Finly May 2021

FINLY MAY 2021 | Issue No. 101

What is behind the global chip crisis, and can it affect you?

Intriguing Indeed

Sector Analysis

The Suez Canal Blockage

Shipping

Eco Section The Fed and The US Bond Market

ISSUE NO. 101, MAY 2021

Team Finstreet 2021-22 Dear Readers, Greetings from the Steering Team of Finstreet.

We, at Finstreet, continuously strive hard to impart academic knowledge coupled with professional excellence in the field of finance to all the members as well as fellow mates. This year, we have planned to launch another digital knowledge imparting tool, 'Finstreet Podcast,' which will be providing an avenue for expressing and facilitating discussions on various happenings around the world. With an incredibly talented pool of finance. The FINLY Magazine will have a new addition of Person in Focus wherein we will write about people who have significantly contributed to the industry.

Additionally, after setting the base last year, we plan to launch the Investment Club's fund this year. The aim of the fund is to impart practical knowledge of valuation and portfolio management to the students.

We are happy to have such an incredibly talented team that has worked to its fullest potential last year. Let us all start this new journey with the same enthusiasm and take Finstreet to new heights. We are looking forward to having a great year of thrilling and joyful journey with you all.

Thanks and Regards, Himanshu Sharma |Convenor| MBA IB

Kaushal Daga |Co-Convenor| MBA FS

Anant Maske |Co-Convenor| MBA IB

CONTENTS 01

02

EDI TO R I AL

TEAM F INL Y

04

08

C O VER ST O R Y

EC O SEC TIO N

What is behind the global chip crisis, and can it affect you?

The Fed and The US Bond Market

12

16

SEC TO R ANALY SIS

C O MPAN Y AN ALYSIS

Shipping

Container Corporation of India

21

25

INTR IGU ING IN DEED

G R EEN F I NANC E

The Suez Canal Blockage

How Do Sustainability Indices Affect Investment Decisions?

31

33

PER SO N IN F O C US

C ALL F O R AR TIC LES WIN NER

Roshni Nadar

35

Sudhanshu Upadhyay, KJSIM, Mumbai

C ALL F O R AR TIC LES R UN NER UP

Ankita Paleja, WE School, Mumbai

ISSUE NO. 101, MAY 2021

Editor's Note Dear Readers, “Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.” - Arundhati Roy This pandemic is an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest in the most intuitive ideas that come to our mind and surpass this havoc. As Ben Franklin rightly said, “An investment in knowledge always pays the best interest,” we at Finstreet are proud to unveil the first edition of our monthly magazine “Finly” for the academic year 2021-22.

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

The May edition’s cover story tries to analyse what is behind the global chip crisis.

The intriguing indeed article goes through the interesting topic of the Suez Canal Blockage.

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

We thank all our readers and faculty members for their valuable reviews and feedback.

HAPPY READING!!!

STAY HOME STAY SAFE!!!

Anusha Nair

Riya Agarwal

|Editor-in-Chief|

|Editor-Finly|

MBA FS

MBA FS

1

ISSUE NO. 101, MAY 2021

TEAM FINLY Faculty in-charge

Dr. (Prof) Pankaj Trivedi

Editing Team Editor-in-chief

Editor - FINLY

Anusha Nair

Riya Agarwal

Team Coordinator

Rohan Bhakkad

Conceptualization & Design

Akash Pawar

Kaushal Daga

Sahil Mehdiratta

Tanya Nayyar

2

Content Team

Anant Maske

Anuja Singhal

Anusha Nair

Devansh Mehta

Himanshu Sharma

Karishma Lalwani

Kaushal Daga

Mehul Parwal

Nishi Kumari

Prakhar Gupta

Praneet Sisodiya

Riya Agarwal

Saurabh Dubey

Aakanksha Agarwal

Shrishti Gupta

Shubhangi Thapliyal

Srishti

Shivam Mahendru

Vaishnavi Badaya

3

| COVER STORY

WHAT IS BEHIND THE GLOBAL CHIP CRISIS, AND CAN IT AFFECT YOU? Prakhar Gupta | MBA-A | 2020-22 Shivam Mahendru | MBA-IB | 2020-22 Shubhangi Thapliyal | MBA-A | 2020-22

INTRODUCTION It will be no exaggeration to say that much of what we rely on in our daily lives is powered by these tiny, wafer-like circuit chips called semiconductors. This sixdecade-old invention, the lowly chip, has gone from a little-understood workhorse in powerful computers to the most crucial and expensive component under the hood of modern-day gadgets.

These chips have made our electronic devices cheaper, faster, smaller, and more efficient for the past 50 years. These semiconductors are used in everyday devices like smartphones, TV, Consumer Electronics, and modern tech-dependent cars to Advance Medical care and Wireless communication systems.

WHY IS THERE A SHORTAGE?

WHAT IS A SEMICONDUCTOR? The shortage stems from a confluence of A semiconductor is a substance, usually a solid chemical element or compound, that can conduct electricity under certain conditions but not be conductive under others. This feature makes it a suitable medium for the control of electrical current.

Due to their role in fabrication of electronic devices,

semiconductors

are

used

almost all aspect of the modern world.

in

factors which has resulted in a boost in demand and a decrease in supply. As the industry entered 2020, high demand was expected in the mobile chip area because of the rollout of 5G devices. That path was turned on its head when COVID-19 became a global pandemic, driving millions, if not billions, of people into the safety of their homes

to

work,

go

to

school,

be

entertained, and socialize all by using their electronic devices.

4

| COVER STORY Hence, demand for chips powering laptops, gaming devices, and internet infrastructure skyrocketed.

Also, once primarily mechanical machines like cars have become more intelligent thus entailing the use of many more chips.

Carmakers got hit first in part because of poor inventory planning. The industry underestimated vehicle consumption and thus the number of chips they needed when the pandemic struck.

It is likely to remain strong due to elevated global consumption and a push towards 5G technology.

Contrary

to

the

automobile

industry expectation that predicted that cars’ demand would dip after the pandemic, the need for passenger vehicles has surged due to people’s reluctance to travel by public transport. The shortage arose owing to an imbalance in the demand-supply ratio – after the lockdown restrictions were lifted, car sales started to pick up. At the same time, the chip production was still low, causing the

At the same time, Semiconductor Industry has been the victim of a few supply chain production issues. The impact of the pandemic halted the production in the factories for a few months. As the factories started again and the production picked up, in Texas, a winter storm and the subsequent electrical grid failure led to Samsung, NXP, and Infineon.

These three major semiconductor chip makers run large factories in the state to shut down manufacturing temporarily. Meanwhile, in Japan, an equipment fire at the Renesas semiconductor factory is still under investigation and expected to cause delays of at least three months.

demand-supply gap.

Global tech giants have been facing the heat of this shortage, like Apple Inc.’s latest iPhone,

etc.,

raising

warnings

that

this

shortage might spill over the second half of the year as well. The major automaker, General Motors, shut down its Kansas plant in March and has since not reopened. Mercedes has temporarily shut down its factories, while Porsche has warned dealers of a 12-month delay due to lack of chips.

EFFECT OF SHORTAGE IN AUTOMOBILE & SMARTPHONE INDUSTRY The effect of this shortage can be witnessed in everyday devices from smartphones, consumer electronics, like refrigerators and microwaves, to tech-dependent cars. There has been a surge in demand for smartphones, laptops, etc., due to the increasing work-from-home culture, increasing the need for semiconductor chips.

Source - Yahoo! Finance

The disruption couldn’t have come at a worse time, depriving automakers of making up for lost sales in such robust demand scenarios.

5

| COVER STORY The impact is also felt by Indian carmakers, pulling the Bloomberg index of global car manufacturers down by 14%. The Volvo Group’s share prices have slumped 7% after it hinted to suspend production due to shortage. In its Q3 results press conference, Mahindra said that it was perplexed with the shortage and didn’t see the end of this crisis.

Breaking down the semiconductor industry, it is based on a foundry model consisting of: • Semiconductor fabrication plants • Integrated circuit design operations As of 2021, only three firms manufacture the most advanced semiconductors - Taiwan Semiconductor Manufacturing Company (TSMC) of Taiwan, Samsung of South Korea, and Intel of the United States. According to Bain & Company, due to heavy demand, the lead times for chip supplies have gone up from 10 weeks to 17 weeks on average.

Consecutively, around 75% of semiconductor parts suppliers had an overall jump in lead times over the last year. Manufacturers of semiconductor components like multi-layer ceramic capacitors, substrates, microcontroller units, and silicon wafers are all receiving orders that they cannot cater to immediately.

HOW PANDEMIC INCREASED CHIP DEMAND? As Covid-19 pushed most of the world's population to spend more time indoors, the market for home electronics — smartphones, notebooks, computer games, television sets, and so on — grew. Electronic firms raced to purchase more chips to satisfy the demand for their products. However, this problem resulted in a chip shortage for automakers.

Sanctions against Chinese technology firms have worsened the situation. Still, every corporation needs chips for their goods and is desperately purchasing to replenish stocks.

EFFECT OF SHORTAGE ON THE PUBLIC If the global scarcity worsens, you will not purchase trendy items such as notebook computers,

iPhone

devices,

PlayStation

consoles, and automobiles. Amid the global financial crisis, Samsung recently agreed to close its factories. This may mean that the costs of computer accessories would rise ever more, putting a strain on your wallet.

Buying Cars: Expect to pay more. Many models were still in low supply before the chip shortage, as automakers struggled to make up for demand losses due to the pandemic. According to IHS Markit, the chip shortage decreased North American auto production by around 100,000 vehicles from January to March.

6

| COVER STORY Other Products: Prices for a wide range of items resulting from the pervasiveness of processors. Any high-end computer and gaming parts are selling for double their

However, this does not guarantee that manufacturers will satisfy existing demand; economists predict that the shortage will last at least a year.

retail price on auction sites like eBay. Wait times for new PlayStations and Xboxes can be extended. Many people can feel that a new car is just out of their price range. In this case, the buyer is the loser.

WHEN WILL THE SHORTAGE BE RESOLVED? All of the existing semiconductor factories are manufacturing chips at maximum capacity, but demand for semiconductor chips has increased so dramatically that they cannot reach their deadlines.

US Vice President Joe Biden has stepped in to help address this problem, requesting $37 billion in funds for legislation to boost chip

China has also given a slew of incentives to the chip industry to reduce its reliance on Western technologies.

According to semiconductor industry analysts, the shortage is unlikely to ease anytime soon.

It is expected to affect technology manufacturing and hardware costs until at least 2021, if not 2022.

Since the chip shortage crisis can not be resolved immediately, market leaders and policymakers must dramatically increase their efforts to remedy the looming shortage of high-skill expertise, undermining the semiconductor industry's capacity to maintain its current rate of innovation and expansion.

production in the region.

CONCLUSION According to the Semiconductor Association, American chip firms account for 47 percent of

The chip scarcity seems to be here to stay for

semiconductor chip revenues, but just 12

the

percent of such chips are produced in the

manufacturing factories will take up to two

United States. Chips are about to become

years to set up, and producers are in the

ever more entrenched in our lives as the

process of increasing costs for the second

Internet of Things (IoT) and 5G technology

time in less than a year.

far

future.

Complex

semiconductor

drive up demand. The simple alternative is to develop

separate

semiconductor

chip

manufacturing plants to prevent another chip shortage like this.

Intel recently revealed a $20 billion (roughly Rs. 1.4 lakh crores) investment in two new Arizona factories.

7

| ECO SECTION

THE FED AND THE US BOND MARKET

ABOUT BOND MARKET The bond market—often called the debt market, fixed-income market, or credit market—is the collective name given to all trades and issues of debt securities.

Governments typically issue bonds to raise capital to pay down debts or fund infrastructural improvements. Bonds are either issued on the primary market, which rolls out new debt, or on the secondary market, in which investors may purchase existing debt via brokers or other third parties.

In the U.S., govt. bonds are known as Treasuries and are by far the most active and liquid bond market today. A Treasury Bill (TBill) is a short-term U.S. govt. debt obligation backed by the Treasury Department with a maturity of one year or less. A Treasury note (T-note) is a marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury bonds (T-bonds) are government debt securities issued by the U.S. Federal govt. that have maturities greater than 20 years.

Riya Agarwal | MBA - FS | 2020-22 Srishti | MBA - FS | 2020-22 Vaishnavi Badaya | MBA FS | 2020-22 HOW FED AFFECTS THE US BOND MARKET How do risky asset prices react to changes in the stance of monetary policy? Given that the most immediate and direct effects of Federal Reserve actions and communications are on financial markets, let us understand how monetary policy ultimately affects the broader economy.

The Federal Reserve controls interest rates through its open market operations. When the Fed wants interest rates to fall, it buys U.S. Treasuries. As with all bonds, when the value rises, interest rates fall.

Lower interest rates put upward pressure on stock prices for two reasons. First, bond buyers receive a lower interest rate and less return on their investments. It forces them to consider buying higher-risk stocks to get a better return. Second, lower interest rates make borrowing less expensive. It helps companies who want to expand. It assists homebuyers to afford larger houses.

8

| ECO SECTION It also helps consumers who desire cars, furniture, and more education. As a result, low interest rates boost economic growth. They lead to higher corporate earnings and higher stock prices.

The Chair of the Federal Reserve, Jerome Powell on 17th March 2021 in a press conference made this clear that there is -

Fed

officials

updated

their

economic

projections, which showed expectations for the economic growth of 6.5 percent this year and core inflation of 2.2 percent in 2021, 2 percent in 2022 and 2.1 percent in 2022 and 2.1 percent in 2023. The unemployment rate will probably fall to 4.5 percent this year.

No change in the main policy settings No change in the Fed guidance about future shifts in the monetary policy No real concerns about jumpy government bond markets.

There has been a sharp and volatile rise in the yield on 10-year US treasuries since the start of 2021. The benchmark 10-year yields stormed to the highest level since January 2020, while 30-year yields reached 2.44 percent for the first time since August 2019.

The markets threw a fit in response to hints that the Fed would reduce its bond purchases.

Investors closely watched how fast the US treasury yields rose after the Fed reiterated its commitment to loose policies that are likely to help further boost the growth and inflation.

Source - Bloomberg

US BOND MARKET FEELS LIKE A 'COILED SPRING' AFTER THE FED MEETING Mark Cabana, the head of US rates strategy at Bank of America said, “To me, it feels like it is a ‘COILED SPRING’. The Fed is signaling that it wants to see an overshot, it wants to see inflation and employment run quite hot.”

In one sense, the rise in the Treasury yields has been quite normal. In the initial stages of

The US economic growth will likely be robust

the business cycle, as confidence in the

this year and the inflation will probably

economy builds, investors start to demand

average 2 percent over the coming years but

greater compensation for holding long-term

there is not going to be any hurry to fill in the

bonds. The big upgrade to GDP growth

space

interest-rate

forecasts this year merits a big rise in yields.

increases. As expected, the Federal Open

Expectations of inflation derived from the

Market Committee left the Fed funds rate

bond prices are now almost rigidly in line with

unchanged in a range of 0 to 0.25 percent and

the Fed’s target of 2 percent on the Personal

arising

due

to

the

Consumption Expenditure (PCE) index.

9

| ECO SECTION In this sense, the market has been obedient.

After a surge in the equity prices through last year, the S&P 500 index has lost its momentum. Meanwhile, the cheap-looking shares of the “cyclical” companies, which profit economic recoveries have gone up in value.

Mr. Powell says that the preconditions for the Fed to raise interest rates- full employment, inflation moderately above 2 percent are some way off. But before then, the Fed will taper its bond-buying. There will be an element of discretion in its decision to start.

When it comes, it will mark a change in the monetary policy.

Source - Dreamstime

TAPER TANTRUM The sharp and volatile rise in the yield on 10year Treasury yield since the start of 2021 has been routinely compared to the “Taper Tantrum”

of

2013.

Bond

yields

rose

While the long-term rates are likely to continue their upward march in line with better economic projections, higher inflation and rising Treasury supply, the question is how fast they move.

Daniel Ahn, the Chief US economist and head of Markets 360 North America at BNP Paribas states that “the Fed had now calmed down potential market anxiety about a taper tantrum, and I think it buys time and paves a way for financial conditions to remain relatively loose and for the recovery to gather pace.”

CONCLUSION Lessons have been learned from 2013 about how not to spook the markets. But the idea of immaculate forward guidance by the Fed, in which markets are never taken by surprise, still seems fanciful. A bond market capable of a taper-less tantrum is unlikely to deliver a tantrum-less taper. Speedy policy shifts cause tantrums. Struggling firms that rushed to issue bonds in a frenzy last year are under less pressure than they normally would be to reduce their debts. Spreads on risky corporate bonds are remarkably tight. All of this increases the sensitivity of the economy to the Fed’s next policy shift. That is probably not soon. The Fed has bought itself some breathing room by insisting that the inflation that accompanies reopening over the next few months is likely to prove transitory.

dramatically during the 2-13 taper tantrum after then-Fed chief Ben Bernanke told the

The message from Mr. Powell is that he and

lawmakers that the central bank could slow

his colleagues are not even talking about

its pace of asset purchases that had been

tapering. “Until we give you a signal, you can

propping up markets.

10

| ECO SECTION assume we’re not there yet,” he said. But we might get there by the end of this year or early next year, given how quickly things are moving. Mr. Powell’s signaling has been admirably clear, so far. But there will be plenty of scope for misunderstandings later on.

11

| SECTOR ANALYSIS

SHIPPING

OVERVIEW The shipping industry in India is a crucial sector considering the trade both by value and volume. With a coastline spread across 7517 km, India is the 16th largest maritime country in the world. It is governed by the Ministry of Ports, Shipping, and Waterways. The industry carries around 95% of India's trading volume and 70% by value. The Jawaharlal Nehru Port is the largest major port in India, while the Mudra port is the private shipping industry’s largest port.

India has 12 major and around 205 minor and intermediate ports, and 6 new mega ports are proposed under the National Perspective Plan for Sagarmala. This industry enjoys a 100% Foreign Direct Investment under the automatic route for port and harbor construction and maintenance projects.

In India, in the FY 20, major ports handled

Anusha Nair | MBA FS | 2020 - 22 Praneet Sisodiya | MBA A | 2020 - 22 Saurabh Dubey | MBA FS | 2020 - 22 704.82 MT of cargo traffic, implying a CAGR of 2.74% during FY16-FY20. Cargo traffic at nonmajor ports reached 447.21 MT in FY20. The overall installed capacity of the major ports in India has increased over 76% to reach 1,534.91 MTPA in Mar 2020, vis-a-vis 871.52 MTPA in March 2014.

MARKET SEGMENTATION The shipping industry can be classified into the following segments based on their business function: Shipbuilding industry: India currently has 27 shipyards, 19 of which are privately owned. Indian shipyards currently have a total capacity of about 0.5 million deadweight tonnage.

Freight or Cargo Industry: India, which is ranked 17th in the world, has one of the

12

| SECTOR ANALYSIS largest merchant shipping fleets in the world, with around 997 vessels and 235 shipping companies.

coking coal, mainly from Australia.

Thermal coal from Haldia, Paradip, and Vizag to Chennai and Tuticorin: More

Ship-breaking industry: The Indian shipbreaking industry has a global market share of 25% due to the availability of cheap labor.

Ports: India has 13 major ports and around 200 minor ports along its 7517kilometer coastline. Port charges, congestion charges, and demurrage collection are some of the sources of revenue.

Offshore industry: It consists of support services for oil and gas exploration and production (E&P) in offshore areas.

IMPORTANT TRADE ROUTES Crude and product imports from the Gulf, Malaysia, and Nigeria: Every year, India imports approximately 40 million tonnes of crude oil and 20 million tonnes of goods, mainly from the Gulf, Malaysia, and Nigeria.

than 14 million tonnes of thermal coal are transported along the coast from Haldia, Paradip, and Visakhapatnam to Chennai and Tuticorin, mainly to meet the fuel needs of the Tamil Nadu Electricity

Board's

coal-fired

power

plants.

Iron

ore

from

Visakhapatnam

and

Paradip to JNPT and minor ports in Gujarat: Around 3 million tonnes of iron ore are shipped from the eastern ports to JNPT and Magdalla for Ispat and Essar's

shore-based

steel

plants,

respectively.

Crude oil from Bombay to various significant ports like Kandla, Cochin, and

Chennai:

Coastal

crude

oil

movement is estimated to be 10 million tonnes,

with

the

above

routes

accounting for around 8 million tonnes.

India imported fertilizer and fertilizer

Iron ore exports from India to East Asia: India exports approximately 30 million tonnes of iron ore per year, with 70% going to Japan, China, and South Korea.

Coking coal imports from Australia to Visakhapatnam: For consumption by public sector steel companies, India imports about 10 million tonnes of

material: 5 million tonnes of fertiliser and 3 million tonnes of rock phosphate and sulphur were imported by India Containers: India exports and imports approximately one million TEUs per year, primarily through the ports of Bombay, JNPT, and Chennai.

Coastal shipping: Coastal trade accounts for about 40 million tonnes of freight,

13

| SECTOR ANALYSIS with oil, products, thermal coal, and iron ore being the most common bulk commodities.

A 70 % abatement of service tax has allowed fares to compete with the roads and rail fares.

GOVERNMENT INITIATIVES CHALLENGES The Sagarmala project is a strategic

Statutory Burden- The shipping industry is tangled in a set of levies and duties.

The differential rate of duties and taxes between India and other nations compounds the problems.

US$120 billion investment initiative of the Government of India that seeks to set up mega ports, upgradation of ports, setting up Coastal Economic Zones, and massive infrastructure modernization to improve linkage with ports.

Bank GuaranteesShipyards are required to provide bank guarantees to protect the shipping buyer, like performance guarantees, refund guarantees, and post-construction guarantees add to the regulatory burden.

Jal Marg Vikas is a project that envisions the enhancement of navigation between Varanasi and Haldia, covering a distance of 1380 km to provide an eco-friendly, cost-efficient

alternative

mode

of

transportation.

Working Capital- During the entire production period, working capital is needed for around 25-35 % of the cost of the ship, and high interest rates in India compared to other countries pile on the misery.

A dispute redressal portal, 'SAROD-Ports' (Society for Affordable Redressal of Disputes - Ports), has been launched to resolve disputes on a fast-track basis.

An indigenous software solution for

Lack of Educational Institutes- Four institutions provide naval architecture degrees when the requirement is ten times that number. The needs of the industry cannot be fulfilled, and an acute shortage of manpower harms the industry.

vessel traffic services (VTS) and vessel traffic monitoring systems (VTMS) has been launched to improve services.

The Ministry of Shipping has announced plans to establish a National Logistics Portal (Marine) with end-to-end logistics to help all stakeholders.

Lack of government support– This impacts the infrastructure development negatively and acts as a detriment in competing with shipbuilding giants like

An FDI of up to 100 % has been allowed to augment shipbuilding capacity and improve ship repair facilities. .

14

| SECTOR ANALYSIS China, South Korea, and the new entrant

The industry is expected to add its capacity

Vietnam.

at ports and is expected to grow at a CAGR

The

industry

needs

to

be

recognized as a strategic industry.

of 5-6% till 2022, thereby adding 275-325 MT of capacity.

There is a lack of proper research & development

facilities

in

the

country.

NSDRC, as the sole design and Research and

Major growth drivers that can pave the road ahead are:

Development organization of the Ministry of Shipping, the Government of India is not

National Waterways -106 new notified

functioning correctly.

waterways

Other challenges include high port calling

Sagarmala Initiative - 6 new ports

charges, port congestion and connectivity with

hinterlands,

regulations,

lack

advancement

and

a

multiplicity of

of

Container Manufacturing - Bhavnagar,

technological

integration,

and

Gujarat,

an

is

being

developed

as

a

container manufacturing hub

onerous tax regime. Further, geopolitics, trade wars, sanctions, and macro-economic factors,

influence

operating

costs

Cruise shipping

and

profits.

As of 30 September 2019, a total of 121 projects worth Rs. 30,228 crores (US$ 4.33

ROAD AHEAD

billion) have been completed, and 201 projects worth Rs. 309,048 crores (US$ 44.22 billion) are being implemented under the prestigious Sagarmala programme, further boosting the sector. According to a report by the National Transport Development Policy Committee, India's cargo traffic handled by ports is expected to reach 1,695 million metric tonnes by 2021-22.

Thus, projects worth US$ 10 billion will be awarded in the coming five years.

Intending to make India a 5 trillion-dollar economy, the shipping industry has to make a considerable contribution.

.

15

| COMPANY ANALYSIS

CONTAINER CORPORATION OF INDIA

BUSINESS OVERVIEW

Karishma Lalwani | MBA - IB | 2020-22 Mehul Parwal | MBA - FS | 2020-22 Shrishti Gupta | MBA - FS | 2020-22

The Container Corporation of India Ltd.

CORPORATE MISSION

(CONCOR),

a

Navratna

Public

Sector

Undertaking under the Indian Ministry of

To join its community partners and

Railways, operates in the Logistics industry.

stake holders to make CONCOR a

After being incorporated in March 1988 under

Company of outstanding quality.

the Companies Act, the company commenced its operations from November 1989 by

To provide responsive, cost effective,

acquiring the existing network of 7 ICDs from

efficient and reliable logistics solutions

the Indian Railways.

to its customers through synergy with community

Commencing with the provision of inland

partners

and

ensuring

profitability and growth.

transport by rail for containers, it has now expanded to cover management of ports, air

To be the first choice for our customers,

cargo complexes and establishing cold-chain.

the Company remains firmly committed

To

to its social responsibility and prove

enhance

India's

International

and

Domestic containerization and trade, the

worthy of trust reposed in it.

company developed multimodal logistics support

CORE BUSINESS

.

Owning the largest network of 61 ICDs/CFSs

The core business of CONCOR consists of

in India (58 terminals and 3 strategic tie-ups),

three distinct activities: a carrier, a terminal

CONCOR, at present, is an undisputed market

operator

leader.

CONCOR aims to be the first choice for its

and

a

warehouse

operator.

16

| COMPANY ANALYSIS

customers with its commitment to provide responsive, cost effective, efficient and reliable logistics solutions.

Facilities and Service Range

International Services To meet the growth in EXIM traffic at some of its terminals, and to meet the challenge head on, CONCOR is acquiring more and more modern container handling equipment as well.

At present, CONCOR owns as many as 111 Reach Stackers, 16 Rail Tyre Gantry Cranes/Rail Mounted Gantry Cranes and 31 Reefer Packs. Its international services include:

The services of CONCOR are divided into two categories: Domestic and International.

Domestic Services The core of domestic operations is to run a series of point-to-point scheduled trains.

These 'CONTRACK' services form the spokes in a wider hub-spoke strategy whereby cargo is consolidated through road or even rail, at major hub terminals from where such CONTRACK services operate. The domestic services include: Domestic Policy Business Associates Policy Volume Discount Scheme Domestic hub spoke streams Additional Hub & Spoke Streams Door Delivery/Pick ups Cabotage of ISO containers

LCL Hub Services Air Cargo Movements Bonded WareHousing Reefer and Cold Chain Services Factory Stuffing/Destuffing Discount Schemes Cabotage of ISO container CONCOR's Policy On Waiver of Terminal Service Charges SOP for Auction System improvement measures adopted for handling & transportation of high value containerized cargo.

CONCOR has also started some new initiatives. They include E-filing at EXIM Locations, First Mile Last Mile Connectivity (FMLM), Value added services like Hub and Spoke Services and Technology thrusts like Wagons, Information Systems, etc.

17

| COMPANY ANALYSIS

SHAREHOLDING PATTERN Container Corporation of India, being a public undertaking, has Government of India as its majority shareholder, holding 54.8% of the stake.

The stakes of banks, financial institutions and foreign institutional investors have gone down to 4.93% and 26.48% in 2019-20 as compared to 2018-19 where these entities had a share of 5.91% and 28.52% respectively.

There has been a simultaneous increase in the shares of mutual funds and UTI’s and Indian public from 6.21% and 2.21% in 201819 to 8.58% and 2.46% respectively.

CONCOR’s Governance Structure is divided into two levels: Apex and Operational. The Board of Directors and the Committees of the Board work at the Apex level and the management structures coordinate at the operational level.

CONCOR is a Government Company. Hence, pursuant to Section 2(45) of the Companies Act, 2013, 54.80% of its total paid-up share capital is held by the President of India and the appointment/nomination of all its Directors is also being done by the same authority. The number of directors shall not be less than five and not more than fourteen as per the Articles of Association of the company. For the appointment of the requisite number of independent directors on its Board, CONCOR has been regularly contacting the Ministry of Railways, Government of India. There were seven Board meetings during the financial year 2019-20 for transacting various businesses.

FINANCIAL ANALYSIS

Source: Annual Report

CORPORATE GOVERNANCE Transparency, full disclosure, independent monitoring and fairness to all serve as the base of Corporate Governance in CONCOR. The Company works towards sustainable value

creation

for

its

stakeholders

by

conducting its activities in an ethical and responsible manner and within the purview of the prevalent regulatory framework.

Source: Annual Report

The company’s total revenue has fallen to ₹ 6,792 crores in 2019-20 from ₹7,273 crores in 2018-19. Therefore, the company’s Profit before Exceptional Items and Tax has fallen

18

| COMPANY ANALYSIS

to ₹1,396.56 crores in 2019-20. Container Corporation

incurred

expenses

IMPACT OF COVID

on

extraordinary items of ₹ 851.82 crore in the

The

geopolitical

uncertainties

and

year 2019-20 due to provisions for doubtful

environment of trade restrictions among

export incentive receivable and interest

major economies in the world coupled with

paid on grants received. This caused a

COVID-19 in the last quarter have disrupted

massive decline in PBT from ₹ 1,696.74

the global supply chain. Due to widening

crores in 2018-19 to ₹ 544.74 crores in the

gaps in import and export and slow growth

year 2019-20 and PAT fell to ₹ 406.65 crores

of import, logistics services for EXIM trade

in 2019-20.

have been impacted. In spite of this kind of adverse environment, CONCOR has done

RATIO ANALYSIS

well on all fronts.

Indian Railways registered a marginal drop of 1.04% in originating cargo from 1,223.17 million tonnes in 2018-19 to 1,210.46 million tonnes in 2019-20. CONCOR has handled 3.75 million TEUs (Twenty-foot Equivalent Unit) and transported 40.43 million tonnes of cargo volume by rail in 2019-20, a marginal

drop

of

2.13%

and

7.05%,

respectively over the preceding year. There was a marginal drop of 2.79% and an increase of 1.54% in the physical volumes of

EXIM

and

domestic

segments

of

businesses respectively.

Source: Annual Report

FUTURE OUTLOOK The EPS ratio has fallen from ₹ 19.95 per share in 2018-19 to ₹ 6.17 due to a fall in

CONCOR has started First Mile Last Mile

the earnings of the company in 2019-20.

(FMLM) connectivity for providing End to

The company had no debt in 2019-20 due

End Logistics solutions to their customers.

to which the Total Debt to Equity ratio is 0.

CONCOR and JSC RZD Logistics of Russia

The current ratio and quick ratio improved

have signed the service agreement for

in 2019-20 over 2018-19.

transporting containerized cargo through the International North-South Transport Corridor (INSTC).

19

| COMPANY ANALYSIS

The company is also setting up a new Multi-Modal Logistics Park at Manawala/ Amritsar.

CONCOR is exploring Agency Business and the Bulk Cargo movement which will create great opportunity and value addition to the trade. It is also exploring new Business avenues for Coal Transport Agency for major power generation companies and will provide the services of Coal transportation through Rail-Sea-Rail (RSR) mode on all rail routes. Closely studying the freight designs being evolved for bulk transportation of Cement, Aggregate, Liquid cargo and Auto Cars etc. for new opportunities. It is also planning for its offshore presence in the neighbouring countries.

20

| INTRIGUING INDEED

THE SUEZ CANAL BLOCKAGE LITIGATION FINANCING INTRODUCTION The Suez Canal, built-in 1869, carries 12% of the world trade by volume. Linking the Mediterranean and Red Seas through Egypt, the Suez Canal was shut down after a massive cargo ship ran aground while passing through it, halting traffic on a busy trade route. According to Suez Canal Authority, nearly 19,000 ships, or an average of 51.5 ships per day, with a net tonnage of 1.17 billion tonnes, passed through the Canal in 2020. As per Reuters report, any delay of this kind can lead to a shortage of container vessels because 30% of the container ships pass through Suez Canal/ Egypt, which relies heavily on the Canal for revenues, is now diverting ships to an older route to avoid disrupting global trade. Because of the blockage, there is already a long line of ships waiting to cross the Canal.

Anant Maske| MBA - IB | 2020-22 Himanshu Sharma | MBA - IB | 2020-22 Nishi Kumari | MBA - FS | 2020-22 weather, the 2018-built vessel, which is 400 meters long and 59 meters wide, became stranded here while passing northwards to enter the Mediterranean Sea. POTENTIAL FALLOUT The potential fallout could have been huge if the ship wasn’t freed within a few days. It would have added another burden to the shipping industry already reeling from Covid, shortages of goods, and inflated prices for consumers.

The ship’s size complicated the issue more.

Over the years, container ships have grown in scale, and global ports like the Suez Canal have had difficulty keeping pace.

Various parts of the Canal have widened

The vessel blocking the Suez Canal is the Ever Given, a Panama-registered container ship from China to Rotterdam, the Netherlands. Due to a mishap caused by bad

years ago, yet not enough to eradicate the tensions of navigating it. The crew size has not increased to match the container ships and the technology to navigate through

21

| INTRIGUING INDEED these narrow channels have also not improved. When a similar-sized ship was stuck near the port of Hamburg, Germany, in 2016, it took 16 tugboats to free it in a week.

According

to

Kpler,

the

vessels

stuck

contained oil tankers carrying about onetenth of a day’s total global oil consumption.

COST

According to the Maersk report, the world's biggest shipping company, when the Canal gets reopened, the loss from this blockage will have ripple down effects on a global level. The effects will be seen in the economy for the next few weeks or even months. It also predicted knock-on effects from this blockage.

Vessel bunching is also one of the key risks to the ports in the coming weeks and months. When ships do not follow a schedule and arrive too close together, anchorages are filled. This leads to a shortage of anchorages at ports, which will most likely happen at European ports than at East Coast ports.

As already mentioned, about 12% of the world’s trade is carried by the Canal. Apart from this, around 1 million barrels of oil and approximately 8% of liquified natural gas pass through the Canal every day. So the cost implications are expected to be huge. In fact, Osama Rabie, the chairman of the Suez Canal

Authority,

said

that

the

Canal’s

revenue took a hit of around $14m to $15m each day due to the blockage.

Data from Lloyd’s List showed that the blockage held up around $9.6bn of trade along the Canal each day. Since the ship had blocked the Canal for six days, the total trade loss is expected to be around $54bn.

More than 400 ships were waiting at the mouth of the Canal, and even more, ships that were en route and were in loading were held up due to the blockade.

Allianz’s, the German insurance company, estimated that global trade growth would take around 0.2 to 0.4 percentage points hit.

Source: Shipment Link, BBC

Besides the loss of trade, the blockage also impacted several businesses around the

The Suez Canal is a major artery for oil trade

world. The retailers - both offline and online

from the Persian Gulf to Europe and North

- suffered heavy losses as shipments got

America. Around 5 percent of globally traded

delayed. Experts feel the effect of disruption

crude

refined

may not be long-lasting, but the prices of

petroleum products passed through this

several commodities are expected to rise

Canal before the coronavirus pandemic.

sharply in the short term.

oil

and

10

percent

of

22

| INTRIGUING INDEED ALTERNATIVE ROUTES There are several other alternatives that are being planned or are in operation to accommodate a part of the trade volumes between Europe and Asia. However, due to the low cost, capacity, and reliability that the Suez Canal offers, the market share of the other routes is expected to be low.

One of the alternative routes to the Suez Canal route is the Cape route, but it involves a long detour (7-8 days extra) through the southern tip of Africa.

Nevertheless, it offers the opportunity to handle

African

connecting

routes

cargo, bound

while to

also South

America.

Other factors that deter the growth of this route are the non-regularity of the liner services, slower sailing speeds, and Russian transit fees. Although, Russia is expecting the trade volume to reach 80 million tonnes per year by 2024.

Other routes that are being planned as of now include the North/South land corridors, which can be developed using land bridges from the Persian Gulf via Iran to Russia. Iran has been arguing for years now that the route, which connects India and Russia passing through Iran, is a better alternative to the Suez Canal.

However, geopolitical and infrastructure constraints are too high to consider as an alternative right now.

East-west rail corridors offer the potential for time-sensitive cargo, as the ‘Trans-Siberian in Seven Days’ program has achieved a target speed of 1,500 km a day. It connects St. Petersburg (closer to Europe) to the port of Vladivostok. Other primary rail networks are the TransManchurian Railway, the Trans-Mongolian Railway, and the Baikal Amur Mainline.

LEARNINGS FROM SUEZ CANAL CRISIS

Source: BBC

1. Choke Points: - Transport of goods The Northern Sea Route is a route

through ships is one of the cheapest and

between the Atlantic Ocean and the

efficient ways to transport goods across

Pacific Ocean, “along the Russian coast of

borders. The governments of countries

Siberia and the Far East”. It is less

such as Germany, Japan, France, the

favorable in terms of cost as it requires

United

the need for ice-classed ships and ice-

Emirates, and the U.S, among others,

Kingdom,

the

United

Arab

breaker assistance.

23

| INTRIGUING INDEED acknowledged this and classified seafarers as “Key Workers” during the Covid-19 pandemic.

Chokepoints play an essential role in the shipping industry as they are routes to

much attention, such as accidents. Safety and security threats are essential for shippers as the safety threats are static, but the security threats are dynamic.

transport goods, and ignoring these routes will add high costs to the transport of goods.

Some of the key chokepoints around the world are shown below:

Source: GIS

2. Security Threats: - Financial Times had reported that the ships traveling around Africa to avoid the blocked Suez Canal have potential risks from piracy. These risks vary depending on the type of cargo ship is carrying, owner’s nationality, and the type of ship. Therefore, the awareness of such situations is essential, and ships need to be prepared to mitigate such risks.

3. Safety and Security: - Safety and security threats at choke points have been a key topic of concern in the past.

Chokepoints such as the Suez Canal pose threats from terrorist attacks or military conflicts. Such potential security threats are likely to cause economic disruptions.

On the other hand, safety threats involve more likely incidents but do not grab

CONCLUSION The Suez Canal Crisis has highlighted the Canal's importance in international trade and what repercussions can the blockage of the Canal have on economies of countries across Asia and Europe. Trade of bulk cotton and auto parts from India and China respectively was majorly hit by the crisis. The crisis was a reminder of how powerful globalization is and the interconnection of the global economy and trade. Apart from the countries, the insurance companies will be the ones who will be severely hit in settling payments.

The liability claims against the owner of Ever Given ship are estimated to go beyond the $3 Billion mark.

Impact on the businesses was a clear sign of how companies are highly dependent on cross-border suppliers and third parties.

However, the Suez Canal crisis can be taken as a warning bell for businesses worldwide to invest in the latest technology and data to create an active and geographically dispersed supply chain network that would be least affected due to such unexpected events. Additionally, authorities such as the Suez Canal Authority responsible for the operations of the chokepoints and other trade routes should take necessary measures to avoid such incidents from happening in the future.

24

| GREEN FINANCE

HOW DO SUSTAINABILITY INDICES AFFECT INVESTMENT DECISIONS?

INTRODUCTION TO SUSTAINABILITY INDICES In the present day, the term sustainability encapsulates everything, and financial institutions are now mainly adapting to this new way of understanding the economy. In a cautious but buoyant fashion, the organizations are incorporating the criteria of sustainability in their management.

Consequently, institutional and private investors are opening to global sustainable investment indexes that are solid, rational, and reliable to monitor their sustainable investments' evolving profitability.

Sustainability indexes are instruments to measure the responsibility of a specific company in social and environmental areas.

During the business development process, the more these aspects are taken into consideration, the higher their score.

Sustainability indices are designed and built to provide information to institutional and

Aakanksha Agarwal | MBA - C | 2020 - 22 Anuja Singhal | MBA - FS | 2020 - 22 Devansh Mehta | MBA - FS | 2020 - 22 retail investors that value the importance of the companies' environmental and social responsibility and corporate governance in their day-to-day management, in addition to financial results, in their decisions to purchase shares.

Following is a list of essential Sustainability Indices prevalent in today's day & time CDP - Climate Change - The CDP Index collects information on climate risks and low carbon opportunities from the world's largest companies. It is a global non-profit that runs the world's leading environmental disclosure platform.

FTSE4Good Index Series - Created by the global index provider FTSE Russell, the FTSE4Good Index Series is designed to

25

| GREEN FINANCE measure the performance of companies demonstrating strong Environmental, Social, and Governance (ESG) practices. Various market participants use the FTSE4Good indices to create and assess responsible investment funds and other products.

STOXX Global ESG Leaders - The index represents the leading global companies regarding environmental, social, and governance criteria. The index comprises three ESG sub-indices: the STOXX Global ESG Environmental, Social, and Governance Leaders indices.

ECPI - The index primarily focuses on the ESG, i.e., the Environmental, Social, and Governance performance factors that determine issuers' sustainability and intangible market value. ECPI research covers over 4,000 issuers and maintains one of the world's largest sustainability databases.

It distinguishes the 120 most advanced companies in the region based on their environmental,

social,

and

governance

performance.

MSCI ESG Rating - The research provides MSCI ESG Ratings on the global public and a few private companies on a scale of AAA (leader) to CCC (laggard), according to exposure to industry-specific ESG risks and the ability to manage those risks relative to peers.

SUSTAINABLE DEVELOPMENT REPORT The Sustainable Development Report 2020 presents the SDG Index and Dashboards for all UN member states and frames the Sustainable

Development

implementation

in

Goals

(SDGs)

six

broad

transformations. It was prepared by teams of independent experts at the Sustainable

ISS ESG Corporate Rating - In the ISS ESG Corporate Rating, prime status is awarded to companies that meet specific minimum requirements in Corporate Ratings and achieve the best ESG scores among their sector peers.

Development Solutions Network (SDSN) and the Bertelsmann Stiftung.

Sweden, Denmark, Finland ranks top 3 with scores being 84.72, 84.56, 83.77, respectively.

India ranks 117 with a score of 61.92, ranks well below its neighboring countries such as

OMX Sustainability Finland Index - The index consists of the 40 shares with the highest Sustainability ranking of the 80 most traded shares on NASDAQ Helsinki.

Euronext Vigeo Eurozone 120 and Euronext

China (48), Nepal (96), Bhutan (80). The Sustainable

Development

Report

has

Sustainable Development Goals (SGD's) used to

check

the

impact

of

these

SDGs

concerning the Covid-19 effect on countries.

Vigeo Europe 120 Indices - The indices' assessment is based on 330 indicators.

26

| GREEN FINANCE These SDGs are as follows:

27

| GREEN FINANCE

This index plays a vital role as it showcases

The Sustainable Development Goals (SDGs)

the sustainability of each country towards a

help chart medium-term and longer-term

better future for the Earth, Lifestyle of the

responses to recover from the pandemic's

people in the country, and this year's report

health, economic, social, and environmental

also showcases the readiness and the

impacts

infrastructure development of each country to fight against the coronavirus pandemic worldwide.

28

| GREEN FINANCE HOW DOES THE SUSTAINABILITY INDEX AFFECT THE INVESTMENT DECISIONS?

controversies

Three main sustainability indexes have the

Thus,

most

and

important role in investment decisions, but

international

both Investors and Analysts are looking for

significant

representativeness

impact on

an

level. US Domini 400 Social Index, Dow Jones Sustainability

Index,

and

to

the

three

central

in

the

company

before investing in any company.

Sustainability

Indexes

play

an

companies to invest in.

FTSE4Good.

Environmental, social, and governance (ESG) refer

present

factors

CONCLUSION

in

measuring an investment's sustainability

The grown number of sustainability indices

and ethical impact.

and ESG-ratings provide an overflow of measurements. This tends to create a

WHY IS IT IMPORTANT FOR THE INVESTORS? More investors than ever before are conscious of the effects their money can have on the environment, and Investors have ongoing concerns for the future that need to be addressed. These issues include aligning business strategies for the greater good and being responsible for the communities they serve.

CSR performance is becoming a more critical factor in investment decisions.

According to CFA Institute (2017), 78% of analysts take environmental, social, and governance performance into consideration for their investment decisions.

diminished commitment in the evaluated organization. Thus, one could argue that the grown number of indices and ESG-ratings might result in an obstacle for ESGdevelopment

rather

than

improved

sustainability. The interest in measuring corporate sustainability, and benchmark the sustainability performance, has become essential.

Since the majority of sustainability agencies collect

their

secondary

empirical

sources,

it

data

through

indicates

that

sustainability indices instead emphasize the communication of Corporate Sustainability than actual sustainability performance. Also, it finds the risk in small and mid-size

The more is known about the company, and

companies not managing sustainability and

the better and safer is the investment

ESG ratings. This is due to the lack of

decision

capacity in both time and resources.

taken

by

the

investors.

The

investors want to know the less general financial information about the company

Even if the majority of the sustainability

they want to invest in and find any

agencies conduct their information in a

environmental, social, or ethical

passive approach, i.e., finding information through secondary sources, the evaluated

29

| GREEN FINANCE companies still have to verify the information and perhaps develop further.

This could be time-consuming, a problem for companies that already lack capacity in time and resources.

Furthermore, smaller companies may find it challenging to provide the same amount of information and also present it in the way sustainability agencies demand. A feature consequence of standards is the risk of mitigating diversity. Several indices impose high requirements of the companies for inclusion, such as adequate forms of business, ownership, and size. Companies that do not achieve these criteria are not accepted by the indices and ratings. New companies, such as fin-tech and start-ups, where the business idea is based on sustainability (i.e., create a shared value) risks not to be included.

To some extent, different ratings may create awareness in the company. Thus, the amount

is

still

overwhelming

and

complicates the delimitations of what is truly important and not. Although there is some criticism directed at the sustainability indices and their complexity, there is still a value of integrating ESG. The spread of rating

agencies

may

have

created

potentially helpful information.

At present, the sustainability indices and ratings do not tend to have a significant effect on the relationships with certain stakeholders. One could argue that it may be more crucial for companies that are considered to have a more significant negative impact on the environment. A firm's reputation does not necessarily appear to depend on a high rating but rather to provide stakeholders with excellent transparency.

To conclude, neither sustainability indices nor the ESG-ratings have any significant impact on the Corporate Sustainability strategy in the company analyzed.

30

| PERSON IN FOCUS

ROSHNI NADAR Kaushal Daga | MBA FS | 2020-22 PERSONAL LIFE Roshni Nadar Malhotra (born Roshni Nadar) is an Indian businesswoman, the chairperson of HCL Technologies, and the first woman to lead a listed IT company in India. She was born in Delhi and attended Vasant Valley School.

She

moved

to

Northwestern

University in Illinois, where she graduated, majoring in Communication with a focus on Radio/TV/Film. She completed her MBA from Kellogg School of Management, focusing on Social Enterprise Management and Strategy, and was awarded the Dean’s Distinguished Service Award. She married Shikhar Malhotra in 2010, the Vice President of HCL Healthcare, and has two sons, Armaan and Jahaan. She is also a trained classical musician.

PROFESSIONAL CAREER Roshni Nadar has worked with Sky News UK and CNN America as a news producer before joining HCL Corporation in 2009. She became an executive director and later CEO of HCL Corporation after a year of joining. She was

also the vice-chairperson for the firm for two years before becoming the chairperson of HCL Technologies and the chairperson of its CSR Board Committee. In doing so, she became the first woman to lead a listed IT company and among the few to lead a listed company in the male-dominated sector. She is also a member of the Dean’s Advisory Council at the MIT School of Engineering, USA. She also serves as an independent director on the Board of HDFC Asset Management Company.

Roshni Nadar has also established The Habitats Trust in 2018 that works towards the protection and conservation of India’s natural habitats and the primitive species that live there. She is also a trustee of the Shiv Nadar Foundation, which aims to the process of nation-building by driving transformational leadership through education. She is also the driving force behind VidyaGyan, a leadership academy

for

the

economically

underprivileged, meritorious, rural students from the state of Uttar Pradesh.

31

| PERSON IN FOCUS As the vice-chairperson, Roshni Nadar backed up the HCL-IBM deal worth USD 1.8 billion, where the former purchased seven of the latter’s products, namely – AppScan, BigFix, Unica, Commerce, Portal, Notes & Domino, and Connections. They will take full ownership of these apps starting from the research & development, sales, marketing, and delivery. HCL Technologies also emphasizes on partnering, and under the leadership of Roshni, they expanded their two-year deal with US tech giant Broadcom to provide enterprise security consulting.

Young Philanthropist of the Year by NDTV and Philanthropist of the Year in 2017 by Vogue.

AWARDS AND RECOGNITIONS Roshni Nadar has been featured in the list of ‘The World’s 100 Most Powerful Women’, released by Forbes for three consecutive years of 2017, 2018, and 2019. She has also been included in the ’25 Most Powerful Businesswomen in Asia’ in 2020 and has been conferred with the Lewis Institute Community Changemaker Award by Babson College in 2017. According to Hurun India and Kotak Wealth Management’s joint report, she is the richest woman in the country, with a net worth of ₹54840 crores.

She was also recognized as the ‘Indian Business Leader of the Year 2019’ by Horasis, an internationally renowned think tank, and is an alumnus of the ‘Forum of Young Global Leaders (YGL, 2014-19), which was an initiative by the World Economic Forum to create a community of the world’s most outstanding, next-generation leaders.

In 2014, she was recognized as

32

| CALL FOR ARTICLES -WINNER

NUE- NEXT BIG THING IN INDIAN DIGITAL PAYMENTS ECOSYSTEM Sudhanshu Upadhyay | 2020-22 QUEST FOR NUE LICENSE

K J Somaiya Institute of Management

Ever since RBI released the final framework

with no promoter having more than 40% capital contribution.

in August’20, for the authorisation of a panIndia New Umbrella Entity (NUE) for retail payment

systems,

several

companies,

including global giants, are lining up to apply for NUE license in one of the world’s biggest market.

WHAT IS NUE?

BACKGROUND Cash might still rule in India, but with the increasing smartphone usage and internet penetration, digital payments are growing at a breakneck speed and are expected to reach $2 trillion in 2023.

It’s a proposed umbrella entity entrusted to launch an alternative payment system in India. NUE can choose to be a for-profit entity, system

unlike

the

maintained

existing by

not-for-profit

NPCI

(National

Payments Corporation of India), and will have to

abide

by

the

norms

of

corporate

governance.

RBI guidelines demand that the applicants for NUE must have at least three years of experience in the payments space and have a minimum paid-up capital of INR500 crore,

KEY PLAYERS Currently, a major chunk of digital payments is being processed by NPCI. The most popular means is UPI (Unified Payments Interface) which has been in operation since 2016 and allows users to link their mobile phone

33

| CALL FOR ARTICLES -WINNER numbers to their bank accounts for sending

metro cities, rising incidence of internet

and receiving money via apps as easy as

fraud, cyber-crimes, and transactions that

sending

got reversed or declined.

a

text.

UPI’s

popularity

and

ubiquitous nature has made it too big to be ignored.

To ease pressure on NPCI and avoid singlepoint failure, RBI has allowed other players

UPI BECOMING SUEZ CANAL OF INDIAN

to set up NUE. It will aim to eliminate, if not

DIGITAL PAYMENTS

all, most of the problems by mitigating “risk concentration”, bringing effectiveness and

NPCI is the only umbrella entity in the

innovations into the system, and creating a

current ecosystem on which all the players

level playing field for NPCI and other players

are dependent. With increasing traffic on its platform, the concentration of risk is also

WHO ALL ARE IN THE RACE?

increasing. The imminent threat of a sudden breakdown of the NPCI platform can’t be

RBI guidelines mandate any foreign company

eliminated. It will bring the country’s digital

to own a maximum of 25% in NUE, hence

transactions to a standstill.

they are teaming up with local players and

For Example:

making consortiums as shown below:

In September’19, Mutual funds investors missed bull rally because of a technical glitch in the UPI system. In the same month, SBI urged its customers to use SBI YONO instead of SBI UPI because of technical snags.

IIn December’20, HDFC Bank customers faced trouble in doing UPI transactions became the headline for the day as HDFC Bank is too big to fail.

There are other limitations too with the current setup. There are a lot of touchpoints in UPI setup which makes it cumbersome for a not-so-literate person and there is less innovation in terms of offline payments, cross-border payments, and capital market transactions settlement. There is also insufficient push for digitisation beyond

.

This

will

lead

to

increased

revenue

opportunities for participants, evolution of new products into the market, emergence of new business models around NUEs, and opportunity to offer targeted products by understanding consumer’s spending.

.

34

| CALL FOR ARTICLES -WINNER IMPACT OF THE NEW SYSTEM

With NUEs in place, risk concentration will have

to

look

into

cybersecurity,

fraud

Banks: Pressure on banks will increase management along with additional regulatory tremendously in terms of compliance burden. burden, increased security risk, and capital investment for new tech setup.

Merchants: They will enjoy the privilege They have already invested a lot for of lower processing fees and getting setting UPI and now one or two more customised products but one or two NUEs will increase complexities and no more systems might make things more revenue to be earned on top of that. complex for them.

However, it will open good partnership opportunities with fintech and other Customers: Customers will be benefited players if they are the first mover. in terms of better customer services & NPCI: The impact on NPCI will not be very large as any NUE launching a payment system and making a significant impact in another 3-4 years down the line and by the time it will come, NPCI would become huge and would have captured a majority of market share. It remains to be seen whether NPCI would play a complementary or supplementary role.

NPCI might act as a support system for other players by ensuring interoperability with all NUEs, dive into new segments and build new models such as lending business with the trust and infrastructure they have already built.

experience at lower cost and widerchoice of payment methods.

WILL NPCI BE REPLACED? NO. RBI guidelines mandates NUE’s payment system to be interoperable with the existing systems. Hence, both the systems will operate

in

parallel,

thereby

increasing

payment options for users.

THE BOTTOM LINE With E-commerce reaching India’s unbanked population,

digitisation

push

by

the

government and continued evolution in open FinTech: FinTech players will revolutionize the payment mechanism by bringing in more investments and thereby building new models.

banking, adoption for digital payments will accelerate. Consortiums running NUEs will have

to

compete

by

possibly

offering

incentives to gain market share.

It remains to be seen how big the impact of RBI: RBI’s concern about the wisdom of NUE will be on India’s digital payment relying on single payments system is ecosystem but one thing is clear that the justified journey of ‘payment system Made-in-India for India and the world’ has begun for sure.

35

| CALL FOR ARTICLES - RUNNER UP

CHINA’S DIGITAL YUAN: RUFFLING A LOT OF FEATHERS? Ankita Paleja | 2019-21 Welingkar

Institute

of

Management,

Mumbai China is in the process of launching the most revolutionary financial project in the world.

The Chinese economy has already adopted cashless payments quite smoothly, and this would be a step to speed up even more. It’s turning its physical coins and banknotes digital, unlike most cryptocurrencies like bitcoins, which work outside the control of a country's central authority. The digital Yuan will be the world’s first digital currency that is state-owned and issued by the central bank. It can be used anywhere as it would be a total substitute for cash, the only difference being that it is on one’s smartphone. In the smartphone, the digital Yuan will be stored in a digital wallet.

It will not require a data connection for transactions to take place. Digital Yuan is based on a technology called NFC (Near Field Communication), which allows to carry out

You can make a payment even when you are on a flight, or climbing a mountain, or in a forest where the internet is bleak. It also has zero transaction fees for the merchants, whereas Alipay and Wechat charge 0.6% of every transaction.

WHY IS IT BEING INTRODUCED? As cited by Fan Yifei, deputy governor of the People’s Bank of China, it saves the cost incurred on printing and storing notes and coins. Cash and coins can also be counterfeited and can be used for illicit purposes, and the identity of the user remains anonymous.

Digital Yuan is a step where the Government could find the anonymous user of the illicit activities when the need arises by checking every single transfer, whereas to some extent, it remains anonymous too.

offline payments, unlike Alipay and WeChat.

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| CALL FOR ARTICLES - RUNNER UP This would mean that it is anonymous horizontally but not vertically, meaning people wouldn’t know the details when they send the money to another person, but the Central bank of China knows it all.

This would eradicate counterfeiting and Money Laundering and clearly get a picture of who is spending what? It could be a threat to foreign companies as China's central bank would then have all the details when they transact. It increases the Government’s control over the currency. There are currently two major players in China in digital payments: Alipay and Wechat, both privately owned; therefore, the introduction of Digital Yuan is to encourage competition in the payments space and lower systemic risk. This new system will also bring in more efficiency.

Also, another big advantage is for the visitors in China. Travelers in China cannot use Wechat or Alipay unless they have a Chinese Bank account or China registered Credit card, but there is no need for both of them with digital Yuan. It is also beneficial for people in remote areas in China, e.g., Qinghai or Tibet, where people are underbanked.

HOW WILL DIGITAL YUAN RUN? Digital Yuan will be distributed with a twotier system, where the PBOC will distribute the digital Yuan directly to commercial banks.

The commercial banks will then transfer the currency to the consumers. This could include services to allow consumers to

The most common form of mobile payment in China depends on so-called quick response (QR) codes. Users can use this barcode in their Alipay or WeChat app in a store, and the shop-owner will scan it. Alipay and WeChat Pay could have a section of their apps separated for digital yuan. Apart from this, smartphone makers could also create a separate digital yuan wallet feature in the devices. It is said that government employees will get half of the Travel allowance as digital Yuan.

IS CHINA BECOMING FULLY CASHLESS? The trial for Digital Yuan has been taking place in several cities in China in the form of lotteries that dispense Red Envelopes. Last year in October, Shenzhen distributed around 1.5 million digital Yuan to locals. In Suzhou, 3 million dollars were handed out.

For 2021’s Chinese New Year holiday’s Beijing gave out around 1.5 million digital Yuan in red envelopes to 50,000 residents. Presently, there are limitations to the use in the trial phases, including deadlines on spending and a limited selection of participating merchants.

Also, American giants like McDonald's, Starbucks, and Subway have become the first vendors to tender digital Yuan. It is also believed that digital Yuan will be piloted in Winter Olympics in 2022 with International guests. Jd.com, the E-commerce giant, along with video platform billy in December 2020, started accepting payments in digital Yuan.

exchange their coins and cash for digital Yuan.

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| CALL FOR ARTICLES - RUNNER UP THERE IS NO ANNOUNCEMENT OF A NATIONWIDE ROLLOUT YET, BUT REGIONAL TESTS HAVE BEEN SUCCESSFUL. IS IT A THREAT TO THE US DOLLAR? This Yuan is less about the money and more about the data. It is currently difficult to say that it is a threat to the US dollar, as the digital Yuan lies below the weight. This is because 93% of China’s imports and 95% of its exports are denominated in dollars.

Another thing being it depends on which currency the world businesses want to possess and trade in, whether Yuan or dollar? The range of options to foreigners who find themselves with a pile of yuan is minimum, compared with a pile of dollars, euros, or yen.

Also, foreign companies have issues with digital Yuan’s privacy concerns as it gives a clear picture to the central bank of China of who is paying how much. Also, with digital, the holder of the currency becomes more vulnerable as any action to restrict will have an immediate effect.

China has lesser high-quality assets, and the government’s control on the outflows of capital and pegging exchange rate will all have to be changed to compete with the US dollar. For most international business, the Yuan still falls in the former camp and inhibits little sign of moving out. This Yuan is less about the money and more about the data.

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