FINLY November 2020

FINLY

NOVEMBER 2020 | Issue No. 95

Does the future look grim for Crude Oil post COVID - 19?

Eco Section Can the upcoming highspeed rail corridor spur growth in India?

Sector Analysis

Green Finance

Cement SectorÂ

Green Mortgage

CONTENTS 01

02

EDI TO R I AL

TEAM F INL Y

03

10

C O VER ST O R Y

EC O SEC TIO N

Does the future look grim for crude oil post Covid - 19?

Can the upcoming high-speed rail corridor spur growth in India?

14

18

SEC T O R ANAL YSIS

C O MPAN Y AN AL YSIS

Cement Sector

Ultra Tech Cement Limited

22

26

INTR I GUI NG IND EED

G R EEN F INANC E

Vulture Funds

Green Mortgage

30

34

C AL L F O R AR TIC LES WINNER

C ALL F O R AR TIC LES R UNN ER UP

Rupesh Sharma NIBM Pune| 20-22

38

Nandini Choudhary KJSIM | 19-21

AL UMNI SEC TIO N

Pranav Turakia PGDM Finanace | 15 - 17

ISSUE NO. 95, NOVEMBER 2020

Editor's Note

Dear Readers,

“If money is your hope for independence, you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability.” – Henry Ford.

Going with the times, this quote of a revolutionary industrialist holds. The world is going through a crisis, let’s make and not break ourselves through this pandemic. Let’s revel through the havoc of this unprecedented situation mankind is facing by leveraging the curiosity within us. It’s an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest into the most intuitive ideas that come to our mind and surpass this havoc.

As Ben Franklin has rightly said, “An investment in knowledge always pays the best interest”. On this note, we at Finstreet are proud to unveil the November edition of our monthly magazine “Finly” for the academic year 2020-21. This edition is a special one as it is the first edition written by the junior Finstreet batch (2020-2022).

Team FINLY has always been a strong set of focused individuals who put in a lot of efforts and dedication to stitch together this magazine and we can’t thank them enough for their constant support and initiative.

This month’s cover story tries to analyse the impact of the pandemic on crude oil, the changing trends seen in the oil industry and examine the future outlook of crude oil.

We are thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, PGDM Core and Faculty Coordinator, Finstreet) for providing the much required mentoring, support and backing to the Finly team.

We thank all our readers and faculty members for their valuable reviews and feedback.

HAPPY READING!!!

STAY HOME STAY SAFE!!!

Akshitaa Bahl |Editor-in-Chief| PGDM FS

Nilomee Savla |Editor-Finly| PGDM FS

1

ISSUE NO. 95, NOVEMBER 2020

TEAM FINLY Faculty in-charge

Editor-in-chief

Editor - FINLY

Dr. (Prof) Pankaj Trivedi

Akshitaa Bahl

Nilomee Savla

Team Coordinator

Tanya Nayyar

Conceptualization & Design

Aakanksha Agarwal

Anuja Singhal

Kaushal Daga

Content Team

Anurag Yadav

Mehul Parwal

Sahil Mehdiratta

Anusha Nair

Devansh Mehta

Rahul Khera

Riya Agarwal

Shivam Mahendru

Shristi Gupta

Jitesh Patil

Rohan Bhakkad

Shubhangi Thapliyal

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| COVER STORY

DOES THE FUTURE LOOK GRIM FOR CRUDE OIL POST COVID - 19?

INTRODUCTION

Jitesh Patil | MBA Core | 2020-22 Shivam Mahendru | MBA IB | 2020-22

The crude oil sector is a global powerhouse using hundreds of thousands of workers worldwide and generating hundreds of billions of dollars globally each year. It has been playing a significant role in the growth of many countries since the 20th century. Currently, the crude oil industry is experiencing its third collapse in the last 12 years. After the first two shocks, the sector rebounded, but this time the situation is different. From being dubbed as ‘black gold’ to the phrase of ‘data is the new oil’, the oil industry has been witnessing a steady decline. Let’s discuss the various factors affecting the crude oil industry.

facing enormous losses. For countries like Nigeria and Angola, oil and its products contribute to over 50% of exports. The decline in oil exports has brutally affected such economies and their grim economic situation can create political unrest.

IMPACT OF PANDEMIC ON CRUDE OIL

The low price of oil, along with stunted demand, has helped the oil-importing countries to reduce their imports significantly. India, one of the biggest importers of oil, has seen a record surplus of 19.8 billion dollars or 3.9 percent of the GDP during the quarter ended in June 2020.

COVID-19 has made a profound and lasting impact on oil supply, demand, and price.

The industry is reeling due to a demand shock and oversupply. Developed oilproducing states which are much more involved in the international markets are

The aviation sector which contributes around 6% of global oil demand has come to a standstill due to the pandemic and it will take at least two years to reach the preCOVID level. Even though the oil consumption for transportation has dropped, it's expected to revive quickly as people are preferring private transport.

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| COVER STORY GREAT APRIL CRASH

In April 2020, the US oil benchmark WTI futures fell over 300% in a day to a value of negative 37.63 $/bbl. An oil futures contract is an agreement to buy or sell a certain number of barrels of oil at a predetermined price, on a predetermined date.

Oil traders were reluctant to buy contracts due to demand and storage reasons. Due to the coronavirus pandemic, most of the countries around the world were in the lockdown phase causing a decline in demand for crude oil. Adding to the concern, the physical storage facilities at Cushing, Oklahoma which mainly stored US Texas state oil had maxed out their capacities. On expiry, the buyers of oil future contracts had to accept physical delivery of oil. Since the storage facilities were packed, the buyers were forced to find alternate costlier substitutes for storage. This caused a largescale panic in the oil future market and existing buyers dumped the future contracts which led to a sharp fall in the future value of the contract. The April crash is a grim reminder of how the oil industry is not immune to uncertainties.

THE AMERICAN FRACKING

From being the biggest importer in the world to becoming a net exporter of crude oil, the USA has made a significant contribution in changing the dynamics of the oil industry with the introduction of shale oil. US shale oil production and exploration became feasible due to the high global crude oil prices. Since then, the production expanded from 0.592 million barrels a day in 2010 to 7.431 million barrels a day in 2019. Although shale oil is not being exported, it replaces US crude oil imports, reducing the demand for oil in global markets. This, along with the slowdown in the global economy, has led to a plunge in the price of crude oil.

CHANGING INDUSTRY TRENDS

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| COVER STORY The oil industry is divided into 3 major sectors: upstream, midstream, downstream.

Crude oil-producing states are mainly in the upstream sector and their economy is heavily dependent on sales of crude oil. The upstream sector requires a huge amount of investment to first do exploration, i.e., to find oil reserves and then drill an oil well to extract the crude oil.

There is no incentive for investors to invest as returns in this sector are diminishing. OPEC and non-OPEC’s composition in the supply of global crude oil is 40 % and 60% respectively.

It is believed that the non-OPEC production will increase in the next decade, reaching a peak in between, and then decline by 2025. In the last decade there was a widespread panic around the world that oil reserves are going to end but today the scenario is different, the reason being the introduction of shale oil in the early 2000s. Greenhouse gases, climate change, air pollution, and ocean acidification are some of the environmental factors that will lead to a decline in demand for crude oil.

2030 became 2020 - The Oil States in Trouble

The investment in the oil sector is expected to reduce by -244.1 billion USD in 2020 as compared to 2019 and global energy spending in oil is projected to decrease by 40.78% from 2005 to 2020, says IEA in its report. So, the problem is not just of demand or extraction infrastructure but the low confidence of investors to invest in this sector. COVID 19 pandemic has caused some of the oil wells to shut down, and restarting them will require a huge investment.

MENA (Middle East and North African) countries made a total sale of 1091billion USD in 2012 and only 604 million USD in 2019. This affected the union budgets of these countries as most of them were based on oil exports causing fiscal deficits to increase. Currently, due to the pandemic, some of these nations had to decrease revenue expenditures, wages of government employees, and increase their sovereign debt. Renewable energy sources are becoming more reliable due to technological advancement thereby inidrectly 5

| COVER STORY influencing oil prices and demand. KSA (Kingdom of Saudi Arabia), in its vision statement of 2030, stated that it has to wean its economy out of oil. In the shadow of this pandemic, the sales of oil in 2020 will not be better than they were in 2019 and if this trend continues, it is certain that oil states will fail.

Crude oil prices were also affected due to the Russia-Saudi Arabia oil price war in March.

KSA initiated a price war with Russia, facilitating a 65% fall in price after the latter refused to cut oil production. Many analysts believe that Russia refused production cut as they wanted American shale oil producers to suffer huge losses. Shale oil extraction cost is relatively high compared to crude oil and a low price would have forced many shale oil producers into bankruptcy. However, this price war also affected the MENA countries.

Another problem for MENA countries is that their currencies are hard pegged to the US dollar. As the demand for crude oil falls, this peg may break causing their currencies to devalue further. This will put a strain on cash reserves as most MENA countries import everything ranging from basic food items to lifestyle products.

RISE OF RENEWABLE ENERGY The 2010 BP deep-water horizon disaster dumped more than 200 million gallons of crude oil into the Gulf of Mexico. This led to a wave of wildlife deaths and significant damage to the local economy. Although it was a giant spill in terms of sheer size, it

wasn't a one-time blunder. Numerous oil spills throughout the decades have resulted in enormous damage to the environment and especially to marine life. The past decade has seen an increased awareness regarding climate change. France has introduced a change in its tax structure where high polluting cars have higher taxes. More green laws are expected in the future which would impact crude oil consumption. The growing environmental concerns have become a very prominent reason to stray away from oil consumption and venture out for other sources to fulfill our energy requirements.

Road transportation constitutes more than 50% of oil demands. We have seen a considerable growth in the electric vehicle segment in the past decade. The total demand for electric vehicles increased from a mere 0.1% of global vehicle demand in 2011 to 2.6% in 2019 and is expected to reach 7% in 2025. This growth in the EV segment is supported in the form of subsidiaries by various governments all-round the globe.

Estimates suggest that by 2050 over 90% of all vehicles should be made EV to meet climate goals. The technological advances in the EV sector would be a crucial factor in determining the future of the oil industry.

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| COVER STORY ROAD AHEAD Oil, as an industry, is dying. Although this might be considered as a temporary blip due to the coronavirus pandemic, we anticipate demand devastation of crude oil in the future. Renewable energy, which contributes to 34% of the total energy mix in developing countries like India, is getting cheaper and we expect it to replace oil as a viable substitute.

Climate change, cleaner energy consumption, the rise of the EV segment, and upcoming green regulations are not as distant as they seem. The end of crude oil is near; perhaps this is the last decade of fossil fuels.

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| ECO SECTION

CAN THE UPCOMING HIGH-SPEED RAIL CORRIDOR SPUR GROWTH IN INDIA? INTRODUCTION The generic path an economy follows during its era of development is a gradual shift from being an agricultural economy to a manufacturing economy and finally, to a services economy. However, the Indian economy went from being an agricultural economy to being a services economy.

This resulted in an underdeveloped manufacturing sector in the country. Thus, to give impetus to the manufacturing sector in the country, the Government of India launched the “Make in India� initiative.

Led by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry; Make in India is the flagship program of the Indian Government designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build the best in class manufacturing infrastructure in the

Shrishti Gupta | MBA FS | 2020 - 22 Riya Agarwal | MBA FS | 2020 - 22 country. It was launched in 2014 and as of 2018-19, the total inflow of investment in the country has been $187,747.93 million.

HIGH SPEED RAILWAY CORRIDORS India boasts of one of the largest rail networks in the world with the total route length exceeding 64,000km. However, these existing railway lines are not well maintained and have become old. These lines are operating above their capacity and are not in keeping with modern technologies. Thus, to give a boost to the Make in India initiative and to cater to the growing requirements of railways, it was announced that India would have its very own High-Speed Railway Corridors. Currently, seven high-speed rail corridors have been identified. Those are Delhi-Chandigarh-Ludhiana-JalandharAmritsar, Chennai-Bengaluru-Mysuru,

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| ECO SECTION Mumbai-Pune-Hyderabad, Mumbai–NashikNagpur, Ahmedabad-Mumbai, Delhi- JaipurUdaipur-Ahmedabad, and Delhi-Noida-AgraLucknow-Varanasi. While the feasibility tests for six of the above corridors are underway, the Ahmedabad-Mumbai railway corridor has advanced to the implementation stages.

AGREEMENT BETWEEN JAPAN & INDIA In 2013, a Memorandum of Understanding (MOU) was signed between Japan and India to undertake a joint feasibility study of the Ahmedabad-Mumbai route with an understanding that the costs of the study would be borne equally by both the countries.

National High-Speed Rail Corporation (NHSRC), a Special Purpose Vehicle was set up to look after the building and operation of the trains as well as the corridor and would eventually be turned into a joint venture between the Maharashtra and Gujarat Government. A tripartite consultancy agreement was signed in 2016 between the Ministry of Railways, NHSRC, and JICA. A joint venture between Japan International Consultants for Transportation (JIC), Nippon Koei India Pvt. Ltd, and Oriental Consultants was then awarded the detailed design study

by JICA to forecast demand, set fares, and draw up an overall construction schedule.

The estimated cost of the project is $15 billion which includes the cost of 24 train sets, interest during construction, and import duties. Japan has decided on providing India with a soft loan which will

be 81% of the total amount i.e. $12 billion through a 50-year loan at an interest rate of 0.1% along with a moratorium on repayment for 15 years. The remaining amount would be borne by the Maharashtra and Gujarat State Governments.

The Ministry of Railways has approved the use of Shinkansen technology which would also be transferred to support the Make in India program. Japan will provide the required assets such as meticulous parts involved in electrical signaling, rolling stock, etc. and will provide staff training for the same. Initially, these technologies will be manufactured in Japan and then brought to India, but eventually, Japan may set up manufacturing facilities for bullet trains in India itself. Indian companies will be involved in fitting the tracks, acquiring land, getting approvals, etc.

COSTS & BENEFITS Dedicated infrastructure for High-Speed Passenger lines liberates capacity for Conventional lines, which can be used for additional freight and traditional passenger trains. This helps in the elimination of congestion on the roads and the reduction of the costs associated with the public. The advantages of the High-Speed Railway include speed, reliability, revenue, energy security (electrified HSR), political and technological integration, greater access to health and education, and other macroeconomic benefits.

Environmental benefits have been miniscule 9

| ECO SECTION in the HSR for decades than that of the conventional rails to compensate for the emissions during construction and huge energy consumption during operation. For Carbon dioxide emissions, HSR will outperform other modes of transportation, outclassing environmental improvement.

Although technological development and economies of scale may help shrink the costs over time, higher regulatory standards (environment, safety, etc.) can lead to a cost upsurge.

LONG TERM ECONOMIC IMPACT As a developing economy, India’s chances of matching up to bigger economies such as the USA, Japan, Russia, and Germany can get a boost with the completion of the Bullet Train project as it will not only put India at a higher pedestal of technology & connectivity but also open doors for more foreign investment, development of new businesses and an enhanced lifestyle for many.

A stitch in time HSR is a reliable, fast, and efficient means of transportation of passengers and thus helps save time, energy, and money. With the ease of connectivity that the HSR project offers, people working along the belt of the corridor can take a sigh of relief. Also, the money saved here can be pumped back into the businesses, which can in turn help boost the economic prospects of not just

individuals but also that of the country's overall economy.

An all weather friend India’s roads and airports are vulnerable to bad weather conditions that hamper transportation and cause delays. Since India is purchasing HSR from Japan which has proven to remain operational irrespective of the weather conditions, it’s safe to expect the same in India. This means more people reaching their destinations on time and without any hassle, it will become another reason for enhanced productivity and money being pumped into the economy.

A great economic connector Most of the cities with assigned stations are tier 2,3 which directly leads to deep socioeconomic opportunities. We will see a huge boost in small-scale industries and tourism as many smaller towns will get faster connectivity to tier 1 business hubs. The influx of foreign and domestic tourists will significantly boost the tourism sector.

A skill and employment booster For any country to climb up the ladder of social & economic prosperity, its human resource is a critical determinant. Low skills perpetuate poverty and inequality whereas skill development can reduce unemployment, raise income, and overall improve the standard of living of people and communities. This project can help upskill

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| ECO SECTION the current workforce and also generate 2000 direct and 35000 indirect employment opportunities.

A beacon of hope for "Make In India" India will get a chance to amalgamate Japan’s technology in its development process which gives it a chance to promote Make in India projects. A railway project can help allied industries (steel, cement, electrical, infrastructure) to develop required components in India and reduce foreign expenses in later stages of the project. The contract size will motivate Indian companies to spend more on the research and development of bullet train technology to replace imports of the same.

benefits, but there are challenges too, including land acquisition, which needs to be addressed by the government on an urgent basis. As of now, only 40% of the required land has been acquired. A strong economic partnership, buttressed by the high-speed rail network, between India and Japan will prove beneficial for both the economies in an uncertain global environment. The success of the upcoming Indian HSR relies on the collaborative efforts of all the stakeholders. Working together, they can ensure that the HSR project delivers on its promises of long-term socioeconomic growth for India.

A real estate boomer A project like Bullet train needs the support of equally world-class infrastructure. With the increase in passenger movement along the 508 km route of the project corridor, it is but given that real-estate projects like schools, townships, commercial hubs, industrial buildings, houses, retail and commercial shops, office complexes, entertainment hubs, hospitality, highways, railway sheds, etc. will also come up. With so much of economic activity happening around these towns, a boom in the real estate market of these areas cannot be underestimated.

CONCLUSION High-speed

rail

has several economic 11

| SECTOR ANALYSIS

CEMENT SECTOR OVERVIEW Cement is used in the making of the many structures that build the modern world and includes buildings, roads, bridges, runways, and harbors. The never-ending demand for all of these structures from both the developed and developing countries implies the fact that cement is the second mostconsumed commodity in the world after water. The raw materials that are required for the cement industry are limestone and clay or shale.

The cement industry is one of the eight core industries of India and employs more than a million people directly or indirectly. The cement industry has attracted huge investments from Indian as well as foreign investors after its deregulation happened in 1982. The production of cement had reached 334.48 million tons (MT) in FY20.

Rahul Khera | MBA - C | 2020-22 Anurag Yadav | MBA - C | 2020-22 At present, there are 31 cement companies listed in NSE, out of which 3 come under Nifty 50. These are: - UltraTech Cement Limited, Grasim Industries Ltd, Shree Cement Ltd. In 9MFY20, the sale of cement in India stood at Rs.58,407 crore (US$ 8.29 billion). During March-April 2020, Cement and Gypsum products attracted FDI worth US$ 5.28 billion.

The cement sector is one of the worst-hit industries because of the Covid-19 pandemic.

It saw the steepest decline at 86% (out of 8 core industries) in April 2020. However, the increase in infrastructure and housing activities, good rural demand, and the recent policy measures by the Reserve Bank of India (RBI) helped the cement industry to revive.

PORTER'S 5 FORCES MODEL Bargaining Power of Suppliers

The Indian cement industry is dominated by a few companies and almost 70 % of the total cement production in the country is done by the top 20 companies.

Monopolistic control of external cost elements such as coal, power, transportation, and taxes results in high bargaining power 12

| SECTOR ANALYSIS with the government. However, most companies have captive limestone reserves, so supplier power is almost negligible here. In the past, there have been frequent price hikes in the industry. This happened due to an increase in the price of both transportation and raw materials. This makes the suppliers powerful enough to force new prices on the industry. Hence, overall, there is moderate to high supplier power.

The Threat of New Entrants New entrants into the cement industry are discouraged because of high capital investment, broad distribution networks, and oversupplied market.

Further, wide distribution and marketing strategic channels are important strategic assets that are difficult to replicate by new players. Also, new competitions are restricted because of limited raw material sources (limestone, gypsum) and tough government clearances, whereas large players benefit from economies of scale.

Hence, there are high barriers to entry.

Bargaining Power of Buyers Around 65% of cement in India is consumed by the housing sector, with retail customers accounting for the bulk of the customer base.

But retailers do not have much leverage in dictating the price. Generally, local markets are dominated by a small number of cement firms. Therefore, demand is inelastic.

Furthermore, the lack of substitutes of cement and substantial market concentration among large players make sure the low bargaining power of buyers. Hence the bargaining power

of buyers is low.

The Threat of New Substitutes Bitumen in road, engineering plastics in buildings, timber (suitable for low-rise buildings) offer some element of competition, otherwise there no close substitutes in India.

Steel can be used for medium to high-rise buildings, but building regulations normally require structural steel to be encased in concrete for fire protection purposes. This increases the significance of the cement and hence reduces the threat of its substitutes.

Although there are numerous partial substitutes, pragmatically it has no direct substitutes. Hence, there is a low threat of new substitutes.

Competitive Rivalry A large number of players, marginal product differentiation, intermittent overcapacity, high storage costs, and high exit barrier in the form of significant capital investment have led to stiff competition in the industry.

However, the Indian cement market is oligopolistic, characterized by tacit collusion, where large players partially control supply for better price discipline and therefore enjoy economies of scale. Moreover, competition is regional, as cement cannot be transported across regions. Further, because of overcapacity, a slowdown in demand weakens prices, so there is no real pricing power. Thus, there is moderate competitive rivalry in the cement industry.

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| SECTOR ANALYSIS MAJOR PLAYERS Ultra tech cement is the third-largest cement producer in the world, excluding China, and the largest manufacturer of grey cement, ready mix concrete (RMC), and white cement in India. It has a consolidated capacity of 102.75 MTPA and about 21.4 % of the market share. Its operations span across India, Bangladesh, Sri Lanka, UAE, and Bahrain and is India’s leading exporter of cement and meet the demands in countries around the Indian Ocean and the Middle East.

ACC Limited (ACC) is a well-known and important player in the Indian cement market, having its manufacturing and marketing presence across India. ACC became part of the Holcim Group of Switzerland in 2005. Furthermore, in 2015, Holcim and Lafarge came together in a merger to form Lafarge Holcim which is the global leader in building materials and solutions. Becoming a part of this large group has benefitted ACC in sharing the technology and keeping it ahead of the curve in the Indian Market.

GOVERNMENT POLICIES Government policies such as facilitating easy access to home financing or supporting affordable housing projects or other public works etc. could benefit the cement sector companies such as those seeking to stimulate demand. Some of the recent initiatives taken by the government of India are- Pradhan Mantri Awas Yojana and Urban

Rejuvenation Mission: AMRUT and Smart Cities Mission. All these initiatives will help to boost the demand for cement for the housing sector across the whole country. Also, during the COVID-19 pandemic, the government took the following steps to revive the infrastructure sector.

For Non-Banking Finance Companies (NBFC’s), Housing Finance Corporations (HFC’s), and Micro Finance Institutions (MFI’s), the government announced a special liquidity scheme worth INR 30,000 crore. This scheme carries a guarantee by the Government of India.

Further, an amendment was made under the Real Estate (Regulation and Development) Act, wherein COVID-19 disruption will be treated as force majeure and an extension of 6 months/9 months will be provided for varied to completion timelines.

On the contrary, there are many legal provisions relating to labor, mining, and environment which apply to the Cement Industry. If a particular firm does not follow these laws, it may face penalties.

OUTLOOK In 2018-19, the cement industry witnessed a healthy demand growth of 13%. After that, it experienced de-growth in 2019. The demand was affected post the general elections in May due to delay in some of the existing projects for review, extended monsoons, low capital outgo on infrastructure, and road projects.

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| SECTOR ANALYSIS Even though there was some recovery in the demand for cement from December 2019, the momentum could not be continued because of the outbreak of the COVID-19 pandemic and the nation-wide lockdown, which paralyzed the construction activity.

According to the Department for Promotion of Industry and Internal Trade (DPIIT) data, the cement industry had a steep de-growth of 86 % in production in April 2020 and marginally improved to register a de-growth of 39 % until June 2020.

However, the rise in infrastructure and housing activities, good rural demand, and the recent policy measures by the Reserve Bank of India (RBI) to support the real estate sector helped the cement industry to revive.

There are many opportunities available for cement companies in the North-Eastern states of India, where demand is going to increase shortly because of various initiatives taken by the Government of India to develop the infrastructure of these states.

In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world, and the country’s cement production capacity is projected to reach 550 MT by 2025.

Pollution is a reason for concern among investors, governments, and society. The major causes of emission are the production of clinker, when clay, lime, and other raw materials are heated in huge kilns.

Several initiatives such as rolling out fullscale waste- heat recovery, using renewable sources of energy, scaling up innovative, lowcarbon cement products and carbon capture, etc. have been taken by the cement industry leaders to address the pollution and to achieve carbon neutrality in cement by 2050.

These initiatives, coupled with the fact that the fundamentals of the Indian economy remain intact, are expected to have a positive impact on economic growth and demand for cement.

However, the cement industry presently contributes about 7 to 8 % of global carbon emissions, after improving energy efficiency and reducing greenhouse gas (GHG) emissions over the last few decades.

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| COMPANY ANALYSIS

ULTRATECH CEMENT LIMITED BUSINESS OVERVIEW UltraTech Cement Ltd is an Indian cement company based out of Mumbai and is the largest manufacturer of grey cement, ready mix concrete (RMC), and white cement. It is a subsidiary of the Indian multinational conglomerate, Aditya Birla Group, and the only cement company in the world (outside of China) to have more than 100 million tons capacity in a single country. UltraTech Cement has a consolidated capacity of 116.75 Million Tons Per Annum (MTPA) of grey cement. It has 23 integrated plants, 1 white cement plant, 2 WallCare putty plants, 26 grinding units, 7 bulk terminals, 5 jetties, and more than 100+ RMC plants spanning the length and breadth of the country.

UltraTech provides a range of products that cater to the various aspects of construction, from foundation to finish. This includes Ordinary Portland Cement, Portland Blast Furnace Slag Cement, Portland Pozzolana Cement, White Cement, Ready Mix Concrete, building products, and a host of other building solutions.

Sahil Mehdiratta | MBA - A | 2020-22 Devansh Mehta | MBA - FS | 2020-22 Cement is sold under the brands ‘UltraTech, UltraTech Premium, and Birla Super.’ White cement is manufactured under the brand name of ‘Birla White’, ready-mix concretes under the name of ‘UltraTech Concrete’, and new-age building products under the names of ‘Xtralite, Fixoblock, Seal & Dry and Readiplast’.

With 100+ Ready Mix Concrete (RMC) plants in 39 cities, UltraTech is also the largest manufacturer of concrete in India. It has a market capitalization of 126499.13 crores, which is 66% higher than its second-best competitor in terms of market capitalization (Shree cements ltd) in India, and as of June 2020, the company reported Quarter 1 Net profit of 796 Cr. The cement company was previously owned by the engineering giant L&T. In 2003, L&T wanted to leave the cement business and the Birla group was interested in buying it out as it would make them the biggest producer of cement in the country.

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| COMPANY ANALYSIS

Grasim bought more than 15% stake in the cement company and within the SEBI guidelines, L&T and Grasim formed a merger pact in 2003. The 2003 pact allowed L&T to sell its stake by the end of 2009. The agreement had helped in ending an epic corporate battle, which saw Grasim made an open offer for L&T. It ended with L&T selling its cement business to the Birla's which was later rechristened UltraTech. L&T shares ended 3.8% higher at Rs.1,633.65 on the BSE.

The Major Shareholders are the promoters with 60.04% of shares as their holding.

Foreign Institutional Investors have a 16.1% holding in the company.

Domestic Institutional Investors are the next major investors with 14.59% of the total shares.

Retail investors make up less than 9.12% of the total shareholders. Government Institutes and others merely make up 0.14% of the total number of shareholders.

FINANCIAL ANALYSIS Statement of Profit and Loss (â‚š in Crores)

Source: Company Website

SHAREHOLDING PATTERN & CORPORATE GOVERNANACE

The revenue increase of 1.6% was boosted byShare of new products in cement increased to 8.3% and share of valueadded products in RMC increased to 29%.

Premium products volume grew by 45% over FY19.

Source: Screener.in

The increase in other income of 47.1% is mainly due to Gain on Fair valuation of Investments through Profit or loss.

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| COMPANY ANALYSIS The Government of India, on September 20, 2019, inserted a new Section 115BAA in the Income Tax Act, 1961, which provides an option to the Company for paying Income Tax at reduced rates as per the provisions/conditions defined in the said section. The Company has applied the lower income tax rates on the deferred tax assets/liabilities to the extent that these are expected to be realized or settled in the future period when the Company may be subjected to lower tax rate and accordingly reversed net deferred tax liability Reduction in expenses of 3.1% for the firm was mainly due to limited usage of Power and Fuel and reduced Freight and Forwarding Expense.

RATIO ANALYSIS Current ratio The current ratio has increased marginally from 0.87 in March’2019 to 1.03 in March’2020, with current assets increasing by 2092 crores and current liabilities decreasing by 276 crores.

Debt to Equity Ratio The company’s debt to equity ratio has decreased from 0.70 for March’2019 to 0.47 for March’2020. It has decreased considerably due to debt-fueled acquisitions in recent years.

3-year CAGR sales (%) has remained more or less constant with a CAGR of 19.05% in March’2019 and a CAGR of 19.38% in March’2020.

3-year CAGR Net profit (%) has increased substantially from 0.59% in 2019 to 27.57% in 2020. This increase is attributed to the reduction in expenses and a favorable change in taxation laws for the firm as mentioned in the Financial Analysis.

IMPACT OF COVID The revenue has decreased by 29.67% from Rs.2949 crores (Quarter 1’2019) to Rs.2074 crores (Quarter 1’2020). Profit after tax was also reduced by 37.78% from Rs. 1281 crores (Quarter 1’2019) to Rs. 797 (Quarter 1’2020) This decrease in revenue and profits is due to the gradual stoppage of operations at all major cement plants and construction sites during the nation-wide lockdown implemented by the government. A decline in capacity utilization also affected the ability of cement manufacturers to sustain prices at the pre-COVID levels which, along with reduced demand, pulled the company’s ability to generate revenues down.

Growth Ratios 18

| COMPANY ANALYSIS FUTURE OUTLOOK Once countries begin to reopen postpandemic, consumption of cement and concrete is expected to gradually recover, fueled by economic growth, urbanization, and population growth, especially in emerging markets.

The industry's biggest challenges—and opportunities—are longer-term: To survive and flourish, companies must prioritize sustainability and raise their environmental standards.

The COVID-19 lockdown will have a severe impact on cement consumption due to the halt in construction and infrastructure projects. The retail cement consumption will also show a sharp decline in FY2021. The company will, however, suffer from serious overcapacity due to its recent acquisitions. Any significant recovery is not expected before FY 2022.

The cement plants for the company operated at the utilization of 79% in Dec’19 and dropped to 55% in the last quarter of FY2020. This is further expected to go down to 20-25% in the next few months and indicates a severe impact on the company’s financial health.

Income Tax Act till March 31, 2020, to promote affordable housing in India.

The Union Budget has allocated Rs. 139 billion (US$ 1.93 billion) for Urban Rejuvenation Mission: AMRUT and Smart Cities Mission. Government’s infrastructure push combined with housing for all, Smart Cities Mission, and Swachh Bharat Abhiyan is going to boost cement demand in the country.

The move is expected to boost the demand for cement from the housing segment.

As per Union Budget 2019-20, Government planned to upgrade 1,25,000 km of road length over the next five years.

In the next 10 years, India is expected to become the main exporter of clinker and grey cement to the Middle East, Africa, and other developing nations of the world.

India’s cement production capacity is expected to reach 550 MT by 2025 from the current 335 MT. With Ultratech being the leader in the Indian market, it is surely going to be the one to reap major benefits.

But this can change because it has also seen declining profitability and increased leverage which can worsen the situation.

In Union Budget 2020-21, the Government of India has extended benefits under Section 80 - IBA of the 19

| INTRIGUING INDEED

VULTURE FUNDS

VULTURE FUNDS WHAT IS PRIVATE EQUITY? We can trace the origin of private equity back to 1901. A man of great ideas - J.P. Morgan, bought Carnegie Steel company for $480 million. Henry Phipps took his share of the money earned by the sale to create a private equity fund known as the Bessemer Trust. This marked the beginning of the trend of buying exclusive rights to companies gaining prominence or buying them completely. A series of events followed to develop the now established private equity industry.

The concept of private equity can be understood with two varied aspects. One of them states it to be an alternative source of financing like issuing an IPO or getting a loan from a bank while the other states it to be an investment made by a financial institution in a company that is not listed on the stock exchange. The returns under this class of assets can be realized by issuing an IPO, merger, acquisition or recapitalization of its funds. However, owing to limited disclosure, the returns to private equity can’t

ANUSHA G NAIR| MBA - FS | 2020-22 SHUBHANGI THAPLIYAL| MBA-A| 2020-22 be studied with ease. Basically, a private equity manager uses the investor’s money to provide funding for its acquisitions.

After restructuring the acquired firm in terms of long-term benefits, the company is aimed to be resold at a higher value. Like its original name ‘leverage buyouts’ depicts, private equity uses debt financing to buy companies in use of leverage. Debt financing helps in the reduction of corporate taxation burdens and also enhances the profits of the investors.

Private equity investors classify their transactions such that benefits of diversified risks and complementary investor knowledge can be achieved.

TRAITS OF PRIVATE EQUITY Features that make private equity completely different from other funding are - Liquidity, Pricing, and Monitoring. Being a private equity investor, having liquidity becomes difficult as here we cannot use the stock exchange.

Getting liquidity is a tedious task in terms of 20

| INTRIGUING INDEED identifying another investor who is willing to buy our shares. Similarly, negotiating the price of our shares is highly dependent on the identified investor. It might become messy in some cases. Further through the monitoring aspect, being a private equity investor, we must write in a contract the way we protect our investment and the rights that we need to use in order to stay in the company.

After getting a fair view of private equity, ever wondered why the companies need it? Well, the answer to this lies in the major benefits that it offers to a company. The first one being the certification benefit, it offers the company investing in private equity, a chance to promote its quality profiles and reputation in the market. The second benefit is known as the networking benefit. Private equity leads to the multiplication of opportunities for the company by enabling interaction with new sets of suppliers and customers. The third one is the knowledge benefit that is transferred from a private equity to an investor, enlightening the latter to develop soft skills and capabilities of working in a market. The fourth benefit is of utmost significance as it is with regard to financial advantage. A private equity investment made into a company provides it with immense support by raising the amount of equity by raising the credit standing of the company.

This directly implies the increase in the rating of the company as well as its capability to reduce the cost of capital.

FINANCING AS PER NEED Private equity can be clustered based on the life cycle of a business to understand the strategies needed to be applied. Amongst the various strategies that may be used by private equity firms, leveraged buyout stands to be the most vital one. It refers to the process in which a business unit or asset is acquired from the current shareholders using a large amount of funds to meet the cost of acquisition but without committing to a lot of capital. Here the acquired entity is usually required to be profitable and growing.

Yet another strategy is venture capital. These are funds invested in emerging businesses having high growth potential. These provide fuel to startups with ambitious propositions and aim at generating extraordinary returns with the gradual growth of the business.

There are many more such techniques that act as a source of finance for a business.

However, taking our understanding of private equity to one step further, now let us look at vulture funds.

Source - Gitbooks

WHAT ARE VULTURE FUNDS? To define it in simple words, vulture funds are funds that seek out and invest in risky debt or equity instruments such as high-yield bonds that are in or near bankruptcy. The idea 21

| INTRIGUING INDEED behind such a fund is to purchase the instrument at heavy discounts from the secondary markets and make huge profits by suing or deploying legal actions on the debtors. Oftentimes, the investments are also undertaken in government debt of distressed countries, like Argentina (illustrated in a separate section below) and Puerto Rico, which requires even greater legal involvement in settling unpaid debts. The term is used as a metaphor as it contrasts the behavior of vulture birds which are known to prey on dead or near dead animals.

It really caught on when Cristina Kirchner, the former Argentinian President, used it profusely to draw attention to the practice.

While a few scholars, compare it to hedge funds, private equities or distressed debt funds that feed off of debtors in financial distress, financiers argue that their lawsuits enforce accountability in the credit markets and help constrict public corruption.

Vulture funds are primarily used against sovereign debt and problematic public sector companies. These funds represent a popular choice of investment among investors (especially hedge funds and venture capitalists) due to their widespread success in bringing recovery actions against defaulters. At times, vulture funds are paid through the issuance of new debt and not through cash making it a great option to earn greater value against the low purchase price.

HOW DO VULTURE FUNDS WORK? Now that it is established that vulture funds feed off distressed assets by way of legal

interventions. Let’s take an example to illustrate how it works in real life – Company ABC Ltd. is on the verge of bankruptcy owing to failure in winning a case in court. ABC incurs huge losses with additional liability arising from a loan of Rs.10 billion from a bank. In order to recover the loan from ABC, the bank has two options: To sell off the asset, which is held as security To sell the debt to a vulture fund Venture fund (acting as a vulture fund), say PQR researches the position of ABC Ltd., and discovers that ABC Ltd. owns a patent that can be sold-off in the market. PQR Venture fund approaches the bank for the debt of ABC Ltd. The bank sells it at Rs.9 billion (which was originally Rs.10 billion). Now, the fund will negotiate with ABC Ltd. for payment more significant than or equal to Rs.10 billion.

Source - Wall Street Mojo

Thus, the venture fund earns a profit from its Rs9 billion investment. In the absence of the security for the loan, the venture fund might file the case against ABC Ltd. or sell the patent to get funds. Either way, the venture fund is at a profit position.

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| INTRIGUING INDEED REAL-LIFE EXAMPLE – Argentina’s Debt Crisis Argentina, located in the southern half of South America, faced a major recession on the back of the global economic crisis of 1999. This resulted in the country defaulting on nearly $95 billion in debt in December 2001. Soon after, Argentina initiated a popular recovery through debt restructuring.

The country owed $81.8 billion in face value of bonds to private investors. After many attempts to arrive at accepted terms for all creditors, Argentina, in 2005, refused to undergo any further negotiations to restructure the debt and eventually offered a unilateral take it or leave it offer. The terms of the offer prescribed the exchange of certain new bonds for the defaulted bonds at 30 cents on the dollar, substantially low than the original value. Nearly 93% of the creditors accepted the discount rate of 30%, trading in their defaulted bonds for newly issued Argentina. However, the remaining 7% (called the holdout creditors) rejected the terms.

Peter Singer, the owner of a hedge fund Elliot Management (part of the holdouts), filed a lawsuit against Argentina urging to be paid in full. In 2012, US District Court Judge Thomas Griesa ruled in favor of “vulture funds” and blocked the country from paying bondholders without paying the hedge funds in full. Owing to this, the remaining majority of creditors could not receive their dues.

Although Argentina paid the amounts, its foreign debt rating was adversely affected.

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| GREEN FINANCE

GREEN MORTGAGE INTRODUCTION As the saying goes ‘money saved is money earned’ and the concept of Green Mortgage is based on this as the banks or the financial institutions are ready to provide larger amounts of loan or credits to the customers who are using more energy efficient technology in their houses. Green Mortgage is a form of regular lending. Simply put, it is a collateral product where borrowing costs are directly linked to the energy efficiency of a related asset. The concept behind the product is that the money the borrower saves by having a home that saves energy should make them better able to pay, as expenses go down monthly. Green Mortgage can be availed during construction of a new house, renovation of an existing house or buying a property that is already energy efficient.

HISTORY Green mortgage can be dated back to the 1980s in the United States of America as there was a dual demand from the housing professionals for rewarding the people who

Rohan Bhakkad | MBA-FS | 2020-22 Mehul Parwal| MBA-FS | 2020-22 were purchasing and developing energy efficient homes and also to advance the public policy concerns in the residential housing sector. Green mortgage or energy efficient mortgage (EEM) as a solution to above concerns was developed and has gained recognition from the federal government and was introduced in more than 50 states by the year 2000. Energy efficient mortgage was a far sighted and an ambitious project that was aimed at reduction of emissions and to promote an energy efficient way of life.

ONE - TIME INVESTMENT Initially, the addition of these green energy efficient technologies into any project will require more capital and also will add more pressure on the owner in terms of finance.

For example when one person decides to buy a solar power water heater for himself he has to pay 3-4 times more money than the amount he will need to buy a electricity driven heater at the time of purchase, but 24

| GREEN FINANCE in the longer run that is five years down the line, the results of his investment will begin to show as the energy efficient products will save more and spend less energy as compared to the traditional ones, hence saving an amount of money on a regular basis.

In the above illustration, we assume that the institution is lending more money to the customers opting for green solutions and also the rate of interest for both the customers is same, but in reality, the situation is that the customers are incentivized by providing a more lucrative rate so that they become more and more inclined towards the energy efficient technological options. Also, it becomes evident that even after taking a larger amount of loan, the owner is still in a better position to repay his debt as compared to the regular loan.

BENEFITS FOR LENDERS From the lenders point of view, the assurance of a fixed saving due to installation of green technologies provides them more confidence and security to lend more. Green properties also have ‘Green Value’, compared to other property without any green credentials, which is more

attractive to 'brown discount' which nongreen buildings are prone to. Reduction in the brown discount and maximizing the green value make sense for the lender as it reduces their risks. For example, if you buy a green property worth $200,000 and you can save $200 more in utility cost than a non-green property then you left with more money which you can use to pay your EMI. Mortgage lenders keep these things in mind and provide you with more loan amount as you can pay a higher amount of EMI. Most of the countries today have infrastructure for the future ready and they are consuming a lot of energy as of today. The countries will have one of the two options in future; either to decrease their energy consumption or to improve their current infrastructure. This has to be done so that they consume less energy and this can provide an opportunity to unlock the additional funding for private sector renovations, to bring in the new group of participants in green building campaigns i.e. mortgage banks.

Currently, more than 37 of the major European banks have launched the new Green Mortgage scheme on a pilot project basis and also a number of smaller banks have followed the same path. Not only the banks and financial institutions from developed countries but also the ones from developing countries have started to follow the same path.

OPPORTUNITY FOR INDIA India has the second-largest urban population in the world and this is expected to double by 2050. 70% of buildings (housing, retail, commercial, hospital) needed by 2030, 25

| GREEN FINANCE still to be constructed, building green is the best option as it provides energy-efficient expansion. Residential and commercial buildings accounted for 30% of electric consumption and expected to reach 42% by 2042. Green building is a feasible option as it can save up to 20-30% of energy consumption a year and water saving up to 50%.

Indians have traditionally had rain water harvesting in their houses but recently after the government intervention it has become mandatory at many places and hence there is an increase in the number of people who are installing rainwater harvesting plants at their homes. In 2013 National Housing Bank (NHB) had signed an agreement with the Confederation of Indian Industry to promote building of green homes and now it is estimated that India has 1.4 million buildings marked as green buildings.

The regulatory framework for green building is evolving in India. The New Building Code 2016, which regulates the construction activity, incorporates the Energy Conservation Building Code (ECBC) developed by the Bureau of Energy Efficiency (BEE). In 2017 ECBC set up new guidelines for prescribing a minimum standard for energy use in the commercial building. Rating and certification are also given to the green building. The BEE Building Star System rates buildings on a five-star scale based on performance in terms of energy usage (in kWh/sqm/year).

Along with these two other rating systems are prevalent. Green Rating for Integrated Habitat Assessment or GRIHA, and Leadership in

Energy & Environmental Design or (LEED).

GRIHA is India’s rating system, whereas LEED is developed by the U.S. Green Building Council (USGBC).

Some Indian banks and Non-Banking Finance Companies (NBFCs) already support the green mortgage, provide a money-saving discount or give a bigger amount of loan than normally permitted as a reward for sustainable development. Housing loans are already in the priority sector lending (PSL) guidelines of RBI and there is a possibility that very soon green mortgage can also be considered in the PSL guidelines, acting as India’s contribution to sustainable development goal.

BARRIERS The major barriers that prevent Green mortgage from flourishing is the lack of awareness about them among the people.

Currently, only less than 1% of the people are aware about this. How can people use or buy a product that they are not aware about?

Also, the payoff can be seen in the longer run and hence the owner has to wait for a certain period of time before he can avail the benefits of this. There is also a geographical restriction as these technologies are dependent on renewable energy resources like Solar energy and this is also a reason why people from countries where there is limited period of sunlight around the year will not opt for such a mortgage and go with the traditional one instead.

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| GREEN FINANCE CONCLUSION There is a strong potential for the growth of Green Mortgages as they can create additional purchasing power for the customers and also provide them with extra savings over the years. It is also one of the finance products that has the potential to drive the housing finance market from front as it caters to both the major issues of credit lending and environment.

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| CALL FOR ARTICLES -WINNER

HOW CAN TECH INFRASTRUCTURE CREATE NEW OPPORTUNITIES FOR THE HEALTHCARE INDUSTRY? Healthcare is the new "cynosure" in the list of debaters across the globe. How the longtime neglected sector became the priority of today? All credit goes to novel coronavirus which highlighted hollowness in the socalled state of the art healthcare system of developed economies. A very recent global GDP report by International Monetary Funds (IMF) is the testimony of the deep impact of this Black Swan event on global economies, where most countries registered GDP contraction, and leading this list is India.

Rupesh Sharma | 2020 - 2022 National Institute of Management, Pune

Bank

Now the question is - What is the way forward?

Source: Times of India

The answer is - the reboot of the current healthcare system and designing a new system from scratch by "Integration of more Technology in Healthcare" to meet the future needs. Healthcare is an essential, dynamic, and opportunity-rich industry. We all will agree that technology will play a greater role in the transformation of the healthcare industry, skepticism was on adoption rate -

but technology adoption has increased exponentially because COVID -19 where people molded themselves to the new normal of social distancing. This paradigm shift of human behavior is attracting more investors ever before to invest in innovative ideas in the healthcare sectors across the globe. Albert Einstein once said “Modern Problems Require Modern Solutions�, technology has now become the heart of solution to every problem.

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| CALL FOR ARTICLES -WINNER The global healthcare market is expected to cross the $2 trillion mark in 2020. But what is a more interesting thing to notice is the contribution of IT sector involvement in this growth of healthcare with market size valued at USD 187 billion in 2019 and is expected to grow at over 15.6% CAGR between 2020 and 2026 (Report: Global Market Insight). This growth is due to the rising adoption of mHealth, government initiatives to digitize healthcare, and the prevalence of chronic disorders are likely to accentuate the demand for smart healthcare systems.

TECHNOLOGICAL OPPORTUNITIES Digitalization has transformed the healthcare industry, majorly owing to the rising usage of smartphones. With increasing internet penetration, we are generating a large amount of data that can be used for effective diagnostics of chronic illness, prescribing preventive and precision medicines on an individual basis for faster recovery, medical research to develop new methods of treatment, healthcare for the masses at a nominal cost.

As it is rightly said that Data is the New Gold and can be considered as the most important intangible asset for any company the future, a major opportunity will be around the data only like Big Data & Analytics Big data and analytics have taken the business and financial world by storm.

Potential has not been realized fully in the healthcare industry. Now with the increased interest of investors, new startups are coming into existence with innovative ways to use data to solve them. One great example is Lumme Labs (Forbes List of Startups Transforming Healthcare) they are using tech to break the addiction by monitoring your behaviors 24*7 using smart wearable devices.

Drug Development Developing any drug and vaccine is a highly sophisticated and time-consuming task where the average time to develop a vaccine touches 10 years. Covid-19 pandemic allowed us to rethink on the more innovative ways to reduce the time of development. If everything goes well, the COVID-19 vaccine can come to market within a year of its development all thanks to tech-based solutions used in the development cycle.

Predicting Patient Needs To satisfy the ever-changing needs of people is a major challenge with the use of sophisticated big data tools for better

Source: NEJM Catalyst

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| CALL FOR ARTICLES -WINNER consumer-centric services, health systems can also look at removing operational barriers, linking digital offerings to strategically segmented customer experience, and investing in core analytics to create a 360-degree view of the consumer.

Fraud Reduction Sophisticated AI solutions can identify fraud faster, by assessing risk factors that are difficult for humans to recognize. Now the company decided to tackle issues surrounding insurance verification and understanding what services are covered, by teaching an AI program to read insurance cards and identify key coverage details.

CHALLENGES TO OVERCOME Technology is making our life easy but it's still not a fool-proof system. Many loopholes needed to be addressed like the security of personal data in the era where cyber-attacks are more frequent than ever, we are generating data exponentially but still lacks in data storage capacity. Government policies& regulation that are still inclined toward the traditional healthcare system that can impede the innovation. The task is not just to make innovative development but also to make it user-friendly, adaptable, and at an affordable cost.

Record Sharing Medical history is the most important aspect of personalized care, medical professionals need safe and secure ways to transmit patient information. Startups like QorQL is providing an integrated platform to democratize access to information, treatment, and innovation. It will lead to a significant growth opportunity for the healthcare organization.

New Job Horizons Now to work in a healthcare industry you don't need to be a healthcare professional, technology has paved the way for a new job that is generated due to technology integration like testing coders, interface analysts, bioinformatics, clinical application trainer, etc.

CONCLUSION The challenges before the global health care sector are plenty. But so are the opportunities. Today's changed consumer sentiment, who are demanding improved healthcare, transparency, convenience, access, and personalized products and services.

Consumers are spending more than ever on their health. This healthcare spending can be an important economic driver to drive growth and contribute to GDP. The government of developing countries should realize the potential of healthcare and form policies that promote innovation, physical health 30

| CALL FOR ARTICLES -WINNER infrastructure required to leverage new tech infrastructure for seamless integration. But before we put our right foot ahead we should address the safety of sensitive patient data, ensure proper data storage, proper training of health workers, user-friendly interface to develop a sustainable, reliable, and safe healthcare ecosystem of the future.

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| CALL FOR ARTICLES -RUNNER UP

BANKING AND FINANCE FOR THE INDIAN RURAL ECONOMY NEED OF THE HOUR?-AFFIRMATIVE THE CHIT FUND DEBACLE Investigation into the multi-crore Ponzi scheme has been on since then. Two crores, largely poor and lower-middle-class people duped of Rs.2 lakh crore, and six years later, all that has been returned is around Rs.140 crore”.

Nandini Choudhary |2019-2021 | K J Somaiya Institute of Management Studies, Mumbai schemes with an assurance of abnormally high returns which eventually got lost in the deep web of scams.

THE UNMET ECONOMICAL NEED

The Global Findex Report by the World Bank Chronicle of one among the many Investors puts India as the country with the secondin the Scheme illustrates the aggrieved highest unbanked population in the world, Basumati Patra whose son had to drop out of after China. Even if a job was attainted, not school while her daughter had to leave her having a bank account deprived one, access graduation course mid-way. Why? Thanks to to financial services, and made the individual the Scam where she invested her life’s completely dependent on cash. savings of Rs.2 lakh. Such scams are prevalent which not only leaves the As per findings by researchers, there is a high underprivileged out of life’s savings but also likelihood of an unbanked population being leaves them high and dry with damaged trust on the edge of poverty, exclusion, and in the Financial Institutions. Inquisitive about vulnerability. Against the backdrop of the Chit the Scheme?

Fund scam, one of the reasons that came to light for so many people to remain to be The Saradha chit fund scam, one of the unbanked was the Lack of trust in financial frauds that surfaced in 2013, alluring institutions. A study presented that almost lakhs of investors to deposit money in its 32

| CALL FOR ARTICLES -RUNNER UP 30% of unbanked adults report lack of trust in Financial Institutes, as a barrier to opening an account, which is reflected in the low level of formal savings in the Rural Sectors. Less than 25% of people in developing countries borrow from formal sources. Financial Illiteracy & Financial Exclusion in rural areas are the dual reason, due to which the free markets are failing lakhs of individuals of their basic need of access to financial services.

CHANGING TIMES One of the gross misconceptions by economists have had is that the Urban Economy was the engine of the country. The rural economy was considered as the supplier of labor and agricultural inputs. With changing times rural areas are endowed with substantial basic infrastructure as the urban centers. There is no reason to keep the rural economy as an appendix to the urban company. The rural economy is being built as a parallel economy an independent economy to open up opportunities for its own human and resources.

THE EMERGING ROBIN HOOD ECONOMY In 1984, John Hatch noticed that lack of capital was keeping Bolivian farmers poor.

Without collateral, they couldn’t borrow as well as loans were too expensive. Thus, he designed a structure where the farmers would form groups to share a loan and guarantee repayment, and also, access the funds they needed to invest in their farming

operations. It was the dawn of what we know today as Microfinance.

A case in point is Bandhan Bank which was founded in 2001 with inclusive banking at its core, has been assiduously working towards the upliftment of the vulnerable sections of society. Not only has the Bank provided access to timely credit, but it has also fostered a culture of savings through deposits, which has led to financial independence for many low- income households. The bank has over one crore micro-borrowers and not only has this improved their livelihood but also created jobs for others.

The Global Fintech Summit 2020, witnessed WhatsApp India’s proposal in this parallel Universe. “It confirmed pilot projects to be embarked to enable a scale-up in the rural digital ecosystem. The idea behind it is of digitization of the MSME economy with more working capital in the hands of these organizations,” Providing access to financial services such as insurance, micro-credit, pension and lower-income segments in rural India is WhatsApp’s next big bet on the payments front. The collective aim in the coming years is to enable low-wage earners and the unorganized sector access toinsurance, micro-credit, and pension. The company Officials also suggested that “the accelerated lending could cover 67 percent of the government’s GDP targets for 2025.”

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| CALL FOR ARTICLES -RUNNER UP COVID CRISIS WOES The coronavirus crisis revealed massively how vulnerable the Indian economy is. The helplessness of the people in the so-called ‘informal sector’ constitutes the majority of the workforce of India. The pandemic caused the income of the daily income earners to vanish, moreover leaving millions of migrant workers with no options but to walk back home, hundreds of kilometers away. Akin to a coin, the coronavirus pandemic brought a pool of opportunities as well, to build a new economy and a new society and introducing new ideas and concepts.

THE WAY FORWARD Financial inclusion has always been a critical goal of the Government of India’s economic policies. It can pave the way for India’s unbanked and underbanked population into the mainstream economic system, giving them equal access to financial services at an affordable cost, thereby reducing income inequality across the society. An essential criterion for financial inclusion is easy to access to adequate credit for microborrowers through digital lending. It can help provide easy access to affordable credit to a large segment of the population.

TECHNOLOGY AS A SOLUTION (TAAS) According to People Research on India's Consumer Economy, a non-profit group, although 88 percent of Indian households own a mobile phone, India lags behind countries like Kenya, where 73 percent of the

population use mobile payment services, compared with just two percent in India. India now has some of the cheapest data plans globally, creating a potential for digital financial services to expand, especially to rural areas that are poorly served by bricksand- mortar bank branches.

Digitization of loan application processes can help borrowers apply for loans remotely – a very important requirement in a postpandemic world.

MICRO-ENTREPRENUER BANK AS A SOLUTION (MEBAAS) The micro-entrepreneur sector as a whole deserves a new class of dedicated financial institution — a social business Micro Entrepreneur Bank (MEB). The goal of MEBs would be to free all micro-entrepreneurs from loan sharks — formal and informal.

REGULATORY AUTHORITY AS A SOLUTION (RAAS) To make rural economies independent, another important aspect would be to create a dedicated regulatory authority for rural areas with the RBI governor as the chair. An example from one of our neighbor would be the Microcredit Regulatory Authority created in Bangladesh in 2006.

IMPROVED FINANCIAL SOLUTION (iFSAAS)

SERVICES

AS

A

By introducing non-traditional sources of

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| CALL FOR ARTICLES -RUNNER UP credit to a credit-starved population and small businesses, fintech lenders can help people get easy access to capital.

FINANCIAL LITERACY AS A SOLUTION (FLAAS) To responsibly use the Financial services, Institutions and the Central Authority should ensure greater financial literacy among citizens and provide consumer protection safeguards. By building appropriate financial systems for rural areas, we can ignite growth at the grass-root level. Rural households need access to financial institutions built exclusively for them, eliminating traditional money-lenders, thereby avoiding debt- traps that are common in rural India.

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| ALUMNI INSIGHTS

ALUMNI INSIGHTS What stock market margin norms mean for investors and Traders?

Pranav Turakhia| PGDM-Finance |15-17

SEBI's new margin rules aim at bringing transparency and preventing brokerages from misusing clients' securities. These norms came out earlier this year in February and were initially scheduled to come into effect from June 1. The date was then extended to August 1 and thereafter to September 1 with no more extensions given.

purchase stock ABC which has a 50% initial margin requirement, the amount of stock ABC you are eligible to buy on margin is calculated as follows:

MARGIN REQUIREMENTS Market regulator SEBI did not have a margin requirement for cash market transactions so far, but henceforth, clients will have to pay up to 20 percent of the cost of the shares and it will apply to both buying and selling of securities.

A Margin Requirement is the percentage of marginable securities that an investor must pay for with his/her cash upfront to invest in securities. An Initial Margin Requirement refers to the percentage of equity required when an investor opens a position. For example, if you have $5,000 and would like to

Source: Investing.com

UNDERSTANDING MARGIN PLEDGING Margin is a popular feature given by brokerage to attract customers to give them leverage and increase volume without paying full value upfront. When you pledge your equity or debt, the investment can be saved up to the haircut value of the securities.

Incase you fail to repay the debts, the broker may invoke and sell the stocks pledged to recover the debt.

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| ALUMNI INSIGHTS Pledging functions like any other mortgage plan where you use your stocks as securities to avail of a loan, similar to using an asset as collateral. Traders in the Futures and Options (F&O) segment often use pledging to receive margin funding from the broker to invest or trade in the segment.

What are the changes - positive or negative?

The new reforms will bring in some key changes to the existing system, affecting both investors as well as brokers, making margin laws more stringent.

Here are some new features:

Why the norm?

Investors had lost crores of rupees in the unauthorized pledging of shares by Karvy and other small brokers. The Karvy issue forced SEBI to make changes in the pledging system. The system where some brokers would put the shares in their pool account unauthorized and manipulation by a few brokers using the power of attorney (PoA) of clients will end now. They used to take out money from clients’ accounts and adjust for other clients’ requirements.

As per the new SEBI rules, a client can pledge securities with a trading member, who will in turn re-pledge the same with the clearing member. The clearing member will re-pledge the same to Clearing Corporation (CC). At the same time, shares will remain in the DEMAT A/C of the CLIENT and not the pool account of the broker. Further, the broker acts as a custodian for the securities in the margin account but many a time, SEBI encountered complaints regarding brokers misusing client funds and collaterals. The new norms will help to address this problem.

The security will remain in the client's DEMAT account and can be directly pledged i.e., the shares will continue to stay in the DEMAT account and will receive all the corporate benefits directly.

As per the previous norms, investors either had to give Power of Attorney (POA) to the broker or transfer their shares to the brokers’ account all benefits like dividend would initially go in the broker’s pool a/c and then be transferred to the client’s ledger. –Positive for the clients.

Brokers must collect upfront margins from investors for any purchase or sale of stocks. On failure of the same a penalty would be charged. – Neutral for investors Negative for Cash segments traders and traders involved in BTST trades.

The Power of Attorney (POA) cannot be used for title transfer anymore. It can be used for the transfer of shares to the exchanges against the sale of shares by the client or by the broker-sold to recover the debts. No Power of Attorney (POA) to be assigned to brokers. There were several complaints about the POA being misused by the brokers. The investors 37

| ALUMNI INSIGHTS

used to give authority to the brokers by way of the POA to execute the transaction on their behalf. The POA cannot be used for pledging anymore. – Positive for the clients.

Any investor wanting to avail margin will have to create a margin pledge. Can be tedious for clients, not tech-savvy as they will have regularly pledge shares online, hence a tedious process to be done regularly. Failure to do the same will cause reduction in the margin as shares won’t be pledged. – Neutral for investors negative for traders.

Under the old system, an investor could sell the shares today which were bought one day before (BTST – Buy Today Sell Tomorrow). However, now, shares bought today can be sold tomorrow at double the margin. – Negative for traders as they need more margins.

Investors will now have to fulfil their margin obligations at the beginning of the deal unlike the end of the day in the previous system. – Neutral.

Now, penalty on Non/short collection of 20% upfront margin and any other additional margin plus MTM loss within 2 days is required in the cash segment as well. – Negative.

Due to the new margin norms, we might see a decline in trading volumes in the cash segment. This is because through these norms, SEBI has put an end to

excessive leverage trades and have directed brokers to collect higher margins from investors (Compare to trades before the norms kicked in). Moreover, investors will have to wait for T+2 days to pledge the newlybought shares. However, active traders might feel an increase in their trading costs as they will have to provide higher margins now and may have to hold for 2 days minimum if they don’t have the margin. – Negative What has been the reaction of brokers?

Brokers wanted the regulator to put both the imposition of 20 percent margins on cash market transactions and the implementation of the new pledging norms on hold. This is because they need to upgrade their systems which were very tough at the time due to lockdown situations and lots of staff working from home. The capabilities of the depositories were also doubted as they would be one of the most active parties in the proves. Brokers are hopeful of attaining normalcy in the next two months.

SUMMING IT ALL UP The new norms have become a debatable topic among brokers and investors. There are apprehensions that the stock trading process might become cumbersome and discourage many day traders from trading aggressively.

However, this might make the system more efficient. The change in margin system and securities pledge-repledging could undoubtedly bring disruptions in volumes of daily trading as there are insufficient 38

| ALUMNI INSIGHTS preparation and validation by the participants in this system - viz Exchanges, Depositories, Depository Participants, Clearing corporations, Brokers and clients.

We could witness further polarization of stocks in the markets for some time with the top 100 - 200 stocks seeing the most depth and liquidity. The spate of reforms introduced by the market watchdog aims to safeguard the interests of investors, bring transparency, and prevent brokerages from misusing the client's securities.

DISCLAIMER - For educational purpose only.

Consult a financial advisor before investing.

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