The Winding Road

to Recovery Pg. 5

India gearing up for a strong

Bull Market Pg. 7

Structured Thinking and

Investments Pg. 9

Inflation Indexed

Bonds Pg. 1

Prof. Suresha B

Assistant Professor

Department of Management Studies

How Right will Modi Tread

Pg. 3

A Sale in Distress Pg. 10

Rupee says ‘I am stronger’ Pg. 12

Brazil’s World Cup Paradox Pg. 13

Headline Inflation in India Pg. 15

Arthavikas Pg. 16

The ‘M’ factor Pg. 17

Poll 2014 After Effects: understanding BSE SENSEX 25000 mark Pg. 19

World Economy is hit by ‘Lost Gener-ations' Pg. 21

Dealing with the Wild Cards Pg. 22

Impact on the financial system due to a political trigger Pg. 24

A Win That Supersedes Money Pg. 25

The Oil World Pg. 26

Contents

1

Inflation risk is a major concern for Indian investors.

Investors can reduce their exposure to inflation risk

using a variety of methods. Gold for long has been

used as a hedge against inflation. Till recently, gold has

produced some good returns for the Indian investors.

Apart from gold, investors have also the option of

investing in real estate and stock market. However,

owing to volatility in the prices, investment in gold will

not offer any capital protection. Inflation indexed

bonds offer capital protection and can also be used as

a hedge against inflation rates.

In United States there are different forms of inflation

hedge instruments. The popular instrument is

Treasury Inflation Protected Securities (TIPS) that are

adjusted for inflation based on the official CPI figures.

Similarly, inflation-protected government bonds in

Europe have also drawn the attention of some

investors. Notably, these inflation-adjusted securities

can also serve as an indicator of confidence in a

government. For instance, investors concerned about

the negative implications of inflationary policies may

opt to purchase inflation-protected securities in lieu of

non-protected securities, which would create a

growing spread between the two over time - a clear

warning sign.

In the year 1997 for the first time government of India

issued capital indexed bonds to enable investors to

protect their investment from inflation risk. This was

short lived and lacked market participation. This bond

provided inflation protection only for the principal and

not for Interest. The recently announced inflation

indexed bonds, is an enhanced version of capital

indexed bonds. Inflation indexed bonds provide

inflation protection for interest payments as well, but

were not well received due to its complex structure.

Theoretically, inflation indexed bonds could indicate

the willingness of the government to maintain optimal

Inflation numbers. In this the invested principal is

adjusted as per the prevailing WPI (There is a proposal

to use CPI as benchmark) rates and a fixed interest

rate is paid on the adjusted principal.

Inflation Indexed Bonds

Is it a better investment tool to hedge

Prof. Suresha B

Assistant Professor Department of Management Studies

Christ University

Consider the following example, in which the initial investment (in 2004-05) is Rs. 25,000, historic WPI data

is from 2004-2005 (taken as 100) and the coupon rate is assumed at 8 per cent.

2

However, currently inflation indexed bonds are

linked to WPI. Instead of WPI, the consumer price

index (CPI) stands as a better representative of the

purchase power of individuals. As per the latest

data, WPI is at 4.89 per cent whereas CPI is at 9.39

per cent. The differential between these two

measures of inflation is substantial. From the retail

investor's perspective, linking the interest with CPI is

more beneficial compared to linking it in WPI. Linking

the interest rate with CPI will give the necessary

advantage for both investors and the regulators.

It may be concluded that the bond

investments are not risk free. The indexed bonds

protect the investments principal and interest from

the inflation risk and maintains the time value of

money throughout the tenure of holding. Short

coming of the inflation indexed bond is that it is

based on the whole sale price index which is

unrealistic as it is not true representative of the real

inflation. Instead of WPI, the consumer price index

(CPI) stands as a better representative of the

purchase power of individuals. Therefore, in the

coming years for the success of such instruments

it is essential to base the returns calculation on

consumer price index.

Table – 1 Table Showing adjusted principal and interest for Inflation Indexed Bonds

Year WPI Adjusted principal

Coupon rate Interest paid

2005-06 104.47 26,118 8% 2089.4

2006-07 111.35 27,838 8% 2227

2007-08 116.63 29,158 8% 2332.6

2009-10 126.02 31,505 8% 2520.4

2009-10 130.81 32,703 8% 2616.2

2010-11 143.32 35,830 8% 2866.4

2011-12 156.13 39,033 8% 3122.6

2012-13 167.6 41,900 8% 3352

References

A study by Indian Institute of Management, Calcutta (IIMC).(2011). The Development of Bond market in India. Retrieved from

http://www.docstoc.com/docs/19475216/The-Development-of-Bond-market-in-India

ADB report on development of securities market in India: Asia Bond Monitor. (March 2011). Afraid of inflation? Inflation-

indexed bonds may bring respite. (2011, January 10). The Economic Times.

Coleman, T. S., Fisher, L. and Ibbotson, R. G. (1993) ‘ANote on Interest Rate Volatility’, The Journal of Fixed Income, 3, 97–

101.

Collection of data for the Wholesale Price Index in India. (2011, April 10). Office of the Ministry of Commerce and Industry.

Retrieved from http://eaindustry.nic.in/wpi_data_display/display_data.asp.

Dialynas, C. P. and Edington, D. H. (1992) ‘Bond Yield Spreads: A Postmodern View’, The Journal of Portfolio Management, 19,

68–75.

Dunetz, M. L. and Mahoney, J. M. (1988) ‘Using Durationand Convexity in the Analysis of Callable Bonds’, Financial Analysts

Journal, 44, 53–73.

Fabozzi, F. J., Pitts, M. and Dattatreya, R. E. (1997) ‘Price Volatility Characteristics of Fixed-Income Securities’, in Fabozzi, F. J.

(ed.), The Handbook of Fixed-Income Securities,5th edn, Irwin Professional Publishing, Chicago, IL.

Steward, C. B., Lynch, J. H. and Fabozzi, F. J. (2004)‘International Bond Portfolio Management’, in Fabozzi, F. J. (ed.), Fixed

Income Readings for the Chartered Financial Analysts Program, 2nd edn, Frank J. Fabozzi Associates, New Hope, PA.

3

How Right will Modi Tread.

Samuel Vincy Mathew

III MFM

India’s historical preference for socialism as one of the

core values in the moulding and construction of an

economy might be on the line in the next few years as

Modi begins a reign which promises a lot in terms of

reforms among a lot of other things.

Socialism, as defined by Oxford Dictionary is, “A

political and economic theory of social

organization which advocates that, the means of

production, distribution, and exchange should be

owned or regulated by the community as a whole”.

Although India had, substantially, done away with

socialism as its core ideology, with the

introduction of the New Economic Policy in 1991,

gigantic Government-owned Institutions such as LIC,

Coal India Ltd, Indian Oil Corporation and IFCI Ltd,

among others, have remained substantially,

Government-owned, as a testament to India’s

historically held commitment of the ideology.

The continued ownership stake in these Enterprises

should not be misunderstood as being due to the

existence of any significant strategic issues for the

Nation barring exceptional cases such as Air India,

ONGC and IOC. There is a significant amount of

patronage to be gained from these economic

behemoths, a fact which has not escaped the notice of

politicians and bureaucrats. High positions in the

hierarchies of these organizations are reserved, as in

the case of other Government Ministries, for the

favourites of the concerned Ministers. These Ministers

will in turn, respond by playing to their whims and

fancies and also, possibly, (in a not-so-wild imagination)

by turning a blind eye towards their misdeeds.

Another sticky, and even bigger problem, is the

existence of a high degree of trade union activity which

again is a legacy of the socialist heritage. Although

conceived with the very noblest of ideals in mind, trade

unions have proven to be very significant obstacles in

the search for economic prosperity for any PSU. By

taking advantage of the strength which lies in their

numbers, these Unions have ‘lobbied’, often very

successfully, in obtaining an inordinate amount of

benefits for its Members often with the complicity of

Politicians. Consequently, these Enterprises have

become odes to inefficiency and privatization has been

opposed tooth and nail by these same forces as it will,

inevitably, be accompanied by the relative

discomfort and uncertainties of the real global market

conditions.

It is in this context that the current ruling

dispensation seeks to implement those reforms which

4

were promised by it. The extent to which it is willing to

go remains to be seen. It can either continue to hold

the ownership stakes and put the organizations under

Professional Management as opposed to the current

system where IAS Officers are kept at the helm. Or it

can go the whole way and completely privatize all

these Institutions. Although these two options are not

the only ones available to the decision maker, these

encompass the broad range of options available to the

concerned person. The former route has already been

tried and has failed spectacularly at Air India in the

case of Jitender Bhargava and the blame for the same

should not be blamed on Him. The latter option

requires the summoning of the kind of political

scenario which is rarely found in India these days and

requires a process which promises to be steeped in

politics.

Regardless of the chosen route, this decision will play a

significant role in shaping the opinion the corporate

sector has about the performance of the Modi

Government at the end of the current political cycle.

5

The Winding Road to Recovery

Natasha Chaudhary

III MFM

Among all the cheer and adulation for the new

government at the center, one must consider the road

ahead for India, and whether such joy is warranted

or not. Even though, the government has signaled that

it will ease investment norms, discourage

retrospective taxation, deal in an integrated manner

with power production and coal supply, fast-track

some key

infrastructure and

mining projects,

expedite sales-

tax reform, and

support Raghuram

Rajan’s fight against

inflation, pledges to

maintain fiscal and

monetary discipline

will be difficult to

achieve as the cost

of capital will

remain high and a

major turnaround in the banking system will take time.

A key question then is how the economic cycle will

turn in favor of investment and growth. Prime

Minister Modi may improve the running of

government and clear the logjam of stalled projects,

but that may not be enough to get the ball rolling for

India’s economy. India is short of liquidity at this

juncture, meaning the cost and availability of project

financing will remain an issue.

Currently, with annual growth rate hovering below

5%, Asia's third-largest economy has been weighed

down by high inflation, a weak currency and a drop in

foreign investment.

A slowdown in

mining and

manufacturing

has not helped

matters. But,

judging from a

slightly longer

point of view, the

economy has

been doing quite

well from 1994,

very well from

2003, and especially so from 2005. India has lived

through stretches of slow growth and we are currently

going through such a period. However, recovery is in

sight as the country having a high potential growth,

will need a governance overhaul, which might

happen.

As per Mr. Kaushik Basu, Chief Economist of the World

Courtesy: www.capoliticalreview.com

6

Shefali Mehta

III MFM

Bank, there are two basic challenges for India. One is

the poor governance where due to slow decision

making, the bureaucracy is extremely cumbersome.

This has been the legacy of the last 60 years.The other

is poor infrastructure. India needs to improve

its infrastructure in the next five to ten years. By

improving governance and infrastructure, the

prospects will be immense.

It is not a totally gloomy scenario for India as the

country also has a good many strengths, one being its

high, technical and engineering skills. The reason

for its high intellectual resource is the fact that for a

poor, emerging economy, after Independence,

India invested disproportionately in higher education,

even though it did very poorly in terms of basic

literacy. This is demonstrated by a large Indian

presence in Silicon Valley in the US. The other

strength is labour. With modern technology, the

global labour market is gradually becoming a common

pool and this is changing the structure of the global

economy. It is possible for workers en masse to be

working for Japanese, American and European

companies sitting in India itself which was not

possible earlier. Labour is India's big potential

strength but it needs to be properly utilized. There is

a huge surplus of labour in agriculture, accounting for

50% of the workforce whereas agriculture itself

accounts for 14% of the GDP. India has a huge

potential if there were a vent for such a workforce to

join the global talent pool.

India can once again achieve its growth rate of 8%

which existed between 2003 and 2011. Policy makers

must pursue either domestic adjustments or external

flows to fund an investment recovery for the country,

which will carry with it certain complications and

delays. The government can surely control interest

rates and check the fiscal deficit to ensure a

higherlevel of growth. Such optimism is justified. The

current growth rate of 4.5% to 5% is alarming but a

turnaround is doable under the current government.

7

Shefali Mehta

III MFM

India gearing up for a strong Bull

Market Shefali Mehta

III MFM

8

India is at the initiation of a strong market over the

next few years following a strong mandate for a

Narendra Modi-led government, top brokers and fund

managers.

According to a survey, the Sensex is set to touch

28,000 and the rupee will become stable at 57-58 to

the dollar by the end of the year. Some are also

anticipating the Sensex surging by about 10,000 points

more in two years. India voted for development and

reforms, and the new government will push through

policy changes to revitalize augmentation, which in

turn will elicit a strong bull rally in Indian equities. The

decisive and crucial mandate by the people of India has

paved the way for a favorable policy environment,

leading to the resurrection of growth in the economy

over the next few years. About 50% of the people

expect the Sensex to touch 28,000 by December while

15% feel the benchmark will hit 30,000. About 27% of

the poll's participants expect the rupee to strengthen

to 57-58 against the dollar whereas 18% expect it at 56

-57. The inward bound government may prefer a

stronger rupee and RBI too may decide to discontinue

the forex market intercession. While 58% advised

buying quality infrastructure stocks, 50% preferred

state-owned banks. Energy, capital goods and metals

are the other sectors strongly recommended and

preferred by the poll participants and they have

advised an exit from FMCG, IT, pharmaceutical and

realty.

L&T, Axis Bank, ICICI Bank, M&M, Maruti, ONGC, RIL,

Tata Motors and LIC housing are the top picks of a

majority of fund managers and brokers. Consumer-

price inflation, one of the biggest worries of the central

bank would be at 8% in 2014-2015. As for growth, 47%

of those polled expect India to expand 5.5-6.5% in the

current fiscal in line with expectations, despite the

change of guard at the Centre as the challenges to the

economy. The revival should be gradual rather than

sharp. The highest-ever computation in the Lok Sabha

elections has facilitated BJP secure a majority on its

own, hence elevating hopes of big-bang reforms to

revive and restore the economy.

9

Innovation in the financial markets is currently the

need of the hour. With the increasing retail and

institutional participation in the capital market, new

financial instruments are being introduced to satisfy

the needs of these classes of investors. Structured

investments are the result of the increasing investors’

needs and innovation.

Structured investments or products are pre-packaged

investment strategies which are based on underlying

assets such as equities, interest rates, currencies,

commodities, options etc. It is a market linked product

which features a balance between the risk and return

of the investment. In India the major attractive feature

of the product is the ‘principal protection’. This assures

the investor, the return of his principal investment.

Along with the protection of the investment, these

products try to give a market linked return.

Structured products originally became popular in

Europe and have gained currency in the U.S., where

they are frequently offered as SEC-registered products,

which means they are accessible to retail investors in

the same way as stocks, bonds, exchange traded

funds (ETFs) and mutual funds. These investments

provide an exposure which is helpful to complement

the tradition components of diversified portfolios.

In India, the structured products are issued as

debentures with an option appended. Nifty linked

debentures are a popular example of a structured

product in India. They are usually issued in the form of

NCD’s (Non-Convertible Debentures). There can be

even tailor made structured products developed to

meet the want of customers which depends on the

market conditions. These are usually products offered

to High Net Worth individuals due to its complexity

and large lot size of Rs. 10 lakh upwards.

Structures products are the easiest and safest way to

invest in the equity market. Though the complexities

of these products have kept them away from the retail

investors, they provide the benefits of derivatives

which would not otherwise be available. Inclusion of

structured products in the portfolio would help to

balance the risk and return of traditional portfolio

management.

Structured Thinking,

Structured Investments Neethi D’Cunha

III MFM

Courtesy: www.tradeandexportme.com

10

A Sale in Distress

Preethi Lakshmy K

III MFM

For Raghuram Rajan, one of the top priorities after

taking over as the governor of RBI was to ensure the

lowering of non - performing assets of banks.

Distressed assets have increased significantly over the

past few years, partly because of a slowing economy

and poor demand, and also inappropriate investment

decisions by companies. Public sector banks lead the

accretion of bad and doubtful assets. According to Fitch

ratings and others, the worst is still not over and the

asset quality of banks could deteriorate further,

Stressed assets, that include non- performing loans and

restructured loans, could raise to 15 per cent of the

total loans by March 2015 as against about 10 per cent

as of March 2013. The stressed assets would eat into

the capital of banks and public sector banks could need

as much as Rs. 380000 crore of new equity by 2019 to

meet the Basel III requirements. Sectors including

infrastructure, power, iron & steel and textile led the

NPA’s because of delay in projects due to politics,

supply bottleneck and economic slowdown. The three

accounted for almost half the NPA’s as of 2013,

compared with 28 per cent as of March 2011, Retail

loans had a better quality of assets with gross NPA’s of

2.5 per cent. The SBI planned to sell as much as Rs 4000

Sale of stressed assets rose five times as banks focus on cutting bad debts and improve their financial

Courtesy: www.capstonepioneer.com

11

Crores of NPA in the financial year that just ended. The

nation’s biggest bank said that non-performing loans

rose to Rs 67799 crore in the quarter ended 31

December 2013, and reported 5.73 % increase during

the quarter.

New Guidelines

“Banks are using a mix of all possible options, including

early identification of potential non-performing assets,

sale of riskier assets, and restructuring of loans, and

sale to assets reconstruction companies or special

situation funds” says Nikhil shah, senior director,

Alvarez and Marshal India. In the year ended 31 March

2014, collectively banks may have sold Rs 50000 crore

worth of assets to reduce NPAs compared with Rs 8000

- 9000 crore a year earlier. And in the year March 2015,

such sales could easily exceed sales of the fiscal just

ended”. Banks have been aggressively trying to redress

the problem, says shah. RBI new guidelines are

designed to help incentivise early identification of the

problem account, timely restructuring of those

accounts that can be revived and helping lenders to

take prompt steps for recovery or sale of unviable

accounts. The RBI too is helping out by collecting

industry- wide data at its central repository of

information on large credits. The CRILC will monitor

data on credit information on all borrower having

aggregate fund–based and Non-fund based exposure of

Rs 5 crore and above with them and the so called

special mention accounts. Also, to tide over the

problem of differences with ARCs in valuing distressed

assets, the RBI has come up with a committee to value

assets before sale to ARCs. Incase of NPAs, banks can

now spread their losses over two years instead of one

year as was the case in the past. The RBI plans to come

down hard on banks that are parts of a consortium but

are seen to be taking inordinately long to decide on

NPAs. Non- cooperative borrowers too would be dealt

with sternly. Even as a measure is being set up to curb

NPAs speedily, it is going to be a long hull for all

concerned.

12

Rupee says

‘I am stronger’

Anju Anand

III MFM

Just after the debacle of steady depreciation of the Indi-

an Rupee against the mighty dollar, it was time for the

rupee to surge to an 11 month high. 16th May 2014

marked a new phase of Indian democracy, econ-

omy and politics with euphoria palpable for welcom-

ing India’s 15th Prime Minister Mr. Narendra Modi. Not

only did the Stock market rejoice with the mandate, so

did the Rupee.

As the news of the verdict created a wave of positiv-

ity in the country, the capital inflows gushed into the

Indian economy with a common

expectation of a stable Government with ample growth

under the leadership of Mr. Modi. This had a rippling

positive effect on the Stock Market as well as the

Forex Market with the rupee sprinting 3-5% as com-

pared to its Asia-Pacific peers. Not alone did the rupee

rise against the dollar, it also rose 3.75% against the

New Zealand dollar, 3.5% against the Australian dol-

lar and between 2-3% against the Yen (Japan), Won

(South Korea) and Ringgit (Malaysia). The epic day

showed our Forex reserves stand at a whopping

$314.92 billion. Having this said, the Reserve Bank of

India with its stringent cash flow policies also helped

rupee’s tedious climb.

The two pillars of a strong economy are the

Regulating Bank and a strong and stable Govern-

ment. Thus the political situation has an enormous im-

pact on the dynamics of the stock

market and the currency market. Positive

expectations not only boost the confidence of people

in the governance but it also pools in the trust of people

around the world contributing to the additional foreign

inflow.

The expectations have catapulted, and so has the ru-

pee. It’s now only a patient ‘wait and watch’ to see if

this infant Government will sustain the momentum

of the appreciation of the rupee with its favorable eco-

nomic policies.

13

Brazil’s World Cup Paradox

Sricharan Dhondaley

III MFM

Brazil is hosting the world's two biggest sporting

events: the World Cup of football which started

recently, and the summer Olympic Games in 2016.

Brazil might feel a moment of bliss if the home football

team emerges victorious, as often happens at the

World Cup. But the country already expects to be net

economic losers from the "honour" of hosting a global

event not just once, but twice. There is no denying the

fact that major sporting events like the World Cup can

bring financial benefits to their hosting countries and

communities, Brazil included. But they also without a

doubt bring economic costs. Global games that are

organized, well-designed and managed, like the

Olympics produce the largest potential net economic

impact or help to minimize the cost. Brazil does not

seem to be managing either of these events to

Courtesy: www.truthdig.com

14

maximize the benefits or minimize the costs.

On the plus side, playing host to FIFA World Cup or the

Olympics can help build a country's profile or brand,

possibly attracting new foreign direct investment,

economic activity and tourism. These games may also

provide political "shield" for building large and much

needed public infrastructure like metros.

On stability, however, the long term benefits are

unlikely to balance the significant opportunity costs of

playing host to the World Cup. Rich countries like

London and The United States can afford to host

major sporting events. Developing countries like Brazil,

not so much.

To understand the economic effect of the World Cup

for Brazil, we shall examine it in three stages. Stage

one is the preparation and construction period;

stage two is the big event itself; and stage three is the

long term impact. Stage one involves investment in the

renewal and development of playing facilities, and in

related accommodation infrastructure and

transportation. New investment adds large amounts of

money into the local economy, often with high

domestic content (or a low dependence on imports)

and strong, if short term, occupation and employment

growth. The lift to investment is good for the country’s

short term growth. However, stage one also depends

on project management skills and strong long-term

planning to get maximum benefits. Brazil appears to

lack this expertise and runs the risk of seeing the

potential economic benefits dissolve.

Stage two is the World Cup itself. The event will attract

substantial tourism earnings to Brazil and will

therefore provide an encouraging short-term increase

in financial activity, likely followed by a post-games

stoppage or even recession. This up-and-down

growth pattern occurs because the tourism incomes

are a one-time increase to local spending. Moreover,

local fans change their consumption patterns by

buying expensive tickets, then dropping their

consumption in the following weeks.

Stage three is the long term impact. Limited public

investment dollars are being paid on sports

facilities, but not on things that can create actual long

term wealth, like public education, trade

infrastructure and health care. Brazil will be

repaying interest on much higher levels of public debt

for the next generation, further striking out investment

in long term growth. Many of the accommodations

will be under-utilized and will need timely maintenance

to remain useful.

The bottom line? Brazil should expect a very minor

growth from the World Cup and Olympics due to public

investment in infrastructure, facilities and higher

tourism revenues during these Sport events. On the

other hand, Brazil can also expect a slow-growth

hangover once all the samba and games are over.

15

Headline Inflation

in India

Libin T George

III MFM

India’s Current Average Inflation rate is prevailing at

around 8%. We may not know the diagnosis but the RBI

has managed, and has no choice but to manage, the

only cure it knows: tighten monetary policy by raising

interest rate and squeezing liquidity. Even if the reme-

dy works, and especially if it does only partially, it is

critical to comprehend the fundamental disease.

Leave aside the long-standing debates about the appro-

priate measurement of inflation. We know that con-

sumer price inflation (CPI) has been close to or above

double digits for nearly two years, and the more inter-

mittently sensitive wholesale price index, after dipping

into deflation region last year, has been steadily rising

to surpass double digits.

The puzzle is simply this: why is inflation in India so

stubbornly high and so much higher than other devel-

oping markets, even those that are supposedly over-

heating, such as Korea, Indonesia and China, where

inflation is closer to 3%?

The monsoon is looking better this year, so the agri-

cultural shock factor won’t have the same bite going

forward. And fuel price rises should be of a one-off na-

ture rather than an ongoing source of inflation. The

most telling pieces of evidence against the view that

inflation is supply shock and policy-driven are twofold.

High inflation, especially CPI, predated the monsoon

shock of last year.

Moreover, increasing prices are not limited to agri-

cultural goods and have now spilled over into other

commodities: double-digit price increases are no longer

confined to agricultural goods. We have no choice but

to turn to the third standard, and more worrying, ex-

planation, namely that inflation also reflects over-

heating: the supply capacity of the economy is simply

unable to match the demands on that capacity.

The analysis of and cures for inflation may need some

reconsidering. Inflation may have a lot more to do with

amenities and land as an input. And curing it may need

addressing the macro-economic aggravators of microe-

conomic distortions in addition to traditional monetary

policies. Exceptionalism depicts India's development

pattern, but does it also relate to the nature of its infla-

tion?

Courtesy: www.tradeandexportme.com

16

Arthavikas

Arthavikas

The Finance club is a hub of knowledge, a platform

for interactive learning, which facilitates career

progress by connecting students, industry, alumni

and academia. Finance Club has instituted to take

students to the doorsteps of the professional world

through Finometrics, the monthly newsletter, which

features articles and research publications from

students. The club provides an avenue for members

to exchange and enrich their knowledge by

conducting various events like Panel Discussion,

Guest lectures and Industrial visits.

Arthayudh

Arthayudh is an inter-collegiate management fest of

the postgraduate students of management organized

by the students of Master of Financial Management

under the guidance of Christ University Management

Association. Arthayudh means „combat for wealth‟.

This fest provides the students an opportunity to

evaluate their knowledge and skills by hosting various

events in relation to current happenings across the

world. Arthayudh is one of the most eagerly awaited

fests for the student community across India. T

IIC (Investors Information Cell)

IIC, an exclusive student unit that provides a platform

for students to develop research skills on various

finance and investment related areas and to

experience the practical aspects of investment

consultancy. The cell at present extends its

consultancy service to the staff members of the

University on issues like tax planning,

retirement and estate planning, equity and

bond investments, and insurance policies.

The student associates of the cell are

guided by team of dedicated faculty

members of the department who

possess research qualification and

experience in the field of finance

and investment.

Credits: Editorial Committee

17

I truly believe the most important reason behind

the hype for the general election is “THE MODI

FACTOR”. This is the most widely spoken issue in

the country since the past 7-8 months. This has by

far been the costliest election in India, trailing just

behind the US elections. This election that is

conducted every five years in India, not only draws

the attention of companies such as Nomura,

Goldman Sachs, UBS and Bank of America Merrill

Lynch had indicated their preference for a

government led by Narendra Modi, the prime

ministerial candidate of the main opposition party -

Bharatiya Janata Party (BJP), who is considered

investor friendly.

The market saw a steep growth right from the

moment Modi was announced as the Prime

ministerial candidate. Sensex hit a record high

which drastically shot up to 25000 points in the

month of May, the so called Judgment period.

Analysts differ on how much gain the markets

could witness in the event of BJP and its allies

winning the required seats to form the next

government.

Indian market is largely dominated by the

sentiments of the investors. BJP clearly indicated a

non coalition government, by winning 280 seats as

a single stand and by earning a clean sweep of

victory at 10 states out of the 29 states in India.

The victory was celebrated by Indians residing all

over the world and one such incident was

witnessed at the Times Square, New York. The GDP

of the country which is 4.7% is expected to grow by

The ‘M’ factor Anusha Y

III MFM

18

the end of 2016, where as there are

predictions from various analysts that

inflation would be curtailed under the

finance ministry of Arun Jaitley. There is an

expected appreciation for rupee in the forth

coming months.

One effective decision of the Modi government is

the idea of reduction of gold import duty which

would definitely limit the illegal import of gold into

the country. There is no rule out that the indexes hit

the upper circuit, that is, a 10 per cent jump, the

limit set for S&P’s BSE Sensex. Sectors that would be

in focus include power, infrastructure, capital goods

and engineering; given the

model pursued in Gujarat (the

state of which Modi has been

the chief minister for the past

three terms).

This is that minute of "Sense of Pride"

when the stock market has entered into

a MODI-fied era with a redefining spirit in

the realms of a common man.

The combined market

capitalisation of India's

publicly listed

companies crossed $1.5

Trillion on 10, June 2014

19

Poll 2014 After Effects Understanding BSE SENSEX 25000 mark

Stock market varies daily, based on the

most recent economic and political

news from anywhere in the world.

Politics and investments have

something in common: they both

directly influence the lives of millions

of Indians.

Because of the losses suffered in the

past (2008) investors sentiment is very

pessimistic, which is deterring active

participation. Expectations of economic

agents about the upcoming business,

market and economic developments

can strongly effect pace and intensity

of stock market. If policy makers and

regulators ensure healthy financial

climate it results in an economic

growth and increased optimism.

There are numerous scientific/

economic theories which support why

the stock prices/indexes do fluctuate.

An investor’s psychology, sentiments, a

speculator’s aggressiveness are some

of the basic indicators which cause high

volatility in short term.

Same pattern has been followed by

Indian players in the stock market

during poll results of Lok Sabha

elections 2014. For the first time in

Indian electoral history the electoral

behavior has followed a U.S model of

president entered election. In India

corporate lobbying is not very popular

in government decision making, but

the way political parties formulate the

manifestos and statements regarding

fiscal policies have significant impact

on the corporates and has a direct

influence over the stock market.

There was a belief amongst the retail

investors that BJP-led National

Democratic Alliance comes to the

power, it would be positive for sectors

like infrastructure. But then again what

drives a market forward is the

predictions about economic prosperity.

The Indian stock market has seen an

ordinary gain of 8 per cent in the

previous year, but underperformed

significantly in foreign exchange terms

Ram Kumar

III MFM

Courtesy: www.svoyblog.ru

20

as the Indian rupee depreciated sharply in the second

half of the previous year. Speculators have taken a

sophisticated advantage of mob

psychology of retail players in the

market and on the day of poll results

all types of investors have acted like

speculators by attempting BSE

Sensex and Nifty to touch an all-time

high.

It’s known that IT and

Pharmaceutical scrips go in an

opposite direction when rupee

depreciates. But when we deeply observe these scrips,

Hedger’s position was also very crucial in mitigating risk

from adverse index movements.

Suppose index performs more/less than what it is

expected to perform due to large sell offs/ buy offs

there is a provision to halt the trade for certain time

which is known as circuit breaker. SEBI had a special

team to closely observe the investors reactions to poll

results hence circumstances have not led to a circuit

breaker like last two elections. On May 18, 2009 when

the results were announced stocks had responded

sharply and BSE Sensex hit the upper circuit within 30

seconds of the market opening for the first time and

trading was stopped for two hours.

A healthy financial environment of a country can be

measured by index movements. When there is a larger

sell off of stocks for Short term profits

it results in decrease in index points

which is not good for the economy.

Retail investors ‘U’ turn is the best

example of speculative behavior as

accounts closed for profit booking on

the next day after record high close of

25000 (BSE SENSEX) so, one must

realize that whatever the economic

situation long term yield should be

the objective of prospective investor. The key lesson

from Warren Buffet is that a simple business with

steadfast demand for its products, having a successful

operational history and driven by high-ethical

management is likely to perform well regardless of the

vagaries of a stock market.

21

World Economy is hit by

‘Lost Generations’

N. Sakina Begum

III MFM

As a result of the financial crisis and

globalization, the younger generation in

the mature markets struggle with

over fewer job opportunities and the

need to support an ageing

population. The chronic gap between

the incomes of the richest and the poorest

citizens is seen as the risk that is most likely to cause

serious damage globally in the coming decades, that is

according to more than 700 global experts contributing

to the world economic forum’s global risk. After income

disparity the global risk next most likely to cause

systemic shock on a global scale is extreme weather

events, this is followed by unemployment and

underemployment and cyber attacks. Fiscal crisis

feature as the global risk has the potential to have the

biggest impact on systems and countries

over the course of next 10 years.

Taking a ten year outlook, risks that

are global in nature, have the

potential to cause significant

negative impact across all countries.

The risk is grouped under five

classifications: Economic risk, Environmental risk, Geo

political risk, societal risk and Technological risk. They

are measured in terms of their likelihood and potential

impact. And a more fractured geo political environment

threatens to impede progress in industries which are

critical to global development, such as financial

services, health care and energy.

“The world needs more coordinated governance to

prevent slow-burning, systematic risks from developing

into full-blown crisis” and to prevent the present and

future generation from the most potential impactful

risks.

“Many young

people today face an

uphill battle” said

David Cole, Swiss group

executive committee.

Courtesy: cgt.columbia.edu

22

Courtesy: www.moneycrashers.com

Dealing with the Wild Cards

Bindia Nair

III MFM

This year has already proven to be a wild one when

it comes to emerging markets risks. Preparing for

what is to come in volatile and disparate markets is

ever more central to the treasury and risk

management functions.

When it comes to dealing with emerging market

risks, it is like dealing with the wild cards for the

companies who want to enter the highly volatile and

disparate markets. Commencing a business in a

developing country is not meant for the weak

hearted, whether it is for an MNC manufacturing

unit for garments in India or a small pharmaceutical

shop in Indonesia. But the magnitude, complexity,

speed and volatility surrounding these emerging

market risks have only expanded the work load of

the present time’s corporate risk officer and made

protecting people, property and reputations a tricky

task.

The countries today are different and the risks are

bigger, they have become more complex in nature

and the reaction time available

to the risk officers is much less.

Earlier the companies would

just be dipping their toes to

test the waters of the

emerging markets, but now

the investments are more

substantial and risks are

immediate. In addition,

corporate boards have greater expectations of their

risk managers’ role in helping them handle a

politically volatile world. In the past, a risk manager’s

role was predominantly to buy insurance; risk

management was a small part of the job but now the

role has evolved. They are facing a multitude of real

time data. Given the increasing political volatility in

many parts of the world, the job of the risk manager

is going to get even tougher in the future.

The risks faced by a multinational can shift,

depending upon a host of factors, including its home

country and industry. Where the company’s

activities or intentions are perceived to threaten the

needs and interests of any group or favour another

(whether a nation, business rival or political

movement) the vulnerabilities and exposure to that

risk will naturally differ. In spite of these concerns,

the persistent pressure to reduce costs is driving

more companies’ supply chains into less-developed

economies, where the risks may be greater.

The key reason the risks are

greater is that companies have

more substantial investments

in emerging markets today. A

few years ago companies

might enter a developing

economy just to dip their toes.

Now companies are setting up

subsidiaries and gaining

23

greater portions of their revenue from operations in

emerging markets. Mostly small and medium branches

of multinational companies with no incentive or

capacity to analyze risk fail to spot the threats thus

being reactive in terms of risk and possibly in terms of

business opportunity.

According to Edward Buthusiem, director of corporate

compliance and risk management services at Berkeley

Research Group, it is important for MNC’s to

understand the complete risk profile of the countries in

which they are operating which means carrying out a

rigorous risk-modelling process of all the risks, from

legal to supply chain to research and development. The

risk assessment must encompass an inventory of the

compliance and control mechanisms that a company

has in place to avoid running foul ways of bribery and

corruption laws.

Compliance officers sit at head offices in London or New

York or Tokyo, multinationals frequently fail to build the

mechanisms that could help monitor corruption and

bribery risks in an overseas office in an emerging

market. Ninety percent of bribery risks happen through

third-party relationships. A company needs to carry out

due diligence regarding those risks. There is a need to

build a controlled environment with enough checks and

balances.

Another oversight is that sometimes companies also

send inexperienced executives to run their ventures in a

vague market with reputations of corruptions, as they

see it as a stepping stone for grooming them for bigger

markets.

“Human resources will take a CFO or IT person and send

them to Kazakhstan. They see it as a stepping

stone...grooming them for bigger markets,”

Courtesy: www.gfmag.com

Dealing with the Wild Cards

24

The political scenario in an economy will definitely

influence the financial markets of the respective

country. India being the world’s largest democracy in

the world also headed to the polls in order to elect a

new government a few weeks ago. As experienced by

the other nations, India was also exposed to a highly

volatile financial market .The uncertain political

equations prevailing in the economy and the

investors’ perceptions towards the markets also keep

fluctuating. The political results also form a template

for the trading pattern for the next few days.

In the hope of a new pro market and pro economic

leader, the Indian equity markets as well as the bond

market attracted

inflows of foreign

funds which in turn

form as one of the

crux to influence

exchange rate of a

currency in the

foreign exchange.

The Indian equity

markets traded at all-

time highs and even the rupee value appreciated

causing a rise in the demand for the rupee. It is also

true that if the favourable party wins the elections,

the markets rise along with the appreciation of the

rupee but not necessarily. It in fact, stays for a long

run as most of the investors will look into the

fundamentals and overcome the election buzz.

The fluctuations in the exchange rate are of significant

concern to the exporters and importers in an

economy. Though the government wishes to increase

the amount of exports than the imports to balance

the current account deficit of a nation, the

appreciation of the rupee is always a drawback to

them because they receive payments in dollars which

in turn will incur less yield to them but to the contrary

of this, the importers will be benefited as they can

receive more amount of goods and services for a

lower price and may again lead to increase in imports.

So as a whole, the political stability in a country is

predominantly important because it is the basis for

policy formulations, granting of subsidies and

incentives to attract more foreign investors and

create effective business environment and also

contributes to the reserves and avoids undervaluation

of our currency as a result it is evident that one

political change can affect the entire financial system

of a country.

Sneha T N

III MFM

Impact on the Financial

System due to a political

trigger

Courtesy: www.sonoma.edu

25

A Win that Supersedes

Money Roshan Chugh

III MFM

Brazil, to many fans around the world is the

spiritual home for football and thousands will

descend on to the country for the biggest stage,

known as the World Cup. But until now the

enthusiasm among Brazilians has been muted. An

atrocious $11.3 billion has been allocated for

hosting the World Cup. But the basic social services

in the country are still poorly financed.

A Brazilian opined that the only people who benefit

from the tournament being held in their country

would be the tourists and the FIFA (Federation

International Football Association). Brazilians felt

it’s ridiculous and unacceptable that FIFA build an

entire mega event for profits, in a country where

the basic requirements of the country men are not

fulfilled.

A fact book ranks Brazil 17th out of 140 countries

for income inconsistency. They are rightly

protesting about why a country should spend

billions of money hosting a football tournament

rather

than utilising

it for eradication of

poverty. Tickets for the

matches in the new stadiums are

so expensive that most of the Brazilian

fans of the popular sport cannot afford them. The

cheapest ticket for a game at Brazil would cost

them 25 hours of their work. In a nation where

poverty has hit them hard and where sources of

income have been inconsistent, this is absolutely

unacceptable. For a Brazilian to attend a match at

the World Cup 2014, it would mean for him to

plainly give up his bread and his shelter.

A lot of money has been spent by the government

for the purpose of building stadiums to meet the

order of international standards. A staggering

amount of around $2.7 billion was spent for the 12

new and upgraded arenas. That’s roughly 13% of

the country’s budget for public education.

Education of the population would take a setback

for the sake of conducting this football tournament

in the country. And it doesn’t just stop there. Even

basic health facilities have been pushed aside just

so that the country proves to be everything a

football fanatic would ever dream of.

Irrespective of the protests in the country, the only

thing that could change the entire scene at this

poverty stricken nation would be if Brazil wins the

World Cup 2014. Yes, there will be a boost in the

morale of the citizens, if Thiago Silva and his men

lift the world cup for the 5th time. This nation which

has won the cup for five times believes there is no

second place. All eyes will be on the likes of

Neymar, Hulk and David Luiz to deliver in this

competitive stage especially with the competition

from Ozil’s Germany, Cristiano Ronaldo’s Portugal

and Messi’s Argentina. But we need to wait and

watch to see if the win could help to regain the

trust of the country men again.

Funny how passion for this game sometimes

supersedes the value of money.

Strange how passion for this game

sometimes supersedes the value of

money.

Courtesy: www.manifestoo.com

26

The dependence of the whole world on Oil Producing

countries has impacted the Indian economy and the

Big Oil Nation League. Saudi Arabia has 90% of its

export earnings devoted to its Oil reserves. These oil

baron nations have a political system of

predominantly Monarchy.

Countries like the United States of America are the

highest consumers of oil. The so called ‘First World

countries’ no doubt have high per capita income and

high standards of living but at an

unpredictable price. This has made

the US extremely dependent on

the Oil producing Nations like

Saudi Arabia. Leafing through the

pages of history, we would know

how this has led to the rise and fall

of governments – be it funding for

political campaigns or the zero

thought process towards environment. There is a

huge political impact on a nation when it depends

entirely for a resource from an external country.

Saudi Arabia is the fastest growing nation in the

world. Its per capita income has gone very high in the

past decade. This has led to the country focusing

more on its petroleum sector than any other. The

overall financial development of the country is high,

but, the country lacks in free journalism, media, and

scientific advancements. The point would be proven

if we notice the trend of the nation giving rise to

scientists or scholars (not religious of course!). The

monarchy is getting richer, there is absence of

democracy, and freedom of speech is hindered. All

these factors are related to each other and this is

unnerving news.

The two aspects discussed above lead to an ultimate

conclusion about the ratio of

dependence of receiver to

financial and economic growth of

the supplier. If one economy falls,

the other gets highly impacted.

United States cannot do without

Saudi’s extensive oil reserve and

Saudi in turn would go

for a downfall if nations

like US stop importing its oil. To end with a penny of

suggestions- The Saudi Sheikhs fund the terrorist

madrasas with consumption earnings from

Americans. Who is the US really fighting the war

against?

Sudeep Nachappa

III MFM

The Oil World

Courtesy: www.coloringpages

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