December 22, 2013

Volume 22

An eventful final placement week at IMT passed with whopping number of students getting placed in the week. With the efforts of Placement Committee members and hard work by IMT students, the placement week ended on a positive note with top companies from various sectors like automobile, investment banking, IT, pharmaceutical, retailing etc offering reputed profiles to IMT students. IMT’s flag is held high by stu-dents who have received Pre Placement Offers and successfully con-verted Pre Placement Interviews. Campus is still abuzz with placement related activities since a lot of esteemed recruiters are expected to visit the campus in coming days. Club FinNiche wishes heartiest congratulations to all those who have been placed and wishes good luck to those whose right company is yet to visit the campus. In this edition of FinXpress, we have the Opinion section on “Independent Directors” and In Focus section on “US FED Tapering”. Do look over the ‘News of the Week’ section for further noteworthy news. The ‘Market of the Week’ covers the latest trends in the market this preceding week. We hope you enjoy the various articles in this edition of FinXpress. We look forward to your comments, acknowledgements and your criticisms regarding our online magazine. Do let us know if you want to have any additional section(s) in our special editions of Finxpress.

Happy Reading!!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 22

Dec 22, 2013

FinXpress

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

FinNiche

December 2013 Page 1

CONTENTS

From The Editorial

In focus: US FED Tapering

Opinion: Independent Direc-

tors

Term of the Week: Bitcoin

Market This Week

News

Fun Corner

Page 2

In Focus

The US central bank on Wednesday said it will reduce its $85 billion a month in bond purchases by $10 billion starting in January 2014. For a change, markets rallied after the Fed announcement and the Dow Jones Average ended at a record high, registering its best day in two months.

Here are 10 things that you should know about Fed tapering: 1. The Fed has decided to reduce the

quantum of bond buying per month from the next year. So, it would reduce its monthly asset purchases by $10 billion to total $75 billion

2. Though the Fed will cut back on

bond purchases, it plans to hold its key short-term rate near zero at least until unemployment falls below 6.5 per cent. Fed's outlook on rates was interpreted as more dovish than expected leading to a rally in stock markets.

3. The immediate trigger for the Fed's

decision to taper its massive bond buying was a recovery in the US job market, Bernanke said. The Fed predicts the unemployment rate in the US will dip as low as 6.3 per cent next year and 5.8 per cent in 2015. It's now at a five-year low of 7 per cent

4. The bond buying, also known as the

quantitative easing program, or QE, was launched 15 months ago to kick-start hiring and growth in the US economy, which was recovering slowly from the Great Recession. The Fed's first QE program was launched in the midst of the 2008 financial crisis

5. The QE helped keep long-term

interest rates low to encourage

more borrowing and spending in the US. Wednesday's decision signals better prospects for the US economy and labour market. The Fed estimates that economic growth will be between 2.8 per cent and 3.2 per cent next year as against 2 per cent in 2013

6. Bernanke blamed the slow recovery

in the US economy to extensive damage from the housing bust and tight budgets at all levels of government. He also blamed the anaemic pace of the recovery on "some bad luck", saying Europe's debt troubles slowed the global economy at a critical time

7. The asset purchases by the Fed

have stoked anxiety that they could unleash inflation or fuel hard-to-detect asset price bubbles. Even some within the Fed have worried the bond purchases could have unintended and economic costly effects

8. The unprecedented money-printing

has helped drive stock markets in the US and many other countries to record highs and sparked sharp gyrations in foreign currencies, including a drop in emerging markets this year as investors anticipated an end to the easing

9. The Fed policy meeting was the

penultimate one of Bernanke's tenure. His second four-year term as chairman of the central bank expires on January 31, just two days after the close of the Fed's first policy meeting of 2014

10. Janet Yellen, the Fed's vice chair is

positioned to succeed Bernake and is supporting the bond purchases

FinNiche

US FED Tapering

By Ashish Agarwal

December 2013

Page 3

Opinion

The Code of Corporate Governance ("Code") AT Principle 2 recommends that there should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. The Code further provides that the independent directors should make up at least one-third of the Board. Independent directors are those who are neither members of the family, employees of the company, advisors, customers or suppliers. The new Companies Act has many additional provisions regarding independent directors. The million Dollar question however is, are the independent directors actually independent or is term independent director itself an oxymoron? Many critics of corporate governance argue that you can either be a director or independent, but not both. In the recent months of government scandals, the importance of independence

has become even more evident. The role of independent director, in part, is to act as a watchdog on the promoters and the management of the company and protect minority shareholders' interests. Having a majority of independent directors allows outside directors to feel they have support in raising contrary points of view. Otherwise it may be difficult for a single

outside director to raise an issue that may be sensitive to the family or founder. The appointment of an independent director differs in the private and the public sector. In the private sector, one has to be trusted and well known by the promoter group to be invited to join the board as an independent director. In public sector companies however, where government is the promoter, the appointments are made not by the minister in charge of the PSU and not the chairman. This leads to lots of bureaucracy and nepotism. A lot of influence and "sifarish" are required to become an independent director in a PSU. How can these people be expected to be really independent? It is like getting invited to dinner at a friend's house, and then being critical of the food served. Another major challenge for independent directors is the asymmetry of information. Promoters and managements have far more information and knowledge regarding the affairs of a company and more resources at their disposal compared to independent directors. The promoters and managements also have more financial stake in decisions and, therefore, protect their interests vigorously. These make the job of an independent director very difficult, but not impossible. Within a general climate of

graft, is it fair to hold the corporate sector to higher governance standards? Further, is a director who is also himself a substantial shareholder, but not a majority shareholder, of the company to be considered independent? Will this not give rise to a principle-agent problem where the director works towards improvement of his own wealth rather than wealth of shareholders.

FinNiche

The Independence of Independent Directors —— By Mukul Gupta

December 2013

Page 4

TERM OF WEEK

Bitcoin is a unique combination of symbols generated by a computer network and controlled by nobody. A study projects that it may end up powering 10% of the global e-commerce and a possibility of becoming one of the three popular means of money transfer. Taking cue from this already diversified business accepts it and even potential drug deals are concluded on its basis. Bitcoin runs off an open source peer to peer network which is an open source and supply is governed by mathematical rules. The process of earning these is called mining, where the users solve various cryptographic problems over these networks. Each coin has a unique encrypted id and stored in an electronic wallet which also have a unique id, In case of theft of wallet data coins are also lost. This feature of it avoids the double spend problem of any unregulated currency. To expedite upon this one cannot claim to have possession of money more than the actual money. This encryption and signature system allows two people to conduct a transaction where Bitcoin will be placed in a third party’s account whose identity is not revealed. Blockchain is considered to be the heart of Bitcoin as it checks each and every transaction carried out across the world and eliminates any possible duplicates. This system is considered to be so fool proof that to carry out a fraudulent practise we need to compromise over half the computers of p2p network. In spite of this trading on Bitcoin network has picked so fast that verifying each

transaction and carry out a currency exchange requires 48 hrs. Moving ahead, we need to understand that Bitcoin is a double edged sword and should be considered to be brought under regulation in the near future. The reason is it cannot be easily taxed and a possibility of even using it for illicit purpose. Besides this implementation of a better Blockchain management systems will ensure a sustainable future for this alternative currency. Currently it is traded at $1,100 with a money supply constraint of 21 million coins. Similar to its peer it is also subjected intense value fluctuations and people invest in speculating higher returns. Bitcoin payment processing is also on rise given the fact that the fees charged is substantially lower than credit cards.

FinNiche

BITCOIN-DEMYSTIFIED

—- By V.V.Raviteja

December 2013

Page 5

FINANCIAL KNOWLEDGE

Credit policy review: RBI keeps repo rate unchanged at 7.75% Reserve Bank of India governor Raghuram Rajan took the market completely by surprise on Wednesday, keeping the repo rate unchanged in the face of overwhelming expectations of an increase citing the tenuous state of the

economy and hopes that food prices may be declining. India is struggling with sluggish economic growth, which dropped to a decade-low 5% in the year to March. Growth was 4.4% in the first quarter and 4.8% in the second and getting the FY14 figure back up to last year's levels or past that will need a much stronger showing in the second half, something that both f inance minis te r P Chidambaram and Rajan expect. Rajan reiterated this hope on Wednesday. SEBI soon to make IPO grading voluntary Seven years after introducing the concept of grading Initial Public Offering (IPO), SEBI has decided to soon make this concept voluntary because IPO grading hasn’t helped in the efficient

price discovery in the past. “There is a unanimous view now that IPO grading should not be compulsory. We will consider that... we are likely to take it up in one week or 10 days,” said Securities and Exchange Board of India (Sebi) chairman UK Sinha at a seminar on investment banking. US GDP grew 4.1% in Third quarter, more than previously estimated According to the recent data released by Bureau of Economic Affairs, real gross domestic product — output produced in the United States — actually grew at a rate of 4.1% in the third quarter, up from BEA’s previous estimate of a 3.6% growth rate. The final results are also a gain over the second quarter’s 2.5% GDP growth. The BEA said the increase reflect

investments in inventory by the private sector, as well as gains in fixed investments, exports and non-federal government spending. The rate was negatively impacted by lower federal government spending and an increase in imports.

Petrol price hiked by 50 paise, diesel by 11 paise In the wake of increasing international prices of gasoline and spike in dealer’s commission, the petrol price has been increased by 50 paise and the diesel by 11 paise. The new rates are effective from Saturday. This unprecedented move came in light due to dealer asking a hike in commission on petrol and diesel by 48 paise/litre and 0.32 paisa/litre respectively. The revised cost of diesel from Friday midnight in Delhi would be Rs.53.76 per litre and Rs. 60.79 per litre in Mumbai. RBI outlines action plan to tackle NPAs RBI has proposed stringent norms to deal with the problem of rising NPAs

across banking sector. Guidelines include: Banks to classify accounts into

Special Mention Accounts (SMAs) if the payment is overdue for a month (This won’t attract additional provisioning).

RBI will set up a central repository of information on all loans of more than INR 5 crore value and make this available to all lenders.

NBFCs will be allowed to sell their bad loans, these entities, along with private equity firms, are now also allowed to participate in the NPA auction process.

NPA continues to be the biggest concern that public sector banks are facing today and the steps gives a clear signal that RBI is determined to recover this money

FinNiche

NEWS

December 2013

Page 6

FINANCIAL KNOWLEDGE FinNiche

Market This Week

The third week of December was one where the Sensex rose 1.76 percent, or 365.46

points, from 20,714.26 to end at 21,079.72. The broader Nifty rose 1.72 percent, or

105.90 points, to end at 6,274.25. The biggest news this week was the QE tapering

announced by the Fed, which decreased the bond purchases to $75 billion. This didn’t

have a huge impact on the Indian market, due to its better preparedness as pointed out

by the RBI. The rupee also managed to change its path of losses on account of strong

foreign fund flows. Overall the investors were positive towards the market, on account

of its positive reactions to the news of QE tapering.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

December 2013

Thirty Days 20,711.54

Fifty Days 20,747.27

Hundred Days 19,856.44

Two Hundred Days 19,692.71

Page 7

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 8.75%

Repo Rate 7.75%

Reverse Repo Rate 6.75%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 61.98

INR / 1 Euro 84.75

INR / 100 Jap. YEN 59.57

INR / 1 Pound Sterling 101.25

Commodity Unit Rs / Unit % Change

Gold 10 grams 28554 0.74

Silver 1 Kg 44007 0.41

Crude Oil 1 bbl 6192 0.82

Base Rate 10.00%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 8.0%-9.05%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 6157.87

Fifty Days 6166.77

Hundred Days 5922.68

Two Hundred Days 5895.56

Key Policy Rates and Reserve Ratios

Exchange Rates

December 2013

FinNiche

Fun Corner

FinQuiz

1. _________ is widely used by the borrowers to ascertain firm's debt capacity and

also enable them to determine the bond rating.

2. A company in a 30% tax bracket has return on assets (ROA) equal to 16% and

asset turnover ratio equal to 2, the firm's operating profit margin is ——————

3. Economic value added is a measure of the dollar value of a firm's return in ex-

cess of its __________ cost.

4. __________ earnings is defined as the real flow of cash that a firm could pay out

without impairing its productive capacity.

5. A company has a price-earnings (P/E) ratio of 20 and return on equity (ROE) of

15%, the firm's market-to-book-value ratio is __________

CARTOONS

FUN CORNER

Page 8

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Volume:22 Publisher: Priyam Khattar

December 2013

Last Week Answers

1. Call Money Market

2. $7,410

3. Written Down Value Method

4. Agency Cost

5. Cross Over Rate