#copied

SBI PO PRE 1ST SHIFT ANALYSIS BY ASPIRANT

Paper was moderate

English
Comprehension - 7
Close test - 7
Single filler - 5
Match the following - 3
Error spotting - 3
Sentence correction - 4

Quant -
3 DI - 1caselet , 1 bar graph, 1 pie chart - 15 qs
5 - number series
5 - quadratic
10 miscellaneous

Reasoning
5 puzzles - 25
5 miscellaneous
5 syllogism

one new type triangular puzzle in which three sitting at middle and three at the corner asked

My prediction - cut off after seeing todays paper: 63 to 67 in between

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9th June - Daily Current Affairs : The Hindu Analysis- Banking Exams 2019

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10th June - Daily Current Affairs : The Hindu Analysis- Banking Exams 2019

Descriptive/GD/PI Question:

What are Masala bonds? How do they work? Discuss the rationale behind them along with the pros and cons associated.


The state of Kerala became the first Indian state to tap into the market for masala bonds on Friday. Thus, it is important for us from exam point of view to ascertain into the concept of Masala Bonds.

The answer must discuss in detail the concept of Masala bonds, pros and cons associated with their utility.

Structure of the answer

Introduction:

Write a few introductory lines by stating the background of the question.

Body:

Answers must discuss the following aspects :

What do you understand by Masala Bonds? – “Masala Bonds” are the 10 year off-shore rupee bonds issued by International Finance Corporation (IFC), a member of the World Bank group, in the international capital market in 2014, to raise funds for supporting private sector infrastructure development initiatives in India. Masala bonds are listed in London Stock Exchange. The term Masala bonds now extends to any rupee denominated bonds issued to overseas buyers even though RBI has not resorted to the use of this name in their guidelines.

Discuss their rationale – like any other off-shore bonds, are intended for those foreign investors who want to take exposure to Indian assets, yet constrained from doing it directly in the Indian market or prefer to do so from their offshore locations.

Pros and cons associated – Offshore bonds have its own set of advantages and disadvantages for both the issuer and the investor as well as for the economy. Competition from offshore markets may induce improvements in domestic bonds markets such as strengthening of domestic market infrastructure, improving investor protection and removing tax distortions that hinder domestic market development etc. Against these benefits come the risks associated with financial openness and sudden shifts in capital flows, and the risk that offshore markets may draw liquidity away from the domestic market.

Conclusion –

Conclude by reasserting their importance in raising capital.

Model Answer:

Introduction:

Masala Bonds are rupee-denominated bonds i.e the funds would be raised from overseas market in Indian rupees. The term was used by the International Finance Corporation (IFC) to evoke the culture and cuisine of India. The first Masala bond was issued by the World Bank-backed IFC in November 2014. Recently, Kerala (Kerala Infrastructure Investment Fund Board) became the first Indian state to tap into the market for masala bonds to raise development funds.

Body:

Working:

Any corporate, body corporate and Indian bank is eligible to issue Rupee denominated bonds overseas.

For example, if an Indian financial entity issues Rs 1000 rupee denominated bond overseas, the buyer in overseas can buy the bond, paying equivalent amount of dollar/sterling.

If the exchange rate was 1$ = Rs 50, the bond buyer will pay $20 (or Rs 1000) to buy the rupee denominated bond.

Suppose the interest rate is 10%. Here, the Indian entity has to pay Rs 100 annually and this can be paid (in dollars etc.) at the prevailing exchange rate at the payment time.

Now if the exchange rate depreciates to 1$ = Rs 75, the bond buyer’s interest revenue of Rs 100 equals just around $1.3. He actually incurs losses in terms of dollars (might have got $2 if the exchange rate was the same or in the case of dollar denominated bonds).

Here, if the rupee’ value has changed, the risk should be borne by the foreign investor. At the end of the time period, the issuer will give Rs 1000 and this can be converted into dollar at the prevailing exchange rate at that time

Rationale:

Like any other off-shore bonds, are intended for those foreign investors who want to take exposure to Indian assets, yet constrained from doing it directly in the Indian market or prefer to do so from their offshore locations.

Pros:

They help to internationalize the Indian Rupee and deepen Indian Financial system by expansion of Indian bond markets.

They diversify the funding resources of Indian companies.

They may help to bring down the cost of borrowing and cost of capital.

Allowing Masala Bonds is considered to be a small step towards full convertibility of Rupee.

Such bonds would support towards stability of rupee.

By issuing bonds in rupees, an Indian entity is protected against the risk of currency fluctuation, typically associated with borrowing in foreign currency

Cons:

RBI mandates that the money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.

It also can’t be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.

Conclusion:

India needs almost $2 trillion for setting up world class infrastructure according to Economic Survey. The rupee-denominated bonds help in raising funds for the capital of infrastructure projects, green-field projects, brown-field projects.

Must Read Article/Editorial: 10th June 2019

When Polls Exit, Bulls Enter

Markets do not just love stability, they love authority too.

Sensex has, for the first time, crossed the coveted 40,000 mark with the initial break of this dream run starting on 20 May, a day after the exit polls were announced. The rise looks spectacular partly because of a relatively lower base, as a result of adverse global economic and trade predictions. However, the market fell by 400 points after the Reserve Bank of India (RBI) announced a rate cut on 6 June.

Notwithstanding the fall, an unprecedented rally such as this means that none of the major policy pronouncements of either the National Democratic Alliance or the United Progressive Alliance-II government could drive the stock markets in the same way as the exit polls. Why? Stock market movements factor in two components: long-term fundamentals of the corporations whose stocks are being traded, and immediate unexpected shocks to the system. A useful way of looking at the current movement would be to see, in Keynes’ terms, what part of the rise is speculative (short-term gain) and what part is due to enterprise (fundamentals). A greater weight on the former means the markets are over­valued and will require corrections, while the latter means that even though the current price–earnings (PE) ratios may be high, it is based on better expectations about the future of the economy. It is difficult to separate the wheat (enterprise) from the chaff (speculation) because what may seem like chaff today (overvalued market with high PE ratio) may actually not be so because it may be based on expected earnings, which may well turn out to be true. But what drove these sentiments in the last few weeks?

First, a key short-term factor for such a high one-day trade rally of course was the comfortable majority predicted in favour of the Narendra Modi-led government by almost all the exit polls. Second, though linked to the first, is a more long-term view of the investors about the political stability of a majority government because it can provide a predictable business climate. But this expectation is not enough, especially from an incumbent government which has not really managed to deliver on the economic front in its first term. A repeat of an incompetent government surely is not a good sign for the investors to put their money in. Then, why did they? A “strong” leader in Prime Minister Modi, who seems to have the absolute faith of the people and, therefore, can take decisive steps, gives corporates a lot of hope in favour of otherwise politically difficult but market-friendly economic reforms. Big ticket disinvestment of public sector units or labour market reforms are some of the steps that the big corporates would expect Modi to deliver in his second stint. And in having this expectation, at least the markets would not be that off the mark, given the past experience of Modi pulling off the hugely unpopular demonetisation.

Third, the expectations about the immediate performance of the Indian economy, which is partly driven by the International Monetary Fund predictions of India being one of the fastest-growing economies in the world, played a significant role. This is surprising since in the last quarter, the economy has not fared all that well but the investors are perhaps hedging their bets on an uncertain future over a not so good past. One of the reasons for this buoyancy was the expectation of an accommodative monetary policy in the immediate run as a result of low oil prices. A lower bond yield under normal circumstances makes buying stocks more lucrative. There was also an expectation that a lower interest rate can kick-start corporate and/or household investment, thereby injecting growth in the economy. But, the RBI has given mixed signals. While reducing the interest rates, it has also revised the expected rate of growth downward even as the presser did nothing to directly address a looming liquidity crunch facing non-banking financial companies.

Fourth, there has been a huge net inflo

w of foreign portfolio investment in 2019 so far. Part of this inflow was to do with push factors, that is, factors emanating primarily at the source of these funds. In this case, these could be the Sino–United States (US) trade war, bleak economy recovery in the US, expectation of an easing of the monetary policy in the US which would lead to a decline in the US bond yields. The latter increases the possibility of arbitrage, provided the exchange rate risks do not rise pari passu. As for the pull factors, they are essentially the ones that the domestic investors are driven by.

Whether the bulls have got it right or not, one thing is clear: wide stock market fluctuations in the very short term, like we saw in the aftermath of the exit polls, are almost always chaff. But, other than that if this is indeed an overvalued stock market, it could be perilous for any economy, especially in a volatile global environment. To minimise the risks of overvaluations, Keynesians often argue for a short-term capital gains tax. At the same time, policies should not discourage stock markets altogether since they also play an important role of making large chunks of indivisible capital divisible, thereby decreasing the risk of investment. Ideally, the government should keep the lever of the economy in its own hands through an active fiscal policy instead of trying to indirectly influence corporate or household investment through interest rate changes. Unfortunately, the current government swears by the Fiscal Responsibility and Budget Management Act even in the worst economic conditions, which severely limits the policy space and makes the economy subservient to the movements in the stock markets or decision-making of corporations, which need not always be correctly aligned with the fortunes of the economy.

A clip from the Interview of Prashant Jha(IBPS PO 2018) where he is mentioning abt the GA section...👆👆

To watch the full video/interview ...just go to this link
https://youtu.be/7b6y8NgI5xY

11th June 2019- Daily Current Affairs : The Hindu Analysis- Banking Exams 2019