Volume 1, Issue 5 March 19, 2011
Vinod gupta school of management, IIT KHARAGPUR
Jap an ’s so rro w,
"When Mother Nature sneezes we humans
get blown away.” The tides of the Tsunami
have hurt Japan where it hurts the most. Over
17,000 people are now feared dead, few
coastal areas have been eliminated from the
geography forever, and a nuclear radiation
leak is now posing a serious threat to life for
About Fin-o-Menal generations ahead.
Fin-o-Menal is the
When the third largest economy of the world
weekly Financial News
Letter of VGSoM which suffers losses of over $200 billion, global
is publ i sh ed by financial tremors across continents are
Finte`est, the Finance
bound to be felt. A short term impact was
Club.
expected as Japan’s Nikkei nose-dived over
Come, Take Interest in 10% to revert to the levels seen during the
Finte`est! global financial meltdown and the DJIA (Dow
Jones Industrial Average) fell 300 points at
Editors the onset of the news. Oil Prices fell sharply
Harish Thangaraj
Ho w oi l pri ces wi ll impact
Lavanya Rajasekaran
Niloy Ghosh
Crude Oil prices have spiked ever since the
ongoing turmoil in Egypt and Libya cast a
doubt on the steady supply of oil. If prices
stay at high levels ($120/ barrel) for an ex-
Rates This Week tended period of time, it is going to dent the
economic growth of all oil importing countries
of the world. High oil prices could drive up
inflation and halve the growth rates of major
economies. RBS predicts that growth rate of
45.06 63.90 China could fall to 8.8% and India would have
to settle for a 6% growth. Some Asian coun-
tries like Malaysia and Indonesia have strong
fiscal position to absorb the impact of high
prices but India’s case is slightly different.
73.16 6.85
In India, the oil marketing PSU’s have been
hit hard by the increase in crude prices. Since
Special Note June 2010, state run oil companies have lost
`2000 crore on the sale of petrol alone. The
Join us in our prayers for estimate for the month of March alone is
the speedy recovery of `400 crore. Besides petrol, the three retailers
the Japanese Quake- are losing a record `12.56 a litre on diesel,
Tsunami victims. `24.74 per litre on kerosene and `297.80
wor ld’s gr ief
by $4 because demand for energy is expected
to fall in Japan. Some analysts believe that
the long term economic impact of the tragedy
can be deeper and long lived. Manufacturing
output may decrease in countries which rely
on Japan for parts. Electronics supply chain is
expected to be hit badly and prices of elec-
tronics items are certain to go up.
Japan though, is trying hard to minimize the
impact of the Quake on its economy. The Cen-
tral Bank of Japan has pumped in a whopping
$700 billion in the economy to shore up con-
sumer confidence and maintain liquidity.
Building infrastructure, rail and housing in the
quake affected areas should negate the im-
pact of the quake in the coming quarters.
(Contributed by Pallav Maheshwari)
the Indi an econo my
per 14.2kg LPG cylinder. The total loss for the
fiscal is estimated to be around `77,645
crore. While the Government has promised
that it would give cash subsidies to the PSUs
to cover half of their losses, state run oil ex-
ploration and drilling companies like ONGC
are supposed to bear another one third of the
losses. But if the crude prices increase any
further, the subsidy burden could become
unsustainable.
If the Government decides to deregulate oil
prices, the price shock could lead to run-away
inflation and ultimately cripple growth. The
government will have to look for a middle path
where some of the burden is transferred to
the consumer and the rest is borne by the
Government and PSUs. But these are short
term measures which don’t address the more
pertinent question of India’s long term energy
security. It is high time that this issue is ad-
dressed with some earnestness.
(Contributed by Nachiketa Trivedi)
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 Fin-0-Menal Volume 1, Issue 5 March 19, 2011
R BI r ai ses po li cy rat es, hop es to cu r b in flation
Markets this week
RBI has raised the repo rate and the reverse March. Because of high inflationary pressure,
Index BSE NSE repo rate by 25 basis points in its effort to India is one of the very few large economies with
bring inflation under control. Repo rate is the negative real interest rates.
Opening rate at which RBI lends to banks and is
Value 18439 5437.5 currently at 6.75%. Reverse repo rate is the Banks will pass on the increased lending burden
(Mar 14) rate at which banks lend to RBI and is to consumers. Home and car loans are expected
currently at 5.75%. RBI has increased the to go up and interest expenses of companies will
Closing rates several times since 2010 but has not rise as banks raise their lending rate to pass on
Value 17879 5367.8 been able to curb inflation. Due to the Middle the higher cost of deposits. Rising inflation can
(Mar 18) East and North Africa (MENA) political crisis, derail the growth as a large part of the income
crude oil prices are touching new highs with oil gets eaten away. RBI should take a balanced
at $120 per barrel currently. This has put an approach to control inflation and ensure growth
Change -3.04% -1.28% additional pressure on inflation and it is in the economy.
projected to increase further to 8% during (Contributed by Harsh Bansal)
(As on March 18, 2011)
Jap an - t sun ami and the aft er math

Commodities this week
Commodity ` Unit
GOLD 20850 10 gm
SILVER 53108 Kg
OIL 4565 Barrel
(As on March 18, 2011)
Editors Note
Fin-o-Menal has successfully
completed one month of
publication this week and is
now looking to expand. Start-
ing this week, we are intro-
ducing a three-page issue and
an all new ‘Did-you-know’
and ‘International Markets’
section.
You would be glad to know
that we now have a dozen
regular article contributors,
all from the first year. More
contributors are on the cards.
A special thanks to our read-
ers for their constant support.
Watch out for our month-end
special edition next week!
The 9.0 Richter Earthquake, the devastating
Tsunami, the volcano eruption and the immi-
nent nuclear failure, all of which have affected
Japan recently, have triggered a drop in the
global stocks and drove the island-nation’s
currency to a post World War I high. The Fi-
nance heads of G-7 nations had a discussion
to take a coordinated action to prevent the
disaster from affecting one of the largest
economies (3rd) of the world. Earlier, bond risks
soared and the yen Strengthened upto 76.36
to the Dollar.
The aftermath had led to speculations in the
media and the stock-exchange that the insur-
ance companies are repatriating assets from
abroad. However, the Japanese officials have
said that these speculations are behind the
Yen’s climb as the insurers have sufficient
amount of cash, deposits and liquid assets.
There is also news that the Central Bank has
pumped up 5 trillion Japanese Yen (US $63 bn)
into the money markets. The sudden disaster
had resulted in a 14% loss to the indices in the
first few days. The Central Bank has also de-
cided to double its asset-purchase program to
10 trillion Yen, including Government bonds,
exchange-traded funds (ETFs) and real-estate
investment trusts.
It is said that Japan can break-even if the ex-
porters can trade the Yen at 86.30 per dollar
or weaker compared to 2010’s break-even
point at 92.90. However, as the operations of
foreign trade are already agitated, the appre-
ciation of the Yen may have little immediate
effect. Experts claim that a strong Yen would
help Japan in securing goods and supplies as it
will make the imports cheaper.
Even as the Japanese Government and the G-7
nations are trying their best to take the neces-
sary steps to curb the economic impact of the
Earthquake and the Tsunami, there are different
problems that may arise:
 There may be a huge debt crisis if the Govern-
ment issues new bonds for reconstruction,
thereby increasing its fiscal burden. Japan is
still in the process of recovering from the past
recession.
 The major concern that the G-7 now face is
the short-term economic effect that Japan’s
condition might have on other countries, es-
pecially in the automotive and consumer elec-
tronics sectors.
 The earthquake rendered US stock-exchange
to basically go ‘flat’. As such, financial experts
speculate a probability that the Yen might rise
against the Dollar due to financial flows into
Japan from overseas.
 The disaster might lead the industrial sector
to face a slowdown of electricity generation
capacity. But if the nuclear crisis continues,
then it could cripple the Japanese sector.
 Japan’s imports and exports are relatively a
small share of its GDP. As such, the trade
flows across the globe will not be much af-
fected but the automotive, telecommunica-
tions and consumer electronics sectors may
have a significant effect on the supply chain,
which is expected to have a negative impact
on the global growth this year.
 There might be unavailability of auto parts
from Japan. This might have a significant im-
pact on the US market. The American compa-
nies can use this situation to their advantage.
Given the nature of today’s intertwined economy,
Japan and the G-7 have tried their level best to
neutralize the economic implications of the dis-
aster. It is hoped that Japan will soon be able to
rebuild and reconstruct itself to its former glory.
(Contributed by Dhiru Rabha)

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 Fin-0-Menal
Po rt ug al’s debt cri si s an d t he imp en di ng
Did You Know?
The world's first stock Portugal successfully managed to raise $1.4
exchange was estab- billion (€1 billion) through government bonds
lished in Antwerp, Bel- due October 2014 and June 2020. The
gium in the year 1460 auction took place a day after Moody’s Inves-
under the rule of Philip the tor Service reduced the credit rating of the
Good. The Antwerp Stock country by two grades to A3, four steps away
Exchange traded mostly from junk status. The agency has cited a
weaker outlook for economic growth, risks to
in financial securities and
the government’s deficit- reduction plans and
primary bonds.
a possible need to recapitalize banks. Portu-
gal, supposed to be the next country after
Greece and Ireland to seek a bailout, its
minority government has come up with a set
International Markets this week of measures, the fourth such time, to prevent
the crisis. Yet, Portugal has the fourth-biggest
budget gap in the Euro region and its GDP is
Dow Jones LSE expected to decline this year. The higher
11858 5718 interest rates from the European Central Bank
also add to the challenges of the nation.
(0.71%) (0.39%)
Despite the downgrading, the demand for the
government bonds has remained at 2.2 times
Nikkei 225 Hang Seng of the supply. However the downgrading did
9207 22300 have an effect. Investors demanded a higher
(+2.72%) (0.07%) return of 4.3 percent up from 4 percent on a
similar auction two weeks ago and 1 percent a
year ago. The yield on 10 year bonds rose to a
(As on March 18, 2011) historical high of 7.70 percent in March 2011,
increasing the government’s borrowing costs.
Qu ot e Un -Qu ot e
"The earthquake will most likely lead to stronger growth in 2011, rather than weaker"
- Takuji Okubo, an analyst at French bank Societe Generale, saying that Japan's economy will probably take a hit initially and then rebound strongly.
Japanese consumers will need to replace lost cars and appliances, and reconstruction will start.
Too n o f t he w eek
Q u i c k Q u o t e : If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.- John Maynard
Volume 1, Issue 5 March 19, 2011
bailou t
The government has also agreed that these costs
are not sustainable in the long run. Portugal
intends to sell €20 billion bonds this year to
finance its budget and cover the cost of maturing
bonds. It is also plans to raise taxes and carry out
spending cuts, some of them, the deepest in 30
years to avert the crisis. With the yield on 10-year
bonds being more than 7 percent for around a
month, subsequent cuts might be expected.
While the EU plan to deal with the debt crisis was
welcomed positively, a Reuters’ poll of 45
economists found a 60 percent chance of a
bailout by June. However, the analysts believe
that these measures are not sufficient to avoid a
bailout. On the other hand, could backfire on the
already fragile Portugal economy.
The crisis has also deepened with the Social
Democrats, the main opposition party’s reluc-
tance to support the government’s measures to
avoid a bailout. While Prime Minister Jose Socra-
tes said he would quit if the Parliament did not
approve his latest plan, the government said that
it is ready to negotiate for modifications to the
plan. However, the Social Democrats are not
ready to yield. A fall of the government might lead
to an early election which may further dampen
the pace of the recovery process.
(Contributed by P Ramya Krishna)
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