Finly december 2015

DECEMBER 2015

ISSUE NO. 48

FINly MY NAME IS BOND. MASALA BOND.

LATIN AMERICAN CRISIS

RETIRAL FUNDS AND ADVISORY MANAGEMENT

NEW METHOD OF GDP CALCULATION IN INDIA

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EDITOR’S NOTE Dear Readers This month of December we have witnessed how conventional politics wins over prudent politics As the winter session was washed away under the name of Political Vendetta, most of the key bills including GST in upper house was not even tabled in the parliamentary.And in the midst of all this chaos, few miles away at the headquarters of RBI, things seem to be very clear in terms of perspective of the economy and financial system is concerned. RBI's new lending formula exemplifies our banking system is in serious stress and hence, needs to change the course of direction to revive credit growth via cost of fund methodology.

In this edition, our cover story covers the comprehensive study of the Masala bonds, which the RBI has come up with to encourage Indian companies to raise capital in foreign currencies and what implications it may have on the economy, companies and the financial system. Our faculty section throws some light on why there has been inconsistency as far as GDP numbers is concerned with the explanation of New GDP calculation methodology which has been adopted in conformity with global standards.

Next in line of our Bubble Trouble series, we have presented Latin American Crisis in 1980s, under this section we have covered how unprecedented lending made the entire financial system at the brink of failure coupled with oil crisis that occurred during that time.

Lastly, It gives me immense pleasure to announce Akhilesh Prabhu from KJ SIMSR as the Winner of Call for Articles for this edition. I would also like to thank our sponsors Finacue Research and Education for their support ,all our readers, Faculty members and seniors for their constant support and encouragement.

Abhimanyu Singh Chauhan

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CONTENTS EDITOR’S NOTE

2

COVER STORY

4

ARTICLE OF THE MONTH

11

ECO SECTION

14

FACULTY SECTION

17

ALUMNI SECTION

22

ARTICLE BY FINACUE

25

FINSTREET FIESTA

29

NEWS BUZZ

30

TRIVIA

32

FACULTY INCHARGE : Prof. (Dr.) Pankaj Trivedi EDITOR IN CHIEF : Abhimanyu Singh Chauhan EDITING TEAM : Shreya Gupta, Tamoghna Das, Partha Banerjee, Preyas Jain, Prateek Singh, Abhijit Khadilkar, Rishi Tekchandani, Gunjan Pathak DESIGN : Geetanjali, Prateek Singh, Rohit Prabhakar, Jay Khuthia

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COVER STORY Bond‌Masala Bond-The Indian Bond Rishi Tekchandani - PGDM-FS (2015-17) Preyas Jain - MMS (2015-17)

Since time immemorial, Indian spices have been popular all over the world. Indian food too, has gratified the taste buds of the people in the West. Now, a financial instrument-Masala bond, named after the vital ingredient for making Indian cuisine, 'MASALA', is set to be tested in the global capital markets.

What is the Masala (bonds) all about?

Masala bonds refer to rupee-denominated borrowings by Indian companies in the foreign markets. The International Finance Corporation (IFC), the investment arm of the World Bank, had successfully issued Rs 10,000 crores worth of Masala bonds in London in November 2014 to increase foreign investment in India. Those were the first rupee bonds listed on the London Stock Exchange. They were 10-year Masala bonds with a yield of 6.3% andAAAbenchmark rating.

IFC then named them Masala bonds to give a local flavour by accentuating Indian culture and food. While it may seem weird to name a sedate debt instrument after food items, it has been done in the past also. To exemplify, the Chinese bonds were christened as Dim-sum bonds after a popular dish in Hong Kong and Japanese bonds were named Samurai after the country's warrior class.

Narendra Modi pitching for Masala bonds: The Indian Railway Finance Corporation recently sanctioned the issue of Masala bonds to raise $1 billion and other firms such as NTPC are also opting for the Masala bonds. During his visit to the UK in November, Mr Prime Minister-Narendra Modi, had spoken about the Indian Railways issuing these bonds and getting them listed on the London Stock Exchange.

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The Central bank (RBI) Governor Raghuram Rajan has augmented the efforts of honourable PM by encouraging the Indian companies to borrow in rupees, which is a sensible plan to wean them off foreign-currency debt, which threatens to puff up into a balance-of-payments crisis every time the rupee encounters depreciation pressure.

How much Masala and spice in it for the foreign investor?

An investor who buys a bond issued by an Indian company at a rate that is, suppose, 150 basis points above the globally accepted pricing benchmark like the London Interbank Offered Rate or Libor — is betting on India, and anticipating that currency and inflation would be stable enough to give him good returns after hedging for the foreign exchange risks. As India's Gross domestic product(GDP) or national income is rising and is projected to grow at a reasonably fast rate over the next few years, many overseas investors would want to buy into such bonds to join the treat — and to earn better returns compared to the US and Europe where interest rates are still low.

Sources of the image: MOFCOM,RBI.

Why is the Masala (bonds) so important for the Indian issuers?

Masala bonds, if they take off, can be quite a significant plus for the Indian issuers and economy as elaborated below:

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Currency Risk-Abetter option against the ECBs: Foreign exchange risk, also known as FX risk, currency risk or exchange rate risk is a financial risk that exists when a financial transaction is denominated in a currency other than that of the base currency of the company. When the foreign subsidiary of a firm maintains financial statements in a currency which is not the same as the reporting currency of the consolidated entity, the Foreign exchange risk intensifies.

There may be an adverse movement in the exchange rate of the denomination currency in relation to the base currency before the date when the transaction is completed, which could result in losses for the firm. ? An Indian company or issuer of an overseas bond offering runs a risk on account

of currency fluctuation. A diminishing rupee during the tenure of the bond might add significantly to costs at the time of redemption or repayment, which is normally at the end of five years. ? By pricing or issuing bonds in rupees, the issuer/borrower gets free of this risk

which, passes on to the foreign investor instead. Besides, borrowing overseas can be relatively cheap when compared to India; with average costs at least 200 basis points lower than the benchmark rates of RBI. This also provides the opportunity of a new and diversified set of investors for Indian companies, and more liquidity in exchanges such as London, apart from bank borrowing and the corporate bond/debt market in India. Under the external commercial borrowings (ECBs), Indian companies raise money in foreign currency loans, but Masala bonds are issued to foreign investors and denominated in rupees; hence the currency risk lies with the investor and not the issuer. ? While ECBs help companies take advantage of the lower interest rates in

international markets, the cost of hedging the currency risk can be significant-this can lead to higher actual costs. If un-hedged, adverse exchange rate movements can come back to worry the borrower. But in the case of Masala bonds, the cost of borrowing can work out to be much lower, resulting into a sigh of relief for the borrower. The RBI in

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its April,2015 policy held that it would issue guidelines/rules and regulations for allowing corporates to issue rupee bonds in overseas markets.

The RBI tastemaker for the Masala bonds- Here are some of the important guidelines of the RBI regarding the Masala bonds: Expanded definition of eligible borrowers: Any Indian corporate or body corporate, Real Estate Investment Trusts and Infrastructure Investment Trusts have been permitted to issue Masala Bonds. Banks, Non-banking Financial Companies (NBFCs), infrastructure or investment holding companies and companies in the service sector which were otherwise not permitted to raise ECBs have not been restricted from issuing Masala Bonds.

Nature of instrument: Vanilla fixed rate or floating rate bonds denominated in rupees and settled in a foreign currency (freely convertible) issued in a FATF(Financial action task force) compliant financial centres can be issued.

Vanilla fixed rate: A bond with no unusual features, paying a fixed rate of interest and redeemable in full on maturity. The term is derived from vanilla or 'plain' flavoured ice-cream.

Floating rate bond: It is a debt instrument with a variable interest rate. It is also known as a “floater� or “FRN,". The peculiarity of a floating rate note's interest rate is that, it is tied to a benchmark such as the U.S. Treasury bill rate, LIBOR, the fed funds or the prime rate. The increase or the decrease under this method is relative to the benchmarks mentioned.

Flexibility to issue either listed or unlisted instruments: Masala Bonds can be placed either privately or listed on stock exchanges in accordance with the host country's rules and regulations.

Minimum Maturity: Masala Bonds will have a minimum maturity period of 5 years.

If someone aims to exercise the call and put options (if any), it would only be possible upon completion of the minimum maturity period of 5 years.

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Underwriting restrictions: Where an Indian bank endorses an issue of Masala Bonds, it would not be able to hold more than 5 per cent of the issue- post completion of 6 months of the issue; which is subject to applicable prudential norms. However, this would not be applicable to non-Indian banks.

Maximum of Masala: The maximum limit which could be raised in any financial year has been set out at USD 750 million per annum under the automatic route. For an amount exceeding 750 million per annum, specific RBI approval would be needed.

Why should we be bothered?

Masala bonds can have implications for the rupee, interest rates and the economy as a whole. Let us consider the advantages first. Competition from overseas markets may nudge the government and regulators to hasten the development of our domestic bond markets. A vibrant bond market can open up new avenues for bond investments by retail savers. If Masala bonds are eagerly lapped up by overseas investors, this can help prop up the rupee. The rising demand for Dim-sum bonds in 2011, for instance, promoted the use of the yuan in global trade and investment. Dim-sum bonds also provided investment avenues for yuan-holders outside of China. With talks of full rupee convertibility back home, Masala bonds can help the rupee go global.

But these bonds can have bad after-effects too if companies decide to binge on them.

As of December 2014, corporate overseas borrowings stood at $171 billion. The recent turmoil in the rupee is already prompting caution on existing foreign loan exposure. Some reports estimate that Indian corporates are likely to issue about $6 billion worth of Masala bonds this fiscal. With our economy still on shaky ground, too much reliance on external debt (even in rupees) can weigh heavily on our rating by global agencies.

Recent developments: A Rs 170-crore ($25-million) masala bond issue has been launched by the International Finance Corporation, the private finance arm of the World Bank by betting on the growing interest in India among international investors. Despite the

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volatility in emerging markets, investors have shown strong demand for Masala bonds. British Columbia, the 15th-largest metropolitan region in Canada, will issue $150 million rupee-denominated bonds, also known as Masala bonds, in the first quarter of the next calendar year.

Amatter of concern-Why are the masala bonds losing their flavour?

Global investors are unnerved by the currency and corporate risks attached to these papers and international events such as US Federal Reserve's policy decision on rate hikes(are seeking rates as high as 50-75 basis points) over and above their domestic corporate bonds.

In a recent case, Power Finance Corporation (PFC) had to cancel its plans of a $250 million issuance after most banks failed to offer a firm price, or underwrite it, for a period of 15 days.

Even after conducting international road shows, HDFC bank and state-owned power generator NTPC have already postponed their fund raising plans to January. This signals a somewhat negative trend in the issuance of Masala bonds. ? Taxation dilemma: Investors are also supposed to bear a 5% withholding tax on

these instruments. The tax is usually deducted at source and is imposed on the interest income payable to entities outside the country. This is also one of the negatives of Masala bonds.

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So finally‌.How much Masala is good for health??

Masala bonds are a good idea to protect corporate balance sheets from exchange rate risks. But they are best, when used in moderation. The after-effects of too much masala are not pleasant, as is the case with Indian voracious eaters. So, the corporates need to play cautiously and make sure that they don't over-eat the Masala.

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ARTICLE OF THE MONTH GST Support: Is there a hidden reason to Congress' Defiance?

Akhilesh Prabhu KJ SIMSR, MMS, 2015-17

Goods and Services Tax (GST) is a unified indirect tax regime which will replace the numerous taxes that are levied on the goods and services under the current tax structure. The implication is that wherever the goods are manufactured, the tax paid would be the same irrespective of the state it is being produced in. Currently there are numerous taxes that are paid by the manufacturers and the consumer of the goods and services such as VAT, Service tax, Sales tax, entertainment tax etc. Under the GST, these taxes would be eliminated and a single tax would need to be paid, which would be uniform across states. Also the GST would ensure that there is no evasion of taxes as the system is more simplified as compared to the current tax structure, which the evaders can manipulate and use the loopholes in it to their advantage.

The previous governments, starting from NDA led by Atal Bihari Vajpayee and the UPA government led by Manmohan Singh, had plans to implement the GST regime as it would add around 2-3% to the GDP. So looking at the stance that the Congress government is taking in the GST debate, it does not match the rhetoric that the previous Congress Government had in view of the Draft GST Bill. The demands that the Congress has for the passage of GST bill are scrapping of the additional 1% inter-

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-state tax in addition to the GST, 18% limit on GST barring a few commodities and putting the rate of GST in the Constitutional Amendment Bill. The ruling government has agreed upon two of the above demands, but will it ensure the support from the Congress for the passage of the bill, only time will tell. But there are compelling reasons for the Congress to not support the passage of the bill till 2017-18 from the analysis that are available of governments in other countries that have implemented the GST. It is found that no government has ever been re-elected after the implementation of GST and also the alarming fact is that the successive government has reaped the benefits of the implementation. The reason for this is that GST has a short-term inflation implication on the economy. The CPI in most cases has risen in the short term period of 2-3 years after implementation of the GST. The reason being the manufacturers will pass on the tax to the consumers since it would be slightly higher than the current rate (proposed 18% as against 14% of service tax) of tax. Also the transition to a newer system of taxation would mean that the accounting processes of companies will have to change to accommodate the new system which would create confusion and chaos among the investors and the stakeholders of the company.

However this is limited to the short term and the long-run benefits far outweigh the scares of the short-run. Looking at the scenario, Congress can play politics and use this to its advantage.

If the Congress is able to stall the GST passage till the year 2017, and later agrees to give its consent and the government passes the GST Bill, there is a high possibility of inflation creeping the economy. The government will be blamed for not being able to control the prices of essential commodities and this will be further fuelled by the opposition's charge against the centre. Although it is a short-term impact of the GST, the government will find it difficult to convey this to the general public as India is a price-sensitive economy and elections in the past have been lost due to this factor of inflation. Politics then becomes a game of perception, and in most cases, the negative

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perception will rule and would topple the government at the centre. With the next general elections in the year 2019, the opposition party Congress will have a compelling case against the BJP-led Centre that it failed to curb the general prices of commodities, which was the same strategy applied against the Congress by the BJP, other than the corruption aspect. If this scenario plays out, Congress will be able to form a government at the centre. With the GST implemented nearly 2 years back, the short term inflation aspect will play out and the GDP of the country will witness the positive impact of it and the Congress can then claim their contributions to the recovery of the economy.

The central government has to be mindful of the various strategies that may or may not be employed by the main opposition party and at the same time ensure that the various reforms that have been promised is implemented. The government is treading on a very thin line between the economic reforms for the country and the political survival of the party. It's a decision that the party high command has to take strategically so as to create a win-win situation for both the country and the party. It will be interesting to see as to how things will pan out in the future and it remains to be seen whether the economic reforms of the country or politics over reform wins.

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ECO SECTION BUBBLE TROUBLE LATIN AMERICAN DEBT CRISIS Prateek Singh, PGDM-FS (2015-17) The World experienced Latin American debt crisis in 1980s, the period which is often known as “LOST DECADE�. During this period many of the Latin American countries became so highly indebted that they were unable to repay their loan.

In the period between 1960s and 1970s, Latin American countries like Brazil, Argentina, and Mexico borrowed heavily to fund their Industrialization and infrastructure projects. The economy of these countries was booming, and thus the banks were motivated to provide the loans to these countries. Initially the countries funded their loans through public funds like World Bank etc. The other sources were the international banks which were seeing an inflow of funds from the Oil Exporting countries due the Oil Price Shock in 1973 thought of the sovereign debt as a safe investment. The situation went unnoticed until the point where the where the Latin American debt increased more than 4 times. The borrowing increased from the $75 Billion in 1975 to $315 Billion in 1983.

World was hit with the Oil Price Shock of 1973 which led to an Increase of the Oil prices from $3 to $12 per barrel globally. This created a surplus in the current account of the oil exporting countries while creating a deficit in the current account of the oil importing countries. The banks had an inflow of the funds from these oil rich countries which they lent out the (major portion of the funds) to the Latin American governments. The majority of these banks which provided the loans were the commercial banks of USA and Europe. The low interest rates coupled with the global economic expansion in the1970s period made the situation tenable in the initial phase of 1970s. However towards the latter period of the inflation reduction policy was becoming a priority for the Industrialized world. This led to the monetary tightening in

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USA and Europe. The interest rates started rising and at the same time the banks started reducing the repayment period. This led to the increase in the debt accumulation for the Latin American countries. The exchange rate also deteriorated, the fall in the value of the Latin American currencies in relation to US dollar further increased the debt burden on the LatinAmerican countries.

The debt accumulation had been rising over the no. of years however the crisis occurred in around 1982 when the Mexican Finance Minister declared to the United States and the IMF, the inability of his country in debt repayment which amounted to around $80 Billion. Subsequently there were other 16 Latin American countries which missed their debt payment due dates. The crisis was spread across the other parts of the World and as many as 11 countries rescheduled their debt. With the default of the Mexico the banks curtailed lending significantly to the Latin American countries. Majority of the loans issued to them were short term and they became due immediate. This led to the many LatinAmerican countries plunge deep into recession.

Several steps were being taken by IMF and the World Bank in the Debt restructuring.

USA and the IMF pushed for the debt relief realizing the inability of the countries to payback. USA also encouraged the rescue effort “international lender of last resort” which was collaborative effort of the Commercial banks, central banks, and the IMF. Under this, the commercial banks took to restructuring the countries debt while the IMF and the other agencies took to lending to the LDCs(Less developed countries) to enable them to repay their interest (not the principal). The motive was to revive the economy and the exports which will lead to accumulation of the trade surplus and reserves which will pay off the debt. The programme delayed the immediate crisis, however the Latin American countries along with the other LCDs took steps to cut down their government expenditure significantly on the infrastructure, health, and education sectors. This ultimately led to the increase in the unemployment, decline in the per capita income and the slow or negative growth of the economies hence the “Lost decade”.

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It took years to sort out this situation of crisis. In 1989 USA proposed BRADY PLAN a novel debt reduction agreement for the debtor nations to bring down their existing debt service obligations. In return the 18 countries which signed the agreement agreed to the domestic reforms that would enable them to payback their debt. During the period of 1989-1994 the private lenders forgave a staggering 61Billion USD of the loans to the debtor nations. The scars of the crisis were far from over for a long period of time. “Time and again, be it in the Asian crisis or the Euro zone crisis, we have seen how governments have failed to draw lessons from the Latin American crisis�

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FACULTY SECTION Understanding newly revised calculation method of Gross Domestic Product (GDP) in India Dr. Shaila Srivastavava Faculty,Economics In January, the Central Statistics Office (CSO), using a new method, said that India's real GDP in 2013-14 grew 6.9% instead of the earlier 4.7% and by 5.1% in the year before compared to 4.5% in the earlier system. Advance estimates for 2014-15 released in February projected India's GDP during the year to grow at 7.4%, making it the world's fastest growing economy and India's growth rate much closer to China's. The share of manufacturing in the year ended March 2014 in India's economic activity was 18% instead of 15%, while services share was 51% instead of 60%. Agriculture's contribution grew to 17% from 14% with the revision.

All these changes are due to new formula used to calculate GDP. Numbers and statistics are important not just for the policy makers but also for the common populace as they act as report cards to determine the performance of a government's policies. Investors, both domestic and foreign, use them to gauge investment opportunities in the country. That's why the newly revised calculation method of GDP form a significant national issue.

Gross Domestic Product or GDP represents the total value of all the final goods and services that are produced within a country's borders within a particular time period, typically a year. GDP growth rate, denoted in percentage, is the growth in GDP as compared to that of the previous year.

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What is different in the new method to calculate GDP compare to earlier method? Why change is important?

Three types of changes were made by the CSO in the GDP estimation procedure: Methodological changes, Change in the base year and giving comprehensive coverage to all sectors. Changes are important to make India's national income accounting standards in conformity with global standards. For example, IMF's world economic outlook projections are not based on factor costs. This used to create confusion in the past as IMF's projections turning out to be very different from the Government's.

Globally accepted standard: the SNA 1.Globally, most accepted and followed national income accounting format is the System of National Accounting (SNA), prepared by the UN and ratified by the IMF, World Bank, OECD and EC. 2.The SNA describes a coherent, consistent and integrated set of measures in the context of internationally agreed concepts, definitions, classifications and accounting rules.

The SNA was launched in 1992 and upgraded in 2008.

1- Methodological Changes Globally there is a consensus that GDP in Market Prices is more powerful and useful than GDP in factor cost. Earlier, GDP was GVA (gross value added) and was calculated at factor or basic cost, which took into account prices of products received by producers. Now the GDP will be measured by calculating the value that consumers get to enjoy, the new formula takes into account market prices paid by consumers. Actually, estimation of GVA at basic prices is a step to measure the GDP at market prices. The SNA and the new methodology adopted in India calculate sectoral GVA at basic prices.

GVA at basic prices = CE + OS/MI + CFC + production taxes less production subsidies.

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CE – Compensation of Employees, OS – Operating Surpluses, MI – Mixed Income and CFC – Consumption of fixed capital The above identity says that GVA is the sum of payment made to labour, surplus of the business entity (profit), income of the self employed people etc ( Mixed Income) and the money we keeps to replace the existing machineries (CFC). The unique thing about Basic price is that it measures the GVA by adding production taxes and deducting production subsidies. In this way, the first step in calculating the GDP ie., obtaining sectoral GVA. Then cumulate these sectoral GVAs to get the GDP. GDP at Market Prices is calculated as the total (or sigma ∑) of the GVAs. GDP at Market Prices = ∑ GVAat basic prices + product taxes – product subsidies Or GDP (Market Price) = GDP(Factor Cost) + Indirect Taxes - Subsidies.

2- Change in the base year Choosing a base year is the first step while counting the 'real' GDP. A real GDP growth rate removes any effects that have arisen due to inflation to give us a truer picture of economic reality. The government has also changed the base year for estimating GDP from 2004-05 to 2011-12.

What is a “base year”?

The base year of the national accounts is the year chosen to enable inter-year comparisons. It is changed periodically to factor in structural changes in the economy and present a more realistic picture of macroeconomic aggregates.

The GDP series with base year 2004-05 was launched in 2010, while the series with base year 1999-2000 was launched in 2006. Going by the past, the base year for the new series may have been 2009-10 instead of 2011-12. However, 2009-10 may not be an ideal choice for the 'base year' as the Indian GDP slipped in 2008-09 after four years of 8% plus growth beside some other reasons. The growth revived to 8% plus levels in 2009-10 and 2010-11. The year 2011-12 was when the GDP deflator – an indicator of system inflation used to convert nominal GDP to real GDP – as the highest in the last 10 years.

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3- The new GDPhas incorporated more comprehensive data on all sectors: Earlier, organized industrial activity was based on IIP. It used to get updated two years later based on data coming in from the Annual Survey of Industries (ASI). This has limitations, as ASI only captures goods' value at the factory gate, and that too only of firms registered under the Factories Act. The preliminary estimates of the old GDP series that used IIP data were derived from a database of less than 5,000 companies, which were then extrapolated to get the final estimates.

Now, the corporate affairs ministry's MCA21 records, a comprehensive compendium of balance sheet data of about 5,00,000 firms, is used. All companies have to upload balance sheet data on the MCA's records and this captures the value added by all activities of manufacturing, trading and even marketing. While the earlier data gave only a factory-level picture, the new data looks at the enterprise level. Underrepresented and informal sectors as well as items such as smartphones will now be taken into account to calculate GDP. Comprehensive coverage of the financial sector includes stock brokers, coverage of activities of local bodies etc.

Advantage of new GDPestimate: GDP is a key metric used by global investor to allocate their investment between countries. India's GDP growth may help investors view India in a more favorable light.

That important indicators such as the fiscal deficit are measured as a ratio of GDP too. The latest revisions will help the Government meet this year's fiscal deficit target.

With indirect taxes added and subsidies deducted under the new GDP calculations, there is more incentive for the Government to raise indirect taxes and rationalize subsidies.

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Challenges of new GDPestimate: The new numbers pose a challenge to the Reserve Bank of India (RBI) because the bank decides whether to increase or decrease the interest rates. For example, with the earlier GDP numbers, the central bank was expected to decrease the lending rates for reviving economy. Sudden spike in GDP numbers puts RBI in a dilemma.

Other indicators, like unemployment rate, population below poverty line (BPL), power consumption etc. and these numbers and the realities they represent won't change overnight with the change in GDP calculation methods.

(Secondary source of data such as government reports, newspapers etc. used in the article)

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ALUMNI SECTION My experience with Retiral Funds Advisory & Management Krishnamurthy G PGDM Finance (2012-14) To begin with, I would like to congratulate the bulls of FINSTREET, for continuing to take FINLY to higher highs every time I get a chance to see it. It feels nostalgic, when I think of the fact that I was part of the team which started FINLY as a weekly newsletter to publish weekly updates on the Global Financial markets. From then to today, FINLY has transformed to a great extent and kudos to the editors and members for bringing in innovative ideas to make FINLY more relevant.

I am currently working with Darashaw & Co. Pvt Ltd, which is a broking & investment banking house providing services for raising funds, managing funds & Financial Consulting. I am placed in the Retirement Benefits Investment Management (RBIM) team at its Mumbai Office.

In RBIM we are investment advisors & managers to the Retiral Funds (which are Provident Fund (PF), Pension Fund, Gratuity Fund & Superannuation Fund, etc) of various organizations. These funds are part of social security programme started by the Government, and the guidelines for managing these funds by the organizations are given by the Government of India through their ministries. For example, guidelines for managing the retiral funds of banks & Financial Institutions are given by the Ministry of Finance, while guidelines for managing the retiral funds of manufacturing companies are given by Ministry of Labour. The guidelines may vary from one ministry to another.

As an Investment Manager my role is to optimally manage the funds while always sticking to the guidelines given by the Government of India. From the fund management point of view, 15 or 20 years back managing these funds were simple because the investments were made only in Government securities & Fixed deposits.

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But, as time passed more financial instruments were brought into the investment pattern with the latest addition being Equity & Equity derivatives.

Currently some of the major instruments in the investment pattern include, Government Securities, State Development Loans, Central & State Guaranteed Bonds, PSU & Private Perpetual Bonds, Rupee denominated bonds issued by foreign institutions like Asian Development Bank, International Bank Of Reconstruction & Development, etc and Basel III Perpetual Bonds issued by banks for meeting their Basel III requirements. These instruments are long term in nature and can span from 3 years, 10 years to perpetual in nature. In addition to this, there are some short term instruments like treasury bills (T-bills), Cash Management Bills (CMBs), CBLOs, etc. From the current financial year investments in Equity have become mandatory.

Thus, we see that the investment menu has increased and hence the organizations hire investment manager to manage their funds. As an investment Manager I am expected to do following tasks: ? Health check-up of the portfolio – The corpus of the portfolio might range

from few hundreds of crores to several thousands of crores depending on the size of the organization. It will contain investments made since the inception of the fund. By doing the health check-up of the portfolio, I am expected to analyse the investments made till now and reckon if they are done in best investment options or not. If not, I am expected to fund the best possible way to restructure the portfolio by selling the low yielding investments and investing them in better yielding securities that are available currently in the market. ? Asset-Liability Management – Retiral funds typically have regular inflows from

the contributions made by employees & employers. Along with this, it also has outflows due to retirements or due to loans taken by the employees. The outflows might be huge when a senior person is retiring from the organization. Since, the retiral funds invest more than 90% of their funds in Debt instruments, the liquidity of the instrument might not be good at all times. So, it is important to project the outflows

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based on the current set of employees while making the investment. I project the outflows for each year in the future and inflows from the current investment in the future. If there is a mismatch between the two in the upcoming years, then the current investments have to be made to mature in that particular year to minimize the shortfall. ? Investment Recommendation – It is based on the above mentioned tasks and the

macroeconomic situation. Since the majority of investments are in Debt, it is important to know the interest rate direction based on which the decision on the duration of investments can be made. We know that the price and yield of a bond are inversely related. So in a falling interest rate scenario, one should go for a longer tenor bond and in a rising interest rate scenario, one should go for a shorter tenor bond.

In the last two years, globally lot of major macroeconomic events have taken place.

From US ending their QE programme to Euro Crisis to China's currency devaluation to finally US Fed hiking its interest rate this month have impacted our capital markets to a great extent. Being in the Capital markets, I was able to learn a lot in these challenging environments.

I hope my experience helps the budding managers to get a taste of what it is to be in a retirement benefits space and what it takes to work in it. It is always a pleasure to contribute to FINLY and I hope that I would be able to contribute in the future as well. I wish “All the very best� to all the current batch students for their placements. Keep learning and don't give up until you get what you deserve. Cheers!

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article by finacue Television : disruptions to shake up incumbents!

The imminent launch of Reliance Jio (Jio), isn't just an event for the telecom industry.

The television industry (Pay TV) too is watching the launch with bated breath. Jio isn't the only disruptive force; the Pay TV industry is facing disruptions galore, as 'new age content producers' threaten the stronghold of incumbent broadcasters such as Star, Zee, Colors etc. The race for eyeballs is also seeing new, hitherto alien participants, such as Balaji Telefilms and Singtel, who are looking to tap into viewership across devices, viz. mobiles and tablets. We believe that this space is hotting up and disruptions are likely to be impactful for incumbents such as broadcasters (Colors, Star, Sony, Zee), television content distributors (Cable and DTH companies, viz. Tata Sky, Hathway Cable, Dish TV etc).

Content prodcuers will directly reach consumers India's content production industry is extremely fragmented, with small mom-andpop shores dominating the scene. The role of content producers is that of a contractor, merely executing the commands of broadcasters. These content producers were unable to even think of owning intellectual property (IP) for content they used to produce, as monetisation was a key challenge.

Now, with increased bandwidth availability and willingness of consumers to access video content on their mobiles, some players are looking to launch their own platforms, hosting propreitary content to directly reach audiences. Based on its track record of producing more than 15,000 hours of television content, Balaji Telefilms (BT) is in the process of launching its own direct to consumer (D2C) offering, ALT Digital.

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Exhibit 1: Balaji Telefilms' thought process on its D2C offering

Source: Company, Finacue Research

ALT Digital intends to deliver original content across multiple screens through Subscription/Ad-supported Video on Demand (SVOD/AVOD).

Not just Balaji, but a whole host of small and niche content producers such as The Viral Fever (producers of Permanent Roommates, Pitchers, etc), The Humour Beings etc, are reaching consumers through the mobile ecosystem.

Alarm bells ringing in US broadcasters Not just content producers, but the likes of Netflix and YouTube too are on the prowl.

Netflix has announced that it will enter numerousAsian markets in 2016. YouTube has launched an ad-free subscription service, YouTube RED, which allows users access to Google Play Music and offline viewing. We believe that the Indian market is likely to witness the entry of several global behemoths, who are also strengthening their onground presence through initiatives like Youtube Spaces. Indian broadcasters are cognisant of the changing consumer preferences, but their communique to stakeholders is devoid of mention of these new entrants as 'threats.' Global broadcasters/content distributors are less diplomatic and have taken congnisance of these threats.

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Exhibit 2: Extract from (1) Comcast's 2014 10k

st

(2) 21 Century Fox's F615 annual report

Source: Company, Finacue Research

India's broadcasters are making attempts to pre-empt content consumption on mobiles by launching their own over the top (OTT) apps, such as Hotstar by Star, Ditto TV by Zee, Sony LIV by Sony etc.

Other new entrants too Apart from broadcasters and content producers, technology is lowering the entry barriers in the the Indian pay TV, with Reliance Jio looking to start off with a mobile video strategy. An IPTV startup, Lukup Media is looking to launch full-scale video-cum-broadband services.

While, India's Pay TV market lags behind the US in conventional technologies, we seeem to be fast catching up with the US in the launch of disruptive technologies in this domain.

Both Lukup Media and Reliance Jio are looking to reach consumers through Last Mile Owners

Jury still out on the who has the edge While broadcasters have their own OTT apps, they no longer have the edge over other independent players such as HooQ (a Singtel app), Eros Now, YUPP TV, Hungama Play, Wynk Movies (anAirtel app).

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The distribution network advantage that large broadcasters had, by virtue of their easy availability on television is unlikely to help in the digital world, where all OTT apps are on even keel.

In conclusion, we believe that the Pay TV industry is in for interesting times, as a plethora of new entrants are looking to grab a share of India's entertainment loving folks. We are in for interesting times, and only the paranoid will survive !!!

Team Finacue - Finacue offers role-specific industry projects in Finance, allowing Bschool students to hone their skills in the subject of their choice.

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finstreet fiesta

Finstreet in association with KOTAK SECURITIES brings to you “Finstreet FiestaThe Finance week at SIMSR” where you will witness a week full of enthralling events in the field of Finance! Fiesta has 400 teams participating from about 60 reputed colleges across India. Fiesta aims at making everyone aware of the pre-eminence of'Finance specialization'for MBA aspirants and shed light on the numerous opportunities it enfolds!Fiesta consists of following events with total prize money to INR 1 lakh to be won!

Undergraduate Finance quiz which is open for under graduate students all over India irrespective of their specialization Investrix – A panel discussion by renowned finance corporates on the theme “Prospects and challenges for investing in Indian capital markets under present global environment” Lock Stock and Trade – The stock trading competition presented in association with ICICIdirect Centre for Financial Learning with prizes worth INR 55000 to be won!

Equity Research Competition brought to you in association with FinShiksha. Cash prizes worth INR 20000 to be won.

SIFICO - SIMSR's International Finance Conference based on the Theme: “Trends in Financial Markets and Services” where academicians and practitioners of international repute will engage in a consummate discussion on contemporary topics of finance and economics.

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news buzz Finance ministry lowers 2015-16 GDP growth forecast to 7-7.5% In the mid-year economic review released, the finance ministry scaled down the growth projection of the economy to 7-7.5% in the current fiscal, as opposed to 8-8.5% forecast in February.The review cited weak demand as the central challenge facing the Indian economy; it also pointed out that macroeconomic cushions, such as falling international oil prices, would no longer be available.

Govt to set up debt management agency through executive order The Public Debt Management Agency will bring the country's domestic and external borrowings under one roof. It was envisaged as a mechanism to remove the perceived conflict of interest between the Reserve Bank of India's (RBI) role of controlling inflation and its interest in keeping interest rates low to reduce the cost of borrowings.

Rating agencies say debt quality deteriorating The CARE Debt Quality Index for a set of 1,582 companies rated by Credit Analysis and Research has been on a downward trend since June. The index moved lower from 93.43 in June to 91.78 in November. The index captures on a scale of 100 whether the quality of debt is improving or declining. Crisil in its presentation cautioned credit quality pressures are intensifying for highly leveraged firms and sectors with linkages to investment activity and commodities.

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news buzz Federal Reserve raises interest rates for the first time in nearly a The US central bank has raised interest rates by a quarter percentage point and pledged a gradual pace of increases. This marks the end to the near-zero borrowing costs that have prevailed since the US was struck by the worst financial crash in modern times.In this backdrop, the outlook for Indian equities doesn't look all that bright for the near future.

In the past months, outflows by foreign institutional investors have amounted to Rs.8,500 crore ($1.27 billion). The markets have absorbed this to some extent, thanks to heavy purchases by domestic institutions.

But outflows by foreign institutional investors are likely to continue as long as commodity prices remain low.

Infrastructural, legal issues are hurdles to Digital India's success The Digital India initiative aims to provide Internet access to remote parts of the country through a wireless network.

The implementation of many egovernance projects is no measure of the success of the Digital India initiative, as experts are of the view that it has been unable to make the desired impact due to legal and infrastructural issues. The legal challenges that Digital India might face are that the laws are still outdated. There are spectrum issues, data privacy issues and product liability issues. The Digital India concept is glorified by India but it is a huge responsibility on the shoulders of the law ministry to make sure that the laws are updated and not ambiguous for someone to misuse.

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trivia 1.

Singapore has the world's

highest percentage of millionaires with 1 out of 6 households having at least USD one million in disposable wealth.

2.

The world's first bank was

Monte Dei Paschi di Siena, founded in 1472 and headquarted in Tuscany, Italy. It still operates today.

3.

The ink used for American money is

traceable, magnetic and birefringent (color changing)- all in order to prevent counterfeiting.

5.

The world's worst inflation was in

Hungary in June 1946, when the 1931 gold pengo was valued at 130 million trillion paper pengos.

4.

Morarji Desai was the only

Finance Minister to have had the opportunity to present two budgets on his birthday – in 1964 and 1968. He was born on February 29.

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

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