Arbitrage Magazine - AUGUST 2018 ISSUE- Finance & Investment Club | IIM Rohtak

AUG 2018

VOL. 2 ISSUE 9

ARBITRAGE

ARTICLE OF THE MONTH: Primary Healthcare: Neglected Opportunity?

FINANCE AND INVESTMENT CLUB

Editor's Note We are pleased to publish the nineteenth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diverse range of topics under the wide domain of Finance and Economics. Our goal is to ensure that we provide significant value to the readers through informative articles and articles on current affairs. We would like to thank all the authors for contributing their articles for Arbitrage.

In the Article of the Month – ‘Primary Healthcare: Neglected Opportunity?”, the author Mr. Tushar Garg from Indian School of Business (ISB) has emphasized on the need for targeted investments in Primary Healthcare so as to improve the country's standing on various macroeconomic indicators.

We hope for the continuous support of our authors and readers to make this magazine a success.

-Finance and Investment Club, IIM Rohtak Parag Nawani Siddhesh S Salkar Vineeth Harikumar Naveen Kumar Sankalp Jain Pavankumar S Bibekjyoti Roy Nandi Aditi Patil

Index S.No.

Article

Pg. No.

1

Primary Healthcare: Neglected Opportunity?

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2

Block Chain beyond Crypto Currency: Smart Contracts

4

3

Pakistan’s Rupee Devaluation of Little or No Avail

6

4

Indian Stock Market: Is Big Bull market getting ready for major global shocks?

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5

Indian Rupee Depreciation – Reasons and Significance

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6

When David shook hands with the Goliath

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7

Integration of REIT with the Tangle technology

14

8

Overview of private equity industry

17

9

Blockchain in Finance: Is Finchain the future?

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PRIMARY HEALTHCARE: NEGLECTED OPPORTUNITY?

ARTICLE OF THE MONTH

Tushar Garg ISB Emerging India has three primary pillars to improve its economy – Education, Healthcare and Financial Inclusion.

Of the three, Healthcare has long been an underdog and has witnessed subpar innovations over the years. The Indian Healthcare market is sized at $100 bn, and its constituent healthcare delivery market (i.e., excluding pharma and research) is sized at ~$60 bn & is poised to grow at 14% CAGR over five years to reach ~$116 bn.

In the healthcare delivery market, disruptions have happened primarily on the tertiary care end, but the other two segments have conveniently been ignored for long. The Primary Healthcare (‘PHC’) is the smallest of the bloc amounting to ~$12 bn in market size. To set the context, the three healthcare segments are: • Primary: This is the first interaction point between a patient and healthcare ecosystem. A general practitioner generally provides it.

• Secondary: If a patient needs expert specialists’ opinion, general physicians refer them to medical specialists who typically would not be involved in PHC phase, e.g. cardiologist, neurologist or another specialist.

Source: McKinsey - From poverty to empowerment

Impact of Ayushman Bharat The government has identified the vacuum and has initiated steps to address the rural health care void.

The Ayushman Bharat or National Health Protection Mission is one such step. The scheme may pave the way for innovations in the field of hospital analytics, disease profiling, analytics on consumption patterns of drugs, etc.

The scheme does not cater to PHC. It provides annual insurance coverage up to 5 lakh rupees per family for secondary & tertiary care.

However, it comes with its problems such as:

• Tertiary: Doctors and equipment employed in this stage of treatment are highly specialized. Patients requiring a higher level of care are referred to tertiary care – generally referred to as a higher level of care in a hospital.

Tertiary has been the apple’s eye of healthcare innovations and investments, owing to the huge margins involved there. However, innovations in primary care or the first medical consultation point have been ignored for long especially for the middle & bottom segment.

The underneath graph indicates the plight of the lower end of the pyramid to afford PHC. The vacuum has now been identified by a few and steps have been taken to address and monetize this apparent vacuum in the system.

These problems may be solved to a greater level by employing the suggested underneath steps.

Primary healthcare – Actions needed The main concerns amongst people for the prevalence of PHC is the availability, affordability, and quality of the services being provided. There is a greater need for robust

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primary care (including awareness drives) to encourage people to lead healthier lives and push for wellness.

at rural clinics, and technological advent is used for the coordinated working of primary care and secondary/tertiary care.

Opportunities and steps involved Till date, the government has been primarily involved in preventive and PHC; it is time that the private sector joins hands with the government for spearheading the paradigm shift.

What is the opportunity for players?

India offers a stellar opportunity to invest in the PHC market (focusing non-urban geographies), which can leap from $12 bn to $25 bn in size in 2 years, offering astronomical CAGR of 44%.

The above graph showcases that PHC delivery is less than optimal leading to wide supply gap, thus leading to many incentives for public-private partnership to emerge and address this void: • Building more hospitals will not solve the problem as tertiary and secondary care typically comes into play when a disease has been identified at PHC stage; • Insurance companies can contribute towards affordable PHC services as it will eventually help them in reducing the number of claimants as many diseases can be identified and treated in its nascent stage; • Going forward, insurance companies can link premium with the interaction of people with PHC – healthier one is, lesser the premium; • It will involve root-level bettering healthcare infrastructure including care for child & mother, family planning, immunization, prevention of locally endemic diseases, treatment of common diseases or injuries, provision of essential facilities, health education, provision of food, nutrition and adequate supply of safe drinking water The above can be employed at a large scale if standardized diagnostic procedures are followed

a. The underserved population of ~500 mn b. Rising awareness of healthcare’s importance c. People’s willingness to spend on healthcare d. Increasing expectation of services and quality e. Penetration of mobile services and data services can be a pervasive touchpoint Steps involved With greater tech-entrenchment, greater chances emerge for a bottom-up approach wherein inclusive healthcare system, connecting all the three segments of healthcare, has the potential to transform the health delivery system in India. Few steps to enable same: a. Making trained talent available, task shifting training & continuous process improvement at grassroots to enable multidisciplinary & efficient care b. Involvement of telemedicine in a hub-and-spoke model to ensure easy collaboration of primarysecondary care players c. Encourage organized and referral-based system in primary care, e.g., employer’ push d. Encourage preventive psyche by linking preventive behavior products (e.g., insurance premium)

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e. Educate masses about the benefit of healthy living, timely detection & treatment of illness f. Incorporating a value-based focus on healthcare delivery (such as rankings based upon relapse rates, the average length of treatment, feedback & performance-linked fees and high utility per rupee spent

help in the improvement of healthcare infrastructure and help hospitals maintain a minimum in-patient churn.

Well-targeted investments in PHC will improve the country’s health and ergo have a positive impact on macroeconomic indicators - employment rates, productivity, & economic growth.

g. PPP with impact investors to push pro-bono services by specialist doctors h. Rejuvenating AYUSH in primary care i. Enhanced use of technology to ensure PHC inspires individualized, secure and access-controlled health records The above are some recommendatory steps involving patience and innovation for the entrepreneur to bridge intent and execution. However, the opportunity is big both in impact and financial terms. Some players have sensed and milked the opportunity and are being praised by the west for their innovations; some examples are Narayana Hrudayalaya that provides affordable healthcare services and has a focus to treat the working class and Arvind Eye Care providing affordable eye-specialty services.

Both organizations witness handsome margins & have been praised by the west. Academicians teach case studies based on these institutes. To set a spree of re-innovation Narayana has opened a hospital in Cayman to help Americans enjoy affordable and qualitative hospitalization.

Road Ahead A shift in healthcare focus from remedial (hospital-centered) to preventive (community centered) shall

Doctor-population divide: • Tier I - 1 Doctor : 250 people • Tier II & III - 1 Doctor : 1,670 people • Rural - 1 Doctor : 17,000 people This void presents an opportunity for India to move towards an efficient, mature, data-driven, intelligent and predictive healthcare system that will ensure the provision of healthcare & upliftment of economy in general. Who will seize the opportunity to disrupt and join the league of the likes of Narayana and Arvind?

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Block Chain beyond Crypto Currency: Smart Contracts Aditya Singh IIM Rohtak Introduction Block Chain is commonly misinterpreted as just a technology base of crypto currencies. However, Block Chain has increasingly been accepted as well as appreciated across a myriad of industries as well as governance systems, despite a very recent disruptive technology it is.

Block chain technology is anticipated to highly affect and improve on the current back-end support systems to key industries like retail, energy, BFSI, forecasting, consulting, real estate, Internet of Things (IoT), automobiles, healthcare, analytics, supply chain amongst others. The focus of various industries and the people worldwide, who were earlier enticed by the rise of crypto currencies, has lately been shifting over to the underlying technology, Block Chain, owing to the incredibly vast arena of potential it can very well unfold.

Smart Contracts While Bitcoin capitalizes on the blockchain technology to facilitate peer-to-peer transactions, a much broader use of the same technology basis is the smart contracts, where the terms of the contract are stored as an encrypted code on the blockchain and are executed whenever a trigger is set in, like say, a date of expiry.

The implications and potential of such a system are incredibly large. We can think of a true sharing economy without the aggregators like Ola, Uber, Magicbricks, Swiggy, and Amazon. There would be considerable improvements in supply chain management as well, as tracking of the product along the supply chain can be done, while execution of contracts with the intermediaries is done alongside.

The first principle that contributes to the structure of a block chain is that of a robust and impregnable record keeping system. Contrary to a centralized data storage location, data in a block chain is decentralized, encrypted, and distributed across the database. This leads to unmatched security, more trust, and greater authenticity. Internet of Things (IoT), in particular, would be a huge beneficiary of such a system, at times where the data of users is so much susceptible to hackers and cyber attacks.

Moreover, any user can access and help run the system, as the data is protected by using cryptography. Furthermore, peer-topeer transactions can be done anonymously, and without an intermediary.

Gigantic companies like UPS and Walmart are already testing the realms of such integration. Furthermore, in a world, so ill-affected by privacy, smart contracts would really revitalize the lives of all the digital media producers, such as those of music, videos, and games which are available to use online, as they can get paid through their owned IPs. Companies in the BFSI industry are keenly exploring the applications of Blockchain led systems to digitize customer financing requests, loan repayments, and various other interbank transfers. The very same multi-nodal systems can bring a significant amount of revolutions in the agriculture, as in the usage of data pertaining to weather patterns, changes in the content of soil etc., and in the equity markets, where stock market data can be analyzed in real time for a more accurate prediction of stock prices. I’ll now list out the applications of smart contracts in a few sectors a bit more briefly: 1. Banking: Since smart contracts are self-executing and human intervention is not required, their use in the banking industry could help in huge reduction of costs. Firstly, the KYC process can be automated, as smart contracts could be used by financial institutions to cross-verify the customer given documents against a centralized database. Moreover, proper scrutinization of customer transactions can be done so as to throw a flag on suspected customers with the record of illegitimate transactions.

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2. Real Estate: The real estate industry is marred with many inefficiencies, owing to the involvement of huge amount of paperwork, lack of transparency, illegal deeds, erratic public records, and various other fraudulent activities. Smart contracts can lead to digitized and automated property and ownership data exchange, cost-efficient transactions, and streamlined process of uploading records and tax-related data.

3. Insurance: Smart Contracts can automate insurance claims processing while ensuring that the protocols related to compliance with the terms and conditions of the insurance policy are being adhered to. Validation of insurance claims and shorter processing times would lend the overall sector a much more positive public image.

Closing Remarks: Block chain is ultimately poised to disrupt the world’s IT framework, very much like the Internet did in the 1980s. By 2025, it is expected that the technology of block chain would be deeply embedded in most of the global BFSI working systems. Smart contracts can be integrated with a myriad of ideas and skill-sets, and the opportunities are limitless. We should keep in mind that the smart contracts should be covered under the legal frameworks appropriately, and should not be applied in cases where the technologies are already doing their job well. They should be considered as solutions to the existing problems.

Last but not the least, with the world so eagerly awaiting the integration of automation, through autonomous cars, truly shared economy, and automation in the supply chain, it'd be futile to think about the future without giving due regards and anticipation to block chain, especially the smart contracts.

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Pakistan’s Rupee Devaluation of Little or No Avail Harsh Shivlani NMIMS Mumbai Pakistan's fiscal and monetary conditions have only worsened in the past few years leading to the devaluation of the currency by as much as 15% YTD (2018).

Maybe we owe this divergence in import-export to the so called Michael-Lerner Equation & the J curve effect?

Let's look at a few charts that matter: When a country devalues its currency their goal is to spur export growth by making their goods & services cheaper and curtail high imports.

However, in the case of Pakistan, the imports have remained elevated and exports have slowed down considerably even in the event of a devaluation.

Source: Tutor2U

The concept states that currency devaluation’s initial impact is a worsened BOP as there's usually a lag between the pickup in exports (drop in imports) and devaluation.

The economy takes some time in order to structurally shift and realize that the imports are now expensive (so reduce them) and the exports are cheaper (so importing countries find it attractive and import more).

Whether Pakistan's exports are still competitive considering its peers is another question.

Post devaluing the PKR 3 times this year (2018), the imports have remained stubborn at 676 PKR billion whereas exports plunged from around 250 odd PKR billion to 224 PKR billion, down to pre-devaluation levels.

As a result, the country's CAD or Current Account Deficit has deteriorated to unhealthy levels, the lowest since 2010.

Now the natural impact of this is on the FX reserves, which have dropped sharply amid rising oil imports, lower FDI, higher debt burden, rising US interest rates and the list goes on. (with the China CPEC also putting a strain on the country’s BOP)

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Here's a chart by Bloomberg:

Although, the condition is not as worse as in Argentina, Turkey and the like where the outflows have been much higher, this is also worth noting.

Will this able to reverse the flows, reduce CAD (Current Account Deficit) and stabilize the economy with the backdrop of vanishing dollar liquidity and tightening monetary conditions across the globe? Maybe not.

Will we look at an International Monetary Fund (IMF) bailout?

IMF is largely influenced by the US and with the on-going tensions between Washington and Beijing; an IMF bailout will be a less likely option for Islamabad. President Trump probably believes that it would not be in the interest of US tax payers (whose money is being used to fund the IMF) to bailout the Chinese bond holders who have lent money to Pakistan for their ambitious BRI (Belt & Road Initiative) and CPEC (China Pakistan Economic Corridor) projects.

Here you can observe that the FX reserves have been declining consistently and have almost halved from their 2015 peak of around $24 billion to around $15.9 billion currently, reducing their import cover.

Pakistan’s real reserves have dropped below the level reached when the country approached IMF the last two times for a bailout, according to Bilal Khan, a senior economist at Standard Chartered Bank Plc. With elections scheduled for July 25, the next government will need to approach the IMF as a “matter of urgency,” said Khan. (Source: Bloomberg)

Even if the IMF were to provide this bailout the terms & conditions would not be acceptable to Islamabad.

Other options include a credit line from China. For now we have seen news regarding an approximately $4 billion funding from the Saudi Arabia-backed Islamic Development Bank (IDB), which is not enough to cover the mammoth $25-30 billion needed for the fiscal year which can only be covered by China.

Nevertheless, the Pakistan rupee did make a flash gain last month on the back of news claiming a $2 billion funding from China to Islamabad, showing China’s commitment to spurring trade in the region by maintaining macro stability.

This has thus, lead the State Bank of Pakistan (SBP) to hike rates by almost 100bps (175bps YTD).

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However, don’t let this short term support fool you, the macroeconomic backdrop in Islamabad is still very dire.

Mr Umar, who served as the PTI’s shadow finance minister while in opposition, warned: “The situation is dire. We’ve got $10bn dollars of central bank reserves, we’ve got somewhere between $8bn and $9bn in shortterm liabilities, and therefore your net reserves are close to nothing.” (Source: Financial Times) Even though all eyes are on Turkey right now, Pakistan is the one that seems to be the next in line to feel the tremors.

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INDIAN STOCK MARKET: Is Big Bull market getting ready for major global shocks?

Kshitij Bansal Abhiram Padmanbhan IIFT Indian stock markets have gone through a roller coaster ride in 21st century majorly due to global bubbles like Dotcom scandal and Global financial crisis. Year 2008 is generally considered as a global outlier since the world went through a difficult financial crisis which ultimately led to a slowdown in economic growth.

Indian markets also felt the aftershocks during 2008 primarily due FPI’s and FII’s pulling out their money. Moreover, fears of countries like UK going into recession triggered negative sentiments across the globe. This further created a global economic slowdown.

In 2011 Sensex as well as Nifty shed 24% in the wake of high inflation, higher interest rates, depreciating Rupee and slowing domestic growth while in 2015 stock market majorly felt the heat due to rising tensions between South Korea & North Korea.

Ever since 2015 bull markets have been enjoying a dream run majorly due to the economic initiatives taken by the government as well as due to a significant revival in corporate earnings. This is also evident from the fact that Private Equity firms that are specifically focused on Indian markets have been increasing their appetite when it comes to raising capital from global investors.

This is majorly happening because Indian markets are considered one of the best performing markets and that too by a margin. In 2018 the Indian markets are preparing for another bull run but the major factors that might halt its run this time might not be the Trade war by Donald Trump or rising crude oil prices but China’s rising debt and chances of Europe getting disintegrated, the odds of which are extremely high.

Source: Economic Times

CHINA’S MOUNTING DEBT PILE Recently, according to reports from the Bank for International Settlements, China continues to face the risk of a looming banking crisis and the country’s top economic officials are striving hard to avert such an outbreak. Stringent regulation norms, curbs on lending between financial institutions and an increase in borrowing costs during the previous fiscal have been major contributors to the declining credit growth and this has implications beyond the finance sector.

Owing to the unavailability of official data on the quantum of outstanding debt, the analyst firms have estimated it to be in the range of 200 to 283 percent of the GDP at the end of the previous year.

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According to an IMF working paper on China’s credit boom, with China’s growing economic domination and increasing influence on global financial markets, its ability to deflate this boom will affect the global economy.

Moreover, China’s non-financial sector’s domestic credit-to-GDP ratio was hovering around 136% prior to the global financial crisis, but the huge fiscal stimulus triggered the ratio to close to 175% by 2011. By the end of 2016, the ratio further increased to 235%.

The nation kept in check the interbank lending in 2017 and the growth of M2 broad money supply reached a record low in December 2017.

Guo Shuqing, who was the forerunner of the de-risking campaign in the financial sector as the top banking regulator assumed a pivotal role at the central bank in March 2018.

China has entered a phase of stabilizing and in turn, reduce leverage over time. The debt curbs are targeting the broader economy. There is a need for the local enterprises and firms driven by the state to step up the pace of leverage reduction.

The crackdown by the government will limit debt-fuelled investment growth in the housing and construction sectors. Fixed assets in real estate, infrastructure and manufacturing will decelerate.

On the other hand, China’s banks trying to adhere to the government’s deleveraging campaign are likely to surmount the pressure on the corporate bond market as they shed their massive note-holding and minimize the risk on the balance sheet.

The pool of funds available for corporate bond investment has reduced considerably due to the banks redeeming funds held by the non-financial institutions.

Chinese firms owe a total debt of 2.7 trillion yuan in the onshore and offshore bond market and with close to 3.3 trillion Yuan worth of trust products set to mature during the second half of this year, the crisis will deepen.

According to Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong, the debt to GDP ratio is projected to jump to 270% this year from the present 260% and rise to (280-290) % before stabilizing in 2020.

Bankruptcy is the real solution to crack down on debts. When the Chinese realm learns to accept default and bankruptcies, the credit growth will slow down.

In contrast to this, India is at a better footing to China with domestic debt around 50 percent lower than that of China.

India can step-up the growth rates by maintaining an effective balance between higher debt levels, lower savings and increasing levels of household consumption.

The bailout strategy for China would open up foreign ownership. China has a high positive net cash inflow owing to its investments across the globe and this can be directed towards foreign ownership of the indebted firms in the country.

EUROPE DISINTEGRATION Another unforeseen factor contributing to the fear of market slowdown is the inevitable breakdown of Euro Zone. Ever since Britain has decided to leave Europe there has been a growing Anti-EU sentiment across the region.

This is widely evident from the recent elections as well that were conducted in United Kingdom, France and Italy. All the pro nationalist parties whose ideologies are in synergy with the complete disintegration of Euro Zone are getting massive boosts in their vote shares.

Disintegration of euro zone if it happens might create a ripple effect across the global economy as this will result in failure of a major currency “Euro”.

Also, the European countries like Greece which are already in huge debts will practically go bankrupt and a sense of protectionism in these nations will force the industries to look for new avenues.

Decentralization of monetary authority back to the member nations would result in the exchange rates of currencies getting severely impacted and this would in turn result in fluctuations in values of assets held internationally.

KEY TAKEAWAYS FOR INVESTORS An investor looking for better returns in the foreseeable future needs to be more cautious while entering the Indian markets and not get unnecessarily excited by the past historical data. India lacks when it comes to delivering very high corporate profits and the reforms done by the government have just started to show results therefore one needs to take a balanced approach while investing and consider all the major factors happening across the globe as Indian markets remain highly susceptible to the worldwide phenomena.

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Indian Rupee Depreciation – Reasons and Significance Yash Jalan IIM Rohtak Almost every alternate day, we find a news headline which says “India rupee falling” or “Rupee falls to Rs.70 against the US dollars”. So, why does the exchange rate changes so much? Why is there a huge gap between the US dollar and the Indian rupee? Who decides on the prices of the exchange rates? This article aims to decode the reasons for such fluctuations as well as how it has an impact on the economy.

Let’s look at the history of the exchange rate between the Indian rupee and the US dollar: • 1947: 1 US$ = 1.00 INR (Yes, that’s right) • 1948: 1 US$ = 4.79 INR. • 1965: 1 US$ = 4.79 INR. • 1966: 1 US$ = 7.57 INR. • 1971: 1 US$ = 8.39 INR. • 1985: 1 US$ = 12.0 INR. • 1991: 1 US$ = 17.9 INR. • 1993: 1 US$ = 31.7 INR. • 2000: 1 US$ = 45.0 INR. • 2013: 1 US$ = 60.0 INR. • 2017: 1 US$ = 65.0 INR. • 2018: 1 US$ = 70.0 INR. It might be surprising that there was indeed a time when 1 US$ equalled 1.00 INR. So, what led to such drastic changes in the exchange rate.

Demand and Supply The concept of demand and supply leads to the changes in the exchange rate. If one currency is high in demand, its value will appreciate i.e. more of the other currency will have to be shelled out in order to obtain the first currency. Whereas, if the demand is low, the currency will depreciate in value i.e. less of the other currency will be needed to obtain the first currency.

E.g. – In the above table, Indian rupee is depreciating against the US dollars.

However, in case of Fixed Rate System, the government or the central bank fixes the exchange rate and does not allow variations as a result of market forces. It is to be noted that until 1975, India followed the Fixed Rate System and partial controls followed until 1993 beyond which India follows completely Floating Rate System.

Under the Fixed Rate System, when the government deliberately does a downward adjustment of its currency vis-à-vis some other currency, it is called devaluation. However, revaluation is the term used if it does an upward adjustment.

Reasons for Depreciation of the Rupee Some of the significant factors that lead to the depreciation of rupee are enumerated below: 1. Current Account Deficit Current Account measures the net exports (exports imports). If exports are higher than the imports, we have a current account surplus, else deficit. When we are importing goods from the US, there is an outflow of the US dollars and therefore the rupee depreciates. Whereas when we are exporting the goods to US, there is an inflow of the US dollars and hence the rupee appreciates. A net inflow/outflow is observed and depending on that the exact rupee to dollar ratio is determined. As far as the Indian scenario is concerned, we import mainly crude oil, gold and electronic items and we face a high current account deficit, hence the depreciating rupee.

Appreciation and depreciation of a currency happens in a Floating Rate System in which the government nor the central bank fixes the exchange rate.

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2. Price of commodities The price of the commodities imported by the country also results in depreciation/appreciation of rupee. Initially, the price of crude oil was $45/barrel; now it has increased to $70/barrel. So now there is more outflow of US dollars in comparison to the earlier years.

This leads to depreciation of the rupee.

3. Foreign Direct Investment (FDI) FDI refers to investments made by nationals of foreign countries in the Indian companies. More FDI will lead to inflow of dollars and withdrawing of FDI will lead to outflow of dollars; appreciating and depreciating of the rupee respectively.

4. Hike in Fed Rates Fed rates refer to the interest rates set by the Federal Reserve of America. When there is a hike in the fed rates, the investors withdraw their money from the market because of increase in borrowing costs. This leads to outflow of US dollars from the Indian market and therefore rupee depreciates.

Thus, we see how the above reasons have led to the fall in the value of rupee. In fact, the Indian rupee has been one of the worst performing major emerging market currencies in 2018, and the worst in Asia-Pacific; rising current account deficit is one of the major reasons for the same.

The current account deficit is likely to remain under pressure and therefore the rupee is likely to remain weak for some time.

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When David shook hands with the Goliath Sumit Kumar IIM Rohtak It’s a well-known poem from the Bible where in David a shepherd boy defeats Goliath the giant. The insurmountable giant was brought to his knees by a mere boy young in age and experience. It would have been a story altogether different had the might of Goliath and the courage of David stood side by side.

The imaginative reference is made in view of the recent acquisition of Flipkart (David) – an Indian e-commerce company based in Bangalore by Walmart (Goliath), the international ecommerce giant. The deal is a win-win for both the companies.

Boosted by relaxed FDI norms for retail sector by the central government and further approved by the Competition Cell of India, the merger marks Walmart’s highest acquisition to date.

The deal also comes as a relief to the Indian counterpart as Flipkart’s losses swelled to a whopping Rs. 8771 crores in 2017 thereby causing its valuation to fall from $15.2 billion in 2015 to $11.2 billion in 2017.

In April 2017 Walmart stores marked India as a key market growth prospect and were ever since looking to set its foot in the second most populous country in the world. It is now a formidable player to reckon with in the Indian e-commerce sector and a serious threat to India’s small-scale online seller as the deal could virtually wipe them off. With Jio bent on perpetuating internet across the country and the brand consciousness ever rising in the country the deal couldn’t have come at a better time. A report from Morgan Stanley states that India’s online sector is set to grow to $1200 bn at a CAGR of 30% till 2026. The competitive data costs and the average wage rise of a meager 2% makes the Indian e-commerce a fairly lucrative deal to let go. The deal is somewhat similar to the Peugeot acquiring Hindustan Motors flagship car - The Ambassador in hopes of entering the Indian market.

Walmart acquired a controlling stake of 77% with an investment of $16 billion and would now compete with the likes on Amazon and Paytm mall. The remainder of the business will be held by some of Flipkart’s existing shareholders Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp along with the co-founder Binny Bansal. The immediate focus of the business is to serve customers and grow the business and not look for profits as Walmart already expects to take a $0.25 to $0.30 hit on earnings per share for fiscal year 2018 and double the losses to $0.60 by the next year.

The company hopes to use Flipkart’s research in Artificial Intelligence, use of data across its platforms and logistics networks to turn the table and earn profits in the long run.

Walmart with this deal is also partnered with Microsoft and Tencent which would lend their technological expertise. The American giant is likely to revolutionize Indian retail with low prices and a wide variety of products. The supply chain war between Walmart acquired Flipkart and Amazon is set to create a plethora of jobs that will directly benefits the Indian unemployment rate. Walmart said that it would support farmers by developing supply chain through local sources and thereby improve their market access and is also looking to extend partnerships with 60 lakh kiranas (local stores) which would increase their market presence.

Product differentiation will bring more variety and create a more diverse market basket which will directly benefit the Indian consumers. Walmart’s entry would also enthuse more foreign firms and investors thereby bringing new capitalists to the country. The deal is also subject to tax in India so the revenue gains will add to the domestic revenue receipts of the country. The deal also brings a lot of unrest to the small-scale online retailers as well as the brick and mortar store as the ecommerce giant has a reputation of scraping small business.

Walmart is expected to bring its own products with hyper competitive prices thereby making it difficult for the small firms to survive.

Apart from the above threats, there is also data and security threat as huge amount of data about the Indian shoppers will be shared with the US giant and therefore a breach of data becomes almost inevitable. Serious social unrest via Pan India protests can also be a by-product of this merger. It remains to be seen if Walmart would revive the losses Flipkart has incurred and indeed earn profit from this deal. The acquisition can be seen as a direct result of global quest to supremacy between Amazon and Walmart wherein this definitely gives Walmart an edge in the e-commerce sector. Amazon on the other hand remains to be the favourites e-commerce shopping hub for the world. If Walmart is unable to fend Amazon and help Flipkart grow its market share in India, it could have overpaid for its largest acquisition in the company’s history.

Well David would again have brought Goliath on his knees then.

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Integration of REIT with the Tangle technology Shohom Pal Kapil Sethia St Xaviers Kolkata ABSTRACT This article focuses on REIT or Real Estate Investment Trust is a collective instrument scheme which invests in a portfolio of completed and revenue generating real estate assets such as shopping malls, offices or hotels, usually established with a view to generate income for unitholders. The article also focuses on the real estate sector of India and the prospects of REIT in India. The article also shows the integration of the Tangle technology with the REIT. It discusses the concept of Global REIT, a blockchain-based technology.

Keyword(s): REIT, real estate, portfolio, trust, the blockchain, assets.

Tangle is made up of sites and nodes which is a part of the Tangle graph and authorises the transaction respectively. It does not have a set of blocks to relate them with one another but there is a relation between two or more nodes.

It is solely not made as a currency but as a interoperability protocol that solves the problems of IoT. It generally enables the machine economy.

How a TANGLE works?

LITERATURE REVIEW Tangle works on the principle of DAG or Directed Acyclic Graph. It is a third-generation software to manage digital assets which uses an advanced technology to overcome the problems faced by Blockchain users. Tangle is a collection of nodes or vertices which allows connecting with other nodes without circular edging. When it comes to Tangle, there are no miners required which gives it an upper hand over Blockchain. It is a lightweight and scalable block-less ledger. As the demand for IoT(Internet of Things) has increased, the use of Tangle comes into the picture. Thus, we can conclude that IoT has given the platform for tangle to flourish in the market.

The simple structure of a tangle:

Tangle is a collection of nodes or vertices which allows to connect with other nodes without circular edging. When it comes to Tangle, there are no miners required which gives it an upper hand over Blockchain. It is a lightweight and scalable block-less ledger.

REIT or Real Estate Investment Fund is a company which owns, finances and operates income generating real estates. It accumulates a pool of money to develop the assets and sell them eventually. REITs are generally modelled after mutual funds, it gives an opportunity to all the investors to own a real estate The REIT allows the investors to invest in portfolios of real estates through a mutual fund or exchange traded funds. The investors get the share of income from the real estates they have invested in. It also helps in getting a fair amount of return from the investment.

REIT was created by the Congress in 1960 for the Americans to earn from income generating real estates.

REIT of all types currently own about 3 trillion dollars in gross assets across US. The market capitalization of the U.S. listed REIT are about 1 trillion dollars.

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.There are two kinds of REIT: 1. Equity REITs – These are REITs which are used to own, renovate, manage and sell the real estate properties according to their convenience. Generally, in this case, the investors invest in office and industrial real estates, retail, residential and hotel properties.

2. Mortgage REITs – These generally lend money to the real estate buyers or acquiring existing mortgage or Mortgage Backed Securities. The investors generally earn from the interest of the loan that is taken.

It is a public ledger where the investments are not centralised or concentrated to one or a few numbers of investors. It also facilitates in Fund management income.

It also gives future access to all its AUM or Asset Under Management. The different Fund Managers can bring in assets which could be given out for the investors to invest in. The need for such a blockchain-based model arises because of the geographic concentration of real estates. It also resolves the problem of financial barriers in investing.

PROBLEMS WITH THE ETHERUM BLOCKCHAIN TECHNOLOGY The Etherum Blockchain has a few disadvantages which make it slower. An average blockchain technology can have 13 transactions per second. A transaction must be relayed by nodes connected to the network. Transactions cannot take place of the chain without other layers of abstraction. The transaction fees have grown extensively which makes it expensive. When using the blockchain its owner, in theory, has the power to manipulate the system with new data thereby modifying it for personal gains which could become a serious issue in the field of REIT.

GLOBAL REIT Global REIT or GRET resolves the problem by making investment easier and any investor with any amount of income can easily start investing it. It aims at creating a global real estate portfolio from which the investors can get a profitable amount of return. It uses Etherum blockchain when it functions. It is the first blockchain-based Sharia compliant REIT that is launched in the market.

The Global REIT is connected with real estates and therefore, making investment more decentralized. The investors can use free funds to get a higher level of return from these real estates.

In the Global REIT ecosystem, there are only two tokens that are traded that is GRET and GREM. The GRET is obtained by the Global REIT ICO and is secured by one of the real estates owned by the start-up. GREM is a token of investments that is used for further development of the Global REIT. The blockchain technology was used because of its security and anonymous transactions.

INTEGRATION OF THE TANGLE STRUCTURE INTO REIT Thus, here we come with the approach of a tangle. It resolves the problems of the blockchain. Tangle is quite cheaper which would eventually bring down the fees which would enable the investors. It would indirectly motivate the investors to invest more funds into such a model where the fees are comparatively less and a greater extent of decentralization is available. The tangle need not be in a chain structure which gives an additional benefit of it over the blockchain. It does not have mining, blocks or difficulty. It barely requires transaction fees because of its easy accessibility and therefore making the network cheaper. It scales almost infinitely which the blockchain technology cannot provide with. Tangle is quite faster than blockchain which can make micropayments and eventually increase the scalability.

Thus such a technology would facilitate the growth and diversification of the market and help the small investors to invest in such pool of investments.

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CONCLUSION Tangle is being regarded as the “next evolutionary step� of blockchain with its full potential being underestimated. Additionally, the no fee structure of validation of transactions enables certain micro transactions to take place which otherwise would not have been possible. In the foreseeable future, we expect the REIT vehicle to increase the depth of the Indian property market through enhanced transparency and governance standards.

Overall, the Indian REIT regime is at par with the international format and bears the potential to provide the required boost to the Indian real estate sector. India is a conductive environment for REITs. The entry of higher number of global brands are likely to spur the requirements of quality malls in India.

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Overview of private equity industry Sagar Rathee IIM Rohtak Macroeconomic overview The global upward trend continued in 2017, with global GDP rising at 3.2%. Majorly, growth was led by United States of America and the European Union. General upward revision of growth in Western Europe and emerging Asia more than offset the downward reversal for US and UK. Growth in the European Union has seen a rise, but recovery is still not complete. While the outlook is strengthening, growth continues to be weak in many countries and inflation is well below target in most advanced economies. Commodity exporters are hit especially hard as they cope with continuing decline in foreign earnings.

Fund-raising According to industry tracker Preqin, the global private equity industry raised $452 billion from buyout funds alone in 2017, giving it more than $1 trillion surplus to invest. In 2017, Asia-pacific fund raising grew to $66 billion (growth of 6.3% as compared to 2016). Asia-pacific private equity industry have always been outperforming public markets.

Registered Alternate Investment Funds in India have more than doubled over last few years (346 in 2017). AIFs have also been a significant player contributing to fund-raising in the Indian market and have raised $5.1 billion in 2017 (more than double their 2016 total). This growth was fueled by strong performance of public markets (SENSEX rose 28% in 2017) and regulation change in June 2017 which allowed Category-III funds to participate in commodity trading. Distressed asset funds also increased activity following the Insolvency and Bankruptcy Code institutionalisation and relaxation by SEBI. Several private equity players have set targets to acquire distressed assets. According to sources, Edelweiss, Blackstone, Bain, ILFS, Piramal, CDPQ, International Asset Reconstruction Company have together set aside $2.5 trillion for distressed assets only.

According to an IMF report, "Notable pickups in investment, trade and industrial production, coupled with strengthening business and consumer conďŹ dence, are supporting the recovery ‌ this welcome cyclical upturn after disappointing growth over the past few years provides an ideal window of opportunity to undertake critical reforms, thereby staving off downside risks and raising potential output and standards of living more broadly."

Deal-making India remained a favourable land for deal making in 2017. Total deal value in 2017 stood at $26.4 trillion in India, highest in last decade. Number of deals, however, fell from 976 in 2016 to 682 in 2017, in terms of value, a few large deals increased total value by 60% over 2016. India's median deal multiples reached a new high, greater than Asia-pacific's. Top 15 deals alone accounted for about half of total PE deal value. In 2016, this value was 30% of total deal value. Consumer technology and BFSI were the largest source of investments in India, accounting for more than 50% of entire deal value during the year 2017. Hotshot consumer tech deals - Flipkart ($2.5 billion), Paytm ($1.4 billion) and Ola Cabs ($1.1 billion) reemerged in 2017, making the average deal size to rise to $47.1 million, compared with $17 million in 2016. Deals pertaining to manufacturing sector saw a huge decline of 67% by volume, dropping from 54 in 2016 to 18 in 2017. IT/ITeS also faced a decline of 29% by volume, from 130 deals in 2016 to 92 deals in 2017.

Investment from sovereign wealth funds and pension funds contributed almost 20% of deal value. Sovereign wealth funds and pension funds like Abu Dhabi Investment Authority (ADIA), Government of Singapore Investment Corporation (GIC), CDPQ, Canada Pension Plan Investment Board (CPPIB) increased activity in India.

India's GDP growth maintained a stable rate of 7.1%, primarily led by services and manufacturing sector. The "remonetization" restored the aggregate demand to some extent, also increasing the spending on infrastructure. Agriculture constituted 15% to India's GDP, while the services contributed to 54% with 7% growth achieved in five years (2012 to 2016). Financial services, real estate, and construction posted lower growth in 2017 as compared to previous years.

Reserve Bank of India changed the rate at which it lends overnight money to banks from 8% three years ago to 6% during 2017. Despite the CPI falling below 4%, RBI did not make drastic rate cuts. India's foreign exchange reserves increased from $359.67 billion (2016) to $404.92 billion (2017) gradually.

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CPPIB's president and CEO said in December 2017, "The good part about India is the substantial long-term economic growth. There is so much upside, so many opportunities. ‌ We want to do more private equity, through working with our partners here and through direct opportunities."

Exits In 2017, India saw a large number of investments and exits. Exit momentum continued to be robust, signaling healthy and strong public markets in India. IPOs are the primary exit mode in India.

Exit deals, in 2017, numbered more than 200, making the total rise by 60% over 2016 to almost $16 billion. However, the increase in the number of exits increased by only 7% to 211 compared with 197 in 2016, but big-ticket deals like Flipkart, Airtel, GlobalLogic and ICICI Lombard emerged and rose the total value. Top 10 accounting for about 40% of total value.

Implications Overall, 2017 can be described as "good year" for PE/VC in India.

Mega deals accounted for a large bulk of investments; where top 10 players taking most of the pie.

Consumer tech and BFSI were the two sectors where private equity players or venture capitalists showed a special interest.

Sovereign wealth funds and pension funds showed higher participation, accounting for 20% of total deal value.

Competitive intensity increased as the number of players (including institutional investors) grew in market. Most funds are reportedly expecting a moderation in valuations and returns to decline by 2-4% in coming 3-5 years.

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Blockchain in Finance: Is Finchain the future?

Joydeep Datta IIM Vizag Each one of us will probably agree that Blockchain is the buzzword of recent times. Industry experts and researchers from diverse domains, functions, and industries all over the world are betting on this technology to be the best game changer across the industry breadth and depth shortly. In the very same way, Blockchain, with its decentralized architecture & Peer-to-Peer technology, has the potential to transform the future of the financial industry in the upcoming digital era. The next-gen finance will now be possible without banks but with ultra-secure transactions being processed in seconds, thus cutting down costs and boosting efficiency resulting in enduser satisfaction.

So, the obvious questions that come here: what is a Blockchain?

It can be defined as a distributed and decentralized ledger that maintains a permanent and tamper-proof record of transactional data and is managed by computers belonging to a peer-to-peer (P2P) network. A copy of the ledger is retained in each of the computers in the network to prevent a single point of failure (SPOF). Now, a ledger consists of two types of records: blocks and individual transactions. A header and data reside in the first block referring to the transactions taking place within a defined time period. An alphanumeric string, namely hash is created from the block's timestamp to use it in the subsequent blocks for security purposes. After the creation of the first block, each following block in the ledger calculates its hash by using the previous block's hash. A new block, before being added to the chain, is validated by the nodes of the entire network for its authenticity. It means that a majority of blockchain nodes must come to the consensus that the hash of the new block has been calculated correctly.

Consensus makes sure that all copies of the ledger share the same version.

But, what gives a blockchain network the ultra-high security that it is so admired for?

After a block is added, it cannot be changed but can be referenced in subsequent blocks. If an attempt is made to swap out or corrupt a block, there will be changes in the hashes for previous and subsequent blocks leading to a disruption in the ledger's shared state.

Now, other nodes in the network become aware of the consensus breach, and the network will not add any new block until the consensus breach is detected & resolved. Generally, the block causing the error is discarded and the consensus process is repeated for the remaining blocks.

The year 2015 saw a massive interest in blockchain with over 1 billion USD being invested in fintech startups those can disrupt the critical financial market players with innovative solutions like Peer-To-Peer Bank Transfers or Loans. The big players, sensing the potential of this technology, have also invested a lot in their R&D initiatives and it is fast finding its place within the significant points of discussion in the digitization initiatives of the major companies of the world. A report from IDC states that the global expenditure on blockchain solutions is pegged at $945 million in 2017 and well set to reach $9.7 billion in 2021 at a staggering annual growth rate of 81.2 percent.

How can Blockchain transform the financial and banking industry?

The financial industry we are accustomed to today is going to get disrupted by Blockchain shortly. Here are the few use cases where Blockchain can prove to be a deciding factor in the industry disruption.

Authenticity Detection or Fraud Reduction: The technology of Blockchain is known for its fascinatingly secure yet public ledger. Thus, in spite of being a new technology, the financial world is banking a lot on its potential to reduce fraud since a little less than 50% of financial intermediaries; namely, stock exchanges and money transfer services are suffering from financial crimes every year. With cyber-attacks on banking systems or secure data getting higher each year, most banking systems built on a centralized database are now more vulnerable to cyber-attack these days because there is a single point of failure in these kinds of legacy systems or databases - the hackers get full access once the system has been breached. But this is indeed not the case with Blockchain as each block within the chain holds batches of individual transactions, timestamp and an encrypted link to a previous block.

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The moment someone will try to change some information in the earlier blocks, the other nodes of the network will not approve that change and the transaction will fail. Moreover, the entire ledger of transactions also stays available with all the nodes of the network making it a perfectly decentralized network. Thus, blockchain does have the potential to eliminate some of the phenomenal crimes being pursued online these days against the banking and financial organizations.

Digital Identities or Know your Customer (KYC): Clients are required to provide self-identifying information during a transaction repeatedly. This repeated process leads to less customer satisfaction and increases transaction delays too. But the banks and financial institutions cannot do away with this because client onboarding for checking accounts or migrating them from one bank to another requires strict compliance with KYC standards. According to Thomson Reuters, an approximate amount of $60 million up to $500 million is spent per year by financial and banking institutions to stay compliant with KYC and CDD regulations to reduce money laundering and terrorist activities by verifying and identifying their clients. Blockchain technology gives us the capability to allow the independent verification of a client by an organization which can again be accessed for verification purposes by other organizations. So, there would not be a need to start the KYC process all over again.

Thus, there would be a significant reduction in the administrative costs for compliance departments.

Smart Contracts: Traditional financial contracts relying on physical documents and manual processes lead to inefficiencies, delays, and exposure to errors and frauds. These burning issues can be handled by Smart Contracts easily by writing the criteria of the buyer and seller contract into lines of self-executing computer code.

The execution and enforcement of the Smart Contract do not rely on any central authority since the code resides in the distributed ledger Blockchain network. Besides providing vastly superior security to traditional contracts, it also significantly reduces administrative, legal & transactional costs associated with contracting.

Border-less Payments or Cross-Border Payments: Payment transactions beyond the borders are generally costly and take much time (in the order of days) to complete. Frequent fluctuations in exchange rates and under-connected banking systems create transaction frictions, ultimately leading to lengthy disputes and resolution costs. These slow legacy systems of payment processing can be profoundly transformed

by Blockchain technology. With blockchain having a distributed ledger architecture coupled with higher security, the banks will have to have lower costs in processing payment between the institutions and their clients as well as even between the banks themselves. But the real crux lies in the fact that Blockchain, once adopted, will eliminate the need for a lot of intermediaries currently present in the payment processing system.

Trading Platforms: In these days of high performing technology also, traditional banks struggle with under-efficient manual processes.

Moreover, they also have stringent requirements to manage, track and secure domestic as well as cross-border trade transactions. Smart contracts based on Blockchain network can be extremely efficient in storing, securing and exchanging of both mutually-agreed settlement and financial terms. Such a network will be highly useful in integrating a real-time network to coordinate trade logistics and payment, thus streamlining the digital trade processes in line with the Business 4.0 order of the world.

But besides the exciting opportunities that Blockchain provides us for the banking and financial industry, there are hurdles needed to be overcome also.

The Finchain (Blockchain that would be used by the banks and financial institutions for transaction processing) would need to stay extremely scalable, compliant with the ever-evolving stringent privacy laws of today and tomorrow and inevitably need to ensure the security of personal data. Innumerable numbers of questions regarding regulatory oversight loom large over this new technology but these will surely get sorted out in the near future.

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