February 23, 2014

Volume 31

An Eventful Week

Chakravyuh got over and students are back to their usual classes, projects,

and presentations but the energy in the campus hasn't dampen a bit. On

one hand senior prepare batch prepare to bid adieu to IMT, while on other

we can see some new nervous faces waiting for their chance to be

interviewed to get in. Club FinNiche wishes luck to all aspirants for their

admission process.

Returning to what we are presenting you today is a dose of full fledged

financial information. It has been an eventful week. In Focus contains

highlights of the interim budet presented by Mr. Chidambram. Though the

finance ministry claim that this year's fiscal deficit target has been met but

appearance can be deceptive. Read more about it in this week's opinion

section. We present to you "Contango and Backwardation" as Term of the

Week.

We sincerely hope that the readers will find the content engaging. We would

appreciate feedback and suggestions for improvement. We look forward to

keeping you updated and adding to your knowledge base. Till then, “Enjoy

Reading”!

Regards,

The Editorial Team

Club FinNiche

From The Editorial FinXpress

Volume 31

Feb 23, 2014

FinXpress

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

FinNiche

February 2014 Page 1

CONTENTS

From The Editorial

In Focus: India's 2014/15

Interim Budget

Opinion: Fiscal Deficit

Target Met but Appearances

can be Deceptive

Term of The Week:

Contango And

Backwardation

Market This Week

News

Fun Corner

Page 2

IN FOCUS

Finance Minister P Chidambaram

presented an interim Budget on Friday,

February 21, 2014 in parliament for the

financial year 2014-15 with Rajya Sabha

returning it after a brief discussion. The

Budget and related appropriation bills were

passed by the Lok Sabha on February 19.

In an election year, Finance Minister P

Chidambaram presented an Interim Budget

short of rhetoric and stuck to highlighting

the Congress-led UPA Government's

achievements of the last 10 years. The

budget was passed ahead of the general

elections scheduled for later this year and

the measure was necessary to cover

expenditure until a national election is

completed and a new administration

installed.

As per the interim budget growth for the

year is expected at 4.9%, fiscal deficit is

projected at 4.1%. Country’s gross market

borrowing for 2014/15 is budgeted at 5.97

trillion rupees and net market borrowing at

4.57 trillion rupees. Government plans to

buy back/switch bonds of 500 billion

rupees in 2014/15. Debt repayment in

2014/15 seen at 1.397 trillion rupees also

target from stake sale in state run firms for

2013/14 revised to 258.41 billion rupees.

Plan expenditure for 2014/15 is seen at

5.55 trillion rupees, the same level as the

previous fiscal year and non plan spending

is now estimated at about 12.08 trillion

rupees in 2014/15. Total spending on food,

fertilisers and fuel at 2.5 trillion rupees in

2014/15 is budgeted. Food subsidy is

estimated at 1.15 trillion rupees, fertiliser

subsidy at 679.71 billion rupees. Petroleum

subsidy is seen at 634.27 billion rupees

versus revised figure of 854.8 billion rupees

for 2013/14. Agriculture exports are

expected to touch $45 billion in 2013/14,

up from $41 billion in 2012/13.

Defence spending has been raised to 2.24

trillion rupees in 2014/15, up by 10 %

similarly the merchandise exports is now

seen at $326 billion in 2013/14, up by

6.3% and announced the implementation of

the long standing One Rank, One Pension

for defence forces.

"In keeping with the conventions, I do not

propose to make any announcements

regarding changes to the tax laws,"

Chidambaram said hence no major change

in tax rates is projected.

Undergoing banks restructuring the govt

aims to provide 112 billion rupees for

capital infusion in state run banks in

2014/15; it also proposes to set up public

debt management office to start work from

2014/15. He said that the economy was

more stable today than two years ago and

he sought to win over key sections such as

scheduled castes, minorities, women,

farmers and army personnel with more

money for their welfare while pleasing the

middle class with excise cuts to make cars,

mobile phones and items of daily

consumption cheaper. A few things that got

cheaper with the interim budget are cars/

SUVs: 3-6% reduction in excise duty,

Motorcycles and Scooters: cheaper by 1500

-10000 rupees, capital goods: 10- 12%

reduction in excise duty, consumer non

durables: 10- 12% reduction in excise duty,

mobile handsets: 6 to 10 % decreased

excise duty and cord blood banks are now

exempted from service tax net.

During his speech in the parliament

Chidambaram said, “The fiscal deficit is

declining, the current account deficit has

been constrained, inflation has moderated,

the quarterly growth rate is on the rise, the

exchange rate is stable, exports have

increased and hundreds of projects have

been unblocked and India's economy is now

the 11th largest in the world, is stabilising

and showing signs of turnaround.”

FinNiche

INDIA’S 2014/15 INTERIM BUDGET

February 2014

—- By Anureen Bhatti

PAGE 3

OPINION

Every economically aware citizen of India

must have heaved a sigh of relief when,

during his vote on account speech, Mr.

Chidambaram announced that he had

successfully met the fiscal deficit target for

the financial year 2012-2013. This target

had been set at 4.8% and the actual figure

according to Mr. Chidambaram was 4.6%.

This was, apparently, a cause for

celebration given how grim the scenario

had looked at the end of the 3rd quarter

with the government already having

exhausted 95.2 per cent of the budgeted

amount. A failure to meet the target could

have led to a ratings downgrade to junk

status by the big three rating agencies

Fitch, S&P and Moody’s. India’s credit

rating is just above junk status according

to the big three and S&P even has a

negative outlook on that rating. Then there

is the inflationary impact of a high fiscal

deficit to contend with. All in all a very

commendable performance by Mr.

Chidambaram is what it seemed like.

However, we must always remember that

all that glitters is not gold. On digging

deeper, it becomes apparent that this

target was achieved with the help of some

accounting gimmicks and cutting some

essential expenditure important for

economic growth in the long term. These

tricks had to be resorted to as the

government missed its gross tax collection

target by Rs. 76964 crores or about 6.2%

with the excise duty collections being the

hardest hit with a 9.1% shortfall due to

s lugg i sh pe r f o rmance by the

manufacturing sector. Also it was only able

to raise Rs. 5093.87 crores though

disinvestment till date against a target of

Rs. 40000 crores. The biggest victim of the

finance minister’s jugglery has been plan

expenditure which has been cut down by

around Rs. 79900 crores from the

budgeted estimates. Plan expenditure is

essential for economic growth as it results

in the creating of productive assets

through centrally sponsored programs and

a reduction of such a large magnitude in

this expenditure will definitely have an

impact on the GDP growth.

Some of the accounting gimmicks used by

the finance minister include forcing the

PSUs to disburse interim dividends of

around Rs. 25000 crores in total. These

dividends should have been disbursed at

the end of the financial year and thus

would have been a part of next year’s

receipts but the government forced the

PSUs to announce interim dividends after

the 3rd quarter results. Also, these

dividends were announced despite a

substantial fall in profits of the PSUs

especially those of banks with as many as

10 of the banks that have disbursed

interim dividend having witnessed a fall in

net profit in the 3rd quarter. The

government also rolled over the payment of

this year’s fuel subsidies worth Rs. 35000

crores to the next financial year.

These tricks, while having ensured that the

fiscal deficit target for this year was met,

have however made it difficult to meet the

deficit and GDP growth targets for the next

year. As a result, the threat of a ratings

downgrade has not vanished but only been

postponed till next year. However, this does

not seem to be too big a concern for the

finance minister which means that even he

believes that he won’t be around next year

to suffer the consequences.

FinNiche

FISCAL DEFICIT TARGET MET BUT

APPEARANCES CAN BE DECEPTIVE

—- By Arunav Chakraverty

February 2014

Page 4

FINANCIAL KNOWLEDGE

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 market, 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.

Though the word contango may seem

mysterious at first but it is used to

describe a pretty normal pricing

situation in futures. Contango and

normal backwardation are basically

situations in commodity market caused

by differences in the futures price and

the spot price for a given commodity.

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. It means that the

buyers are willing to pay a premium

price for a commodity in future more

than the expected actual price. The

buyers pay this premium price in order

to avoid the costs associated with

storing, transporting and insuring a

commodity. With the expiration of

futures contract, the “cost to carry” or

storage cost of the commodity increases;

therefore, 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.

FinNiche

CONTANGO AND BACKWARDATION

—- By Nupur Gupta

February 2014

Page 5

FINANCIAL KNOWLEDGE FinNiche

Market This Week

CNX Nifty and BSE Sensex both rose by 1.8% and 1.6% respectively on the back of

favorable figures at the Interim budget. Power, Banking and Capital goods sector

were evidently the winners on the back of IIP data. Riding on the stimulus initiated

by the Government, Auto shares have also outperformed the index on whole. Airtel

have also announced strategic alliance with Loop telecom which could have a

potential impact on its short term finances.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 20,709.04

Fifty Days 20,783.34

Hundred and Fifty Days 20,235.99

Two Hundred Days 20,065.47

February 2013

Page 6

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 9%

Repo Rate 8%

Reverse Repo Rate 7%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 62.13

INR / 1 Euro 85.29

INR / 100 Jap. YEN 65.55

INR / 1 Pound Sterling 103.42

Commodity Unit Rs / Unit % Change

Gold 10 grams 29855.00 -0.09%

Silver 1 Kg 47366.00 -0.25%

Crude Oil 1 bbl 6820.00 -0.48%

Base Rate 10.0%-10.5%

Savings Deposit Rate 4.0%

Term Deposit Rate 8.00%-9.10%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 6150.16

Fifty Days 6179.36

Hundred And Fifty Days 6007.16

Two Hundred Days 5983.72

Key Policy Rates and Reserve Ratios

Exchange Rates

February 2014

Page 7

Financial Knowledge

Facebook buys WhatsApp for $19

billion

Facebook Inc has brought fast-growing

mobile-messaging startup WhatsApp for

$19 billion in cash and stock that places

the world's largest social network closer

to the heart of mobile communications.

The transaction involves $4 billion in

cash, $12 billion in stock and $3 billion

in restricted stock that vests over

several years. The WhatsApp deal is

worth more than Facebook raised in its

own IPO and underscores the social

network's determination to win the

m a r k e t f o r m e s s a g i n g .

The deal provides Facebook entree to

new users, including teens who eschew

the mainstream social networks but

prefer WhatsApp and rivals, which have

exploded in size as private messaging

takes off.

How the service will pay for itself is not

yet clear. The company presently makes

money by charging a $1 annual fee,

which is not charged for the first year.

Facebook is paying $42 per user with

the deal, dwarfing its own $33 per user

cost of acquiring Instagram. By

comparison, Japanese e-commerce giant

Rakuten just bought messaging service

Viber for $3 per user, in a $900 million

deal.

India gets its 29th state: Telangana

The Lok Sabha on Tuesday approved

amid protests the contentious Bill for

the creation of Telangana after the BJP

lent its support. The Bill, approved

by voice vote in less than 90 minutes,

was passed even as the Lok Sabha TV,

curiously, went blank for the entire

duration, evoking sharp reaction from

Opposition parties. With the Rajya

Sabha now putting its seal of

approval on the Bill for creating

Telangana amid bedlam, the birth of the

29th State of the Union is just a

presidential signature away. Prime

Minister Manmohan Singh assured the

House that special status would be

given to Seemandhra for five years.

Hyderabad, will be the joint capital of

Telanagana and Seemandhra for a

maximum of 10 years.

China offers to finance 30% of India’s

infrastructure development plan

China wants to fund a big chunk of

India's infrastructure development even

though previous attempts have been

rebuffed by a government nervous about

allowing its neighbour to enter critical

areas such as telecom or power over

security worries. A Chinese working

group submitted a five-year trade and

economic planning cooperation plan to

the Indian government in the first week

of February, offering to finance as much

as 30 per cent of the $1trillion targeted

investment in infrastructure during the

12th Five-Year Plan (2012-17) to the

tune o f about $300 b i l l i on .

China has more than $3.8 trillion in

reserves — which keeps rising thanks to

trade surpluses with other countries —

that it needs to deploy effectively.

having already invested huge sums in

its own infrastructure, Beijing has been

looking further afield.

Vodafone gives new arbitration

notice; challenges right to slap Rs

20,000 crore retro tax demand

Vodafone Plc last month quietly served

notice to the Indian government seeking

international arbitration over their multi

-billion dollar tax dispute, before the

finance ministry moved a Cabinet note

for withdrawing its conciliation offer to

the UK based telecom operator. Served

at the end of January, Vodafone's notice

challenges the government's right to

slap a Rs 20,000-crore tax demand on it

FinNiche

NEWS

February 2014

Page 8

Financial Knowledge

through a retrospective amendment in

the Income-Tax Act to tax overseas

transfer assets based in the country.

The notice has been served under the

India-Netherlands Bilateral Investment

Promotion Agreement (BIPA).

Tata India's most valuable brand;

Apple on top globally

Diversified conglomerate Tata group was

declared India's most valuable brand

with a value of USD 21.1 billion, while

US-based technology giant Apple has

retained its top position globally with

about USD 105 billion. According to a

list released today of world's 500 most

valued brand, Brand Finance Global

500, Apple is followed by Samsung (USD

79 billion) at second place globally. In

the top-ten, these two are followed

by Google, Microsoft, Verizon, GE,

AT&T, Amazon, WalMart and IBM. The

number of Indian companies on the list

has declined to five from six. Other than

Tata, the global ranking of all other four

Indian companies has dropped and they

include SBI(347th), Airtel (381), Reliance

Industries (413) and Indian Oil (474).

Taking on S&P: Moody’s offers to buy

26.5% more in Icra for Rs 530 crore

Moody's Investor Services has offered to

buy 26.5 per cent more in Indian rating

firm Icra for Rs 530 crore as it competes

with bigger rival Standard & Poor's to

gain market share in a country where

the debt market is poised to boom with

the regulator paving way for new

products. Its offer price of Rs 2,000

apiece for Icra is at a premium of 25 per

cent to the market price, but is

conditional on it getting to raise its

holdings to 55 per cent from 28.5 per

cent, Moody's said in statement. "We

look forward to expanding and

deepening our collaboration with Icra as

it provides research and ratings for the

growing debt market in India as well as

other emerging markets in the region,"

said Raymond McDaniel, President and

Chief Executive Officer of Moody's.

Oil Ministry falters over price hike

nod to Reliance post FIR

Oil ministry bureaucrats are dragging

their feet over issuing orders that will

enable Reliance to charge higher prices

for natural gas from April as the anti-

corruption case against Mukesh Ambani

and minister Veerappa Moily has made

them nervous. Moily had told reporters

earlier this month that the bank

guarantee issue would be settled by

February 10, but bureaucrats are now

double checking the small point to make

sure there is no procedural lapse that

may get them into trouble in an

investigation in the future, particularly

when they don't know the new

government's stand on the issue.

AirAsia India launch: DGCA rejects

objections of other carriers; SC

refuses to interfere

AirAsia Bhd, the Malaysian airline that

plans to launch a low-cost carrier in

India sometime this year in partnership

with the Tatas, has won the first round

against its future rivals. The DGCA on

Friday rejected incumbent carriers'

objection to grant an air operator's

permit to AirAsia India, denying their

claim that the new airline would disrupt

industry "equilibrium".

FinNiche

NEWS

February 2014

FinNiche

Fun Corner

FinQuiz

1. Name the youngest chief economist at IMF, who is also a gold medallist at IIT-

D and IIM-A

2. Name the UK-trained civil engineer and London Business School grad Irish

citizen who is now heading Indian multinational conglomerate company.

3. The rate at which the bank quoting the price, will sell the base currency to its

customers?

4. LIBOR is (offer rate, bid rate, both)

5. When the intrinsic value of share is higher than the market price, then the

share is?

CARTOONS

FUN CORNER

Page 9

**Rush in your entries to : finniche.imt@gmail.com

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 : finniche.imt@gmail.com

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Volume Publisher: Rajat Kochar

February 2014

Last Week Answers

1. Put option

2. Rs. 16273

3. Citibank

4. Tarini Vaidya

5. Debit and Credit

WINNER OF LAST WEEK’s FinQuiz

Vineet Maniar