March 2, 2014

Volume 32

Another week of hectic schedule goes by with IMT continuing to live by

it’s motto of never going to sleep. Report submissions, presentations

was spread across the week. Nervousness and excitement was all in

the air, as IMT experienced the rush of enthusiastic candidates aspir-

ing to be a part of the esteemed institute.

With the speculation that elections this year will decide the future of

our country, we bring ’Modinomics’ in our In Focus section. The

opinion speaks of the prospects and future of Bitcoin. The term of the

week would give greater understanding of the Gini Co-efficient.

Do look over the ‘News of the Week’ section for further noteworthy

news. The ‘Market of the Week’ covers the latest trends in the market

this preceding week.

We hope you enjoy the various articles in this edition of FinXpress. We

look forward to your comments, acknowledgements and your criticisms

regarding our online magazine. Do let us know if you want to have any

additional sections in our special editions of FinXpress.

Happy Reading!!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 32

Mar 2, 2014

FinXpress

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

FinNiche

March 2014 Page 1

CONTENTS

From The Editorial

In focus: Modinomics

Opinion: Bitcoin:

Prospects and Future

Term of the Week: Gini

Co-efficient

Market This Week

News

Fun Corner

Page 2

In Focus

The term that is doing the round these days

is ‘Modinomics’. So what exactly is

Modinomics? You will figure out, its just a

term that has been coined by some

economists and not a theory in itself. It tries

to gather indications by Mr. Narendra Modi,

the BJP prime ministerial candidate of his

actions if he becomes the prime minister of

India. The question before us today is Why

Modi will do a U-turn, implement retail FDI

if he becomes PM?

If you see the stance of BJP as a whole

towards FDI in retail was an opposing one.

But Narendra Modi in his recent speeches

has shown us some path that is contrary to

the party’s stance on the issue. At a

meeting of the Confederation of All India

Traders (CAIT) he said, “We should not be

concerned about the challenges from global

trade.” He even asked retailers to look this

as an opportunity to grow and not as threat

from the outside world. So the big question

before us is whether Mr Modi is against Big

Retail or for it?

If you try to evaluate looking at the

economic conditions the answer is very

clear. The economy of India is opening up

and how can a government fence one of its

biggest sector like retail if it has to grow. It

would be a economic stupidity to take such

an irrational decision. Besides the last year

was full of rupee volatility and talks about

foreign inflows and how to bring in foreign

money into our domestic market.

Of course, one could defend Modi by saying

his intention in the second speech was not

to make any specific announcements in this

speech. So why single out retail FDI? But

the fact is that the second speech was made

at a seminar to discuss 'A New Growth

Paradigm for India'. It was widely reported

as the unveiling of the BJP’s economic

agenda ahead of the elections. And here

Modi, as the prime ministerial candidate of

the BJP, should have made his stance clear.

Given this how long can BJP be in a

position to avoid such issues and hope to

tackle India deepening economic woes. The

answer is very clear if BJP gets the

opportunity to rule the centre with clear

majority it will have to change its stances

and this was evident from Modi’s speeches

and actions. Of course it can come with

some cosmetic changes but avoidance of it

will be ignorance and the comments are a

clear indication of that.

One recent argument that was floating was

Modi’s views on government as a

trusteeship and not as a trust. He said that

the core of his economic thinking can be

captured by one word—trusteeship a word

propounded by Mahatma Gandhi. In

practical terms, it may be a non-starter.

The real problem with trusteeship is that it

frowns on private profit. And it is unrealistic

(and inefficient) not to promote private

profit, even in natural resources. Therefore,

Modi should make “trust” – another word

he has mentioned several times – rather

than trusteeship the core of his policy

thinking. Natural resources are exploited for

private profit everywhere in the world. India

can be no different. Of course, there is a

need for regulation but to away with private

profit in the exploitation of natural

resources is to take India back to the

1950s.

FinNiche

Modinomics

March 2014

------ By Ashish Agarwal

Page 3

Opinion

Discovery of electricity was a revolution.

This was followed by another astounding

revolution - The Steam Engine. Internet -

yet another. Now it's age of Bitcoin.

Bitcoin is a digital currency that enables

an individual to transfer money and make

payments to anyone across the globe.

However, the first thing to understand

about Bitcoin is that it is not just money

transfer. It is rather a programming

environment, a publicly audited ledger

which accounts for all transaction in

terms of property, ownership and

contracts. Developed by Satoshi

Nakamoto in 2009, it uses advanced

encryption technology whereby users

transfer money by sending digitally signed

messages to a network.

In the past four years, Bitcoin has seen

tremendous growth as more and more

businesses and small merchants are

shifting from conventional modes of

payment. Companies like Word Press and

Overstock.com and many small brick and

mortar stores have already started

accepting bitcoins as payment. Even some

not for profit organisations and advocacy

groups like Electronic Frontier

Foundation have also started accepting

donations in bitcoins.

Case for Bitcoins

The proponents of Bitcoin network argue

that the advantages of this technology

outweigh the risks involved. Transacting

on a Bitcoin platform is easy and hassle-

free. The user can start as soon as he/she

obtains a Bitcoin wallet which takes only

a few minutes. As compared to fiat

currencies, Bitcoin offer several

advantages:

Decentralisation

Bitcoin environment uses Peer-to-Peer

(P2P) exchange so there is no bank or

intermediary acting in between. This, in

addition to minimising the cost of

transactions by reducing commissions,

also leads to less labour involvement in

financial transactions, heavy duty

accounting and conflict resolution.

No Counterfeit Currency

Every time a Rs. 500 note changes hands,

people check for its authenticity by

holding it against a light source. This is

because 2 out of every 3 bank notes in

India are fake. This surge in volume of

counterfeit currency has led to increase in

prices and a reduction in the value of real

money as more money is into circulation

than is required. With Bitcoin however,

such a scenario is less plausible as they

can be created only by miners after doing

certain amount of work for each block.

Less Inflationary

With fiat currency the government always

has the option of printing more money. If

a monetary instrument works properly,

the supply changes as the quantity

demanded changes. This leads to

increased money supply followed by

inflation. However, since the maximum

value of Bitcoins is capped at 21 million,

they are partially if not entirely inflation-

proof. Thus, many inflation hit countries

like Argentina and Cyprus are seeing an

increased use of Bitcoins.

Reduced Prices

Currently, credit and debit card

FinNiche

Bitcoin—Prospects & Future

March 2014

------ By Mukul Gupta

Page 4

Opinion

charge very high commissions for their

services. This seems fit as these

companies spend approximately 30%-40%

of their profits fighting lawsuits on fraud.

This commission cost is transferred to end

consumers leading to high prices.

However, Bitcoins cannot be

impersonated, and if there is a way of

transferring these kind of transactions to

Bitcoins - through smartphones or Bitcoin

cards - the costs would reduce

substantially.

Case against Bitcoins

Currently, 25 bitcoins are created every 10

minutes. Although still in its nascent

stage, the Bitcoin network has consistently

faced criticism from the proponents of age

old fiat currency system. This criticism

can be explained in part by the fact that

the fiat system is the monopoly of the

respective governments with vested

political, financial and military interests.

Nevertheless, some criticism stems from

genuine concerns expresses by

economists.

Illegal Activity

In case of Bitcoin, it is not possible to

trace the source or the destination of

money. This network is therefore seen as a

haven for money laundering and many

other criminal activities. Recently, Silk

Road, an online market which used

bitcoins as a medium of exchange was

closed under the federal law because it

was using this clandestine currency for

many nefarious purposes.

No Backing

With regard to national currencies, a

government is required to back the money

supply with assets like gold. However, the

same does not apply to Bitcoins. They are

neither backed by hard assets nor by faith

of the government. This makes them a

risky proposition during bankruptcy.

Bubble

Many critics view Bitcoin as a bubble that

will soon burst. They argue that the value

of a bitcoin in terms of fiat currencies has

been extremely volatile with the price

rising from US$0.30 to US$200 in just one

year. Also, many speculative opportunities

exist within this niche market further

fuelling this volatility.

What lies ahead

As Bitcoin is gaining popularity, more and

more governments are taking a stance

either for or against it. The Reserve Bank

of India for example has issued a warning

that use of bitcoins for money transfer is

highly unsafe due to potential security and

money laundering risks. The Government

of China has taken a stricter stance by

prohibiting payment and financial

institutions from accepting them as

payment. The European Banking

Authority has also issued a warning that

Bitcoin lacks consumer protection. Many

more governments and central banks have

also banned the use to prevent black

marketing and alleged drug dealings that

are using bitcoins.

The future of Bitcoin is still clouded as the

entire economic and financial community

has mixed opinions about its viability as a

currency. However, going by the current

trends of growth in their use, the potential

of Bitcoins as a currency seems to be

rising. One should however ask this

question “If the Federal Reserve creates

more money in 2 hours than has been

created by Bitcoins since its inception 4

years ago, what is more riskier?.”

FinNiche

March 2014

Page 5

FINANCIAL KNOWLEDGE

Gini Coefficient was developed an Italian

statistician Corrado Gini in 1912. It was

first published in his paper titled

“Variability and Mutability”.

In simple terms it is a measure of

inequality present inside a country.

Statistically, it measures the inequality

between a frequency distribution over the

values of the income levels. The value of

the gini coefficient is either expressed as a

percentage or as a value, which varies

between zero and one. Here the value of

zero defines complete equality, wherein

everyone has the same level of income

across the country. On the other hand,

the value of one on the gini index

expresses absolute inequality, wherein a

single person has all the wealth with him.

The value of one is highly unlikely, while

considering large samples.

Speaking purely from a mathematical

perspective, gini coefficient is derived

using Lorenz curve. It is the ratio of the

area inside the Lorenz curve and the that

which is found by the triangle formed by

the 45 degree line to the Lorenz curve

from the origin. It is not overtly sensitive

to the specifics of the income distribution,

due to the normalization of the cumulative

population and their respective shares of

incomes.

Gini coefficient has a wide area of usage

commonly used in the areas of sociology,

economics, health science, engineering,

agriculture, etc. The gini coefficient of

education gives a measure of the

inequality existent in education in the

specified population. Similar coefficients

are gini coefficient of opportunity and

Shamrocks index, which is derived from

gini coefficient.

The popularity of gini coefficient is

primarily due to the fact that it can be

used to compare diverse countries, due its

non-dependence on any scale. Also its

independence on the population size and

its independence from the actual person

holding wealth, serves as a factor for its

acceptance.

But, gini coefficient has its own share of

limitations. These limitation serve to

reduce its overall usage and make its

interpretation a controversial one. One of

the most criticised fact about it is also one

of its most admired feature. Its

independence of the scale of the economy,

though seems appealing for comparison

has its own share of problems. Due to it, a

wealthy and a poor country can have the

same gini coefficient value, even though

there may be a stark difference in their

income levels. This is due to the fact that

both the countries may have a relatively

equal distribution of wealth, the wealthy

country of affluent people and the poor of

cash-strapped ones.

Another problem with the gini index as

that it is highly dependent on the GDP

and income data that is produced by a

country, and is thus heavily dependent on

them. Also, structural changes in the

society makes its interpretation a dicey

one. Changes in the gini coefficient can

easily be influenced by changes in

population, as in an aging population, a

boom in child births, increase in

household splits, etc. This will lead to a

variation in the income distribution and

thus change in the coefficient, even

though there was no change in the income

levels.

FinNiche

Gini Coefficient

March 2014

Page 6

FINANCIAL KNOWLEDGE FinNiche

Market This Week

Indian shares rose around 2 percent on heavy buying by foreign investors in what

was a holiday-truncated week. Foreign investors have been net buyers of cash

shares in each of the previous 10 sessions, with net inflows totaling around $600

million, exchange and regulatory data show. In the currency market, the

rupee closed at 61.75 per dollar on Friday after the unit strengthened to its highest

in more than a month. In the coming week, market is likely to remain in the same

range bound in the run-up to elections as investors are largely neutral on India.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 20,677.35

Fifty Days 20,802.16

Hundred Days 20,256.20

Two Hundred Days 20,086.23

March 2014

Page 7

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 9.00%

Repo Rate 8.00%

Reverse Repo Rate 7.00%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 61.77

INR / 1 Euro 85.26

INR / 100 Jap. YEN 60.68

INR / 1 Pound Sterling 103.45

Commodity Unit Rs / Unit % Change

Gold 10 grams 30090 0.00

Silver 1 Kg 46586 (0.31)

Crude Oil 1 bbl 6371 0.36

Base Rate 10.00%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 8.00%-9.10%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 6141.75

Fifty Days 6183.81

Hundred Days 6011.99

Two Hundred Days 5987.34

Key Policy Rates and Reserve Ratios

Exchange Rates

March 2014

Page 8

Financial Knowledge

Jet fuel up by 1%,non-subsidised LPG

cut by Rs.53

Jet fuel or ATF price has been hiked by a

marginal 1 per cent while rates of non-

subsidized cooking gas (LPG) have been

cut by Rs 53.5 per kg reflecting global

trends. Aviation Turbine Fuel, or ATF,

price at Delhi was hiked by Rs 753.34 per

kilolitre, or 1 per cent, to Rs 74,825.54 per

kl, according to Indian Oil Corp, the

nation's largest fuel retailer. The hike

follows a 3 per cent cut in rates on

February 1 on softening international oil

rates. However, prices have gone up since

then and rupee depreciated against US

dollar, making imports costlier.

Cabinet likely to approve Rs1000/

month minimum pension

Union Cabinet is likely to approve the

proposal to ensure Rs 1,000 minimum

monthly pension under the pension

scheme run by retirement fund body

EPFO, which would immediately benefit 28

lakh pensioners. including five lakh

widows. There are about 44 lakh

pensioners.

Mark Zuckerberg’s fortune grows by $15

billion

A sharp rise in share price of social

networking giant Facebook has helped the

personal wealth of its 29 year-old CEO and

co-founder Mark Zuckerberg soar by a

massive $15 billion in less than two years.

Zuckerberg 's fortune has soared to about

$33 billion, from $18 billion on May 18,

2012 when the company went public. This

has come on the back of investors showing

huge interest in Facebook shares amid the

company beginning to make money from

its mobile platform.

Within two years of entering the stock

market, the share value of Facebook has

soared over 80 per cent to $68.46 apiece

on February 28, up from $38 per share on

its debut on Nasdaq stock exchange. The

company's latest traded price of $68.46

apiece, this holding is now worth about

$33 billion -- which marks a surge of

about $15 billion.

Reliance Industries’ partners may have

to sell KG-D6 gas at $4.2/unit

Reliance Industries' partners BP and Niko

Resources may have to sell their share of

gas from KG-D6 at the current rate of $4.2

per unit from April 1 while others would

charge double the price, according the oil

ministry's latest decision that is being

examined by the law ministry.

In early July, the finance ministry and the

standing committee had raised the

question of penalising RIL for short supply

of gas from the KG-D6 block and

questioned certain factors in the formula,

forcing the oil ministry to review the

Cabinet's decision.

Coal India closes 2.3% down on CCI

report

Shares of Coal India saw selling after the

Competition Commission of India, the fair

trade regulator, said the company's fuel

pact with sponge iron makers is skewed in

the state-run miner's favour. The same

was observed by the fair trade regulator in

its probe into allegations the miner

misused its market monopoly to dictate

the terms.

Also, the bearishness could be attributed

to the fact that the miner has cut its

volume guidance for FY15. As per its latest

estimates, production for FY15 will be at

507 million tonnes.

FinNiche

NEWS

March 2014

Page 9

Financial Knowledge

FM can easily meet 4.6% deficit target:

economists

Higher revenue inflows towards the end of

2013-14 will help the government meet the

revised fiscal deficit target of 4.6 per cent

despite its having overshot the full-year

borrowing target two months before the

end of the fiscal, say economists.

Fiscal deficit crossed the full-year target at

the end of January by 1.6 per cent and

stood at Rs 5.32 lakh crore or 101.6 per

cent of the estimate of Rs 5.24 lakh crore,

which is 4.6 per cent of GDP. Finance

Minister P Chidambaram's Interim Budget

revised down the fiscal deficit target at 4.6

per cent below the redline of 4.8 per cent or

Rs 5.42 lakh crore for the fiscal.

Sensex, Nifty hit 5-week high on FII

inflows, strong buying

Rallying for the second week in a row, the

stock market jumped by about 2 per

cent on healthy buying in capital goods,

pharma, auto and consumer durable

shares on the back of sustained capital

inflows. Hawkish statements given by the

US Federal Reserve chief Janet Yellen

before the Senate Banking Committee also

aided the firm trend.

Smart rise in BHEL, L&T, Dr Reddy's Lab,

Sun Pharma, Cipla, Tata Motors, M&M,

Bajaj Auto, TCS, Wipro, Infosys, Axis Bank,

ICICI Bank, SBI, ITC, ONGC, Hindalco,

HDFC and Gail India kept the market in

upbeat mood. Foreign Institutional

Investors (FIIs) bought shares worth Rs

1,930.92 crore in the just concluded week,

including the provisional data of February

28.

Cabinet hikes dearness allowance to

100%

Government raised DA to 100 per cent,

from 90 per cent, benefiting its 50 lakh

Employees and and 30 lakh pensioners.

The preliminary assessment suggests that

DA hike will not be less than 10 per cent

and would be effective from January 1.

HDFC raises $300 million via foreign

borrowings to invest in low cost

borrowings

The country's largest mortgage lender

plans to use the funds for its affordable

housing scheme where the loan amount is

capped at Rs 25 lakh.

The Reserve Bank had permitted the

National Housing Bank and housing

finance companies to raise funds through

the external commercial borrowing route to

facilitate funding for owners of low-cost,

affordable housing units.

PSU banks borrowing cost may rise as

government infusion dips

Indian state-owned banks' borrowing costs

may tick up as the government's capital

infusion for the next financial year will only

amount to a third of the total they need,

pushing them to raise overseas debt. The

interim budget pegged government capital

infusion to public sector banks (PSBs) at

Rs 11,200 crore in 2014-15, less than the

Rs 14,000 crore allocated for 2013-14. The

government had pumped in about Rs

20,117 crore in 2010-11 and Rs 12,000

crore in 2011-12.

FinNiche

NEWS

March 2014

FinNiche

FUN CORNER

FinQuiz

1. While FCFF is discounted using WACC, FCFE is

discounted using ________.

2. India’s 1st bank to open a branch outside India is

________.

3. Beta of FMCG companies is expected to be ________.

4. Euribor is the interbank rate decided by ________.

5. Daily adjustment in the margin balance in a futures

account is called ________.

Last Week’s Answers

1) Raghuram Rajan

2) Cyrus Mistry

3) Ask/offer price

4) Offer rate

5) Under-valued

CARTOONS

FUN CORNER

Page 10

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Publisher V.V.Raviteja

March 2014