Finly june 2017 by FINLY

FINLY JUNE 2017 Finstreet SIMSR

From The Editor’s Desk

Dear Readers, First of all a warm welcome to all the first year students and a welcome back to all the second year students, we hope your next year is full of learning and success. We are glad to present the very first edition of our monthly magazine finly. In this edition our cover story introduces the readers with the future of trading that is Algorithm trading. Next in line in eco section we have tried to cover the important works by the father of classical economics Adam Smith. Authors in the sector Analysis have tried to figure out the sectors that are going to benefit because of the government’s plan to develop smart cities across the country. The Alumni Section covers the story of Miss. Harshita Agarwal where she shares her journey about studying in SIMSR, making it to JP Morgan Chase & Co and gives some valuable advice which might help the students. In the end we have kept news buzz & trivia to update you with some of the latest happenings in the world. I am thankful to Prof. (Dr.) Pankaj Trivedi for providing the much required mentoring and support to the finly team. I would also like to thank Finacue Research & Education for an enriching collaboration. I extend my gratitude to the entire finly team for all the hard work and contribution towards making our magazine a big success. I would also like to thank all our readers and faculty members for their constant love and support. We received an overwhelming response for this month’s call for article competition and I thank each and every participant for their sincere efforts, with this I would like to declare Mr. Kiran Ramakrishnan PGDM KJ SIMSR as the winner and Saurabh Modani PGDM FS as the runner up for this month’s call for article competition. Congratulations and wish you all the very best for you future endeavors. -Madhur Saxena PGDM 2016-18 KJ SIMSR

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Prof. (Dr.) Pankaj Trivedi

Madhur Saxena

Faculty Incharge

Editor-in-chief

Design Team Swetanshu Sondagar

Aritra Guha

Vipul Varkar

Editing Team Abhinav Kulkarni

Aditya Shetty

Aritra Guha

Krishnakant Sharma

Kriti Srivastava

Priyanka Beriwala

Pasan Choksi

Vipul Varkar

Reemal Prabhod

Ankita Lavande

Nandini Chaturvedi

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Algorithm Trading

COVER STORY

By Krishnakant Sharma & Abhinav Kulkarni (PGDM 16-18) Trading: An introduction

Emergence of Algorithmic Trading

The first stock exchange on Wall Street was

As people moved to trading electronically and

established in 1792. In the early days, most of the

with the development of internet and vast

trading was done for government securities. With

amount of information available, a new system of

the passing time and new knowledge coming in

trading came into being, called Algorithmic

other sectors like banking and infrastructure

trading or Algo trading. Also known as automated

(roads and canals) got integrated with the stock

trading or black box trading algorithmic trading is

exchange and soon in 1817, New York stock and

the process where trades are executed using pre-

exchange board was born.

defined sets of steps. These predefined steps,

Trading started around a century back. Before the

also known as algorithms, take into consideration

electronic trading came to the picture, small

timing, pricing, volume, etc. i.e. all the possible

shopkeepers and businessman used to trade at

aspects which must be taken into consideration

shops, where tickers were used and money was

before trading. All this is done to generate profits

won/loss over those tickers. As time progressed,

and trade at a rate which is impossible for human

a proper system of market with various rules and

trader. These trades were known as HFTs (High

regulation was established.

Frequency Trading), which can be characterized

Emergence of the global electronic stock market

with trades having high turnover.

With the establishment of New York Stock

Traders use various software for trading.

Exchange and other security market, securities

Emphasis is given on choosing the right software

started trading, but, they were traded physically,

as choosing a faulty one or one which doesn't

at a physical location. Soon, NASDAQ, world's first

cater to the requirements might result into huge

electronic stock market came into existence.

loss. Hedge Funds, Investment banks and other

Unlike NYSE, NASDAQ didn't had any physical

proprietary trading firms make their own

place but was established through an elaborate

software and use them for trading purposes. But,

system of companies which were linked through

individual and retail investors, who are tech-

each other through telecommunication.

savvy and have sound knowledge of market also

The electronic trading was fully launched in 1992,

make their own software for trading.

various market instruments like treasuries,

Programs and Strategies used

foreign exchange and bonds were made available

For doing Algorithm trading and creating

through trade. Electronic trading was becoming

algorithms, a Computer program which can read

popular as it had following advantages:

market data is pre-requisite. The computer

Removal of brokers and other middle

program can be made on various programming

men

language like R, MATLAB, Python, etc. The main

路

Reduced cost of operation

function of the program is to read market data.

路

Greater liquidity

Testing the program on historical values, also

路

Increased Transparency

known as back-testing is a very important feature

路

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and should be done before using the program.

everything is automated and multiple tasks can

There are various strategies which are pre-

be accomplished simultaneously. Algorithm

defined in one or different software and are used

trading is used for booking small profits and not

for different purposes. Some of the common

for long term investing. But, with high frequency

strategies applied are given below. Many such

trading and automation, there are also risks

algorithms are designed using macroeconomic

associated:

news, fundamental analysis, statistical analysis

etc.

Magnifying the Systematic risk: In May 2010, U.S markets fell and recovered at

Trend Following Strategies: This is one of

the same day. The same was the case

the most common and easiest to

with many stocks. They plunged for 5-10

implement strategy as this doesn't

percent and then rebounded back. After

involve prediction but what it does is

investigation, it was found out some

following trends in moving averages,

erratic trades were responsible for the

price level movements, etc.

fall and rebound. This showcased the

Arbitrage: This includes buying a stock

flaws in the Algorithm trading. Fake

which is present on both the markets

orders could have been placed by

(NYSE and NASDAQ). The stocks are

attacking the network. This showcased

bought where the cost is lower and sold

how much havoc these attacks can create

at the other market where the cost of the

on trading network. As the trading is

same stock is higher.

automated and trades are done quickly,

Index Funding Rebalancing: Index funds,

an attack can cause ripple effects on

which mirror the market indices,

other markets and hence cause downfall

rebalance their holdings to bring it at par

of multiple markets.

with benchmark indices. Traders can

make profit based on these indexes with

algorithms requires knowledge of both,

the help of algorithmic trading. These

markets and technical analysis. An

types of trades require timely execution,

algorithm which is made without proper

which is possible with algorithmic trading ·

knowledge or is used without proper

Mathematical model based: Algorithms

back-testing, can create huge losses.

are made based on proven mathematical

Such case was with a trading capital firm,

models, which take in data and execute

which lost $440 million in the span of 45

through steps which are made based on

minutes only.

the model. ·

Random Algorithm: Designing

Volume weighted average price: This

Huge Losses for investors: Because of the automated nature of the trade, traders

strategy aims to benefit out of the

who put stop loss for their trade, tend to

average stock price by systematically

lose money when the markets fall and

breaking large orders.

rebound. Whenever the markets fall, if it

Risks associated with Algorithmic trading: The main aim of using algorithmic trading is to

reaches the stop loss, the trades are sold

ensure to make the best trades possible as

off. In case of rebound, which happens in

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many cases, the trades are already lost,

exchange's trading system through the broker's

hence the chance of nullify loss/ gain

infrastructure. This major development not only

profit is also lost. Because of the high

gave cost advantage to the institutional investor

volatility of market and ups and down,

but also helped in better execution by reducing

which has caused losses to the investors,

the time being spent on order execution. The

the investors may lose their trust in the

facility became popular within a short period and

market.

attracted a sustained flow of applications as more

To overcome the risks associated with Algorithm

and more players signed up to avail the DMA

Trading and to prevent the repetition of previous

facility. The list of applications was dominated by

crashes, a 'Kill switch' was introduced, which

FIs & FIIs such as JP Morgan, UBS, Morgan Stanley,

would cut off trading when the pre-set risk

DSP Merrill Lynch, Edelweiss Capital, Motilal

exposure level is crossed. Regulations have also

Oswal, India Infoline etc. By July 2008, many of

been put down which require firms which deal

these FIs and FIIs started holding test runs of their

with Algorithm Trading to have pre-trade risk

DMA software.

controls and use programs which are back-tested.

Algorithm trading marked its further spread in

Also, in case of controversy, if requested, the

Indian markets in 2009 as FIIs were allowed to use

source code of the program must be presented to

DMA facility through self-nominated investment

the government.

managers. In 2010, the NSE started offering 54 co-

Algorithm Trading has its benefits with the right

location server racks on lease to the broking firms

market price and best execution. But, proper

as an effort to improve the speed in trading. A lot

measures should be taken as a simple loss, due to

of foreign firms and Indian firms availed this

systematic risk, can result into huge losses.

facility. No wonder, there was a long waiting

Algorithm trading in India:

period of almost 6 months to get a space on

In April 2008, Securities & Exchange Board of

server racks!

India (SEBI) permitted the usage of Direct Market

It gradually became clear that Algorithm trading

Access (DMA) facility, thereby allowing

is well received by banks and institutional clients

institutional clients to execute buy or sell orders

in the Indian market and its demand would

without any manual intervention by brokers.

continue to go up. As an effort to meet this

DMA facility allows clients to access the exchange

demand, the exchanges focused on improving

trading system through broker's infrastructure,

their offerings related to the automated trading.

without manual intervention. While the world

Financial technology companies started to

was facing a global recession during this period,

promote automated trading platforms. SEBI

the decision was welcomed by the banking and

continued to work as the regulator of the

securities market as the change was expected to

markets.

b r i n g i n i n c r e a s e i n l i q u i d i t y, g r e a t e r

Today, algorithm trading is significantly

transparency, better audit trails and better use of

developed in India with different trading

hedging opportunities etc.

platforms and tools available. These platforms

In the month of April itself, institutional investors

and tools seem to be highly competitive, with

in Indian market received a direct access to

each claiming to be better than the others. They

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are being used by the brokers to trade across various asset classes such as equities, commodities, currencies, derivatives etc. Traders have ample of choices to choose the platform and tool from. The below table lists some of the popular trading platforms and tools being used in India:

Future of Algorithm Trading: Markets in the times to come will be characterized by high level of automation. Automation may change the way automatic trading is being done now. Algorithms can be used in robotics to improve robot-to-robot communication. Advanced â&#x20AC;&#x2DC;Algo-sniffingâ&#x20AC;&#x2122; techniques will help traders to design their strategy based on real-time offers and bidding scenario. Also,

As Algorithm trading was becoming prevalent in emerging markets are likely to focus on Algorithm trading by educating their human resources and developing India, role of regulators became more and more required skill sets and technology. critical to avoid misconducts and control the risk. To serve the same, SEBI came up with regulations However, such an advancement in Algorithm trading required to be followed by the traders. Over the will also increase responsibility of regulators to prevent years SEBI has streamlined DMA facility by issuing malpractices, maintain transparency and ensure fair market a list of DOs and DON'Ts for trading activities. Risk conditions. Regulators will also have to opt for advanced management has become critical in case of technological measures such as Automated Market algorithm trading. As a result, a trading firm must Surveillance. So, which side would technology favor, undergo a series of tests if it wishes to use any HFT traders or regulators? Answer lies within the future. Algorithm (High Frequency Trading) in its algorithm trading. As a result, a trading firm must undergo a series of tests if it wishes to use any HFT Algorithm (High Frequency Trading) in its activities. These tests are based on no. of parameters such as maximum quantity traded per day, no. of orders per second, maximum value of any order placed. Algorithm trading constitutes nearly 50% trading in India. However, it should be noted that retail investors are not allowed to use trading algorithms. Experts connect this with trading volume capacity of retails investors which is moderately low and constitutes less than 5 % of the total trading volume. Hence, risk bearing capacity and technological readiness of retail investors remains a concern.

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ADAM SMITH

ECO SECTION

By Aditya Shetty FS- 16-18 Economics in any B-School across the country starts with the father of classical economics Adam Smith. So this season's very first edition of finly brings to you the man who created the concept of GDP. Adam Smith was a renowned philosopher and economist of 18th century. His works “The theory of moral sentiments” and “The Wealth of Nations” laid the foundations of classical economics which guided the countries in taking economic decisions till John Meynard Keynes brought the Keynesian revolution. At the age of 14 Adam Smith attended the University of Glasgow and later joined Oxford University. He spent many years teaching and published some of his lectures in the book “The theory of Moral sentiments” which was well received and laid the foundation for “The Wealth of Nations”. So let us take a look at some of his most popular theories and try to understand them. The Theory of Moral Sentiments The Theory of Moral Sentiments was a real scientific breakthrough. It shows that our moral ideas and actions are a product of our very nature as social creatures. It argues that this social psychology shapes up our personality and influences our behavior. It identifies the basic rules of prudence and norms that are needed for society to survive. Though we are self-interested, we again have to work out how to live alongside others without doing harm to them this is important for the survival of society. If people go further and do positive good, we welcome it, but cannot demand such action as we demand j u st i c e . V i r t u e , p r u d e n c e , j u st i c e , a n d beneficence are important. However, the ideal must be that any impartial person, real or imaginary should fully empathies with our emotions and actions. Let us take a closer look at

the various elements of theory of moral sentiments Morality is not something we have to calculate. It is natural, in built in us as social beings. When we see people happy or sad, we feel happy or sad too. We derive pleasure when people do things we stand for, and distress when we believe they are doing harm. Likewise, when we show concern for other people, we know it in the back of mind that an impartial spectator would approve, and we take pleasure from it and it makes us feel good about ourselves. The impartial spectator is only imaginary, but still guides us: and through experience we gradually build up a system of behavioral rules – morality Justice: For society to survive there must be rules to present its individual members harming each other. These are the rules we call justice. Now there is a difference between ungrateful and unlawful. If people do not help others when they could, or fail to return a good deed, we may call them uncharitable or ungrateful. But we do not punish people to force them to do good only for acts of real or intended harm. We force them only to obey the rules of justice, because society could not otherwise survive. Conscience: Nature has given us something even more immediate than punishment i.e selfcriticism. It's an instant feedback loop for our action. We are impartial spectators, not only of other people's actions but also for our own, thanks to conscience. Moral rules: Making judgments on a countless number of actions needs a set of rules of conduct. Based on the rules of conduct we can categorize actions into acceptable and unacceptable categories. We do not have to think out each new situation afresh: we now have moral standards to

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guide us. Virtues: Smith ends The Theory of Moral Sentiments by defining the character of a truly virtuous person. Such a person, he suggests, would embody the qualities of prudence, justice, beneficence and self-command Prudence moderates the individual's excesses and as such is important for society. It is respectable, if not endearing. Justice limits the harm we do to others. It is essential for the continuation of social life. Beneficence improves social life by prompting us to promote the happiness of others. It cannot be demanded from anyone, but it is always appreciated. And self-command moderates our passions and reins in our destructive actions. Freedom and nature Smith concludes are a better guide to the creation of a harmonious, functioning society than the supposed reason of philosophers and visionaries. The Wealth of Nations The Wealth of Nations touched upon various topics and one of that is that regulations on commerce are counter-productive. The prevailing view was that gold and silver was wealth, and in order to maximize wealth countries should boost exports and resist imports. Smith's radical insight was that a nation's wealth is the goods and services that it creates under its geographical boundaries. Today, we would call it gross national product. And the way to maximize it, he argued, was not to restrict the nation's productive capacity, but to set it free. Productivity depends on mainly two factors that are labor force and capital. Another central theme is that this productive capacity rests on the division of labor and the accumulation of capital that it makes possible. Huge efficiencies can be gained by breaking large production down into many granular tasks, each undertaken by expert hands. This leaves producers with a surplus that they can exchange with others, or use to invest in new and even more efficient labor -saving machinery. Smith also believed that a country's future income depends upon this capital accumulation. The more you invest in better productive processes, the more wealth will be created in the future. Also securing wealth from theft is important. The countries that prosper are those

that grow their capital, manage it well, and protect it. Smith also commented on the automation of system. Where things are scarce, people are prepared to pay premium for them, there is more profit in supplying them and so producers have greater capital expenditure to produce them. Where there is a glut, prices and profits are low, producers switch their capital and enterprise elsewhere. Industry thus remains focused on the nation's most important needs, without the need for any external central direction. But the system is automatic only when there is free trade and competition. When government starts granting subsidies or monopolies to favored producers or shelter them behind tariff walls, the enterprises can exploit its customers by charging higher prices. The poor suffer most from this, facing higher costs for the necessities that they rely on. Competition and free exchange are under threat from the monopolies, tax preferences, controls, and other privileges that producers extract from the government authorities. Production and exchange The Wealth of Nations has Smith explaining production & exchange and their contribution to national income. Using the example of a pin factory, Smith shows how specialization can give boost to human productivity. By hiring people with skillset required for the job and employing labor-saving machinery the output can be enhanced to a different level, then they exchange those specialist products, spreading the benefits of specialization across the whole population. How far and how fast the benefit spreads depends on how wide and efficient is the market. Often, employers try to manipulate markets in their own interests and call on governments to help them with subsidies. The best interests of ordinary people are served if policymakers avoid such interventions, let market function by its own and promote open competition. The accumulation of capital Smith goes on to say that building up capital is an essential condition for economic progress. Instead of consuming all that we produce, by saving some we can invest in new, dedicated, labor-saving equipment. The more we invest, the more efficient our production becomes. More the input more is the output. It is a virtuous circle.

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Thanks to this growth of capital, prosperity becomes a compounding element: everyone becomes richer. But capital can be lost, through mistakes or errors committed, or theft, or government taxation. Governments should provide with an infrastructure to allow people to build up capital in the confidence that they will enjoy its fruits, and should be aware that their own taxation and spending will eat into the nation's productive capital. Economic policy Just as individuals gain from specialization, says Smith, so do nations. Countries should do what they are best at, and trade their products. Restrictions on international trade will hamper the growth of both the countries involved in the trade. Legislators are thinking in a wrong direction when they believe that by intervening, they can direct production better than the market can. The role of government He believes that the market economy he has described can function and deliver its benefits only when its rules are observed â&#x20AC;&#x201C; when property is secure and contracts are honored. Thus the role of government in maintenance of justice and the rule of law is therefore vital. Where tax has to be raised, it should be raised in proportion to people's ability to pay, it should be at set rates rather than arbitrary, it should be easy to pay and it should aim to have minimal side effects. Governments should avoid taxing capital which is essential to the nation's productivity. Laissez-faire philosophies, which is minimizing the role of government intervention and taxation in the free markets, and the idea that an "invisible hand" guides supply and demand are among the key ideas Smith's writing is responsible for promoting. These ideas reflect the concept that each person, by looking out for him or herself, inadvertently helps to create the best outcome for all. "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest," Smith wrote. By selling products that people want to buy, the butcher, brewer, and baker hope to make money. At each stage they are working for themselves which is creating good for others. If they are

effective in meeting the needs of their customers, they will enjoy the financial rewards. While they are engaging in their enterprises for the purpose of earning profit and improving their own lifestyle, they are also providing products that people want. Such a system creates a stream of wealth which multiplies at each stage. Wealth is created not just for the butcher, brewer and baker, but for the nation as a whole. Similarly, Smith noted that a man would invest his wealth in the enterprise most likely to help him earn the highest return for a given risk level. Today, the invisible-hand theory as we know is a natural phenomenon that guides free markets and capitalism in the direction of efficiency, through supply and demand and competition for scarce resources, rather than as something that results in the well-being of individuals. The above information was referred from https://www.adamsmith.org/ to provide readers with an authentic commentary of Smith's work and readers can get more information about Adam Smith from the same. Conclusion: The classical economics that Adam Smith gave birth to not only helped the economists all over the world in setting the economic policies for their countries but also paved the way for globalization, liberalization and privatization, three words that would later change the world tremendously and thus gave Adam Smith a place in history that only he can earn.

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RERA: Making the Infrastructure Industry transparent

Article of the Month-Winner

By Kiran Rama Krishna PGDM 16-18

A GLIMPSE OF THE REAL ESTATE SECTOR IN INDIA The real estate sector is one sector which always nurtures growth with the growing urbanization. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. Moreover, the growth of this sector is well accompanied by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The real estate sector can be categorized into four sub-sectors: hospitality, offices, residential and retail.

FUTURE GROWTH

The Indian economy experienced strong growth and is touted to be one of the fastest growing economies in the world. Though the estimated GDP has gone down due to demonetization, it will not affect the growth in real estate sector in any manner. The infrastructure industry experienced a dull phase during demonetization, but this phase is bound to diminish soon. The FDI inflows will influence tremendous opportunities for expansion in future. A survey by India Brand Equity Foundation (IBEF) states that: · The Indian real estate market is expected to touch US$ 180 billion by 2020. Demand for commercial property is also growing with the economic growth of India

· ·

FDI in the real estate sector is estimated to grow to USD 25 billion by FY22 Real estate and construction sector in India is expected to pip agriculture as the largest employer by 2022 The housing sector alone contributes 5-6 per cent to the country's Gross Domestic Product (GDP) Demand to grow at CAGR 2% across top 8 cities in India. NCR is expected to create maximum demand in middle and high income group

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WHY RERA? For several decades, buyers have suffered due to the non- transparency of the builders and promoters. The houses were never completed on-time and consequentially, the handover was delayed. The clearance of the projects had to go through several stages which made delays

inevitable. Obstacles faced after the project launch such as digression of funds to other projects, regulation changes, clearance from the environment ministry further added fuel to delays. Rapid demand and the growth in urbanization are the other primary factors why RERA has to set straight the unorganized sectors.

It is quite evident that the government is introducing a series of transformational reforms like demonetisation, The Goods and Services Tax (GST), Change in Accounting standards IFRS and relaxations in FDI investments. These reforms are aimed towards chucking out the unorganised sector and making way exclusively to the existing and the new industrial players who follow sound business practices. The Real Estate Regulation

and Development (RERA) act is no different from these. RERA will help in rise of the transparency and trust factor between buyers and developers. Keeping in frame the protection of interests of buyers and the emphasis on the pellucidity in the growing infrastructure industry, RERA act will come as a breath of fresh air.

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FEATURES OF RERA ACT · The official rules and regulations for developers, promoters and agents are listed at www.reraconsultants.com/. Few important of those are given below: · A real estate project needs to be compulsorily registered with state regulatory authority before it is offered for sale to public. This law will govern both commercial and residential real estate transactions. · Before starting the project, a minimum 70 per cent of the money from investors and buyers will have to be deposited with state regulatory authorities. This money can only be used for the construction of the project and towards the land. · The promoter of any infrastructure development firm has to maintain a separate escrow account for each of their projects. · The developer's responsibility lies in keeping the buyers clearly informed of their current projects. The law also mandates developers to post all important details such as layout, government approvals, project plan, land title status, and sub-contractors to the project, scheduled for completion with the State Real Estate Regulatory Authority. HOW RERA WILL IMPACT OTHER SECTORS RBI is looking towards increasing the lending in the real estate, especially housing segment. Affordable housing is what government aims to achieve before 2025 on the banks of rapid urbanization. RBI has drastically reduced the risk weightage for housing loans above 75 lakh to 50% from 75%. More lending will increase the supply of money and this, coupled with RERA act, will create a strong platform to create an effective realty sector.

GREY AREAS IN RERA ACT RERA is faced with lots of ambiguities. RERA is looking to create online portals specific to each state for registration of stakeholders and developers. It is still unclear whether the existing projects will also be registered under the RERA or only the new ones. The success of RERA heavily depends on how quick the states implement the act. Each state has the responsibility to notify RERA rules and set up local regulators. How the states entrust those responsibilities and consider the regulatory practices still remain questionable. CONCLUSION RERA will be a win – win situation for both, the buyers and developers. The confidence shown by the consumers towards the developers will be stronger alongside support from investors sitting nationally or globally. This will help the investors to explore new avenues in the real estate sector of India and boost the economy.

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Call for Article: Runner Up MICRO HOUSING-THE UPCOMING SECTOR

Article of the Month-Runner Up

Saurabh Modani K.J.Somaiya PGDM-FS Last night during my commute, when the song "Likhe jo khat tuze..." came on, my cab driver commented on how the khats have been replaced by whatsapp messages. The old adage, "Chal chal chal hathi mere sathi..." has now evolved to car renting services. This made me ponder, on how the world trends are revamping. But the only factors which are stationary are food, clothing and shelter. Digging further into this fact, I realized one of the biggest challenges is the lack of shelter. Nachiket Shelgikar, investment banker turned social entrepreneur, came to India with a solution in form of Micro Housing Finance Corporation, to help the unbanked sector of society to realize their dream home. WHY MICRO HOUSING FINANCE CORPORATIONS? Urbanization and housing are the two basic factors which rule a nation's progress. The rate at which our population is growing is higher than the rate at which new construction is been done. India's national housing shortage is estimated at 18.78 million homes. Due to lack of money, households earning low income are unable to afford a house, resulting in homelessness. Micro Housing Finance Corporations were established to take care of this low income group by providing them housing loans.

affordable housing for Tier I, II and III cities, based on three key parameters- income level, size of dwelling unit and affordability. SIZE OF DWELLING SECTION

INCOME LEVEL

UNIT

SECTION

< 1.5 LAKHS

300 sq ft

LOWER INCOME GROUP

1.5 - 3 LAKHS

300-600 sq ft

MIDDLE INCOME GROUPS

3-10 LAKHS

600-1200 SQ FT

ECONOMICALLY WEAKER

GIANTS IN MICRO HOUSING FINANCE Good profit margin and huge market size have lured many of Indian investors to invest their money in micro housing finance. Below is the list of some of the top housing finance companies. 1. Housing Development Finance Corporation (HDFC) 2. State Bank of India Home Finance 3. Housing Urban Development Corporation (HUDCO) 4. LIC Housing Finance Limited 5. ICICI Home Finance Company Limited.

LIC Housing Finance

WHAT IS MICRO HOUSING? Affordability varies from person to person. So we can't exactly define what affordable housing really means. So, Micro Housing Finance Corporation came up with the definition for micro houses, stating any home whose valuation will be less than 10 lakhs, would be considered low cost or micro houses. KPMG and the Confederation of Real Estate Developer's Association of India (CREDAI) have jointly developed definition of

SBI Home Finance

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Housing Development Finance Corporation It can be seen from the above numbers, the parameter of reporting net profit and earnings per share have a steady growth. The percentage profit per year for HDFC, LIC and SBI have shown significant increase in 2016-2015 in comparison with 2015-2014. This does show micro housing finance sector to be one of the upcoming sector for the current year. WHY A BOOM? Investments from International Finance Corporations Housing sector has received a lot of attention piggybacking on Narendra Modi government's plan to provide housing for all Indians by 2022. International Finance Corporation houses are ready to invest significant amount of capitals in Indian finance corporation houses, due to excellent growth potential in it. Huge net inflow of investments will definitely boost economic development for Indian housing finance sector. World Bank's investment arm is of the opinion that such investments will provide comfort to other potential lenders and investors in providing debt to the covered HFCs and also to others operating in affordable housing segment. International Finance Corporation invested $38 million in housing finance companies namely Aspire, MHFC (Micro Housing finance Corporation) and Aptus. The average ticket size for Aspire, MHFC and Aptus is around Rs.10 lakhs, Rs.4 lakhs and Rs.6 lakhs respectively. In 2015, Tata Housing Development Company had also received an investment of $25 million from IFC's. Focus on low end of market segment will be encouraged by international investments to housing sector.

owning their individual houses. These factors will draw the population's attention towards micro housing. Assuming an average ticket size of 25 lakhs per unit and considering 5 people in a family, which will give 118 million units. Leading us to a market potential of two billion nine hundred fifty million rupees in affordable housing projects. Considering these facts and the assured profits, firms are ready to invest their capitals in micro housing finance sector. Huge potential market size along with better investments is the cherry on the cake which eventually leads to good business.

2. Huge Market Size India's urban population will grow to 590 million by 2030, at a compounded annual growth rate (CAGR) of 2.4 percent between 2010 and2013. Along with population, we also expect increase in inflation, making houses expensive. Indians have proclivity towards

Source: India Urbanisation Affordable Housing Model, McKinsey Global Institute Analysis 3.Impact of demonetization and Government policies. The government has been at the position of prominence in pushing Indiaâ&#x20AC;&#x2122;s housing finance sector this year. "We propose to facilitate higher investment in affordable housing. Affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefit" Finance Minister Arun Jaitley said. He also said, demonetization has created surfeit liquidity in banks. Due to this, banks have started reducing their lending rates, including those for housing. The government has also announced tax concessions for builders possessing huge unsold units. "At present, the houses which are unoccupied after getting completion certificates are subjected to tax on

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notional rental income. For builders for whom constructed buildings are stock-intrade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory,"Jaitley said. Government has also introduced section 80-IBA which will allow 100 percent tax holiday on profits from business of developing and building affordable housing projects. So, a tax free investment is a great impetus from developersâ&#x20AC;&#x2122; perspective. For encouraging buyers, government has proposed a plan to deduct additionalRs.50, 000 for first time buyers. The deduction wouldbe applicable for loan amount less than Rs 3,50,000and the housing propertyâ&#x20AC;&#x2122;s valuation must be less than Rs.5,00,000. CONCLUSION Micro housing finance is a lucrative sector from developers and lenders perspective in the coming future. National Housing Bank, International Finance Corporation, World Bank and developers are interested in investing capital in this business venture and this must be leveraged for the betterment of urban poor .Better technology and materials must be used in order to lessen the average time of the construction. Just because potential customers of micro housing finance belong to lower income class, does not mean they must also get lower standard of living. Water supply, sewage treatment plan, sanitation and other basic amenities must be provided to each and every unit.

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Bankruptcy Code in the Indian Financial System

Article by Finacue

- Team Finacue Background Currently, there have been too many overlapping laws and adjudicating forums dealing with insolvency and financial problems of companies and individuals in India. The Indian credit system is being affected due to undue strain created by the current and institutional framework that does not aid the lenders effectively with timely recovery or by restructuring defaulted assets. The Government introduced the Insolvency and Bankruptcy Code Bill in November 2015 that was outlined by a specially constituted 'Bankruptcy Law Reforms Committee' ( BLRC ) under the Ministry of Finance mainly to consolidate the present law on bankruptcy and to make an amalgamated legal framework. Under India's Insolvency and Bankruptcy Code 2016, bankrupt is basically a state wherein debtors are unable to repay the creditors. Under the proposed law, the entity 'bankrupt' is a debtor who has been declared as bankrupt by the authority that has passed a bankruptcy order. The authority can be National Company Law Tribunal (NCLT) for companies and limited liability partnerships and the Debt Recovery Tribunal (DRT) for individuals and partnership firms. The Code provides a comprehensive insolvency legislation covering all companies, partnerships and individuals (other than financial firms). The Government is proposing a unified framework for resolution of bankruptcy in failing banks and financial sector entities. Need for Bankruptcy Code In every economy, a legal procedure is accompanied by institutions that collectively resolve or settle the problems of failed institutions. The Insolvency and Bankruptcy Procedures assist to ensure confidence of banks, foreign investors and associated companies in crisis mitigation mechanism related to business entities in the country. A situation occurs wherein investable money gets locked for a long time in litigations which is the least preferred situation for business partners and lenders. The ground for

bankruptcy code has been built based on the present condition of NPA (Non-performing Assets) across banks and various loan recovery processes and analyzing its impact. The banking system is an essential and crucial pillar for the economic growth and prosperity of any country. This was obvious and apparent when world economy was affected and banking system had collapsed during the Global Financial Crisis (GFC). But the Indian banking system had successfully voyaged through the severe GFC and came forth as a strong entity. However, the rise in NPAs is existing. There are several laws that deal with insolvency for companies like the Sick Industrial Companies Act(SICA), the Recovery of Debt Due to Banks and Financial Institutions Act and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). How a bankruptcy code could improve the financial system The new bankruptcy code changes the life for lenders especially banks, corporate borrowers and the banking system as a whole and also for the economy. Let's look at few of them. To protect the lenders' rights and interests: In India, banks are the main source of funding for corporate sectors as debt markets are not well developed. The banking system depends solely on individual savings to lend to the corporate sectors. Under the current legal framework, the bankers are at mercy of promoters or corporate borrowers who try every trick to delay the process of restructuring or recovery. There is a debt restructuring mechanism to revive an asset or approach debt recovery tribunal and invoke SARFAESI Act to recover the loan. Early intervention to resolve financial distress: Currently, a lot of time is consumed in recognizing and handling to resolve cases of financial stress. Due to multiple creditors in a single company, it becomes difficult to bring all the creditors

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Article by Finacue

collectively. While the RBI has been encouraging banks to sell bad loans to Asset Reconstruction Companies (ARCs), the ARCs themselves have to approach the same Debt Recovery Tribunal (DRTs) or appeal the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) Act to revive or recover the money. There are promoters who have recourse to approach the civil courts challenging the sale or DRT orders.

owing to requirement of judicial infrastructure, paucity of qualified Resolutions Professionals, the lack of data privacy and authenticity about the present and past financial situations of the debtors and creditors and the synchronicity between bankruptcy code and other existing laws such as SICA, Companies Act, SARFAESI act etc. Currently, India ranks 136 out of 189 countries in the World Bank's index on the ease of resolving insolvencies. Though there are flaws in Bankruptcy Code it will certainly improve India's current ranking. A successful bankruptcy reform should mean an increase in four measures through time like leveraging of firms without a reduction in risk taking, the share of borrowing from the financial system in the total debt of firms, the share of non-bank borrowing in borrowing from the financial system and share of unsecured borrowing in total debt as the main purpose of bankruptcy code is to bring efficiency in the system.

Release of resources for banking system: Around 10 percent of the total loan books of banks are stressed assets. There is no interest being earned on these assets or on the principal amount. Some are locked in legal battles in various courts. The bankruptcy code will create a deterrent in the system by releasing such locked resources for other productive lending that in turn will assist in loan growth, profitability and employment. Resolution for creditors: The main aspect of Insolvency Resolution Process (IRP) is its definite time limit of 180 days to make unanimity on the business viability. If in 180 days, 75% majority of Committee of Creditors does not approve a resolution plan, then the debtor is declared bankrupt. In some cases, National Company Law Tribunal (NCLT) can provide extended 90 days' period on the request of Committee of Creditors. This speedy resolution is helpful in two ways. Firstly, it prevents decline in the value of the underlying assets. Secondly, it motivates creditors to make rational decisions on whether to revive or liquidate the business, since, on liquidation, creditors usually wouldn't be able to recover the complete amount. In case of liquidation, bankruptcy code also gives the clarity about the priority of claims by different category of creditors over the liquidated assets.

It needs an observation whether bankruptcy code is efficacious enough or not but it must be admitted that it is better and robust than the present bankruptcy laws that are neither effective in time to recovery nor in terms of amount recovered.

Conclusion The characterization of Insolvency and Bankruptcy Code (IBC) is one of the major milestones in the Indian financial system. But its effective implementation is the biggest challenge

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Sector Analysis

SECTOR ANALYSIS

Mahatama Gandhi believed that the future of our country lies in villages but our current Prime Minister Shri Narendra Modi believes that the future of our country lies in cities and thus envisions a plan to develop 100 smart cities as India becomes more and more urbanised. Smart Cities is a complete topic in itself but here we would like to focus on the sectors this project will have an impact on and try to find out the opportunities for the investors if any that exist because of the development of these satellite cities. First let us understand what the Smart city project is: Government estimates that 25-30 people will migrate every minute to major Indian cities in the upcoming years, which means that around 843 million people will be living in cities by 2050 and thus India need to accommodate this migrating population in a smarter way with higher efficiency to improve the quality of life. So the Government of India came up with the smart city th mission on 25 June 2015 where the objective is to promote sustainable and inclusive cities that provide core infrastructure and give a decent quality of life to its citizens, a clean and sustainable environment and application of 'Smart' Solutions. A smart city must have adequate water supply, assured electricity supply, sanitation, including solid waste management, efficient urban mobility and public transport, affordable housing, especially for the poor, robust IT connectivity and digitalization, good governance, especially e-Governance and citizen participation, sustainable environment, safety and security of citizens, particularly women, children and the elderly along with health & education. A total investment of Rs.1, 44, 742 crore has been proposed by the 60 cities under their smart city plans. So now let us take a look at the sectors this noble mission is going to affect: Housing: The most beneficial segment here will be the housing sector as naturally there would be

Pasan Choksi(MMS 16-18) Vipul Varkar(PGDM 16-18)

an increased development in real estate market in cities other than the metropolitan one, this is a positive news for the debt burdened infra companies. Earlier, major real estate activities were constrained to metro cities for better yields. Now as Smart Cities will evenly spread infrastructure many Tier II cities will emerge as the key realty markets. As per government estimates India is going to become 3rd largest construction market by 2020 and the smart cities can be a major reason for this to happen. So the companies operating in this sector are likely to be affected positively. Cement: The cement companies will also benefit as they will be the one who will be providing raw materials to the builders. So it may be possible that the cement business may no longer be at a risk of being cyclical and not getting enough business because of the stalled construction environment. Housing finance companies: If we see the long run up in the housing finance companies, it is just fabulous. They have beaten market benchmark by a huge difference. The potential this sector has is tremendous, considering the prospects of the need of financing services to purchase houses in these cities. Tech companies: As the name suggests, there will be a lot of technological advancement which will open up the demand for such technological needs. Smart cities promise to provide robust IT connectivity and digitalization which may increase the size of the market these companies are operating in. Other ancillary companies: This sector compromise of electrical goods and consumer manufacturing good companies etc. So sectors which are providing electrical equipment, paints, sanitary ware, power companies etc. are likely to benefit as well as these are forward integration to housing industry. Energy management and automation: This

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project may become one of the turning points for this sector which had faced acceptance issues. Companies which develop technologies and solutions to make energy safe, reliable, efficient, productive and green will benefit as well as the smart city focuses on sustainable development. Companies having technological side and focusing on new segments such as solar energy, data-centres, water segment etc. are likely to benefit significantly as the smart cities are built and populated.

Thus Investors can look for winners in these sectors to spot the next multibaggers. However we advise that the investors carry out their own due diligence and consider their risk profile before investing in stocks markets.

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Alumni Section

ALUMNI SECTION

Being an alumna of Finstreet, it feels so surreal for me to have come to the other side of the table and write for the Alumni section rather than the students' section. This article, as titled, would entail my journey from SIMSR to JP Morgan Chase & Co. where I have started working in the 'Asset and Wealth Management' line of business. I always aspired to be an MBA. Even during my graduation, I always knew that it's where I was headed. I now realize, that it's not the MBA degree that matters, but the experience and the learning. Like every student, even I had a lot of grievances with the way things were happening in college. But it is really important to focus on the good things and not be fixated on the bad because there is a lot of pressure and negativity in the corporate life as well and so it's important to cherish the good things in life. Things like Special dinners in the Mess, hanging out with friends in the night mess, the walks around campus, 'All is Well', and sitting in the Activity room and watching sports. My experience in SIMSR was hands down, the two best years of my life, and now when I look back, all the pressure, the troubles, everything seems trivial. They were all worth it because they helped me to be better prepared for the next phase of life. The placements, are a huge part of any MBA. And for my internship placements, I sat for a couple of companies before JP Morgan. But I didn't make it. And when they didn't work out, naturally I was demotivated. I started to question my abilities. People kept telling me that everything happens for a reason. And even though I thought that these were just words used to pacify me, I later understood how true they were. This is true for everyone who has gone through the placement process. Life was hard and with every failure, I used to question my capabilities more and more. But I kept seeking

Harshita Agarwal PGDM IB 2015-17

advice from our faculty, my family and friends. Soon enough, I realised that the key to getting over it is knowing that there is something better in store for us out there. That is why the day I got the email of JP Morgan coming to campus, I knew it in my heart that it's where I was meant to be. I worked really hard before the interview. I cracked the interview and joined the company for my internship. And it was everything that I could expect from corporate life. The work culture was amazing and I used to look forward to going back there every day. In August 2016, I was given a PPO. It's been a year since the internship, and I am back at JP Morgan. It's exactly the way I had left it. It feels like home. I owe everything that I am today to SIMSR and it has made me a better person. The work, the studies, the campus, the friends, and the amazing and hectic life that I had there have all helped me shape up my personality. There are thousands of MBAs in the country today and the competition is severe. But it is up to us to rise above them and differentiate ourselves from the others. Getting into JP Morgan was like a dream come true for me. And SIMSR and Finstreet have helped me make it there. My advice to all the students out there is: Don't settle for something less than what you think you deserve. Don't be consumed in the four walls of the college. Network with everyone because the corporate life is very different as compared to what we live during our MBA. Enjoy it to the fullest, and let it show you the path to a fantastic future.

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News Buzz & Trivia

NEWS BUZZ

The Bankruptcy Code: A company goes bankrupt if it is unable to repay its debts to the creditors, this leads to an NPA and a huge pile of NPA's is formed due to the inability of many such Indian firms to repay their debt. The Insolvency and Bankruptcy Code (IBC) is a key mechanism adopted to free up the money stuck as bad loans for the banking system. IBC 2016 is a bankruptcy law of India which firstly, seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy and secondly, it specifies a timeframe â&#x20AC;&#x201D; 180 days after the process is initiated, plus a 90-day extension â&#x20AC;&#x201D; for resolving insolvency. The Code outlines separate insolvency resolution - By processes for individuals, companies and Kriti Srivastava IB 16-18 partnership firms. A host of new institutions will Priyanka Beriwala PGDM 16-18 be set up for resolving the bankruptcy issues. They would include Insolvency Professionals, Insolvency Professional Agencies, Information Utilities and Insolvency and Bankruptcy Board of India (IBBI) to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India. Recently, RBI with an Internal Advisory Committee (IAC) identified 12 accounts majorly under power, telecom, steel, textiles and aviation sectors which accounted for almost 25% of nonperforming assets of the Indian banking system under this code. RBI also announced several steps, including the reconstitution of oversight committee (OC) and bigger role for credit rating agencies to bring down NPAs. As per the recommendations of the IAC, RBI will issue directions to banks to file for insolvency related proceedings under the IBC in respect of the identified accounts. Such cases will be

- Kriti Srivastava IB 16-18 -Priyanka Beriwala PGDM 16-18

accorded priority by the National Company Law Tribunal (NCLT). Once referred to the NCLT, the resolution of the case in terms of either a sell-off of assets or revival or winding up will have to be

assets or revival or winding up will have to be completed within 180 days. The loan recovery activity will require coordination with and cooperation from several stakeholders including banks, rating agencies, asset reconstruction companies and private equity firms. Paytm to offer money market fund: India's largest digital-payments company, Paytm, is seeking a license to set up a money market fund where users can store cash and earn interest, in competition with the country's banks. Paytm has applied to the Reserve Bank of India (RBI) to seek approval and start the fund by offering it to its over 250 million users. It's another step in the startup's push to disrupt the country's financial services industry after it secured a banking license and began offering gold trading earlier this year. The company, now officially known as Paytm Payments Bank Ltd., is allowed to take deposits and pay interest but not lend money. Like traditional money market funds started in the 1980s, the Paytm money market fund will sweep leftover digital cash into a fund and pay users interest on it. The rate of interest is not specified as of now but the fund will offer better returns than the interest rates banks offer on savings accounts currently Paytm is following the path of Alibaba Group Holding Ltd.'s financial affiliate, which set up its Yu'E Bao fund less than five years ago in China and saw it become the world's biggest such fund with 1.14 trillion Yuan ($167 billion) in assets. Both Alibaba and its affiliate Ant Financial are investors in Paytm.

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India's finance sector has long been dominated by traditional, government-backed banks, much like China's. Currently, the leading money market funds in India are run by state-owned and private banks including the State Bank of India and ICICI Bank.

NEWS BUZZ

Fed Rate Hike In a widely anticipated move, the US Fed hiked interest rates by 25 basis points, taking the overnight funds rate to a target range of 0.75 per cent to 1 per cent. It raised the interest rate for

due to near-zero interest rates. With hikes in Fed rates, companies may have to bear the brunt of a higher outgo while repaying their loans, in case dollar appreciates further. A higher cost of borrowing on future dollar loan will also impact the balance sheets of Indian companies. Foreign institutional investors have already been pulling money from the equity market. But of late, they have been buying. The correction in the market started long before due to speculation. Gold prices are highly sensitive to rising U.S. interest rates. Once the rates start moving higher, they can push gold prices further down. Rupee may come under pressure and may depreciate further due to increase in interest rates. It may inflate our import bill and put pressure on inflation, which inched up 3.65 per cent in February from 3.17 per in January. However, statistics show that India is currently better equipped than other emerging markets to ride the impact of higher US interest rates because of its stronger economic growth and impressive foreign exchange reserves of more than $300 billion.

the second time in three months, setting a likely path of regular hikes. Such rate hikes tend to have a negative impact on emerging economies like India. India's external debt stood at $485.6 billion in 2015-16 an increase of $10.6 billion over its level in 2014-15. The US-dollar-denominated debt continued to be the largest component of India's external debt with a share of 57.1 per cent, followed by Indian rupee (28.9 per cent), SDR (5.8 per cent), Japanese Yen (4.4 per cent) and Euro (2.5 per cent). With further firmness in dollar, the value of external debt will increase. Indian companies have increasingly resorted to large external funds to meet their financing needs

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The most expensive share in the world is

of Berkshire Hathaway pricing $256,750.00 and it has been the most expensive of all times. If you convert this to Indian Rupees then the share price becomes Rs. 16593726.83 (1.65 Crores) while India's most expensive share belongs to MRF (Madras Rubber Factory) and the price is Rs.71, 750 (as of 20th June, 2017).

TRIVIA

2. Amsterdam Stock Exchange is world's oldest stock exchange established in the year 1602 while India's oldest stock exchange is Bombay Stock Exchange (BSE) established in 1875.

3. There is no taxation in Vatican City. Employees do not pay income tax and there is no restriction on the import and export of funds.

4. China was the first country to use paper money. It came into existence around 806 AD.

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