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In focus: The WTO conflict Opinion: Amazon vs Flipkart Term : FII
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August 3, 2014
Volume 6
Conflict in WTO
FII
Amazon vs Flipkart
Time for Survivor 6.0
With the first term approaching towards its end and the new batch
finally getting imbibed to the IMT culture, with sleepless nights and all
the quizzes and presentations lined up, we bring to you yet another
illuminating edition of FinXpress.
This week, the In Focus section talks about the WTO crisis in Geneva
and why the countries could not reach on a consensus on the
subsidies issue. The Opinion makes a critical analysis of the ongoing
rivalry between Amazon and Flipkart and the resultant benefit that the
consumers will enjoy because of it.
The term of the week describes "FII", a term most common in using
foreign financing. Do have a look at the Market and News section to
bring yourself up to speed with market volatility and the reasons
behind it.
Stay tuned for our ice-breaker event, Survivor 6.0 which is just round
the corner, on 3rd and 4th of August, 2014.
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
From The Editorial FinXpress Volume 6
Aug 03, 2014
FinXpress
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
FinNiche
AUG 2014 PAGE 1
CONTENTS
From The Editorial
In Focus: Crisis in Geneva
Opinion: Flipkart Vs Amazon
Term of the Week: FII
Market This Week
News
Fun Corner
PAGE 2
FINANCIAL KNOWLEDGE
Currently power corridors around the
globe are talking about India. In just-
concluded WTO meeting in Geneva India’s
firm stand blocked the implementation of
global trade facilitation deal. Is it a
watershed moment for India?
To find answer to this question we have to
delve into different aspects of the story.
Need of Global Trade facilitation deal:
Though we often talk about ‘Global
Village’, cross-border trade is still a prime
issue of concern. Pundits around the
world agree on the point that greater
liberalisation of trade by minimizing
tariffs and easing flow of goods and
services among nations is the need of the
hour. Instead of creating gamut of bilateral
or regional trade pacts (RTAs) this deal
could have provided a uniform platform for
all countries. Analysts figured out that by
this liberalization procedure $ 1 tn could
have been pumped into the global
economy which would have created
astounding 21 million jobs around the
world. WTO members have been striving to
hammer out the agreement since 2001.
But the process once again stumbled.
WTO—Tough ride:
Since the formation of WTO just-ended
Geneva summit was the only opportunity
to strike a deal for grand global trade
reform. In Doha Summit this thought was
initiated. Last year’s Bali meet faced a
great hindrance from India. After attaching
peace clause that India can continue with
its food subsidy program the summit
ended on the point that in next meet at
Geneva execution of Trade Facilitating
Agreement (TFA) will be finalized.
Points of Conflict:
In Geneva meet India was at cynosure.
India did not budge from its stand that
along with Trade facilitation agreement
permanent deal needs to be ensured
regarding subsidised food stockpiling.
Presently WTO norms limit the value of
food subsidies at 10 percent of total value
of food grain production. The point of
contention is the valuation of food grain as
WTO uses two decades old price range.
Last year India launched vast food security
programme according to which two third
of its citizens are entitled to receive
subsidised food grains. As per existing
WTO norm the food security scheme is at
a serious threat. India wants to
restructure food valuation that means
changing the base year.
Aftermath of India’s stand:
India’s such rigidity drew harsh flak from
various countries led by US and EU. Many
economists termed India’s move as
‘hostage-taking’ and ‘suicidal’. Though
India faced stiff opposition from most of
the member countries some nations like
Cuba, Venezuela and Bolivia extended
their support. There has been a talk of
going ahead excluding India. But India’s
presence in economic scenario is not at all
ignorable and that fact is accepted by
FinNiche
Crisis in Geneva
AUG 2014
------ By Arijit Samaddar
PAGE 3
FINANCIAL KNOWLEDGE
Pundits across the globe. Therefore the
meeting ended with no consensus raising
questions about relevance of WTO.
Analyzing India’s stand:
At first let us look why rest of the world
termed India’s move a ‘suicidal’ one.
India always articulated that World
bodies like WTO needs urgent reform.
But India itself caused blockage of
deal of such magnitude.
In absence of global trade pact more
and more regional trade agreements
(RTA) will be created.
In world-stage pro-business image of
the new government of India takes a
hit.
In this Geneva round India faced
isolation as countries like Russia,
China, Brazil and Pakistan posed stiff
opposition.
In such a scenario it is obvious to blame
India for creating such grand crisis.
But before passing judgement we need to
look into other side of the coin.
Assertive India: India’s rigid stand
signalled a strong message to the
world that it will no longer buckle
under any pressure. For benefit of its
own people India is ready to take on
any global player.
Despite change of guard at the centre
India remained unmoved about the
point of continuing its food security
programme. This scheme ensures
that no one in India has to starve
anymore. But due to present norms
of WTO India could be penalised for
continuing subsidised food security
programme. Therefore it was the high
time for India to raise its voice to
ensure food for all.
There are some pundits who believe
global trade agreement will need
huge funding which will become
troublesome for developing countries.
To ensure free trade across the
border and to minimize red-tapism
countries like India has to speed up
its domestic reform process and
finance multiple projects to match
international standards.
Therefore, the scenario is not at all ‘black
and white’. Analyzing multiple facets it can
be obviously said India was truly in a
position to bargain. Compromising on
welfare of its own people India cannot
afford to join the party. The stand is
crystal clear-‘India First’.
In this constantly-changing economic
scenario one needs to see how global
power centres deal with the situation, how
India is treated by other major powers.
FinNiche
AUG 2014
OPINION
Flipkart, the Bangalore based e-commerce
company announced investments worth $1
billion a couple of days back. As soon as
the news broke out, Amazon stole Flipkart’s
thunder by announcing their plan of
investing $2 billion in India. After the
sequence of such big investment news, the
big question in everyone’s mind is who will
be the winner - the homebred Flipkart or
global e-commerce giant Amazon ? The
perhaps obvious answer is INDIAN
CONSUMERS. These announcements
clearly depicts that the war of prices has
just begun and both the companies will
bleed money in order to built or sustain the
customer base, which in turn will give
choices to the consumers and hence lead to
overall customer satisfaction. However, it
may be possible that in the short run, these
companies may earn meager profits in
order to survive competition.
Motives That Drive Amazon & Flipkart
Amazon’s investment announcement came
on the heels of its performance in last
quarter which shows that the company has
made a net loss of $126M because of which
its stock price dropped by nearly 10%. After
the fall in price, Wall Street has pressurized
Amazon to lower its spending and focus on
the margins. However, it’s decision of
investing in India, according to Amit
Agarwal, Amazon’s India head & country
manager, was not made in a single day.
This explanation of his can be justified by
the fact that 40% of Amazon’s sales come
from international markets. In order to
attain higher international growth, the only
lucrative market for Amazon is India.
Flipkart, on the other hand has been
guided by different objectiveas. To say, their
founders, Sachin and Binny Bansal, were
too a greater extend not only inspired but
also tried to imitate Amazon built an e-
FinNiche
Flipkart vs Amazon: Who Will Sit Easy?
AUG 2014
—— By Bharti Alwani
PAGE 4
commerce business model in India on
the lines of Amazon revenue model. But
there lies the challenge in itself.The
battle was daunting challenge for them.
The investors of Flipkart such as Accel
and Tiger Global have been well versed
with the fact that the real e-commerce
battle in India was not between Flipkart
or Snapdeal but AMAZON. Recently,
Flipkart has acquired many other e-
commerce players including Myntra and
LetsBuy (which is not a surprise that
Accel and Tiger Global were investors in
both these firms).
So Flipkart has prepared itself for the
new upcoming and the biggest challenge
that Amazon was thought to be for years
in the ecommerce battle in India. The
raise of $1B raise was the exact hit that
the flipkart did to deal with a huge cash-
rich and growth-hungry Amazon. The
sole strength and advantage of Flipkart's
lies in the experience it has with the
Indian consumers and local partners for
years now.
Where does this leave the other e-
commerce players? This leaves many
other retail ecommerce players in
trouble as now they have to compete
with the huge ecommerce giant players
who have the capacity to absorb more
than hundred million dollars as its
annual losses. Snapdeal might be the
other company that could sustain and
raise enough comparable cash to stay in
this race. Retail e-commerce in India is
a long-term play. It cannot bring returns
in short term as it requires patience .Big
players having the capability to absorb
losses over several years and the
stamina to stay in this long fight will
survive. It's possible that both
Amazon.in and Flipkart are going to
survive in the long run. But the only
player in this market who will sit easy
during the upcoming frenzy will be the
Indian consumer.
OPINION FinNiche
AUG 2014 PAGE 5
PAGE 6
FINANCIAL KNOWLEDGE
Foreign Institutional Investors are
institutions who monitor their money flow
money in the assets of an organization
which is a not based in the country of
existence of FII. The money flow so made by
FII could be an inflow or outflow i.e. either
the FII could invest in their capital in the
buying of assets of a company or they could
withdraw their capital by selling off the
assets of the organisation. The buy and sell
sentiment of an FII depends largely on the
trust that the foreign investor has in the
organisation’s growth and development
policies and their Corporate Actions to be
executed in the near future.
As per Section 15 (1) (a) of the SEBI FII
Regulations, 1995, Foreign Institutional
Investor has the liberty to invest in
securities in the primary as well as in the
secondary markets which includes shares,
debentures and warrants of listed, unlisted
or to be listed companies on recognised
stock exchange of India.
The FIIs can invest/trade in the desired
streams of markets by various approaches,
such as:
1) Through registered brokers in
recognised stock exchanges.
2) Through a sub account which is
maintained in the name of an
individual outside India.
3) FIIs can issue ODIs i.e. Off-shore
derivative instruments to the persons
recognised as appropriate foreign
regulatory authority.
Other places where FIIs can trade in are
domestic mutual funds, collective
investment schemes, dated government
securities, Indian Depository Receipts etc.
The so called market movers of a market as
designated majorly comprise of these FIIs.
These are the players who drive a particular
sector in bullish or bearish nature by and
large.
SEBI has the over 1450 institutional
investors registered with it in India.
Examples of FIIs in banks, insurance
companies, venture capital groups , hedge
funds and mutual funds, retirement or
pension funds, angel investor groups,
venture capital groups, private investment
clubs.
Present Trend
This year the FIIs were in hyped trend in
the markets because of their record high
investments into the Indian Markets and
this nature is existing till date. In the
Financial Year, according to SEBI FIIs have
shown an investment of about Rs.80000
crores i.e. US$13.31 billion which reveals
the fact that how India is treated as an
equity market. The trend was also observed
due to the fact that the government had
increased the credit limit for the foreign
investors from $2 Million to $25 Million.
FinNiche
Foreign Institutional Investors
AUG 2014
Monthly FII Net Investments (Calendar Year - 2014)
INR crores
Month Equity Debt Total
January-14 714 12,609 13,323
February-14 1,404 11,337 12,741
March-14 20,077 11,586 31,663
April-14 9,602 (9,185) 418
Total - 2014 31,798 26,347 58,145
PAGE 7
FINANCIAL KNOWLEDGE FinNiche
Market This Week
Both the BSE and NSE recorded a fall in the last week except for Thursday where it
rose because of automobile sector results being declared where players like Maruti
Udhyog performed reasonably well. The whole week events like withdrawing capital
by FII’s resulted in plummeting of the market. A variation of 2.96% was seen from
last Friday to the current one. Sensex recorded a high of 26286.50 and a lowest of
25480.84 where as Nifty achieved 7716.35 as the highest figure and a lowest of
7602.60.
SENSEX Simple Moving Averages
BSE SENSEX
CNX Nifty
Thirty Days 25806.43
Fifty Days 25,823.56
Hundred Days 25,806.70
Two Hundred Days 25,768.58
AUG 2014
PAGE 8
FINANCIAL KNOWLEDGE FinNiche
Bank Rate 9.00%
Repo Rate 8.00%
Reverse Repo Rate 7.00%
Cash Reserve Ratio 4%
Statutory Liquidity Ratio 22.5%
INR / 1 USD 60.85
INR / 1 Euro 81.46
INR / 100 Jap. YEN 69.11
INR / 1 Pound Sterling 102.68
Commodity Unit Rs / Unit % Change
Gold 10 grams 28054 0.84
Silver 1 Kg 44427 0.06
Crude Oil 1 bbl 5974 0.54
Base Rate 10.00%-10.25%
Savings Deposit Rate 4.0%
Term Deposit Rate 8.00%-9.05%
Nifty Simple Moving Averages
Commodities
Lending / Deposit Rates
Thirty Days 7615.43
Fifty Days 7628.97
Hundred Days 7651.47
Two Hundred Days 7682,05
Key Policy Rates and Reserve Ratios
Exchange Rates
AUG 2014
PAGE 9
FINANCIAL KNOWLEDGE
IndiGo readying itself for an IPO InterGlobe Aviation limited or IndiGo has s tar ted rest ructur ing i t s shareholding ,giving increasing signals that it will be going for an IPO in the near future. Rakesh Gangwal ,who owns 47.833% in IndiGo will convert his shareholding, which presently is held through a foreign company, Caelum Investment Llc into NRI shareholding. This conversion of shares from a foreign company to NRI will allow the company to bring in FIIs. The airline has also decided to appoint BoB chairman M.D.Malya to its board.
RIL may not be allowed to charge new Gas prices Reliance Industries limited may not be allowed to charge new gas prices from its two producing fields off the Andhra coast, until it makes up for deficit in shortage. In a high lever meeting of the top bureaucrats of the oil ministry, it was decided that a penalty must be slapped for not complying with the contract. Also in the pipeline is a complete rework of the gas pricing formula worked out by the previous
UPA government. Service delivery platform of three welfare schemes to be merged The service delivery platforms of Rashtriya Swasthya Bima Yojana, Aam Aadmi Bima Yojana and the Indira Gnadhi pension scheme are set to be merged together to streamline the processes and increase efficiency. The merger will bring life and disability cover, health benefits and old age pension under one service, which will help in improving the quality of life of unorganized sector workers. While the Rashtriya Swasthya Bima Yojana provides cashless hospitalization for the p o o r , t h e A am A ad mi B i ma Yojanaprovides life and disability
protection to the head of a landless family.
China gathers pace, Europe falters
and US steady
Reports coming out of China suggest
that Manufacturing activity gathered
pace. Measured by manufacturing
purchasing managers Indices (PMIs), the
efforts of the government were bearing
fruit in China as the manufacturing
PMI rose to 57.1 percent in July , up
from 51 in June.
But for Eurozone the PMI stood at 51.8,
same as June. While growth in Germany
picked up, it was balanced by a
downturn in French, Greece , Spain
and Italy. Ukraine crisis also played a
big role especially in the British
economy where manufacturing grew at
its slowest pace in a year. The
manufacturing PMI fell to 55.4 from
57.2 in June.
US manufacturing PMI slipped to 55.8
from 57.3 in June, which was the
highest in the last four years. Although
the pace of growth of manufacturing
output slowed in July, it remained close
to Junes four year high. New orders rse
to 63.4 from 58.9, Gross domestic
product likely grew at a 3.0 percent
annual rate. Business investment likely
rebounded as did spending on home
building.
In Latin American countries, Brazil
manufacturing activity continued to
disappoint as the manufacturing PMI
fell for fourth month straight. In
Argentina the markets crashed after the
country defaulted for the second time
FinNiche
NEWS OF THE WEEK
AUG 2014
PAGE 10
FINANCIAL KNOWLEDGE
in last 12 years. The default came after
Argentina could not strike a deal with
lead holdout investors. The default
results from Argentina's failure to
comply with a court order that holdout
bondholders be paid at the same time
as a $539 million coupon payment to
those who accepted reduced payments
in two prior restructurings. Rating
agency Standard and Poor, downgraded
Argentina’s long and short term foreign
currency credit rating to “selective
default”.
Manufacturing activity expands at its
fastest rate in 17 months in July
India ’s manufacturing act iv i ty
measured by manufacturing PMI rose to
53.0 in July, fastest in 17 months. It
was 51.5 in June. This can be
attributed to the fact that firms
increased production to meet a flood f
new orders from both internal and
external sources. However this was
accompanied by a sharp rise in input
prices, indicating that Inflation may
remain high in the near future. This
has led some to believe that RBI may
not favor cutting interest rates in near
term thus borrowing cost may remain
high, which can be an impediment to
growth.
NSE to launch new 10-year bond
futures
National Stock Exchange said it would
launch one, two and three-month
interest rate futures (IRF) contracts
based on the new 10-year 2024 bond.
Rival BSE is also expected to launch a
similar bond. Interest Rates Futures
contracts based on 8.40% central
government security maturing on July
28, 2024 will be made available for
trading with effect from August 4, 2014.
Piramal and Dutch APG to invest one
billion dollars in Infra.
Piramal Enterprises Limited and APG
Asset Management, tied up to invest $1
bn in various Indian infrastructure
companies over the next three years
through rupee-denominated mezzanine
instruments. This move could help the
cash starved infrastructure companies
who have struggled to maintain cash
flow. Many Indian infrastructure
companies borrowed heavily in the past
few years when the economy was one of
the fastest growing in the world, but
were squeezed by a slowdown in growth
last year and a slide in the rupee to
record lows. Piramal and APG have each
initially committed $375 million for
investments under the alliance.
Japan urges Brazil to do more
business
Japan Prime minister Shinjo Abe on his
visit to Brazil has said that, his
economic policies commonly known as
‘Abenomics” are bearing fruit. He said
that it was time for the two nations to
expand their trade and investment
partnership. Japanese banks extended
$700 million in loans to boost Brazilian
soy and corn exports to Japan and help
finance oil platform construction for
Brazil's growing offshore oil industry.
Brazil's state development bank BNDES
agreed to join forces with Japan's bank
for international cooperation, JBIC, to
look for areas to promote investment by
small and medium-sized Japanese
companies in Brazil.
FinNiche
NEWS OF THE WEEK
AUG 2014
FinNiche
FUN CORNER
FinQuiz?
1. A fund that buys securities in distressed investments
is called _______.
2. _______ factor is the most important factor in calcu-
lating one’s FICO score.
3. _______ will acquire all the equity shares of Satyam
Cineplexes Ltd.
4. Few months back RBI postponed the launch of Indian
digital currency. What was its name?
5. What is a colloquial name for a non-trading day on
stock exchange or other commercial market.
Last Week’s Answers
1) Mutual Fund
2) Italy
3) 25 and 10 respectively
4) Mayaram Panel
5) WPI
CARTOONS
FUN CORNER
Page 11
**Rush in your entries to : [email protected]
The right entries will get their name featured in the next
issue of FinXpress. So hit the quiz fast & get yourself
visible among 1000 odd in the campus.
Feel free to write to us at : [email protected]
We are on the web !
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Volume 6 Publisher: Arihant Jain
AUG 2014