Finxpress december 7 2014
-
Upload
finniche-imtg -
Category
Documents
-
view
217 -
download
1
description
Transcript of Finxpress december 7 2014
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
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.