Finly July 2018 by FINLY

From the Editor’s Desk

FINLY| JULY 2018 | Finstreet | SIMSR

Dear Readers, First of all, a warm welcome to all the first year students to this wonderful journey of MBA. Also, welcome back to all the second year students, we hope this year will be full of learning and success. We at Finstreet are proud to introduce the first edition of our monthly magazine Finly for the academic year 2018-19. Our cover story inspects the 2 years of the Insolvency and Bankruptcy Code and its future outlook. Next in line, is the Eco Section, which covers in detail how a shift in the base year for GDP calculation changes all backdated GDP estimates. In the sector analysis, the authors inspect the Retail Industry in depth, with a focus on E-Commerce. This month's Fintech Funda is about TReDS, a system set up by the RBI and how it has helped the MSMEs. We are fortunate to have Yash Parikh, the outgoing Convener of Finstreet to pen down his journey and outlook of an MBA programme in the Alumni Section. Amey Patale , Jerin Shaji and Balaji Sunderajan have penned their experiences of their summer internship at CRISIL, which I am sure will definitely be useful for juniors for getting a feel of the type of companies that come to campus and the stay of their internship at any company in the future. In the end, we have introduced a new section called “Know Your Finance”, which contains information breaking down some useful concepts in Finance, which would help any aspiring finance student to take baby steps in building the concepts as well as confidence in the subject. I am thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, PGDM Core and Faculty Coordinator, Finstreet) Sir, for providing the much required mentoring, support and backing to the Finly team. I would also like to thank our new sponsors, White Knight Ventures, for an enriching collaboration. We hope to continue the partnership for a very long time. We have received an overwhelming response for the Call for Articles Competition for this month, and I thank each and every participant for his/ her sincere efforts. This month's winner's and the runners-up articles are a recommended read. I thank all our readers and faculty members for their constant love and support. Your reviews and feedbacks are always appreciated and keep us going. Team Finly has always been a strong set of focused individuals who put in a lot of effort and dedication to stitch together this magazine and I can't thank them enough for their constant support, initiative, and zeal. HAPPY READING!!! R Prasanth, PGDM – Finance, 2017-2019, K.J. SIMSR

Finstreet Team Academic year 2018-2019

Team FINLY

FINLY| JULY 2018 | Finstreet | SIMSR

Table of Contents

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Cover Story

2 Years

Amey Patale, PGDM Finance (17-19) Jerin Shaji, PGDM Finance (17-19) Shalini Balakrishna, PGDM Finance (17-19)

After 1991, India went ahead with the idea of market-based economy. A Market-based economy needs freedom at three stages of a business – Entry Stage (Freedom to enter), Continuance Stage (Freedom to Compete, as a going concern), and a Closure Stage (Freedom to exit in case the business is unviable). This freedom is essential for efficient allocation of the resources within the economy. The 1991 reforms included the abolishment of License Raj and setting up of SEBI for regulating markets rather than the state doing so. This, facilitated the Entry for firms (Stage 1). Also, the replacement of MRTP (Monopolies and Restrictive Trade Practices Act), which focused on restricting monopolies with an exception of state, by Competition Act, which focused on promoting

competition by treating state-owned companies on par with the private firms, instilled confidence. This facilitated the Continuance for firms (Stage 2). While the freedom to enter and operate has been facilitated, the ability and freedom to close down businesses and exit were still missing in the ecosystem which has been impairing the functioning of the markets driven economy. This problem is manifested in the growing NPAs in Indian Banking System. Before the enactment of IBC there were several laws for governing exits. For individuals' insolvency resolution, the applicable laws are almost a century old — the Presidential Towns Insolvency Act, 1909 and the Provincial Insolvency 1920. For corporate or non-individual insolvency resolution, the laws facilitating the recoveries for creditors were

Cover Story

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governed either by the Indian Contract Act, 1872 or through special laws such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. These unsynchronized legislations, differing as per individual/ corporate, led to manipulation of stakeholders and thus stalling the progress of resolutions. This led to a need to consolidate all these legislations into a single legislation relating to insolvency of companies, other limited liability entities, unlimited liability partnerships and individuals.

The central idea of IBC is that when a firm defaults on its debt, the control of t h e f i r m m u st s h i f t f ro m t h e shareholders/promoters to a Committee of Creditors, who has to evaluate proposals within 180 days from various players about reviving the company or taking it into liquidation. When decisions are taken in a timebound manner, there is a greater chance that the firm can be saved as a going concern.

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IBC Decoded The Insolvency and Bankruptcy Code, 2016 (IBC) is a legal framework in India that is provisioned for consolidating the existing system through the creation of a single law for insolvency and bankruptcy. It was envisaged with the objective of bringing in a single stop solution for the resolution of insolvencies; given the tedious and economically unviable provision that was present in the system prior to the introduction of the Code. The IBC was introduced in the Lok Sabha, in December 2015. It was presented and put forward by Mr. Arun Jaitley, Union Finance Minister, under the Modi

Government. The Code received the assent in the Lok Sabha during the first week of May in the year 2016, and by the Rajya Sabha in the second week of May 2016. It was subsequently assented to by the President of India on 28th May 2016. The Code came into effect in December 2016. To quote the Union Finance Minister, Mr. Arun Jaitley â&#x20AC;&#x153;A systemic vacuum exists with regard to bankruptcy situations in financial firms. This code will provide a specialized resolution mechanism to deal

Cover Story

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with bankruptcy situations in banks, insurance firms and financial sector entities. This code, together with the Insolvency and Bankruptcy Code 2015, w h e n e n a c te d , w i l l p ro v i d e a comprehensive resolution mechanism for our economy.” As per the Ease of Doing Business report published by the World Bank, India is riddled with such a major issue with respect to insolvency, that it takes more than four years on an average to resolve the menace. The IBC is an attempt to reduce resolution time to less than one year. This will not only improve the ease of doing business in India, but will also help in the facilitation of a better and faster debt recovery system. Stringent provisions like the IBC will aid in changing the negative perception of the Indian judicial system. Key Features of IBC ·Presence of Insolvency and Bankruptcy Board of India as the Regulator under the Code.

·The

Code envisages dealing with all facets of insolvency and bankruptcy, of all categories of persons.

·The Code looks at provisions to regulate insolvency professionals and insolvency professional agencies, development of codes of ethics, professional standards, etc.

·The Code helps to transform the 'debtorin-possession' concept to one with 'creditors-in-control', where creditors, with the assistance of insolvency professionals, get to take decisions on matters.

·The

Code provisions for information utilities that would collect and document financial information from listed companies and their creditors.

·The Code provisions for a separation of commercial aspects and the judicial aspects of insolvency, and bankruptcy matters from adjudicating authorities, thus expediting decision -making.

Cover Story

ÂˇInsolvency Adjudicating Authorities to take action on matters pertaining to debtors. The Debt Recovery Tribunal (DRT), the National Company Law Tribunal (NCLT), and the National Company Law Appellate Tribunal ( N C L AT ) a r e t h e A d j u d i c a t i n g Authorities as provisioned by the IBC.

ÂˇThe

Code provisions for a grant of Moratorium during which creditor action will have stayed. The Adjudicating Authority takes action on the grant of Moratorium. Insolvency in the UK IBC is a much-needed ordinance as it replaces a bunch of confusing legislation. The bunch of outdated laws and overlapping laws, planted India in the rank of 136 on resolving insolvency. Insolvency resolution in India took 4.3 years on an average in India is selfexplanatory for the worst conditions experienced by creditors. India being a commonwealth nation, draws its roots from the UK Insolvency Regime. The major differences between IBC and UK Insolvency Regime are: Control: Though the creditors in India enjoy such privileges during the process, their voting rights are limited. As per the Code, only secured or u n s e c u re d c re d i to rs ( F i n a n c i a l Creditors) vote in a creditor committee, whereas in the UK, all creditors including trade creditors (Operational Creditors) have voting power in the creditor committee. Apart from that

the 75% of the secured or unsecured creditors will have to approve the resolution plan proposed, whereas the creditors under UK regime a simple majority can approve the plan during the insolvency process. Professionals: In India, an individual or a group of agencies can act as an Insolvency Professional upon approval from the creditor's committee. However, in the UK only licensed individuals are eligible to become an Insolvency professional. Also, in India, an Insolvency Professional is not required to provide a surety bond or professional insurance whereas the counterpart demands so. There are distinctions in the licence renewal though both demands a licensing or examination process to become an Insolvency Professional. The licences obtained in India are of life membership in nature whereas in the UK it should be renewed annually. Freeze: As per the Code on the failure of the submission of resolution plan within the prescribed period or if it is not approved by the creditors within 180 days, the liquidation process would automatically get initiated. However, in the UK, no such timeline has been specified under the law and is valid for the entire period till plan is approved, if rejected only the liquidation process shall be initiated. Others: As per the Code, In India, the remuneration paid to the liquidator could be decided by the creditors and would be decided based on the scale of realization and distribution. However, in UK regime the remuneration is fixed on the

Cover Story

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consensus of creditors and the insolvency professional appointed, in default the court may intervene to fix the remuneration. It is important to note here that the liquidator in India is required to liquidate the assets within a period of two years, whereas no such requirement in the UK for the liquidator.

The Dirty Dozen It has been a year since the Reserve Bank of India commenced the insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) of 12 major players also known as 'The Dirty Dozen', which accounted for 25% of the growing NPA burden on India's financial system.

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Apart from these cases, as per Insolvency & Bankruptcy Board of India (IBBI), 818 corporate debtors had been admitted to the resolution process out of which 130 had been completed. Other major cases in IBC proceedings is Binani Cement which has a total debt of INR 7,290 Cr. The CoC approved the bid from Dalmia-Piramal-Bain for INR 6,350 Cr. This again received an offer from UltraTech for INR 7,266 Cr which covered 98.43% of Binani's debt. The court has allowed the offer by UltraTech despite it being ruled out in the earlier shortlisting process by CoC. Amendments to the IBC The recent amendments to the Insolvency and Bankruptcy Code (IBC) have been introduced with a view to addressing innumerable problems faced in the area of stressed assets. The aggrieved parties have been subject to a lot of anxiety, and the amendments are rays of hope to step up transparency and communication in the system, expedite procedures, reduce timelines, and improve realizations from the resolution of cases. These amendments have been put forward in May this year. First, the Cabinet approved promulgation of an ordinance to amend the IBC, which provisions to categorize home buyers as financial creditors, on the same level as lenders, so as to expedite the extraction of refunds from defaulting companies. This will prove to be beneficial in bringing in clarity in many cases that are in the process of undergoing resolution under the

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purview of IBC. Second, there has been an ordinance passed for reducing the minimum voting threshold for Committee of Creditors (CoC) from 75% to 66% (key decisions) and from 75% to 51% (ordinary or routine decisions). This will help in empowering the CoC and expedite the decision-making process. Third, there has been a provision to allow Micro, Small, and Medium Enterprises (MSMEs), those of which are not classified as willful defaulters, to bid for their assets. This will be beneficial in aiding MSME promoters in stressful times and will smoothen the loan recovery process. Fourth, there has been a provision for streamlining the bidding process by disallowing exits and late offers. This helps in faster closures to the resolution process. Fifth, Section 29 (A) of the IBC has been reprovisioned to exempt disqualification of pure-play financial entities in bidding assets. The time frame has been increased to three years during which such an entity can participate in the bidding process and get the benefits of price discovery â&#x20AC;&#x201C; before becoming a potential NonPerforming Assets (NPAs). Lastly, there has been an ordinance passed for the liberalization of terms for interim finance during the insolvency process. This will help in keeping the entities on a going concern basis and preserve the value of the assets.

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Our View Insolvency & Bankruptcy Code is a comprehensive act to enable resolution of companies in distress. It has specified strict limits which will act as a reference for resolution professionals & committee of creditors while deliberating on the way to recover the debt. The mechanism has resolved 2 of 12 cases that were given to it in June 2017. However, even these resolved cases entail litigation from its various stakeholders.

FINLY| October 2017 | Finstreet | SIMSR

however, commensurate infrastructure and continued assistance & cooperation from all stakeholders will decide its true effectiveness in swiftly resolving one of the biggest problems that the country faces.

The IBC is an untested procedure and will take time to rectify the kinks in the code, and the passage of amendments 18 months later is a proof to that fact. These amendments may shorten the time required for resolution of NPA case but will dilute the powers of the code. For example, home-buyers will be allowed to file charges against defaulting companies, this will make the creditors (banks) having to take more haircut while trying to recover the debt. Moreover, there is an issue of rising NPA in the financial system. A recent study by CRISIL showed the NPA levels rise to INR 10.3 lakh crore (as of March 2018). Thus with the rising number of cases, the mechanism incorporated by the government should also grow to cater to the increasing load. Consequently, 3 new benches have been announced; however, any delay in them being instituted will have a high propensity to create a backlog in the system. Thus, IBC is a comprehensive step towards the resolution of NPAs,

Article of the Month - Winner

Argentina - A Fragile Economy

Siddharth Mahapatra IIM Trichy 2017-2019

INTRODUCTION: As Argentina wrestles to survive in the ongoing football world cup in Russia, one cannot help but draw parallels to the current economic situations of the country. The second largest country in South America has been struggling for some time with its macroeconomic conditions, from minimizing the devaluation of the peso against US dollar to keeping its increasing current account deficit and fiscal deficit in check. Inflation rate remains high (22.7% projected in 2018) with the central bank of the country raising interest rates to 40% from 27.35% in a week's time in May 2018 to maintain exchange rates. Touted as one of the emerging markets, the country has a real GDP growth of only 2% in 2018

when compared to developed countries like USA (2.9%). FLUCTUATION OVER THE YEARS: Argentina's economy has seen a pendulum ride, from periods of robust growth to great depression and economic recession. In the pre-1930 era, Argentina's economy had a GDP growth rate of 6% and was one of the tenth richest in the world. It was one of the major agricultural exports in the world and stood as one of the world's most flamboyant economy. The great depression of 1930 came as demand for farm exports suddenly decreased leading to low government revenues and growing unrest in public, which lead to a military coup. 1930-1955 saw turbulent years for

Article of the Month - Winner

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Argentina's economy. However, following World War II, President Juan Peron brought about relative prosperity. The economy grew at a steady state and the country embraced industrialization. But in 1950, the commodity prices fell again and nationalization of many businesses caused private investment to dry up. By 1955, the military had once again taken power. With an unstable political scenario created by successive governments of military and democracy, the economy failed to stabilize. Although Juan Peron came to power once again, he could not do much and by 1976, the inflation rate was more than 600%. Successive years saw military rule, in which the country's foreign debt increased substantially and war (Falklands War) was used as a tactic to distract people from economic issues. Democracy finally returned in 1989 with President Raul Alfonsin in the ruling party. But poor fiscal policies saw a hyperinflation of 5000%. Unable to handle the situation, Alfonsin left the office to Carlos Menem.

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During his ten-year tenure, many policies were improved (Washington Consensus Policies) which lead to privatisation of public enterprises, increasing FDI and drastic reduction of inflation to single digit. Globalization also helped in the economic reform and Argentina was once again on the track to become an emerging economic power. But by 2001, huge fiscal debt by the government led to another hyperinflation. Poverty rate had risen to 42.3% and IMF announced that it will no longer support the country by extending credit lines. The government also announced default on USD 100 bn debt, the largest sovereign debt at the time. There was huge political instability which saw five presidents in two weeks. In all, the GDP had gone down by almost 20%. For the next thirteen years, the country made a relative comeback as a result of good prices on exports to the world markets. Imports dropped to 4.4% which inferred to relatively less private consumption. The growth was also attributed to investments which were at 16.3%. But in 2014, the country again

Article of the Month - Winner

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defaulted on a USD 1.3 bn bonds, mainly due to a U.S court favouring the investors claim.

difficult to adapt to fast developing technologies. This lead to slow development of competitive industries. Most of the technology was imported and

REASONS:

established by its trading partners such as Britain.

Looking back on all of these years, one can attribute the following reasons to t h e h i g h l y u n sta b l e e co n o m i c environments. First is the lack of commitment of Argentina to develop and diversify its economy. The second was its over-dependence on trade, mainly exports and thirdly its political instability and weak government fiscal and monetary policies. The period of intense growth in Argentina's economic history was mainly due to commodities. In commodities, the agricultural product was mainly exported, as other commodities like metals and oil were lacking and were used for national consumption. The industrial sector in the pre-1930 was in its infancy and not much attention was given to it. Lack of effort in educating its people made it

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Open markets had made for favourable trading. But wars and the great depression crushed the system. With political instability, there were periods of open and closed markets which again impacted trade. Some of the ideologies from these regimes have been stuck where protectionist policies are still favoured in certain parts of the country. Historically, Argentina has depended on relatively few countries to trade with, which has limited its options. Thus, the trade also depended on the economic conditions of these countries. Argentina has had issues when it comes to its monetary and fiscal policies. With public debt at 52.7% of GDP in 2017, one can safely assume that the government has not been able to successfully control its expenditures. Also, because of the

Article of the Month - Winner

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the higher money supply by the central bank in the economic system (25% growth annually), the inflation does not come under control which has led to the current exchange crisis. CONCLUSION Recently, Mr Mauricio Macri, president of Argentina came in agreement with IMF to secure a USD 50 billion loan to bolster the economy. This came with promises to IMF to lower fiscal deficit and improving framework, restructuring of the excessive public debt, improving the tax system and to maintain a tight control over the monetary policy to achieve lower inflation. Hopefully, the above measures will help in bringing back the economy to its feet and bring relief to its people.

Air India Privatisation – How did it fail?

Article of the Month - Runner Up

Berkshire Hathaway without Buffet

Husein Dhinojwala L. N. Welingkar Institute of Management 2017-19

When Prime Minister Narendra Modi said – “Government has no business being in Business” – it had a clear direction to privatise by reducing government participation in industrial as well as business activities. Prime amongst the agenda would come out to be the Privatisation of Flag Carrier Air India. Founded as the erstwhile Tata Airlines, Air India began to run into financial trouble in the mid-2000. A combination of operational inefficiencies and other factors meant

Air India's debt spiralled from Rs. ~18,400 Crore in 2008 to ~Rs. 50,000 Crore in 2018. However, it is to be remembered that Air India used to be the pride of Indian Skies right from Independence (when it was nationalised from its previous ownersTata) to becoming World Renowned for its Service Quality and level of comfort to becoming a Debt Giant surviving on an Rs. 30,000 Crore Government Bailout Package. How did it get to this?

Article of the Month - Runner Up

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Most Aviation experts comment on either one or more of the following reasons for the current state of Air India.

would lead to cash profit (earnings before depreciation and tax) of Rs. 830 Crore in 2016-17.

·Global Downturn following the 2008-

Despite a massive debt of nearly ~Rs.50,000 Crore of which ~Rs. 30,000 Crore constitutes working capital Loans for its day to day requirements, Air India still has enviable assets that would give any Prospective Investor an easier entry into an industry that has been growing above 20% in past 3 years.

09 financial crisis ·Rising Fuel prices during 2007-09 and subsequent highs in the 2010s ·A rise of competition – LCC's(Low Cost Carriers) like Indigo, SpiceJet, in the domestic market and Long Haul Middle East Carriers – Emirates, Etihad and Qatar in International Market ·Controversial Aircraft Purchase from Boeing in 2006 wherein 27 Dreamliners, 15 B777-300ERs, 8 B777-200 LRs and 18 B-737-800s and subsequent mismanagement in financing and inadequate contract competitiveness w.r.t. warranties, penalties, after sales, etc. ·Poorly Implemented Merger with Indian Airlines ·A multitude of Labour Union Issues. What is Air India worth? Enterprise Value of Air India would be estimated to be between Rs. 15,000 and Rs. 35,000 Crore depending on whose EBITDAR to EV Ratio is used (Indigo 7.6, Jet 4, and Asian Full Service Average 6.5). Another way to value it would be by summing all Tangible assets (Aircraft, Real Estate, etc) and that would reportedly range between Rs. 30,000 Crore and Rs. 45,000 Crore depending on the method of Calculation. If the Government decides to create an SPV for at least 50% of AI's Debt then potential savings from Interest Servicing

What Makes Air India Attractive? Air India operates a fleet of ~111 aircraft constituting 48 modern wide-body longer ranged aircraft. This fleet, which was part of the 2005 Boeing order, are relatively young and modern with the latest technology and high fuel efficiency. This would provide an easy path to a potential suitor to create inorganic growth into international long-haul segment along

Article of the Month - Runner Up

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with an already existing Experienced and well-trained Workforce. This would be very attractive to an Indigo, Vistara or SpiceJet which are themselves planning to launch Long Haul Services from 201819. Even International Airlines (Qatar Airways, British Airways, etc.) looking to start Indian Subsidiaries would benefit from such an asset line-up.

In non-flying operating subsidiaries of Air India, the Ground Handling and Catering units AIATSL and AISATS and its Engineering and MRO unit AIESL, are profitable and can operate without the Airline Fleet. Turkish ground handling operator Ă&#x2021;elebi was interested in taking over AI's ground handling operations only and not its flying operations.

Furthermore, Air India possess enviable landing slots in major International and Domestic Airports. With Airport Infrastructure growth remaining stagnant in most Tier 1 and 2 metros of India and limited slots at Major International Airports like London Heathrow, New York JFK, Tokyo etc., Air India possesses a vital Intangible asset that does not make its way to its Balance Sheet. In Perspective, Jet Airways sold 3 Heathrow landing slots to Etihad Airways in 2013-14 for a reported $70 Million.

Membership in Star Alliance makes Air India a part of the world's largest airline alliance. The Advantages of it include code sharing, mutually beneficial scheduling and Reward Points sharing and access to points served by other partner airlines. Why did it fail? When the Deadline for submission of Expression of Interest (EoI) passed on May 31 and no bids were received. Many Labour Unions claimed success in their

Article of the Month - Runner Up

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their protests for the Disinvestment Process with the point that the st r u c t u re a n d o ffe r i n g o f t h e disinvestment were poorly designed. Industry insiders suspected that with Government retaining 24% stake would mean potential future roadblocks in decision-making for the new Owner even with government plans to eventually even sell the remaining 24% stake. It was also felt that a complex entity like Air India shouldn't have been sold as a single entity but instead should have been offered in specialised parts â&#x20AC;&#x201C; Airline Operations (AI and AI Express), Ground Handling, Hotel & Catering Business and Engineering Services. Such an offering would've evinced a better interest from prospective suitors. A Complete exit of Government Holding was also cited as Investor Expectation. Way ForwardWith the failure of the disinvestment process and with elections due in 2019, no further plan may be pursued by the current government and would look at restructuring the deal based on the insights derived from a Blank Bid. Possible Government options would include the resumption of Bailout Package, moving Long Term Debt into an SPV to lighten the books, Operational Turnaround to become profitable and an eventual IPO. A more restructured Sale offer allowing more Investor/Partner freedom would allow them to run Air India according to their liking which would eventually lead to a turnaround with the onus of failure or success staying with the Investor and not with the Government.

HOW DO THEY MAKE MONEY?

The Subtle Science of

Calculation

ECO Section

Ankit Chhatwani, PGDM FS, (17-19) Deepanshi Agarwal, PGDM Finance, (17-19)

The tepid growth in advanced economies possessing on large capital has caused 'spillage of growth' in emerging market economies (food for thought). The 'Growth' rate of an economy is a check over the vital signs of the economy and is, therefore an important indicator. It is the numerical result of policies and promises made by the incumbent governments. It is also looked upon as a gauge of how structural reforms and how an economy is encountering internal pressures like inflation. Most importantly, it attracts investments which should be defined as a flow that alters the stock of capital of a country.

pride for the people across India. The Growth Statistics, on National Level, is provided by Central Statistics Office (CSO). Back in 2015, CSO altered the base year (from 2004-05 to 2011-12) and its methodologies to calculate Gross Domestic Product (GDP) as per the UN System of National Accounts (UNSNA), 2008. The 2008 crisis had created constant skepticism in the investor community over the numbers presented by the Governments. CSO is still receiving flak from Economists due to the absence of back series data using this new method, yet everybody recognizes the importance of acceptance of International Standards.

This year, India found itself in the ranks of fastest growing economies and was on the summit of growth numbers (But soon, it got replaced by Turkey in March 2018). It was taken as a moment of

The article tries to take you through the glimpse of calculation of National Account Statistics, new methodology and the reasons for shifting base year.

ECO Section

Macro-Economic Data provided by CSO: Before diving into the issue and making it complex, it is crucial to understand the Economic Calendar of India. The CSO and other organizations provide estimates at different times of a year. The information provided mainly contains the following data points which can be extrapolated to carry out estimates: 1. Index of Industrial Production (IIP) 2. Financial Performance of Listed Companies in private corporate sector. 3. Crop Production 4. Expenditure by Both Central and State Governments 5. Growth rates of various indicators like Railway Freight earnings, telephone connections etc. The Economic Calendar: The threeyear long cycle: The importance of GDP and other indicators can be understood from the comprehensive economic calendar spread across the year. So the excitement never ends. On 7th January: First Advance Estimates for next fiscal year: This is the first estimate given by CSO on GDP Numbers. This data is benchmarked to data of the previous financial year on 31st May. 28th February: Second Advance Estimates: This happens to be second in the series of Advance Estimates. The

data received is benchmarked to First Revised Estimates of the previous financial year released on 31st January. 31st May: Provisional Estimate: This estimate contains data that could be brought out after the completion of the financial year ending 31st March.31st January (10 months after the completion of the year): First Revised Estimates: Analysis of Budgets by Central and State Governments with local bodies. Comprehensive Information on Capital Formation is compiled. 31st January (1 year 10 months after the completion of the year): Second Revised Estimates: Till this date actual figures for public account balances are available from the different administrations. An important data point that is available is the Annual Survey of Industries which replaces IIP. This data point has been modified under new methodology which will be discussed later. 31st January (2 years 10 months later): Improved data of central and state government accounts. Along with these estimations quarterly upgradations are made in synchronization with estimates made so in order to avoid anomalies in the data. These upgradations have a different methodology than the above estimates. So the job isn't easy and it has implications on all markets including the factor, goods, foreign, capital and debt markets of the Indian Economy. Other than these indicators mentioned above,

ECO Section

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others include higher frequency data like Capital market Indices, Consumer Price Index (CPI), Wholesale Price Index, Car sales, heavy vehicle sales, creditdeposit growth, projects under implementation, coal production, cement-steel production, petroleum co n s u m p t i o n , n o n - o i l - n o n - go l d imports, corporate taxes, excise duty collections etc. Why do they do it? : The base year revision The reader must have observed above that it takes 3 years for the data to present the true picture of the economy. In annual revisions, changes occur as the data arrives. Any conceptual changes in the overall methodology cannot be truly reflected. These updates may not cover the entire value chain in the economy but the gap is always filled with some special surveys conducted across the timeline to present a complete picture. The Annual Value data does not provide information about all the sectors of the economy. The base year revisions, apart from the change from reference year for growth, presents a complete picture with updated surveys and studies. On the statistical front, new classifications and internal standards for accounting can be incorporated. Second, and more importantly, usually, the trade value added in a subsequent year is derived from an Index called Gross Trading Index (GTI). This Index tracks the volume in a year, with reference to the base year. It is used for estimations using the current data.

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There is an underlying assumption to the calculation that value-added is strongly correlated to the goods. It provides a great estimation in a short period of time. But for longer periods the results can be misleading. Various other assumptions like producer-consumer relation, marketing practices, quality of goods, and most importantly tax vary over the time.So this presents the case why CSO has to alter the base year and its exercise to alter it from 2004-05 to 2011-12. National Statistics Commission also mandates to revise the base year every five years. The Major Changes: A) GDP on Factor Price replacement with GDP at Market Price

·GDP (at factor cost): GDP at factor cost is a measure of national income based purely on the cost of production. It allows the effect of subsidies and taxes to be brought out of the equation. It is a supply side measure. ·GDP (at market prices): Gross domestic product at market prices is the sum of the gross values added of all resident producers at market prices, plus taxes fewer subsidies on imports. So, this presents a cost to consumers. Procedure to understand the calculation is as follows: 1.GVA1 at basic Prices = GDP at factor Cost +Production taxes - Production subsidies 2.GDP = GVA at basic prices + Product Taxes – Product subsidies 3.Real GDP= Adjustments made in GDP for Inflation

ECO Section

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4. So, for Example, with the new base year 2011-12, The GDP Growth for the financial year 2013-14 saw a major revision with GDP(Market prices) jumping to 6.9% from a GDP(at Factor Cost) of 6.6 %.

This large upward revision became a talk of the Luteyn's Delhi as the data presented was not in line with the highfrequency data on industrial production and manufacturing. The year 2013-14, also had the volatility around taper tantrums by the US Federal Reserve. The Graph 1 below illustrates the changes where you can observe the bump in growth in years after 2013-14, due to the changes in the base year.

B) Data pool of Companies The new scheme of calculation now involves a wider pool of companies. The 2004-05 series-from Annual Survey of Industries included around two lakh factories under its purview.

The 2011-12 series includes the company's filing MCA21which will cover 5.24 lakh companies. It will be base year series to include The Enterprise Survey2011, The Unemployment-Employment Survey-2012, and other new age surveys. The new series covers surveys from local bodies and autonomous institutions, covering more than 60% of finances provided to these institutions. The corporations include 85% of the Paid-up Capital of active non-financial corporate sector provided by Ministry of Corporate Affairs.

ECO Section

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Let's look at the sector-wise jump in output in the year, because of the revision and increase in the database through figures on manufacturing growth. Graph 2 gives one such illustration wherein the increase in data pool caused the negative growth in old estimates being overstated by over 600 bps. The CSO states the reason for such anomalies, to the top line remained stagnant but the bottom line of the universe of the data has improved efficiency. But estimates by other agencies like the Centre for Monitoring Indian Economy (CMIE) which covers over 14,000 companies didn't exhibit such profitability. Similar cases with Agricultural and Services sector which were showing numbers having about 100 bps. The Company has the discretion to file MCA 21 forms and hence the 'blowup factor' used to make the estimations could be inconsistent and biased. A whole new category called “Quasi Corporate” was brought to life to capture the segment of the household enterprises. These firms are not

incorporated but maintain accounting data. But most importantly lack detailed balance sheets, which could lead to questioning the credibility of data. Analyst like Ruchir Sharma went on to criticize this step as corroboration did by the CSO to the levels of Chinese had done in past. One of the critical findings which took a lot of center stages was from R. Nagraj from Indira Gandhi Institute of Developmental Research titled “Seeds of Doubt on New GDP Numbers” brought things into light about the overestimation of certain estimates. According to him, as shown in Table 2, there is a huge difference between the estimates submitted by the sub-committee of the private corporate sector (PCS) in September 2014 (Version I) and the final report submitted in February 2015 (Version II).

What's in for India?

·International

Monetary Fund's calculation is done on GDP at market price, hence reduces the difference between CSO and IMF projections.

ECO Section

·A comparison to the world economies is possible ·A higher growth helps the government in fiscal management as this government takes fiscal management as an agenda to reforms. ·Global investor's eye the growth number, in last decade, using this metric, India grew over 6% against the conventional logic of 4.6% compounded year on year.

important for implementation of new programs for the people. This article was just a glimpse to the elaborate process of calculation of GDP and its quite challenging and the writers hope the Ministry of Statistics and Programme Implementation (MoSPI) will surely undertake the revisions so we can have a better look-back on the Indian economy.

Afterword: 'Standardization' - Is what the new systems bring in to the National Accounts System. It's a positive step without a doubt. Other Economies like Turkey (2016), United States (2013), Brazil (2015) and China (2016) attempted the revision of its Economic Data. They included R&D expenses in their calculation. The revision for some economies went backward up to 20th Century. The new methodology gives a view from the producer's point of view rather than focusing on the Indian consumption story. But, in the Indian case, there is no data available on revision even 3 years after the implementation. These figures are

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FINLY| August 2017 | Finstreet | SIMSR

Fintech Funda

Priya Keshari, PGDM FS, (17-19) Vaibhav Bhanushali, PGDM Finance, (17-19)

India is considered as 'The Fastest Growing Economy' in the world with the growth rate of around 7%. The major contribution to this growth has been from MSMEs (Micro, Small and Medium Enterprises). According to the latest Government report, there are around 64 million MSMEs in India that employs around 40% of the Indian workforce. This sector comprises of Manufacturing, Infrastructure, Food Processing, Chemicals, Packaging, IT and Service industry. In 2013-14, 15% of the total procurement of PSUs worth INR.12000 crores was from micro and small enterprises. This number is expected to reach at least INR.20000 crores as Public policy makes it mandatory for PSUs to procure at least 20% of the total value from MSMEs. One of the challenges which these MSMEs face is managing their working capital.

Working Capital Management of MSMEs Working Capital is the money required by a firm to carry out daily operations. As most of the sale is done on credit, a major portion of the working capital of a firm gets blocked in the trade receivables. Managing working capital sometimes becomes a herculean task for MSMEs. MSMEs had to suffer during the demonetisation and initial days of GST roll out. In order to cope up with this high working capital requirement, MSMEs resort to different means like â&#x20AC;&#x201C; Overdraft facility from Bank, Short-term loans etc. Due to the poor credit rating of MSMEs, the interest rate for these loans is very high. To help the firms solve the problem of shortterm funds, there is a system of financing called factoring.

Fintech Funda

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Factoring and Reverse Factoring Under factoring, supplier firm sells their invoices (receivables) to third-party financiers like banks or discount houses at a discount and avail the amount of invoice before the due date. The discount is the interest received by the bank for providing the factoring facility. This discount is calculated on the basis of the time to maturity. The third party who discounts the invoice is called factor. In reverse factoring, the supplier firm trades his invoices to the factor at the behest of the corporate buyer. After discount, it becomes the responsibility of the factor to collect the invoice amount from the buyer. If the buyer fails to make the payment on the due date, the factor may or may not approach the seller to get the money back depending upon the terms of factoring. Discount rate depends upon the credit rating of the buyer and not the seller.

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In order to make the factoring convenient for short-term financing for MSMEs, RBI has come up with a digital platform named TReDS.

TReDS Overview: TReDS stands for 'Trade Receivables Discounting System'. In order to set up an institutional mechanism for financing trade receivables, Reserve Bank of India (RBI) had published a concept paper on â&#x20AC;&#x153;Micro, Small & Medium Enterprises

Fintech Funda

(MSME) Factoring-Trade Receivables Exchange” in March 2014. This Trade Receivable Exchange will provide an electronic or digital platform i.e. TReDS that will facilitate the factoring process for MSMEs and help them to sell their invoice to financers and avail money before the due date. TReDS has been considered as an authorized payment system under the Payment and Settlement (PSS) Act, 2007. TReDS was a pet project of former RBI Governor Raghuram Rajan. Parties to TReDS TReDS has three parties:

·Corporate Buyers- buyers are the firms or companies which owe money to MSMEs like big retailers or manufacturers to whom the MSMEs supply materials. · Sellers- sellers are the MSMEs themselves as they sell the materials to other companies who become their trade receivables. ·Financers- financers are the banks or financial houses who discount the invoice of MSMEs.

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How does the system work? ·Firstly, the seller uploads the invoice on the digital platform provided by Trade Receivables Exchange ·This invoice then goes to the buyer for acceptance ·After receiving acceptance from the buyer, the invoice becomes a factoring unit ·This factoring unit is then placed for auction ·In the auction, the financers enter the discounting rate that they are ready to offer to the buyer for the invoice ·The discount is either borne by the buyer or the seller as per the terms decided between them ·Whoever is to borne the discount accepts the best offer by the financer ·Then the trade is settled by debiting the account of the financer and crediting the account of the seller. ·On the due date, the buyer makes the payment to the financer and the account is settled ·This system is non-recourse which means that if the buyer fails to make the payment to the financer on the due date, the financer cannot approach the seller for the payment

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Fintech Funda

Discount Rate The financers cannot quote any discount rate as per their wish. They are governed by certain rules for quoting the rates. They cannot quote a rate which is less than MCLR i.e., Marginal Cost of Fund-based Lending Rate as decided by the RBI. The discount rate varies depending upon the credibility of the buyer. A buyer with good credit rating gets a rate close to the MCLR. As the credit rating starts going down, the discount rate starts increasing. TReDS Exchange: Trade Receivables Exchange is a firm that provides TReDS platform to all the participants mentioned above. Currently, there are 3 exchanges in India which are as follows:

·Receivables Exchange of India (RXIL) a joint venture between NSE (National Stock Exchange) and SIDBI (Small Industries Development Bank of India). It is the first TReDS exchange in India established on January 9, 2017. ·M1 exchange – established by Mynd Solutions Private Limited, Gurgaon, Haryana. It has been launched in April 2017. In just 6 months of operations, this platform discounted more than 800 invoices worth INR. 75 crore. ·Invoicemart (A.Treds) – a joint venture of Axis Bank and Mjunction services. Mjunction is the largest e-marketplace of place and itself is a joint venture promoted by Tata Steel and SAIL. In just 3 months of operations, this platform

discounted more than 4000 invoices worth INR. 130 crores. Other firms that have been authorized for TReDS Exchange are as follows: ·DICIC Bank of India, Kolkata, West Bengal

·NSDL

Database Management Limited (NDML), Mumbai Some of the banks that have registered themselves on TReDS include SBI, Union Bank, IDBI, Dena Bank, Axis Bank, ICICI Bank, IndusInd Bank, IDFC Bank, DBS Bank, Kotak Mahindra Bank, Bank of Baroda etc. Many PSUs too have registered themselves on TReDS. TReDS exchanges expect the number of transactions and their total worth to grow more once more MSME buyers and sellers join the platform. Every exchange is trying to implement new technologies to provide convenience to their participants. Issues faced by TReDS exchanges: ·Fake invoices: There is a possibility that MSMEs can upload fake invoices in the system. In o rd er to avo id th is, Government of India is planning to connect these exchanges with GST network. This will ensure that the invoices uploaded are legitimate. (GST here stands for Goods and Service Tax)

·Factoring the same invoice more than once: There is a threat that an MSME can upload the same invoice on different platforms and can avail the discounted amount more than once. As a result, there is a need that there should be communication between the exchanges to prevent this fraudulent transaction.

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Fintech Funda

ÂˇSharing invoice elements with other exchanges: Clients may not want exchanges to share some specific elements of their invoices with other exchanges. This is very difficult for exchanges to implement given there is a need for communication between the exchanges.

exchanges.

The last two issues mentioned above have been resolved using 'Blockchain solution from Monetago'.

Monetago blockchain is controlled in a distributed manner and not by any particular financial institution. Thus, TReDS exchange can rely completely on this platform. The real benefits of this lowcost technology can be realized when other financiers like Banks, NBFCs join the MonetaGo's platform. This platform is considered one of the successful blockchain implementation in the world.

Monetago Blockchain for TReDS

Way Ahead

Monetago Inc is a New York based fintech firm that provides distributed ledger solutions and applications to an enterprise for financial operations. Founded in 2014, this company is helping financial institutions across the world to get started with inter and intrabank payments. This company has launched a Blockchain network in India to prevent financial fraud and double invoicing problems mentioned above for Indian Factoring Exchanges.

TReDS can prove to be one of the most convenient ways for MSMEs to meet their working capital requirements. TReDS is helping MSMEs to get Trade Receivables from Corporates. However, MSMEs deal with many micro and small firms in their due course of business. Trade Receivables from these small and micro firms is currently out of scope from TReDS. Still, many MSMEs are not aware of TReDS. In order to realize the full potential of TReDS, it is essential to educate MSMEs about TReDS and get them on board. Also, it is essential to expand the list of Financers of Factors in the system. Given the benefits, TReDS is surely a boon for MSMEs. However, there should be a constant watch by the RBI on TReDS so that it does not become the reason for increasing stressed or non-performing assets (NPAs) for the participating financers.

Monetago has built the Blockchain or Distributed ledger platform using Hyperledger Fabric that does not rely on cryptocurrencies to operate. This system provides a common platform for all the Indian Trade Receivables Exchanges to share relevant information with each other. This technology ensures that no two copies of the same invoice are uploaded by MSMEs on different exchanges. Also, the information will be stored in encrypted form and hence no information will be shared between

Alumni Section

It's barely been two months since I left college and I find myself writing an article for the Alumni Section on Finly. So I would begin with by clarifying that I still very much feel a part of Somaiya and Team Finstreet and this article is my description of life@Somaiya and a little bit beyond it. This will not be an article which I will be giving advice since I do not feel I am experienced enough to do that. It is more of a description of my approach to an MBA and how it worked for me. What is a B-School to me? Yash Parikh PGDM-FINANCE 2016-18 Former Convenor, Finstreet. â&#x20AC;&#x153;B-Schools are the best place to minimize your weakness as you have a lot of room to experiment and it is a platform to do a very large variety of things. I had clearly defined my weakness and decided to work on that, to make sure that I don't become a liability to any organization I work forâ&#x20AC;?

To me, a B-School is a platform. The platform to do a very large variety of things. We all come in from different backgrounds. We all have a unique set of skills and strengths. This is a platform to deal with our weaknesses, learn from peers, professors, and professionals, and use two years to make your weaknesses minimal. When I came to Somaiya I had a technological handicap. Considering my background in commerce followed by working as an Equity Advisor, I had never

Alumni Section

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been a computer expert. Let alone expert I was terrible at basics such as PPT and Excel. This was my main weakness. I had clearly defined it. And I took the two years to work on it enough to bring me to a level where I would not be a liability to any organization if they decided to hire me. Other than this I took MBA lectures more as a dialogue with professors who are experts in their fields rather than o n e - way l i ste n i n g a c t i v i t i e s . I challenged them at every point so that I could make my concepts as clear as possible. Every time I was proved wrong the concept was more concrete in my mind. It's the easiest way to learn in my opinion. I always put up my hand to answer. Even if I was very uncertain about my answer is correct. As one professor rightly described the program as a safety net for you to make mistakes and learn so that when you start working professionally you don't make the same mistakes. What does an MBA teach you? We often hear GLs (Guest Lectures) on 10 things MBA does not teach you. In my honest opinion that's just a fancy name to attract crowds, you can call it a gimmick. Like I said an MBA is a platform where you come to learn. Not a platform which is meant to teach. So the first thing you need to do is to change your approach to the program as a whole. In my first year, I sat for one such GL and after realizing that basically, the speaker said MBA doesn't teach you anything I

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asked him “So what are we going to do here for 2 years?. I have any way signed up for it so how do I make the most of that”. The speaker was taken aback by the question and I never really got the answer. Today when I have completed my MBA I have the answer to this. Widely we can split the learnings into two - academic and personality based. Academic Conceptual – It is necessary to get your concepts right. You don't want to go into a multinational without your basics clear. They take less than a month to fire anyone whom they feel is incompetent. Each office has its own way of working but General Concepts are globally accepted and standard. Theoretical – We feel that theory is a waste of time, I was one of those who felt this very strongly. But I was wrong. It's a different approach and I may not be a fan of it but it's very important in its own right. It helps you to understand the underlying principles of practical concepts. You can use this to link with practical examples by yourself to develop your mind to be more active and fine-tuned without the professors' assistance. Problem Solving – B-Schools use a lot of case studies to teach more “practically” but we students take it as a burden and just another project. This is as close to the real corporate world that you can get in any B-School. Take them as real-life cases and dedicate enough time to reading about the topic. It gives you a holistic view and enhances both your reasoning skills and problem-solving abilities.

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Alumni Section

Personality This is what I consider more important. The following set of skills will be useful for life in general – 1. Communication Skills – Consider this as the most critical skill. You have 30 m i n u te s i n t h e ro o m w i t h a n interviewer. They have never seen you working or any of your work. On what basis will they hire you or any other candidate? Purely their assessment of you, basis what you have conveyed both physically and verbally in the interview room. 2. Networking – At times we look at our large batch size of roughly 480 as a disadvantage. But what we don't realize is that this is the best opportunity to network and connect with people from different academic and professional backgrounds. You have an opportunity to interact with 1440 students in your two years. These are the same people who will be in managerial positions in the next 10-15 years and this is a definite advantage. Also one gets multiple chances to interact with experts from the industry. This is priceless, to be honest. These people are well-established professionals and not even money can buy their time. I always made a point to understand and clarify my doubts on markets, concepts, phenomena's when I was put in front of a subject expert through a GL or a preplacement interaction or a visiting faculty. 3. Team Work – Teamwork is something we must all learn because it matters at

every stage in your career. There is no working in isolation. Working with people who have a different attitude and style of work than you are best learned through t h e g ro u p ta s ks at a B - S c h o o l . Management is defined as the Art of getting work done through people. This again happens here if you constantly work with different people. 4. Organised and Critical Thinking – Whenever we think of any case or event we try to analyse it by the consequences. We try and provide the best solution. But this is exactly what we do wrong. We give solutions to something which may not even be a problem. Always try and start by analysing the root cause. Always think in terms of Sequence of events, Problems faced the feasibility of suggestions, Next best alternative, and its implications. Analysis of anything without understanding the next best alternative is not a very fruitful task. One of our professors whom I respect deeply taught me that we don't put enough efforts to answer our questions ourselves. Each time we asked him a question he countered with another question and not an answer, to which we would have an answer. If we focus on asking the right questions we reach the right solution, eventually. Some common interview questions and my answers to them First of all, why did I choose to do an MBA? We hear this question at almost every interview. And most of the answers are extremely clichéd. Such as it gives a great opportunity to learn, it will allow me to

FINLY| JULY 2018 | Finstreet | SIMSR

Alumni Section

develop professional skills etc. My answer was much simpler. I wanted to make a career in finance. To reach that position I needed two things, the knowledge and the validation. MBA is one course which gives both so it was the obvious choice for me. Be honest in an interview. Interviewers are listening to answers which have been mugged up and rephrased by 1000s of students across colleges. They may just like you for being yourself. What makes you the right person for this job? First of all to answer this question you need to know what the job really is. List down the skills relevant to the job. Try and introspect and judge which skills you have from the ones required. Lastly, find a point on your CV which helps to convey to the interviewer how you have a particular skill and how it can help the organization. I once said in an interview that I have already worked on this skill which is critical to this role. I believe it would take you lesser time to train me as compared to any other candidate since I have already set the base you can help me build from. One common misconception is that in an interview the interviewers ask questions and you answer them. Think of this the other way. Interviewers have come from somewhere far from your college just to listen to you speak and understand if you can fit into their organization. Always engage the interviewers. Don't ask unnecessary

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questions just for the sake of it, but try and get to know more about things that are relevant to you. Such as future scope of growth in the role and organization. What kind of a day does a person in the role have? Who are the interested stakeholders? How does your role impact the organization? How can you add value? Lastly, I would like to say that an MBA is a place where you spend a lot of time with your batch mates. Make good friends here. Enjoy, chill, party and make sure that your two years before the final corporate life are well utilized. We all have our own ways of relaxing and it is necessary to take that break every once in a while. Once again, I would like to thank Team FINLY for considering me capable enough to write for their first edition of the academic year 2018-19. I have only shared my experiences and this is not to be taken as roadmap. To each his own way of functioning and delivering. All the very best to the juniors as well as seniors for the upcoming year. Thanks and Regards, Yash Parikh.

FOOD PROCESSING INDUSTRY

Sector Analysis

Retail Industry

Emerging markets like India and China are the new frontiers for the retail market, taking the focus away from saturated Western markets. The retail industry in India is the largest among all other industries, accounting for more than 10 percent of the country's GDP a n d a ro u n d 8 p e rc e nt o f t h e employment. Retail in India has emerged as one of the most dynamic and fast-paced industries in last two decades, with several players entering the market. Today, India ranks 5th in the World's retail market and 1st, ahead of Russia, in terms of emerging markets potential in retail and is deemed a 'Priority 1' market for international retailers. With India's GDP growing at an accelerated rate of 7.7%, the retail industry is further expected to grow to US$1.1 trillion by 2020 from

Neha Singh, PGDM Finance, (17-19) Karthik Venkateshwaren, MMS Finance, (17-19) US$ 672 billion in 2017, while the modern retail market is expected to double in size over the next three years.

A drastic revolution can be seen in the format of the retail sector and consumer buying behaviour. More & more consumers are getting attracted to the concept of shopping centres multi-storied

Sector Analysis

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malls, and huge complexes offering shopping, food, and entertainment all under one roof. It is due this trend that the retail industry is witnessing a rapid growth as many new market formats like departmental stores, supermarkets, hypermarkets have come up in the market.

However, India is still largely dominated by an unorganized retail market where maximum retailers operate in less than 500 sq. ft. of space. The total retail sector in India is estimated at 9 lakh crore of which the organized sector accounts for only 9 percent. This indicates a huge market potential for the organized retail in India.

Structure of Retail Market in India

Today, the organized players are widening their scope into each and every retail category. The organized retail market in India is burgeoning and is expected to grow at CAGR of 19-20% over the next 5-6 years. This growth is estimated on account of a combination of demand, supply, and regulatory factors, which are seen to be growing exponentially. Overall India's retail sector is witnessing an accelerated growth, with retail development taking place not just in major cities and metros, but also in Tier-II and Tier-III cities. Recent 7.7% growth in GDP of India shows that the purchasing power of Indian consumers is increasing in all categories like food, beverages, apparels, cosmetics, footwear, jewellery etc. Hence, a significant scope of expansion is there in the organised retail sector.

Organised and Unorganised Retail The Indian retail industry is classified under two sectors- Organised and Unorganised. Organised retail mainly includes trading activities that are undertaken by licensed retailers, retailers registered for income tax and sales tax. These include the privately owned large retail businesses, corporate-backed hypermarkets and retail chains. Unorganized retail, on the other hand, includes a large number of small retailers like owner-manned general stores, local kirana shops, footwear shops, chemists, apparel shops, paan and beedi pavement vendors, etc.

Sector Analysis

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E-commerce E-retail has totally changed the outlook of the retail industry. It is widely accepted among all types of consumers and with growing awareness and hassle-free purchase facility, the e-retail industry is expected to continue its strong run, over the next three yearsgrowing over 2.5 times to Rs 1.8 trillion by FY 2020 .Further, with the

rapid increase of smartphone users, internet availability and expanded reach, internet users are expected to reach a mark of ~600 Million. This will in turn again lead to an immense growth in e-retail.

Sector Analysis

Important categories within Retail Sector Food & Grocery Food & Grocery segment is the bread and bread and butter of retail sector, comprising around 60% of the total retail market. F&G registered steady positive growth in 2018. This growth was mainly due to the shifting towards online grocery retailing. The convenience of being able to shop on the go at the lowest possible prices and without the need to find a carpark or carry one's groceries home was well received among consumers in India's major cities and metropolitan areas.

Apparels usually command higher margins compared to other categories, as such organized retailers are investing heavily in this segment. Jewellery and Watch The jewellery and watch industry is estimated to register a growth rate of 13.4% CAGR over FY16-20. Organised segment is estimated to clock 16.1% CAGR over FY16-20 aided by a shift to the organised segment. Companies like Titan and Kalyan Jewellers have acquired online players to firm up their online presence, Kalyan Jewellers acquired Candere while Titan acquired CaratLane, and together these players command 80% of the online pie.

Apparels Market Trends The apparels market in India is estimated to grow at 10.9% CAGR over FY16-20. Organised apparel segment is expected to clock 21.9% CAGR over FY16-20 due to shifting in demand from unorganized to organized players.

Rising Disposable Income Source: Ed e l we i s s Re s e a rc h D i s c ret i o n a r y spending has a high correlation with disposable incomes, which in turn is dependent on the economic growth. The country's per capita income has grown at 10.2% CAGR over FY12-17.

Sector Analysis

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Attractive Demographics The Rise of the Private Labels India is a relatively young country, has low dependency ratio (ratio of children and elders to working age population). With median age 27, 50% population is in the working age bracket, leading to a high propensity to discretionary consumption. Rising Urbanisation Urbanisation is expected to improve the standard of living. As per 2011 census, a share of the urban population was 31.2 % of total residents, up from 28.5 % in 2001. According to a UN report, 40.7% of Indians are expected to reside in urban areas by 2030.

Organised retailers are improving their offering by investing in and growing the private labels business. The increasing acceptance of private labels has led to preference towards private labels as they usually fetch better margins, improve the retailer's brand value among the customers and impart higher bargaining power with suppliers. Omni channel Business Organised Retail Segment is harnessing the power of both traditional and new service channels to cater to both segments of demographics. This leads to

Sector Analysis

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enhanced flexibility for customers, helping the businesses in delivering value. Even Online Retailers are shifting offline through tie-ups with Offline players. Walmart-Flipkart Deal One of the largest acquisition in the history and much-anticipated deal has been finally sealed. The acquisition of 77% stake in India's largest e-retail brand, Flipkart by US largest retail brand, Walmart, for USD16bn, is going to take the retail sector on another high. Walmart-Flipkart deal is envisaged to drastically change the dynamics of the domestic retail industry in India. The following can be the probable implications of the deal: i)Offline & online partnerships are likely to see a flip in their businesses

Regulatory Trends Demonetisation Sudden demonetization of old currency notes by the Indian Government had both short and medium-term impact on the retail sector. On one hand, there was a sharp increase in digital transactions through Apps, E-Wallets and E-Banking along with increased usage of debit and credit cards. On the other, it adversely impacted sectors which involve high cash transactions. However, on the positive side, consumer sentiment towards demand for retail products remained steady despite shortterm constraints. Post demonetization, India's consumer confidence index increased much higher in the fourth quarter of 2016-17 as compared to the third quarter. Goods and Services Tax

i i ) O n l i n e d i s co u nt i n g m ay n o t necessarily increase (as Walmart may drive private labels rather than focus only on GMV) (GMV stands for Gross Merchandise Volume, which is the gross revenue from sales of the company) iii)FMCG companies are likely to benefit as Walmart's expertise lies in hypermarkets/grocery retailing and it even plans to tie up with kirana players. Also, subject to regulations, there is a likelihood of Walmart's cash & carry business being integrated with Flipkart at some point in time, an added advantage

The Goods and Services Tax (GST), which has brought all different types of taxes levied on the purchase of goods, is expected to a have a positive impact on both the offline retail industry as well as India's e-retail sector. Offline retail Industry has benefited a lot with uniformity of tax rates and structure in terms of ease of doing business. GST is also likely to boost the competitiveness of the sector along with increasing profit margins, owing to a reduction in transaction costs. Foreign Direct Investment With the introduction of 100 % Foreign

Sector Analysis

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Direct Investment (FDI) in online retail, modernization is likely to creep in the retail sector at an alarming rate. It will also ensure price parity between online and offline retail, thereby facilitating offline retailers in malls. Introduction of foreign investment is a very good move in terms of balancing offline and online retailing by preventing marketplaces from offering heavy discounts. FDI in retail has also been introduced with the objectives of legitimizing existing business of e-commerce companies operating in India and also to check promotion-driven funding. Future Outlook India's organized retail tale is set for a fortunate twist and is expected to catapult to USD 115bn by FY20E from USD 55bn in FY16, >20% CAGR. The ecommerce pie within organised retail is USD 12.3bn and expected to reach ~USD 45bn by FY20, >38% CAGR i)Global retail giants could look at large physical retailers as attractive JV/ acquisition candidates for their India entry

ii)The Walmartâ&#x20AC;&#x201C;Flipkart alliance which is now likely to ramp up grocery retailing business in India (led by Walmart's expertise) will be sentimentally positive for FMCG companies. This deal is icing on the cake for FMCG players considering that they have already sharpened the focus on direct distribution, modern trade, and e-commerce channels The untapped rural sector and lesser developed Tier 2 and Tier 3 cities provide ample opportunities for growth. Additionally, increasing disposable incomes, growing middle-class influence, penetration of mobiles and country's large population coupled with favourable government policies is creating a conducive and level playing field for incumbents and new entrants. With multiple channels provided to customers, the lines between Online and Offline Retail are slowly blurring. The future of retail is going to be an interesting phase, as small and large retail businesses adopt new business models to stave off competition and explore the opportunities.

Internship Diaries 41

The portfolio of companies which come for Internship opportunities on the K.J. Somaiya campus, includes notable brands one such company for all serious finance aspirants is CRISIL. We have 3 of the interns sharing their internship experience at the company this summer and they follow as below.

CRISIL has a status of a Dream Company in our college by the virtue of the profiles on offer and the nature of work. At CRISIL, I was in the Global Analytics Center Department, which interfaces CRISIL with S&P. I interned with the Structured Finance, US ABS Team. My project required me to have knowledge of Structured Finance, which I learned on Job with the help of my team. Further, I was supposed to analyse the impact of a scheme on US Student Loan Securitization. This required me to leverage the knowledge of Excel macros, number-crunching ability and the understanding of statistics to come up with some insights out of an unstructured form of data.

“CRISIL as a company has a culture that allows its employees to maintain a work-life balance and has a strong focus on etiquettes” – Amey Patale, PG Finance, 2017-2019

My day at CRISIL began at 11 am with a huddle and ended at 8 pm, the timings, however, depending on the department/ project. On a lighter note, every day, apart

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from the new learnings, I looked forward to the Canteen Menu. There are several options and the food is exquisite, which, although, costs a little extra, is worth the money. Having worked with an organization earlier, one always tend to compare it with CRISIL. I found CRISIL to be far more professional than my earlier organization, which is what is expected from an organization of a Global level. CRISIL as a company has a culture that allows its employees to maintain worklife balance and has a strong focus on etiquettes. Also, in a short span of 8 weeks, we got opportunities to attend several guest sessions. Everyone cherished the opportunity to attend a session by the Chief Economist of CRISIL. I would want to emphasize on the fact t h at eve r yo n e i n C R I S I L i s s o approachable that one never feels like an Intern for 8 weeks. Also, the internship programme at CRISIL is developed in such a way that one make the most of the internship, with presentations to the directors at the end. In short, CRISIL takes the internship programme very seriously and my 8 weeks at CRISIL were very enlightening. Note: Amey Patale has received a preplacement opportunity from CRISIL and he has accepted it.

“The internship program is very structured and gauges a person in a holistic fashion giving constant assistance to improve upon one’s flaws to deliver industry quality level deliverables” – Jerin Shaji, PG Finance, 2017-2019 CRISIL is the leading player in the ratings & market research domain in India, and an internship in the Global Analytics CentrePlatts department for two months was an enriching experience. My department primarily works in the trade flow analytics domain. My project included sector analysis, competitor analysis & feature improvement in their existing proprietary software. Work used to start at 11 am, with a daily morning briefing with my mentor. A daily to-do list was chalked out. Ev e r yo n e i n t h e d e p a r t m e n t i s approachable and will make one feel right at home. In my two months of internship, there used to be a party every week, which would help me unwind from the rigours of daily work and network with new people. GAC Platts division is constantly in search of innovation and process improvements, hence encourages each of its members to think out of the box and keep enhancing their skill sets. CRISIL enables you to lead a life with proper work-life balance. The other

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perks included a recreation space, opportunities to have interaction with industry veterans. The internship program is very structured and gauges a person in a holistic fashion giving constant assistance to improve upon your flaws to deliver industry quality level deliverables, which are assessed by not only your mentor but also any unbiased panellist of senior directors. Note: Jerin Shaji has received a preplacement opportunity from CRISIL and he has accepted it.

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junior batch must aim at cracking the company. The question arises on HOW? CRISIL conducts an aptitude test followed by personal interviews. The aptitude test is one of the toughest that I had seen on campus and I would suggest students brush up on their quantitative aptitude and reasoning skills well before sitting for the test. The students clearing the cut-off go through to the interview process. The interviewers test candidates more on the overall knowledge about the industry. I would suggest students to definitely take part in some equity research live projects as it strengthens one’s chances of clearing the interview as it did for me. I had done a research live project wherein I had analysed the textile sector. When I mentioned that to the interviewer he was very much interested to know my views and my opinion of the sector. It ended well for me with the interviewer saying “It's good that you have an opinion. At CRISIL we appreciate people who have an opinion. An opinion would drive us towards a final conclusion through formal discussions.” The Internship Experience

“The amount of learning at CRISIL is immense and the valuable image that the company holds in the finance industry would definitely help each of you in your careers in the long run.” – Balaji Sunderajan – PG Finance – 20172019 How to CRACK the company CRISIL is one of the best finance companies coming to campus and the

I had applied for CRISIL not only because it is one of the largest Ratings and Research Company in India but also because the job profiles were in line with my future goals. I worked in the telecom sector at CRISIL during my internship and though the sector was pretty technical for a nonengineer, I still did pretty well with my mentor's constant guidance. CRISIL had structured the on-boarding procedures very well and none of the interns had any issues with anything. The work culture is also very good and work-life balance can

Internship Diaries

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be maintained while working at CRISIL The internship actually helped me to learn a lot about the telecom sector as a whole and also develop a sense of u n d e rs t a n d i n g a b o u t re s e a rc h methodologies. There were some issues also wherein the mentors were not available to guide us as they were themselves overburdened with work and that created a gap between the management's expectation from the project and the actual work done, which actually led to re-work and unproductive work hours. Overall, I would say that working at CRISIL was a real pleasure and a great working experience. Message for the juniors I would urge all juniors to work hard and brush up their finance skills and keep reading about various sectors so as to have an edge over the others. Each of you should try to take part in as many finance live projects possible and should target to work in CRISIL as it would help you in the long run. The amount of learning at CRISIL is immense and the valuable image that the company holds in the finance industry would definitely help each one of you in your careers in the long run. Amey, Jerin, and Balaji wish all the juniors the very best for all their ventures and endeavours in the upcoming year.

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Know your Finance

Sitharthan K, PGDM Finance, (17-19) R Prasanth, PGDM Finance, (17-19)

Stock Market Jargons Stock Markets are built essentially using some logic, systems, methods, and mathematics. It is filled with jargons which perturb young and budding investors. It is always advisable to be not be bogged down by such jargons as all of them have some logical inference and are more or less based on some form of mathematical reasoning. We look at 8 of the most common Stock Market “Lingos”. Long Position -: A “Long Position” or simply “going long” is a reference to your outlook of the market or an individual stock or a set of stocks. It indicates you are positive on the market an individual stocks or a set of stocks. The expectation is for the stock to rise and eventually make some profit in the transaction by selling the stock you bought, at a higher price. The reason we do not use “buy” instead of

“long” for stocks in such a scenario is that of the position or the mindset on that stock or the Industry the stock belongs to or the market in general. For example, if an investor owns 1000 shares of ICICI Bank Ltd, and he/she sells 500 of them, the investor still owns 500 shares in the expectation that the stock would go up in value. Thus the investor has a long position on those 500 shares of ICICI Bank Ltd. Naturally, the profit made on that stock will be an increase in the share price of that stock multiplied by the total number of shares. For example, the current market price of one stock of Tata Motors is ₹ 100 and you own 100 such stocks. If you “go long” on that stock or in other words hold on to that stock in your portfolio for an x period of time and the stock rises to ₹ 110, you earn a profit on that which equals 100 x (110 – 100) = ₹ 1000.

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Short Position -:

Volumes -:

A “Short Position” or simply “shorting” is a reference to your outlook of the market or an individual stock or a set of stocks. It indicates you are negative on the market or individual stocks or a set of stocks. The expectation in case of shorting is a bit different, but with the ultimate intention of profiting out of the transaction. In case of shorting a stock, you sell the stock now and buy it at a later period with the expectation that the price of the stock will come down. It is this price decrease of the stock that the investor will profit from by buying the stock later at a cheaper price.

It represents the number of shares traded on the stock exchange. It may be indicative of for a particular stock or a set of stocks from any Industry or the stock exchange in general. It can also be defined as the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume.

For example, you can sell a stock of BHEL at say Rs 100 buy it back at Rs.95. By doing so you are essentially making a profit of Rs 5. If you think about it, this is as good as buying at Rs 95 and selling at Rs 100. It is just that when you short, the order of transaction is reversed where you sell first, buy later. Square off -: Another common Stock Market Jargon, Square off simply means closing on an existing market position of an investor. It is a trading style used by traders mostly in day trading (also known as Intra-day trading), in which a trader buys or sells a particular quantity of stocks and later in the day reverses the transaction, in the hope of earning a profit. As such, it is used as a term to generally indicate that you are now moving out of a position you had on an individual stock or a set of stocks or the market in general.

Face Value of a Stock -: A stock has a market value and a face value. The market value represents the current value that one stock trades at. The face value, also known as par value, is the legal capital of the stock. The face value of the stock has no effect on the value of the stock but has legal and accounting consequences for the company. A company determines the face value of a stock before distributing shares. The face value of a stock doesn't change, while the market value can vary based on company performance. A company can't sell stock for less than face value, but it can sell it for more. The difference between what shareholders pay for a stock and the face value is referred to as additional paid-in capital. For example, the current stock price of Reliance Industries Limited is ₹ 1011.65 but the face value of the stock is ₹ 10. OHLC -: OHLC at the end of the day stands for

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Open, High, Low, and Close of the stock price. Open is the price at which the stock opens for the day, high is the highest price at which the stock traded during the day, low is the lowest price at which the stock trades during the day and the close is the closing price of the stock. For example, the OHLC of TCS on June 22, 2018, was ₹ 1827, ₹ 1827, ₹ 1799.55 and ₹ 1809.80

then it is referred to as the “bear market”. It simply indicates a large proportion of the investors are expecting the stocks or the market to fall and the “bearish” trend unfolds naturally. The actual origins of the expressions “bear” and “bull” are unclear, but it is believed that the natural actions of a bull and a bear are metaphorically compared to the movement of a market, i.e. if the

Bull Market -:

trend of the market was up, it is considered a bull market and if the trend was down it was a bear market.

This extends to “going long” on a stock. If an investor expects the stock prices to go up, then he/she is said to be “bullish” on the stock price. From a broader perspective, if the stock market index is going up during a particular period, then it is referred to as the “bull market”. It simply indicates a large proportion of the investors are expecting the stocks or the market to go up and the “bullish” trend unfolds naturally. Bear Market -: This extends to “going short” on a stock. If an investor expects the stock prices to fall, then he/she is said to be “bearish” on the stock price. From a broader perspective, if the stock market index is going down during a particular period,

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The Monetary Policy Committee (2016) The Parliament passed the Finance Bill 2016 to make amendments to the RBI Act, 1934. It paved the way for the formation of the Monetary Policy Committee. The Reserve Bank of India had appointed an expert committee in the year 2014 to reform the monetary policy framework in India led by Urjit Patel (Deputy Governor of RBI at that time). The two major recommendations of the Urjit Patel committee were:

·The primary objective of the RBI should be to maintain consumer inflation within a

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specific target (inflation targeting). It should abandon the practice of targeting multiple indicators like inflation, growth rate, exchange rate etc. This was adopted by India in 2016.

ÂˇA Monetary Policy Committee should be constituted to set India's monetary policy. How was Monetary Policy decided in the older system? The RBI Governor was solely responsible to take the monetary policy decisions. The Governor took decisions in consultation with the Deputy Governor of RBI and the Technical Advisory Committee (TAC). The role of the TAC was advisory in nature and the final call was that of the Governor. Urjit Patel recommended that the monetary policy decisions should be taken by the Monetar y Policy Committee. In other words, the benchmark interest rates like Repo rate etc. should be fixed by the Monetary Policy Committee (MPC) instead of the RBI Governor.

How does the Monetary Policy Committee (MPC) operate? The main objective of the Monetary Policy Committee is to maintain consumer inflation target, set up by the Central Government, in consultation with the RBI, every 5 years. The current inflation target is 4 %, up to 31st March 2021. This target can be relaxed by 2%, with an upper tolerance limit of 6% and lower limit of 2%. The MPC has six members. Three are representatives of the RBI and three of the Central Government. The monetary policy decision is taken on a majority vote. The RBI Governor has the casting vote in the event of a tie, that is, in case of a tie, he has to vote again. The three members who represent RBI are the Governor of RBI, the Deputy Governor of RBI and one executive officer nominated by the RBI. The other three members are appointed by the Central Government through a search committee. These members shall hold office for four years and are not eligible for reappointment.

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The search committee comprises of cabinet secretary, the secretary of the department of economic affairs, the RBI Governor and three experts in the field of economics/ banking nominated by the Central Government. The MPC meets at least 4 times in a year. The RBI publishes Monetary Policy Report every 6 months explaining the sources of inflation and also the forecasts for inflation for the period ranging from 6 to 18 months. If the RBI fails to achieve its inflation target, it has to explain the reasons for the deviation and the corrective actions to be taken in the report.

appointed. It fixes accountability as the committee will have to explain in case the inflation target is not met. In conclusion, this move has brought India's monetary policy framework in convergence with that of its global counterparts. To give examples from other countries, the benchmark interest rate in the USA (Federal funds rate) is decided by the Federal Open Market Committee and in England, it is done by the Bank of England Monetary Policy Committee.

Personal Finance Steps to open a Mutual Fund Account

What is the rationale behind forming the committee? In India, inflation is often the result of supply-side factors like poor monsoon etc. But, RBI's monetary policy is effective only against demand-side factors. Therefore, it becomes necessary for the Government and RBI to work together to combat inflation. The Monetary Policy Committee which has representatives from both the RBI and the Government enables greater fiscal-monetary co-ordination. It enables the decision-making process in RBI to be more participative and transparent. The minutes of the MPC meetings are released on the RBI's website. It represents different views on Monetary Policy. It also ensures continuity in the Monetary Policy framework even if a new RBI Governor is

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KYC is a must to invest in mutual funds & the first thing you need to do before starting a SIP is fulfilling the Know Your Customer (KYC) requirement. Firstly, you will have to submit a photograph, an identity proof & an address proof. Then, you should confirm your physical existence via an In-Person Verification (IPV). You can complete all these requirements electronically via eKYC & most fund houses like Quantum, Birla Sun Life, etc. are providing this service through their respective websites. You simply have to click on the eKYC link & follow the below-mentioned steps. The exact steps for eKYC differ slightly with every fund house. However, broadly the structure remains the same.

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Basic Information - The system would first prompt you to give all the personal information like name, date of birth, address, mobile number etc. in an online form. Upload Documents - In the next step, you will have to upload a scanned copy of your PAN (Permanent Account Number) card & an address proof. Video Call - To complete the IPV, the mutual fund company personnel will ask you to select a suitable time slot at which you can confirm your physical existence through a webcam. You will be asked to show your original PAN card & address proof during the video call. Aadhar based eKYC - If you have an Aadhar card, then it would simplify the above procedure. Entering your Aadhar number & authenticating it with a OneTime Password (OTP) sent by UIDAI will pre-populate the form with all your necessary details available in the UIDAI database. The major advantage of completing the eKYC procedure through Aadhar card is that it doesn't require IPV through a video call. This is because UIDAI database already has your biometric information. But, if you haven't submitted your PAN details, there is a statutory limitation which won't allow you to invest more than Rs. 50,000 in a financial year. The limit can be enhanced any time after submitting PAN.

the fund house & search for the registration link for a new account. The registration link will direct you to a simple form for creating an online transaction account with the fund house & it is usually located below the login button. You would be required to enter your bank details & might have to verify your account through an OTP & hence, keep your cell phone & chequebook handy. Once you have created the account, you can simply log in, select the mutual fund scheme, chose a SIP date & submit your request. Congratulations, you just started your SIP!! There is also another approach to complete the KYC process by visiting CAMS KRA online, a KYC registration agency. It is a centralized & a onetime procedure. You don't have to fulfil it separately with each & every fund house you wish to invest in. One important aspect to keep in mind is that CAMS is not the only registrar & transfer agent for all the mutual funds as some funds are taken care of by Karvy. Hence, you have to check the service of the mutual fund of your choice.

The Final Step Now, after completing the above procedure, you can visit the website of

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We welcome your valuable feedback Finstreet, The Finance Committee of K.J. S.I.M.S.R.

Email Us At : finstreet@somaiya.edu