Finly February 2016: 50th edition

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FEBRUARY 2016

FINly P U T R STA IA IND UP D N A T S INDIA

Dot Com bubble Analytics in Fraud detection IT CONSULTING

Reasons and consequences of FII's outflows

EDITOR’S NOTE With the Budget session of parliament approaching there are lot of expectations from the upcoming budget. But, in the midst of this eager anticipation, there are some manifestations coming from different windows of economy, which will be making things really difficult for Mr. Jaitley to address on 29th Feb. In the last Quarter we have witnessed that the demand is not just pushed up as a result of which our exports and Industrial production has suffered a dip. With the new norms introduced by RBI regarding the identification of stressed assets, we have seen some of the big public and private sector banks are in real trouble as their balance sheets look quite heavy. With the new Tax demand from IT department to the Vodafone exemplifies that the GOI has not yet taken everyone under the same roof, but in spite of all these chaos the flagship event of Government Make in India week has witnessed huge response from the investors across the globe which is the only ray of hope for Mr. Jaitley, that things are still in the right direction although the pace is the worry.

This time our Cover article talks about Start Up India, which covers all the aspects of it , ranging from government initiatives to its scope to its viability and ability to bring significant change in the economy. Next in line of our Bubble Trouble series we bring to you The Dotcom Bubble of 90s, where we focused on reasons which leads to the high valuation of the companies and subsequently the bubble, and we have also tried to provide you the insight of its relevance in our current economic scenario. Our faculty section covers the advancement of Big data analysis in Fraud Detection and its scope for the future.

We would like to tell our Readers that this is the 50th edition of FINLY and acknowledge their support as this journey wouldn't have been possible without their support. I would like to thank our faculty members and seniors who have constantly encouraged us in our endeavors. We have a dedicated team working who deserve to be appreciated and applauded as well. Lastly, the Winner for the Call For Article is Harshal Agrawal from KJ SIMSR, Congratulations to him andAll the Best.

Abhimanyu Singh Chauhan

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CONTENTS EDITOR’S NOTE

2

COVER STORY

4

ARTICLE OF THE MONTH

13

ECO SECTION

17

FACULTY SECTION

26

ALUMNI SECTION

28

PRAVARTANA - MELANGE 2016

31

NEWS BUZZ

32

TRIVIA

34

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 START UP INDIA, STAND UP INDIA Geetanjali Rai, PGDM-FS, Batch 2015-17 Gunjan Pathak, PGDM, Batch 2015-17 Indians have always been more on the risk-averse side which can be seen in every field. One of the most important fields of study could be the choice of occupation undertaken by us. We generally preferred to get secure jobs particularly government jobs if we see the trend in 1960s to 1990s. Post liberalisation a plethora of private MNCs started employing thousands of our citizens. A new era dawned upon us which comprised of bounce in the economic status of millions of people. As the license raj ended, a lot of business houses boomed and flourished during this period. A positive and vibrant message was sent to the masses that starting up your own business is not as cumbersome as it used to be. If we weave a thread and connect it to the present day where Prime Minister Narendra Modi has announced “Start-up India, Stand up India� campaign in his Independence Day address in August 2015, we see the basking of a new era which again promotes self-employment.

The government has finally started deploying funds from the Self-Employment and Talent Utilisation (SETU) scheme and the Atal Innovation Mission (AIM) scheme which were announced in the Union Budget for 2015-16, to promote start-ups and scientific research, after over ten months of spadework.

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The AIM stresses on inviting aspiring entrepreneurs to solve India's contemporary socio-economic problems through 'grand challenges' that offer substantial awards for incubating and scaling up winning ideas. The SETU scheme's resources is devoted to strengthen incubators and setting up 'tinkering labs' where ideas can be formed into prototypes before they are ready for funding. To make the support mechanism for budding entrepreneurs more robust, half of the funds under SETU would be kept aside for strengthening existing incubators in the country that are backed by different departments.

From providing setting up a corpus fins to enable the new firm start business with ease to tax exemption, Prime Minister Narendra Modi had unveiled an array of incentives while kick-starting his visionary project: Start-Up India. This campaign focuses on restricting the role of States in the policy domain and to get rid of "license raj" and hindrances such as, in land permissions, foreign investment proposal, environmental clearances, etc. ?

We need to understand that the main objective with all these initiatives is to boost the economic

stature of our country and improve our ranking in the ease of doing business. If we see the Keynesian theory it says that government should go into deficit financing and increase its public expenditure in case the economy is going through a downturn but then the question arises won't this led to crowding out effect as private investments will decrease. In order to lessen the effect of crowding out we need to promote start-ups. Because if there is rise in the number of start-ups, it would reduce unemployment which will help in the recovery of the economy. Now we can have a look at the proposed scheme and the endeavours undertaken by them. .The final proposed schemes under Startup India campaign are: :1. Compliance regime based on self certification: The main objective of compliance regime based on self certification is to reduce the regulatory burden on start-ups. This self-certification would apply to laws like payment of gratuity, contract labour, employees' provident fund, water and air pollution acts etc.

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2. Start-up India hub A start-up India hub would be formed as a single point of contact for the entire start-up ecosystem for enabling knowledge exchange and access to funding.

3. Simplifying the start-up process A mobile app will be launched on April 1 through which start-ups can be registered in just a day. Hence, a start-up will be able to set up by just filling up a form through an online portal and mobile app that would make this procedure hassle free. There will also be an online portal for clearances, approvals and registrations.

4. Patent protection The government is also planning to bring on a legal support for fast-tracking patent examination at lower costs. It will help in promoting awareness and adoption of Intellectual Property Rights (IPRs) by start-ups and help them protect and commercialise IPRs. 5. Funds of funds with a corpus of Rs 10,000 crore The government will set up a fund with an initial corpus of Rs 2,500 crore and a total corpus of Rs 10,000 crore over four years in order to provide funding support to start-ups. LIC being a co-investor in the fund, the fund would be managed by private professionals drawn from the industry. This credit guarantee fund for start-ups would help the flow of venture debt from the banking system to start-ups by standing guarantee against risks.

6. Credit Guarantee Fund A National Credit Guarantee Trust Company would be created with a budgetary allocation of Rs 500 crore per year for the next four years.

7. Exemption from Capital Gains Tax Currently, investments by venture capital funds in start-ups are exempted from this law. Now, the same is being extended to investments made by incubators in start-ups so that the start ups don't face trouble in getting funds.

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8. Tax exemption for start-ups Income tax exemption to start-ups is announced for three years.

9. Tax exemption on investments above Fair Market Value 10. Start-up fests An innovation core program for students in 5 lakh schools is on the cards.

There will also be an annual incubator grand challenge to create world class incubators in India.

11. Launch ofAtal Innovation Mission Atal Innovation Mission is started to give an impetus to innovation and encourage the talent among the people to come forward with new ideas of doing business.

12. Setting up of 35 new incubators in institutions PPP model is being considered for 35 new incubators, 31 innovation centres at national institutes across India.

13. Setting up of 7 new research parks Indian government will set up seven new research parks - six in IITs, one in IISc with an initial investment of Rs 100 crore each to promote innovation in engineering field.

14. Promote entrepreneurship in biotechnology Five new bio clusters, 50 new bio incubators, 150 technology transfer offices and 20 bio connect offices will be established to envisage growth in the biotechnology sector.

15.Innovation focused programmes for students The students would be exposed to innovation core programs in 5 lakh schools.

16.Panel of facilitators to provide legal support and assist in filing of patent application Facilitators will provide assistance for start-ups in filing and disposal of patent applications related to patents, trademarks and design under relevant Acts by Government of India. The entire fees of the facilitators for any number of patents, trademarks or designs that a start-up may file shall be borne by the government.

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17. 80 per cent rebate on filing patent applications by start-ups The start-ups shall be provided an 80% rebate in filing patents vis-a-vis other companies to enable them to reduce costs in their crucial formative years.

18. Relaxed norms of public procurement for start-ups The start-ups, in the manufacturing sector, shall be exempted from the criteria of prior 'experience/turnover' without any relaxation in quality standards or technical parameters to provide an equal platform to start-ups vis-a-vis the experienced start-ups/companies in public procurement.

19. Faster exits for start-ups To make it easier for start-ups to exit, there would be a provision for fast-tracking closure of businesses that is included in 'The Insolvency and Bankruptcy Bill 2015'. Start-ups with simple debt structures might be wound up within a period of 90 days after making of an application for winding up on a fast-track basis Recently Make in India week was launched in Mumbai, India from 13th-18th February where the competence in design, technology, and manufacturing was put on display. It was more of an awareness driven campaign which aimed to inform and lure companies to manufacture in India. It was a huge success and 15.2 lakh crore investments have been committed with 30% coming from foreign players.

To get a green signal from the Inter-Ministerial Board by becoming eligible as a startup, the business entity should be the one which aims to develop, a new product or service or a significantly improved existing product or service that will create or add value for customers.

A startup is a business entity i.e. private, partnership or limited liability partnership (LLP) firm which is headquartered in India, that was opened less than five years ago and has an annual turnover less than Rs25 crore. To be eligible for considering as startup, the entity should not be formed by splitting up or reconstruction and its turnover should not have crossed Rs25 crore during its existence. Products or services, which do not have potential for commercialisation or is undifferentiated or have no or limited incremental value, will not be considered under the Scheme.

To be considered as eligible as startup the business entity, should be supported by .

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1.

a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India

2.

an incubator, which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation

3.

a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI or

4.

be funded by an Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business or

5.

be funded by GoI as part of any specified scheme to promote innovation or

6.

have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted

Also in the upcoming of Union Budget 2016, the government will assure that start-ups face minimum interference and it would act as a “facilitator� for them. Hence, the Budget 2016 is seen to take the process laid out in the action plan of Start-up India scheme forward.

Five things that can be expected from the Union Budget 2016:1.

Funding

In tier-II cities where VCs and angel investors are absent, banks are seen as the backbone for

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startup lending and the start-ups are perceived as a high risk area. The government should try to mobilize the budgetary corpus of Rs. 500 crore earmarked for credit guarantee at the earliest. The government plans to extend support by a Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC) or SIDBI for debt funding to start-ups.

2.

Incubators/Accelerators

Incubators and accelerators play an important role in the development of start-ups. Most of the start-ups in India are youth driven and these young people need a lot of handholding and guidance.

So, the government's aim to set up 35 new incubators in existing educational institutions and 35 new private sector incubators with government funding support is on the cards. The Union Budget 2016 should announce the roll out for this along with the budgetary allocation.

3.

Tax breaks

Union Budget 2016 may see the “Angel Tax� repealed and eliminate it from the Tax structure as this has been a major source of annoyance for Angel investors. The Startup action plan has tried addressing the issue of start-ups leaving the country to shift their registered offices outside India by eliminating Capital Gains Tax. So, this might be included in the upcoming Union Budget 2016.

4.

Exits/Closure

It is a well known fact that starting up is extremely risky and you are more likely to fail than come on tops. In such situations, the government is planning to come up with a law that allows easy exits in terms of winding up. The government should utilise the Budget session effectively to pass the Bankruptcy Law that is stuck in parliament so that exit for start-ups becomes easier.

5.

Digital India

The Union Budget 2016 can prove to be an engine to propel growth in the Indian Start-up ecosystem. The budget may lay emphasis on the indirect ways to stimulate growth for the start-ups by other flagship programme, Digital India. The government plans to roll out various government-

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to-citizen schemes to connect with Indians in a faster and seamless way.

Although the proposed schemes under Start-up India plan are luring for both the entrepreneurs and the angel investors but this campaign faces five major challenges too.

These challenges are:1. Work culture of Government offices The campaign aims at removing the “license raj” completely but it is not easy to process files in Government offices. Other than this, the entrepreneurs are facing difficulties in obtaining permissions from these offices.

2. Tax structure The Finance Minister, Arun Jaitley, had announced tax exemption for start-ups for three years and had promised for a new and different tax structure for the start-ups but the ongoing deadlock over GST bill may have a negative impact on this new tax structure. And it is hard to say when this new tax structure will come into being.

3. Fund raising Although the Prime Minister had promised to provide support for development and growth of innovation driven enterprises, Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period of 4 years. But, it is difficult to predict that this fun would be able to address the needs of thousands of budding entrepreneurs.

4. On the employment front PM Modi had urged the youth of India to focus on being “Job creators” rather than “Job Seekers”. In USA, about 75% of the jobs are created through start-ups and this can also be followed in India. But, the major challenge herein lies with the education system that needs to be changed to make the youth enter the industry early and with better exposure. Further Entrepreneurship requires innovation and the main driver for innovation will be research and development.As we know in India the R&D isn't valued as much as it is valued in other

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countries. But we should know that scientists and research scholars can provide valuable inputs for budding entrepreneurs who want to make a mark in the field of science and technology 5. Focus area In addition to the special focus on technology, India needs to also focus on skill development techniques. Until now technology oriented startups are flourishing in the Indian system but startups that are more focused towards agriculture, biotechnology, and etc. need youth that is more skilful. So, the Government must take care of skill development for providing benefits in these untapped areas of entrepreneurship otherwise the schemes would not prove to be beneficial for the common people aspiring to start their own businesses.

In conclusion, we see that Startup India can help India's economy grow in Leaps and Bounds if implemented properly. The foreign direct investments and Foreign Portfolio Investments will see a surge due to greater returns in the Indian Market as an economy will be booming. It can bridge the gap between rural and urban economy which is lagging behind due to stagnation in demand and supply of technology, education, health facilities. Also a multitude of employment opportunities will be witnessed in various non-conventional fields which will increase the employment quotient of our country.

UP T R IA A T S IND UP D N A ST INDIA

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ARTICLE OF THE MONTH REASONS AND CONSEQUENCES OF FII'S OUTFLOWS: IS IT PULLING THE INDIAN MARKETS DOWN? Harshal Agrawal PGDM-FS, Batch 2015-17 Foreign Institutional Investor (FII) refers to an investor or investment fund which is registered outside the country in which it is currently investing. The FII's investing in India are thus registered outside India and registered with the SEBI to participate in the Indian Financial market.

Why FII's invest in India FII's money is termed as hot money as it flows in any financial market to ensure maximum returns.

As per the survey of Bank of America Merrill Lynch (BofA-ML) in March 2015, India was considered the most favourite equity market for the global investors at 43 per cent and then China at 26 per cent. The main factors which have resulted in increased confidence of FII's to invest in India are1. Expectation of an high economic growth of India 2. Proliferation of technology based start ups in India 3. Government initiatives like Make in India, Smart Cities,Affordable housing and so on 4. Government initiatives to cancel the minimum alternate tax (MAT) on foreign investors retrospectively for the years prior to April 01, 2015, relax safe harbour rules for FII's, allow hedging the currency risk and so on Why are FII important to India – 1. They help improve the capital market.

2. They increase the flow of equity and debt capital in the country.

3. They help manage uncertainty in market by investing in hedging instruments.

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They help improve the corporate governance.

Amount of FII investment in India –

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Data source – CDSLwebsite and data taken as on 18 Feb FII's net investments in Indian equities and debt market set a record of highest flow of funds in Indian market of INR 277459.68 crores in the financial year 2014-2015.

FII's have had a total net outflow of INR 28725.93 crores in the Financial Year 2015-2016 so far which is second worse since 2008.

Reasons for FII's outflow The major reason of FII selling in India is the economic condition of emerging markets (EM's) such as Brazil, China, Russia etc. The Brazilian economy is suffering its worst crisis in decades. Brazil's economic-activity index decreased by 0.52 per cent in December 2015 from November, 2015 after falling by 0.64 per cent in November than previous month. South Africa is headed for a recession because of the global meltdown of commodity prices. China's economic crisis, the oil crisis and the Euro crisis have also broken the confidence of the FII's in EM's and thus FII deter to invest in Indian market.

Countries in the Middle East like the UAE, Saudi Arabia and Oman have very active Sovereign Wealth Funds (SWF) which gives around 40-50 % of the inflows into our equity market. These

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countries rely largely on oil exports for their revenues. Due to the continuous decrease in the crude oil prices, they are facing a slowdown in their revenue and it has compelled them to pull the money out from volatile EM markets, book profits in equities and recover losses.

Disappointing corporate earnings and high leverage ratios of Indian companies in the last few quarters has also affected the confidence of the investors. Big corporates like BhartiAirtel, Infosys, Tata Motors have reported fall in the net profit in Q3 2015. One of the biggest steel manufacturing company, Tata steel reported a loss in Q3 of 2015 and facing losses due to its European business.

Major reforms are initiated by NDA government. However slow implementation of reforms, stalled GST bill , Bad loans in banking sector have led India to bear the brunt of FII funds flowing out.

US Fed hiked the interest rate in December 2015 and with it ensured the world that US is on the path of recovery post 2008 crisis. Investors are likely to resort to relatively safe U.S bonds and equities than EM's.

IMF's opinion that global economy will grow at the rate of 3.4% in 2016 as compared to 3.6% estimated in October 2015 also hinted the investors to play safely.

Consequences of FII's outflow – Indian markets depend on the flow of foreign money. A major effect of FII's fund outflow from markets is the increase in gap of current account deficit.

Most of the FII's fund have come into ETF's. FII's sell and take the money out of the Indian stock market as soon as they find better opportunity. In this situation the volume of stocks remain huge in the market and demand less leads to a sharp fall in the stock prices. One of the reason being FII's fund outflow, SENSEX fell to INR 23,709 on 19th Feb from INR 27470.81 in October 2015 and CNX Nifty fell to INR 7210 on 19th Feb to INR 8295.25 in October 2015.

FII money outflow has put a lot of strain on Indian currency on account of strong demand for US Dollor.US dollar is becoming strong as compared to other currencies. The rupee has weakened from INR 65.11in October 2015 to INR 68.34 in February 2016. Weakened rupee increases the cost of the imported goods, decrease the import based corporate profits who indulge in ECB and

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make the forex reserve of RBI poorer.

The positive situation for India out of this is the exit of the short-term hot money from the system.

The remaining fund is relatively long term investment, stable and thus less likely to hurt Indian markets.

Effects on Indian Market -

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Data source – CSDLand NSE India as on 18 Feb As evident from the graph, the CNX Nifty and FII cash flow run parallel. The selling of FII in the months ofAugust-September led to a sharp fall in the NIFTY. Similarly an increase in FII cash flow causes NIFTY to rise a little. The effect on NIFTY is in varying degrees reason being investment from Domestic Institutional Investors and other factors.

Thus, FII selling of investment is clearly pressurizing the economy, but initiatives from corporates, RBI and GoI can likely keep the cheer in Indian economy.

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ECO SECTION BUBBLE TROUBLE: DOT-COM BUBBLE Shreya Gupta, PGDM-FS, Batch 2015-17 Harshita Agarwal, PGDM-IB, Batch 2015-17

Ever since 1995, the internet has changed our lives. It has altered almost all aspects of our daily lives, be it the way we communicate, the way we shop, the way we do our business, and even the way we travel. Stock markets experienced increasing growth rates due to venture capital and IPO-funded companies in the Internet sector and related fields in the second half of 1990 which led to the growth of a new economy. Hence, the name 'Dot-com Economy,' which refers to companies featuring internet domain names ending with “.com.� Therefore, a dot-com bubble refers to a quick and huge rise in equity markets due to heavy investments in Dot-com companies.

How did the dot-com-bubble build up?

A Dot-com company, powered by the internet, was seen as the coolest thing in the world. It seemed as though the new revolution has come in to change the way we live. Investors, inspired by the success stories of Amazon, eBay, and other such online companies, thought that all online companies, would be as big of a success. Hence they blindly invested in all such investment opportunities without realizing that most of these companies were grossly overvalued. Even companies which had never made any revenue were trading extremely high on the stock exchange.

IPOs of internet companies followed each other in rapid succession. Employees and executives of the new companies became millionaires after the IPO'S of their respective companies due to stock option plans since confidence in the Dot-com economy was extremely high. Even Communication companies like internet service providers and mobile network operators invested a lot in network infrastructure since they also wanted to grow with the dot-com economy. So, many of these companies took huge levels of debt to acquire wireless network licenses so that they can invest in network technology.

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There were a total of 457 IPO's in the USA of mostly tech and internet companies which managed to double their value within first day of the trading. Out of these, 117 managed to double their value within the first day of trading. Some valuations of the companies were on the basis of an idea on a single sheet of paper only. Every idea seemed viable and looked as if it would fetch million dollars worth funding due to the various possibilities of the internet .The investors completely ignored the basic fundamentals of investing and did not pay any attention to trends, P/E Ratios, Business plans, etc. And hence when the companies crashed, they suffered huge losses. As early as 1996, Alan Greenspan, the chairman of the Fed at the time, warned against 'irrational exuberance,' where rational investing was replaced by momentum investing.

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The dot-com bubble of the '90s resulted in a rise in NASDAQ from 1000 points to 5000 points over a span of 5 years (1995 to 2000). Then when the market crashed in March, 2000, it cost the investors a whopping $5 trillion dollars which was even worse than the stock market crash post the 9/11 attacks. Mainly researchers have pointed towards two reasons for the Dot-com bubble: Preoccupation with the network theory and Overvaluation of stocks. Network theory implies that the value of a network increases with an increase in the series of users. The investors focused on this and thought that the more popular a site, the more profitable it would be and they overlooked the revenue generating capacity of the sites. So, the value of a network increased as computers hosting the network increased. Overvaluation of the stocks refers to the hike in the valuation of a Dot-com company due to overly optimistic investors who came to unrealistic conclusions about the company's future. The companies which were not profitable had a market capitalization of more than a billion dollars as the analysts used very high multipliers in their models for valuing Internet companies that resulted in unrealistic values . One of the other reasons for the stock market crash was the finalization of the antitrust case against Microsoft. The company was declared a monopoly in earlyApril, 2000 for using it's stranglehold on the PC Market with its Windows operating system to handicap competitors like Netscape's Navigator Web Browser. The issue was if Microsoft could bundle Microsoft Windows operating system with Internet Explorer (IE) web browser software. Every Windows user had a copy of Internet Explorer and it was further alleged that this restricted the market for competing web browsers such as Opera and Netscape Navigator that had to be purchased at a store or were too slow to download over a modem.

How did the dot-com bubble burst?

The total stock value on the NASDAQ was at $6.71 trillion in March 10, 2000 and the crash began on March 11, 2000. The NASDAQ was valued at $6.02 trillion on March 20, 2000 and by April 6, 2000 it crashed to $5.78 trillion. So, in less than a month some stocks were devalued and some completely vanished to the tune of around a trillion dollars. A lot of companies started losing between $10 and $30 million a quarter at a rate which was unsustainable and would lead to lost investments and dead sites. The market had already anticipated these findings because of the

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antitrust case which caused the Nasdaq to lose 10% of its value in the ten days from March 10, 2000 onwards. The Nasdaq experienced a huge intraday downfall a day after the official findings of the Microsoft investigation were made public on April 4, 2000. Subsequently the Nasdaq bounced back up but did not mark a recovery. Investors realized that many of the loss-making new tech companies were actually loss-making companies. Within a year most of the technology companies backed by venture capital had dried up their funds and became bankrupt. The Dot-com stars were referred to as Dot-com bombs by the investors because they destroyed millions of dollars within a short span. The Nasdaq hit a low of 1114.11 points at a 78% loss of value in comparison to its peak two-and-a-half years before on October 9, 2002. A lot of communication companies also faced a lot of trouble since they had to repay billions of debt that they had taken for building up network infrastructure.

Lessons from successful companies who survived the dot-com crash While most of the companies experienced rapid growth and their owners became millionaires, a significant proportion of those companies crashed and burnt just as quickly.

For Jeff Bezos, remaining slow and steady worked for Amazon during the dot-com bubble and quickly turned into profit selling huge range of products. It survived because it had an innovative and viable business model which is built around a market-changing customer value proposition.

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In 2002, Amazon launched a web services platform which was risky that time since it had just achieved profitability and it was investing it's money in new business models. In 2007, Amazon set up Lab126 whose first product, Kindle e-book which opened a new market for e-books. Similarly, E-bay survived the Dot-com bubble because its products and online auctions grew in popularity even when other companies were crashing and burning. The reason eBay has emerged victorious while other dot-coms have succumbed to fickle Internet shoppers is because the online auction house fosters its community and E-bay pays close attention to its customers and fulfills their needs.

It equips its most popular vendors with branded trinkets like T-shirts and pens to give away at trade shows, conventions and flea markets.

Bubble 2.0?

Many researchers and investors are anticipating and wondering if the Dot-com bubble burst of 2000 will have a new version in the current scenario. Similarities between the Dot-com bubble of the 1990s and the situation today are striking: ? In 2015, NASDAQ once again reached the 5000 mark, the first time ever since the Dot-com

bubble burst. ? Dot-com companies once more have the halo effect working for them with all the investors

trying to get a piece of the action ? Most of the extremely sought after companies are incurring major losses but still being

valued in billions of dollars Investors are once again convinced of growth and ambitious returns and have been investing billions of dollars in Dot-com companies.

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Sounds familiar?

Many of the investors who missed out on the Alibaba IPO are in a rush to invest in India's ecommerce companies at the first given opportunity. But the funny thing is that, even know the investors know that these stock prices are overvalued, they still go on an investing frenzy in order to get their share of benefits.

The Dot-com industry works slightly differently from other industries. Generally the valuations of companies in traditional industries are done by way of analyzing ratios like PAT and EPS, and other factors like EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), and cash flows, but things are done differently here. Here, investors go by a valuation measure called the GMV i.e. the Gross Merchandising Value. GMV means sale price charged to the customer multiplied by the number of items sold. For example, if a company sells 10 books at $100, the GMV is $1,000. This is also considered as "gross revenue". But the problem is that the GMV neither considers the big time discounts offered by the companies, nor does it focus on future prospects. In other words, actual cash collected by e-commerce companies is way less than the GMV value. Hence it's an inflated figure. Valuations are expected to be around 2-2.5 times of a firm's GMV but some leading brands get overvalued up to almost 4 times.

Source: rbsa.in Another thing very different about the industry is that it kind of works on the “Greater fools theory�. Investors here are willing to spend millions of dollars on a company which they know is highly overvalued. But they go ahead and do it anyway thinking that there has to be someone out

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there who is a greater fool and who will be willing to buy their stake when it is even more overvalued. And this is actually proving to be true! Yet, there are many investors, including the world famous Warren Buffet, who choose to altogether stay away from the industry due to its high risk component.

A big hazardous difference today, is that in the Dot-com bubble of the '90s where most of the value was in publicly held stocks, currently, much of the unsustainable value is in privately held stocks, many of them boasting of being the “Unicorns�, i.e. valuations in excess of $1 billion. Most of these unicorns go by outrageous P/E ratios and should cause big worry to the economy. Currently, 73 private firms worldwide are valued at $1 billion or more, in comparison to the 35 companies, at the peak of the Dot-com bubble in 2000. Hence while the stock prices of a Just Dial or a Make my Trip are declining, few private e-commerce companies like Snapdeal, Flipkart, Zomato etc. are leaping to four-five times its values.

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Flipkart's valuation is around $15 billion now, from less than $3 billion at the beginning of 2014 while Ola's valuation has gone up from $300 million to around $2.5 billion in a year. Both these firms are incurring steady loses. And this is not just the case for h big players, but the same convention is being followed even for the companies at their nascent stage.

The investors value an e-commerce company by looking at its popularity and consider this to show promising growth and returns, though this is not the way it should work. Facebook, at the time of its IPO was valued at $104 billion, even when its revenues were under $2 billion! Twitter is valued at over $13 billion whereas it is generating a revenue of about $700 million. And why is all this happening? Because of its extensive user base?

Coming to a hypothetical burst of a hypothetical Dot-com bubble in the current scenario, we wonder what may cause the burst. The way the collapse of Lehmann Bros. marked the beginning of the global recession, would we have such an incident cause the burst?

The burst of the Dot-com bubble of 2000 was not marked by such a historic event though the antitrust case against Microsoft was one of the bigger deals, but a few reasons for the hypothetical burst could be as follows:

? A macroeconomic event triggered by something as normal as a US rate hike or as big as a large

E-commerce company failing ? Declining valuations of privately held giants such as Uber, Pinterest, Snapchat, Dropbox, etc.

These are the companies that set the pathway, and devaluation in these would surely cause big trouble for the entire industry, at a global level. ? If market leaders are unable to raise required funds. For eg, the hypothetical IPO of a Flipkart or

a Snapdeal goes unsubscribed or is not as much of a success as anticipated. ? An unforeseen hatred caused by dissatisfaction towards one e-commerce company being

vented out on all.

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The industry is now a huge part of the economy and the hit of a hypothetical bubble burst would be far worse than that of the '90s bubble burst. The bubble could be avoided keeping in mind a few things that the popularity of a site does not mean profitability or growth. Also, the business plans of the companies matter. Just adding a Dot-com is not enough to ensure success. While investing, the basic fundamentals should be analyzed, such as D/E ratio, P/E ratio, EBITDA, dividend payouts, and Sales forecasts, etc.

Hence what we need to focus on is that currently India is one of the active homes to many such overvalued Dot-com companies, and steps must be taken to avoid India from falling straight into a recession. We may not have been hit as much by the Global recession. But when we are finally in the middle of a healthy growth trajectory, a Dot-com bubble burst is not something that the country needs right now.

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FACULTY SECTION ANALYTICS IN FRAUD DETECTION Dr. N.S.Nilakantan, Associate Professor – Quantitative Methods Big Data Analytics has had a variety of successes in the past and one of its commercial successes is payment fraud detection. When we swipe a payment card, our transaction triggers multitude of antifraud applications running up to 15,000 calculations in a matter of milliseconds – using the accumulated intelligence from trillions of previous transactions – in order to determine the likelihood that the transaction is fraudulent.

All of us know about the Credit-card industry's success with predictive analytics in the 1990s. In the early days, authorization for credit card purchases were obtained by store clerks over phone lines through physical phone calls. However, counterfeit transactions were recognized during the 1990s when fraudsters were found to be defeating physical fraud-prevention elements on payment cards.Analytics provided the solution to this vexing problem.

According to Horan of FICO fraud solutions business unit, “the modern age of payment fraud prevention started in 1992 when HNC Software introduced Falcon Fraud Manager”. This software used analytics to evaluate the authenticity of credit card transactions in real time. Horan further groups analytic innovations in payment fraud prevention into three major categories: large data-set modeling, sparse data-set modeling, and false-positive reductions. A brief description of these is provided here with the year of first use mentioned in bracket.

Large data-set modeling (1992) involves use of analytic techniques to take complex, large data sets and translate the data into a format that is usable for real-time scoring. These include

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transaction profiling – summarizing transaction histories into a set of recursive variables enabling real-time scoring, and neural network models – which work like the human brain to understand non-linear interactions between variables.

Sparse data-set modeling (1993) is used to solve problems where we do not have large sets of historical data, leading to innovations in self-learning and auto-calibrating models. Examples include e-commerce fraud modeling (1999), outlier models (2005), first-party fraud modeling (2006), and self-calibrating technology (2008).

False-positive reduction focuses on the “cost ” of anti-fraud efforts by using analytics to reduce the number of non-fraudulent transactions stopped or investigated, and thereby improving the customer experience at the point-of-sale.

We have seen the use of big data analytics in other areas as well, like modern healthcare. Modern healthcare has expanded very well in the last few decades. However, an unexpected and unwanted consequence of the expansion is also the frauds associated with healthcare. CMS (Centers for Medicare and Medicaid Services- a part of the U.S. medical system) has used predictive analytics and such tools in its system and identified or prevented healthcare frauds to the extent of more than $ 210.7 million, as per a 2014 report. This may not be enough. Parente co-authored a December 2012 paper which argued that the CMS could save $18.1 billion annually. This could probably be done by exploiting big data analytics fully. New methods of payments and future trends will obviously give rise to new types of payment fraud. Nonetheless, the foundations of anti-fraud software in big data analytics have proven that analytics can be used to weed out the unwanted element in the system and in the process ensure that the funds made available are used to assist the really needy ones.

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ALUMNI SECTION CONSULTING IN IT Aparajith Shyam PGDM IB, Batch 2012-2014 Finly has always been very close to my heart ever since my SIMSR days. It used to be a fortnightly during my student days. I was part of Team Finly and we were proud of the kind of output we were delivering. But when I see the Finly of today, all I can say is that the subsequent batches of Finstreet have transformed it so brilliantly that my pride has been put in its place. The quality of content is nothing short of some of the best monthly finance magazines around. Given the resource constraints with which students operate magazines, the quality achieved in the current Finly is all the more remarkable. My admiration and regards to all those who have worked for bringing Finly to where it is. Thanks a lot folks and keep it going!!

IT Consulting for BFSI companies @ Maveric Systems Now to my corporate experience. I have been working as a business systems consultant at Maveric Systems since June 2014. We offer business analysis and domain-led consulting services to Banking and Financial services institutions. Predominantly our services revolve around core banking transformation projects. A core banking transformation is an initiative where a bank is looking to move their existing systems to a new core product. For e.g. Finacle is a popular core banking software product that has been deployed in many banks in India. Similarly there are many such products such as Temenos T24, Oracle Flexcube, FIS Systematics etc. A transformation project is one where banks move to using a new core product which is different from their existing setup. They would have to engage in a number of activities todetermine how to transform their setup.

They need consultants' help in the following ways: 1) Determining their 'As-Is' state and the 'To-Be' (i.e. target) state 2) To identify the entire set of business processes facilitated in their current systems 3) Validate whether the new product would cater to their business processes

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2)

Check how much customization is required in the new product

3)

Evaluate if the new product is going to offer benefits which the current systems do not

4)

Manage the implementation of the new product and so on.

Apart from projects related to core banking, banks also need help in assessing the impact of new regulatory initiatives such as BASEL III, FATCA, MIFID etc. on their existing operations. They would need help in identifying the impact on their IT systems because of the change in operations to adapt to new regulatory initiatives. Consultants usually help them assess such impact, chart out a strategy to tackle the change and help banks transition to the new operating model. Any consulting project would thus invariably involve helping banks to respond to new change initiatives in a seamless and cost effective fashion. Depending on the line of business in question (i.e. Retail banking, Investment banking, corporate banking etc.) the challenges and skill sets involved in consulting engagements would be different.

What competencies are needed in a consultant?

1)

Domain knowledge – you need to know the banking domain well. You need a solid

understanding of banking operations, new regulatory legislations and different lines of business.

You need to keep track of banking trends, news and latest developments. Professional certifications in the domain such as CFA, FRM, NCFM, CAIIB etc would help.

2)

Methodology – It is important to have strong foundation in frameworks. By frameworks I

mean the way to approach a problem domain, what techniques to use to model the problem, how to capture the requirements such that all stakeholders understand what is to be done etc. Certifications such as CPRE, CCBA, CBAP, TOGAF would help.

3)

Technology – Keeping abreast of the latest developments in technology and understanding

how it could impact a particular domain is an important part of being a consultant.

4)

Communication & Fostering Relationships – The most important cog that keeps together

all competencies is your ability to communicate well with your clients, engage deeply in their problems, expressing genuine interest in adding value and being consistent in your dealings with the client.

Hope this broad view of the job profile helps. I enjoyed jotting down my experience and I consider

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this section in Finly as a wonderful platform to keep in touch with our alma mater. Such sections could serve the purpose of deepening Alumni relations. I am thrilled that Finly is at the forefront of such beneficial initiatives. Once again my admiration and regards to Finstreet & Team Finly. Way to Go!!

I would be glad to get in touch with the readers, w.r.t any kind of guidance, queries or even a casual chit chat. I can be reached at aparajithshyam@gmail.com

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PRAVARTANA- MELANGE 2016 Hola Finly readers!!!

It gives us great pleasure to share happenings of the final round of Pravartana 2016 under the aegis of MELANGE. Melange is the flagship event of SIMSR which went on for three days from 11th Feb to 13th Feb. Melange began with a bang and had plenty of entertaining events including events for intellectuals. Pravartana was organized by Finstreet-the finance committee of SIMSR under Melange.

First round of Pravartana was of online quiz. Various teams from across the prestigious MBA colleges participated in the online round. From this round we got four finalist teams. These teams were asked to develop a structured product which is pre-packaged investment strategy based on derivatives, indices, commodities, debt issuance, foreign currencies and swaps with a primary feature that they offer protection of principal if held till maturity.

Team Quantibulls presented their financial product on Quantitative Portfolio Trading. Trading strategies based on quantitative analysis rely on mathematical computations and number crunching to identify trading opportunities.

Team Gladiators presented their product on a fund where you invest for your retirement. The distribution of asset allocation is based upon the age. The rationale to design a fund were debtfixed income security , equity- no fixed return etc.

Mr. Jayan Velayudhan and Mr. Saurabh Jain judged this event for us. Team Quantibulls from KJSIMSR won the first prize and Team Gladiators from GIM won the second prize.

Team 'Finstreet' appreciates the efforts of the teams who have made it to the final round of Pravartana.

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NEWS BUZZ 1)

Central Government's revenue from the crude price plunge:

Even as prices have been falling rapidly, not all of this has been passed on to the Indian consumer.

The government has been quick to repeatedly hike excise taxes on petroleum products. And as per reports, the government is likely to garner Rs 2.1 trillion as revenue from the oil sector in FY16.

This includes revenue by way of cess, excise and royalties. This is a figure that is almost double that of FY15.

2)

PSBs and the spiraling bad loans:

Mr Rajan has set March 2017 deadline for the banks to clean their balance sheets. As per the data, the listed banks' NPAs have surged by Rs 1 trillion in the quarter ended December 2015. This is a 29% growth in bad assets on a sequential basis.

Spiraling bad loans has hit the public sector banks (PSBs) hard. As a result, the provision requirements for these banks has risen. But with the credit offtake remaining tepid, higher provisioning has dented their earnings.

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NEWS BUZZ 3)

RBI chief Rajan not in favour of devaluing exchange rate

Reserve Bank of India (RBI) Governor Raghuram Rajan said that he was not in favour of devaluing exchange rates to boost economic growth, signalling India will not join other countries such as China or Japan in pushing down their currencies.

"I personally feel sustained devaluation is neither feasible nor a good strategy," Rajan said in a speech at a conference on medium scale enterprises in Thiruvananthapuram.

4)

Markets this month:

India's benchmark indices - the BSE Sensex and Nifty have slumped by around 15% in the calendar year so far, witnessing heavy selling pressures from foreign institutional investors (FIIs) who have already pulled out more than US$1.8 billion from Indian equities in 2016.

Owing to negative sentiments, investors were drawn to gold as an ultimate store of value. As a result, the price of gold has risen 17% since the start of the year amid all of the continued turmoil in global financial markets

5)

BUDGET 2016:

The Narendra Modi govt will present its third budget on 29th February. As we start the countdown for the much anticipated Union Budget, a number of issues come to mind that can indeed be a golden opportunity for the government to push reforms and stimulate the economy.

Key drivers, being well placed, the government is expected to present a budget focused on growth as India has received a windfall in the form of lower crude prices that have significantly enhanced the finances of the central government.

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TRIVIA

Due to the high value of tea in many parts of Asia, tea bricks were used as a form of currency throughout China, Tibet, Mongolia, and Central Asia. Until World War II, tea bricks were still used as a form of edible currency in Siberia.

LARGEST COIN ON EARTH The Canadian coin, De coin has a diameter of 51 cm en weighs 100 kg. The gold used for the coin represents a value of 2 million Canadian dollars.

RBI was also the central bank for two other countries. It played the role of Central Bank of Pakistan till June 1948 and the Central Bank of Burma (Myanmar) tillApril 1947.

There are more than 1.6 million ATMs in the world. There is even one in Antarctica. Friday is the most popular day at the ATM. The average amount withdrawn from an ATM is $80.

The Swedish Central Bank, Sveriges Riksbank, is the oldest central bank in the world. Its operations started in 1668.

Raiffeisen Gammesfeld eG bank Is the Worlds smallest bank run by one man, Peter Breite, keeps business running, writing transaction slips by hand for the 500 accounts.

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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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