FinXpress - January 18, 2015

FINXpress

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Term of Week

In Focus

Opinion

Personality

Tech World

Transfer Pricing|

6

Google Chromecast |12

Dr. Kiran Majumdar-

Shaw |11

Are surprise rate cuts

the way ahead| 4

JANUARY 18, 2015 | A FINNICHE INITIATIVE

BSE Index after interest

rate cut| 2

FinXpress

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

P u b l i s h e r o f t h e e d i t i o n :

P r i t i S u r e k a

With the ongoing matches in Cricket, Football and Badminton, all teams are busy planning

strategies and practicing hard to emerge as winners. Lodhi celebration brought some respite from

the winter.

Club FinNiche releases its weekly magazine FinXpress, 2015 with the In Focus talking about the

‘BSE Index after interest rate cut’. The Opinion gives an overview of ‘Are surprise rate cuts the way

ahead?’.

The term of the week describes “Transfer Pricing", setting of the price for goods and services sold between controlled legal entities. Do have a look at the market section, Tech world which brings to you about Google Chromecast and Personality of the week, Dr Kiran Mazumdar—Shaw. Hope everyone likes the revamped version of magazine. Club FinNiche welcomes any comments, suggestions or criticism regarding the magazine. Please do write to us and share your ideas. Happy Reading! Regards The Editorial Team Club FinNiche

Page 1 of 13

January, 18 | 2015 | Volume 30

CONTENTS

InFocus | 2

BSE Index after interest

rate cut

Opini on | 4

Are surprise rate cuts the

way ahead?’

Term o f the Week | 6

Transfer Pricing

Marke t th i s Week | 7

News | 9

Personal i ty | 11

Dr. Kiran Mazumdar– Shaw

Tech Wor l d | 12

Google Chromecast

Page 2 of 13

S&P BSE Index recorded

its highest single day rally

in the last five years after

sudden announcement of

interest rate cut by the

RBI.

In Focus - By Priti Sureka

On Thursday, January 15th RBI announced a

reduction in main lending rates. On the same

day, key equity benchmark indices

rebounded as investors welcomed the

decision of RBI.

As a reaction to the cut in interest rates, S&P

BSE Sensex was up 2.84% at 28,122.86 on the

same day. The Sensex registered its biggest

single day rally in the last five years.

All 13 sectoral indices on BSE rallied higher.

However, BSE Realty Index and BSE Bankex

Index outperformed the Sensex as these were

up 8.39% and 3.65% respectively.

BSE Consumer Durables Index, BSE FMCG

Index, BSE Healthcare Index are among the

buzzing stocks.

Crude oil prices have halved from the year

ago level. Interest rates have been decreased

unexpectedly by the RBI Governor. This will

impact the margins of FMCG companies

positively. On the other hand, due to

decrease in interest rates, there may be an

increase in consumption demand.

As fall in crude oil prices helped the FMCG

companies shares to perform well, on the

other side the same reduction in oil prices put

pressure on oil shares. ONGC declined more

than 2% and RIL is down 0.7%. Whereas, BSE

FMCG Index was up 1.53%.

BSE IT Index and BSE Teck Index failed to

perform well as compared to other BSE

sectoral indices. Current losses in major IT

companies such as Infosys, TCS and Wipro

put pressure on IT shares which did not

allow IT shares to perform well.

The BSE Auto Index was up 2.42% as these

stocks witnessed fresh buying as investors

sentiments were boosted due to fall in

interest rates. A fall in the repo rate will

improve liquidity in housing and auto

sectors. Shares of Maruti Suzuki gained

around 1.5%, M&M was up 1.2%, shares of

Hero Motocorp gained 1%. However, shares

of Tata Motors are trading flat.

The Financial shares are very sensitive

towards interest rates. As there was a

reduction in the interest rates, the BSE Bankes

Index outperformed the Sensex. Among the

financial shares, ICICI Bank incurred loss and

shares of HDFC Bank are trading flat. The

shares of Axis Bank and SBI gained.

BSE Metal Index overall suffered because of

pressure from Chinese economy.

Overall a combination of lower inflation and

lower interest rates triggered the investors

confidence.

Talking about FMCG sector, HUL shares

emerged as the top performer in the BSE

FMCG Index. HUL started this year with a

big high in its share price and it gained

overall 13% in the first seven trading sessions

BSE Index after interest rate cut

In Focus

Page 3 of 13

Of the year 2015. On the other hand, ITC

turned out to be the worst performer among

FMCG stocks. Decline in cigarettes volume

and concerns regarding the upcoming Union

Budget have been major factors affecting the

share price of ITC. In such a situation, ITC

shares seem to be least affected by decline in

oil price and lower interest rate.

Talking about the global market, most Asian

stocks also ended higher after interest rate

cut in India. Key benchmark indices of

China, Hongkong, Japan, Singapore and

South Korea gained.

On the other side, European markets were

trading mixed as many investors weighed

company earnings results. Key benchmark

indices in France and in UK eased by 0.47%

to 0.56%. Germany’s DAX also quoted higher

by 0.13%.

Therefore, overall Indian as well as global

stock market ended higher as a result of

reduction in interest rates.

Many analysts believe that RBI is likely to

reduce the interest rate further in February

and April 2015 and this is just a beginning of

a big rate cut cycle.

There was a slowdown in the stock market

during past few sessions due to lack of any

trigger from the side of government and RBI.

But few days ago, announcement by RBI was

enough to rebound the entire stock market.

The day when BSE Sensex will be recording

30,000 seems to come near.

Such decision by RBI will also have an

impact on export of the country. Maruti

Suzuki gained over 1% and according to

media reports, the company is aiming to

achieve a 20% growth in exports of its

vehicles. Not only Maruti Suzuki, other

companies will increase their export target

addressing improved investors sentiments.

Opinion

Are Surprise Rate Cuts the way ahead?

- by Mohammed Zakir Ahmed

Page 4 of 13

In a double surprise, RBI has added zing to the

markets which had doubts on the timing of

announcement of rate cut in credit policy. The first

surprise was announcing a rate-cut between two

policies, as expected from the earlier policy

statement that RBI would not wait for policy cycle

to end for lowering the rates if the inflation and its

future were acceptable. The second surprise was

the timing of announcement of cut made in the

morning just before markets opened rather than

the usual Wednesday evening.

The concept of a surprise has become a routine

for monetary policy as there is a belief that unless

a surprise element is present, the impact of

monetary policy is minimal. When rate are

increased or decreased in line with market

expectations, the market remains undisturbed as

the information is already considered by the

market. Hence, a surprise policy has more impact

on the market and increases its volatility.

Curiously, the goal behind having a series of

monetary policies that ranged from 8 to 6 was to

remove this ‘noise’ factor. In the past, when rate

changes were announced in between policies,

there would be considerable distortions in the

market because of different guesses made by the

people.

G-Secs, stocks, money markets, currencies all

tend to be affected by such conjectures.

Usually, the central bank reserves the right to

intervene at any time, but this is done when there

are serious problems in the economy. In 2013, for

example, when the rupee went down, there were

emergency measures announced concerning the

LAF and rates to ensure that there was order. But

by making such an announcement when things

are going right, a new dimension has been added

to the process of conduct of monetary policy.

Two implications stand out due to the

announcement. The first is that RBI is convinced

that inflation has come down and will after

November is put to rest as central bank expects

CPI to stay in limit.

R a t e c u t b y R B I

RBI has slashed the Repo rate

by 25 bps from 8% to 7.75%

on Thursday.

Our Indian economist expects

the RBI to cut the rates by

another 25 bps after the end-

February budgert announce-

ment. change date percentage

january 15 2015 7.750 %

january 28 2014 8.000 %

october 29 2013 7.750 %

september 20 2013 7.500 %

may 03 2013 7.250 %

march 19 2013 7.500 %

january 29 2013 7.750 %

april 17 2012 8.000 %

october 25 2011 8.500 %

september 16 2011 8.250 %

H S B C r e p o r t

HSBC Asia Pacific rates team

expects credit cost to fall fur-

ther to 6—6.5% within 2-3

years.

Opinion

Page 5 of 13

The second implication is that we can see this rate-

cut as the beginning of a series of similar rate-cuts

during the year. The scale and pace will be largely

determined by the actual CPI inflation and

expectations of the same. Assuming a normal

monsoon, one can expect a 100 bps reduction in

interest rates during the course of the calendar year

2015.

RBI announcement leads to two questions to be

asked. Whether or not industry would be happy with

this announcement and whether banks would follow

with rate cuts. The industry is expected to be

satisfied since the rate cut was long overdue and has

been under consideration for last 2-3 months, a

positive sign for industry. This however might not

lead to fresh investments as there will be a wait and

watch period. Infrastructure projects would wait for

further cuts as money borrowed has to be committed

for a long fixed tenure. Manufacturing sector with

capacity utilisation of 70% due to stagnant demand,

would not hurry to invest and will wait to see a revive

in demand.

On the second issue, RBI will be keenly observing

whether or not banks lower their interest rates. Prior

experience says that bank lower deposit rates than

lending rates immediately after rate cut by RBI. There

is always a lag between the two, but when the

lending rates are eventually lowered, the extent of

reduction is lower than that of deposits. The lowering

of interest rates by RBI is good news as it provides

clear direction to the markets. It will be interesting to

see the future actions generated by the normal

course of economic activity between the two policies.

If so, the market might try to guess such action, and

expectation of considerable volatility in the financial

markets when such situation occurs are triggered.

The surprise rate cut has been manifested by lower

interest rates, stronger currency and rising stock

markets.

And at an ideological level, if we are going to pursue

the policy of acting on an ‘as and when when

required’ basis, then should we revert to the

conventional bi-annual policy approach?

T ra n s f e r P r ic e

Transfer pricing is the setting

of the price for goods and

services sold between

controlled (or related) legal

entities within an enterprise

A r m ’ s L e n g t h P r i c e

The price at which two

unrelated parties would agree

to a transaction

The arm's length principle is

the condition that the parties to

a transaction are independent

and on an equal footing

Transfer Pricing

Term of the Week

Page 6 of 13

Transfer pricing occurs at whatever situation,

two organizations that are part of the same

multinational organisation indulge in trade

with each other. In the event that two random

organizations trade with one another, the

business sector cost for the transaction will by

and large be just. This is known as "arms-

length” trading, as it is the result of bona fide

transaction in a market. This “arm’s length

price” is normally considered to be adequate

for assessment purposes.

However when two related organizations

exchange with one another, they may wish to

falsely contort the cost at which the exchange

is recorded, to minimize the taxation costs.

This may, for instance, help it record as much

of its benefit as could be expected in a tax

heaven with low or zero duties.

The “arm’s length price” with regard to an

international trade or domestic trade, when

specified by Central Government can be

calculated by any of the following methods.

a. Comparable uncontrolled price method

Cost of the transaction is compared with

the results of similarly situated

organisations for which reliable data is

available.

b. Resale price method

Net price at which a similar good or

service is sold or provided by the

organisation to an unrelated party.

c. Cost plus method

Calculate costs related with the product/

service and add gross mark-up over that.

d. Profit split method

Total profit recorded in the books by both

the parties is calculated and the combined

profit is divided among the associated in

comparison with a similar controlled

transaction in the market.

e. Transactional net margin method

Net profit net profit generated through

the transaction is compared with the

profit of a comparable trade between non

-related parties.

f. Any other method prescribed by CBDT

The method to be used may differ on the

circumstances of the trade Moreover, Central

Government has notified in its official gazette

that if the difference between the “arm’s

length price” calculated by one of the above

methods and the price at which transaction

was concluded is up to 3 percent of the total

transaction cost, the transaction cost will be

treated as the “arm’s length price” for that

transaction.

- By Arihant Jain

R B I

Dramatic fall in oil prices is

considered as boon for Indian

economy as it helps in saving

import bill by $50bn.

S & P 5 0 0

A decline in American retail

sales combined with a slump in

copper prices weighed on

stock markets causing the S&P

500 to have its worst start to

the year since 2009 .

INDIAN MARKETS The Indian stock markets ended the week in green (+2.4%) with a major boost coming

from Reserve Bank of India's decision to cut repo rate by 25 basis points. The US stock markets

were down by 1.3% during the week on concerns regarding strength of the global economy and

falling oil prices .The stock markets for Germany and France were the biggest gainers with re-

spective indices up 5.4% and 4.8% over the week. The major Asian stock markets closed the

week on a mixed note with China and Hong Kong gaining 2.8% and 0.8% over the week while

stock markets in Japan and Singapore were down 1.9% and 1.1% respectively.

BSE SENSEX

CNX NIFTY

Market this Week

Page 7 of 13

Open High Low Close

SENSEX 28056.61 28176.1 27,945.31 28129.89

NIFTY 8504.05 8,530.75 8452.25 8513.8

Market this Week

Page 8 of 13

COMMODITIES

EXCHANGE RATES INTERNATIONAL MARKETS

Commodity Unit Rs / Unit % Change

Gold 10 grams 27600 0.59

Silver 1 kg 39098 2.92

Crude Oil 1 bbl 3021 0.77

INR/ 1 USD 61.89

INR /1 EURO 72.01

INR/ 100 JAPAN YEN 53.08

INR / 1 POUND STERLING 93.92

Open High Low Close

NYSE Comp 10,508.62 10,664.53 10,503.35 10660.32

NASDAQ 4,566.38 4,635.82 4,563.11 4634.38

S&P 500 1,992.25 2,020.46 1,988.12 2019.42

FTSE 100 6,498.78 6,553.20 6,443.28 6550.27

CAC 4,303.55 4,387.22 4,294.76 4379.62

DAX 9,985.51 10,207.97 9,940.64 10,167.77

NIKKEI 225 16,812.96 16,864.34 16,592.57 16864.16

SSE 50 3,343.60 3,400.32 3,340.49 3376.5

Hang Seng 24,196.8 24,253.09 24,086.21 24103.52

RBI governor Raghuram Rajan cut repo rate by 25 bps: here are the reasons

The long awaited rate cut was announced by Reserve bank of India’s governor Raghuram Rajan on

Thursday, bringing cheer to the markets. Now the repo rate is 7.75 per cent after the cut of 25 bps.

Following are the major reasons for the rate cut:

Easing of inflation: Inflation which is lower than expected is because of the sharper than expected

decline in the Prices of the vegetables and fruits since September. In addition to this there was a huge

fall in the crude oil prices because of geo-political issues, which are expected to remain low for at least

a year.

Fiscal deficit target: Government has assured to adhere to their fiscal target of 4.1% in the current

fiscal year. Raghuram Rajan said all the efforts are being made so that the government does not default

on the fiscal deficit.

Inflation expectations: Inflation expectations for both near-term and long term have eased to single

digits. With the current policy in place inflation may even fall below 6 per cent by January

2015,according to RBI.

India builds solar plants atop canals to save land, water

India has done something in Vadodara to improve usage of solar power, it is exploring new places to

install solar panels, including across the top of canals. UN Secretary General Ban Ki-moon last

weekend inaugurated a “canal-top” solar energy plant in Vadodara district in India's western state of

Gujarat. The two fold advantage of this is: it is cheap and efficient usage of land and also evaporation of

water in the channels can be prevented.

News of the Week

Page 9 of 13

Railway finances in ‘deep trouble’: Suresh Prabhu

Railway minister Suresh Parbu said that the government behemoth, Indian Railways is in deep trouble

financially, because if it’s poor investment choices by compromising its services. He also said that

pension fund may be used for financially supporting railways, which is already facing losses of

thousands of crores. Prabu said railways may not be in a good position now, but in coming years with

improved infrastructure it will be one of the drivers of Indian GDP and may even contribute 2.5% to 3%

of GDP.

FDI led by equities up 22.6% to Rs. 15 trillion in FY14:

Foreign direct investment (FDI) flowing into the country has increased by 22.65 per cent to a sum of

Rs.15,08,960 crore as of end March 2014, up from Rs.12,30,250 crore as of 2012-13. Major share of

this is dominated by equity of about 93.9 per cent. FDI flowing out of the country has increased higher

by 26 per cent to Rs.5,39,030 crore during the same period from Rs.4,27,900 according to the latest

date released by Reserve Bank of India on Friday.

Google to enter mobile-payment services, negotiating deal with Soft card:

Google is in talks with mobile payments services Soft card, which may be valued below $100 million.

This deal could help Google to battle against Apple and its new Apple Pay service.

News of the Week

Page 10 of 13

Personality of the Week

Page 11 of 13

Dr. Kiran Mazumdar-Shaw - Chairperson & Managing Director, Biocon Limited

Kiran Mazumdar Shaw, is a first generation

entrepreneur, who has made her country

proud with a globally recognized bio-pharma

enterprise, Biocon, which is committed to

affordable innovation to deliver world class

therapeutics to the patients worldwide. As

the first woman brew master of India, with a

pioneering spirit to ‘make a difference’ she

has leveraged her learning’s of fermentation

science to pursue the road less taken and has

built an innovative bio-pharma company, the

first in India as the only publically listed

biotech company.

Her vision and work for biotechnology have

drawn global recognition both for the Indian

Industry and Biocon. She is a compassionate

philanthropist, who beleives in empowering

marginalized communities through

sustainable solutions in the areas of

healthcare and education. She is a much

sought after biotech pioneer who has been

referred to as "India's Biotech Queen" by The

Economist and "India's mother of invention"

by New York Times. She was conferred the

Wharton- Infosys Business Transformation

Award in 2006 for spearheading the

Biotechnology sector in India. Nature

Biotechnology has recently voted her the

most influential Bio-business personality

outside Europe and USA.

She also serves on the Board of reputed

Companies and Institutions and is also the

Chairperson of Karnataka's Vision Group on

Biotechnology. Kiran is also the Honorary

Consul of Ireland in Bangalore.

About Biocon

Today, Biocon is India’s largest Biologics

Company which is also the most innovative.

It has developed and delievered two novel

biologics, in addition to developing the

world’s only pichia based recombinant

human insulin, which is now available in

over 50 countries. Under her leadership

Biocon has become a well-recognized global

brand.

Biocon aims to more than double its revenues

to $1 billion by 2018. Ahead of a long-awaited

listing of research services arm Syngene,

Biocon bought back GE Capital's 7.7% stake

in it for $35 million and sold 10% to

investment firm Silver Leaf Oak. Last week,

Biocon was honoured at Thomson Reuters’

India Innovation Awards 2014.

B o r n

23rd March, 1953

E d u c a t i o n

Graduate Honors degree in

Zoology, Bangalore University

(1973)

Master Brewer from Ballarat

University, Australia (1975)

N e t W o r t h

$1.2 Billion

N o t a b l e A w a r d s

1989: Padmashri

2005: Padma Bhushan

Two National Civilian Awards

L a u nc h i n I n d i a

10th December 2014

P r i c e

Rs. 2,999

M e m o r y

512 MB RAM DDR3L

S t o r a g e

2 GB

D i s p l a y

1080p

Tech World

Page 12 of 13

Google Chromecast

Chromecast is a digital media player developed

by Google. It is a thumb size media streaming

device. It can play audio/video content by

plugging it into the HDTV port of a TV set. The

media can be directly streamed via Wi-Fi from

the Internet or a local network. Media can be

selected by users through mobile apps or web

apps that support the Google Cast technology.

Also, media can be mirrored from the Google

Chrome web browser active on a laptop or a

smartphone running on android.

With Chromecast, phone can be used as a

personalised remote control. It can be used to

browse, play, pause, rewind, control the volume

and even make playlists. Moreover while

streaming through Chromecast, the smartphone

used as remote, is free to use for other things.

Any number of phones or tablets can be used

for this purpose with no additional setup

required.

In December 2014, Chromecast was introduced

i n I n d i a t h r o u g h e - c o m m e r c e

marketplace Snapdeal. in partnership

with Bharti Airtel.

Pros

Cheaper alternative for streaming services

instead of relying on cable provider

Since it communicates with the cloud server,

smartphone is freed for other use

Smartphones can be used as a remote

Cons

One will have to sacrifice one of the TV's

USB ports or a power outlet

It supports limited applications as of now

For mirroring to work, strong Wi-Fi

connection is required

Lack of dedicated remote means that

smartphone or tablet will always be required

to operate it

It faces huge competition from Roku LT and the

only competitive feature as of now is the low

cost model and lacks in the number of channels

it provides. Other competitors include Eyecast

and Teewe.

- By Arihant Jain

Our Sponsors

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