank 11 with a score of 5.48 in a 10-point scale. If we delve into the issue we can find that the startups face major challenge in seed or
This is not a token amount—it is a
series A funding. Due to lack of proper
huge fund. Leaving aside Sequoia
Venture
India
Capital this fund will be the largest
entrepreneurs greatly depend on Angle
pool of money invested in the Indian
investors.
startup ecosystem
Capital Funding
firms
in
becomes
more
problematic if the entrepreneur brings the
It will uplift innovation spirit among
idea which is only domestic-market bound.
the startups. Product startups will
If the plan involves the strategy to cater to
seriously benefit from this
global market there is some scope of relief for the start-ups. New age tech-enterprises This major move by the Govt. if properly exemplify the case.
materialized can drastically alter Indian entrepreneurship scenario. It will
spur
Now let us see what this 10000 Cr kitty can economic activity in India which in turn will offer. JULY 2014
create millions of jobs. In macro level it will PAGE 4
FinNiche
OPINION
create millions of jobs. In macro level it will The idea is still at a very nascent stage so it pave the way for job-led growth. Now let us is expected Government will take all these take a look at the points of concerns and aspects into consideration and deliver a possible outcomes.
strong platform for the startup ecosystem of
There is no clarity regarding how the this country. fund will be channelized. Without proper mechanism this will lead to another paper-tiger attempt by the Government
Target beneficiary identification will be
Another very important aspect is the timing of the launch of this scheme. After a decade of robust growth India had to witness below 5 percent growth consecutively in two years. A gloomy environment surrounded entire country. New Government came into power with huge expectations
from each
and every strata of the countrymen. Within 45 days of coming into driver’s seat the new guards of India had to deliver the budget. It is
really
a
notable
point
that
the
Government identified Entrepreneurship as of foremost importance. For effective utilization of the fund Government must
setup
investors,
a
cell
comprising
entrepreneurs,
and
accelerators who will spearhead the process
Debt funding should not be the usage of this fund. Huge chunk of the money must be channelized for providing seed capital to the startups
Another area of prime concern is that
growth-driver. It made out the fact that to put India back on robust-growth track and ensure
job-led
economic
growth
entrepreneurship must be the area to concentrate. Another aspect is that Indian youths are no longer risk-averter. They are eager to move up the ladder. In recent years entrepreneurship has truly reached a new scale with advent of so many new entries in the field. Social entrepreneurship, green entrepreneurship are new buzzwords.
what will be the focus sectors of the In this scenario, government has to play the Government
prime role to foster these gamut of first-
This fund can be extended to the generation entrepreneurs. This 10,000 Cr incubation centers of the prominent fund is really ‘Right thing in right direction Bu si ne ss - sch o o l s,
En g i ne e ri ng at very Right Moment’. Hopefully this new
colleges across the country which will initiative surely drive students to own the risk
will
create
a
wave
of
Entrepreneurship and drive India once again to double-digit growth trajectory.
JULY 2014
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FinNiche
FINANCIAL KNOWLEDGE
Working capital —— By J. Sindhuja
Working capital is a measure of both company's efficiency and its short-term financial health. The results of a host of company activities are reflected by working capital.
less than 1 is usually referred to as negative working capital. A ratio above 1 shows outsiders that the company can pay all of its current liabilities and still have current assets left over or positive working capital.
Working capital = Current assets - Current liabilities A current ratio that is higher than industry standards may suggest inefficient use of the Working capital cycle resources tied up in working capital. Conversely, a current ratio that is lower than industry norms may be a risky strategy that could entail liquidity problems for the company.
Working capital ratio: The working capital ratio, is a liquidity ratio that measures a firm's ability to pay off its current liabilities with current assets. It is also termed as Current ratio. It is important to creditors because it shows the liquidity of the company. Working capital ratio (WCR) = Current assets ———————— Current liabilities Analysis: A WCR of 1 indicates the current assets equal current liabilities. It is usually considered the middle ground. It is not considered risky, but it is also not very safe which implies that the firm would have to sell all of its current assets in order to pay off its current liabilities. A ratio less than 1 is considered risky by creditors and investors because it shows the company isn't running efficiently and can't cover its current debt properly. A ratio
July 2014
Impact of current assets and current liabilities on WCR: If Current assets increases, WCR also increases i.e. it is directly related to WCR If Current assets decreases, WCR also decreases If Current liabilities increases, WCR decreases i.e. it is inversely related to WCR If Current liabilities decreases, WCR increases Example: Let's take a look at an example. Harry's Machine Shop has several loans from banks for equipment he purchased in the last six years. All of these loans are coming due which is decreasing his working capital. At the end of the year, Harry had $100,000 of current assets and $125,000 of current liabilities. Here is his WCR: 1,00,000 WCR = ————— 1,25,000 = 0.8 As you can see, Harry's WCR is less than 1 because his debt i.e. liability is increasing. Which makes his business more risky to new potential credits. If Harry wants to apply for another loan, he should pay off some of the liabilities to lower his working capital ratio before he applies.
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FinNiche
FINANCIAL KNOWLEDGE
Market This Week Benchmark indices touched their respective record highs before turning negative in trade on Friday. The BSE Sensex hit a fresh lifetime high of 26,300.17 and 50-share Nifty rose to a record high of 7840.95 in trade on Friday. Even though the market appears to be in up trend, corrections would be inevitable. As per analysts, the risk reward ratio does not appear to be favorable at current juncture so it is advisable to book profits and wait for lower level to re-enter the market. The Sensex has rallied over 23 percent so far in the current year. The Sensex closed at 26,126.75 and Nifty at 7790.45 points.
BSE SENSEX
SENSEX Simple Moving Averages Thirty Days
25,516.60
Fifty Days
25,241.70
Hundred and Fifty Days
22,805.72
Two Hundred Days
22,283.33
CNX Nifty
July 2014
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FinNiche
FINANCIAL KNOWLEDGE
Nifty Simple Moving Averages Thirty Days
7,621.97
Fifty Days
7,538.70
Hundred and Fifty Days
6,801.44
Two Hundred Days
6,640.25
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27,938
1.13
Silver
1 Kg
44,281
1.13
Crude Oil
1 bbl
6150
(0.13)
Lending / Deposit Rates Base Rate
10.00%-10.25%
Savings Deposit Rate
4.00%
Term Deposit Rate
8.00%-9.05%
Key Policy Rates and Reserve Ratios Bank Rate
9.00%
Repo Rate
8.00%
Reverse Repo Rate
7.00%
Cash Reserve Ratio
4%
Statutory Liquidity Ratio
22.5%
Exchange Rates
July 2014
INR / 1 USD
60.1448
INR / 1 Euro
81.0173
INR / 100 Jap. YEN
59.1100
INR / 1 Pound Sterling
102.2161
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FinNiche
FINANCIAL KNOWLEDGE
NEWS Best asset classes in India: Real estate, Institutional Investors (FIIs)/FPIs in 2013 equities gave max returns to investors in was Rs 62,288 Cr, Minister of State for past 2 decades, shows study
Finance Nirmala Sitharaman.
According to a recent study by Cians FIIs had invested over Rs 1.63 lakh Cr in Analytics on the returns from various asset 2012 and Rs 39,353 Cr in 2011. FPIs classes in India during 1991–2013, real encompasses all FIIs, their sub-accounts estate
and
equity
market
have
given and qualified foreign investors (QFI) under
maximum returns of up to 20 per cent to a new regime that comes into force on June investors. The study covers five types of 1. The new regime divides FPIs into three asset classes - equities (BSE Sensex), categories as per their risk profile and the commodities (gold), bank fixed deposits (1–3 KYC (know your client) requirements and year maturities), government securities (10- other registration procedures would be year maturity), and real estate. After
real
estate,
equities
simpler. have
also BSE Sensex retreats after hitting life-
performed strongly in India as the stock time high, NSE Nifty too falls market gave a healthy annualised return of 15.5 per cent on a nominal basis during the Recording the first drop in nine sessions, past 23 years. However, adjusting for the benchmark BSE Sensex, which had inflation, the real return is only 7.1 per cent gained 1,265 points in eight days in which per annum. Real estate was repeatedly the it hit record highs in two straight days, best performer during the 5-year sub- climbed to hit yet another life-time high of periods since 1991, with the highest return 26,300.17 in early trade, on Friday ended being 670 per cent during 2008–12 and the 145 points lower at 26,126.75 after selling lowest 46 per cent during 1993–97," the pressure emerged in blue-chips as investors study noted. FPIs
pump
judged recent gains as excessive. in
Rs
1.22
lakh
Cr
securities
in Wipro's scrip tumbled about 4.5 per cent and Infosys shed 0.89 per cent. Tata Motors and BHEL were among the biggest Sensex
Foreign
Portfolio
Investors
(FPIs)
have losers. Heavyweights like ICICI Bank and
pumped in over Rs 1.22 lakh Cr in Indian RIL also slipped. Bucking the trend, stocks stock markets during the first six months of of healthcare and FMCG sectors continued this year. Investments in Indian securities their upward journey on sustained buying (equity
JULY 2014
and
debt)
made
by
Foreign activity.
PAGE 9
FinNiche
FINANCIAL KNOWLEDGE
NEWS preferred to lighten some positions. Selling report advising shareholders to vote in was more pronounced in realty, metal, favour of the move to delist Essar Oil from power, PSU, auto and oil and gas sector equity markets. While counter-intuitive, the stocks, which pulled down the Sensex and advice runs on the premise that if a Nifty from record highs.
promoter does not want to stay listed, shareholders are unlikely to benefit out of
Wipro's scrip tumbled about 4.5 per cent sticking with the company. and Infosys shed 0.89 per cent. Tata Motors and BHEL were among the biggest Sensex Essar Oil announced a delisting plan about losers. Heavyweights like ICICI Bank and a month ago, claiming that it would require RIL also slipped. Bucking the trend, stocks sustained, of healthcare and FMCG sectors continued develop
substantial
its
investment
businesses,
and
that
to full
their upward journey on sustained buying ownership will provide it operational and activity.
financial flexibility.
After FDI boost, top insurance firms RBI penalises 12 banks including ICICI looking to list on bourses
Bank for violating rules
The Cabinet on Thursday approved 49% The Reserve Bank of India on Friday has foreign investment in insurance companies penalised as many as 12 banks including through
the
FIPB
route,
ensuring the largest private lender ICICI Bank for
management control in the hands of Indian flouting promoters.
banking
norms
while
doing
business with Deccan Chronicle Holdings Ltd. RBI has also fined ICICI's close rival
Insurers companies
believe attract
the
move
fresh
will
capital
help HDFC Bank and Axis Bank in a case where of
Rs the
banking
regulator
has
found
25,000 Cr over the next 10 years. The top 3 irregularities in giving loans to Deccan -4 private insurance firms in the country Chronicle and in the company's current may look at listing on the stock exchanges accounts
with
these
banks.
RBI
has
once the Insurance Amendment Bill is imposed a total of Rs 1.5 Cr fine on these passed in the current session of Parliament. banks while it asked ICICI Bank to cough up Rs 40 lakh. Axis Bank and IDBI Bank Essar Oil Delisting: IiAS Votes In Favour
will have to pay Rs 15 lakh each. Andhra Bank, Canara Bank, Kotak Mahindra Bank
Proxy advisory firm Institutional Investor and four others lenders will have to pay Rs Services of India (IiAS) has come out with a 10 Cr each.
JULY 2014
PAGE 10
FinNiche
FUN CORNER
FUN CORNER Last Week’s Answers
FinQuiz 1.
What is a life cycle fund?
2.
The history of modern banking began in_______ .
3.
What is minimum public share holding (MPS)
1) BitCoin
mandated by SEBI for private company and PSU’s 4.
2) 4.6% 3) Janet Yellen
respectively?
4) Shanghai
Which panel was established to look into FDI limits
5) 4.9%
across various sectors? 5.
The RBI has decided to auction Inflation Indexed
Last Quiz’s Winner
Bonds. The index of these Inflation Indexed Bonds is
Vysakh Murali
pegged to ____________ . CARTOONS
TRIVIA Until the U.S. Federal Reserve was created in 1908, individual banks could create there own money.
The world’s first bank was Monte Dei Paschi di Siena, founded in 1472 and headquartered in Tuscan, Italy. It still operates today.
JP Morgan’s uncle, James Pierpont, wrote “Jingle Bells” in 1857.
If you invested $100 in Microsoft in 1986, instead of buying a version of Windows 1.0, it would be worth $46,400 today.
**Rush in your entries to : finniche.imt@gmail.com
Feel free to write to us at : finniche.imt@gmail.com
The right entries will get their name featured in the next
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issue of FinXpress. So hit the quiz fast & get yourself
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visible among 1000 odd in the campus.
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Volume 5 Publisher: Gayatri and Shikha
July 2014
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