Finly February 2018 by FINLY

From the Editor’s Desk

FINLY| FEBRUARY 2018 | Finstreet | SIMSR

Dear Readers, Team Finly is back with another very informative edition of Finly. This month our cover story analyses the most sought after topic of the month “Union Budget 2018”. The authors have tried to decode the effect of various policies introduced in the recent budget on the most crucial sectors of the Economy. The Eco section of the month introduces readers with the revolutionary Nudge theory by Richard Thaler. The Sector Analysis tries to uncover the reason for the recent fall in the global stock markets and the Fintech section of this month's edition explains How to value fintech Startups. Apart from all this, we also bring to you News Buzz & Trivia to update you with the latest happenings around the world. I sincerely thank Prof. Dr Pankaj Trivedi and the entire finance department for being the guiding light to the entire finly team. I would also like to extend my gratitude to the finacue team for their unwavering support. I extend my gratitude to our Alumnus Mr. Bharatram Narayanan for taking out time from his busy schedule and writing for finly. I would also like to acknowledge the entire finly team for taking our magazine to greater heights. It gives me immense pleasure to declare Mr. Deepak Ratwani from KJ Somaiya Institute of Management Studies and Research as winner and Rajit Das from IIM, Rohtak as runner up for the “Call for Article” Competition. We wish you a great luck in all your future endeavours. Madhur Saxena Editor-in-Chief PGDM (2016-18) KJ SIMSR

Team FINLY

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Table of Contents

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UNION BUDGET

Cover Story

Amey Patale PGDM Jerin Shahji PGDM Priya Keshari PGDM FS

Introduction: In the period prior to the budget there were lot of speculations that 2018 -19 budget will be a fight between populism & fiscal prudence and this was evident in the budget presented on February 1, 2018. In the budget there were announcements/ decisions made for rural spending, spending for farmers, healthcare. This took care of the populism part. At the same time there were decisions made to target Fiscal deficit to 3.3% of the GDP and no major tax emptions were given to individuals. Thus, there was a fiscal prudence in the budget announcement as well. The economy in short run had undergone major structural reforms i.e. Demonetization, GST, which meant there was a need for fiscal prudence in the budget. Also, this being the last term

of the current government (NDA), there was an expectation of a populist budget. The budget is a correct mixture of both the aspects. The economic context as per the economic survey on January 29, 2018 in which the budget was presented, had two macro-economic vulnerabilities; fiscal deficit and current account deficit. The real effective exchange rate has appreciated by 21% since 2014, affecting India's export competitiveness. But the domestic economy favours a weaker exchange rate. In last 4 years the levels of real agricultural GDP and the real agricultural output have remained constant. Jobs are not getting created. Industries especially MSME's create jobs. The industrial GVA growth has declined from 9.8% in 2015-16 to 6.8% in 2016 -17 to 2.7% in 2017 â&#x20AC;&#x201C; 18.

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In the same way the growth of manufacturing GVA has declined from 12.8% in 2015-16 to 7.9% in 2016 -17 to 3.1% in 2017 – 18. The last number on CPI inflation was 5.21% in December 2017. The last numbers on credit growth are non-food credit 10% & credit to industry 2.1%. In lieu of all the above facts we need to analyse the budget.

other countries. For last two budgets, there has been marginal increase in the defense allocation which is not enough to modernize the military requirements. Even, analysts recommend that the budget allocation to defense sector should be atleast 3% of GDP for it to be effective which at present is only 1.5% of GDP.

Budget Highlights Budget Announcements in Defense Sector: ·The Government has announced to allocate 2.95 trillion rupees to defense sector. It constitutes 12.10% of total budget allocation. This figure has increased by 7.81% from last year's allocation of 2.74 trillion. Out of this 2.95 trillion, 99947 crores have been set aside for capital expenditure such as purchase of new weapons, aircraft, warships and other military weapons.

Overall Impact: Neutral Budget Announcements in Automotive Sector:

·Government

has also announced to develop two industrial production corridors and bring out an industry friendly military production cycle to promote defense manufacturing in India. Our View

·Modernization is the need of the hour in the defense sector. But with the allocated capital this need may not be fulfilled anytime soon. Army in India uses AK-47s and INSAS which have become outdated compared to modern assault rifles. Also, the Indian military gear which comes with bullet proof jackets is heavier than what is used in

· Although

there were no direct announcements for automotive sector, but some announcements will affect the sector indirectly.

·The corporate tax has been changed to 25% for companies having turnover of 250 crores or more.

·Custom duty on luxury vehicles which are not fully manufactured in India rather built using kits outside the country and assembled in India has been increased from 10% to 15%. This will affect luxury car and bike manufacturers like Mercedes Benz, BMW, Harley Davidson, etc. as the price of their vehicles will increase.

·Government has replaced Education cess of 3% with Social Welfare Surcharge of 10%. This charge is applicable to those sectors as well where education cess was not applicable earlier. Our view The expectations from this budget for

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automotive sector were very high. Government did not make any major announcements for this sector. Luxury car makers had expected a lower GST rate on the cars. Electric vehicle makers had expected a push for them as Government plans to be go fully electric by 2030. Instead, they increased the import duty making the auto parts costlier. But the lower corporate tax was good news for the car makers as most of them fall under that category only. Overall Impact- Negative Budget Announcements in Financial Services Sector: ·A national health protection Scheme is launched to provide insurance coverage to 100 million poor families to the amount of 5 lakh rupees per family ·Government increased the lending target under MUDRA loan to 3 lakh crores

·Government

will soon announce the measures to deal with NPA and stressed accounts of MSMEs

·The

Government has announced to establish Affordable Housing Fund in National Housing Bank which will be funded by priority sector lending shortfall and fully serviced bonds authorised by the government

·Government has also announced 10% tax on long term capital gain from equity and related mutual funds of above 1 lakh rupees.

Our view Banks expected more from Government in the budget. Insurance sector got big boost through the new insurance scheme but banks could not get anything big. There were some small announcements for banks. The reason could be that they already got a big recapitalization plan for themselves so the government is now focusing on others. Also, the tax on LTCG is a discouragement to the investors investing in equity and mutual funds thinking that their returns will be exempted from tax after one year. Overall Impact- Neutral Health Care & Pharmaceutical sector Announcements in budget 2018:

·The

government has announced the National Health Protection Insurance scheme, which will provide coverage of up to INR 5 lakh per family to 10 crore poor families. This scheme will cover a total of 50 crore people and thus will be one of the largest of its kind in the world.

·The

government announced Rs 1200 crore for the National Health Policy, 2017, with which 1.5 lakh Health and Wellness Centres will be setup, bringing diagnostics and preventive healthcare services closer to people

·The Government also decided to allocate additional Rs.600 crore to provide nutritional support to all TB patients at the rate of Rs.500 per month for the duration of their treatment.

·There

has been no direct announcement for the Pharmaceutical sector in the budget Our View: ·The new NHPS scheme with a cover of INR 5, 00,000 is launched when there is an existing RSBY scheme with a cover of INR 30,000 per family. The (Rashtriya Swasthya Bima Yojana) RSBY scheme is for BPL families. However, the target families for NHPS scheme are not defined. The total outlay i.e. the premium cost for NHPS does not have a provision in the budget. Also there are schemes being run by some states (Southern states of Kerala, TN, Karnataka, AP, and Telangana), so NHPS would be an additional scheme for those states. Without the consent of the states on sharing the costs (60%:40%), this scheme won't be able to be implemented. Also, there is no clarity whether this scheme will be implemented by the state government or private insurance companies, as some of the northern state governments lack the experience in implementing such schemes.

·The

government has recognized the need to address shortage of manpower and availability of healthcare in rural areas, and plans to upgrade existing district hospitals to rural colleges. It is also cognizant of the impact of medical inflation.

·This

announcement by the government is going to benefit, healthcare, pharma, and manufacturers of medical devices

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Overall Impact - Neutral Infrastructure sector Announcements in budget 2018: Government announced budgetary allocation on infrastructure for 2018-19 to Rs.5.97 lakh crore against estimated expenditure of Rs.4.94 lakh crore in 201718.

·Roads ·About 35000 kms road construction at an estimated cost of Rs. 5, 35,000 crore has been approved, under the Bharatmala Pariyojana. Government will raise Rs. 5, 35,000 crore as equity from the market.

·Railways ·Railways Capex for the year 2018-19 has been pegged at Rs.1, 48,528 crore. Around 18,000 km of line doubling and transformation of entire network to broad gauge is planned, compared to 4,000 kilometres that were targeted for commissioning in 2017-18.Over 3600 kms of track renewal is targeted during the current fiscal. All trains& stations would soon have state-of-the-art facilities such as Wi-Fi and CCTVs.

·Mumbai's local train network will have 90 kms of double line tracks at a cost of over Rs.11, 000 crore. 150 kms of additional suburban network is being planned at a cost of over Rs.40, 000 crore, including elevated corridors on some sections.

·A suburban network of around 160 kms (at an estimated cost of INR 17,000 crore is being planned to cater to the growth of Bengaluru)

Cover Story

·Aviation ·Expansion of airport capacity to more than five times to handle a billion trips a year under a new initiative - NABH Nirman

· The

UDAN regional connectivity scheme, initiated by the Government last year, will connect 56 unserved airports and 31 unserved helipads across the country. Operations have already started at 16 such airport.

·Smart Cities

infrastructure. The government stated that India needs investments over Rs 50 lakh crore in infrastructure. This will increase growth of GDP, connect and integrate the nation with a network and to provide good quality services. Focus on building infrastructure is thus, a welcome move.

·In the current scenario of stressed assets with banks, development of bond market is required to support long – term infrastructure financing. The relaxation of ratings threshold (from AA to A) would encourage participation from pension funds and domestic insurance companies in the infrastructure sector.

·The Smart Cities Mission aims to build 100 Smart Cities with state-ofthe-art amenities. Allocation of 2.04 lakh crore has been set aside for the selected 99 cities.

·Real Estate ·The Budget announced construction of additional 51 lakh houses in rural areas and increased capital outlay under PMAY (Urban) to provide assistance for construction of 37 lakh houses in urban areas.The budget emphasized on increasing the allocation under PMKSY – AIBP and completion of on-going high priority irrigation projects. Using online monitoring system of PRAGATI, projects worth 9.46 lakh crore have been facilitated and fast tracked. Our View: ·The increase of 20.8% capital outlay over the previous year shows the focus of the government on building

· Necessary

measures undertaken towards implementation of new monetising schemes, such as toll, operate and transfer (TOT), Infrastructure investment funds (InvITs) by the NHAI for raising equity and Real Estate Investment Trust (ReITs) are a welcome move. It gives an indication that the government is backing up its plans with concrete measures for raising capital.

·The

involvement of private sector has been low. Several measures have been taken to boost this involvement. This includes setting up of PPP Project Review Committee and the Infrastructure PPP Adjudication Tribunal for re-negotiating concessions if there is evidence of distress in projects which is likely to result in d e fa u l t . I n t h e l a s t b u d g e t a n announcement on the mechanism to streamline institutional arrangements for resolution of disputes in infrastructure

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related construction contracts, PPP and public utility contracts was made, however there is no update on this.

actual digital backbone i.e. telecom did not get substantial support.

·Customs duty on mobile phones, parts, Overall Impact - Positive Telecom sector Announcements in budget 2018:

batteries, SIM etc. have been increased. This will give a boost to its flagship programme “Make in India”. But the demand for cut in customs duty on 4G network gear was not fulfilled.

· The allocation on Digital India programme has been doubled to Rs 3073 crore in 2018 – 19. This shows the commitment by government to support the establishment of centres of excellence for research, training and skilling in AI, Robotics, Big Data analysis, and IOT.

· The department of telecom will support establishment of indigenous 5G centres with IIT Chennai.

·An allocation of Rs. 10000 crore in 2018-19 for creation and augmentation of Telecom infrastructure, will be used for setting up 5 lakh Wi-Fi hotspots to provide net connectivity to 5 crore rural citizens.

·Announcement to increase the rate of customs duty on mobile phones to 20% from the current 15%. Also, the rates of customs duty on various mobile parts batteries, SIM Slot, screws, other mechanical items etc. are proposed to be increased to 15%. Our View: ·The focus of the government on Digital India campaign is evident as the allocation for the same has been doubled in 2018 – 19.However the

·The allocation of Rs. 1000 crore is a welcome move as it will make telecom services, including data available in every part of the country. Overall Impact: Neutral Industrial Sector Announcements in budget 2018:

·Increased focus on promotion of MSME, infrastructure, rural economy, healthcare, skilled education, ease of doing business to encourage investments, innovation and digitization

·The government's focus to develop infrastructure in roads, railways and freight is a boost to the manufacturing sector

·Reduced Corporate Tax rate of 25% to apply to companies with turnover up to INR 250 crores (increased from INR 50 crores)

·Online loan sanctioning revamp and the proposed comprehensive framework (IBC +AQR) to manage non-performing assets (NPAs) and stressed assets for micro, small and medium enterprises (MSMEs) will help to increase financing and reduce the working capital challenges for MSME's.

·Relief for companies covered under the

·Minimum Alternate Tax (MAT) related

Insolvency and Bankruptcy Code 2016, permitting carry forward and set-off of business losses in the event of a change in shareholding, and reduction of aggregate amount of unabsorbed depreciation and brought forward losses from book profit for Minimum Alternative Tax purposes

provisions will not be applicable to foreign companies solely earning income from businesses referred in section 44BB of the Act, provided the income has been offered to tax at the specified rate

·A Social Welfare Surcharge(SWS) & Road & Infrastructure cess of approximately 3% has been proposed on aggregate custom duty

Our View: ·As per PwC's 21st CEO Survey, India has emerged as the fifth most attractive market for investments, reflecting global optimism about Indian economy and its growth prospects. However, on ground, the execution of government policies and plans are a key to this rise. The 30 places jump in the World Bank's ease of doing business ranking is an indication of positive effects of government policies and plans.

infrastructure cess is seen to reduce the Gross Refining Margins(GRMs) of refining companies

·The reduction in corporate tax rate and

·Exemption in Service tax & MAT for oil &

increased customs duty on specified products are big positives to the “Make in India” initiative

gas sector companies is viewed positivel.

Our View: ·The expansion in the Ujjwala scheme is seen as an impetus in the distribution of production capacity of bottled LPG for poor section of society

· The addition of SWS & road &

Overall Impact: Positive Oil & Gas sector Announcements in budget 2018:

·The Union Budget 2018 emphasizes on the infrastructure development which will in turn stimulate healthy demand for fuel in the years to come which will be aiding in the growth of the sector

·Under the Ujjwala Scheme,

·No announcement was made in view of

an additional 5 crore free LPG connections will cover additional 8 crore, poor women

inclusion of petroleum products in GST regime

· The Union Budget 2018 has not ·Payment of the government's share of

concentrated on this sector

profit in petroleum will be exempted from Service tax for any contracts signed between 1st April 2016 to 30th June 2017

Overall Impact: Mildly Positive Retail & Consumer sector Announcements in budget 2018:

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Tax rate to 25% for companies with turnover of upto Rs 250 crore

fluctuations in tomato, onions & potato & promote better agri-logistics, processing facilities & professional management.

·Under the Ayushman Bharat

·The Minimum Support Price(MSP) of 1.5

programme, a proposal has been tabled to aid in the setting up 1.5 lakh Health & Wellness centre

times cost of production for the upcoming Kharif crops

·A proposed cut in Corporate Income

·100% income tax deduction of profit to ·Framers Producer Organization(FPOs) will be allowed access to cheap finance under Start-Up India programme

·Rs 10000 cr for fisheries & animal husbandry development under the National Bank for Agriculture & Rural Development(NBARD)

·Rs 7148 cr allocated for labourintensive textile sector which is 14.7% higher than the allocation from previous year

·Rs 1290 cr has been allocated for the holistic development of the bamboo sector, terming bamboo as 'Green Gold'.

·Rs 5750 cr has been allocated to the National Rural Livelihood Mission

·Rs 2000 cr has been allocated for

Farm Producer Companies having a turnover upto Rs 100 cr for a period of 5 years

·The Budget proposes to amend the EPF act & reduced women EPF contribution to 8% for the first 3 years and keeping government contribution at 12% Our View: ·The 2018 Budget has allocated a lot of resources for alleviating the distress in the ailing rural sector & boosting the standard of living & income of rural India which is in line with the strategic goal of Central Government to double the farmers income by 2022

·However there is no detailed explanation by the government for funding the MSP of 1.5 times the cost of production Overall Impact: Positive Power & mining sector Announcements in budget 2018:

development of the agri-market infrastructure & strengthening the electronic e-NAM system. Developing & upgrading 22000 rural haats into Gramin Agricultural Markets(GrAMs) to help 86% farmers access to market facilities

electricity connectivity for 4 crore households has been proposed with an outlay of Rs 16000 crore

·Rs 500 cr has been allocated to

·Electrification of 4000 km of railways has

Operation Greens to address price

been targeted in the budget

·Under the Saubhagya scheme, last mile

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ÂˇThe farmers are enabled to install solarpowered pumps to irrigate farmlands & the surplus electricity can be sold to the gird

Âˇ The budget is in line with the Government's long-term plan of 100% electrification & also increasing the share of renewable energy systems and thereby transitioning into a cleaner nation & economy Overall Impact: Mildly Positive Conclusion As India heads towards 2019 Lok Sabha elections, Narendra Modi government has managed to conjure a populist budget with rural India taking the centre stage in this budget. A number of policies have been proposed and funds allocated for alleviating the distressed rural economy that faced problems of improper pricing, poverty, unseasonal weather, etc. On the days following the budget announcement, the capital markets saw Rs 5 lakh crore of investors wealth being eroded from the market citing the fears of LTCG & global sell-off. Following this news of revision of the

LTCG tax rate was also heard. We also had o u r fo r m e r F i n a n c e M i n i s t e r P Chidambaram criticizing the current government for not timing the policies properly and being a reactive government rather than having all their bases covered from the onset. Mr Chidambaram has also cited that the Indian version of Obamacare, Modicare did not take into account the fiscal deficit of the state government capability to implement the world's largest government-funded national health care programme stating that the current government doesn't look before it leaps rather it leaps and looks back. The announcement pertaining to MSP was not followed by the math required to fund this policy. The RBI has warned Budget 2018 would feed inflation risk & fiscal deficit as rates are left on hold. Having said so, the budget has outlined ambitious projects which if prudently implemented would put India ahead of the demand curve and enable it to transition into a global power. The budget has also increased its spending to mobilize capital for increasing employment. All budgets are tightrope walks, and Budget 2018 clearly illustrates the government's intent to look at holistic development with an impetus to rural development, modernization of infrastructure, job creation, and technological advancements.

Will cryptocurrencies replace fiat money in the future?

Deepak Rawtani KJ SIMSR 2017-19

Article of the Month - Winner

Will cryptocurrencies replace fiat money in the future?

“ There are 3 eras of currency: Commodity based, politically based and now, math based.” The following quote was given by Chris Dixon, a venture capitalist, and an American internet entrepreneur. The era began where people used to trade commodities on barter system followed by the advent of the gold coins based system. Its drawbacks led to the creation of politically led currency called fiat currency. A fiat currency is a legal tender whose value is backed by the government and not by a physical commodity like gold, silver. Now, with its drawbacks and global events like 2008 financial crisis led people to place faith in a new era of currency: Cryptocurrency. A cryptocurrency is a decentralized and

encrypted digital asset transferred between peers and recorded in public ledger through a process called Mining. The decentralized control of each cryptocurrency works through a public transaction database called blockchain. A blockchain is a growing link of records, also referred as blocks that are linked by cryptography. Each block has a hash pointer that is linked to the previous block, transaction data and, timestamp. Thus, by very design, a blockchain can't be modified. As on February 2018, there are over 1,500 cryptocurrencies with the market capitalization of more than $400 billion. Out of these, the cryptocurrency that is giving investors a run for their money is Bitcoin. Other famous cryptocurrencies include Ethereum, Ripple, Bitcoin Cash, Litecoin etc. Pros of a cryptocurrency as the new fiat money ·The advent of Cryptocurrency can be

Article of the Month - Winner

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compared with the advent of e-mail that disrupted the value chain system of the post office. The stamp certified post was challenged by e-mail which gave the world a hassle-free method of communicating without an intermediary. By eliminating the intermediaries, Cryptocurrency is not only reducing excessive checks but also giving a person more control over his/her finances. Also, reduction of intermediaries can lead to cost reduction for both businesses and customers.

·As the US dollar is the world's most

currencies operates on “Pull” basis where the beneficiary initiates the final payment and pulls designated amount while on the other hand cryptocurrencies use a “Push” mechanism that allows cryptocurrencies owners to send exactly the same amount he/she wants to send.

· Unlike any other fiat currency, Cryptocurrency can't be debased by a government or international financial institutions as cryptocurrency is not tied to their actions. Also, cryptocurrencies can't be manipulated easily as they are decentralized and unregulated. Thus, they are not bound by interest rates, exchange rates or transaction charges. This advantage makes a cryptocurrency a global currency.

traded fiat currency and value of global fiat currencies fluctuate on the former's value, thus, Cryptocurrency can act as a hedge for global currencies against the inflation of the USD.

·Inflation is the main problem which can

·The blockchain aided cryptocurrencies

be overcome through the decentralized protocols of cryptocurrencies.

are technically safer and highly secured than fiat currencies. The difference comes in the mechanism in which they are transferred. Transaction through fiat

·Beyond the world of central banks and government regulations, a cryptocurrency can strengthen the

Article of the Month - Winner

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process that has become a buzzword these days “Universal Basic Income or UBI”. UBI is the social welfare mechanism in which beneficiaries receive a fixed and unconditional a m o u n t o f m o n e y, f r o m t h e government. The cumbersome process of raising fiat money, adjusting it according to inflation and then transferring it to beneficiary's account can best be replaced by simply transferring the less burdensome cryptocurrency. Also, Cryptocurrency can aid another social welfare scheme based on UBI's theme called Negative Income Tax. It is the system in which people earning below a certain amount receive unconditional pay from the government instead of paying personal income tax.

counterparts is also a cause of concern. From the safety point of view, one doesn't know whether the opposite party from whom one is sending or receiving money is genuine or fake. It is this issue which can be the cause of concern for law enforcing agencies as the medium of cryptocurrencies can be used by felons or criminals to fund illegal activities.

·Cryptocurrencies can be an alternative

·Transactions are irreversible after the

to existing cash and subsidy-driven social welfare schemes that governments in different parts of world use.

confirmation.

Downsides of a cryptocurrency dominated world

·Price volatility of cryptocurrencies is a thorn in the flesh for them to become the global currency. Forces that mainly dictate the price of cryptocurrencies are market sentiments and speculations. For example, in early December 2017, Chicago Mercantile Exchange (CME), world's largest futures exchange, decided to launch Bitcoin derivatives, this made the price of cryptocurrencies especially bitcoin to reach an all-time high while at the end of same month,

South Korea, world's third largest cryptocurrency market, decided to ban new cryptocurrency trading accounts, this plummet the prices of cryptocurrencies. With many governments banning or refusing to accept cryptocurrencies as legal tender and no central authority backing its intrinsic value, volatility will further increase.

· The anonymity of identity of the

· Beyond the universe of trading, derivatives and, prices, the first and foremost thing for cryptocurrency to become the face of currency is its accessibility. With only 47% of 730 crore global citizens having access to the Internet, out which, just a fraction of population has knowledge and access to cryptocurrency trading. The problem will get aggravated in developing and underdeveloped nations where a large percentage of the population is poor. This gives fiat currencies an upper hand over cryptocurrencies. Conclusion In conclusion, the advent of bitcoin has

Article of the Month - Winner

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sown the seeds of cryptocurrencies that are challenging the domination of fiat currencies. On one hand, we have corporates and stock exchanges planning and launching cryptocurrencies and on the other hand, we have cons that range from inaccessibility to suspicion of law enforcing agencies. It can thus, be concluded that the concept of cryptocurrencies is here to stay in the near future but saying that they will be flagship currencies will be hard to believe.

Article of the Month - Runner Up

The chronicles of Deutsche Bankof Digital LendingThe future MSME in India

Rajit Das IIM Rohtak

Digital Lending- The future of MSME in India Historically it has been proven that the MSME sector is pivotal to the success of any developed country, be it in terms of GDP contribution or in terms of employment generation. Presently, India in-spite of being one of the largest growing Economy lags far behind when it comes to the MSME sector.

In India, this sector only contributes roughly about 8% to GDP as compared to more than 30% for most of the developed nations. On the employment front, the sector only contributes to around 21% as compared to more than 50% for almost all the developed countries. So, to sustain the GDP growth rate of 8% and above, is what the Government of India wishes to achieve.

Article of the Month - Runner Up

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But why are the traditional banks failing?

But, what are the problems when it comes to funding MSMEs:

Article of the Month - Runner Up

Why is digital lending different?

How Digital Lending Operates: From a customer perspective, he/she only has to follow 2 steps, online application and documents upload. From Document verification to Risk assessment everything will be done by t h e A I - b a s e d s y s t e m i t s e l f. Now comes the next question, “How Risk assessment can be done online”.

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Article of the Month - Runner Up

financial health.

Besides these, four important p a ra m e te rs a re c o n s i d e re d i n generating a score for the company.

路 Capacity: Whether a company's current or future income will be adequate to cover debt obligations that the company is seeking to incur

路Collateral: It can be in the form of b u s i n e s s i n v e n t o r y, a c c o u n t s receivable, equipment, property or any other tangible asset. The chances of loan approval become more positive when more than one form of collateral supports the loan application.

路Capital: The owner having a significant investment in the business increases the chances of approving a loan

路Financial Ratios: Ratios like Debt to equity, liquidity ratio, Leverage ratio gives a fair idea about the company's

These four aspects are considered with appropriate weightages along with sector they are operating in and Return / Risk factor to generate a final score for the applicant which is then compared with a threshold value to approve the loan.In case the threshold value is less, as compared to the amount applied for, the applicant is eligible for a loan of the Threshold Amount. But what if the financial statements are not available? The model stated above is perfect for the new generation startups. But what is the solution for around 50% of the MSME's which have minimal financial information available to them? Here lenders can assess more by the Industry on which the firm is operating, at which geographical location and the amount of Capital invested by the Owner of the firm himself.

Article of the Month - Runner Up

FINLY| FEBRUARY 2018 | Finstreet | SIMSR

With only 47% of 730 crore global citizens having access to the Internet, out which, just a fraction of population h a s k n o w l e d g e a n d a c c e s s to cryptocurrency trading. The problem will get aggravated in developing and underdeveloped nations where a large percentage of the population is poor. This gives fiat currencies an upper hand over cryptocurrencies. Conclusion In conclusion, the advent of bitcoin has sown the seeds of cryptocurrencies that are challenging the domination of fiat currencies. On one hand, we have corporates and stock exchanges

planning and launching cryptocurrencies and on the other hand, we have cons that range from inaccessibility to suspicion of law enforcing agencies. It can thus, be co n c l u d e d t h at t h e co n c e p t o f cryptocurrencies is here to stay in the near future but saying that they will be flagship currencies will be hard to believe.

HOW DO THEY MAKE MONEY?

ECO Section

Anika Prakash PGDM Priyansha Agarwal PGDM Shalini Balakrishna PGDM

Have we ever pondered about a technique to prevent someone from doing something that is detrimental to his or her well-being, without actually harping about the folly? Or, a technique that will make someone behave or act in a manner that we want? The Nudge Theory throws light upon exactly this facet. Popularized in 2008 by Nobel Memorial Prize awardee, Richard Thaler and Cass Sunstein in their book â&#x20AC;&#x153;Nudge: Improving Decisions About Health, Wealth, and Happinessâ&#x20AC;?, this concept remained an enigma until the mid-2000s. Falling under the purview of not just Behavioral Economics, the Nudge Theory has garnered application across various domains, particularly involving citizenry and consumer behavior. A nudge essentially refers to c o a x i n g o r p ro v i d i n g p o s i t i v e reinforcement of a set of human behaviors, with the help of hints and suggestions, that can either consciously

or sub-consciously facilitate, motivate, and alter human actions in a predictable way, without forbidding any choices and significantly manipulating their economic incentives. Since nudges are not meant to penalize people, they are considered to be more effective and certainly less prone to resistance as compared to outright instructions and forbiddance. In this edition of the Economics section, we will be looking at various domains where the Nudge Theory is applied, the benefits associated with it, along with some contradictory views, and latest trends. How can people be influenced or coaxed to opt for the right decisions in life? Ergonomists and researchers have understood the enormous extent to which nudges can be applied. They have relied on the individual's mental shortcuts (heuristics) and mental models to develop the design and safety aspects of interfaces and equipment.

ECO Section

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A very famous technique adopted as a sub-conscious nudge in order to render a cost effective solution is the image of a fly that is baked in the ceramic of urinals at Amsterdam's Schiphol airport. What seemed to be a ridiculous proposition, proved out to be beneficial when, Jos van Bedoff, during his military service in the 1960s, observed that an army urinal bearing a small dot was much cleaner as compared to all other urinals. This idea was later implemented in 1980s in the urinals at Schiphol airport and there was a remarkable reduction in the after installation, spillage and subsequent cleaning costs, by approximately 80%, following the sub-conscious targeting of the fly by the urinal users. Unintentional mistakes and deliberate violations Nudge can be used to tackle a number of unintentional, and sub-conscious errors. The sub-conscious errors are relatively easier to address; the deliberate ones are not. Nudges can be implemented in workplaces to prompt safe practices and actions, encourage workers to assess the correctness of

resources, encourage worker participation in safety programmes, and increase awareness of surroundings and hazardous situations. Application Areas of the Nudge Theory Analytics Nudge and Analytics are seen to be i nte r t w i n e d . B e h av i o ra l s c i e n c e understanding of human behavior are significant tools for any analytics professional. Nudge in Telecom Analytics â&#x20AC;&#x201C; Leveraging data-driven technologies such as image recognition, predictive analytics, behavioral clustering, etc. Telecom operators use data science and machine learning to extend the applications of Nudge theory. Nudge in Banking â&#x20AC;&#x201C; The banking sector can use the Nudge concept to benefit customers. Real time analytics are used to facilitate transactions, save time and effort. Alerts pertaining to spending patterns are provided to the customers such that they plan expenses appropriately.

ECO Section

FINLY| FEBRUARY 2018 | Finstreet | SIMSR

Marketing Nudge is a real driver which influence consumers. It involves learnings from behavioural economics. To better understand human behaviour and its both rational and irrational dimensions, it becomes more efficient to take actions and to modify the behaviour as we wish. To avoid marketing campaigns which are not efficient. It is an advanced process of decision making process. Benefits involve-

the new behaviours Obama government uses Nudge to bring the ideas that informed Nudge to bear on White House decisions on everything from shaming companies so they pollute less to getting people to make use of their tax-free pension plans.

· Remarkable power through cost-

·Improve ROI from marketing strategies

effective actions.

Campbell uses Nudge theory to understand a decision you make about the way choices that are presented. In what order do you list someone's options? How do you describe each one? If you are asking someone to fill out a form, how long is it? How easy is it to understand? Where do you get it and where do you turn it in? And, crucially, what do you make the default option? Is it "click here to subscribe," or "click here to unsubscribe"? Opt-in or opt-out?

Example- For increasing significantly low pension saving rates across private sector employees, the UK Government mandated employers to establish an “automatic enrolment” scheme in 2012. This scheme would make savings as a default feature of the employment for the employees, thus incentivizing them to do whatever they want and stimulate savings.

membership of private sector pension schemes increased from 2.7 million to 7.7 million in 2016.

·Low cost, simple, effective technique to

With this scheme, the active

ECO Section

FEBRUARY 2018 SIMSR FINLY| NOVEMBER FINLY| NOVEMBER 2017 || Finstreet Finstreet 2017 | || Finstreet SIMSR | SIMSR

In Vivo BVA has also introduced a predictive real life thinking which involves creativity techniques, design thinking, consultancy. Now, let us see how nudge theory works: Anchoring - If someone asks us the following question, “Population of Chicago less or more than 5million” or “Population of Chicago less or more than 500”, people are more likely to respond a higher number to 5miilion. Loss Aversion - People tend to avoid loss than making gain. Making use of this consumer buying behaviour, companies tend to have a policy of one free samples etc. so that consumers won't want to lose it when they have to make a purchasing decision. Framing - The way the situation is phrased can have an effect on people's thinking. For example When asked that among the two choices “Out of 600people in a room, there is 1/3 probability that 600 people will be saved” or “200 people are saved”. 72% of them respondent to go for the option in which 200 people were saved. On the contrary, when asked the same question “400 will die or there is 1/3 probability that nobody will die and 2/3 probability that 600 will die”, 78% respondents went for the option in which 1/3 probability that nobody will die. Social Pressure - We like to think that we are individuals but we also love to jump on a bandwagon. We have a pull

towards conformity. See the milligram experiments. In psychological experiments it is been a proof that out of 7 people in a room, with one person that can change the single person's opinion on something which is scientifically correct. But how can theory of nudge be used to pursue people to do good things like blood donation, helping other etc. We need to set up our own feedback systems. How can people know things are going wrong better still how can they know things are about to go wrong? Fitness trackers tell us how many steps were taken and how many calories burnt today expecting errors. It helps us by knowing what can go wrong. We can build in measures to prevent this from happening. Tourist d e st i n at i o n s l i ke L o n d o n h ave unavoidable look right slogans on the side of the pavements. In cafeteria, healthy food is kept in the shelf which is on the view of the buyers and the junk food is kept on the upper and lower side, away from the direct sight of buyers. This determines the individual's behaviour. These are some methods used by the government that help to shift the society. The Nudge Theory in recent times In September 2016, it was announced that the government think tank NITI Aayog was going to set up a “Nudge Unit”. The Nudge Unit was an important topic of conversation in 2010 when former British Prime Minister David Cameron established a Behavioural Insights Team (BIT) to work upon a wide range of projects. The BIT consisted of a group of civil servants, psychologists and behavioral

ECO Section

FINLY| FEBRUARY 2018 | Finstreet | SIMSR

economists, with the objective of finding intelligent ways to encourage, support and enable people to make better choices for themselves. NITI Aayog had tied up with the Bill & Melinda Gates Foundation (BMGF) to work on the changing behaviors of people which would prove to be an impetus to make programs and policies of the government more effective. The project was established when the thinktank was riddled with complaints from various state governments on policy implementations. The aim of the unit was to sensitize people with regard to the benefits of programmes such as Swachh Bharat, Jan Dhan Yojana, Digital India and Skill Development. The modus operandi used was social messaging and new advertisement campaigns, that helped in widening the scope and reach of such flagship programs. T h e G overn m ent o f I n d ia h a d envisioned to use the insights of behavioral economics to shape public policy. However, the Union Budget for 2018-2019 did not as such throw light upon this idea. There was no mention about allocation of expenditure to incorporate behavioral insights into public policy. If the nudge unit has only been an idea on paper till now, then the time is opportune for the Government to now invest in and begin using behavioral insights. Some public policy outcomes can be drastically improved by targeting a change in the behavior of people. Take for instance, Swachh Bharat Mission (SBM). While the Prime Minister himself

said that SBM requires behavioral change on a large scale, the efforts of the mission have been directed mostly towards construction of toilets. Another example is the case of increasing tax compliance in the country. India could take a clue from UK's experiment with using insights from behavioral economics to get more people to pay their taxes on time. Similarly, if financial inclusion is to be brought about in true spirit, mere opening of accounts, through the Jan Dhan Yojana, is not going to be enough. It is imperative that an important policy geared towards empowering the poor takes into account the psychology of the poor. Unless policy interventions are designed to change behaviors, problems stemming from deep-rooted cultural and social norms will not be rooted out from our society. This does not necessarily mean that policies designed using behavioral insights will solve all problems or will even be effective in the Indian context. But, that is exactly what the Nudge Unit's work would involve: identifying opportunities and implementing change in an Indian context. The Road Ahead Though India is a young country with great potential, it suffers from extreme wealth inequality. Some studies claim one in five Indians as being poor. A host of social issues is faced by a poor population with multiple regional and societal differences, such as female infanticide, deep superstitions, drug abuse among youth (in certain states), child marriage, dowry, littering, non-payment of taxes and corruption, etc. Thus there is a large gap

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where subtle nudging measures could create a tremendous impact.

falls, by making regular investing the default option.

The ruling Bharatiya Janata Party has championed Richard Thaler as a certificate for Narendra Modi's demonetization. This constitutes the first step towards going cashless and a good beginning to reduce corruption. A number of major policies shaped the Modi government's narrative since his election in May 2014. These include transformation of Aadhaar into a m a n d a t o r y, u n i v e r s a l d i g i t a l â&#x20AC;&#x153;authenticationâ&#x20AC;? programme from a voluntary identification platform intended for welfare ser vices, demonetization and the insistence on cashless payment, as well as the Goods and Services Tax. All of these have a common feature: war on cash. Though the implementation of demonetization might have been problematic for Thaler, his nudge theory is completely in sync with the shaping of the cash-is-bad global narrative.

Lack of knowledge, poor incentives or inertia often causes us to select suboptimal choices. If a nudge helps us choose an option which is also socially desirable, it could result in better social harmony, civic sense and public healthcare.

The 'Nudge Theory' finds its potential applications in varied fields such as healthcare, public policy, influencing citizen behavior, investment planning and personal finance. For example, tax breaks under Section 80C are a nudge to encourage people to invest in financial instruments such as equity-linked savings schemes and the Public Provident Fund instead of gold or property. The 'nudge' of lower premiums on life covers are used by insurers to encourage customers to stay away from smoking. Similarly, mutual fund SIPs, are also a nudge to investors to allay fears and panic during market

FINLY| August 2016 | Finstreet | SIMSR

FINLY| August 2017 | Finstreet | SIMSR

Fintech Section

Valuation of Fintech Startups R PRASANTH PGDM SHREYA MAHESHWARI PGDM

In the world driven by innovation and technology, businesses have found new ways to add value to the services by using disruptive technology. In this context, the advent of fintech, with its disruptive innovations has not only redefined the traditional business models but also has provided whole new perspective in terms of estimating the worth of businesses to the investors. After the hype that was prevalent during 2015, in terms of funding and valuation, the market seemed to cool down a year later, with the decline in these two activities. According to the report of the business insider, fintech saw a rise of 106% in investments in the year 2015. This growth trajectory declined in 2016 due to global uncertainty, driven by lack of clarity of events surrounding Brexit and the US presidential election. However, the

market finally tends to stabilise as the industry matures, valuations grounded and investors & venture capitalist becoming more cautious in their approach after facing failed IPOs and exits of various start-ups. With investors looking for tangible returns, the need is to balance opportunity, solution maturity and a sustainable business model. How do investors value Fintech Companies? The valuation of the fintech companies cannot be done by applying the traditional metrics, rather it requires greater understanding of the business model which are mainly market driven, that is, having more online presence as to â&#x20AC;&#x201C; how strongly they are backed by their fundamental ideas which are aligned with the current market conditions and the customer needs. In this sense valuation is more of an art, than a science.

Fintech Section

Cash Flow Analysis – Viability of DCF Model The Discounted Cash Flow or the DCF model, being one of the most common methods of valuing stocks of a publicly listed company or even a large capitalintensive project, such as real estate, where returns may be expected over a long period of time works on the u n d e r l y i n g p r i n c i p l e , t h at t h e company's current value is determined by the cash it is expected to generate in the future. This is further discounted at a determined rate to estimate the present value of those cash flows. However, it loses its viability for the companies which have barely begun or are in their pre-revenue or developmental stage, as they lack the historical data essential in making reasonable assumptions to accurately forecast future market conditions which could predict long-term growth rates. Future Performance Projections – Market and Transaction-Based Approach As the business starts to grow it generates data which could be useful in projecting future performances. In this context, using market-driven approach or transaction multiples comes as a plausible option. The 'multiples approach' to valuing start-ups compares the company in question to a range of comparable ones in terms of stage of development and sector. The value of it is expressed as a multiple of some cash flow measure, e.g. enterprise value in relation to

FINLY| September 2016 | Finstreet | SIMSR

EBITDA (EV/EBITDA), or share price relative to per-share earnings (P/E ratio). For instance, if the average comparable company has an enterprise value of ten times its EBITDA and the target company has an EBITDA of $10 million its enterprise value is $100 million. However, this method entails the risk of under or overvaluation of an entire sector that could be mirrored in the valuation of the company. Venture Capital Method – it is one of the most favoured methods, as it uses multiples in respect of future earnings to work back to a valuation in the present day. It forecasts the after-tax earnings for the expected year of the company's sale say five years and use an industry-specific P/E ratio to determine the company's anticipated selling price. Taking this selling price and desired return (expressed as a multiple of initial investment – ROI) postmoney valuation of the company can be calculated, which is equal to the sale price of the fifth year divided by the desired return on investment. Finally, the premoney valuation of the company can be found by subtracting the amount of investment during the funding stage. This could be explained through an example where after-tax earnings in year five are to be $5m with an acceptable industry P/E multiple being 7x. Hence, the anticipated selling price would be $35m in year five. If a 4x ROI is required by the investor the post-money valuation of the company would be $35m/4 = $8.75m. If the investment in the round is $1.5m the premoney valuation of the company would be $7.25m.

Fintech Section

FINLY| September 2016 | Finstreet | SIMSR

The First Chicago Method - This method is somewhat more complex in the sense, that it combines multiples-based valuation and DCF and posits three possible valuation scenarios (upside, base, and downside). Each scenario is assigned a probability deemed appropriate by the investor, and the final valuation is the probabilityweighted sum of the three scenarios. Valuation for a Loss-making start-up ŸFor most of the start-ups, negative earnings are often the norm as they cannot generate sufficient revenue to cover their base cost (which in the instance of a tech company may be exorbitant if highly educated and expensive software developers are being employed). Hence, many startups or even the well-established tech companies are loss-making, in such case multiple based valuation metric is the recommended option. Within the sector, the risk/reward ratio of investing in a loss-making company that may go on to be the 'next big thing' is often too compelling a prospect for many investors. Hence, three factors should be taken into consideration in evaluating a loss-making investment opportunity ·Availability of the potential market ·The risk/reward ratio ·Competency of management Other methods such as Stage of Development approach to valuation, which is mainly relevant in the case of pre-revenue start-ups, could be used wherein a monetary value to certain parameters and critical foundations of a

company (such as the competence of the management team, proof of concept, etc.) are assigned. The valuation of the company increases with increase in the credibility of these factors, till the company started generating revenue. Hence, the start-ups with a mere business plan will receive the lowest valuation from investors but as the company succeeds in meeting tangible development milestones investors will be willing to assign a higher value to the company. Common Factors A number of factors can influence the valuation of fintech companies which are of internal or external nature. Internal factors are company specific entails - the competence of the management team, stage of development/proof of concept and the overall business plan. The external factors on the other hand would comprise of the potential market, the size of comparable deals in the sector, the size of previous successful exits in the sector (plus the perceived likelihood of an exit) and the number of competitors. These factors could be termed as drivers for enhancing valuations for the company. Fo r i n sta n c e , i n ste a d o f ta k i n g government regulations as a hindrance, companies are starting to find the opportunity with the evolution of R e g Te c h ( s h o r t f o r R e g u l a t o r y Technology).

ARE FINTECHS REALLY WORTH WHAT THEY ARE VALUED AT? Start-ups whose delicate business models were exposed

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start-ups, who did not have a sustainable business model and had its fair share of ups and downs, despite support from the Government and a friendly business ecosystem. Berlin-based start-up Number26 started as a venture to reinvent the traditional bank. It got its banking license, just a year and a half after it was launched. It could attract 200,000 customers in no time raising tens of millions of dollars (52.8 million). It was a near perfect smartphone-only bank, which could offer traditional banking products and at heart, offers an ATM with a free current account. In June 2016, Number26 received flak on social media for its decision to cancel hundreds of customer accounts and at the same time did not give any justification or formal communication for the same. Finally, it turned out to be too many ATM withdrawals by the customers, which led to such a move. Like all start-ups, it had to acknowledge to its delicate business model, wherein it took a hit of 2 euros each time a customer takes out some cash. All this despite the large funding it had received till then. Ironically, Number 26, which positions itself as not being like traditional banks, faces the same cost-margin-profit issues as traditional banks, makes the same types of business decisions and had to deal with the same type of image problem that traditional banks have had. There was one takeaway from this incident and it means that the one-

service-fit-all model is gone. Indian Fintech Trupay, which was created as a home-grown alternative to Visa and MasterCard is a good example of a shift in the business model by leveraging a trending implementation. It was facing considerable losses and then decided to position itself from a customer-centric solutions provider to a merchant oriented solutions provider, leveraging the advent of UPI. They are still on the growth path with lower steep learning curve and have not convinced consumers that it can be a standalone and full replacement for Paytm and Mobikwik (as an e-wallet killer), and thus it will be interesting to see if the ₹148.1 million funding that has been pumped into it till now is justified or not. Profitability not to the tune of financing Fintech unicorns Funding Circle and TransferWise have found it difficult to make profits and they found it later on that, they actually needed around 5-6 years to reach profitability. All this despite receiving £267m and £70m of equity financing respectively. Transfer wise reported losses of £37 million. The question of profitability is becoming important and it owes to a combination of factors which include declining VC investment in fintech and increasing pressure from existing investors to see returns. The real truth is that most fintech startups still run on the traditional infrastructure of mainstream banking with no real path-breaking revolution or difference, except for the advantages of

Fintech Section

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convenience of doing things in a matter of few clicks, thanks to smartphones and the internet infrastructure of today. These business models are unsustainable and the likes of TransferWise can afford to provide cheap services only because of VC money and thus keep the prices of the services artificially low. Also, most of the start-ups have jazzy mobile app interfaces and features you can do with, but do not solve major pain points (such as Monese, a start-up which allows migrants to open a local bank account on their smartphone as soon as they go to another country, something which is difficult even today). They have made price a key selling point and it will become difficult to crank up the prices because people used their services, because it was free. Many of them employ the strategy of “attract customers with one thing (the core selling point) and actually sell them something else”, which has not worked most of the times, making things even more difficult. Investors no longer believe the “I'll build a massive customer base first, and worry about monetising later”. They want a fast money-making business. It becomes expensive to scale up your business due to the presence of complex and financial regulations. Because, even if these start-ups scale up to comparable public companies, the same customers would turn their heads, the moment they are charged.

Public-Private Valuation Inversion: The Ratchet Clause Square, financial services, merchant services aggregator and mobile payment company based in San Francisco, California, was one of the earliest startups in the fintech scene, started in 2009.It was a good example of a private company, which was valued at a premium to comparable public companies. This Inversion was opined as irrational. This could be explained by the simple fact that, at the time it was estimated that it is easier to reach people having mobile phones over the internet, thus promising and high growth rates. At the same time, public market investors want a good story, which is backed by results that demonstrate growth both in the top and bottom line. At the time of its IPO in 2015, Square's growth and profitability were questionable and this lead to the Post IPO price being lower than its valuation as a private company. It was not able to justify its $6 billion valuations to retail investors and was valued at $4.19 billion at the upper band. The prominent reasons were increasing uncertainty in the balance sheet with increasing revenues and losses at the same time, negative cash flows and increasing competition with new POS platforms and systems. Although it was also evident that the US IPO market was quite uncertain with 2015 IPOs being the lowest in six years, it cannot be denied that billion-dollar “unicorn” start-ups were getting private funds at higher valuations, which may not be justified in the public market. This had also put

Fintech Section

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pressure on existing unicorn start-ups and made investors rethink their strategy of valuing fintech start-ups. This is where a Ratchet Clause will be useful for protecting late stage investors. The Ratchet mechanism allows a VC or a private investor to protect its investments if a company IPOs itself or sells itself to another company at a lower valuation down the line. In the above case of Square, latestage investors will get a price adjustment to the profits they receive from the lower valuation in the IPO. Certainly all private investors must use, in such eventualities. To sum it upâ&#x20AC;Ś. Fintech companies associated with buzzwords like Block Chain, Artificial Intelligence, and Machine Learning are having their values inflated. The valuations are quite frothy in general, where the valuations are separated from the underlining performance of the business. Investors must clearly understand the monetizing ability of the business model associated with the start-ups. Fintech ventures are all about creating disruption and trying to exploit a space which is difficult to execute with the current traditional banking system. If this is matching a huge market opportunity that has long existed and is particularly attractive, the start-up should be on the radar of investors.

Alumni Section

BHARATRAM NARAYANAN PGDM 2015-17

Introduction At the onset, I would like to express my gratitude to Finstreet at being given this opportunity to contribute to Finly as an alum. I have been an avid reader of Finly and always look forward to read their insightful articles. 1) Your organization and profile, explaining what exactly the role is? Cognizant Technology Solutions Corp., is a leading MNC in the IT industry operating in the digital, technology and consulting domains. I work as a Business A n a l yst i n C o g n i za nt B u s i n e s s Consulting (CBC), which is the consulting arm of Cognizant. As a Business Analyst in CBC, you get exposure to work on both the functional and business side. On the functional side, an analyst will be tagged to a project where they will work on deliverables like Business Process Requirements, developing UAT test cases, etc. In short, a BA will act as a bridge between the client and delivery side driving the project to completion

through stakeholder management. On the business side, a BA is expected to work on business development opportunities and contribute to deliverables like RFPs/RFIs. I am currently working in the capital markets domain for CBC and my client is a leading financial data services provider. My role as a BA involves understanding the business logic, creation of data mapping documents and managing the transition of exchange data to the client platform. It is techno-functional role that requires understanding client requirements as well as the underlying technical details involving messaging protocols and message mapping. 2) What skills are required for your profile and how should students prepare? The most important skill a BA is expected to have is to have the desire to learn and adapt oneself to complete the business requirements as desired by the client. Changes in customer requirements happen on the go and a BA is expected to

Alumni Section

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meet them in the deadlines given to them. Every day throws a new challenge at you and the only way to solve them is to meet them head-on. Awareness on all the upcoming trends in a particular domain is expected of a business analyst since this helps in contributing to new business proposals. The ability to articulate business requirements properly and ensure that all the stakeholders are on the same page is of utmost importance. Also the fluid nature of the work makes it necessary to prioritize work based on its urgency and criticality. So students intending to pursue a career as a consultant should be updated on all the developments happening in their chosen domain. If possible, try to read research documents and whitepapers published by consulting firms to get an organizational point of view of all the recent developments and future trends. Communication skills, Documentation, S t a ke h o l d e r M a n a g e m e n t a n d developing an analytical approach to problem solving are areas which students should focus on.

3) Your experience in SIMSR that helped you in your career. After completing my engineering, I worked in Infosys for close to 3 years. My experience working in Infosys was limited to working in the assigned project and as a Systems engineer you don't get exposure to work on the functional side of the organization. My MBA experience in SIMSR brought

into focus this lack of appreciation in me for the functional challenges faced by an organisation. The varied subjects present in the course and the case studies in them make you keenly aware of the intricacies involved in managing the various stakeholders in the organization. I started analyzing problems in a more structured manner and try to resolve them in the most efficient way possible. This methodical approach is what has helped me the most in my post-MBA career. 4) Any Advice you would like to give to current students â&#x20AC;&#x153;Change is the only constant in lifeâ&#x20AC;? and this adage captures the essence of your career in the most apt way. Always be open to learn as constant learning is the only way to remain ahead of the curve. This desire to learn is what will push you to be the best in your chosen domain and make you the go-to person in your organization. Never be disheartened by failures, in both your academic and corporate career, as these failures act as warning beacons in your life and will equip you better to face the future challenges. I once again thank Finstreet for giving me this wonderful opportunity of sharing my corporate experience and insights with all of you. I wish all the current batch students the very best in their post MBA career.

FOOD PROCESSING INDUSTRY

Sector Analysis

MARKET ANALYSIS

Ever since the Finance minister of India presented the Union Budget on February 1 the Indian stock markets have been witnessing a tailspin, causing fright among investors who have so far enjoyed a bull run. When the Sensex fell over 800 points on Friday, the fall was largely due to the re-introduction of the Long-Term Capital Gains Tax in the Budget. As much as Rs 9.6 lakh crore of investor wealth was obliterated off in just three working days with the benchmark Sensex losing 2,164 points. On 6th February, both the Sensex and the Nifty fell 3.5 per cent, their biggest intraday fall since August 2015. The Sensex fell by over 1130 points. In the US, Dow Jones fell over 1,100 points on Monday, its one of the biggest fall since six-and-half years after US wage data on Friday pointed to

Aachman Vijayvargia MMS Jay Jobalia MMS quickening inflation which may lead to higher rates by the US Federal Reserve. While concerns about the long-term capital gains tax, announced in the Budget and the government focusing on fiscal discipline were some of the reasons, the larger cause has been the twitch in the US stock market that has sent shockwaves across equity markets worldwide. Nikkei 225 index dropped down by 6.1 percent to 21,296.03 by early 6th February afternoon. Hong Kong's Hang Seng index lost close to 5 percent to 30,651.31 and Australia's benchmark S&P ASX 200 had skidded 3.3 percent to 5,828.40. South Korea's Kospi declined 2.9 percent to 2,418.70 and the Shanghai Composite index was off 2.2 percent at 3,412.55. Europe's stock markets too collapsed by more than 3 per cent. The volatility index, VIX, gained over 50 per cent as traders panicked. The US stock market bounced

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Sector Analysis

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6th February, but European markets continued their fall. Between the market's high on January 26 and when the Dow Jones Industrial Average and S&P 500 entered correction territory on Thursday i.e 1th Feb global markets (as measured by the S&P Global BMI index) shed $5.2 trillion. That's according to data from S&P Dow Jones Indices' Howard Silverblatt. This amount exceeds the GDP of the U.K. and Canada combined. In 2016, Canada's GDP clocked in at $1.5 trillion, while the U.K.'s came in at $2.7 trillion. What caused this Bloodbath in Global Markets? US Bond Yield One reason for the non-stop rally in stocks was low bond yields that made stocks relatively more attractive. But since stocks carry higher risk, a spike in bond yields makes investors pull money

out of stocks to invest in bonds. Recently US bond yields hit a four-year peak with the recent tax Bill of the Trump administration expected to lead to higher government borrowing that would in turn lead to a higher supply of bonds. The US economy has been on a rebound, with the employment rates recovering from the downfall in September caused due to twin hurricanes. The US employment data showed wages rising at the fastest annual rate since 2009, as the American economy created 200,000 new jobs last month â&#x20AC;&#x201C; a better performance than expected by economists. Improving levels of pay could lead companies to hike their prices to compensate for higher wage bills leading to an inflationary spiral. Investors fear that the positive numbers would give rise to inflation, and lead to an interest rate hike, making capital more expensive. This has also alarmed the bond markets, resulting in higher bond yields

Sector Analysis

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which make stocks less attractive investment.

higher rates generally encourage more savings and less borrowing in the economy which creeps into corporate profits and ultimately affects share price.

U.S. government debt yields notched new highs amid of a slew of new economic data that provided more evidence of inflation pressure. The yield on 10-year U.S. Treasury touched a fresh four-year high of 2.944 percent, above the levels which sparked a stock market sell-off in recent weeks. The 2-year Treasury yield hit a high of 2.213 percent, its highest level since September 2008, when the 2-year yielded as high as 2.217 percent.

Foreign institutional investors FIIs are taking out money, creating a huge supply-demand gap with supply being dominant. This will result in fall of price. The foreign institutional investors, who were net buyers in the Indian equity markets which amounted to USD 2.06 billion in January 2018, turned net sellers in February. During this period FII's have sold net assets worth USD 0.81 billion and most of this selling has happened in the last five trading sessions.

Rising Interest rate

The reason for withdrawing money from Indian market is dues to rise in inflation data, which showed that the producer price index (PPI) increased 0.4 percent last month, with core PPI excluding volatile food and energy prices also up 0.4 percent, PI excluding volatile food and energy prices also up 0.4 according to the Labor Department

When the Central Banks raises rates, the cost of borrowing money increases. That means companies have to pay more for their loans, which cuts into corporate profits. Higher interest rates also affect stock markets indirectly by reducing consumer spending. The

Sector Analysis

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Investors now believe the US central bank will raise interest rates at least three times this year â&#x20AC;&#x201D; with the next quarter-point expected in March â&#x20AC;&#x201D; and have priced a chance of nearly 20 per cent for at least four increases in 2018.However, this isn't surprising. Amid global sell-off, there is a risk aversion among FIIs. In such a situation, they tend to pull money out of emerging market like India which is considered to be riskier than developed markets and more susceptible to global risks.

FINLY| FEBRUARY 2018 | Finstreet | SIMSR

News Buzz Trivia

FINLY| DECEMBER 2017 | Finstreet | SIMSR Competition Commission of India imposes Rs 136 Crore penalty on Google CCI imposed penalty on Google after finding that company abused its dominant position in online general web search and search advertising in India. The complaint was more about the biased search page result and the disproportionate preference given to sponsored products which hindered the healthy spirit of competition. This complaint was filed by Matrimony.com and Consumer Utility & Trust Society (CUTS) in 2012. The figure of Rs 136 Crore is reached by 5% of company's total average revenue generated from India operations from its different business segments for the financial years 2013, 2014 and 2015. After a detailed probe, the CCI, through a majority order, said the penalty was imposed for â&#x20AC;&#x153;infringing anti-trust conductâ&#x20AC;?. In response to this, Google said that their conduct complies with Indian competition laws in major areas but if there are any concerns in narrow areas, they will look into it and decide on the next steps.

N I R AV M O D I S C A M I N P U N JA B NATIONAL BANK The Punjab National Bank, India's secondbiggest state- run bank, reported a fraud of Rupees 11,300 Crore at its Mumbai branch. This is the biggest corporate fraud reported in India. The amount is 8 times the bank's net income. So how did the scam that benefitted diamond merchant Nirav Modi and Gitanjali Gems, owned by Mehul Choksi happen? It all started with diamond firms approaching PNB for opening letters of credit for import of rough stones. Modi decided to take bank loans without having an account, sanctioned limits or collaterals. To circumvent these, he arranged for an LOU from PNB. LOU is a letter of undertaking which is a form of bank guarantee, which allows the bank's customers to raise money from another foreign branch. This is basically a letter of comfort issued by one bank to branches of other banks. Based on the LOU, foreign branches offer buyers credit. To raise an LOU, the customer is supposed to pay a margin to the bank, according to which a credit limit is given. But in this case, Nirav Modi neither gave a money margin nor there was a credit limit imposed. PNB employees issued fake LOU's for Modi, on which foreign branches of few Indian banks (Axis Bank and Allahabad bank) gave dollar loans to PNB.

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FINLY| FEBRUARY 2018 | Finstreet | SIMSR FINLY| August 2017 | Finstreet | SIMSR Based on unauthorized LOU's PNB employees used SWIFT network to send messages of fund requirements to Allahabad bank and Axis Bank. This was done using SWIFT passwords, while none of the transactions were actually recorded in the bank's core system, thus keeping the management in the dark for along time.

TRIVIA GIFT- India's first international financial services centre The international financial services centre (IFSC) at Gujrat International Financial Tech city near Ahmedabad is Prime Minister Narendra Modi's idea to create a financial hub like Shinjuku, Tokyo, Luijazui, Shanghai, La Defense, Paris, London Dockyards etc. in our home country. GIFT Master Plan facilitates Multi Services SEZ with IFSC status, Domestic Finance Centre and associated Social infrastructure. It is a Government of Gujarat project in partnership with IL&FS to develop India's first global financial hub. GIFT is India's first multi-service SEZ with International Financial Service Centre (IFSC) status which is catering to the country's large financial services market by offering global firms worldclass infrastructure and facilities. There are various benefits offered by GIFT city to investors such as-

路No taxes to foreign investors Foreign Portfolio investors will be exempted from five taxes: dividend distribution tax, stamp duty, short and long-term capital gains tax, minimum alternate tax and securities transaction

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tax. 路Minimum Alternate tax (MAT) Businesses under GIFT will have to pay 9% MAT compared with 18.5% tax on all profits payable by the company in SEZ.

路Foreign Exchange Setup In GIFT city, foreign exchanges can also set up their operations.

路Commodity Futures Compliance The GIFT city falls under the purview of SEBI and all arrangements with overseas regulators are applicable. In nutshell, GIFT city holds a very bright prospect for India in financial world if carried forward rightly. Actively managed funds Actively managed funds are where investment decisions are made with a specific goal in mind, like outperforming a particular index or achieving a certain level of return. Active managers rely on research, forecasting, and experience in making investment decisions. Because there is careful selection of stocks, these funds have higher expenses and taxes, than passively managed funds.

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Collateralized Debt Obligation-CDO CDO is a type of a structured Assetbacked security, that banks use to pool together individual loans into a product sold to investors in secondary markets. These products can consist of auto loans, mortgages, etc. CDO's can be divided into various parts depending on its risk level. The pooled assets are debt obligations that serve as a collateral to the CDO.

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