12-sep-2011

FINVEST TIMES
Letter to Readers

Volume 1, Issue 1

Dear Readers,

members of the club am sure that next addi-

I am delighted are working to take tion will see more parto say that within a their own club to higher ticipation from other span of one month of levels. Here, I would core members and also
This newsletter is another milestone in the journey which the club has undertaken from the day the management provided them with this opportunity

Finvest (I.T.S Finance specifically like to ap- the first year batch club) getting activated, preciate the efforts of members who are eathe hard work of core the editorial team com- gerly looking forward to team members has prising of Akhil, Nikita the opportunity. made possible two ac- and Dheeraj, who have In the end I just want to tivities. Both the activi- worked relentlessly to wish you all, Best of ties were well thought ensure that the club is Luck. It has been a of by the students able to publish the great learning for me, keeping in view the aim newsletter within time- working as a mentor of the club, i.e. to im- line decided. Also, the and coordinator to this

Inside this issue: US debt crisis: an overview Technical innovation 2 4

part knowledge of Fi- efforts of nance and keep the Mainak, current happenings.

Shashank, team. Arnab and Thanking You. Finance

members updated of Bhuwneshwar are note- Prof. Sumit Gulati worthy as their contri- Coordinator This newsletter is an- butions form a valuable Club other milestone in the portion of the first addijourney which the club tion. has undertaken from I am sure with your the day the manage- valuable suggestions ment provided them we would be able to

Guidelines for new 5 banking licence India's economy 6 slowing amid anger Core sector industries grow by 7.8% Terminology 6

Success story

with this opportunity. It make this fortnightly is also an indication of Newsletter better and how hard and with how more insightful with much enthusiasm the every addition. Also, I

12-sep-2011

FINVEST TIMES
Impact of U.S Debt Crises on Indian Economy
WHAT IS U.S DEBT CRISIS?

Volume 1, Issue 1

Federal Reserve has to borrow new loans. But there is a debt limit that is called debt ceiling and it is raised with agreement of both The houses of congress.

US Foreign

outstanding countries

debt own

When a governments out WHAT IS U.S DEBT CRISIS? Impact of debt crisis on Indian economy How budget shortfall can be managed

stands at US$ 15 trillion. nearly US$ 4.5 trillion of this amount. Currently, Indias exposure to US debt stands at US$ 41 billion. We are ranked at 14th position in terms of country having exposure to US debt. China ranks first, having an exposure to the tune of US$ 1.15 trillion exposure. Impact in terms of slowdown in foreign direct investments into India and weakening global equities could put pressure on the Indian rupee. Also, the spike in uncertainty in the international markets because of the downgrade of U.S sovereign debt by rating agency Standard & Poors, is expected to force Indian companies to put their foreign fund raising plans on the back burner. Further, even the borrowing cost will also go up. However, on the positive side, there would be a decline in crude oil prices as

lays exceed its tax receipts in a given fiscal year, it runs on deficit and may have to borrow money to make up the difference. Sovereign debt is the accumulation of such borrowing from foreign and domestic creditors. If creditors are unsure whether a national government is able or willing to repay its debts, then the government may have to pay a higher interest rate on the bonds it issues to entice

ways by which the budget shortfall can be managed are as given in table 1 Impact of debt crisis on Ineconomy: dian economy Recruitment by Indian IT companies witnessed a slowdown in the month of August, 2011 owing to the crisis in the US and European region. US accounts for almost 60 per cent of the revenues of the $60 billion Indian IT industry. A city-wise analysis shows that most cities experienced a lull in hiring activity in the IT and ITes sectors in August, 2011. The IT hub of Bangalore saw a 29 per cent decline in hiring vis-avis the previous month. In contrast, other industries such as FMCG, banking, telecom and automobiles saw 14 per cent more recruitment in August, compared to July.

Inside this issue: US debt crisis: an overview Technical innovation 1 3

buyers. If a government is unable to issue bonds to cover its debts, then it must resort to other means: cutting expenditures, raising taxes, or borrowing from international agencies such as the International Monetary Fund. U.S has lots of bills to pay
6

Guidelines for new 4 banking licence India's economy 5 slowing amid anger Core sector industries grow by 7.8% Terminology 5

almost $3.8 trillion every year. Its income is about $2.2 trillion per year. This caused a fiscal deficit of $14 trillion which is the same as their GDP. This creates a vicious circle. For repayment of old debt US

Success story

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between a US sovereign and Indian sovereign paper of comparable duration may decline, thus enabling FII inflows into the country. Also the government is taking actions on the policies front. If the government takes measures to curb inflation and corruption and implement reforms at a faster pace, the recent corrections in valuations would make it a good investment opportunity to buy fundamentally

good stocks. In the announcement, the Federal Reserve said it will keep its monetary policy stimulus at least through 2013. It will hold rates low for an extended time. The more explicit time frame was to give a clear picture to the investors / borrowers of how long they will be able to obtain ultra-cheap credit. Rates have been near zero since December 2008. On the economic front, productivity

dropped 0.3% in the second quarter, according to the Labor Department, following a decline of 0.6% in the previous quarter. Though the stable rates may bring some relief to the investors, there are signs of the weakness in the US economy. In its announcement, Fed indicated that the economy has grown inconsiderably slower than the Fed had expected.

Table 1 Way to reduce budget shortfall

Problem

Create new debt instruments

It will increase the problem of already high debt, since now new interest along with the principal will have to be paid.

Borrow from World Bank or Finan- This will increase the debt level, which is already creating burden for cial Institutions US economy. Creates or Print currency notes It will lead to inflation, as value of money will reduce decrease in purchasing power of people. It means less disposable income for people which will affect their demand and may lead to further slowdown in economy. This will lead to slowing down of economy as it will make difficult for people to generate income, hence affecting their spending, which will make it more difficult for people to generate income and so on. Eventually it will lead to further slowing down of economy

Increase tax rate

Cut on expenditure

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NEWS WATCH
Major Yahoo shareholder calls for new board - A top shareholder of Yahoo Inc demanded the company overhaul its board, saying its directors had made "serious misjudgments" and "destroyed value" for stockholders. The shareholder, Third Point LLC, which has about $8 billion under management, said in a letter to Yahoo that a "reconstituted board with new directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary." Third Point said it had held discussions with a number of potential replacements for current directors. Yahoo CEO Carol Bartz was fired on two days ago. Third Point owns about 5 percent of Yahoo shares, according to a filing with securities regulators

directors had made "serious misjudgments" and "destroyed value" for stockholders.

Gold posts biggest single-day gain to cross Rs 28,000 mark

Gold climbed to an all-time high of Rs 28,150 per 10 grams in the national capital today, posting its biggest-ever single day gain of Rs 1,310 amid frantic buying triggered by robust demand in global markets. In a similar fashion, silver ready surged by Rs 1,500 to Rs 62,800 per kg and weeklybased delivery by Rs 1,920 to Rs 62,690 per kg.

ONGC overtakes Reliance Industries as most-valued firm

market valuation of Rs 2,37,842 crore, slightly higher than RIL's Rs 2,35,571 crore, State-run ONGC today toppled billionaire Mukesh Ambaniled Reliance Industries as the country's most valued company today, as a regular game of musical chairs for the top slot continued in the stock market. With a market valuation of Rs 2,37,842 crore, slightly higher than RIL's Rs 2,35,571 crore, the PSU energy major reclaimed the top position from the private sector corporate giant after a gap of nearly four and half years. Earlier on August 17, staterun Coal India Ltd (CIL) dethroned RIL as the top-valued firm, ending the private sector energy's giant over four-year reign at the top. RIL had first toppled ONGC to become the country's mostvalued firm way back in late 2006. RIL has managed to stay on the top since February

Technical innovations
Credit card processing machine Its like an ATM organisation solely dedicated for processing credit cards. In case your customer wants to buy something on credit, you can simply show the customer how to use the credit card processing organisation and use it to apply for a credit card. It will take about 48 hours for your customers application to be processed and once it is approved you can begin processing your customers credit buy with the approved credit card. Depending on your arrangement, you can deliver the customers buy right at his doorstep or have your customer pick up his merchandise. Fap turbo It is software used in Forex trading. The FapTurbo software is a known application to nearly all the Forex traders. It is also renowned as the most highly searched software application in Forex trading. FapTurbo is the application which automated trading or it can be stated that it is the application that assists the Forex traders in determining the accurate time to purchase and trade. This form of job is tricky particularly for the starters, so this is where the software application comes handy.

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Guidelines for new banking licence: L&T Fin, Shriram and M&M in race
The widely-anticipated draft guidelines on new banking licences for the private sector were finally released by the Reserve Bank of India (RBI) early this week. Overall, the guidelines got a warm response, although doubts remain on the interpretation of a few terms Key highlights of the draft include a minimum capital requirement of Rs 500 crore, a 49 percent cap on foreign shareholding and the barring of corporate groups with 10 percent or more of their income or assets from/in the broking and real estate businesses from applying for a bank licence. In addition, only private sector groups are eligible to apply for a bank licence, which leaves companies like Power Finance Corporation and Rural Electrification Corporation out of the loop. The guidelines also state that a new bank has to be set up through a non-operative holding company, which will not only hold the bank but also all other financial services companies. If the promoter already has a non -banking finance company (NBFC), that NBFC can either be converted into a bank or pass on all banking-related activities to the new bank. The most common candidates among brokerages are Shriram Transport, L&T Finance, Bajaj FinServ, M&M Financial Services and IDFC. Standard Chartered, meanwhile, believes the guidelines favour Reliance Industries, Reliance Capital, the Tata Group and the Aditya Birla Group, while being less positive for existing NBFCs such as M&M Financial Services and Shriram Transport, since these companies will have to merge their asset-financing businesses with the bank.

new bank has to be set up through a nonoperative holding company, which will not only hold the bank but also all other financial services companies.

India gold rises 1.5 pct, moderates demand India gold futures gained more than 1.5 percent tracking a firm world market, moderating demand in the domestic spot market in the middle of the festive season, dealers said. Not everyone is waiting for a sharp drop in prices. In India, sentiments are that gold will go up further. So consumers are buying at every level The rupee continued to trade higher aided by positive shares, but came off the day's high as the euro slipped. The rupee plays an important role in determining the landed cost of the yellow metal, which is quoted in dollars. India's wedding and festival season demand will gain pace and peak in October before tapering off in De-

wedding and festival season demand will gain pace and peak in October

Food inflation a serious concern - Ahluwalia

India's high food inflation is a serious concern, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said on Friday. India's food inflation accelerated to 10.05 percent, its highest in nearly six months, in the year to Aug. 20, government data on Thursday showed. "Even if we grow at 8 percent this (fiscal) year, target of 9 percent (growth) from next financial year for the next five years is feasible, but not easy," Ahluwalia said. India's economy grew 7.7 percent in the quarter through June, its weakest pace in six quarters, but outperformed even gloomier predictions, reinforcing expectations the RBI will keep raising interest rates to put a lid on inflation.

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India's economy slowing amid anger about corruption

movement has gained a large following in big cities like New Delhi and Mumbai, especially among the middle class and the young. Most countries would be thrilled to have a growth rate of more than 7 percent, but for India, which strode at a 9 percent pace before the financial crisis of 2008 and hit 8.5 percent last year, it would be a significant letdown. Slower growth would mean fewer Indians climbing out of poverty and could help spur greater social unrest "Today, the economy is running on the engine speed achieved some time ago," said R. Gopalakrishnan, an executive director at the Tata Group The new economic worries are
crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel, have a weight of 37.90 per cent in IIP

occurring while the Indian government has been preoccupied with the biggest protests the country has seen in nearly two decades. The demonstrations are led by an activist, Anna hazare who was on a hunger strike since Aug. 16. He says he will not eat until the Indian Parliament creates a powerful anti-corruption agency known as a Lokpal. His movement has gained a large following in big cities like New Delhi and Mumbai, especially among the middle class and the young. India has endured a series of

large corruption scandals in the last year, involving the auctioning of wireless licenses, the 2010 Commonwealth Games and various real estate deals. People are so dissatisfied that they want a change," said Harsh Goenka, chairman of RPG Enterprises, a Mumbaibased conglomerate involved in several businesses. "They want a change in governance."

Eight core sector industries grow by 7.8% in July The eight core infrastructure industries expanded by 7.8 per cent in July, against 5.7 per cent in the same period last year, on healthy growth in electricity, steel and cement production. The core infrastructure industries had expanded by 5.2 per cent in the previous month. The eight industries, crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel, have a weight of 37.90 per cent in the overall Index of industrial production Electricity, steel and cement output grew by 13 per cent, 15.5 per cent and 10.6 per cent in July respectively, according to the provisional data released. Crude oil production grew by 1.4 per cent in the month under review against 15.8 per cent in the comparable period of last year. Petroleum refinery products output too grew by 3.9 per cent against a growth of 13.7 per cent in the same month last year. However, natural gas and fertiliser output contracted by 8.2 per cent and 1.6 per cent, respectively.

L&T Finance to raise at least Rs 1 billion

L&T Finance holdings , a unit of Indian engineering conglomerate Larsen & Toubro, plans to raise at least 1 billion rupees via two-year bonds at 9.96 percent, a source with direct knowledge told Barclays is the sole arranger to the issue, the source said.

ONGC files for $2.5 bn follow-on public offer with SEBI

State-run explorer Oil and Natural Gas Corp has filed the prospectus for its follow on public offerwith the markets regulator on Monday, the company said in a statement on Tuesday. The 5 percent stake sale, valued at about $2.5 billion, will include an offer of 419.2 million shares to the public and a reservation of 8.55 million shares for employees, the firm said.

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Terminology
Call Money: T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. Commercial Paper: Commercial paper is not usually backed by any form of collateral, so only firms with high-quality Term Loan: A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years. Delayed Draw Term Loan: A special feature in a term loan that stipulates that the borrower can withdraw predefined amounts of the total preapproved amount of a term loan at contractual times. This special type of term loan is only offered to individuals and firms that meet and maintain certain contractual requirements and have outstanding credit ratings. BillTreasury Bill- T-Bill: A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks). Certificate Of Deposit CD: A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC) as long as it matures before nine months (270 days), making it a very cost-effective means of financing. The proceeds from this type of financing can only be used on current assets (inventories) and are not allowed to be used on fixed assets, such as a new plant, without SEC involvement. Reverse repo rate: Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Teaser Rate: An initial rate on an adjustablerate mortgage (ARM). This rate will typically be below the going market rate, and is used by lenders to entice borrowers to choose ARMs over traditional mortgages. The teaser rate will be in effect for only a few months, at which point the rate will gradually climb until it reaches the full indexed rate, which will be a static margin rate plus the floating rate index to which the mortgage is tied (usually the LIBOR index). Bank Rate: The rate at which central banks lend funds to national banks.Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the Money supply.

TOON-VEST

Brokerages know that they are taking on risk by using funds that can be called at any time, so they typically use call money for transactions that will be resolved quickly. If the bank recalls the funds then the broker can issue a margin call on its clients in order to make the repayment. The call money rate is used as the interest rate on the loans.

FINVEST
INSTITUTE OF TECHNOLOGY & SCIENCE Mohan nagar Ghaziabad

Send us your articles at: [email protected] [email protected] [email protected] Winning articles will get prizes And there article will be published in FINVEST TIMES You can also send your suggestions, feedback, stories etc.

FINVEST which symbolises finance and investment is a student managed club and it aims to spread knowledge to all those who aspire to learn the nitty gritty of Finance. The uniqueness about this club is its focus on practical aspects of finance and regular research by students which keeps them updated with the changing scenario.
Disclaimer: This newsletter is just a compilation of news from various sources (newspapers, websites, journals and magazines) and hence, no personal analysis is being done by the members. Thus, readers are expected to cross-check the facts before relying upon them. Though much care has been taken to present the facts without error, still if errors creep in, necessary feed backs will be always welcomed. Editors would not be responsible for any undertakings.

A success story :- Neil McCarthy Neil McCarthy started investing in the stock market when he was 34, in the 1970s. Today he has a net worth of about $2.1 million. When stocks went down, he bought more. He contributed the maximum to both his IRA and his 401 (k) and his employer matched 100 percent. That's truly free money -no risk. The big payoff came during the 1990s bull market when his stock doubled in three or four years, suddenly reaching $1 million.

OUR RECENT ACTIVITIES sum. Just before interest rates started to fall, he invested part of the money in an immediate annuity and earned a bigger payout than if he had chosen the company's pension annuity. His number one piece of advice that made all the difference is this: "If you wait to save out of what's left over from your salary, it's not going to happen. Pay yourself first."

He avoided technology companies because it didn't make sense to him. He saw price-earnings ratios of 200 to 300 and "thought it was absolute nonsense." This practical investing style saved his millionaire status when the market crashed. When he retired in 2000, McCarthy took his retirement payout as a lump

Finance quiz: A quiz was organized for first year students. 10 teams participated & 4 reached to the finals Presentation on US Debt crisis and its impact on India: students were required to make ppts on the topic and present in front of judges

Editors: News: Akhil Lakhani, Nikita Pathak, Dheeraj Arora Article: Shashank Upmanyu

Terminology: Mainak chakroborthy; Arnab mustafi