Finly-Jan 2016 by Finstreet KJSIMSR by FINLY

EDITORâ&#x20AC;&#x2122;S NOTE

Dear Readers, The month of January has raised quite a lot of questions on the sustainability of the economic development and its survival in the critically integrated world, where volatility has become a new norm. With China being the growth engine of the world for the last two decades, has now started showing signs of vulnerability. The difficulty faced by China to cope up with the paradigm shift, that their economy is facing, exemplifies how well planned strategies can go wrong in the wake of uncertainties. The frenzy in the economic world ranging from oil slump, Chinese stock market crash, French economic emergency, currency wars, and poor demand cycle has made the investors wary about their investment plans and that is what is factored in the Gold Prices. I believe RBI and GOI have initiated the right reforms at the right time as India is the only bright spot for investment and growth. In this edition, our Cover Article covers the Behavioral aspect of the investing decisions of the consumers and how is it different from the standard finance perception per se. Here the writer has tried to showcase each behavioral impact on the decisions taken in the past. Next in line of our bubble Trouble series, we have covered the biggest scam in the history of Indian Capital markets Harshad Mehta Scam, where we have covered not just the way it was done and how it unfolded but also on how the government's liberalization policy created the loophole in the system which eventually got exploited. From the Faculty section we bring you the rise and scope of Big Data analytics in which the writer tries to give you the glimpse of the scope of big data in the continuous changing business environment. Lastly, it gives me immense pleasure to announce Dimel Francis from KJSIMSR as the Winner of Call for Articles for this edition. I would also like to thank our sponsors Finacue Research and Education for their support, all our readers, faculty members and seniors for their constant support and encouragement.

Abhimanyu Singh Chauhan

CONTENTS PARTICULARS

PAGE NO.

EDITOR’S DESK

COVER STORY

ARTICLE OF THE MONTH

BUBBLE TROUBLE

FACULTY SECTION

ALUMNI SECTION

ARTICLE BY FINACUE

NEWS BUZZ

FINSTREET FIESTA

MELANGE 2016

PRAVARTANA 2016

FACULTY INCHARGE: Prof. (Dr.) Pankaj Trivedi EDITOR IN CHIEF: Abhimanyu Singh Chauhan EDITING TEAM: Rishi Tekchandani, Shreya Gupta, Harshita Agarwal, Abhijit Khadilkar, Prateek Singh, Jay Khuthia, Preyas Jain, Sania Motwani. DESIGN: Prateek Singh, Geetanjali, Jay Khuthia, Rohit Prabhakar

COVER STORY BEHAVIORAL FINANCE DECODED! -HARSHITA AGARWAL (PGDM IB) 2015-17 SHREYA GUPTA (PGDM FS) 2015-17 What is behavioral finance ? Consumers tend to make some very unusual choices when it comes to how they make purchases and manage their money. In a similar way, investors in financial markets also behave collectively and make irrational decisions. It is suprising how the market participants react unconsciously to such an event in the same ways. Behavioral finance attempts to answer the actual market and investor behavior by explaining how the investors process events and make decisions. Understanding behavioral finance allows many investors to predict the market movements and make huge profits. While consumers tend to make a lot of the similar mistakes investors do, there is a focus among financial behaviorists on the psychological behaviour of investing in particular. This is most likely due to the widespread fascination with the activity of financial markets. In the future, this focus may shift, allowing innovations in the science to also help consumers resolve their mistakes and make good financial decisions. Behavioral finance has been growing over the last twenty years because investors usually do not behave according to the traditional finance and economics theory. Difference between standard finance and behavioral finance Standard finance is designed to provide mathematically elegant explanations for financial questions that when seen in real life are often confused with imperfect conditions. It is built on rules on how the investors should behave rather than on principles describing how they actually behave. Behavioral finance, on the other hand attempts to analyze the human psychological behavior in financial markets. This suggests that standard finance grounds its assumptions in idealized behavior whereas the behavioural finance grounds its assumptions in observed financial behavior. It also means that people concerned with standard finance may be seen as “rational” and people concerned with behavioral finance may be seen as “normal”. So behavioral finance is all about understanding decisions are made by people, both individually and collectively.

How behavioural finance affects investment decisions ? Behavioural finance suggests investors are overconfident with respect to making gains and oversensitive to losses. Research in psychology has recorded a range of decision-making behaviours called “biases". These biases can affect many types of decision-making, but have particular impacts in relation to money and investment. These biases can affect all types of investors, both professional and private. But, if we understand them and their effects, we can reduce their influence. Impact of Psychology: The concept of limited arbitrage states that if the noise traders cause any fluctuations in the share price from its fundamental value, the arbitrageurs will usually not be able to do anything about it. They may be either risk averse and hence not willing to buy the shares of a company which has been facing downward movement, or they may be having short horizons. Hence we discuss the psychological reasons for Behavioral Finance. The psychological biases can creep into investment decisions are as follows: A. Loss Aversion : Traditional finance and economics theory suggest that higher risks result in higher returns. Basically it means that the individuals can earn higher returns based on the risk that they are willing to take. Behavioural finance proposes that when investors are sure they would earn profits then they would be more risk averse (Selling the stock to book profits) but if they know they are going to incur losses they would be less risk averse ( holding on to the stock and hoping it’s price rises again). The same can be seen with an example: 1. A person has $1,000 and the following two options: Choice A: He has a 50% chance of winning $1,000, and a 50% chance of winning $0. Choice B: He has a 100% chance of winning $500. 2. A person has $2,000 and the following two options: Choice A: He has a 50% chance of losing $1,000, and 50% of losing $0. Choice B: He has a 100% chance of losing $500. If the person is rational and uses logic to answer the question, he would choose the same option in both cases (Depending on their risk appetite). But when a study was conducted for the same, it showed that, a majority of the respondents choose option “B” for Question 1 and option “A” for question 2. This implies that people are okay with settling for a reasonable level of gains (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviors where they can limit their losses. In other words, losses are weighted more heavily than an equivalent amount of gains. B. Arbitrage : Share prices fluctuate on a daily basis due as and when different news items are released. These news pieces have an almost immediate effect on the share prices. After providing for all these probable news, the share price settles down at its “fundamental value”. Now this happens only when all investors are rational. Now suppose the shares of Infosys are trading at Rs. 1100, but a group of investors suddenly get very pessimistic about the company’s future

prospects. They then sell out the shares and this pushes the share price down to Rs. 800. Then some rational investors would sense an opportunity there, and feel that the shares are underpriced. They would hence buy the shares, thereby giving an upward push to the share price and bringing it back to Rs. 1100. But to hedge the risk of a further decline in share value of Infosys, they would short a â&#x20AC;&#x153;substitute securityâ&#x20AC;?, in the likes of TCS of Wipro. Most often the substitute is not perfect and helps to hedge only industry risk but not the Company risk. If there are no perfect substitutes then the arbitrageur should try to maintain that the fundamental risk of the Infosys shares is mainly due to systematic risk.

C. Overconfidence : Overconfidence can affect investment decisions in a huge manner. It has direct impact on investments, that can be complicated and involves forecasts of the future. Overconfident investors usually overestimate their ability to identify winning investments. Holding diversified portfolios to remove the concentration of risk in any particular area is proposed by the traditional finance theories. For example, overconfident investors believe that they exercise more control over their investments than they do in reality. In one study, affluent investors emphasized that their portfolio performance was critical due to their stockpicking skils. Actually, they were overly optimistic about the shares they chose and how it would perform. They underestimated that the portfolioâ&#x20AC;&#x2122;s performance can be hampered by the overall market. Thus, investors usually overestimate their own decisions and overlook the factors that can influence their investments.

Also, investors who believe in their trading actively trade in the market but as per the research conducted on US investors, it was found that the most active traders have the lowest returns. Another scenario that we witness is that when the individuals are faced with a positive result, they trust their abilities whereas when they are faced with a negative outcome, they blame it on bad luck. This bias does not allow the investors to improve their future investing decisions.

D. Mental Accounting : Individuals have a natural tendency to create individual mental buckets in their mind wherein they are clear that they will allocate their wealth to a specific asset. The traditional finance theory suggests that they balance their securities with a small chance for big earnings. Thus portfolio allocations can be based as a combination of ‘insurance’ (protection against losses) and ‘lotteries’ (small odds of a large gain). Behavioural economists have modified this approach in their behavioural portfolio theory based on mental accounts. Behavioural portfolios are viewed as a layered pyramid where each layer has a individual mental account.

The lowest layer in the pyramid provides “protection from poverty” and focuses on investments that are less risk averse or conservative. The highest layer of the pyramid targets on “hopes for riches” and focuses on investments that are more risk averse and would give high returns. E. Anchoring : This bias deals with investors focusing heavily on a single piece of information and making erroneous investment decisions based on it. For example, suppose the share price of Indigo touches an all time high of Rs. 1395.50, but then that’s followed by a major increase in the Airline Turbine Fuel prices. The share prices would drop almost instantly, but the investor, would be anchored to the high price of Rs 1395.50 and would buy the shares thinking that they’re underpriced. F. Availability Bias : Investors tend to heavily weigh their decisions towards more recent information, making any new investments biased towards the latest news. For example, an investor who suffered severe losses due to the Global Recession of 2008, may be unwilling to invest money in the financial markets even on signs of recovery. He would rather keep the money stashed away at home or invested in treasury bonds. G. Overreaction Bias : Often, investors overreact to any new information about a company and act in such a way, that it gives a larger-than-appropriate effect to a share’s price. So say that a construction company won a new contract for the

creation of a residential complex, and it is expected that they would end up making huge profits on the deal and according to the estimates the share price is expected to go up by 15%. A group of irrational investors actually overreact to the information thinking that he growth is going to be substantially more. Hence they hype gives it a larger growth, but this growth does not sustain and soon the share prices fall back to it’s fundamental value. H. Herd Behaviour : This refers to the tendency of investors to follow the behaviour (rational and irrational) of a larger group of investors. This was specially noted in the IT bubble, and in the current dotcom bubble. I. Confirmation Bias : On hearing about a probable good investment, when an investor undertakes research, he only searches for the things which are positive for the investment and tends to overlook any adverse news. J. Gambler’s fallacy : Investors often make the mistake of thinking that past events have any connection to future events. For example, some investors believe that just because a company’s share price has gone up in a series of subsequent sessions, it’s going to go down, and hence they go short. K. Representativeness : Some investors tend to judge the long term returns of a company’s stock solely on the basis of the returns over a short period of time. It’s when the investor sees that the returns have steadily grown for the past 1 year and on the basis of that, decides that the returns will continue to grow for the next 10 years. Conclusion It is important to understand that while the biases may sometimes be useful to the decision maker but at times it can hamper the investment goals . There is a need to identify the individual biases to know how they affect the investment decisions both in a positive and negative manner to gain a comprehensive understanding of the individual investor. This would lead to better financial advisory practices and increased portfolio management. Financial goals can thus be easily managed by the investor in the long run for good financial well-being.

ARTICLE OF THE MONTH ADVENT OF GLOBAL SOLAR ALLIANCE -DIMEL FRANCIS (PGDM FS) 2015-17 The world once again united in Paris climate conference to discuss the Global Warming issues. That is where India boldly stepped up and astonished the world with its ambitious plan of increasing the solar capacity. “Solar technology is evolving, costs are coming down and grid connectivity is improving. The dream of universal access to clean energy is becoming more real. This will be the foundation of the new economy of the new century,” said the Indian Prime Minister Narendra Modi who also called the formation of this new alliance as his ‘long cherished dream’. PM Modi had invited officials from IEA to India two months back, who had helped him to device this plan. France also joined hands with India in presenting this idea. Both these nations have decided to lead the initiative of increasing the global capacities of solar power generations. The biggest strength of the new solar alliance is that it brings the developing and developed countries, industries, laboratories and institutions under a common umbrella. What has India proposed? The idea chimes with a conference theme: rich nations helping poorer nations expand their clean energy sectors through investment and technology sharing. This alliance will boost the solar market globally by accelerating the circulation of knowledge, facilitating transfer of technology and securing investments. Such a partnership would aim to create a common culture among people working in solar energy. This alliance could help countries exchange policy ideas while benchmarking performance against each other. In developing countries, where regulations tend to be less stable, investments suffer from a perceived risk. The fact being that the initial construction of solar plants makes up most of their cost, there are high risks involved which in turn means higher costs of financing the initial investment. Countries with well-designed regulatory frameworks and policies are able to reduce risk and attract investors. Hence with an alliance working countries can have similar policies and help each other in overcoming the risk and join hands for producing cleaner energy. What will this solar alliance specifically do? The new solar alliance will have its headquarters in New Delhi for which the Indian government would be investing around $30 million. This headquarter will work to raise $400 million through membership fees and by making collaborations with other international agencies and institutes.

Members of the alliance will work towards expanding the market for solar energy, reduce the cost of financing, and reduce the overall cost of solar technology. The members of the new solar alliance would encourage new solar projects globally with an aim of ultimately mobilizing around $1 trillion of solar energy funds by 2030. What is the current scenario? Last year renewables accounted for almost half of all new power generation capacity across the world. Solar power now caters to more than 1% of global electricity demand. In Italy, Germany and Greece solar PV supplies more than 7% of electricity demand. Germany is at present the largest producer of solar energy. As the cost of solar power is falling to almost the same level as of traditional energy, many players in the electricity sector all over the world, are â&#x20AC;&#x201C; willingly or not â&#x20AC;&#x201C; shifting away from fossil fuels. At present, both China and India want huge investments in solar power along with further investments in new coal and gas plants. They need to make their growth less carbon intensive, for which solar power is a helpful tool. China is currently the fastest growing market of solar power, installing 10.6 GW in 2014, followed by Japan with 9.7 GW and the US with just over 6.5 GW. India over the next seven years is planning to ramp up its domestic solar energy production capacity from 4 GW to 100 GW by 2022. One gigawatt is enough power for 700,000 and 750,000 Western homes, so 100 GW could fulfill the power needs of 7.5 crore Indian households. At present India is largely dependent on traditional sources of energy. It is second largest consumer of coal in the world according to IEA data. It has a long way to go as far as adopting renewable energy is considered and initiating such an alliance is a signal that India is also in the race. With a continuous fall in the prices of silicon pv cells India has wisely selected to harness the power of sun. Large solar farms can be built in just a few months â&#x20AC;&#x201C; compared to several years for a coal plant and even longer for a nuclear plant. The Dubai government has announced a program costing $27 billion, requiring every building in the state to have a solar panel by 2030. In short, all these developments are pointing towards the rising relevance of renewables especially solar power.

Conclusion With a lot of talks going on around the globe to protect the environment, cutting down the carbon emission etc. such a step is a clear indication that India is serious about a sustainable growth. With the U.S. and China joining India, along with more than 100 other nations, to support this solar alliance on the very first day of the U.N. climate negotiations it is clear that all the major carbon emitters of the world are following Indiaâ&#x20AC;&#x2122;s lead which makes the prospects of this alliance promising. What sets this initiative apart from other such initiatives is that it involves the participation of both governments of 120 nations and the private sector. HSBC, Engie, France, Enel, Areva and Tata Steel are examples of this. It is possible that more players from the private sector will join this alliance. Now the seed has been planted, the alliance will receive all the support from governments of developing countries, along with private sectors. Putting all the pieces together, the initiative would accelerate the adoption of solar power.

BUBBLE TROUBLE INDIAN SECURITIES MARKET SCAM, 1992 -ABHIJIT KHADILKAR (PGDM FS) 2015-17 JAY KHUTHIA (MMS) 2015-17

Introduction: Before Economic Reforms, all the commercial banks in India had to maintain a certain ratio of their deposits in the form of government bonds, also called as SLR (Statutory Liquidity Ratio). Every bank was supposed to submit a detailed report showing its balance and also the holdings in the government securities at the end of each day. This was to see whether all the banks have sufficient holding in government securities to fulfill SLR requirement. Now, as a part of Liberalization, the government came up with a policy that the banks need not show their balance and holding details on each day, but, need to do it only on Fridays. They also added an extra clause which said that the banks needed to maintain only the weekly average of the percentage holding in the government bonds above the SLR, and daily percentage need not be maintained. For e.g., if SLR requirement is 25%, the bank can have a daily average of 20%, 22%, 25%, 28%, 30% respectively from Monday to Friday. But the average of the week should be above SLR which is 25%. This implied that banks could now sell their securities at the beginning of the week and buy back the securities by the end of the week. The capital that bank would generate at the beginning of the week can then be invested. The above transaction of buying and selling government bonds was done through a mechanism called the ready forward deal. The ready forward deal is basically a secured short-term (generally 15 days) loan from one bank to another. In simple words, it is an arrangement wherein just like a pawnbroker lends money against jewelry and gives it back to the owner at the higher price, the bank that borrows money by selling the securities to the lending bank and at the end of the loan period buys them back from the lending back at a higher price.

The mechanics of the scam: In the above mechanism, there would be many banks that would be desperate to buy back the bonds at the end of the week. This is where the broker comes into the picture. The broker knew which bank had less than the required average of government bonds (short) and which had more bonds (plus). He then acts as an intermediary between the two banks. During the settlement process, transfer of money and securities was done through the broker. The securities were handed over by the seller to the broker, who passed them to the buyer. Whereas the buyer handed over the cheque to the broker, from whom the seller received the final payment. In this settlement process, the buying and the selling bank might not even be aware with who had they traded, which was known only to the broker. The brokers could manage this mainly because they had become market makers by then. They had started trading on their account but they showed they were undertaking the transactions on behalf of a bank, to keep up a semblance of legality. Harshad Mehta was one such broker who worked as an intermediary between many banks for a long time. Letâ&#x20AC;&#x2122;s try to understand how exactly Harshad Mehta misused the loophole created by the liberalization policy adopted of the Government. Let us assume there are two banks A and B, where A is short and B is plus. Now Harshad Mehta told the manager at A that he was dealing with multiple banks and hence did not know which bank he would deal in the end with.

Therefore, he told the manager at A to write the cheque in his name rather than other banks name so that he could make the payment to whichever bank he bought the securities from. This was forbidden by law, but, since he was a trusted broker, the bank’s managers agreed. Now coming back to the example of bank A and B, he took the money from bank A on the same day, and he told bank B that it needs to give securities on the same day but he would pay the amount on the next day. But as a premium for holding the security for 1 day, he promised to pay bank B an interest of 15%. As a result of this high returns, bank B agreed for the transaction. Because of the above arrangement, Harshad Mehta could keep some capital with him all the times since he was dealing with multiple banks at the same time. For e.g. He takes money from A to buy securities from B on Monday and tells B that he’ll make the payment on Tuesday, similarly he takes money from C to buy securities from D on Tuesday and tells D that he’ll pay on the next day and the money he gets from C is paid to B. Therefore, he has some working capital with him at all times as this cycle continues with other banks throughout the week. The instrument used in a big way was the bank receipt (BR). In a RF deal, securities were not actually moved from the seller to the buyer and then buyer to the seller. Instead, a BR was given to the buyer of the securities by the borrower (i.e. seller of the security). The BR acts as a confirmation of the sale of securities and as a receipt for the money received by the selling bank. It promises to deliver the securities to the buyer. The BR also states that the seller holds the securities in trust of the buyer in the meantime. Having figured this out, Harshad Mehta needed banks that could issue fake BRs, or BRs that were not backed by any bonds or securities. There were two banks that were small and little known which came in handy for this purpose. The banks were Metropolitan Co-operative Bank (MCB) and the Bank of Karad (BOK). Once the fake BRs were issued by these banks, they were passed on to other banks. And Mehta in turn received money from the banks that assumed they were lending against the government bonds which was not the real case. The money Mehta received was used to move up the prices of stocks in the stock market. When money had to be returned to the banks, the shares were sold for a profit and the BR was retired, and the money was returned. This game continued as long as the stock prices kept going up, and no one got a hint about Mehta’s evil plans. Exposure of the Scam: Harshad Mehta very cleverly squeezed some capital out of the banking system and this capital was invested in the stock market to stoke a massive boom. Mehta used the replacement cost theory to explain the reason for the high-level bidding.

The replacement cost theory basically states that older companies should be valued on the basis of the amount of money that would be needed to create another similar company. By the latter half of 1991, Mehta had come to be called the ‘Big Bull’ as people credited him with having initiated the Bull Run. The scam was exposed by journalist Sucheta Dalal in an article published in The Times of India on 23rd April, 1992. Once the scam was exposed a lot of banks were left holding BRs which did not have any value. The banking system had been swindled of a whopping Rs. 4,000 crore. He was later charged with 72 criminal offenses, and more than 600 civil action suits were filed against him. He was arrested and banished from the stock market. Mehta and his brothers were arrested by the CBI on November 9, 1992 for allegedly misappropriating more than 27 lakh shares of about 90 companies. Impact of the Scam: He took the price of ACC from 200 to 9000.Thats an increase of 4400%. The market went up like crazy and the bulls were on a mad run. Since he had to book profits in the end, the day he sold was the day when the market crashed. The same day Vijaya Bank chairman committed suicide by jumping from the top of the banks’ office. The chairman knew that when it would become public that he had written cheques in the name of Mehta, he would be dead meat.

The immediate impact of the scam was a sharp fall in the share prices. The index fell from 4500 to 2500 representing a loss of Rs.100,000 crores in market capitalization. Since the accused were active brokers in the stock markets, the number of shares which had passed through their hands in the last one year was colossal.

All these shares became â&#x20AC;&#x2DC;taintedâ&#x20AC;&#x2122; shares, and overnight they became worthless pieces of paper as they could not be delivered in the market. Genuine investors who had bought these shares well before the scam came to light and even got them registered in their names found themselves being robbed by the government. This resulted in a chaotic situation in the market since no one was certain as to which shares were tainted and which were not. The government's liberalization policies came under severe criticism after the scam, with Harshad Mehta and others being described as the products of these policies. The liberalization policies were put on hold for a while by the government bowing to the political pressures and the bad press it received during the scam. The Securities Exchange Board of India (SEBI) postponed sanctioning of private sector mutual funds. Harshad Mehta is now dead. It is rumored that when he died, he still had 10% of ACC shares with him. The much talked about entry of foreign pension funds and mutual funds became more remote than ever. The Euroissues planned by several Indian companies were delayed since the ability of Indian companies to raise equity capital in world markets was severely compromised. Some Fun Facts about the Big Bull: Rags â&#x20AC;&#x201C;to-riches story/ Rise of the big bull: Harshad Mehda had a very humble beginning. He was a commerce graduate and became a stock broker in BSE. In his prime days, he was famous for pulling up in front of banks in his Lexus (40lacs plus in 1990s). At that time, Lexus was one of the most expensive and luxurious cars around in India. He owned a 12000 sq ft. penthouse in Worli by the sea. (In 2009, the flat was valued at 45 Crores). In 2016, the price would be much higher.

REGULATORY AND INVESTOR TAKEWAYS FROM THE SCAM Loopholes that resulted in the scam: Banks are always found at the epicenter of scams: In the current banking sector, some bank officials have authorities to grant loans, grant discount on interest rates and waive off the charges. This is where many loopholes get created if the officials or the bank employees are untrustworthy or deceitful. In public sector banks, managers are often rewarded or promoted if they exceed the deposit targets. Therefore few bank managers are always behind the deposits. A few fraudsters who are aware of this weakness win over bank managers by mobilizing bulk deposits by some means (fair/unfair) with an intention to cheat the bank or to take an advantage in some or the other ways. Even in the case of Harshad Mehta scam, the weakness of bank officials was exploited and unethical arrangements were made in order to siphon off the money. As mentioned above, there was an involvement of Vijaya bank’s chairman in the scam where he helped Harshad Mehta by issuing cheques in the name of Mehta. When the sacm broke out, the chairman committed suicide by jumping off from his bank office. Regulatory failure: The Harshad Mehta Scam is the story of successive regulatory failures of RBI, SEBI (which did not have much autonomy/power in 1992) and the ministry of finance. The chain reaction of heavy selling spiraled into the crash: Harshad Mehta after manipulating the banking system used the funds from the banks and built the large positions in a select group of stocks. When the scam broke out, financial institutions demanded their funds back, forcing him to liquidate and exit from the positions which he had built in various stocks. The heavy selling resulted into a crash within days. Harshad Mehta’s favorite stocks included ACC, Apollo tyres, Reliance, TISCO, BPL, Sterlite and Videocon. What a Retail investor can learn? It is hard to believe how retail investors were unable to resist the speculation and were hooked into buying stocks at prices far from their intrinsic value. Even more startling is the justification given by the scamsters or operators to rationalize high prices. For example: Harshad Mehta used a ‘replacement cost’ theory stating that stocks during his time were undervalued. Rising stock prices have a bizarre effect on speculators/traders. They enter into the stocks when prices are rising insanely hoping that another investor will be

willing to buy at a higher price. Until and unless retail investors or small traders donâ&#x20AC;&#x2122;t start thinking logically and fundamentally, they will be deceived by the fraudsters in one or the other ways. Reforms and changes introduced by the authorities after the scam: The system did not have any regulatory measures in place before the scam. The things were in such a bad state that even the scamsters were openly justifying that they are just a part of the system and playing around the loopholes was not a crime. Not only stock markets but the debt and money markets in India were equally inefficient and prone to scams and manipulations by the brokers. The Harshad Mehta scam too had its roots even in the money market. A few characteristics of the inefficient money market were lack of controls in practice, manual entries in ledgers, over-regulation on paperwork and the deviation between reality of the marketplace and misguided policies of the RBI. Post the scam, the poor condition of badly run capital markets in India got exposed to the whole world. The market was very inefficient and one of the riskiest in the world. It was largely manipulated by the brokers and retail investors were like pawns in the game. However, the pace of changes post the scam was breathtaking as a plethora of reforms were introduced.

Revolution of the market infrastructure: A few examples are as follows:  Smooth Automatic trading  Glitch free settlement  Dematerialization of shares  Hefty penalties and stringent punishments were introduced for malpractices like rigging up of prices, creation of false markets, spreading rumors and misleading the investors etc.  In that era, manipulation was rampant as exchanges were only open for two hours a day. Post the scam, the timings of the stock exchanges were brought in line with the modern world.  In case of the Harshad Mehta scam, equity prices were manipulated by the top brokers with money diverted from the banks. However, the scam forced the government to delegate a few powers to SEBI under Securities Contracts (Regulations) Act, and SEBI Act in 1992.  Setup of NSE and a shares depository: Dr. R H Patil (from Industrial development bank of India) and G V Ramkrishna (Chaiman of SEBI) took a daunting task of setting up the NSE. Post the setup, gradually NSE’s trading volumes grew exponentially breaking the records of century old BSE. The development of NSE was followed by the setup of a share depository which began operating in November 1996. The scam forced the government to take some quick and concrete actions. The flurry of initiatives and reforms undertaken post the scam was remarkable. Harshad Mehta’s fraudulent operations motivated the authorities to take necessary and essential steps that have made the markets relatively safer and somewhat transparent in present times.

FACULTY SECTION BIG DATA ANALYTICS -DR. KIRTI AREKAR, KJ SIMSR DR. SHARAD SAXENA Senior Financial Analyst, SAS Pune. Big data is a relative term describing a situation where the volume, velocity and variety of data exceed an organizationâ&#x20AC;&#x2122;s storage or compute capacity for accurate and timely decision making. Big data is not just about helping an organization be more successful â&#x20AC;&#x201C; to market more effectively or improve business operations. It reaches to far more socially significant issues as well could we have foreseen the mortgage meltdown, the financial institution crisis and the recession, if only we had gotten our arms around more data and done more to correlate it? Could we trim millions of dollars in fraud from government programs and financial markets? Could we improve the quality and cost of health care and save lives? Big data technologies donâ&#x20AC;&#x2122;t have to be complex and require specialized skills SAS and R provides an extensive array of preconfigured business solutions and business analytics solutions that greatly simplify the most complex analytical problems, including those based on big data. With cloud computing, big data analytics becomes an on-demand service. And of course, SAS and R offer technical support, professional services, training and partnerships to ease the way into big data analytics. Big data analytics is the process of collecting, organizing and analysing large sets of data to understand the hidden patterns and extract useful information which will be useful to better decisions. Analytics is the skills, technologies, application and practices for continuous iterative assessment and examination of past business enactment to gain insight and initiative business planning. The various big data analytics domains are sales and retail, risk and credit, marketing, behavioural, collections, fraud, pricing, telecommunication and supply chain analytics. Analytics is getting insight from the raw data.

ALUMNI SECTION GLOBAL VALUATIONS GROUP– THE WORLD OF DERIVATIVES AT DEUTSCHE BANK -PRASHANT GIANANI PGDM Finance 2013-15 Derivatives, the word most finance people would dread of and would bring nightmares based on the complex calculations involving models like Black Scholes, SABR etc. But I would like to assure you all that they are not that complex as they sound. A sound knowledge of statistics and economics are enough for one to understand these products which have been indirectly responsible for the biggest Financial Crisis, the world has seen. The purpose of this article is to explain you my experience as a Derivatives Analyst in Deutsche Bank and what career options lie in this field. One of the main sources of revenue for any investment bank is Trading and DB(Deutsche bank) isn’t that different from others. Thus, banks do trading in various financial products like bonds, stocks, ETF’s, indexes and involve in various OTC derivative products for themselves or their clients like options, swaptions, futures, forwards, commodity products etc. This is a very small list to portray the complex world of these products which involve lot of risk and also are under intense scrutiny of regulators for capital requirements and exposure to various risks by such banks across the globe. My role in Deutsche Bank involves analyzing the positions taken by trades and checking their marks by comparison with market and reaching out to traders if necessary to change their positions. This process is called as Independent Price Verification (IPV) and it is mandatory for all Inv Banks to independently keep an eye on the traders. Thus below is a summary of my job role here:     

Traders enter into either an OTC trade or an exchange trade. They calculate the PV of a trade by arriving at a discounting rate based on DB’s cost of funds, market rate, margin etc. The trade is independently priced by my team based on various market sources like Bloomberg, Reuters etc and we arrive at a PV of a trade. Then comparison is done with trader’s marks and any major deviation is reported. Various parameters like Inflation, Volatility, Exchange Rates are taken into account while calculating the trader’s marks.

I would assume that most of you guys might not be able to completely comprehend all of the things but if there is an interest in world of Risk and Modelling, this can be a good start towards that goal. Also, opportunity to interact with traders is a rare chance which one does get in the finance world. I would like to thank Finstreet and Finly team to give me an opportunity to share my experience of working in Deutsche Bank with you all and would welcome any queries/suggestions on this article. â&#x20AC;&#x153;Be Curious, Be Restlessâ&#x20AC;?

ARTICLE BY FINACUE NETFLIX’S INDIA LAUNCH: MOVING TOWARDS TELECOM/MEDIA CONVERGENCE? January 2016 was an eventful month for the Indian media industry. Netflix launched its services worldwide in the Consumer Electronics Show 2016 at Las Vegas, USA. This launch covered India as well, but excluded China. While, most global powerhouses do a focused India entry, Netflix has entered India, almost contemptuously. Netflix’s launch in India was part of its global launch in ~190 countries. On the content side too, Netflix doesn’t have anything unique for the Indian audience and is priced at Rs 500/month onwards, much higher than what Indian consumers are accustomed to. Optically the launch seems to be a damp squib, but we believe that there are reasons for Indian media companies to keep an eye on Netflix and other global video platforms. Regulatory changes, Reliance Jio’s launch, and a new breed of original content could bring in a sea change in media consumption habits of Indian consumers. Netflix’s India launch : contemptuous or calculated? Netflix has unveiled a three-tier pricing structure for the Indian market, starting with Rs 500/month for accessing content. This is at par with Netflix’s global pricing of US$ 8/month. However, the key difference is the cost of alternates; in the US, television ARPUs are in the range of US$ 90/month, while Indian television ARPUs are in the range of US$3-5/month. Thus, US$ 8/ month may be a lucrative alternative for a US subscriber, but for Indians, Netflix seems like a super-premium option. The pricing doesn’t include data downloads, which implies that the offering is restricted to the handful of consumers who have access to near unlimited internet. Exhibit 1: Netflix India offering (Source: Company, Finacue Research)

On the content side too, Netflix’s library seems to be restricted and is very different from what’s on offer in the US market. There are just ~100 Bollywood movies in addition to Netflix orginals such as House of Cards and Narcos, and several other television series. For now, Netflix’s content is uncensored as it relies on an internal rating system. Netflix is also offering a free trial of one month to all its consumers. Payment options are restricted though, the system only accepts credit cards and PayPal. Netflix is also unlikely to launch a Youtube-like offline-viewing option. What about internet access? Availability of cheap and ubiquitous broadband will go a long way in driving content consumption through Netflix, Youtube and other Over The Top applications such as Hotstar, Ditto TV, HooQ, WYNK movies etc. India’s broadband access remains constrained owing to the prohibitive cost of wireless broadband (3G/4G), which is priced at Rs 100-250/GB. To put things in perspective, downloading an 720p (HD) movie would require ~500-800MB. This implies that a user would need to spend an additional ~Rs 50-200 for internet usage, over and above the content access fee. This makes it simply for users to consume content via apps. Thus, the current pricing paradigm of OTT platforms is unlikely to bring in a shift in mass media consumption behaviour. Our channel checks, however, indicate that Reliance Jio could be looking at pricing of content inclusive of bandwidth charges, say Rs 30-50/month for one movie a week. Such plans would unconstrain users from bandwidth usage concerns and trigger a change in video content consumption. Bandwidth constraints also bring to fore data pricing regulations Meanwhile, there’s a raging debate on a consultation paper floated by the Telecom Regulatory Authority of India (TRAI). This pertains to differential pricing of data services, which includes zero rated platforms such as Facebook’s Free Basics. The debate is important in the context of media consumption too as Netflix pays bandwidth charges to ISPs and Cable cos in the USA to facilitate content consumption. If permitted by the regulator, we believe that OTT apps could subsidise internet and attempt to trigger consumer behaviour changes by providing lucrative bandwidth bundling. In conclusion, notwithstanding Netflix’s underwhelming India launch, we note that there are several connected issues in the telecom and media ecosystem, which appear in play. Some of these issues, viz. Reliance Jio’s launch, regulatory freedom on data pricing could be game changers in the way Indians consume media.

NEWS BUZZ

India's gold bonds seen luring investors in search of safe haven The second tranche of India's sovereign gold bonds, whose sale began on 18th January, 2016, is likely to draw good response from investors, as they are priced below market rates for the metal and share market turmoil spurs investors to diversify holdings.

December exports fall for 13th month, exporters brace for tough times India's merchandise exports fell for the 13th successive month in December, as orders from the United States and Europe shrank and exporters grappled with a competitively weaker Chinese yuan.

NEWS BUZZ

RBI announces open market bond purchase, second in a month The Reserve Bank of India (RBI) surprisingly announced to buy 100 billion rupees ($1.48 billion) of government bonds, itâ&#x20AC;&#x2122;s second in a month, to ease a rising cash crunch in the banking system.

WhatsApp to drop subscription fees, no plans to launch ads Mobile messaging service WhatsApp, owned by Facebook Inc, said it will no longer charge annual subscription fees and plans to test tools to allow users to communicate directly with businesses and organizations via the app.

NEWS BUZZ

China's yuan firms as central bank keeps pressure on speculators China's yuan rose on 18th January, 2016 as the central bank announced a fresh move to deter offshore speculation in the currency, while stocks rebounded modestly from near levels last seen at the depths of last year's summer crash.

GLOBAL MARKETS - Asian shares skid to 2011 levels as oil slump intensifies Asian shares slid to their lowest levels since late 2011 on 18th January, 2016 after weak U.S. economic data and massive falls in oil prices stoked further worries about a global economic downturn.

NEWS BUZZ

PM Modi launches $1.5 bln fund to support start-ups Prime Minister Narendra Modi launched a number of initiatives on Saturday to support the country's start-ups, including a 100 billion rupee ($1.5 billion) fund and a string of tax breaks for both the companies and their investors.

Finance Minister Jaitley says will help bankers lend more India's government and the country's central bank will over the next few months add to banks' ability to lend, Finance Minister Arun Jaitley said on 16th January, 2016, addressing a conference on start-up businesses.

NEWS BUZZ

India to revise long term capital gain tax on venture investment India will revise its long-term capital gains tax structure for venture capital investments in the budget for the coming financial year, revenue secretary Hasmukh Adhia told a conference on start-up businesses on 16th January, 2016.

French president declares economic emergency French President Francois Hollande pledged 18th January, 2016 to redefine France's business model and declared what he called "a state of economic and social emergency," unveiling a 2-billion-euro ($2.2 billion) plan to revive hiring and catch up with a fast-moving world economy

FINSTREET FIESTA Finstreet celebrated the finance week “Finstreet Fiesta” in association with “Kotak Securities Ltd.”, where an entire week is dedicated to the world of Finance and Economics, with a grand success!! The events were as follows: Day 1 - 4th Jan: All-India Undergraduate Finance Quiz For all the Undergrads who aspire to be future MBA’s, this event targeted the fresh minds and gave them an opportunity to win cash prizes worth Rs 5000!! The Winner is Mit Patel, student at K. J. Somaiya Institute of Engineering and Information Technology Mumbai and the Runner up is Ankit, student at DTU, Delhi Day 2 - 5th Jan: Investrix Corporate Panel Discussion on the theme of "Prospects and Challenges for Investment in Indian Capital Markets under Present Global Environment". The renowned panel members that truly captivated the audience and provided us with quality learning were: Mr. Sachchidanand Shukla: Senior VP- Economist, Axis Capital Mr. Rambhushan Kanumuri: Head of Corporate Finance and ECM, Investec India Mr. Shrikant Koundinya: Asst. VP, Training and Certification, MCX India. Day 3 - 6th Jan: Lock Stock and Trade 8 perspicacious teams made their way through 175 teams to this Open Outcry Round! After facing mind boggling rounds from IPO round till the Open Outcry, the teams gave each other a tough fight. Thanks to our sponsors ICICI Centre for Direct Learning, Winning teams took home prizes worth Rs 55000!! Racing past all other teams Team SWAT KATS with Aman Thakker and Rushin Mehta made it to the first position followed by team FALCONS with Ronak Mota and Dikshit Sanghvi who became the runner up team. Day 4 - 7th Jan: Inter-college Equity Research Competition The 8 teams that made their way to the final round, through an overwhelming 270+ teams from all over India that marked round 1, presented their Financial models and valuations to an esteemed panel of Judges. It was conducted in

FINSTREET FIESTA association with “Finshiksha” and the winning teams took home cash prizes worth Rs 20,000!! The winner of the competition - Tej Kapadia & Nikunj Thakkar - team “Equity Masters” from K.J. Somaiya College of Management Studies and Research, and the Runner up - Ekta Chhotaria & Manish Agarwall - team “Avengers” from NMIMS, Mumbai. Day 5 & 6 - 8th and 9th Jan: SIFICO - SIMSR International Finance Conference The conference was declared open with the release of the IOSR Journal of Economics and Finance. The conference witnessed the scholars of international repute engaged in a consummate discussion on the dynamic theme of “Trends in Financial markets and services”. The Conference graced academicians and practitioners of national and international repute, such as: Prof. (Dr.) S. Ranganathan , Associate Dean , Botho University , South Africa Dr. Aditya Srinivas , COO and Chief economist BSE brokers forum Dr. M. Venkateshwarlu, Head of Finance Deptt. of NITIE, Mumbai The conference saw many interactive and enriching workshops on the topics such as Collaborative Research, and Quality of Research papers in Finance. The conference also witnessed many informational “Paper presentations’ by reputed professors from all over the country as well as abroad and of course faculties from SIMSR on different areas in finance. We would take this opportunity to thank each and every one who made the “Finstreet Fiesta’ week a knowledgeable, memorable, and successful event !! It has always been Finstreet endeavor to keep our students updated about the world of finance and economics

FINSTREET FIESTA

Prof. (Dr.) Pankaj Trivedi with Prof. (Dr.) S. Ranganathan , Associate Dean , Botho University , South Africa

The release of the IOSR Journal of Economics and Finance

MELANGE 2016 KJ Somaiya Institute of Management Studies and Research Presents

Melange 2016 With 2016 just entering our lives, there is something else also lined up. The flagship event of KJ SIMSR- Melange. And this time, its bigger! Think of Mumbai, the Bollywood, the taporis and the sadak ki chaat comes to your mind along with the hustle and the bustle of the crowd at the railway stations and the gandhi topi men – the Dabbawalas stealing the show. Above all, the diversity of the place with people from all across the country and the globe, this is a mini world in itself! We invite you all to join in as we pay a tribute to the city of dreams this year. The 3 day extravaganza is full of fun, excitement and memories to cherish forever. From national level competitions and quizzes, to celebrity talks and amazing prizes, it’s everything you want. The events that will be a part of this year’s edition include- Stratinnova (the case study competition), Pravarthana (a financial modelling competition), Model United Nations (a debate compettion simulating the United Nations), The Green Trade (a Strategy based game aimed at awareness towards green technologies), Commercio (A Country Case Analysis competition), Varieagating brands (a Product launch competion), Qombat (An Anlytics competition),Glitterati (a fashion competition), The War of Bands (band competions) and Razamatazz (the dance competiton). What’s more? Euphoria, The Indi-pop band which stole a million hearts in the mid ninetees, with its numbers like “Maeeri”, “Ana Meri Gully” will add to the grandeour of Melange this year in the celebrity night. So come, be a part of the undying zeal and life of Bombay. Find yourself immersed in excitement and emotions as the waves takeover.

Save your dates – 11th – 13th February 2016 For registrations, brand associations and other discussions, reach out to us at melange.simsr@somaiya.edu Visit us : www.melangesimsr.com

PRAVARTANA 2016 This event is conducted by Finstreet, the Finance Committee of KJ SIMSR as a part of MELANGE 2016. More than 100 participants from B-schools all over India have already registered for the event. Participating teams have to come up with a new and innovative financial product and analyse the risk and returns of the portfolio using different parameters like NAV, Maturity period, Target customers, risk and return etc. The teams will be asked to develop a structured product which is a 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. The final round is scheduled for 12th Feb, 2016 during Melange. The winner will take home a prize of Rs. 15000 and the runner up, a prize of

Rs. 10000.

We Welcome Your Valuable Feedback www.finstreet.weebly.com Finstreet, Finance Committee of SIMSR finstreet@somaiya.edu 36