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Term of Week

In Focus

Opinion

Personality Brand World

Value at

Risk | 6

Three Mistakes and a

Gift |12

Arvind Subramanian|11

How to Reduce Fiscal

Deficit in India | 4

FEBRUARY 15, 2015 | A FINNICHE INITIATIVE

AAP Wins Delhi Elections

Way Forward? | 2

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

This week started with the splendid victory of Aam Aadmi Party in the Delhi Assembly

Election, Arvind Kejriwal thrashing all its rivals and winning outstanding 67 out of 70

seats. IMT successfully hosted the Chakravyuh, and at global level the commencement of

ICC Cricket World Cup has started in Australia, with India facing its rivals Pakistan in its

opening match, around 1 Billion people are expected to tune into this match. Off late

with only two weeks left for the First Financial Budget from the Modi Government, lot of

expectations and speculations are arising from the Indian Market.

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

the ‘Winning of Arvind Kejriwal’. The Opinion gives an overview of ‘How to reduce

Fiscal Deficit of India’.

The term of the week describes ‘Value at Risk’, a method to measure the market risk of

asset portfolios of security houses and investment banks. Do have a look at the market

section, Tech world which brings to you about June—A valentine gift and Personality of

the week, Arvind Subramanian.

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

February 15, 2015 | Volume 34

AAP Wins Delhi Elections

Way Forward?

How to Reduce Fiscal

Deficit in India

Value at Risk

Arvind Subramanian

Three Mistakes and a Gift

Arvind Kejriwal winning the

Delhi Assembly Elections 2015

by landslide margin

Highlights of Parties’

manifesto are given, wherein

the party is trying to work upon

opening of new schools,

colleges, installation of CCTV

cameras.

Making Delhi fully Wi-Fi

Creating more job

opportunities

- By Gayatri Pandit

Honorable Shri Arvind Kejriwal Head of Aam

Aadmi Party won the Delhi Assembly election

2015 by land slide victory. Thus people of

Delhi voted for stable government by giving

the absolute majority to AAP.

Delhi voters voted to AAP because Mr.

Arvind Kejriwal has given very lucrative

promises in his parties manifesto that if his

party wins then he will give 700 liters of free

water Chief Minister designate Arvind

Kejriwal vowed to implement within 24

hours, 700 liters per day of free water to every

household and 50 per cent cut in electricity

tariff. He has also given following promises in

his parties' manifesto:

500 New Schools in 1825 days. A School to

be started in Every 3.65 days

20 New Colleges in 1825 days. A College to

be Started in every 91.25 days

1500000 CCTV Cameras. Installing A

CCTV in every 2 minutes

2,00,000 Public Toilets. Constructing public

toilet in every 13 minutes

Expansion of Healthcare Infrastructure

900 new Primary Health Centers (PHCs)

Constructing new PHC in every 10 days

30000 new beds in Hospitals

Speedy justice by creating 47 new fast

track courts and disposing all pending

cases in six months time period

Making Delhi as Wi-Fi Delhi

Creating 8 Lakh new Jobs

Regularization and Transformation of

Unauthorized Colonies

Affordable Housing for all

In Situ Development of Slums regularizing

slums and it will be given new roads,

water supply, electricity, amenities

In addition to this, women security, making

contractual labors permanent, making

Yamuna river pollution free, constructing new

swage treatment plants, rain water harvesting,

drug free Delhi, and much more etc. These are

some of the high lighted promises given by

AAP and in addition to this above all Shri

Arvind Kejriwal stated in his manifesto that

Women Security making

contractual labors permanent,

making Yamuna river

pollution free, constructing new

swage treatment plants, rain

water harvesting, drug free

Delhi are some of the key

issues to be looked after by the

Aam Aadmi Party.

all this change will be achieved with

motto that “Big Change without Big

spending”.Delhi budget isof Rs. 36700 crores.

The above promises made in manifesto. This

can be achieved by controlling planned

spending to effectively minimum and with

raising additional revenues from Delhi public

as stated in manifesto. which is dream of

every citizen in Delhi. If these promises are

fulfilled in next five years then it will be a

great boon to Delhi.

This is very large order, none of other parties

like BJP, CONGRESS and other parties have

confidence that it can make and achieve above

promises, even in five years of period that to

without additional funds and practical

problems like availability of Land, water,

electricity, time required to build

infrastructure, skilled man power generating

additional funds without burdening Delhi

voters.

Hence they have not stated in there manifesto,

as other parties like congress have history of

not fulfilling there promises given in previous

elections while Shri Kejriwal has shown his

accountability of fulfilling some of the

promises he made in his 49 days of Chief

Minister ship tenure in Delhi assembly in

2014. Since no other party has this track

record of fulfilling of the promises of during

there rule, Hence Delhi voters wholly

heartedly voted AAP with absolute majority.

If these promises are not fulfilled in next five

year rule then it will be a curse to Delhi and

an another requirement of President’s rule

have to stabilize the capital city from dismay.

- By Mohana Krishna Kummara

First of all before getting deep into how to

reduce the fiscal deficit, let us first try to

understand what a fiscal deficit is. Fiscal

deficit is the difference between the

government’s total expenditure and the total

non-debt receipts. In brief, this indicates that

government has exhausted all the options for

financing its expenditure, the only way to

finance its expenditure is through debt. Thus,

the total debt generated by the government to

finance activities leading to the creation of

national assets. If incurred year after year

high fiscal deficit may become a matter to

worry, they cumulatively create a huge debt

for the government.

Now, let’s come to the problem in hand.

India’s fiscal deficit is at 6.7 percent of GDP in

2013-14, which is the highest in the emerging

markets. Asian average is still at only 2

percent of GDP. High inflation in the recent

years is the major reasons for piling up of

India’s debt. This amount of high fiscal debt

may lead to many macro-economic problems.

Major ones are lower national income, this is

because the government’s spending are

higher than its revenues. Because of which the

government is forced to take debt which

crowds out the private sector. Banks, pension

and insurance funds have a large fraction of

their assets in government bonds, which

prevent private sectors from using these

funds.

Spread the Tax Net

One of the major income for government is

Tax revenue. India’s tax revenue base to over

20 percent in china and 45 percent in the US.

There should be measures taken to increase

the tax revenue which can reduce the fiscal

deficit by a large extent.

First, high agricultural income could be

brought into the tax net. A policy of excluding

this from the tax net does not distinguish

between high and low incomes, but only

based on the occupation. This is not equitable.

Also, there may be cases where citizens may

disguise non-agricultural incomes also as

agricultural income to evade taxes.

Second, the multi staged appeal process

hampers the tax collection. A citizen can

appeal against an income-tax department

enquiry over several stages.

One of the major income for

government is Tax revenue.

India’s tax revenue base is

very small. Just 3 percent of

India’s population pays income

tax, compared to over 20

percent in china and 45

percent in the US

First, to contest the claim he can go to the

commissioner. If the expected favourable

outcome does not come out of it, he can then

appeal to the income-tax tribunal. He can also

further approach high court, Supreme Court.

This means multiple stages to contest taxes in

India, but if we see other countries, they tend

to have only one or two stages. These multiple

sages reduce the efficiency of tax collection.

Third, the tax collection agencies are divided

into two: Central Board of Direct Taxes

(CBDT) and the Central Board of Excise and

Customs (CBEC). Again these two are under

the control of ministry of finance, with little

autonomy in setting their budgets or hiring

staff, and limited coordination between the

two boards.

Cut the Strings

Like the US has an independent tax authority,

the Internal Revenue Service (IRS) – could

evade some of the tax collection issues. This

type of fully autonomous tax agency has been

adopted by several developing countries in

Asia, Africa and Latin America.

Value at Risk (VaR) is a probabilistic method

of measuring the portfolio loss over a given

time period an for a given distribution of

historical returns. In other words, this

technique is used to evaluate the financial risk

level in an investment or a portfolio. The risk

manager uses this tool to ascertain the

maximum risk that can be undertaken while

making an investment in the worst possible

scenario.

VaR can be calculated for any percentage

probability of loss and over any time period.

A 1%, 5%, 10%, VaR would be denoted as

VaR (1%), VaR (5%) and VaR (10%)

respectively. The risk manager selects the X

percent probability of interest and the time

period over which VaR will me measured.

Generally the time period selected is one day.

Calculating VaR

Basic assumption while calculating VaR is

that the asset returns conform to a standard

normal distribution, where mean (µ) is 0 and

standard deviation ( is equal to 1 and is

perfectly symmetrical. VaR can be calculated

by the following formula:

VaR (X%) = zx% x

Here, zx% is the critical z-value based on the

normal distribution and the selected X%

probability. Thus, critical values for 10%, 5%

and 1% lower tail probabilities will be –1.28,

-1.65 and -2.33 respectively.

The resulting VaR estimate would be the

percentage loss in asset value that would only

be exceeded X% of the time.

Moreover, if VaR is to be calculated on rupee

basis, it can be obtained by multiplying

percent VaR by the asset value.

VaR (X%) = zx% x

VaR Methods

The Delta Normal Valuation Method is a

linear method for calculating VaR, where

portfolio positions are replaced with linear

exposures in the appropriate risk factor. Here

relationship between change in portfolio

value and change in risk factor is calculated

by assuming that only one risk factor exists.

While this approach is easy to implement, it

assumes a normal distribution. It also fails to

properly account for distributions with fat

tails, either because of unidentified time

variation in risk or unidentified risk factors

and/or correlations.

Under Historic Simulation Method, a

number of past daily returns are accumulated

and ranked from highest to lowest. The

lowest X% returns are identified and the

highest of those returns is the 1-day X% VaR.

The calculations in this method though

simple but will not be possible if historic data

is unavailable.

The Monte Carlo Simulation Approach

revalues a portfolio for a large number of risk

factor values, randomly selected from a

normal distribution. It refers to computer

software that generates n number of possible

outcomes from the distributions of inputs

specified by the user. It is considered to be the

most powerful model as it can account for

both linear and non-linear risks.

Value at Risk (VaR) is the

maximum loss not exceeded

with a given probability defined

as the confidence level, over a

given period of time. It is

commonly used by security

houses or investment banks to

measure the market risk of

their asset portfolios (market

value at risk)

Delta Normal Method

Historic Simulation

Method

Monte Carlo Simulation

Approach

- By Arihant Jain

SBI Q3 Net Profit up by 30%

as shares surged.

Mahindra and Mahindra gained

5% and was the second best

performing stock.

Government is ready to

administer the “bitter

medicine”.

INDIAN MARKETS

The investors are optimistic despite the drubbing of BJP in the Delhi Elections. Analysts

expect that the central government would push ahead with the economic reforms,

when it unveils it’s budget later this month. Shares of manufacturing and infrastructure

companies would particularly be affected by the budget. The Sensex managed to touch

the psychological 29000 mark. Nifty recorded a gain of almost 2.5%.

BSE SENSEX

CNX NIFTY

Open High Low Close

SENSEX 28227.39 29142.39 28089.39 29094.93

NIFTY 8590.75 8819.70 8190.80 8805.50

COMMODITIES

EXCHANGE RATES

INTERNATIONAL MARKETS

Commodity Unit Rs / Unit % Change

Gold 10 grams 26691.00 0.65

Silver 1 kg 38204.00 2.63

Crude Oil 1 bbl 3294.00 3.91

INR/ 1 USD 62.14

INR /1 EURO 71.05

INR/ 100 JAPAN YEN 52.34

INR / 1 POUND STERLING 95.78

Open High Low Close

NYSE Comp 10822.16 11044.42 10808.37 11042.69

NASDAQ 4729.02 4893.84 4720.97 4893.84

S&P 500 2049.18 2096.99 2044.18 2096.99

FTSE 100 6831.67 6883.48 6787.04 6873.52

CAC 4655.10 4765.86 4641.99 4759.36

DAX 10663.51 10628.13 10995.90 10963.40

NIKKEI 225 17648.50 17997.02 17566.93 17913.36

SSE 50 2332.07 2314.02 2540.34 2427.77

Hang Seng 24504.48 24697.07 24236.94 24682.54

ICICI Prudential Life Insurance plans to sell 5% stake

ICICI Prudential Life Insurance has decided to sell 5% stake to financial investors, private

equity firms and sovereign wealth funds. Anticipating increase in the foreign investment

cap in the sector to 49%, ICICI Prudential is looking to sell the stake. It is the biggest private

sector life insurer having 11.4% market share. An estimated amount of $6 billion could be

raised by the sale. Analysts believe that this sale is an attempt to understand the valuation

for the planned IPO which can happen in near future. However, the deal will be concluded

after the changes in foreign investment policy in the insurance sector is passed by both the

houses of parliament. Currently, only Government has increased the limit from 26% to 49%,

but approval of both the houses is pending. Several investors are keeping their watch as it is

interesting to see the biggest private player taking some action in response to a policy

change by government.

Snapdeal is looking to raise funds worth $400 million

Just four months after SoftBank made an investment in Snapdeal making it the largest

shareholder of the e-commerce marketplace, Snapdeal is again looking to raise some funds

worth $400 million or Rs. 2500 crore. Snapdel last raised money in the month of October

2014, now as the interest of the shareholders is increasing it is planning to raise more funds.

Another reason behind such plan can be to compete against large strategic e-commerce

players like Alibaba. Till now SoftBank is the largest investor in Snapdeal, now it will be

interesting to see the source of such funding whether it will be domestic or international

source. However, some US-based hedge funds are interested for making such investment.

Growth of index of industrial production slows down

The index of industrial production rose by just 1.17% in December, while the same recorded

a growth of 3.9% in the previous month. The reason for this was poor performance of the

mining sector and sub-par manufacturing. Manufacturing has a weight of 75% in IIP and it

just grew by 2.1% in December . Mining shrank by 3.5%. Easing of interest rates may help

the industry. Both government and RBI should consider this as it remains an area of concern

which hasn’t witnessed any improvement as such.

Google Capital is considering

the Indian Start-up boom and it

will hire a team and invest in

the growing companies which

have drawn the attention of big

investors across the world. It

has also been predicted that in

next 3-7 years about 30% of

the world’s billion-dollar compa-

nies will be from India. The

Google Capital team has

already met 25 start-ups in less

than a week.

Consumer Inflation rose to 5.11%

Consumer Inflation in January was 5.11% whereas it was 4.28% in December. A revamped

GDP numbers showed the increasing growth of Indian economy, on the other hand a

revamped consumer inflation index showed an increase in the month January 2015.

Changes in the interest rates will decide inflation. However, RBI is expected wait for the

budget before deciding on interest rates. On the other hand, retail inflation is still below

RBI’s target of 6% of March and below expectations, but upcoming budget will be a

deciding factor for RBI for further interest rate cuts. Change in the base year has

significantly affected GDP growth forecast and the same has made RBI governor Raghuram

Rajan cautious regarding monetary policy.

India’s exports declined by 11.2%

In January, exports of the country fell 11.2% being the most in two and half years. Whereas,

because of reduction in global crude oil India’s import bill was lower and this ultimately led

to narrow the trade deficit. But, exports need to grow at an average rate of 14% in the next

two coming months to meet the fiscal target of $340 billion. The demand in EU and Japan is

decreasing because of worse economic situation. Gold imports were up to the expected level

of $1.5 billion. Gems and jewellery exports contracted by 3.73%. Pharmaceuticals exports

also fell poorly. Therefore, India need to clear big projects and improve exports to meet the

fiscal deficit target.

Q3 net profit of SBI rises by 30%

State bank of India recorded a jump of 30% in net profit amounting to Rs.2,234 crore in the

September-December quarter. The treasury gains from currency, derivatives and bond

trading rose 286% and interest earnings of the bank increased 9.2% to Rs.13,777 crore.

Expected interest rate cut post budget will help the bank in earning more money via bond

trading. On the other hand, SBI did well in managing its NPAs. The same was declined to

4.9% as compared to 5.7% of the previous year. According to SBI Chairman, the growth rate

for the next two quarters will remain constant.

Arvind Subramanian, a native of Tamil Nadu

is an Indian economist and the current Chief

Economic Adviser to the Government of

India, having taken charge of the position on

16 October 2014 succeeding Raghuram Rajan.

He served as the Dennis Weatherstone Senior

Fellow at the Peterson Institute for

International Economics and a Senior Fellow

at the Center for Global Development, both

located in Washington DC. He was also

appointed as the assistant director in the

Research Department at International

Monetary Fund. He served at the GATT (1988

–92) during the Uruguay Round of trade

negotiations and taught at Harvard

University's Kennedy School of Government

(1999–2000) and at Johns Hopkins' School for

Advanced International Studies (2008–10).

He is a widely cited expert on the economics

of India, China, and the changing balance of

global economic power.

Arvind Subramanian is the author of two

books, India's Turn: Understanding the

Economic Transformation published in 2008,

Eclipse: Living in the Shadow of China's

Economic Dominance published in

September 2011, and co-author of Who Needs

to Open the Capital Account? which was

published in 2012. In 2011, Foreign Policy

magazine has named him as one of the

world's top 100 global thinkers. He has also

published or been cited in leading magazines

and newspapers, including the Economist,

Financial Times, Washington Post, New York

Times, Wall Street Journal, Newsweek, and

New York Review of Books. He contributes

frequently to the Financial Times and is a

columnist in India's leading financial daily,

Business Standard.

Arvind Subramanian's elder brother is V.S.

Krishnan who is an Indian Revenue Service

Officer and is presently the Chief

Commissioner of Central Excise, Mumbai.

In News

Arvind Subramanian was recently in news

when he cautioned that the new GDP data

should not be used for policies in a rush. He

mentioned that the new numbers have

puzzled him, as these aren't corroborated by

other data, including those showing a decline

in imports, high interest rates and outflow of

capital.

IIM, Ahmedabad (MBA)

University of Oxford (M. Phil,

D. Phil)

India's Turn: Understanding

the Economic Transformation

(2008)

Eclipse: Living in the Shadow

of China's Economic

Dominance (2011)

From first time crushes to long time

relationships, 14th February becomes the

seminal date in many relationships. The

flurry for gifts and presents for that special

someone is an exciting as well as an onerous

task for many. So in addition with the cool

gizmo that you can gift that special someone,

we will also help you remember some of the

basics that you are more than likely to forget.

June is a bracelet that tells the wearer how

much sun dose you are exposed to if you are

wearing a sunscreen, and the amount if you

don’t, what is the right amount of sunscreen

you should apply. It works by taking the UV

readings from its sensors and then compares

it with the readings that you provide in the

app. It basically is for women and girls who

have an independent lifestyle and is working

round the clock. It acts a reader of sorts and

helps you manage your skin care.

In a rush to plan the perfect evening we often

don’t pay attention to small insignificant

details that can put the best laid plans in

jeopardy. Three of them are:

Recharge your phone: No matter how good

your plans, it’s surely going to go kaput, if

your balance runs out on you in the last

minute. Free Wifi on the campus and having

Whatsapp on our phones has made us

careless to the pitfalls of not having talk time

balance on the phone. There are myriad

details that you need to confirm to have that

special evening and Whatsapp will only take

you so far.

Petrol Check: If you are one of those, who

have laid your entire plans around your car

or your bikes, you really don’t want to run

out of petrol, even on a normal day it’s

frustrating, let alone on valentine day. So, yes

my friend do keep a check on that dial.

Keep the Gandhis : In the day of ATM cards,

credit cards, and all sort of club cards that

litter our purse, we sometimes don’t feel the

need to keep the Gandhis in our pocket.

Believe us, having the Gandhis in our pockets

can turn potential deathblows to your

valentines vanish in a puff of smoke, right

from the traffic inspector who makes it his

mission to catch couples and harass them on

this day down to that ‘adrakh chai’ that both

of you love at that nukkad. Credit cards are

good at the fancy restaurant, but if you are of

a spontaneous kind, do keep those Gandhis.

Have fun and enjoy the day…

- By Shubhra Sasmit

June is a bracelet that tells the

wearer how much sun dose

you are exposed to if you are

wearing a sunscreen, and the

amount if you don’t, what is the

right amount of sunscreen you

should apply.

Can be considered as a utility

as well as a Valentine Gift.