March 16, 2014 Volume 34
FinNiche
FinXpress
FinXpress Volume 34 Mar 16, 2014
From The Editorial Last Edition
CONTENTS
From The Editorial In focus: Asian growth inequality Opinion: Disinvest– The way ahead Term of the Week: Security market line Market This Week News Fun Corner
We are pleased to inform you that we have successfully completed another year of FinXpress. This would be our last edition for the year 2013-14. We thank our readers for continuous encouragement. We hope we had done justice and it proved to be a value addition. We congratulate the senior batch for successful completion of the course and bid adieu. We wish best of luck to the junior batch for summer internships. In this edition of FinXpress, we have the Opinion section on ”Disinvest– The way ahead” and In Focus section on “Asian Growth inequality”. Term of the week would throw light on “Security market line”. 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 section(s) 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
Asian Growth Inequality ------ By Aditya Vikram Agrawal
In the recent years if we talk of the fast growing economy across the world, then the answer turns out to be Asia. But at the same time it is also categorised as the one where there is high inequality in the disposable incomes of the people. There has been a rising consensus amongst the mainstream economists that there has been increased traction in the growth prospects of Asia. This has been attributed primarily to the continuously increasing inequality in the income levels. Inequality, as contended by many including the IMF, hurts the growth of a region in various ways. It leads to substantial reduction in the productivity, reduces education levels of the not so well segment and reduces their natural lifespan. Furthermore, it causes political instability, due to sustained anger in the mass over the disparities, which eventually leads to the fall in investment levels. This can be seen evidently from the example of Thailand, where investments have declined since the protest against the government. Already it is being seen in few Asian countries that the growth constrains are arising, which are rooted deep in inequality. A major example which can be cited is Indonesia, which had a growth of 6% in the recent past. This had been fuelled primarily by export of commodities to China. With the slowdown in Chinese economy, Indonesia was bound to be hit. As it could be seen, there had been a sustained decrease in the percentage of manufacturing in the Indonesian economy. This has been attributed to the low health of the workforce and low education levels. These disparities had set in due to the disparity in wealth amongst the Indonesian population. Though the proportion of Indonesians living below the poverty line has decreased substantially,
MARCH 2014
but so has the inequality in the level of household expenditure. The question that remains is what is the solution to it all. One of the methods that is gaining traction are policies that seek to redistribute wealth. Though, it must be pointed out that higher taxation of the rich is not the most popular method of this. Brazil and Mexico are prime examples to look upto. There have been drastic decrease in the income level disparities in both the countries. They had turned to conditional cash transfers. These transfers are linked to attendance level in schools. This policy is attributed to have accounted for a fifth of the total reduction of inequality inside a decade. Indonesia, though has been focussing on the redistribution of wealth by providing subsidies on energy consumption. This policy has widespread popularity amongst most of the Asian countries. But, there has been widespread criticism associated with it. This criticism has come primarily from the fact that it leaves out the poorest segment of the society, and over-benefits the middle and upper class by providing subsidies in the fuel usage of cars and motorbikes. Though inequality in Asia is still lower than South America, here the level are rising as opposed to the trend there. The top 1% of the Indonesian population accounted for almost 8.5% of the wealth in 2004, after which data has not been available. With the world’s richest 85 people owning the same amount of wealth as the bottom 50% of the world population, questions have been rising to its sustainability. The two popular approaches presently are either increasing the pay level of workers or increasing tax levels based on absolute wealth of a person. Whichever may be the approached followed, this will pose the biggest question for governments in the coming years.
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FinNiche
OPINION
Disinvestment—The Way Ahead —- By V.V.Raviteja Disinvestment in various Government utilities have always been the buzz word of Indian economy particularly when country’s fiscal deficit has reached its lower threshold. Government of India has even formulated a disinvestment policy and separate department to handle this aspect, along with a budgetary target set for every financial year. It may amuse many for where exactly this money end up in the system is what we will discuss in the rest of the sections National Investment Fund (NIF) is Government owned entity is to where all this money is flown in. From here 75% of it is used for addressing key social issues faced by the country and the rest is used to revive fading Government utilities. This amount will be held in a public account from which any expenses would be made only after obtaining certain approvals. Few of key beneficiaries of this fund are as follows:
RGGVY (Rajiv Gandhi Gramin Vidyutikaran Yojana): With country’s peak deficit touching up to 12%, the feasibility of using national grid to electrify more than 2 lakh un-electrified villages seems like a distant dream. One seemingly convenient solution to this puzzle is to give some financial assistance to these regions for being self sufficient by means of renewable energy sources. This what exactly our program is capable of addressing and reaching out to more then 70% of country’s population. MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act): Touted to be world’s largest social welfare program is implemented to address the unemployment issue of our country. Providing a guaranteed 100 days of work to rural population is principle objective of this program, which would have a direct impact on country’s per– capita consumption levels. Added to these investments spanning from Metro Rail projects, recapitalization of Public Sector Banks, RRB’s and NABARD were made from this account.
JNNURM (Jawaharlal Nehru National Urban Renewal Mission): The objective of this programme is to improve the infrastructure services in the urban regions of India. In a country which is experiencing a paradigm shift of urbanization, this timely financial assistance would enhance timely completion of various infrastructure projects.
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To conclude this act of disinvestment could be criticized as robbing the wealth of Public Sector companies and making them experience a dearth of capital outlay. But given the way this huge chunk of cash is being utilized as a part of the plan expenditure of the economy would definitely help in reviving our economy. In turn we would not only able to achieve a bull run of economy but also significant overall development across the country.
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FinNiche
FINANCIAL KNOWLEDGE
Security Market Line An important concept of portfolio management, Security Market Line (SML) is a graphical representation of Capital Asset Pricing Model. SML presents the expected return of the security at different value of beta (systematic risk). CAPM: E(Ri) = Rf + β[E(Rm) - Rf]
SML being a function of CAPM has β as an independent variable. When β is zero, expected return is equal to the risk free rate of return. So SML intersect the y-axis at risk free return. As the β value increases the line moves upwards towards the right. When β is negative, SML continues to be a straight line. To a rational investor, negative value of beta provides a hedge to the portfolio against recession forces.
analysis of different securities whose average return is the weighted average returns weighed in the proportion of their beta values. Slope of a SML line basically gives the risk premium required by the investor. This risk premium vary over time. Some of the factors on which change of this risk premium depends are:
Security Market Line Vs. Capital Market Line There are many instances when Capital Market Line (CML) is confused with SML. Some of the major points of difference are:
SML is used to check whether the asset under consideration gives acceptable return for the risk in order to know that all the securities are plotted on the returnbeta graph. If a security lies above SML, that means the security is undervalued as we can expect a greater return. If the security lies below SML, the security is overvalued. It provides the cross sectional
March 2014
GDP of the Nation Market Condition of the country in which the security is traded Rate of Inflation
Capital Market Line shows expected return as a function of standard deviation. It is a tangent drawn to the efficient frontier from risk free rate of return point Unlike the expected rate of return of security taken in case of SML, in CML we take expected rate of return of portfolio Security level factors are determined using SML while CML gives us the details about the complete portfolio CML can determine only efficient portfolios while SML can determine both efficient and inefficient portfolios In CML risk is measured by standard deviation whereas in SML only systematic risk is taken (beta)
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FinNiche
FINANCIAL KNOWLEDGE
Market This Week Both the BSE and NSE recorded a sharp fall in the last trading day as IT stocks primarily Infosys plummeted on after the company's Chief Executive S.D. Shibulal on Wednesday, warned that the company's sales growth for the current fiscal year may be near the lower end of its forecast as some of its clients are tightening spending on technology. Even the Realty stocks dropped in choppy trade. The indices however staged a late recovery with Sensex closing at 21809.80 and Nifty at 6504.20. BSE SENSEX
SENSEX Simple Moving Averages Thirty Days Fifty Days Hundred Days Two Hundred Days
21,765.00 21,702.90 21,656.00 21,679.00
CNX Nifty
March 2014
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FinNiche
FINANCIAL KNOWLEDGE Nifty Simple Moving Averages Thirty Days
6491.22
Fifty Days
6472.27
Hundred Days Two Hundred Days
6457.70 6457.80
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
30595
0.15
Silver
1 Kg
47084
0.75
Crude Oil
1 bbl
6051
0.5
Lending / Deposit Rates Base Rate
10.00%-10.25%
Savings Deposit Rate
4.0%
Term Deposit Rate
8.00%-9.25%
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
61.52
INR / 1 Euro
85.23
INR / 100 Jap. YEN
60.57
INR / 1 Pound Sterling
102.22
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FinNiche
FINANCIAL KNOWLEDGE
NEWS Maruti to invest Rs 4,000 cr in FY15 on new models, marketing Country's largest carmaker Maruti Suzuki plans to invest around Rs 4,000 crore in the next fiscal on various activities such as the introduction of new models, marketing and R&D.
three lives in the mainly Russianspeaking east came hours after Moscow -- its forces already in control of Crimea and conducting snap drills at Ukraine's eastern border -- warned that it reserved the right to "protect" compatriots throughout its neighbour.
The company's board, which met today, approved the investment for the next fiscal besides coming out with new proposals for the proposed manufacturing facility in Gujarat. "Board approved capex for 2014-15 will be around Rs 4,000 crore. The investments would be mainly for new models, marketing infrastructure and R&D," a company spokesperson said.
GK Pillai quits as MCX-SX Chairman as CBI probes licence The Jignesh Shah story is moving at a blinding pace. Within 24 hours of the Central Bureau of Investigation beginning a multi-pronged probe, GK Pillai, Chairman of MCX-SX, an exchange founded by Shah's FT group, resigned citing "personal reasons."
Malaysia Airlines crashed in Bay of Bengal/Indian Ocean? The Malaysia Airlines plane, missing for a week, may have crashed either in the Bay of Bengal or in the Indian Ocean, a TV news channel reported today, hours afte r Mal aysi an Pri me Mi ni ste r confirmed that flight data showed the jet deviated due to "deliberate action". "The news channel has learned that a classified analysis of electronic and satellite data suggests the flight likely crashed either in the Bay of Bengal or elsewhere in the Indian Ocean," the leading American channel reported while noting that the Malaysian Prime Minister Najib Razak said some of those areas have been searched. Deadly violence flares up in Ukraine; stage set for biggest east-west showdown since Cold War Ukraine braced on Saturday for a breakaway vote in Crimea as deadly violence flared again in the ex-Soviet country's tinderbox east amid the biggest East-West showdown since the Cold War. The second successive day of deadly unrest that has now claimed
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Till a day ago, Pillai was urging MCX-SX shareholders to subscribe to a rights issue, the success of which is crucial to the bourse. Former LIC chairman and MCX-SX vicechairman Thomas Mathew was appointed chairman in place of Pillai. Hours after Pillai stepping down, Shah was called in for a further round of questioning by CBI sleuths at the agency's office in Mumbai's Ballard Estate area. Steel, steel item imports may go up on easing rules Domestic steel makers are expecting a surge in import of steel and steel items in the country after the government eased import norms for the two products. The Directorate General of Foreign Trade (DGFT) has allowed steel exporters to India to provide quality certification from "any international standard certifying body," toning down its earlier policy that mandated certification from only a recognised body in the product's country of origin. "While subdued demand at home has made us look at exports, a rise in imports will once agai n lead to a massive disturbance in the demand-supply balance.
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FinNiche
FINANCIAL KNOWLEDGE
NEWS Manappuram Finance acquires Milestone Home Finance Company from Jaypee Hotels Non-banking finance company Manappuram Finance Limited (MFL) has signed a definitive agreement to acquire Milestone Home Finance Company from Jaypee Hotels for an undisclosed amount, the gold loan NBFC major announced on Thursday. The transaction, which is subject to relevant regulatory approvals, is part of Manappuram's strategy to diversify its business by entering the lucrative housing finance space, according to a press statement released by the company.
by value, fell as much as 6.4 percent on Thursday after the FDA's "import alert", which appeared on Wednesday on the agency's website. An "import alert" results in the detention without physical examination of drugs from firms that have not met so-called good manufacturing practices, according to the FDA website.
General Atlantic Partners to buy 30% stake in CitiusTech Private equity firm General Atlantic Partners, which got in early on the IT and IT enabled services boom, may be looking to catch the next wave as it's close to buying a 30% stake in former McKinsey executive turned entrepreneur Panasonic to make India regional hub R i z w a n K o i t a - o w n e d h e a l t h c a r e by 2015 technology firm CitiusTech for $100 Japan's largest electronics maker million ( Rs 620 crore), said three people Panasonic Corporation will make India a close to the transaction. regional hub by 2015, as it seeks to challenge the dominance of South This marks the second successful Korean conglomerates LG and Samsung entrepreneurial venture in less than 15 and double revenues from the country years by Koita along with batchmates to $3.6 billion. A top executive of the from IIT- Mumbai. The deal, which company told ET that as a regional hub, values the Mumbai-based company at India will not only export products to Rs 2,000 crore, will help CitiusTech neighbouring countries but also help in boost healthcare technology services. developing them as per the needs of these markets. "India has the most Genpact to slash verticals, focus on potential in terms of a region for new ones creating a second Panasonic hub Genpact, one of the biggest back-office because of good population, R&D outsourcing names in India, will more capability and to expand business to the than halve the number of verticals it will neighbouring countries ," said Kazuhiro focus on, in an effort to target its growth Tsuga, global president at Panasonic. investments into areas that hold the most promise. Of a total of 23 verticals, Sun Pharma gets FDA import ban on the company will focus its efforts, Gujarat plant including re-allocating sales staff, to The US Food and Drug Administration nine verticals that account for about (FDA) has imposed a ban on imports 85% of its business, including banking, f r o m g e n e r i c d r u g m a k e r S u n financial services and manufacturing. Pharmaceutical IndustriesBSE 1.42 % The New York-listed $2 billion BPO Ltd's plant at Karkhadi in Gujarat, in provider came for some flak after its the latest quality blow for the country's latest earnings results and outlook drug sector. Shares in Sun PharmaBSE disappointed investors, and has offered 1.42 %, the country's biggest drugmaker a $300 million share buy back.
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FinNiche
FUN CORNER
Fun Corner FinQuiz 1.
Bank of the Middle East, Dubai maintains an account SBI Mumbai. SBI Mumbai calls this account as
2.
Which country's foreign market is known as 'Rembrandt Market'?
3.
In money market, what is the term used for the non-convertible paper money?
4.
Which is India's first Credit Rating Agency set up jointly by LIC, GIC, UTI, ICICI and Asian Development Bank in January 1988?
5.
Which country's currency is known as Drachma, which in Greek means 'to grasp'?
Last Week Answers 1. 2. 3. 4. 5.
Black Tuesday 5 LodeStone Security Paper Mill at Hosangabad,MP Only bank in India to sell Prasada
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Last Week’s Winner Vineet Maniar
CARTOONS
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Volume Publisher: Rajat Kochar
March 2014
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