FINLY-October 2019

OCTOBER 2019

ISSUE NO: 84

Bank Bailouts: The Slump Averted?

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ECO SECTION: India: One eyed king?

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SECTOR ANALYSIS: Telecom Sector

INTRIGUING INDEED: South China Sea

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From the Editor’s Desk

FINLY| October 2019 | Finstreet | SIMSR

Dear Readers, Greetings from the editorial team at Finstreet. For the past several years Finly has been informing, engaging, inspiring and entertaining a diverse readership -- including alumni, faculty, staff, and students at KJ SIMSR by presenting an intimate, timely and honest portrait of the key activities and events in the Indian and Global economy.

We are proud to unveil the October edition of our monthly magazine FINLY for the academic year 2019-20. Our Cover Story helps us in a critical evaluation of the Robinhood tax where HNI's are taxed to help the country's lower strata of the society. Next in line, is the Eco Section, which analyses in detail India's Debt to GDP ratio, its cause and certain plausible solution to the pertaining problem. In the Sector Analysis, the authors inspect of the most crucial industry in the Indian economy- Steel Sector with an in-depth analysis of the market structure, growth drivers and challenges faced by the sector and an Analysis of one top Steel manufacturer of the country, Tata Steel. This month's Fintech Funda covers the impact of the algo trading in the stock market, covering aspects of cognitive technology, and pros and cons.

We express our gratitude to Prof. (Dr) Pankaj Trivedi (Course Coordinator, PGDM Core, and Faculty Coordinator, Finstreet) for providing the essential mentoring, support and backing to the Finly team. We would also like to thank our Sponsors, White Knight Ventures, for an enriching collaboration. We hope to continue the partnership for a very long time.

This month's call for article competition received an overwhelming response with highquality articles coming in from various top management colleges across the country. We thank each and every participant for their sincere efforts and participation. This month's winner's and runner-up articles are a recommended read.

We thank all our readers and faculty members for their constant love and support. Your reviews and feedback are much appreciated.

Each edition of FINLY is the outcome of the tireless efforts and dedication of a group of individuals who call themselves Team Finly. We can't thank them enough for their constant support and initiative.

Mohak Shah, MMS - Finance, 2018-2020

Saurav Jain, PGDM Core, 2018-2020

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Team Finly- October 2019 Faculty Incharge

Dr.(Prof) Pankaj Trivedi

Editor-in-Chief

Editor- FINLY

Mohak Shah

Saurav Jain

-Conceptualization & DesignRudra Deolankar

Sheenu Jain

Jugal Daiya

-Content Team-

Akshitaa Bahl

Gaurav Khandelwal

Rohan Thakur

AAYUSH SHEKHAR MILIND VERMA

Saurabh Patel

Sourav Khushlani

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FINLY| JULY 2018 | Finstreet | SIMSR

INDEX

Editorial Team Finly

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02

04 Cover Story 07 Intriguing Indeed 09

Eco Section

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Sector Analysis

Alumni Article

Internship Diaries

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12

Bank Bailouts: The Slump Averted?

Cover Story

Akshitaa Bahl | PGDM FS | 2019-21 Sheenu Jain | PGDM FS | 2019-21

India's financial sector is in distress, the leading banks in India are predicting a 7% growth in GDP over a period of the next 6 years in order to reach the $5 trillion-dollar mark. One of the reasons behind this prediction is the economy's rapid shift from unorganized to organized sector, and the income support which the farm workers are receiving in India.

On 30th August'19, finance minister Nirmala Sitharaman announced the merger of 10 public sector banks into 4 entities. She also announced a capital infusion of Rs. 55000 Crores into the public sector banks which also includes 6 other PSBs which are not a part of this scheme. Ÿ Amongst the mergers which were announced, the largest merger was that of Punjab National Bank with Oriental Bank of Commerce and United Bank (to be called Punjab National Bank) post which it will become the second-largest bank in India in terms of branch network with a total of 11,437 branches combined. Ÿ The second merger announced was of Canara Bank and Syndicate bank (to be called Canara bank), which post-merger would become the fourth-largest public sector bank. Ÿ The third merger announced was of Union Bank of India with Andhra Bank and Corporation Bank (to be called Union Bank of India), which would become the fifthlargest public sector bank and would increase the post-merger bank's business by 2-4.5 times.

Ÿ The fourth merger announced was of Indian

bank and Allahabad Bank (to be called Indian Bank), which would double the size of business for the merged entity.

Apart from the mergers, another set of governance reforms which were announced include the appointment of chief risk officers with marketlinked compensation. Also, a board committee will be made for appraising the performance of officers of the rank of general managers and above, including the managing director. Also, only officers with only two years of service left will be appointed to the post of General Manager and above. All of these processes are expected to play out only after a year or so as the process is expected to be timeconsuming.

The number of public sector banks in India will be 12 post this consolidation, which will enable the ministry to focus better on the banks on its watch.

These mergers will enhance technological upgradation and improve service delivery to customers. The capital infusion of Rs. 55000 crores will aid credit growth and help weaker banks to maintain regulatory norms.

Why was this Decision Taken?

There are various reasons cited by the government for its decision to merge state-owned banks.

Conventionally, the motive for bank mergers fall into four major groups: Ÿ cost benefits (economies of scale, cost of funding, risk diversification)

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Cover Story

FINLY| October 2019 | Finstreet | SIMSR Ÿ revenue benefits Ÿ economic conditions (up and downswings in

business cycles); and Ÿ other motives (valuation, managerial benefits, etc) However, the objectives alluded by the government are: Ÿ to build large scale banks and strengthen the risk-taking ability of the banks; Ÿ increase credit growth in order to achieve the target of a $5-trillion economy in the next few years; and Ÿ to increase the operational efficiency that will help banks lower the costs which would eventually lead to lower lending rates.

The Modi-government has for four years been translating into action a tiered banking blueprint suggested in 1991 by the Narasimhan committee, which recommended merging PSU banks in a three-tiered structure by size that will have three to four global-sized banks at the top of the pyramid, supported by a wider base of last-mile financiers.

As we have seen in the past with the merger of Bank of Baroda, Dena Bank and Vijaya Bank, the best practices in each bank have been replicated in other. In the same way, the banks which will be merged are the ones which run on similar platforms, have similar business culture, in order to cause minimal disruption to their activities and for a smooth transition. Ultimately, the idea is to run these PSU banks along the lines of a private bank. However, the current scenarios of the past mergers point out the weak links in Centre's approach to the consolidation theme.

SBI's asset quality that worsened with the merger of its associate banks two years ago is yet to improve. In the latest June quarter, SBI added Rs 16,212 crores to its already large bad loan book of over Rs 1.6 lakh crores.

Similarly, the first quarterly results (June 2019 quarter) of BOB after its merger with Vijaya and Dena Bank revealed signs of stress on profitability and asset quality.

Examining the Objectives of the Merger For its signalling effect, the mergers, may allow an enhanced risk appetite for these institutions, and may make it slightly easier for the government to coordinate and push for re-capitalisation of these

banks, as it targets to assign funds out of the surplus funds (Rs 1.76 lacs crores) received from the Reserve Bank of India (RBI).

1.Size matters in banking: A bigger bank helps in more independent decision making of which SBI is a case in point.

Among the 100 largest banks of the world, India has just one entity, SBI, at the 55th position. PNB could now come close to entering the list. The size matters when it comes to Indian companies making large-scale acquisitions abroad. When Tata acquired Corus or Jaguar-Land rover, the group had to rely on foreign banks. For large acquisitions, that picture may not change, but for smaller ones, Indian banks could suffice to finance such expansion, even within their exposure limits for a single group.

However, the Centre's argument that the large institutions created by the merger will help ramp up lending also does not hold water. BOB saw a modest 6 per cent growth in the June quarter, while SBI's 12 per cent growth for its size and reach is disappointing.

2.Reducing bad loans : If it is about bad debts, then Gross NPAs for the system as a whole fell from an average 43 per cent in 2013 to 24.1 per cent in 2018 with similar decline seen in nationalised banks (42 to 24 per cent) and in private banks (26 to 18 per cent) that reveals the issue is more systemic in nature than ownership specific.

Banks such as Indian Bank and Punjab National Bank are stronger than the smaller banks that they are being merged with under the plan. Indian Bank, which is considered to be the financially strongest among the 10 banks, for instance, has a net NPA ratio of 3.8%; and it is 5.2% for Allahabad Bank. So, the merger is expected to adversely affect the health of Indian Bank. It remains to be seen whether the operational benefits that the government believes will come about through the merger will compensate for the deterioration in the financials of the stronger banks.

Overall, the infusion of additional capital of Rs 55,250 crores by the government can temporarily help banks troubled by bad loans to extend loans more confidently without the fear of going bankrupt due to their precarious capital position.

3.Opportunity cost: For instance, foreign investment in nationalised banks averages a mere 4.8 per cent, compared with 43 per cent in new private banks and 27 per cent in old private banks. If the idea behind consolidation is to attract foreign investment, that seems misconceived. There will no

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Cover Story

FINLY| October 2019 | Finstreet | SIMSR longer be several banks for investors to choose from.

Banks like Vijaya, Syndicate, Corporation and Andhra are in regions that are witnessing rising income levels and an expanding middle class amidst booming technology and modern manufacturing, which could surely have helped them recover their prowess with a little more focus and thrust.

4.Systematic Impact: This has both a short-term dimension as well as a long-term one. In the short run, 10 large banks would be busy in an M&Aintegration process. M&As are notorious for being complex to execute (some empirical studies show that more than 80% of M&As fail), banking M&As even more, given the people-intensity nature of banking business (since banks have basically only two resources – capital and people). For the next couple of years, the senior managers of 10 PSBs will be concentrated on this, effectively taking them out of business expansion i m p e r a t i v e s .

Just when the government is looking to exercise as many levers as possible to kick-start the economy, taking out 10 large banks from that exercise may not be a help in that effort.

THE ROAD AHEAD Politically-speaking, the move seems to also be positioned in tandem with the prime minister's vision statement of a $5 trillion economy.

The benefits of this mega-merger, therefore, are still variable, and as of now, a bit undefined. It all depends on how well the government treats the public sector banks going forward, including the big merged banks. So far, the history of Indian governments dealing with public sector banks and their lending mechanisms has been dreadful. The current state of most debt-ridden PSU banks – especially those with a regional or state focus, can be largely owed to the interventionist approach undertaken by the governments through greater bureaucratic influence and from the persistent election cycle of announced loan waiver grants.

Going forward, the Modi government, despite its over-centralised approach to the economy's management, may perhaps learn from its own errors and those of its predecessors.

It is definitely a change, but whether it is a 'reform' or not; is something that only the future will tell.

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US-CHINA AND THE TROUBLED WATERS

Intriguing Indeed

Saurabh Patel | PGDM FS | 2019-21 Sourav Khushlani | PGDM FS | 2019-21

FIRST U.S.-ASEAN JOINT MARITIME DRILLS IN SOUTH CHINA SEA The first ASEAN-USA maritime exercise AMUX kicked off on 2nd September 2019 at the Sattahip naval base in Thailand.

Eight warships, four aircrafts, and more than a thousand personnel from the U.S., and all 10 countries from the Association of Southeast Asian Nations took part in the first ASEAN-U.S. Maritime Exercise (AUMX). Lasting five days and starting at the Sattahip Naval Base in Thailand and ending in Singapore, the drills came amid soaring tensions between Washington and Beijing, especially over the South China Sea. Co-led by the navies of the United States and Thailand, the exercises stretched into international waters in Southeast Asia, including the Gulf of Thailand and the South China Sea before concluding in Singapore.

AMUX will provide a multi-national forum to the ASEAN countries and countries of Southeast Asia to come together and ensure international freedom of water and trade ways in the South China Sea through military exercise and patrolling in waters.

Also, the USA is planning to hold AMUX exercise yearly and has invited India and Australia also to be a part of this maritime exercise.

SOUTH CHINA SEA: LOCATION The South China Sea is a part of the Pacific Ocean which lies in the southern part of China and the northern part of Indonesia.

WHY SO IMPORTANT? The sea carries tremendous strategic importance; one-third of the world's shipping passes through it, carrying over $3 trillion in trade each year. This sea contains lucrative fisheries, which are crucial for the food security of millions of Southeast .Asians.

Also, huge oil and gas reserves are believed to lie beneath its seabed.

WHY IN DISPUTE? There are some major countries involved under the pursuit of strategic interest which are China (claiming the entire South China Sea), Philippines, Vietnam, Malaysia, Brunei, and Taiwan.

The above countries hold major interest in acquiring their rights over the South China Sea because the South China Sea is enclosed by these countries.

TIMELINE Nine-Dash Line: Nine-Dash line was made by the Chinese government in the year 1947 post their

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Intriguing Indeed

FINLY| October 2019 | Finstreet | SIMSR victory in the Second World War. Lines were made across the South China Sea to claim their possession.

Then came UNCLOS (United Nations Convention on the Law of Sea), which distributed ter ritorial water among the nation and contradicted the rule of the Nine-Dash Line.

Under this convention, the nation can setup its exclusive economic zones up till 200 nautical miles (370 kilometers; 230 miles) from their geographical boundaries.

21st Century Developments: the South China Sea became important because of trade routes and oil resources that can be found under it. Due to this, all the countries want to share it. Among this, China claims it the most.

WHAT IS THE ARGUMENT ALL ABOUT? The argument is all about its acquisition. China wants the Nine-Dash Line to be implemented so that it can take a major share in it. Whereas, other countries want UNCLOS r ules to be implemented.

Spratley and Parcel: These two are the island belts in the South China Sea which are involved in controlling and managing resources of the sea.

Intentionally and Recently, China has built many artificial islands to fall under the eligibility rule of UNCLOS. The dispute regarding the same is that all involved countries are fighting for some or the other parts of it.

USA's INTEREST IN SOUTH CHINA SEA USA and China are fighting for world dominance and by the mid of the 21st century, the population living around the South China Sea would be nearly 27% of the whole world's population. The ASEAN countries are enjoying a high growth rate and are one of the lucrative markets in the world.

The USA also wants to do trade with the ASEAN countries freely. So, the USA is intervening and ensuring freedom of navigation in open water in the south china sea.

I n 2 0 1 3 , t h e U. S. E n e r g y I n f o r m a t i o n Administration (EIA) estimated that the South China Sea region could contain up to 12 billion barrels of oil and 180 trillion cubic feet of natural gas in reserves and USA wants to exploit these resources in the South China Sea by partnering

with the ASEAN countries for its economic development.

USA's RESPONSE Amid the US-China trade war, the USA did not support the stance of China. This can be said as the strategic move by the USA to bring down China in the trade and economy dominance. One

WHY SOUTH CHINA SEA IS IMPORTANT TO INDIA The South China Sea is located in a region of great strategic interest for India. Geographically, it connects the Indian Ocean and the East China Sea via the Malacca Straits, which is one of the busiest sea lanes in the world. This important waterway serves as a vital economic artery for the South Asian state. Up to 93 % of India's total international trade volume is sea-borne, half of which passes through the straits. Also, the (ASEAN) constitutes one of India's largest trade partners, with total trade valued at $83 billion in 2017-18. So, it's in India's interest that the freedom of navigation is maintained in the South China Sea. India has also partnered with Vietnam to explore oil and natural gas in the SCS and ONGC-Videsh has setup 3 oil exploring units in Vietnam and to which china is objecting to that.

India's involvement in the SCS thus focuses on three objectives: 1.Ensuring peace and stability in the region and keep the vital sea trading way open 2.Maintaining cordial relations with the ASEAN Countries 3.Countering china's expansionist and aggressive posture in the South East Asia region

CONCLUSION Concerning the disputes going on, China should obey and respect the territorial integrity of its neighboring countries and should cooperate with them to enforce UNCLOS laws in the South China Sea. From the strategic perspective, if the nine-dash line is implemented, China will acquire a monopoly on most of the economic sectors of the world by unfair trade practices, high rise in prices, etc. .

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India: One-eyed king in the land of the blind?

ECO Section

Gaurav Khandelwal | PGDM - Core | 2019-21 Rohan Thakur | PGDM FS | 2019-21 India's government has long claimed that the country is one of the fastest-growing large economies in the world. This boast was a crucial part of the ruling party's message in India's recent election campaign. Unfortunately, the claim looks increasingly unsupportable. Earlier this month, the Central Statistics Office (CSO) released the latest numbers on the Indian economy. The data revealed that the economy's growth rate in the second quarter which ended on 30th June, had dropped to a six-year low of 5%.

India had already lost the 'fastest-growing major economy' tag to China in the March quarter when it grew at 5.8%. China's economy grew 6.2% in the June quarter despite the ongoing trade-war with the US. What is more worrying about these numbers is not just that it confirms the fact that the Indian growth story is rapidly losing its momentum, but it is the ruling party's reluctance in accepting this fact. Finance Minister Nirmala Sitharaman, in a press conference on 23rd August 2019 said that the global growth may probably be very weak, but the Indian economy is still doing better than the other countries including the United States and China. Her claim warrants closer scrutiny. The below table shows the size and growth of India's GDP vis-Ă -vis USA and China for the year 2018.

Country Nominal GDP (in billion $) dollars)) Â

GDP in PPP terms(in billion $)

Nominal Growt GDP h Rate Per (in %) Capita (in $)

US

20,410.0 55,681.0 59,531.6 2.00

China

13,608.2 25,361.7 9,771.00 6.60

India

2,726.32 10,498.5 2,016.00 6.98

Source: World Bank Here we can see that China and the US nominal GDP in 2018 were 5 and 7.48 times the nominal GDP of India respectively. Also, Nominal GDP per capita of the US and China were 29 and 4.84 times that of India respectively. So even if India grew at a much faster rate than the US and China the absolute addition in the nominal GDP was a mere 178 billion dollars. Whereas, despite growing at a much slower rate than India, the US and China added 401 and 843 billion dollars to their nominal GDPs respectively. So, this claim made by the finance minister, of India doing better than the US and China looks hollow. The ruling party is trying to look for a silver lining in the dark cloud where there exists none. The government should accept the reality that the current slowdown is due to structural issues plaguing the economy and must take proactive steps if at all it is serious about reviving

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ECO Section

FINLY| October 2019 | Finstreet | SIMSR the economy and achieving its target of being a 5 trillion-dollar economy by 2025.

The first step in addressing this problem of slowdown will be identifying the causes of the problem. They can be better gauged if we look at the four components of the GDP which are personal consumption, business investment, government spending, and net exports.

Consumption In 2019, the share of personal consumption was 57.7 % of the nominal GDP. A closer look at consumption data suggests that there has been an overall contraction in consumption. During April to June 2019, car sales fell by 23.3% in comparison to the same period last year. A good indicator of rural demand, tractor sales during April to June 2019, fell by 14.1% as compared to same period last year. The FMCG sector has also experienced a slowdown in sales and many analysts have downgraded their growth forecast for this fiscal year. So, we can see that India is a consumption-driven economy and any slowdown in consumption is bound to have implications on the overall economy. The economists are divided as to whether the problem is on the supply side or the demand side.

But a general rule of thumb is that if the inflation rate is increasing with declining economic growth, the problem is on the supply side.

Whereas, if the inflation rate is decreasing with declining economic growth, the problem is on the demand side.

Investment The share of investment in nominal GDP was 31.6% in Jun 2019 which is dropped from 32.2% in December 2018. Fresh investments are very important for GDP growth as they create new employment opportunities which in turn lead to increased income and increase the aggregate demand in the economy. The Decrease in commercial vehicle sales, an increase in lending rates by banks to industries, slow growth in revenues earned through rail freights and a decrease in number of new investment projects announced are not good indicators for investment component of the GDP.

Government expenditure This sector tends to form around 10-11% of the Indian economy. The growth in government expenditure in the last two fiscal years was 19.1%

and 13.2% respectively, which was the highest since the financial crisis years of 2008-09 and 2009-10.

During an economic slowdown, government expenditure plays an important role in increasing aggregate demand. But the government looks weak on that front as the gross tax revenue of the central government went up by just 1.4% to 4 lakh crores during the April to June quarter. During the same period last year, the gross tax revenue had jumped by 22.1%. Whether or not the government will increase its spending as it did over the last two years remains to be seen.

Net Exports Net exports tell us that by how much amount the spending by foreign countries on Indian goods and services exceeds the spending by India on imported foreign goods and services. India's net exports for April to June 2019 quarter stood at -$46 billion, like the net exports for April to June 2018 which stood at -$46.6 billion. This is because both exports and imports remained at the same level as they were for the last year. Indian trade deficit reached a record high of $176 billion in 2018-19.

Effect of economic slowdown on different sectors Sectors like the automobile, real estate, financial services, and the manufacturing sector have shown the effects of this economic slowdown. However, the Manufacturing sector is not affected uniformly by the economic slowdown. It accounts for over 16% of the country's economy and employs 13% of the country's workforce. Also, since the Indian consumers prefer to purchase low-cost items online, the e-commerce sector is unlikely to get affected by the economic slowdown. For example, the apparel segment accounts for around 30% of ecommerce transactions and will hardly get affected by slowdown because of a rising number of people shopping online and wearing different clothes throughout the day like fitness wear, formal wear, social wear and nightwear. The pharma sector will also be immune to slow down because medicines prescribed to you for an illness doesn't give you a choice like buying a phone or a pair of jeans.

Reasons behind slowdown Many people might think that this economic slowdown is because of the recent trade war going on between the US and China but that is not the only reason. China's GDP has grown at the rate of 6.2% for April to June quarter despite this

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ECO Section

FINLY| October 2019 | Finstreet | SIMSR slowdown and is the second-largest economy in the world which makes it difficult for it to maintain its growth.

The main reason for the economic slowdown is the lack of proper policies and government initiatives. For example, the reason behind this decline in expenditure is the govt's priority to reduce the fiscal deficit which has been brought down from 4.8% of GDP in 2010-11 to 3.4% in 2018-19. The economic survey of 2018-19 stated that fiscal consolidation would no longer be taken care of by increasing taxes. Recent announcements by the finance minister related to withdrawal of angel tax, surcharges on foreign portfolio investors and those with income more than 2 crores and a capital infusion of Rs. 70,000 crores into public sector banks would further reduce the scope of investment.

Conclusion On 20th September 2019, FM Nir mala Sitharaman took the world by surprise when she announced a deep cut in corporate tax rates from the highest effective rate of 35% to 25.17% in an attempt to revive the slowing economy at the cost of increasing the fiscal deficit. Though the Investment component of GDP would get a boost, unfortunately that would be offset by way of reduced expenditure by the Government.

Only time will tell whether the trade-off has worked in favour of the economy.

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Telecom Sector Analysis and Company Analysis

Sector Analysis

AAYUSH SHEKHAR | PGDM FS | 2019-21 MILIND VERMA | PGDM CORE| 2019-21

Overview

The Vodafone-Idea Merger

India is currently the world's second-largest telecommunications market with a subscriber base of 1.20 billion and has registered strong growth in the past decade and a half. The telecom industry's contribution to GDP is estimated to reach 8.2% by 2020, by when industry players are slated to also leverage 5G technologies to connect with global markets and ring in a fully networked, knowledge and services economy as estimated by the Economic Survey.

Industry Size With 604.21 million internet subscribers, as of December 2018, India ranks as the world's second-largest market in terms of total internet users. Further, India is also the world's secondlargest telecommunications market, with a total subscriber base of 1,183.51 million at the end of March 2019.

Owing to the disruption in 2016 caused by Jio which led to a tariff war, rising debts and declining probabilities, the two big names on the market who were also the big g est losers due to the phenomenon, Vodafone India Limited and Idea Cellular Limited, announced their merger on March 20, 2017 and eventually, on August 31, 2018, both the companies merged into Vodafone Idea Limited.

The merger created the largest telecom company in India by the number of subscribers and by revenue.

While Vodafone holds the majority share, approximately 45%, 26% is owned by Aditya Birla Group (the remaining shares are in the public domain).

When the merger was announced, the company was valued at INR 92,000 Crore. Currently, the market capitalization stands at INR 16,034.35, trading in the neighbourhood of INR 5 per share. The net loss last quarter (June 2019) stood at INR 5,038 Crore, which was preceded by a loss of INR 4,927 Crore.

For the last three consecutive years, the entity has been enduring losses.

During the period from April to June 2019, while Jio added 8.3 million new subscribers, Vodafone Idea lost over 14.1 million subscribers.

This year, on August 19, Balesh Sharma who was appointed to the post of the chief executive officer last year (in August) exited. This followed the shares plunged by 80% on NSE.

Data: Telecom Regulatory Authority of India

The situation looks gloomy for the organization which is not only facing increased and stiff competition but also improper financial and human resource management.

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FINLY| October 2019 | Finstreet | SIMSR

Sector Analysis

Rising Sectoral Debt The telecom sector has been in a tumultuous situation, ever since Reliance introduced Jio which priced the mobile plans in such a fashion that other players were either completely routed or had to revamp themselves. However, the lack of revenues due to such deep discounting coupled with stress in investments has been hurting the entire sector, even Jio. The debt that the top three players in the sector, Vodafone-Idea, Airtel and Jio combined to an amount of INR 3.9 lakh crore.

An India Ratings report thinks that owing to high debt and continuous losses, the telecom players will remain structurally weak and will be having little to no cash flow at their disposal till 2021-22.

The report suggests that these organizations will have to rely on capital infusions and/or refinancing in order to successfully continue their operations.

However, Jio still follows predatory pricing, having tariffs that are 25% lower than that of Vodafone-Idea and Airtel. The report suggests that Jio's market share may reach up to 40-45% in the next couple of years (without declaring the timeline, Jio is already targeting 50% market share).

The Jio Story The Jio telecom services have been the talk of the town for more than three years now. It was successfully able to change internet consumption practices and patterns in India. There is a multitude of reasons that can be attributed to this phenomenon.

The pricing disruption is the chief headlinerReliance Jio started offering free voice calls, freeroaming and 100 SMS per day at affordable prices after their free services. Rs.100 from every customer was collected for prime membership by Reliance Jio. Jio offered various plans like 84GB data for 84 days at Rs.399. All the plans in Jio offer free voices and 100 SMS daily. (Before the launch of Reliance Jio most of the service providers were providing 1GB data for approximately Rs.190).

Traditional pricing strategies were having 12 billing cycles (recharges) but it got reduced to about 3 to 4 billing cycles (recharges).

The marketing disruption is a different story altogether. The customers were offered free SIM cards and free data (later a GB a day), bundled entertainment apps for video-streaming, music, news, etc., low-cost mobile phones which enabled

the general masses who were used to 2G and 3G services to avail 4G services, and a gigantic advertisements-and-sponsorship campaign.

The technological disruption was the next major c o m p o n e n t o f t h i s s t o r y - Te ch n o l o g i c a l Advancements like Voice over Long Term Evolution (VoLTE) Volte deals numerous advantages, mutually in price and operations. It affords an extra-effective usage of spectrum in contrast to traditional voice by providing a clear calling experience. It abolishes the necessity to have data on one network and voice on another i.e. parallel instances. It also increases handset battery life by 40 percent (compared to the earlier technologies). The vision for upgrades: Jio has most advanced features, prepared for the future development innovation like progress in 5G with negligible extra capital use in systems.

Apart from these disruption strategies Jio successfully made agreements with suppliers (tower operators) like ATC and Viom Networks; it swiftly availed the requisite licenses from the concerned authorities and developed the Bay of Bengal Gateway which offers straight connectivity to the Middle East and South-East Asia, there on to Africa, European and Far East Asia from end to end unified interconnection with current cable systems.

5G - The Next Big Thing 5G, the fifth generation of cellular communication technology, promises not just faster download speeds but also other enhancements – such as lower latency (which will be required for IoT devices, selfdriving cars, etc), and better capacity to handle the workload. Owing to lower levels of investment requirements in physical infrastructure, it is accepted by experts that the value of 5G to India will be much higher than that of relatively advanced countries.

Implementation of the sensor-embedded network that will allow real-time relay of information across fields such as manufacturing, consumer durables, and agriculture.

According to a report by a government-appointed panel, the spectrum is expected to create a cumulative economic impact of $1 trillion in India by 2035. A separate report by telecom gear maker Ericsson expects that 5G-enabled digitalization revenue potential in India will be above $27 billion by the year 2026. Additionally, the global trade body GSM Association has forecasted that India will have about 70 million 5G connections by 2025.

Road Ahead Revenues from the telecom equipment sector are

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Sector Analysis

FINLY| October 2019 | Finstreet | SIMSR expected to grow to US$ 26.38 billion by 2020. The number of internet subscribers in the country is expected to increase by 2021 to 829 million according to a report by the Indian Brand Equity Foundation. The Government of India is planning to develop 100 smart city projects wherein a vital role will be played by the Internet-Of-Things (IoT). The National Digital Communications Policy that was laid out in 2018 has envisaged attracting investments worth US$ 100 billion in the sector by 2022. The Indian Mobile Value-Added Services (MVAS) industry is expected to grow at a CAGR of 18.3 percent during the forecast period 2015–2020 and reach US$ 23.8 billion by 2020.

An important component of the sector in India is app developments, which is expected to increase to 18.11 billion downloads in 2018F and 37.21 billion downloads in 2022F. Clearly, India's telecom industry is expected to see a major expansion of its network infrastructure during the time to come, however, the market remains highly competitive, but rather than a focus only on growth in subscribers the market is shifting to value-addition.

Company Analysis: Airtel

Business Segments (All amounts are in '000 million rupees)

(Source: Bharti Airtel Annual Report 2018-19) Хë‘ Ŗ ëŤпЦ

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╞ ˝ЎëĺëЦЦ ŕ ΅ b ˝ĺë ХëЎ╙˝l ëЦ 38%

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8%

11%

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4%

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0.3%

(Source: Bharti Airtel Annual Report 2018-19)

Overview Bharati Airtel Limited is a global telecommunications company catering in 18 countries across Asia and Africa. Airtel is ranked in the top 3 mobile service providers globally with respect to the number of subscribers.

Business Model Airtel business model focuses solely on two things – Customer Acquisition & Servicing (Retention) and Business Development/Expansion.

Remaining functions like – hardware, network management, value-added services, and even telecom infrastructure are outsourced. It was the first to outsource its network management to the likes of Nokai Siemens and Ericsson and the IT and backend applications to IBM.

From the given bar chart and table, we can observe that there is a fall in the revenue earned as well as EBITDA by 10% and 38% respectively as compared with the last year. This revenue fall can be because of new entrants like JIO in the telecommunication sector, which made calling free and is charging only for data which drastically brought down the Average Revenue Per User (ARPU).

There's an 11% fall in the EBIDTA for Home Service as compared to FY18 because of tough competition from other players in the market like Hathway and other local cable providers. Surprisingly among all negative figures, Digital TV Services has received an 11% increase in EBIDTA, showing how Airtel is making space for itself in this segment which was once ruled by the TATA Sky and other local cable operators. Even the 3% rise in Revenue and 0.3% fall in the Tower Infrastructure segment point to the fact that how fast Airtel is expanding and increasing its reach by installing new towers and using up all their earned profit in this process.

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Sector Analysis

FINLY| October 2019 | Finstreet | SIMSR

Financial Analysis

(For the quarter April-June 2019)

(Source: Bharti Airtel Annual Report 2018-19) Return on Capital Employed (ROCE) This financial ratio is used to measure a company's profitability and the efficiency with which its capital is used. In the Line Chart above we can see the ROCE decrease continuously from 8.32% in 2016 to 5.06% in 2019. This tells us that Airtel is losing its ability to efficiently use its Capital over the years.

The main reason for this can be the rise in network operating expenses and increasing competition in the telecommunication sector.

Interest Coverage Ratio (ICR) This debt ratio is used to help us find how easily a company can pay off the interest on its outstanding debt. Again, we can see a downward trend of this ratio from 7.06 times to 2.84 times in four years.

This means Airtel can only cover their interest expenses as much as 2.84 times with their current earnings. ICR of 1.5 or lower would raise the question on the survival of the business in the future.

(Source: moneycontrol.com) From the pie chart given above, we can make out that JIO currently has the highest Average Revenue Per User (ARPU) in the quarter from April to June 2019. But the analysts are predicting a fall of ARPU for JIO as their user base consists of mostly lowerincome group people and Airtel, on the other hand, has been successful in retaining customers to some extent through its innovative and competitive offerings which have made analyst predict that Airtel can beat JIO in ARPU next quarter.

Earnings Per Share (EPS) This profitability ratio is used to find out how much money a company makes for each share. It's calculated by dividing a company's profit by the outstanding shares of its common stock. In the Line Chart above we see a drastic change in the EPS from 15.21 in 2016 to 1.02 in 2019. This clearly states that Net Income earned by Airtel over these 4 years has fallen constantly.

Peer Comparison

(Source: Annual Reports of Airtel, Vodafone Idea and Jio) Debt-To-Equity Ratio reflects the ability of the shareholder equity to cover up all the outstanding debt in case of a business downturn. In the bar graph given above, we can observe that Vodafone Idea Limited has the highest D/E Ratio. Reason for this could be that these companies were struggling to keep up as JIO had entered the market and now when they have been merged their debt have piled up as compared to their shareholders' equity. Even

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Sector Analysis

FINLY| October 2019 | Finstreet | SIMSR JIO can be seen to have a lot of debt as compared to its shareholders' equity and which is justified for a new company which is constantly expanding at a large scale.

And the announcement of Mr. Mukesh Ambani in the Reliance AGM has already shaken the industry and if Reliance really does become a debt-free company by 2021, other companies in the telecommunication sector are going to have a hard time competing with JIO.

Future Outlook After JIO entered in the telecommunication business, Airtel for the first time in 14 years saw the red line in their quarterly reports. There's stiff competition in this sector currently but recently Airtel Thanks initiative by Airtel has helped it increase its Average Revenue Per User(ARPU) as it has cut down on the lower plans and major revenue is coming off their 399 plan per month which matches the JIO offering and provides other services like Wynk music, this has helped Airtel to retain its customers.

But the Home and Digital TV Services are going to be bombarded with the entry of JIO as of September 5th, 2019. JIO is giving 100MBPS of bandwidth for the price of 699 per month which again is the lowest offering yet in this sector. Plus, it also seems to start with digital tv services soon. To counter the same Airtel has also decreased the prices of its broadband V-fibre and rebranded its Digital TV services as Airtel Xstream, which comes with a lot of surprises and a good competition to JIO. Airtel has been known for its quality service and that's something which separates it from the rest of the competition. Companies like JIO are focussing on getting as many customers on board as possible but they don't have as many service outlets as Airtel to help their customers. And people will be ready to pay for the comfort and quality any day.

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Alumni Article

Alumni Article Not until five months ago, did I complete my postgraduation diploma in Finance, a.k.a. the everglamorous 'MBA' (or that's how it's perceived by many).

The journey was filled with a lot of varied emotions and it was a totally different experience, not seen and heard of before. I feel honoured to write the alumni section for Finly and would like to thank the team of Finstreet to have given me this opportunity. Having just embarked on my work journey, I can only talk about how I 'successfully completed' the degree, and what I 'regret not doing' during these two years.

Before I start touching upon my major takeaways from the program, I would like to mention here that MBA as a degree, is a great add-on to your credentials and with the kind of costs involved to enrol in the program, one should consider themselves fortunate to be able to study in such an expensive and exhaustive course.

Nevertheless, whoever is reading this article, should feel proud and empowered that, he/she is going to obtain a potential terminal degree of the highest order and a credential that is respected in the industry, as far as education in India is concerned.

Following are my six major takeaways from the MBA program: 1. MBA is majorly a textbook course You may disagree, but, yes, you read that right. I would like to emphasize on the fact there is too much written and spoken about a 'disconnect' between the 'Academic Curriculum' and 'what the industry requires' for years now. Despite this, I have not heard of any college, which has actually tried to address this. Most colleges work on the 'case study' pedagogy, which I believe is just an extension of the textbook with a relatively more practical approach. Contrary to what people would like to believe, skills such as sales can never be taught at a college, in a classroom setup, and is best learnt on the job and on the field, when one actually starts working.

2. Take your Subjects, Assignments, and Exams sincerely Theoretical concepts taught in your subjects are as important as the perceived practical methods and the hands-on of the job you may work for. Take your subjects and exams seriously. At least, till you or anyone else out there is able to devise a better method to evaluate calibre. Always remember, they lay the foundation for understanding the case studies better.

Also, take your assignments and exams seriously. Not just for marks, or that grade. But to imbibe in yourself a strong work ethic to complete tasks assigned to you on-

time and at an optimum level of quality and satisfaction. This, if done consistently, will enable a smooth transition from college to corporate.

3. Learn Time-Management from MBA, the right way MBA, by the virtue of its nature, requires students to manage so many things on their plate, and most importantly, on time. But the execution should be right.

Time management should involve finding simple and smart ways of completing the tasks in your bucket.

Honestly, sacrificing sleep day in and day out to complete tasks, only to ruin your health in the longterm, is not time-management.

Always plan your day, prioritize your tasks, time yourselves and de-clutter noise and distraction. This could include cutting down on social media, not going to a usual hang-out spot, or miss watching that favourite web-series. A conscious effort at managing time can help a long way in your professional as well as personal career.

4. Experience all aspects of an MBA to become an improved version of yourselves (Read as 'Taking Initiative or Taking Control of your Choices') Take that professional course, if it interests you. Attend that guest lecture or seminar. Join clubs and committees. Organize an event. Speak in front of a large gathering. Write research papers. Make use of the library (read magazines and newspapers every day) and the digital (premium) material available for free.

Participate in college events (especially in case-study and quiz competitions). Experience the gala of the cultural fests. Be a part of CSR initiatives. MBA has got lots to offer.

Doing any of these, or all of these will bring to the table a different perspective, an enriching learning experience, an opportunity to meet and interact with new people. Use this platform to develop your communication skills, public speaking skills, and overall personality. Otherwise, it's just another school. You would definitely want to leave the campus as a better and well-rounded individual than before. Don't You? 5. Take your Internship program seriously This is the closest you can get to experience the practicalities of a workplace and sometimes even closer to your goal of landing a dream job. Irrespective of the stipend, the role, the location or a potential preplacement in the offering, use the two months to the best of your abilities, to understand the job and

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Alumni Article

FINLY| October 2019 | Finstreet | SIMSR

responsibilities at hand and learn the skills of the trade.

Also, use this time to talk to people at the workplace, understand the work landscape, the kind of career opportunities available, the kind of skills required to thrive at the workplace and the other associated caveats.

Mean business when you undertake the internship, as you may never know what's in store for you. Make the most of the opportunity.

Closing comments

I personally am satisfied and empowered after going through this journey and taking along with it loads of experiences. It is one of the best career decisions one can take, but it should be done the right way to get maximum benefits.

I wish my juniors and super-juniors all the very best for their time in college. On a side note, enjoy these days as 6. Never hesitate to consult your professors, seniors or these times are irreplaceable (it will be too late by the peers for any assistance (Read as 'Talk to different time you realize this). Make the most of the time. people to gain perspective and benefit from their You are always welcome to reach out to me for any wisdom and experience') assistance regarding any topic under the sun.

Experience always counts. Always be in touch with your faculty and seniors to gain insights on various things Thank you!! that are going around you. Their experience and R PRASANTH wisdom are invaluable to your success. This should also PGDM – FINANCE – CLASS OF 2019 be seen as an opportunity to form a good relationship Former Editor-In-Chief- FINLY with them and expand your network of acquaintances. 7358755796/9176182676 At the same time, do not be averse to consultation with Email: your peers. They are with you on the same boat and prasanth.r@somaiya.edu/rprashant93@yahoo.co.in every individual will have something unique to bring to LinkedIn: www.linkedin.com/in/prashantthe table. ramalingam-14061993

Bonus tip 7. Networking is often misunderstood (Read as 'TIME IS PRECIOUS') It should definitely form a part of your MBA life, but should not be a regular feature. Use the activity well.

Use it sparingly and smartly. Do not forget your purpose. I leave it to you to experience, what I am actually implying here. (Remember you have just under 19 months on campus and not 2 years!)

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DIARIES

Commercial Finance, Infrastructure Finance, Wealth Management, Consumer Loans, and distribution and marketing of Tata Cards

Internship Diaries

Process Tata Capital Limited came to KJ SIMSR for the first time last year to recruit for summer internship for finance and marketing roles.

The process started off with a group discussion in which we were given two topics: 'Should it be made mandatory to stand for the National anthem in theatres?' and 'Social media: good or bad?' Since you will be applying for a summer internship, you will be giving generic topics that you'll be able to talk about.

Khushali Bhangde MMS Finance|2018-20 Company Overview Tata Capital Limited (TCL), the financial services company of the Tata Group, is a subsidiary of Tata Sons Private Limited and is registered with the RBI as a Systemically Important NonDeposit Accepting Core Investment Company.

Tata Capital and its subsidiaries are engaged in providing/supplying a wide ar ray of services/products in the financial services sector and operates across various areas of business:

The second round was a group interview round which had 5-6 students per group. The initial groups were asked questions about the company as well as its financial statements. They asked us the following questions: 1. Tell us about yourself.

2. Why finance/marketing?

3. Tell us about one obstacle you faced and overcame in life.

They basically look for clarity in thinking and the ability to articulate confidently. Your stories must be genuine and convincing.

After that, they asked us questions such as, 'Which non-financial factors would affect a company like

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Internship Diaries

FINLY| October 2019 | Finstreet | SIMSR OYO?', 'Which aspects of the company would you consider while lending to the company? etc.

It gets a little tricky to stand out in group interviews since everyone may have similar answers. The key is to keep calm and think out of the box. If you can't think of anything new, repackaging an answer is fine, but giving an incorrect one just to seem unique, isn't. It is important to be able to think on your feet and to have basics of finance clear to get past this round.

A Piece of Advice It is important to have basic financial knowledge and to be genuine and confident. Rest assured, they will consider your background during the process.

All the best!

The final round was a personal interview round.

I was asked whether I would be comfortable accepting any role they'd give me. I was genuinely open to any role and eager to learn anything related to finance since I have a background of BSc IT. They basically want to check your flexibility when they ask this. They also asked questions related to my CV.

My Experience Tata Capital has a special program called 'SPARK' for summer interns. My role revolved around developing the wealth management proposition since the wealth management department of Tata Capital was about to get revamped when I joined. I reported directly to the business head of Tata Capital Wealth and my reviewer was the national head of the same.

I was first made to understand Tata Capital Wealth, the various stakeholders, products, the criteria that are used to select/develop products, the risk profiling process, lead generation etc.

Post that, I researched about the competition and the proposition they offered to their clients. I also got to design a referral program, a feedback program, develop standardised communication for HNI clients, go on HNI client meetings, and more. I was even taken along to meet the personal advisor of Mr. Ratan Tata to discuss his portfolio.

I was also allowed to be part of the annual strategy meet which let me meet and network with the senior management, and witness how a company's growth strategy is developed.

As a part of the SPARK program, we were given the opportunity to have 'lunch and learn' sessions with CEOs and senior managers of Tata Capital companies

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Internship Diaries

FINLY| October 2019 | Finstreet | SIMSR

asked regarding the recent trends in the power sector and current affairs focusing primarily on Indian economic trends, Rupee declining against the dollar, etc. Since I have work experience with Infosys, I was asked questions regarding the work done in the past.

My Experience

Vinit Shah MMS Finance|2018-20 Company Overview Welspun Group is a multinational company whose core industries are steel, energy, and textiles. Welspun is one of India's fastest-growing conglomerates, doing business in over 50 countries with over 24,000 employees. Its clients include companies operating in the retail and oil & gas sectors such as Chevron, ExxonMobil, Wal-Mart, and Target.

Process Welspun came with a very unique role of corporate affairs and strategic partner. The project was about Analysis of Regulatory framework and economics in the power sector of the country and specific focus on Gujarat including Generation, Captive, etc. and identifying Emerging Trends on Renewable Energy and a possible view of optimizing Welspun Group Energy Cost by creating a financial model.

The specializations eligible were Finance/Operations.

The company had provided reading material on power sector and usage of Power at Welspun which we were asked to read for the interview.

Nearly 20 candidates were shortlisted based on their CVs. After which there was a Personal interview. For me, the interview lasted for nearly 1 hour as it involved technical and HR questions. It started with the basic questions like tell me about yourself, the next few questions were based on my CV. Then questions were asked on the reading material which was provided by them, here they tried to gauge my analytical skills and my level of preparedness for the interview. Then I was

My initial role was to understand the power sector of India and its various rules and regulations and how they are applicable to the company along with various costs associated with them and prepare a report for the same.

I got to visit all of their plants – Captive power plant, steel, textile, and pipes not only I had a detailed tour of their plant but also I got in-depth knowledge from the heads of plant regarding their work which included operation, finance, marketing and also the technical aspects. I spent most of the time in their captive power plant doing the primary research for my report.

I also got an opportunity to be part of their ongoing case in GERC. The whole process of studying the case and being a part of it was a very enriching experience.

Also, the team being very experienced, the insights which I got from them gave me great practical knowledge.

I prepared a financial model for comparison of the usage of renewable power and captive power plant, I also automated their excel work and standardized the process, the same is used by the company.

In brief, my journey at Welspun was full of learning, practical and corporate experiences, networking, researching, understanding various industries and their financial implications and strategies.

A Piece of Advice The company doesn't expect you to know core finance, but it surely expects you to know about current affairs.

Also, the company expects you to be well prepared with the job description. Your willingness to learn plays a vital role in your selection. Needless to say, you need to be genuine and confident during your Interviews.

Also, you should have a clear mindset regarding your career goals.

All the very best for your future endeavours!

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