2014 has been a rocky year for the largest country in the world. The economy is witnessing a free fall of its curren-cy 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.

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 1: Oil prices from Aug14-Dec14

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 con-tributed to the decline of the rouble since Russian com-panies have been prevented from rolling over debt, forc-ing companies to exchange their roubles for U.S. dollars or other foreign currencies on the open market to meet

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 invest-ment capital flee its borders in 2013.

Fig 2: Capital outflow from Russia, billions of USD

Source: Wikipedia

Impact

GDP contraction in Russia

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 Russias GDP could con-tract 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 Rus-sians to purchase durable goods immediately to get val-ue 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

The Russian Rouble Crisis

18th January, 2015

Volume 8

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 SIGFI, IIM LUCKNOW

and in the middle of the night hiked the key interest rate by a tremendous 6.5 percentage points to 17 percent. But that failed to stop the panic, with the rouble drop-ping by a further 20 percent. 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. That trend has begun and inflation -- already close to ten percent -- threatens to reach 15 percent in the coming months, thereby trigger-ing fears of another stagflation.

High impact on weaker oil producers

Emerging markets that are producers of commodities like oil are going to continue to get hurt, especially Ven-ezuela, where oil revenues account for about 95 percent of export earnings and the oil and gas sector is around 25% of GDP. Larger vulnerabilities still lie in the weaker oil producers such as West Africa.

Spill over into emerging economies

Ordinarily, manufacturing-heavy economies that import commodities, such as Thailand and Indonesia, benefit from lower commodity prices, but thats not happening indicating poor investor sentiment in emerging econo-mies at the present, leading experts to ponder whether the global economy is on the cusp of deflationary pres-sures.

Minimal impact on US and Europe

US has very little to fear from the collapse of the Russian rouble because the US does very little trade and finan-cial business with Moscow. The 2014 international sanc-tions on Russia decreased Russia's financial connections with the broader financial world, which in turn lowered the risk that an ailing Russian economy would affect the worldwide economy.

Impact on Asia

Asias financial markets have fared better than other emerging market regions because of three key factors - First, the region has few direct links to the crisis in Rus-sia. Second, Asia stands to benefit from falling oil prices and third, most countries have strong external positions.

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 in-vestment across the world. That will lead to higher de-mand for oil, which will push up the price. Some analysts estimate that the price will recover to about $80 a barrel next year. In the short term, this would be good for Rus-sia, given its dependence on the energy sector. Also, high oil prices over the past decade have allowed Mos-cow to pile up substantial hard currency reserves. Even after having spent heavily to support the rouble, the central bank's reserves still stand at around $400 billion. Public debt is just over 10 percent of GDP. The budget remains balanced and the government has a big rainy day fund to draw upon to sustain social spending.

However, half of the Russian Federation's governmental revenue comes from the sale of oil and gas. Russia's economy suffers from Dutch disease, 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. In the long term, though, 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 eco-nomic activity thereby reducing dependence on hydro-carbons.

References:

http://en.wikipedia.org/wiki/2014%E2%80%9315_Russian_financial_crisis

http://www.bloombergview.com/articles/2014-11-10/how-close-is-russia-to-financial-crisis

http://www.telegraph.co.uk/finance/economics/11296233/Russian-economic-crisis-live.html

http://www.economist.com/blogs/economist-explains/2014/12/economist-explains-16

http://www.aljazeera.com/programmes/insidestory/2014/12/inside-story-russia-economic-crisis-2014122185119161740.html

FiNMAG

Highest funded tech startups in India

2014 was a record year for Indian startups when it comes to venture capital funding. Not surprisingly, e-commerce received the highest amount of funding given its capital intensive nature of business, at $602 million. This was followed by the Services sector where startups that dealt with a wide spectrum of services from pay-ment enablement to event ticket sales. Consumer Web still remains strong with many innovative business mod-els and web enabled solutions attracting investments. Surprisingly, Data Analytics, although is seeing a lot of market traction, has attracted just about $31 million in funding. Education and Healthcare continue to be aver-age performers.

Heres a look at the 5 highest funded Indian tech startups

Flipkart US$1.91 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. Part of the funds went into acquiring leading fashion portal Myntra. Tiger Glob-al and Accel were the leading investors in both Flipkart and Myntra, and are believed to have pushed for the merger to shore up the battlefront against Amazon.

Volume 8

Snapdeal US$861 million

Snapdeal raised US$234 million in two back-to-back funding rounds in February and May. Then Japanese telecom giant Softbank came to India in October provid-ing US$627 million more in funding to play in the big leagues.

Ola US$251.5 million

The leading taxi aggregator Ola had a whopping US$210 million from Softbank in October on top of the US$41.5 million it had raised earlier in the year, taking its total funding in 2014 to over a quarter of a billion dollars. That gives it ammunition enough to compete with global rival Uber, provided Indias transport regulators give them the green signal in the new year.

Quikr US$150 million

Tiger Global came on board to give a boost to local clas-sifieds portal Quikr in its battle with global player OLX. 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 mushroom-ing of ecommerce sites.

Housing US$109 million

Real estate portal Housing.com was the third big benefi-ciary of Softbanks largesse in India, with a US$90 million infusion of funds. This came on top of a US$19 million funding round in June, taking its total for the year past the 100-million-dollar mark. Housing.com has been a trail-blazer among Indian real estate portals, pioneering the use of map-based mobile technology to make house-hunting in a disorganized market easier.

References :

https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/

http://yourstory.com/2014/08/india-startup-funding-report-2014/

http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/

Highest funded tech startups in India

Fig : VC funding sector wise in first half of 2014

Source: Yourstory.in

RBI: Repo Rate reduced by 25bps

The Reserve Bank of India on Thursday slashed the repo rate by 25 basis points to 7.75 percent from 8 percent. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. It is used by monetary authorities to control inflation. This is the first repo rate cut since May 2013. The cash reserve ratio (CRR) has been kept unchanged at 4%

while the reverse repo rate stands adjusted to 6.75%. Finance Minister Arun Jaitley hailed the decision of RBI to cut the policy rate, saying it is a positive devel-opment for the Indian economy and will certainly help in reviving the investment cycle the government is trying to restore.

https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/https://www.techinasia.com/indias-30-highest-funded-tech-startups-2014/http://yourstory.com/2014/08/india-startup-funding-report-2014/http://yourstory.com/2014/08/india-startup-funding-report-2014/http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/http://www.indianweb2.com/2014/12/top-10-startup-funding-in-india-2014/http://www.business-standard.com/search?type=news&q=Rbi

Volume 8

Reasons for the cut

Inflation

The consumer price index inflation has been easing since July 2014. The path of inflation, while below the expected trajectory, has been consistent with the as-sessment of the balance of risks in the Reserve Bank's bi-monthly monetary policy statements. Lower than ex-pected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September, ebbing price pressures in respect of cereals and the large fall in international commodity prices, par-ticularly crude oil.

Fiscal deficit target

Rajan has acknowledged the government's assurance of sticking to its fiscal deficit target of 4.1% in the current

fiscal year. Recently the Finance Ministry had said that all efforts were being made to ensure that the govern-ment does not default on the fiscal deficit target.

Fall in oil prices and Copper prices

Global oil prices breached the six-year low of $45 a bar-rel. The low oil prices have kept the good times rolling for emerging economies such as India. It helped the gov-ernment to have a sharp reduction in pump prices of petrol and diesel. Petrol prices are now Rs 12.27 per liter lower than in August, while diesel prices are down Rs 8.46 a liters since October. Low oil prices would reduce inflation and the oil import bill, which was $160 billion last year and is likely to be around $100-110 billion this year. It would also bring down subsidy on kerosene and cooking gas. Copper, on Wednesday crashed to a six-year low. Both slippages have re-ignited fears of another round of a global growth slowdown.

RBI: Repo Rate reduced by 25bps

WPI inflation for December

came in at 0.11%, marginally

higher than the flat inflation

logged in November

Inflation outcomes have fallen

significantly below the 8% tar-

geted by January 2015. On cur-

rent policy settings, inflation is

likely to be below 6% by Janu-

ary 2016

The rate of retail inflation in-

creased, but marginally to 5%

from an all-time low of almost

4.4% in November

Copper crashed to a six-year low.

High-grade copper for March

delivery, to $2.51 a pound, hitting

levels not seen since mid-2009

Low oil prices would reduce infla-

tion and the oil import bill, which

was $160 billion last year and is

likely to be around $100-110 bil-

lion this year

Rate cut will lead to more money in

the hands of the consumer for

greater spending

The rupee ended at 62.07 a dollar,

up 0.2% from its previous close of

62.19 but down from its days high

of 61.48

The move will boost housing de-

mand and also improve sentiments

in the sluggish property market.

Sensex -- jumped 728.73 points to

close at 28,075.55. Nifty surged

216.60 points and ended at

8,494.15.

Finance Ministry said it expected

banks to pass on the rate cut to

consumers through a 50 basis point

-reduction in lending rates.

RBIs move will boost investor sen-

timent and revive growth, It also

sparked a hope that it will further

bring down interest rates to lower

the cost of capital for the industry.

Bond yields fell sharply. The bench-

mark 10-year bond yield fell 5 basis

points to 7.93 percent on the news.

It had hit a near 1-1/2 year low of

7.82 percent in mid-December

Volume 8

Global economic growth in 2015 is expected to be around 3.4 percent in 2015. Downsides to the global outlook relate to intensifying political and economic risks; upsides relate to the ability of policy and business to invest, raise productivity, and rebuild trust and confi-dence.

US: MODERATELY POSITIVE

US is expected to grow at a modest 2.6 percent in 2015.Profitability may come under increased pressure as business cycle matures and cost increases are immi-nent. Americas strength in technological progress needs to help accelerate productivity. The key challenges for United States would be increasing income inequality, geopolitical shifts and adapting to climate change.

EUROPE: CAUTIOUS SHORT-TERM OPTIMISM, BUT DOWNSIDE RISKS ACCUMULATE

Despite significant downside risks, the Euro Area is pro-jected to grow at 1.6 percent in 2015, almost double that of 2014.Modest recovery in domestic consumption is a likely source of growth as labor markets improve. However, disinflation or even deflation could bring growth rates down. The key challenges for Europe would be youth unemployment and EU-Russia relations.

ASIA-PACIFIC: CHALLENGING IN CHINA; MOSTLY POSI-TIVE ELSEWHERE

Despite softening growth rates, the Asia-Pacific region remains the leader for global growth. Growth rate for the region is expected to be around 5.5 percent from 20152019. Despite short-term headwinds from global economy, Southeast Asia will strengthen as the global production base. The key challenges for Asia-pacific

would be structural economic reforms and managing urbanization.

LATIN AMERICA: UPSIDE POTENTIAL

Regional growth is expected to strengthen steadily from 1.9 percent in 2014, to 2.9 percent in 2015 and 3.5 per-cent in 2016. Decreasing prices of commodities and en-ergy exports provide significant downside. Productivity growth should can help in building investment and im-proving business confidence. The key challenges for Latin America would be education and skill development and dealing with corruption and income inequality.

AFRICA: POSITIVE, BUT UNCERTAIN

Regional GDP growth is projected to strengthen to 5.1 percent in each of 2015 and 2016, supported by net foreign direct investment (FDI) flows in the resource sectors, public investment in infrastructure, and im-proved agricultural production. Nigeria will be the strongest performer at 6.7 percent growth in 2015, but it is heavily dependent on natural resources and vulner-able to global demand. A positive growth outlook for Africa is strongly dependent on improved institutional performance and better governance. The key challenges for Africa would be education and skill development and delivering hard infrastructure.

References:

http://reports.weforum.org/outlook-global-agenda-2015/ http://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-much https://www.conference-board.org/data/globaloutlook/

Global Economic Outlook 2015

http://reports.weforum.org/outlook-global-agenda-2015/http://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-muchhttp://www.businessweek.com/articles/2014-11-06/2015-global-economic-outlook-better-than-2014-but-not-by-muchhttps://www.conference-board.org/data/globaloutlook/