Niveshak Jan15

Niveshak
THE INVESTOR
VOLUME 8 ISSUE 1
January 2015
FROM EDITORS DESK

Dear Niveshaks,
Niveshak
Volume VIII
ISSUE 1
January 2015
Faculty Chairman
Prof. P. Saravanan
THE TEAM
Abhishek Bansal
Akanksha Gupta
Apoorva Sharma
Bhawana Saraf
Gaurav Bhardwaj
Jatin Sethi
Kocherlakota Tarun
Maha Singh Gulati
Mohit Gupta
Mohnish Khiani
Palash jain
Prakhar Nagori
Priyadarshi Agarwal
Ramesh Jaiswal
Rahul Bajaj
Sandeep Sharma
S C Chakravarthi V
Vishal Khare
All images, design and artwork
are copyright of
IIM Shillong Finance Club
Finance Club
Indian Institute of Management
Shillong
www.iims-niveshak.com
With this first issue of 2015, we wish our readers a very happy and prosperous new
year. The month of January saw SENSEX increase by 7.5% from the 2014 year end.
This shows that the investors are continually looking towards Indian economic growth
in future with positive sentiments. Also the International Monetary Fund recently updated its World Economic Outlook report predicting that Indias GDP growth will
overtake Chinas in 2016 making it the fastest growing economy in the world. Our
Finance Minister Mr. Arun Jaitley led the Indian delegation to the Davos Summit with
a motto to showcase the Make in India programme to the world leaders.
The Crude Oil is daily touching its new lows making the conditions worse for Oil
producing countries. The first big effect was seen with S&P cutting Russias rating to
Junk. However, falling prices come as a boon for India as its helping to achieve fiscal
deficit target pegged at 4.1% of the GDP for the current fiscal year.
Lower than expected inflation enabled the first rate cut post Raghuram Rajans taking over the office of RBI. This long awaited rate cut would lead to a reduction in the
financial costs, thus increasing profitability and adding on to the confidence of the
industry as well amongst the investors. Our Prime Minister inaugurated the Vibrant
Gujarat Global Summit, 2015 in the presence of US Secretary of State John Kerry and
U.N. Secretary General Ban Ki-moon where we saw a huge number of MOUs being
signed and Reliance coming up with a plan of investing Rs 1 lakh crore in the next
12- 18 months.
With more and more focus on Financial Inclusion and Pradhan Mantri Jan Dhan
Yojana by our government, our cover story for the month of January 2015 edition Is
Jandhan making PSBs Nirdhan? would give readers an outlook with respect to the
banking scenario in India and how PMJDY would impact the banks. The article of the
month covers the topic Falling Oil Prices and its implications on Indian economy. On
the other hand FinGyaan covers a deep insight into Euro Zone Economic Crisis.
FinSight column of the magazine try to highlight Retail Investment, a hot topic these
days as markets are trading at all-time highs.
In keeping in line with the current Bull Run our FinLife portion of the magazine would
guide you towards making investments through Mutual Funds. This months FinView
hosted the interview of Prof. Maram Srikanth who discussed with us about the banking sector as well about the expectancy from Union Budget 2015-16. The Classroom
learning section covers the intricacies of Value Investing which is a well-known investment strategy, the one also backed up by none other than Warren Buffet.
We would like to thank our readers for their immense support and encouragement.
You remain our prime motivation factor that keeps our spirits high and give us the
vigour and vitality to keep working hard.
Stay invested!
Team Niveshak
Disclaimer: The views presented are the opinion/work of the individual author and The Finance Club of IIM Shillong bears
no responsibility whatsoever.
CONTENTS
Cover Story
Niveshak Times
04 The Month That Was
Article of the month
14

Falling oil prices and its
implications on Indian Economy
10
Is Jan Dhan making PSBs

Nir Dhan?
FinGyaan
Finsight
EURO-ZONE : ECONOMIC
CRISIS : Is European Integration 26 Importance of Retail
reason for frequent European Investment
recessions
18
FinLife
FINVIEW
29
Interview With Dr. Maram

22 Want to be part of the Bull Srikanth
Run? Guide to Mutual Fund In- Professor - IIM Shillong
vestments
CLASSROOM
31
Value investing
The Month That Was
NIVESHAK
The Niveshak Times

Team NIVESHAK
IIM Shillong
NITI Aayog: New Name For Restructured
Planning Commission
Indias Planning Commission will be renamed NITI
Aayog as part of a restructuring plan announced by
Prime Minister Narendra Modi in his Independence
Day speech.
NITI is an acronym for National Institution for
Transforming India, said officials. The new plan
body, sources say, will have up to five full time
members and four union ministers. The permanent
members are expected to be experts from various
fields. The panel reported directly to the Prime
Minister, who was its chairman.
The change comes almost 65 years after Indias first
Prime Minister Jawaharlal Nehru, a socialist who
admired Joseph Stalins drive to industrialize the
Soviet Union, set up and chaired the Commission
to map out a development path for Indias agrarian
economy.
The Aayog will recommend a national agenda,
including strategic and technical advice on elements
of policy and economic matters. It will also develop
mechanisms for village-level plans and aggregate
these progressively at higher levels of government
Obama Pledges $4 Billion Of Investment In
India
U.S. President Barack Obama pledged $4 billion in
investment and loans to India, soon after attending
the South Asian nations 66th annual Republic Day
celebrations as the guest of honor.
Obama told a gathering of business leaders from
India and the U.S. that both countries have got to
do better in furthering an economic relationship
defined by so much untapped potential, Reuters
reports.
The $4-billion deals include $2 billion of leveraged
financing for renewable energy investments in India
through the US Trade & Development Agency and $1
billion in loans for small and medium businesses
across India through the Overseas Private Investment
Corporation, or OPIC.
Separately, the US Export Import Bank would finance
a billion dollars to support Made in America
exports to India over the next two years. Obama also
JANUARY 2015
announced that two US trade missions will be in

India this year with a specific focus on infrastructure
development in rail, roads, ports and airports.
World Economic Forum Publishes 14-Point
Plan To Tackle Global Inequality
The 45th World Economic Forum kick started in
Davos,Switzerland on 20th Jan, 2015. Ahead of the
start of its annual meeting in Davos on Tuesday, the
WEF published 14 measures of inclusive growth as
it responded to criticism that the gathering of 2,500
business leaders, academic and policymakers has
become an exercise in hand-wringing about the gap
between rich and poor.
Christine Lagarde, the managing director of the IMF,
Pope Francis, Jim Kim, the president of the World
Bank and Mark Carney, the governor of the Bank of
England, are among those who have stressed the
need to ensure that the fruits of economic progress
are shared more equally. Carney will be taking part
in a panel in Davos this week titled: A richer world
but for whom. The WEF paper says governments
should assess 14 yardsticks of progress under six
pillars: education and skills; employment and
labour compensation; asset building and business
investment; corruption and rents; fiscal transfers;
and basic services and infrastructure.
Raghuram Rajan Serves Up 25 BPS Repo Rate
Cut To 7.75%
Raghuram Rajan announced his first rate cut
since being appointed Reserve Bank of India (RBI)
Governor in August 2013. The move prompted a nearunanimous opinion that this could be the beginning
of a new easing cycle.
Its not just a rate cut; it also signals a shift in
the stance of monetary policy, Arvind Subramanian,
chief economic advisor to the finance ministry, told
reporters.
The central bank also hinted as much, saying
inflationary pressures had ebbed since July last year
and on current policy settings, inflation was likely
to be below six per cent by January 2016. These
developments have provided headroom for a shift
in the monetary policy stance, RBI said, before
delivering a surprise Makar Sankranti and Pongal gift
NIVESHAK
by cutting the repo rate, its key lending rate, by 25

basis points (bps) to 7.75 per cent. Consequently,
the reverse repo rate, at which the central bank
drains excess liquidity from the banking system,
also fell 25 bps to 6.75 per cent.
Over 9 Crore Consumers Sign Up For LPG
Cash-Subsidy Scheme
More than 60 per cent of LPG customers in the
country have joined the ambitious PAHAL scheme for
receiving cash subsidy so that they can buy cooking
gas (LPG) at market price.
Over 9 crore consumers, out of a total customer base
of 15.33 crore, have joined the Direct Benefit Transfer
for LPG (DBTL) scheme and Rs 2,262 crore in cash has
been transferred to them as per official record.
The DBTL Scheme for LPG consumers (PAHAL) was
launched on November 15, 2014 in 54 districts
and in the rest of the country on January 1, 2015.
The Scheme aims to transfer the subsidy on LPG
directly into the bank accounts of over 15 crore LPG
consumers.
LPG consumers have time till March 31 to join the
scheme, failing which they will not get any subsidy
and will be forced to buy LPG at market rate.
Record Coal India
Privatisation Drive
Share
Sale
Boosts
India has raised about $3.6 billion by selling a 10

percent stake in state-run Coal India Ltd in the
largest ever equity deal in the local market, giving
a welcome boost to the governments faltering
divestment drive.
The share sale will move the government closer to
the still distant target of raising $10 billion by selling
minority stakes in state-owned companies to trim
the fiscal deficit to a seven-year low by the end of
March.
The strong investor response to the Coal India issue
is expected to bolster New Delhis plans to offload
shares in other state firms including Oil and Natural
Gas Corp and Power Finance Corp Ltd.
Coal India, the largest coal miner in the world, is
the biggest supplier of coal domestically, sheltering
it to a degree from tumbling global prices, as it
feeds Indias power stations. Coal fuels 60 percent
of Indias power production.
European Central Bank Unveils Stimulus

Plan Of 60 Billion Euros A Month
The European Central Bank launched its most
aggressive effort to date to revive the regions ailing
economy - a program to buy 1.1 trillion euros in
government and private bonds starting in March.
The long-awaited program was an emphatic statement
of the central banks willingness to do all it can to
rejuvenate the economy shared by the 19-nation euro
currency alliance. And it showed the multinational
ECBs readiness to assert its independence against
critics in Germany, the eurozones largest and most
politically influential country.
The ECB said it would combine purchases of
government bonds with an existing smaller program
of private bond purchases, to total 60 billion euros a
month through September 2016. All told, the program
will amount to 1.1 trillion euros ($1.16 trillion).
The size of the program exceeded investors
expectations, and ECB President Mario Draghi
pledged to keep it going until the central bank sees
a sustained adjustment in lifting inflation above
dangerously low levels - in other words, for as long
as it takes.
S&P Cuts Russias Rating To Junk
Russias foreign-currency credit rating was cut
to junk by Standard & Poors, putting it below
investment grade for the first time in a decade as
policy makers struggle to keep economic growth
alive amid sanctions and falling oil prices.
S&P, which last downgraded Russia in April, cut
the sovereign one step to BB+, the same level as
countries including Bulgaria and Indonesia. The
ratings firm said the outlook is negative. Russian
stocks declined and bonds fell for a second day
following the announcement, which came after the
close of equity trading in Moscow.
The worlds biggest energy exporter is on the brink
of a recession after oil prices fell to the lowest since
2009 and the U.S. and its allies imposed sanctions
over President Vladimir Putins actions in Ukraine.
The penalties have locked Russian corporate
borrowers out of international debt markets and
curbed investor appetite for the ruble, stocks and
bonds.
FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG
The Month That Was
The Niveshak Times
Market Snapshot
35,000.00
2,500
30,000.00
2,000
25,000.00
1,500
1,000
20,000.00
500
15,000.00
10,000.00
BSE
FII, DII Net turnover (in Rs.

Crores)
Article
ofSnapshot
the
Month
Market
Cover
Story
NIVESHAK
-500
5,000.00
-1,000
0.00
-1,500
28/01/15
27/01/15
26/01/15
25/01/15
24/01/15
23/01/15
22/01/15
21/01/15
20/01/15
19/01/15
18/01/15
17/01/15
16/01/15
15/01/15
FII
14/01/15
13/01/15
DII
12/01/15
11/01/15
BSE
10/01/15
09/01/15
08/01/15
07/01/15
06/01/15
05/01/15
04/01/15
03/01/15
02/01/15
01/01/15
31/12/14
30/12/14
29/12/14
-5,000.00
-2,000
Source: www.bseindia.com
www.nseindia.com
MARKET CAP (IN RS. CR)

BSE Mkt. Cap
10431645.44
CURRENCY RATES
INR/1USD
INR/1Euro
INR/100Jap.YEN
INR/1PoundSterling
INR/ 1 SGD
61.41
69.82
52.06
93.18
45.67
CURRENCY MOVEMENTS
8.00%
INR/1 USD
6.00%
Euro/1 USD
GBP/1 USD
JPY/1 USD
SGD/1 USD
LENDING / DEPOSIT RATES

Base rate
Deposit rate
10.00%-10.25%
8.00% - 9.00%
RESERVE RATIOS
CRR
SLR
4.00%
22.00%
POLICY RATES
Bank Rate
Repo rate
Reverse Repo rate
8.75%
7.75%
6.75%
4.00%
2.00%
0.00%
-2.00%
29th Dec 2014 to 28th Jan 2015
-4.00%
Data as on 28th Jan 2015

-6.00%
JANUARY 2015
NIVESHAK
Article
Market
of Snapshot
the
Month
Cover
Story
Market Snapshot
BSE
Index
Sensex
MIDCAP
Smallcap
AUTO
BANKEX
CD
CG
FMCG
Healthcare
IT
METAL
OIL&GAS
POWER
PSU
REALTY
TECK
Open
Close
% change
27241.78
10115.85
10894.89
18455.13
21253.3
9359.5
15113.05
7686.06
14409.51
10422.16
10562.54
9878.81
2032.64
8121.33
1533.94
5762.49
29559.18
10808.44
11369.11
20209.63
23439.08
10786.9
17077.58
8233.2
15581.27
11152.77
10298.15
10053.06
2201.68
8406.28
1718.83
6154.08
8.51%
6.85%
4.35%
9.51%
10.28%
15.25%
13.00%
7.12%
8.13%
7.01%
-2.50%
1.76%
8.32%
3.51%
12.05%
6.80%
% CHANGE
TECK
6.80%
12.05%
REALTY
PSU
3.51%
POWER
8.32%
OIL&GAS
METAL
1.76%
-2.50%
IT
7.01%
8.13%
Healthcare
FMCG
7.12%
CG
13.00%
CD
15.25%
BANKEX
10.28%
AUTO
9.51%
4.35%
Smallcap
MIDCAP
6.85%
Sensex
-4.00%
-2.00%
0.00%
8.51%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG
16.00%
18.00%
Niveshak Investment Fund
on 30/6/14
As on 2Done
8th January,2015
Informa(on Technology
CONS NON DURABLE

(5.85%)
HCL Tech.
GODREJ CONSUMER
Wg:5.85%
Gain:26.99%
(12.08%)
Infosys
Wg: 4.25%
Gain : 10.88%
Wg: 3.66%
Gain : 32.12%
Britannia
Wg:4.40%
Gain :
90.07%

TCS
Wg: 4.17%
Gain : 3.06%
FMCG
(20.24%)
Colgate
HUL
Wg:5.93%
Gain :
25.65%
ITC
Wg:4.90%
Wg:4.99%
Gain:32.60% Gain :5.43%
HDFC Bank
Wg: 6.25%
Gain : 14.81%

Auto
(10.72%)
Chemicals
(7.77%)
Amara Raja
BaT
Wg:4.53%
Gain : 28.00%
Tata Motors
Wg:6.19%
Gain : 31.39%

Pharmaceu(cals
(10.72%)
Dr Reddys
Labs
Wg:4.25%
Gain:12.17%
BANKING
(6.25%)

Lupin
Wg:6.47%
Gain : 31.27%

Asian Paints
Wg:7.77%
Gain:44.75%
MISC.
(4.98%)
MANUFACTURING
Titan Company
Wg:4.98%
Gain:-15.50%
Page Industries
(5.45%)
Wg:5.45%
Gain:13.07%
Performance Evaluation
As on 28th January,2015
As on 28th January,2015
January Performance of
Niveshak
Investment Fund
Performance of Niveshak
Investment Fund since IncepDon
165
155
110
145
108
106
135
104
125
102
100
115
98
96
4
ug
18 -14

-S
ep
-
1
17
4
-O
ct
18 -14

-N
ov
-
15 14
-D
ec
-
12 14
-Ja
n-
15

-A
21
-Ju
23
Scaled NIF
l-1

25
-Ju
n-
14
14
4
-1
ay
-
-M
27
28
-A
pr
ar
-1
26
-M
-1
eb
14
-F
26
Values Scaled to 100
-Ja
n-
NIF
30
Sensex
95
05
/0
2
/1
5

26
/0
1
/1
5

/1
5
16
/0
1
/1
5
/0
1
06
27
/1
2
/1
4
105
Scaled Sensex
Values Scaled to 100

Risk Measures:
Opening Por+olio Value : 10,00,000
Standard DeviaDon : 15.02%(Sensex :
Current Por+olio Value : 15,21,883
14.96%)
% Change in Por+olio Value : 52.18%
Sharpe RaDo : 3.20 (Sensex : 2.68)
Change in Sensex : 44.20%
Cash Remaining:268869

Comments on NIFs Performance & Way Ahead : This month the nancial
market in India cheered the much needed rate cut by the Reserve Bank of India
on 15th January. The market in the second half of the month traded on improved
senDments and touched new highs. The BSE Sensex recorded a posiDve change of
7.47%, the por+olio performed in line with the benchmark index to record a
posiDve change of 7.75%.
On internaDonal front, the European central bank unleashed 1.1 trillion euro
bond buying sDmulus to rejuvenate the Eurozone economy, the Indian market is
expected to benet the most out of the emerging peers, as the economy
rebounds and more reforms sets in from the government side, the Indian
markets could see more chunk of por+olio in ows from this increased global
liquidity. This would also help the Indian markets to meet the concerns over
increasing rate by Fed and could bring some stability in rupee exchange rate.
The por+olio did not witness any re shue during this month, however we
expect some sell os of overvalued stocks and other reshues in the next month
owing to budget, crude prices and other domesDc and internaDonal
developments.
This month also marks the compleDon of one year of NIF, over this period our
funds net worth has changed (+52.18%) where as the market index has changed
(+44.20%).
10
Article
of the
Month
Cover
Story
NIVESHAK
Falling oil prices and

its implications on Indian
economy
Avishek Bhattacharyya & Shubharthi Ghosh
SIBM Bangalore
Introduction
The year 2014 witnessed a steep drop in the price
of the Brent crude when the prices decreased by
55.42% from the mid-June price of 112.36 USD
per barrel to 50.08 USD per barrel. This trend
of drop in oil prices has been primarily been
due to the demand shock of crude oil, led to
the increase in global oil supply through the
production of shale oil by horizontal drill and
hydraulic fracturing technology by the US which
has become the largest exporter of dirty oil. This
has contributed to a price war among the Middle
East exporters of clean oil to defend their
market share. The falling oil prices have raised
concerned that countries such as Venezuela,
Russia might default on their debt obligations,
and this has given rise to the Russian rouble
JANUARY 2015
crisis.
Origin Of The Crisis
There are several reasons that led to the oil
crisis:
Because of weak economic activity of different
countries, demand is low. This is evident from
the sluggish economic outlook for Eurozone and
Japan for fiscal year 2015 and also concerns over
full recovery of US economy.
Geopolitical risk that can be seen from the
fact that Iraq and Libya, two of the largest oil
producers (combined 4 million barrels a day)
had no slowdown effect on the output.
America has become the worlds largest oil
producer. In spite of the fact that the US does
not export crude oil, it now imports much less,
NIVESHAK
11
Article
of the
Month
Cover
Story
Fig 1: Impact of falling oil price on Russian Rouble
so that generating a lot of surplus supply. With

the popular choice of the shale oil, a new more
efficient substitute has arrived.
To restore the price the Gulf Allies and the
Saudis were not ready to give up their market
share. They could have curb production sharply,
but they did not want Iran and Russia to get
the benefits. Also, the lower oil prices have
not affected countries like Saudi Arabia much
as its Brent crude fiscal price break even price
for its exporters is 89 USD per barrel, which is
much lower than its competitors. Its oil costs a
meagre $5-6 per barrel to get out of the ground
and also it has $900 billion in reserves.
This has led to the OPEC nations decide to let
the market decide the price. Now breakeven for
each barrel of oil vary from country to country,
because the break even for Shale oil is said to
$40. The International Energy Agency estimates
most of the drilling will be around the Bakken

formation, the shale producers whom OPEC is
trying to drive out of business return a cash of
$42 a barrel. In theory, production can continue
to flow until prices fall below the day-to-day
costs of existing wells. So they were gradually
poised to face the decline in the price of oil.
Impact In India
The sharp price drop will of course favour
India somehow. This will lead to the opening
of multiple growth boosters. India imports
more than 70 percent of its oil consumption.
According to Nomura, the $40 fall can potentially
push growth by up to 0.4 percentage points
to 6 percent in the current financial year. The
subsidy savings and extra revenue will come in
very handy for the Centre in keeping its fiscal
deficit for this year within the proposed target
of 4.1 per cent of the GDP.
The sharp price drop will of course favour India somehow.

This will lead to the opening of multiple growth boosters. India
imports more than 70 percent of its oil consumption. This will
come in very handy for the Centre in keeping its fiscal deficit
for this year within the proposed target of 4.1 per cent of the
12
Article
of the
Month
Cover
Story
NIVESHAK
Effect On Various Indian Stocks:

Falling oil prices also provide a significant
opportunity for investors as many companies
are expected to make huge gains. The following
stocks get impacted because of the slump in
crude oil prices:
1) Oil marketing companies (HPCL, BPCL,
IOCL): These will face pressure because of the
immediate inventory loss but will later get
stabilised once lower oil price negate subsidy
concerns
2) Auto companies (TVS, Hero MotoCorp, etc.)
should benefit as the ownership cost of vehicles
will come down because of falling oil prices.
3) Tyre companies (Apollo Tyres, MRF, Ceat and
JK Tyres) will benefit from higher margins as 3040 per cent of their raw material costs are linked
to crude oil prices.
4) Industrials (Cummins, Concor): Demand for
diesel general set could rise in the near term.
Lower diesel prices will lead to a cutback in
railway freight rates.
5) Consumer: The biggest gainer will be Asian

Paints as a huge chunk of raw materials is linked
to crude derivatives. Godrej Consumers, HUL
and Emami would benefit from the reduction
in prices of packaging materials since these are
direct derivatives of crude.
6) Power utilities such as Tata Power, Adani
Enterprise and JSW Steel will benefit if
benchmark thermal coal prices fall because of
a drop in diesel prices. Drop in price of diesel
is again a positive for mining companies (Coal
India).
7) Finally, upstream companies like Cairn India,
which are pure crude oil play will be adversely
affected due to the slump in oil prices. This will
also adversely affect companies such as ONGC,
Oil India and Reliance Industries.
Subsidies on LPG and kerosene are heavily
subsidized, so the source of relief from fewer
grants can be the crude oil. The total subsidy on
petroleum products in 2013-14 was 854 billion
rupees, and it will be reduced to the extent the
international price of crude declines. The main
The main problem is that on one side India is going to gain

from its current account balance due to less import rate,
but on the flip side India will also lose several of its FIIs.
Due to lower income , the corpus of the sovereign wealth
fund would automatically shrink which they usually invest in
the equity market of countries like India for higher returns
JANUARY 2015
NIVESHAK
13
Article
of the
Month
Cover
Story
problem is that on one side India is going to

gain from its current account balance due to
less import rate, but on the flip side India will
also lose several of its FIIs. Due to lower income
from falling oil prices for Middle East countries,
the corpus of the sovereign wealth fund would
automatically shrink which they usually invest
in the equity market of countries like India for
higher returns.
Effects In Folds
GDP growth: Reduction in prices of oil should
boost growth through multiple channels:
Lower inflation will increase the households
real disposable incomes, which should positively
impact the consumer discretionary demand
Better corporate profit margins because of
reduced input costs will act as an additional
impetus for reviving business investment
Improvement in macro fundamentals (inflation,
fiscal and current account deficits) will play a
significant role to balance the space for macro
(monetary and fiscal) policies for positive
impact on growth. Every USD 10/bbl. fall in oil
price can increase GDP growth by approximately
0.1 % points.
Inflation: The impact of lower commodity prices
is much higher on WPI inflation than CPI inflation.
Lower oil price directly affects 8.6 percent of
the WPI basket. This is because every USD 10
per barrel fall in crude oil price drops WPI by
approximately 0.5% and CPI by approximately
0.2%.
Current account balance: Every USD10 per barrel
fall in crude oil price improves Indias annual
current account balance by around USD 9 billion

or 0.5 percent of GDP.
Fiscal balance: Petrol pricing is already a market
determined, and oil marketing companies (OMC)
are currently generating over-recoveries (profits)
on diesel.
Conclusion
The major question for oil markets right now
is whether Saudi Arabia, the worlds one of the
major oil producer, will cut production in order
to boost global prices. So there is a possibility
of crude oil going to a price level of $30, which
is much lower than the present price level of
$50/bbl. However, it is expected to rebound and
stabilize in $70 - $75 a barrel later.
OECD estimates a $20 drop in price will add
0.4% point towards the growth of its members
after two years. By narrowing down inflation
by 0.5 point during the same period, cheaper
oil might also persuade central banks to either
keep interest rates low or even add stimulus. As
for Indias perspective, contrary to wide belief
there is no inverse correlation when an analysis
of the year to year study of average global crude
oil prices versus Indias GDP is done. However,
the countrys GDP Growth has risen every time
oil prices have gone up and vice versa. A drop
in global commodity prices which has a high
positive correlation with global crude oil prices
would lead to lower growths for both exports
and imports. Hence, a decline in the CAD might
occur during times of lower commodity prices,
mostly due to lower growth. So its debatable
that whether falling price oil price growth will
boost Indias economy.
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NIVESHAK
Is Jan Dhan making PSBs

Nir Dhan?
Abhishek Bansal & Ramesh Jaiswal
IIM Shillong
It is well enough that people of the nation do not understand our banking
and monetary system, for if they did, I believe there would be a revolution
before tomorrow morning.
Henry Ford
Introduction
Be it the Pradhan Mantri Jan Dhan Yojana
(PMJDY) launched by PM Narendra Modi on 28th
August or the acquisition of ING Vysya Bank Ltd
by Kotak Mahindra Bank Ltd or the RBI allowing
IDFC Ltd and Bandhan Financial Services Ltd to
set up shop within the next 18 months, the
year 2014 was quite an eventful one for the
Indian banking sector. Banks are very different
from the normal corporate entities, which are
generally answerable to its shareholders as they
have an added responsibility to answer to the
deposit holders who have entrusted them with
their funds for safe keeping. So when assets go
JANUARY 2015
bad or banks fail, deposit holders are the first

hand sufferers. Schemes like Jan Dhan increases
this risk significantly.
About The Pradhan Mantri Jan Dhan
Yojana
Jan Dhan Yojana was in news throughout the year
since its launch. The financial inclusion scheme
seeks to cover 75 million un-banked households
in the country in the first phase to eradicate
the financial untouchability. FM Arun Jaitley
revised the target for opening bank accounts
from 75 million to 100 million by Jan 26, 2015.
The scheme provides INR 5,000 overdraft facility
for Aadhar-linked accounts and RuPay debit
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card besides an INR 1 lakh accident insurance

cover. The scheme also envisages channelling
all benefits from the union, state and local
governments to the beneficiaries accounts.
The phase one target of opening 100 million
accounts under PMJDY was achieved much
before the target date of Jan 26, 2015. As on
January 27, 122.1 million new bank accounts
have been opened with a deposit of Rs 10,155
crore and only 28% accounts under the scheme
are active. The interesting thing is that Private
Banks contribution to the scheme is only 4%.
Private Banks have opened 5.1 million accounts
under PMJDY, and they account for 21% in terms
of advances in the banking system. In the same
period, public sector banks have opened 95.7
million accounts and regional rural banks have
opened 21.31 million accounts.
Is PMJDY A Burden?
Ever since the nationalisation of banks in 1969,
multiple schemes have been launched in order
to achieve financial inclusion in our economy.
But most of them have failed, even the
Swabhiman campaign launched in 2011 which
aimed at bringing the banking services in the
rural areas turned out to be an account-opening
exercise as people did not channel their savings
in those accounts. Same thing can happen with
the PMJDY.
The concern with PMJDY is the large number of
zero balance dormant accounts. And how the
public sector banks will maintain active status
in these accounts would be a challenge. As of
now, only one-third accounts are linked with
the Aadhaar numbers and this again will pose
a challenge in the Direct Benefit Transfer (DBT)
scheme. Though Aadhaar has not been made
mandatory for the DBT, the government has
been pushing banks to maximise the linking
of Aadhaar with the bank account. Another

challenge in the PMJDY is the opening of multiple
saving accounts by individuals who already
have a saving account with other banks. Such a
practice is being adopted to benefit from the INR
1 lakh accident insurance and overdraft which
can be availed in six months time. Liberalised
KYC norms not only increase the security threat
to the nation (both internally and externally)
but also hamper the risk check mechanism that
is there in place for the effective tracking of
credits granted to the customers. Even though
the Aadhaar numbers will be linked to these
accounts at a later stage, the duplication of
accounts will be difficult to handle and rectify
for an operational account. Another problem
that the government would face is the financial
burden of these accounts once they qualify for
freebies after some transactions are made in
these accounts. About Rs 60,000 crore will be
the overdraft liability of these 12 crore accounts
once they qualify for the freebie. And if it is not
repaid, the banks will lose this money, which
will further deteriorate the asset quality at a
time when PJ Nayak committee has estimated
that the banks in the coming years would need
to raise Rs 5.8 lakh crores to meet the Basel
capital adequacy requirements.
RBI had also started a financial inclusion scheme
in villages across the country with population
above 2000 in the year 2009-10. The banks had
opened banking outlets in 74,199 villages under
the first phase and the second phase began in
2013. Under this scheme, banks opened about
six crore basic banking accounts in the whole of
the fiscal year 2014. Compare this with PMJDY,
where banks have already opened more than 12
crore accounts since the launch of the scheme.
The difference being the KYC norms which were
diluted for PMJDY.
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NIVESHAK
Human Resource Challenges

Well, it is not only the financial brunt that these
PSBs will have to bear. They will have to deal
with various HR and productivity issues. Let
us look at some of the statistics; According to
the RBI, employee productivity is the lowest in
nationalised banks with profit per employee of
Rs 0.65 million. In contrast, foreign banks score
Rs 4.5 million on this metric. Nationalised banks
employ around 8 lakh staff, accounting for more
than 70 percent of the banking workforce. The
over 12 crore new accounts opened under this
scheme will make life tough for bank employees.
Prime Minister Narendra Modi, on January 24
sent an email to the bankers urging all the banks
to seed the Aadhaar in all the bank accounts
that have been opened so far. I want you to
work to ensure that each account holder enrols
for Aadhaar and seeds it in the bank account.
This needs to be done for all accounts. I am
sure you will do this seeding with the same zeal
you showed in driving bank account opening,
he said. Well this clearly shows the haphazard
approach the government took to open the
bank accounts. It is very evident that it will
be very tough to rectify the mistake because it
will be a time consuming exercise and by then
the system will have millions of non-operative
accounts.
Financial Challenges
Banks have been trying to shut down the nonprofitable branches where there is minimum
business in terms of deposits and where there
are lesser business in terms of credits. Having
millions of additional accounts in the scheme
could put an additional burden of margin
JANUARY 2015
reduction which could deteriorate the valuation

parameters of PSBs when they go to public for
raising additional capital in the equity markets.
Ideally, depositors who are not maintaining
minimum balances in their accounts should be
penalized with various hidden charges. Now
for the scheme related accounts which wont
be regularly active, the cost of operations could
be very high if the hidden charges penalties
are waived off because cost of opening a bank
account could be as high as Rs.80-100 (Source:
Business Standard publication) with an addition
of Rs.100 for the debit card which has already
been waived off.
The administrative costs to maintain the desired
accounts under the Jan Dhan scheme requires
opening charges and staffing charges. The major
proponents argue that technology would come
as the saviour but are we really prepared in
terms of the infrastructure or technology front to
implement the schemes at one go? Banks have
already been told to start charging for excess
ATM usage in metro cities. RBI data shows that
on an average in a month an ATM card rolls over
just 1.4-1.5 times, which means that the usage
is very low and there are several machines in
non-metro cities that are hardly used (If the
RBI is opening up charges for more than three
other bank ATM transactions, evidently the
consumption is very high in these centres).
The financial challenge is that out of every Rs
1000 that the banks receive, around Rs 260
has to be kept aside as pre-emption, Rs 400
has to be lent to the priority sectors and the
remaining balance is for the purpose of lending.
So, in qualitative & cost terms it drains away
much of the resources in terms of branches and
NIVESHAK
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Fig 1: Percentage of Zero Balance Accounts of the Total Accounts opened under PMJDY
manpower. For the PSBs there is an additional

burden to be aggressive on inclusive banking
and few bankers admit it to be a strain as it is
held to be sacrosanct. Taking this logically, if it
were at all profitable then the overall business in
these sections would have witnessed significant
growth but corporate and RBI targets are
generally not met. Now with this additional task
of the PMJDY, there will be several compromises
that have to be made.
According to the RBI, the PSBs need Rs 2.34 Lakh
crores of equity capital (tier 1 Capital) to meet
the Basel III prescriptions. The government has
made it very clear that it is not going to fund
the PSBs with its contribution towards equity
but it is ready to dilute its stake to 52% in the
PSBs, which implies that the PSBs on their merit
have to go to the market to raise the equity
capital (through FPOs). The timing is also crucial
for the PSBs, as the timings for corporate loan
demand revival and the commitment towards
government welfare schemes are clashing at the
same period. PSBs need to be focussed towards
converting these schemes into a profitable
business since its inception, otherwise they
could lose to private lenders and the NBFCs in
the race to fund the corporate loan demand.
Conclusion
Well, the government could have taken a much
more structured and systematic approach in
opening fit accounts and then ensuring the
flow of subsidies through them. That would have
taken time off course but it would have been
much easier for PSBs who are already reeling
under so much pressure on the asset quality
front. While over 70% accounts are zero balance,

the money will begin to flow in once the direct
cash transfer scheme for government payments
starts rolling out. According to statistics, LPG
subsidy payments estimated currently in
the range of Rs 25,000-30,000 crore annually
are getting routed compulsorily through bank
accounts. Some 50 percent of the 16 crore LPG
consumers are already linked through bank
accounts, and by 1st April 100 percent coverage
is expected. The Economic Times says that the
government has already disbursed Rs 6,688.98
crore to 8.03 crore LPG customers up to 14
January and the figure could go up to Rs 25,000Rs 30,000 crore annually.
Also, the overdraft facility of Rs 5,000 might help
the banks to meet the priority sector lending
obligation. The banks have already requested
the RBI to treat the ODs as loans to weaker
sections. The government should set up a credit
guarantee fund to cover possible delinquencies
in overdrafts.
While it is true that the government has to
address social issues, for a country like India
the first priority should be the infrastructure
creation through spending. Banks especially the
PSBs and the other Indian banks who aspire to
achieve the global platform of banking should be
released from compulsive pressures like these.
Lets move a step further in this context and
do the performance evaluation including the
maintenance issue of every blockbuster social
scheme with primary focus on implementation
and infrastructure creation. So that when we
talk of small cities the existing ones should not
continue to decay.
NIVESHAK
EURO-ZONE : ECONOMIC CRISIS

Is European Integration reason
for frequent European recessions
FinGyaan
FinGyaan
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Prashant Choudhary & Debangshu Bhattacherjee
XIMB
Introduction
The European Union comprises of 28 member
states which was established in 1993 with the
signing of Maastricht treaty. The European
Union which accounts for 12945402 million
as combined GDP in 2012 is an important
global player. Its main objective is to develop
Economic and Monetary Union by virtue of a
single currency. It does not consider a state
for membership for 2 years post currency
devaluation and also nominal long term interest
rates should not be greater than three lowest
inflation member states.
The Euro is the common currency of the
European Union. It was introduced in 1999 as an
accounting currency for cashless payment and
accounting purposes. In 2002 it was circulated
in the physical form as banknotes and coins.
JANUARY 2015
Currently, 18 out of 28 EU members are using the

Euro as currency, whereas Denmark and UK have
opt-out clause in the Treaty which exempts
them. While several remaining countries will be
adopting the Euro on set deadlines, others dont
have any obligation till date.
Is Euro Adding To The Injury
The single currency eliminates exchange rate
fluctuations and provides a stable trade friendly
environment. The Euro is the second strongest
currency in terms of its demand. It has been
costlier than US dollar for the most part till date.
The Euro was doing well till 2008 global recession
after which the countries started feeling the heat
due to dependence on Euro whose circulation is
controlled by the European Central Bank rather
than their local central bank. Certain loop holes
were highlighted by economists in this model as
NIVESHAK
One more interesting pattern observed after the

introduction of the Euro is the varying inflation
which is not a good indication. Moreover the
inflation rate became negative during 2009 due
to euro-zone crisis when things were becoming
stagnant. But after grants of worth 110 billion
Euro flowing in the market, the economy as
well as inflation rate recovered a bit as a result
of Keynesian dynamics. But now it has again
started declining in 2014.
3% of GDP by 2015 due to weak growth (0.3%

for 3Q 2104) and very weak inflation (0.32% CPI
inflation) rate. Now they will meet it by 2017.
The government debt has topped 2 trillion
euro (i.e. 95% of the GDP) due to more welfare
spending globally, a violation of the 60% rule.
Even though a framework has been created but
it cannot be followed due to other political and
non-political factors like electoral spending. If
we take a look at Greece, they have 163.3% Debt
as a percentage of GDP and in the past three
years it has been hovering over 100%.
This led to the signing of the European Fiscal
Compact on 2nd March 2012, a stricter version of
SGP. It requires member countries to introduce
laws to limit their structural government budget
deficit to less than 0.5% of GDP. This means that
the government can run above the limit, if the
target is cyclically adjusted. The fiscal instability
was also caused due to the failure of running
sufficiently large surplus during prosperity
by increasing tax and decreasing spending.
The balancing of budget cyclically due to the
European Fiscal Compact could have a lot of
impact on Europes long term fiscal problem
as long as politicians do not find a way to
manipulate it.
Possible Causes Of Recession In Euro Zone
Requirement Of Proper Debt Regulation
Reduction in Public Expenditure
The various national fiscal policies in the

European Union are coordinated using the
Stability and Growth Pact (SGP). SGP was
developed to safeguard sound public finances.
SGP has two arms corrective and preventive.
The preventive arm assess annually the medium
term budgetary objectives for each member
submitted by them. The corrective arm makes
sure that Government debt must not exceed
60% of GDP and the deficit must not exceed 3%
of GDP.
Most of the member states were engaged in

reducing the government deficit to be a part of
the Euro Zone and this was indirectly brought
about by reduction in the public expenditure
between 1995 and 2002. The reduction in public
expenditure is mainly due to the decreased
public investments towards goods and services.
This led to decrease in the budget deficits.
Consequently it can be said that the reduction
in public investments would have led to a fall in
inflation levels as per Keynesian Model. Decline
in inflation conveys the message to the public
that prices would further fall and so majority
of the population would avoid spending and
indulge in more and more savings leading to
a phenomenon called Paradox of Thrift. Such
an economy is most likely to enter recession
phase.
Deadlines are given to various members by the

corrective arm for fixing their deficits. Malta fixed
its deficit in 2011, much before the deadline
2014. This might paint a rosy picture but not
every country is able to meet its deadline.
France recently announced that it will not be
able to meet the target of deficit being less than
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countries failed to print more money in case of

need which a sovereign state would have done
easily in case of monetary independence.
According to a paper written by Dr. Thieb
Petersen, Dr. Michael Bhmer and Henning vom
Stein, If Germany had a separate currency
of its own then its GDP would be about 0.5%
points lower which amounts to 1.2 trillion Euro
between the years 2013-2025. So such are the
benefits of the Euro that Germany is enjoying.
But the German economy is also slowing down.
The GDP growth rate has been close to 0% in
2012 and 2013. In 2014 also there is a decline
in the output for two consecutive quarters,
which is fuelling the chances of recession in the
biggest economy of the European Union. Greece,
Portugal and Spain already had nightmares in
2009-2013 in terms of economic crisis.
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Fig 1: Long Term Interest Rates (%)
Fig 2: Growth in Bank Credit (%)
Increased accessibility to debt for low credit

worthy nations
Another aspect which holds a lot of significance
is the lower nominal interest rates in the member
states after adoption of a single currency. Due to
lower interest rates many of the member states
resorted to private credits and selling of bonds
in order to raise money. This in turn increased
the debt levels. After the introduction of the
Euro in 1999 the interest rates fell between
2000-2001. The graphs clearly illustrate the fact
that there had been a drastic decrease in the
long term interest rates and an increase in the
bank credits.
Due to this many of the countries which had
different credit worthiness ended up on very
low interest rates for their bonds and private
credits. This in turn resulted in a higher
government and private investment which
lead to increased money circulation due to
investment multiplier effect. This made markets
more competitive leading to a reduction in price
of goods in order to attract consumer demand.
This had compelled the firms and institutions
to cut back on production, which in turn lead
to unemployment thus reducing total personal
income earned by people of that nation. Thus
a single monetary policy across Europe had
resulted in a huge amount of bad debt due
to excessive investments and ultimately led a
phase of recession.
Differences between Fiscal and Monetary Policy
the common monetary policy across the member

states, but there was an absence of parity
between the independent fiscal policies of the
member states and the unified monetary policy.
Since bad debt had already accumulated in the
European Union during 2007-2012, reducing the
lending rate did not encourage investors for
borrowing. However money supply could have
been brought in the economy if the member
states had the authority to print and circulate
new currency notes. The European Central bank
was solely responsible for the circulation of
the common currency Euro. Circulation of fresh
currency is a prescription to revive an economy
as it will lead to enhanced circulation of money
and people will spend more due to inflationary
expectations. But the lack of currency printing
power further soared the situation thus leading
to comparatively powerless governments which
leads to recession.
Conclusion
The formation of European Union however led

to adoption of a common currency or a unified
monetary policy but there was an absence of
unified fiscal policy between the member states.
The ECB was mainly responsible in implementing
JANUARY 2015
The ECB approach of One size fits all common

monetary policy that is binding on all the Euro
zone countries is against diverse financial and
macroeconomic ecosystem of different countries.
e.g. ECB targeted inflation rate of about 2%
which was suitable for countries like Germany,
which had relatively low unemployment levels.
But for countries like Greece, Portugal, Spain,
who experienced higher levels of inflation and
unemployment, such a policy caused more
harm than help. It lowered the real interest
rates in these countries and hampered their
price competitiveness, making them susceptible
to current account deficits.
The ECB rate was nearly close to Taylor
recommended rate for Germany during the first
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Fig 3: ECB Rate vs Taylor Rate for Germany
Fig 4: ECB Rate vs Taylor Rate for Greece
seven years of Euro zone formation (1999-2007).

Thus, Germany displayed a strong and stable
economy with low inflation level and high
output level. If we look at the graphs of Greece;
the Taylor rate is higher than the ECB interest
rate throughout.
by the same stick by the ECB. There is a dire

need for focussing on differential policies and
rates rather than a general policy for the whole
European Union.
So we can conclude that there is certainly
a significant link between the formation of
the European Union and the recession in the
member states. The ECB is learning from past
mistakes and improving economic framework
but still it is susceptible to external factors
and diverse economies of member states. The
European nations are falling prey to recession
one by one while others like France are in heavy
debts. So the future looks grim and the use of
quantitative easing methods by the European
Union is yet to be seen.
This means that to address the economic issues

of Greece, a higher interest rate than what was
set by ECB was required. Similar is the case with
Portugal. Both of these countries are rumoured
to be considering leaving the Euro-zone due to
the negligible growth potential.
The case of United Kingdom further exemplifies
the above analysis. UK chose not to be part
of the monetary union and its actual rate of
interest was higher than the ECB rate from
1999-2007. So UK used independent measures
like higher inflation to reduce the debt burden,
depreciating the currency to promote exports
etc., which the Euro zone countries couldnt use
as they are bound by common monetary policy
Moreover adoption of the Euro has been
beneficial to most of the nations as we have
seen in case of Germany. But it curbs one of
the powers of the member states to print fresh
currencies to meet their contingent demands
as only ECB can print fresh Euro. Printing more
currency by ECB for bailing out one nation can
soar up inflationary pressures on other nations.
So this is acting as a trap as it was seen in
case of debt crisis of Greece. Moreover due
to complex and variable economic challenges
of each country the European Central Bank
has failed to address individual issues. Certain
nations having varying issues like Inflation
and others having deflation cannot be tamed
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NIVESHAK
Want to be part of the Bull Run?

Guide to Mutual Fund Investments
Abhishek Bansal
IIM Shillong
Overview
In the third Article of the series FinLife, we
will look into the Mutual Fund Investments,
the various types of mutual funds available
in the Indian Mutual Fund Industry, the risks
and benefits of each of them, the current
trends prevalent in the industry, and some
recommendations on the various offerings by
the financial instruments.
Market Rally
Let us begin by analyzing the recent trends
in the Indian stock market. The market has
rallied to breach the psychologically important
29,000-point mark for the very first time in the
history. The BSE Sensex has surged over 47% since
September 2013 to reach at its all-time high. The
market capitalization of listed companies on the
BSE has surpassed Rs 100 lakh crore for the first
time. The trend is likely to continue as per the
various analysts of the market and the various
reasons for bullish expectations are:
Rate cut by RBI The continuous slide in global
crude oil prices and diesel decontrol eased
the inflation to a very low level. The RBI cut
its benchmark interest rate by 25 basis points
to 7.75%. Although, this move was much
anticipated, the timing was a surprise. The BSE
JANUARY 2015
Sensex has gained over 8% since the rate cut

was announced.
2) Bank of Japans stimulus According to
the analysts BOJs move will attract foreign
investment in the Indian equity market and this
will be helpful especially when US Federal Reserve
has finished its six year old monetary stimulus.
Also, European Central Bank announced a better
than expected stimulus program. These are
some of the factors that have contributed to the
stock market rally for the short term.
3) Reform Measures The recent reform
measures like decontrolling the diesel prices,
opening up of the coal sector, reforms in the
railway and insurance sector and relaxed norms
for foreign direct investment in the construction
sector have brought in positive sentiments in
the market. The foreign investors poured in
$16.4 billion in the equities market last year.
What Is A Mutual Fund?
Mutual Funds are one of the most popular ways
for new investors to build wealth. It is a type
of professionally managed collective investment
scheme where many investors pool together
their money to buy stocks, bonds, or any other
investments. As an investor you own units,
which basically represent the portion of the fund
NIVESHAK
Fig 1: Working of Mutual Funds
Key Terms
Net Asset Value NAV represents the market
value of one unit of fund or the price at which
investors can buy or sell units. The NAV is
generally calculated on a daily basis, reflecting
the combined market value of the shares and
bonds held by a fund on a given day.
Expense Ratio Asset Management Companies
charge an annual fee to cover the administrative
expenses, salaries, brokerage fees etc. A 1%
expense ratio means the AMC charges Rs 1
for every Rs 100 in Assets under Management
(AUM). More the assets in the fund, lower

should be its expense ratio. As a general rule,
1% towards management fees and 0.6% towards
other expenses should be acceptable.
Types Of Mutual Funds
There are various types of mutual funds available
in the market depending upon your plans to
invest for short-term or long-term and also the
risk factors. Some of the prominent types have
been discussed below:
1) Debt Mutual Funds As the name suggests,
a debt mutual fund works on borrowing.
Companies and governments require money
to run their operations and for this purpose
they offer various debt based instruments
like Treasury Bills, Debentures, Government
Securities etc., and Mutual Funds buy the debt
issued by them.
AIM To generate steady returns, Capital
preservation
RISK Lower in risk as compared to Equity Funds
DECISION Invest if you are looking at a safer
investment opportunity for medium term
between 3 months to 2 years
2) Equity Mutual Funds When you invest in
equity, you are considered as an owner of that
particular company. So, your profit is linked to
the performance of the company. The higher
the profits of the company, the better are your
gains.
AIM To deliver high returns and act as a guard
against inflation in the long term
RISK No assurance whatsoever on the principal,
rate of interest or tenure, however MFs diversify
by investing in multiple companies thereby
reducing the risk to some extent
DECISION Invest if you have the risk appetite and
if you are looking for long term investment as a
guard against inflation and capital appreciation
3) Liquid Funds Liquid mutual funds have
the least amount of risk and they invest in
short-term debt securities (money market
instruments), therefore making them less risky.
The concept here is that the shorter is the
investment duration, the higher are the chances
and surety of you obtaining the principal and
the interest.
AIM To provide the investors with greater
liquidity and option to park their funds that are
excess of emergency funds
RISK These involve the least amount of risk as
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that you hold, based on the amount you have

invested. Therefore, an investor is also known
as a unit holder. Most mutual funds are openended, meaning unit holders can buy or sell units
of the fund at any time by redeeming them from
the fund itself, rather than on an exchange. The
increase in value of the investments along with
other incomes earned from it is then passed on
to the investors in proportion with the number
of units owned after deducting applicable
expenses and taxes.
Regulation
All mutual funds in India are regulated by SEBI
(Securities and Exchange Board of India). The
Association of Mutual Funds of India (AMFI) is
a self-governing association of Indian Mutual
Funds that regulates its members sales,
distribution and communication practices.
Investors can invest in Indian mutual funds
directly or through distributors under codes of
practice developed by AMFI.
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NIVESHAK
they are short-term funds and highly liquid

Systematic Investment Plan (SIP)
DECISION Invest if you have excess funds over
An SIP is a vehicle offered by mutual funds
and above your emergency funds for investments
which allows you to invest a certain amount at a
ranging from a day up to a month or even two
regular interval. It is just like a recurring deposit
account where you deposit a certain amount of
4) Hybrid Funds - As the name suggests, Hybrid
money every month, the only difference being
Funds are those funds which have a combination
that here the amount is invested in a mutual
of asset classes such as debt and equity in the
fund. It is a systematic approach towards
portfolio. That is, they invest in a blend of debt,
investment which helps in inculcating the habit
money market instruments and equity. The risk
of saving in an investor.
factor would also depend upon the mix of debt
and equity in the portfolio.
Rupee-Cost Averaging
Benefits Of Investing In Mutual Funds
In an SIP, an investor commits to a fixed amount
which is used to buy the mutual fund units
There are various benefits of investing in mutual
every month at the market rate (NAV). Therefore,
funds, some of which are mentioned below:
during the period of volatility different units
a) Increased Diversification Like the old saying,
are brought with fixed amount of money which
Dont keep all your eggs in one basket, a fund
means that you will add more units in your
holds various securities which reduces the risk
portfolio when the prices are low and vice-versa.
as compared to investing in a single stock.
Power Of Compounding - Long-Term
b) Liquidity and Flexibility Open-ended funds
Investing
are generally liquid as you can trade your
Compounding means re-investing the interest
holding with the fund manager at the close of the
that you gain, back in the fund. In the words
trading day based on the closing net asset value
of Albert Einstein,
(NAV) of the
Compound
funds holdings.
interest is the
Invested funds
eighth wonder of
are
generally
the world. He who
received
back
understands it,
within 3 to 5
earns it. He who
working
days.
doesnt, pays it.
The
asset
The compounding
management
rule is simple company
is
the sooner you
imposed
a
start investing,
penalty of 15%
the more time
if you dont get
your money has
Fig 2: Example of Compounding of Savings at 8 percent
your
money
to grow.
within 10 working days.
Monthly Income Plans (MIP)
c) Professional Investment Management
Are you looking for an instrument that offer
Actively managed funds generally have large
you regular income with decent returns with
staffs of analysts who actively trade the fund
moderate or low risk? If yes, then monthly
holdings, thus providing your investments the
income plans are exactly for you. An MIP is a
best opportunities. Mutual Funds also publish
debt-oriented mutual fund that gives you income
a monthly fact sheet which lists out all the
in the form of dividends. Generally, 70-80% of
important facts about the scheme youre invested
the amount is invested in debt instruments
in, thus increasing the transparency.
like corporate bonds, debentures, government
d) Reduces the transaction cost As per prevalent
securities etc. and the rest amount in equity
tax laws, under provisions of Section 10 (23D) of
and cash. Also you have the option to receive
the Income Tax Act, any income received by the
income quarterly, half-yearly or annually.
Mutual Fund is exempt from tax; which simply
Growth Option Or Dividend Option?
means that funds dont pay any tax on the gains
obtained from selling securities that they buy on
Growth Option In this option, the dividend is
behalf of the investors.
ploughed back in the fund and all the benefits
JANUARY 2015
NIVESHAK
Article
of the
Month
FinLife
Cover
Story
are
reaped
net purchase
at the time
amounting to
of redeeming
$5.25 billion
the fund. This
ever
since
option is more
the
BJP-led
suitable
for
government
investors that
came
to
are
looking
power.
Net
for long term
inflows into
investments
equity funds
because there
have surged
is no capital
to a new high
Fig 3: Inflows Vs Deployment
gains tax on
of Rs 6,651
the returns and mutual funds give good return
crore in December increasing total inflows in
over the long term because of the power of .
2014 to Rs 49,458 crore. The primary reason for
such positivity is that domestic investors look
Dividend Option This option offers regular
at equity as a favorable class because of the
income for the investors in the form of dividend
improvement in the macro-economic conditions,
as it repays a part of the investment each year.
fall in commodity prices and inflation. The
Example You hold 1000 units of a mutual fund
benchmark
indices Sensex and Nifty have
and the fund declares a dividend of Rs 5 per
increased
by
24% each in the last six months
unit. You will get Rs 5000 as dividend but the
with midcap and smallcap stocks increasing at
NAV will also be offset proportionately.
a much faster pace.
Taxation Impact Taxation structure can play an
CRISIL Report
important role when you are deciding whether
The equity mutual funds in India have
to go for Growth or Dividend Option. In case of
outperformed CNX Nifty by 10% on the basis
equity fund, any profit on sale of units within
of annualized returns over the last 17.5 years,
one year is taxed at 10% and if it is sold after
according to Crisil-AMFI equity performance
one year holding period, then there is no tax on
index. Equity funds have given an annualized
the gains. On the other hand, the dividend paid
return of around 23 per cent as against 13 per cent
out by MF companies is tax free in the hand of
the investors. However, the mutual fund needs
to pay dividend distribution tax before giving
out the dividend to the investors.
Choosing A Mutual Fund Scheme
The mutual fund schemes should be selected
on the basis of the following criteria:
a) Long term and Short term performance
b) Consistency in returns
c) Performance during bullish and bearish
phases
d) Fund managers performance with the funds
Table 1: Average Assets under Management for the quarter
operations
ended Dec-14 (Source AMFI)
e) Ratings from agencies like ICRA, CRISIL, Value
Research Online, Moneycontrol etc.
by CNX Nifty between April 1997 and September
Current Scenario
2014. During the same period, Reliance MFs
equity funds have given annualized return of
Net investments by Equity Mutual Funds was
24.27 per cent on an average, rating agency
around $1.2 billion (Rs 7,037 crores) for the
Crisil said in a report.
month of December. Various fund houses have
made net investments of around $3 billion in
shares in the last three months alone with their
25
26
Article
of the
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Finsight
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NIVESHAK
Importance of Retail Investment

Kunal Vora & Fatema Tinwala
KJSIMSR
the Indian markets have. The FIIs have been

Introduction
Finance essentially involves the transfer of a major contributor to the investments during
funds in exchange for goods and services on this period. Hence, they earned exorbitant
promise of a future return. Financial markets profits which the retail investors missed out
like security market and financial intermediaries on. Individual investment may be small, but
are a critical element for functioning of the collectively it will be a huge amount leading
economy that facilitates the transfer of funds to capital mobilization facilitating avenues of
growth.
for economic growth.
Sensex has been the official tracker for the Need For Study
growth of Indian markets. Currently the markets It has been observed that in 2013, the
are at an all time high and facilitate a bull- participation of retail investors had come down
market type scenario. A rise in the middle class to a 10-year low. This suggests that investors still
have not recovered
has been observed
from the 2008 crisis
which can fuel
which had resulted
in further growth
in major losses
in the form of
for many of them.
investments from
The
mounting
this segment.
corruption
and
The Sensex has
scams
have
gained
almost
added on to their
600% over the last
apprehension. A
20 years, from
declining trend has
3000 to 27000. In
been observed in
the past 8 months,
the retail turnover
Sensex has moved
over a period of
significantly; shot
last 10 years.
up by almost 40%.
Hence
the
These facts suggest
movement
of
the
massive
market is not
potential
which
Fig 1: Retail turnover over a period of 10 years: A declining trend
JANUARY 2015
NIVESHAK
academic background, income, or information

about the market. Awareness is needed while
carrying out trading activities, else the investors
can incur massive losses. Economic reforms
have aided several foreign players to enter
the Indian market. These investors are called
Foreign Institutional Investors (FIIs). It has
become more complex to understand the stock
market for retail investors due to the foreign
entrants.
Stock Market volatility: Stock markets are highly
unpredictable. This was felt especially after the
US mortgage crisis in 2008 which left a long
lasting impact all over the world due to the losses
made by individual investors. A massive drop in
indices sometimes creates a bearish sentiment
which creates a pessimistic investment scenario.
Scams like Harshad Mehatha, Khethan Parekh
etc., have also created negative sentiments.
Protection of interest of retail investors: Many
IPOs have been fraudulent and have disrupted
investor confidence. Retail investors need
to be protected from such frauds. Moreover,
some investors have multiple demat accounts
and can mobilize more shares through them.
Regulatory bodies should protect investors from
these issues.
Intermediaries: Retail investors find it hard to
purchase shares on their own accord. They need
expert guidance to make an accurate decision
for them. But this decision comes at a cost called
floatation cost. In general, intermediaries such
as stock brokers and sub-brokers influence their
decisions. Stock brokers or sub-broker firms act
as intermediaries and influence the decision.
But sometimes these intermediaries tend to
fool the customer through faulty balance sheets
and incorrect valuation of corporate capital
structure.
Alternative investment avenues: Gold and Real
Estate are lucrative options for many Indians
due to low risk and low default rate. The Indian
mentality of having gold because of association
to the culture and wealth has also strengthened
this fact. Capital markets have sprung up only
in the recent years and have had their own flip
sides. This leads to the investment flux diverting
to alternate avenues.
Technological problems: Timely and rapid
information is very essential for stock market
trading. Gaps in information can lead to heavy
losses. Hence, traders need robust infrastructure
that can deliver the best efficiency possible. As
recent as 27th December 2014, several hundred
retail investors who bid for shares in the offer
for sale (OFS) of Steel Authority of India (SAIL)
Finsight
Classroom
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Story
because of retail investors but due to the Foreign

Institutional Investors (FIIs). The participation of
FIIs has shot up to 47% in stark contrast with
retail investors at less than 22%. The FIIs are
considered highly fickle and dividends earned
by them will lead to a drain of wealth from India
and not necessarily be reinvested.
Discussion And Analysis
Current trends: Low growth rate, high inflation,
high fiscal deficit, depreciating rupee and lack of
faith in government policies are few reasons due
to which there is a lack of investor participation.
Today sensex is rallying aggressively and the
commodity market is undergoing a decline.
Hence, Equity can be a lucrative investment
option. Several stocks in infrastructure, oil &
gas, power, manufacturing, capital goods etc.
can be seen as an investment options. IRB
Infrastructure, HPCL, IL&FS, BHEL, DLF, Coal India,
JP Power, Reliance Industries Ltd., ONGC, and
Indian Oil can be examples of these stocks.
In India, the retail investor participation is very
low at 2% of the total population. A fund raised
by the retail investors is the only way to generate
risk capital. This injected risk capital facilitates
the pumping of money for upcoming enterprises
to function and diversify their businesses. It is
a retail investor who provides capital directly
through equity market. 2% of the Indian
population which contributes to investments
raise $0.5 billion. If this percentage increases to
30%-40% (as in United States), funds worth $7.5$10 billion can be raised.
Market characteristics: Indian markets are
well equipped with a technical interface. The
incorporation of dematerialization wherein
physical shares are converted into electronic
form led to reduction of default risk and increase
in liquidity.
There are a large number of companies listed
in stock exchange in the Indian markets. This is
actually a drawback because shares of most of
them are not traded on a regular basis. Capital
valuation of these companies needs to be done
and appropriate measures to be taken so as to
induce investor confidence in them.
Various charting softwares are available which
depict trends. These trends can provide an
understanding of stock movement and provide
insights for its price discovery. This data can aid
investors for their decisions.
Causes of low retail participation:
Lack of awareness: Majority of the Indian
population is unaware about the functioning
of Capital Markets. This may be due to their
27
28
Article
of the
Month
Finsight
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Story
NIVESHAK
have not received their promised discount due

to technical glitches that happened during the
trading.
Strategies to overcome problems:
There are several measures taken by Reserve
Bank Of India (RBI) and Security and Exchange
Board (SEBI) to attract investors.
Awareness creation: The most important thing
is to create awareness among the masses.
This could attract them to invest in the capital
markets rather than other investments. It is
necessary to establish training institutes to
train the professionals who are dealing/working
in the stock market related fields. For this, the
regulatory bodies may take the help of other
professional bodies like Institute of Chartered
Accountants of India (ICAI), Institute of Cost and
Works Accountants of India (ICWAI), Institute of
Company Secretaries of India (ICSI) and others.
Through awareness one can attract the retail
investors easily. The regulatory authorities also
have to organize workshops, seminars, and
campaigns etc. to make people aware about
the practicalities of the capital markets. As per
the Disclosure and Investment Practices (DIP)
guidelines, the shareholders are entitled to the
following rights. Some of them are as follows:
1. To receive the share certificates, on allotment
or transfer (if opted for transaction in physical
mode) as the case may be, in due time
2. To receive copies of the Annual Report
containing the Balance Sheet, the Profit & Loss
account and the Auditors Report
3. To participate and vote in general meetings
either personally or through proxy
4. To receive dividends in due time once
approved in general meetings
5. To receive corporate benefits like rights,
bonus, etc. once approved
6. To apply to Company Law Board (CLB) to call
or direct the Annual General Meeting
7. To inspect the minute books of the general
meetings and to receive copies thereof
Besides the above rights, which you enjoy as
an individual shareholder, you also enjoy the
following rights as a group:
a) To requisite an Extra-ordinary General meeting
b) To demand a poll on any resolution
c) To apply to CLB to investigate the affairs of
the company
d) To apply to CLB for relief in cases of oppression
and/or mismanagement
JANUARY 2015
Regulation of Intermediaries: In this regard

the regulatory bodies have to act strictly. The
intermediaries being the key players in the
market, it is necessary to govern them. The
practice of client registration with brokers or
sub-brokers, depository participants activities
should be examined at regular intervals. The
commission charges and service charges are
needed to be reviewed and necessary measures
are to be taken wherever necessary.
Priority to the retail investors: In the recent
past, we have seen the exponential growth of
Foreign Institutional Investors (FIIs), Qualified
Institutional Buyers (QIBs) that growth may
be because of the Government policies, rules
and regulations. It is desirable to give priority
to the retail investors also. Every time when
the stock market crashes generally the retail
investors become the victims. It can be avoided
by concentrating equally on the retail investors.
Corporate Governance Practices: The regulating
authorities have to ensure that all the corporate
organizations are practicing good corporate
governance practices. This in turn will improve
the confidence of the retail investors. Many
violations are taking place in the global financial
markets in this regard. In all the scams retail
investors are losing huge amount. The incidents
like Global Trust Bank, the recent issue of
Satyam computers etc. are preventing the retail
investors from investing in the capital market.
Technology improvement: The technology plays
vital role in selling/purchasing the financial
instruments. The on-line terminal system should
be improved. Many retail investors are not able
to sell/purchase during volatile situations. Stock
exchanges should provide the best quality
technology service to the investors.[2]
Conclusion
It is clear from the above facts that an increase
in participation of retail investor will help
India progress as it will help provide the much
needed liquidity to the markets. Moreover,
equity will generally perform better than other
asset classes in terms of returns (albeit their
volatility). When making investment decisions,
one should not invest based on whims of
other individuals. Investment decisions should
be pragmatic and made after spending time
reviewing all the available information. Equities
should be viewed as a mechanism to gain long
term wealth and not as a short term shortcut to
mint money.
Interview With Dr. Maram Srikanth

Professor - IIM Shillong
Banking Sector has been the top

performing industry in financial
markets in 2014. Axis Bank was the top
gainer, almost doubling with gains of
93.10 per cent, followed by State Bank, up
76.59 per cent at the third spot, and ICICI
Bank ranking fifth with gains of 60.75
per cent. However when we look at the
nonperforming assets (NPAs), in many
cases, gross NPAs of a few PSU banks are
almost touching double digits, while the
net NPAs hover between 4-6 per cent. State
Bank of India has NPAs of approx. 31096
crore. What is the reason for diversion
between returns and high NPAs?
If you observe the Indian banking sector, total
gross NPAs stood at 4.5% as on September
30, 2014. Restructured standard advances are
around 6.2%. Put together, stressed assets of
Indian banks are around 10.7% as at the end of
Q2 2014-15. Some of the credit rating agencies
estimated that this ratio may touch 15% if the
course correction does not take place.
If you analyse the NPAs in the banking sector,
there are 5 sectors which contributed the most
namely infrastructure, iron and steel, mining,
textiles and civil aviation. They hold around
52% of total stressed assets as on June 30,
2014. Infrastructure sector has a lions share of
stressed assets (i.e., 15.6%) mainly because the
banks in India could not appraise the projects
properly at the time of sanctioning these term
loans and did not factor in the downturns in
their models. Further, hike in interest rates as
well as critical inputs during implementation
period of these projects, availability of raw
material like coal, issues related to Right of
Way, delay in obtaining clearances from Ministry
of Environment & Forests, etc. are the main
reasons for higher NPAs in the infra segment.
With regard to sector wise stressed assets,
majority of stressed assets/NPAs are in Public
Sector space. The reasons are obvious: directed
lending to certain projects and political pressures/
issues of corporate governance on the part of
PSBs. Besides, delay in timely disbursements,
lack of follow up by lending officers resulted

in the stressed assets. Such pressures or
compulsions are relatively less in the private
sector and they have better follow up systems
which help in reducing their NPAs. Nevertheless,
some of the PSBs like SBI, BoB, etc. managed to
do well in terms of their returns mainly due to
their wide presence in the nook and corner of
the country. As they have access to low cost
funds/float funds from the Government, their
Net Interest Margins are at satisfactory level
which is reflected in performance of Bankex.
What are the key challenges of Indian
banking sector and how to rectify them?
In a lighter vein, I can say that Global financial
crisis was a blessing in disguise for the Indian
banking sector. A key takeaway of the crisis is that
a lot of focus has been given to capital adequacy,
leverage and liquidity of banking institutions.
The question arises as to why to follow capital
adequacy norms of advanced nations when we
cant achieve financial inclusion in our country.
The reason for this is simple. Even though per
capita income of India is around $1600, our
country has a lot of rich people alongside the
below poverty line population. Besides, India is
the 4th largest economy in terms of purchasing
power parity. On one side there are advanced
financial systems and institutions and on the
other side, most of the people have no access
to basic banking facilities.
The reason for the fall of Lehman Brothers
was excessive leverage (i.e., around 26:1
during September, 2008). Some of the Indian
Corporates, on an average, are having higher
leverage (gearing ratio) around 3 times mainly
in infrastructure, iron & steel, mining, textiles,
etc. As some of the corporates have double
leverage, on their balance sheets (i.e., holding
company is investing in Special Purpose Vehicles
on one hand and the promoters are pledging
their shares on the other hand), which put heavy
strain on interest servicing capacity of these
firms. This needs to be corrected since banks
are at the receiving end. The third challenge
is of course liquidity. Most of the banks fail
29
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FinGyaan
NIVESHAK
NIVESHAK
to manage their liquidity requirements during

the crisis times. This can be addressed by
development of our corporate bond market and
participation of pension / insurance funds in
infra segment so as to reduce heavy reliance of
corporates on banks.
With a view to strengthening their credit risk
management as part of conservation of capital,
banks should have sound credit appraisal
systems, strong due diligence, proper credit
monitoring/follow-up and impeccable legal
documentation in place. It is a proven fact
that target-oriented lending leads to NPAs in
the banking industry. Hence, banks should
be cautious while taking an aggressive stance
of lending, especially during boom periods.
Further, Indian banks should upgrade their
human resource skills, technology and data
warehousing capabilities further to maintain
their financial health as well as the economy.
The budget 2014-15 has set aside 11,200
crore rupees to help the banking sector
meet minimal capital ratios mandated by
Basel III norms, but it is believed that more
would be required in the budget this year.
Global ratings agency Moodys Investors
Service estimates the state-run banks
would need anything between Rs 1.5 lakh
crore and Rs 2.2 lakh crore to comply
with Basel-III by 2019. How, as per your
opinion, should the government tackle
this issue? What are the alternatives?
Should we go for privatisation?
Between 2011 and 2014, Government infused
around Rs. 58,600 crore in PSBs. Now it plans for
11,200 crore during 2014-15. This is a very huge
amount given our high fiscal deficit of 4.1% and
limited head room for fund raising ability of the
Government. Now, the Government is holding
between 56-84% equity stakes in PSBs and wants
to reduce the same to 52% level so that public
and institutional investors can participate in this
disinvestments process. Even SEBI directed that
the public shareholding in the listed companies
/ PSUs should not be less than 25% by June,
2017. So in order to comply with this and to
meet the capital adequacy norms of Basel-III,
going forward, Government of India has no
other option but to decrease its stake in PSBs.
Even if the Govt. wants to decrease its stake to
less than 51% in PSBs, it may not be able to do
so due to various political compulsions. Instead,
the government may go for issue of shares
with non-voting rights, a practice prevalent in
developed nations. Also, the government may
push for consolidation in the banking industry
by way of mergers as per the Narasimham
FinGyaan
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30
JANUARY 2015
Committee Report, 1998. This may partly solve

the problem of capital adequacy of banks.
For the time being, privatisation of PSBs may not
happen in India say during the next 5-10 years
down the line. The reason for this is that Public
Sector banks have certain social objectives to
be met. If they are privatised, it will be very
difficult for the Government to meet these social
objectives and achieve financial inclusion as
envisaged by the policy makers.
Recently top officials of all Indian banks
participated in Gyan Sangam, Pune to discuss
burning issues and key challenges faced by
the Indian banking industry. Most of the senior
bankers opined that the individual banks should
be given enough autonomy at the board level
for key decisions such as mergers, inducting
fresh talent at the top level (drawn from the
market), introduction of performance related
remuneration, splitting Chairman and Managing
Director posts, etc. So, we can expect some
path breaking reforms in the Indian banking
sector in the near future.
What, in your opinion, should be the
focus of Union Budget 2015-16?
One is consolidation of the banking industry and
the second one is capital adequacy. Other issue
is controlling fiscal deficit of the Government to
reduce from the present estimated level of 4.1%
of our GDP. Deregulation of oil prices and Fiscal
austerity may be given further impetus to reduce
fiscal deficit of the Government. Another area of
focus will be financial inclusion. Even after 68
years of our independence, a huge section of the
society (around 40%) are outside the purview of
regular, organised Indian banking system. And
these rural masses are literally at the mercy of
money lenders and contracting high interest
bearing loans. Hence the government is very
eager to bring them under banking system. So
that the Government can transfer cash subsidies
directly into their savings bank accounts. PMJDY
is a right step in this direction, which may be
given further boost in the days to come.
Apart from the above, revival of stalled
infrastructure projects by way of single window
clearances, land acquisition issues, special
asset class status to infrastructure segment are
some of the top priorities of the Government.
Exports will be the major focus of the present
government to contain Current Account Deficit
as well as to earn the precious foreign exchange.
The government is looking forward to revive
the investment climate thereby increasing the
investors confidence through various industry
friendly measures.
31
NIVESHAK
Value investing
FinFunda
of the
Month
Mohnish Khiani
IIM Shillong
Sir, Yesterday I was watching a news

channel which aired a famous interview
of the legendary investor Warren Buffett,
where he spoke about value investing. I
couldnt understand the meaning behind this term,
can you please explain it to me?
Value investing is an investment
paradigm that derives from the ideas on
investment philosophy that Ben Graham
explained in his famous book Security
Analysis. Value investing has taken many
meanings since its explanation by Ben Graham, it
basically means buying securities that appear under
priced by some form of fundamental analysis. Warren
Buffett has taken the value investing concept even
further with a focus on finding an outstanding
company at a sensible price rather than generic
companies at a bargain price.
Okay, I have understood the concept
but how does one apply this in real life?
As examples, such securities may be
stock in public companies that trade at
discounts to book value, are high dividend
paying companies, and have low priceto-earning multiples. The discount of the
market price of the stock to the intrinsic value is
what Benjamin Graham called the margin of safety.
The intrinsic value of a security is calculated as the
discounted value of all future cash distributions by
it. The most notable contribution of this strategy is
to emphasize on the quantifiable aspects of security
analysis such as the evaluations of earnings and
book value while minimizing the importance of more
qualitative factors such as the quality of a companys
management.
Oh, if this is Value Investing, are there
any other strategies that investors follow?
Yes, there are multiple strategies
that an investor may follow. A famous
contrasting strategy to value investing is
growth investing. Those who follow this style, are

known as growth investors who invest in companies
that exhibit signs of above industry average growth
rate, even if the share price appears expensive in
terms of metrics such as price-to-earnings or priceto-book ratios.
This concept seems fine, so why
doesnt everyone apply it? Are there any
short comings in its approach?
The concept of value or book value
has evolved significantly since the 1970s.
Book value, which is the acquiring price
of fixed assets of a company subtracted
by its accumulated depreciation, is most
useful in industries where most assets are tangible.
Intangible assets like patents, software, brands, or
goodwill are difficult to quantify. When an industry is
going through fast technological changes, the value
of its assets cannot be easily estimated. Sometimes,
the productive power of an asset can be significantly
reduced due to competitive disruptive innovation
and therefore its value could suffer a permanent
impairment loss.
But how can one be sure that the
price of a lowly valued stock doesnt fall
more, because most of the times there are
fundamental reasons as to why the stock is
priced low, doesnt it mean there is inefficiency in the
operations of the markets?
Yes, one cannot always be sure
about the movement of prices and a value
investing strategy can also turn into a
value trap by selecting a fundamentally
bad business. But markets are sometimes
driven by sentiments or news that have short term
implications and do not affect the business directly.
In such grim scenarios, when the entire market
crashes, all kinds of stocks fall. This is the right
time for bargain hunting and selecting good quality
businesses which are reasonably undervalued.
Sir, Thank you for explaining me the
concept of Value Investing. I am sure it will
help me to understand investing in the
markets in a better manner now.
Classroom
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Story
CLASSROOM
32
WINNERS
Article of the Month
Prize - INR 1500/Avishek Bhattacharyya
&
Shubharthi Ghosh
SIBM Bangalore
January FinQ Winners
1 st Prize - INR 1000/Pavan Bhalavat
SIIB Pune
2 ND Prize - INR 500/Amaresh Krishna
IIM Ranchi
33
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Niveshak

FROM EDITORS DESK

04 The Month That Was

Article of the month

Is Jan Dhan making PSBs

Interview With Dr. Maram

The Month That Was

The Niveshak Times

announced that two US trade missions will be in

by cutting the repo rate, its key lending rate, by 25

India has raised about $3.6 billion by selling a 10

European Central Bank Unveils Stimulus

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

The Month That Was

The Niveshak Times

FII, DII Net turnover (in Rs.

MARKET CAP (IN RS. CR)

LENDING / DEPOSIT RATES

Data as on 28th Jan 2015

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

Niveshak Investment Fund

CONS NON DURABLE

Values Scaled to 100

Values Scaled to 100

Falling oil prices and

Fig 1: Impact of falling oil price on Russian Rouble

so that generating a lot of surplus supply. With

most of the drilling will be around the Bakken

The sharp price drop will of course favour India somehow.

Effect On Various Indian Stocks:

5) Consumer: The biggest gainer will be Asian

The main problem is that on one side India is going to gain

problem is that on one side India is going to

current account balance by around USD 9 billion

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

Is Jan Dhan making PSBs

bad or banks fail, deposit holders are the first

card besides an INR 1 lakh accident insurance

of Aadhaar with the bank account. Another

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

Human Resource Challenges

reduction which could deteriorate the valuation

manpower. For the PSBs there is an additional

front. While over 70% accounts are zero balance,

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

EURO-ZONE : ECONOMIC CRISIS

Prashant Choudhary & Debangshu Bhattacherjee

Currently, 18 out of 28 EU members are using the

One more interesting pattern observed after the

3% of GDP by 2015 due to weak growth (0.3%

Requirement Of Proper Debt Regulation

Reduction in Public Expenditure

The various national fiscal policies in the

Most of the member states were engaged in

Deadlines are given to various members by the

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

countries failed to print more money in case of

Fig 1: Long Term Interest Rates (%)

Fig 2: Growth in Bank Credit (%)

Increased accessibility to debt for low credit

the common monetary policy across the member

The formation of European Union however led

The ECB approach of One size fits all common