FINLY December 2020

FINLY

DECEMBER 2020 | Issue No. 96

Joe Biden's Impact on Global Economy Eco Section Effect of Interest Rate Waiver on the Banking Industry and Government Exchequer

Sector Analysis

Green Finance

Retail SectorÂ

Greening the Banking System

CONTENTS 1

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EDI TO R I AL

TEAM F INL Y

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9

C O VER STO R Y

EC O SEC TIO N

President Joe BidenImpact on Global Economy

Effect of Interest Rate Waiver on the Banking Industry and Government Exchequer

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17

SEC TO R ANALYSIS

C O MPAN Y AN ALYSIS

Retail Sector

DMart

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INTR IGUI N G I N DEED

G R EEN F INAN C E

All about the Ant Group Greening the Banking and its IPO debacle System

ISSUE NO. 96, DECEMBER 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 December edition of our monthly magazine “Finly” for the academic year 2020-21.

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 US elections on the global economy and Joe Biden’s potential relations with India. The intriguing indeed article goes through the reasons behind the suspension of the much-awaited Ant Group IPO. 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

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ISSUE NO. 96, DECEMBER 2020

TEAM FINLY Faculty in-charge

Editor-in-chief

Editor - FINLY

Dr. (Prof) Pankaj Trivedi

Akshitaa Bahl

Nilomee Savla

Team Coordinator

Karishma Lalwani

Conceptualization & Design

Himanshu Sharma

Nishi Kumari

Riya Shah

Content Team

Akash Pawar

Anant Maske

Mohit Kansal

Prakhar Gupta

Praneet Sisodiya

Rahul Devaram

Saheel Sirvoicar

Sahil Mankotia

Sahil Mehdiratta

Saurabh Kumar Dubey

Srishti

Vaishnavi Badaya

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| COVER STORY

PRESIDENT JOE BIDEN - IMPACT ON GLOBAL ECONOMY INTRODUCTION By the time FINLY readers get to read this, we will have more clarity on the 2020 US Presidential elections, and in all possibility, we shall be learning that Joe Biden will be the 46th POTUS. Democrats back in power again! Given the size of its economy, 15% of the world’s GDP(PPP). In choosing Biden over Trump as their President, the American voters have potentially changed the course of the world economy. At least for the foreseeable future or till Biden holds the Oval office.

Rahul Devaram| MBA B | 2020-22 Sahil Mehdiratta | MBA A | 2020-22 surplus for India was $28.8 billion. Close to 17% of India’s exports are to the US and imports from the US to India are around 7.5% of total imports. India’s exports to the US predominantly include IT services, machinery & textiles, iron & steel products, and imports include mineral fuels, precious metals and stone (diamonds), aircraft, machinery, and organic chemicals.

INDIA-US TRADE RELATIONS Historically trade and investment have played a vital role to strengthen these relations, with the US being India’s largest trading partner. India’s goods and services trade with the US in 2019 was estimated to be $146.1 billion, exports and imports were $87.4 billion and $58.6 billion respectively and the U.S. goods and services trade

Source: Office of the USTR

For all the bonhomie between Prime Minister Narendra Modi and President Trump, one area where they had their share of differences was ‘trade’.

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| COVER STORY Though we can't expect things to change drastically, economists and policy experts feel atleast a middle ground can be achieved.

The US Sanctions on Iran severely limited India’s sourcing of cheap crude oil. For an emerging economy and developing country like India, a regular and cheap supply of crude oil is very essential. Now that Biden is taking over, India can leverage its close ties with both countries and may help in the normalization of US-Iran relations. Lifting sanctions would be more than handy for India not only economically, but also Geo strategically as India can speed up the Chabahar port and Zahedan railway projects.

BIDEN'S POLICIES - INDIAN ECONOMY Under Biden, New Delhi hopes to get back on the list of countries eligible for the Generalised System of Preferences (GSP).

Trump has removed India from that list after frequent trade rifts and US Industry complaints about India’s cap on the pricing of certain medical devices. Later, India retaliated to import tariffs on steel and aluminium in 2018.Biden administration may want to dangle tariff reductions in return for concessions abroad, likely India. India can expect restoration of GSP benefits and removal of tariffs on steel & aluminium.

Policy experts feel that on trade, Biden is likely to be less obtrusive than Trump. Under Trump's administration, trade in overall view was a zero-sum game. He was reluctant to lose some to gain some. Biden’s style of approach can be more pragmatic than the radical way of President Trump.

Source: Business Standard

Biden has also vowed to re-join the Paris Climate Accord, which Trump left citing that it is unfair to US interests. If Biden’s administration stands on its word, climate change negotiations would become commonplace where India’s interests and leadership position in combatting climate change would be duly considered. This may help India deal with the massive challenges it faces on this front, both technically and financially.

Following the nail-biting race to Whitehouse 2020, Indian markets followed the Wall Street trend and were positively impacted improving the market sentiment. Pharma Sector might gain with increased government expenditure

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| COVER STORY on healthcare. IT Companies can breathe easy on immigration, unlike Trump. He also expressed his views on being tough with China concerning trade.

The Biden administration is expected to push the momentum of supply chain relocation from China to India, Indonesia, Vietnam, etc. to reduce dependence on China.

BIDEN'S POLICIES - US ECONOMY The President-elect Joe Biden will inherit an economy wrecked by the Covid-19 crisis, which caused more than 235K deaths, and 22 million job losses, and an unemployment rate that touched 15% in April 2020. Saying that Biden has a challenging task ahead of him will be an understatement. With a Republican majority Senate, Biden will also find it a bit difficult to manoeuvre with his policies.

Jobs & Wages: Biden has branded his vision for the future of U.S. jobs as “Made in All of America”. He aims to strengthen domestic manufacturing as well as public and private sector unions. Creating at least 5million jobs in manufacturing and innovation by investing $700 billion in the same was one of the priorities he outlined. He emphasized that $400 billion

would be aimed at purchasing US-based goods and services while the rest of $300 billion would be invested in R&D. Taxes: "This country wasn’t built by Wall Street bankers and CEOs and hedge fund managers. It was built by the American middle class", Biden said at a rally kicking off his campaign. Biden believes in saving the middle class to save America, i.e. growing and the thriving middle class is key to make America a flourishing economy. His plan is expected to raise nearly $4 trillion in additional revenue over a decade. According to the Tax Policy Centre, the highest-income 20% of households (who will make about $170,000 or more) would bear nearly 93% of the burden of Biden’s proposed tax increase, and the top 1% nearly threequarters. He also plans to increase corporate tax to 28% from 21%.

Housing: Biden has proposed investing $640 billion throughout the following decade for housing that is moderate and open to those with incapacities. This would include creating a refundable tax credit up to $15000 when Americans purchase a home for the first time. Giving housing vouchers to each qualified family so they don't need to pay over 30% of their pay for rental housing. Eligibility depends on complete yearly gross pay and family size. Also, allocating $100 billion of funds to construct affordable housing.

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| COVER STORY BIDEN'S POLICIES - REST OF THE WORLD Joe Biden might have won the majority of the U.S. voters’ confidence but his road as the President is not as straightforward as one would like. The administration has come into force at a time where the world is breathing under a pandemic, U.S. superpower status is under threat and Trump's ‘America-first’ agenda has made sure that key international relations require a revamp. While the Biden administration may not be pro ‘America-first’, still he made a statement quote, “strengthening America’s role in the world will require that the US first put its own “house in order”. Biden will have to simultaneously address domestic as well as foreign policies.

CHINA Biden’s presidency in the coming years is expected to define and have a great impact on the China-US relationship. Trump’s China policies will become history, but they might be at least partially inherited as the bargaining chips of the new President Biden.

First, in terms of trade, the USD 400 Billion tariffs on China are expected to be upheld.

TPP partnership which was removed under Trump’s administration is also expected to be brought back.

Second, the U.S is expected to ally with European nations on emerging technologies and the fact that the U.S. will never allow China to dominate technology development in the future is a problem. China will have to

find a way to domestically transform key technology fields such as AI, 5G, semiconduct, and other national security-related areas.

Third, the Biden rule is expected to be harsh and a rule-based regime that is consistent, rather than a more impulsive approach by Trump, which ensures certainty and is expected to bring a short-term bullish trend in the Chinese markets.

Lastly, the Biden administration will enhance cooperation with China in the fields of environmental protection, global healthy security, and non-proliferation of nuclear weapons, while on the other hand give more pressure on some traditional barriers such as human rights and geopolitical issues.

EUROPE Joe Biden is being viewed as the most “Atlanticist” president of the generation. He has already vowed to bring back the multilateral agreements, improving alliances with NATO, and re-joining the Paris climate agreement. Trump’s administration, to protect the 30 NATO countries from an attack, was based on the stipulation that these countries pay their “fair share” and spend at least 2% of 6

| COVER STORY their GDP on defence. While the push will still be there, Biden will not threaten alliance members. He shall increase the defence budget and propose budget cuts on a priority basis. Although Europe would be in a positive mind frame with Biden’s victory, the fact that the election was contested closer than previously thought, gives the impression that people still support “Trumpism” and that disappoints European leaders. Clément Beaune, French minister of state for European affairs made a claim, “we should not think that if there is a new American president, the situation is as it was before President Trump was elected”. Unlike under Obama’s administration, European relations with China have become equally important, especially considering Germany. Hence, it is fair to say it won't be a quick turnaround of relations even under Biden’s administration.

While Trump was pro-Brexit, Biden sees things differently and intends to defend the interests of Ireland. But now with how things are, he would surely want a solution that respects Irish border agreements. The trade deal might also be contingent on the Brexit conditions. While a US trade agreement would not be transformative for the U.K., it could have a significant impact on certain industries. For Example, the U.K. car manufacturing industry will face potential trade restrictions from the E.U. post-Brexit, and “an ambitious US trade deal has the potential to provide a significant offset to Brexit”, winning the industry about 5 billion British pounds in export revenue.

MIDDLE EAST Iran: While Iran gets ready for its presidential elections in June 2021, The Biden administration would be looking to work fast to negotiate with Iran on certain matters. Biden would want the U.S. to join back in the nuclear deal (the Joint Comprehensive Plan of Action, JCPOA) with Iran presuming it complies with the deal's stipulations. The U.S. would also want to make sure that its sanctions are not a hindrance for Iran to fight the Pandemic (something which Trump failed to achieve).

The Gulf: The recent rapprochement between the Gulf states and Israel is positive news for the Biden administration. Biden would prefer to work with the Gulf in a more distanced but consistent style, which would not be bad for Gulf states who would have more clarity on the U.S.’s stance on the region.

Upcoming 4 years are very critical for the Middle East states considering the world is finding ways to move away from overreliance on Oil and Gas. They need to find ways to adjust their economies to post Covid-19 scenarios while also upgrading their security.

CONCLUSION A presidential election in the United States is an international event. The question of who takes the White House has had a direct bearing on the shape of the global economy.

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| COVER STORY Trump through his policies has made more foes than friends but more prominently in the past four years, he has repeatedly desecrated the values, principles, and practices that made America a haven for its people and a beacon to the world. Joe Biden is not a miracle cure for what ails America.

But he is a good man who would restore steadiness and civility to the White House.

With Joe Biden, success would not be guaranteed, but he would enter the White House with the promise of the most precious gift that democracies can bestow: renewal.

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| ECO SECTION

IMPACT OF INTEREST RATE WAIVER ON THE BANKING INDUSTRY AND GOVERNMENT EXCHEQUER INTRODUCTION

Srishti | MBA FS | 2020 - 22 Praneet Sisodiya | MBA A | 2020 - 22

Before the Covid-19 pandemic started in India, India was experiencing a prolonged slowdown due to the effects of:

compound interest over these months.

(interest-on-interest)

STEPS TAKEN BY THE GOVERNMENT Demonetization (2016) GST implementation (2017) NBFC financial crisis (2018) Various Financial irregularities The strict lockdown imposed due to the Covid-19 pandemic was the final nail in the coffin for the economy. With incomes dwindling for everyone, the Government announced a moratorium on loan payment for three months starting 1st March 2020 onwards initially which was later extended by another 3 months till the end of August. The moratorium period continues until a final decision is announced by the Supreme Court. But banks have continued to accrue

A petition was filed in the Supreme Court for a complete waiver of interest during the moratorium period. Taking into account the dire situation on account of the pandemic the Government on 24th October 2020 decided to waive the interest-on-interest burden for borrowers with loan amounts having sanctioned limits and outstanding amounts not exceeding Rs 2 crore (US $0.27 million) as of 29th February 2020. For eligibility, the accounts should be standard (repayment not overdue for more than 90 days) as of February 29 which means it should not be a Non - Performing Asset (NPA). The move is also applicable to those who have cleared their dues, those who have

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| ECO SECTION not availed of the moratorium, and even those who continued with repayment of loans. The compound interest that is ‘interest on interest’ will be scrapped for eight sectors: micro, small and medium enterprises (MSMEs), education loans, housing, consumer durables, credit card dues, auto loans, personal and professional loans, and consumption loans.

loans, it would lead to a ₹6 trillion burden for banks. If the banks were forced to withstand this entire burden, it would be highly detrimental for their net worth, imperil their very survival and render most of the bank’s operations undoable. Banks reckon that since banks pay interest on interest on deposits or liabilities, they cannot afford to let go of interest on deferred payments by borrowers.

IMPACT OF THE DECISION EFFECT ON GOVERNMENT EXCHEQUER According to rating agency Crisil, over 40% of system credit and 75% of borrowers would benefit from this move. Borrowers of banking companies, non-banking finance companies, cooperative banks, regional rural banks, and housing finance companies registered with National Housing Bank, will be eligible for the waiver. The lenders were directed to credit the difference between compound interest and simple interest for 6 months (01.03.2020 to 31.08.2020) to the eligible borrowers by 5th November 2020.

For computation purposes, the interest rate followed is the one that prevailed on 29th February. After crediting the amount, the lenders can submit a claim for reimbursement to the State Bank of India (SBI) which will act as a nodal agency for the government latest by 15 December 2020.

This waiver move by the Government will not significantly impact the profitability of the banking sector.

However, interest on the loan has not been waived. The finance ministry has said that if charges were waived for all categories of

The government admonished that this waiver measure can have an inimical impact on its immediate concerns such as controlling the Covid-19 pandemic, ensuring the economic situation does not spiral out of control, ameliorating the common man’s woes arising due to the loss of livelihood and the ongoing India-China border standoff.

This outcome was embraced by the retailers and small businesses with open arms as they have borne the biggest brunt of the pandemic.

Given the unprecedented situation, the government had no choice but to waive the interest. The Central Government has said that the waiver may cost it more than ₹20,000 crores, due to the presence of large categories of lenders, including private and public sector banks, non-bank financiers, and small finance banks. However, experts say it will cost the exchequer about ₹6,000 to ₹7,000 crore. The cost to the exchequer would have halved if the waiver was allowed only where a

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| ECO SECTION moratorium was availed of. The move could also impact the government’s ability to recapitalize public sector banks, which are likely to see a rise in bad loans.

The decision has been widely hailed by everyone given the already precarious situation of the banking industry. The modalities need to be worked on as it will entail a massive EMI recalculation exercise by banks that are already in the middle of a debt recast exercise. This measure will stretch the government’s finances forcing it to borrow more than what it had initially budgeted. The Fiscal deficit of the Central Government will likely cross 8% of the GDP and public debt to GDP at a record high of 90% this year. The idea to bear the burden is a welcome decision, given that most Indian banks are starved for capital and this would have further depleted resources.

Source: CEIC

The Fiscal deficit shows the difference between the total income of the government and the total expenditure.

Source: Tradingeconomics

The debt-to-GDP ratio is a ratio between a country's government debt and its gross domestic product.

The moratorium period enabled the borrowers to defer repayment of loans. The Supreme Court in an interim ruling said that loan accounts that were not declared NPAs as of 31st August 2020 will not be declared as bad loans till further orders. This step will help potential defaulters to escape the NPA tag and give them temporary relief till the final order comes. Due to this, stressed loans will remain standard for the time being and will be hidden in the banking system. The actual NPAs will be reflected only after the Supreme Court’s final hearing and repayment schedule of loan holders.

Any extension of rules that prevents banks from proper asset classification will exacerbate the already grim situation of the banking sector. This is because of uncertainty on risk assessment which will impact the investor’s confidence. Past experiences have shown that hiding the NPAs from scrutiny will be deleterious to the banking sector as well as the economy leading to asset quality problems.

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| ECO SECTION According to the RBI, the gross NPA ratio of scheduled commercial banks may increase from 8.5 % in March 2020 to 12.5 % by March 2021 under the baseline scenario and to 14.7% under very severe stress. In the last hearing dated 5th November 2020 RBI urged the Supreme Court to lift the interim order banning the declaration of NPAs. The next hearing is on 18th November 2020 where the outcome is expected.

means Rs 37.72 lakh crore (72% of the banking sector debt to industry) remains under stress. The ongoing pandemic has ravaged the already precarious situation of the banks and the banking sector will be dealt with another blow if the NPAs are not allowed to be classified right now. This will result in a full-blown crisis in the fourth quarter of the current financial year.

Source: CEIC

The nonperforming loan ratio, better known as the NPL ratio, is the ratio of the number of nonperforming loans in a bank's loan portfolio to the total amount of outstanding loans the bank holds.

CONCLUSION The banking industry has been already dealing with massive blows due to the default by ILFS, DHFL, Videocon, Reliance ADAG group, PMC scam, SAHARA Parivar scam, YES Bank financial irregularities and has severely affected credit growth in the country. Corporate sector debt worth Rs 15.52 lakh crore has come under stress after Covid-19 hit India, while Rs 22.20 lakh crore was already under stress. This effectively 12

| SECTOR ANALYSIS

RETAIL SECTOR OVERVIEW The Indian retail sector is one of the most volatile sectors of the Indian economy and with the entry of new players and even foreign ones, it is fast-paced also. In 2020 the total consumption expenditure is expected to reach nearly USD 3,600 billion from USD 1,824 billion in 2017. The total contribution of the Indian retail sector to India’s Gross Domestic Product is around 10% with approximately 8% employability.

Currently, India’s rank in being a global destination in retail space is 5th and 73rd in UNCTAD’s B2C (Business to Consumer) Ecommerce Index 2019.

India’s retail sector includes industries like apparel, footwear, home décor, furnishing, health, and entertainment, consumer durables and information technology.

Apparel and footwear businesses add approx.

10% of total revenue owning to online retailers like Myntra, Flipkart, Amazon, and Tata CliQ, consumer durables products add around 9% of revenue in the retail sector.

Mohit Kansal | MBA - FS | 2020-22 Saurabh Kumar Dubey | MBA - FS | 2020-22 According to the Department for Promotion of Industry and Internal Trade, between April 2000 and March 2020, approximately USD 2.12 billion of equity has been infused through foreign direct investments in the retail sector.

With expanding supply chains and consumer demands, the Indian retail sector is foreseeing a bright future and with the recent acquisition of Future group by Reliance Retail, the competition for existing players has also intensified.

Source: Finshiksha

As per the following graph, the market size has grown exponentially in recent years with 13

| SECTOR ANALYSIS new players entering the market and helping the industry reach new highs and with government schemes & incentives for MSMEs, more new players are expected to join this competitive sector.

with chain stores that have centralized purchasing. But, if the new entrant has the good financial strength to compete with the rival firms, at that point, it sparks a solid threat it would employ substantial resources and aggressiveness to gain market share.

PORTERS 5 FORCES MODEL Threats from Substitutes Bargaining Power of Suppliers The bargaining power of suppliers in the retail sector is low to medium as there are several suppliers in the retail industry. Thus, suppliers in general have almost no control while negotiating with significant firms. Be that as it may, suppliers can influence the new participants.

Suppliers can likewise undermine by contending straightforwardly with existing firms by forwarding integration.

Market players in the retail sector generally offer a wide variety of products. Since the number of retailers available is also significant, hence there is a possibility of products being available in stores next corner. This creates rivalries among the substitutes. However, if any retailer is offering any unique product then he maximizes the competitive advantage for his products.

The Intensity of Rivalry

Bargaining Power of Buyers The bargaining power of buyers in the retail sector is generally low. Customers have next to no bargaining power with retail locations.

These stores, by and large, have fixed costs and subsequently, the purchaser can't negotiate on the costs. In any case, on the off chance that the purchaser needs to purchase in mass, at that point it is possible to deal.

Since the entry of participants is easy in this sector, it creates competition among them for the market share. This makes the intensity of rivalry high among the active players. Further, with the ease of norms of Foreign Direct Investments and entry of foreign players, the bar of competition has increased. The growth in the retail sector is slow which results in cutthroat competition among the active players.

Threats of New Entrants GOVERNMENT INITIATIVES Entry into the market for a firm in the retail business is comparatively easy. It is hard for a recently settled firm to set up good agreements and be beneficial at first. It is exceptionally hard for a little firm to contend

The Government of India has a crucial role to play in the field of retail as the onus of making the Indian retail industry the most lucrative for Non-Resident Indians (NRIs) and 14

| SECTOR ANALYSIS Persons of Indian Origin (PIOs) lies on it. In this light let us observe some initiatives taken by the government:

federation believes this shall pour new opportunities for the low-skilled masses.

TOP RETAIL COMPANIES IN INDIA

DIPP is considering relaxing the sourcing norms for global retailers to establish shops in India, as IKEA is asking for further relaxation of mandatory conditions.

The Union Ministry of Finance has provided relief of Rs 18,000 crore (US$ 3.25 billion) to the software industry by replacing a multi-level structure of tax deducted at source (TDS) on distributors with a single TDS. This would be deducted by the first distributor—one who directly purchases packaged software from a developer.

Some additional measures are: A decision to allow a maximum of 51% in multi-brand retail and 100% in singlebrand retail by the government has been welcomed by the federation.

Four PSUs have been put up for disinvestment.

Ease of decision making has been accorded to the aviation sector.

The ISF said that FDI in the retail sector will have a much wider impact on organized employment as compared to what happened in the IT sector over a decade ago. The

Avenue Supermarts Ltd (D-Mart) Avenue Supermarts Ltd, also known as DMart, was founded in the year 2002, headquartered in Powai, Mumbai. The company with more than 190 stores across India, offers a range of home and personal products and engages in the business of organized retail, and operates supermarkets.

Reliance Retail Ltd Reliance Retail Ltd was founded in the year 2006, headquartered in Nariman Point, Mumbai India. Engaged in the business of retailing in a range of household and consumer products through departmental store facilities under various formats.

Recently, Reliance Retail Ventures Limited acquired Future Retail Limited.

Shoppers Stop Ltd Shoppers Stop Ltd is an Indian Retail Company and was founded in the year 1991.

The company is headquartered in Mumbai, India, and is engaged in the business of retailing in a range of household and consumer products through departmental stores and the company also offers international and national brands. Recently, the company opened its 6th store in Hyderabad.

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| SECTOR ANALYSIS POST PANDEMIC OUTLOOK The COVID-19 crisis caused a lot of changes in consumer behaviours. The crisis has undoubtedly brought about penetration and adoption of online grocery shopping to a maximum degree. The usage of native mobile apps has augmented in the past two months more than in the past two years.

Post this crisis, a lot of these exercises shall remain as a part of the ‘new normal’.

Shoppers shall go back to buy in-store however the prolonged fear of the pandemic in their mind shall prompt them to maintain social distance and shorter shopping spree.

Hence, it will become imperative for retailers to develop and strategize their omnichannel.

This shall include improvisation of a home delivery capability along with click and collect both in-store and pickup centres.

Other significant measures are up-gradation of native mobile app functionalities (for instance Scan & Go, wayfinding and product search, contactless payments, product recommendations and more) to enhance the shopping journey from a customer’s stand viewpoint.

The state of normalcy will return in considerably next 3-6 months if people continue to follow the precautionary guidelines that have been set. The path of recovery looks ambiguous and tedious however coming together as an industry can reinvent growth by just staying at our homes.

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| COMPANY ANALYSIS

DMART BUSINESS OVERVIEW DMart was started by Mr. Radhakrishnan Damani and his family to address the growing needs of the Indian families. The company has its headquarters in Mumbai and is owned and operated by Avenue Supermarts Ltd. (ASL). It is a one-stop supermarket chain that strives to offer consumers a wide range of basic home and personal products under one roof. The core objective is to offer customers good quality products at a great value. The brands DMart, DMart Minimax, DMart Premia, D Homes, Dutch Harbour, etc are brands owned by ASL. Each D Mart store stocks home utility products which include food, beauty products, toiletries, garments, kitchenware, bed and bath linen, home appliances, and more at a competitive price.

The first store of DMart was launched in Powai in 2002. DMart today has a wellestablished presence in 216 locations across Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana, Chhattisgarh, NCR, Tamil Nadu, Punjab, and

Saheel Sirvoicar | MBA - D | 2020-22 Sahil Mankotia | MBA - D | 2020-22 Rajasthan. The mission of the company is to be the lowest priced retailer in the regions they operate in.

Avenue Supermarts launched its IPO on 21 March 2017, the Price Band set was Rs 295 to Rs 299 per share. The Issue got subscribed 73.41 times and the shares got listed on BSE and NSE at Rs 604.40 which is 102.14% above its issue price. In early February, DMart had entered the list of India's 20 most valuable listed companies. The stock as of November 2020, is trading at Rs 2315 and has a market capitalization of Rs 1.5 lakh crores.

Revenue Model DMart's business model has made the company grow exponentially and become the most profitable supermarket chain in India.

The company operates on a low-interior-cost concept where it tries to reduce the operational expenses and focuses on purchasing the products from the manufacturers at a low price thus 17

| COMPANY ANALYSIS

eliminating middlemen. Almost 80% of its existing stores are self-owned which allows it to be a low or no debt company. Further, no rental cost helps in high positive cash flows, which are used for opening additional stores.

It charges slotting fees to the manufacturer- a payment that is made by the manufacturer of goods to the superstore to keep its products on the shelf for sale. DMart stocks its stores with area-specific products making it more convenient for the buyers and this also helps in cutting the competition from the local Kirana stores gaining more market share.

The Major Shareholders are the promoters with 74.99% of shares as their holding. Foreign Institutional Investors have 10.27% holding in the company. Domestic Institutional Investors are the next major investors with 6.11% of the total shares. Retail investors and others make up 8.63% of the total shareholding.

Avenue SuperMarts Ltd has recently launched a qualified institutional placement (QIP) offering to raise â‚š4,098 crores. This has brought down the promoter shareholding to 75%. The company will use the money to expand its store network, invest in the supply chain, and repay loans.

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

Source: Company Website

SHAREHOLDING PATTERN & CORPORATE GOVERNANACE

Source: Annual Report

Total revenues from the operations have increased by 24% in FY 2020. Foods category was the major contributor to the revenue with 51.25 % share, followed

by General Merchandise & Apparel with 28.29 % and Non-Foods (FMCG) with 20.46 %.

Source: Business Standard

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| COMPANY ANALYSIS It has clocked a profit of ₹ 1300.98 crores in FY 2020, up by 44.15% from ₹ 902.46 crores in the previous year. The expenses of the company have risen to ₹ 22741 crores from ₹ 18371 crores, up by 13.4%.

Inventory Turnover Ratio The inventory turnover ratio is Net Sales divided by Average inventory at the selling price. It has remained almost similar; it was 14.63 in FY 2019 and 14.16 in FY 2020.

Interest Coverage Ratio It is used to determine how easily can the company pay interest on its outstanding debts. There is a significant fall in the interest coverage ratio, in FY 2020 it has reduced to 23.15 form 31.70 in FY 2019.

Source: Annual Report

Source: Annual Report

RATIO ANALYSIS Current ratio The current ratio is computed by dividing current assets by current liabilities. It has improved to 3.18 in FY 2020, from 1.67 in FY 2019. It has improved due to the repayment of the current maturity of long-term borrowings.

IMPACT OF COVID-19 Due to lockdown guidelines, various DMart stores remained closed, which disrupted the business. It saw reduced footfall and a reduction in sales. It reported a 38% decline in its consolidated net profit for the quarter ending 30 September at ₹199 crores as the coronavirus pandemic continues to affect its operations. In September 2019 it was ₹323 crore.

The Consolidated revenue decreased by 11% to ₹5,306 crore as against ₹5,991 crores in the year-ago period. In May, June, and July its turnover declined by 45%, 35%, and 25%, respectively.

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| COMPANY ANALYSIS FUTURE OUTLOOK DMart saw a 38% decline in its consolidated net profit for the quarter ending 30 September. Ease in lockdown restrictions lead to business improvement and it continues to gradually progress towards pre-pandemic levels. The company stores did 87.5% of September 2019 sales in the month of September 2020 and most of the stores are operating at pre-Covid operating hours.

DMart has adapted to the new normal and is hugely focussing on technology. The company has closed two of its stores in Mumbai for customers and has converted them into fulfilment centres (FC) for the ECommerce business. One each in Mira Road and Kalyan. Both these locations have an alternate DMart store within 4 km.

Recently Reliance took over the retail business of future retail and it has changed the dynamics of organized grocery retail space. There will be greater competition as the new entity will be 2.5 times of DMart in terms of revenues. DMart will become the distant no. 2 in a large two-player market.

Now cities like Mumbai will become more competitive as Future and Reliance will have around 40 stores jointly.

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| INTRIGUING INDEED

ALL ABOUT THE ANT GROUP AND ITS IPO DEBACLE WHAT IS AN IPO? Initial public offering (IPO) is the process by which a private company can go public by selling its stocks to the general public. It could be a new, young, or old organization that decides to be listed on an exchange and goes public.

A company can raise equity capital with the help of an IPO by either issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital. Other reasons for a company to go public include creating greater public awareness and allowing owners and early investors to sell their stake to make money.

ABOUT ANT GROUP Ant Group, an affiliate of the Chinese Alibaba Group, is one of the world's highest-valued FinTech companies, and the most valuable unicorn company.

AKASH PAWAR| MBA - IB | 2020-22 VAISHNAVI BADAYA| MBA-FS | 2020-22 Ant Group started as an online escrow service called ‘Alipay’ which was established in 2004 within the online retailer Alibaba Group Holding Ltd. Jack Ma, who first co-founded Alibaba and then became chief executive, later carved out the business. Jack retired from Alibaba in the year 2019, but he still owns more than 50% of the voting rights in the Ant Group.

The company is known for running Alipay, one of the most popular mobile payment systems in China. It has over 900 million users in China for Alipay, making it the world's most favored app apart from the social media networks.

Ant’s payments network is just the entry-way, bringing small enterprises and customers into a broad financial ecosystem spanning lending, investment, and insurance services.

But Ant Group has been expanding its reach

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| INTRIGUING INDEED into everything and now offers services across five domains – payments, wealth management, lending, credit scoring, and insurance.

Another wealth management platform of Ant Group is Ant Fortune. It enables users to choose between Yu’e Bao and other funds offered by rivals. The company now boasts over 4,000 wealth management products from over 100 asset management companies.

Apart from that, Sesame Credit was created to leverage Ant’s access to personal data to create credit score profiles for borrowers, as well as offering them financial advice. MYbank was launched to use big data and Artificial Intelligence (AI) to lend to small and mediumsized firms that were underserved by larger banks.

Source: philipcfd.com

Wealth management relates to Yu’e Bao, in simple terms “leftover treasure”. It was launched in 2013 to allow even the smallest customers to invest leftover funds. It offers an average of 2% greater returns than traditional bank deposit interest, along with lower fees to its asset management partners.

It is considered one of the largest money market funds in the world.

China’s digital payment transaction appetite is expected to increase to US$61 trillion by 2025. Consumers and small businesses’ credit balance in China could increase to US$7.45 trillion by 2025. So far Ant has gained only 4% of share in this market.

In 2018, Ant Group launched Xiang Hu Bao, a mutual insurance platform that helps to address the problem of unaffordable healthcare for lower-wage workers. The services are free to join and a premium is charged only upon the treatment, 100 million users joined in the first year alone.

OTHER FEATURES OF ALIPAY Alipay’s mobile app has so many features apart from just payments. Users can use it to shop on Taobao, the big online marketplace operated by Alibaba, invest in mutual funds, purchase insurance policies, keep track of utility bills, borrow money, and find deals from local businesses. Users can also keep 22

| INTRIGUING INDEED themselves well informed with the latest Covid-19 updates. Ant says it isn’t a financial company at its core, but a technologysolutions provider that connects individuals and small enterprises with banks, asset managers, and other financial-services caterers. Alipay sits between individuals and enterprises and facilitates a wide range of financial transactions.

ANT GROUPS IPO Ant Group became the world’s most valuable startup after a fundraising round that happened in mid-2018 and during that time it was valued at $150 billion. The company is now headed for the largest initial public offering in history, as the Chinese financialtechnology juggernaut chases a valuation that would rival the biggest payments companies in the world.

Source: Finnomena.com

It announced plans for its long-awaited dual listing in Shanghai and Hong Kong in August 2020. The company planned to raise about $34.5 billion through the offering. It priced its Hong Kong-listed shares at HK$80 a share and its Shanghai-listed shares at 68.8 yuan.

Also, trading was expected to begin on November 5.

Ant Group thinks that the biggest pain point for Alibaba could come from the Chinese government, as it has put up roadblocks to Ant’s growth in the past also. The group mentions in its filing that “China’s laws, rules, and regulations are highly complex, and continuously evolving” because it relates to obtaining and maintaining the right approvals for doing business. “They could change or be reinterpreted to be burdensome or difficult for us, businesses on our platform are our partners to suits,” the firm cautioned.

IPO SUSPENSION BY REGULATORS Ant Group’s IPO was suspended just two days before the planned listing.

The Shanghai exchange said that changes in FinTech regulatory requirements and other "significant issues" implied the company didn't meet the prerequisites needed to list on its exchange. The IPO was first suspended by the Shanghai stock exchange, called the STAR market, which resulted in the group suspending the Hong Kong leg of the listing.

The suspension is seen as a measure to get control over Jack Ma, was done after a meeting between the regulators and Ant 23

| INTRIGUING INDEED Group's top executives. According to Bloomberg, Ma’s share in Alibaba Group Holding, which owns a slice of Ant, fell about $3bn post the IPO was postponed.

REASONS FOR IPO SUSPENSION Lending is a very tightly regulated state suject in China, with the government and regulators being not so comfortable with the idea of third-party technology-driven apps such as Alipay entering into the consumer lending business. Over time, Alipay, Ant group's flagship offering, apart from being a payment facilitator for Alibaba users, also ventured into personal retail lending, wealth management, and insurance.

Ant group claims it is a tech company and works with financial institutions, which meansit would enjoy fewer regulations and more freedom under Chinese laws. On the other hand, according to Chinese regulators, Ant’s business model of connecting lenders and borrowers falls squarely under their oversight.

In October 2020, Jack Ma criticized China’s state machinery’s financial regulations to be “outdated”, and was lacking innovation, the

comments were not liked by the top leaders of China’s communist party, who have expressed concerns about how banks have tied up with micro-lenders such as Alipay.

A SIGNAL BY THE CHINESE GOVERNMENT TO THE WORLD

Chinese tycoon and one of the richest men in China, Jack Ma, has a net worth of nearly $60 billion. Whereas, the general secretary of the Chinese Communist Party, Xi Jinping, officially earns just over $1,700 a month. But the Chinese Communist Party just showed Jack Ma — and the rest of us - who is the boss. Xi has not been a fan of the dominance of big private businesses that rack up wealth and power in China, as they are seen as posing a challenge to his sovereignty. Maybe, China’s government seems to be sending a clear 25

| INTRIGUING INDEED signal that it is not afraid to step in and cancel the ties when a private company does not play by its rules. And that could haunt investors who are keen to get in on the world’s second-largest economy – but are not eager to accept the Communist Party policies.

WHAT WILL HAPPEN TO THE ANT IOP PLAN NOW? The group is now in the process of implementing the guidelines from the Beijing meeting so that it can plan the launch of IPO again. The group will have to change its working to satisfy the authorities if it wishes to launch a new IPO. According to reports, one of the changes can be that the companywill have to be more transparent on its disclosure and other requirements such as controlling the amount of micro-lending it does every month.

According to The Ant Group report, the group is likely to stay put on its plans to float an IPO and will seek guidance from the older Alibaba Group on how to negotiate and navigate through the tough regulations of institutional lending in the Chinese market.

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| GREEN FINANCE

GREENING THE BANKING SYSTEM INTRODUCTION Climate change is expected to intensify and is no longer perceived only as an environmental problem because it impacts all economic sectors. Furthermore, climaterelated threats are posing physical and transitional risks for the financial sector.

Central banks, regulators, and politicians have now started numerous green banking programs to offset the negative consequences.

Banking plays an important role in economic development and environmental conservation by fostering environmentally friendly and socially conscious institutions.

Banking of this nature can be considered "Green Banking". Green banking means encouraging friendly policies for the environment and reducing the carbon footprint of banking operations. This idea of Green Banking would be mutually beneficial to banks, businesses, and the economy.

Environmental sustainability risks have been categorized into physical, transition, and

Anant Maske| MBA-IB| 2020-22 Prakhar Gupta| MBA-A | 2020-22 liability risks by financial policymakers. In deciding how to distribute credit and investment in sustainable sectors of the economy, all three are important considerations for banks.

Different banking strategies and regulatory approaches have been adopted by the G20 countries to help their complex economies and communities in addressing the challenges of sustainability. Some countries rely on public sector banks to play a leading role in providing loans for clean energy infrastructure programs, while others use green lending projects from national development banks. However, some stress market changes, such as the elimination of government subsidies and other fiscal distortions, and the implementation of antitrust laws to make bank capital allocations more effective.

Green investment banks have been designated by several countries to promote business reforms.

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| GREEN FINANCE Nonetheless, the legal standards of international banking offer a versatile basis for countries to adjust their regulatory laws to emerging business threats. G20 countries have used a range of bank regulatory and policy initiatives to assist their economies in achieving sustainability targets based on these wide-ranging approaches.

tensions, forced displacement, food security, and economic and financial stability. In turn, these challenges will have implications for financial institutions concerning changing risk assessments, which will affect the availability and terms of credit and long-term returns on investment.

The Role of the Banking Sector

Why Environmental Sustainability Challenges Are Relevant for Banking Policy?

Challenges to global sustainability, including climate change, are at the heart of the 2030 Sustainable Development Targets of the United Nations. The Global Risks Report of the 2016 World Economic Forum demonstrates the links between risks to environmental sustainability and economic and financial risks. The World Economic Forum study described the failure to address and respond to climate change, along with the scarcity of freshwater and the reduction in biodiversity, as the most important threats to environmental sustainability. The study also highlighted the second-order or 'cascading' threats raised by climate change and other problems related to environmental protection and how they affect political

The financial sector retains reserves above US$135 trillion worldwide and is the main source of finance for families, private companies, and the public sector. In the economy, banks serve a central intermediation function and play a major role in the stock market as well as other critical roles, in particular concerning the provision of investment goods, payment services, trade, and analysis.

Although the banking sector is directly and indirectly influenced by environmental mitigation issues, it also plays an important role in promoting the transition of the economy to changes in the climate and developing financial tolerance to environmental risks. In particular, by reallocating credit to more competitive segments of the economy and balancing credit and market risks, banks contribute to (1) reducing environmental mitigation risks, (2) minimizing the influence of these risks as they materialize, (3) responding to the impacts of environmental change, and (4) fostering recovery in the event of massive damage by adverse environmental events.

Banks have tried to counter these threats in the G20 by implementing various forms 28

| GREEN FINANCE of green banking activities. Two different banking practice areas have emerged: Development of standards for the environmental and social policy with a special emphasis on risk control in the field of project financing and the reallocation of loans to renewable energy resources. The Equator Principles were developed in 2003 to provide banks with voluntary advice on the incorporation of environmental and social risks in the bank's credit and operating risk assessment for major investment projects in infrastructure.

As a consequence, many major multinational banking institutions have integrated concepts of sustainable governance into project financing.

Many G20 banks mainly provide large businesses and small and medium-sized companies with short-term loans and individuals with savings and investment products. They are ideally positioned to raise funds for the green economy, particularly by loans and acquisitions, solar and clean energy ventures, and the structuring of specialized transactions.

If the economies respond to evolving market systems in response to environmental sustainability issues, the banking sector will play a key role in supplying financing and investment for countries. Structural risks to the banking sector may occur where these transformation threats are material.

Source: UNEP Enquiry

Challenges Pertaining Banking System

to

Greening

the

Uncertainties in the policies and frameworks: The policies and frameworks for the transition to a green economy of various countries are uncertain. Some of the policies and frameworks can be frameworks for clean technology, renewable energy, investment in infrastructure, and other industrial policies. The uncertainties in the above policies and framework hinder the longterm investment goals as well as banking and other functions underlying the transactions. Additionally, a lack of consistency across environmental, industrial, and social policy framework is likely to complicate the business of green banking.

Retaining the competitiveness: Banks from different developing regions and emerging economies consider that enhancing environmental and social risk management is likely to affect the competitiveness as the stringent

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| GREEN FINANCE requirements for the information and due diligence increase the transaction costs. In countries like India, having policy-directed lending for green assets, there is a lack of regulatory requirements to consider environmental and social risk in a wider perspective. This also causes a hindrance for the existing players for further innovations.

Lack of capacity to analyze and implement: Different analytical tools are used to quantify the costs of new projects and the environmental benefits of the project. The modeling tools help in the estimation of how environmental costs would translate to default risks in the future. The lack of capacity of banks to develop and use these tools is likely to boost investments in pollution-intensive sectors and lower investments in green sectors.

Maturity mismatch for green lending: Green projects such as clean energy, energy-efficient buildings, and water and waste treatment among others are longterm projects and have high capital expenditure and low operational expenditure as compared to other conventional projects. On the other hand, capital markets are less developed and banks are not focused on tapping the bond markets effectively to increase their sources of long-term investments. This leads to a maturity mismatch and is likely to be a key constraint to be considered in financing the green projects for the long term.

Future Scope Promotion of voluntary sustainable banking principles: Authorities within the countries can work hand in hand with the private sector and international organizations to implement and improve voluntary principles for sustainable banking. This will also aid in developing a vision to enhance the banking system’s ability to reduce the risks of pollution and resource-intensive sectors and extend green credit cards.

Introduction of innovative instruments for long term investments and maturity mismatch: Innovative financial products such as green bonds can help mitigate the constraint of maturity mismatch owing to their ability to provide long term loans in some markets. Banks can also issue securitized products with longer maturities on the green loans and extend collateralized loans which are backed up by future revenue streams such as the sale of greenhouse gas permits and energy management contracts.

Coordination of policy responses at the country level: The central authorities in the country should consult with the bank associations, banking regulators, securities exchanges, credit bureaus, or concerned ministries to take initiatives to promote the domestic responses directed towards the challenge of green finance in the banking system. These initiatives will aid the country in identifying the policy options to incentivize market action, create awareness among the stakeholders, and enhance market discipline through the disclosure of information related to the environment.

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