OCTOBER, 26 | 2014 | A FINNICHE INITIATIVE

Green Shoe Option | 6

Comprehensive Win for

BJP in Haryana &

Maharashtra |12

Christine Lagarde |11

Pace of Modi’s Reforms | 4

Samvat 2071: A Year of

Hope or Despair

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Samvat 2071: A year of

Hope or Despair

Pace of Modi’s Reforms

Green Shoe Option

Christine Lagarde

October 26 | 2014 | Volume 18

Hope you all had a wonderful Diwali and enjoyed your holidays to the fullest.

With the nearing of examinations, hope juniors maintained a perfect balance

between their festive mood and studies on the other hand. Club FinNiche would

like to take this opportunity forward to wish the entire junior batch all the best for

their upcoming examination.

With the junior batch having their exams in focus FinNiche launches yet another

edition of FinXpress with the In Focus section highlighting “Samvat 2071” which

makes a comprehensive coverage about Samvat either as an year of hope or

despair. The Opinion on the other hand gives an overview on the Pace of the

Modi’s Reforms and its progress in light of the promises made by the

Government.

The term of the week describes “Green Shoe option", as a method of protecting the

company against the oversubscription and under-subscription of shares. Do have

a look at the personality of the Week, Christine Lagarde, Managing direct of the

MF and the non- finance section highlighting the results of the recent election

revamp and its result based on Modi aura spread.

Hope everyone likes this edition of magazine. Club FinNiche welcomes any

comments, suggestions or criticism regarding the magazine. Please do write to us

and share your ideas.

Best wishes to the Junior Batch.

Happy Reading!

Regards

The Editorial Team

Club FinNiche

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

After a dismal first half of the

year, primary markets are

abuzz with action, with ten

firms filing offer documents in

last two months

The Sensex gained 5590

points, which translated to a

growth of 26.37%, in Samvat

2071

Samvat 2071: A Year of Hope or Despair

- By Aditya Agrawal

At approximately 6.30pm on 23rd October,

the markets rang in Samvat 2071, with its

symbolic Mahurat Trading session. Nearly

27,200 crore was added to the total market

capitalization of the market.

Samvat 2071 has opened up a can of questions

about the plausible market movements up

ahead. The general mood in Dalal Street

during mahurat trading had a bullish

undertone to it. This though was also mixed

with a pinch of caution.

This caution though, is not without warrant.

The global economic scenarios are not the

most positive at the moment from India’s

perspective.

The US Federal Reserve is faced with the

unique scenario, wherein after months of

continued focus towards improving the

condition of the labor markets, they face the

challenge of low inflation being heavily

entrenched into the economic genesis. The last

FOMC meeting having provided an optimistic

scenario for the United States, had brought

expectations for an aggressive increase in

interest rates. This though has weakened in

the past month. There has been an extended

period of oil prices sliding, which are

expected to remain in this phase for a

considerable time frame.

The CPI for the month of September rose

marginally by 0.1 percent, further painting a

picture of weak inflation, on account of rise in

food costs. This though is not expected to

sustain in the coming months.

This has led to expectations from certain

quarters of the Federal Reserve pushing the

interest rate hike back in its upcoming

meeting. There is also speculation about it

having renew asset buying to pump in money

into the markets.

The problems faced by the United States is

being coupled with the slowdown in the

Chinese economy. China is expected to have

its slowest growth rate in the past 24 years,

which is expected to slow down even further

in 2015. The growth for 2014 is expected to be

in the range of 7.4 percent, which is shy of the

expectations of the Chinese government. This

is expected slow down further to 7.1 percent

in the upcoming year. This slowdown has

been fuelled by the relative cool down faced

by the real estate sector and the overcapacity

of its manufacturing sector. The global

economy across all nations would be hit

Crude oil prices fell down to

$80.52, its lowest price since

June 2012, on the NYSE

Greece is expected to return to

its growth path in the third

quarter of this year, for the first

time since the crisis of 2008. It

is expected to show an annual

growth of 0.6 percent for the

year

deeply by this slowdown, due to the

substantial decrease in demand arising from

the China, impacting local production.

Emerging Asian economies would be most

hit by the Chinese slowdown. Most Asian

economies have traditionally shown erratic

exports, policy uncertainty, domestic

demands being sluggish and capital outflows

Economists in a recent survey left estimates,

for GDP growth for 2015, unchanged for

nearly nine economies. This was primarily

driven by the lackluster demand potential

exhibited by most of the trading partners of

these economies in the West. This gets

further accentuated by the high level of

investments in China, which is primarily

financed using debt. With the expected drop

in the real estate sector of China, the highly

leveraged economy would induce a further

drag on the consumer demands.

Impact of this slowdown was seen in Japan

as well. Exports for Japan rose at the fastest

level in seven months for the month of

September. This trend though, is under deep

pressure with its two biggest markets, China

and Europe, both experiencing problems in

their respective economies. There is an

unprecedented pressure on the Japanese

government to increase support through

policy changes. With a number of companies

shifting production out of Japan, the

Japanese economy shrank by an annualized

amount of 7.1 percent in the second quarter

of 2014.

Adding into the rut is the problems being

faced by Germany, which also shrank by 0.2

percent in the second quarter. This though is

again rooted to the slowdown of the Chinese

economy, among other reasons. The high

power price of Germany does nothing more

than add to these problems, with firms

staring to relocate to take advantage of lower

energy prices. A point example can be the

relocation of a BMW factory to America,

where energy prices are nearly 80 percent

lower to Germany.

India, though on the other hand is

considered as one of the bright spots out

there at the moment. This can be gauged

from the positivity of the fund managers

during the mahurat trading session, wherein

they expect a once in a lifetime rally to take

place. The positivity comes from the removal

of policy paralysis which had been a

nuisance over the past couple of years. This

positivity gets reflected in the Rs 988 crore of

FDI proposals which was approved by the

government the day following Diwali. Rise

in demand can have a no better gauge than

the jump in sales of gold by 20% during

Diwali.

Growth in India is expected to rise to its

fastest pace since the fiscal year 2010-11.

India is expected to grow at 5.5 percent this

year and at 6.4 percent in 2015. This though

is coupled with a fluctuating PMI data,

showing uncertainty in market conditions.

The market is also expected to correct by 6 to

8 percent in the medium term to factor in the

global economic stress.

This leaves open the question, whether

Samvat 2071 will show an unprecedented

growth, giving brilliant returns, or will it be

bogged down by the weak global economy

and struggle to keep up to expectations.

Since we are in the cusp of

reforms , in the long run it is

better to have a thoughtful and

permanent ones!

- S Divya Shree

Several reforms have been introduced by

Modi’s government in this current week, be it

the changes in energy policies or the labour

market. First the deregulation of diesel prices.

Second the natural gas prices hike. Another

one is to cap the cooking gas subsidy on the

domestic gas cylinders. Next is the response

given to the court’s order of coal mines

cancellation allocated to the private firms.

The deregulation of diesel prices is the

culmination of steady monthly rise of

Rs.0.50,originally started in February’13.

Taking advantage of steep decrease in oil

prices this reform seems to be a good

approach, as public is least burdened

especially in the scenario of poor income

growth. But the real challenge lies in tackling

the situation when the oil prices rise in future!

Capping of cooking gas subsidy is

implemented with a view to shield the public

balance sheet from an automatic expansion

when the prices rise. Currently the cap is put

on the subsidised cylinders, 12 per consumer

each year at a cost of Rs. 466 per cylinder.

The cap on total public resources outgo can

imply 2 things

1. To get consumers used to price

fluctuations beyond the cap

2. Re-examine the beneficiaries again to

remove a few of them who can afford the

market prices

The former may not be a better option as it

may lead to consumer discontent.

The current coal shortage problem is solved

by the government through an

announcement of a transparent coal block

allocation process, e-auction. This gives the

power and steel companies which are

dependant on coal a clarity on the supply

rather than the murky and easily corrupted

bidding process existent earlier.

It can be treated less as a reform and more as

a short term fix as it falls short of

denationalizing the coal sector which is

ultimately the solution for India’s power

shortage problem.

In the competitive Indian market, Flipkart,

Amazon and Snapdeal are constantly

engaged in an aggressive price battle to gain

customers. Just after the Flipkart raised a

fund of $1 billion, Amazon’s chief executive

announced that it would like to invest $2

billion in India’s business. Recently, Flipkart

had its big billion day sale to attract

customers and it was in response to it that

Snapdeal also lowered its prices. Although

this gave a negative publicity to many of the

companies.

India’s e-commerce market, excluding travel

services and tickets, is worth $3.1 billion and

is estimated to grow to $22 billion in five

years, according to CLSA’s November 2013.

If Snapdeal has to become a part of this

exponential growth, it will have to compete

with Flipkart’s aggressive business model,

especially in the area of exclusive brand

launches. Flipkart has managed to bag

important deals with brands like Xiaomi,

Huawei, Asus, Alcatel and most notably

Motorola for launching their devices

exclusively through its distribution

channels. This is where Flipkart has taken a

lead in brand penetration and customer

reach. Even Amazon has managed to bag a

few deals with Samsung. Thus Snapdeal

should use its fresh round of investments in

devising new strategies to establish

corporate partnerships & customer base.

The flexibility to respond quick-

ly to rising or falling demand

for the shares is a huge posi-

tive of the green shoes. For the

issuer and the corresponding

banks may have the potential

to place a maximum num-

ber of shares that may be is-

sued at the same time will act

as a risk buffer. So, in case the

demand is low the exercise of

the green shoes is waived and

the issue will still be successful

If the green shoe is connected

with the issuance of new

shares, there is an appropriate

exercise of its dilutive effect on

other shareholders, which is

often seen negatively.

Green shoe option is the provision provided in

the underwriting agreement wherein the

underwriter can issue more shares than

initially planned. Also referred as

Overallotment option, this option was named

after Green Shoe Company for which this was

first used in 1960. The Green Shoe option is a

clause in the underwriting agreement of an

IPO, which allows to sell additional shares,

usually 15%, to the public if the demand

exceeds expectations and the stock trades

above its offering price.

How Green-Shoe Option Works ?

As already mentioned above, green shoe

option works on the concept of over allotment

of shares. Let us understand it with the help of

an example. Say, for instance, a company is

planning to issue 100,000 shares but due to

high demand it actually issues 115000 shares.

Point to be noted is that company did not

actually issue extra 15000 shares. The 15000

shares that are used for overallotment are the

ones that are borrowed from the company’s

promoters with whom the stabilising agent

enters into a separate contract. For the

subscriber of the public issue, it makes no

difference whether the company is allotting

the shares from the 100000 freshly allotted

shares or from the one that are borrowed from

the promoter. To an investor, a share is just

another share.

Though for the company the situation is

completely different. The money received the

company from over-allotment of the shares

has to be kept in a separate account known as

GSO bank account.

The task of the stabilising agent starts only

after the shares are allotted and their trading

starts on stock exchange. While trading, two

possibilities could arise for the price of the

share:

In case the shares are trading at a price

lower than the offer price, the stabilizing

agent would start buying the shares from

the money that is lying in the bank

account. Hence by buying the shares from

the market while others are selling kind of

negate the falling prices and stabilizes

share prices. The share so bought are given

to the promoters from whom the shares

were bought for over-allotment.

Other case could be that the price of the

shares starts to rise. In such a case, the

stabilizing agent won’t buy the shares

from the market. Instead the company can

exercise their green shoe agreement and

issue new shares to the stabilizing agent

who will return these shares to the

promoters.

Since these options protect both company as

well as shareholders against falling price,

hence it is quite commonly used as a hedging

mechanism by the companies issuing fresh

equity. One famous example where Green-

Shoe Options were used was during Facebook

IPO release.

INDIAN MARKETS

The data released for the week how signs of slow growth in the markets world over.

The BSE SENSES n India dropped below 27000 showing signs of weak investor senti-

ment triggered by the end of quantitative easing and expectation of interest rate hike.

Amidst all this , China GDP data showed much lesser than expected rise in production

which led to gloomy outlook which various indices worldwide marking a decline in

their values. At this point in time, the volatility in the world stock markets are reaching

their heights. The time will act as the best predictor of way the markets and investors

make their move.

BSE SENSEX

GOI clears 20 FDI proposals

worth Rs. 988 crore

The Bank of England and Euro

monetary policy committee

remains against interest rate

hike

India focused hedge funds up

25% year to date.

Open High Low Close

SENSEX 26889.51 26930.23 26827.68 26851.05

NIFTY 8027.70 8031.75 8008.25 8014.55

FED is expected to hold a

stress meet with the concerned

nations on how to tackle the

rising pressure on the global

economy

Tensions persist between

OPEC nations and Saudi

Arabia over falling crude oil

prices

COMMODITIES

EXCHANGE RATES

INTERNATIONAL MARKETS

Open High Low Close

NYSE Comp 10529.28 10581.05 10496.1 10551.93

NASDAQ 4459.56 4475.02 4445.02 4463.32

S&P 500 2006.10 2006.86 1980.54 1985.54

FTSE 100 6419.15 6419.15 6374.24 6388.73

CAC 4137.92 4153.07 4119.27 4128.90

DAX 9008.6 9044.85 8956.99 8787.80

NIKKEI 225 15354.35 15377.05 15232.00 15291.64

SSE 50 2326.43 2343.08 2303.27 2331.95

Hang Seng 23311.88 23352.59 23157.48 23302.20

Commodity Unit Rs / Unit % Change

Gold 10 grams 27184 0.22

Silver 1 kg 38125 0.15

Crude Oil 1 bbl 4982 -0.88

INR/ 1 USD 61.16

INR /1 EURO 77.45

INR/ 100 JAPAN YEN 56.72

INR / 1 POUND STERLING 98.37

Fiat banks on three pillar strategy, launches Avventura

Brand Fiat has been around for decades in India. But the company has no significant

presence in the Indian automotive market, with barely 0.5 percent market share. After

its return to the country in 2012, Fiat has announced a three-pillar strategy to ramp up

Indian operations: focus on distribution, branding and products. Of the four products

promised earlier, three (new Linea, Punto Eva and Avventura) are already in the

market. The fourth, Abarth 500, will also be launched before December as a CBU.

Launched last week, the Avventura compact utility vehicle at a starting price of Rs

5.99 lakh for petrol version and at Rs 6.89 lakh for the diesel variant. On the network

front, Fiat has already built 125 exclusive dealerships across 93 cities in India after its

breakup with the Tatas. It has identified 200 commonly needed spare parts which are

now stocked at each of its dealerships. For other, the company has set up a 6,000 square

feet warehouse in Chakan (Pune) from where these are shipped to dealerships on de-

mand.

MIS for Swachh Bharat Abhiyan

Urban Development Ministry will put in place management information systems (MIS)

that will enable the Prime Minister's Office to chart the progress of various activities

across India. As per the plan, all the states and 4,041 urban habitations to be covered

under the mission should be enabled to regularly upload information regarding the

progress of work in respect of construction of household and public and community

toilets along with solid waste management and awareness generation activities. This

will also enable online submission of proposals and approvals for various projects

besides electronic submission of utilization certificates and release of funds for speedy

implementation of works. The ministry will finalize guidelines for implementation of

the Rs 67,000 crore mission in urban areas under which over 1 crore household toilets,

besides over 5 lakh public and community toilet seats, are to be constructed by 2019.

Deregulating diesel prices

The government on Saturday announced the decision to deregulate diesel prices. After

this decision the price of diesel was reduced by around Rs 3.50 per liter. This was the

first cut in the price of diesel since January 2009. In the last two financial years the total

petroleum subsidy (subsidy for diesel, cooking gas and kerosene) amounted to Rs

1,82,359.9 crore. Around half of that was for diesel. Before diesel prices were freed,

economists estimated that a $1 per barrel rise in the global price of oil would increase

India’s subsidy bill by around $1 billion a year. The decision will be tested when oil

prices rise again.

Centre has agreed to provide

a grant of Rs 500 crore towards

development of 2,500 MW

solar parks in Andhra Pra-

desh. For 500 MW grid con-

nected solar photo-voltaic pro-

jects, the cumulative

capacity offered by the bidders

is 619 MW with tariff up to

Rs. 5.99 per unit.

SKS Microfinance has complet-

ed the securitization transac-

tion of Rs. 316.25 crore. The

pool has been rated by “AA

(SO)” by a leading rating agen-

cy and qualifies for priority

sector treatment as per RBI’s

priority sector lending guide-

lines.

Apple Inc and IBM have signed

up about 50 initial corporate

clients for software solutions

and apps developed jointly

under their alliance. They

would team up to sell iPads

and iPhones with specialized

software to corporate and gov-

ernment customers.

Union Minister for Urban

Development M Venkaiah

Naidu announced that he,

along with Swarna Bharat

Trust of Nellore, would adopt

Hudhud affected villages in

Vizag, AP. The Minister also

promised to donate his one

month salary of Rs. 1 lakh as

his personal contribution for

relief and Rs. 25 lakh from his

MPLADS funds for

rehabilitation.

BJP win in Maharashtra, Haryana could mean tough time for Amazon, Flipkart

After the BJP has swept to victory in two more state elections, offline retailers are now

further emboldened that their pleas against the "excesses" of e-commerce will now be

heard. The BJP is known for its anti-FDI stance in retail trade. The small store retailers,

have been eyeing the success of e-tailers with suspicion, especially after the recent spate

of mega sales by Flipkart, Snapdeal, Amazon and eBay. Now, they want a plethora of

investigations opened againt e-tailers for daring to offer goods at unheard-of discounts.

CAIT representatives will be meeting Commerce Minister Nirmala Sitharaman and

Finance Minister Arun Jaitley this week to seek a comprehensive policy on e-commerce

in India. Sitharaman has already said allegations of anti-competitive behavior by

e-tailers will be looked into, though the CCI has not found a case for it till now.

Will Indian defense agencies trust Xiaomi ?

Chinese Smartphone maker Xiaomi is making waves in India with heavy demand for its

cheap smart phones. Earlier this week, the Indian Air Force (IAF) had accused Xiaomi

phones of possibly snooping and stealing data. What got the IAF's radar buzzing was

the fact that user data was sent to servers remotely located in China. In fact, IAF is also

believed to have alerted all its Commands and Squadrons and suggested that Indian Air

Force officers and their families should refrain from using Chinese mobile devices.

Aditya Birla Group signs health insurance JV with South Africa’s MMI

Aditya Birla Financial Services Group, said on Tuesday that it had signed an agreement

to form a health insurance joint venture with MMI Holdings (MMI) of South Africa.

The two will enter into a formal joint venture in which the foreign partner will hold a

26% stake. MMI is one of the largest insurers in South Africa. It has business in 12 other

African countries and in the UK, too. Currently the Mumbai-headquartered Aditya Birla

Group is present in the life insurance segment through a joint venture with Canada's

Sun Life. The latest entrant into the segment is Cigna TTK, a joint venture between US-

based Cigna and India's TTK Group. Apollo Munich, Max Bupa, Star Health & Allied

Insurance and Religare are the other standalone companies in the sector.

January 1, 1956

Paris West University Nanterre

La Défense (Masters)

Institut d'études politiques d'Aix

-en-Provence (Masters)

Minister of Finance, France

Minister of Agriculture, France

Minister of Commerce and

Industry, France

Chairman, Baker & McKenzie

A noted labor and antitrust lawyer, Christine

Lagarde has many firsts attached with her

name. She is the first woman ever to run a

188 country wide financial organization

where she spent much of her first three years

as the Managing Director in crisis mode.

Soon after her appointment, Lagarde's main

challenge was to try and ease the enormous

eurozone debt crisis, and in particular the

bailout required for Greece. More recently

she has been dealing with escalating tensions

between Ukraine and Russia and also

approved a $17 billion loan for the troubled

Ukraine in April 2014. Her appointment as

the Managing Director is the 11th consecutive

appointment of a European to head the IMF.

Lagard is also credited with becoming the

first female Chairman of Baker & McKenzie,

an international law firm. She was also the

first women to become the Finance Minister

of France, or any G8 economy. On November

16, 2009, Financial Times ranked her the best

Finance Minister in the Eurozone. In June

2011, she was appointed as the next MD of

the IMF for a term of five years, replacing

Dominique Strauss-Kahn. In 2014, Forbes

ranked her as the 5th most powerful woman

in the world.

As a teenager, Lagarde was member of the

French national swimming team. After

completing her baccalauréat in 1973, she went

on American Field Service scholarship. She

holds master's degrees in English, social law

and labor law from the Paris West University

Nanterre La Défense. She also obtained a

master's degree from the Institut d'études

politiques d'Aix-en-Provence.

She is an advocate for women in the

workforce, and in 2013 commissioned an IMF

report on the topic "All economies have

savings and productivity gains if women

have access to the job market. It's not just a

moral, philosophical or equal-opportunity

matter. It's also an economic cause. It's a

no-brainer." According to Kenneth Rogoff, a

former IMF chief economist, "She is

enormously impressive, politically astute and

a strong personality. At finance meetings all

over the world, she is treated practically like

a rock star."

- By Pragun Aggarwal

Mauling Congress once again, the Modi wave continued to work its magic by storming BJP to power in Haryana on its own. Maharashtra was no different where BJP notched up maximum seats in its kitty and is set to form government with support from either Shiv Sena or NCP. Riding on the Lok Sabha success, the assembly elections were seen as the first major test for Narendra Modi led BJP. In Haryana, the party managed a total turnaround from a meager 4 seats in the last elections to gaining majority on its own by winning 47 of the 90 seats. Congress, was reduced to 15 from its past tally of 40 seats. Indian National Lok Dal won on 19 seats and came second. The BJP also put up a splendid show in Maharashtra state elections, by winning 122 seats in the 288-member Assembly. It fell short

by 23 from majority figure of 145.The party won 47 in the last elections that combined with its separation from ally Shiv Sena reinforces the idea of change in ‘governance’ style which the people are voting for. Shiv Sena could muster only 63 seats followed by NCP with 41 seats. The head of the government till now, Congress, was reduced to 42 seats from its past tally of 81. Raj Thackeray led MNS was routed getting only one seat. The state assembly results are seen as a stamp

of approval on initiatives, policies and

performance of the Modi government and

drives home the claims of Modi supporters

that the Modi wave was far from over yet.

With Congress not been able to qualify for

even the post of Leader of Opposition in both

the states, these electoral victories are coined as

“two more steps towards Congress-free India”