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Term of Week

In Focus

Opinion

Personality Brand World

Credit Default Swap| 6

Lechal Shoes:

Ducere Technologies|12 Roberto Carvalho de

Azevêdo |11

Gold extends losses on weak

global cues| 4

SAIL’s OFS: A Success| 2

DECEMBER 07, 2014 | A FINNICHE INITIATIVE

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

The Final Placement Week for the batch of 2013-2015 began in the first week of

December. The campus saw some high profile corporates and esteemed companies

visiting. With more than half the batch placed, the placement scenario looks good and

hope for remaining students is on high as many important companies are lined up for the

following week. Club FinNiche appreciates the work done by Placement Committee and

congratulates all placed students.

Club FinNiche releases its weekly magazine FinXpress with the In Focus talking about

the ‘SAIL’s OFS: A success’. The Opinion gives an overview of ‘Gold extend losses on

weak Global Cues’. The term of the week describes “Credit Default Swap", a swap designed to transfer credit exposure of fixed income between parties. Do have a look at the market section, Brand world which brings to you about Lechal Shoes by Ducere Technologies and Personality of the week, Roberto Azevedo. 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

December, 07 | 2014 | Volume 24

SAIL’s OFS: A Success

Gold extend losses on

weak Global Cues

Credit Default Swap

Roberto Azevedo

Lechal Shoes by Ducere

Technologies

SAIL divestment raised Rs.

1,715 Crore

First disinvestment to have

retail investor quota

SAIL OFS oversubscribed by

more than two times

- By Gayatri Pandit

With the fiscal deficit target set at 4.1% of the

gross domestic product, Modi Government’s

first disinvestment move has garnered

Rs.1,715 crore way above the expected

Rs.1,500 crore. The positive sentiments raised

because of the Modi government led retail

and non-retail investors specifically state-

owned to invest money in PSUs, which in

turn made the 1st step of divestment

successful. Eyeing for Rs. 58,425 Crore, the

government divestment drive has got a kick

start with steel giant SAIL’s share been

subscribed 2.08 times. This over subscription

has set off Rs. 1,715 crore for exchequers.

Considering the long set target of bridging

gap of fiscal deficit, the cabinet had in July

2012 approved a 10.82% stake sale in SAIL.

Accordingly, the first stone was put in March

2013 where 5.82% stake was divested from

SAIL. This year the rest 5% stake sale in SAIL

and its oversubscription in short time has

given government a boost to cover up its

fiscal deficit.

The government has lined up a host of PSUs

for divestment. Figure 1 will give a detail

picture of targeted government stake

disinvestment.

The oversubscribed Rs. 1,715 crore offer for

sale (OFS) issue is the first to have a retail

investor quota. The bid showed retail

investors - those investing up to Rs. 2 lakh-

issue was subscribed nearly 3 times. Retail

investor has got a discount of 5% to bid price

Figure 1: Disinvestment line-up in 2014-15

in SAIL offering. 2.06 crore which was

earmarked for retail investor were subscribed

2.66 times, however general category shares

had been subscribed 2.01 times. About 10% of

the offered shared were reserved for retail

investors, who can buy shares upto Rs. 2

lakhs, while about 25% were reserved for

mutual fund and insurance companies.

The Center has raised Rs. 1,715 crore by

selling 20.65 crore shares, representing 5% of

equity of SAIL at an approximate price of Rs.

83.5 per share. Almost 55% has been invested

by five leading financial institutions, which

includes Life Insurance Corporation that

invested around Rs. 700 crore. As per the last

divestments of Hindustan Copper in July 2013

and SAIL in March 2013, state-owned

institutions had subscribed more than 50% of

which LIC being the major contributor.

Following is list of contributors in SAIL

divestment:

The disinvestment had seen a limited

participation by FII. Out of other foreign

players, global hedge fund player such as

Seganti Capital had an investment of Rs. 100

crore and Geosphere Capital has investment

of around Rs. 30 crore. Vanguard purchased

shares worth of Rs. 30 crore. Though the

issue is oversubscribed the market lacks the

participation from major marquee investors.

PSU stocks were underperforming in bull

market which was up by 15% since Modi

government assumed power. About 59 state

-owned companies showed a decline during

that season, which was juxtapose to other

sectoral indices which were up by 10 to 50%.

Most of market experts assume that this

decline is due to no visible management

reforms, in fact about 17 PSUs are without

chairman including CIL, PFC and NHPC.

So, the current challenge is to get these

industries out of bureaucratic hands.

In addition, considering the divestment

target apart from PSUs, government has

planned to raise Rs. 6,500 crore from part-

slae of its stake in Specified Undertaking of

Unit Trust of India (Suuti) in Axis Bank,

Larsen & Toubro, and ITC; and Rs 15,000

crore from sale of its residual stake in

Hindustan Zinc and Bharat Aluminium

Company (Balco). About Rs 5,500 crore,

from sale of 10% each in Hindustan

Aeronautics and Rashtriya Ispat Nigam, is

expected to be raised.

The tax authorities have raised 9.77lakh-

crore this fiscal year. So, it is imperative to

meet the target from disinvestment,

spectrum-sale and special dividends.

Participants in disinvestment

Amount

Major PSUs Rs.950 Cr

approx.

LIC Rs. 700 Cr

SBI Rs. 150 Cr

GIC Rs. 50 Cr

Oriental Insurance Rs. 35 Cr

United India Assurance Rs. 15 Cr

Domestic Private Rs. 100 Cr

ICICI bank

FII Rs. 165 Cr

Other Non-retail investor Rs. 337.5 Cr

Retail Rs. 172.5 Cr

- By Shikha Sharma

Weakening trend overseas

Federal Reserve move closer

to increase the interest rates

US added the largest numbers

of jobs

Due to a weakening trend overseas, Gold

prices plunged by Rs 345 to Rs. 26,050 per ten

grams at the bullion market at national

capital.

Bullion traders attributed fall in the gold

prices to a weakening global trend after the

US added the largest numbers of jobs in

almost three years, raising concern that the

Federal reserve will move closer to increase

the interest rates. This global trend increased

supplies in domestic spot market after the

Reserve Bank eased import curbs.

Besides, fall in demand from jewellers and

retailers at prevailing levels on expectations of

further drop in precious metal prices in

coming days dampened the trading

sentiments. Market analyst said stockists

selling in line with a weakening global cues

where gold plummeted to the lowest level in a

week, mainly pulled down gold prices.

Gold may see further fall in its prices in

coming days and is likely to touch 25,500-

mark as supplies started picking up after the

RBI move. Strengthening dollar against other

currencies also reduced the appeal of bullion

as an alternative asset .

Gold in Singapore, which normally sets price

trend on the domestic front, fell by one per

cent to $1,185.82 an ounce . Silver fell by 2.1%

to $16.16 an ounce, the biggest since

November 14. Gold reclaimed psychologically

significant $1,200 an ounce following heavy

short– covering rally fuelled by a downgrade

of Japan’s sovereign debt rating.

According to the market men the weak trend

in overseas markets where the precious metal

retreated from five-week high on outlook for

stronger dollar mainly weighed on gold prices

at futures trade here.

Silver also plunged by Rs. 450 to Rs. 36,750

per kg on reduced off take by coin makers and

industrial users. Silver plummeted to the

lowest level since 2009 as the dollar escalated.

Further, the rise in supplies supported by RBI

easing curbs on import of the precious metal

by scrapping 80:20 scheme also put pressure

on gold prices.

Globally, gold in New York dropped by 1.4

per cent to $1,190.40 an ounce and silver by

1.9 per cent to $16.25 an ounce. In Delhi, gold

Gold prices plunged to Rs.

26,050 per ten grams

Silver plunged to Rs. 36,700

per kg

Gold of 99.9% and 99.5%

purity plunged by Rs. 200

of 99.9 and 99.5 per cent purity tumbled by

Rs 195 each to Rs 26,675 and Rs 26,475 per 10

grams, respectively. Sovereign, however,

remained steady at Rs 23,700 per piece of 8

grams in restricted buying.

Silver remained under selling pressure and

shed another Rs 200 at Rs 36,700 per kg.

Although, weekly-based delivery traded

higher by Rs 200 to Rs 36,700 per kg on

increased buying by speculators.

Extreme bullish overseas sentiment

following a sharp recovery in precious

metals worldwide trade on the back of

fading commodity volatility gave the

domestic players a shot in the arm,

triggering frantic buying activity, a bullion

trader commented.

Speculation

Credit default swaps allow

investors to speculate on

changes in CDS spreads of

single names or of market

indices such as the North

American CDX index or the

European iTraxx index.

Hedging

Credit default swaps are often

used to manage the risk of

default that arises from holding

debt. A bank, for example, may

hedge its risk that a borrower

may default on a loan by

entering into a CDS contract as

the buyer of protection.

Arbitrage

Capital Structure Arbitrage is

an example of an arbitrage

strategy that utilizes CDS

transactions. This technique

relies on the fact that a

company's stock price and its

CDS spread should exhibit

negative correlation.

A swap is used to shift the credit exposure of

fixed income products between parties. A

credit default swap is also referred to as a

credit derivative contract, where the

purchaser of the swap makes periodic

payments till the maturity date of a contract.

In a credit default swap, two counterparties

exchange the risk of default connected with a

loan for periodic income payments spread

through the life of the loan. If the borrowing

party (the issuer) does default, the insuring

party agrees to pay the lender (bondholder)

the par value in addition to lost interest. The

bondholder (lender) strive for protection

against the risk that the issuing company

(borrower) might default. The insuring party

hedges that the issuing company will not

default, and will ultimately profit from the

income payments without having to

compensate the bondholder for the par value

and remaining interest.

Credit default swaps are used by investors

for speculation, hedging and arbitrage.

Credit Default Swap Explained with an

Example

A credit default swap is an agreement

between two parties that works like a side

bet on a football game. Swap sellers promise

swap buyers a big payment if a company’s

bonds or loans default. In return for the

promise they get quarterly payments.

Neither needs to hold the underlying debt

when entering into a swap. There are 3

parties involved, Widgets R Us Corp., Credit

default swap seller and credit default swap

buyer.

Role of I Party: Widgets R Us Corp.

Borrows money from banks or issues bonds

to finance operations.

Role of II Party: Credit Default Swap Seller

Promises to pay swap buyer a set amount if

Widgets R Us defaults, often $10million.

Receives annual payments from swap

buyer in return for “insurance”

Can include banks, insurance companies,

hedge funds or others

Role of III Party: Credit Default Swap

Buyer

Promises quarterly payments to swap seller

Receives promise of large pay-out, if bond

defaults

Can include banks, insurance companies,

hedge funds or others

If widget’s financial fortunes turn sour, the

swap becomes more valuable. A swap

holder can resell it & get high returns.

- By Arihant Jain

The manufacturing PMI for Nov

came at 53.3 highest level in

21 months. Core sector growth

in October 2014 came in at

four month high of 6.3%.

Gold prices fell by Rs 195 this

week as a reason to strong

jobs data from US, luring

customers to invest in Gold.

INDIAN MARKETS

BSE became the first Asian Stock Exchange to reach Rs 100 lakh crore market

capitalization last friday. This week the Indian markets were range bound and the

market ended in red. Small caps saw the year highs on Friday. RBI’s announcement of

unchanged rates (repo rate—8%, CRR– 4% and overnight repo at 0.25%) was one of the

reason for less volatility in the market. On an overall note, the week saw most days end

flat on trading.

BSE SENSEX

CNX NIFTY

Open High Low Close

SENSEX 28413.01 28822.37 28217.50 28458.10

NIFTY 8605.10 8626.95 8504.65 8538.30

US labor data reported an

addition of 320,000 employees

in November much stronger

than the prediction.

China finally surpasses USA to

become the worlds largest

economy. China $17.6 trillion

and USA $17.4 trillion

COMMODITIES

EXCHANGE RATES INTERNATIONAL MARKETS

Commodity Unit Rs / Unit % Change

Gold 10 grams 26357.00 -1.06

Silver 1 kg 36699.00 -1.55

Crude Oil 1 bbl 4120.00 -0.39

INR/ 1 USD 61.86

INR /1 EURO 76.01

INR/ 100 JAPAN YEN 50.92

INR / 1 POUND STERLING 96.39

Open High Low Close

NYSE Comp 10933.11 10996.87 10864.08 10970.29

NASDAQ 4777.47 4788.98 4724.62 4780.75

S&P 500 2063.25 2079.00 2048.25 2076.45

FTSE 100 6647.00 6753.50 6637.30 6742.84

CAC 4354.19 4427.74 4310.69 4419.48

DAX 9915.74 10093.03 9835.42 10087.12

NIKKEI 225 17475.00 17922.29 17474.27 17920.45

SSE 50 2691.00 2978.03 2665.69 2938.78

Hang Seng 23678.00 24215.00 23267.00 24002.64

India's $275 million SAIL stake sale boosts divestment prospects

India's ambitious programme this fiscal year to sell off government stakes in companies got a

boost on Friday, as an offer to sell 5 percent in a steelmaker to raise $275 million saw

investors bidding for twice the number of shares on sale.

The strong response from investors to the sale of shares in Steel Authority of India Ltd (SAIL)

could improve prospects for other divestments, including a stock offering in Coal India Ltd,

the world's largest coal miner.

Still, Prime Minister Narendra Modi seems likely to miss a target to raise $9.5 billion from

divestments in the fiscal year ending in March, as resistance from staff unions and investor

worries about some company-specific issues delay the process.

India's forex reserves up $1.43bn for week ended Nov 28

India's foreign exchange reserves grew by $1.43 billion to $316.31 billion for the week ended

Nov 28, Reserve Bank of India (RBI) data showed. The reserves had fallen by $672.4 million

to $314.87 billion in the week ended Nov 21.

According to the RBI's weekly statistical supplement, foreign currency assets, the biggest

component of the forex reserves, rose $1.42 billion at $290.82 billion in the week under

review. The foreign currency assets had declined $664.3 million at $289.39 billion in the

previous week (Nov 21).

India’s reserve position with the International Monetary Fund (IMF) was up $2.5 million to

$1.52 billion. The value of gold reserves which was static since Oct 3 at $20.01 billion and had

declined by 275 million at $19.73 billion for the week ended Oct 31, stayed the same in the

week ended Nov 21.

Reverse Auction For Captive Coal Blocks

The government has decided to use the reverse auction method to award captive coal blocks

to private power producers in cases where tariffs cannot be changed, according to a senior

official. These companies include those that have power purchase agreements with utilities

and entities that set up power plants through tariff-based bidding. In reverse auctions, the

authority sets a ceiling price and bidders have to bid lower than that.

The lowest bidder wins the auction. The official said the government has decided to use state

run Coal India's prices as ceiling. In this case, the quality of coal from a coal block will be

ascertained. The ceiling for this block's coal will be set as the notified price of similar quality

of Coal India's produce.

Voltas topples LG to be the No. 1 in AC business

The Tatas-owned Voltas has taken the top slot in the Indian airconditioner (AC) market,

overtaking Korean white goods giant LG that has dominated the business for over a decade.

Latest data from market research firm GfK Nielsen Retail Audit showed that Voltas had a

shade over 20% of the pie in September, based on sales at multi-brand and exclusive brand

outlets. This was marginally ahead of LG's market share of 19.9%.

This is perhaps the first time in recent years Voltas has taken the pole position across the AC

segment. However, for the first half of the financial year (April-September 2014-15), LG

continues to lead with a share of 20.5%. Voltas follows with a share of 18.9%.

Samsung, the other big player in the AC market, is a distant third.

A $400-bn plan with fair returns will ensure 24X7 power: Piyush Goyal

A massive overhaul of the power sector is underway with the Government planning to bring

in a series of amendments to the Electricity Act 2003 across all segments of the power value

chain within the current session of Parliament.

“I am looking at a billion-tonne coal production, 100 GW of solar power capacity and

investments of about $50 billion in the transmission and distribution segment in the next five

years,” said Piyush Goyal, Minister of State, Independent Charge for Power, Coal and New

& Renewable Energy while addressing the CII National Council Meeting, organized in the

capital recently.

In a bid to boost renewable energy which is targeted to be 15 per cent of the energy mix by

2020, the Government is set to impose stringent penalties on errant discoms who fail to meet

Renewable Purchase Obligations..

Morgan Stanley Slashes Brent Price Forecasts

Morgan Stanley on Friday slashed its Brent price forecasts, citing oversupply and inaction by

the Organization of the Petroleum Exporting Countries in curbing production. The

investment bank cut its average 2015 Brent base case outlook by $28 to $70 per barrel and for

2016, by $14 to $88 a barrel.

The bank expected over-supply to peak in the second half of next year. US crude oil closed

on Friday at its lowest since July 2009, as Brent averaged below $70 a barrel in the week for

the first time since 2010, as strong US employment data did little to lift the oil market's

bearish mood.

Roberto Azevedo is the 6th Director– General

of World Trade Organization (WTO). He is

currently heading this organization with

effect from 1st September 2013 for a span of 4

years.

A Brazilian Diplomat, he was elected to

succeed Pascal Lamy. He is a graduate in

Electrical Engineering from the University of

Brasilia and International Relations at Rio

Branco Institute.

Career

He had his first Diplomat posting in 1988 to

Washington. He then served in Brazilian

Embassy for various countries. After that he

was assigned to the Permanent Mission of

Brazil in Switzerland in 1997.

During his tenure as the head of the Brazilian

Foreign Ministry’s Dispute Settlement Unit,

he acted as a Chief Litigator in many disputes

at WTO and served on its Dispute Settlement

panels.

He acted as a Vice Minister of Technical and

Economic Affairs at Foreign Ministry of

Brasilia. He also was the Chief Negotiator at

Doha Round and representative of Brazil at

MERCOSUR Negotiations.

He was appointed as Brazil’s Ambassador to

Geneva in the United Nations’ international

organizations and Permanent Representative

to the WTO in 2008.

Azevedo is considered as an “insider’s

candidate” being preferred by developing

economies as he belongs to a developing

economy.

Under his leadership, WTO agreed to the Bali

Package which is a Trade Agreement

resulting from the Ninth Ministerial

Conference of the WTO in Bali, Indonesia. It

aims to lower global trade barriers and is the

only agreement till date which is approved

by all WTO members.

Besides World Trade Organization (WTO),

Ambassador Roberto Carvalho de Azevedo

also represents Brazil at various other

economic organizations like World

Intellectual Property Organization (WIPO),

United Nations Conference for Trade and

Development (UNCTAD) and International

Telecommunications Union (ITU).

3rd October, 1957

University of Brasilia

Rio– Branco Institute

Doha Round and MERCOSUR

Negotiations (2001-2005)

Bali Package (2013-14)

A Bluetooth-enabled smart

shoe developed by Ducere

Technologies, India

Lechal came into being for a

noble cause — to help the

visually challenged navigate

with Google maps through the

use of haptics and digital

mapping. And although it has

since become more inclusive,

to include those who are not

visually challenged — Lechal's

original intention remains

priority.

- By Yojana Ranasaria

Lechal Shoes is the Bluetooth–enabled smart

shoe developed by Ducere Technologies,

India. Indians are the first to get access to

what can be the next-best-thing in the

wearable technology that is the smartwear.

Ducere Technology plans to sell it at $100 a

pair. It works as a smartphone app is synced

with the shoe. The app uses Google maps

and vibrates to assist users to tell when and

where to go to reach their destination on time.

It is convenient as one just needs to type in

the app the destination one wants to go and

keep the phone in their pockets as the buzz

and vibration of the shoe will lead the way

and help the person find its destination.

Ducere Technologies Pvt. Ltd. was started by

two engineers who had studied and worked

at the U.S. They started their operations in

2011 in the city of Secunderabad, Telangana.

Ducere had initially developed these shoes

with the name “Lechal” which in Hindi

means “take me along”– to help the blind

who rely on walking sticks. But while testing

the shoes, the company realized its potential

for the people who could see as well. For

example joggers, mountain bikers or even

tourists can plug in their destinations and not

have to stop to check their phones as they

move because the buzzing and vibrating in

their shoes will let them know when and

where to turn.

They facilitate by removing the need to use a

map, look at a screen or ask someone for

directions. Apart from that, they also tell you

the number of steps one ahs walked, biked or

run, fitness level, calories burnt etc.

Additionally, they are able to tract activities,

set custom fitness targets, workout sessions,

motivates by playing audio-visual and also

transfers all data to your smartphone. It is

better than any other available gadget of

similar features.

How it works

The sensors are in the insoles of the shoe and

is charged with lithium polymer batteries that

respond to gestures. A shoe tap notes a

landmark and a snap of the fingers tell us

charger’s power status through audio enabled

feedback. These sensors are integrated by

syncing it with mobile applications.