SIGFI, IIM LUCKNOW

Inside this issue:
The Russian Rouble Crisis

1

Highest funded tech
startups in India

2

RBI : Repo rate reduced by
25bps

4

Global Economic Outlook
2015

5

FiNMAG
18th January, 2015
Volume 8

The Russian Rouble Crisis
2014 has been a rocky year for the largest country in the
world. The economy is witnessing a free fall of its currency by about 50% this year, rising inflation, dip in RTS
(Russian Trading System) index by 30% in a month and a
recession this year, with GDP expected to fall by 4.5% by
Central Bank.

their interest payment obligations on their existing debt.
High Capital outflow
Prior to the drop in oil prices and before the war in
Ukraine, Russia saw more than $120 billion in investment capital flee its borders in 2013.

Causes
Falling oil prices
The price of oil fell from $100 per barrel in June 2014 to
$47per barrel as on 17th January 2015 due to a drop in
global demand. In 2014, Russia needed an oil price of
$100 per barrel just to have a balanced budget.

Fig 2: Capital outflow from Russia, billions of USD
Source: Wikipedia

Impact
GDP contraction in Russia
Fig 1: Oil prices from Aug’14-Dec’14
Source : NASDAQ

Economic sanctions following Russia's intervention in
Crimea and Ukraine
Despite the financial crisis, that the United States and
the European Union will not ease economic sanctions
imposed on Russia. Economic sanctions have also contributed to the decline of the rouble since Russian companies have been prevented from rolling over debt, forcing companies to exchange their roubles for U.S. dollars
or other foreign currencies on the open market to meet

Russia is facing an economic meltdown. Russia is the
sixth largest of the top seven global economies, with a
$3 trillion gross domestic product this year. Now with oil
prices collapsing, analysts say Russia’s GDP could contract 5 percent or more next year.
Further capital outflow
In anticipation of declining GDP, investors are fleeing the
country converting their roubles for dollars leading to a
decline in the Russian Rouble. This has prompted Russians to purchase durable goods immediately to get value for their rapidly declining currency as well as change
their pensions and savings from being in roubles to US
dollars or euros, thus creating a cascading effect to the

threatens to reach 15 percent in the coming months. Consumer Web still remains strong with many innovative business models and web enabled solutions attracting investments. a term economists use to describe a situation in which a country focuses on developing its natural resources to the detriment of other economic activity. Education and Healthcare continue to be average performers. Part of the funds went into acquiring leading fashion portal Myntra. US has very little to fear from the collapse of the Russian rouble because the US does very little trade and financial business with Moscow. Data Analytics. Also.91 billion Ecommerce leader Flipkart became the first VC-backed company in India to have a billion dollar funding round. Tiger Global and South African media group Naspers led the US$1 billion funding in July. http://en. .wikipedia. But that failed to stop the panic. benefit from lower commodity prices. high oil prices over the past decade have allowed Moscow to pile up substantial hard currency reserves. Second.telegraph. Minimal impact on US and Europe Outlook Outlook on the Russian economy is optimistic based on the assumption that the global price of oil will rise as cheaper energy prices spur consumer spending and investment across the world. this would be good for Russia.economist. although is seeing a lot of market traction.html http://www. has attracted just about $31 million in funding.uk/finance/economics/11296233/ Russian-economic-crisis-live. but that’s not happening indicating poor investor sentiment in emerging economies at the present. Some analysts estimate that the price will recover to about $80 a barrel next year. Here’s a look at the 5 highest funded Indian tech startups Flipkart – US$1. it is essential that the country tackle some of the economic challenges it has ducked for the past couple of decades including the development of alternate sources of economic activity thereby reducing dependence on hydrocarbons.html Highest funded tech startups in India 2014 was a record year for Indian startups when it comes to venture capital funding. Spill over into emerging economies Ordinarily. which in turn lowered the risk that an ailing Russian economy would affect the worldwide economy. Russia's economy suffers from Dutch disease. In the short term. That will lead to higher demand for oil. Public debt is just over 10 percent of GDP. most countries have strong external positions.already close to ten percent -. Tiger Global and Accel were the leading investors in both Flipkart and Myntra. half of the Russian Federation's governmental revenue comes from the sale of oil and gas. and are believed to have pushed for the merger to shore up the battlefront against Amazon. with the rouble dropping by a further 20 percent. The 2014 international sanctions on Russia decreased Russia's financial connections with the broader financial world. the region has few direct links to the crisis in Russia. such as Thailand and Indonesia.com/programmes/insidestory/2014/12/ inside-story-russia-economic-crisis2014122185119161740. This was followed by the Services sector where startups that dealt with a wide spectrum of services from payment enablement to event ticket sales. thereby triggering fears of another stagflation. Surprisingly. However. Asia stands to benefit from falling oil prices and third.FiNMAG and in the middle of the night hiked the key interest rate by a tremendous 6. With the rouble having now lost nearly 50 percent of its value against the dollar in the past year imported food and consumer goods are quickly becoming luxuries. High impact on weaker oil producers Emerging markets that are producers of commodities like oil are going to continue to get hurt. Not surprisingly. leading experts to ponder whether the global economy is on the cusp of deflationary pressures. ecommerce received the highest amount of funding given its capital intensive nature of business.5 percentage points to 17 percent. Larger vulnerabilities still lie in the weaker oil producers such as West Africa. especially Venezuela.com/blogs/economistexplains/2014/12/economist-explains-16 Asia’s financial markets have fared better than other emerging market regions because of three key factors First.co. the central bank's reserves still stand at around $400 billion.org/wiki/2014%E2%80% 9315_Russian_financial_crisis http://www. though. manufacturing-heavy economies that import commodities. In the long term.aljazeera. That trend has begun and inflation -. at $602 million. The budget remains balanced and the government has a big rainy day fund to draw upon to sustain social spending. which will push up the price. Even after having spent heavily to support the rouble.bloombergview. References: Impact on Asia http://www.com/articles/2014-11-10/howclose-is-russia-to-financial-crisis http://www. given its dependence on the energy sector. where oil revenues account for about 95 percent of export earnings and the oil and gas sector is around 25% of GDP.

provided India’s transport regulators give them the green signal in the new year. The cash reserve ratio (CRR) has been kept unchanged at 4% while the reverse repo rate stands adjusted to 6. taking its total funding in 2014 to over a quarter of a billion dollars.com/indias-30-highest-funded-techstartups-2014/ http://yourstory. pioneering the use of map-based mobile technology to make house -hunting in a disorganized market easier. Quikr – US$150 million Tiger Global came on board to give a boost to local classifieds portal Quikr in its battle with global player OLX. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.indianweb2.5 million The leading taxi aggregator Ola had a whopping US$210 million from Softbank in October on top of the US$41. .com has been a trail-blazer among Indian real estate portals.75 percent from 8 percent. Finance Minister Arun Jaitley hailed the decision of RBI to cut the policy rate. Housing – US$109 million Real estate portal Housing. This came on top of a US$19 million funding round in June. Ola – US$251. Housing.5 million it had raised earlier in the year. That gives it ammunition enough to compete with global rival Uber.75%.Volume 8 Highest funded tech startups in India Fig : VC funding sector wise in first half of 2014 Source: Yourstory. saying it is a positive development for the Indian economy and will certainly help in reviving the investment cycle the government is trying to restore. It is used by monetary authorities to control inflation. Two funding rounds of US$90 million and US$60 million this year were a recognition of the continuing appeal of the online classified listing sites despite the mushrooming of ecommerce sites. taking its total for the year past the 100-million-dollar mark. References : https://www.com was the third big beneficiary of Softbank’s largesse in India. Then Japanese telecom giant Softbank came to India in October providing US$627 million more in funding to play in the big leagues.com/2014/08/india-startup-funding-report2014/ http://www. This is the first repo rate cut since May 2013. with a US$90 million infusion of funds.in Snapdeal – US$861 million Snapdeal raised US$234 million in two back-to-back funding rounds in February and May.com/2014/12/top-10-startup-funding -in-india-2014/ RBI: Repo Rate reduced by 25bps The Reserve Bank of India on Thursday slashed the repo rate by 25 basis points to 7.techinasia.

has been consistent with the assessment of the balance of risks in the Reserve Bank's bi -monthly monetary policy statements.27 per liter lower than in August.51 a pound.48 RBI’s move will boost investor sentiment and revive growth. Copper. The low oil prices have kept the good times rolling for emerging economies such as India.Volume 8 RBI: Repo Rate reduced by 25bps Reasons for the cut fiscal year. . Nifty surged 216.2% from its previous close of 62. Recently the Finance Ministry had said that all efforts were being made to ensure that the government does not default on the fiscal deficit target. to $2.73 points to close at 28. on Wednesday crashed to a sixyear low. It helped the government to have a sharp reduction in pump prices of petrol and diesel. It would also bring down subsidy on kerosene and cooking gas. Low oil prices would reduce inflation and the oil import bill. Petrol prices are now Rs 12.07 a dollar.jumped 728. inflation is likely to be below 6% by January 2016 WPI inflation for December came in at 0. Bond yields fell sharply. ebbing price pressures in respect of cereals and the large fall in international commodity prices.60 points and ended at 8.4% in November Copper crashed to a six-year low. Inflation outcomes have fallen significantly below the 8% targeted by January 2015.93 percent on the news. The benchmark 10-year bond yield fell 5 basis points to 7.19 but down from its days high of 61.075. up 0. while diesel prices are down Rs 8. Lower than expected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September. It had hit a near 1-1/2 year low of 7. particularly crude oil. Sensex -. but marginally to 5% from an all-time low of almost 4.1% in the current The rate of retail inflation increased. which was $160 billion last year and is likely to be around $100-110 billion this year. Inflation The consumer price index inflation has been easing since July 2014. High-grade copper for March delivery. which was $160 billion last year and is likely to be around $100-110 billion this year Rate cut will lead to more money in the hands of the consumer for greater spending The rupee ended at 62. while below the expected trajectory. Both slippages have re-ignited fears of another round of a global growth slowdown. hitting levels not seen since mid-2009 Finance Ministry said it expected banks to pass on the rate cut to consumers through a 50 basis point -reduction in lending rates. It also sparked a hope that it will further bring down interest rates to lower the cost of capital for the industry. Fiscal deficit target Rajan has acknowledged the government's assurance of sticking to its fiscal deficit target of 4.55.46 a liters since October. marginally higher than the flat inflation logged in November Low oil prices would reduce inflation and the oil import bill.494.82 percent in mid-December Fall in oil prices and Copper prices Global oil prices breached the six-year low of $45 a barrel. The path of inflation.15.11%. The move will boost housing demand and also improve sentiments in the sluggish property market. On current policy settings.

AFRICA: POSITIVE. Nigeria will be the strongest performer at 6.9 percent in 2015 and 3.conference-board. Southeast Asia will strengthen as the global production base. The key challenges for United States would be increasing income inequality.4 percent in 2015. US: MODERATELY POSITIVE US is expected to grow at a modest 2.com/articles/2014-11-06/2015global-economic-outlook-better-than-2014-but-not-by-much https://www. and rebuild trust and confidence. EUROPE: CAUTIOUS SHORT-TERM OPTIMISM.Profitability may come under increased pressure as business cycle matures and cost increases are imminent. The key challenges for Europe would be youth unemployment and EU-Russia relations. and improved agricultural production.1 percent in each of 2015 and 2016.6 percent in 2015. the Asia-Pacific region remains the leader for global growth.businessweek.7 percent growth in 2015. A positive growth outlook for Africa is strongly dependent on improved institutional performance and better governance. the Euro Area is projected to grow at 1. America’s strength in technological progress needs to help accelerate productivity. MOSTLY POSITIVE ELSEWHERE Despite softening growth rates. References: http://reports.Modest recovery in domestic consumption is a likely source of growth as labor markets improve. LATIN AMERICA: UPSIDE POTENTIAL Regional growth is expected to strengthen steadily from 1. upsides relate to the ability of policy and business to invest. disinflation or even deflation could bring growth rates down.weforum.5 percent in 2016. geopolitical shifts and adapting to climate change. The key challenges for Asia-pacific would be structural economic reforms and managing urbanization.6 percent in 2015. However.org/data/globaloutlook/ . public investment in infrastructure. The key challenges for Africa would be education and skill development and delivering hard infrastructure. BUT UNCERTAIN Regional GDP growth is projected to strengthen to 5. supported by net foreign direct investment (FDI) flows in the resource sectors. to 2. The key challenges for Latin America would be education and skill development and dealing with corruption and income inequality. Productivity growth should can help in building investment and improving business confidence.5 percent from 2015–2019. raise productivity. ASIA-PACIFIC: CHALLENGING IN CHINA.org/outlook-global-agenda-2015/ http://www. Despite short-term headwinds from global economy. Growth rate for the region is expected to be around 5. but it is heavily dependent on natural resources and vulnerable to global demand. BUT DOWNSIDE RISKS ACCUMULATE Despite significant downside risks.Volume 8 Global Economic Outlook 2015 Global economic growth in 2015 is expected to be around 3. Downsides to the global outlook relate to intensifying political and economic risks.9 percent in 2014. Decreasing prices of commodities and energy exports provide significant downside. almost double that of 2014.