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Term of Week

In Focus

Opinion

Personality

Tech World

Contango &

Backwardation | 6

Ways our smart life

changed in 2014|12 Rakesh

Jhunjhunwala |11

Success of government to

address fiscal deficit target| 4

DECEMBER 28, 2014 | A FINNICHE INITIATIVE

Japan’s Inflation

Struggle| 2

Japan’s Inflation Struggle

Success of government to

address fiscal deficit target

Contango & Backwardation

Rakesh Jhunjhunwala

Ways our smart life

changed in 2014

December, 28 | 2014 | Volume 27

Juniors are busy with their preparation for end term which will start tomorrow onwards.

Whereas, seniors are already busy with the on going exams. We wish good luck to everyone

for their exams. The common thing to everyone is bearing with the extreme cold of Delhi.

Club FinNiche releases its weekly magazine FinXpress with the In Focus talking about the

‘Japan’s Inflation Struggle’. The Opinion gives an overview of ‘Success of government to

address fiscal deficit target’.

The term of the week describes “Contango & Backwardation". A market is said to be in contango when the forward price of a futures contract is above the expected future spot price and backwardation is its opposite situation. Do have a look at the market section, Tech world which brings to you “Ways our smart life changed in 2014” and Personality of the week, Rakesh Jhunjhunwala. Hope everyone likes the revamped version of magazine. 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

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

US removed the restrictions

placed on travel by Modi when

he was elected PM

Agenda includes UNGA meet-

ing, meeting with President

Obama, CEOs of US firms as

well as Indian Diaspora at the

famed MSG

Japan’s struggle with inflation continues to

hurt them. With Prime Minister Shinzo Abe

trying hard to curb the falling prices, it is a

bad blow to his campaign to emerge from

recession. It can be attributed to the

continuous fall in oil prices which have

highlighted the challenges faced by the central

bank.

Labor market has been the single market

which has shown improvement rest

everything has been stagnant in the third

world’s largest economy, signaled by the sales

tax increase to 8% from 5% in the month of

April which resulted in high depth slump.

Fall in the industrial output to 0.6% made the

situation worse by hurting the policies to get

the country out of recession. This was due to

the high performance in two major

components such as computer chip making

equipment and boilers and consistent market

expectation of a 08.% increase.

Job Availability hit a 22-year high with part

time workers increasing by 20 million for the

first time in 30 years. No improvement in the

increase in wages has been encountered

despite the increase in jobs, a bad signal for

consumption which decreased to 2.5% in

November.

Consumer Price Index’s rate of increase fell to

0.7% in November from 0.9% in previous

month , far from Bank of Japan’s target of 2%.

This CPI is adjusted according to the change

in food prices and impact of sales tax increase

in April. With this news the yield fell to

record low of 0.30% on the benchmark 10-year

government bond.

With the falling oil prices and reduced import

costs it is expected that Bank of Japan may be

forced to relax their terms again. This would

be the second time within the span of 2

months when BOJ has tried to up the

economy by flooding cash in the market by

- By Vipul Kumar Singh

Article titled “A Renewed US-

India Partnership for the 21st

Century”. Also releases a joint

statement focusing on key

aspects of strategic relation-

ship

Meets with 11 CEOs in a

breakfast meeting and 6 CEOs

face to face, the next day.

Assures of stability in tax law

government bond purchases. If analyst are

to be believed the CPI is expected in the

negative territory if conditions d not

improve on time.

National bank authorities have been putting

a daring face on the stoppage in expansion

coming about because of the lower oil costs,

saying that less expensive rough will

empower request, in the long run including

to upward weight costs. In any case

economists suspect that such a transmission

could require some investment to emerge

where utilization has been dreary. In the

quick future, drops in petroleum expenses

will just force down the swelling rate.

In the wake of taking office in late 2012,

Prime Minister Abe propelled a strategy

rush which networks government going

through with monstrous financial

facilitating by the national bank and changes

to the very managed economy. The genius

using development offer, named

"Abenomics", has stalled as the April trek in

the business assessment imprinted customer

using. GDP has also taken a beating after the

increase in the sales tax , has become

negative and is falling continuously.

Mr. Abe has effectively deferred a second

sales tax increment until 2017, and taking

after a conclusive race triumph not long ago

and the dispatch of his new organization in

the not so distant future, he is attempting to

recover the economy on track. His

organization is required to advertise a boost

bundle worth around ¥3.5 trillion ($29

billion) in the advancing days. The sum is

short of what 1% of Japan's yearly monetary

yield, and economists' appraisal of the

normal measures has been blended.

The savings funds rate in the year to March

was less 1.3 every penny, the first negative

perusing in information again to 1955.

Genuine profit fell 4.3 every penny year on

year in November, a seventeenth successive

decay and the steepest tumble since

December 2009. With these situations

looming over the head it is important for

Japan to come up with and anti-recession

measures to maintain it as a third largest

economy.

Success of the Government to address Fiscal

Deficit target

- By Priti Sureka

The forecasted Fiscal Deficit target for the

fiscal year 2014-15 is 4.1% of GDP or Rs. 5.31

lakhs crore. Fiscal deficit basically represents

the amount by which the receipts of central

government excluding borrowings fall short

of its expenditure during the relevant year. It

is usually represented as a percentage of

GDP.

To meet the target, the Finance Minister Mr.

Arun Jaitley wished to reduce to amount of

subsidy bill. During the year, it reduced its

major subsidy from 2.2% of GDP in 2013-14

to 2.03% of GDP in 2014-15. The recent

decision taken by the NDA Government to

deregulate diesel prices also aimed to reduce

the amount of subsidy as reimbursement to

the oil companies was one of the costliest

subsidies for the Indian Government. These

decisions ultimately resulted in curtailment

in expenditure bringing clarity between

diesel and petrol prices and having private

players like Reliance Industries into the

market.

The fiscal deficit for the period April-

September 2014 crossed Rs. 4.38 lakhs crore

or to put it in another way it crossed around

82.5% of the full year estimate. If we compare

the said percentage with that of

corresponding period of the last year, the

fiscal deficit target crossed 76% of the total

estimate of 2013-14.

There are also some enhancements in tax

collections as various tax amendments have

been implemented with tough penalty in case

of any default or any tax evasion. So overall,

the receipts of the government increased.

Also talking about the deferment of the

rollout of the Food Security Act, again this

will act in favor of the government to address

the set target as the government already set

aside Rs. 1.15 lakhs crore for food subsidy.

So, this year the government is confident of

meeting the target as halfway through the

financial year the government ran up fiscal

deficit to the extent of 82.5% of its estimate.

Other factors which supported the

government would be

Divestment of government stake in

ONGC, CIL, NHPC

Huge tax refunds

A stronger rupee

Softer crude oil prices as this resulted in

less fuel subsidy

A 10% cut in non-plan expenditure

Tightening spending on some

programmes ( e.g. MGNREGA, a rural

job programme )

However, if in case the government feels

unable to meet the fiscal deficit target of 4.1%

in the remaining year, it can take help from

the Reserve Bank of India. The central bank

is having a cash surplus of more than Rs. 1

lakh crore and is expected to earn more and

higher surplus this year on account of active

market interventions in the currency market.

The central bank already transferred its

surplus of Rs 52,600 crore to the government

in the month of June this year and this is the

largest transfer ever made by the RBI to the

government. The central bank also

transferred Rs 33,000 crore last year.

But this option should be exercised by the

government with much apprehension. For

the time being, the government should try its

own to meet the target without any help

from the RBI. Rather, the liquidity support

by the central bank should be used in case of

any unanticipated loss which could

tremendously affect the economy of the

nation.

However, this sounds good but the real

picture is very different. To meet the target,

government also depends on policymakers.

If revenue targets are not met then it is the

policymakers’ call whether to cut capital

spending or not. Another problem for the

government is that they lack in projecting

revenues to accrue. They kept on

underestimating expenditures and

overestimating the revenues, resulting in

failure to meet fiscal deficit target in the

previous years.

As said by the Finance Minister, the

government has to meet the fiscal deficit

target of this year as many international

investors and various credit rating agencies

will be keeping their eye on it.

Therefore, the government has to keep a tab

on receipts and expenses for the next quarter

in order to achieve the target as this will also

help in stimulating the growth momentum.

These terms are important to

companies involved in

commodities hedging and

speculating activities. In 1993,

Metallgesellschaft lost more

than $ 1 billion because the

hedging system deployed by

the company made profits on

normal backwardation but

could not foresee changing

trends in contango.

In a commodities market, every commodity like

gold or natural gas has a spot price associated with

it, which represents it’s the current delivery price.

Commodities are bought and sold in two kinds of

market: the cash markets and futures markets. In

cash markets, physical commodities are traded and

transactions are settled in present or on the spot.

Whereas in a futures market, the exchange or trade

takes place at a predetermined time in future. In

the futures markets, the buyer enters into a forward

or futures contract which is basically an agreement

to buy or sell the commodity at a predetermined

price in the future, commonly known as forward or

futures price.

A market is said to be in contango when the

forward price of a futures contract is above the

expected future spot price. In this case, the futures

curve which represents the current price of futures

contract over a period of time is upward sloping

which means that the buyers are willing to pay a

premium price for a commodity in future more

than the expected actual price. The buyers pays a

premium in order to avoid the costs associated

with transporting, storing and insurance of the

commodity. With the expiration of futures

contract, the “cost to carry” or storage cost of the

commodity increases; hence, the commodity is

priced higher in future. Thus, in other words, the

price of delivering an asset in the future is higher

than the price of delivering it now.

Normal backwardation, which is the exactly

opposite situation to contango, occurs when the

forward price of a futures contract is below the

expected future spot price. It is represented by an

inverted futures curve which shows that the price

of future deliveries is below the current spot price.

The higher current prices of the commodity can be

attributed to a temporary shortage in cash market

due to factors such as war, weather, natural

disaster or any other geopolitical event. For

example, if a hurricane disrupts an oil refinery

production; the current prices would be higher

than the future ones due to shortage of supply at

that point of time. Similarly, if the supply of silver

is tight as the investors are holding on to the

physical silver; the price of current contract would

be higher than the later ones. The price of future

deliveries would eventually fall due to expected

end of disruption in supply. When we plot these

prices on a graph, the resulting curve would be

downward sloping. During backwardation, the

traders expect the prices to decrease over long

term.

Thus, investors and traders should maintain

awareness of such dynamic market states by

evaluating the current or spot price and prices of

near and far futures contracts.

For the second consecutive

week both S&P 500 and Dow

have recorded profits riding on

the back of bullish macro

economic data and

accommodative measures

announced by the central bank

INDIAN MARKETS

This week has ended in a sour note as both BSE and NSE have ended in red amidst

sustained sell off by the FII’s and month end derivative contracts profit booking. In

addition to this, the possibility of interest rate hike by the US federal reserve has

resulted in strengthening of dollar which has had an negative impact over the capital

inflows to the country. Also the government’s inability to pass key bills like GST and

insurance bill during the winter session had also negatively impacted the bourses.

BSE SENSEX

CNX NIFTY

Open High Low Close

SENSEX 27,215.19 27,370.63 27,091.38 27,208.61

NIFTY 8,204.80 8,234.55 8,147.95 8,174.10

COMMODITIES

EXCHANGE RATES INTERNATIONAL MARKETS

Commodity Unit Rs / Unit % Change

Gold 10 grams 27,073.00 +1.89

Silver 1 kg 37,315.00 +2.39

Crude Oil 1 bbl 3,547.00 -0.08

INR/ 1 USD 63.64

INR /1 EURO 77.74

INR/ 100 JAPAN YEN 52.93

INR / 1 POUND STERLING 98.98

Open High Low Close

NYSE Comp 10,535.52 10,919.51 10,360.03 10,890.24

NASDAQ 4,788.06 4,814.95 4,787.85 4,310.25

S&P 500 2,083.00 2,083.75 2,081.75 2,083.00

FTSE 100 6,598.18 6,618.09 6,586.05 6,609.93

CAC 4,309.40 4,316.39 4,295.02 4,295.85

DAX 9,887.24 9,922.11 9,848.06 9,922.11

NIKKEI 225 17,778.91 17,843.73 17,769.01 17,818.96

SSE 50 2,680.16 2,937.65 2,680.16 2,937.65

Hang Seng 23,290.42 23,421.10 23,290.42 23,349.34

Revival plan: SpiceJet eyes Rs. 1,200cr equity infusion, Government unimpressed

Ailing budget carrier SpiceJet has told aviation ministry officials that it is hopeful of

receiving an equity infusion of Rs. 1,200 crore and arranging another Rs. 600 crore through

external commercial borrowings by March next year.

Ministry officials were left unimpressed by the presentation made by SpiceJet’s top

management, which contained no specific details about the airline’s funding plans. SpiceJet

have been asked to submit a clear cut plan by next week, giving concrete details of how and

when it planned to raise capital, how it planned to sustain operations and pay various

vendors.

The 15-day time given to SpiceJet to make payments to the Airports Authority of India ends

on December 31.

Raghuram Rajan Sees High Possibility Of Returning To Strong Growth In 2 Years

India is currently not in a phase of strong growth, but there is high possibility that the

country will return to strong growth in next two years, and lower oil prices are helping

inflation to ease, Reserve Bank of India Governor Raghuram Rajan said.

Regarding the possible interest rate hikes by the U.S. Federal Reserve, Rajan said faster

increase in U.S. interest rates could be a risk to global asset prices. He said expectations are

that U.S. rates will rise slowly in the backdrop of low global growth.

Rajan also said the central bank is not targeting to defend the rupee at any specific level, but

wants to curb volatility. He assured that India has made major improvements since the rupee

volatility experienced in the July-August period last year.

Swachh Bharat: Govt sets Rs 42,000 cr investment target from private sector

Government has set an investment target of Rs. 42,512 crore from the private sector under

Swachh Bharat Mission in urban areas. An official release said, out of the total project cost of

Rs. 62,009 crore central assistance would be Rs. 14,623 crore while the states and Union

territories would be required to contribute Rs. 4,874 crore.

It said that the Ministry of Urban Development has withdrawn itself from appraisal and

approval of various project proposals under the Swachh Bharat Mission to be implemented

in all the 4,041 statutory towns and cities across the country. Under this Mission, it is targeted

to build one crore individual household toilets besides 2.52 crore community toilet seats.

In an interview , Rakesh Biyani,

Joint Managing Director, Future

Retail, said that the festive

season was below the

expectations.

Though the company is hopeful

from the winter season sale

period which should bring back

consumers in a big way.

Putting a question mark on the

effectiveness of government’s

farm debt waiver programmes,

RBI Governor Raghuram Rajan

on Saturday said such

schemes have constrained flow

of credit to farmers.

World Bank Approves $75 Million Project in Telangana, India - Expected to Improve

Incomes and Health of Farmers

The project will target small and marginal farmers in the 150 most backward mandals of

Telangana covering 5,000 villages. The World Bank on December 27, approved a $75 million

credit for the newly-created state of Telangana to enable the state enhance agricultural

incomes of small and marginal farmers and ensure increased access to services related to

health, nutrition, sanitation and social entitlements.

The Telangana Rural Inclusive Growth Project will focus on increasing economic

opportunities for small and marginal farmers, especially from Scheduled Caste (SC) and

Scheduled Tribe (ST) households in the 150 most backward mandals (cluster of villages

across gram panchayats) by helping them gain access to extension services, good quality

inputs like improved seeds, market services, and institutional credit.

Volkswagen's Audi to step up investments in 2015-19 on models, plants

Audi, which contributes 40 percent of operating profit at Europe's biggest automotive group,

said on Saturday it will push up investment in car-making operations by 2 billion euros

($2.44 billion) to a record 24 billion euros over the next five years.

Seventy percent of spending will be assigned to developing new models and technologies

such as emission-cutting plug-in hybrid vehicles, Audi said. The brand is also working on

purely electric cars to catch up with BMW and Tesla Motors . More than half of the funds

will be spent on Audi's two German factories in Ingolstadt and Neckarsulm which accounted

for half the carmaker's nine-month output of 1.34 million autos, Audi said, confirming a

Reuters story.

Prasar Bharati trying to expand online reach, says CEO

Prasar Bharati is trying to expand its online presence to reach a wider audience, its Chief

Executive Officer Jawhar Sircar said on Friday.

Referring to the young generation’s increasing use of Internet, he pointed out that if Vividh

Bharati had online presence then its reach would widen. “These days the youth are listening

to everything on the Internet. If Vividh Bharati goes online then listeners from California to

Vancouver will be able to listen to it. We are currently conducting an experiment in this

regard,” said Mr. Sircar. He was in Kolkata to launch Prasar Bhararti’s Vividh Bharati service

on FM in the city. Pointing out that the FM channel would also be accessible on cell phones,

Mr. Sircar said: “The Government of India is very keen on mobile FM.”

TRAI is planning to review the

freedom given to direct-to-

home service providers in

deciding subscription charges

for HD channels. There are

about 40 HD channels in the

country and DTH operators

charge premium for them

compared to normal quality

channels (standard definition)

Continuing with the

advancement, major indices

closed the week with second

consecutive weekly gain as the

S&P lifted by 5.9 percent in

seven sessions.

On the other hand, the Dow

increased for a seventh straight

day, with its longest streak

since March last year.

Rakesh Jhunjhunwala is an Indian investor

and trader. He is a qualified Chartered

accountant. He manages his own portfolio as

a partner in his asset management firm, Rare

Enterprises. Jhunjhunwala was described by

India Today magazine as the "pin-up boy of

the current bull run" and by The Economic

Times as "Pied Piper of Indian bourses".

Rakesh Jhunjhunwala grew up in Mumbai,

India where his father was posted as an

Income Tax officer. He graduated from

Sydenham College and thereafter enrolled at

the Institute of Chartered Accountants of

India Chartered Accountant.

Career

Rakesh Jhunjhunwala 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 is the chairman of Aptech

Limited and Hungama Digital Media

Entertainment Pvt. Ltd. and sits on the board

of directors of various Indian companies.

Investment Philosophy

His stock picking strategy is influenced by

George Soros' trading strategies and Marc

Faber's analysis of economic history. He

endorses the rule, "the trend is your friend."

His investment philosophy says "Buy right

and hold tight".

He claims to base his trades, in part, on the

business model of a company, its growth

potential, and its potential for longevity. He

factors in heavily the competitive ability,

scalability and management quality of the

enterprise. The entrepreneur, according to

Jhunjhunwala, makes an invaluable

difference to his expected investment returns.

According to Jhunjhunwala, believing in the

vision and the beliefs of the entrepreneur and

evaluating risks that may not be perceived by

the entrepreneur are key success factors for a

trader.

Jhunjhunwala considers Radhakishan

Damani as his guru.

5h July, 1960

Bombay University &

The Institute of Chartered

Accountants of India

USD 1.90 Billion

Ways Our Smart Life

Changed in 2014

A lot has changed in 2014 from the

technology standpoint. Although till a few

years back, focus of technology was

miniaturization, nowadays people want

bigger and better. Following are some of the

most notable changes that made our smart

lives even smarter.

Budget Smartphones: Prior to 2014, the only

way to flaunt a cool high performance phone

with HD screen and a quality camera was to

shell out some extra money. However, thanks

to Motorola's Moto E which offered all

unexpected features in a sub Rs. 10,000 price

tag. Soon, 2GB RAM, snapdragon quadcore

processors became the not so exclusive

features of smartphones. Post Moto E, there

were a slew of launches including Xiaomi

Redmi 1s, Android One Series, Micromax

Unite 2.

Portable Chargers: Smartphones have

undoubtedly made our lives easy. From e-

mails, to social networking, to gaming. You

say it. You have it. All at the cost of a cool

smartphone with a big battery. But what if

battery isn't big enough? Enter Portable

Chargers! The newest member in our

oversized pockets. One full charge would

refill your phone's battery three times. Soon

we will have phones rechargeable by solar

energy. It's time we put global warming to

good use!

Curved TVs: There was once a limit to screen

dimensions. The size of the drawing room

wall ofcourse. Not anymore. These super

luxury items are the next step in TV

technology. They offer a splendid TV viewing

experience with smart functions and

surround picture. Seems LCDs are old school

now.

Bigger i-phones: The much awaited phablet

size i-phones were launched in 2014. Late

Steve Jobs once said “No ones gonna buy

them”. But here we see Apple catching up to

global peers in a race with no finish line. The

consumer preferences are shifting and with

the kind of content people are consuming on

smartphones, a bigger screen is a much

needed upgrade.

- By Mukul Gupta