Finesse volume 6 (01 sep 07 sep 2014)

Finesse Xav ie r I n st i tu te o f

Management

Did You Know?

Nigeria’s statistician-general

announced that his country’s GDP

for 2013 had been revised from

42.4 trillion naira to 80.2 trillion

naira ($509 billion). The estimat-

ed income of the average Nigeri-

an went from less than $1,500 a

year to $2,688 in a trice. How

can an economy grow by almost

90% overnight

Inside this issue:

Story of Week 1

Top News of Week 2

World News 4

Market Snapshot 6

Terminologies 7

Rakesh Jhunjhunwala 8

1 st S 1st, Sept,2014-7th Sept,2014

India will get $35 billion from Japan over

the next five years for developmental

projects, including building of smart cities

and next generation infrastructure as also

cleaning of the Ganga, as Premier Shinzo

Abe on Monday pledged to partner

Prime Minister Narendra Modi’s

"ambitious" vision of inclusive develop-

ment.

The two sides also signed five pacts cov-

ering defence exchanges, cooperation in

clean energy, roads and highways,

healthcare and women while vowing to

take their relationship to newer level .

Narendra Modi invited Japanese busi-

nesses to join India's developmental ef-

forts with a promise of non-discriminatory

and speedy clearances and announced

setting up of a Special Management

Team under the Prime Minister's Office

(PMO) to facilitate business from Japan .

It is a win-win situation for both Japan

and India since Japan has the money and

needs a vast, diverse and big market like

India to invest in .

Japan also has the technical expertise to

realise PM Modi's dream whether it is of

the 100 smart cities, the bullet train or

investment in mega infrastructure pro-

jects .

The $35 billion funding, at an average of

$7 billion per year, would be the highest

from any country this .

Love in Tokyo.. The Indo-Japanese saga

The government approved 7 per cent hike in dearness allowance (DA), taking it to 107 per

cent of basic pay, a move that will benefit around 30 lakh central employees and 50 lakh

pensioners including dependents .

The increase is in accordance with the accepted formula, which is based on the recommenda-

tions of the 6th Central Pay Commission .

The combined impact on the exchequer on account of both DA and DR would be about Rs

7,691 crore per annum and Rs 5,127 crore respectively in the financial year 2014-2015 .

As per the practice, the dearness allowance is worked out on the basis of 12 month average

of Consumer Price Index for Industrial Workers (CPI-IW) .

Govt approves 7% DA hike; raises it to 107% from July 1

Story of the Week

“The Financial Newsletter of XIMB”

Finesse

Twenty two FDI proposals worth 3249 crores receive green signal from Govt.

Aviation regulator warns of suspending licences of 140 Jet pilots

The government said it has cleared 22 foreign direct investment proposals .

The proposals of KSK Energy Ventures, Telenor Mobile, InterGlobe Aviation and of 19 others

worth Rs 3248.83 crore has been cleared .

The FDI proposals have been cleared following the recommendation of the Foreign Investment

Promotion Board (FIPB), the Finance Ministry said .

The approval is also likely pave the way for IndiGo to come out with its IPO. The air carrier

has been planning to attract additional investment for several months .

Finance Ministry further said decision on nine FDI proposals, which were taken up by the FIPB

on August 1, have been deferred, which include that of HBM Private Equity India, Intas Phar-

maceuticals and Verizon Communications India .

The Directorate General of Civil Aviation (DGCA) has cracked down on

nearly 140 Jet Airways pilots for continuing to fly without clearing man-

datory biannual exams .

The notices were issued to the pilots, as also Jet's chief operating officer

and training chief, on the basis of an audit of its training programme by

a three-member DGCA team .

Through the show cause notices, the pilots asked as to why their licences

should not be suspended as they were flying without clearing their Pilot

Proficiency Check (PPC) tests, which have to be carried out every six

months .

The audit was ordered after one of the airline's planes plunged several thousand feet while flying over the Turkish airspace on

the Brussels-Mumbai route early last month

India losing edge in Global Competitiveness List

Weighed down by challenging economic conditions for most part of the past year, India has slipped to 71st position-the lowest

among BRICS countries-in an annual global competitiveness list, where Switzerland remains on top .

The annual list was released by Geneva-based World Economic Forum (WEF) .“The country's new government faces the challenge

of improving competitiveness and reviving the economy, which is growing at half the rate of 2010," WEF said .

Other countries in the top ten are Singapore(2), United States(3), Finland (4), Germany (5), Japan (6), Hong Kong SAR (7), Neth-

erlands (8), United Kingdom (9) and Sweden (10) .

China, which has improved its position by one place to 28th spot, leads the BRICS grouping, among which India has the least rank-

ing. Russia is ranked at 53rd position, followed by South Africa (56) and Brazil (57).

Top News of the Week

1st September,2014-7th September,2014

Power crisis looms as coal stock becomes critical in power plants

The country is on the brink of a major power crisis as several power

plants are running out of coal stocks. The number of thermal power plants

which have less than seven days of coal stocks left has shot up to 56 this

week from 52 last week, official figures showed .

As many as 12 major power projects entailing an investment of Rs36,000

crore and having a total generation capacity of 7,230 MW are strand-

ed due to a shortage of coal .

This comes at a time when Supreme Court had held that all coal blocks

since 1993 have been allocated illegally and arbitrarily, bringing uncer-

tainty to the fate of 218 block allocations .

Government had told the Supreme Court that it wanted to re-auction of all 218 coal blocks declared as illegal allocation but

sought its indulgence to exempt 40 of them which are functional and ready for the end use power plants .

Meanwhile the government may consider auctioning eight coal mines which have reserves of 1,773 million tonnes (MT) based on

the recommendation of Central Mine Planning and Design Institute (CMPDI) .

Balance of payments records surplus for 3rd quarter

The balance of payments recorded a surplus for a third straight quarter in April-June on the back of higher dollar flow into the

capital markets paving the way for a more stable rupee

The balance of payments registered a surplus of $11.2 billion in the first quarter up from $7.1 billion in the last quarter of the

FY14, according to Reserve Bank of India (RBI) data released . Last year, the balance of payments was $300 million in deficit

The country has seen a surge in short-term portfolio investment in stocks and bonds this year as investor confidence improved on

expectations of a stable government led by Prime Minister Narendra Modi

Foreign portfolio inflow has touched $30 billion so far this year compared with just $12 billion for the whole of 2013, when the

rupee had depreciated to a record low on concerns about the wide current account deficit (CAD) and sluggish economic

growth .

CAD for April-June stood at $7.8 billion (1.7 per cent of GDP), sharply higher than $1.3 billion in January-March but narrow-

ing from $21.8 billion (4.8 per cent of GDP) in the year-ago period .

Australia to sign civil nuclear deal to sell uranium to India

Australia Prime Minister Tony Abbott said that he hoped to sign a deal this

week to sell uranium to India for peaceful power generation, but halted

uranium exports to Russia over Moscow's role in Ukraine .

Work on an India-Australia agreement has been underway since Australia,

which has 40 per cent of the world's known uranium reserves, lifted a long-

standing ban on selling uranium to energy-starved India in 2012

Nuclear-armed India and Australia have been working on a safeguards

agreement since then to ensure any uranium exports from Australia are

used purely for peaceful purposes

India faces chronic shortages of electricity, and a quarter of its billion-plus

population has no little or no access to power. Two thirds of India's power

supplies come from burning coal, and it is keen to shift the balance towards nuclear over the next few years .

Finesse

U.S. Payroll Rise Is Weakest This Year at 142,000 for August

Zero economic growth for eurozone in second quarter

There was a surprise, sharp slowdown in job growth in the US in August. The number of people in work increased by

142,000 – the smallest rise in eight months and well short of the 225,000 gain predicted by economists .

Also more Americans gave up looking for work which meant the unemployment rate fell to 6.1 percent of the work-

force from the previous month’s 6.2 percent. In addition there were revisions to the numbers for July and June show-

ing 28,000 fewer jobs created than previously reported .

The slowdown in hiring is at odds with other data -- from manufacturing to auto sales to construction -- that show an

economy gathering pace. “The shortfall in payrolls is disappointing, but it sure looks like a fluke, not a trend,”

said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago .

There is confirmation that the eurozone’s recovery stalled in the second

quarter of the year. The latest EU stats are in line with an earlier estimate

that gross domestic product was flat compared to the previous three months .

The reasons were declining investment and a fall in inventories, coming

against a backdrop of heightened geopolitical tension – particularly

the Ukraine crisis. Investment has been weakening since the end of 2013 and

EU policy-makers believe growth will only return when it revives .

The figures explain the European Central Bank’s aggressive policy

moves .

Mexico Keeps Key Rate at Record Low 3% on Growth Outlook

Mexico’s central bank kept its key interest rate unchanged at a rec-

ord low after forecasting that faster economic growth won’t prevent

inflation from slowing toward target. Banco de Mexico’s board, led

by Governor Agustin Carstens, kept the overnight rate at 3 percent .

After cutting rates by 1.5 percentage points in the past 18 months,

the central bank reduced its 2014 growth forecast last month, saying

indicators of domestic demand such as confidence remain weak. This

closes the door to any hope that the bank will move rates in the re-

mainder of the year .

World News

http://www.euronews.com/tag/ukraine/


Irish Central Bank Splits Oversight as ECB Takes New Role

Ireland’s central bank is reorganizing its oversight arm to prepare for European Central Bank supervision of euro-area lenders,

which begins Nov.

Onyx then tried to run an auction to get a better price, but ultimately appears to

have been unable to find another party to pay The Dublin-based central bank will

create a department to perform inspections of lenders across the entire range of risk

areas. A separate team will handle “off-site” supervision, working with the ECB’s

Single Supervisory Mechanism on capital, liquidity and risk-management decisions.

. The decision was taken in light of the changes brought about by SSM, most notably

the need for on-site inspection work to be independent of day-to-day supervision of

credit institutions.

Ireland’s staffing reorganization shows the effect that centralized supervision will

have on national authorities. Even if bank supervisors remain locally appointed and

held accountable, the ECB link will improve their ability to talk tough to the banks in

their care.

German economy dips into red as EU manufacturing disappoints

Europe’s biggest economy may be running out of steam with the news that Ger-

man GDP contracted in Q2 for the first time in a year .

The results mirror similar Q2 performances in France and Italy, the eurozone’s

second and third largest economies. Unusually the blame cannot be laid at the

feet of the traditionally thrifty German consumer as domestic consumption and

spending stood up well; it was in terms of investments and export sales that

Germany fared badly .

Confidence in the short-term future is low, and the reason goes beyond business

involving geopolitics due to the Ukraine crisis .

Another particular concern is the decline in French manufacturing activity, down at its fastest pace in 15 months .

Fed Economists See Financial Stability Risk from Low Rate

Monetary policy accommodation to help the economy may backfire by creating conditions that could undermine financial stabil-

ity and cause sharp downturns, according to a report by two top Federal Reserve researchers.

“Accommodative monetary policy eases financial conditions, but may also contribute to the buildup of financial vulnerabilities

and hence increase risks to financial stability,” Adrian and Liang write in a paper released Sept. 2.

Fed officials have said they are monitoring markets for signs of unsustainable asset-price increases and excessive risk-taking

after they’ve held the main rate near zero since December 2008. Also, maintaining financial stability and guarding against cri-

ses an “unwritten third mandate” alongside Federal Reserve Act requirements to ensure price stability and full employment.

Market Snapshot

Finesse

Equity benchmarks saw consolidation (with marginal downside) for the second consecutive session on Friday as

investors remained cautious after indices hit record highs in middle of the week and on weakness in global equities

ahead of US jobs data. The 50-share NSE Nifty struggled for the second day to hold 8100 level but it could not,

down 9.10 points to 8086.85.

With bulls continuing their run unabated on Dalal Street, several companies are gearing up to take the plunge in

the equity space. The healthcare sector is seeing a strong buzz with companies lining up to raise over Rs 3,000

crore through initial public offerings.

The BSE Sensex was down 67.16 points or 0.25% at 27,018.77.On BSE, so far 42,954 shares were traded in the counter, compared with an average volume of 1.26 lakh shares in the past one quarter.The stock hit a high of Rs 2,381 and a low of Rs 2,307.85 so far during the day. The stock hit a record high of Rs 2,940.55 on 15 April 2014. The stock hit a 52-week low of Rs 2,254.05 on 14 February 2014.The stock had underperformed the market over the past one month till 4 September 2014, falling 0.16% compared with 5.3% rise in the Sensex. The scrip also un-derperformed the market in past one quarter, falling 15.76% as against Sensex`s 9.19% rise.

Terminologies


Salad Oil Scandal

One of the worst corporate scandals of its time. It occurred when Allied Crude Vege-

table Oil Company discovered that banks would make loans secured by its salad oil

inventory.

When the ships full of salad oil would arrive in the docks, inspectors would test it

and confirm that the ship was full of salad oil. However, the company didn't remind

anyone that oil floats on water. They had filled salad oil tanks with water and put a

few feet of oil on top, fooling everyone. The company would even transfer oil to

different tanks while taking inspectors out to lunch. In 1963, the scam was busted

and over $175 million worth of salad oil was missing.

Market Cannibalization

The negative impact of a company's new product on the sales performance of

its existing related products. Market cannibalization refers to a situation

where a new product "eats" up the sales and demand of an existing product.

This can negatively affect both the sales volume and market share of the ex-

isting product. Market cannibalization occurs when a new product intrudes on

the existing market for the older product, rather than expanding the compa-

ny's market base. Rather than appealing to a new segment of the market and

increasing market share, the new product appeals to the company's current

market, resulting in reduced sales and market share for the existing prod-

uct. Also called corporate cannibalism.

Suicide Pill

A defensive strategy by which a target company engages in an activity that might actually ruin the

company rather than prevent the hostile takeover. Suicide pills are extreme actions that differ from

situation to situation, some of which result in disolving the company; however, the underlying in-

tent is to avoid the hostile takeover of the firm by any means necessary. Also known as the

"Jonestown Defence."The suicide pill defense can be viewed as an extreme version of the poison

pill. Such a defense is most often implemented in situations where a competitor attempts a hostile

takeover of a firm, and the target's management or current ownership, viewing the takeover as a

forgone conclusion, would prefer the company cease to exist than see the firm taken over by the

competitor. Taking on excessive amounts of debt would be one form of a suicide pill.

RAKESH JHUNJHUNWALA

Finance Association of XIMB

[email protected]

LET FINANCE BE IN THE BLOOD OF EVERY XIMBIAN

X - F in

We are on the Web!

http://x-fin.blogspot.com/

X-Fin is the finance association of XIMB. This committee emphasiz-

es on fulfilling the needs of students of XIMB by ways of providing

tutorials in finance related subjects, giving economy-related advic-

es, and also by conducting live projects. It is a forum for lively dis-

cussion and debate among the finance enthusiasts of the institute.

X-Fin attempts to develop finance acumen among the student com-

munity of XIMB through conducting knowledge sharing sessions

and giving information on financial happenings around the world.

RakeshJhunjhunwala (born 5 July 1960) is an Indian investor and trader. He is a quali-fied Chartered accountant. He manages his own portfolio as a partner in his asset man-agement firm, Rare Enterprises. Jhunjhunwala was described by India Today magazine as the "pin-up boy of the current bull run" and by Economic Times as "Pied Piper of Indian bourses". RakeshJhunjhunwala plunged into full-time investing soon after completing his education. He started his career in 1985 when the BSE Sensex was at 150. He made his first big profit of Rs 0.5 million in 1986 when he sold 5,000 shares of Tata Tea at a price of Rs 143 which he had purchased for Rs 43 a share just 3 months prior. Jhunjhunwala's portfolio of stocks is tracked religiously. His latest stock portfolio is the subject of many

debates and analysis.

Like Warren Buffett, he is a long term investor, however he acknowledges that 'trading' income helped him build his capital base and remains.Jhunjhunwala is the Chairman of Aptech Limited and Hungama Digi-tal Media Entertainment Pvt. Ltd. and sits on the Board of Directors of various Indian companies such as Prime Focus Lim-ited, Geojit BNP Paribas Financial Services Limited, Bilcare Limited, Praj Industries Limited, Provogue India Limited, Con-cord Biotech Limited, Innovasynth Technologies (I) Limited, Mid Day Multimedia Limited, Nagarjuna Construction Company Limited, Viceroy Hotels Limited and Tops Security Limited. As of late 2014 his portfolio included A2Z Maintenance, Titan Industries - 9% stake, CRISIL -5.7% stake, [Geometric] - 19.14% stake, [Lupin Ltd.] - 1.87% stake and KarurVysya Bank . %. Jhunjhunwala invested $ 4.6 Million (INR 26 crore) in A2Z Maintenance increasing his stake in the company by 3.57%,

taking his stake in the company to 23.2 per cent.

Finesse

Finesse volume 6 (01 sep 07 sep 2014)

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Transcript of Finesse volume 6 (01 sep 07 sep 2014)