FINLY
October 2020 | Issue No. 94
Decoding India's Declining Growth Rate
Eco Section
Sector Analysis
GST tussle between the state and the central government
IT SectorÂ
Green Finance How ESG Investing is thriving amidst covid-19
CONTENTS 01
02
EDITORIAL
TEAM FINLY
03
07
COVER STORY
ECO SECTION
Decoding India's Declining Growth Rate
GST tussle between the state and the central government
10
13
SECTOR ANALYSIS
COMPANY ANALYSIS
IT Sector
HCL Technologies Ltd
16
19
INTRIGUING INDEED
GREEN FINANCE
AGR - Adjusted Gross Revenue
How ESG Investing is thriving amidst covid-19
22
25
INTERN DIARIES
ALUMNI SECTION
Manya Mohan PGDM Finance | 19-21
Krunal Sampat MMS | 17-19
ISSUE NO. 94, OCTOBER 2020
Editor's Note
Dear Readers,
“If money is your hope for independence, you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability.” – Henry Ford. Going with the times, this quote of a revolutionary industrialist holds. The world is going through a crisis, let’s make and not break ourselves through this pandemic. Let’s revel through the havoc of this unprecedented situation mankind is facing by leveraging the curiosity within us. It’s an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest into the most intuitive ideas that come to our mind and surpass this havoc. As Ben Franklin has rightly said, “An investment in knowledge always pays the best interest”. On this note, we at Finstreet are proud to unveil the fourth edition of our monthly magazine “Finly” for the academic year 2020-21. Team FINLY has always been a strong set of focused individuals who put in a lot of efforts and dedication to stitch together this magazine and we can’t thank them enough for their constant support and initiative. This month’s cover story explores the slowdown that the Indian economy is experiencing in the current times and the factors that have contributed to the contraction of the GDP growth estimates. 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!!!
Akshitaa Bahl |Editor-in-Chief| PGDM FS
Nilomee Savla |Editor-Finly| PGDM FS
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ISSUE NO. 94, OCTOBER 2020
TEAM FINLY Faculty in-charge
Editor-in-chief
Editor - FINLY
Dr. (Prof) Pankaj Trivedi
Akshitaa Bahl
Nilomee Savla
Conceptualization & Design
Riddhi Nagda
Jugal Daiya
Content Team
Riddhi Nagda
Anjali Pandya
Renita Raphael
Harish Nair
Nilomee Savla
Krushna Mundada
Sheenu Jain
Smith shah
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| COVER STORY
DECODING INDIA'S DECLINING GDP GROWTH RATE Riddhi Nagda| MMS Finance | 2019-21 Anjali Pandya | MMS Finance | 2019-21 Introduction The Covid-19 outbreak unsettled the global economy, and its spillover effect is evident across the world. However, even before the pandemic struck the economy, India was already experiencing an economic slowdown. In 2016, the growth rate of the country was 8 per cent. Yet, when the economic slowdown hit India in 2017 – 2019, the growth rate nearly halved itself. The growth rate for the year 2019 – 2020 was reduced to only 4.2 per cent. India’s economy grew at its slowest pace in at least eight years in the January – March quarter, resulting in a growth rate of merely 3.1 per cent.
The magnitude of the slowdown became clear in the third quarter of the fiscal year 2019, when the annual growth rate fell to 4.5 per cent, with some sectors even experiencing negative growth. The manufacturing sector fell by 3.9 per cent in September 2019, which led to the decline in industrial production (-4.3 per cent) as well as energy production (-2.6 per cent). In 2019-20, the growth rate for the manufacturing sector dropped to 0.9 per cent (as compared to 5.7 per cent in the year 2018). The decline in industrial production reflected a demand drop, which was the bottom-line problem. The rise in the unemployment rate was the first social consequence of the economic slowdown. The Urban youth population was the most affected as nearly 44 per cent of the youth in the cities were unemployed. There was also a decline in tax revenues for the government by nearly 5 per cent. The three main factors which contributed to the economic slowdown are demonetization, the introduction of GST and the agricultural prices policy. 3
| COVER STORY The current global financial meltdown is a result of the unexpected health emergency caused by the Covid-19 pandemic. To contain the transmission of the virus, India along with many other countries enforced strict lockdowns and issued social distancing norms. This led to a decline in demand and fear of recession. Covid-19 pandemic weakened the already sluggish demands and investments. India’s Gross Domestic Product (GDP) contracted 23.9 per cent in the April – June quarter in 2020-21, compared to the same quarter last year. This was mainly on account of limited economic activity in the country amid lockdowns to control the spread of the pandemic.
While the pandemic has slowed down every economy worldwide, India faced, possibly, the highest economic contraction among all. From the graph, we can see the impact of the novel coronavirus on different countries of the world.
Percentage change in key indicators
Quarterly Estimates of Expenditures on GDP in Q1 (April-June) of 2020-21 (at 2011-12 Prices) (Rs. in Crore)
Source: Ministry of Statistics & Programme Implementation
This was the first instance of an economic contraction in India in at least four decades. Private consumption, which was the biggest engine driving the Indian economy has fallen by 27 per cent. The fall is Rs 5,31,803 crores over the same quarter last year. The second driving engine was the – Investments by businesses, which has nearly halved itself. In terms of money, the contraction is Rs 5,33,003 crores. So, the two biggest engines, which accounted for nearly 88 per cent of the Indian GDP, saw a gigantic contraction.
source: Scroll.in
Source: Ministry of Statistics & Programme Implementation
Decoding the GDP Decline 1) Decrease in the Private Final Consumption Expenditure Private Consumption Expenditure can be explained as the measure of all expenditure by consumers to buy goods and avail services. It is a major driver of economic growth, accounting for more than 50 per cent of the GDP. The PFCE contracted to 54.3 percent of the GDP for Q1 2010-21 compared to 56.4 percent for the same quarter last year. 4
| COVER STORY This was the direct impact of the nationwide implementation of lockdown, which limited the consumption spending to only essential items as against unrestricted spending. PFCE was estimated to be Rs 14,61,164 crores for Q1 2020-21 as against the previous year figure of Rs 19,92,967 crore, thus recording a decline of 26.68 per cent. 2) Rise in the Government Final Consumption Expenditure This quarter recorded an estimated government expenditure of Rs 4,86,636 crore, contributing to around 18.1 percent of the GDP. It is to be noted that this was the highest amount spent by the government in 19 years; 16.3 percent higher than that of Q1 of the previous year. While the increase in expenditure saved the economy from contracting even further, it was not enough to offset the plummeting consumer and investment spending to a large extent. 3) Decline in Gross Fixed Capital Formation Gross Fixed Capital Formation refers to the total capital expenditure, indicating investment in capital goods. High investment in capital formation reflects increased capacity supported by higher aggregate demand. It is the second most contributing factor to the GDP. However, GCFC shrunk down to 22.3 percent of the GDP for Q1 of the current year as against the 32 percent of the GDP in the previous year. GCFC estimate at base price for Q1 2020-21 was Rs 5,99,192 crores, about 47 per cent less than that of Q1 2019-20, which was estimated at Rs 11,32,195 crores. This contraction in investment was a direct result of the standstill brought by the
pandemic, to the ongoing projects in major investment-heavy sectors like construction, which faced a lack of both – workforce and demand. 4) The Export–Import balance This quarter was an anomaly in the sense that the estimates reflected positive net exports, a first in 16 years. Exports declined by 19.8 per cent as compared to the previous year, falling from Rs 7,08,546 Crore in Q1 201920 to Rs 5,67,961 Q1 2020-21. On the other hand, the value of imports, which usually renders net exports negative, declined by almost 40.3 per cent Y-o-Y. Imports of crude oil and petroleum witnessed a sharp decline, owing to the fall in prices as well as the demand. Along with that, imports of gold and electronic goods showed a decline as well. Imports were estimated at Rs 4,92,286 crore for Q1 2020-21 as against the Rs 8,25,788 crore figure of the same period in the previous year. This contraction in both is the direct consequence of the slump in private consumption demand. 5) Decline in the Gross value added In simple words, the GVA is a metric that indicates the rupee value of goods and services produced in the country. It represents the value of GDP net of Subsidies less taxes. According to the report published by the Ministry Of Statistics and Programme Implementation, quarterly GVA at base price at constant (2011-12) prices for Q1 2020-21 fell by 22.8 per cent, recording at Rs 35.66 lakh crore as against Rs 44.89 lakh crore in Q1 2019-20. The GVA at base price at current prices for Q1 2020-21 contracted by 20.6 per 5
| COVER STORY cent, estimated to be Rs 35.66 lakh crore, as against Rs 44.89 lakh crore in Q1 2019-20. This quarter, the Gross Value added for all sectors except for Agriculture faced a steep decline. Multiple sectors of the economy saw their income fall. The worst affected sectors were construction (-50 per cent), hotel and other services (-47 per cent), manufacturing (-39 per cent), and mining (-23 per cent). These sectors are responsible for creating maximum new jobs in the country and hence, this contraction will directly lead to a rise in the unemployment level.
Conclusion The ongoing pandemic has left the GDP in a vicious cycle where lack of demand affects the income generation for businesses amid the tough times, which discourages private investment thus halting economic boost, in the big picture. Additionally, the credit stimulus package announced by the government has failed to create the desired impact. Recovery, albeit slow, is not completely impossible. While the GDP is expected to contract further, what is to be seen is how the unlock procedure facilitates in the effective restoration of operations.
Source: Ministry of Statistics & Programme Implementation
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| ECO SECTION
GST TUSSLE BETWEEN THE STATE AND THE CENTRAL GOVERNMENT Harish Nair | MMS Finance | 2019- 21 What is GST GST, or Goods and Services Tax, is a tax that customers have to bear when they buy any goods or services, such as food, clothes, electronics, items of daily needs, transportation, travel, etc. The concept of GST is that it is an “Indirect Tax”, ie, this tax is not directly paid by customers to the government but is rather levied on the manufacturer or seller goods and the providers of services. The sellers usually add the tax expense into their costs, and the price the customers pay is inclusive of GST. Thus, in most cases, you end up paying a tax even if you are not an income taxpayer. GST was brought in as a revolutionary change and India’s biggest tax system overhaul since Independence. GST replaced a plethora of indirect taxes such as states’ sales tax, service tax, excise, etc., with a single central tax regime applied uniformly on all products and services. However, the biggest benefit of GST was that it opened up the entire India as a single unified market allowing for free movement of goods across states’ borders, as opposed to the earlier scenario where
state borders became barriers. GST allowed for faster movement of trucks and led to requirements for fewer warehouses across several states. However, GST has multiple tax rate slabs for different categories of products – a fact that still makes it more complicated than many expected. Proposed Plan When GST came into being, the states were promised a 14% growth in their GST share every year until March 2022. This was because the states were giving up their new tax structure to adapt to the new tax autonomy. To make sure that this promise was fulfilled, the Centre created a fund in place called the GST Compensation Fund. The collections that made up these funds were the Cess, that was applied to all the luxury goods and the sin goods. These goods included cigarettes, luxury cars, luxury commodities, all the goods that were taxed at 28% and had an additional cess. This amount collected as cess went into the GST compensation fund. If the centre felt that the promised growth of 14% to the individual states is not possible for a given time frame, it could utilize this compensation
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| ECO SECTION fund and repay the states. This arrangement worked well, and this function was carried on smoothly till March 2020. One important aspect was that there were many states in our country who, before the GST was implemented, did not register a growth of 14% in the tax regime it followed earlier. At the same time, there were several states that were generating more than 14% growth from their tax regime. But the 14% growth was justified as the states were giving up their independent tax structures to adopt a new form that was centralized.
economic slowdown, the State and Central Governments are finding it a challenge to keep up the tax revenue flowing. The localized lockdowns imposed by state Governments also led to a dent in the cess collections. The Centre is supposed to provide compensation to the states for loss of revenue arising from the implementation of the GST, along with a 14% annual rise, until 2022. But with the pandemic severely draining the centre's resources on health care remedies and economic packages, in a letter to the states last week, the Union government had reneged on compensating the states for GST shortfalls, claiming COVID19 being an ‘Act of God’ has squeezed options. Meeting on August 27, 2020
What is the current issue? The country is currently facing unprecedented times, where India's Gross Domestic Product (GDP) growth contracted by 23.9% in the first (April-June) quarter of 2020. Businesses all across the country are shut by the imposes and restrictions by the Government. The laborers, many who lived on daily and weekly wages, have suddenly gone out of jobs. The manufacturing sector has seen a fall the likes of which has never been experienced before. Because of the slowing of the economy, many people all across the country have lost their jobs. The unemployment rate, which was below 10% till April, has now reached 23% by the end of August. Due to the sudden and drastic
The Central Government stated that the GST Compensation fund is meant to compensate the shortfall in revenue faced by the individual states during the implementation of the GST. And this is why, the Central Government maintains that the COVID 19 pandemic, which was an unforeseen, unexpected pandemic which the country was not ready for, has nothing to do with the GST implementation. That is why the Central Government cannot help the State Government with the shortfall in revenue collection. Options to the State by the Central Government: 1) The States could borrow Rs. 97,000 Crore from the centre, which is the amount 8
| ECO SECTION calculated by the central Government is the losses incurred by the states during the implementation of the GST. The principal and interest shall be paid off using the compensation cess. This borrowing will be separate from any other independent borrowings by the State from the Central Government. 2) Borrow Rs. 2,37,000 crores from the RBI which is the total amount of loss occurred due to the implementation of the GST, the pandemic, the loss to the economy and other such factors. But unlike the first option, this borrowing would be included in the borrowing ceiling of the states. The state finances would be used to pay back the loan taken by the RIB. The States Perspective on the Issue The states say that they have already given up a lot of independence during the implementation of the GST. They say that if the GST wasn’t in place, they would have made in their revenues, they could have handled the situation on their own, even during the current pandemic. Many of the states have already rejected both the options put forth by the Central Government. They say that the first option is too little from them to compensate for the loss which also includes the state paying back the interests of the loan which is an unfair burden. The State Governments are asking the GST Council to take a vote and then decide on the path based on the outcome and future path based on the votes. 9
| SECTOR ANALYSIS
IT SECTOR Krushna Mundada | PGDM Finance | 2019-21 Nilomee Savla | PGDM - FS | 2019-21 Overview For a sector born long after Independence IT has come a long way to become a major pillar of the Indian Economy. Even up until 10 years ago, it contributed as little as 5 per cent to the country’s GDP. Today it contributes twice that. Comparatively the automobile sector contributes about 8% to the GDP. The IT industry’s revenues are at an estimated USD190 billion, growing at 7.7 per cent on a year-on-year basis and by 2025, they are expected to reach USD350 billion. The computer software and hardware sector in India attracted aggregate FDI inflow worth $44.91 billion between April 2000 and March 2020. The sector ranked second in FDI inflow as per data released by the Department for Promotion of Industry and Internal Trade. The sector has been one of the biggest employers in the country. It generated 4 million jobs and provided indirect employment to 10 million people. TCS, the biggest IT services company in India, alone has generated over 4 lakh jobs, while Infosys has over 2 lakh employees. While these are
impressive figures, the Indian IT sector is heavily reliant on the situation in Europe and the US, two of its biggest markets and together contribute nearly 85% of the revenues. Indian IT services appear to be a skewed landscape at present, featuring six big companies with revenues in the $5-$20 billion range and numerous mid-cap companies in the $500 million-$1 billion range. Porter’s 5 Forces Model: The Threat of New Entrants Threat of new entrants is pretty low in the Indian IT service landscape. One of the major reasons being that the deals that come in have a certain scale. And not every company will be able to deal with a project at that ticket size. The startup culture is there, but these startups play in a very niche area. Bargaining Power of the Customer The bargaining power of the customer is high. 10
| SECTOR ANALYSIS hat is primarily because of the Indian IT services companies that are capable of handling work of that nature and size. Though there are only a handful of them, the customers have a sizable option to choose from as each company gets something different on the table.
globally as they are able to provide the work at a cost cheaper than the Indians. Also, the companies that are giving the projects to the Indian IT sector can do backward integration Major Players
Bargaining Power of Suppliers
IT industry is majorly made from business process outsourcing and IT services. Some of the major players are:
This one can be contentious. For example, if we talk about software vendors who provide licensed software. These vendors do give bulk licenses to the Indian IT services companies but still, they are in a position to demand a certain price. On the other hand, the hardware manufacturers can't really be in a commanding position because of the sheer scale of orders that are placed for hardware components.
Infosys Ltd is a global technology services firm that delivers information technology (IT)enabled business solutions to its clients. The company provides end-to-end business solutions that leverage technology for their clients. The Company has a presence in 191 locations across 46 countries as on March 31st, 2019.
Industry Rivalry  The industry rivalry is high here. As mentioned earlier, there are only a handful of large IT services companies and there is a rivalry between them in terms of the deals they win, the market share they grab, the bottom line they are able to showcase. This high industry rivalry has also helped the Indian IT services sector to grow and paved the way for innovation in the industry. Threat of Substitutes At the current economic condition when the economies of the world are slowing down, there are high chances of substitution by an alternative. Other world economies like the Philippines are bidding for IT services projects
Tata Consultancy Services Ltd (TCS) is another multinational information technology (IT) service and consulting company. It is a subsidiary of the Tata Group and operates in 149 locations in 46 countries. India’s biggest IT services company has kicked off the financial year with a 6.3% dip in constant currency revenue growth. Its profit has also taken a hit of 13.8%. HCL Technologies Ltd was founded in 1976 by Shiv Nadar, and it is headquartered in Noida, India. It has offices in 44 countries including the United States, France and Germany, and the United Kingdom. HCL Technologies has announced the acquisition of Australian IT firm DWS Ltd for $115.8 million in a bid to further expand its digital offerings especially in Australia and New Zealand.
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| SECTOR ANALYSIS Government Policies
of the sector even though the pandemic has adversely damaged the economy.
The Indian government has been quite proactive in rolling out incentives for the IT and ITeS industry. In February 2019, it released a national policy on software products to develop India as a software production hub. It has identified IT as one of the 12 champion service sectors for which an action plan is in the works. It has also set up a ₚ5,000-crore fund for realising the potential of these champion service sectors, according to India Brand Equity Foundation. Besides, the government has also planned to launch a national programme on artificial intelligence and set up a national AI portal. Outlook According to analyst reports, most IT services companies are likely to recover to some extent by the second quarter of FY21 as major countries emerge from lockdown and reboot their economies. “The importance and criticality of technology to most firms’ operations across verticals, along with a rising trend in digital and cloud spend post the pandemic, is most likely to drive growth recovery from 2Q onward. However, the situation remains uncertain and the pandemic is far from over; thus, recovery needs to be viewed with a prism of caution. There credible reports of Infosys on-boarding 20,000 fresh graduates in FY21. Strategic initiatives for cost-cutting include reskilling of employees instead of hiring more, to boost utilisation, short-term and temporary cuts on discretionary spend including travel expenses, branding and marketing expenses getting cut. The fact that most of the IT services are expected to recover sooner or later shows the resilience 12
| COMPANY ANALYSIS
HCL TECHNOLOGIES LIMITED Business Overview HCL Technologies Limited is an Indian multinational information technology (IT) services and consulting company having its headquarters in Noida, Uttar Pradesh, India. It is a subsidiary of HCL Enterprise. Originally a research and development division of HCL, it emerged as an independent company in 1991 when HCL entered into the software services business. The company has offices in 44 countries with a worldwide network of R&D, 'innovation labs' and 'delivery centres', and 147,123 employees and its customers include 250 of the Fortune 500 and 650 of the Global 2,000 companies. It operates across sectors including aerospace and defence, automotive, banking, capital markets, chemical ,and process industries, energy and utilities, healthcare, hi-tech, industrial manufacturing, consumer goods, insurance, life sciences, manufacturing, media and entertainment, mining and natural resources, oil and gas, retail, telecom, and travel, transportation, logistics & hospitality. HCL Technologies is on the Forbes Global 2000 list. It is among the top 20 largest publicly traded companies in India with a
market capitalisation of $21.5 billion as of May 2019. As of July 2020, the company, along with its subsidiaries, had a consolidated annual revenue of ₚ71,265 crores (US$10 billion). The Company’s shares are traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Shareholding Governance:
Pattern
&
Corporate
Source: BSE Website
The major stake in HCL Tech is held by its promoters who own a 60.33% stake in the company. FIIs and FPIs together own about 26.42%, domestic institutional investors own 10.80% and retail investors own 2.45% stake in the company. 13
| COMPANY ANALYSIS
Board of Directors Mr. Shiv Nadar is the Chairman and Chief Strategy. Roshni Nadar Malhotra is the Chairperson. Robin Abrams, R. Srinivasan, Sosale Shankara Sastry, Subramanian Madhavan, Thomas Sieber, Nishi Vasudeva, Deepak Kapoor, Dr. Mohan Chellappa, Simon England are the non-executive independent directors of the company. HCL leadership team C Vijayakumar is the President and CEO. Prateek Aggarwal is the CFO. GH Rao is the President (Engineering and R&D Services (ERS)). Rahul Singh is the President (Financial Services). Ajit Kumar is the President (Applications & SI Services Delivery).
Reimagining Mature Products & Platforms). An increase in expenses is attributed to an increase in employee cost which is primarily on account of an increase in the number of employees, change in the mix of employees in various geographies ,and an increase in the average cost per employee due to normal salary revisions. Ratio Analysis Return on Net Worth
Financial Analysis
Return on net worth is computed as profit after tax by average net worth. Return on net worth has reduced from 28.2% in FY 2019 to 26.5% in FY 2020 mainly due to an increase in working capital requirements and investments on acquisitions consummated during the year.
Statement of Profit and Loss (₹ in Crores)
Current Ratio The current ratio is computed as current assets by current liabilities. The current ratio has reduced from 2.9 times in FY 2019 to 1.7 times in FY 2020 mainly due to recognition of deferred consideration on the acquisition of select IBM software products. Inventory Turnover Ratio
The inventory turnover ratio is computed as An increase in revenue is attributed to the the cost of goods sold by average inventory. company’s focused approach driven by the The inventory turnover ratio has improved Mode 1-2-3 strategy has ensured that more from 5.7 times in FY 2019 to 9.3 times in FY than 30% of HCL Tech’s current revenue 2020 mainly due to change in average contribution comes from Mode 2 (Accelerating inventory. New Services) and Mode 3 (Building New And Source: Company Website
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| COMPANY ANALYSIS Interest Coverage Ratio The interest coverage ratio is computed as profit before tax and interest cost by interest cost. The interest coverage ratio has reduced during the year mainly on account of an increase in interest cost on fresh term loans taken during the year. Future Outlook HCL annual results for FY 2020 have shown revenue growth of 16.7% YoY in constant currency and Net income growth of 9.3% YoY. The company has also seen a slight increase in ROE to 23.6% during this period. Overall the growth continues to be linear for the company. The impact of COVID-19 would not be significant on existing business, except for some extraordinary expenses. The company has activated its Business Continuity plan and has 96% of its employees working from home and another 2.5% working at client locations.
HCL Commerce, to Google Cloud. This move will enable businesses to maintain their investments in HCL’s trusted Commerce platform while also taking advantage of the global reach, security, and elasticity of Google Cloud. In addition, businesses across industries will be able to develop positive, data-driven customer experiences online by leveraging Google Cloud’s capabilities in artificial intelligence, machine learning and analytics. Overall the company has solid fundamentals and has delivered consistent growth and profitability. The future outlook is also stable once the COVID-19 situation clears.expected to recover the fastest post the COVID-19 because of its strong brand equity and strength in entry-level and middle segment private vehicles.
The strong revenue growth is driven by the organic growth and acceleration of Mode 2 and Mode 3 business. Products and Platform grew by 60.5% YoY, IT and Business grew by 12.7% and ERS business grew by 12.8% YoY on a constant currency basis. In June 2020, HCL Tech and Google Cloud announced the expansion of their strategic partnership to bring HCL's software offerings, starting with 15
| INTRIGUING INDEED
Telecom AGR Dues
AGR - ADJUSTED GROSS REVENUE SHEENU JAIN | PGDM - FS | 2019-21 AGR stands for Adjusted Gross Revenue, wherein Telecommunication companies have agreed to pay a certain share of their AGR as Annual License Fee (LF) and Spectrum Usage Charges (SUC) to the government for using the spectrum owned by the government as a part of the revenue sharing model as decided by the government in 1999 before which the government and the companies were using the Fixed license Fee’ model. License agreements are in place between the Department of Telecommunications (DoT) and Telecommunication companies which defines the gross revenue of telcos. The LF was set at 8 per cent (Fifteen% AGR was fixed as license fee under "revenue sharing which was reduced to 13 % and lastly to 8 % in 2013) and SUC was set between 3-5 % of AGR. Lately, there has been a dispute regarding the issue of the definition of AGR with the DoT. Where DoT on one hand is saying that AGR includes ALL revenues of Telecommunication companies, the Telecommunication Companies on the other hand are saying that it must ONLY include
revenue from core services and not the income from non-telecom sources like deposit interest, sale of assets, etc. Though the whole story can be traced back to 2003 when Telcos moved Telecom Disputes Settlement and Appellate Tribunal questioning the definition of AGR. The dispute started when the Supreme Court ruled in favor of the government in October 2019 asking them to pay the entire due accumulated over the past 15 years and the verdict stated that they need to pay up their AGR dues along with their spectrum usage charges amounting to over Rs. 1.56 lakh cr. While the AGR dues were not only demanded from the private sector Telecommunication companies, the non telecom Public Sector Undertakings were also included in it, the Supreme Court pulled up the government for 'misusing’ its October 2019 ruling. Post which the Union government withdrew 96% of its Rs. 96 lakh crore demand in AGR from the non telecom Public Sector Undertakings like Power Grid, Oil India, GAIL after which their shares also surged by 3%. 16
| INTRIGUING INDEED The major players in the Indian Telecommunication industry included Bharti Airtel, Vodafone Idea, Reliance communication, Tata Telecom and Aircel. In November 2019, telecommunication companies seeked a review of the October ruling because this ruling plunged them into a severe financial crisis with Vodafone Idea topping this list followed by Bharti Airtel, as the Supreme Court was expecting the telcos to finish their payment in a span of three months and gave them January 23’2020 as their deadline which they missed, post which the government asked the Supreme Court not to take any coercive action against them.
own share of dues worth Rs. 195 crore, it is not liable to pay the dues of RCom worth Rs.31,000 crore as spectrum sharing does not make it liable to pay the dues since the ownership was not transferred as stated in an affidavit file by Jio to the SC.
With the entry of Jio into the telecom sector the companies were already battling for the market share in the Indian telecom industry and the AGR dues only aggravated the whole situation throwing Vodafone Idea on the edge of bankruptcy who had quoted losses worth Rs.14,056 crore in 2018-19 as they were thrown a demand of Rs.53,000 crore in June 2020 by the SC post which their share price also fell 39% hitting a low of Rs.3.66. And they appealed to the SC to allow it to pay its dues over the next 20 years and also in order to get their way around this problem they even proposed raising their data prices by 10 times in order to cover its dues.
In August 2020, the hearing ended and the Supreme Court reserved its judgment. The Supreme Court also ruled that “If Telecommunication companies are unwilling to pay, we will direct cancellation of spectrum allocation”, said a three judge bench led by Justice Arun Mishra along with MR Shah and S Abdul Nazeer. They said this because they wanted to know if the hard hit telecommunication companies were thinking of selling their spectrum, which actually belongs to the government under the Insolvency and Bankruptcy Code.
The Supreme Court also asked all the bankrupt telecommunication companies who were unable to pay their AGR dues as to who used their airwaves. Reliance Communication (RCom) entered into an agreement with Jio in 2016 trading spectrum in eight circles and sharing airwaves in 17 circles, on which the appropriate charges are being paid as required. While Reliance Jio had fully paid its
There were differences in the amounts calculated by the DoT and self assessed by the companies on the amount that needs to be paid as their AGR due for which the SC ruled in July that their calculation is final and they won’t be hearing any arguments for reassessment and confirmed their AGR dues demand of Rs. 1.56 lakh crore.
On 1st September 2020 the Supreme Court announced that Telcos had to pay their AGR dues within a span of 10 years and must pay 10% of their total dues by 31st March 2021. The SC also dropped the contempt cases against the telecommunication companies. It also ordered their managing directors to give personal guarantees within four weeks. It also exempted Reliance Jio and Bharti Airtel from paying dues around Rs.40,000 crore for using the spectrum of defunct telecom companies, 17
| INTRIGUING INDEED Rcom for Reliance Jio and Aircel and Videocon for Airtel. Then came a conflict in the interpretation of this statement between the telecommunication companies and the DoT. On one hand, Bharti Airtel and Vodafone Idea claim that they have already paid over 10% of their AGR dues and their next installment is due only by 31st March 2022, DoT on the other hand is of the view that telecommunication companies have to pay their AGR dues in the current fiscal year for which it is going to seek legal opinion from Solicitor General.
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| GREEN FINANCE
HOW ESG INVESTING IS THRIVING AMIDST THE COVID 19 PANDEMIC Renita Raphael | PGDM Finance | 2019-21 Smith Shah | PGDM Finance | 2019-21 Introduction to ESG Investing
ESG standards are more conscientious, less risky, and are more likely to succeed in the ESG stands for Environmental, Social, and long run. Governance. Investors are increasingly applying these non-financial factors as part ESG refers to a class of investing that is also of their analysis process to identify material known as “sustainable investing.” This is an risks and growth opportunities. ESG metrics umbrella term for investments that seek are not commonly part of mandatory positive returns and long-term impacts on financial reporting, though companies are society, the environment, and the increasingly making disclosures in their performance of the business. There are annual report or their standalone several different categories of sustainable sustainability report. Numerous institutions, investing. They include impact investing, such as the Sustainable Accounting socially responsible investing (SRI), ESG, Standards Board (SASB), the Global Reporting and values-based investing. Another school Initiative (GRI), and CDP are working to form of thought puts ESG under the umbrella standards and define materiality to facilitate term of SRI. Under SRI are ethical investing, the incorporation of these factors into the ESG investing, and impact investing. investment process. Impact of COVID-19 on ESG Investing ESG factors, though non-financial, have a material impact on the long-term risk and The COVID-19 crisis has not only brought on return of investments. ESG is incorporated the greatest recession since World War II, into risk mitigation, compliance, and but investors are also calling it the 21st investment strategies. Companies that use century’s first “sustainability” crisis and one 19
| GREEN FINANCE that has renewed the focus on climate change, acting as a wake-up call for decisionmakers to prioritize a more sustainable approach to investment.
investors that are some of the bestperforming segments of the stock market lately. 2. Technology
In the wake of the coronavirus, ESG Investing has seen its fortunes rise. Worldwide, investors poured $45.6 billion into ESG funds in the first quarter of the year, compared to outflows of $384.7 billion for the overall fund universe, according to research firm Morningstar.
The push into sustainable investing has been gathering pace this year as governments channel virus-related recovery funds into health and environmental projects and companies with solid principles around ESG have been able to perform well in these times. The pandemic has encouraged “investing with a conscience” motto, adhering to environmental, social, and governance principles. This has driven increased adoption of ESG investing around the globe during the pandemic. Reasons for the Boom 1. Outperformance & popularity Popularity is one reason. The millennial generation favors investments in companies that are good global citizens. They are more likely to invest in businesses that must 'serve communities and society' and to favor a company associated 'with a social cause'. A huge number of investors these days are putting their money where their values are. It reflects in the trends supported by ESG
Technology has long been a key driver behind the sustainability movement by improving resource efficiency and facilitating the search for new business models. For investors, technology—often based on machine learning and AI—has become the backbone of ESG investing, enabling data process transparency and the efficiency of performance. The pandemic has greatly boosted digitalization across all sectors of the economy, and by doing so, it has strengthened the digital infrastructure and analytics that make up the sustainable investing infrastructure. 3. Environmentally conscious energy An example of ESG investing: renewable energy companies working to transition from an oil-and-gas-based economy to an economy that uses solar and wind power to generate electricity, which is used to power cars and trucks. Few stocks have performed as fabulously as the electric car company -Tesla in 2020, which has seen its share price roughly quadrupled since the year began. But the remarkable success of rival electric truck company Nikola, which doubled in the week following its IPO in June, as well as clean "fuel cell" energy stocks like Plug Power and Bloom Energy over the past month, demonstrates the intense popularity of environmentally responsible stocks currently. The
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| GREEN FINANCE gains these stocks have been building on have also contributed largely to the outperformance of ESG funds over the broader stock market. 4. Natural Boundaries The pandemic and the health crisis has been looming over all continents and has put the spotlight on vulnerabilities and our dependence on the natural environment. It gives out the message that markets do not operate in isolation, but instead are interconnected to societies and the natural environment. This realization will fundamentally change our long-term risk perspective and the way we prepare for the future crisis. Prevention is better than cure, and decision-making backed by science is the way to build resilience and ensure future survival.
Future of ESG Investing Policymakers are now facing historic choices that will change the framework conditions for markets in a lasting way. They have the power to foster cooperation and they can ensure that the public funds are now being used to accelerate the transformation towards cleaner, healthier, and more sustainable outcomes. More and more investors and corporations are embracing good ESG performance as a strategic indicator. Technological change, environmental imperatives, and long-term social norm changes will propel ESG investing and corporate sustainability forward. These trends are irreversible and global in scope. Intelligent ESG investing is on its way to becoming the new normal.
5. Treating shareholders fairly The 'G' in ESG investing – 'Governance' is also a major reason for the boom. Improved governance can enhance long-term shareholder returns.
Those corporations that fail to transform their business models will be replaced by others that have the adaptive flexibility to thrive in a new world that values smart, clean, and healthy activities.
When management is highly rated for explaining its business strategy, setting and meeting goals, and keeping its earnings clear and understandable, this makes it easier for shareholders to tell if the company is being run well - informing how they should vote on the director elections. And when companies are kept better on records, their returns will be more profitable for their shareholders.
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| INTERN DIARIES
INTERN DIARIES
Manya Mohan PGDM Finance|19-21 Company Overview The Tata Capital, founded in 2007, head by Rajiv Sabharwal, (Managing Director & CEO) and Sarosh Amaria, (Managing Director), has a business portfolio that caters to the diverse financial requirements of its retail, corporate and institutional customers. A one-stop financial solutions partner, Tata Capital’s suite of products and services offers a wide range of options to the customer. In the corporate segment, the Company’s wholly-owned subsidiary, TCFSL offers
Commercial Finance solutions, including Construction Equipment (“CEQ”) Finance and leasing solutions to corporate customers. In the Retail segment, TCFSL provides Asset Finance across urban and rural geographies. Tata Capital also operates in the housing finance space, through another wholly-owned subsidiary viz. TCHFL, which offers Home Loans, Affordable Housing Loans and Loans against Property, mainly in the Retail segment and in Construction Finance, in the corporate segment. TCCL, Tata Cleantech Capital Limited, provides finance and advisory services to corporate customers for Renewable Energy, Energy Efficiency, Water Management projects and cash flow based Infrastructure Finance. Tata Capital provides distribution of Mutual Funds and third party financial products for institutional customers, through its whollyowned subsidiary, Tata Securities Limited. In the Private Equity space, TCL has sponsored Private Equity Funds in India, to which it acts as an Investment Manager. Tata Capital Pte. Ltd. (“TCPL”), a wholly-owned subsidiary of TCL. 22
| INTERN DIARIES Process: Tata Capital recruits from K J Somaiya Institute of Management for its SPARK internship program which revolves around marketing and finance projects in subsidiaries of the Company. The geographies offered are Mumbai, Delhi, Bengaluru and Pune. The company post a Pre Placement Addressal starts with the process in the following order: 1. Group discussion 2. Group Interview 3. Personal Interview (Technical and HR) Students are bifurcated as per streams of Marketing and Finance for the panels. 99 students were shortlisted for the process of Group Discussion and further 35 students were selected for the Group PI. Finally 12 students were called for individual Personal Interviews and out of those 4 students were finally selected for the internship. The process checks your presentation and leadership skills alongside testing current affair awareness in the field of finance and business. Both GD and Group PI lasted for a duration of 15 minutes each. We were given the topic of financial inclusion in India for the GD and asked to put forth our opinion on the status of the NBFC crisis in India post the IL&FS crisis. For the individual personal interview, I was asked about my interest in finance, what streams do I see myself in as part of Tata Capital and about my Master Thesis paper in
undergrad which revolved around stock markets. My experience: Tata Capital goes by the tagline “Count on Us” and amidst all the chaos due to the COVID-19 pandemic, Tata Capital gave us the sense of safety and support that we as interns needed in such unprecedented times with its smooth transition to the virtual mode of Summer Internship. I was working with TCFSL – Commerce and SME Finance Division (CSFD) division for my summer internship project. The project entailed understanding the leasing operations and process as a whole and specific to the TCSFL. Understanding the NACH Process as an automated payment collection method for rentals and how it reduces the collection time, thereby increasing timely cash inflow and reduction in delayed payments was also a prime concern of the project. I was also made responsible for the conversion of pending Non-NACH cases that needed amendment and asked to deep dive into the current process and make amendments so as to align the process with their objective of digitizing the processes. I was not bound by my assigned region of working, ie. Mumbai but had the opportunity to connect with the Pan-India team of leasing and dig up problems and challenges faced in the wake of the pandemic and otherwise. The internship was very structured in terms of the roadmap and deliverables but also gave me room to improvise and add my own inputs. The company follows an open door policy 23
| INTERN DIARIES due to which we got a chance to interact with multiple CXOs and attend training sessions taken exclusively for TATA employees. A Piece of Advice: Since you will be appearing for your internship interviews, companies expect a basic understanding of concepts but do expect a thorough knowledge of current affairs and a comprehensive understanding of every word in your CV. The latter two points are very helpful in driving interviews and GDs in your favour. Be thorough with the Job Description of the role you are applying for and the company you are sitting for. Do ask the recruiters meaningful questions to get a better understanding of the firm and role. Finally, stay motivated and give it your all. Each opportunity is an opportunity to learn and become better. All the very best!!
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| ALUMNI INSIGHTS
ALUMNI INSIGHTS Krunal Sampat | MMS Finance | 2017-2019 So this is my 3rd article at Finly and 1st as an Alumnus . I currently work as a Business Analyst in the Business Intelligence Unit (BIU) of Axis Bank. BIU is a techno-functional team comprising Data Scientists, Data Engineers & Business Analysts providing data-driven solutions to various functions of the Bank and helps in decision making. I work in the Fraud Analytics team wherein my primary goal is to identify the modus operandi of emerging fraud trends in the digital payments space followed by analytical strategies for fraud risk mitigation.
Personal Finance So you’ve started prepping for GDP, inflation, union budget, have you ever created a budget for yourself. Income, expenditure, how many months can you survive with no salary? So a year from now final year students will start minting money, first shock for freshers would be to realize your in-hand salary would be different than your CTC. Depending on your employer CTC components might comprise of Joining bonus (one time)
Previously, I worked in the HR/People Analytics team with hands-on experience on Attrition Modelling, Employee Productivity, Break-Even analysis, L&D effectiveness, and Talent pipeline.
Performance bonus (usually year-end)
Due to confidentiality reasons, I won’t be sharing more about my role rather I’ll try to write about Personal Finance. It’s not an exhaustive list, I’ve tried to cover major ones in layman terms .
Loan Benefits (Discounted rate for a home loan, vehicle loan )
ESOP (vested over multiple-year) Variable pay
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| ALUMNI INSIGHTS While the left side of your salary slip usually excites you with your income, the right side i.e. deductions would come as a shocker PF, Gratuity, Group Term insurance, Professional tax, and yes Income Tax! I won’t deep dive, will try to give a gist of available options Tax Saving Options - Tax saved is money earned In order to avoid income deductions by your employer as soon as your financial year starts make sure you declare that you’ll invest XYZ Rs in following tax instruments. At Least declare 1.5 Lakhs under ELSS (Thank me later)
as income from house property while filing their return) Meal Card - Depending on your employer opt for meal card Section 80G – Deduction for donations towards Social Causes Section 80D - Your employer cover is not enough. Take medical insurance for yourself and parents. For yourself you can claim up to Rs 25,000 while for parents below 60, deduction is up to Rs 25,000. Hence total deduction one can claim is up to Rs 50,000. Credit Cards - So called Demons!
Section 80C - 1.5 Lakhs ELSS - Mutual funds that invest in equities with lowest lock-in of 3 years ~15% interest Tax Saving FD - 5 year lock-in with ~6% interest Life insurance - Insurance is a necessity keep it separate from investments.Don’t take ulip or endowment plans rather go for Term plans. Take increasing plan where insured value increases every year or lump sum top up when you get married or have kids Section 80E – Deduction for Interest on Education Loan for Higher Studies Section 80GG – House Rent Paid to your tenant or you can also pay to your parents if your parents own the house and you stay there (Your parents need to show the rent
Credit cards aren't the demons, indiscipline to pay on time is. CC would give you a free credit period (20-50 days) during this period and the bank does not charge any interest. It helps to build your credit history thereby improving your credit score (like CIBIL) & increases your chances of approval for future loans. Check out the following: Welcome benefits, annual charge, reward point conversion, privileges, joining fees Co-branded cards like Axis-Flipkart, ICICIAmazon etc. to get the best deals Please don’t use your credit card to withdraw cash from ATM Use CRED to pay bills on time and earn points 26
| ALUMNI INSIGHTS Stock - First preserve your capital Fixed Deposit - Our parents love it If you don’t understand anything at least move your funds from savings account to Bank FD. Break a large amount to multiple FD’s say 50,000 to 5 FDs of 10,000 each so that in case you need to withdraw 20,000 you’ll attract a penalty only 20,000 and not on entire 50,000. Bank FD - Currently ~5% for 1 year in traditional banks (Axis, HDFC, ICICI, etc.) Corporate FD - Offered by Financial and NonBanking financial companies (NBFCs). Interest rate is usually 1-2% more than banks. Before investing, check for an average “Stable” rating by credit-rating agencies. Emergency fund - It’s not always YOLO An emergency fund is a financial safety net for future financial surprises and/or expenses. Before calculating how much emergency fund is required calculate your income and expenses per month. If you have annual expenses like Mediclaim, Insurance premium, you should calculate per month expenses. “A budget is telling your money where to go, instead of wondering where it went.” — John C. Maxwell Emergency funds should typically have 3-6 months worth of expenses in the form of highly liquid assets. You can start small and build up the emergency fund corpus gradually. Check out the emergency fund calculator and start SIP mode in Liquid Funds or other liquid assets to build corpus.
Don’t love your stock, I’ve learned it hard way Don’t put all eggs in 1 basket - Diversify You can follow combination of fundamental analysis/technical analysis for selecting your stocks Options and intraday look cool but can be devastating. I personally learned from zerodha varsity and followed stockademy (youtube channel) for technical analysis and market insights Mutual Funds - You can’t manage everything Mutual fund relies on your goals and risk appetite. Check the following before investing Check Scheme risk (high risk high return) Invest in Direct Growth funds (Dividend from companies would be reinvested)Check past performance (Doesn’t guarantee future performance) 4-5 rated by credible agencies such as CRISIL, Morningstar & Value Research & track their historical ratings too Check sector holding, company holding, instrument holding Apart from liquid funds and tax saver funds, you can invest in following funds;
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| ALUMNI INSIGHTS
Equity Funds - Invest in Large, mid and small sized companies 1. Blue chip Funds 2. Mid Cap Funds 3. Small Cap Funds Debt Funds - Invest in fixed income instruments, such as Bonds, and money market instruments etc. Balanced / Hybrid Funds - Mutual fund schemes that invest in a mix of equities and debt Thematic funds - Invest in specific sectors like Banking/IT etc. Global Funds - Invest schemes/companies
in
global
Best of luck and I hope you end up in the highest tax-paying slab soon. Let’s connect in case you need any help with placement prep or want to deep dive into Analytics. Disclaimer: The views expressed are my own and do not represent the views of my employer.
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