August 3, 2014

Volume 6

Conflict in WTO

FII

Amazon vs Flipkart

Time for Survivor 6.0

With the first term approaching towards its end and the new batch

finally getting imbibed to the IMT culture, with sleepless nights and all

the quizzes and presentations lined up, we bring to you yet another

illuminating edition of FinXpress.

This week, the In Focus section talks about the WTO crisis in Geneva

and why the countries could not reach on a consensus on the

subsidies issue. The Opinion makes a critical analysis of the ongoing

rivalry between Amazon and Flipkart and the resultant benefit that the

consumers will enjoy because of it.

The term of the week describes "FII", a term most common in using

foreign financing. Do have a look at the Market and News section to

bring yourself up to speed with market volatility and the reasons

behind it.

Stay tuned for our ice-breaker event, Survivor 6.0 which is just round

the corner, on 3rd and 4th of August, 2014.

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

From The Editorial FinXpress Volume 6

Aug 03, 2014

FinXpress

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

FinNiche

AUG 2014 PAGE 1

CONTENTS

From The Editorial

In Focus: Crisis in Geneva

Opinion: Flipkart Vs Amazon

Term of the Week: FII

Market This Week

News

Fun Corner

PAGE 2

FINANCIAL KNOWLEDGE

Currently power corridors around the

globe are talking about India. In just-

concluded WTO meeting in Geneva India’s

firm stand blocked the implementation of

global trade facilitation deal. Is it a

watershed moment for India?

To find answer to this question we have to

delve into different aspects of the story.

Need of Global Trade facilitation deal:

Though we often talk about ‘Global

Village’, cross-border trade is still a prime

issue of concern. Pundits around the

world agree on the point that greater

liberalisation of trade by minimizing

tariffs and easing flow of goods and

services among nations is the need of the

hour. Instead of creating gamut of bilateral

or regional trade pacts (RTAs) this deal

could have provided a uniform platform for

all countries. Analysts figured out that by

this liberalization procedure $ 1 tn could

have been pumped into the global

economy which would have created

astounding 21 million jobs around the

world. WTO members have been striving to

hammer out the agreement since 2001.

But the process once again stumbled.

WTO—Tough ride:

Since the formation of WTO just-ended

Geneva summit was the only opportunity

to strike a deal for grand global trade

reform. In Doha Summit this thought was

initiated. Last year’s Bali meet faced a

great hindrance from India. After attaching

peace clause that India can continue with

its food subsidy program the summit

ended on the point that in next meet at

Geneva execution of Trade Facilitating

Agreement (TFA) will be finalized.

Points of Conflict:

In Geneva meet India was at cynosure.

India did not budge from its stand that

along with Trade facilitation agreement

permanent deal needs to be ensured

regarding subsidised food stockpiling.

Presently WTO norms limit the value of

food subsidies at 10 percent of total value

of food grain production. The point of

contention is the valuation of food grain as

WTO uses two decades old price range.

Last year India launched vast food security

programme according to which two third

of its citizens are entitled to receive

subsidised food grains. As per existing

WTO norm the food security scheme is at

a serious threat. India wants to

restructure food valuation that means

changing the base year.

Aftermath of India’s stand:

India’s such rigidity drew harsh flak from

various countries led by US and EU. Many

economists termed India’s move as

‘hostage-taking’ and ‘suicidal’. Though

India faced stiff opposition from most of

the member countries some nations like

Cuba, Venezuela and Bolivia extended

their support. There has been a talk of

going ahead excluding India. But India’s

presence in economic scenario is not at all

ignorable and that fact is accepted by

FinNiche

Crisis in Geneva

AUG 2014

------ By Arijit Samaddar

PAGE 3

FINANCIAL KNOWLEDGE

Pundits across the globe. Therefore the

meeting ended with no consensus raising

questions about relevance of WTO.

Analyzing India’s stand:

At first let us look why rest of the world

termed India’s move a ‘suicidal’ one.

India always articulated that World

bodies like WTO needs urgent reform.

But India itself caused blockage of

deal of such magnitude.

In absence of global trade pact more

and more regional trade agreements

(RTA) will be created.

In world-stage pro-business image of

the new government of India takes a

hit.

In this Geneva round India faced

isolation as countries like Russia,

China, Brazil and Pakistan posed stiff

opposition.

In such a scenario it is obvious to blame

India for creating such grand crisis.

But before passing judgement we need to

look into other side of the coin.

Assertive India: India’s rigid stand

signalled a strong message to the

world that it will no longer buckle

under any pressure. For benefit of its

own people India is ready to take on

any global player.

Despite change of guard at the centre

India remained unmoved about the

point of continuing its food security

programme. This scheme ensures

that no one in India has to starve

anymore. But due to present norms

of WTO India could be penalised for

continuing subsidised food security

programme. Therefore it was the high

time for India to raise its voice to

ensure food for all.

There are some pundits who believe

global trade agreement will need

huge funding which will become

troublesome for developing countries.

To ensure free trade across the

border and to minimize red-tapism

countries like India has to speed up

its domestic reform process and

finance multiple projects to match

international standards.

Therefore, the scenario is not at all ‘black

and white’. Analyzing multiple facets it can

be obviously said India was truly in a

position to bargain. Compromising on

welfare of its own people India cannot

afford to join the party. The stand is

crystal clear-‘India First’.

In this constantly-changing economic

scenario one needs to see how global

power centres deal with the situation, how

India is treated by other major powers.

FinNiche

AUG 2014

OPINION

Flipkart, the Bangalore based e-commerce

company announced investments worth $1

billion a couple of days back. As soon as

the news broke out, Amazon stole Flipkart’s

thunder by announcing their plan of

investing $2 billion in India. After the

sequence of such big investment news, the

big question in everyone’s mind is who will

be the winner - the homebred Flipkart or

global e-commerce giant Amazon ? The

perhaps obvious answer is INDIAN

CONSUMERS. These announcements

clearly depicts that the war of prices has

just begun and both the companies will

bleed money in order to built or sustain the

customer base, which in turn will give

choices to the consumers and hence lead to

overall customer satisfaction. However, it

may be possible that in the short run, these

companies may earn meager profits in

order to survive competition.

Motives That Drive Amazon & Flipkart

Amazon’s investment announcement came

on the heels of its performance in last

quarter which shows that the company has

made a net loss of $126M because of which

its stock price dropped by nearly 10%. After

the fall in price, Wall Street has pressurized

Amazon to lower its spending and focus on

the margins. However, it’s decision of

investing in India, according to Amit

Agarwal, Amazon’s India head & country

manager, was not made in a single day.

This explanation of his can be justified by

the fact that 40% of Amazon’s sales come

from international markets. In order to

attain higher international growth, the only

lucrative market for Amazon is India.

Flipkart, on the other hand has been

guided by different objectiveas. To say, their

founders, Sachin and Binny Bansal, were

too a greater extend not only inspired but

also tried to imitate Amazon built an e-

FinNiche

Flipkart vs Amazon: Who Will Sit Easy?

AUG 2014

—— By Bharti Alwani

PAGE 4

commerce business model in India on

the lines of Amazon revenue model. But

there lies the challenge in itself.The

battle was daunting challenge for them.

The investors of Flipkart such as Accel

and Tiger Global have been well versed

with the fact that the real e-commerce

battle in India was not between Flipkart

or Snapdeal but AMAZON. Recently,

Flipkart has acquired many other e-

commerce players including Myntra and

LetsBuy (which is not a surprise that

Accel and Tiger Global were investors in

both these firms).

So Flipkart has prepared itself for the

new upcoming and the biggest challenge

that Amazon was thought to be for years

in the ecommerce battle in India. The

raise of $1B raise was the exact hit that

the flipkart did to deal with a huge cash-

rich and growth-hungry Amazon. The

sole strength and advantage of Flipkart's

lies in the experience it has with the

Indian consumers and local partners for

years now.

Where does this leave the other e-

commerce players? This leaves many

other retail ecommerce players in

trouble as now they have to compete

with the huge ecommerce giant players

who have the capacity to absorb more

than hundred million dollars as its

annual losses. Snapdeal might be the

other company that could sustain and

raise enough comparable cash to stay in

this race. Retail e-commerce in India is

a long-term play. It cannot bring returns

in short term as it requires patience .Big

players having the capability to absorb

losses over several years and the

stamina to stay in this long fight will

survive. It's possible that both

Amazon.in and Flipkart are going to

survive in the long run. But the only

player in this market who will sit easy

during the upcoming frenzy will be the

Indian consumer.

OPINION FinNiche

AUG 2014 PAGE 5

PAGE 6

FINANCIAL KNOWLEDGE

Foreign Institutional Investors are

institutions who monitor their money flow

money in the assets of an organization

which is a not based in the country of

existence of FII. The money flow so made by

FII could be an inflow or outflow i.e. either

the FII could invest in their capital in the

buying of assets of a company or they could

withdraw their capital by selling off the

assets of the organisation. The buy and sell

sentiment of an FII depends largely on the

trust that the foreign investor has in the

organisation’s growth and development

policies and their Corporate Actions to be

executed in the near future.

As per Section 15 (1) (a) of the SEBI FII

Regulations, 1995, Foreign Institutional

Investor has the liberty to invest in

securities in the primary as well as in the

secondary markets which includes shares,

debentures and warrants of listed, unlisted

or to be listed companies on recognised

stock exchange of India.

The FIIs can invest/trade in the desired

streams of markets by various approaches,

such as:

1) Through registered brokers in

recognised stock exchanges.

2) Through a sub account which is

maintained in the name of an

individual outside India.

3) FIIs can issue ODIs i.e. Off-shore

derivative instruments to the persons

recognised as appropriate foreign

regulatory authority.

Other places where FIIs can trade in are

domestic mutual funds, collective

investment schemes, dated government

securities, Indian Depository Receipts etc.

The so called market movers of a market as

designated majorly comprise of these FIIs.

These are the players who drive a particular

sector in bullish or bearish nature by and

large.

SEBI has the over 1450 institutional

investors registered with it in India.

Examples of FIIs in banks, insurance

companies, venture capital groups , hedge

funds and mutual funds, retirement or

pension funds, angel investor groups,

venture capital groups, private investment

clubs.

Present Trend

This year the FIIs were in hyped trend in

the markets because of their record high

investments into the Indian Markets and

this nature is existing till date. In the

Financial Year, according to SEBI FIIs have

shown an investment of about Rs.80000

crores i.e. US$13.31 billion which reveals

the fact that how India is treated as an

equity market. The trend was also observed

due to the fact that the government had

increased the credit limit for the foreign

investors from $2 Million to $25 Million.

FinNiche

Foreign Institutional Investors

AUG 2014

Monthly FII Net Investments (Calendar Year - 2014)

INR crores

Month Equity Debt Total

January-14 714 12,609 13,323

February-14 1,404 11,337 12,741

March-14 20,077 11,586 31,663

April-14 9,602 (9,185) 418

Total - 2014 31,798 26,347 58,145

PAGE 7

FINANCIAL KNOWLEDGE FinNiche

Market This Week

Both the BSE and NSE recorded a fall in the last week except for Thursday where it

rose because of automobile sector results being declared where players like Maruti

Udhyog performed reasonably well. The whole week events like withdrawing capital

by FII’s resulted in plummeting of the market. A variation of 2.96% was seen from

last Friday to the current one. Sensex recorded a high of 26286.50 and a lowest of

25480.84 where as Nifty achieved 7716.35 as the highest figure and a lowest of

7602.60.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 25806.43

Fifty Days 25,823.56

Hundred Days 25,806.70

Two Hundred Days 25,768.58

AUG 2014

PAGE 8

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 9.00%

Repo Rate 8.00%

Reverse Repo Rate 7.00%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 22.5%

INR / 1 USD 60.85

INR / 1 Euro 81.46

INR / 100 Jap. YEN 69.11

INR / 1 Pound Sterling 102.68

Commodity Unit Rs / Unit % Change

Gold 10 grams 28054 0.84

Silver 1 Kg 44427 0.06

Crude Oil 1 bbl 5974 0.54

Base Rate 10.00%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 8.00%-9.05%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 7615.43

Fifty Days 7628.97

Hundred Days 7651.47

Two Hundred Days 7682,05

Key Policy Rates and Reserve Ratios

Exchange Rates

AUG 2014

PAGE 9

FINANCIAL KNOWLEDGE

IndiGo readying itself for an IPO InterGlobe Aviation limited or IndiGo has s tar ted rest ructur ing i t s shareholding ,giving increasing signals that it will be going for an IPO in the near future. Rakesh Gangwal ,who owns 47.833% in IndiGo will convert his shareholding, which presently is held through a foreign company, Caelum Investment Llc into NRI shareholding. This conversion of shares from a foreign company to NRI will allow the company to bring in FIIs. The airline has also decided to appoint BoB chairman M.D.Malya to its board.

RIL may not be allowed to charge new Gas prices Reliance Industries limited may not be allowed to charge new gas prices from its two producing fields off the Andhra coast, until it makes up for deficit in shortage. In a high lever meeting of the top bureaucrats of the oil ministry, it was decided that a penalty must be slapped for not complying with the contract. Also in the pipeline is a complete rework of the gas pricing formula worked out by the previous

UPA government. Service delivery platform of three welfare schemes to be merged The service delivery platforms of Rashtriya Swasthya Bima Yojana, Aam Aadmi Bima Yojana and the Indira Gnadhi pension scheme are set to be merged together to streamline the processes and increase efficiency. The merger will bring life and disability cover, health benefits and old age pension under one service, which will help in improving the quality of life of unorganized sector workers. While the Rashtriya Swasthya Bima Yojana provides cashless hospitalization for the p o o r , t h e A am A ad mi B i ma Yojanaprovides life and disability

protection to the head of a landless family.

China gathers pace, Europe falters

and US steady

Reports coming out of China suggest

that Manufacturing activity gathered

pace. Measured by manufacturing

purchasing managers Indices (PMIs), the

efforts of the government were bearing

fruit in China as the manufacturing

PMI rose to 57.1 percent in July , up

from 51 in June.

But for Eurozone the PMI stood at 51.8,

same as June. While growth in Germany

picked up, it was balanced by a

downturn in French, Greece , Spain

and Italy. Ukraine crisis also played a

big role especially in the British

economy where manufacturing grew at

its slowest pace in a year. The

manufacturing PMI fell to 55.4 from

57.2 in June.

US manufacturing PMI slipped to 55.8

from 57.3 in June, which was the

highest in the last four years. Although

the pace of growth of manufacturing

output slowed in July, it remained close

to Junes four year high. New orders rse

to 63.4 from 58.9, Gross domestic

product likely grew at a 3.0 percent

annual rate. Business investment likely

rebounded as did spending on home

building.

In Latin American countries, Brazil

manufacturing activity continued to

disappoint as the manufacturing PMI

fell for fourth month straight. In

Argentina the markets crashed after the

country defaulted for the second time

FinNiche

NEWS OF THE WEEK

AUG 2014

PAGE 10

FINANCIAL KNOWLEDGE

in last 12 years. The default came after

Argentina could not strike a deal with

lead holdout investors. The default

results from Argentina's failure to

comply with a court order that holdout

bondholders be paid at the same time

as a $539 million coupon payment to

those who accepted reduced payments

in two prior restructurings. Rating

agency Standard and Poor, downgraded

Argentina’s long and short term foreign

currency credit rating to “selective

default”.

Manufacturing activity expands at its

fastest rate in 17 months in July

India ’s manufacturing act iv i ty

measured by manufacturing PMI rose to

53.0 in July, fastest in 17 months. It

was 51.5 in June. This can be

attributed to the fact that firms

increased production to meet a flood f

new orders from both internal and

external sources. However this was

accompanied by a sharp rise in input

prices, indicating that Inflation may

remain high in the near future. This

has led some to believe that RBI may

not favor cutting interest rates in near

term thus borrowing cost may remain

high, which can be an impediment to

growth.

NSE to launch new 10-year bond

futures

National Stock Exchange said it would

launch one, two and three-month

interest rate futures (IRF) contracts

based on the new 10-year 2024 bond.

Rival BSE is also expected to launch a

similar bond. Interest Rates Futures

contracts based on 8.40% central

government security maturing on July

28, 2024 will be made available for

trading with effect from August 4, 2014.

Piramal and Dutch APG to invest one

billion dollars in Infra.

Piramal Enterprises Limited and APG

Asset Management, tied up to invest $1

bn in various Indian infrastructure

companies over the next three years

through rupee-denominated mezzanine

instruments. This move could help the

cash starved infrastructure companies

who have struggled to maintain cash

flow. Many Indian infrastructure

companies borrowed heavily in the past

few years when the economy was one of

the fastest growing in the world, but

were squeezed by a slowdown in growth

last year and a slide in the rupee to

record lows. Piramal and APG have each

initially committed $375 million for

investments under the alliance.

Japan urges Brazil to do more

business

Japan Prime minister Shinjo Abe on his

visit to Brazil has said that, his

economic policies commonly known as

‘Abenomics” are bearing fruit. He said

that it was time for the two nations to

expand their trade and investment

partnership. Japanese banks extended

$700 million in loans to boost Brazilian

soy and corn exports to Japan and help

finance oil platform construction for

Brazil's growing offshore oil industry.

Brazil's state development bank BNDES

agreed to join forces with Japan's bank

for international cooperation, JBIC, to

look for areas to promote investment by

small and medium-sized Japanese

companies in Brazil.

FinNiche

NEWS OF THE WEEK

AUG 2014

FinNiche

FUN CORNER

FinQuiz?

1. A fund that buys securities in distressed investments

is called _______.

2. _______ factor is the most important factor in calcu-

lating one’s FICO score.

3. _______ will acquire all the equity shares of Satyam

Cineplexes Ltd.

4. Few months back RBI postponed the launch of Indian

digital currency. What was its name?

5. What is a colloquial name for a non-trading day on

stock exchange or other commercial market.

Last Week’s Answers

1) Mutual Fund

2) Italy

3) 25 and 10 respectively

4) Mayaram Panel

5) WPI

CARTOONS

FUN CORNER

Page 11

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Volume 6 Publisher: Arihant Jain

AUG 2014