View
215
Download
0
Category
Tags:
Preview:
DESCRIPTION
Â
Citation preview
The finance club at IMT Ghaziabad is engaged in a constant endeavor to provide you with a practical exposure to the world of finance and the latest emerging trends in the related fields of Risk Management, Banking, Investments and non-finance topics.
Do write to us at: finniche.imt@gmail.com
Term of Week
In Focus
Opinion
Personality
Tech World
Contango &
Backwardation | 6
Ways our smart life
changed in 2014|12 Rakesh
Jhunjhunwala |11
Success of government to
address fiscal deficit target| 4
DECEMBER 28, 2014 | A FINNICHE INITIATIVE
Japan’s Inflation
Struggle| 2
Japan’s Inflation Struggle
Success of government to
address fiscal deficit target
Contango & Backwardation
Rakesh Jhunjhunwala
Ways our smart life
changed in 2014
December, 28 | 2014 | Volume 27
Juniors are busy with their preparation for end term which will start tomorrow onwards.
Whereas, seniors are already busy with the on going exams. We wish good luck to everyone
for their exams. The common thing to everyone is bearing with the extreme cold of Delhi.
Club FinNiche releases its weekly magazine FinXpress with the In Focus talking about the
‘Japan’s Inflation Struggle’. The Opinion gives an overview of ‘Success of government to
address fiscal deficit target’.
The term of the week describes “Contango & Backwardation". A market is said to be in contango when the forward price of a futures contract is above the expected future spot price and backwardation is its opposite situation. Do have a look at the market section, Tech world which brings to you “Ways our smart life changed in 2014” and Personality of the week, Rakesh Jhunjhunwala. 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
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
US removed the restrictions
placed on travel by Modi when
he was elected PM
Agenda includes UNGA meet-
ing, meeting with President
Obama, CEOs of US firms as
well as Indian Diaspora at the
famed MSG
Japan’s struggle with inflation continues to
hurt them. With Prime Minister Shinzo Abe
trying hard to curb the falling prices, it is a
bad blow to his campaign to emerge from
recession. It can be attributed to the
continuous fall in oil prices which have
highlighted the challenges faced by the central
bank.
Labor market has been the single market
which has shown improvement rest
everything has been stagnant in the third
world’s largest economy, signaled by the sales
tax increase to 8% from 5% in the month of
April which resulted in high depth slump.
Fall in the industrial output to 0.6% made the
situation worse by hurting the policies to get
the country out of recession. This was due to
the high performance in two major
components such as computer chip making
equipment and boilers and consistent market
expectation of a 08.% increase.
Job Availability hit a 22-year high with part
time workers increasing by 20 million for the
first time in 30 years. No improvement in the
increase in wages has been encountered
despite the increase in jobs, a bad signal for
consumption which decreased to 2.5% in
November.
Consumer Price Index’s rate of increase fell to
0.7% in November from 0.9% in previous
month , far from Bank of Japan’s target of 2%.
This CPI is adjusted according to the change
in food prices and impact of sales tax increase
in April. With this news the yield fell to
record low of 0.30% on the benchmark 10-year
government bond.
With the falling oil prices and reduced import
costs it is expected that Bank of Japan may be
forced to relax their terms again. This would
be the second time within the span of 2
months when BOJ has tried to up the
economy by flooding cash in the market by
- By Vipul Kumar Singh
Article titled “A Renewed US-
India Partnership for the 21st
Century”. Also releases a joint
statement focusing on key
aspects of strategic relation-
ship
Meets with 11 CEOs in a
breakfast meeting and 6 CEOs
face to face, the next day.
Assures of stability in tax law
government bond purchases. If analyst are
to be believed the CPI is expected in the
negative territory if conditions d not
improve on time.
National bank authorities have been putting
a daring face on the stoppage in expansion
coming about because of the lower oil costs,
saying that less expensive rough will
empower request, in the long run including
to upward weight costs. In any case
economists suspect that such a transmission
could require some investment to emerge
where utilization has been dreary. In the
quick future, drops in petroleum expenses
will just force down the swelling rate.
In the wake of taking office in late 2012,
Prime Minister Abe propelled a strategy
rush which networks government going
through with monstrous financial
facilitating by the national bank and changes
to the very managed economy. The genius
using development offer, named
"Abenomics", has stalled as the April trek in
the business assessment imprinted customer
using. GDP has also taken a beating after the
increase in the sales tax , has become
negative and is falling continuously.
Mr. Abe has effectively deferred a second
sales tax increment until 2017, and taking
after a conclusive race triumph not long ago
and the dispatch of his new organization in
the not so distant future, he is attempting to
recover the economy on track. His
organization is required to advertise a boost
bundle worth around ¥3.5 trillion ($29
billion) in the advancing days. The sum is
short of what 1% of Japan's yearly monetary
yield, and economists' appraisal of the
normal measures has been blended.
The savings funds rate in the year to March
was less 1.3 every penny, the first negative
perusing in information again to 1955.
Genuine profit fell 4.3 every penny year on
year in November, a seventeenth successive
decay and the steepest tumble since
December 2009. With these situations
looming over the head it is important for
Japan to come up with and anti-recession
measures to maintain it as a third largest
economy.
Success of the Government to address Fiscal
Deficit target
- By Priti Sureka
The forecasted Fiscal Deficit target for the
fiscal year 2014-15 is 4.1% of GDP or Rs. 5.31
lakhs crore. Fiscal deficit basically represents
the amount by which the receipts of central
government excluding borrowings fall short
of its expenditure during the relevant year. It
is usually represented as a percentage of
GDP.
To meet the target, the Finance Minister Mr.
Arun Jaitley wished to reduce to amount of
subsidy bill. During the year, it reduced its
major subsidy from 2.2% of GDP in 2013-14
to 2.03% of GDP in 2014-15. The recent
decision taken by the NDA Government to
deregulate diesel prices also aimed to reduce
the amount of subsidy as reimbursement to
the oil companies was one of the costliest
subsidies for the Indian Government. These
decisions ultimately resulted in curtailment
in expenditure bringing clarity between
diesel and petrol prices and having private
players like Reliance Industries into the
market.
The fiscal deficit for the period April-
September 2014 crossed Rs. 4.38 lakhs crore
or to put it in another way it crossed around
82.5% of the full year estimate. If we compare
the said percentage with that of
corresponding period of the last year, the
fiscal deficit target crossed 76% of the total
estimate of 2013-14.
There are also some enhancements in tax
collections as various tax amendments have
been implemented with tough penalty in case
of any default or any tax evasion. So overall,
the receipts of the government increased.
Also talking about the deferment of the
rollout of the Food Security Act, again this
will act in favor of the government to address
the set target as the government already set
aside Rs. 1.15 lakhs crore for food subsidy.
So, this year the government is confident of
meeting the target as halfway through the
financial year the government ran up fiscal
deficit to the extent of 82.5% of its estimate.
Other factors which supported the
government would be
Divestment of government stake in
ONGC, CIL, NHPC
Huge tax refunds
A stronger rupee
Softer crude oil prices as this resulted in
less fuel subsidy
A 10% cut in non-plan expenditure
Tightening spending on some
programmes ( e.g. MGNREGA, a rural
job programme )
However, if in case the government feels
unable to meet the fiscal deficit target of 4.1%
in the remaining year, it can take help from
the Reserve Bank of India. The central bank
is having a cash surplus of more than Rs. 1
lakh crore and is expected to earn more and
higher surplus this year on account of active
market interventions in the currency market.
The central bank already transferred its
surplus of Rs 52,600 crore to the government
in the month of June this year and this is the
largest transfer ever made by the RBI to the
government. The central bank also
transferred Rs 33,000 crore last year.
But this option should be exercised by the
government with much apprehension. For
the time being, the government should try its
own to meet the target without any help
from the RBI. Rather, the liquidity support
by the central bank should be used in case of
any unanticipated loss which could
tremendously affect the economy of the
nation.
However, this sounds good but the real
picture is very different. To meet the target,
government also depends on policymakers.
If revenue targets are not met then it is the
policymakers’ call whether to cut capital
spending or not. Another problem for the
government is that they lack in projecting
revenues to accrue. They kept on
underestimating expenditures and
overestimating the revenues, resulting in
failure to meet fiscal deficit target in the
previous years.
As said by the Finance Minister, the
government has to meet the fiscal deficit
target of this year as many international
investors and various credit rating agencies
will be keeping their eye on it.
Therefore, the government has to keep a tab
on receipts and expenses for the next quarter
in order to achieve the target as this will also
help in stimulating the growth momentum.
These terms are important to
companies involved in
commodities hedging and
speculating activities. In 1993,
Metallgesellschaft lost more
than $ 1 billion because the
hedging system deployed by
the company made profits on
normal backwardation but
could not foresee changing
trends in contango.
In a commodities market, every commodity like
gold or natural gas has a spot price associated with
it, which represents it’s the current delivery price.
Commodities are bought and sold in two kinds of
market: the cash markets and futures markets. In
cash markets, physical commodities are traded and
transactions are settled in present or on the spot.
Whereas in a futures market, the exchange or trade
takes place at a predetermined time in future. In
the futures markets, the buyer enters into a forward
or futures contract which is basically an agreement
to buy or sell the commodity at a predetermined
price in the future, commonly known as forward or
futures price.
A market is said to be in contango when the
forward price of a futures contract is above the
expected future spot price. In this case, the futures
curve which represents the current price of futures
contract over a period of time is upward sloping
which means that the buyers are willing to pay a
premium price for a commodity in future more
than the expected actual price. The buyers pays a
premium in order to avoid the costs associated
with transporting, storing and insurance of the
commodity. With the expiration of futures
contract, the “cost to carry” or storage cost of the
commodity increases; hence, the commodity is
priced higher in future. Thus, in other words, the
price of delivering an asset in the future is higher
than the price of delivering it now.
Normal backwardation, which is the exactly
opposite situation to contango, occurs when the
forward price of a futures contract is below the
expected future spot price. It is represented by an
inverted futures curve which shows that the price
of future deliveries is below the current spot price.
The higher current prices of the commodity can be
attributed to a temporary shortage in cash market
due to factors such as war, weather, natural
disaster or any other geopolitical event. For
example, if a hurricane disrupts an oil refinery
production; the current prices would be higher
than the future ones due to shortage of supply at
that point of time. Similarly, if the supply of silver
is tight as the investors are holding on to the
physical silver; the price of current contract would
be higher than the later ones. The price of future
deliveries would eventually fall due to expected
end of disruption in supply. When we plot these
prices on a graph, the resulting curve would be
downward sloping. During backwardation, the
traders expect the prices to decrease over long
term.
Thus, investors and traders should maintain
awareness of such dynamic market states by
evaluating the current or spot price and prices of
near and far futures contracts.
For the second consecutive
week both S&P 500 and Dow
have recorded profits riding on
the back of bullish macro
economic data and
accommodative measures
announced by the central bank
INDIAN MARKETS
This week has ended in a sour note as both BSE and NSE have ended in red amidst
sustained sell off by the FII’s and month end derivative contracts profit booking. In
addition to this, the possibility of interest rate hike by the US federal reserve has
resulted in strengthening of dollar which has had an negative impact over the capital
inflows to the country. Also the government’s inability to pass key bills like GST and
insurance bill during the winter session had also negatively impacted the bourses.
BSE SENSEX
CNX NIFTY
Open High Low Close
SENSEX 27,215.19 27,370.63 27,091.38 27,208.61
NIFTY 8,204.80 8,234.55 8,147.95 8,174.10
COMMODITIES
EXCHANGE RATES INTERNATIONAL MARKETS
Commodity Unit Rs / Unit % Change
Gold 10 grams 27,073.00 +1.89
Silver 1 kg 37,315.00 +2.39
Crude Oil 1 bbl 3,547.00 -0.08
INR/ 1 USD 63.64
INR /1 EURO 77.74
INR/ 100 JAPAN YEN 52.93
INR / 1 POUND STERLING 98.98
Open High Low Close
NYSE Comp 10,535.52 10,919.51 10,360.03 10,890.24
NASDAQ 4,788.06 4,814.95 4,787.85 4,310.25
S&P 500 2,083.00 2,083.75 2,081.75 2,083.00
FTSE 100 6,598.18 6,618.09 6,586.05 6,609.93
CAC 4,309.40 4,316.39 4,295.02 4,295.85
DAX 9,887.24 9,922.11 9,848.06 9,922.11
NIKKEI 225 17,778.91 17,843.73 17,769.01 17,818.96
SSE 50 2,680.16 2,937.65 2,680.16 2,937.65
Hang Seng 23,290.42 23,421.10 23,290.42 23,349.34
Revival plan: SpiceJet eyes Rs. 1,200cr equity infusion, Government unimpressed
Ailing budget carrier SpiceJet has told aviation ministry officials that it is hopeful of
receiving an equity infusion of Rs. 1,200 crore and arranging another Rs. 600 crore through
external commercial borrowings by March next year.
Ministry officials were left unimpressed by the presentation made by SpiceJet’s top
management, which contained no specific details about the airline’s funding plans. SpiceJet
have been asked to submit a clear cut plan by next week, giving concrete details of how and
when it planned to raise capital, how it planned to sustain operations and pay various
vendors.
The 15-day time given to SpiceJet to make payments to the Airports Authority of India ends
on December 31.
Raghuram Rajan Sees High Possibility Of Returning To Strong Growth In 2 Years
India is currently not in a phase of strong growth, but there is high possibility that the
country will return to strong growth in next two years, and lower oil prices are helping
inflation to ease, Reserve Bank of India Governor Raghuram Rajan said.
Regarding the possible interest rate hikes by the U.S. Federal Reserve, Rajan said faster
increase in U.S. interest rates could be a risk to global asset prices. He said expectations are
that U.S. rates will rise slowly in the backdrop of low global growth.
Rajan also said the central bank is not targeting to defend the rupee at any specific level, but
wants to curb volatility. He assured that India has made major improvements since the rupee
volatility experienced in the July-August period last year.
Swachh Bharat: Govt sets Rs 42,000 cr investment target from private sector
Government has set an investment target of Rs. 42,512 crore from the private sector under
Swachh Bharat Mission in urban areas. An official release said, out of the total project cost of
Rs. 62,009 crore central assistance would be Rs. 14,623 crore while the states and Union
territories would be required to contribute Rs. 4,874 crore.
It said that the Ministry of Urban Development has withdrawn itself from appraisal and
approval of various project proposals under the Swachh Bharat Mission to be implemented
in all the 4,041 statutory towns and cities across the country. Under this Mission, it is targeted
to build one crore individual household toilets besides 2.52 crore community toilet seats.
In an interview , Rakesh Biyani,
Joint Managing Director, Future
Retail, said that the festive
season was below the
expectations.
Though the company is hopeful
from the winter season sale
period which should bring back
consumers in a big way.
Putting a question mark on the
effectiveness of government’s
farm debt waiver programmes,
RBI Governor Raghuram Rajan
on Saturday said such
schemes have constrained flow
of credit to farmers.
World Bank Approves $75 Million Project in Telangana, India - Expected to Improve
Incomes and Health of Farmers
The project will target small and marginal farmers in the 150 most backward mandals of
Telangana covering 5,000 villages. The World Bank on December 27, approved a $75 million
credit for the newly-created state of Telangana to enable the state enhance agricultural
incomes of small and marginal farmers and ensure increased access to services related to
health, nutrition, sanitation and social entitlements.
The Telangana Rural Inclusive Growth Project will focus on increasing economic
opportunities for small and marginal farmers, especially from Scheduled Caste (SC) and
Scheduled Tribe (ST) households in the 150 most backward mandals (cluster of villages
across gram panchayats) by helping them gain access to extension services, good quality
inputs like improved seeds, market services, and institutional credit.
Volkswagen's Audi to step up investments in 2015-19 on models, plants
Audi, which contributes 40 percent of operating profit at Europe's biggest automotive group,
said on Saturday it will push up investment in car-making operations by 2 billion euros
($2.44 billion) to a record 24 billion euros over the next five years.
Seventy percent of spending will be assigned to developing new models and technologies
such as emission-cutting plug-in hybrid vehicles, Audi said. The brand is also working on
purely electric cars to catch up with BMW and Tesla Motors . More than half of the funds
will be spent on Audi's two German factories in Ingolstadt and Neckarsulm which accounted
for half the carmaker's nine-month output of 1.34 million autos, Audi said, confirming a
Reuters story.
Prasar Bharati trying to expand online reach, says CEO
Prasar Bharati is trying to expand its online presence to reach a wider audience, its Chief
Executive Officer Jawhar Sircar said on Friday.
Referring to the young generation’s increasing use of Internet, he pointed out that if Vividh
Bharati had online presence then its reach would widen. “These days the youth are listening
to everything on the Internet. If Vividh Bharati goes online then listeners from California to
Vancouver will be able to listen to it. We are currently conducting an experiment in this
regard,” said Mr. Sircar. He was in Kolkata to launch Prasar Bhararti’s Vividh Bharati service
on FM in the city. Pointing out that the FM channel would also be accessible on cell phones,
Mr. Sircar said: “The Government of India is very keen on mobile FM.”
TRAI is planning to review the
freedom given to direct-to-
home service providers in
deciding subscription charges
for HD channels. There are
about 40 HD channels in the
country and DTH operators
charge premium for them
compared to normal quality
channels (standard definition)
Continuing with the
advancement, major indices
closed the week with second
consecutive weekly gain as the
S&P lifted by 5.9 percent in
seven sessions.
On the other hand, the Dow
increased for a seventh straight
day, with its longest streak
since March last year.
Rakesh Jhunjhunwala is an Indian investor
and trader. He is a qualified Chartered
accountant. He manages his own portfolio as
a partner in his asset management firm, Rare
Enterprises. Jhunjhunwala was described by
India Today magazine as the "pin-up boy of
the current bull run" and by The Economic
Times as "Pied Piper of Indian bourses".
Rakesh Jhunjhunwala grew up in Mumbai,
India where his father was posted as an
Income Tax officer. He graduated from
Sydenham College and thereafter enrolled at
the Institute of Chartered Accountants of
India Chartered Accountant.
Career
Rakesh Jhunjhunwala plunged into full-time
investing soon after completing his
education. He started his career in 1985 when
the BSE Sensex was at 150. He made his first
big profit of Rs 0.5 million in 1986 when he
sold 5,000 shares of Tata Tea at a price of Rs
143 which he had purchased for Rs 43 a share
just 3 months prior.
Jhunjhunwala is the chairman of Aptech
Limited and Hungama Digital Media
Entertainment Pvt. Ltd. and sits on the board
of directors of various Indian companies.
Investment Philosophy
His stock picking strategy is influenced by
George Soros' trading strategies and Marc
Faber's analysis of economic history. He
endorses the rule, "the trend is your friend."
His investment philosophy says "Buy right
and hold tight".
He claims to base his trades, in part, on the
business model of a company, its growth
potential, and its potential for longevity. He
factors in heavily the competitive ability,
scalability and management quality of the
enterprise. The entrepreneur, according to
Jhunjhunwala, makes an invaluable
difference to his expected investment returns.
According to Jhunjhunwala, believing in the
vision and the beliefs of the entrepreneur and
evaluating risks that may not be perceived by
the entrepreneur are key success factors for a
trader.
Jhunjhunwala considers Radhakishan
Damani as his guru.
5h July, 1960
Bombay University &
The Institute of Chartered
Accountants of India
USD 1.90 Billion
Ways Our Smart Life
Changed in 2014
A lot has changed in 2014 from the
technology standpoint. Although till a few
years back, focus of technology was
miniaturization, nowadays people want
bigger and better. Following are some of the
most notable changes that made our smart
lives even smarter.
Budget Smartphones: Prior to 2014, the only
way to flaunt a cool high performance phone
with HD screen and a quality camera was to
shell out some extra money. However, thanks
to Motorola's Moto E which offered all
unexpected features in a sub Rs. 10,000 price
tag. Soon, 2GB RAM, snapdragon quadcore
processors became the not so exclusive
features of smartphones. Post Moto E, there
were a slew of launches including Xiaomi
Redmi 1s, Android One Series, Micromax
Unite 2.
Portable Chargers: Smartphones have
undoubtedly made our lives easy. From e-
mails, to social networking, to gaming. You
say it. You have it. All at the cost of a cool
smartphone with a big battery. But what if
battery isn't big enough? Enter Portable
Chargers! The newest member in our
oversized pockets. One full charge would
refill your phone's battery three times. Soon
we will have phones rechargeable by solar
energy. It's time we put global warming to
good use!
Curved TVs: There was once a limit to screen
dimensions. The size of the drawing room
wall ofcourse. Not anymore. These super
luxury items are the next step in TV
technology. They offer a splendid TV viewing
experience with smart functions and
surround picture. Seems LCDs are old school
now.
Bigger i-phones: The much awaited phablet
size i-phones were launched in 2014. Late
Steve Jobs once said “No ones gonna buy
them”. But here we see Apple catching up to
global peers in a race with no finish line. The
consumer preferences are shifting and with
the kind of content people are consuming on
smartphones, a bigger screen is a much
needed upgrade.
- By Mukul Gupta
Recommended