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2014 has been a rocky year for the largest country in the world.
The economy is witnessing a free fall of its curren-cy by about 50%
this year, rising inflation, dip in RTS (Russian Trading System)
index by 30% in a month and a recession this year, with GDP
expected to fall by 4.5% by Central Bank.
Causes
Falling oil prices
The price of oil fell from $100 per barrel in June 2014 to
$47per barrel as on 17th January 2015 due to a drop in global
demand. In 2014, Russia needed an oil price of $100 per barrel just
to have a balanced budget.
Fig 1: Oil prices from Aug14-Dec14
Source : NASDAQ
Economic sanctions following Russia's intervention in Crimea and
Ukraine
Despite the financial crisis, that the United States and the
European Union will not ease economic sanctions imposed on Russia.
Economic sanctions have also con-tributed to the decline of the
rouble since Russian com-panies have been prevented from rolling
over debt, forc-ing companies to exchange their roubles for U.S.
dollars or other foreign currencies on the open market to meet
their interest payment obligations on their existing debt.
High Capital outflow
Prior to the drop in oil prices and before the war in Ukraine,
Russia saw more than $120 billion in invest-ment capital flee its
borders in 2013.
Fig 2: Capital outflow from Russia, billions of USD
Source: Wikipedia
Impact
GDP contraction in Russia
Russia is facing an economic meltdown. Russia is the sixth
largest of the top seven global economies, with a $3 trillion gross
domestic product this year. Now with oil prices collapsing,
analysts say Russias GDP could con-tract 5 percent or more next
year.
Further capital outflow
In anticipation of declining GDP, investors are fleeing the
country converting their roubles for dollars leading to a decline
in the Russian Rouble. This has prompted Rus-sians to purchase
durable goods immediately to get val-ue for their rapidly declining
currency as well as change their pensions and savings from being in
roubles to US dollars or euros, thus creating a cascading effect to
the
The Russian Rouble Crisis
18th January, 2015
Volume 8
Inside this issue:
The Russian Rouble Crisis 1
Highest funded tech
startups in India 2
RBI : Repo rate reduced by
25bps 4
Global Economic Outlook
2015 5
FiNMAG SIGFI, IIM LUCKNOW
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and in the middle of the night hiked the key interest rate by a
tremendous 6.5 percentage points to 17 percent. But that failed to
stop the panic, with the rouble drop-ping by a further 20 percent.
With the rouble having now lost nearly 50 percent of its value
against the dollar in the past year imported food and consumer
goods are quickly becoming luxuries. That trend has begun and
inflation -- already close to ten percent -- threatens to reach 15
percent in the coming months, thereby trigger-ing fears of another
stagflation.
High impact on weaker oil producers
Emerging markets that are producers of commodities like oil are
going to continue to get hurt, especially Ven-ezuela, where oil
revenues account for about 95 percent of export earnings and the
oil and gas sector is around 25% of GDP. Larger vulnerabilities
still lie in the weaker oil producers such as West Africa.
Spill over into emerging economies
Ordinarily, manufacturing-heavy economies that import
commodities, such as Thailand and Indonesia, benefit from lower
commodity prices, but thats not happening indicating poor investor
sentiment in emerging econo-mies at the present, leading experts to
ponder whether the global economy is on the cusp of deflationary
pres-sures.
Minimal impact on US and Europe
US has very little to fear from the collapse of the Russian
rouble because the US does very little trade and finan-cial
business with Moscow. The 2014 international sanc-tions on Russia
decreased Russia's financial connections with the broader financial
world, which in turn lowered the risk that an ailing Russian
economy would affect the worldwide economy.
Impact on Asia
Asias financial markets have fared better than other emerging
market regions because of three key factors - First, the region has
few direct links to the crisis in Rus-sia. Second, Asia stands to
benefit from falling oil prices and third, most countries have
strong external positions.
Outlook
Outlook on the Russian economy is optimistic based on the
assumption that the global price of oil will rise as cheaper energy
prices spur consumer spending and in-vestment across the world.
That will lead to higher de-mand for oil, which will push up the
price. Some analysts estimate that the price will recover to about
$80 a barrel next year. In the short term, this would be good for
Rus-sia, given its dependence on the energy sector. Also, high oil
prices over the past decade have allowed Mos-cow to pile up
substantial hard currency reserves. Even after having spent heavily
to support the rouble, the central bank's reserves still stand at
around $400 billion. Public debt is just over 10 percent of GDP.
The budget remains balanced and the government has a big rainy day
fund to draw upon to sustain social spending.
However, half of the Russian Federation's governmental revenue
comes from the sale of oil and gas. Russia's economy suffers from
Dutch disease, a term economists use to describe a situation in
which a country focuses on developing its natural resources to the
detriment of other economic activity. In the long term, though, it
is essential that the country tackle some of the economic
challenges it has ducked for the past couple of decades including
the development of alternate sources of eco-nomic activity thereby
reducing dependence on hydro-carbons.
References:
http://en.wikipedia.org/wiki/2014%E2%80%9315_Russian_financial_crisis
http://www.bloombergview.com/articles/2014-11-10/how-close-is-russia-to-financial-crisis
http://www.telegraph.co.uk/finance/economics/11296233/Russian-economic-crisis-live.html
http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-16
http://www.aljazeera.com/programmes/insidestory/2014/12/inside-story-russia-economic-crisis-2014122185119161740.html
FiNMAG
Highest funded tech startups in India
2014 was a record year for Indian startups when it comes to
venture capital funding. Not surprisingly, e-commerce received the
highest amount of funding given its capital intensive nature of
business, at $602 million. This was followed by the Services sector
where startups that dealt with a wide spectrum of services from
pay-ment enablement to event ticket sales. Consumer Web still
remains strong with many innovative business mod-els and web
enabled solutions attracting investments. Surprisingly, Data
Analytics, although is seeing a lot of market traction, has
attracted just about $31 million in funding. Education and
Healthcare continue to be aver-age performers.
Heres a look at the 5 highest funded Indian tech startups
Flipkart US$1.91 billion
Ecommerce leader Flipkart became the first VC-backed company in
India to have a billion dollar funding round. Tiger Global and
South African media group Naspers led the US$1 billion funding in
July. Part of the funds went into acquiring leading fashion portal
Myntra. Tiger Glob-al and Accel were the leading investors in both
Flipkart and Myntra, and are believed to have pushed for the merger
to shore up the battlefront against Amazon.
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Volume 8
Snapdeal US$861 million
Snapdeal raised US$234 million in two back-to-back funding
rounds in February and May. Then Japanese telecom giant Softbank
came to India in October provid-ing US$627 million more in funding
to play in the big leagues.
Ola US$251.5 million
The leading taxi aggregator Ola had a whopping US$210 million
from Softbank in October on top of the US$41.5 million it had
raised earlier in the year, taking its total funding in 2014 to
over a quarter of a billion dollars. That gives it ammunition
enough to compete with global rival Uber, provided Indias transport
regulators give them the green signal in the new year.
Quikr US$150 million
Tiger Global came on board to give a boost to local clas-sifieds
portal Quikr in its battle with global player OLX. Two funding
rounds of US$90 million and US$60 million
this year were a recognition of the continuing appeal of the
online classified listing sites despite the mushroom-ing of
ecommerce sites.
Housing US$109 million
Real estate portal Housing.com was the third big benefi-ciary of
Softbanks largesse in India, with a US$90 million infusion of
funds. This came on top of a US$19 million funding round in June,
taking its total for the year past the 100-million-dollar mark.
Housing.com has been a trail-blazer among Indian real estate
portals, pioneering the use of map-based mobile technology to make
house-hunting in a disorganized market easier.
References :
https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/
http://yourstory.com/2014/08/india-startup-funding-report-2014/
http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/
Highest funded tech startups in India
Fig : VC funding sector wise in first half of 2014
Source: Yourstory.in
RBI: Repo Rate reduced by 25bps
The Reserve Bank of India on Thursday slashed the repo rate by
25 basis points to 7.75 percent from 8 percent. Repo rate is the
rate at which the RBI lends money to commercial banks in the event
of any shortfall of funds. It is used by monetary authorities to
control inflation. This is the first repo rate cut since May 2013.
The cash reserve ratio (CRR) has been kept unchanged at 4%
while the reverse repo rate stands adjusted to 6.75%. Finance
Minister Arun Jaitley hailed the decision of RBI to cut the policy
rate, saying it is a positive devel-opment for the Indian economy
and will certainly help in reviving the investment cycle the
government is trying to restore.
https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/http://yourstory.com/2014/08/india-startup-funding-report-2014/http://yourstory.com/2014/08/india-startup-funding-report-2014/http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/http://www.business-standard.com/search?type=news&q=Rbi
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Volume 8
Reasons for the cut
Inflation
The consumer price index inflation has been easing since July
2014. The path of inflation, while below the expected trajectory,
has been consistent with the as-sessment of the balance of risks in
the Reserve Bank's bi-monthly monetary policy statements. Lower
than ex-pected inflation has been enabled by the sharper than
expected decline in prices of vegetables and fruits since
September, ebbing price pressures in respect of cereals and the
large fall in international commodity prices, par-ticularly crude
oil.
Fiscal deficit target
Rajan has acknowledged the government's assurance of sticking to
its fiscal deficit target of 4.1% in the current
fiscal year. Recently the Finance Ministry had said that all
efforts were being made to ensure that the govern-ment does not
default on the fiscal deficit target.
Fall in oil prices and Copper prices
Global oil prices breached the six-year low of $45 a bar-rel.
The low oil prices have kept the good times rolling for emerging
economies such as India. It helped the gov-ernment to have a sharp
reduction in pump prices of petrol and diesel. Petrol prices are
now Rs 12.27 per liter lower than in August, while diesel prices
are down Rs 8.46 a liters since October. Low oil prices would
reduce inflation and the oil import bill, which was $160 billion
last year and is likely to be around $100-110 billion this year. It
would also bring down subsidy on kerosene and cooking gas. Copper,
on Wednesday crashed to a six-year low. Both slippages have
re-ignited fears of another round of a global growth slowdown.
RBI: Repo Rate reduced by 25bps
WPI inflation for December
came in at 0.11%, marginally
higher than the flat inflation
logged in November
Inflation outcomes have fallen
significantly below the 8% tar-
geted by January 2015. On cur-
rent policy settings, inflation is
likely to be below 6% by Janu-
ary 2016
The rate of retail inflation in-
creased, but marginally to 5%
from an all-time low of almost
4.4% in November
Copper crashed to a six-year low.
High-grade copper for March
delivery, to $2.51 a pound, hitting
levels not seen since mid-2009
Low oil prices would reduce infla-
tion and the oil import bill, which
was $160 billion last year and is
likely to be around $100-110 bil-
lion this year
Rate cut will lead to more money in
the hands of the consumer for
greater spending
The rupee ended at 62.07 a dollar,
up 0.2% from its previous close of
62.19 but down from its days high
of 61.48
The move will boost housing de-
mand and also improve sentiments
in the sluggish property market.
Sensex -- jumped 728.73 points to
close at 28,075.55. Nifty surged
216.60 points and ended at
8,494.15.
Finance Ministry said it expected
banks to pass on the rate cut to
consumers through a 50 basis point
-reduction in lending rates.
RBIs move will boost investor sen-
timent and revive growth, It also
sparked a hope that it will further
bring down interest rates to lower
the cost of capital for the industry.
Bond yields fell sharply. The bench-
mark 10-year bond yield fell 5 basis
points to 7.93 percent on the news.
It had hit a near 1-1/2 year low of
7.82 percent in mid-December
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Volume 8
Global economic growth in 2015 is expected to be around 3.4
percent in 2015. Downsides to the global outlook relate to
intensifying political and economic risks; upsides relate to the
ability of policy and business to invest, raise productivity, and
rebuild trust and confi-dence.
US: MODERATELY POSITIVE
US is expected to grow at a modest 2.6 percent in
2015.Profitability may come under increased pressure as business
cycle matures and cost increases are immi-nent. Americas strength
in technological progress needs to help accelerate productivity.
The key challenges for United States would be increasing income
inequality, geopolitical shifts and adapting to climate change.
EUROPE: CAUTIOUS SHORT-TERM OPTIMISM, BUT DOWNSIDE RISKS
ACCUMULATE
Despite significant downside risks, the Euro Area is pro-jected
to grow at 1.6 percent in 2015, almost double that of 2014.Modest
recovery in domestic consumption is a likely source of growth as
labor markets improve. However, disinflation or even deflation
could bring growth rates down. The key challenges for Europe would
be youth unemployment and EU-Russia relations.
ASIA-PACIFIC: CHALLENGING IN CHINA; MOSTLY POSI-TIVE
ELSEWHERE
Despite softening growth rates, the Asia-Pacific region remains
the leader for global growth. Growth rate for the region is
expected to be around 5.5 percent from 20152019. Despite short-term
headwinds from global economy, Southeast Asia will strengthen as
the global production base. The key challenges for Asia-pacific
would be structural economic reforms and managing
urbanization.
LATIN AMERICA: UPSIDE POTENTIAL
Regional growth is expected to strengthen steadily from 1.9
percent in 2014, to 2.9 percent in 2015 and 3.5 per-cent in 2016.
Decreasing prices of commodities and en-ergy exports provide
significant downside. Productivity growth should can help in
building investment and im-proving business confidence. The key
challenges for Latin America would be education and skill
development and dealing with corruption and income inequality.
AFRICA: POSITIVE, BUT UNCERTAIN
Regional GDP growth is projected to strengthen to 5.1 percent in
each of 2015 and 2016, supported by net foreign direct investment
(FDI) flows in the resource sectors, public investment in
infrastructure, and im-proved agricultural production. Nigeria will
be the strongest performer at 6.7 percent growth in 2015, but it is
heavily dependent on natural resources and vulner-able to global
demand. A positive growth outlook for Africa is strongly dependent
on improved institutional performance and better governance. The
key challenges for Africa would be education and skill development
and delivering hard infrastructure.
References:
http://reports.weforum.org/outlook-global-agenda-2015/
http://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-much
https://www.conference-board.org/data/globaloutlook/
Global Economic Outlook 2015
http://reports.weforum.org/outlook-global-agenda-2015/http://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-muchhttp://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-muchhttps://www.conference-board.org/data/globaloutlook/