Finly December 2022

Editor's Note

Dear Readers,

“Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.” Arundhati Roy

This pandemic is an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest in the most intuitive ideas that come to our mind and surpass this havoc. As Ben Franklin rightly said, “An investment in knowledge always pays the best interest,” we at Finstreet are back with the next edition of our monthly magazine “Finly” for the academic year 2022 23

Team FINLY has always been a dedicated group of people who put in a lot of time and effort to put this magazine together, and we can't thank them enough for their unwavering support and initiative

The December 2022 edition's cover story revolves around "The Failure of Liz Truss' Economic Policies". The Eco Section discusses "Revoking the License of Brickwork Ratings". Further, the Intriguing Indeed section delves into the "Digital Rupee"

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

Kashish Khanduja

Manthan Jain Sakshi Pandya

Trisha Jain

Saumya Nair

Pankhuri Jaiswal Vigneswaran S

Tapan Shah

Jaykaran Mehta Ishan Khare Siddharth Suman

Samyak Tripathi Ayushi Sharma Riya Jain

ECONOMIC POLICIES

Elizabeth Truss was born in Oxford, England, in 1975 to a politically left wing or liberal family During her early years, Truss was an active member of the Liberal Democrats party and soon joined the Conservative party. Following her victory in the 2010 elections, Truss obtained several additional and prolific appointments As a parliamentary under secretary of state for education and childcare, Truss spearheaded a push to raise standards of mathematics in Britain and recommended changes to the A Level qualifying exam In 2016, she came under fire for what some saw as a failure to effectively protect a group of judges targeted by other politicians and media outlets concerning a Brexit related judgment. Some experts have given Truss's approach to economic policy the moniker "Trussonomics" due to its apparent resemblance to Reaganomics, the ideas Reagan supported in the 1980s. Significant tax cuts, a decline in social spending, and a rise in military spending were all hallmarks

of Reaganomics economic policy.

BACKGROUND

Liz Truss assumed office with the promise of a new political and economic era She was prime minister for 45 days, making it the shortest tenure in British history On Tuesday, September 6, Elizabeth Truss was appointed prime minister of the United Kingdom She was immediately faced with the enormous task that lay before her as pressure mounted to reduce price increases, calm labour unrest, and improve a healthcare system suffering from long wait times and a lack of staff Everything felt different throughout the summer. In the UK election hustings, it became evident that Ms Truss was very well liked among Conservative members They were eager to hear about her plans to cut taxes and lead as a conservative. She was not a polished media performer but skilled at engaging an audience

With her close friend and political ally Kwasi Kwarteng, Ms Truss worked on creating a novel and audacious strategy for gaining power as she knew triumph was just around the corner. Then what really happened?

PAST BLOW

The crisis of 2008 had a significant impact on everyone on an individual level, but it also dented many economies; one such was of United Kingdom. Since the global financial crisis of 2008, the UK's economy has stagnated and couldn’t recover The UK's GDP increased from $2 73 trillion in 2007 to $2.89 trillion in 2020. This trend is pretty much apparent in per capita GDP also.

Then came another major blow, ‘COVID’19’ which also affected the world economy adversely. Unlike some other economies, which reached the pre pandemic level and started to show growth levels, the UK economy struggled It also has not been able to get the pre pandemic levels.

The Russia Ukraine war has also negatively influenced the UK’s economy As the economy was already going through stagnation, it also started having effects of inflation The UK is a massive importer of Russian oil and highly depends on Russia for its energy requirements. Because of the war, supplies were reduced, and on top of that, the UK imposed sanctions on Russia, which led to the cut off of supplies to the UK entirely, resulting in inflation in the energy sector.

MAIN MISCREANT

The Mini Budget, Liz Truss’s finance minister Kwarteng announced a freeze on energy prices to stop inflation. The government estimated that this would result in an inflation reduction of up to 5% Kwarteng decided to offer the largest tax decrease in the last 50 years of the UK to jump start the economy In the expectation that all taxpayers both people and businesses would benefit in varying degrees from these tax reductions.

The government’s goal was to provide citizens and businesses with more money. In doing so, it intended to increase consumer spending and encourage enterprises to make economic investments A positive & rapid economic growth cycle would result from this. But generally, this does not happen when economies face inflation; the government goes for an increase in taxes, not tax cuts And another criticism of these tax cuts was that they showed a trickle down approach.

corporate tax cut from 25% to 19%

Top rate tax cut from 45% to 40%

Basic tax rate cut from 20% to 19%

Reformation of stamp duty

These tax cuts included The valuation of the budget, which was mentioned, was £45 Billion, but there was no proper mention or analysis regarding the procurement of the funds. There was only mention of raising money via public debt

The budgetary responsibilities and research were absent from plans, and there was no commitment regarding spending cuts

IMPACT

This mini budget was not welcomed by the public and investors and faced lots of criticism. One of the main reasons for disapproval was the need to borrow from the market for revenue purposes “Major tax cuts have been combined with an already large, and largely unavoidable, fiscal loosening, driven by a weaker economy and the need to subsidise families’ and firms’ surging energy bills… we estimate that energy support and the weaker economic outlook will increase borrowing by £265 billion over the next five years compared to the OBR’s March forecast

Tax cuts of £146 billion over the same period increase that to £411 billion,” states an analysis by the Resolution Foundation Fiscal irresponsibility is made worse because the tax cuts are unfair According to the Resolution Foundation, the tax cuts imply that someone earning £20,000 a year will gain just £157 while those earning £1 million will gain £55,220, which is roughly the annual salary of a nurse. “The result is that almost half (47 per cent) of the gains will go to the richest 5 per cent of households, compared to 12 per cent for the entire poorer half,” states the analysis.

As mentioned above, these issues created distrust among the public and investors regarding the government. People started questioning the capabilities of the government regarding the repayment of

borrowed funds. As per one of the reports, keeping the current scenario in mind, in the next 50 years, the public debt of the UK could rise to about 320% of the GDP, and currently, the public debt is about 96% of the GDP. Such reports and situations of stagnation and inflation also reduced the public’s confidence in the government.

Foreign investors also jumped onto the scene and made it worse for the UK as they started wiping out the money from the economy. As per the Bloomberg article dated 27th Sept. 2022, since Liz’s take over as Prime Minister, the UK has lost investments worth $500 billion (Stock and bond market combined). UK’s imports also became very expensive, leading to imported inflation And also, these scenarios resulted in the depreciation of the Pound.

On the 23rd of Sept, 2022 pound hit its 47 year low, i e , $1 09, and the carnage didn’t stop there On the 26th of Sept 2022, it came down to $1.033. The bond market also suffered severely as there was a substantial Gilt sell off, and again, this was the result of the public's lack of trust in the government The sell off resulted in a sharp spike in the yield rate of the ten year Gilts from 3.5% to 4.3% on the 26th of Sept 2022 and 4 6% on the 28th of Sept 2022

AFTERMATH

The situation was so out of control that the Bank of England intervened. hey announced that they would make an emergency purchase of Gilts worth £65 billion

After that, Liz terminated Finance minister Kwasi Kwarteng, took a U turn from her policies, and appointed new minister Jeremy Hunt who also emphasised spending cuts, which Truss was ignoring. Then comes the 25th of Oct 2022, which marks the end of Truss’s term as Prime Minster of the UK as she resigns from the post after 45 days of holding office.

CONCLUSION

Elizabeth Truss's failure to become a successful leader can be concluded based on her incompetency in satisfying the requirements of democracy. Truss started her reign by engaging in corrupt politics. Since she wouldn't appoint anyone to the government who hadn't supported her campaign, she had a limited pool of ability. By offering tax policies that were completely tailored to their interests rather than reflecting the wants or objectives of the greater nation, she promoted herself to the party's rank and file members in order to win the leadership campaign The publishing of Truss' self destructive mini budget made the extent of the misalignment clear Removing constraints on bankers' bonuses and lowering corporation taxes were never going to be popular during a crisis in the cost of living The perils of the British constitution are most likely what Truss' problems expose. It still has a body that gives a small group of people disproportionate ability to make crucial decisions with little to no oversight It still has a body that gives a small group of people disproportionate ability to make crucial decisions with little to no oversight

One example of this is how she disregarded the Office for Budgetary Responsibility Hence, at the end of the day, you need to be able to communicate, resonate, connect and empathise with democracy to lead the world successfully

REVOKING THE LICENSE OF BRICKWORK RATINGS

Ayushi Sharma | MBA 5 | 2022-24

Jaykaran Mehta | MBA 6 | 2022-24

. OVERVIEW

The regulator of capital markets, the Securities Exchange Board of India (SEBI) has recently revoked the license held by Brickwork Ratings and has asked it to wind down its credit rating operations within six months. Brickwork is one of the seven SEBI registered credit rating agencies in India It is also a Reserve Bank of India (RBI) accredited credit rating agency Credit Rating Agencies (CRA) are agencies that assess the creditworthiness of an organization, individual, or entity and assign ratings thereto They take into account various considerations and factors such as the financial statements, level and sort of debt, lending and borrowing history, ability to repay the debt and the past debts of the entity. The entities that credit rating agencies rate comprise companies, state governments, non profit organizations, countries, securities, special purpose entities, and native governmental bodies. In India, CRAs are regulated in accordance with SEBI (Credit Rating Agencies) Regulations, 1999 of the

Securities and Exchange Board of India Act,1992

WAS THIS A SUDDEN MOVE?

SEBI’s order shows that though the decision may have come as a surprise to the market at large, it couldn’t have come as a surprise to Brickwork, which has been the receiver of a series of opposing observations from SEBI since 2015 SEBI’s first scrutiny of 2014 15 unearthed basic flaws in its functioning. Brickwork ratings were found to have unaccountably late downgrades in bonds issued by Bhushan Steel and Gayatri Projects, even after their debenture trustees intimated defaults. Employees involved in Brickwork's rating decisions were found to be negotiating with issuers on fees, indicative of rating shopping. SEBI imposed a monetary penalty of ₹3 lakhs, which was later reduced to ₹2 lakhs by SAT On the second inspection in 2017 18, SEBI found cases of Brickwork not punctually recognizing defaults of Diamond Power, Great Eastern Energy, and Essel Corporate

Resources and critiqued its lack of surveillance mechanisms This time, SEBI’s charges were only partly upheld by SAT, with the penalty slashed from ₹1 crore to ₹10 lakhs. Despite the agency promising corrective steps, a third scrutiny by SEBI and RBI in 2018 19 revealed further instances of non compliance. The new findings pertained to the agency’s failure to independently evaluate issuer projections, not taking banker feedback, and incomplete rating releases, in addition to a rating committee member having a business development role. Data shared in the SEBI order displays higher rates of slippage and default for Brickwork's AAA and AA rated instruments than for other agencies. All this lends credence to SEBI’s final finding that Brickwork ratings failed to exercise proper skill, care, and diligence while discharging its duties as a rating agency.

WHAT ARE THE IMPLICATIONS OF SEBI'S MOVE?

banks and other financial institutions to organize a report Supported by that, they grade the entities in accordance with a scale. The rating represents the risk the borrowers pose in long term or mid term investments The lenders can then examine the rating and choose whether it is worth lending money to them. Credit rating agencies generally use this scale to point out ratings of people or organizations by allotting grades to them As shown below, the 'AAA' rating is considered excellent which means the borrower possesses the minimum risk and is offered a lower rate of interest The ratings below 'BBB' fall into the speculative grade, which means the borrower possesses high risk, and thus charged a higher rate of interest 'D' is the lowest grade of rating which means a person or company is either in default or is soon to be in default on its financial obligation

The move reduces the choice of rating agencies available to issuers from seven to six in India It also casts doubt on the trustworthiness of credit ratings for over 8,699 instruments that were under Brickwork's coverage at the time of the order. This order has severe consequences not just for Brickwork but also for investors at large

HOW DOES CREDIT RATING WORK?

Every company has its own personal algorithm to supply ratings. When a request for a credit rating is formed, agencies excavate evidence from various sources like

5. Brickwork Ratings India Pvt. Ltd.

6 India Rating and Research Pvt Ltd

7 Infomerics Valuation and Rating Pvt Ltd

WHAT IS THE SIGNIFICANCE OF THE RATING?

The credit ratings provide additional inputs to the investor, following which the investor analyses and takes a sound investment decision The ratings that are given to the entities function as a benchmark for financial market regulations. A better rating means that the company is deemed worthy of credit. Hence, investors are willing to lend money at a lower interest rate It helps banks and investors decide about approving loan applications and therefore, the rate of interest offered

WAY FOWARD

Retail investors, pension funds, and insurers have been relying on Brickwork's ratings for the last eight years to make their allocations, whilst the investigative process wound on. Additionally, following SEBI’s order, investors and other rating agencies may now view the issuers under the agency’s coverage with a jaundiced eye. Rating agencies might not be as systemically important as banks, but it does dent public confidence once they are summarily wound up SEBI therefore must come up with a clear transition plan to make such regulatory actions less disruptive for investors and issuers in the future by migrating issuers to competing agencies before issuing a winding up order.

AVIATION

VigneswaranS|MBA3|2022-24

SaumyaAshokkumarNair|MBA8|2022 24

OVERVIEW

The Aviation industry is the key to globalization. Directly or indirectly, global trade, tourism and economic growth are facilitated by the airline industry In the last few decades, international airlines have tremendously expanded their reach to global markets through alliances and partnerships

India had the world's third largest civil aviation industry in 2017, with the number of passengers growing at an average annual rate of 16.3% between 2000 and 2015. Bangalore is the hub of the nation's aviation manufacturing industry and has a 65% market share in this economic sector

The Ministry of Civil Aviation is responsible for civilian aviation, and the regulatory body is the Directorate General of Civil Aviation (DGCA). National Civil Aviation Policy 2016 sets broad goals for safety and operations.

The UDAN, a regional connectivity scheme, is a plan to develop a sustainable airline industry in over 400 tier 2 cities across the nation, which is estimated to cost around Rs 500 million (US$6 3 million) per airstrip

Currently, India has around 131 operational airports, with 29 international airports, 92 domestic airports, and ten customs airports As there is a growing demand for air travel in India, increasing airport infrastructure capacity has become necessary The number of airports has gone up from 74 to 141 in the previous eight years, and this number is expected to cross 200 in the next 4 5 years. The government expects to invest $1 83 billion in airport infrastructure by 2026 The industry has a significant impact, with an economic multiplier of 3.1 and an employment multiplier of 6

The Civil Aviation MRO market stands at around $900 million and is expected to

grow to a $4.33 billion market by 2025 at a CAGR of about 14 15% The Indian drone industry will have a total turnover of up to $1.8 billion by 2026.

INDUSTRY SANPSHOT

Despite being loss making, the Indian aviation industry continues to garner investors' interest as well as attract investments both from the government and the private sector. Recently, the Late Mr. Rakesh Jhunjhunwala's Akasa Air has created a flux in the Indian aviation industry The industry will become more chaotic with the government removing both price caps and the floor price of airfares. This, in turn, will create a price war among the titans of this industry, thereby bringing down the fares during peak seasons.

PORTER’S FIVE FORCES ANALYSIS

1. Competition in the industry:

Generally, rivalry among existing players in the airline industry is high because the market share is almost equally divided between the key players. Each company functions to remain in the market for a long time as exiting the market is not an easy task due to long term commitments and agreements as well as the high fixed costs involved in it.

2. The threat of new entrants:

The airline industry requires a high initial investment, which makes it less attractive

for new companies. New entrants could focus on lowering prices by cutting off extra costs and offering innovation to compete with the existing players, but these existing companies got the infrastructure, efficiency, and high product quality as a defense against new entrants

3. The bargaining power of suppliers:

Suppliers of the airline industry enjoy considerable bargaining power as there are two main supplies in the airline industry, i e , fuel and aircraft External factors influence fuel prices because of global fluctuations. And there are only two big suppliers of aircraft Airbus and Boeing.

4. The bargaining power of customers:

Customers enjoy strong bargaining power because of the intense competition in the airline industry The entry of low cost carriers has enabled customers to make most economic decisions.

5. The threat of substitutes:

The threat of substitutes are pretty much lower in the aviation industry. Although conventional modes of transportation such as road, rail and waterways exist, the time and convenience provided by airlines are irreplaceable. A viable alternative to the airlines could be High Speed rail but as of now, it is not a threat to the Indian airline industry.

LISTED COMPANIES

1. Spicejet:

It is the 2nd largest player in the domestic aviation industry with a market share of 13%, with 79% of the company's revenue coming from transporting passengers. SpiceJet is also the 3rd largest player in the international aviation market among domestic players. It is also the largest cargo operator in India. The company has increased its fleet size from 34 airplanes in 2015 to 94 in FY21 The company has ordered 155 of Boeing's highly fuel efficient B737 Max and has received 13 of them as of 2021. The airline connects 64 destinations worldwide, including 52 domestic and 12 international destinations in Asia, and is the largest Indian airline in terms of regional connectivity.

2. Interglobe Aviation (Indigo):

Interglobe Aviation Ltd (Indigo) is India's largest passenger airline operating as a low cost carrier Serving 86 destinations, including 24 international destinations, it fulfills its promise of low fares and hassle free flights From owning a single aircraft in 2006, the company has expanded its fleet to 262 airlines as of today. The company is now focusing on expanding its network presence by increasing connectivity in the non metro cities of India and expanding its international operations.

3. Jet Airways:

Jet Airways flew 124 aircraft on nearly 1000 domestic and international routes before it shut operations in April 2019 because of a severe financial crisis It then underwent a resolution process for two years, and the resolution plan was finally submitted in June 2021.

4. Taal Enterprises:

This company is engaged in providing Aircraft Charter services, with very niche offerings of Luxury private planes to any destination on the globe, with tailored services to meet the customer's requirements like private security, last minute change in the destination, etc

Source: Statista

RECENT TRENDS

Air Traffic: India is the world's third largest air passenger market after China and the United States In FY22, India's passenger

at nearly 189 million, out of which domestic passenger traffic accounted for over 166 million, a 58% YOY rise from 105 million in FY21 The Indian aviation sector is expected to touch 400 million passengers annually in 7 10 years. The ICRA, too, expects the domestic traffic to touch pre covid levels by FY24, with a projected 7% annual growth rate by 2040

Fleet and Airports:

Airline companies continued to add new aircraft to their fleets in 2020 and 2021 despite the pandemic causing a steep fall in the number of fliers The civil aviation ministry expects the overall fleet size to double to 1200 in 5 years from the current size of 700. To cater to the increasing air traffic, the government is increasing the number of airports in the country from the current size of 129 to 220 by 2030 and has actively been taking a lot of measures to improve the capacity of existing airports The new terminal at Bengaluru Airport and the creation of Navi Mumbai international airport are evidence of the same.

Aviation Turbine Fuel (ATF) Prices:

ATF accounts for around 45% of the cost of an airline in India. Additionally, the ATF prices are also not transparent enough, with the prices rising by almost 50% in January this year, as they are fixed based on international import parity prices, According to a report from the largest airplane manufacturer in the world Boeing,

fuel costs for Indian airlines are 90% higher compared to their global peers. The taxation on ATF is also not much regulated as the VAT can vary from 15 30% depending on the state's taxation rules

Other Operating Expenses:

Almost 40% of Indian airlines' operating expenses are done in US dollars. This means that our rupee ’ s depreciation adversely impacts these companies’ bottom line growth Furthermore, Indian consumers are highly price sensitive, so there is little scope for raising the prices, thereby causing this to be an industry of extremely thin margins

TATA POWER

SiddharthSuman|MBA3|2022-24

SamyakTripathi |MBA1|2022-24

COMPANY OVERVIEW

Previously known as Tata Electric and a journey of more than a century of pioneering initiatives, technology adoption, responsible business practices and minimal impact on the environment, Tata Power is one of India's largest integrated power companies. It has footprints across the entire power value chain of conventional & renewable energy, power services, and next generation customer solutions, including solar rooftops, EV charging stations, and home automation, with a quest to deliver sustainable energy

Tata Power, along with its subsidiaries, has an installed generation capacity of 13735 MW, of which 35% is from clean sources, serving over 12 million consumers With its successful public private partnerships in generation, transmission and distribution, the company has established India's first hydroelectric power generating station of 40 MW at Khopoli. The firm also established India's first all women customer relations centre (CRC) in power utility for their

customers in Mumbai. Tata Power even commissioned the first 150 MW thermal unit in the country and the first 126 MW cross border hydropower project at Dagachhu Moreover, they installed India's first 500 MW generating unit with multi fuel burning capability at Trombay. They implemented the first 4000 MW Ultra Mega Power Project of India at Mundra, Gujarat, based on super critical technology.

SHAREHOLDING PATTERN

Source: Screener

As of 30th September 2022, Tata Power’s shareholding pattern comprised promoters holding 46 86%, unchanged from the previous quarters The DIIs reduced their holdings from 14.7% to 14.19% quarter on quarter. Meanwhile, the FIIs have shown confidence in the growth story and have

picked up the mantle. They marginally increased their shareholding to 10 28% from 10 10% in the previous quarter

The government’s share remained the same at 0.32%. Retail investors, too have also shown a great amount of confidence and interest in the firm. The public increased their stake from 28.02% to 28.32%.

FINANCIAL ANALYSIS

Source: Screener

The revenue from operations for Tata Power for the quarter ended in September 2022 was INR 14,031 crores compared to INR 14,495 crores for the quarter that ended in June 2022. Despite a dip in revenue quarter on quarter, the net income rose from INR 884 crores in June 2022 to INR 935 crores for the quarter that ended in September 2022, which translates to an increase of 5.7%.

Tata Power’s operating expense fell from INR 12,812 crores to INR 12,270 crores which allowed the operating profit to increase from INR 1,683 crores to INR 1,760 crores quarter on quarter The operating profit has increased by 4 57% quarter on quarter The firm has shown an increase in the EPS figures as well. The basic Earning Per Share

is now INR 2.56 compared to INR 2.49 following the end of the June 2022 quarter With Tata Power foraying into the green energy space, the investments and expenses are likely to be higher in the short run, which may cause some jitters in the net profit growth But if the firm is able to capture the market space with high efficiency, the revenue streams will be bolstered enormously

Source: Tata Power annual report

RATIO ANALYSIS

ROE % i.e. Return on Equity, a measure of a firm's ability to generate profits from its shareholders' capital for the company It has improved and stood at 7 75% during FY22, from 5.41% during FY21. ROCE %, i.e. Return on Capital Employed for the company, improved and stood at 7 22% during FY22, from 6 8% during FY21

ROCE measures the ability of a firm to generate profits from its total capital (shareholder capital plus debt capital) employed in the company. The cash conversion cycle of the company reduced substantially from 58 days in FY21 to 51 days in FY22 The price of a share to its Book Value per share increased from 1.58 in FY21 to 3.4 in FY22, showing a higher valuation multiple being given to the

company by market participants and increasing investor confidence In addition, the debt to equity ratio has deteriorated from 1 85 in FY21 to 2 12 in FY22

COMPETITOR ANALYSIS

Tata Power is really well positioned when compared with its peers The firm is driving the highest revenues in the private sector, with the value touching INR 14030 72 crores at the end of the September quarter Moreover, Tata Power has the highest Year on Year increment in quarterly sales with a whopping 43 02% among major players in the same sector. Coming in close is NTPC, with a 36.33% YoY increment in the quarterly sales growth Despite major investments by the Adani Group in the sector, Tata Power has held its ground.

KEY METRICS

The total installed/managed capacity of the company stood at 13515 MegaWatt. The total length of transmission lines recorded was 3552 Circuit km, Solar Utility Scale (Engineering, Procurement, and Construction) order is at 3 Giga Watts. Tata Power has set up 2200+ Public charging points, and 191 Microgrids have been installed alone in UP and Bihar

Aggregate R&D investments amounted to 13 7 crores using which the 'My Tata Power’ Unified consumer mobile app has been developed.

In FY 2022, the Total Power generated was 44383 Million Units(MUs), and 35754 Mus were distributed 4 Patents have been granted in renewables, and in addition, 65000 solar pumps were installed. As per the company ’ s report, 707 MW additional green capacity was installed with 99 90% transmission availability Generation availability in all the plants is in line with last year, whereas the Plant Load Factor declined due to covid in 2020 21 and recovered to pre covid levels in 2021 22

Source: Screener Sources: Tata Power Annual

Although Tata Power seems to be doing quite well, their Return on Capital Employed is a major miss. With a meagre 9.3%, It is one of the lowest amongst its peers, and the firm should focus on hitting better numbers moving forward.

AT&C Losses- Distribution

Sources: Tata Power Annual Report

Aggregated Technical and Commercial (AT&C) losses have decreased in all the plants after the takeover; therefore, the firm would like to develop this model further Fly ash utilisation stood at 100%.

. OUTLOOK

ACCESS

Tata Motors and Tata Power have entered into a Power Purchase Agreement (PPA) to develop a 4 Megawatts peak (MWp) on site solar project at Tata Motors’ Pune commercial vehicle manufacturing facility The installation is collectively expected to generate 5.8 million units of electricity, potentially mitigating over 10 lakh tonnes of carbon emission

The company is set to install smart meters for its 7.5 Lac Consumers in Mumbai by FY25. Alongside that, the firm intends to set up 60+ EV charging points across JP Infra's residential projects, accelerating sustainable mobility in Mumbai and 450+ EV charging points across 350 national highways

DIGITAL RUPEE

LITIGATION FINANCING

IshanKhare|MBA10|20222024

Do you currently have any paper money in your pocket? Most of you will remain silent or barely speak at all! We are now a part of the digital revolution, which meets all of our demands, including managing and conducting financial transactions The Reserve Bank of India (RBI) has introduced the E Rupee/Digital Rupee in light of this.

THE IDEA OF CENTRAL BANK DIGITAL CURRENCY

India has come a long way in terms of innovation in digital payments We passed a specific law for Payment and Settlement Systems, which allowed the country's payment ecosystem to evolve in an organized manner India has come a long way to build a solid technical backend for the fintech sector, from RTGS and NEFT to UPI and NETC.

The creation of Central Bank Digital Currencies (CBDC), a new type of currency, has been made possible by technological breakthroughs CBDC is described by RBI as digitally issued legal tender RBI established an internal working group in October 2022 to

investigate the potential of CBDC The fintech division issued a "Concept Note" in response to the proposals on 7th October 2022.

E-RUPEE VS CRYPTOCURRENCY

The main distinction between cryptocurrencies and the E Rupee is that the latter is supported by the RBI and is recognized as legal cash in India. Unlike cryptocurrencies, one E Rupee can be converted into one Rupee of actual money or physical currency Cryptocurrencies don't have any inherent worth They are vulnerable to volatility since the primary factors driving their value limited supply and rising demand are caused by scarcity The digital Rupee, on the other hand, lacks the volatility that cryptocurrencies do and, as a sovereign currency, gives liquidity, trust, and safety The RBI hopes to satisfy public demand for digital currency with the help of the E Rupee and prevent the harm brought on by other private virtual currencies

WORKING OF E-RUPEE

E Rupee is essentially a digital voucher that a beneficiary receives by SMS or a QR code on his phone. It is a pre paid coupon that can be used at any location that takes it. Through a token based system, E rupee will be distributed to the entire public The recipient's public key must be known by the person transferring the digital money (a digital address). The recipient's private key (a unique password) and the public key are both used to complete the transfer.

The RBI concept note stated that " unique tokens based on approved methodologies would need to be manufactured, which may be slightly resource intensive "Transactions are likely to be somewhat anonymous; those involving larger sums may be required to be reported, whilst those involving lesser sums may be completely anonymous, exactly like with cash transactions”

The RBI opposes the e rupee receiving interest. It contends that customers could withdraw money from banks and convert it into e rupee if it earns interest which will affect India's banking and financial system.

NEED OF E-RUPEE IN INDIA

Authorities with significant physical cash operations seek to make allocation more effective, like Denmark and Germany.

Faced with the abating operation of paper currency, Central Banks seek to popularise a further respectable electronic form of currency like Sweden There are a lot of countries that have geographical walls confining the physical movement of cash It gives provocation to the country to go for CBDC.

The use of private virtual currencies has increased Central Banks seek to meet the public’s need for digital currency and, thereby, avoid the dangerous consequences of similar private currencies

Source: NPCI Website

As a sovereign currency, CBDC or E Rupee has special benefits like trust, safety, settlement finality, integrity, and liquidity

There are many reasons to consider CBDC issuing in India.

Source: RBI Website

E Rupee will facilitate scale back the price related to physical money management.

The Digital Rupee, in addition to a sovereign guarantee, can promote the reason for conversion to realize a less money economy.

E Rupee is predicted to support the digital revolution that is taking the globe by storm We can expect potency and innovations within the payment scheme with the E Rupee because it offers the general public broad access to digital cash

It has the potential to alleviate these challenges in cross border payment and enhance this system

The Digital Rupee will offer the general public an unhazardous virtual group action capability, safeguarding the common man ’ s trust in the national currency

The thought note suggests that the E Rupee can increase welfare for the poorer sections through monetary inclusions

FUTURE OPPORTUNITIES

RBI has proclaimed that the primary pilot in Digital Rupee Retail phase is planned for launch within a month in specific locations. The financial institutions are 9 banks State Bank of India (SBI), Bank of Baroda, Union Bank of Bharat, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IDFC First Bank, and HSBC, which are known for participation in the pilot project

Experts believe that since the future of commerce is cashless, the digital rupee will be especially important for needs in the future Since digital currency cannot be physically lost or damaged, it will always have a lifeline. Additionally, the E rupee will lower the overhead costs related to printing, distributing, and keeping banknotes The E rupee can greatly aid in environmental preservation because it will reduce the demand for paper.

The Digital rupee will be of vital importance for India’s financial sector and the economy as well. It will be an excellent opportunity for India because it will likely increase the ease of doing business, and improve the resilience and security of the entire payment infrastructure.

India is one of the first few countries to take a step forward within the route of digital forex Subsequently, the implementation of one of these systems can be an assignment. The capacity impact on monetary policy from the advent of CBDC remains doubtful It’s purely speculative given that most effective CBDCs are limited currently in life, as few international locations have issued them at this point Therefore, it'll be exciting to watch what flip this area will take in the time to come!

INTRODUCTION

Source: startuptalky.com

Located in the US and Canada, Instacart offers grocery store delivery and pickup services Instacart is headquartered in San Francisco, California, and the US It was founded in 2012 by Apoorva Mehta, Max Mullen, and Brandon Leonardo. Instacart started its business in San Francisco By April 2015, the company had over 200 employees and in June, it introduced a new rule that permitted some of its customers to work part time It started with Chicago and Boston and later expanded to Atlanta, Miami, and Washington, D C the subsequent month. The provision of services of Instacart

is done through a website and a mobile app where customers can place grocery orders from partnering retailers and request a personal shopper to carry out their requests.

HOW INSTACART WORKS?

Through an online application gateway, customers place grocery orders with several stores after which personal shoppers deliver their orders. Instacart is available to customers in the US.

The business purchases food and household necessities from several neighborhood shops and orders placed by customers are then filled on the same day and shipped from multiple outlets at once For customer convenience, Instacart provides a wonderful interface that makes ordering and reordering preferred products simple They go above and beyond to ensure consumer satisfaction, with exceptional customer service. To address

Pankhuri Jaiswal | MBA 10 | 2022 2024

INSTACART

product substitutions, shopper errors, and tipping promotion, Instacart has been improving its features and procedures.

VALUES AND MISSION OF INSTACART

Instacart appreciates giving back to the communities in which they live and work

Their goal is to make sure that everyone has access to food they enjoy, and working with outstanding non profits helps them achieve that goal

INSTACART BUSINESS MODEL AND REVENUE MODEL

By connecting customers with personal shoppers, Instacart offers hyper local on demand grocery delivery based on a shared economy business model Instead of being just a grocery store itself, Instacart acts as a marketplace where grocery retailers can sell their products.

Customers can explore grocery items, add quantities, confirm their orders, and select their chosen grocery store using the mobile app The shoppers are independent contractors or part time Instacart staff who receive the order, purchase the client's requested goods, and then bring them to the client's door. Customers obtain their things without leaving their homes after payment on the app Instacart makes money from its distribution and placement fees.

Source: toptal.com

Source: toptal.com

COMPETITORS OF INSTACART

Amazon Fresh (which uses the Webvan model)

Google Shopping Express Amazon and Google are also well known brands with deep pockets

Uber Rush may be able to penetrate this market.

Uber Eats, Munchery, Blue Apron, Plated, and Hello Fresh are all meal delivery services that compete with Instacart.

PROS

Available throughout the United States and Canada.

Optional cost saving Instacart+ subscription option

Same day delivery available. Partners with several large grocery store chains

CONS

Not available in some rural areas

Without Instacart+, delivery fee and service fee apply.

Instacart prices may be more expensive than those in store

Some may find the service difficult to use.

CUSTOMER REVIEWS AND BRAND REPUTATION

Concerning its tipping policy, the alleged misclassification of customers as independent contractors, and charging "deceptive" service fees to clients, Instacart has been named in numerous lawsuits in recent years.

HOW MUCH DOES INSTACART COST?

Orders placed through Instacart are subject to a delivery fee that starts at $3 99 as well as an additional service charge that is determined by the size of the order one places and the distance to which it is delivered They charge an extra service fee if one orders alcohol

Additionally, some products could cost more when ordered through Instacart than when purchased in store For grocery delivery firms that collaborate with numerous stores, this is standard procedure.

Last but not least, you should include a tip for your shopper with each order as it is usual. Members of Instacart+ reportedly save roughly $7 on each order, according to Instacart So, if you anticipate using Instacart more than 14 times annually, signing up for Instacart+ could result in financial savings. For an additional $99 a year, Instacart+ waives the delivery price on any orders over $35 and lowers the minimum service charge to 2% of your grocery bill.

Although Instacart has an A+ rating, the company is currently not accredited by the Better Business Bureau (BBB) The complaint history and business practices of the company are among the criteria used to determine this rating At the time of publication, Instacart's average customer rating on the BBB website, which is based on more than 1,000 reviews, was 1 08 out of 5 stars. In a similar vein, Instacart has over 6,500 customer ratings and a 1.3 out of 5 star average on Trustpilot

Numerous reviewers mention having problems with erroneous charges, lost items or purchases, and delayed deliveries. Customers have also expressed dissatisfaction with abrupt or inexplicable purchase cancellations and customer service However, those that are more positive claim that the service can be a quick, easy, and practical substitute for buying in store

IS INSTACART WORTH TRYING?

If Instacart is available in your area, it's a good option for grocery delivery, especially if the shops you visit frequently are on board with the program. The standard

Instacart service should be adequate for your requirements if you only sometimes order groceries But after accounting for delivery and service charges, higher costs, and a tip for the delivery person, you should anticipate spending at least $10 15 more than you would at the store

For free delivery and a lower service fee, purchasing an annual Instacart+ membership is worthwhile if you anticipate ordering grocery delivery more than 14 times per year. To be eligible for free delivery, be sure that each item totals over $35

VOLATILITY SMILE

TrishaJain|MBA6|2022-2024

DEFINITION

A volatility smile is a U shaped graphical representation of the pattern formed by the implied volatilities of multiple options contracts expiring on the same date. The geographic pattern is formed when the implied volatility values of several options are plotted against the strike prices of those options; a line is drawn that has an upward slope at one or both ends, resembling a smile The volatility smile got its name because it resembles a smiling mouth. Implied volatility rises when the underlying asset of an option is further out of the money (OTM), or in the money (ITM), compared to at the money (ATM). The volatility smile is not usable for all options.

OBSERVATION

The process of setting options prices is complicated because the valuation of an option is affected by external factors such as the time remaining until the option's maturity, the strike price of the option, and

the expected level of volatility, or implied volatility of the underlying asset. This irregularity is reflected in the market by a volatility smile

The most obvious explanation for volatility smiles is that there is a greater demand for in the money or out of the money options than for options that are at the money. Options models that are more refined and developed than the Black Scholes model have resulted in out of the money options being overpriced. This is done to account for the elevated risk associated with out of the money options

A smile is data recorded in a situation where out of the money or money options have higher implied volatility than at the money options This means that as the strike price of an option moves away from its current market price, the implied volatility of the put and call options rises In general, the implied volatility of at the money options remains low.

As a result, the presence of a smile implied that a money manager would typically prefer to write call options rather than put options.

BLACK SCHOLES MODEL

The Black Scholes options theory is predicated on an entirely flat volatility curve, and volatility smiles are not common observations. The Black Scholes model is the most commonly used formula for pricing derivatives, particularly options The Black Scholes model predicts a flat curve when the implied volatility of options is plotted against the corresponding strike prices It means that all options with the same expiration date and underlying assets have the same implied volatility when valued at the same price.

However, this is not always the case Extreme events frequently occur in markets, causing inconsistencies in general market trends For the first time in financial history, a volatility smile was recorded in the aftermath of the 1987 Black Monday stock market crash.

When an extreme event occurs, the prices of options can change dramatically, which is why it must be factored into implied volatility As a result, it is important to consider the possibility that extreme events could occur when developing financial models.

LIMITATIONS

A volatility smile is merely a model, and the implied volatility of options may not always correspond to it Implied volatility may be aligned with a reverse or forward skew rather than a smile. Forex and short term equity options typically align with volatility smiles Long term equity options and index options, on the other hand, tend to align with a skew.

A volatile smile does not always have a clean U shape This can happen as a result of external market factors like demand and supply imbalances. As a result, when making trading decisions, an investor must consider several factors A volatility smile simply indicates which market segment is likely to experience less price volatility.

EXAMPLE

Pull up an options chain that lists the implied volatility of the various strike prices to get a rough estimate of whether an option has a U shape. Options that are ITM and OTM by an equal amount should have roughly the same implied volatility if the option has a U shape The greater the implied volatility, the further ITM or OTM the option, with the lowest implied volatility near the ATM options If this is not the case, the option does not correspond to a volatility smile.

The implied volatility of a single option could also be plotted over time relative to the underlying asset price The implied volatility may take on a U shape as the price moves in or out of the money. Not all options correspond to the volatility smile. Before using a volatility smile to help you make trading decisions, make sure the option's implied volatility follows the smiling model

DROPPING PRIVATE EQUITY INVESTMENTS: IS THE START-UP BOOM OVER?

Q1 of the CY2020 closed interestingly Global Indices dipped several standard deviations below the 200 day moving average, although economies like the US and India were not facing the brightest performance streaks already This directly resulted from investor sentiment moving the market to price in Covid related uncertainty

However, subsequent quarters saw gradual improvement, as companies reported impacted earnings very close to renewed performance expectations The subprime bond market, which had seen a high single digit percentage decline in valuations, bounced back to above 90 mark valuations within six months An interesting article came in November 2021 stating that the global economies have witnessed a period of economic boom after every pandemic, and 2 3 years post this bullishness; we’ll see a period of recession.

Given how quickly the organized sector in

India adjusted to a new work life setup post Covid, with strategic and investment decisions accounting for volatile demand, the above prediction saw a squeezed timeline Through 2021, NIFTY 50 climbed by 23 8%, and 3 5cr demat accounts were opened in FY22 alone of the total 9cr accounts, directly correlating with retail investment inflow growth However, February 2022 was a turning point for several countries as Moscow took assertive action against Ukraine. Since, Europe and US have been facing the highest inflation rates over the last decade, with supply side shortages mitigating economic growth. Closer to home is a slightly muted version of the inflationary environment, while analysts call this period a funding winter

In recent years, Indian startups received a massive influx of Private Equity & Venture Capital (PE VC) funding While 2021 wasn’t the best year for most of us, it was an excellent year for the Indian startup ecosystem, propelling over 40 Indian start

Tushar Jain | IIM Lucknow | 2021 23

ups to become unicorns. As a result, the excess capital allowed startups to focus on rapid growth rather than profitability To meet these goals, they mass hired employees and provided them with many benefits All of these conditions inevitably resulted in cash burn and also caused a low key talent war. Through the last 2 years, the parties were bigger; the shows were broader; the buildings were higher, the morals were looser, and local startup valuations saw “unrealistic” revenue multiples of over 20x. IPOs were flooding the market, and buzzwords such as SPAC and crypto had become common parlance

All of this came to a screeching halt in Q2 2022 The past few months saw 12,000 reported job losses from mostly VC funded Indian startups, as against the global tally, which stood at 22,000. The hire and fire approach was a reactionary measure startup founders were forced to undertake High cash burn and negative operating cash flows were indicative of a future that is not promising for startups This resulted in a drying up of capital inflows Q3 2022, witnessed only $3bn in funding across 334 startups, compared to $17.1bn across 465 in Q3 2021.

The startups suddenly had low funds while they ran at high costs. From Ola to BYJU’s, everyone was feeling the tremors of the current scenario, termed ‘Funding Winter ’ PE VC and research firms predicted the funding winter to last between 12 24 months. Moreover, in recent months, PE VC sentiment

has turned conservative, and they are now negotiating valuations and asking tough questions about profitability SoftBank Group and Tiger Global, both of which have been aggressive investors in Indian startups, said they would slow investments this year Only four mega deals (worth $100 Mn or more) were recorded in the July September 2022 quarter, the second lowest figure since 2019, indicating a decline of 79% in comparison to the previous quarter and a whopping 90% YoY decline. Regarding stage wise trends, funding decreased across all stages except the growth stage, which increased marginally Late stage funding took the biggest hit, falling 78% compared to September 2021.

As a result of the funding winter, the startup ecosystem saw a pick up in M&A activity, with around 54 M&A transactions executed in April June 2022 The most important deals were in the food tech industry, including Zomato’s acquisition of Blinkit, and Swiggy’s acquisition of Dineout. In addition to these acquisitions, smaller companies like Lido Learning, Udayy, and Vauld have shut down operations, struggling to raise funds in the ongoing scenario. Multiple startups, including the likes of Snapdeal, Oyo, PharmEasy, and Ola, reportedly postponed their IPO's given the market uncertainty. Edtech major Unacademy announced pay cuts for its CXO level personnel, discontinued various perks in the office, and shut down its global test prep business. Mobility unicorn Ola has shut down its grocery delivery business Ola

Dash and used cars vertical Ola Cars. Similarly, Meesho restructured its grocery business Farmiso and integrated it into their main app as Meesho Superstore. Edtech major Byju’s is also feeling the heat, struggling to close its $800 million funding round, as Sumeru Ventures and Oxshott have delayed transferring $250 million out of their total commitment, on account of macroeconomic reasons

The funding winter is, in my opinion, a mere correction of the unreasonable valuations that were driving growth in the startup investment space Investments will shift to more conventional cash positive models, which will drive capital inflows into sectors such as Industrials and FMCG At the same time, with an overhaul of digital infrastructure by companies in developed, regulated sectors, traditional businesses will have high bargaining power over startup offerings Capital expenditure toward improving efficiencies will be controlled, and this should help the bottom lines of several large and mid cap Indian companies Given that major Indian sector indices do not include unicorns and new public startups, P/E ratios could decline, and the market could be on the way to becoming more lucrative to retail inflows

About Finstreet

Finstreet, the finance committee of K J Somaiya Institute of Management aims at bridging the gap between industry and academic curriculum through effective delivery of knowledge oriented sessions and events through a network of highly motivated members and renowned industry experts Through the FINLY magazine, we focus on covering crucial topics for each month and giving our members a platform to express their views.