Finxpress october 12 2014

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OCTOBER, 12 | 2014 | A FINNICHE INITIATIVE

Narendra Modi’s US Trip

Do write to us at: finniche.imt@gmail.com

Ripple Effects of Flipkart’s

Big Billion Debacle | 4

Securitization | 6

Janet Yellen |11 Interbrand’s Best Global Brand 2014 |12

October, 12 | 2014 | Volume 16

College was abuzz with summer placements kicking off, which have ended on a positive note with over 140 students getting placed during the week. Club FinNiche wishes all the placed students its heartiest congratulations.

Narendra Modi’s US Trip

The ripple effects of the Big Billion sale

Securitization

In this edition of FinXpress we have our InFocus section putting light on the recently concluded ‘Narendra Modi’s US Trip’ and our Opinion section analyzes on the ripple effects of the Big billion day sale. The term of the week sheds light on the much hyped “Securitization” which shook the markets during the subprime crisis. Along with it, do have a look at our sections on Personality which talks about the current US Fed Chairman Janet Yellen.

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.

Happy Reading!

Regards The Editorial Team Club FinNiche Janet Yellen

Interbrand’s best global brand 2014

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

- By Arunav Chakraverty

Narendra Modi’s US Trip : A Balancing Act Between Style and Substance

US removed the restrictions placed on travel by Modi when he was elected PM

Narendra Modi’s much anticipated US visit came to an end on September 30th with a meeting with the governor of Maryland, Martin O’Malley. The Indian media drove itself into frenzy, trying to analyse the outcomes with some pundits hailing the visit as pathbreaking and paradigm-altering and others criticising it for having been nothing more than a glorified PR exercise for Mr. Modi with nothing substantial being achieved. Both camps certainly have their own valid points.

Agenda includes UNGA meeting, meeting with President Obama, CEOs of US firms as well as Indian Diaspora at the famed MSG

The expectations of path-breaking strategic agreements, between the two countries were not really justified because of many reasons.

The fact none of the top US dailies carried news about Mr. Modi’s visit in their front pages clearly shows that the US’ expectations from the visit were more grounded in reality.

This visit was more about getting back on track vis-a-vis the relationship between the two countries. The ties between the two countries had been turning frigid over a number of issues that had been piling up like the diplomat arrest scandal, India’s role in the collapse of the WTO talks etc. Moreover, Mr. Obama is now a lame duck president in the second half of his second term with enough domestic problems to tackle. This leaves him with little time or indeed incentive to truly care about revolutionizing his country’s ties with India. Despite the somewhat negative backdrop for this visit, the fact that the two leaders were able to keep the prickly issues in the backburner for now while coming up with a joint statement reflects towards a

strengthening of the relationship. The joint statement did focus on many key points but was lacking in details. Following are the salient points of the joint statement:  Establishing an Indo-U.S. Investment Initiative, to attract investment by institutional investors, led by the Indian Ministry of Finance and the US Department of Treasury, with special focus on capital market development and financing of infrastructure  Creating an Infrastructure Collaboration Platform set up by the Department of Commerce and the Ministry of Finance to facilitate the participation of US companies in Indian infrastructure projects  US firms to be the lead partners in developing 3 of the 100 planned smart cities viz. Vishakhapatnam, Ajmer and Allahabad  Taking actions to increase bilateral trade,



Article titled “A Renewed US-

which has increased five-fold since 2001 to around $100 billion in FY14, by another five-fold Renew for ten more years the Framework for the US-India Defence Relationship established in 2005. A Contact Group would be created to explore ways of advancing the implementation of civil nuclear energy cooperation.

India Partnership for the 21st Century”. Also releases a joint statement

focusing

on

key

aspects of strategic relationship

Meets with 11 CEOs in a breakfast meeting and 6 CEOs face to face, the next day.

Assures of stability in tax law

There were h o w e ve r , no such announcements regarding the promise of a specific amount of direct investment from the US, unlike the announcements that succeeded Mr. Modi’s trips to Japan and China. This was because the US leaves most of its investment decisions up to the private sector. On this count, Mr. Modi may have played a masterstroke as he managed to charm Corporate America with a series of well planned meetings which may turn out to be the most significant achievements of his trip. He had a breakfast meeting with 11 CEOs including those of Pepsi, Mastercard and Google. The very next day, he had oneon-one meetings with six CEOs including those of Boeing, Blackrock, IBM, GE, Goldman Sachs and KKR. He emphasised the fact that his government was committed to improving the ease of doing business in India as well as bringing tax stability by eschewing retrospective taxation. All the CEOs seemed to have been impressed by his can do attitude and seemed ready to reinvest in India’s growth story which seemed to have lost its sheen only last year. CEO of IBM, Virginia Rometty expressed interest in many of the initiatives of the new government regarding the setting up of

smart cities. The CEO of Blackrock, the world’s largest asset manager Laurence Flik conveyed his intentions of hosting a global investors’ meet in India.

The most intensely analysed part of his visit was definitely his speech to the Indian Diaspora at Madison Square Garden, the very same iconic ground where he was prevented from speaking in 2005 as he was denied a US visa. He received a rockstar’s welcome from the fawning audience. In his trademark style of mixing rhetoric with fiery conviction, his speech contained specifics like his plan (actually a rehash of an old UPA plan) to combine OCI and PIO cards and provide a lifetime visa to anyone holding such a card along with emotional exaltations to the gathered audience to give back to their motherland. Most foreign publications have criticized the speech as being too theatrical but a leader’s job doesn’t just end with performing the behind the scenes work.

Sentiments have become substantially important in today’s interconnected world and leaders sometimes have to play to the audiences in order to generate positive sentiments. Indeed, we are currently in the midst of the broadest stock market rally (29 out of the 30 stocks of Sensex have risen this year) since 2003, mainly on the back of positive sentiments created due to a stable and pro-business political regime having been elected and the last time such a rally had occurred, the bull run continued for the next 4 years. That Mr. Modi has been able to generate a positive sentiment out of his US visit is pretty apparent. Whether the other expected gains materialize or not will have to be seen in the due course of time.

- By Nupur Gupta

Total

turnover of

Rs.

600

crores in 10 hours.

 



On 6th October, India witnessed a mass

for the day. The sale to end all sales proved to

consumer frenzy, triggered by India’s biggest

be a nightmare to end all nightmares for CEO

online retailer Flipkart, as potential customers

of Flipkart who had to publically apologize to

logged around billon hits in a single day! The

millions of customers who were deeply

“Big Billion Day” was indeed a big day not

disappointed as they couldn’t access the hot

only for Flipkart but also for other players in e

deals on Flipkart. Flipkart failed to live up to

-commerce industry, but it has certainly

customer’s expectation resulting in a negative

triggered multiple debates within and outside

customer experience and utterly ruined brand

the retail industry.

image. Now the company as well the industry is in introspection whether such audacious

CEO of Flipkart apologiz-

online

es for massive fail.

attempting at all.

Retaliation

from

are

worth

retailers over predatory

This whole episode because of its sheer scale

pricing.

has created ripples in traditional retail

Government intervention

industry

for

insecurity among them. Commerce Minister,

regulations

of

e-

brand image of reputed brands.

generating

new

fears

and

complaints from offline retailers who are

Commoditization of online

Huge discounts eroding

by

Nirmala Sitharaman has admitted to receive threatened by online competitions, forcing her

retail brands



experiments

offline

commerce



retail

to examine the policy on e-commerce and It was a conscious strategy adopted by

whether it should be tweaked. Now even

Flipkart ahead of Diwali to test the market by

politicians want to examine if such frenzied

offering

selling at huge discounts needs to be

massive

discounts

on

various

branded products. It was a self-destructive

regulated.

and audacious attempt by Flipkart to test the limits of online sales in one day. In just 10

Even the Confederation of All India Traders

hours, online retailer reached a turnover of

(CAIT) has shown protest and retaliation

Rs. 600 crores by selling goods worth over a

against the online retailers who are said to be

crore every minute. They were selling 60

indulging in monopolistic and unfair trade

items per second amounting to around 2

practices. CAIT general secretary is said to

million items in a day which included half a

have strong affiliation with BJP and if they

million mobile phones and equal number of

launch a campaign against online retail it is a

garments. Thus, the servers had to crash even

greater possibility that they would be taken

though their capacity was expanded 20 times

seriously by the Modi Government.

If this issue gets politicized, there is a danger

which is essentially bad for industry.

for the fledgling online retail sector - which





accounts for only 2% of the total retail sector

Now, even the most reputed global brands

- to get over-regulated which is also a bad

like Apple, Samsung, LG are cautioning

news for Indian consumers who have just

their

loyal

customers

against

online

begun to relish it. Due to lower overhead

purchase of their products at throwaway

E-commerce have poten-

expenses, online retailers certainly have a

prices. According to them, such heavy

tial to grow exponention-

greater advantage over offline retailers and

discounts and low prices are eroding their

ally.

a greater potential to grow exponentially.

brand image by taking away the premium

Government should not

associated

with

their

brands

globally.

hamper future digital suc-

Although online retail will cause upheaval

cess stories through over-

and disruption but regulators will commit a

regulatons.

bigger mistake by stopping such “creative disruptions” at such nascent stage. Taking example from success of China’s mega

online retail platform, Alibaba, which scaled up from a small start up in a one-room apartment to a multi-billion dollar company in a short span of time and ended up Another side-effect of Flipkart’s aggressive

completing the biggest ever IPO in the

sale strategy is commoditization of online

world; the Modi government must give

retail brands. The consumers wouldn’t have

these young entrepreneurs chance and

any brand loyalty and would end up

freedom to create India’s own online success

rushing for the lowest prices and not care

stories like Alibaba even if they cause small

whether it’s Flipkart, Snapdeal or Amazon

disruptions in the traditional economy.

Securitization

refers

to

the

process of conversion of illiquid

In securitization a company creates a consolidated financial instrument by clubbing its different financial assets/debts, which is then divided into smaller pieces based on each individual’s risk of default. The securitized securities are then issues in smaller pieces or certificates to investors.

loans into tradable securities, which would enable companied to increase their overall liquidity and generate immediate proceeds from their assets

Technique

companies/bank

employ to earn an adequate return at appropriate time by coordinating the management

At the core of this transaction process is ‘originator’ (usually a bank or NBFC) which has portfolio of loans/assets and it clubs together the obligators that have a similar risk -return profile. The assets are then sold or transferred to an issuer or Special Purpose Vehicle (SPV), which manages the assets and legally protects the company from asset obligations. This SPV then issues securities that are rated by a rating agency, and then distributed to investors who are looking for such assets.

investors by giving them access to pooled and diversified asset portfolio. The following securitized products are popular in India: 

of asset and liability.

SPV that hold certain assets

and, is safe from bankruptcy of any of the companies that hold it.

The ratings are based on the ability of the assets to meet the principal and interest payments of the new securities. Sometimes, there is also an arranging party, usually investment banks, who facilitate the creation of SPV and selling of securities to the investors.

The originator receives some proceeds from the securitization, which can be used for ongoing operations and other business uses.

The process also helps the bank in assetliability management (ALM). It benefits





Asset-Backed Securities (ABS)Securities issued by SPV that are backed by assets like, cars, commercial vehicles, construction equipment and consumer loans.

Collateralized Loan Obligations (CLO)Securities backed by a pool of debt, often low-rated corporate loans, working capital & term loan, oil/gas receivables, lease receivables etc.

Mortgage Backed Securities (MBS)Asset backed security that is secured by mortgage or collection of mortgages.

These securities usually pay periodically like coupon payments.

INDIAN MARKETS

Markets upward move may be

This week both Sensex and Nifty fell 1% due to the rising global cues and concerns.

Global equity investors have turned cautious over the past few sessions as fresh concerns over global economic growth have emerged, with the IMF trimming its forecast for 2015 to 3.8 percent. Key equity benchmarks declined this week with CNX Midcap dropping 1.4% whereas BSE small cap saw a decline of around 0.3%. FII’s are optimistic about the depreciation in the Indian rupee in the days to come depending on the US policy and RBI monetary changes.

capped soon due to global

Open

High

Low

Close

SENSEX

26551.74

26555.92

26261.61

26297.38

NIFTY

7911.00

7924.05

7848.45

7859.95

concerns

GolmanSachs

is

the

latest

brokerage to get bullish on the

BSE SENSEX

IT sector

True caller android app got $60 mn funding

CNX NIFTY

COMMODITIES

Global growth concerns trig-

Commodity

Unit

Rs / Unit

% Change

Gold

10 grams

26967

0.64

Silver

1 kg

41598

4

Crude Oil

1 bbl

5299

-3.25

gered the Wall Street sell and fall in the markets globally

EXCHANGE RATES INR/ 1 USD

61.33

INR /1 EURO

77.93

INR/ 100 JAPAN YEN

56.91

INR / 1 POUND STERLING

98.47

Apple beats Google and Samsung to become world’s most valuable brand

Brent below $90 for the first time in two years

INTERNATIONAL MARKETS Open

High

Low

Close

NYSE Comp

10397.37

10442.20

10317.68

10395.33

NASDAQ

4354.63

4380.51

4299.48

4336.22

S&P 500

1925.63

1936.38

1912.84

1927.49

FTSE 100

6431.85

6431.85

6328.89

6339.97

CAC

4114.52

4125.13

4065.50

4073.71

DAX

8924.58

8958.66

8788.21

8788.81

NIKKEI 225

15292.88

15345.78

15221.83

15300.55

SSE 50

2380.76

2386.28

2365.07

2374.54

Hang Seng

23198.80

23237.40

23071.27

23088.54

India close to allowing Euroclear settlements for sovereign funds - sources India is close to allowing sovereign wealth funds to settle government bonds on Euroclear, the world's largest securities settlements system, and is likely to set aside up to $3 billion for these long-term investors, according to two officials aware of the discussions. One of the sources said the government would for now exclude foreign institutional investors (FIIs), the biggest investor base from overseas in India.

The Nobel Committee awarded the 2014 nobel peace prize jointly to child rights activist Kailash Satyarthi and Pakistan’s Malala Yousafzai, the global face of a campaign against poverty, illiteracy and terrorism

Awarded to Isamu Akasaki,

A final decision to exclude FIIs would signal policymaker's skittishness about opening up India's debt market too much given concerns about sudden destabilising outflows, even as India depends on these foreign investors to fund its current account deficit. India imposes an overall ownership limit of $30 billion for foreign investors in government bonds, of which $25 billion is geared for foreign institutional investors.

The FII allocation is almost fully used up, whereas long-term investors such as sovereign wealth funds, foreign central banks, pension funds and insurance funds have used up about 71 percent of their $5 billion limit.

September inflation likely eased on lower food, fuel costs

Hiroshi Amano and Shuji Nakamura for the innvention of efficient blue light-emitting diodes which has enabled bright and energy-saving

white

light

sources

Awarded to Eric Betzig, Stefan

W. Helland and William E. Moerner for the development of super-resolved microscopy

fluorescence

India's consumer price inflation probably eased for a second straight month in September helped by lower food and fuel costs. While prices were trending lower, analysts said the Reserve Bank of India's inflation target further out in January 2016 may be difficult to achieve. Consumer prices in September were forecast to have risen 7.2 percent, according to a poll of 28 economists, weaker than 7.8 percent in August. It would also be the lowest inflation reading since the indicator was introduced in 2012.

The poll also showed wholesale price inflation, will likely tick down to 3.3 percent from last month's 3.7 percent, The RBI gauges both measures of inflation when deciding on monetary policy, but with risks to the January 2016 CPI target, it is unlikely to cut interest rates this year.

Rajan says removal of FII debt limits possible over 2 years, reports Euromoney The RBI will remove foreign investment limits on the country's debt markets once the economy reaches its potential output over two consecutive years and foreigners move to long -end maturities, Euromoney reported Governor Raghuram Rajan as saying.

These two factors would happen "once the world becomes excited in a more substantial way about the India story", Euromoney quoted the Reserve Bank of India Governor as saying during an interview with the magazine. Foreign institutional investors have almost exhausted their $25 billion limit in government bonds.

Infosys posts higher-than-expected Q2 profit Infosys Ltd wants to revive growth through automation and artificial intelligence, its chief executive said, boosting investors' confidence in India's second largest IT exporter after it posted a forecast-beating quarterly profit.

Awarded to John O’Keefe, May-Britt Moser and Edvard I. Moser for their discoveries of cells that constitute a positioning system in the brain

Awarded to Patrick Modiano for the art of memory with which he has evoked

the

most

ungraspable

human destinies and uncovered the life-world of the occupation.

Infosys often appeared torn between chasing high-margin projects and low-margin breadand-butter IT deals. Sikka, however, said Infosys' future now lay in new technologies, and that it would look into acquisitions to expand into those areas. The stock is also on track to post its biggest single day gain in more than a year after Infosys posted a higher-thanexpected 28.6 percent rise in its second-quarter net profit and unexpectedly announced it was issuing bonus shares and an interim dividend.

Wilful Defaulters Face SEBI, RBI Heat A day after the Nobel Prize in physics was won by the scientists who invented blue lightemitting diodes (LEDs), the power ministry Wednesday launched a business model enabling the sale of LED bulbs to households at Rs.10 against the market price of Rs.400. Car Sales Grow for Fourth Straight Month. The union power ministry has already decided that all below-poverty line households at the time of electrification under the Rajiv Gandhi Grameen Vidyuthikaran Yojana (RGGVY) would be provided LED technology.

RBI restructures some departments, creates 2 executive directors The Reserve Bank of India is restructuring some of its departments as part of an overall reorganisation exercise. The RBI officials stated that the restructuring will be completed by end-October. The central bank has divided some departments into smaller ones and appointed three new executive directors, including filling up one existing position, for further specialisation.

M.D. Patra will head the departments of economic and policy research, monetary policy, and communication, while K.K. Vohra will manage human resource, corporate strategy and budget, and G. Mahalingam will be in charge of the department of statistics and information management, financial market operations and the international department. These portfolios will be effective from November 3, 2014

inflation rise occasionally can increase output. She also gave a figure of 4.4% loss of GDP for every % fall in inflation.

13 Aug, 1946

Recent News The upcoming debate for the Fed is interest rate hikes and withdrawal of QE. Recent FOMC meet suggested that the rate hikes will be data dependent and not time dependent which shows Fed chairman Yellen is no hurry to raise rates. There has been some opposition from the Fed members of raising interest rates and have argued that keeping rates at 0% would lead to an unhealthy situation for the country but Yellen’s focus has been on inflation and unemployment.

Brown University Yale University (Ph. D)

Vice chair, Federal Reserve Chair, Federal Reserve San Francisco

Yellen’s Career and Achievements On October 9th, 2013 Janet Yellen was nominated to replace Ben Bernake as the head of the Federal Reserve and took office from January 6, 2014.

Janet Yellen and Her Philosophy Janet is considered by many to be a ‘dove’ Keynesian wherein her focus is on unemployment rather than on inflation. She is reluctant in raising interest rates as she believes in the Philips curve theory which states the inverse relationship between inflation and unemployment. In 1995 Federal open market committee she stated that letting

Yellen has been an assistant professor at Harvard in 1971-76 and also a lecturer at London School of Economics and Political Science. Yellen also served as a chair in the Bill Clinton Council of Economic Advisers. In June 2004, Yellen was appointed the President and Chief Executive Officer of Federal Reserve Bank of San Francisco where she served till 2010. Post 2010 she became the Vice Chair of Federal Reserve and finally the Chairman, post Ben Bernake’s term. Yellen received the Wilbur Cross Medal from Yale in 1997, an honorary Doctor of Laws degree from Brown in 1998, and an honorary Doctor of Humane Letters from Bard College in 2000.

- By



Facebook



Audi



Amazon



Nissan



Volkswagen



Nintendo Co. Ltd.



Nokia Corporation

Interbrand, the Global Brand Consulting firm, released the 15th edition of its annual Best Global Brand Report 2014. Unsurprisingly, Apple and Google continue to lead the list second year in a row. Apple ranked 1 saw increase in brand value of 21% and is valued at $118.9 billion just ahead of Google valued at $107 billion up by 15%.

Interbrand ranks the companies based on their brand values, calculation of which takes into account three main components: the financial performance of companies’ branded products or services, influence that the brand has on consumer’s purchase decision and the competitive strength of the brand.

This year’s list saw inclusion of Huawei (Ranked 94) — the Chinese telecommunication giant. This is for the first time, a Chinese company made it to top 100 of this list while the other Chinese computer manufacturer Lenovo just missed to make it to the list. Other new entrants in the list were DHL (Ranked 81), Land Rover (Ranked 91), FedEx (Ranked 92) and Hugo Boss (Ranked

Bhanu Chokhani

97). Surprisingly, this year’s list saw 14 automobile companies making it into the list of top 100 brands with 3 (i.e. Audi, Nissan and Volkswagen) being among the top 5 gainers. Technology sector that generally tops the list came second with 13 companies making it into the list with 5 of these making it into top 10. The rise in the number of automobile companies in top 100 is attributed to recovery that the sector saw since the downfall of 2009 and 2010. According to Jez Frampton, Interbrand’s Chief Executive Officer, number of innovations automobile industry saw in last 5 years is far more than what they saw in previous 25 years and that has been a major reason for the change.

Some notable companies that were missing from this year’s list were luxury sports car manufacturer Ferrari, computer giant Dell, Heinz Company, Moet & Chandon and Avon Products Inc. Jez Frampton hinted that after recent blockbuster IPO of Alibaba on NYSE, Alibaba Group Holding Limited would most likely make it to the list next year.