March 2, 2014 Volume 32
FinNiche
FinXpress
FinXpress Volume 32 Mar 2, 2014
From The Editorial
CONTENTS
From The Editorial In focus: Modinomics Opinion: Bitcoin: Prospects and Future Term of the Week: Gini Co-efficient Market This Week
Another week of hectic schedule goes by with IMT continuing to live by it’s motto of never going to sleep. Report submissions, presentations was spread across the week. Nervousness and excitement was all in the air, as IMT experienced the rush of enthusiastic candidates aspiring to be a part of the esteemed institute. With the speculation that elections this year will decide the future of our country, we bring ’Modinomics’ in our In Focus section. The opinion speaks of the prospects and future of Bitcoin. The term of the week would give greater understanding of the Gini Co-efficient.
News Fun Corner
Do look over the ‘News of the Week’ section for further noteworthy news. The ‘Market of the Week’ covers the latest trends in the market this preceding week. We hope you enjoy the various articles in this edition of FinXpress. We look forward to your comments, acknowledgements and your criticisms regarding our online magazine. Do let us know if you want to have any additional sections in our special editions of FinXpress.
Happy Reading!!!
Regards, The Editorial Team FinNiche Club
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. March 2014
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FinNiche
In Focus
Modinomics ------ By Ashish Agarwal
The term that is doing the round these days is ‘Modinomics’. So what exactly is Modinomics? You will figure out, its just a term that has been coined by some economists and not a theory in itself. It tries to gather indications by Mr. Narendra Modi, the BJP prime ministerial candidate of his actions if he becomes the prime minister of India. The question before us today is Why Modi will do a U-turn, implement retail FDI if he becomes PM?
Of course, one could defend Modi by saying his intention in the second speech was not to make any specific announcements in this speech. So why single out retail FDI? But the fact is that the second speech was made at a seminar to discuss 'A New Growth Paradigm for India'. It was widely reported as the unveiling of the BJP’s economic agenda ahead of the elections. And here Modi, as the prime ministerial candidate of the BJP, should have made his stance clear.
If you see the stance of BJP as a whole towards FDI in retail was an opposing one. But Narendra Modi in his recent speeches has shown us some path that is contrary to the party’s stance on the issue. At a meeting of the Confederation of All India Traders (CAIT) he said, “We should not be concerned about the challenges from global trade.” He even asked retailers to look this as an opportunity to grow and not as threat from the outside world. So the big question before us is whether Mr Modi is against Big
Given this how long can BJP be in a position to avoid such issues and hope to tackle India deepening economic woes. The answer is very clear if BJP gets the opportunity to rule the centre with clear majority it will have to change its stances and this was evident from Modi’s speeches and actions. Of course it can come with some cosmetic changes but avoidance of it will be ignorance and the comments are a clear indication of that.
Retail or for it? If you try to evaluate looking at the economic conditions the answer is very clear. The economy of India is opening up and how can a government fence one of its biggest sector like retail if it has to grow. It would be a economic stupidity to take such an irrational decision. Besides the last year was full of rupee volatility and talks about foreign inflows and how to bring in foreign money into our domestic market. March 2014
One recent argument that was floating was Modi’s views on government as a trusteeship and not as a trust. He said that the core of his economic thinking can be captured by one word—trusteeship a word propounded by Mahatma Gandhi. In practical terms, it may be a non-starter. The real problem with trusteeship is that it frowns on private profit. And it is unrealistic (and inefficient) not to promote private profit, even in natural resources. Therefore, Modi should make “trust” – another word he has mentioned several times – rather than trusteeship the core of his policy thinking. Natural resources are exploited for private profit everywhere in the world. India can be no different. Of course, there is a need for regulation but to away with private profit in the exploitation of natural resources is to take India back to the 1950s.
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Opinion
FinNiche
Bitcoin—Prospects & Future ------ By Mukul Gupta
Discovery of electricity was a revolution. This was followed by another astounding revolution - The Steam Engine. Internet yet another. Now it's age of Bitcoin. Bitcoin is a digital currency that enables an individual to transfer money and make payments to anyone across the globe. However, the first thing to understand about Bitcoin is that it is not just money transfer. It is rather a programming environment, a publicly audited ledger which accounts for all transaction in terms of property, ownership and contracts. Developed by Satoshi Nakamoto in 2009, it uses advanced encryption technology whereby users transfer money by sending digitally signed messages to a network.
that the advantages of this technology outweigh the risks involved. Transacting on a Bitcoin platform is easy and hasslefree. The user can start as soon as he/she obtains a Bitcoin wallet which takes only a few minutes. As compared to fiat currencies, Bitcoin offer several advantages: Decentralisation Bitcoin environment uses Peer-to-Peer (P2P) exchange so there is no bank or intermediary acting in between. This, in addition to minimising the cost of transactions by reducing commissions, also leads to less labour involvement in financial transactions, heavy duty accounting and conflict resolution. No Counterfeit Currency Every time a Rs. 500 note changes hands, people check for its authenticity by holding it against a light source. This is because 2 out of every 3 bank notes in India are fake. This surge in volume of counterfeit currency has led to increase in prices and a reduction in the value of real money as more money is into circulation than is required. With Bitcoin however, such a scenario is less plausible as they can be created only by miners after doing certain amount of work for each block.
In the past four years, Bitcoin has seen tremendous growth as more and more businesses and small merchants are shifting from conventional modes of payment. Companies like Word Press and Overstock.com and many small brick and mortar stores have already started accepting bitcoins as payment. Even some not for profit organisations and advocacy groups like Electronic Frontier Foundation have also started accepting donations in bitcoins.
Less Inflationary
Case for Bitcoins
Reduced Prices
The proponents of Bitcoin network argue
Currently,
March 2014
With fiat currency the government always has the option of printing more money. If a monetary instrument works properly, the supply changes as the quantity demanded changes. This leads to increased money supply followed by inflation. However, since the maximum value of Bitcoins is capped at 21 million, they are partially if not entirely inflationproof. Thus, many inflation hit countries like Argentina and Cyprus are seeing an increased use of Bitcoins. credit
and
debit
card
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FinNiche
Opinion charge very high commissions for their services. This seems fit as these companies spend approximately 30%-40% of their profits fighting lawsuits on fraud. This commission cost is transferred to end consumers leading to high prices. However, Bitcoins cannot be impersonated, and if there is a way of transferring these kind of transactions to Bitcoins - through smartphones or Bitcoin cards the costs would reduce substantially.
of a bitcoin in terms of fiat currencies has been extremely volatile with the price rising from US$0.30 to US$200 in just one year. Also, many speculative opportunities exist within this niche market further fuelling this volatility.
Case against Bitcoins Currently, 25 bitcoins are created every 10 minutes. Although still in its nascent stage, the Bitcoin network has consistently faced criticism from the proponents of age old fiat currency system. This criticism can be explained in part by the fact that the fiat system is the monopoly of the respective governments with vested political, financial and military interests. Nevertheless, some criticism stems from genuine concerns expresses by economists. Illegal Activity In case of Bitcoin, it is not possible to trace the source or the destination of money. This network is therefore seen as a haven for money laundering and many other criminal activities. Recently, Silk Road, an online market which used bitcoins as a medium of exchange was closed under the federal law because it was using this clandestine currency for many nefarious purposes. No Backing With regard to national currencies, a government is required to back the money supply with assets like gold. However, the same does not apply to Bitcoins. They are neither backed by hard assets nor by faith of the government. This makes them a risky proposition during bankruptcy. Bubble Many critics view Bitcoin as a bubble that will soon burst. They argue that the value
March 2014
What lies ahead As Bitcoin is gaining popularity, more and more governments are taking a stance either for or against it. The Reserve Bank of India for example has issued a warning that use of bitcoins for money transfer is highly unsafe due to potential security and money laundering risks. The Government of China has taken a stricter stance by prohibiting payment and financial institutions from accepting them as payment. The European Banking Authority has also issued a warning that Bitcoin lacks consumer protection. Many more governments and central banks have also banned the use to prevent black marketing and alleged drug dealings that are using bitcoins. The future of Bitcoin is still clouded as the entire economic and financial community has mixed opinions about its viability as a currency. However, going by the current trends of growth in their use, the potential of Bitcoins as a currency seems to be rising. One should however ask this question “If the Federal Reserve creates more money in 2 hours than has been created by Bitcoins since its inception 4 years ago, what is more riskier?.�
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FinNiche
FINANCIAL KNOWLEDGE
Gini Coefficient Gini Coefficient was developed an Italian statistician Corrado Gini in 1912. It was first published in his paper titled “Variability and Mutability�. In simple terms it is a measure of inequality present inside a country. Statistically, it measures the inequality between a frequency distribution over the values of the income levels. The value of the gini coefficient is either expressed as a percentage or as a value, which varies between zero and one. Here the value of zero defines complete equality, wherein everyone has the same level of income across the country. On the other hand, the value of one on the gini index expresses absolute inequality, wherein a single person has all the wealth with him. The value of one is highly unlikely, while considering large samples. Speaking purely from a mathematical perspective, gini coefficient is derived using Lorenz curve. It is the ratio of the area inside the Lorenz curve and the that which is found by the triangle formed by the 45 degree line to the Lorenz curve from the origin. It is not overtly sensitive to the specifics of the income distribution, due to the normalization of the cumulative population and their respective shares of incomes. Gini coefficient has a wide area of usage commonly used in the areas of sociology, economics, health science, engineering, agriculture, etc. The gini coefficient of education gives a measure of the inequality existent in education in the specified population. Similar coefficients are gini coefficient of opportunity and Shamrocks index, which is derived from gini coefficient.
March 2014
The popularity of gini coefficient is primarily due to the fact that it can be used to compare diverse countries, due its non-dependence on any scale. Also its independence on the population size and its independence from the actual person holding wealth, serves as a factor for its acceptance. But, gini coefficient has its own share of limitations. These limitation serve to reduce its overall usage and make its interpretation a controversial one. One of the most criticised fact about it is also one of its most admired feature. Its independence of the scale of the economy, though seems appealing for comparison has its own share of problems. Due to it, a wealthy and a poor country can have the same gini coefficient value, even though there may be a stark difference in their income levels. This is due to the fact that both the countries may have a relatively equal distribution of wealth, the wealthy country of affluent people and the poor of cash-strapped ones. Another problem with the gini index as that it is highly dependent on the GDP and income data that is produced by a country, and is thus heavily dependent on them. Also, structural changes in the society makes its interpretation a dicey one. Changes in the gini coefficient can easily be influenced by changes in population, as in an aging population, a boom in child births, increase in household splits, etc. This will lead to a variation in the income distribution and thus change in the coefficient, even though there was no change in the income levels.
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FinNiche
FINANCIAL KNOWLEDGE
Market This Week Indian shares rose around 2 percent on heavy buying by foreign investors in what was a holiday-truncated week. Foreign investors have been net buyers of cash shares in each of the previous 10 sessions, with net inflows totaling around $600 million, exchange and regulatory data show. In the currency market, the rupee closed at 61.75 per dollar on Friday after the unit strengthened to its highest in more than a month. In the coming week, market is likely to remain in the same range bound in the run-up to elections as investors are largely neutral on India. BSE SENSEX
SENSEX Simple Moving Averages Thirty Days Fifty Days Hundred Days Two Hundred Days
20,677.35 20,802.16 20,256.20 20,086.23
CNX Nifty
March 2014
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FinNiche
FINANCIAL KNOWLEDGE Nifty Simple Moving Averages Thirty Days
6141.75
Fifty Days
6183.81
Hundred Days
6011.99
Two Hundred Days
5987.34
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
30090
0.00
Silver
1 Kg
46586
(0.31)
Crude Oil
1 bbl
6371
0.36
Lending / Deposit Rates Base Rate
10.00%-10.25%
Savings Deposit Rate
4.0%
Term Deposit Rate
8.00%-9.10%
Key Policy Rates and Reserve Ratios Bank Rate Repo Rate
9.00% 8.00%
Reverse Repo Rate
7.00%
Cash Reserve Ratio Statutory Liquidity Ratio
4% 23%
Exchange Rates
March 2014
INR / 1 USD
61.77
INR / 1 Euro
85.26
INR / 100 Jap. YEN
60.68
INR / 1 Pound Sterling
103.45
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FinNiche
Financial Knowledge
NEWS Jet fuel up by 1%,non-subsidised LPG soared over 80 per cent to $68.46 apiece cut by Rs.53 on February 28, up from $38 per share on its debut on Nasdaq stock exchange. The Jet fuel or ATF price has been hiked by a company's latest traded price of $68.46 marginal 1 per cent while rates of nonapiece, this holding is now worth about subsidized cooking gas (LPG) have been $33 billion -- which marks a surge of cut by Rs 53.5 per kg reflecting global about $15 billion. trends. Aviation Turbine Fuel, or ATF, price at Delhi was hiked by Rs 753.34 per kilolitre, or 1 per cent, to Rs 74,825.54 per Reliance Industries’ partners may have kl, according to Indian Oil Corp, the to sell KG-D6 gas at $4.2/unit nation's largest fuel retailer. The hike follows a 3 per cent cut in rates on Reliance Industries' partners BP and Niko February 1 on softening international oil Resources may have to sell their share of rates. However, prices have gone up since gas from KG-D6 at the current rate of $4.2 then and rupee depreciated against US per unit from April 1 while others would dollar, making imports costlier. charge double the price, according the oil ministry's latest decision that is being Cabinet likely to approve Rs1000/ examined by the law ministry. month minimum pension In early July, the finance ministry and the Union Cabinet is likely to approve the standing committee had raised the proposal to ensure Rs 1,000 minimum question of penalising RIL for short supply monthly pension under the pension of gas from the KG-D6 block and scheme run by retirement fund body questioned certain factors in the formula, EPFO, which would immediately benefit 28 forcing the oil ministry to review the lakh pensioners. including five lakh Cabinet's decision. widows. There are about 44 lakh pensioners. Coal India closes 2.3% down on CCI report Mark Zuckerberg’s fortune grows by $15 billion Shares of Coal India saw selling after the A sharp rise in share price of social Competition Commission of India, the fair networking giant Facebook has helped the trade regulator, said the company's fuel personal wealth of its 29 year-old CEO and pact with sponge iron makers is skewed in co-founder Mark Zuckerberg soar by a the state-run miner's favour. The same massive $15 billion in less than two years. was observed by the fair trade regulator in Zuckerberg 's fortune has soared to about its probe into allegations the miner $33 billion, from $18 billion on May 18, misused its market monopoly to dictate 2012 when the company went public. This the terms. has come on the back of investors showing huge interest in Facebook shares amid the Also, the bearishness could be attributed company beginning to make money from to the fact that the miner has cut its its mobile platform. volume guidance for FY15. As per its latest Within two years of entering the stock estimates, production for FY15 will be at market, the share value of Facebook has 507 million tonnes.
March 2014
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FinNiche
Financial Knowledge
NEWS FM can easily meet 4.6% deficit target: Cabinet hikes dearness allowance to economists 100% Higher revenue inflows towards the end of 2013-14 will help the government meet the revised fiscal deficit target of 4.6 per cent despite its having overshot the full-year borrowing target two months before the end of the fiscal, say economists.
Government raised DA to 100 per cent, from 90 per cent, benefiting its 50 lakh Employees and and 30 lakh pensioners. The preliminary assessment suggests that DA hike will not be less than 10 per cent and would be effective from January 1.
Fiscal deficit crossed the full-year target at the end of January by 1.6 per cent and stood at Rs 5.32 lakh crore or 101.6 per cent of the estimate of Rs 5.24 lakh crore, which is 4.6 per cent of GDP. Finance Minister P Chidambaram's Interim Budget revised down the fiscal deficit target at 4.6 per cent below the redline of 4.8 per cent or Rs 5.42 lakh crore for the fiscal.
HDFC raises $300 million via foreign borrowings to invest in low cost borrowings The country's largest mortgage lender plans to use the funds for its affordable housing scheme where the loan amount is capped at Rs 25 lakh.
The Reserve Bank had permitted the National Housing Bank and housing finance companies to raise funds through Sensex, Nifty hit 5-week high on FII the external commercial borrowing route to inflows, strong buying facilitate funding for owners of low-cost, Rallying for the second week in a row, the affordable housing units. stock market jumped by about 2 per PSU banks borrowing cost may rise as cent on healthy buying in capital goods, government infusion dips pharma, auto and consumer durable shares on the back of sustained capital Indian state-owned banks' borrowing costs inflows. Hawkish statements given by the may tick up as the government's capital US Federal Reserve chief Janet Yellen infusion for the next financial year will only before the Senate Banking Committee also amount to a third of the total they need, pushing them to raise overseas debt. The aided the firm trend. interim budget pegged government capital Smart rise in BHEL, L&T, Dr Reddy's Lab, infusion to public sector banks (PSBs) at Sun Pharma, Cipla, Tata Motors, M&M, Rs 11,200 crore in 2014-15, less than the Bajaj Auto, TCS, Wipro, Infosys, Axis Bank, Rs 14,000 crore allocated for 2013-14. The ICICI Bank, SBI, ITC, ONGC, Hindalco, government had pumped in about Rs HDFC and Gail India kept the market in 20,117 crore in 2010-11 and Rs 12,000 upbeat mood. Foreign Institutional crore in 2011-12. Investors (FIIs) bought shares worth Rs 1,930.92 crore in the just concluded week, including the provisional data of February 28.
March 2014
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FinNiche
FUN CORNER
FUN CORNER Last Week’s Answers
FinQuiz 1.
While FCFF is discounted using WACC, FCFE is discounted using ________.
2.
India’s 1st bank to open a branch outside India is
1) Raghuram Rajan 2) Cyrus Mistry
________.
3) Ask/offer price
3.
Beta of FMCG companies is expected to be ________.
4) Offer rate
4.
Euribor is the interbank rate decided by ________.
5.
Daily adjustment in the margin balance in a futures
5) Under-valued
account is called ________.
CARTOONS
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Publisher V.V.Raviteja March 2014
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