September 07, 2014 Volume 11
FinNiche
FinXpress
FinXpress Volume 11 Sep 07, 2014
From The Editorial Time for Sports
CONTENTS
From The Editorial In Focus: Selling Yellow cakes to India Opinion: India and Japan Strategic partners Term of the Week: Wilful Defaulter Market This Week News Fun Corner
With the entire campus sinking in a sport frenzy, people digging out rackets, balls, and other paraphernalia out of their closets, practicing day in and day out, we bring to you yet another illuminating edition of FinXpress. This week, the In Focus section talks about the Nuclear deal between India and Australia under the heading selling yellow cakes to India. The Opinion makes an in-depth analysis of our honorable PM’s visit to Shizo Abe’s land aimed at boosting India’s economy and strengthening Indo-Japan relationship. The term of the week describes "Wilful Defaulter", a term currently in news in context of the liquor king Vijay Mallya. Do have a look at the ever-rising Market and News section to bring yourself up to speed with market volatility and the reasons behind it. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas. Happy Reading! Regards The Editorial Team Club FinNiche
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine. SEPTEMBER 2014
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FINANCIAL KNOWLEDGE
Selling Yellow Cakes to India ------ By Gayatri Pandit
Carrying forward the initiative taken by Howard government, Canberra inked a deal with India for supply of Uranium to the country’s nuclear reactor. Thus, taking the partnership of India and Australia to a new high, which in turn added another feather to foreign policy cap of NDA led government. The civil nuclear deal between India and Australia will serve as a template to other countries, as this is Australia’s first nuclear deal with a country, which is a non-signatory of Nuclear Proliferation Treaty (NPT). The Memorandum of understanding (MoU) for the civil nuclear cooperation agreement, a cooperation for peaceful uses of Nuclear Energy, was signed in presence of Prime Minister Narendra Modi and visiting Australian Prime Minister Tony Abbott, a successor of John Howard.
Australia’s outlier status has occasionally underscored whenever relatively minor issues flared up, for example perceptions of racism against Indian students in Australia, which thus positioned Australia mostly on the outer fringe of India’s foreign relations priorities. India’s domestic reserves are very less and thus dependent on imports for uranium supply. In 2006 to 2008, due to dwelling uranium reserve, the nuclear electricity generation has been drastically reduced by 12.38%. A major boost to nuclear commerce of India received following a waiver from the Nuclear Suppliers Group in 2008, which led to bilateral deals with several other countries (with all P5 members barring China), including France, United States, United Kingdom, Canada and South Korea for supply of uranium as well as nuclear reactors, technology and waste management. The timeline of nuclear treaties after NSG wavier are as follows: Year
After seven years of denying uranium to India, this landmark deal put an end to the ban imposed by Australia to enter in nuclear commerce with India. The ban was lifted in 2012, ignoring Nuclear Supplier Group wavier to India to enter in any nuclear deal, when nuclear talks began. As per Prime Minister Narendra Modi, this deal will add a new chapter in the bilateral ties with Australia, strengthening mutual trust and confidence in Indo-Australia relationship. SEPTEMBER 2014
Treaty between countries
September 2008
India and France
June 2009
India and Mongolia
September 2009
India and Namibia
October 2009 India and Argentina June 2010
India and Canada
April 2011
India and Kazakhstan
July 2011
India and South Korea
September 2014
India and Australia
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FINANCIAL KNOWLEDGE
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The following graph shows the electricity strategic partner in source of N-fuel, the production from nuclear resources in Indo-US N-deal is not yet operationalized India: because of the absence of any administrative agreement. It would be a real challenge to reconcile supplier countries’ interest in tracking the nuclear fuel, given to India, is not being diverted to any of weapon programs. US, being wary of Australia’s inclusion, are pushing other supplier countries for an intrusive verification of Indian reactors. Thus, the current deal has to satisfy both sides and such verification would be trivial The energy production from nuclear if the accountability of fuel is taken care of. resources in India has been drastically increased till 33.28 billion kWh in 2011 as Indo-Australia N-deal MoU states: per last measured World bank data. The deal recognizes India’s cooperation for India has 21 operational reactors with peaceful use of nuclear energy to achieve capacity of 5,302 Mw, which produces sustainable development and strengthening 29,664 GWh of electricity and 7 more energy security. India being a non-signatory reactors under construction, which will of NPT, both sides signed a parallel nuclear contribute 6100 Mw. India is planning to safeguard agreement (non-binding on both increase its nuclear capacity to 63,000 Mw the countries). by 2032 by adding 30 more reactors, under nuclear development programme. Such nuclear deals with leading nuclear powerhouses will support India’s effort to fuel its growth with clean energy and thus reducing its carbon footprint. India confident on sealing N-deal with Australia, but wary of US and Russia Signing civil N-deal with Australia for the supply of yellow cakes, uranium to India certainly auger well for the Nuclear energy future of the country. But in parallel it is necessary to heed whether this would have any implications on the successful completion of Kudankulam nuclear power plant with Russian collaboration. In addition, as Japan has put a block on nuclear agreement, this deal served as a boost to New Delhi. However, before the uranium is actually shipped, which in fact will take 2-5 years, India and Australia will have to work out an administrative arrangements agreement. The US being a
SEPTEMBER 2014
With Queensland having the largest uranium deposit aims to sell about 10,000 tones of yellowcakes to India by 2017 overturning its mining ban. Because of limiting uranium operations to just three mines, most of the uranium of Australia is locked up in long term contracts. In addition, uranium being a highlyregulated commodity, Australia might not have enough uranium to spare to send to India, as withholding world’s 40% of uranium less than 20% is exported. Also, with shipments not expected before 2-5 years, it cannot be said that this deal will quench India’s thirst for energy security.
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OPINION
India and Japan: Strategic Partners —— By Kartik Awasthi
Indian Prime Minister, Narendra Modi’s five day visit to Japan, which ended on 03 September, 2014 was aimed at boosting India’s military-strategic partnership with Japan and securing investments to revive India’s flagging economy. Despite the differences between India and Japan across wealth, industry, education and culture, there is a huge potential to make them allies on a wide spectrum of areas including investment, trade and infrastructure development in order to protect their own economic and political interests and meet national objectives.
The two countries have taken their partnership to the next level of 'Special Strategic and Global Partnership' with Japan’s decision of doubling its FDI by a massive injection on $35 billion in public and private investments over the next five years. The investment would cover projects on infrastructure, transport, clean energy, manufacturing and connectivity to name a few. They have also signed a total of five pacts which include defense exchanges, healthcare, women, cooperation on clean energy and roads. Japan has promised to invest in development project such as building of smart cities and cleaning of Ganges river. An MoU has been signed in Kyoto under
SEPTEMBER 2014
which Japan will help in developing Varanasi on the pattern of Kyoto Smart City. Japan has also lifted the ban on 6 entities which includes Hindustan Aeronautics Ltd. (HAL) which were imposed after the nuclear tests of 1998. Japan is one of the largest foreign investor in India with substantial investments in manufacturing and pharmaceuticals industries. The recent one being the investment in building the state-of-the-art Metro Rail in the capital transforming its transport system. Tokyo will also help in providing technical, financial and operations support to introduce Bullet trains in India which is one of the projects that Modi has been pursuing actively. Prime Minister Narendra Modi laid out his reassurance of "no red tape, only red carpet" to Japan's business leaders promising a welcoming and efficient environment to Japanese investors. He also announced setting up of a “Japan Plus Management Team” in the PMO in which Japan can nominate two of its representatives as part of the decision making unit on business proposals. Though the working of this team is not clear as of now, it is a very powerful message delivered to the Japanese business leaders. Indian Prime Minister Narendra Modi and his Japanese counterpart, Shinzo Abe also signed a “Memorandum of Cooperation and Exchanges in the Field of Defense”. Despite last minute negotiations, the much awaited civil nuclear still remained elusive though both the prime ministers welcomed what they called “significant progress” in the negotiations. The two sides couldn’t settle down on insistence of a stringent safeguard regime including inspections and “no nuclear test” clause by Japan in the bilateral agreement.
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OPINION
There are signs of possible sale of an amphibious aircraft to the Indian Navy. If successfully agreed upon, this would be Japan’s first overseas sale of military equipment in nearly 50 years. The two leaders also welcomed a substantial agreement on a commercial deal on the manufacture and supply by India of rare earth chlorides, a key element of defence industry components and hi-tech wares, to Japan.
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neither ignored nor alienated in this process. The country has much to offer to both the nations. The US has welcomed the strategic partnership between India and Japan and has described Narendra Modi’s visit a great
Modi and Abe, also agreed to decide upon upgrading security talks to a “two-plus-two” consultative framework where the finance and defence minister and other directed officials from the two countries will launch working level talks on defence equipment and technology cooperation. They also pledged holding of joint military drills regularly. While the mention of China by name was not done by any of the leaders during Modi’s five-day visit, presence of the nation whose growing military capabilities and aggressive territorial behaviour has alarmed both New Delhi and Tokyo, was tangible. The two leaders not only discussed about the bilateral issues but also worked upon building a counterweight to an increasing aggressive China. There was an oblique reference to China that came from Modi during one of his discussions with the Japanese business leaders where he mentioned cooperating with Japan against the Asian countries with expansionist mind-set which encroach into other countries. There are limits to how close India and Japan can become in attempting to counter China because China is India’s largest trading partner and it accounts for nearly 10 percent of its total commerce, more than four times that of Japan . However, it would be a mistake to define relationship of India and Japan in terms of their issues with China. China can be
SEPTEMBER 2014
success. It is during the Obama Administration that India, Japan and the US have started trilateral meetings and after this visit US is looking forward to strengthen this trilateral cooperation. India and Japan will explore with the United States the possibility of raising trilateral dialogue with their joint secretarylevel to the level of foreign ministers, even though the two countries were not able to materialise an accord on civil nuclear cooperation. Japan has long been the most important military-strategic partner of Washington in Asia and these ties have been significantly upgraded under the US’s “pivot to Asia,” which is aimed at isolating and strategically encircling China. Despite the differences, there is a strong case for an India-Japan strategic partnership with cooperation across economic, political, military and cultural matters. There are several critical ‘win-win’ opportunities that form the core areas of collaboration between the nations.
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FINANCIAL KNOWLEDGE
Wilful Defaulter In such a fierce and inflated market every individual and entity want money and need money. And for that they sometime borrow money from lending institutions. The case of wilful defaulter arises when such a borrower fails to pay money back. According to the Reserve Bank of India a wilful defaulter is one who financially has the potential to repay but does not do so; or one who diverts the funds for purposes other than what the fund was availed for; or one who does not have funds in the form of assets as funds have been siphoned off; or who has intentionally sold the property used as a security to obtain the loan.
quarterly basis can better prepare SEBI and credit rating agencies to guarantee that wilful defaulters distinguished by banks don't have an opening to raise further subsidy from simple speculators through the securities market. RBI has asked SEBI to keep a track of the activities of the wilful defaulters for the purpose of tightening the regulatory norms.
If an entity’s or individual’s name comes under the list of wilful defaulters, it is barred from participating in the capital market. They can not approach any financial institutions for five years for the purpose of starting any new venture. The Non-repayment of loans aggregating to Rs. lending institutions may not allow any 25 lakh or more comes under the ambit of person related to the defaulting company to wilful default. become a board member of any other company. There are 110 names of wilful defaulters in the list of RBI up to June, 2013. On the off chance that any adulteration of records of the borrowers is seen by the Banks or Financial Institution itself and on the off chance that it is observed that the auditors were careless or insufficient in leading the review, they can file a formal complaint against the auditors of the borrowers with the Institute of Chartered However, a lending institution cannot Accountants of India (ICAI) to empower the declare any person or entity as wilful ICAI to inspect and fix responsibility of defaulter in the event of one time such auditors in question. repayment failure, it needs to have a check on the repayment track record. The list of Of late, IDBI Bank is considering to defaulters is prepared by the RBI on the declare Vijay Mallya a “wilful defaulter” basis of information received from lending which could impair the fundraising outline institutions and credit rating agencies at of the business and could cost Mallya in the the end of every quarter. The list is form of resignation from all boards. available on the website of credit rating agency Credit Information Bureau (India) In May 2014, United Bank of India already Ltd. All the banking and financial declared Kingfisher Airlines, Mallya himself institutions get the list so that they do not and three other directors of the company as transact with them. Also, banks now plan wilful defaulters. The bank has an exposure to publish defaulters’ names and details in of between Rs.350-400 crore to Kingfisher the newspaper. Sharing details on Airlines.
SEPTEMBER 2014
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FINANCIAL KNOWLEDGE
Market This Week This week the Indian markets extended their record setting winning streak on Wednesday when they reached their all time highs (Sensex—27225.85 and Nifty– 8141.90). This rally was mainly on strong U.S. economic data which impacted the software sector and also due continued foreign buying and falling oil prices. On Thursday and Friday, markets saw retreatment from all time highs due to profit booking from investors after nine day rally. Brokers suggested that the market was in an “over-bought” situation and the participants seem to be cautious and preferred to lighten their positions by booking profits. The domestic markets, at the end of week seem to maintain a sideway bias. BSE SENSEX
SENSEX Simple Moving Averages Thirty Days Fifty Days Hundred Days Two Hundred Days
27,013.09 27,007.49 27,039.73 27,064.24
CNX Nifty
SEPTEMBER 2014
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FINANCIAL KNOWLEDGE Nifty Simple Moving Averages Thirty Days
8083.50
Fifty Days
8077.63
Hundred Days Two Hundred Days
8081.45 8077.68
Commodities Commodity
Unit
Rs / Unit
% Change
Gold
10 grams
27378
-0.3
Silver
1 Kg
42013
-0.15
Crude Oil
1 bbl
5642
-1.79
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% 22%
Exchange Rates INR / 1 USD
60.21
INR / 1 Euro
77.98
INR / 100 Jap. YEN
57.30
INR / 1 Pound Sterling
98.31
SEPTEMBER 2014
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FINANCIAL KNOWLEDGE
News of The Week United Spirits Ltd demands legal enquiry filed Friday, valued itself just below rival into loans to UB Group companies Amazon.com Inc.'s $160 billion market capitalization. However, Alibaba's worth The Board of United Spirits Ltd, now could rise in the days ahead as the controlled by Diageo, has ordered a probe company officially introduces itself to into the loans given by United Spirits to UB investors in a process known as a Group companies as it posted a whopping roadshow, set to kick off Monday in New net loss of Rs 4,488.77 crore for the York. financial year ended March 31, 2014, stated a report in The Economic Times. The AP allots 1,200 acres for NTPC's 4,000company had reported net loss of Rs Mw plant 105.03 crore in the fiscal ended March 31, 2013. USL made provisions of Rs 1,012.75 The Andhra Pradesh government has crore in year ended March 31, 2014 on the allotted 1,200 acres of land near a special account of 'doubtful loans' and exceptional economic zone at Pudimaka village in item of Rs 3,235.73 crore on sales of Visakhapatnam district to NTPC Ltd for Scottish subsidiary, Whyte and Mackay. setting up a coal-based super thermal power station. The coal-fired 4,000-Mw Cipla buying two plants owned by (5X800-Mw) super thermal power project promoter's private firm Okasa for $17M entails an investment of around Rs 20,000 crore and NTPC had committed to complete Medispray Laboratories Private Limited, a the project by March, 2019, making it the wholly owned subsidiary of Mumbai-based biggest single location power plant in the drug maker Cipla Ltd, is acquiring two state. manufacturing units of private firms associated with Hamieds, the promoter of Subrata Roy seeks 10 more days to sell Cipla, for Rs 101 crore ($16.7 million) as hotels, SC to hear plea on Monday per a company statement. A significant portion of the capacities of the two The Supreme Court is likely to hear undertakings is already dedicated for the on Monday an application by Sahara manufacture of Cipla's products. The first Group chief Subrata Roy and two other manufacturing facility is located in Goa and directors seeking another 10 days' stay in is owned by Okasa Private Limited whereas the Tihar Jail court complex's conference the second manufacturing facility is located hall to negotiate the sale of assets, at Satara (Maharashtra) and is owned by including three hotels in London and New Okasa Pharma Pvt Ltd. York. Alibaba Targets $155 Billion Value in IPO The assets, located overseas and within the country, are to be sold to raise Rs 10,000 Alibaba Group Holding Ltd. unveiled plans crore as part repayment of investors' money for an initial public offering that values the that Sahara Group's two companies company at $155 billion, which would SIRECL and SHICL had collected through instantly make it one of the largest listed in optional fully convertible debentures the U.S. and mark one of the biggest stock- (OFCDs) in 2008-09. This is also a market debuts ever. Chinese E-Commerce condition for their release from judicial Giant Sets Its Expected Per-Share Price custody to which they were sent by the top Range at $60 to $66. company, in papers court March 4.
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FINANCIAL KNOWLEDGE
News of The Week India's foreign reserves up USD 60.5 mn Country's foreign exchange reserves grew by USD 60.5 million to USD 318.64 billion due to an increase in the currency assets for the week ended Aug 29, Reserve Bank of India (RBI) data showed Friday. According to the RBI's weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves, increased by USD 75 million at USD 291.39 billion in the week under review. The RBI said the foreign currency assets, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies held in reserve such as the pound sterling, euro and yen. SBI Launches Children
Savings
Accounts
India does not allow foreign firms to own majority stakes in retail companies that sell more than one brand. Amazon.com is allowed to operate there because it acts as a marketplace rather than a retailer, according to the Journal. Investigators are also examining whether Amazon exerts control over the prices of products sold on its website, one of the Journal story's sources said. India, Australia energy deal
sign
civilian
nuclear
Adding another feather to its foreign policy cap, the NDA government under Prime Minister Narendra Modi on Friday signed a civil nuclear agreement with Australia to for address India’s growing need for power.
State Bank of India (SBI) on Friday introduced personalized savings accounts for those below 18 years of age. India's largest lender introduced two products 'Pehli Udaan' and 'Pehla Kadam', three months after the Reserve Bank (RBI) issued guidelines allowing minors over 10 years to o pe r a te bank sa v i n g s a c co u nt s independently and use facilities such as ATMs and cheque books.
The deal, signed in the presence of Modi and visiting Australian Prime Minister Tony Abbott, officially marked an end to the ban imposed by Australia on selling uranium to India. The ban was lifted in 2012, when talks for the nuclear deal began.
The memorandum of understanding (MoU) for the deal, Cooperation in the Peaceful Uses of Nuclear Energy, was signed between R K Sinha, secretary, department of atomic energy, and Patrick Suckling, Amazon.com's retail practices in India Australia’s high commissioner to India, come under scrutiny following a meeting of the two prime ministers. Regulators in India are investigating whether Amazon.com Inc. may have RIL's GenNext Ventures, Microsoft to circumvented restrictions placed on foreign launch 10 startups soon investors by selling directly to domestic consumers, The Wall Street Journal on The venture capital arm of Reliance Friday, citing unidentified sources. The Industries Ltd (RIL) has tied up with Finance Ministry's Enforcement Directorate Microsoft to launch a startup accelerator, is looking into whether Amazon.com's local which kicks off its first batch next month. subsidiary may have sold directly to GenNext Ventures and Microsoft Ventures customers, but made it look as if the sales have signed a three year partnership that were made by other companies, the Journal will look to mentor and offer technical report said. advice to startups in the program.
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FUN CORNER
FUN CORNER Last Week’s Answers
FinQuiz Which mortgage type comes with a floating rate?
1) Appreciation
2.
Which type of account offers the highest returns?
3) F ace value
3.
Which banks do not accept deposits?
4.
What are the main types of investment accounts?
5.
The oldest financial institution in existence is ? ________.
1.
2) Benchmark
4) Bootstrap 5) Washington DC
CARTOONS
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PUBLISHER: Rishabh Agrawal
SEPTEMBER 2014
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