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OCTOBER, 26 | 2014 | A FINNICHE INITIATIVE
Samvat 2071: A Year of Hope or Despair
Do write to us at: finniche.imt@gmail.com
Pace of Modi’s Reforms | 4
Green Shoe Option | 6
Christine Lagarde |11 Comprehensive Win for BJP in Haryana & Maharashtra |12
October 26 | 2014 | Volume 18
Hope you all had a wonderful Diwali and enjoyed your holidays to the fullest. With the nearing of examinations, hope juniors maintained a perfect balance between their festive mood and studies on the other hand. Club FinNiche would like to take this opportunity forward to wish the entire junior batch all the best for their upcoming examination. Samvat 2071: A year of Hope or Despair
Pace of Modi’s Reforms
Green Shoe Option
Christine Lagarde
With the junior batch having their exams in focus FinNiche launches yet another edition of FinXpress with the In Focus section highlighting “Samvat 2071” which makes a comprehensive coverage about Samvat either as an year of hope or despair. The Opinion on the other hand gives an overview on the Pace of the Modi’s Reforms and its progress in light of the promises made by the Government.
The term of the week describes “Green Shoe option", as a method of protecting the company against the oversubscription and under-subscription of shares. Do have a look at the personality of the Week, Christine Lagarde, Managing direct of the MF and the non- finance section highlighting the results of the recent election revamp and its result based on Modi aura spread. Hope everyone likes this edition of magazine. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas. Best wishes to the Junior Batch.
Happy Reading! Regards The Editorial Team Club FinNiche
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
- By Aditya Agrawal
Samvat 2071: A Year of Hope or Despair At approximately 6.30pm on 23rd October, the markets rang in Samvat 2071, with its symbolic Mahurat Trading session. Nearly 27,200 crore was added to the total market capitalization of the market. After a dismal first half of the year,
primary
markets
are
abuzz with action, with ten firms filing offer documents in last two months
The
Sensex
gained
5590
points, which translated to a
Samvat 2071 has opened up a can of questions about the plausible market movements up ahead. The general mood in Dalal Street during mahurat trading had a bullish undertone to it. This though was also mixed with a pinch of caution. This caution though, is not without warrant. The global economic scenarios are not the most positive at the moment from India’s perspective.
growth of 26.37%, in Samvat 2071
The US Federal Reserve is faced with the unique scenario, wherein after months of continued focus towards improving the condition of the labor markets, they face the challenge of low inflation being heavily entrenched into the economic genesis. The last FOMC meeting having provided an optimistic scenario for the United States, had brought expectations for an aggressive increase in interest rates. This though has weakened in the past month. There has been an extended period of oil prices sliding, which are expected to remain in this phase for a considerable time frame. The CPI for the month of September rose marginally by 0.1 percent, further painting a picture of weak inflation, on account of rise in food costs. This though is not expected to
sustain in the coming months. This has led to expectations from certain quarters of the Federal Reserve pushing the interest rate hike back in its upcoming meeting. There is also speculation about it having renew asset buying to pump in money into the markets. The problems faced by the United States is being coupled with the slowdown in the Chinese economy. China is expected to have its slowest growth rate in the past 24 years, which is expected to slow down even further in 2015. The growth for 2014 is expected to be in the range of 7.4 percent, which is shy of the expectations of the Chinese government. This is expected slow down further to 7.1 percent in the upcoming year. This slowdown has been fuelled by the relative cool down faced by the real estate sector and the overcapacity of its manufacturing sector. The global economy across all nations would be hit
deeply by this slowdown, due to the substantial decrease in demand arising from the China, impacting local production.
Crude oil prices fell down to $80.52, its lowest price since June 2012, on the NYSE
Greece is expected to return to its growth path in the third
quarter of this year, for the first time since the crisis of 2008. It is expected to show an annual growth of 0.6 percent for the
Emerging Asian economies would be most hit by the Chinese slowdown. Most Asian economies have traditionally shown erratic exports, policy uncertainty, domestic demands being sluggish and capital outflows Economists in a recent survey left estimates, for GDP growth for 2015, unchanged for nearly nine economies. This was primarily driven by the lackluster demand potential exhibited by most of the trading partners of these economies in the West. This gets further accentuated by the high level of investments in China, which is primarily financed using debt. With the expected drop in the real estate sector of China, the highly leveraged economy would induce a further drag on the consumer demands.
year
Impact of this slowdown was seen in Japan as well. Exports for Japan rose at the fastest level in seven months for the month of September. This trend though, is under deep pressure with its two biggest markets, China and Europe, both experiencing problems in their respective economies. There is an unprecedented pressure on the Japanese government to increase support through policy changes. With a number of companies shifting production out of Japan, the Japanese economy shrank by an annualized amount of 7.1 percent in the second quarter of 2014. Adding into the rut is the problems being faced by Germany, which also shrank by 0.2 percent in the second quarter. This though is
again rooted to the slowdown of the Chinese economy, among other reasons. The high power price of Germany does nothing more than add to these problems, with firms staring to relocate to take advantage of lower energy prices. A point example can be the relocation of a BMW factory to America, where energy prices are nearly 80 percent lower to Germany. India, though on the other hand is considered as one of the bright spots out there at the moment. This can be gauged from the positivity of the fund managers during the mahurat trading session, wherein they expect a once in a lifetime rally to take place. The positivity comes from the removal of policy paralysis which had been a nuisance over the past couple of years. This positivity gets reflected in the Rs 988 crore of FDI proposals which was approved by the government the day following Diwali. Rise in demand can have a no better gauge than the jump in sales of gold by 20% during Diwali. Growth in India is expected to rise to its fastest pace since the fiscal year 2010-11. India is expected to grow at 5.5 percent this year and at 6.4 percent in 2015. This though is coupled with a fluctuating PMI data, showing uncertainty in market conditions. The market is also expected to correct by 6 to 8 percent in the medium term to factor in the global economic stress. This leaves open the question, whether Samvat 2071 will show an unprecedented growth, giving brilliant returns, or will it be bogged down by the weak global economy and struggle to keep up to expectations.
- S Divya Shree
Several reforms have
been introduced by
Modi’s government in this current week, be it the changes in energy policies or the labour Since we are in the cusp of reforms , in the long run it is better to have a thoughtful and permanent ones!
market. First the deregulation of diesel prices. Second the natural gas prices hike. Another one is to cap the cooking gas subsidy on the domestic gas cylinders. Next is the response given to the court’s order of coal mines cancellation allocated to the private firms. The deregulation of diesel prices is the culmination
of
steady
Rs.0.50,originally
monthly
started
in
rise
of
February’13.
Taking advantage of steep decrease in oil
The cap on total public resources outgo can imply 2 things 1.
To
get
consumers
used
to
price
fluctuations beyond the cap 2.
Re-examine the beneficiaries again to remove a few of them who can afford the market prices
The former may not be a better option as it may lead to consumer discontent. The current coal shortage problem is solved by
the
government
announcement prices this reform
approach,
as
seems to be a good
public
is
least
burdened
through
an
of a transparent coal block
allocation process, e-auction. This gives the
power
and
steel
companies
which
are
especially in the scenario of poor income
dependant on coal a clarity on the supply
growth. But the real challenge lies in tackling
rather than the murky and easily corrupted
the situation when the oil prices rise in future!
bidding process existent earlier.
Capping
It can be treated less as a reform and more as
of
cooking
gas
subsidy
is
implemented with a view to shield the public
a
balance sheet from an automatic expansion
denationalizing the coal sector which is
when the prices rise. Currently the cap is put
ultimately the solution for India’s power
on the subsidised cylinders, 12 per consumer
shortage problem.
each year at a cost of Rs. 466 per cylinder.
short
term
fix
as
it
falls
short
of
In the competitive Indian market, Flipkart,
customers and it was in response to it that
Amazon
constantly
Snapdeal also lowered its prices. Although
engaged in an aggressive price battle to gain
this gave a negative publicity to many of the
customers. Just after the Flipkart raised a
companies.
and
Snapdeal
are
fund of $1 billion, Amazon’s chief executive announced that it would like to invest $2
India’s e-commerce market, excluding travel
billion in India’s business. Recently, Flipkart
services and tickets, is worth $3.1 billion and
had its big billion day sale to attract
is estimated to grow to $22 billion in five years, according to CLSA’s November 2013. If Snapdeal has to become a part of this exponential growth, it will have to compete with Flipkart’s aggressive business model, especially in the area of exclusive brand launches. Flipkart has managed to bag important deals with brands like Xiaomi, Huawei, Asus, Alcatel and most notably
Motorola
for
exclusively
launching through
its
their
devices
distribution
channels. This is where Flipkart has taken a lead in brand penetration and customer reach. Even Amazon has managed to bag a few deals with Samsung. Thus Snapdeal should use its fresh round of investments in devising
new
strategies
to
establish
corporate partnerships & customer base.
The flexibility to respond quickly to rising or falling
demand
for the shares is a huge positive of the green shoes. For the issuer and the corresponding banks may have the potential to place a
maximum num-
ber of shares that may be issued at the same time will act as a risk buffer. So, in case the demand is low the exercise of the green shoes is waived and the issue will still be successful
If the green shoe is connected with
the
issuance
of
new
shares, there is an appropriate exercise of its dilutive effect on other shareholders, which is often seen negatively.
Green shoe option is the provision provided in the underwriting agreement wherein the underwriter can issue more shares than initially planned. Also referred as Overallotment option, this option was named after Green Shoe Company for which this was first used in 1960. The Green Shoe option is a clause in the underwriting agreement of an IPO, which allows to sell additional shares, usually 15%, to the public if the demand exceeds expectations and the stock trades above its offering price. How Green-Shoe Option Works ? As already mentioned above, green shoe option works on the concept of over allotment of shares. Let us understand it with the help of an example. Say, for instance, a company is planning to issue 100,000 shares but due to high demand it actually issues 115000 shares. Point to be noted is that company did not actually issue extra 15000 shares. The 15000 shares that are used for overallotment are the ones that are borrowed from the company’s promoters with whom the stabilising agent enters into a separate contract. For the subscriber of the public issue, it makes no difference whether the company is allotting the shares from the 100000 freshly allotted shares or from the one that are borrowed from the promoter. To an investor, a share is just another share.
has to be kept in a separate account known as GSO bank account.
The task of the stabilising agent starts only after the shares are allotted and their trading starts on stock exchange. While trading, two possibilities could arise for the price of the share:
In case the shares are trading at a price lower than the offer price, the stabilizing agent would start buying the shares from the money that is lying in the bank account. Hence by buying the shares from the market while others are selling kind of negate the falling prices and stabilizes share prices. The share so bought are given to the promoters from whom the shares were bought for over-allotment.
Other case could be that the price of the shares starts to rise. In such a case, the stabilizing agent won’t buy the shares from the market. Instead the company can exercise their green shoe agreement and issue new shares to the stabilizing agent who will return these shares to the promoters.
Since these options protect both company as well as shareholders against falling price, hence it is quite commonly used as a hedging mechanism by the companies issuing fresh Though for the company the situation is equity. One famous example where Greencompletely different. The money received the Shoe Options were used was during Facebook company from over-allotment of the shares IPO release.
INDIAN MARKETS
GOI clears 20 FDI proposals worth Rs. 988 crore
The Bank of England and Euro monetary
policy
The data released for the week how signs of slow growth in the markets world over. The BSE SENSES n India dropped below 27000 showing signs of weak investor sentiment triggered by the end of quantitative easing and expectation of interest rate hike. Amidst all this , China GDP data showed much lesser than expected rise in production which led to gloomy outlook which various indices worldwide marking a decline in their values. At this point in time, the volatility in the world stock markets are reaching their heights. The time will act as the best predictor of way the markets and investors make their move. Open
High
Low
Close
SENSEX
26889.51
26930.23
26827.68
26851.05
NIFTY
8027.70
8031.75
8008.25
8014.55
committee
remains against interest rate hike
India focused hedge funds up 25% year to date.
BSE SENSEX
COMMODITIES
FED
Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27184
0.22
Silver
1 kg
38125
0.15
Crude Oil
1 bbl
4982
-0.88
is expected to hold a
stress meet with the concerned nations on how to tackle the rising pressure on the global
EXCHANGE RATES
economy
Tensions OPEC
persist
nations
INR/ 1 USD
61.16
INR /1 EURO
77.45
INR/ 100 JAPAN YEN
56.72
INR / 1 POUND STERLING
98.37
between
and
Saudi
Arabia over falling crude oil prices
INTERNATIONAL MARKETS
Open
High
Low
Close
NYSE Comp
10529.28
10581.05
10496.1
10551.93
NASDAQ
4459.56
4475.02
4445.02
4463.32
S&P 500
2006.10
2006.86
1980.54
1985.54
FTSE 100
6419.15
6419.15
6374.24
6388.73
CAC
4137.92
4153.07
4119.27
4128.90
DAX
9008.6
9044.85
8956.99
8787.80
NIKKEI 225
15354.35
15377.05
15232.00
15291.64
SSE 50
2326.43
2343.08
2303.27
2331.95
Hang Seng
23311.88
23352.59
23157.48
23302.20
Fiat banks on three pillar strategy, launches Avventura
Centre has agreed to provide a grant of Rs 500 crore towards development
of
2,500
MW
solar parks in Andhra Pradesh. For 500 MW grid connected solar photo-voltaic projects,
the
cumulative
capacity offered by the bidders
Brand Fiat has been around for decades in India. But the company has no significant presence in the Indian automotive market, with barely 0.5 percent market share. After its return to the country in 2012, Fiat has announced a three-pillar strategy to ramp up Indian operations: focus on distribution, branding and products. Of the four products promised earlier, three (new Linea, Punto Eva and Avventura) are already in the market. The fourth, Abarth 500, will also be launched before December as a CBU. Launched last week, the Avventura compact utility vehicle at a starting price of Rs 5.99 lakh for petrol version and at Rs 6.89 lakh for the diesel variant. On the network front, Fiat has already built 125 exclusive dealerships across 93 cities in India after its breakup with the Tatas. It has identified 200 commonly needed spare parts which are now stocked at each of its dealerships. For other, the company has set up a 6,000 square feet warehouse in Chakan (Pune) from where these are shipped to dealerships on demand.
is 619 MW with tariff up to Rs. 5.99 per unit.
MIS for Swachh Bharat Abhiyan
SKS Microfinance has completed the securitization
transac-
tion of Rs. 316.25 crore. The pool has been rated by “AA (SO)” by a leading rating agency and qualifies for priority sector treatment as per RBI’s priority sector lending guide-
Urban Development Ministry will put in place management information systems (MIS) that will enable the Prime Minister's Office to chart the progress of various activities across India. As per the plan, all the states and 4,041 urban habitations to be covered under the mission should be enabled to regularly upload information regarding the progress of work in respect of construction of household and public and community toilets along with solid waste management and awareness generation activities. This will also enable online submission of proposals and approvals for various projects besides electronic submission of utilization certificates and release of funds for speedy implementation of works. The ministry will finalize guidelines for implementation of the Rs 67,000 crore mission in urban areas under which over 1 crore household toilets, besides over 5 lakh public and community toilet seats, are to be constructed by 2019.
lines.
Deregulating diesel prices The government on Saturday announced the decision to deregulate diesel prices. After this decision the price of diesel was reduced by around Rs 3.50 per liter. This was the first cut in the price of diesel since January 2009. In the last two financial years the total petroleum subsidy (subsidy for diesel, cooking gas and kerosene) amounted to Rs 1,82,359.9 crore. Around half of that was for diesel. Before diesel prices were freed, economists estimated that a $1 per barrel rise in the global price of oil would increase India’s subsidy bill by around $1 billion a year. The decision will be tested when oil prices rise again.
BJP win in Maharashtra, Haryana could mean tough time for Amazon, Flipkart
Apple Inc and IBM have signed up about 50 initial corporate clients for software solutions and apps developed jointly under
their
alliance.
They
After the BJP has swept to victory in two more state elections, offline retailers are now further emboldened that their pleas against the "excesses" of e-commerce will now be heard. The BJP is known for its anti-FDI stance in retail trade. The small store retailers, have been eyeing the success of e-tailers with suspicion, especially after the recent spate of mega sales by Flipkart, Snapdeal, Amazon and eBay. Now, they want a plethora of investigations opened againt e-tailers for daring to offer goods at unheard-of discounts. CAIT representatives will be meeting Commerce Minister Nirmala Sitharaman and Finance Minister Arun Jaitley this week to seek a comprehensive policy on e-commerce in India. Sitharaman has already said allegations of anti-competitive behavior by e-tailers will be looked into, though the CCI has not found a case for it till now.
would team up to sell iPads and iPhones with specialized
Will Indian defense agencies trust Xiaomi ?
software to corporate and government customers.
Union
Minister
Development
for
M
Naidu
announced
along
with
Urban
Venkaiah that
Swarna
he,
Hudhud affected villages in Vizag, AP. The Minister also promised to donate his one month salary of Rs. 1 lakh as his personal contribution for relief and Rs. 25 lakh from his
rehabilitation.
funds
Aditya Birla Group signs health insurance JV with South Africa’s MMI
Bharat
Trust of Nellore, would adopt
MPLADS
Chinese Smartphone maker Xiaomi is making waves in India with heavy demand for its cheap smart phones. Earlier this week, the Indian Air Force (IAF) had accused Xiaomi phones of possibly snooping and stealing data. What got the IAF's radar buzzing was the fact that user data was sent to servers remotely located in China. In fact, IAF is also believed to have alerted all its Commands and Squadrons and suggested that Indian Air Force officers and their families should refrain from using Chinese mobile devices.
for
Aditya Birla Financial Services Group, said on Tuesday that it had signed an agreement to form a health insurance joint venture with MMI Holdings (MMI) of South Africa. The two will enter into a formal joint venture in which the foreign partner will hold a 26% stake. MMI is one of the largest insurers in South Africa. It has business in 12 other African countries and in the UK, too. Currently the Mumbai-headquartered Aditya Birla Group is present in the life insurance segment through a joint venture with Canada's Sun Life. The latest entrant into the segment is Cigna TTK, a joint venture between USbased Cigna and India's TTK Group. Apollo Munich, Max Bupa, Star Health & Allied Insurance and Religare are the other standalone companies in the sector.
Lagard is also credited with becoming the first female Chairman of Baker & McKenzie, an international law firm. She was also the first women to become the Finance Minister of France, or any G8 economy. On November 16, 2009, Financial Times ranked her the best Finance Minister in the Eurozone. In June 2011, she was appointed as the next MD of the IMF for a term of five years, replacing Dominique Strauss-Kahn. In 2014, Forbes ranked her as the 5th most powerful woman in the world.
January 1, 1956
Paris West University Nanterre La Défense (Masters) Institut d'études politiques d'Aix -en-Provence (Masters)
Minister of Finance, France Minister of Agriculture, France Minister of
Commerce and
Industry, France Chairman, Baker & McKenzie
A noted labor and antitrust lawyer, Christine Lagarde has many firsts attached with her name. She is the first woman ever to run a 188 country wide financial organization where she spent much of her first three years as the Managing Director in crisis mode. Soon after her appointment, Lagarde's main challenge was to try and ease the enormous eurozone debt crisis, and in particular the bailout required for Greece. More recently she has been dealing with escalating tensions between Ukraine and Russia and also approved a $17 billion loan for the troubled Ukraine in April 2014. Her appointment as the Managing Director is the 11th consecutive appointment of a European to head the IMF.
As a teenager, Lagarde was member of the French national swimming team. After completing her baccalauréat in 1973, she went on American Field Service scholarship. She holds master's degrees in English, social law and labor law from the Paris West University Nanterre La Défense. She also obtained a master's degree from the Institut d'études politiques d'Aix-en-Provence. She is an advocate for women in the workforce, and in 2013 commissioned an IMF report on the topic "All economies have savings and productivity gains if women have access to the job market. It's not just a moral, philosophical or equal-opportunity matter. It's also an economic cause. It's a no-brainer." According to Kenneth Rogoff, a former IMF chief economist, "She is enormously impressive, politically astute and a strong personality. At finance meetings all over the world, she is treated practically like a rock star."
- By
Mauling Congress once again, the Modi wave continued to work its magic by storming BJP to power in Haryana on its own. Maharashtra was no different where BJP notched up maximum seats in its kitty and is set to form government with support from either Shiv Sena or NCP.
Pragun Aggarwal
by 23 from majority figure of 145.The party won 47 in the last elections that combined with its separation from ally Shiv Sena reinforces the idea of change in ‘governance’ style which the people are voting for. Shiv Sena could muster only 63 seats followed by NCP with 41 seats. The head of the government till now, Congress, was reduced to 42 seats from its past Riding on the Lok Sabha success, the assembly tally of 81. Raj Thackeray led MNS was routed elections were seen as the first major test for getting only one seat. Narendra Modi led BJP. In Haryana, the party managed a total turnaround from a meager 4 The state assembly results are seen as a stamp seats in the last elections to gaining majority on of approval on initiatives, policies and its own by winning 47 of the 90 seats. performance of the Modi government and Congress, was reduced to 15 from its past tally drives home the claims of Modi supporters of 40 seats. Indian National Lok Dal won on 19 that the Modi wave was far from over yet. seats and came second. With Congress not been able to qualify for even the post of Leader of Opposition in both The BJP also put up a splendid show in the states, these electoral victories are coined as Maharashtra state elections, by winning 122 “two more steps towards Congress-free India” seats in the 288-member Assembly. It fell short