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Transcript of Finxpress december 14 2014
FINXpress
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: [email protected]
Term of Week
In Focus
Opinion
Personality
Brand World
Seigniorage | 6
Cicret Bracelet|12
Kailash Satyarthi |11
Fight of OPEC and U.S. for
market share and its impact
on other economic factors| 4
DECEMBER 14, 2014 | A FINNICHE INITIATIVE
India Russia Summit
Highlights| 2
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
Another week of hectic schedule has gone by with IMT continuing to live by its motto of
IMT never sleeps. Report submissions, presentations to be submitted in the coming week
and the winter chillness setting in and the year coming to an end, IMT is on a high to the
end the year on a positive note.
Club FinNiche releases its weekly magazine FinXpress with the In Focus talking about
the ‘India—Russia Summit Highlights’. The Opinion gives an overview of ‘Fight of
OPEC and US for market share and its impact on other economic factors’.
The term of the week describes “Seigniorage", difference between the value of money
and cost of producing it physically. Do have a look at the market section, Tech world
which brings to you about Cicret Bracelet and Personality of the week, Kailash
Sathyarthi.
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, 14 | 2014 | Volume 25
India—Russia Summit
Highlights
Fight of OPEC and US for
market share and its impact
on other economic factors
Seigniorage
Kailash Sathyarthi
Cicret Bracelet
The bilateral summit between
India and Russia takes place
every year alternatively in
Moscow and in New Delhi. The
forthcoming summit will be the
15th annual bilateral summit
between the two countries.
- By J.Sindhuja
Russian president Putin yet again delivered a
master stroke by signing 20 deals which are of
worth over $100bn ranging across sectors like
energy, oil & gas and defence. This comes at a
when time when his country’s economy is
facing severe headwinds owing to various
reasons like falling crude oil prices and severe
western sanctions imposed post Crimean
crisis. The two countries have signed total 7
inter-governmental and 13 commercial
agreements which also include the strategic
vision for cooperation for peaceful uses of
atomic energy.
Firstly amongst this plethora of deals, $40bn
worth was allocated in the nuclear energy
space and is spaced out across a span of 2
decades. Under this agreement, Russia will
help India in building a total of 12 new
nuclear reactors which would be a shot in the
arm to the government’s ambitions of
achieving energy security. However each of
these reactors are expected to cost thrice the
value of cost incurred for the Kudankulam
plants, mainly owing to the tough nuclear
liability laws adopted by the Indian
government.
Both the premiers have also signed on a pact
which involves Russia producing state of the
art helicopters in the Indian factories to
reduce cost overruns and production delays.
This is also the first major defence deal signed
under the ‘Make in India’ campaign as it
allows India to export these helicopters to
other countries.
The other key deals which were signed in
principle are mentioned as below
Agreement on training of Indian military
personnel in the Russian military
establishments. This move was aimed to
help in facilitating better understanding
among the two defence forces.
Enhancement of cooperation in Oil & Gas
sector. This envisages on the possibility
of constructing a hydrocarbons pipeline
between Russia and India, which has
long been neglected due to various
factors.
Tata group company- Tata Power has
entered into a Memorandum of
Understanding with the Russian Direct
Investment Fund (RDIF) to aggressively
pursue investment opportunities in the
energy sector within Russia.
Oil India Limited (OIL) and
Zarubezhneft have also entered into an
MOU on joint exploration of
hydrocarbons and also providing
technical assistance for the hydrocarbon
projects in India.
New protocol agreement signed between
the Ministry of External Affairs (MEA) of
both the countries which would
promulgate much closer consultations
between the two countries in 17 different
international issues.
To conclude these agreements not only
further strengthened the Indo Russian
relations but also placed them in a much
higher trajectory. Also these agreements
come in as a rude shock to the western
world just when they were beginning to
strengthen their relations with India.
- By Priti Sureka
Oil prices have been dropping sharply over
the past 6 months. In June, 2014 oil price was
$115 a barrel which now has fallen by more
than 45%. Now the oil price is below $60. In
response to this, OPEC which controls nearly
40% of the world market, had a meeting in
Vienna where it failed to come to an
agreement regarding production and supply
and ended up keeping production
unchanged.
Oil price is determined by demand and
supply and also by expectation. Presently,
demand is very low in Europe and Asia
because of weak economic activity and shift
from oil usage to other fuels. Geopolitical
risks also loom large. Situation of civil war in
Iraq and Libya is not allowing them to
produce much oil. On the other side, Saudi
Arabia has billions of reserves so it is not in
favor of sacrificing its market share so as to
restore the price. Such a drastic fall affected
the American and other Western oil
companies who undertook high-cost projects
borrowing heavily expecting high oil price.
But the situation is worst for Russia and Iran
as these countries are dependent on high oil
prices to balance their budgets. The Russian
economy was already facing weak growth
and now such jump in global oil prices is
putting an adverse pressure on the economy.
Oil revenue accounts for about 45% of the
country’s budget. And the spending of the
Russian Government has assumed oil price to
be in the range of $100 a barrel in 2015. So if
oil prices continue to fall in such a way, then
the nation has to either use its reserves or cut
back its planned spending.
After facing some years of recession, Iran’s
economy started to rebuild. The economy is
also facing trouble because of decline in oil
prices as it also expected oil price to be in the
range of $100.
Given the situation, OPEC seems to adopt a
price war strategy against oil producers in the
U.S. OPEC mainly Saudi Arabia is in favor of
reduction in oil prices so that it becomes
unprofitable for U.S. oil producers and they
leave the market. Meanwhile, in the U.S., fall
in crude oil prices may tender an economic
boost as gasoline prices will be reduced and
households will have more money to spend
elsewhere. Investment will rise and so as
capital formation in the economy,
simultaneously stimulating growth
momentum.
Saudi Arabia has billions of
reserves and it cannot sacrifice
its market share to restore the
oil price in global market.
These nations are dependent
on high oil prices to meet its
budget requirements and thus
they are adversely affected by
drastic fall in global oil price.
The drop in oil prices is having an impact on
shale extraction operations and offshore
drilling of U.S. Shale operations also
generate employment and it is doing much
better in U.S.
However, it is becoming difficult for shale
drillers to generate enough cash flows to
pay back the loan due to low oil prices.
According to a recent report by Bank of
America, 15% of U.S. shale producers are
already losing money at current oil prices.
However, Bank of America expects a
rebound in oil prices in the second half of
2015 .
Oil contributes around $1.2 trillion to U.S.
GDP and gives over 9.3 million jobs. So it is
an alarming situation for the U.S. economy.
If oil price rises, food prices will rise and it
will lead to inflation. The reverse case also
holds good. Falling oil prices results in fall
in price of food. The ultimate result is
deflation. Therefore, countries already
facing deflation issues will be extremely
troubled by inability to pay debt. On the
other side, dollar value is rising relative to
many other foreign currencies. Hence, debt
repayment is likely to be very difficult.
LNG prices decrease as oil prices. Hence,
fluctuating LNG prices affect investment in
infrastructure required to export LNG. As a
result, export of LNG has become less.
The world is reaching to the limits of debt
expansion. Lower oil prices also help
interest rate to go up. However, there is
always a limit on the borrowing amount by
individual, business or government. In such
a case, the most obvious solution is
Quantitative Easing or other strategies.
However, QE cannot be adopted just like
that. There are many pros and cons attached
to it. Firstly, it creates an asset bubble and it
also encourages investment with lowest
probability of success.
Therefore, the consistent fluctuation rather
decline in oil prices and the pricing and
production strategy of OPEC countries and
U.S. are affecting not only the concerned oil
producing countries but also other nations
who are dependent on oil and who are
heavily burdened by debt.
Seigniorage also spelled as
seignorage is the difference
between value of money and
cost of its production
Seigniorage means right of lord to mint
money. Seigniorage is the revenue made by a
government from the printing of currency. In
other words, it is the difference in the face
value of money and cost of making it
physically.
Seigniorage is the revenue derived by the
government when the cost of minting coins or
printing money is less than the market value of
the currency, while if the cost of producing
money used in circulation is more than the
intrinsic value of the money the government
loses money on seigniorage. It is the value the
government generates by adding its stamp to
an ordinary piece of paper, piece of metal or
electronic bank entry. Paper/electronic fiat
money has a higher seigniorage as the source
is not a physical metal to create it, whereas
coins have lower seigniorage because the it
costs to create coins and source metal.
In the year 1290, King Philip IV lacked
resources to fund his wars, so he began to
debase the currency by increasing seigniorage
he extracted from melting new coins. This
caused devaluation of French currency,
inflation and disappearance of gold and silver
in the kingdom. This is exactly same as
printing of money, an increased monetary base
with less intrinsic value creates inflation. This
is due to the fact that level of goods available
for sale are exactly same but more money is
available for circulation resulting in higher
inflation as these goods will be sold at higher
prices to compensate. The term also applies to
monetary seigniorage, where sovereign-issued
securities are exchanged for newly minted
bank notes by central bank, thus allowing the
sovereign to borrow without the need to
repay. However it refers to sovereign revenue
obtained through debt monetization including
expansion of money supply during GDP
growth and meeting yearly targets of inflation.
A person trades one ounce of gold for a
government issued gold certificate, and holds
the certificate for a year and then redeems it in
gold. If the person ends up with exactly one
ounce of gold, no seigniorage occurs.
If instead of issuing gold certificates, a
government converts gold into currency at the
market rate by printing currency notes and a
person exchanges one ounce of gold for its
value of currency. This person keeps the
currency for an year and then exchanges it all
for an amount of gold at the new market value.
If value of currency relative to the value of
gold has changed in the duration, the second
exchange may yield more or less than one
ounce of gold.
If the value of currency relative to gold has
decreased, then the person receives less than
one ounce of gold and seigniorage has
occurred. If the value of currency relative to
gold has increased, then the person receives
more than one ounce of gold and seigniorage
has not occurred. Assuming that the value of
one ounce of gold remains constant through
the year.
- By Mohammed Zakir Ahmed
Department of Commerce said
on Thursday retail sales rose
0.7% during November, which
was the best performance in
eight months.
With the S&P 500 hitting so
many records this year, while
many economies outside the
U.S. are growing at a sluggish
pace and China showing signs
of a slowdown, there’s been an
endless stream of warnings
that the market is overvalued.
INDIAN MARKETS
BSE benchmark Sensex extended its falling trend for the second consecutive week by
plunging 1,107.42 points due to all-round selling pressure in view of declining crude
prices and caution ahead of key macroeconomic data. The Sensex resumed almost
stable and touched a high of 28,454.85 before falling back to 27,320.05. The 50-issue
CNX Nifty of the NSE also plunged by 62.75 point, about 0.75 per cent, to end below
8,300-mark for the first time after one and half months at 8,292.90.
BSE SENSEX
CNX NIFTY
Open High Low Close
SENSEX 27,598.96 28822.37 28217.50 27,602.01
NIFTY 8,302.00 8626.95 8504.65 8,292.90
Crude oil for January
delivery CLF5, -4.10% was
trading on the New York
Mercantile Exchange for
$59.18 a barrel.
Major worry for economists,
the U.S. recovery might be
stalled by very slow growth in
Europe, and a slowing of
China’s rapid growth.
COMMODITIES
EXCHANGE RATES INTERNATIONAL MARKETS
Commodity Unit Rs / Unit % Change
Gold 10 grams 27199.00 -0.20
Silver 1 kg 38649.00 -0.04
Crude Oil 1 bbl 3636.00 -4.66
INR/ 1 USD 62.44
INR /1 EURO 77.38
INR/ 100 JAPAN YEN 52.49
INR / 1 POUND STERLING 98.15
Open High Low Close
NYSE Comp 10,690.14 10,690.14 10,500.50 10,690.14
NASDAQ 4,665.35 4,810.86 3,946.03 4,708.16
S&P 500 2,028.50 2,031.75 2,017.00 2,035.33
FTSE 100 6,461.70 6,461.70 6,297.44 6,461.70
CAC 4,197.48 4,202.52 4,103.49 4,225.86
DAX 9,794.20 9,799.65 9,586.22 9,862.53
NIKKEI 225 17,317.69 17,526.19 17,298.19 17,257.40
SSE 50 2,186.74 2,849.41 1,402.05 2,193.54
Hang Seng 23,328.99 23,445.96 23,230.03 23,312.54
Infosys Founders Including Murthy Sell Stakes for $1.1 Billion
Some of the founders like N R Narayana Murthy, Nandan Nilekani, S D Shibulal and K
Dinesh of Infosys Ltd sold shares worth $1.1 billion (Rs. 6,807 crore at 1 dollar = 61.88 rupees)
in India's second-largest IT services exporter on Monday, cashing in on a more than 20 per
cent gain in the stock since the company picked its first outsider as chief executive. Infosys
shares have so far risen 23 per cent since the company in June named Vishal Sikka, a former
executive at global software firm SAP, as its CEO in a bid to revive growth.
The four founders and members of their families sold 3.26 crore shares in Infosys at a fixed
price of Rs. 1,988.87 each, a 4 per cent discount to Friday's close, said Deutsche Bank, the sole
book runner of the sale. The four were all company executives who left before Sikka took
office. The sale reduces the combined stake of all the founders and their families to 5.1 per
cent from nearly 8 per cent, Thomson Reuters data shows. Infosys shares ended down 4.8 per
cent, while the Nifty fell 1.2 per cent.
Nifty ends below 8400, Sensex sheds 322 pts on China woes
Equity benchmarks as well as broader markets shed more than a percent on Tuesday,
tracking sharp fall in Chinese markets and further decline in crude oil prices. More profit
booking by investors also triggered sell-off in the market. The 30-share BSE Sensex closed
below the psychological 28000-level, down 322.39 points to 27797.01, continuing for the third
consecutive session today and hitting a one month low.
Globally, Asian markets closed lower with the China's Shanghai down 5.4 percent on profit
taking amid expectations of weak GDP in 2015 and liquidity fears. Hang Seng lost 2.3 percent
following slump on Wall Street last night while European markets like France's CAC,
Germany's DAX and Britain's FTSE dropped nearly one percent post Asian rout and further
fall in crude oil prices. Brent crude declined to fresh five-year low of 65.35 a barrel, before
showing a recovery to 66.46 a barrel.
Back home, all sectoral indices closed in the red. BSE Auto, Bank, Capital Goods, FMCG,
Metal and Oil & Gas indices were down 1-3 percent while the fall in Healthcare and IT
(down 0.2 percent) was less compared to other indices. Sesa Sterlite was the biggest loser on
the Sensex, down more than 5 percent on China woes. Other metals stocks like Tata Steel and
Hindalco Industries were down 3 percent each. State-run oil explorer ONGC shed over 4
percent to hit a 7-month low Rs. 351 as Macquarie lowered target price for the stock to Rs.
470 (from Rs. 500). Declining shares outnumbered advancing ones by a ratio of 2044 to 907 on
the Bombay Stock Exchange while four shares slipped for every share gaining on the
National Stock Exchange.
IDBI, which holds 16.6 percent
in the company, is leading the
stake sale talks.
Falling crude is a bigger theme
than even the change of
government at the center earli-
er this year.
Telecom Commission approves spectrum base price with riders
Inter-ministerial panel Telecom Commission has finalized the base price for spectrum to be
auctioned in February with some riders. TC held a meeting yesterday to discuss the next
round of spectrum auction including finalization of the base price. The committee of the
Department of Telecom had suggested a base price of Rs. 3,646 crore per MHz for the auction
of 800 MHz spectrum, used for offering CDMA services, which is 17 per cent higher than
what the regulator TRAI has recommended.
The price of 900 MHz and 1800 MHz as recommended by DoT committee could not be
ascertained. The TC's decision will now be placed before Telecom Minister Ravi Shankar
Prasad for final approval and after that Cabinet might be approached for certain issues. The
TC discussed the revised recommendations submitted by sectoral regulator TRAI on the
pricing of 800, 900 and 1800 MHz bands. The Telecom Regulatory Authority of India has
reiterated its recommendations for 900 and 1800 MHz bands, while it has increased the base
price by 15 per cent for 800 MHz band.
The next round of spectrum auction is proposed to be held in February and the government
is estimated to garner at least Rs. 9,355 crore from sale of radiowaves. Most of the spectrum
which is proposed to be put up for sale is being used by Airtel, Vodafone, Idea Cellular and
Reliance Communications across various parts of the country. These companies will need to
buy back radiowaves to continue their operations in areas where their licenses are expiring
in 2015-16.
CCI clears Sun Pharma-Ranbaxy deal
The Competition Commission of India (CCI) approved generic drug-maker Sun
Pharmaceutical Industries' $3.2 billion bid to buy Ranbaxy Laboratories, but ordered the
firms to divest seven products to ensure the deal doesn't harm competition. Sun Pharma
agreed to buy Ranbaxy from Japan's Daiichi Sankyo Co in April in a deal that would create
India's largest, and the world's fifth-largest maker of generic drugs.
The CCI said that it had decided that the "adverse effect of the proposed combination on
competition can be eliminated by suitable modifications", putting the companies a step closer
to completing the deal. The deal is now awaiting approvals from the U.S. Federal Trade
Commission and Indian courts.
The DoT imposed Rs.50 crore in
each telecom circle for alleged
violation of rule on both the
companies.
The S&P energy sector was
down 2.2 percent on the day. It
is down 16.5 percent this year,
the worst performing of 10 S&P
sectors.
Kailash Satyarthi (born Kailash Sharma) is a
human rights activist from India who has
been at the forefront of the global movement
to end child slavery and exploitative child
labor since 1980 when he gave up a lucrative
career as an Electrical Engineer for initiating
crusade against Child Servitude. As a
grassroots activist, he has led the rescue of
over 80000 child slaves and developed a
successful model for their education and
rehabilitation. As a worldwide campaigner,
he has been the architect of the single largest
civil society network for the most exploited
children, the Global March Against Child
Labor,which is a worldwide coalition of
NGOs, Teachers' Union and Trade Unions.
Academic Profile
He attended Government Boys Higher
Secondary School, and completed his degree
in electrical engineering at Samrat Ashok
Technological Institute, Vidisha and a post
graduate degree in high-voltage engineering.
He then joined a college in Bhopal as a
lecturer for a few years.
Work
While teaching as a professor in a college in
Bhopal, Mr. Satyarthi decided to work more
actively for social change. Along with a set of
friends, he founded Bachpan Bachao
Andolan (BBA) in 1980. BBA symbolizes the
struggle against child labour and child
servitude. The organization is also the
initiator of the first regional South Asian
people’s movement, the South Asian
Coalition on Child Servitude (SACCS), a
conglomeration of more than 750 civil society
organizations. Till date, BBA team has led to
the rescue and withdrawal of over 77,328
child bonded labourers and developed a
successful model for their education and
rehabilitation.
Satyarthi, along with Pakistani activist Malala
Yousafzai, was awarded the Nobel Peace
Prize in 2014 "for their struggle against the
suppression of children and young people
and for the right of all children to education".
Satyarthi is the fifth Nobel Prize winner for
India and only the second Indian winner of
the Nobel Peace Prize after Mother Teresa in
1979
Personal Life
He lives in New Delhi, India. His family
includes his wife, a son, daughter-in-law, and
a daughter.. He is very fond of cooking.
11th January, 1954
Samrat Ashok Technological
Institute, Vidisha
-Nobel Peace Prize 2014
-Defenders of Democracy
Award (2009-USA)
-Alfonso Comin International
Award (2008-Spain)
--Medal of the Italian
Senate (2007-Italy)
-Heroes Acting to End Modern
Day Slavey by US State
Department (2007-USA)
-Freedom Award (2006-USA)
-Friedrich Ebert Stiftung
Award (1999-Germany)
-La Hospitalet Award (1999-
Spain)
-De Gouden Wimpel
Award (1998-Netherlands)
-Robert F. Kennedy Human
Rights Award (1995-USA)
-The Aachener International
Peace Award (1994-Germany)
Paris based design company
Cicret
A bracelet that projects the
screen of your smartphone
directly onto your wrist
Currently, it is in the prototype
phase
A promotional video shared on
the company’s site has
gathered over 4 million views
on youtube
With wearables gaining edge, smartphones
and tablets are not the only mobile devices in
the present age. With the new bracelet, Cicret
is taking things up a notch by turning your
arm into a smartphone.
Cicret is in the process of raising funds for the
further development and production of the
Bracelet, but Cicret’s co-founder Guillaume
Pommier tells Gizmag that the first prototype
will be completed by the end of this year.
Features
The Cicret Bracelet consists of an
accelerometer and a vibration module, along
with an LED for notifications. WiFi and
Bluetooth are used for connectivity and there
is also a Micro USB port. As far as memory is
concerned, it is expected to be made available
in 16 GB and 32 GB models.
The device will allow users to send and
receive emails, browse the web and play
games. There will also be a provision to pair
up with an existing smartphone, answer
incoming phone calls and activate the
speakerphone functionality on the their
smartphone.
How it works
The Bracelet uses a pico projector and eight
proximity sensors that point towards the
user's forearm. It is activated with a twist of
the wrist, and when activated, it projects an
Android interface onto the users arm. The
proximity sensors detect the user's finger
movement are and allow them to interact
with the interface. It promises to provide the
same experience as with any other Android
device.
Challenges
Currently, projected touch screens lack the
responsiveness and visual clarity of glass
screens as available with the smartphones.
The bracelet would be more useful if Cicret
can improve on the technology, to make it
more competitive with the smartphones.