Finly October 2018 by FINLY

FINLY| OCTOBER 2018 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers, We at Finstreet are proud to unveil the October edition of our monthly magazine FINLY for the academic year 2018-19. Our Cover Story revisits the Global financial crisis of 2008 and its impact on various fronts after a decade. Next in line, is the Eco Section, which explains in detail about the Current Account Deficit and how it affects different stakeholders? In the Sector Analysis, the authors inspect the Media & Entertainment Industry, with an indepth analysis of the latest disruptions in the industry. This month's Fintech Funda is about the latest investment by famous investor Warren Buffet in Paytm, thus signalling his arrival in India. We are fortunate to have Mr. Pranav Parikh, the outgoing student of MMSFinance and former member, Finstreet, to pen down his experiences during MBA in the Alumni Section. Shivam Aggarwal, a current student of PG-Finance and Chandan Jagtap, a current student of MMS-Finance, have penned the experiences of their summer internship at EDELWEISS FINANCIAL SERVICES and INVESCO respectively, which I am sure will definitely be useful for juniors for getting a feel of the type of companies that come to campus and the stay of their internship at any company in the future. In the end, we have introduced a new section called “Know Your Finance”, which contains information, breaking down some useful concepts in Finance, which would help any aspiring finance student to take baby steps in building the concepts as well as confidence in the subject. I am thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, PGDM Core, and Faculty Coordinator, Finstreet) for providing the much required mentoring, support and backing to the Finly team. I would also like to thank our New Sponsors, White Knight Ventures, for an enriching collaboration. We hope to continue the partnership for a very long time. We have received an overwhelming response for this month's call for article competition, with some high-quality content from some of the best management colleges of the country and I thank each and every participant for their sincere efforts and participation. This month's winner's and runner-up articles are a recommended read. I thank all our readers and faculty members for their constant love and support. Your reviews and feedback are much appreciated. 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 I can't thank them enough for their constant support and initiative. HAPPY READING!!! R Prasanth, PGDM-FINANCE, 2017-2019, K.J. SIMSR

Faculty Incharge

Editor-in-Chief

Team Finly October 2018 Dr.(Prof) Pankaj Trivedi

R Prasanth

-Conceptualization & DesignAachman Vijayvargia

Indresh Naithani

Shubham Patel

-Content TeamYash Gore

Shreya Baderia

Adyasha Pratihari

Ankit Kumar

Shubham Goyal Madhura Shastri

Shraddha Joshi

Isha Koolwal

Pratik Sharma

Shreyas Vaidya

Saurav Jain

Radhika Goyal

Ankit Chatwani

Mohak Shah

Prateek Tripathi

FINLY| JULY 2018 | Finstreet | SIMSR

INDEX

Editorial Team Finly

Cover Story

Article of the Month-Winner

Article of the Month-Runner Up

Eco Section

Fintech Funda Alumni Section Sector Analysis Internship Diaries

Know your ď&#x20AC; nance

th 2 1o Years anniversary of

Financial Crisis

Cover Story

Shreyas Vaidya, MMS, 2018-20 Ankit Kumar, MMS, 2018-20 Yash Gore, PGDM, 2018-20

RECALLING THE FINANCIAL CRISIS 2008 The 2008 financial crisis was the breakdown of trust within the financial system. It began with a crisis in the mortgage market in the United States. Considering the booming housing market since the mid-1990s, mortgage lenders in the US started giving out home loans to almost every aspiring home buyer without much of a thought. Lenders did not even mind “subprime” borrowers, who are more probable of defaulting &those who do not earn enough to afford a home loan. These borrowers were initially charged a nominal rate and later charged a higher interest rate. This caused the housing prices to rise high. In order to lend to home buyers, the mortgage lenders wanted more money, hence they sold their existing loans to

banks and to Freddie Mac and Fannie May, which in turn sold these to investment banks. The investment banks combined these loans with hundreds of others, into what is known as collateralized debt obligations (CDOs) and sold these to investors worldwide as mortgage-backed securities. This is where another infamous term from the crisis called credit default swaps became “popular”. Insurance companies used these to cover investor's losses if home buyers defaulted on loans. No one expected that this will lead to such a big catastrophe and hence there were no worries. Housing prices started falling in 2006 and home buyers began defaulting on their loans. Thus, the insurance companies couldn't honor all their credit default swaps. Investment banks and investors were left hanging. It developed into a fullblown international banking crisis with

Cover Story

FINLY| OCTOBER 2018 | Finstreet | SIMSR

the collapse of the investment bank Lehman Brothers on September 15, 2008.This was the moment when global financial stress turned into a full-blown international emergency. Governments had to step in and throw a lifeline to these institutions. India was relatively unaffected by the crisis. BUT WHAT EXACTLY HAPPENED ON THE DAY A DECADE AGO? The Wall Street bank was allowed to go bust as the US government refused to bail out Lehman Brothers, which was finding it impossible to roll over its borrowings in the markets. This failure of an important financial institution with about $700 Billion of liabilities created a great shock to the entire global financial system. The global money markets froze, and banks and insurance companies in most of the developed world also suddenly found that they could not borrow either. For more than a year, the financial system had been under stress. The cause of this stress was a loss of trust amongst financiers in the solvency of each other's institutions. The entire Western banking system was undercapitalized and illiquid. And this was true not just in the US and the UK, but across Europe too. If they had had more robust balance sheets there would still have been a crisis as the bad lending bubble burst, but it would not have become the near total meltdown we saw in September 2008. The economic consequences were intense. The International trade experienced a downfall, falling at a rate

even faster than it did during the GREAT DEPRESSION of 1930s. The same was true for industrial production. Business and household confidence collapsed. The global economy went into recession. Unemployment soared around the world. It was the worst financial crisis in global history. Central banks were forced to lend to banks to prevent the financial institutions from bankruptcies. Such a general collapse would have meant, all around the world, wages not being paid, cash machines not operating and thus total panic. THE GLOBAL IMPACT Let us explore how the impact of this crisis and the chances of recovery for the same varied in regions around the world. It showed that even though the United States was the originator of the global economic crisis, it is one of the countries least affected by the financial fallout. Large industrialized nations like the United States, Japan, and Germany have benefited from increasing global demand for relatively stable economies for investment. Instead, it was several developing countries, notably those with vulnerable capital accounts and weak macroeconomic fundamentals that experienced severe economic downfalls irrespective of their roles in the crisis.

Cover Story

FINLY| OCTOBER 2018 | Finstreet | SIMSR

Thus, the economic crisis has shown that even when a crisis originates in industrialized countries, developing countries pay the highest price. The financial soundness and stability of large economies like the United States a re ve r y c r u c i a l fo r d eve l o p i n g countries. This explains why rather than G8, G20 is leading the effort to design a regime to govern international finance. The BRICs: Brazil, Russia, India, and China organized their first summit to discuss the role of the dollar as its reserve currency. It is probably due to this very reason that the concept of Bitcoin, the cryptocurrency, was invented by an unknown person named Satoshi Nakamoto in November 2008 just after the financial crisis.

It was a very compelling subject for filmmakers, as reflected in the number of movies and television shows. The world economy has come a long way since the global financial crisis that caused the downfall of major financial markets and led to a global recession. Emerging market economies survived the initial phase of the crisis in better shape, and became stronger by investment-driven growth in China. However, cross-country comparisons reveal some surprising results. It is still becoming difficult to connect the dots between the performance of equity markets and macroeconomic variables such as GDP, of both advanced economies and emerging market economies.

More than half of the indices value was lost by the European and Japanese stock markets, as measured by the MSCI Japan and the MSCI Europe (excluding the UK) indices. The World, US and Asia (excluding Japan) indices all fell by more than 40%, while about 35% of its value was lost by the UK. However, due to the attempts of the central bank, US stocks have more than tripled since the crisis low. UK, European and Asian stocks are all up more than 1.5 times in the same period. The film industry was inspired by the financial crisis and did a great business showcasing the films based on it. There were about 468 titles on the Internet Movie Database related to the financial crisis, depending on key phrases like “housing bubble” and “economic crisis” in the plot summary. The US housing market was in a free fall, during which millions of Americans lost their homes.

Thus it can be seen that the U.S. is leading among the advanced economies, with real GDP now 18 percent above the precrisis level. Also among emerging

Cover Story

economies, India and China have seen strong gains in real GDP, while Russia & Brazil made little progress. When the measurement was done on basis of per capita, real GDP growth in the U.S. looks less impressive, while the performance of Japan & Germany is quite impressive. India& China have been performing even better than advanced economies in terms of growth from the pre-crisis period. GDP since 2007, in these countries, has at least doubled. U.S. stock markets have outperformed both India & China even though the economy expanded by only 18%. Similarly, the stock markets of many other emerging economies have struggled. India's stock market has done far better than other advanced and emerging market economies (with the U.S. as the exception), rising in value by nearly 90 percent since 2007. In dollar terms, U.S. stock market performance is the best as seen in the charts below

FINLY| August 2016 | Finstreet | SIMSR

Thus, over the past decade, the U.S. stock m a r ket s ca n b e s e e n a s h av i n g outperformed other advanced and emerging market economies. The stock markets have raised a lot more than the GDP, in most other advanced economies. Equity markets have probably not taken a big hit from geopolitical tensions, political turmoil, trade wars and other shocks that would normally generate far more volatility in these markets. Let us take a look at various sectors & their performances with respect to the returns obtained if $1000 were invested before the financial crisis.

As the chart above shows, over the last ten years, companies involved in consumer staples and healthcare, basically those that make household goods like food &cleaning products, would have provided the most returns. As can be seen in the above chart, a return of $2,089 and $2,039 respectively would have been obtained on an investment of $1000. Since 2007 investors have preferred stocks that provide a stable income even during bad times. Banks were the worst performers. As no one was sure regarding the kind of toxic assets still owned by the banks, investors decided to leave them alone for

Cover Story

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good. However, over the last ten years, the banks have done a lot to rebuild their businesses. So it is the time to reevaluate the case for investing in banks.

The above chart shows banks' price-tobook multiple (P/B). It indicates how much investors have devalued world banks. P/B compares the price with net asset value or the book value of the stock. A high value, usually above 1.5, means that relative to the value of assets expressed in the accounts, the company is expensive. A lower P/B ratio could mean that the stock is undervalued. Coming to India, operations of Lehman were small. As such, the direct impact was limited to the broader financial system. The various objectives of RBI were first to maintain sufficient rupee liquidity, second; to douse the system with foreign exchange liquidity, and third; to keep the financial markets going. Indian banks had limited exposure to the toxic securities that had led to a downfall of western markets. But there was still some concern that India's global banks like ICICI may have an exposure. Rumors started to spread like wildfire and the credit default swaps of ICICI hiked. Eventually, it led to concerns regarding the possible run on

the bank. Those rumors needed to be stopped in their tracks. Both the government and the RBI acted immediately by releasing a statement stating that the ICICI bank had sufficient liquidity available to meet the requirements of the depositors and demands of the customers and ATMs. Government officials matched that assurance and the top management of ICICI Bank took to the media to say that the bank was in good financial health. Slowly the attention shifted away from banks to the health of the mutual fund sector, which was facing a genuine liquidity squeeze. On Oct. 15, the RBI put in place a special line of liquidity which would provide up to Rs 20,000 crore for mutual funds. Special liquidity facilities were put in place for Small industries development, housing finance companies &NBFCs. The focus shifted over time towards the real economy. With the view on curbing inflation, just before the financial crisis, India had hiked rates to 9 percent. Thus, various measures taken up by the RBI, such as relaxing cash reserve ratio requirements & interest rate cuts, shortened the length of the economic slowdown period in India. POTENTIAL RISKS WHICH STILL EXIST(S) IN THE WORLD ECONOMY With respect to the current global economic and financial scenario, government officials, academicians, and entrepreneurs agree to the fact that the world is always at a great risk. Although the global economy is gradually growing, the general economic environment remains slow. We must be aware of the

FINLY| OCTOBER 2018 | Finstreet | SIMSR

possibility of similar risks, even today, as the current global economic climate is not balanced and we are not completely certain. Despite encouraging signs, such as interest rates, oil prices, financial asset prices and a universal sense of wealth improvement, an unsustainable monetary or trade policy could create problems in the near future. It is true that the global financial market will u n d e rg o a d j u st m e n t s , a s m a ny countries have accumulated large debts, public or private, and the geopolitical environment remains unstable. There is a great possibility of a similar crisis in the future. The GDP of major economies has increased, as indicated by the prosperity of capital markets. The quantitative easing policies of central banks have led to high asset prices and the imbalance of the real economy and the labor force, resulting in a growing gap between the rich and the poor. Both developed and developing countries cannot ignore certain risks. Even major economies in Europe and the United States face potential dangers. Changes in the US Regulatory Environment have brought new challenges to the global financial system and will influence the driving forces over the next five to seven years. The increase in activity among investors and financial stability seem to be strengthening. However, there are many uncertainties in policies. For example, the arrival of populism and nationalism and the transition from multilateralism to unilateralism. The global political environment has

become very interesting since the financial crisis; the impact of the previous US presidential elections, as well as a series of new regulations on monetary policy and banks, could pose challenges to the global market. For China, experts and researchers from different points of view have emphasized the importance of financial risk prevention. In general, money has exploded in the last ten years, but we are surrounded by financial risks. At the same time, China faces challenges in the areas of property bubbles, credit and debt. Wan Zhe, the chief economist at the International Development Cooperation Center and the Reform Commission, said the apparent virtualization trend was one of the main complications of the Chinese economy. Wan said that from the 18th to the 19th National Congress of the Communist Party of China (CPC), the society accepted the idea that finance should support the real economy. The report of the 19th CPC National Congress proposed eight major reforms and deepening of financial reform which included the establishment of China's main mission to avoid systemic financial risk, to avoid a 'black swan' or a 'grey rhino'. LESSONS FROM THE FINANCIAL CRISIS Experts have attempted to summarize the empirical principles concerning the economic crisis. Retrospectively, the Federal Reserve has always shifted from quantitative easing or increasing the money supply to reduce the effects of austerity before the economic crises and, after the outbreak of such crises, a large

amount of International capital is flown out from the crisis-hit countries. In addition, experts have analyzed the profound impacts of this financial crisis. The financial crisis of ten years ago had not only brought cyclical but structural consequences. Economic, political and social reforms have rarely been effective and, without structural economic reforms in place, negative effects could appear on growth in the medium or long term. Also, the unequal redistribution around the world could lead to the return of globalization. Policymakers have learned from the 2008 financial crisis and have improved regulatory frameworks to varying degrees. The prevention and resolution of financial risks are important elements for ensuring stable and healthy economic development and suggests three unique routes-

Âˇ First, strengthening the regulation of financial markets and maintaining its stability is the most realistic, concrete and essential requirement. Financial risk is elusive and complex. Its lack of control will seriously affect the stability of the financial market.

Âˇ Second, financial supervision should play an important role in promoting economic development. Finance must support the real economy in order to optimize the financial structure and st re n gt h e n f i n a n c i a l refo r m b y reinforcing it.

pursuing speed or failing to enforce the regulatory system. Gaps in the regulatory system should be addressed, regulatory improvements accelerated, messes in the financial markets taken care of and the financial sector developed in a stable and healthy manner. These are not the only lessons learned from the financial crisis: developing countries have also formulated a series of responses to similar crises. For instance, in 1999, Pakistan's economy was on the verge of collapse. Shaukat Aziz, the IFF cochair in 2003 and former finance minister and prime minister of Pakistan, entrusted with the future of the country at this critical time, found that the strings attached to IMF aid were difficult for Pakistan to bear and did not correspond to the national reality. Pakistan rejected the IMF's proposals and led its own reforms in industry and employment. Aziz stressed that, more importantly, a country should not seek economic dependency on another country or an international organization, but develop its own way of avo i d i n g d i s o rd e r a n d i m p ro v i n g economic structure. Aziz also identified that, compared to developed countries, developing countries enjoy greater flexibility. Deregulation, privatization, and liberalization are the slogans of Pakistan's reform. Important measures also include the establishment of competitive strategies for privatization, open markets, capital inflows, and currencies.

Âˇ Third, attention must be paid to financial risks during the operating process, for example -by blindly

Berkshire Hathaway without Buffet

The Indian Rupee

in Free Fall Article of the Month - Winner

Avinash Singh IMT Ghaziabad 2017-19

After a string of successes in the last 4 years, the Indian economy has again fallen in a troublesome spot in the past few weeks. This time the challenge is intense and seems to be growing stronger by the day. The case in point: â&#x20AC;&#x153;Depreciation of the Indian Rupeeâ&#x20AC;?.

The economic news around the past few weeks has been surrounded by the fall in the value of rupee against the dollar (US$). The rupee has been breaching its benchmark value every other day, but this time the benchmark values are unfavorable for the Indian economy. Graph 1 below depicts the depreciation

of the INR v/s US$. The INR has been in a state of free fall since the February of 2018 and its value has depreciated 13.53% from INR64.25/$ in early February to its lowest point ever in history at INR72.70/$ on September 11th, 2018. SO, WHY IS IT HAPPENING? A key factor to note here is that it is not only India but many major emerging economies like Russia, Turkey, and Argentina who are facing the brunt of the dollar appreciation. The Argentinian peso is in the lead with a depreciation of close to 98%. Most of these emerging market currencies have been hit harder than the INR. But the fact that the Indian rupee has been the worst performing currency of Asia, is a cause of concern. The fall in major currencies is depicted in Graph 2. This fall has been caused by a mix of several economic factors. Occurring at

Article of the Month - Winner

FINLY| JULY 2018 | Finstreet | SIMSR

almost the same time, the amalgamation of these factors has attenuated the fall in the currency. REASONS BEHIND THE FALL With an outlook towards India, let us study the economic factors responsible for the present state of the rupee: 1) Rise in Oil Prices â&#x20AC;&#x201C; Following the decision to cut oil production by more than 1.5 million barrels a day taken at the OPEC's 171st Regular meeting in November 2016 to increase dipping oil prices finally took its effects in late 2017. Oil prices rose from mid-$40's to about $58 in November 2017. The decision to extend the cuts till the end of 2018 has appreciated the price of each barrel with a peak of around $80 a barrel in August 2018. As India is a substantial

FINLY| OCTOBER 2018 | Finstreet | SIMSR

importer of oil, which it buys using dollars in the international market, the increase in demand for dollar has pushed the rupee down. The situation has been further aggravated by the US sanctions on its allies to stop oil purchase from Iran. The sanctions are to go in full effect in November 2018. Analysts estimate the oil price will touch $90/barrel, due to Iran's oil deficit. 2) Increase in Non-Oil Trade Deficit While rising oil prices would increase the oil trade deficit, India's non-oil trade deficit has also been on the rise. Going by the numbers, the non-oil trade deficit has grown significantly more, at $1.8billion from January â&#x20AC;&#x201C; July 2018, while oil deficit is around $0.5 billion for the same period. As a net result, the total trade deficit has risen to $18 billion causing the rupee to lose its value due to increased demand for

FINLY| OCTOBER 2018 | Finstreet | SIMSR

Article of the Month - Winner

HOW DO THEY MAKE MONEY? 2) Increase in oil and diesel prices in India the dollar. Gold imports and imports of non-oil, non-petroleum products are the major contributors to the rising deficit. Due to the rise in non-oil deficit, future of rupee looks rather bleak.

3) Price hike for imported products like mobile phones, computers etc. 4) Rise in the CPI (consumer price index) due to inflation Weak exchange rate has hindered firms f ro m d o i n g ex te r n a l co m m e rc i a l borrowings. As a result, economic growth is predicted to slowdown

Source: Livemint

3) FII Outflows â&#x20AC;&#x201C;With the increase in the US interest rates in late 2017, there has been a massive outflow of FDI from the Indian economy. Coupled with the volatility in the market expected till 2019 elections and the declining rupee, it is expected that the outflows will continue. The outflows increased dollar demand, pushing dollars levels even further.

EFFORTS TAKEN BY INDIA The government along with RBI has been pro-actively trying to arrest the fall in INR. Steps include EFFECTS 1) Current Account Deficit may rise to 3.6% of GDP

1) Use of Forex â&#x20AC;&#x201C; RBI has been actively selling US dollars in the spot market to reduce its demand. The forex reserves have been depleted from $426 billion to

Article of the Month - Winner

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$400 billion from April-August. Currently, RBI has enough reserves to last for 10 months of imports 2) Restriction on imports of certain nonessential items 3) Manufacturing firms can avail ECB facilities with a one-year minimum maturity, rather than the previous limit of 3 years 4) Withholding tax of 5% on Masala Bonds will be removed on bonds issued till March 2019

be further challenged when Iran's sanctions come into effect in November. The present scenario is a major challenge for the NDA government led by Prime Minister Narendra Modi, with the 2019 elections a few months away. It will be a test of the economic policies designed by them in tandem with the RBI. The effects of this depreciation on Industrial output (IIP), FY2019 GDP growth, the price of petrol & diesel along with corporate earnings remains to be seen.

5) More impetus on domestic manufacturing to boost exports CONCLUSION The current downward spiral in rupee will continue in the recent future as predicted by analysts. The situation will

FINLY| SEPTEMBER NOVEMBER 2018 2017 | Finstreet | SIMSR

Growth by Acquisitions

Article of the Month - Runner Up

A catalyst in the current scenario

Rudra Banerjee, SIMSR, PGDM FS, 2017-19

A merger is a concoction of two companies to form a single entity where both assets and liabilities are merged together. In an acquisition, one company “takesover” another company where assets and liabilities of the acquired company b e c o m e p a r t o f t h e “a c q u i re r ” company. There are 4 different types of M&A: 1. Horizontal: Horizontal M&A happens between companies engaged in the same business activity and competing with each other. e.g., HP-Compaq, Arcelor-Mittal, etc. 2. Vertical: Vertical M&A happens between companies engaged in a different segment of a product value chain so as to integrate the entire value chain. e.g. Reliance Industries Limited (RIL)-Reliance Petroleum Industries

(RPL). 3. Concentric: These types of mergers happen between two companies operating in complementary industries with the product that are often used by same/similar kind of customers. e.g., Sony- Columbia Pictures. 4. Conglomerate: Conglomerates are between companies that are in diversified industries with no visible synergy. The business of the target company is entirely different from the acquiring company. E.g., ITC Bhadrachalan-ITC. HISTORY OF MERGER WAVES In the past century, M&A activities have manifested a clustering pattern which is delineated as a wave and they betide in a burst interspersed with relative inactivity. There were six radical M&A waves. Premiere fourtranspired between 1897 and 1904, 1916 and 1929, 1965 and 1969,

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FINLY| OCTOBER 2018 | Finstreet | SIMSR

Article of the Month - Runner Up

and 1984 and 1989. The first merger wave be tided after the protracted depression of 1873-1883, culminated between 1898 and 1902, and concluded in 1904.

During the second merger wave (19161929), multifarious industries were consolidated. George Stigler, the late Nobel prize-winning economist, contrasted the first and second merger wave as “merging for monopoly” versus “merging for oligopoly.”Throughout the course of the duration of this period, the American economy perpetuated to metamorphose and transmogrify, predominately because of the post–World War I economic boom, which proffered copious investment capital for fervently interludingsecurities markets. The third merger wave (1965-1969) attributed a historically extortionate magnitude of merger activity. These years are known as the conglomerate merger period, as it was recurrent for proportionately smaller firms to target larger companies for acquisition. In contrast, during the two earlier waves, the majority of the target firms were significantly minuscule than the acquiring firms. The sui generis trait of the fourth wave (1984-1989)lies in the conspicuous role of hostile mergers. The downward trend

that characterized M&As in the 1970s through 1980,back-pedalled keenly in 1981. Although the rapidity of mergers decelerated again in 1982 as the economy frail, a brawny merger wave had taken hold by 1984.

Commencing in 1992(Fifth wave, 19922000), the number of M&As once again began to ameliorate. The prodigious deals, some similar in quantum to those that transpired in the fourth merger wave, emerged to eventuate a fresh. During the 1990s, the U.S. economy entered into its longest post-war augmentation and companies reacted to the proliferated assemblage demand by pursuing M&As, which are an expeditious way to snowball, than internal growth. The Sixth Merger Wave (2003-2008) took place on the heels of the recovery period of the dot-com bubble. Globalization, private equity, and shareholder activism were the pivotal proclivity that defined the sixth wave. Global M&A deals and Rationale behind deals Recently one of the strategic drivers of

Article of the Month - Runner Up

M&A deals is acquiring technology assets. 20%of deals cite the acquisition of technological assets as the cardinalimpetus behind deals, up from 6% in the spring of 2016. The proliferation of customer bases in existing markets, and also an inclusion to product offerings or diversification of services, rank as the next two strategic imperatives. Two other consequential drivers that corporate respondents cite as the main purpose behind deal-making are as follows: 1. Digital strategy, a new response option for what is driving deals, ranked number four in importance, with 12% citing it as the most important driver. 2. Acquisition of talent has more than doubled in importance from the spring of 2016, increasing from 4% to 9%.

FINLY| JANUARY 2018 | Finstreet | SIMSR

The prime influencers behind the deals in 2017 are: 1. One of the key influences on global M&A activity in 2017 was a significant 62% plummet in Chinese investment into Europe and the US (the 2 biggest M&A markets) in 2017, as compared to the record-breaking levels reached in 2016 2. Private equity played its part in shaping the M&A landscape in 2017 showing the highest buyout value since 2007 and also the highest exit value on record 3. Brexit has continued to have an impact on M&A both in the UK and overseas. The depressed value of Sterling has promoted an uptick in inbound M&A into the UK, resulting in the highest level on record in 2017

FINLY| OCTOBER 2018 | Finstreet | SIMSR

Article of the Month - Runner Up

FINLY| JULY 2018 | Finstreet | SIMSR

Article of the Month - Runner Up

Global M&A had their herculean inceptionin the first quarter of 2018 with deal value ameliorating to $1.2trillionin value. U.S. tax reforms and faster economic growth in European countries unbridled many companies' deal-making instinct. Swelling cash coffers and hefty debt and equity marketssuccoured to boost the confidence of chief executives and convince them that now is a good time to pursue transformative mergers. According to Thomson Reuters data, though the number of deals globally plummeted by 10% to 10,338 Y-O-Y in the first quarter of 2018, the value of the deals burgeoned by 67% on Y-O-Y basis. Gigantic deals consummated in the 1st quarter of 2018included the likes of U.S. health insurer Cigna Corp's $67 billion deal to acquire U.S. pharmacy chain Express Scripts Holding Co and German utility E.ON SE's $38.5 billion deal to

FINLY| JANUARY 2018 | Finstreet | SIMSR

acquire RWE AG's renewable energy business Innogy SE. In the first quarter of 2018, M&A volumes ameliorated by 67% in the US, 11% in Asia and almost doubled in Europe. 2 of the largest proposed deals are the $65billion deals of Disney acquiring Fox and $85.4billion deal of AT&T buying Time Warner. CONCLUSION In accordance with the events and stats of 2016 and 2017,the two years proclaimed to be one of the most promising years for M&A and looking into 2018, it can be considered as a year for prodigious deals. Recent global political turmoil, regulatory and policy changes by different nations are responsible for certain disruption of macroeconomic parameters which are the pivotal impetus behind the deals.

Decoding the CURRENT ACCOUNT DEFICIT

ECO Section

Ankit Chhatwani, PGDM FS, 2017-2019 Adyasha Pratihari, PGDM FS, 2018-2020 Mohak Shah, MMS, 2018-2020

INTRODUCTION "The Impossible Trinity" or the "Trilemma" is the concept in economics which deals with three goals that an economy wishes to achieve. Exchange rate stability, free capital movement between countries and domestic monetary policy autonomy are the three important goals of any economy which are impossible to achieve simultaneously. For any country and the monetary planners of the country, they can choose at best any two of the three options. Any economy which wants to stimulate would want to increase its money supply but the moment the money supply is increased, the domestic rate of interest would fall. When the domestic rate of interest falls below the foreign rate of interest, capital outflow starts (Free Capital

Movement) from the economy. The reason for the outflow of capital would be to get better returns in the foreign market. For example when domestic investors would be investing abroad, in order to get better returns on their investment they would be demanding dollars, and in exchange would be giving their local currency. But the central bank has to maintain the stability of the exchange rate. With the increase in the supply of local currency, the central bank has to buy back the local currency to give dollars in return. Soon it may run out of its dollar reserves and will have to devalue the domestic currency. The moment the devaluation is done, the goal of Exchange rate stability is disturbed. THE INDIAN SCENARIO EXCHANGE RATE STABILITY

ECO Section

FINLY| OCTOBER 2018 | Finstreet | SIMSR

Exchange rate basically means how much a currency is worth when you trade it for another country's currency. A country that has a current account deficit usually sees its currency depreciate over time. In India, RBI has the responsibility to keep the exchange rate stable. But the rupee doesn't have a fixed rate of exchange and the RBI cannot interfere too much to fix it. All it can do is sell and buy dollars to take care of the fluctuations.

the independence from the external factors to set interest rates. To be able to have autonomy in setting the monetary policy, it is important to have control over one of the above factors.

Like other developed western economies, India too has chosen to go for autonomy in monetary policies. It oscillates between fixing exchange rates and the free flow of capital but mostly goes with the first one. However, going with the present scenario, the need of the hour is to allow the free flow of capital considering the increasing deficit in trade. After recording an all-time 5-year high deficit of $18.02 billion in July 2018, the gap has narrowed a bit in August 2018 to $17.4 billion. This could be attributed to the 19.21% rise in exports to $27.84 billion largely due to a good performance by several sectors. However, (Source: RBI) with the rise in crude oil prices and increasing gold and other capital goods FREE CAPITAL MOVEMENT inflow, India's imports have reached As the exchange rate of currency isn't $45.24 billion, which is an increase of stable, any foreign investment made 25.41%. The trade deficit is a subset of the would impact the rupee. When we buy bigger problem called Current Account dollars and sell rupee in return, to make Deficit (CAD). The increasing CAD, which is foreign investments, there is a fall in the 2.4% of the GDP now. rupee. On the contrary, a foreign investment leads to the rise in the value WHAT DO YOU MEAN BY CURRENT of the rupee. So a free movement of ACCOUNT DEFICIT? capital affects the exchange rate of the rupee. Moreover, countries like India, When a country is in a deficit of any which face Current Account Deficit, good(s), it imports it from a foreign need higher capital inflow so as to fund country. Similarly when there is a surplus of any good(s) that gets exported outside. the deficit in the balance of payments. These transactions are maintained in a Balance of Payment (BoP) account. BoP is MONETARY POLICY AUTONOMY a statement of all the transactions that are Since RBI doesn't have the autonomy to made between two countries. fix the exchange rate and the capital movement, then it's quite unlikely it has The BoP consists of 2 accounts. They are

ECO Section

FINLY| OCTOBER 2018 | Finstreet | SIMSR

the Current Account and Capital Account. As the name of BoP suggests, the capital and current accounts are supposed to balance each other. Current Account records all the current or short-term transactions that take place between two nations like goods, ser vices, unilateral transfers or investments. The capital account, on the other hand, deals with all capital transactions i.e. in assets or liabilities. To maintain an equilibrium, the capital and the current account should balance each other. Current Account Transactions are those transactions where we make payments or receive payments in foreign currency. We may have to make payments in foreign currency for: Ÿ Imports of goods & services Ÿ Interest on Foreign Loans Ÿ D i v i d e n d Pay m e n t s b y I n d i a n s u b s i d i a r i e s o f Fo re i g n h o l d i n g companies Ÿ Foreign Travel Ÿ Overseas Studies On the other hand, there are transactions where we receive foreign currency, some transactions are: Ÿ Exports of goods & services Ÿ Dividend receipts from foreign subsidiaries of Indian holding

companies Ÿ Foreign tourists in India Ÿ Remittances from Non-Resident Indians The difference between the transactions where we pay foreign currency & transactions where we receive foreign currency is known as the Current Account Balance. Mathematically it can be represented as CA = (X-M) + NY + NCT Where, CA: Current Account Balance X: Exports M: Imports NY: Net Income from abroad NCT: Net Current transfers When the requirement to pay in foreign currency is more than the foreign currency received, the current account is in a deficit and we say that the country has a Current Account Deficit. Here a question arises that if the current account is in deficit then how a country makes the payments in foreign currency. The country also receives foreign currency in terms of Ÿ FDI investments in various sectors Ÿ FII investments in stock or debt markets Ÿ NRI deposits

(Source: IMF)

ECO Section

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All such transactions which are investments or borrowings are known as Capital Account Transactions and any excess on capital account goes on to fund the deficit in the current account. If the deficit in the current account can be paid by the capital account then an equilibrium is maintained. If not, then a country borrows funds from international bodies like IMF to fund the deficit. STEPS TAKEN BY THE GOVERNMENT TO TACKLE THE TRILEMMA 1. Mandatory External Commercial Borrowing (ECB) hedging conditions for infrastructure loans will be reviewed so that well-rated companies can raise dollar loans more comfortably 2. To permit manufacturing companies to avail of ECB up to $50 million with a minimum maturity period of one year as compared to three years previously, thereby reducing loss on interest 3. Removing 20% exposure limit of FPI's corporate bond portfolio to a single corporate group. This will encourage new lower-rated issuers to come into the market to raise dollars through NCDs 4. An exception to masala bonds from withholding tax of 5% on interest for issuances up to March 31, 2019, so that the issuer can offer better returns or issue at a lower cost 5. Removing restriction on Indian banks' market-making in masala bonds,

including underwriting of masala bonds. This will enable Indian companies to go to local branches of Indian banks to manage masala bond issuances. Earlier, they had to use the infrastructure of foreign stock exchanges and contact foreign underwriters M EA S U R ES TO R E D U C E C U R R E N T ACCOUNT DEFICIT 1. The Make in India initiative of the government is a step in the right direction for import substitution and export promotion 2. The Focus of government on ease of doing business has started showing results, India has been ranked 100 in 2018 as compared to 130 in 2017. This will promote investment in the country and boost the manufacturing capabilities 3. Of the total imports of India, around 32% is Fuel. Hence, it is necessary that we ramp up domestic crude oil production, so as to reduce the imports 4. Another major component of our imports is Gold. Steps taken by the government such as Gold monetization scheme and Sovereign gold bonds have had a positive impact, it is necessary that we expand the penetration of those schemes 5. We need to boost our exports by way of several export promotion schemes and export incentives

ECO Section

CONCLUSION Rising oil prices, depreciating rupee and the outflow of portfolio investments are the main reasons for the widening Current Account Deficit. However, measures by the government to curb the non-essential imports and increase the exports might bring down the deficit which is expected to widen to 2.8% of GDP this year. India, like all other emerging economies, is facing this problem. Though controlling imports is a solution, but this could harm the overall economy as many sectors depend on imports of critical materials, parts or components. However, import of fuel, which constitutes 32% of total imports can be reduced by way of switching to alternative sources of energy thereby reducing our dependence in the future.

THE BERKSHIRE HATHAWAY

- PAYTM DEAL

Fintech Funda

Isha Koolwal, PGDM FS, 2018-20 Shubham Goyal, MMS , 2018-20

“Are you in this part of the world?” Goldman Sachs Asia Chairman asked Vijay Shekhar Sharma to meet Todd Combs, Investing Manager at Berkshire Hathaway, who was keen to know about Paytm. This phone call is what preceded the Berkshire-Paytm deal which was fixed in just one meeting and two phone calls. ABOUT THE DEAL Warren Buffet acquired 4% share in One 9 7 co m m u n i cat i o n , t h e h o l d i n g company of Paytm by investing$356 million. This amounts to a mere 0.3% of the cash balance that Berkshire Hathaway held at the end of June 2018. What is interesting is the fact that this is the first time Berkshire Hathaway has invested in an Indian Fintech company holding a technology on its own. Known for being “selective'' and focusing a lot on return ratios, it is not easy for a

company to come in the good books of Berkshire Hathaway and even more, being fortunate enough to get an investment from it. INDUSTRY AND PAYTM The digital payments are expected to grow five-fold to $ 1 trillion by 2023 as predicted by Credit Suisse. Paytm has a huge potential to grow but there is immense competition from new entrants like Flipkart-owned PhonePe, Amazon Pay, Google Pay and the like. Paytm is valued higher than the other prevailing digital payments platform in the country. It is the scale at which Paytm operates and its execution policy which has induced interest of various investors, including Jack Ma of the Alibaba Group, Masayoshi Son of Soft Bank, Eric Jing of Ant Financial and Warren Buffet of Berkshire Hathaway. Paytm has touched $4 billion in monthly gross transaction value, with the number

Fintech Funda

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of transactions touching a peak of $1.3 billion in the quarter ending June 2018.This huge figure is attained due to the increased penetration of internet users in India as shown in thechart below.

WHY PAYTM? The deal turned out to be a surprise for many who came across it. For years, Warren Buffet has been quite reluctant to invest in the tech space (barring IBM in the past and Apple a couple of years ago as a retail equity investor) stating unpredictability as the reason. Then how did Paytm manage to get an investment from BH despite operating in the tech space and having made losses to the tune of Rs.899.6 crores in 2016-17 and Rs.1496.7 crores in 201516? How has Paytm been valued at more than $10billion and has become the country's most valued startup in the mobile wallet and digital payment industry even after successive losses? What they apparently have put their bets on this time is growth, and not cash flow, which they otherwise always do. Thosegrowth factors are:Paytm Mall - a platform provided by Paytm allowing its customers to buy

products from 1.4lakh registered sellers Paytm Money- It is a mutual fund distribution platform through the 'Paytm Money' App. This app is offering top 10-12 AMC's at zero fees to its customers. The app will also expand in other investment products apart from mutual funds Paytm Payments Bank - a new model of the bank, called payments banks, conceptualized by the Reserve Bank of India. It offers zero-balance savings account with facilities like online transactions, debit card, mobile banking and a 4% per annum interest on deposits. Soft Bank's Masayoshi Son officially announced to start digital Paytm services in Japan on the PayPay platform by the end of the year 2018 Paytm Canada - that offers a mobile payment and commerce platform to all Canadians Introduction of new products like Paytm Insurance Policies, Home Loans and Mutual Funds for Paytm Payments bank account holders Paytm Wallet- The only product in India that is a truly offline offering in the mobile wallet industry. This is the reason for it being everywhere and having everything Paytm Digital Gold â&#x20AC;&#x201C; Paytm launched this product in alliance with MMTC-PAMP, allowing its users to buy, sell and store gold digitally without any additional cost Ĺ¸ Huge promotional activities including

Cashback offers and advertisements, with the aim of increasing penetration

Fintech Funda

services for the top 20 international currencies Ĺ¸ These initiatives and offerings have

possibly made Paytm alucrative option for Warren Buffet and many other investors to invest in. EMERGING TRENDS OF VALUATION Valuation of a digital payments company can be tricky. The traditional way of assigning the value to a company based on its assets or net worth fails in this case. Platforms like these are way more than the valuation obtained by a discounted cash flow method or other such methods. It is similar to the ecommerce space where valuations are not based on current profits but on a whole lot of other factors. What holds importance in such spaces is their capacity to transform and utilize investments to garner sales. With the innumerous Cashbacks and offers that it presents to its customers from time to time, more and more people are getting inclined towards using it. Paytm spent Rs.969.4 crore on advertisements and brand promotions in FY17, which was more than its revenue. The increasing customer base and its immense growth potential add-on to its value. CAN PAYTM MEET THE EXPECTATIONS OF BUFFET? As Warren Buffet has shown interest and invested in Paytm, it becomes a core challenge for them to meet his expectations. Diversifying business along with protecting the consumer's privacy and adhering to government

FINLY| JANUARY 2018 | Finstreet | SIMSR

regulations is also a major challenge. Taking an example of restrictions imposed by RBI on Paytm Bank which stated 'to stop onboarding of new customers with immediate effect'. This has forced the Paytm Bank CEO, Renu Satti to step down from her position. The Indian mobile wallet companies are in their nascent stage which brings them under the scrutiny of authorities including (UIDAI), Unique Identification Authority of India as concerns over e-KYC are rising. Another key challenge is to grow amidst the huge competition from new entrants and existing big players. Global business giants like WhatsApp, Google and Amazon are set to drive the payment business in India. Google Tez has over 14 million active users whereas Amazon Pay grew by 126% in the year 2017. WhatsApp with its 200 million user base in India has planned to come up with its 'WhatsApp Payments' service in India(Although it has faced stiff resistance from the Ministry of electronics and information technology and RBI, despite NPCI nod and may not be coming anytime soon to India). The major challenge for Paytm is to meet the expectations of the customers and make sure that they don't lose interest in it.

Fintech Funda

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With Cryptocurrency being a new entrant in the Indian market, whether to expand in this direction or to sustain growth using the current model is another question that Paytm needs to address. BitIndia has already put their step forward in this segment,although, the RBI and the Government have not yet welcomed the idea of cryptocurrency in India, and is currently banned.

on making an investment in this highly skeptical industry. Inspite of the rising competition and lossesin the mobile wallet industry, Paytm seems to be leading the race by exploring the unexplored territory and setting an example by making the deal with the Oracle of Omaha.

ROAD AHEAD There is a huge scope for the mobile wallet companies to diversify their products for easing the financial transactions with the help of technology. All that is needed is to grasp the opportunity at the right time and to provide a path-breaking user experience. Paytm changed gear after demonetization in 2017. The future of Fintech companies is bright and this can be supported by the fact that huge investments have been put in by some big players in the recent past. The Government of India is taking all efforts to push people towards the digital platforms in order to achieve its goal of a near cashless economy. â&#x20AC;&#x153;In the year 2023, more people will use mobile phones and technology to make payments than ever. The defining Banks and Financial Services Institutions from 2020 onwards will be those who champion technology and adopt new technology versus physical network.â&#x20AC;? Vijay Shekhar Sharma, CEO One97 Communications said in a statement. Paytm-Berkshire Hathaway deal has changed the entire outlook of investors

Alumni Section

experience not only professionally and academically, but especially, on a personal level. As I embark to go back to what MBA students usually call "real life" (vs. bubble MBA life), these are some of the key lessons I plan to take with me and I hope these lessons will help the current and future students as well. 1. PRIORITIZE RUTHLESSLY

Pranav Parikh MMS | 2016-2018 My MBA at K J Somaiya Institute of Management Studies is over, but I will harbor memories from my two years there for a long time. I had some incredible experiences, met inspiring friends and visited fascinating places and - last but not the least - reflected a lot. I t h a s b e e n a t ra n sfo r m at i o n a l

As most MBA students learn, especially during the first few months at a business school, the academic, social, and professional activities are so plentiful that it becomes unfeasible to participate in each and every one. It would be great to do them all, but that is not possible. The solution is not easy: learn to say 'no', or as a famous poster shown in my office says you need 'ruthless prioritization'. During business school, I learnt to focus on questions like how to prioritize my time, what matters most to me, what is important but not a priority, and to spend my time purposefully. Also, post-MBA, I have planned to spend weekly time reflecting on whether I am devoting the

Alumni Section

right amount of time to the activities and people that matter most to me. 2. DON'T BLOW YOU OWN TRUMPET Generally, when a class starts, initially, there will always be few faces who'll be in the limelight, who talk the most, ask the most questions, are talking about themselves, etc. Don't be that student. Let your achievements talk. Don't have the urgency to hog the limelight. 3. BE PATIENT AND PERSISTENT I spent two years applying to various B Schools in the country. The first time, I was rejected and an IIM did not even call me for an interview. Had I not been patient, I would not have had the privilege to live such a great experience. The second time I applied, I reflected a lot about the reasons I was rejected and I tried to improve on my application as much as I could. It took lots of efforts, time, energy, and patience. If I think about the achievements I am most proud of, I can easily realize that they took time, persistence, and lots of failures. Sometimes we want to have something instantly and I am that type of a person. But that is not always possible. Post-MBA, I want to continue being patient for the things I care the most. 4. THINGS GET DONE IF YOU JUST ASK How many times do you get tempted to ask for something but you do not, due to a fear of rejection? How many times have you wanted to connect with

someone but you are unable to do so because you are afraid? How many times have you missed an opportunity because you were shy? It happened to me many times both at work and in my personal life. A Professor pushed us to "just ask" in order to overcome our fear of being rejected. He suggested that we should connect with people we would not have been comfortable reaching out to. The same week, whenever I met someone I wanted to talk with, I approached him/her unhesitant. Sometimes, I was rejected. However, I was surprised by the fact that my requests were accepted many more times than I thought. That boosted a tremendous volume of my confidence. Post-MBA, I neither want to be shy nor afraid of being rejected. Opportunities arise when we're brave enough to seek them out. Move away from the fear of rejection and embrace high confidence levels! 5. PASSIONATE DEBATES ARE GREAT BUT KEEP EMOTIONS AT BAY Some of the best classes and group discussions we have had during placements have been those where someone in the class had a strong point of view and passionately articulated it â&#x20AC;&#x201D; think of topics like politics, terrorist attacks, income inequality, racial and religious prejudice etc. It makes for a great debate, when smart and genuinely wellintentioned people disagree with each other, whether it be due on economic, legal, moral or philosophical reasons. However, it is quite difficult (yet of immense importance) to keep negative

Alumni Section

FINLY| OCTOBER 2018 | Finstreet | SIMSR

emotions (getting visibly angry, being dismissive etc.) at bay — especially if we want our audience to listen and empathize too. In addition, arguments backed by data are in general far more credible and likely to win over an audience than those based solely on intuition.

You will get ample time in your lives to “waste” sleeping and being half-dead. Live these two years, every second - every moment.These are some of the things that I wanted to share based on my experience in the journey of MBA.

6. NETWORK Connect with everyone -those who are like you and especially those who are not like you. The best part about a B School is the plethora of varied backgrounds people come from. Absorb it. Cherish it. 7. HELP YOUR FRIENDS AND BE GENEROUS WITH PRAISE Above all, the MBA experience has been about personal development and part of that is helping our peers through their own development and in navigating through challenges. The reason I got through to SIMSR was due to the tremendous support and guidance from my friends, family, and mentors. At SIMSR, I have been fortunate to find friends who are ready to help me in whatever way they can. In turn, I strive to be as helpful as I can to any member of the SIMSR community. Finally, it's easy to feel insecure when surrounded by so many talented peers, and at times we all need a healthy dose of encouragement. I learnt to be more generous with praise — it doesn't cost us anything but can mean a lot to the person receiving it.

8. LIVE EVERY MOMENT (DON'T WASTE TOO MUCH TIME SLEEPING)

Hope you guys learn a lot more than the t h i n g s a fo re m e nt i o n e d a n d ke e p improving! Best wishes!

FINLY| JULY 2018 | Finstreet | SIMSR

SECTOR ANALYSIS

Media & Entertainment Industry

Sector Analysis

Saurav Jain, PGDM, 2018-20 Pratik Sharma, MMS, 2018-20

INTRODUCTION The Media and entertainment sector is a rising sector in the Indian economy and has a huge potential for growth in the near future. The industry has seen its true potential with the increase in the digital content and high usage of internet data in the recent times. Favourable demographics and physiographic factors, the rise in the disposal income, huge demand for knowledge, escapism, sports, and news, aided the growth of the M&E sector in the country. According to a report by PwC, The Indian M&E sector reached INR 1.5 trillion in 2017, a growth of almost 13 percent over,2016 and with the current trajectory, the industry is expected to cross INR 2 trillion by 2020, at a CAGR of 11.6 percentage.

The growth was primarily led by the digital segment, showing that the advertising budget was in tune with the rise in the demand and consumption pattern. DeitY, an initiative by the Indian government to digitize data in various online formats for usage, has also indirectly helped the M&E industry. The film segment has also led a frontal role in the growth of the industry. With Indian movies doing well in India as well as in foreign countries, revenue generated is substantial. There has been a growth in the VFX, postproduction business segment where companies are trying to nurture and capture the best talent with the help of o u t s o u rc i n g . T h e V D O ( V i d e o o n Demand), like Sony Liv and Jio TV, has helped the nation to shift from the idiot box to the fancy smartphone in their hands to get updated with the recent

Sector Analysis

FOOD PROCESSING INDUSTRY FINLY| OCTOBER 2018 | Finstreet | SIMSR happenings in and around the world. This transformation from TV to a smartphone has tremendously helped the growth of the Media and Entertainment industry.Thelocal media of print, OOH media and radio continue to work together for the growth of the industry. MARKET STRUCTURE India is a rising economy and so is the M&E industry. The market dynamics of the industry is vibrant and is backed by digital, print, TV, radio and cinema. The creativity and the knowledge of the nation translated across film, print radio, and digital media has created a powerhouse of content which is way ahead of the world average. India produces the maximum number of hours of content globally across 2,000 films, 800+ television channels, 250 + radio stations, 100000+ newspapers and magazines, and various other online content.

Source: IBEF

GROWTH DRIVERS

Source: IBEF

Availability and penetration of newer distribution platforms like Digital Cable, DTH and IPTV, digitization of newspapers, magazines, films, and sale of online &mobile music, and streaming online movies are some of the ways in which the M&E industry has benefited from digitization and the growth is likely to continue in years to come. Growth was led by the digital segment, showing that advertising budgets were following the changing content consumption patterns

Sector Analysis

of consumers. As India's digital infrastructure matures, it has given a boost to gaming as a segment, which witnessed significant growth in 2017, albeit from a small base. The film segment also led on the growth front, mainly due to the international revenues generated by Indian films and that – along with India regaining its stature as an efficient and high-quality outsourcing destination led to corresponding growth for the animation, VFX and post-production business. Television continued its strong run, on the back of digitization of television homes, and tent pole properties like the IPL and non-fiction programming, particularly in regional languages. Rising incomes and evolving lifestyles h ave l e d to h i g h e r d e m a n d fo r aspirational products and services. Higher penetration and a rapidly growing young population coupled with increased usage of 4G, 5G (upcoming) and portable devices have augmented d e m a n d . Te l e v i s i o n a n d A G V (Animation, Gaming, and VFX) segments are expected to lead industry growth and offer immense growth opportunities in digital technologies as well. From April 2000 to July 2018, FDI Inflows in Information and Broadcasting (including print media) sector has reached US$ 7.17 billion. ANALYSIS BASED ON PORTER'S FIVE FORCES THE THREAT OF NEW ENTRY – (VERY LOW)

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The strength of the barriers to entry and the following response of existing competitors determine the threat of new entry. The threat of new entrants to the media and entertainment sector is quite low. There are established companies and conglomerates with such a huge customer base and presence in varied fields which creates a huge barrier to entry. There is a certain drawback to this; independent producers are prevented from having their voices heard and getting their ideas delivered into the market at a mass scale. The rise of the internet distribution c h a n n els a n d in c rea s in g inter n et penetration in India has made this less of a concern. SUPPLIER POWER – (LOW) In the media and entertainment industry, the bargaining power of suppliers varies by supplier type. More companies are outsourcing to cut costs in order to keep, or attain, a competitive advantage, although the value chain of many of the companies is primarily handled in-house. Since suppliers overseas will provide the same services for a fraction of the cost, with varying degrees of quality, this strategy especially lowers the bargaining power of American suppliers. As a result of increased outsourcing, the industry has also seen an increase in the number of suppliers, which also results in the lower bargaining power of suppliers as competition at the supplier level i n c r e a s e s . Po p u l a r a c t o rs a c t a s “suppliers” of their specific talent or star power, do help in pulling moviegoers into the theme parks, theatres, and increase the sales of their products through endorsements.

Sector Analysis

FINLY| OCTOBER 2018 | Finstreet | SIMSR

BUYER POWER â&#x20AC;&#x201C; (VERY HIGH)

pay premium prices to enjoy.

The bargaining power of buyers (consumers) is high in the media and entertainment sector. This bargaining power is partly due to the present economy because if low-cost alternatives are available, more families are likely to choose them. Increasing globalization has also added to the bargaining power of the consumers. The vast availability of substitutes makes consumers, as the ultimate purchaser and decider of entertainment goods and services. Consumers have a wide range of channels to choose from and have a greater ease of access through increased online channels and sources of entertainment.

COMPETITIVE RIVALRY â&#x20AC;&#x201C; (MEDIUM)

T H E T H R E AT O F S U B S T I T U T E PRODUCTS OR SERVICES - (VERY HIGH) The most detrimental impact on a sector happens when there is a high threat from substitute products or services that are more likely than not. One of the major threats of substitution the media and entertainment industry is facing is innovation in other industries. Essentially what these industries are doing is creating a onestop-shop for the consumer who no longer has to visit multiple sites for their entertainment and media needs. Netflix and Redbox have also become alternatives to the expensive ticket prices for box-office hits, resulting in some revenue loss for the e n t e r t a i n m e n t i n d u s t r y. T h e entertainment sector has countered this with the availability of 3D capable screens that moviegoers are willing to

All sub-sectors of the media and entertainment sector face daunting challenges from alternative delivery methods, which has increased the competition and decreased the profit margins among entertainment delivery platforms. A strategy being implemented is one of collaboration in order to gain a larger market share and a significant competitive advantage in terms of loyal customer base against other industry leaders and collaborators. Once growth becomes more obvious, the goal of industry leaders is to be the leader in digital entertainment and create entry barriers for new entrants. RECENT DEVELOPMENTS TELEVISION The Government of India has announced digitization of cable television in 4 phases, with Phase III almost completed in December 2015, and Phase IV is under progress. DTH subscriptions are growing rapidly, driven by content innovation and product offerings. With a CAGR of 11.2 percent, the television industry grew to Rs 660 billion in 2017 from Rs 594 billion in 2016. PRINT The print industry, which is accounted for the second largest share in the M&E sector, is forecasted to reach Rs 303 billion in 2017. With a CAGR of 7 percent, the Print market is expected to reach Rs. 485

Sector Analysis

billion by 2021. In India, Newspaper readership has increased by 40 percent over the past 3 years to 407 million in 2017 from 295 million in 2014. Increasing income levels and evolving lifestyles have played a major part in robust growth in magazines segment in India. Considering the huge potential in regional print markets, all the major advertisers are entering these segments to increase their advertising reach. FILM The Indian film industry is the largest producer of films globally with an i nv o l v e m e n t o f m o r e t h a n 4 0 0 production and corporate houses. The revenues earned by the Indian film industry in 2018 would reach Rs 165.7 billion and are expected to further grow at a CAGR 4.98 percent between 2018 and 2020. The ever-increasing share of Hollywood content inthe Indian box office and the introduction of 3D cinema is driving the profits of digital screens in the country. OUT OF HOME The Digital segment is expected to outperform other sectors of entertainment with the increasing penetration of internet and digital mediums. Although the OOH segment has a low contribution to the total of the entertainment industry, it is going to witness a significant growth in the coming years. In 2017, the market size for OOH entertainment has reached Rs 34.3 billion.

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RADIO Increasing number of FM enabled phones and car stereo systems. In 2016-2017, with a CAGR OF 8.33 percent, the radio industry in India accounted for a market size of Rs 26 billion. ANIMATION, ONLINE GAMING, AND VFX (AGV) Growing focus on the 'kids' genre and rise in dedicated TV channels for them. As the advertising industry set for a massive growth, and surge in 3D/HD animated movies in theatres and use of animation and VFX in TV advertising and Gaming the share of animation driven advertisements is also forecasted to boom. Due to the cost effectiveness, India is witnessing significant growth in the outsourcing of VFX and Gaming. Content localization such as Khel Kabaddi, T20fever.com, IPL, Indian Super League etc. The animation and VFX industry in India is expected to grow at a whopping CAGR of 20.4 percent between 2016 and 2020, while the online gaming industry is expected to grow at a CAGR of 27.5 percent during the same period. MUSIC The Indian music industry is a consortium of 142 music companies. It is on a fastpaced growth with increasing international associations. Players are looking for new ways and mediums to monetize music, such as utilizing social media like Instagram, Snapchat, musical.y etc. to promote music. Mobile phonesare becoming the primary means to access

Sector Analysis

FINLY| OCTOBER 2018 | Finstreet | SIMSR

music. Music industry's revenue is driven by the digital music on mobile phones. The revenues from digital sources are expected to reach US$394.22 million by 2021.These contribute around 55 percent of the total revenue to the music industry and is projected to contribute close to 62 percent by 2018. INDEX PERFORMANCE The NIFTY Media Index is designed to reflect the behaviour and performance of sectors such as media & entertainment, printing, and publishing. The index comprises of a maximum of 15 companies. NIFTY Media Index is computed using free float market capitalization method, wherein the index reflects the total free float market value of all the stocks in the index relative to a base market capitalization. The 1-year performance comparison of sector indices shows that NIFTY Media has given most negative returns (-17.4%), while NIFTY IT (50.5%)

and NIFTY Energy (23.4%) have given substantial returns. The total returns given by NIFTY Media Index is down 29.35% onan YTD (Year-ToDate) basis (28th September2018). The Beta for 1 year (with NIFTY 50) stands at 0.94 and the Correlation (with NIFTY 50) at 0.57. The top constituents include: Zee Entertainment Enterprises (47.93%), Sun TV Network Ltd. (12.99%), Dish TV Network Ltd. (10.43%), PVR Ltd. (7.4%), TV18 Broadcast Ltd. (5.16%), Jagran Prakashan Ltd. (2.64%), D.B. Corp Ltd. (2.12%), Network18 Media & Investments Ltd. (2.06%), TV Today Network Ltd. (2%) and Inox Leisure Ltd. (1.93%). Out of t h e s e , T V To d ay N e t w o r k ( 4 9 % ) , Network18 Media (12.9%), PVR (4.3%), and Inox Leisure(0.8%) are up on a Y-o-Y basis and rest of the stocks are on the red. Despite the NIFTY Media's negative returns, many brokerage houses are bullish on most of the stocks in the NIFTY

Sector Analysis

Media (PVR, TV18, SUN TV etc.), because the Media & Entertainment industry is anticipated to grow at a CAGR of 11.6 percent during the period of 2016-2020 to reach Rs 2,032 billion in 2020 from Rs 1,308 billion in 2016. This, coupled with rising incomes and evolving lifestyles have led to ahigher demand for aspirational products and services.

FINLY| NOVEMBER 2017 | Finstreet | SIMSR

RADIO The Government has raised the FDI limit in radio, including private FM channels from 26 percent to 49 percent. Now, private operators are granted to own multiple channels in a city, given a limit of 40 percent of all the channels in that city. Also, private players are allowed to broadcast news of the A.I.R.(All India Radio) TELEVISION

REGULATORY ASPECTS In an attempt to boost reforms in this s e c to r, t h e Te l e co m Re g u l ato r y Authority of India (TRAI) has approached the Ministry of Information and Broadcasting, Government of India, which has agreed to set up a National Centre of Excellence for animation, gaming, visual effects and the comics industry in Mumbai. The Governments of India and Canada have signed a deal regarding audiovisual co-production to empower producers to exchange and explore their culture and creativity.

The Government of India has increased the FDI limit from 74 percent to 100 percent in the cable and DTH satellite platforms, allowing easy access to institutional finance. There is no restriction for FDI in up-linking and downlinking of channels on TV, except for news and current affairs. FILM Co-production treaties have been signed with several countries such as the UK, Italy, Germany, and Brazilto increase the exports of the Indian film industry. In 2001, Government also granted the status of 'industry' for easy access to institutional finance. 100 percent FDI through the automatic route in the Film industry has been granted by the government. Entertainment tax is now subsumed in the GST; this step would play an important part as it would create a uniform tax rate regime across all Indian states and will also reduce the tax burden on the stakeholders. PRINT The government has allowed FDI/NRI

Sector Analysis

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investments of up to 26 percent in an Indian firm dealing with publication of newspaper and periodicals, Indian editions of foreign magazines, and 100 percent investment in scientific magazines/publications/periodicals. FUTURE PROSPECTS The Indian Media and Entertainment industry is expected to grow at a much faster rate than the global average rate. In India, advertising expenditure is expected to grow 13 percent on a Y-o-Y basis to Rs 69,346 crore in 2018 and Rs 1.07 trillion by 2020. India's digital advertising market has already reached Rs 8,202 crore in 2017 and is forecasted to reach Rs 18,986 crore by 2020 which comes out to a CAGR

of 32 percent on a Y-o-Y basis. Factors such as players entering the food and beverages segment, rapid acceptance of e-commerce will help in driving growth in the retail advertisement sector. As per data released by the Department of Industrial Policy and Promotion (DIPP), the FDI inflows in the Information and Broadcasting (I&B) sector (including Print Media) between April 2000 and September 2017 stands at US$ 6.86 billion. By 2021, India's digital revenues are forecasted to reach US$394.22 million. With US$ 10.14 billion in revenue in 2017, India is the second largest television market in the world. The Indian film industry is also forecasted to grow at a rate of 11.9 percent by 2020.

Internship Diaries

FINLY| JULY 2018 | Finstreet | SIMSR

SHIVAM AGRAWAL PGDM Finance 2017-2019 THE PROCESS Edelweiss Financial Services, one of India's leading diversified financial services company providing a broad

FINLY| JANUARY 2018| Finstreet | SIMSR

range of financial products and services to a substantial and diversified client base that include corporations, institutions, and individuals. Edelweiss's product and services span multiple asset classes and consumer segment across domestic and global geographies. The company has been in business from the last two decades, founded in 1995 and started their stockbroking business for the private and institutional clients in March 2002.The group has a sizeable presence in the large retail segment through its businesses such as Life insurance, Housing Finance, Mutual Fund and Retail Financial Markets including Stockbroking. Being from an Aerospace background and having worked as a database engineer in my previous organization, I had no knowledge regarding finance, but eventually, as time passed, I developed a keen interest in Bond markets and Portfolio Management Services. And

Internship Diaries

FINLY| OCTOBER 2018 | Finstreet | SIMSR

when the company visited our campus, it had offered profiles related to PMS and AIF Funds, which I found to be very interesting and I had applied for PMS. PMS is basically an activity which involves selection of high yielding stocks and bonds, performed by specialists to generate good returns from a portfolio. I firmly encourage the students to research for the specific profiles on offer by any company visiting the campus. There was a fit between the JD offered and my approach towards portraying my skills that led to a smooth selection process consisting of a telephonic technical interview (included basic questions about bonds and mutual funds), followed by an HR interview round. The only point I would emphasize about the interviews is that one should be aware of his/her strengths and weaknesses and the short-term goals (typically the plan for the next 5 years). Brush up on the basics of the bond market as well as mutual funds. The interviews will automatically be more relaxed when you are well prepared with the (honest) points on your CV and should ideally materialize as a two-way discussion towards the end.

market with an experience of 12 years. The best thing about my mentor is that he was an Alumni of SIMSR. His knowledge and proficiency showed in his conduct of the on-boarding process. My very first meeting concluded with this statement from the mentor â&#x20AC;&#x153;Learn as much as you can and make the most of your internship, as it is the only way to build your strength in finance. Once you are employed you are no longer in learning phase; you have to deliver, but here you just need to learn anything and everything relevantâ&#x20AC;?. And I swear the words couldn't have been truer than what I would have liked. Apart from two simultaneous projects (primary and secondary), I was required to be a part of the following 1. THE TRAINING PROGRAMS - OFFLINE This included thorough sessions on the fundamentals of Bond markets, Finance and Soft Skill Development conducted by my mentor 2. INTERACTIVE SESSIONS WITH SENIOR MANAGEMENT

THE EXPERIENCE

I think of this as the best part of the process as it gives you an opportunity to gain wisdom and advice from veterans in the financial world.

I would definitely say that a stint at Edelweiss is going to give you a slingshot in terms of every professional aspect of your career. The mentors allotted to all interns were Regional Heads, mine being a veteran in the PMS and Bond

And one of the most important value additions would be your interactions with the talent pool around. The team, I got a chance to work with, was perfect in all sense. My colleagues were encouraging and caring, guiding me at each step of my

Internship Diaries

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progress. And being so sure boosts your productivity and liking about your workplace. MY WORK The primary objective of the project was to understand the various products of Edelweiss (Mutual Funds, PMS and AIF) and the SIP concept and giving a presentation on the same to various channels. This project included meeting with various distribution channels, on a regular basis to discuss the products of the company and current market scenario in order to find the best way and time to invest. The project belonged to the Edelweiss Global Asset management company, which is part of the parent company, Edelweiss Financial Services. The project helped in getting a detailed knowledge of products, the strategy used behind every product, in-depth knowledge of market scenario based on various factors, thereby achieving good business from these efforts and learning.

MY FIRE My advice to all students would be to interact with as many colleagues as possible in the given 2 months, irrespective of the company you will intern at. I had never hesitated in asking any question to my mentor, howsoever basic my question was. I had joined my mentor in every small meeting or gathering, which helped me build a strong network. In conclusion, I would say that the 2 months at Edelweiss was a transformative process of sorts for me. I grew as a professional and gained a lot personally as well by forming great relationships with the bright minds around me. The reputation that it brings with its name will definitely help any finance enthusiast in the long run.

The secondary objective of the project was to do asset allocation via a portfolio. Various techniques behind it were also studied thoroughly and evaluated to determine their effectiveness and ability to deliver capital gains. In the entire project (primary or secondary) learning about markets and product strategy helped a lot in making an asset allocation decision and presenting the same to distribution channels.

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all that goes into a trading process, starting from trade capture till unwinds. Invesco has its own trade life cycle and has an individual team assigned for each function. The teams have different responsibilities but have to work in synchronization to execute the trade life cycle. THE PROCESS

Internship Diaries

CHANDAN JAGTAP MMS Finance 2017-2019

Invesco is an independent investment m a n a ge m e nt f i r m d e d i cate d to delivering an investment experience that helps people get more out of life. They are managing more than $988.0 billion in assets on behalf of clients worldwide (as of August 31, 2018). This includes specialized investment teams m a n a g i n g i nve st m e nt s a c ro s s a comprehensive range of asset classes, investment styles, and geographies. Over 7,000 employees focus on client needs across the globe. There is a close proximity to the clients with an on-theground presence in 25 countries. Solid financials, an investment grade debt rating, and a strong balance sheet are some of the key aspects of this company. Invesco's single focus is to help clients achieve their investment objectives with a pure focus on investing, depth of investment capabilities& organizational strength. This precisely turned my internship into a great learning experience as I happened to assimilate

'Working together, we achieve more' is the core value of Invesco. This was the reason for the first round of the recruitment process to be a group discussion, where everyone's analytical competence and the collective efforts of the group in coming up with a common solution is judged. A real scenario-based case was given to solve. This task evaluated candidates on different criteria which can be problem-solving, ethical dilemma and team work. This was followed by three rounds of PI. The PI round was the most interesting part where scenario-based and resume-based questions were asked. Similar types of questions were asked in a different manner again and again to check confidence and consistency in the answers. Remember, the interviewers are okay with you being clueless about the corporate world, but not with an attitude which indicates that you easily give up. They want you to have the desire to learn and grow. The second round of PI was a stress interview where all panel members test you on different parameters. This round was typically to understand whether a candidate is a good fit for the job role mentioned or any other role in the

Internship Diaries

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company. The last round was anHR round, which was to simply test the individual's confidence and the w i l l i n g n e s s t o l e a r n . N o r m a l l y, organizations look for candidates who are confident, are willing to take up new responsibilities and learn new skills. EXPERIENCE Invesco recruited different candidates for five roles from across various BSchools. Based on the profile preference and the interview of the candidate, departments were allotted to each candidate. A mentor was assigned to every intern at Invesco. The mentor allotted to me was the senior manager with an experience of 11 years in the c o m p a n y. H i s k n o w l e d g e a n d proficiency were clearly visible through his working style and the way he guided me. I could still remember his words â&#x20AC;&#x153;Whenever you find yourself in any problem, don't look for the solution. Try to find out the core reason for the problem and in how many ways it can come back to us. Once you have a complete understanding of it, finding and implementing the solution is very easy and it will cover a maximum risk profile.â&#x20AC;? Invesco believes in learning while performing. One of the projects I worked on involved gathering four months of trading transactions for equity, fixed income and derivatives securities, understand the way such transactions are recorded, perform data analysis on recording style of such transactions and come up with a solution for the existing problem(s).The key requirements of this project were

in-depth knowledge of each security and how the transaction occurs, along with good data analytical skills. On the second day, I was introduced to my team. In the two months of my stay in the company, I worked with four different managers in different projects to understand their work and how processes are implemented in Invesco. This was the most challenging part of the job. During this period, I had meetings with the senior manager every day to clarify any doubts and to assess the progress of the work. At the end of the first month, I interacted with most of the peer groups and got some clarity on how the processes are implemented at every stage. That was one of the crucial aspects of my work. In the second month, I was working simultaneously on multiple projects, finding solutions and collating things together in a report. The experience was really a challenging and enriching one. Apart from this, the internship was based out of Hyderabad, which gave me an opportunity to live in a different state with people from a diverse background. On weekends, I got an opportunity to explore the city and try amazing cuisines. This was one of the best parts of the internship experience. My advice to students would be to interact with as many colleagues as possible, may it be your peer group or people higher up the hierarchy in the form of a mid-level manager or a higher level manager. That will give you industry insights and guidance on what are the things you should do and the skill sets you should acquire to gain a competitive advantage in today's industry.

Know your Finance 45

Prateek Tripathi, PGDM FS, 2018-20 Madhura Shastri, PGDM FS, 2018-20 Shreya Baderia, PGDM FS, 2018-20

STOCK MARKET

simple right?

In the last edition of FINLY, we had covered the different types of Mutual Funds. So, when we are investing through Mutual Funds we do not even have to worry about knowing the different kinds of orders on a brokerage platform let alone placing those orders. But for all those who prefer to take care of their investments themselves and would like to learn the same, we would be covering it in the next few sections. Let us first get through some jargons which will help us in our understanding of this article.

Stop Loss: Stop Loss is also a retty selfexplanatory term. It's the price at which we will stop our loss and exit our trade. So, in our previous example, what if the price never reaches 105 and in fact starts moving against me? I would then decide on a price at which I would like to limit my loss and set that price as my stop loss. Let that price be Rs. 97. Hence, I am risking Rs. 3 to make a profit of Rs. 5. So, to sum up, the above example, if the price reaches my target I make a profit of Rs. 5/share otherwise if the price reaches my stop loss I take a loss of Rs. 3/share and exit the market.

Target: It is the price at which we will book our profits and exit our trade. For example, if I bought 100 shares of a stock X at a price of Rs.100 and I am expecting X to rise by Rs.5, so the level of Rs.105 becomes my target. Pretty

Current Market Price: It is the price at which a particular security is trading at currently. As transactions take place at a very high pace, the CMP (current market price) keeps changing rapidly.

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FINLY| OCTOBER 2018 | Finstreet | SIMSR

DIFFERENT TYPES OF ORDERS Now that we have covered the required basic jargons, we are all geared up to understand the different types of orders that are used on a broker platform. 1) Market Order: These are the orders that are executed at the current market price. So, at the time of placing the buy or sell order, whatever will be the best price available in the market, is the price at which the trade will get executed. As mentioned earlier about the dynamic nature of price, it can fluctuate at a very rapid rate and hence the price at which you placed the market order may not always be the same as the price at which you actually bought or sold your shares. For example, the current price of the stock is Rs 100.34, but by the time I placed the order, the price changed to Rs. 100.50 in a matter of milliseconds, so 100.50 will be the level at which I would receive my shares and not 100.34. This is the reason why large firms spend so much on technology for fast execution of trades, as their trading volume is very high and even a small change in the intended price can result in a considerable amount of loss. 2) Limit Order: To overcome the limitations of the market order mentioned above, we have something called as the Limit Order. Now a limit order allows you to set a price in advance at which you would like to buy or sell a particular stock. For example, the current market price of a stock X is Rs. 101.5, but I am willing to buy the stock only at Rs. 100 and I don't mind

waiting for the price to come to my desired level. I can open a Limit Buy order, setting the limit price as Rs. 100. Now this trade will only get executed at the limit price or lower. So to summarize a limit order is an order to buy a security at no more than a specific price, or to sell a security at no less than a specific price.

3) Stop Loss Order: A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. Stop orders are also of two types: a) Stop Loss market order b) Stop Loss limit order These orders are generally used to set the stop loss of your existing orders. Let's say we are already in a position where we have bought a Stock X at a price of Rs. 100 and I have decided that my stop loss level for this trade will be Rs. 95. So, we can place the stop loss orders in 2 ways, one is by using the stop loss market order and the other by using stop loss limit order. Let's look at both scenarios one by one. Stop loss market order â&#x20AC;&#x201C; In the above example, since Rs. 95 is our stop loss level, we will enter Rs. 95 in the stop loss market order. This means, that if the trade does

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not go in our favor, as soon as the price hits the level of 95 the position will be closed at the current price available at that moment. Now the price at which the trade gets closed may or may not be equal to Rs. 95 as we have already discussed due to the nature of the “market order” type. Basically, the level of Rs. 95 acts as a trigger to sell the shares at the market price available.

at our specified price. So, in the above illustration if the price falls back to the level of Rs. 96 which is our trigger level, it will then activate the limit sell order to sell our shares exactly at our specified level of Rs. 95. Bracket order: A bracket order is one the most convenient order types for traders as it eliminates the requirement for two different orders, i.e. one for stop loss and on for the target. It allows us to enter the stop loss and target values in the same window.

(In the above illustration if the price falls from 100 to the level of 95, the shares will be sold at the price available at that moment) Stop loss limit order – The stop loss limit order, on the other hand, allows us to exit exactly at the price we want to exit. But for that to happen we need to enter 2 prices in this order. One is the price at which we want the trade to close, let's say 95 and the other will be a “trigger price”.

The above is a snapshot of the bracket order window of a popular broker named Zerodha. As we can see, that this window allows us to enter the quantity, price at which we want to buy, the trigger price, the stop loss and the target values all in the same window making the job much easier.

GENERAL AWARENESS FINANCIAL MARKETS AND ITS CLASSIFICATION

A trigger price is a level that acts as an indicator of the system to sell the stock

Financial markets are markets that facilitate the process of buying and selling of financial securities such as bonds, derivatives, equities etc. The financial markets are classified into two major categories:

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1. Organized Markets 2. Unorganized Markets 1. ORGANIZED MARKETS The organized markets consist of standard rules and regulations to be followed which are set by the governing body of the exchange. The financial organizations which follow these rules and regulations of apex institutions while dealing with their financial functions belong to the organized financial market. Hence there is a high degree of institutionalization. The organized markets are further classified into Capital Market and Money Market.

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The primary market also called the New Issue Market, is where issuers raise capital by issuing securities to investors for the first time. Primary market facilitates capital formation as the borrowers in the primary market exchange new financial securities for long-term funds. There are three ways in which a company can raise capital in a Primary Market. Ÿ Public Issue

This is most common when new companies sell their securities for the first time to raise capital. ŸRight Issue

When a company wants to raise more capital, it first issues its securities to its current shareholder.

I. CAPITAL MARKET ŸPrivate Placement

Capital Market is a market for financial assets having a maturity period of more than one year or an indefinite maturity period. The capital market deals with any long-term securities which have a maturity period of more than one year. Capital Market is further sub-classified into three broad categories: a. INDUSTRIAL SECURITIES MARKET This type of market is used for industrial securities. It consists of industrial i n st r u m e nt s l i ke Eq u i t y s h a re s , p r e fe r e n c e s h a r e s , b o n d s , a n d debentures. It is further sub-divided into two m a r ke t s – P r i m a r y M a r ke t a n d Secondary Market i. PRIMARY MARKET

When a company sells its securities privately to a small selected group of investors ii. SECONDARY MARKET The secondary market, also known as Stock Exchange, is a market for securities which were previously issued in the primary market. It facilitates the buying and selling of secondary securities. These securities are already listed on Stock Exchange Trades. b. GOVERNMENT SECURITIES MARKET It is a market where financial securities are issued by Government and SemiGovernment bodies with a promise of repayment upon maturity, also called as government securities. An important feature of the Government Securities is

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that they are considered to be totally maturity period of less than one year. secure financial instruments. Money Market is further sub-classified c. LONG-TERM LOANS MARKET into four broad categories: Development banks and commercial banks comprise the long-term loans market wherein they provide long-term loans to the corporates. The debt is usually paid off over the time period that exceeds one year.

a. CALL MONEY MARKET

This is a market for short-term loans having a duration of 1-14 days. The most important feature of this market is that it is highly liquid in nature. This type of loan must be repaid on demand i.e. it does not These are further divided into three have to follow a fixed repayment categories: schedule, nor does the lender have to provide any notice of repayment. i. TERM LOAN MARKET b. COMMERCIAL BILL MARKET A term loan is a monetary loan that is taken from a bank for a specified amount A Commercial bill is one which is a result of with a fixed or floating interest rate and is a genuine trade transaction, i.e. credit repaid in regular payment over a period of transaction. A commercial bill of exchange time. contains a written order from the creditor to the debtor, to pay a particular sum, to a ii. A MARKET FOR MORTGAGES particular person, after a specified These markets provide loans mainly to amount of time period. The maturity individual customers against a collateral. period of the bill may vary from three to If the individual fails to repay the specified six months. installment, the lender can seize the mortgage to recover its loss. Examples of these are Demand and usance bills, Inland and foreign bills, Clean i i i . A M A R K E T F O R F I N A N C I A L and documentary bills, Indigenous Bills GUARANTEES and Accommodation and Supply Bills. This is a market where financial securities c. TREASURY BILL MARKET are provided with the guarantee of a reputed person. This is a market for Treasury bill. Treasury bill is a promissory note that is issued by II. MONEY MARKET the government of India and is auctioned by Reserve Bank of India. These are zeroMoney Market is a market for financial coupon securities with an additional assets having a maturity period of less feature of no interest payment. than one year or a definite maturity period. The money market deals with any d. SHORT-TERM LOAN MARKET short-term securities which have a This is a market where short-term loans

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are provided to corporate customers. These loans are mainly used to finance the working capital requirements of the firm. 2. UNORGANIZED MARKET In these markets, many lenders and indigenous bankers, who do not follow any rules and regulations, lend money to the public. These lenders and bankers do not fall under the supervision of any specific apex institute. Many private financial institutions do not fall under the control of the RBI. Such institutions comprise of the unorganized financial markets.

PERSONAL FINANCE We all get a little apprehensive when it comes to investing our hard-earned money. We do not want to see our savings crash, which we have generated by working long hours and putting all the effort we can. Lack of financial literacy is yet another factor, which makes people hesitant to i nv e st t h e i r p re c i o u s e a r n i n g s . According to a global survey by a leading credit rating agency Standard&Poor's, less than 25% of adults are financially literate in South Asian countries. For an average Indian, Financial Literacy is yet to become a priority. India contributes to 17.5% of the world's population, yet 76% of its adult population does not understand even the basic financial concepts. So why not let educate ourselves about common financial terminologies and profitable sectors to invest in, so that we

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make the most out of every penny earned. DEBT MUTUAL FUNDS On a daily basis, we come across various portals to invest. One of the most common portals available to a retail individual investor is a mutual fund. A debt fund is a scheme of mutual fund which is one of the most sought-after investment avenues by investors. A debt fund is basically a scheme that primarily invests in fixed income securities such as government bonds, T-bills, corporate debt securities and other such financial instruments that offer fixed returns and high liquidity in the market, which in turn ensures the safety of the investment. The target market of debt funds are the customers who are not willing to take a considerable risk and are satisfied with a fixed and guaranteed return. Generally, people who belong to the salaried income middle class setup and retired individuals and are reluctant to put their money in risky and volatile investments, tend to invest in debt funds. Also, these services are moving online and becoming easier to access by the day, so that it can attract a larger customer base. A huge chunk of investors still rely on traditional ways of investing, often due to lack of awareness of various channels of investment. The traditional way of investing is saving money in bank accounts in form of fixed deposits. In this way, they never really realize the need to optimize on its opportunity cost.

FINLY| OCTOBER 2018 | Finstreet | SIMSR

Know your Finance

WHAT IS YOUR REAL RETURN? Let us do a comparative analysis on Debt Funds and Fixed Deposits and see which one of them outperforms the other. In fixed deposits, you don't have to worry about volatile markets and uncertain returns. You are assured with a fixed amount of return on your capital. Fixed deposit is good for investors when they are planning to invest for the short term, say 1 yr or 6 months and don't want to go through the exhaustive process of investing in mutual funds. Whereas fixed deposit is not at all a justified avenue of investment when we talk about long-term wealth creation, as it doesn't take into account the inflation and indexation. They are in a way misleading. To simplify the context let us take a small example. Suppose the rate of inflation is 5%, this means that after 1 year it will require Rs. 105 to purchase an item that is available at Rs. 100 today. So a fixed deposit giving an interest of 5% is actually not giving returns on 'real' terms. Also, there are high tax charges on FD as compared to debt funds. Debt funds are significantly more beneficial here as you only have to pay taxes when you redeem them; that too only on gains left after indexation of capital amount. A comparison for simplified understanding has been given below: FIXED DEPOSITS VS DEBT FUNDS: TAX OUTGO AND ACTUAL RETURNS

It is important to protect one's finances against inflation. One more financial

instrument has been announced by the government of India to tackle such a situation, called CPI-linked inflationindexedbonds. CPI linked inflationindexed bonds which will be introduced from next fiscal year i.e. FY19. This will protect investors against the inflation in the country at that point in time, which will ensure fair returns. When it comes to one's finances, one must be extremely careful and vigilant while making investment decisions rather than following just the herd mentality. It is upto you whether you decide to optimize or just be content with the status quo.

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

Email Us At : finstreet@somaiya.edu