Finly december by FINLY

From the Editor’s Desk

FINLY| NOVEMBER 2017 | Finstreet | SIMSR

Dear Readers, This has been an eventful year for the Indian economy which faced shocks due to structural reforms like GST and demonetisation but eventually bottomed out and grew by more than 6% shedding optimism for the year ahead. Significant progress was made on crucial policy matters like Bankruptcy laws, Real estate regulations and Ease of doing business. Still, a lot of challenges exist in front of government in taking India to a growth rate which would provide sufficient jobs to 12 million young Indians joining workforce every year and a social security net to all the citizens. Team Finly hopes the Indian economy thrives in the year coming ahead and India grows as per its true potential. Not only the GDP must grow, the growth must be inclusive and should reduce India's Gini coefficient. We also hope all our readers had a wonderful year and wish them a very happy and successful 2018. With these wishes, we present to you, yet another exciting edition of your beloved magazine Finly. In the latest edition writers have explored in the cover story something which will be closely watched by economists, Industries and Markets worldwide “The Unwinding of Quantitative Easing in U.S.”. Also, the Eco section covers the much debated FRDI bill. The Fintech section covers “India Stack” the revolutionary technology underlying the digitisation of our country and the Market Analysis tries to analyse the current market situation from an investor's perspective. Last but not the least, we bring to you News buzz and Trivia to update you with the latest happenings around the world. I would like to extend my sincerest gratitude to Dr. Pankaj Trivedi, chairperson department of finance for always supporting and encouraging team Finly. I would also like to thank the finance department of KJSIMSR and our sponsors Finacue Research & Education for extending unconditional support to our team. Also, I would like to thank Mr. Sujesh Pullarkad our alumnus for taking out time from his busy schedule and writing for Finly. In the end, I would like to acknowledge team Finly for unflinching commitment towards making this magazine a success. It gives me immense pleasure to announce that Ayush Kumar from SIBM, Pune has been declared as winner and Mudith from FORE School of Management has been declared as the runner up for the Call for article competition. We wish you luck in all your future endeavours. Madhur Saxena Editor-in-Chief PGDM (2016-18) KJ SIMSR

Team FINLY

FINLY| NOVEMBER 2017 | Finstreet | SIMSR

Table of Contents

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Cover Story

ANIKA PRAKASH â&#x20AC;&#x201C; (PGDM) RISHABH SHAH- (MMS) R PRASANTH- (PGDM)

In the aftermath of the financial crisis of 2008, policymakers began to look for quick ways to stabilize the world economy. Amidst the meltdown, one of the main responses that emerged in the United Kingdom and the United States was Quantitative Easing (a.k.a. Monetary Easing a.k.a. Long-term refinancing operation a.k.a. asset purchase program). Central banks like Bank of England, created money to buy financial assets, using this mechanism. Q.E. is sometimes known as money printing, but in reality, no hard cash is actually created and most of us will never see it. Instead, money is created digitally, which is then deployed to purchase things like government debt in the form of bonds. In other words, itâ&#x20AC;&#x2122;s creation of money on the click of a computer mouse. When an investor sells

government bonds or another asset of the central bank, the central bank credits the bank account of that investor with new money. Q.E. helps lower the income investors can get from the so-called safe assets. In doing so it makes the same investors move out of these safe assets, encouraging them to put their money to riskier things in search of better returns on their investment. The theory also goes that the institutions (like commercial banks) that sell these safe bonds also put their money elsewhere, like lending to people and companies by keeping interest rates low, thus helping boost economic activity. What commercial banks, for example, might do with that money is outside the control of the Central Bank. Commercial banks, most of the times may prefer to keep most of the money as reserves,

Cover Story

FINLY| DECEMBER 2017 | Finstreet | SIMSR

which explains why there may not be a considerable increase in consumer price inflation. The only result of money creation, in this case, would be an increase in the prices of assets like stocks and bonds, thus resulting in asset price inflation. After the economy is bolstered considerably and there is enough economic activity and recovery visible, the government sells these assets and sterilises the cash it receives from the sale of these assets. Thus, there is no additional cash added to the system. First such instance of Quantitative Easing was found in Japan in 2001, wherein, the Bank of Japan infused liquidity into the banking system to lower the interest rates in order to boost economic activity and at the same time it was also aimed at inducing long-term investments.

JAPAN Bank of Japan (BOJ) was the first to use Quantitative Easing on 19th March 2001 to fight deflation. The Central Bank increased the commercial bank current account balance from ÂĽ5 trillion to ÂĽ35 trillion (approximately US$300 billion) over a period of four years. They also tripled the quantity of long-term Japan government bonds it could purchase on a monthly basis. USA The most successful QE effort was undertaken by the U.S. Almost $2 trillion was added to the money supply. The debt on the Federal Reserve balance sheet doubled from $2.106 trillion in November 2008 to $4.486 trillion in October 2014.

Cover Story

FINLY| DECEMBER 2017 | Finstreet | SIMSR

In the wake of the global financial crisis, the Federal Reserve used three rounds of QE to get the economy back on track. The first round of QE also known as QE1 was started in November 2008. The Federal Reserve started buying $600 billion in mortgage-backed securities (MBS) from commercial banks. This action filled banks with excess liquidity. The excess liquidity led to reduction in short term interest rates or the borrowing rates between banks. In June 2010, the Feds balance sheet had reached a peak of $2.1 trillion in assets. As debt matured, the Fed bought more treasuries at a $30 billion monthly rate to keep its balance sheet inflated above the $2.0 trillion level. In November 2010, the Fed announced a second round of QE. This involved buying additional $600 billion in treasury securities by the second quarter of 2011. QE3 was initiated in September, 2012 with an additional open-ended bond purchasing program of $40 billion per month of agency MBS. In December, 2012 they started buying additional $45 billion in treasury assets per month. On December 18, 2013, the FOMC announced that it would begin reducing its purchases as soon as normalization is maintained, as its three economic targets were being met. 1. The unemployment rate was at 7 percent. 2. The GDP growth was between 2 and 3 percent. 3. The core inflation rate had not exceeded 2 percent

FACTORS THAT LEAD TO INTRODUCTION OF Q.E. The world faced its worst economic crisis since the Great Depression, in 2008. The crisis, which found its roots in the U.S. housing market, had quickly spread to the U.S. financial sector, and then to the global financial sector. It caused the collapse of many investment banks, insurance companies, commercial banks, mortgage lenders, and a number of companies who relied on credit. In addition to it, the contagion spread to major economies across Europe and Asia as well. The consequence was a widespread slowdown in growth, in the U.S., and in the world.

HOW IT ALL STARTED? Easy availability of credit in the US resulted in a housing construction boom and facilitated debt-financed consumer spending. Some of the factors that encouraged the expansion of this sector were: 1)Low interest rates. 2)A US federal law designed to help lowand moderate-income Americans get mortgage loans, known as the Community Reinvestment Act (CRA).

Cover Story

High mortgage approval rates led to a large pool of homebuyers. As banks began to give out more loans to potential home owners, housing prices began to rise. This appreciation in value caused large numbers of homeowners to borrow against their homes. Loans of various types were easy to obtain and consumers assumed an unprecedented debt load. Lax lending standards and rising real estate prices also contributed to the real estate bubble. Consequently, the defaults began as a result of the low paying capacity of the borrowers and accelerated thereafter. Policies such as encouraging home ownership, providing easier access to loans for subprime borrowers, overvaluation of bundled subprime mortgages based on the theory that housing prices would continue to escalate, and a lack of adequate capital holdings from banks and insurance companies to back the financial commitments they were making, all were responsible for triggering a financial crisis. The resulting decrease in buyers led to plummeting of housing prices. Falling prices also resulted in homes worth less than the mortgage loan, providing a financial incentive to enter foreclosure. As the value of these assets plummeted, the market (buyers) for these securities evaporated and banks that were heavily invested in these assets started experiencing a liquidity crisis. Questions regarding bank solvency, declines in credit availability, and damaged investor confidence affected global stock markets, where securities

FINLY| August 2016 | Finstreet | SIMSR

suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period. Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. The ongoing foreclosure epidemic which started in late 2006 in the US drained significant wealth from consumers, causing a loss of up to $4.2 trillion in wealth from home equity. It developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. Other banks were all expected to follow. It resulted in the values of securities tied to U.S. real estate pricing to plummet, causing damage to financial institutions globally. It is in this context that the U.S. central bank resorted to a series of Q.E. measures in order to boost a falling economy. WHY IS IT BEING ROLLED BACK NOW? After nine years of the QE measures, it appears that the economic targets relating to unemployment rate, GDP growth and core inflation rate are being met. Fed has grown more confident about recovery in the U.S. economy, which, in the quarter ending June 2017, grew at its fastest pace since 2015. Inflation has shown some signs of strength. As modern central banks are in the business of keeping inflation and growth at manageable levels, it is no surprise that the Fed has now decided to pull the plug on Q.E.

Cover Story

HOW THE UNWINDING OF QUANTITATIVE EASING IS BEING DONE? The Federal Reserve began unwinding of quantitative easing from October 2017. They began reversing the asset purchases it made during and after the financial crisis. The unwinding is done by shrinking the balance sheet of $4.5 trillion. The Feds will start by allowing older bonds to mature without reinvesting in new assets. As a result of allowing this to happen, the balance sheet will start reducing and the funds will not be added back to the money supply. Therefore the money supply will reduce. Approach taken by the Feds to unwind QE will be very slow, to ensure markets remain stable and not to cause unnecessary negative repercussions. Rather than halting their investments completely, they will just taper their reinvestments instead. This means they

will let some of the bonds mature without reinvesting the funds, but not all of them. Some of them will still be reinvested. Their asset portfolio comprises of: ·$2.5 trillion in U.S Treasury Securities ·$1.8 trillion in Mortgaged backed Securities(MBS) ·Rest consists of assets such as swaps with foreign Central Banks, overnight loan of securities and foreign currencies The Federal Reserve has gradually started to phase out the reinvestments from the payments it receives from the portfolio. They will reduce its investments by setting a steadily increasing set of caps. These are the run off caps. Payments will only be reinvested to the extent they exceed the caps. The caps will be set at $6 billion per month for treasury securities and $4 billion per month for Agency Debt and Mortgaged backed Securities. These caps will be steadily lifted every quarter until they reach a peak of $30 billion for

FINLY| DECEMBER 2017 | Finstreet | SIMSR

treasury securities and $20 billion for Mortgaged backed Securities. In about a year's time this will total up to $50 billion per month At this rate the balance sheet is expected to drop below $3 trillion in 2020 at which point the next big question will be how big the Fed's balance sheet should remain once tapering is over. IMPACT OF UNWINDING OF Q.E. ON WORLD ECONOMY The US Federal Reserve program to roll back quantitative easing (Q.E.) is being called as the 'Great Unwinding'. The withdrawal of Q.E. will mean that the supply of bonds will go up over time, other things remaining the same, which should increase US bond yields. That, in turn, should provide support for the US dollar. The Fed has also indicated that it will hike its policy rate again in December 2017. Lower demand from the Federal Reserve should cause interest rates on U.S. bonds to rise from their current, historically low levels. This will likely make these bonds more attractive to investors, since they can now be purchased at lower prices so as to earn higher yields. In fact, the yield on U.S. Treasury's has already jumped up in expectation of lower demand. Investors are likely to sell their other investments offering lower returns to invest in U.S. bonds, which could cause some turbulence in financial markets. For

instance, the Indian stock market has seen a steady outflow of foreign capital, due to foreign institutional investors selling out their holdings to invest elsewhere. The rupee too has shown weakness due to investors pulling money out of India. Emerging markets are not so vulnerable. India has improved its macro-economic position and current account deficit significantly. Hence the markets are better prepared for financial tightening, this time. In addition to it, the European and Japanese central banks have not yet begun their unwinding. Hence markets will be looking to them to continue providing liquidity. Also, higher interest rates could affect emerging market economies with large amounts of dollar debt. One big source of comfort for the markets is the lack of inflation. Core inflation was revised down to 1.5% for 2017. The decision by the US Federal Reserve to start unwinding its US$4.2 trillion of bonds, despite inflation remaining low, is a sign of confidence in the growth prospects of the world economy. However, the rebound in the greenback, if sustained in the near term,could cast a slight downward pressure on emerging market currencies.The Fed's great unwinding, along with continued rate hikes, will likely result in a stronger U.S. dollar, more attractive US bond yields and capital inflows for U.S. as well as more demand for U.S. dollar denominated assets. It is inevitable that regional financial markets and currencies will be impacted but improved economic

and financial fundamentals, as well as strengthening growth prospects should cushion against capital reversals and induced financial volatility.

CONCLUSION The Federal Reserve of U.S. helped revive the economy from the brink of catastrophe. This made the securities more expensive, thus catalysing the huge run-up in equity prices since 2009.Now that the process of unwinding has begun, it will be very difficult to forecast the market ramifications with any precision, as there are no historical precedents for unwinding Q.E. in this way. Reducing the balance sheet by half, may not push yields higher, as the QE was done in conjunction with interest rate policy. Unwinding the balance sheet in tandem with an interest rate rising policy may lead to the fact that rates are likely to go up less dramatically than would otherwise be the case if the sole aim of reversing the easing policy was to

increase rates This may impact the housing industry and emerging markets negatively in the future. But, if the whole exercise seems risky, why Fed is going ahead with the same is questionable.

The decision of unwinding also has some political affiliations, with the current Republican lawmakers receiving sharp criticism for making things easy for former President Barack Obama to run big budget deficits. The decision, thus maybe seen as a result of countering that criticism and protecting the central bank's political independence. Few ways in which the Fed can minimize any eventuality or fallout of unwinding are: First, do not sell any of the mortgagebacked securities, to hinder any impact on the housing industry. Second, to pocket rather than reinvest the proceeds of the bond as they mature. And the last and easiest thing it can do is to probably have good control over raising the interest rates, so as to limit the impact on the markets and the economy.

Article of the Month - Winner

FINLY| August 2017 | Finstreet | SIMSR

Ayush Kumar SIBM Pune

What is P2P Lending? P2P lending means peer to peer lending. It is also known as crowd lending or social lending. Generally lending happens through a third party like banks, Non-Banking Financial Company which acts as a mediator. Banks take deposit and give much lower interest and lend at higher interest rate. The difference is known as spread which is the main earning medium for a bank .P2P lending platform act as FinTech companies which removes bank and connect the lender to the borrower directly. Now instead of getting loan at 20% rate of interest one can directly get at 15% which led to benefit of both the lender and the borrower. It works as reverse auction model as the lender bid

for minimum interest rate which helps the borrower in getting loan at minimum interest rate. But as the saying â&#x20AC;&#x153;High Risk High Return: Low Risk Low Returnâ&#x20AC;? which applies here also. It works almost same as Stock Exchanges. There are many type of risk as of the borrower default risk or the risk of lending platform getting bankrupt. It is not a new concept but is being used across geographies since last decade. Across

World

Scenerios

FINLY| July 2017 | Finstreet | SIMSR Article of the Month - Winner

platforms one can get the money at higher interest rates to let the business keep going. Banks Interest Rate to reduce: Due to increase in competition from outside, banks would be forced to lend even at lower rate of interest as spread is the major way of earning for banks. Penetration of lending platforms would lead to use of banks only for depositing. Challenges ·Data theft and privacy concerns: As the whole data of lender and borrower is on online hosted servers which has the risk for those data to get leaked. ·No Grievance Redressal Mechanism: If the borrower defaults then where the lender can approach as the lending platform do not owns any grievances solution to the default. Benefits Reduces Cost of Capital: Cost of capital for loans taken directly from banks is quite high. Peer to peer lending platforms reduces that cost of capital and the earning which was earlier with the banks are now available with the lender and the borrower. Increase Access to people: ·Those SMEs, farmers which do not have access to loans directly from banks can go to these platforms and depending upon profile they can get money easily. ·Sometimes business which are in loss do not get more loans but through these

·KYC: In Indian context lending platform are doing soft KYC and majorly depending upon Banks KYC for the verification which can lead to more defaults. ·NPAs: Since banks' NPAs are already very high and if the lending platform also led to defaults (as happened in UK with Quakle) can led to more rising NPAs and loss of faith in financial institutions. Lender should be careful about Maximum Diversification: The portfolio should be such that diversification should be maximum in various type of risky borrowers (some less and some medium risky).

Article of the Month - Winner

FINLY| 2017 || Finstreet Finstreet || SIMSR SIMSR FINLY| DECEMBER OCTOBER 2017

Diversification in Multiple Platforms: Apart from diversifying the risk within one platform one should lend in multiple platform so that risk of platform itself going bankrupt could be mitigated. RBI Regulations 1.P2P platforms should be treated as NBFC- P2P. 2.RBI is regulatory authority for NBFC P2P. 3.Platforms cannot lend on their own. 4.Lending Platforms cannot provide any guarantee to the lender. 5.Only domestic lender and borrower can transact. 6.Lending platforms cannot sell any product except for loan insurance products. 7.NBFS-P2P shall maintain a leverage ratio of 2. 8.Aggregate exposure of lender to all borrowers should not be more than Rs 10 Lakhs. 9.Aggregate loans taken by borrower from all the lender should not be more than Rs 10 Lakhs. 10.Exposure of single lender to single borrower should not be more than Rs 50,000.00

11.Fund Transfer should be done through escrow account mechanism. 12.Only unsecured loans can be transacted on the platforms. 13.Loan of maximum tenure of 36 months can be given on platforms. 14.Net owned fund >= Rs 20milllion Regulation of RBI is a welcome move as it will allow P2P platform companies to have the recognition and they can work with more creditability. RBI has kept some checks and balances over the borrower and the lender which will led to less of default case and will help to have these platforms more creditworthiness. Also, it will help RBI in financial inclusion which was done by banks only to a certain level, these P2P platforms have the potential to go deep in financial inclusion and can help those people who have to depend on Zamindars for loans at whooping 36% rate of interest always. It will be much less due to reverse bidding.

Âˇ

Article of the Month - Winner

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Case study of Faircent

The company reduce their default risk by

Faircent is India's best platform for peer to peer lending platform. It was founded in 2014 and in 1st round of funding it has raised $1.5mn. Within 2 years they have disbursed loan amounting to 20Crores and was recently appreciated by NYSE.The platform has more than 6000 lenders and more than 26000 borrowers.It works mainly as community exchange platform. Like Gujaratis, Punabis, Doctors can have their community in terms of lending on the platform.

·Allowing only those borrowers who have credit score of more than 650.

They charge 1% from lender and 2-5% from borrowers. At present they are lending at Rs 3 Crores per month.

·To fund a lender minimum 5 borrowers are required ·Tied up with Google, LinkedIn, Credit card, Salary Slip to find credit rating. Final Conclusion Overall it is a very good move but the regulations need to be checked on a regular basis otherwise it could lead to defaults as happened in UK. Indian Banks' NPAs are already high and next steps should be carefully decided to ease the problem of lending as well as not increasing the defaults.

Article of the Month - Runner Up 15

Mudith FORE School of Management

THE BITCOIN BUBBLE? Imagine a situation. You have just bought a car worth USD 60,000 by paying 3 Bitcoins (assuming 1 Bitcoin = USD 20,000). It has been a week and you are (apparently) happy with your car. But now one Bitcoin is worth USD 30,000. You would have surely felt – “Why didn't I wait for just another week? I could've bought a better and costlier car. Damn my luck.” Welcome to the “unstable” and “unpredictable” world of crypto-currencies. Crypto-currency is basically a currency in nature and all currency should have a steady price. No buyer would like to exchange a coin that will jump sharply in the next hour. And no seller would wish to receive some currency that may plunge into the depths of Grand Canyon in a blink.

Now let us assess certain reasons why the Bitcoin is likely heading for a crash. Fundamental Value (or should we say dearth of fundamentals) A bubble is a situation when the underlying price of an asset diverges from its “fundamentals” – the parameter that the investors use to assess the value of something. And for the current scenario, I have a set of questions. “How are you valuing the Bitcoin? What is the basis for it? Why is it worth what it is today? Do you have any rationale or explanation for it?” I know we all are a bit blank now. The Bitcoin doesn't have any intrinsic value Neither does it provide any return. The stocks have the dividend. The real estate has rent. The bonds have coupons. What does Bitcoin have? NOTHING. Most of the people are not buying the value

Article of the Month - Runner Up

FINLY| October August DECEMBER 2017 2017 2017 ||Finstreet Finstreet | Finstreet ||SIMSR SIMSR | SIMSR

of the technology but are going with the tide and buying the hype surrounding it. This is speculating, not investing. What else would you call something that, as on the closing hours of December 15, 2017, has gone up 10 percent the past week, 121 percent the past month, and 630 percent the past year? And you know what the most remarkable part of it is? It has all happened for no observable reason whatsoever.

currency which got busted for a fraud worth USD 7.79 million)? Or who knows someday at someplace some brilliant boy/girl will break this technology and counterfeit as many as Bitcoins s/he may want? Adding to all the possible theories, what if Central Banks such as Federal Reserve and Reserve Bank of India (Indian Government is reportedly considering launching its own crypto-currency – Lakshmi Coin) launches their own crypto-currency. With such institution backed crypto-currency in the market

Confidence and Commitment Crypto-currency doesn't have any central authority backing or authorizing it. And unless that happens, the general public will not be confident about its usage and will hesitate using it for their day-to-day operations. A statutory backing is necessary for Bitcoin. Or else who is stopping someone to steal all your Bitcoins? Or who will guard you against another incident like the KashhCoins (a fictitious Indian crypto-

the public will lose all its confidence in Bitcoin and it will be out of business in no time. Now, talking about commitment – Bitcoin is a technology generated virtual currency. So who is putting his/her own money into establishing it? What is the underlying asset backing its purpose? And the question comes back to the issue of “valuation”. What if this entire industry is a bubble?

Article of the Month - Runner Up

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Now, that is a huge thing to worry about. Comparing this to the dot-com bubble of 2000, no one then knew how the sector of internet-based companies would work. Internet was new and everyone was very optimistic about its disruptive power (Just like how they are now with Bitcoin.) But what did we witness at the end of the day? – Crash.

Greater Fool Theory What is the “Greater Fool Theory”? Keep trading a stock/commodity expecting someone will buy from you at a higher price until at the end when someone becomes the scapegoat and the ultimate sucker. Isn't that the same thing that happened in the infamous “Tulip Mania” in Holland in the 17th century? So will you put yourself in the shoes of the “Greatest Fool”? Take an informed decision. Another driving factor for the demand of Bitcoin is that the scarcity of it is becoming a strong selling point. With a finite number of Bitcoins (21 million)

that can be mined and the reward associated with every discovery of a block, the Bitcoin miners have the kept the market of Bitcoin going on. However, the reward (currently at 12.5 Bitcoins) shall reduce by half every 210,000 blocks.

And Bitcoin mining is not a child's play. It requires a lot of knowledge and power back-up. The miners have been reportedly consuming more electricity a year than Ireland does in the same period. This raises a fundamental question of what will happen when the cost exceeds the reward. The transaction costs will go up, the rewards will reduce, the demand will fall and so will the prices. Simple economics, you see.

The other bubbles promised some kind of return backed by the underlying asset? What does Bitcoin have to offer?

Article of the Month - Runner Up

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Nothing. We just have a speculative investor mania where the frenzy has caught on the retail investors who have created this roar about a digital currency for the primary advantage of being anonymous in nature. Is it a good i n v e s t m e n t o p t i o n l i ke o t h e r currencies? Or it is just another fad or as Jamie Dimon (CEO of JP Morgan Chase & Co.) said – “It is a fraud”? I tend to lean more towards the latter. And I would end by saying that economics has to be the basis for any currency and not technology.

ECO Section 19

FRDI BILL,2017 The Financial Resolution and Deposit Insurance (FRDI) bill which was tabled in Parliament in August this year has been in news for some time due to fears associated with certain provisions like 'bail in' for distressed banks at the cost of depositor's money as quoted by many news agencies. Such big is the discontent being spread by this controversy that our Union Minister of Finance, Shri Arun Jaitley had to conduct a press conference and clarify that this bill is aimed at securing depositors' money rather than being looked the other way. That hardly dosed out this fireball, because of which our Hon'ble Prime Minister on a campaign trail in Gujarat, had to touch the emotional cords of the public in large by saying he won't allow any siphoning off of public money for bailing huge commercial banks. So let us see in detail

Aadi Gala (PGDM IB), Jerin Shaji (PGDM), Amey Patale (PGDM) what this FRDI bill is all about and try and understand the rationale behind fears in the public at large and its utility. Introduction The Insolvency and Bankruptcy Code was adopted to swiftly address the issues arising in troubled companies in manufacturing sector by finalising a resolution plan to bring the entity back on track or else ensuring a time-bound winding up of the same if needed. However, a similar structure or mechanism was needed to address the financial institutions who are in distress, post the 2008 sub-prime crisis with the various governments stepping in to save the financial system from collapse by bailing out huge sums at the cost of taxpayer's money. With the introduction of FRDI bill, the government seeks to quickly address a situation in which a bank, NBFC, a pension fund

ECO Section

FINLY| DECEMBER 2017 | Finstreet | SIMSR

or a mutual fund run by an asset management company or an insurance company in distress can be sold off, merged with another firm or closed down, with minimum disruption and discomfort to the economy, investors, stakeholders and the financial system by and large. This measure was recommended by the Financial Sector Legislative Reforms Commission (FSLRC) headed by Justice B N Srikrishna, in which they proposed setting up of a new entity named, Financial Resolution Corporation with an objective of classifying different institutions on the basis of its financial viability, along with carrying inspections and if required take over control at a later stage. Key Features 1.Setting up of a Financial Resolution Corporation which will have a role in both oversight and supervision from the perspective of the viability of financial institutions. However, if an entity is under liquidation due to its imminent threat of failure because of critical risk to its viability, it will act as a liquidator or receiver in order to ensure payments to the depositors as well as settling of debts of debtors and its common & preferred equity shareholders' claims. 2.This bill under its schedule 2 lists the entities that are covered under its ambit, which are as belowa)All banking institutions b)All insurance companies c)Indian branches of foreign banks d)Any other provider of financial services which is not operating as a

proprietary or a partnership firm 3.The bill proposes a classification of some categories of financial institutions as 'Systematically Important Financial Institutions' (SIFIs), which is similar to the classification currently in place where SBI, ICICI and HDFC are designated as Systematically Important Bank. 4.Any financial institution once classified as risky, should undergo the process of getting its resolution plan in place and completed within a period of 2 years, which may be extended by another one year. 5.The proposed FRDI bill aims to consolidate all the regulations and laws in place for different kinds of institutions like banks, payment systems etc. into a single legislation. 6.The Deposit Insurance and Credit Guarantee Corporation ('DICGC') Act, 1961 which is in effect now will be closed and all its activities will then be carried on by Financial Resolution Corporation. 7.In a case where the Indian government is into an agreement with a foreign country and its regulators, the provisions of the FRDI bill can be enforced in a foreign country for its resolution. Mechanism of FRDI Bill The Resolution Corporation classifies the financial firms under five categories, based on their risk of failure. These categories in the order of increasing risk are: (i) low, (ii) moderate, (iii) material, (iv) imminent, and (v) critical.

ECO Section

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Once the firm is classified as 'critical', the Resolution Corporation will take over the financial firm. It will resolve the firm within one year (may be extended by another year).

owes to its creditors, or (ii) converting its liabilities into any other instrument (e.g., converting debt into equity), among others as per the Section â&#x20AC;&#x201C; 52 of the proposed FRDI bill

Resolution may be undertaken using methods including: (i) merger or acquisition, (ii) transferring the assets, liabilities and management to a temporary firm, or (iii) liquidation. The firm will be liquidated, if the resolution is not completed within a maximum period of two years. The Bill also specifies the order of distributing liquidation proceeds.

Bail-in may be used in cases where it is necessary to continue the services of the firm, but the option of selling it is not feasible. This method allows for losses to be absorbed and consequently enables the firm to carry on business for a reasonable time period while maintaining market confidence. The Bill allows the Resolution Corporation to either resolve a firm by only using bail-in, or use bail-in as part of a larger resolution scheme in combination with other resolution methods like a merger or acquisition.

Bail â&#x20AC;&#x201C; In Provision The Resolution Corporation can internally restructure the firm's debt by:

(I) cancelling liabilities that the firm

ECO Section

FRDI Prevalent Elsewhere? The 2008 Global crisis led to a need of specialised resolution plans. The main motive was to ·Prevent another Crisis ·Strengthen Monitoring mechanism ·Resolving Sick firms The Financial Stability Board, an international body comprising G20 countries (including India), recommended the resolution of firms by bail-in. Countries such as Germany and UK have provided for bail – in under the laws. The bail-in clause was used in 2013 to resolve a bank in Cyprus. Implications Positive: ·FRDI bill along with IBC will form a comprehensive framework to deal with the Insolvency and bankruptcy state of any entity in the country. ·Reduction of time and costs involved in resolving distressed financial bodies. Perceived As Negative: ·Earlier there where separate bodies such as SEBI, IRDA, RBI, but after FRDI there would be accumulation of too much power in the hands of few (Resolution Corporation), which is very risky. ·The board of Resolution Corporation is perceived to have more nominations from the government, which gives the ruling party more autonomy in dealing with complex situations and this power if not used appropriately can be detrimental. The resolution corporation

can take measures such as privatisation of ailing Banks and being an independent entity, these decisions would be taken without the normal course of discussion in the parliament. This is widely perceived as a move towards backdoor privatization. ·The bail-in clause puts dent on the safety of Banks and may affect the tendency of retail customers who might look for alternative less risky instruments. These perceived negative implications are, a mere resistance to change, by the people who are unaware of the bigger picture. Our Views Historically it has been seen that when large corporations become financially unviable, the government offers money to the failing business to mitigate the consequences like increased unemployment that arise from the business's downfall. This process is termed as 'bailout' and is given in the form of loans, bonds, stocks or cash. An example of this is the bailout of financial institutions by US government following the 2008 subprime mortgage crisis. However in recent times the concept of 'bail-in' has gained traction in some parts of the world. A bail-in refers to the rescuing of a financial institution on the verge of failure by making creditors and depositors take a loss on their holdings. An example of bail-in is the bail-in of the Bank of Cyprus in 2013, where the uninsured depositors of the bank (having deposits greater than €100,000) lost almost half of their deposits and in return were issued stocks of the bank which were low in value owing to financial state of the bank.

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Likewise laws pertaining to bail-in have been implemented in countries like United Kingdom & Germany. However these countries have a higher propensity towards consumption than saving and also a social security net protecting its citizens in times of crisis. However, in an emerging country like India which has a huge population and no social security net to rely on, people primarily depend on the savings in their bank accounts to help them get by unforeseen rough times and for events like marriage, education etc. Thus the 'bail-in' clause mentioned in the bill is very unpopular to the masses at large. In a democratic country like India, the ruling party cannot afford to invite the displeasure of the masses especially when the Lok Sabha elections are just around the corner. Moreover, the current function of identifying risky companies and banks and appropriating suitable measures to mitigate these risks to maintain a stable economy falls within the jurisdiction of The Reserve Bank of India. The bill does not clarify the segregation of powers between the RBI and the proposed Financial Resolution Corporation. This could instigate confusion and it erodes the powers of the RBI. The Financial Resolution Corporation would be under the Finance Ministry as chairman, two independent members and other members of the board appointed by the Central government. This can be seen as a dilution of the powers of an independent authority. However recent reports from SBI have suggested that FRDI Bill shall be

depositor-friendly, and the bail-in is intended to enable a prompt restricting & recapitalization of a distressed firm. This will thus help in mitigating systemic risk associated with disorderly liquidations, preserve asset values that might otherwise be lost during liquidation and reduce deleveraging pressures. The problem arises because the bill has not clearly stated the insured bank deposit amount(which is currently at 1 lakh). The report further said that as per the latest data available (March 2016) the average balance per term deposits account is Rs 2.54 lakh, while the overall average balance (including Savings Bank, Current Account and Term Deposit) is only Rs 58,316. Out of the term deposits accounts, 67 percent of the total accounts are of less than Rs 1 lakh and contributes only 8.6 percent of the term deposits in value. On the other hand, the term depositors of above Rs 15 lakh are only 1.3 percent and makes up for 55 percent in terms of the amount of the total term deposits of the banking system. Thus it is very clear that The Financial Resolution and Deposit Insurance Act is not being presented to the public properly by the government. Thus the Bill needs to be refined further to make it acceptable to the people for whom the law is being slated as the political capital of government outweighs the financial motives.

FINLY| August 2016 | Finstreet | SIMSR

FINLY| August 2017 | Finstreet | SIMSR

Fintech Section

Vivek Shah - (MMS ) Saiyam Jain - (PGDM IB) INDIA Stacks - Transformation There have been continuous attempts made by the Honourable Prime Minister Shri. Narendra Modi to turn India into a cashless economy. But actually, the government of India has been working since last 7 years (Since Sept, 2010) to digitize our country. It is a goal to create a digital database of the citizens just as the Social Security Number of USA. An aim to give 125 billion people their unique identity, this was the start of a Fintech revolution for India. The unique ID number came to be known as â&#x20AC;&#x153;Aadhaarâ&#x20AC;? crossed the 1 billion mark, making Aadhaar the world's largest national ID project. One of the biggest problem with the previous system was that the identity was attached to location and there was no full proof way of validating identities as well, leading

to opportunities for misuse and fraud. The only way to tackle this massive problem was to fundamentally rethink the way the entire system functioned. A digital, portable, access controlled, shareable and verifiable solution was required. This new approach lead to the making of 'IndiaStack' - an open API (application programming interface) based technology stack that has the potential to transform the way we function. IndiaStack essentially consists of 4 technology stacks or layers - presence-less layer, paperless layer, cashless layer and consent layer. Each layer has specific objectives and goals which they fulfil through strong technology solutions, as follows:

Fintech Section

1. Presence-less Layer - The presenceless layer is built to ensure that individuals can provide verified identities at any place and time, to anyone upon consent. This paved way for the formation of UIDAI (Unique Identification Authority of India) and the development of Aadhaar, the national identity plan, where every citizen of the country will have a unique, permanent digital ID (which is essentially a twelve-digit number). Aadhaar also captures individual biometric details, for authentication. This unique ID provides people the opportunity to easily provide identity proof, without the need to carry additional documents. 2. Paperless Layer - The fundamental nature of IndiaStack is to power solutions that can easily store and retrieve information and documents digitally. This could be best achieved through a paperless layer. The paperless layer constitutes of 3 solutions -

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Aadhaar eKYC, E-Sign and Digital Locker. These three solutions together power a paperless ecosystem that verifies, authenticates and stores information and documentation digitally. 3. Cashless Layer - To really move things into the digital age, payments and financial transactions need to go cashless. Going cashless, increases transparency and ease of use. The cashless layer as part of IndiaStack primarily includes UPI in addition to AEPS (Aadhar enabled payment system). UPI stands for Unified Payment Interface and is a powerful solution that allows people to transfer money from any bank account to any other bank account (individuals or merchants) digitally, securely and instantly by simply creating a VPA (Virtual Payment Address) without going through circuitous steps online or offline. 4. Consent Layer - The electronic consent architecture enables user controlled data

Fintech Section

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sharing, data flow and data retention. The consent layer is built to enable people to securely provide consent for the data flow between data providers like banks, hospitals and telco's to data requestors like banks, credit card providers etc. For instance, if a person wants to apply for a credit card, he can provide consent to the bank (where he has an account) to share relevant documentation to the credit card company to verify his credit worthiness for the issuance of a credit card. Let us look at the products and services based on India Stacks Timeline of India Stack over the years adhar e-KYC & eSign - Eliminating Wet Signatures UIDAI launched Aadhar as the national identity project, that provides a unique

processes. Existing DSC (Digital Signature Certificate) is non-scalable due to physical verification, paper based process, and use of dongles. eSign allows all Aadhar users to digitally sign anywhere and anytime. Digital Locker - Redefining documentation Digital Locker is the Government of India repository for documents. With E-sign and Digital Locker, people can easily exchange, store and retrieve documents digitally as and when reqAuired, upon consent, without the need to physically print out documents. The application areas for this solution is practically limitless, for instance an organisation can use e-Sign to digitally sign important documents like HR offer letters, vendor contracts and securely store them in the Digital Locker for retrieval at any point in time. Similar applications of the two solutions can be used across several other sectors like transportation, health care, banking etc to make processes efficient and cost effective.

A 12-digit identification number to people, that also links individual biometric information. e-KYC is an electronic 'know your customer' process that links address and identity through the Aadhar authentication system. eKYC is a one stop authentication process that authenticates a person based on his/her Aadhaar identification details and is a great way to speed up

Fintech Section

FINLY| DECEMBER 2017 | Finstreet | SIMSR

UPI - Powering easy, cashless financial transactions Unified Payment Interface or UPI is a system that enables bank account holders to send and receive money immediately from one bank account to another through smartphones, without the need to enter lengthy account information or other net banking details, like IFSC codes, user IDs etc. Instead, it uses a simple virtual payment address (VPA) similar to an email ID, that people can create for themselves. An individual can attach any number of bank accounts to a single VPA and can pick any specific individual bank account before making a transfer. UPI transactions can be completed via the BHIM app or other UPI enabled apps, like banking and wallet apps. Unified Payment Interface (UPI) is developed by NPCI where one can do real-time settlement of funds. There is no need to share account details, just one virtual unique ID where you can receive and make all your payments and integrate all your bank accounts in single application. BHIM is the official app launched by the Govt.

Bharat Bill Payment System (BBPS) is an integrated bill payment system in India offering interoperable and accessible bill payment service to customers through a network of agents, enabling multiple payment modes, and providing instant confirmation of payment

India Stack and Banking â&#x20AC;&#x201C; The road ahead for a New Age Branchless Digital Banking This technology has entirely changed the way people do banking. Banks cannot reach every remote place in India but can transform to become a completely digital entity, accessible purely in the virtual online world, and providing all its facilities & functions through secure, quick steps fulfilled online. Multiple key banking functions like account opening, money transfers, payments, loan approvals and disbursements can build via the many layers of IndiaStack. electronic consent architecture and Digital Locker. All bank related documentation can also be digitally signed through E-sign and securely stored and retrieved online as and when needed from the Digital Locker

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Fintech Section

Loan Disbursement can be routed digitally to the customer's bank account and payments and money transfers by the customer can be initiated effortlessly through the bank's app via UPI. UPI allows for all kinds of transfers between individuals, merchants, enterprises, government bodies etc. So, the customer has no real need to hold on to physical cash. Similarly, the healthcare sector can easily tap into Digital Locker to store and retrieve relevant medical record, through the consent of patients. This makes healthcare portable, meaning that people can access healthcare facilities at any place on short notice without the worry of having to carry patient medical history documents. The application opportunities for IndiaStack is massive and both privateand public agencies can leverage the stack to optimise and digitize processes.

While IndiaStack has the potential to transform things, the success of the entire initiative will be defined through the success of Aadhaar, the foundation of the entire stack. Aadhaar, the biggest repository of individual information in the country hasbeen facing concerns with regards to privacy and security, from issues like fake ID creation to compromise of fingerprints to more serious issues of data leakage.Resolving these issues and instituting sound mechanisms to prevent data breaches is what will eventually lead to the success of IndiaStack.

Alumni Section

Job Profile: Financial Analysis and Budgeting

Sujesh Sasi Pullarkad First of all, I would like to express my sincere gratitude for giving me this opportunity to write for Finly, a magazine which I have been following for over 2 years now. Being part of Finstreet is one of the most cherished memories of my SIMSR life. Organization & Profile: Organization Name: Axis Securities Limited Department: Finance & Accounts

My role in Axis Securities is of Financial Analyst, which includes diverse and varied organizational activities like preparing financial statements (PnL & Balance Sheet), presentations for monthly reviews, budget and variance analysis, analysis of various cost elements and adhocs. I report to CFO of Axis Securities and he oversees all the activities assigned to me, which keeps me on my toes to finish all the work effectively and efficiently within the given time frame. Basic description of my work and profile is as follows: 1) Budgeting and Forecasting: Preparation of annual budget and revenue forecast is one of the most rigorous activities done once in a year but reviewed and updated throughout the year. It demands a lot of dedication, patience and focus to come out with a good budget. Being a companywide budget, there is lot of discussion that

Alumni Section

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needs to be done with each and every department of the company. Keeping in mind the interest of each and every stakeholder, the budgeting activity and the budget figures have to be foolproof. 2)Financial Statements Preparation: Preparation of Financial Statements is the most critical part of my job as it requires attention to details, so that not even a single figure is incorrectly stated. My job is also to review PnL and Balance Sheet once it is prepared along with the CFO & other Finance Leads and take necessary corrective action in case of any errors or misstatements. Preparation of Profit and Loss Statement for over 60 Broking branches of Axis Securities present all over India is also one of the crucial tasks, hence lot of time has to be devoted to this activity, right from Income and Expense collection to MIS preparation and finally mailing PnL to each branch. 3)Variance Analysis: In this part I perform variance analysis of various cost elements from Financial Statements prepared in previous step. Variance analysis is a very rigorous activity since I have to do the root cause analysis of each variance and understand the reason for it. Basic steps involve trend analysis, comparative analysis and discussion with various stakeholders related to that cost element. 4)Monthly MD Review Presentation Preparation: Once variance analysis is completed then comes the crucial part of reporting

the facts and figures to Top Management which is called Cost Committee Review. Cost Committee is chaired by MD&CEO of Axis Securities and other members are the heads of other departments of Axis Securities like Finance Head (CFO), HR Head, Sales and Marketing Head (CBO), IT Head (CTO), Risk & Compliance Head, Admin Head etc. In the presentation we have to report indepth analysis of Budget vs Actual figures for the month and year till date. I have been a part of Cost Committee review from the month I joined Axis and its one of the greatest experience I have had in this short span of time with lot of takeaways from the discussion and cross questioning of CEO and other members. 5)Adhocs: Adhocs mostly comprises of the ondemand business queries from various stakeholders like Axis Securities branches all over India, Customers, Vendors, Functional heads etc. These queries have to be handled on the fly and depending on the priority, I might also have to keep aside my current work and handle them. 6)Cross Functional Projects: Cross Functional projects are like a blessing in disguise since it gives you breather from your day to day activities. As a part of induction, management trainee needs to work on projects from some other department. Projects assigned are live business scenarios or problems faced by the company and we have to devise strategies to tackle those problems

Alumni Section

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We work in a team of 2-3 MTs from different colleges and have to provide solution for the project within a given timeline. I have worked on a project for SME Sourcing Strategies along with 2 MTs from IIM-Indore and JBIMS and presented our strategies to CEO and Management Committee which was highly appreciated. Currently I am working on HR process automation project along with my other routine activities. All these activities have given me exposure to not only my department but also to other departments and functions of the company. Skills required & How students can prepare: Most of the skills required are same as that for any other managerial job like Effective Communication skills, proactive approach to problem solving, attention to detail, strong analytical ability, MS Excel and presentation skills. Apart from these basic skills, my profile demands having a strong and in-depth understanding of Accounting principles and concepts, Cost and Management Accounting, Budgeting and Forecasting, Financial Markets and Strategy.

Areas of Focus: For the 1st year students, irrespective of the specialization which they are going to Opt for I would ask them to focus on core subjects like Financial Accounting, Financial Management, Cost Accounting, Strategic Management, O p e rat i o n s Re s e a rc h , B u s i n e s s

Research and Statistics. Being from Finance background I would like to advise 2nd year Finance students to focus on AFM, SAPM, Derivatives, FIS, Banking & Insurance, International Finance and Wealth Management. My personal favorites being Derivatives, FIS and Wealth Management. In general, for all the 2nd year students should focus on the core subjects in your specialization as you will be tested on the same during your placements and in your job. Also, hone your Excel and presentation skills it will surely come handy. One subject I would like to highlight here is Ethics and Corporate Governance which teaches us things necessary to equip us to face the corporate world. There are lots of takeaways from this subject's real-life cases that have occurred in world to the ever-changing working environment with the development of new policies. It's the values and principles we live by makes the person who we are and who we will be…… SIMSR life: “The idea behind any educational qualification is to find yourself a platform from where you can launch yourself into the realm of your dreams, the qualification is not the dream, it is a medium to achieve your dreams.” I joined SIMSR with the same mindset. I wanted to enter the Financial Sector as I was fascinated by the economics of

FINLY| DECEMBER 2017 | Finstreet | SIMSR

All in all, SIMSR was not just a college it was a way of life and SIMSR helped me acquire the arsenal that I needed to win the corporate war. My advice to students: Everything that has a beginning has an end. Make sure to inculcate smart work habits especially when it comes to prioritizing things. Effectively utilize these 2 years i.e. learn as much as you can, try to build strong connection with your peers and faculties. Take assignments, projects, internship seriously because this will slowly prepare you to crack final placement interviews and will also help later in your corporate career. Also, I would suggest, don't get disheartened by failures during placement, instead work harder on your weak points, stay positive and never stop believing in yourself. Remember, these two years in this beautiful campus will be an enriching experience so enjoy each and every moment. The idea is to work in work hours, and have fun in the rest. “Study without desire spoils the memory, and it retains nothing that it takes in.” ― Leonardo da Vinci So don't let the desire to learn new things die in you, Keep learning… All the best!!!

Sector Analysis

Priya keshari (PGDM FS) Aman Singh (PGDM FS)

Since the Bretton Woods Agreement ended in 1970s, there has been a financial crisis every seventh year in three of last four decades: 1987- Black Monday, 1997- Asian Financial Crisis, 2007- Global Financial Crisis. Are we heading towards the one of this decade? In every crisis, India was involved in one way or the other. In the year 2007, India was growing at the rate of 9.6% with 14% rise in per capita income. FIIs invested 17 billion dollars in the first nine months of 2007.For the first time; Sensex crossed the mark of 17,000 in September 2007, 19,000 in October 2007, 20,000 in December 2007 and 21000 in early 2008. As per the r e c o r d s o f B S E I n d i a , m a r ke t capitalization of BSE 500 jumped to 65 lakh crores from 33 lakh crores in the previous year. But this rally stopped when Sensex saw a 60% decline because

foreign portfolio investors withdrew 12 billion dollars from the market in September- December 2008. Interest rates on commercial loans hiked, rupee depreciated and exports declined. In 2017, Sensex crossed the mark of 30000 in April, 32000 in July and 33000 in October. IPOs worth 72000 crores have been successfully launched- the highest in the history. FPIs have invested 30 Billion dollars in Indian Stock Market this year with 8 billion dollars being invested in equities alone. What next? Where is the market heading to? Are these the sign of growth or a bubble? We will try to find out. Sign of growth Increase in the number of households investing in securities

Sector Analysis

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Price to Earnings Ratio of Sensex 30 Companies in 2007 and 2017

In India, both consumption and investment are largely driven by households. As per the data released by World Bank, in 2016, household consumption accounted for 59.4% of GDP in India while government consumption expenditure was 11.65%. Until 2014, an average Indian household held 77% of its total assets in real estate, 11% in gold. 7% in durable goods like vehicles and just 5% in financial assets. But falling real estate prices and declining nominal interest rates of bank deposits led to shift in household's saving from real estate to financial

instruments. Investment in financial assets is growing at 22% CAGR. At present, Indian mutual funds have around 18 million SIP accounts. It has added 9.05 lakhs account every month this year. Until November, it has attracted 40780 crore rupees through SIP. The Indian Stock Market has reached a market capitalization of 2 trillion dollars and has become the 9th biggest stock market closing the gap between Germany and Canada. Indian households have invested 25000 crore rupees in stock market this year.

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Sign of a bubble Lower earnings of corporates Though the Price to Earnings ratio of companies is very high but their earning rate is very low. Price to earnings of companies is calculated on the basis of earning per share and market price of the stock. Price to Earnings Ratio = Market Price of Share / Earning per share Source: Credit Lyonnais Securities Asia

Sector Analysis

Falling Inflation The inflation rate in India has a falling trend. For the past 3-4 years it has been decreasing. If we compare this scenario with that of 2007, inflation rate was increasing at an exponential rate. Within three years inflation doubled from 6.39% in 2007 to 12.11% in 2010. But in 2017, inflation rate became half from 4.97% in 2016 to 2.19% in 2017. It is not just in 2017 that inflation has come down; the rate has been declining every year from 2013.

But the earning per share of stocks is increasing as the profits of the companies are stagnant which means that the price to earnings is high due to increase in the market price of shares. But when the performance of companies is not improving, why is its share price soaring. If we compare this situation with that of 2007 the earnings of companies were better than today. Though the P/E ratio of indices is almost similar the earnings are far better. The earnings of Nifty were growing at 19% in 2007 whereas it is growing at 5% this year. Same is the case with Sensex, in 2007, it was growing at 39% but this year it is decreasing at a rate of 3%.

Source: BSE C-Line Bloomberg

Sector Analysis

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FINLY| DECEMBER NOVEMBER2017 2017||Finstreet Finstreet||SIMSR SIMSR

ÂˇGlobal growth

Conclusion

In 2007 world economy was growing at a rate of 5.2%. Both developed and emerging countries were growing. China was growing at 11%, India was growing at 9% and other countries were also growing at 6-7%. But this year, the growth rate of countries has come down. India had a growth rate of 5.7% in the June quarter and 6.3% in the September quarter. Even China has a growth rate of 6.8% this year. US also are growing at 3%. The world economy is growing at 3.6%. Countries are facing a situation of crisis.

Though the trend is changing, people are increasingly investing in stock market and some macro economic factors too favor the situation, they do not completely justify the stock market rally. This sudden and unusual rise in price of stocks is way beyond the impact of these changing trends. The fundamentals are not that strong to sustain this rally. The market may see a correction soon or the rally may stop at its current position.

News Buzz Trivia

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Unitech- Fall of Giant Realty Player

Unitech, which was a big player in realty sector at the start of century found itself in sticky wicket after a decade. With its telecom business gone, Sanjay Chandra (promoter) sent to jail for forgery and heavy debt, the company is witnessing its massive fall. The apex court ordered the company to deposit Rs750 crore by December enda condition for Sanjay Chandra release from jail to compensate homebuyers who have sought refunds against delay in possession of homes. The debt-ridden Unitech's market value fell to Rs1750 crore on December 13, 2017 from Rs85236.32 crore on January 8, 2008.Unitech suffered a recent setback last week when National Court of Law Tribunal (NCLT) suspended all eight directors over mismanagement and failure to complete projects on time. It allowed the government to appoint 10 nominee directors to take over the management of the firm. However, Supreme Court gave a stay on NCLT order of suspending the board directors. The company claimed that court move will help Unitech to complete pending projects and also raise cash from the sale of its unencumbered assets to pay back arrears. Also company had filed a petition seeking refund from Telangana State

Industrial Infrastructure Corporation of about Rs500 crore it deposited in 2008 for the development of 350 acres of land. The firm had paid Rs165 crore in installments and now seeks Rs500 crore towards principal amount and interest as the project didn't take off due to land disputes. Fed Rate Hike- Janet Yellen last policy meet For the third time this year, the US central bank raised interest rates. With this, the benchmark lending rate has gone up by 25 basis points (a quarter of a percent) to a target range of 1.25-1.5%. The hike is particularly significant for Americans because it allowed Fed Chair Janet Yellen to signal an all-clear for the U.S. economy a decade after the onset of the 2007-2009 recession. This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages,â&#x20AC;? Chair Janet Yellen told reporters Wednesday in Washington following the decision.

News Buzz Trivia

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How it will impact India? The dollar inflows from foreign institutional investors (FIIs) have been robust in the past due to troubles and uncertainties in the US. FPIs have invested over $4.9 billion in equities and over $21.7 billion in debt till October this year. This foreign inflow is vital for the Indian economy still recovering from the exogenous shocks of demonetization& GST. But, post a Fed hike, there are expectations that a part of the money will flow back to the US as there will be investment safety and also good returns. With a hike in US yields, Indian bonds will become less attractive and may witness a sell-off by foreign investors. As bond prices fall due to the selling pressure, the yields will spike. Moreover, the lack of liquidity in bond markets will add pressure since money tends to flow out of less liquid assets as the yield differential falls. There has been a spurt in Indian stocks over the past 12 months. The rally is purely liquidity-driven, especially when it comes to funding flows from global funds, and there is not much support from earnings growth. So any change in the status quo could be bad news for the over-leveraged corporate houses of India, which are already facing the NCLT threat from the government and the Reserve Bank of India (RBI). USA Tax Cut â&#x20AC;&#x201C; a gift to US Middle Class Passage of the biggest U.S. tax rewrite since 1986 would provide Republican

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lawmakers and President Donald Trump their first major legislative victory since he took office in January.

KEY POINTS OF FINAL U.S. REPUBLICAN TAX BILL Business corporate tax rate: Cuts corporate income tax rate to 21 per cent from 35 per cent, beginning Jan 1. Corporate minimum tax: Repeals the 20 per cent federal corporate alternative minimum tax, which was set up to ensure that profitable corporations pay at least some tax. Other provisions Obamacare mandate: Repeals a federal fine imposed on Americans under Obamacare for not obtaining health insurance coverage. Obamacare, otherwise known as the Affordable Care Act, was signed into law by former president Barack Obama in 2010. The tax bill is expected to add at least $1 trillion to the 20 trillion U.S. national debts over 10 years, making it an unusual example of deficit spending on stimulative tax cuts at a time when the economy is already expanding.

News Buzz Trivia

FINLY| DECEMBER 2017 | Finstreet | SIMSR

Gujarat Elections

Through much of the election campaign in Gujarat in the last two months there has been one refrain that has rung out, “Congress is fighting well but BJP will form the government.” Monday's results in Gujarat has conformed to that view, with the Congress having improved on its 2012 tally, but still resigned to being the opposition, albeit the strongest in many years, in the state. Every poll result has its reasons and lessons, and what worked, what didn't. There is a clear rural urban divide as seen in the voting pattern in Gujarat with the BJP holding on to its urban bastions and Congress giving it a tough challenge in rural areas. The electoral victory of the Bharatiya Janata Party reinforces that Prime Minister Modi remains the most potent weapon in its armoury. As the BJP's attempts to take on the opposition campaign narrative appeared to be flailing, Prime Minister Modi's blistering campaign in every district of the state — 34 rallies in 15 days — and the reinforcement of his connect with the people of Gujarat was an important

factor. While a lot of heat was raised by some of the campaign rhetoric, especially with regard to former former Prime Minister Manmohan Singh, Prime Minister Modi's was successful in intervening in the campaign at the most crucial juncture. And while BJP president Amit Shah ran down the Hardik Patel effect in these polls s ay i n g t h at t h e p a r t y h a d wo n handsomely in Surat and Mehsana considered the epicenter of the Patidar agitation for reservation under the aegis of the Hardik Patel led PatidarAnamatAndolanSamiti (PAAS), the cotton and groundnut growing belt in Saurashtra is where the BJP took most damage. It lost all three seats in Morbi, four seats in Surendranagar, four in Somnath and five seats in Amreli where it had held ground in 2012. Rural distress is therefore something that the party needs to address, not just in Gujarat but across the country. Disney-Fox Deal

Walt Disney Co. has agreed to buy Rupert Murdoch's 21st Century Fox Inc. for about $52.4 billion in stock. In India, the deal means that Murdochowned Star India's businesses, including

News Buzz Trivia

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49 entertainment channels and 10 sports channels would be absorbed by Disney along with its digital streaming platform Hotstar. Not just that, Disney would also acquire Star's stake in directto-home platform Tata Sky in India. This would catapult Disney, currently known for its children's channels and distribution of Hollywood films, into India's biggest broadcaster. Currently, Disney operates eight children and youth entertainment channels in India, namely Disney Channel, Disney Junior and Hungama TV. It operates Bindaas and film channels UTV Action and UTV Movies, the channels it acquired from Ronnie Screwvala's UTV Software Communications Ltd for $454 million in the year 2012.

TRIVIA

The first listed company on the NYSE was the Bank of New York, traded under the buttonwood tree on Wall Street. The bank now continues under the name of The Bank of New York Mellon (NYSE: BK). What is Merchant Discount Rate? MDR is charge or fee imposed on merchant by bank for accepting payment from their customers in credit and debit cards every time card is used for payments in their stores.

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We welcome your valuable feedback www.finstreet.weebly.com Finstreet, Finance Committee of SIMSR finstreet@somaiya.edu