The document discusses the effects of a strong US dollar on the US economy. It notes that while a strong dollar benefits consumers through lower import prices and inflation, it hurts US-based multinational corporations as their foreign profits are worth less when converted to dollars. It also negatively impacts US manufacturers and exporters as their goods become more expensive overseas, which could weigh on US economic growth given manufacturing's large GDP contribution. Overall, the strong dollar presents challenges and opportunities for different sectors of the US economy.

1. ATIS Market Roundup: Issue 5
(14/12/14)

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3. Welcome to the fifth issue, the Christmas issue, of the ATIS Market Roundup Newsletter; the final issue of 2014.
A relatively quiet week for all you members, but the committee have been loaded with meetings with the Business School to
organise a load of things, all for the benefit of you guys! Still held a couple events though: Lloyds Banking were on campus
Tuesday 2 December, Grant Thornton showed the day in the life of an auditor the day after, and then the other day came our
big one: we held our University-renowned Speed-Networking event. Although many companies couldn’t make it we still had
a lot turn up, with great feedback from both companies and students. We will probably host another event like this in mid to
end February, with the aim of it being a LOT bigger and better. Watch this space…
Term 2 we’ve got at least an event every week, and there will be a lot of weeks with 2 events on. To give you a taster, these
are some of the events coming up in Term 2:
• Aston Business Network
• Fundamental Analysis: Advanced by our Trading Officer & Senior Editor Joel Ntamirira
• Technical Analysis: Advanced by Vice Trading Officer and Editor Anil Somani
• Multiple Trading Games in the Postgraduate Trading Room (with ££££ rewards)
• Fail Forward
• Digital Transformation workshop
• Apprentice Challenge
• Student Launch 48
• George Feiger
• Former CEO of Darwin Private Equity
• CEO of Schroders UK Private Equity
• Editor of The Economist
• Along with many more socials
Many you will not understand what some of these mean, but don’t worry, all will come clear in Term 2. This list is just the
start, so again, watch this space…
Oliver Ward
President and Senior Editor,
is a second year BSc Business &
Management student, focusing on
Economics & Analytics for year 2.
Along with being President of ATIS, he
is a Director of the World’s largest
University based consultancy, and the
General Secretary of the Aston
University Badminton Team, along with
being a very keen badminton player
himself. His strengths lie very much in
sales, strategy, and growth, and he
wishes to pursue this as a career path.
Oliver Ward
Joel Ntamirira
Trading Officer and Senior Editor,
is a second year student studying
BSc Honours Finance. As well as
being Trading Officer with the Aston
Trading and Investment Society,
Joel is Utilities and Healthcare
Portfolio Manager with Aston
Capital. His equity investment
philosophy is concentrated,
research driven, focused on value
and growth ideas. He wishes to
pursue a career in equity research &
investment management.
Sharandas Thampi
Contributing Writer,
is an MSc Business and Management
student at Aston Business School, with a
keen interest in the Investment Management
and Strategy Consulting industries. He
holds an undergraduate first class honours
degree in engineering and has 2 years of
part-time and full time entrepreneurial
leadership and management experience,
leading a start-up team of engineers in the
internet industry in India. His interests
include financial markets/trading,
business analysis and technology.
Contents
3,4 Janet Yellen
Report on her Chairmanship
5,6 Emerging Market Debt
Effects of rising dollar on EM’s
7,8 Divergence In Monetary Policy
Major theme in 2015
9,10 Dollar Strength & the US Economy
Inflation, Consumers etc
11,12 Hedge Funds
What are they?
13,14 Tesco Woes
Trouble continues at major retailer
15,18 HP - Autonomy
Still not doing well
19,20 India’s Modification
We focus on Narendra Modi
Anil Somani
Vice Trading Officer,
is a second year student studying
BSc Economics & Management.
Prior to joining Aston University, Anil
was a full time trader for three years
and returned over 300% making him
one of IG’s top 500 clients,
specialising in derivatives; trading
equity index futures, commodities,
forex, and a few select US stocks.
Anil specialises in technical analysis
and believes risk management is the
key to being a successful trader.
1 2

4. End-of-2014 Report on Janet Yellen
There were already murmurs of approval amongst analysts when rumours
started doing the rounds in 2013 in the United States that President Obama
would nominate Yale-trained economist and long-serving Federal Reserve vice-chair
Janet Yellen as the successor to Ben Bernanke to lead the Federal
Reserve.
How has the new chairwoman of the Fed performed so far?
Populist Tone
One of the most notable features of Yellen is her adaptability toward different
sections of the American public. Early indications show her equal willingness to
build consensus with Wall Street titans while at the same time connecting to
greater issues facing the general public such as unemployment.
The larger disillusionment that was prevalent in America was the lack of
commitment of the financial system in the US to the small investor and the
common people. Yellen’s biggest success so far has been to work toward
appeasing a disturbed public. For example, she displayed a departure from
tradition by holding her first public talk as Fed chief at a community forum in
Chicago to speak about what the Fed was doing to reduce unemployment, as
opposed to the usual conferences held in Wall Street boardrooms. This
populist tone seems to be an attempt by the Fed to position itself as a
guardian of the interests of the pubic in order to improve optimism within the
economy. So far it all seems to be working. Unemployment has dropped from
6.7% in January 2014 to 5.8% at the end of November 2014.
Monetary Policy
Having been responsible under the previous regime of initiating the QE process
to infuse capital in the American economy, Yellen as chief of the Federal
Reserve in 2014 was responsible for bringing it to an end. Yellen showed better
management of expectations, evidenced by the relative calm with which the
‘end of QE’ announcement was met as opposed to the large scale panic that
met Bernanke’s similar statement in 2013.
Moving away from her stated position of keeping interest rates low, rumours
are circulating that Yellen could increase interest rates in 2015. This move
could have large scale effect on everything from real estate to stock market
investments to recruitment rates. Management of the balance between the
recovery of the economy and the possibility of misallocated asset pricing that
may have been caused by accommodative policy, will decide the path the US
takes over the medium term.
Big Business
The Fed’s approach to big businesses, especially Wall Street, has been to
preserve the fledgling growth while bringing greater regulation to prevent
complacency and repetition of past mistakes. The proposed move to increase
interest rates will definitely be of interest to Wall Street.
Recently, on 2nd December ’14, the Fed announced a move to increase the
capital holding requirements of the country’s 8 largest banks including
stalwarts such as Goldman Sachs and JP Morgan Chase. The move in part
points to the need to reduce the sensitivity of the larger economy to the
success or failure of the large banks by reducing the correlation between
individual risk and systemic risk.
Criticisms on Wall Street about Yellen’s methods relate to accusations of
excessive focus on elements outside her jurisidiction at the Fed such as the
political realms of the issues caused by income disparity across classes in the
US.
Conclusion
In a period of crisis, Janet Yellen had been instrumental in engineering policies
within the Fed that dealt with reducing the impact of the crisis. Now, as chief of
the Fed, she is bringing stimulus to a closure while simultaneously ensuring
that the recovery in the US is not affected. Her approach to Wall Street is
guarded encouragement with a focus on greater regulation to prevent future
crises. The analyst moniker for Yellen is the ‘Wolf of Main Street’. In times of
general disillusionment and mistrust of the public with the financial system,
Yellen provides a human face to the Central Bank, which is exactly what it
needs to improve public sentiment.
3 4

5. Emerging Market Debt
The relative strength of the dollar is at it’s highest point since spring 2006. The DXY Index
has reached 89.3, just shy of previous highs; although it’s important to note this is a
relatively new index. The absolute dollar strength today isn’t particularly outstanding. What
is noteworthy is the steepness of the curve; that being the speed of the appreciation.
Since early July, the dollar has gained 13% on major trade currencies. These are
astounding numbers for the currency markets. Against the currency of individual emerging
markets, the appreciation has been even more dramatic; appreciation against the Ruble is
65% and Brazilian Real is 19%.
The chart above shows the exchange rates of advanced and emerging market economies relative to the dollar. Note that the
scale is not the same, on the left the floor is 85, on the right the floor is 75.
Source: Bank for International Settlements
The USA has the world's deepest pools of capital, and this money has been put to work
worldwide in search for return; via lending and other means to businesses globally. As the
dollar strengthens, the burden on debtors who transact in other currencies with dollar
denominated credit increases as their currencies weaken. Emerging Market companies
have been racking up on dollar denominated debt; the BIS (Bank for International
Settlements) - referred to as the central banker’s bank, warned in it’s quarterly report that
the strength of the dollar could have a 'profound effect on the global economy’,
particularly emerging market economies. This could ‘expose ‘financial vulnerabilities’ by
damaging the credit-worthiness of some companies and banks.
Historically emerging market companies would borrow via a local bank. One of the
themes of this decade has shown emerging market economies shift from their norm and
start borrowing directly from capital markets worldwide, primarily in the US. Non financial
emerging market companies have continued to issue debt securities via foreign
subsidiaries. If this money stays abroad and used to generate dollar earnings, this isn’t an
issue, however, if this is repatriated and used for funding domestic expenditures, then this
could lead to large financial implications given the scale of borrowing that occurred and
the predicted persistent dollar strength over the coming years.
The BIS has accounted that emerging market borrowers had issued a total of $2.6 trillion
(yes, trillion), of international debt securities, of which 75% were denominated in US
dollars. In addition to borrowing from capital markets, international banks’s cross border
loans to emerging market economies amounted to $3.1 trillion in mid-2014; again, mainly
in US dollars. Globally countries, households and corporate entities are indebted to the
tune of $10 trillion, with the bulk of that being in emerging market economies. A severe
debt crisis may be brewing in the emerging market economies, watch this space ….
The chart
above shoes the dollar loans and bonds to no banks outside the US.
Source: Bank for International Settlements. Hyun Song Shin, Brooking Institution Presentation.
This could all have financial implications larger than assumed.
For additional reading, view:
Bank for International Settlements Reports:
http://www.bis.org/publ/qtrpdf/r_qt1412a.pdf
http://www.bis.org/publ/qtrpdf/r_qt1412h.pdf
Bank for International Settlements Presentation:
http://www.brookings.edu/~/media/Blogs/Up%20Front/2014/12/04%20financial
%20stability%20risks/shin_presentation.pdf
5 6

6. 8
Divergence in Monetary Policy
The US economy is continuing to show signs of sustainable and continued strength. The BLS (Bureau of
Labor Statistics) reported the strongest gain in non-farm payrolls in November. A reading of 321,000
jobs; towering even the most optimistic forecasts withs the highest reading since January 2012. October
and September figures were also revised upwards with unemployment held steady at 5.8%. Policy and
rates with central banks are set to start diverging as some central banks (Fed, BOE) end the use of
unconventional policies and commence the process of raising rates, while others (ECB, BOJ) continue to
further ease monetary conditions.
Since 2008 many central banks worldwide have kept interest rates at near 0 to spur economic growth
and move their economies from recession. The UK and US economies are finally approaching a level of
activity that no longer requires the monetary life support policies from their central banks. The biggest
question in Japan and the Eurozone is the eventual timing of central bank rates increases; whilst in the
UK and US, the question has shifted to how much rates will rise by, rather than when. Most investors
anticipate rates will rise fairly soon, with some forecasts as early as Q2’15.
This divergence between major central banks should see further increase in the value of the Dollar and
Pound relative to the Yen and Euro.
The chart shows forecasted
increase in cash rates for the UK,
US, Eurozone and Japan. Source:
J.P. Morgan Asset Management.
For more information about the effects of policy divergence, please review pages 53-56 ( https://
am.jpmorgan.com/gi/getdoc/1413614856458 )
Scott Maher, Mark Kiesel and Mihir Worah from PIMCO discuss how to generate ALPHA from the current
environment ( http://www.institutionalinvestor.com/gmtl/3394538/Economic-Divergence-Offers-Investors-
Opportunities-for-Alpha.html?ArticleID=3394538&p=1 )
7

7. Effects of a Strong Dollar on the US Economy
Corporate Profits: The stronger dollar has a negative effect on US based international companies; when their foreign profits are accounted in dollars, they are worth less as
a result of the recent surge in the value of dollar. Expect the top and bottom line of multinationals based in the US to be heavily impacted by foreign exchange. More than
2/5 of the S&P 500 sales were abroad, presenting a major challenge to the majority of constituents in that index. Over 80% of Intel’s sales are from abroad and Qualcomm
overseas sales account for over 95% of revenues. HP and Campbell Soup have also recently warned that exchange rates are to have a material impact on their oct-dec
quarter earnings.
Consumers: The biggest beneficiary of the recent market movements has been the US consumer. Oil prices have depreciated significantly since June this year, which
comes as a dividend to the US consumer. Moody’s have calculated a $100 billion boost in disposable income. In addition to the tax cut received from the oil price slump,
the boost in the relative value of the dollar means importing is cheaper. US consumers will get great value for their money whilst on holiday and purchases from abroad are
now inexpensive in comparison to previous periods. American retailers have faired well as a result of the boost in consumer’s disposable income: Best Buy shares up 31%
shares in Target have appreciated 31.6% and Costco stock has gained 14% since June
Inflation: Due to the recent surge in the dollar, and the collapse in commodity prices, inflationary pressure in the US economy has been subdued. The producer price index
(PPI) fell 0.2% in November, signalling waning inflationary pressure. Short term average inflation expectations (so called ‘break even rate’), measured as the difference in yield
between the 5 year TIPS (Treasury Inflation Protected Securities) and normal 5 year treasuries fell to 1.6% according to Reuters and Tradeweb, which is the lowest in 4 and
a half years. Americans are experiencing a rare blend of low prices and continued GDP growth.
The CPI figures for November 2014 will be released next Wednesday (17/12/2014 @ 12:20pm)
Manufacturing: Manufacturers and exporters are at the opposite end of the consumers jollity. As the value of the dollar rises, their goods becomes increasingly more
expensive to the rest of the world. US manufacturers will be less competitive as the dollar strengthens. This could weigh on the American economy as manufacturing
accounted for 12.5% of GDP last year according to BEA (Bureau of Economic Analysis). In addition to their large contribution in GDP, they are also attributed the largest
multiplier of any economic sector; GDP gain for every dollar invested in the sector stands at $1.32.
Okay, so equities; where should I be looking?
The US Consumer: As mentioned above, US retailers are poised to do well as the US consumer has increased disposable income. The tax cut given by the slump in oil
prices is nationwide, so macro retail names such as Best Buy and Target are interesting opportunities, particularly if oil prices remain subdued. .
Oil Price Depreciation Beneficiaries: The cohort that benefits from both trends (low oil prices and increased consumer disposable income) are couriers. As US consumers
have more disposable income, they spend more on shopping; a lot of that online. Increasing the volume and top line for courier service providers. In addition to the added
volume, their costs are also decreasing as the price of oil slumps. This is usually a significant portion of their cost base; FedEx fuel costs were 10% of revenues last fiscal
year. Looking at the two largest firms in the sector: UPS has gained 14.5% and FedEx is up 18.2% since early August. Other beneficiaries of low oil prices are the other
group of binge oil consumers; Airlines - RyanAir shares are up 36% and shares in US Carrier Delta Air Lines have appreciated 32% since early August.
9 10

8. Hedge Funds
What is a hedge fund?
A hedge fund is a group of investors who set up a company, often a limited liability partnership company, and
pool capital together and invest in securities such as equities, commodities, foreign exchange currencies, etc.
Hedge funds are differ from mutual funds because hedge funds are not regulated as heavily, therefore their
leverage is uncapped by government. They have much greater flexibility as a result of less stringent
regulation, and can use leverage to maximise returns, and can invest in a wide range of markets and
securities. Hedge funds were named due to the hedging techniques used such as ‘pair trades’, which is an
investment strategy to minimise risk by shorting the market during high fluctuating market periods (high
volatility), however in the modern day, hedging is not necessarily used by everyone. Hedge funds can be seen
as high risk due to the large leverage ratios used and the exotic nature of some of the securities they are able
to invest in, however with great risk there are also greater rewards which is why they are so attractive to many
investors.
Hedge funds are shutting at a rate not seen since the financial crisis, as many funds are posting disappointing
returns. One of the largest hedge funds, Brevan Howard LLP, which has $37 billion assets under
management, is the latest firm to close a fund. On a more general scale, in the first half of the year, 461
hedge funds closed, (Hedge Fund Research Inc, 2014). If that pace continues, it will be the worst year for
closures since 2009, when there were 1,023 liquidations (Bloomberg, 2014).
A lot of hedge funds are performing below expectations, returning on average just 2 percent in 2014, which is
abysmal considering the recent performance in the equity markets. Equity hedge funds have climbed just 41
percent since the end of 2008 (Bloomberg, 2014), compared to a 153 percent rise in the Standard & Poor’s
500 index which shows just how poor hedge funds are performing.
Small and medium sized hedge funds have struggled to grow as institutional investors flocked to the biggest
players who are dominating the market, and many of these small firms will struggle to survive. Some hedge
fund managers have blamed the lacklustre performance on low volatility in the markets, with the VIX (volatility
index) currently trading around the 20 level; meaning, volatility is low and this means and price swings are
muted, which makes it harder to exploit price inefficiencies in the market.
Another reason for hedge funds closing is the collapse in the oil price. WTI is around $63. Many commodity
hedge funds have been caught on the wrong side of that trade and have struggled badly as a result. For
example, “Hall Commodities LLP, a London-based $100 million hedge-fund firm run by Tony Hall and Arno
Pilz, told clients in October it’s shutting down after less than two years, due to poor
performance” (Bloomberg, 2014)
To find out more about hedge funds, click on the links below:
http://www.bloomberg.com/news/2014-12-01/hedge-funds-see-worst-year-for-closures-since-2009.html
http://www.bloomberg.com/news/2014-11-24/you-don-t-need-to-be-rich-to-lose-money-in-a-hedge-fund.
html
11 12

9. 13
Tesco woes continue…
“Struggling supermarket Tesco has issued its fourth profit warning in the space of a year, slashing £1bn from a trading profit
forecast it made less than four months ago as it approaches the end of what has been an annus horribilis.” (FT, 2014)
Tesco’s share price collapsed over 15% on Tuesday, hitting lows of 155p before recovering slightly to 163p. After starting the
year at 340p per share, the supermarket giant has seen a 50% collapse over the course of an abysmal year. Tesco has said
group trading profit for the year will not exceed £1.4bn, compared with an estimate of £2.4bn it made just six months ago.
“An adviser to Tesco said that the “resetting of supplier relationships” in the UK was one of the main reasons behind the
warning. Tesco’s trading statement outlined a “new commercial approach” that would “underpin stronger long-term
relationships with suppliers.” (FT, 2014). Investors are in panic selling mode, and Tesco have issued a statement to try and
reassure shareholders and the general public that they are doing everything possible to recover from this debacle.
Tesco have said they have “retrained their entire team”, tried to form stronger relationships with suppliers, and taken on more
than 6,000 staff, in a bid to change their culture. They are also trying to “invest in price” to compete more effectively against
discounters Aldi and Lidl, which have been stealing its market share. It all sounds quite ambiguous and flowery, and they will
need to slash prices if they want to compete with discounters like Aldi and Lidl and recoup some of their market share.
The chart above shows the slump in the share price of Tesco over the last 5 days.
The competitive environment in grocery has become so intense that it is not possible for all players to grow and survive,
margins are being squeezed and the once-dominant grocer’s admission that it had overstated profits has already claimed its
chairman and a slew of managers. Dave Lewis, chief executive of Tesco, has taken direct control of its ailing UK business
and the priority for Tesco now is to restore competitiveness in the UK, protecting and strengthening the balance sheet and
rebuilding trust and transparency.
How low can Tesco go? Have Tesco expanded too much too fast? Can Tesco survive after this doom filled year? Will Aldi
and Lidl continue to take market share in the supermarket industry? Watch this space…
Related Tesco article: http://uk.reuters.com/article/2014/12/09/uk-tesco-results-idUKKBN0JN0IG20141209
14

10. HP Autonomy
Years of a UK thorn in the side of a US giant
To begin, a history lesson. First, on the bigger of the two companies.
Hewlett Packard continues to struggle to integrate and harmonise new
acquisitions. The company has a strategy at odds with its past reliance
on organic growth.
After HP acquired Compaq in 2002, it became a leading computer
hardware manufacturer. Fast forward just over a decade and this is not
the case. Hardware manufacturer are, and have been for years, been
facing tighter margins; software is much more lucrative. Consumers use
smart phones and tablets to browse the net, both of which are not
supplied by HP.
Apple's average iPhone selling price is about USD 630, with a gross
margin of around 50%, HP sold 13.94m computers, at an average price
of $620, with profits of $309m, about $22 per PC. Twenty two US
dollars on a 620 US dollar computer. The smartphone market is
growing 45% year-on-year yet HP's PC market declined by 12%. The
PC market has been declining for years, ever since the first iPhone came
out. HP dominates a declining market, and this domination is
diminishing. If you were using an Ansoff Matrix to help drive your
investment decisions, you would be reluctant to buy HP stock.
In 2010, HP took over Palm for its webOS software operating system
and digital organisers; it launched the TouchPad in January 2011, but
dropped it eight months later. In 2011 Palm was then sold off at a huge
loss. In retrospect, this a massive own goal by the HP board, a failure to
exploit technology in a growing market. HP has been overtaken by
nimbler and more agile smartphone and tablet firms in the market by
using Google's Android system. It also failed to compete with Apple's
iPhones, and iPads.
In the last 3 years, HP has sacked CEOs almost as often as Roman
Abramovich changes Chelsea managers, but without the success
(ignoring this season). A couple years ago HP was described by analysts
as having "dysfunctional" board and management.
In short, HP have, like Mr Abramovich over the years, gone on a massive
spending spree, but hasn't worked out how to use its new acquisitions
to enhance shareholder value, or to build up market share in existing and
new markets. These takeovers are great news for investment banks,
lawyers and accountants, but HP shareholders see the firm failing to
make the most of its new divisions, patents, products and staff. HP
operates year on year without a real goal, without a real vision about
how it might become a proper technology company again.
Secondly, why HP acquired Autonomy
HP bought Autonomy for £7.1 billion ($11.7 billion) which was 64%
above Autonomy's market value [2550p a share compared to the 1558p
valuation]. Afterwards, Autonomy shares soared 72%.
It came as a shake up as HP were quitting hardware to focus on
software, mainly cloud computing and information storing. It was set to
increase the level of competition for market leaders IBM and Oracle.
Analysts said the move underscored Apple’s dominance in smartphones
and tablets with the iPhone and iPad. Apple single handedly knocked
HP out of the PC, smartphone and tablet business. Apple’s dominance
was also evident in Blackberry: their makers, RIM, pulled out of the
consumer battle and shifted their focus to business users. Remember
about 6 years ago when it was fashionable for 13 year olds to have
Blackberry’s? Where’s your Blackberry Bold now?
Autonomy was set up at Cambridge and specialises in pattern
recognition technologies. They do "unstructured" searches for big
companies, they trawl through databases and seek out content from
emails etc. to help detect fraud and ensures legal compliance. From
their website: "Autonomy is the market leader in the provision of
software that automates the analysis of unstructured data, whether in
the form of text, audio, images or video"
The success of Autonomy's business model has never been in doubt -
its ability to retrieve information surpasses even Google in the complexity
and variety of data it can make connections between.
Third, the immediate resulting outcome
A Deutsche Bank analyst produced a report which claimed "The
management structure, control and systems at Autonomy are more
representative of a start-up than a major global player. The senior
management team is talented but lacks bandwidth. This can lead to
some decision paralysis" To respond, Autonomy soon after spent £380
million buying new software. There was also much stir because HP
claimed Autonomy tried to sell themselves to Oracle in 2010.
15 16

11. Then, along with most of the senior team at Autonomy, Mike Lynch, the founder, was
shown the door. He was essential to their growth: a senior executive at Autonomy said
"His drive and entrepreneurial flair was fundamental to the growth of the firm. Although
he was demanding and difficult to work for, he was held in awe by staff. Without Mike
we have a grim outlook. He was the reason many people worked here”. Kind of like
Steve Jobs if you think about it… HP said that this was the inevitable result of failing to
meet targets, and suggesting that the Autonomy founder wasn't up to the job of
running such a large scale business. Friends of Mike Lynch said he was increasingly
exasperated by the way HP was being run, and what he saw as the failure of its leaders
to understand both the technological and strategic challenges it faced.
In that brain drain 20% of Autonomy’s staff have recently left including the President
and Chief Finance Officer. The Independent reported on the culture clash saying that
“Autonomy hasn’t been performing the way the computer giant had hoped. HP wants
big deals, sealed quickly, and the Autonomy style of working just hasn’t fitted in”
Then boom, HP realised they paid too much and are wrote off $8.8bn of the $11.1bn
they paid for them. $5bn was to "serious accounting improprieties, misrepresentation
and disclosure failures" done by Deloitte and KPMG.
Let’s fast forward to today then
A ‘document’ has arisen which stated Autonomy massively inflated the value of some
of it’s assets, According to the document, HP believed about $350m worth of deals at
Autonomy between 2010 and the first three quarters of 2011 were booked improperly.
Deals worth $8.4m were considered “Not IFRS compliant confirmed”, whereby HP
believed they fell short of UK accounting standards.
A further $252.4m worth of revenues was considered “Not IFRS compliant probable”.
This suggests that the US company considered the accounting for these Autonomy
deals was suspicious, but had not conclusively found it did not meet UK accounting
standards.
In addition, $83.6m worth of deals in this document were placed in a category labelled
“Management Difference/US GAAP difference”, where these transactions had been
removed for not meeting the requirements set by US GAAP accounting standards.
One person familiar with HP’s thinking stressed the document was not the “final arbiter”
in its decision to write down Autonomy. They said that through further investigation, the
company had found many more “fraudulent” transactions at Autonomy. Some, though
not all, were detailed in the rebasing document.
In came the inevitable lawsuits, and some of these are still ongoing today.
August this year HP went even further to say there’s fraud against Mike Lynch, the co-founder,
and the CFO, and sued those 2 have now been sued. Now, we’ve got this
situation showing how Mr Lynch will, which was announced just this month, plan to
report HP to the SEC (Securities and Exchange Commission, a US governmental
agency that monitors trading in securities and company takeovers) for 'false
representations to the market’. That writing off of near $9bn just mentioned, there are
allegations that there were accounting standards, illegal in the US and UK, were used in
this takeover.
Mr Lynch said the evidence meant that Meg Whitman, HP chief executive, needed to
“explain the exact calculation of the writedown to her shareholders”.
“We have now seen this rebasing document and it appears to show that HP has made
false representations to the market,” he said. “We will be forwarding our knowledge of
this matter to the relevant regulators.”
A big thorn in the side of HP then, who late last month announced lower than expected
profits. While HP shares have risen by about a third so far this year, they are still
regaining the loss in market value since the Autonomy takeover…
17 18

12. India Modi-Fication
This December will see India’s new Prime Minister complete 7 months at the helm of the
world’s largest democracy. Having utterly defeated all opposition in the run up to being sworn
in on the 26th of May, Narendra Modi had a tough task in hand in order to stimulate growth in
the Indian economy.
Has Narendra Modi delivered in his role as P.M of India for the country’s economy?
The past regime under the United Progressive Alliance in India saw a slowing of the growth
momentum in India, partly due to external issues facing the global investment climate during
and in the aftermath of the Recession and partly due to internal corruption issues that
plagued the government and party. Global pessimism on India was also caused by the
reticent nature of previous prime-minister Manmohan Singh who, as Finance Minister, was
responsible for initializing the privatization-liberalization-globalization policies in India in 1991
that saw the country reach its position today.
In the 7 months that Modi has been on the hot set in India, growth has showed signs of
picking up with forecasts of 6.4% growth in the coming year from 5.4% in the current fiscal
(2014-15). This, though, is contingent on Modi’s government implementing reforms that had
been promised in the run up to the elections.
Labour Reforms
Labour reforms are a key move for India from a structural point of view. So far the Modi
government has brought in a 5-point reform scheme for the labour force, including measures
to streamline compliance and optimize inspection using technology as well to create
opportunities for employment from graduates from vocational training courses.
Foreign Direct Investment
In general, the government’s focus has been to lift FDI caps but has prevented itself from fully
committing.
Defence: Under Modi, 49% FDI has been introduced in India’s defence industry, increased
from 26% previously. Considering the interest in the US and Europe to sell and the fact that
India’s armed forces are in dire need of an infusion of cash and technology, there is a
significant argument for raising it all the way to 100%. Key projects in the pipeline include
Medium Multi-Role combat aircraft, China-specific Mountain Strike Corps and Fifth
Generation Fighter Aircraft, which together cost approximately 40 billion $ and are just the tip
of the iceberg.
Construction: The government has relaxed FDI caps in the construction industry, allowing
100%. Further in December 2014, the government relaxed capital requirements and the
duration of the lock-in period for infrastructure projects. As a result of the reforms, a foreign
investor can now exit a project once it has been completed as opposed to previously having
to compete a 3 year period. Since infrastructure growth is a primary growth step in
pushing the Indian economy further, FDI in the industry will be a massive boost.
Retail: The retail sector is where reform is required in order to take advantage of the
consumer boom in middle-class India. Currently the country allows 100% FDI in single-brand
retail but not in multi-brand (including multi-brand e-commerce). Combined with draconian
procedures required to setup and operate multi-brand retail in India for a foreign company, it
is difficult for large companies such as Walmart and Tesco, who have made overtures of
interest in India, to truly scale in India and thus limits their enduring interest in expanding
within the country.
Taxation
Modi in the past has spoken about the need for a stable tax regime in bringing larger stability
with respect to investment inflows and the economy as a whole. One major component of
this is the Goods and Services Tax, a union of all service taxes into one concise easy-to-understand
system. Movement on bringing the reform to light has been slow, though the
government is said to be planning to implement GST in its full form latest by April 2016. The
easier the tax systems are, the more convenient it is for investors and entrepreneurs.
The government has also made some reactionary changes, including raising taxes on petrol
and diesel as a strategic step to increase tax revenue in the wake of highly depressed global
oil prices.
Production and Manufacturing
One of Modi’s most talked-about programmes has been the ‘Make in India’ programme.
Aimed at increasing the in-house manufacturing abilities of Indian companies, while
simultaneously reducing the dependence of the economy on imports, the programme
provides infrastructure and sectoral assistance to Indian companies in local manufacturing.
While this increases India’s ability to create its own quality brands and take advantage of the
consumer base, Reserve Bank of India governor Raghuram Rajan has warned of excessive
attention being paid to the manufacturing sector in a copy-cat move with respect to China’s
growth strategy and its dangers relating to the changed global export economy today.
Response of the Markets
India’s key market index Sensex has grown from 22,000 levels in May when Modi took over
to 28,000 levels in early December on the back of expectations of imminent reform by the
new government.
Foreign investor sentiment has also improved following Modi’s overtures toward the US,
Japan and Australia amongst others. The onus is now on the Modi government to deliver on
those high expectations and push key reforms in order to bring India back to pre-crisis levels.
Current perceptions are positive but the real threat for the government is over-promising and
under-delivering. A section of analysts are increasingly of the opinion that the government is
slow in taking up constructive measures. The government under Modi needs to act to fulfill its
potential.
19 20

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14. Matter not about speed, but direction. Many people in life are going nowhere fast
Merry Christmas and a Happy New Year to you all.
We look forward to coming back in the new year
To contact the editors responsible for the ATIS Market Roundup:
Oliver Ward wardos@aston.ac.uk
Joel Ntamirira ntamirjl@aston.ac.uk
Anil Somani somania@aston.ac.uk
Sharan Thampi sharanthampi@gmail.com