Economics and International Business Club of IIM Indore

MACROSCAN
July 2015

Contents (Click on any box to go to the respective section)

International Business
Chinese Stock market
plunge

National Economy
India becomes a 2
trillion economy
Retail inflation at a 8
month high
PMI down
Previous

International Economy
Eurozone clinches
bailout deal with
Greece

Concept Cracker
Decoy Effect
Banana Republic

National Business
SoftBank, Bharti and
Foxconn to form JV for
Renewable Energy
IPO market heats up

Fact-a-Base
Personalities
Alexis Tsipras
Lei Jun

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International Business

Anubha Aggarwal

Chinese stock market plunges

Shares plunged 30% in three weeks

Last three weeks saw stock markets in China tumbling. The plunge knocked
about 30% off Chinese shares since mid-June. Hundreds of Chinese
companies have suspended dealings in their shares in a bid to arrest a
frenzy of selling. There has also been a surprise rate cut

Chinas stock markets had previously been among the highest performing
in the world. Investors had been piling in, encouraged by falling borrowing
costs as the central bank loosened monetary policy.

The rise was also fuelled by a switch away from property investment
following a clampdown by the government on excessive lending by banks.
Laws liberalising the stock market also made it easier for funds to invest and
for firms to offer shares to the public for the first time

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International Business

Anubha Aggarwal

Chinese stock market plunges

Shares plunged 30% in three weeks

Why did the market turn?

Analysts were already warning that the dramatic rise in Chinas stock markets was driven by
momentum rather than fundamentals. Stocks were looking wildly overvalued at a time when the
Chinese economy was losing steam. As fears grew that the rise in many stocks was unsustainable,
the selling started.

How could so many people afford to buy shares?

At the centre of the dramatic stock market slide are individual investors borrowing from a broker to buy
securities. There has been an explosion in so-called margin lending. Under that system, the broker can
make a demand for more cash or other collateral if the price of the securities has fallen known as a
margin call.

Drastic official efforts over the past two weeks, including a ban on sales by executives and big
shareholders, appear to have at least temporarily halted the decline.
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International Economy

Anubha Aggarwal

Eurozone clinches bailout deal with Greece

Greece remains in EU, third bailout deal with tougher conditions clenched

Eurozone leaders have finally clenched a deal with Greece to negotiate a

third bailout of about 86bn for 3 years to keep the almost bankrupt
country in Eurozone.

However the tough conditions imposed by international lenders led by

Germany could bring down Prime Minister Alexis Tsipras' government and
cause an outcry in Greece.

The terms of the agreement are not immediately known however EU

officials said the toughest condition for Tsipras to swallow was Germany's
insistence that Greek state assets worth up to 50 Bn euros be placed in a
trust fund beyond government reach to be sold off with proceeds going
directly to pay down debt.

The Greek leader also dropped resistance to a full role for the IMF in the
bailout, which German Chancellor Angela Merkel had declared essential
to win parliamentary backing in Berlin.

Had the summit failed, Greece would have been in economic abyss with
its banks on a brink of collapse and having to print a parallel currency and
exiting from the European monetary at the same time.

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International Economy

Anubha Aggarwal

Eurozone clinches bailout deal with Greece

Greece remains in EU, third bailout deal with tougher conditions clenched

Tsipras will now have to rush swathes of legislation through parliament this week to convince his 18
partners to release bridging funds to avert a state bankruptcy and just to begin negotiations on the
three year loan

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National Business

Pratik Bandishte

SoftBank, Bharti and Foxconn to form JV for

Renewable Energy in India

Japans SoftBank, Sunil Bharti Mittal-led Bharti Enterprises and Taiwans Foxconn Technology on
Monday teamed up to form a joint venture (JV) to set up a 20 gigawatt (GW) of solar and wind
energy projects in India at an investment of about $20 billion.

The new JV will be called SBG Cleantech and will have SoftBank as majority control in the with Bharti
and Foxconn as minority stakeholders.

SBG Cleantech will have Manoj Kohli, a Bharti veteran, who until recently led Bhartis emerging
businesses, as Executive Chairman and Raman Nanda, as the CEO

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National Business

Pratik Bandishte

SoftBank, Bharti and Foxconn to form JV for

Renewable Energy in India

Following the Indian Prime Minister's 100GW solar and 60GW wind target by 2022, the venture will
invest in and develop renewable energy plants across India. The company intends to participate in
the 2015-16 round of solar power plant tenders under the National Solar Mission (NSM) program and
state-specific solar programs

The Japanese telecom and Internet major SoftBank Corp had in 2011 set up SB Energy Corp to
develop clean energy projects following the Fukushima nuclear disaster in Japan. It is working on 20
such projects there.

Solar power in India is likely to grow by 250% in 2015. Globally, renewable energy outpaced the
growth of fossil fuels in 2015 and a record 107 GW was added through wind, solar, geothermal and
other natural sources.

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National Business

Pratik Bandishte

IPO market heats up; over 30 companies line up

public offers

After a prolonged lull, the IPO space has become very active and over 30 companies have lined up
plans to raise funds totalling over Rs 20,000 crore through public offers.

Cafe Coffee Day, Matrix Cellular and RBL Bank have approached the regulator last week itself, while
some others including IndiGo are expected to file their draft prospectus this week. GVK Group also
plans to list its airports business arm, GVK Airport Developers, and may raise an estimated Rs 3,000
crore.

Indigo is eyeing Rs 2,500 crore, coffee shop chain operator Coffee Day Enterprises plans to raise Rs
1,150 crore, RBL Bank (formerly known as Ratnakar Bank) plans to mop up at least Rs 1,100 crore and
Biocons arm Syngene International is looking to raise an estimated Rs 600 crore

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National Business

Pratik Bandishte

IPO market heats up; over 30 companies line up

public offers

It also comes at a time when the regulator Sebi has announced a slew of fresh reforms in the IPO
space, including for halving the listing period to six days and for making the application process for
investors entirely cheque-free.

A majority of the companies which have approached SEBI are mid-sized and are looking to mop up
between Rs 200 crore to 3,000 crore.

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National Economy

Mohit Surana

India becomes a $2 trillion economy

After taking 60 years to reach the $1-trillion mark, India added the next trillion in just
seven years

Indias GDP has breached the psychological barrier of $2 trillion in 2014, according to a latest report
released by the World Bank with a growth rate of 7.4% making it the fastest growing major economy
along with China, which is a staggering $10.4 trillion in size

The World Bank data also show that Indias gross national per capita income rose to $1,610 (around
Rs. 1 lakh) a year during 2014 compared to $1,560 in the previous year

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National Economy

Mohit Surana

Retail inflation climbs to 8 month high

Latest inflation data dampens the hope of a rate cut by the RBI in near future

Indias retail inflation rose to an eight month high in June to 5.4 % year on year compared to 5.01% in
May on account of high food prices

A stronger-than-expected rise in prices is likely to fuel fresh inflation concerns for the RBI, which is
targeting inflation of 6 percent by January

Hence, any hope of a rate cut in the near future is off the table now, given this kind of number,
coupled with the fact the monsoon has been weaker in the last couple of weeks

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National Economy

Mohit Surana

Manufacturing PMI weakens in June on slow

business orders

The Nikkei India Manufacturing Purchasing Managers Index, compiled by Markit, eased to 51.3 points
in June from 52.6 in the may, in the face of the slowest rise in new orders since September 2014

The production sector, stressed for over the past two years, has started showing signs of recovery on
easing of supply-side bottlenecks. But, Employment levels remained stagnant, reflecting the cautious
stance of manufacturers to hiring, according to the Markit report

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Concept Cracker

Yashvardhan Singh

Decoy effect (Asymmetric dominance)

Using Behavioural Economics in Marketing

If you thought prices of commodities are fixed without giving much thought to consumer behaviour, think
again. Smart companies use behavioural economics to influence buyers.

Dan Ariely, a professor In duke University and MIT investigated the reason why The Economist was giving 3
subscription options. He surveyed his students regarding which subscription would they opt for and got the
following results-

1.

Web subscription (For $25): 16%

2.

Print subscription (For $59) : 0%

3.

Print & Web subscription (For $59) : 84%

He surveyed the students again, but this time with only 2 choices. The results were very different this time.

1.

Web subscription (For $25): 68%

3.

Print & Web subscription (For $59) : 32%

So why did the Economist offer the print-only option? It was most likely a decoy, designed to shift purchasers
to the higher-priced combo option. What youre doing with the decoy effect is pricing one item in such a
wild way that the other plans/items start to look pretty reasonable.
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Concept Cracker

Yashvardhan Singh

Banana Republic
A country in which foreign enterprises push the government around

A term in political science for a politically unstable country whose economy is largely dependent on
the export of a single, limited-resource product

By the end of the 19th century, Americans realized it was cheaper to import bananas from the
warmer climes of Central America, where such tropical fruits grew quickly.

American companies like United Fruit Company and Cuyamel Fruit in and built roads, ports and
railways in return for land.

They even supplied the weapons and planned coups against the government of Honduras.

Hence the real meaning of a banana republic is a country in which foreign enterprises push the
government around.
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Fact-a-Base

Yashvardhan Singh

INDIA AT A GLANCE
MEASURE
GDP
CRR
SLR
IIP
CPI (Industrial
Workers)
Government
Bond Yield-10
Year

VALUE
2.1 Trillion
USD
4%
21.50%
197.3
254

Alexis Tsipras

He is the current and youngest Prime Minister of Greece

and leader of the left wing party Syriza which came to
power in January 2015.
A civil engineer by profession he joined the Young
Communist Society giving base to his opposition to neo
liberal capitalism.
He has been crucial in the referendum following which
the agreement of granting 80 Billion euros loan to
Greece was concluded.

7.84%

Lei Jun
WORLD AT A GLANCE
MEASURE
LIBOR (Yearly)
US One Year
Constant Maturity
Treasury (CMT)
US Treasury Yield10 Year- Coupon2.75%

VALUE
0.72%
0.23

2.27%

The founder of Xiaomi, the 3rd largest smartphone

maker behind Apple and Samsung
Before Xiaomi he started a website calledJoyo.com
which was acquired by Amazon
Called the Steve Jobs of China, Leis net worth is
estimated to be 8.8 billion US dollars
Lei Jun believes that social networking, ecommerce
and mobile Internet will be the three most impactful
growth drivers over the next decade in tech

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