The IBS Times; 181st Issue; July 2015

CHINA’S STOCK MARKET CRASH 2015

BY APOORVA ANUSHA

The IBS times July 2015, Issue No. 181

GAME OF INDICES! BY SAMEENA USMAN

INKED: U.S. FATCA AGREEMENT BY PRIYANKA MALIK

MEET THE MARKETS

BY KOLISETTY AISHWARYA

DECODING THE GREEK SAGA AND ITS IMPACT ON WORLD

BY SACHI KHESKANI

1|JULY2015

FinStreet, IBS Hyderabad

ISSUE NO. 181, July 2015

What’s Inside

Page 28 2|JULY2015

INTELLIGENCE BEYOND SUCCESS

LETTER FROM THE EDITOR TEAM IBS TIMES KAUSHIK CHANDELL (EDITOR-IN-CHIEF) AVIK CHAKRABARTY (MANAGING EDITOR) ALISHA SINGH APOORVA ANUSHA

KOLISETTY AISHWARYA MANJARI SHARMA NAVJOTH SAHU PRIYANKA MALIK RAHUL MISHRA RIPU TANDON SACHI KHESKANI SAMEENA USMAN

Dear Readers, Greetings from Team FinStreet!

Your keen interest and association with The IBS Times has helped us to cross the mark of 35,000 impressions. We are very grateful to our readers for their continued support and love towards our magazine. Every month we try to make our magazine more of a learning experience for our readers.

As change is inevitable, this’ll be the last issue by the senior team for the year 2015. We have formally recruited and trained our juniors and they’ll be taking over as the new writing team for The IBS Times from the coming month.

So without wasting any more time, we proudly bring to you the 181st issue of The IBS Times.

Our team, in this edition of The IBS Times has shed light on recent commercial, economic and international developments such as Greek Crisis and its Impact on World, U.S. FATCA Agreement and Nestlé’s Two Minute Trouble. This issue also shares the insights on Canada’s Trade Deficit Widening. Also, we bring to you Industry Overview on the FMCG Sector along with our beloved Market watch going by the name of Meet the Markets. From the investment point of view, this issue also brings to you an exhaustive report on Mayur Uniquoters Ltd. By Team Vriddhi Research.

SRISHTI KARMAKAR ABHINAV BANERJEE ANUPAMA KUMARSWAMI CHESTHA KUMAR EYAMINI N

Hope you have an enriching experience reading The IBS Times. Your feedbacks and opinions will help us make it better.

Kaushik Chandell Team FinStreet

HEMLATA HAJONG ISHAN GUPTA JATIN SHARMA JHARNA SONI PRATEEK PANDEY RANU SUPRIYA RAVI RANJAN PANDIT ROHIT TILLU SAKSHI ISSAR SANDHYA ADHARAN SUPRIYA GAUR SWARUPA ROY 3|JULY2015

-ALBERT EINSTEIN

A RED FLAG?

CHINA’S STOCK MARKE CRASH 2015

-Apoorva Anusha

In the last week of June where all headlines were

juddering halt on 9th July 15, after a nail-biting three

focused on Greece’s economy, another financial crisis

weeks that left investors $3 trillion poorer. The halt

has been competing for the world’s attention – shares

came after an escalating series of intervention that

on China’s stock markets have nosedived, promoting

culminated in the suspension of trading in more than

fears of the biggest financial disaster since the 1929

half the listed companies and strict instruction not to

Wall Street crash. More than $3.2 trillion has been

sell that could influence. A significant amount of

wiped out in less than a month and this amount is ten

investment money came from US hedge funds to

times the size of the Greek economy. Stock appear to

invest in China in the period from 2009- 2011 and

be pulling back from the brink, since the Shanghai

this has made its way into some speculative

composite index dropped from a 52- week high around

investments in China, which Beijing doesn’t approve

5178 on June 12.

of moreover local banks are adding to the problem.

This is not the first time when China is going through boom-and- bust cycle. This is the second time when China has come across this situation. During 2005 to

Local banks and investors have basically become loan sharks, charging interest rate on high risk for short-term investments.

2007 China’s benchmark stock index, the Shanghai

I am convinced that the present round of tightening

composite grew six times from 1000 to 6000. And then

is aimed at killing off these local loan sharks by

the market crash down to 2000 by end of 2008. There

depriving them of cash, so that Beijing can get back

was an obvious reason for this boom-and- bust cycle. In

to the kind of infrastructure investment and

mid-2000 Chinese economy was growing rapidly so the

development which will move Chinese industry up

stock also went up. But later when Chinese economy

the value chain. The manipulation that took place

was growing rapidly so the stock also went up. But later

was that a lot of gains and losses in stock markets

when Chinese economy started to implode the Chinese

were unrealized. This means that, gain or loss which

stock also crashed.

is shown in the account is not ‘real’ until and unless

Not only China, but also countries like Brazil and Russia, which are emerging market, are suffering through secular bear markets that will last years. The underlying problem is that while the Chinese economy

the transaction is made. In this sense the stock market has a delayed effect on household saving, which can be fully mitigated if the market rises later on, as they are not written off.

has made great strides and became a global powerhouse

Official pronouncement balanced the public’s

but China’s investing culture remains backward and

irrational behavior. Some media blamed foreigners.

immature. The Chinese stock market crash came to a

In reality, the authorities were paying the price of a

juddering halt on 9th July 15, after a nail-biting three

yearlong rush into the market that the official media

| J Uleft L Y 2investors 015 weeks 4that $3 trillion poorer. The halt

has encouraged with the promise of steadily rising

came after an escalating series of intervention that

returns.

yearlong rush into the market that the official media has encouraged with the promise of steadily rising returns.

It’s a traumatic month for China’s small investor’s.

According to a survey last year, two –third of the investors have not finished high school. China can ill afford this market failure. Its stock market has soared and crashed before also but earlier boom were tied to a rising economy. This bubble took place in an economy that is losing steam. China’s miracle years have played out, and the government faces a difficult transition to

are subject to a cap determined by the central bank.

the higher value, more efficient and market-oriented

Banks may try to maintain their margins by

economy needed to sustain the next phase of

increasing their lending premiums which is the

development.

difference between the benchmark rate and the cost

China’s central bank also known as people’s bank of china took a rare step to bring out people of this stock market crash. It has cut down its interest rate and amount of reserve that certain banks are required to hold. This step will lower the borrowing cost and also stabilize the growth of Chinese economy. It has cut its lending rate to 4.85% and one-year deposit rate by the same scale to 2%. Central bank has never lowered its interest rate and reserve requirement on the same day.

Last time it was forced to do during global financial crisis in the year 2008.

of loans. These rate cuts would have a very limited impact on lowering companies financing costs.

A banking official at Bank of China Ltd., one of the largest state-owned lenders, said rates on existing loans would be lowered because they are set in relation to the benchmark rate. But for new loans, the bank is likely to leave the rates “unchanged” because lending is growing riskier as the economy weakens.

Immediately after the PBOC’s announcement, some banks including Citic Bank Corp., Ping An Bank Co. and Bank of Ningbo Co. increased their deposit rates to the maximum limit allowed. It is

The cuts to the lending and deposit rates don’t match so

expected that by increasing deposit rates they might

the difference between how much banks charge

be able to get a leg-up in the competition for Chinese

borrowers and how much they pay depositors will

savers.

narrow sharply and ultimately pressuring profits.

It is expected that China will recover soon.

The benchmarks are supposed to act as guidepost for rates on lending and deposits. Chinese banks can change lending rates as they wish, but they don’t have complete freedom to price deposits. Rates on deposits are subject to a cap determined by the central bank.

5|JULY2015

INDUSTRY OVERVIEW

CONSUMER MARKETS (FMCG SECTOR)

-Ripu Daman Tandon

The Indian consumer confidence continues to remain

As per the study by McKinsey Global Institute

the highest in the world & has shown improvements in

(MGI), if the country can sustain its current pace of

the fourth quarter of the calendar year 2014. It is one

growth for some time - and that is likely - average

sector that plays a leading role in circulation of money

household incomes will triple over the next 20 years

and is also one of the significant measures in

and India will become the fifth largest consumer

understanding the circulation of money within the

economy in the world by 2025. The biggest factor

economy. The sector has been riding high on positive

that can be associated with the growth in the industry

economic environment and lower inflation. As on July

has been the change in policies by the Government

13, 2015 the Consumer Price Index(CPI) inflation

of India that have attracted Foreign Direct

stands at 5.4% which has been towards the target of the

Investments (FDI’s).

Central Bank i.e. Reserve Bank of India. The finance

As per the report by Deloitte which titles “India

ministry & RBI agreed to put in place a monetary policy

Matters: Winning in Growth Markets”, India could

framework to focus on flexible inflation targeting. The

become the world's largest middle class consumer

Indian urban consumer markets received a score of 129

market with a total consumer spend of nearly US$ 13

in Q4 (2014) as compared to the score of 115 which the

trillion by 2030. Online retailing, both direct and

markets received in Q4 (2013). This given score helps

through marketplaces, will grow threefold to become

India top stay on the top of the global consumer

a Rs 50,000 crore (US$ 8.06 billion) industry by

confidence index for the quarter and is followed by

2016, as per rating agency Crisil. The growth of

Indonesia & Philippines.

online market places/ internet retail is expected to

The global market has also played its role to help India

boost the offline stores. The consumer markets can

top the global consumer confidence index. The ensuing

be divided into two: FMCG Sector (Fast moving

optimism among consumers and the slowdown in China

Consumer Goods) & Durable Sector.

have combined to help India unseat China at the top of

The Fast Moving Consumer Goods consists of the

Credit Suisse Research Institute’s Emerging Consumer

products/ goods/ materials sold quickly & at a

Survey study released recently. India’s markets are

relatively low cost or in other words where the

consumer driven with anticipated to double by 2025.

movements of goods i.e. buying and selling takes

The global corporate view the Indian markets as a vital

place at a faster pace. A turnaround in the industry

market for the future. One of the biggest reasons for

is expected in 2015, especially considering the

this perception has been the increasing young

outbound deals by most of the analysts. After dull

population along with the rising disposable incomes.

two years in the FMCG sectors, the analysts point out

As per the study by McKinsey Global Institute (MGI),

that the year 2015 could see the turnaround due to

If the country its current pace of growth for 6 | J U L can Y 2 0sustain 15

the factor that most of the top FMCG companies in

some time - and that is likely - average household

the sector are sitting on huge cash reserves. As

FMCG Sector

Z

Food & Beverage

12% 43%

22%

Health Care Personal Care

23%

Household Care

Fig: FMCG market share as of 2014 that have been driving the consumer markets have Fig: Advantage India (Source IBIF)

been the growing awareness, easier access and changing lifestyles. Also, the with the Retail Market

that the year 2015 could see the turnaround due to the

in India is estimated to reach USD450 billion by

factor that most of the top FMCG companies in the

2015, with the organized retail accounting for a 14-

sector are sitting on huge cash reserves. As reported in

18% share is likely to boost the revenues for the

The Times of India, Deals already seem to have started

FMCG companies.

flowing, with Godrej Consumer Products acquiring South Africa’s Frika Hair for an estimated amount of Rs 75-80 crore earlier this week.

The urban market segments is the largest contributor to the sector which accounts for two-thirds of the total revenue & has a market size of around USD30

Also understanding the economic point of view, the

billion in 2013. The semi-urban and rural-segments

increase in the number of investments in India would

which accounts for 33% of the market are growing at

eventually provide more employment opportunities and

a rapid pace, has been the area where most of the

hence increasing consumption. This would directly

FMCG companies have been targeting at.

affect the FMCG sector leading to a positive mind-set

reason for this shift has been the fact that the rural

towards the industry.

and semi-rural segments have been growing at a

The FMCG market has 4 main segments: Food & Beverage, Health Care and Personal Care & Household Care. The FMCG sector is the fourth largest sector in India which has grown at a compounded annual growth rate (CAGR) of 11% over the last decade. Among the segments, the Food & Beverage segment constitutes to the maximum revenue for the industry. The key aspects that have been driving the consumer markets have been 7 | J U Lawareness, Y2015 the growing easier access and changing

lifestyles. Also, the with the Retail Market in India is

faster pace than the urban markets.

The

Top FMCG Companies in India

-

them to sustain margins, maintain volumes

Hindustan Unilever

from price-conscious customers and expand

Colgate-Palmolive

their consumer base

ITC Limited

-

FMCG companies entering Africa as it helps

Nestle

to be close to consumption markets within

Parle Agro

Africa

Britannia Industries Limited

-

With the rise of retail players, private label

Marico Limited

has become popular in the FMCG space.

Procter & Gamble

Private

goods

are

considered

substitutes of premium branded goods

Godrej Group Amul

Label

Key Growth Drivers for the FMCG markets in India:

Notable trends in the FMCG sector (Source: AC

-

Rising incomes driving purchase

Nielsen, Aranca Research)-

-

Desire to experiment

-

Evolving consumer lifestyle

-

New product launches

-

Growing rural market

-

Growth of modern trade

-

Increasing discretionary expenditure

-

Availability of online channel to shop

-

Increasing consumer demand

-

Greater Awareness among consumers on

-

Indian FMCG companies are consolidating their existing business portfolios

-

Several companies have started innovating or customizing their existing product portfolios for new consumer segments

-

Despite the slowdown, consumers are willing to buy premium goods at higher prices in the space of convenience, health, and wellness

-

Consumers have started demanding customized products specifically tailored to their individual tastes and needs

-

The trend toward mass-customization of products is expected to intensify further.

-

Consumers are becoming more brand conscious and prefer lifestyle and premium range products given their increasing disposable income

-

Companies are increasingly introducing smaller stock keeping units at reduced prices. This helps them to sustain margins, maintain volumes from 8|JULY2015

price-conscious customers and expand their consumer base

products and brands

CURRENT ACCOUNT DEFICIT (CAD)

INDIS’S LOW CURRENT ACCOUNT DEFICIT WITH US RATE HIKE

-Avik Chakrabarty

There can be consequences when the amount a country spends abroad is wildly different from what it receives from the outside world.

External sector worries have become less intense at least for now, India’s current account deficit (CAD) in the last quarter of 2014-15 came in at $1.3 billion or 0.2% of gross domestic product (GDP), helped by a lower trade deficit.

The reduction in CAD in fourth quarter was The current account balance seems to be an abstruse

primarily on account of lower trade deficit as net

economic concept. But in countries that are spending a

earnings through services and primary income

lot more abroad than they are taking in, the current

(profit, dividend and interest) witnessed a decline in

account is the point at which international economics

quarter-on-quarter terms though secondary income

collides with political reality. When countries run large

recorded a marginal increase of 0.4 per cent. For the

deficits, businesses, trade unions, and parliamentarians

full fiscal (financial year 2014-15), the current

are often quick to point accusing fingers at trading

account deficit shrank to USD 27.5 billion, or 1.3 per

partners and make charges about unfair practices.

cent of GDP, from USD 32.4 billion, or 1.7 per cent

Tension between the United States and China about

of GDP, a year ago. However, in terms of Y-o-Y

which

for

changes, the trade deficit in fourth quarter widened

the trade imbalance between the two has thrown the

marginally as exports registered a larger decline

spotlight on the broader consequences for the

(15.4 per cent) than imports (10.4 per cent).

country

is

primarily

responsible

international financial system when some countries run large and persistent current account deficits and others accumulate big surpluses.

Robust capital flows—both portfolio and foreign direct investment—were more than sufficient to meet the current account deficit, with the highest

A low current account deficit for India will support

ever addition made to India’s foreign exchange

the rupee and help India counter possible capital

reserves in the March quarter. There was highest

outflows in the event of a hike in interest rates by the

ever net accretion of $30.1 billion to India’s foreign

US Federal Reserve later this year.

exchange reserves in a single quarter; it was more than double the accretion in the preceding quarter and almost four times of the reserves accrued in Q4

9|JULY2015

of 2013-14.

and almost four times of the reserves accrued in Q4 of

times of weak growth and low prices, they keep rates

2013-14. Under the current conditions of low crude oil

artificially low to make companies to invest, add

prices in the range of $60-70 per barrel, stagnant

capacities, hire more, and prompt people to spend on

exports given the limited pick-up in world economy,

houses, cars and other goods. When growth returns,

and some pick-up in software receipts, current account

they raise interest rates. An interest rate hike in the

deficit would be in the range of 1.5%-2% of GDP this

US could trigger a dollar flight from emerging

year. However capital flows will be impacted due to the

countries such as India. A rate hike in the US will

US Federal Reserve’s move on interest rates while the

encourage foreign, particularly US-based funds, to

balance of payments would be positive, the accretion to

move money out of India to safer locations closer

reserves could be of a lower magnitude.

home.

But analysts expressed disappointment that India had

Global funds park money based on expectations of

failed to notch a current account surplus and said the

yields. With short-term rates ruling at near zero for

deficit could widen in coming quarters given the

nearly a decade, India and other emerging markets

prospect of foreign investor selling tied to potential

offering higher returns were the preferred hotspots.

hikes in U.S. interest rates.

With US interest rates set to rise in the US now, most funds may prefer to move money out of these

CORRECTIONS IN THE EMERGING MARKETS

Speculation over the US Fed hiking interest rate has led to significant correction in emerging markets over the past few months; they have been down around 10 percent, some markets more. And the reality is that many emerging markets including India are in a much better position to withstand a Fed tightening cycle than was the case a few years ago. Current accounts are

markets. A dollar flight out of the country, if sudden and copious, can trigger a fall in equity markets and hurt the rupee’s value. Like any other commodity, the exchange rate or price of a currency is determined by the laws of demand and supply. So, dollars moving out would mean higher demand for dollars, pushing up the US currency’s value against the Indian rupee.

lower, fiscal deficits are generally lower, there have been some significant reserve balances in much of Asia

A depreciating rupee will make imported goods

and then the follow up point for the emerging markets

costlier. So, if the rupee falls, expect computers,

have benefited from low oil prices which credit a much

imported mobile phones and gold to become

more benign environment relative to what we have seen

costlier. It could also negate the gains of low crude

in 2013 or in 2014.

oil prices, prompt oil companies to hike petrol and diesel prices. Costlier transport fuel will knock up

The US economy has shown strong recovery signs over the past few months. Central banks across the world use monetary tools to stymie demand and cool prices. In times of weak growth and low prices, they keep rates 10 | J U L Y 2 0 1 5

artificially low to make companies to invest, add capacities, hire more, and prompt people to spend on

prices of most goods and stoke inflation. A weak domestic currency affects the current account deficit — the gap between export earnings and import payments.

undesirable for a country at a particular point in time.

With the Fed's move some acceleration in the ‘slow but steady growth’ of the United States would further support equity markets both in developed and emerging markets.

Meanwhile, oil prices is expected not rise sharply or fall significantly as Oil is really caught between the rise in international demand and the potential for payments.

more supply both from the US Shale producers and also potentially from Iran. So to keep current account

Judging whether deficits are bad

deficit at low level the low oil prices have given a

A common complaint about economics is that the

positive edge at a time when US is planning to hike

answer to any question is, “It all depends.” It is true that

rates by the end of the year.

economic theory tells us that whether a deficit is good or bad depends on the factors giving rise to that deficit, but economic theory also tells us what to look for in assessing the desirability of a deficit.

If the deficit reflects an excess of imports over exports, it may be indicative of competitiveness problems, but because the current account deficit also implies an excess of investment over savings, it could equally be pointing to a highly productive, growing economy. If the deficit reflects low savings rather than high investment, it could be caused by reckless fiscal policy or a consumption binge. Or it could reflect perfectly sensible inter-temporal trade, perhaps because of a temporary shock or shifting demographics. Without knowing which of these is at play, it makes little sense to talk of a deficit being “good” or “bad.” Deficits reflect underlying economic trends, which may be desirable or undesirable for a country at a particular point in time.

11 | J U L Y 2 0 1 5

With the Fed's move some acceleration in the ‘slow but

CPI VS. WPI

THE GAME OF INDICES!

-Sameena Usman

Team WPI? Well are you really signaling that we are

Manufacturing Primary

Fuel

headed towards a deflationary spiral with a -2.40%? Or

1

Chemical

Food

Oil

is it just as long as the international oil prices lay low?!

2

Metal

Non-Food

Electricity

& Team CPI, hovering at 5.4%, do you indicate that we

3

Food

Mineral

Coal

face the risk of scaling up again owing to food inflation?

So what brings about the difference? Well it’s

Before embarking any further into this trivial yet

obviously the components in each and the weightage

sensitive issue, let’s have a brief re-cap of the very

given in each index

basics:

WPI (whole sale price index) captures the changes in

The general shifts in price levels are gauged mainly by

pre-retail prices of goods i.e. the average price

two important indices, namely, the WPI and the CPI.

changes of goods sold in bulk.

Two important things that need to be kept in mind while

Headline WPI inflation is the measure obtained from

revising the inflation index’ are:

all components i.e. food, fuel and manufacturing.

Base year 

Inflation is a “relative” concept. When we say there

Whereas core inflation WPI is measured by ignoring food and fuel components, hence Core inflation= Headline WPI – primary- fuel- food.

is inflation – it means things used to be cheaper at some previous year. 

So, to calculate WPI, we need a base year. Base year should be revised once in a while.

Category of items

CPI CPI stands for consumer price index and is calculated using lespeyer’s formula and the base year used for calculation is 2010. CPI has different category of items listed in its basket for the





These indices calculate inflation using weighted

calculation of inflation, these items are further

arithmetic mean.

categorized into five 5 sets as shown in the next page.

But this would fail to capture the trends in the structure of the economy over time, if the product

Yet again, headline CPI inflation is the data

mix is not updated every now and then.

contributed by all of the above categories whereas Core CPI inflation is obtained after ignoring the food

Both the indices are more or less calculated with arithmetic means So what brings about the difference?well it’s obviously 12 | J U L Y 2 0 1 5

the components in each and the weightage given in each index

and fuel components

sensitive to fuel. It assigns a weight of 14.91% to fuel prices. The CPI assigns only 9.49% to fuel, which is

Food, Beverage , Tobacco

why the impact of low oil prices is being reflected comparatively heavily on WPI.

CPI

Fuel & Light Education

Current stats: Housing

Medicare

Clothing, Bedding, Footwear

Amusement

India's current consumer price index-based inflation or retail inflation moved a tad bit up from 5.01 % to 5.04% . On the other hand, wholesale price index-

Transport

based inflation fell at a rate of 2.4 percent in June i.e.

-2.4%.

Services Communication

Factors accounting to the difference between CPI/WPI movements:

Is it time to completely focus on growth?

Considering the lower indices, can the RBI very conveniently shift focus towards growth stimulating measures like cutting down rates or is there still need

Hence, it’s clearly seen that the WPI doesn’t account

for keeping a keen eye on the inflation factor, that the

for education, hospitality, transport, telecommunication

rate cuts may trigger an accelerated inflation. Well,

and other services. Unlike WPI, the CPI though

the decline in inflation is due to falling crude oil

includes these services. Considering the fact that almost

prices, which in most probability are likely to rise

over 60% of India’s GDP is attributed to services, the

later, onset of which, India will be in the risky zone

CPI thus gauges a better or just measure of the economy

of inflation again.

wide increase in prices. The weightage given to food

The WPI data might as well be negative but the cost

items is another major difference between the two

of primary articles is rising owing to the weak

inflation indices. Food items i.e. food grains, fruits,

monsoons. The negative inflation is a result of

vegetables, milk, eggs, meat, fish, condiments, spices,

external factors, not intrinsic. A minute rise in fuel

tea, and coffee etc. contribute to a 14.34% of the WPI,

prices has been recently announced, more of this and

differing on which, they make up 39.73% of the CPI.

WPI will be pushed back to the positive zone.

Also another factor, higher transaction costs and taxes

Irrespective of CPI/WPI, equal take on food inflation

are only reflected in the CPI.

would mean a further delay before government takes

Therefore, the CPI is more sensitive to changes in food prices than the WPI. Meanwhile, the WPI is more sensitive to fuel. It assigns a weight of 14.91% to fuel 13 | J U L Y 2 0 1 5

prices. The CPI assigns only 9.49% to fuel, which is why the impact of low oil prices is being reflected

any steps to decline interest rates in lieu of promoting growth.

MARKET WATCH

MEET THE MARKETS

-Kolisetty Sai Aishwarya

The month of July seemed pretty positive and settled

A total of Rs 300 crores has been earmarked in the

for the Indian Markets as the positive hit trend was seen

state budget for ensuring fair price for rubber. The

the markets after a huge dip has finally taken the

prices of precious metals that is silver gold and

upward trend making investors happy. The detailed

copper have taken a hit for the fourth week in a row.

view of the markets for you to take your picks can be

According to the observations on Friday, the

analyzed in the further writing.

consumer markets I the US has shown a rise in about

COMMODITY MARKET

0.3% at a fifth consecutive week increase.

COMMODITY PRICES (MCX)

CURRENCY

Commodity

Rs.

Change

%change

Gold

25498.00

273.00

-1.06

Silver

34200.00

304.00

-0.88

Crude oil

3208.00

47.00

-1.44

Natural gas

181.40

0.00

0

Aluminum

105.90

1.00

-0.94

Copper

352.15

4.15

-1.1

Nickel

728.00

8.10

-1.1

Lead

115.90

0.10

-0.09

Zinc

130.75

0.55

-0.42

Menthaoil

975.20

5.70

0.59

Cotton

15890.00

40.00

-0.25

The gold prices in the commodities market have been seeing dripping for some time and it definitely has hit its eight week low this week. The drip can be attributed to the failure in the pickup in the demand of the Chinese demand and Indian demand for gold. The demand cannot be revived as the anticipation is inclined towards the strengthening of the US dollar. The Kerala state Chief Minister informed the assembly that the government would ensure that the small scale rubber growth and will receive an assured price of Rs.150 a kg.

A total of Rs 300 crores has been earmarked in the state 14 | J U L Y 2 0 1 5

budget for ensuring fair price for rubber. The prices of

Currency

Rupee

1 UD $

63.4650

1 Euro €

68.7446

1 UK £

99.0867

1 Aus $

46.7610

1 Japanese ¥

0.5116

1 Singapore $

46.4265

1 Renminbi

10.2867

1 Taiwan $

2.0407

The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, inched up 0.3% to end at 98.09 late Friday, the strongest level since April 23.

For the week, the index rose 1.9%, the biggest weekly gain since May, amid growing indications that a rate hike is coming in the U.S. later this year.

The dollar gained ground against the yen and Swiss franc, with USD/JPY rising to a three-week peak and USD/CHF hitting a 12-week high, amid speculation the Fed will move ahead with its first rate hike in nearly a decade as soon as September. EUR/USD was down 0.41% to 1.0831 late Friday, the lowest level since May 27, as upbeat U.S. economic data highlighted the diverging monetary policy outlook

level since May 27, as upbeat U.S. economic data

additions of 16.2 and 11.8 lakh shares, respectively.

highlighted the diverging monetary policy outlook

The banking index was able to move above the

between the Fed and the European Central Bank.

crucial hurdle of 19000 strikes with the help of outperformance from private sector heavyweights.

FUTURES AND OPTIONS

STOCK MARKET.

F & O as on 17th July, 2015

Here we see the performances of various sectors that Product

No.

of Traded

contracts

Value(cr)

Index Futures

383810

10810.31

Vol Futures

0

0.00

Stock futures

826571

23035.76

have gained and lost. On one hand we see the pharma sector performing really well along with the information technology sector as well as the automotive sector. On the other hand we have sectors like banking and finance as well as oil and gas with disappointing results. The top gainers as on the 17th of July were BHEL currently trading at 285.40 with

Index Options 6214077

141737.89

a gain of 2.02% and we see M & M (1298.30) and Infosys (1002) listed in the top gainers. The stocks

Stock Options 446936

12539.47

heavily losing are HDFC (1327) and coal India with HUL that is currently trading at 924.40 in the

F&O Total

787139

188123.42

markets.

UltraTech Cements quarterly performance shows a

The Nifty traded with a positive bias supported by all

drop of 12 per cent to Rs.549 crores. The share is

sectors. It finally ended above the highest Call base of

right now trading at 3223.60. LIC Housing has

8600 strike gaining 84 points during the day. Nifty

shown great results this quarter as it has recorded a

future premium increased and settled at 19 points. India

16.7 per cent hike in its income and has touched a

VIX fell 5.1 percent to settle at 14.8. FIIs bought Rs

profit of rs.376 crores. The spot market has its share

746 crores while DIIs sold Rs 99 crores in the cash

trading at 475.25 and is up by 12.10 per cent. The

segment. FIIs bought Rs 1511 crores in index futures

debt burden company Air India is planning to sell

and Rs 756 crores in index options. In stock futures,

land and other assets that are worth 250 crores. The

they bought Rs 544 crores. The highest Put base is at

debt that Air India is currently laden in is around

the 8400 strike with 54 lakh shares while the highest

40000 crores and is making complete effort to bring

Call base is at the 8600 strike with 40 lakh shares. The

its neck out of the ditch. Five companies have bid for

8500 and 8400 Calls saw closure of 5.5 and 3.4 lakh

the contract to build the GST network and they are

shares, respectively. The 8500 and 8600 Put strikes saw

Microsoft, Infosys, Tech Mahindra, TCS and Wipro.

banking index was able to move above the crucial 15 19000 | J U L Ystrikes 2 0 1 5with the help of outperformance hurdle of

from private sector heavyweights.

x

cnx nifty

8700 z 8600 8500 8400 8300 8200 8100

cnx nifty

S & P BSE 28600 28400 28200 28000 27800 27600 27400 27200 27000

S & P BSE

Thus the overall performance of the market seems to satisfy the investors and make them a little more confident about investing. The international news still dealing with the Greece economy is thankfully not showing any negative effects on the Indian markets. Speculations also indicate that the level of flexibility of Indian markets to be so good that India has a high chance to outperform the Fed hike of the US. Ending half the month of July on a peaceful not, it’s about not knowing the risk in the markets, because knowing what you are doing cannot indulge you in a risky situation.

16 | J U L Y 2 0 1 5

NESTLE’S SITUATION

TWO MINUTE TROUBLE

-Ishan Gupta

We Indians love to eat. We all have our roadside vendor

precaution.

whose food we gorge irrespective of the conditions the

It failed to repeal the ban. However, it earned some

food is made in or made off. But for large corporations

respite when the high court allowed it to export the

we have these food safety standards which they must

product. Further, clean chits from some of the

adhere to. Nestlé Maggi being the latest one to be

toughest regulators globally like the US FDA also

embroiled in this tussle. A routine inspection by the

gave the company’s claim some credibility. In short

Uttar Pradesh Food and Drug Administration (UPFDA)

all international regulators found it safe, but most

started heated debates about food safety and processing

Indian regulators found the product adulterated. In

in India.

the aftermath of this nationwide food scare, almost a

What started as a minor labeling error way back in 2013

decade since the soft drink-pesticide case, as a face

turned into a full blown crisis for Nestlé. The packet

saving measure Nestlé ordered a recall of 400 million

labels stated that the product contained no added

packets weighing 27,000 tons with the help of 2,500

monosodium glutamate (MSG), a taste enhancer. But

trucks. These will be given to cement manufacturer

when the samples were sent for testing, they found high

Ambuja cement to be used as fuel in its cement

amounts of lead and added MSG. This created a domino

plants. Nestlé paid Rs 20 crores (INR 200 million) to

effect. The food authorities in India ordered a

burn packets worth Rs 320 crores (INR 3.2 billion).

nationwide test of Maggi samples. Further, all the

These costs exclude the transportation costs the

countries to which Maggi is exported also ordered a

product, the damage to the company’s brand and

quality check. 11 states across the country went ahead

negative effect on consumers in India and around the

and banned the product.

world.

Initially, the company remained tight lipped on the

Impact on the market

issue but once it blew out of proportion the Swiss giant

First let us look at the impact that Maggi has on

woke from its slumber. It ran an extensive public

Nestlé. Nestlé introduced Maggi in 1980s and the

relation activity to quell fears and protect one of its

product has been dominating the instant noodle

oldest and strongest brands in the country. It argued that

market in India. Nestlé had a whopping 63% market

the sample used for testing the product was dated and

share last year as per Euro monitor estimates. It

way past its consumption date. Its CEO flew down to

contributes to around 25% of Nestlé India’s revenue

New Delhi to address the consumers, it filed an appeal

and was one of the only growing brands for Nestlé

in the Bombay high court against the ban and went on

India in January-March quarter.

to recall the product, an exercise which it called a safety precaution.

17 | J U L Y 2 0 1 5

It failed to repeal the ban. However, it earned some

Looking at the industry in general as per Indian

withdraw unapproved products already being sold in

government estimates there were foreign direct

the market.

investments worth USD 6 billion during the fiscal year ended March 2015. According to an estimate by

Regulatory issues

ASSOCHAM the packaged food industry has an

The Indian regulatory system is also full of holes.

investment of Rs 90,000 crores and exports over $40

There are gross mismanagements which also get

billion annually. The sector has seen strong growth over

highlighted here. For instance, how do products like

the years, but the Nestlé crisis has resulted in some

HUL’s Knorr instant noodles, become available in

uncertainty. A number of top brands like indo Nissin’s

the market when they are still pending for approval?

“Top Ramen” and Hindustan Unilever’s Knorr instant noodles are being withdrawn from the markets. Further the regulator Food Safety and Standard Authority of India (FSSAI) has ordered checks on pasta and macaroni brands also sold in the market. As a result six other companies primarily ITC, Indo Nissin Food, GSK Consumer Healthcare, CG Foods India, Ruchi International and AA Nutrition have also came under the scanner.

Consumer sentiments have also been hit due to the Maggi controversy. The industry which has been growing at a rate of 9% over the years has seen dramatic drop in sales since the controversy erupted. Consumers have been avoiding potato chips, instant pasta and other comfort snacks which are quick sells during the rainy season. Even traders are not willing to keep stock of the goods because of the fear of regulatory harassment and

The man behind Nestlé’s headache Mr. VK Pandey has gone on record to say that they lack the manpower necessary to monitor food products in a country like India. We do not have a pan-India monitoring system across food categories, there are no fixed limits regarding permissible additives in products and regulators across states are not even aware of what limits should be used. Some state regulators test labs even lack the technology and accreditation to run tests.

The health ministry has also started responding to these problems. It has sent a Rs 1,700 crore proposal for the revamp of FSSAI. They are focusing on four areas: strengthening the state inspection apparatus, bolstering FSSAI’s manpower, giving it more teeth and ensuring the availability of the latest state of the art technology.

bulk quantities of unsold stock.

Establishing a credible regulator helps in attracting The Indian consumers are slowly becoming more conscious of what they eat and as such these problems tend to have a spillover effect. The problem has forced other manufacturers like ITC, to undertake marketing activities to allay consumer fear regarding their products. Further, companies have been forced to withdraw unapproved products already being sold in 18 | J U L Y 2 0 1 5

the market.

investment as it eases the risks of doing business and provides clear guidelines. The food services market alone is growing at approximately 12% every year and will be worth $175 billion by 2018 according to a 2013 CLSA Asia-Pacific Markets report.

The US FDA rejected most snack imports from India in the first five months of 2015. The reasons vary from problems in packaging and labeling to alleged contamination in the form of high levels of pesticides, mold and the bacteria salmonella. Most Indian snacks rejected were from Haldiram’s (Surprise). I accept the defense that the product comply by the law of the land, but are human functions also different by land? Are we as a consumer so ignorant to the mass adulteration that goes in our food? We are told not to consume sweets Frightening situation The Nestlé Maggi scare results in some tough and scary thoughts

during

festivals

because

of

higher

risk

of

adulteration. Eat food only from limited vendors whom we perceive to be safe (Or simply put their products does not make us sick). Can we not create a

Can a country like India – second most populated

mass movement and force the industry and the

nation, developing market far away from its peak

regulators to come out with a set of practices and

potential – afford to have a lackluster regulatory system

guidelines that ensures product quality and safety?

which is ineffective and miniscule? A poor regulatory environment might result in a food catastrophe that is neither limited by geography nor by scale. Further it took them two years just to establish that apart from a labeling error the product is also unsafe for consumption. If one looks at it from a different angle Nestlé was the only fish that got caught in the torn net.

A large number of products are marketed by the companies even when they are not approved by the appropriate regulators. What prompts them to sell their products before the completion of regulatory requirements? Also how are these lapses so easily overlooked by the regulators?

Infact, it let itself get caught in the net by appealing the

Although clearing of Maggi by some credible

mislabeling judgment. A lot of packed food products

international food regulators gives some credibility

are adulterated. According to health ministry records,

to the company’s claim that the testing sample was

over the past seven years, about 25% of 53,406

old and the product is safe. But independent test by

companies against whom prosecution was launched for

multiple Indian state regulators taking the most

violating food safety laws were convicted. As many as

recent samples again raises a red flag. Does the

72,861 companies were found guilty of misbranding

company follow different manufacturing practices

and adulteration during the period.

for goods which are exported?

19 | J U L Y 2 0 1 5

QUICK BITE

WHY NO TO MUTUAL FUNDS?

-Rahul Mishra

The best argument for mutual funds is that they offer

in stock market which is very reckless and very few

safety and diversification. But they don't necessarily

know how to deal with it.

offer safety and diversification. Mutual Funds in spite

Next is the experience of many first timers which is

being cheap and diversified are not the choice of many.

not as good as they have no clue about the products

They are one of the highly regulated and transparent

to invest in and those who have invested and were

products in the market and are managed by

given the wrong products thereby incurring losses.

professionals then why is it that they are unable to instill

This leads to a bigger problem as the investors don’t

confidence in the households?

have a support desk for their queries and most of the

Let’s start with investing decisions; one of the most

websites are inadequate leaving the investors

important maxims of investment is diversification

clueless as they can’t find a reliable source to cater

which even a novice is aware of and as we say never

their request.

put all your eggs in one basket, diversification makes

As discussed above diversification is good but only

the right choice. But is it always profitable is yet to be

if it is effective diversification mutual funds suffer

seen. Looking forward to the reasons as to why people

from over diversification. Regulation restricts the

don’t invest in mutual funds, is that open ended

money a mutual fund can invest in any company and

products don’t attract investors or rather there is a belief

therefore it becomes an elusive diversification

that all products have a start and an end date and give a

whereas true diversification would have money

fixed return on expiry. There is lack of awareness that

invested in stocks, bonds, currency, commodities

mutual fund is much like a bank account and the funds

and gold. Though mutual funds are cheap,

can be added as per convenience and similarly

diversified and well managed they need to be more

withdrawn when needed. There is a lot of negative

attractive with fund houses putting in more efforts to

information about mutual funds and when a product

reach out to investors and making the products more

flashes negative warnings like mutual funds are subject

efficient.

to market risks, deviates the investor so to promote it positive campaigns are needed Very few investors have invested huge amounts for long periods and though the returns are high they don’t seem to be realistic and such stories don’t attract investors as the returns are unrealized along with that investment in mutual funds is considered an investment in stock market which is very reckless and very few 20 | to J Udeal L Y 2with 0 1 5it. know how

COVER STORY

DECODING THE GREEK SAGA AND ITS IMPACT ON WORLD

-Sachi Kheskani

Greek Lyric V Scolia, Fragment 885 (trans. Campbell,

The backdrop:

Vol. Greek Lyric V) (Greek lyric B.C.):

Before hopping on to what actually happened to

"I sing of the mother of Pluto’s (Wealth), Demeter

Greece Economy, it is quintessential to know the

Olympia, in the garland-wearing season, and of you,

geography of Europe, and what constitutes European

Persephone, child of Zeus: greetings, both! Tend the

Union. The European Union (REFER EXHIBIT I) is

city well."

a part of Europe and Greece joined European Union in 2001 for it provided an internal (or single) market

The above mentioned verse rightly puts through the

which allowed free movement of goods, capital,

sentiment of other European Union member countries

services and people between member states apart

for they pray that Pluto’s showers, generosity in form

from a common currency. The constitutionality of

of wealth on Greek Economy. Greece's economy has

European Union is unclear but it is considered as sui

been in doldrums since 2009 when its credit rating

generis (One of a Kind) as it is more than an

dropped to BBB+ (S&P) and since then series of events

International Organization and less than a Nation-

followed by devaluation of Euro and volatility in share

State.

markets of various countries raised concerns in the

Greece officially known as Hellenic Republic rests

international fraternity. Amidst 78 countries who have

at the tip of Balkan Peninsula in the eastern

defaulted $ 129 billion loans, the Greek story is

Mediterranean Sea, which divides Europe from the

sensational, if not unexpected, for it is unlike any poor

Middle East. The very name Europe is derived from

country like Zimbabwe or Haiti, struggling to repay

the Greek myth of Europa, said to have been queen

debt with all kinds of foreign creditors turning the

of Crete, the cultural center of early Greece. In

screws. The effect of the Greek default on global

nineteenth-century

markets may be magnified because of the huge amount

dependent on agriculture and shipping sector which

of hot money associated with international finance

gradually shifted to Industry; accounting for 16% of

today. But speaking generally sovereign defaults

GDP by the onset of World War II. After World War

constitute a mere blip as a share of both global public

II, Greek attained astounding economic progress in

debt and global Gross Domestic Product (GDP). While

terms of its economic growth which was almost

most of the sovereign defaults are restructured and

twice the euro-average area of 2.0%. The downfall

recovered with penalties or conditionality’s, Greek is a

began after the 2008 financial crisis, where Greece

special case for its default is not only restricted to IMF,

suffered the most due to high debts and low

but include private creditors or official creditors of

employment. For any crisis to occur there are two

other countries (designated investment arms).

main causes: a) Internal / Domestic Factors such as

the

Greek

economy

was

monetary and fiscal policies and b) External Factors 21 | J U L Y 2 0 1 5

such a natural calamities (REFER EXHIBIT II). The beginning of this epidemic-like crisis can be

monetary and fiscal policies and b) External Factors

reducing the fiscal deficits. For the very fact that

such a natural calamities (REFER EXHIBIT II). The

Greece shares its monetary policy with rest of

beginning of this epidemic-like crisis can be attributed

Europe, it is very much interconnected with rest of

to an external factor i.e. earthquake which occurred in

the Europe but will have little impact on Europe for

1999. The internal factors can be subdivided into two

it contributes only 2 % of total GDP. But the problem

triggers: a) Structural: The service sector in Greece

lies in IMF default for other countries (Ireland and

grew from 72.5% in 2000 to 72.9% in 2009. A decline

Portugal) of EU will also default following footsteps

in Agriculture (2.6%) and Industry (4.1%) was

of Greece.

observed in 2009. Greek Hourly productivity was 44%

The impact of Greece Crisis on various countries:

less than average of euro-average countries in 2009.

R&D expenditure, Business confidence, Foreign Direct Investment, value of exports and education level of

Europe 

Greeks was low. b) Political: The political parties in

solidarity and international standing for there

Greece tried to secure power through "populist policies" manipulating government programs and hiring public sector worker to secure votes.

is political upheaval. 

They

reduced the retirement age and increased their public



population, its state bankruptcy after bailouts

manipulated statistics and the corruption was on its

in which euro zone partners lent it nearly

high. The debt to GDP ratio as of 2014 was 179.2 (%)

€200 billion ($220 billion) is a massive blow

which has created a serious situation for it has been

to EU prestige. 

eternal

Monetary Fund Loan of USD 177 Billion. The other

the

might turn to Russia for help. In exchange, it

currency (Drachma). Though for in short run the

might veto the next extension of EU

drachma would have been depreciated in such a case

sanctions against Moscow, or even offer

scenario but it would have a positive impact on its

access to naval facilities once used by the

exports. This would have resulted in more domestic

much interconnected with rest of the Europe but will

conflict,

over offshore gas fields, a shattered Greece

have joined euro zone and continued to print its

22 monetary | J U L Y 2 0policy 1 5 with rest of Europe, it is very shares its

Israeli-Palestinian

unresolved division of Cyprus and disputes

side of this story could have been if Greece wouldn't

reducing the fiscal deficits. For the very fact that Greece

With tension already high in the eastern Mediterranean due to civil war in Syria, the

for fifth bailout. It has defaulted an International

investments due to lower interest rates and thereby

Greece accounts for barely 2% of the euro zone’s economic output and of the EU’s

budget deficit. Too add on to this politicians

under negotiation with European Central Bank (ECB)

"Grexit"- Greece's Exit may result in crashing of euro currency.

spending in terms of pension which resulted in high

bailed out for four times since 2010 and currently it is

Greece debt shall affect the EU's unity,

United States. 

Failure to resolve Greece’s debt crisis after five years of wrangling makes the EU look weak and divided in the eyes of Russian

U.S

Takeaway:

The U.S. economic relationship with the EU constitutes

Greece faced a tough question of whether it should

the largest in the world, resulting in $276 billion in

stay in Euro zone and accept Troika's austerity

exports to the region. The Greek turmoil could cause a

measures or exit the Euro zone (REFER EXHIBIT

relative appreciation to the already strong U.S. dollar,

III). The referendum held on 5th July, 2015 clearly

which, combined with soaring interest rates in Europe,

established the fact that People of Greece are in no

could make U.S. exports more expensive and

mood to let go off their interests for economy's sake.

unattainable to EU member states. Additionally, a

They protested the austerity measures by taking out

Greece default would disrupt financial market stability

processions on roads. For now Alexis Tsipras (Prime

and have a negative impact on the American cash

Minister of Greece) has received a twin lifeline of €

pouring into the European stock market. Likewise,

7 billion in bridging loans and a € 900 million

Greece’s action could cause fellow small EU

increase in emergency funding and is preparing for a

economies to follow suit. As the U.S. economy

revised bailout scheme. Just like a garment which

continues

dollar

begins to come apart when you pull a single thread,

can perpetuate decreasing exports, undermine corporate

holes in the euro zone may lead to an unravelling of

earnings and run the threat of a currency war.

other elements of the union. All thanks to Greece

to

recover,

an

appreciating

Crisis for the ongoing turmoil!

China Amidst the Greek crisis going on, the China Stock market bubble burst gave sleepless nights to many. The Chinese markets are undergoing correction for its stocks were overvalued. Greece's debt default will not have a huge impact upon China as the country has only limited investments in Greece.

India For India, Greece crisis will have impact in the short run, but in long run its hall remain unaffected. The software and engineering exports may take a hit and the country may also face larger capital outflows due to a weaker euro. If Interest rate firms up in Greece there shall be outflow of capital from India resulting in volatile stock markets.

23 | J U L Y 2 0 1 5

EXHIBIT I

PARTICULARS

AS OF 2014

CURRENCY

Euro

GDP GROWTH

-0.2%

GDP

$ 238.023 billion

GDP PER CAPITA

$ 21,653

GDP SECTOR WISE Agriculture

3.5 %

Industry

15.9%

Sector

80.6%

INFLATION (CPI)

-2.2%

24 | J U L Y 2 0 1 5

EXHIBIT II

EXHIBIT III

25 | J U L Y 2 0 1 5

BANKING & TECHNOLOGY

ICICI TO DOUBLE ITS M-BANKING USER BASE

-Navjoth Sahu

In line with the Indian Prime Minister, Narendra

The present growth in the mobile phone industry is

Damodardas Modi's, current campaigning of Digital

far more than expected a decade ago, which can be

India ICICI Bank, India's largest private sector bank,

directly attributed to the cheaper and technological

have announced to increase the mobile banking user

advanced smart phones in the market. The growth is

base to double to what it is now in coming nine months.

also supported by the quick adaptability of newer

The move will boost the country's largest private sector

technologies Indians. Apart from this the bank

lender lower cost of rendering services and increasing

claims to become the first bank to have globally

customer satisfaction level. It is also aiming to grow its

integrated with Google Now, which will provide

current transaction value through the mobile banking

customers with various alerts like insurance

channel by up to 500 per cent over last year's Rs 16,000

premiums being due on their mobile phones directly.

Crore.

Among other services which get added to its mobile banking include direct calls/chatting with bank

ICICI Bank is India's largest private sector bank with total assets of Rs. 6,461.29 billion (US$ 103 billion) at March 31, 2015 and profit after tax Rs. 111.75 billion (US$ 1,788 million) for the year ended March 31, 2015.

ICICI Bank currently has a network of 4,050 Branches and 12,826 ATM's across India. Being a aggressive player in its field the bank is hoping to increase or at

executives and also card-less cash withdrawal. It can be noted that many lenders, especially the large ones like SBI, HDFC Bank and ICICI Bank, are investing on the digital front and there have been a slew of announcements including product launches and tieups with other players in the eco-system in the recent past.

least maintain its market share in the mobile banking segment, which stood at 25 per cent last year. Rajiv

According to Sabharwal “Acquiring customers on

Sabharwal, executive director of ICICI Bank Limited

mobile banking is faster than on internet. We are

told reporters on Tuesday in a conference call "We have

acquiring about five million customers on the digital

50 lakh active users at present and the same will go up

platform every month. Of this 300,000 is for mobile

to one Crore by the year end." According to him the cost

and 200,000 is on the internet platform. The faster

of transactions through the digital channels that

adoption of mobile banking is a result of smart

includes mobile and Internet banking, is one-tenth of

phones becoming cheaper and the ability to quickly

that of physical presence, as the bank can serve a large

adopt

number of customers through the initial investment in

Considering the number of new customer additions

technologies. And the growth in mobile banking at

is higher for mobile than internet, ICICI Bank

present which includes applications for both account

believes by the end of this year, there might be more

holders and non-account holders, is outpacing Internet

customers on the mobile platform than on the

at present.

26 | J U L Y 2 0 1 5

internet. At present, the average ticket size of

newer

transactions via The present growth in the mobile phone industry is far

technologies

among

Indians.�

internet. At present, the average ticket size of transactions via mobile banking is at Rs 5,000.

Currently, close to 60 per cent of the bank’s transactions are carried out on the internet and mobile banking channels. With this in view, the lender has upgraded its mobile banking application and has increased the number of offerings from 55 to 110. The bank claims

earth to have been integrated with Google Now. Cardless cash withdrawal: Customers can now send money to anyone in the country, even if the beneficiary does not have a bank account from the ‘all-new-iMobile’ itself. The beneficiary can then withdraw the money from ICICI Bank ATMs without using a debit card.

the number of services it offers on its app is the most by any other lender in the country. By the end of this year,

Open ‘iWish’ deposits: Using the iMobile app,

they are looking at increasing the number of services on

customers can create iWish, a flexible and online

the app to 200.

recurring deposit, as well as make goal payments.

Even your friends could support you to complete

With respect to the digital platform it have launched an

your wishes.

mobile app by the name, iMobile. Here are a few of the services that would cause a sea change in mobile

Beside all this facilities, you can also mark

banking behavior of the consumer:

transactions as favorites, so that your app could memorize them for you. The app also provides with

Convenient choice of login: Customers can now choose the type of login they would want to use for iMobile app. They can either use a PIN based access or use their existing internet banking user id and password Integrated view: iMobile allows customers to link and view all their ICICI Bank relationships (accounts / mortgages / cards / PPF) from within the app.

a digital passbook feature where you can make annotations just like those in physical pass books and have them saved. One can also shop through the app, which has a dedicated mobile payment gateway for a faster checkout.

This integration of technology into business is the new dawn of tomorrow's upcoming future. But the

Direct calls to bank’s call center: It connects customers

pace at which the technology is moving it may cause

directly with the call center without having to

loopholes in the future, with the advancement in the

authenticate themselves any further, as you have

technology the cybercrimes is also going to come

already authenticated yourself through your app. You

into the foreground. But when all is good, then it

can also chat directly without any authentication.

must be good, lets together welcome the new

Integration with ‘Google Now’: Customers will get alerts and notifications on the payment due date of their credit card, maturity of their FD among others through ‘Google Now’. It has been the first bank on face of the earth to have been integrated with Google Now. 27 | J U L Y 2 0 1 5

Cardless cash withdrawal: Customers can now send

innovations for coming tomorrow.

CANADA’S TRADE DEFICIT

WIDENING OF CANADA’S TRADE DEFICIT AS EXPORTS FALL

-Alisha Singh

Realm member of the Commonwealth of Nations, a

Meaning of Trade Deficit?

member of the Francophonie, and part of several A trade deficit, which is also referred to as net exports, is an economic condition that occurs when a country is importing more goods than it is exporting. The deficit equals the value of goods being imported minus the value of goods being exported, and it is given in the

major

international

and

intergovernmental

institutions or groupings including the North Atlantic Treaty Organization, the Group of Ten, the G20, the North American Free Trade Agreement and the Asia-Pacific Economic Cooperation forum.

currency of the country in question.

Canada is the world's eleventh-largest economy as of Effect of trade deficit on stock market

2015, with a nominal GDP of approximately

In terms of the stock market, a prolonged trade deficit

US$1.79 trillion. It is a member of the Organisation

could have adverse effects. If a country has been

for Economic Co-operation and Development

importing more goods than it is exporting for a

(OECD) and the Group of Eight (G8), and is one of

sustained period of time, it is essentially going into debt

the world's top ten trading nations, with a highly

(much like a household would). Over time, investors

globalized economy. Canada is a mixed economy,

will notice the decline in spending on domestically

ranking above the US and most western European

produced goods, which will hurt domestic producers

nations on the Heritage Foundation's index of

and their stock prices. Given enough time, investors

economic freedom, and experiencing a relatively low

will

opportunities

level of income disparity. The country's average

domestically and begin to invest in foreign stock

household disposable income per capita is over

markets, as prospects in these markets will be much

US$23,900, higher than the OECD average.

better. This will lower demand in the domestic stock

Furthermore, the Toronto Stock Exchange is the

market and cause that market to decline.

seventh largest stock exchange in the world by

realize

fewer

investment

market capitalization, listing over 1,500 companies

Glimpse of Canadian Economy

with a combined market capitalization of over US$2 Canada is a developed country and one of the wealthiest

trillion as of 2015.

in the world, with the tenth highest nominal per capita income globally, and the eighth highest ranking in the Human Development Index. It ranks among the highest in

international

measurements

of

Cause and effect of Canada’s trade deficit widening

government

International trade makes up a major chunk of the

transparency, civil liberties, quality of life, economic

Canadian economy. Exports amount to more than

freedom, and education. Canada is a Commonwealth

45% of its GDP. The United States is by far its

Realm member of the Commonwealth of Nations, a

largest trading partner, accounting for about 79% of

28 | J U L Y 2 0 1 5

member of the Francophonie, and part of several major

exports and 54% of imports as of 2008. Canada is

international and intergovernmental institutions or

one of the few developed nations that are a net

largest trading partner, accounting for about 79% of

strengthening U.S. economy and the fading of

exports and 54% of imports as of 2008. Canada is one

temporary factors that had weighed down trade over

of the few developed nations that are a net exporter of

the winter. Instead, what they saw was another

energy. Canada imports mostly machinery and

dismal report in which one of the key ingredients

equipment, motor vehicles and parts, electronics,

identified by the Bank of Canada for an economic

chemicals, electricity and durable consumer goods.

recovery – namely, a resurgence of non-energy

Canada's merchandise trade deficit increased to CAD 3.34 billion in May from a downwardly revised CAD 2.99 billion deficit in April, as exports declined to CAD 42.0 billion in May, the fifth consecutive monthly decrease. Exports of metal and non-metallic mineral products were down 5.8 percent, driven by a 19.7 percent decrease of fabricated metal products; and sales of unwrought precious metals and precious metal alloys

exports – failed to materialize. For the first five months of 2015, Canada has now rung up a massive $13.6-billion trade deficit. Exports fell for the fifth straight month in May, despite improved prices, as export volumes slumped 2.5 per cent from April.

Exports are now 4.5 per cent below their end-of2014 levels. Year-to-date exports are down 2.1 per cent from the same period last year.

(-4.6 percent) and unwrought nickel and nickel alloys (-

Non-energy exports fell 1 per cent, their second

13.4 percent) also fell. Metal ores and non-metallic

straight decline. On a volume basis, non-energy

minerals fell 9.2 percent, with the largest decreases

exports are 2.7 per cent below their year-earlier

occurring in other metal ores and concentrates (-41.3

levels. Indeed, the bond market predicts a chance that

percent), copper ores and concentrates (-12.2 percent).

the central bank will cut rates by one quarter of a

In contrast, exports of aircraft and other transportation

percentage point, from the current 0.75 per cent, at

equipment and parts rose 10.3 percent and sales of

next week’s rate decision. It is pricing in nearly an

motor vehicles and parts were up 2.7 percent.

80-per-cent likelihood of a rate cut by the following

As Canada’s near-record May trade deficit deals

rate-setting meeting, in September. But there are a

another blow to the country’s tottering economy, the

couple of factors that could still tip the scales in

mounting evidence may be pushing the Bank of Canada

favour of standing pat on rates, at least for the time

ever closer to another interest-rate cut. According to

being. The central bank’s latest Business Outlook

Statistics Canada the merchandise trade deficit widened

Survey indicated an improvement in the country’s

to $3.3-billion in May from $3-billion in April, the

business sentiment. It was only a small upturn, but it

eighth consecutive trade shortfall. The May deficit was

could be enough to convince the bank that better

the second-largest in history, exceeded only by March’s

times are just around the corner.

revised $3.5-billion. Economists had expected a modest improvement in the May numbers, in light of a strengthening U.S. 29 | J U L Y 2 0 1 5

The widening of Canada’s trade deficit is a major

U.S. TAX COMPLIANCE FATCA

INKED: U.S. FATCA AGREEMENT

-Priyanka Malik

India is one of the largest democracies in the world. But

dividends, fees and sales.

even after 67 years of Independence, humungous

Money laundering isn’t a new phenomenon but

investments in almost every field, greatest working

instead is an age-old menace and several scams have

force population it’s still a developing nations because

already occurred pertaining to the same. FATCA was

of

money

enacted by America in 2010. It demanded the

laundering, red-tapism etc.) which cling on hampering

revealing of all those foreign accounts over $50,000.

its overall progress as a nation. To counter the same to

More than 100 nations and the tax havens, have

an extent there has been taken yet another step by our

agreed to the same, as the stakes are very high with

country by signing the US Foreign Account Tax

US threatening to freeze the other nations from US

Compliance Act (FATCA) Agreement lately.

markets. The associated countries are at the FATCA-

The agreement was signed by the Revenue Secretary

Archive whereas the IRS (International Revenue

Mr. Shaktikanta Das and the US Ambassador Mr.

Service) has a searchable financial Institution list and

Richard Verma on July 9th, 2015. Considering the

download tool along with a user guide in order to

mutual benefit of both the nations this Inter

make

Governmental Agreement has been signed to combat

unconstrained.

the issue of tax evasion. The flow of information from

considerate enough as per the Black money

one country to another and vice-versa would ensure the

(Undisclosed Foreign Income and Assets) and

legitimate tax collection which is due to the

Imposition of Tax Act, 2015 by giving a clean chit to

governments. The Indian Financial Institutions will

unaccounted overseas assets holders provided they

reveal the information about the US tax payers which

disclose their account details till September 30 and

would again be reciprocated by US.

pay a tax penalty of 60%. In the instance of failure to

several

other

problems

(corruption,

the

execution Also,

of

this

government

arrangement has

been

do so in the compliance period, there would be a tax This arrangement would come in practice from October 1st and would be for July-December 2014 bringing

penalty of 120% and a prison term extending up to 10 years.

transparency in the overall system. According to the multi-lateral agreement, India will start receiving

Confidentiality and security of data would also be

information from other nations under Automatic

taken care of in order to avoid the misuse of the same

Exchange of Information (AEOI) route from 2017

in the process. A security committee has also been

onwards and non-compliance to the Agreement by any

set up within Central Board of Direct Taxes (CBDT)

Financial Institution would lead to the imposing of 30%

headed by the chief information security officer for

penalty on all its US revenues, inclusive of interests,

security of information of documents

dividends, fees and sales 30 | J U L Y 2 0 1 5

INFLATION PRIORITY

RBI TO MOP UP LIQUIDITY

-Srishti Karmakar

Liquidity is the cash or money in a system. Liquidity is

a lot of pressure on the liquidity management as

measured in terms of the monetary base and the Reserve

uncontrolled capital flows can result in rising

Bank of India (RBI) is the sole supplier of liquidity in

inflation,

India. RBI monitors the liquidity situation on a daily

competitiveness and reduction in monetary control.

basis to control and moderate liquidity conditions by

RBI monitors the liquidity situation periodically and

varying the supply of bank reserves to meet its

takes necessary steps to control the situation from

macroeconomic objectives of financial stability.

time to time. RBI uses various direct and indirect

currency

appreciation,

loss

of

policies to control the short-term and long-term The periodic liquidity assessment is done by RBI on daily basis is based on the bank reserves position, and the expected inflows and outflows from domestic operations and foreign flows. Depending on this liquidity forecast, the RBI decides on a course of action to be taken to either withdraw or supplement liquidity.

liquidity position like Cash reserve ratio: RBI uses the cash reserve ratio (CRR) as a tool to control medium to long term liquidity issues. An increase in the CRR results in an increase in the amount of money that banks have to maintain with the RBI as a percentage of their deposits.

These are some factors that influence liquidity conditions in the economy: Domestic factors being an

This reduces the overall liquid funds with the bank

increase in liquidity is required to cover inflation and

and hence reduces the overall liquidity. Another

GDP growth. Several instantaneous domestic factors

policy is Liquidity adjustment factor: The liquidity

also influence the liquidity in the system. Most

adjustment factor (LAF) was introduced about two

commonly, quarterly or annual advance tax payments

decade ago as a part of financial reforms. LAF helps

draw liquidity out of the system as a lot of liquid money

in managing a short term liquidity situation resulting

gets locked with the government. On the other hand,

from the large and volatile capital flows (inflows as

any large payouts by the government or higher

well as outflows). Reverse repo rate: RBI uses the

corporate sector spending can increase the liquidity in

reverse

the system.

management and to smoothen interest rates in the

repo

rate

for

short-term

liquidity

call/money market.

A strong economic performance and the relative underperformance in the developed countries attracted the

The repos also help in keeping the interest rates in a

attentions of many large global investors who were

predictable range, as provided by the prevailing repo

drawn towards investing here (FDI, FII as well as

rate and reverse repo rate. In times of excess visible

portfolio investments). This resulted in healthy capital

liquidity, the call rates hover around the reverse repo

inflows in the last few years. These capital inflows put

rate, whereas in times of tight liquidity, the call rate

a lot of pressure on the liquidity management as

will hover around the repo rate.

uncontrolled capital flows can result in rising inflation,

An uncontrolled and unmanaged liquidity situation

31 | J U L Y 2 0 1 5

In times of excess visible liquidity, the call rates hover

through open market operations if a longer-lasting

around the reverse repo rate, whereas in times of tight

approach was needed. The last time the RBI sold

liquidity, the call rate will hover around the repo rate.

bonds on the open market was in December.

An uncontrolled and unmanaged liquidity situation can have a severe impact on inflation, rates of interest, stock markets, and foreign exchange rates.

RBI has lowered its policy rate by a total 75 basis points with three cuts this year, hoping that banks would do more to pass on the benefits to the broader

Since the conditions in the global markets and foreign

economy. But banks say tight liquidity had stayed

fund flows are quite volatile, the job of RBI in

their hand earlier, and want liquidity to remain ample

controlling the liquidity condition has become more

RBI Governor Raghuram Rajan said in April that

challenging. RBI has taken small steps in changing the

hopes of a sustained surplus were "just nuts", given

monetary policy since the beginning of this year. These

the inflation outlook. Consumer inflation rose to 5.01

steps have shown good results in terms of maintaining

percent in May from 4.87 percent in April. The RBI

interest rates, liquidity and GDP growth. Reserve Bank

has targeted 6 percent inflation by January and 4

of India aims to drain money markets of excess liquidity

percent by March 2018. The RBI's priority is

to counter inflationary pressures arising from higher

meeting those targets, and a seasonal surge in

government spending, though it could hamper chances

government spending - expected to total $45 billion

of banks lowering lending rates.

in the September quarter along with the RBI's annual

Commercial bankers say it would be easier to reduce lending rates, as the RBI has urged them to do, if surplus liquidity prevailed for some months.

dividend payout to the government of around $8 billion at least - will add to inflationary pressures unless cash is drained. "If rates fall below where they are intended then that will hinder RBI's inflation

The liquidity surplus - now 350 billion rupees - has

target," said A. Prasanna, economist at ICICI

dragged the average call money rate down to close to 7

Securities Primary Dealership, who expects cash

percent this month. Some analysts expect it to reach 300

conditions to remain broadly in surplus until

billion to 500 billion rupees ($4.7 billion to $7.88

September.

billion) by August. A senior policymaker aware of central bank's thinking, who requested anonymity, said the RBI wanted to nudge the call rate up to nearer the 7.25 percent policy repo rate. The policymaker said the RBI would stick with its current approach of draining excess cash largely through variable reverse repos.

Weighing the effect of such policy will be difficult as it has to keep the inflation in control. Can liquidity be sacrificed to keep inflation in check? The question can be answered after RBI has taken the necessary steps to control inflation by reducing the liquidity and its repercussions are visible in the economy of

The policymaker did not rule out the RBI selling bonds through open market operations if a longer-lasting approach was needed. The last time the RBI sold bonds 32 | J U L Y 2 0 1 5

on the open market was in December.

the country.

VRIDDHI’s RESEARCH CORNER

COMPANY IN FOCUS: MAYUR UNIQUOTERS LTD.

–Vikas Verma

STOCK DATA

(lmpm), bringing its total production capacity to 3.05

No. of Shares: 4.3Cr

Mn lmpm. MUL is market leader in artificial leather

Market Cap: ₹1802 Cr Average Daily Volume: 51,253 Shares

industry in India with ~ 20 % market share in organized market.

Focus on high margin exports market to expand

CMP: 409.40

EBITDA margin:

TARGET: 650

Exports constitutes ~22% of overall revenue and was

POTENTIAL UPSIDE: ~60%

contributed largely (~80%) by automotive segment.

MUL’s revenue from exports are expected to go up

52 Week High/Low: 514.60/350

sharply over the next few years driven by sales to

About Mayur Uniqouters:

automobile international OEMs like Ford & Chrysler and is also expected to supply to GM and Mercedes

Mayur Uniquoters Ltd (MUL) is a Rajasthan based company engaged in the manufacturing of artificial leather. The company's product finds application in footwear, auto, garments and luggage. It is leader in

Benz. MUL is also exploring huge opportunity in the replacement market. Export realizations are almost 3x compared to avg. realisations in the domestic market.

manufacturing of artificial leather in India with ~20% market share in the organized market (~45% of the total

Backward integration improves product quality

market). The company has also expanded its footprint

and reduce rejection rate:

by exploring new markets viz. Sri Lanka, South Africa,

Knitted fabric is the key raw material required in the

Europe, US and has also focused special efforts in

manufacturing of artificial leather and forms ~18%

automotive segments. The company has recently

of the sales. In FY12, MUL has initiated backward

enhanced its processing capacity from 1.85 mn linear

integration and started manufacturing of knitted

meters per month to 3.05 mn (lmpm).

fabric in-house. The move has benefited company in

Capacity addition to drive volume growth:

terms of better quality, cost efficiency and reduction in product rejection rate from 12 % (before FY 12

Mayur Uniquoters is one of the largest manufacturer of artificial leather in India having production capacity of more than 2x compared to second largest player in the industry. The company has recently added 2 additional coating lines with a combined capacity of 1.2 Mn (lmpm), bringing its total production capacity to 3.05 33 | J U L Y 2 0 1 5

Mn lmpm. MUL is market leader in artificial leather industry in India with ~ 20 % market share in organized

when fabric was outsourced) to 2 %. Presently MUL is the only player in artificial leather industry in India with in - house manufacturing of knitted fabric.

R&D spend result in quality products and premium

Indian footwear industry to grow at CAGR of

pricing 5-10% more than peers:

14%

MUL has created its niche position by investing in

India produces nearly 300 crore pairs of footwear

R&D (MUL spends 1.2% of sales in R&D Vs negligible

annually, exports over 10% and accounts for about

by its peers), which allow company to offer vide range

15% of annual global footwear production which is

of value added products. MUL's focus on quality

over 2,000 crore (as per the Assocham i.e.

product has enabled the company to command premium

Associated Chambers of commerce & Industry of

realization (5-10% over peers) in the domestic market.

India). The per capita consumption of footwear in

Further MUL’s lowest lead time of mere 5 min Vs

India is ~2.5 pairs, which is much below developed

industry avg. of above 15 min (time gap required to re-

economy consumption of 6-8 pairs. This indicates

start new product manufacturing) provides better

potential for consumption growth in Indian footwear

operating leverage. Given the premium realization and

industry. Further with rising population of working

better cost utilization, MUL’s EBITDA margin of 20%

woman and changing consumption, Indian footwear

in FY15 is far better than avg. industry EBITDA margin

industry is likely to grow at CAGR of 14%.

of less than 10%

Rising share of organized player augurs well for

Auto sector on recover phase:

Mayur Uniquoters.

Coming out of the severest down cycle in the PVs

With increasing disposable incomes and rising retail

(Personal vehicles) and CVs (commercial vehicles), I

penetration, the organized segment is growing faster

expect volume growth to be sharp in coming couple of

than the unorganized segment. Going forward, the

years (assume MHCV volume growth at 27% & 23% in

organized segment is likely to outpace the industry

FY16E & 17E). For PVs, we believe volume growth

growth of 14%. Market share of organized player has

could be in the range of 12-15% in FY1617E. My

increased from ~33% in FY07 to ~42% in FY14.

bullish view on auto sector is largely on account of a)

MUL derives ~ 50 % of its revenue from footwear

declining fuel price, b) likely reduction in interest rate

segment. The company is likely to benefit from

and c) sign of recovery in macro economy.

healthy volume growth CAGR in the Indian footwear industry and also from rising share of

Recommend BUY with Target Price of Rs.650 (~60% upside from current level) I expect Mayur Uniquoters to post strong revenue CAGR of 19%/21.4% over FY15-FY17E on the back of capacity addition of 1.2 mn lmpm, backward integration in knitted fabric, recovery in the auto cycle.

34 | J U L Y 2 0 1 5

organized player

SEGMENT ANALYSIS AND PROGRESS OF MAYUR UNIQOUTERS:

Market price on 19/07/2010- ₹20 Current Price - 20/07/2015 - ₹410 Returns -

ANALYST’S RECOMMENDATION: RECOMMENDED STRONG BUY FOR INVESTMENT.

35 | J U L Y 2 0 1 5

1950%

“OCTOBER”

Two of the worst stock-market crashes in which stock prices dropped precipitously occurred in October. As a result, the "Stock Trader's Almanac" considers the month jinxed. The first stock market crash occurred in 1929 when stocks declined 25 percent in two days and marked the beginning of the Great Depression.

Decades later, in October 1987, stocks suffered a worse fate when the stock market lost nearly one-quarter of its value in a day, which goes down in history as the single-worst performance ever by stocks.

The IBS Times is an academic print and is not for any commercial sale.

Reliability and Responsibility for sources of data for the articles vests with the respective authors. Please feel free to drop in your suggestions or any feedback at editor.ibstimes@gmail.com © IBS Times – FinStreet, The Official Capital Markets Club of IBS Hyderabad.

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36 | J U L Y 2 0 1 5