Finly September 2018 by FINLY

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers, We at Finstreet are proud to unveil the September edition of our monthly magazine FINLY for the academic year 2018-19. Our cover story inspects the recent turn of events as a consequence of US President Donald Trump's trade wars and other economic policies. Next in line, is the Eco Section, which covers in detail about how the Indian Economy responds to the monsoon and how it ultimately affects the common man and the farmers. In the sector analysis, the authors inspect the Pharmaceutical Industry, with an in-depth analysis of how the US market has a cascading effect on the Indian market. This month's Fintech Funda is about the story behind the evolution of AlgoTrading and its relevance today in the modern stock market setup. We are fortunate to have Pasan Choksi, the outgoing student of PG-Finance and former Co-convener, Finstreet, to pen down his experiences during MBA in the Alumni Section. Kushagra Singh, a current student of PG-Finance, has penned his experiences of his summer internship at BARCLAYS PLC, 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 News 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 feedbacks 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

FINLY| JULY 2018 | Finstreet | SIMSR

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2 Years

Gaurav Badve, PGDM Core, 2018-20 Radhika Goyal, PGDM IB, 2018-20 Adyasha Pratihari, PGDM FS, 2018-20

â&#x20AC;&#x153;When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore we win big. It's easy!! @RealDonaldTrump Perhaps, it is a much easier strategy for Trump to win and achieve like this. This tweet perfectly reflects the impulsive thoughts he professes and shallow knowledge which he radiates. The short-term strategies which he focusses on are the most vulnerable; co n s e q u e n c e s o f w h i c h w i l l b e witnessed in the near future. In this article, we will be describing the economic policies of U.S. president D o n a l d Tr u m p i n c l u d i n g t r a d e

protectionism and immigration reduction. We will further look at how these policies will impact the world as a whole and India specifically. Trumponomics describes the economic policies of U.S. president Donald Trump including trade protectionism and immigration reduction. We will look at how these policies will impact the world as a whole and India specifically. SANCTIONS ON IRAN Earlier in the year, US president had initially agreed to extend the waivers for sanctions on Iran. Later on, the US imposed economic sanctions against Iran as it was not making changes to its missile and nuclear programs. As a part of these sanctions, US has withdrawn from the Joint Comprehensive

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FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

Plan of Action â&#x20AC;&#x201D; otherwise known as the Iran nuclear deal â&#x20AC;&#x201D; which aims to ensure Iran's peaceful use of nuclear energy. The EU, China, Russia, and Iran continue to uphold the agreement.

Major global powers like China and Russia were against these sanctions and stated they were going to continue trading with Iran while considering US sanctions secondary.

W H AT I S T H E S TAT E O F I R A N SANCTIONS?

China buys around $15 billion worth of crude oil from Iran each year and is its top customer. Iran owing to its geography plays a crucial role in China's Belt and Road Initiative.

The first set of sanctions target financial transactions preventing Iran from purchasing US dollars, Iran's automotive sector, purchase of commercial planes and metals, including gold. Then there are sanctions targeting Iran's oil sector and a central bank that are to be imposed in early November. It has been made clear that no company or country dealing with Iran would be given access to the U.S financial and banking system. The US is also seeking to ban European carmakers, banks, and energy companies from doing business with Iran. If they violate the ban, their assets in the US may be seized. WHY WAS AMERICA CONCERNED ABOUT IRAN DEVELOPING NUCLEAR WEAPONS? A nuclear-armed Iran would make Iran's foreign policy even more aggressive thus increasing greater confrontations within the international community. It would spark an arms race in the Middle East that would further destabilize this volatile and vital region from the perspective of being an essential source of energy for the world. HOW THE SANCTIONS RECEIVED GLOBALLY AND WHAT COULD BE THEIR IMPLICATIONS?

Russia has sought to use its vast oil and gas industry to build stronger links with Iran, making investments worth $50 billion. It is also keen to develop an oil for food trade with Iran th at wo u ld s ee Iran ian companies buy Russian products in exchange for oil contracts to be sold to third countries. European Union companies in the automobile, energy and banking sector are involved in trade relations with Iran. To protect their interests, a blocking statute was adopted that European companies are granted the right to challenge US sanctions in European courts and seek compensation from the US government or American companies. The EU is also sending a clear political message to the US that they will not just submit to American dominance, which is also why EU foreign policy chief Federica Mogherini and the three European foreign ministers announced their commitment to a financing channel and further oil and gas exports from Iran. However, European companies and banks have already announced their intention to withdraw from Iran, especially ones that have corporate assets or real estate in

Cover Story

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

America which the US government co u l d s e i ze . F re n c h a n d I ta l i a n companies have been the ones majorly affected due to these sanctions. The French energy company Total no longer wants to continue with a large €5 billion project. Italian companies have cancelled planned investments. The same goes for Germany's Siemens. French automaker PSA wants to reduce its business in Iran. Renault, on the other hand, wants to stay for the time being. The European aircraft manufacturer Airbus has 100 orders from Iranian airlines on its books. How many of the planes can actually be delivered is unclear, as they contain American parts. Thus there will be resistance to these sanctions on the part of Russia, China and EU but the European companies depended on the US will comply with these sanctions.

Ÿ Iran is India's third largest supplier of

crude oil. In addition, Iran allows a 60day credit on oil purchases, making their imports attractive for Indian refiners. Ÿ India has invested $500 million to

develop Iran's Chabahar port as a transit hub for Afghanistan, Central Asia, and International North-South Transport Corridor (that aims to move freight between India and these countries). The Chabahar port is crucial to India as Pakistan does not allow India overland transit rights to trade through its territory. It also provides India access to energy-rich Central-Asian countries making it important for India's energy security. Ÿ India is also developing two gas fields

around Iran. Ÿ US sanctions will severely hamper the

above projects and investments. HOW IS INDIA REACTING TO THESE SANCTIONS AND HOW DO THEY IMPACT INDIA?

Ÿ Indian MNC's dependent on American

financial system is planning to withdraw operations from Iran with the advent of sanctions.

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FINLY| August 2016 | Finstreet | SIMSR

INTERNATIONAL TRADE WARS Ÿ SBI has already announced to

suspend operations in Iran starting from November Ÿ RIL has also decided to halt its oil

imports from Iran. The absence of Iranian oil could shoot up prices in the oil market increasing India's import bill. Iran was India's largest importer of tea in terms of value (US$ 126.36 million) in 2017-18. Iran's continued imports of Indian tea could be tied to India's decision to continue a substantial part of its oil import from Iran after November 4, when US sanctions on oil are operational. India has reduced its import of Iranian oil and is mindful of the US sanctions as it is the top export destination for India with goods worth $47.9 billion sold in 2017-18.

The US has imposed import tariffs on EU, Canada, and Mexico for as much as 25% on steel imports and 10% on imported aluminium. Trump administration has given national security interests as the reason for its action saying the United States needs a domestic supply for its tanks and warships. Trump has ordered doubling the sanctions on the import of steel and aluminium on Turkey. The issue with Canada and Mexico stems f ro m N o r t h A m e r i ca n F re e Tra d e Agreement (NAFTA), signed in 1994, which the president has called a “disaster”

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FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

and “one of the worst deals anybody in history has ever entered into”. The US wants to renegotiate NAFTA and is using import tariffs as a pressure tactic.

US doubled its import tariffs. It has increased inflation to 15% and led to a fall in the stock market by 17%. TRADE WARS WITH CHINA On July 6, 2018, the United States imposed 25% tariffs on $50 billion worth of Chinese goods an as part of U.S. President Donald Trump’s new tariffs policy. In return, China responded with similarly sized tariffs on US Products.

Trump also feels that trade with EU is “unfair” as the Europeans enjoy a large trade surplus with the US. Imports of cars from Europe (particularly Germany) are the cause of concern for the President. The issue with Turkey is it is using an American clergyman Andrew Brunson as a political hostage which the US is not going to accept, hence the retaliation of import tariffs on Turkey.

WHY HAS THE US ENGAGED IN THESE TRADE WARS? Ÿ There are certain practices that elevate

the transfer of intellectual property to Chinese firms such as the requirement for foreign firms to share ownership with local partners to access the Chinese market. It can be design, product or idea. According to the US, the tariffs were necessary to protect national security and the intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China.

While Canada and Mexico have hit back by imposing their own tariffs on US products such as whiskey, cheese, steel, bourbon and maple syrup, Turkey has been hit worse. Turkey's currency, Lira, has depreciated more rapidly since the

타 Additionally, being the only country

American companies to hand over technology in exchange for access to Chinese markets, these strict US tariffs were designed

with which the US has a substantial trade deficit, its $385-billion goods, and services trade deficit with China equalled a staggering 59 percent of USChina trade that year 타China also refuses to remove its tariff and

non-tariff barriers THE EMERGENCE OF OTHER MARKETS

타 China then uses this advanced

technology to develop robots and electric cars under its 'Made in China 2025' program

There will be a direct influence on Canadians who export products on each country's verboten list. There can be the emergence of some new markets. There is an alternative for China to secure crude oil. West Africa possesses similar quality as US crude oil. On the other hand, it will be difficult for the US to find a market as big as China. China also imports about 40 percent of the global soybean production from the US. As a result of conflict between two states, Midwestern states such as Iowa, a leading producer of soybean, can become a show stopper. If the story continues and it is further intensified, there are some positive results for countries like Brazil and India, at least in the short run. IMPACT ON THE GLOBAL ECONOMY It seriously jeopardizes the global industrial chain, hinders the pace of global economic recovery, triggers global market turmoil and will affect more innocent multinational companies, general companies, and consumers.

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

LONG-TERM EFFECTS Considering the foresightedness of this is a full-fledged trade war, there are chances of high inflation and low growth. Inflation is beneficial for assets such as gold while having a deteriorating impact on currency and some other sectors in the equity market. HOW WILL INDIA BE AFFECTED? With an increase in interest rates, there i s a n i m p l i c a t i o n fo r e m e r g i n g economies such as India, both for the equity and debt markets. There are three factors such as high tariffs, rising interest rates, and elevated bond sales which comes at a time when the domestic banking system is struggling with a renewed stress of bad loans.

As per the statistics, the government securities market has been decreasing constantly for the past seven months. The most probable reasons are rising US yields and increased local inflation. With an increase in the rise of yields, the corresponding prices of bonds fall. This results in mark to market losses for public sector banks. India's equity market will also be affected. Higher US rates will lead to outflows from emerging market bonds and equities as American investors will look to chase higher returns in their home. While a surge in domestic inflows is a reassuring factor for Indian equities, higher interest rates to make the option of investors borrowing cheap money in the US and investing in Indian equities significantly less attractive.

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

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FUTURE INSIGHTS Donald Trump will be highly persuaded to end the trade war to avoid media backlash. Furthermore, it will become a topic of discussion ahead of the crucial midterm elections in November. This short war might be a good news as an investment, but financial markets will always tend to react extreme negative and unpredictable. The aggressive approach to the trade war is a perfect example of the prospect theory of behavioural economics in which a gambler becomes increasingly risk tolerant as the chance of success decreases. Concluding the chapter, the longer the trade war goes on, the more investors can expect bold threats from Trump that could vanish the complete global market. IMMIGRATION POLICIES Even before Donald Trump came to power, he was clear about all the policies he would bring into play. One among them was the Immigration policies which majorly targeted the Mexicans and immigrants from the Middle East. Not just illegal immigrants Tr u m p a l s o s e t l i m i t s fo r l e ga l immigrants and guest worker visas. US-MEXICO WALL From the beginning, Trump had proposed the idea of building a wall in the US â&#x20AC;&#x201C;Mexico border. He believes that the immigrants are responsible for the increasing crime rate in the US. Not just a wall, he has also increased the border

security patrols. The existing wall according to him is of no use. However, he has always insisted that the cost of the wall be borne by the Mexican government through increased border crossing fees and NAFTA tariffs. Trump during his presidential campaigns had estimated that the wall would cost around $12 billion, however later on after an estimate was done the value came up to $21.6 billion. Reacting to this, several scientists have asked the Department of Homeland Securities to abide by the Environment ask when constructing the wall, as nearly 1500 species of plants and animals have chances of getting affected. H1B VISA POLICY The new policy against the H1B visa program was declared by the trump government in April 2017. This has imposed stringent visa rules on companies hiring on H1B visas. This policy states that a company has to hire highly professional and qualified foreign officials to fill in vacancies of American workers. The companies hiring foreign professionals need to undergo extensive paperwork while filing for H1B visas where they have to provide evidence of work assignments. Indian IT professionals are going to be hard hit due to this as they have to wait for an indefinite period to get hold of a green card. Some, who have been living in the states, paying their taxes and have their money invested will suffer. Not just IT officials, several doctors, scientists and technical experts have been affected due to this move. The extension of the H1B visas which was previously given for 3 years at a time has been made tougher. If this policy comes into play, it

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wouldn't affect the Indian Economy in a great deal as the migration of Indian workers would result in a stronger economy.

manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! The U.S. will soon have a level playing field, or better”

BAN ON MUSLIM IMMIGRANTS Trump was always against the Muslim immigrants and has often described them to be spreading terrorism around the world. All through his presidential campaigns, Trump has proposed the ban on Muslim immigrants. After several rejections from the lower courts and revisions of 2 executive orders, this proposal was given a nod by the divided US Supreme Court as they upheld trump's decision on the ban of immigrants from 7 countries namely North Korea, Syria, Iran, Yemen, Libya, Somalia, and Venezuela. The 5-4 ruling reverses a series of lower court decisions that struck down the ban as illegal or unconstitutional. It was a major victory for Trump, who initiated the battle to ban travellers a week after assuming office. According to the latest travel ban, countries should remain deficient at this time with respect to t h e i r i d e nt i t y- m a n a ge m e nt a n d information-sharing capabilities, protocols, and practices. SOME RECENT HAPPENINGS Ÿ Trump has fired FBI agent Peter Strzok

after charges of sending controversial text messages against him were proved. Strzok is the third officer to be fired from the FBI, one of the other being former director James Comey Ÿ "Many @harleydavidson owners plan

to boycott the company if

Trump's tweet supporting Harley Davidson boycott after the company decided to shift some of its production overseas. Ÿ 2 months post the US-North Korea

summit, both the nations are back at loggerheads with each other for not abiding by the terms and conditions laid out in the summit held in Singapore. North Korea has alleged that the US has violated the dialogue held between both nations and has implemented international sanctions which have a negative impact on North Korea despite them discontinuing the nuclear and ICBM test fire Ÿ Trump is all out there to reverse all the

policies laid out by former president Barack Obama which includes trans pacific pact, Paris, and Iran agreements, banning transgender from the military, scrapping deferred action for childhood arrival (DaCa) to name a few CONCLUSION All the policies implemented by Donald Trump are surprisingly bringing a positive impact on the American Economy which is evident from the statistics. A recent announcement that the economy grew at the rate of 4.1% pace is quite an indicator of the fact that US economy could be the greatest ever under Trump rule. Also to add on, the unemployment rate is the lowest in 18 years at 3.8%. However, the policies might not have similar effects on

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the world economy as a whole. The trade wars resulting in tariff hikes have bought major adverse effects on global trading activities. The sanctions imposed by the US on Iran has even deepened its divide with European Union. Russia and China have been very clear about their intentions. India has also reduced imports following the US sanction. Rigid immigration policies of Trump, especially the ban on 7 nations has also sparked anguish and fury around the world. Coming to India, Trump struck the first blow with the steel and aluminium tariffs. Thereafter, a series of complaints were filed with the WTO. The United States is India's single largest trading partner, with the two-way flow totalling more than $100 billion or more a year, and total trade makes up 40 percent of India's GDP. There is considerable worry that Trump's trade war will jeopardize India's economic boom, with GDP growing at 7.7 percent in the last quarter of 2017. Now we have to wait and see what other out of the box policies and practices Trump brings in and how it would affect American as well as the World Economy.

Online Financial Berkshire Hathaway without Buffet Services at an Inflection Point?

Article of the Month - Winner

Rikesh Salian KJ SIMSR 2017-19

1.Online Financial Services in India a.Overview I. India aims to be a trillion-dollar economy through its Digital India campaign. ii. It is estimated that close to a billion people would come under the ambit of the digital ecosystem, which would imply immense scale and opportunity unprecedented not just in India but also anywhere in the world. iii. Rapid creation of public and private infrastructure for an integrated digital ecosystem coupled with growing heterogeneous digital consumption, adoption of emerging technologies and data explosion (digital footprint of people due to increasing digital presence and usage) is coming together in India bringing immense growth potential.

iv. The Indian Financial sector has seen a growth rate of 8.5% per annum with the banking sector on its way to becoming the fifth largest in the world by 2020. v. The rise in mobile usage and internet penetration coupled with the push from the Government towards creating a 'Digital India' is creating opportunities in providing financial services through the online channel and digital innovation b. Demand Drivers for Online Financial Services in India: I. Indian Financial Services sector faces situations such as a 190 mn unbanked population, rising inequality, lack of financial literacy and low penetration of financial services. ii. The supply of financial services in India is lower than the overall demand in India, with nearly 50% of the market being underserved.

Article of the Month - Winner

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iii. With India estimated to be the third largest consumer economy in the world by 2025, the demand for financial services is expected to increase.

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I. The online financial services in India offers the services in payments, savings and deposit mobilization, investments and lending categories.

c. Industry Scenario of Online Financial Services in India: Comparative Analysis of Online Financial Services in India

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2. The Inflection Point

Article of the Month - Winner

a. Rising Income and Savings: I. India's savings rate is amongst the highest in the world at about 32%. Indian household savings touched almost USD 5 tn in 2017. These savings reflect immense growth opportunities in household savings, bank deposits and credit growth for various industries. ii. There is an increasing shift observed in the Indian household asset holdings from physical assets to financial assets, which was largely on account of high inflation and interest rate scenario coupled with Government's various reforms like Demonetization and BENAMI Act. iii. A pickup in equity markets in FY15 has resulted in strong flows into equity markets, mutual funds and insurance. This along with declining inflation rates, initiation of reduction in interest rates and pickup in primary issuance market have all been crucial factors for growth in financial savings. a. The ubiquitous mobile:

I. The number of smartphones in India grew at a staggering pace and has made India the second largest smartphone market in the world. ii. Indians accessed the internet through their mobile phones nearly 80% of the time.

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Article of the Month - Winner

HOW DO THEY MAKE MONEY? vi. Online users have grown nearly c. Indians going Digital:

I. In 2017, there were over 350 mn internet users in India with around a little over 200 mn from urban areas, out of which 150 mn were urban banking consumers. ii. Rural areas which account for twothirds of the country's population provides an unexplored opportunity and potential target market due to the current low penetration levels of banking and financial services. iii. On the digital spending front, up to 300 mn Indian consumers are expected to be online by 2020 along with 120 mn digitally influenced and 150 mn online banking users during the same period. iv. More than half of all new Internet users will come from rural communities and rural users will constitute about half of all Indian Internet users in 2020. v. Online consumer spending is expected to grow 2.5 times to around USD 100 bn by 2020 led by growth in ecommerce, travel and hotel, financial services and digital media.

two times in four years to reach 430 mn users in 2017, propelled by cheaper smartphones, increasing digital literacy, cheaper data and more Indian-language content. I. Potential exists for digital transactions to triple from around USD 40 bn to USD 100 bn by 2020. ii. With a rising internet user base coupled with greater maturity in using digital channels and e-commerce platforms, digital financial services have tremendous potential and opportunity in India. iii. The spurt in e-commerce could mean more favorable towards online financial services in India. d. IndiaStack: I. The Government's initiative at developing the digital infrastructure for the country's transition into a digital economy. ii. It is a set of APIs that allows governments, businesses, startups and developers to utilize a unique digital Infrastructure.

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Article of the Month - Winner

India Stack: Technology for 1.2 billion Indians

3. Road Ahead: I. India is well on its way to becoming a trillion-dollar digital economy 타 Expanding digital infrastructure

provides a strong base

ii. Organizations, startups and investors will need to gear up to seize these opportunities. iii. It remains interesting how India cruises ahead in its crucial online financial services race.

타 Rapidly growing heterogeneous

consumption class is fueling digital demand 타 Widespread adoption of emerging

technologies 타 Data explosion owing to digitization

and emergence of new sources of data

FINLY| SEPTEMBER NOVEMBER 2018 2017 | Finstreet | SIMSR

Article of the Month - Runner Up

PROJECT SASHAKT

Jill Mehta, Welingkar Institute of Management, 2017-19

THE INTRODUCTION The NPA problem in Indian Banks is on a surge since a few years and no efforts until the Insolvency and Bankruptcy Code's (IBC) launch have proven its ground to lessen the burden of NPA's on bank's balance sheet. In February this y e a r, t h e R B I s c r a p p e d a l l t h e mechanisms like Credit Debt Restructuring (CDR), Structuring of Stressed Assets (S4A), and Strategic Debt Restructuring (SDR) etc. which further urged banks to develop a better solution. No doubt, the IBC is active and is on the pathway to solving the

problems, but it is still a new framework, which in turn means that it will take some time in settling down with a robust execution plan. Hence arising out of this need was a proposal suggested by the Sunil Mehta Committee (PNB Chairman) which will be an interbank framework to manage their own Non Performing Assets (NPA's) with a resolution plan developed by the consortium of Banks themselves. THE PROPOSAL Here is how the committee proposes to segregate and deal with loans of varying levels:

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THE PROCESS

The Asset Management Company (AMC) has to redeem the security issued to banks within 60 days. The new AMCAlternative Investment Fund (AIF) has to own at least a 76% stake in the asset.

like the Joint Lenders Forum (JLF). The government is not going to interfere in the whole process which leads to a solution that banks themselves are willing to accept.

THE POSITIVES THE CHALLENGES Project Sashakt is a banker led initiative, hence the banks can mutually decide on the action plan to be undertaken for the NPA. Inter-Creditor Agreement (ICA) will be ratified by The Board of Directors of the banks entering into the agreement which means banks are taking a conscious decision. It is a voluntary move rather than being a regulatory one

Lack of sufficient finances â&#x20AC;&#x201C; The AMC's needs to raise money for the NPA's which in itself an obstacle is given that there are not many takers for these stressed assets. Deep Haircuts- The banks should be willing to take deep discounts for their NPA's in order for it to be sold.

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Article of the Month - Runner Up

huge challenge. A pool of disbursed assets - Since NPA's above 2000 crores are going to be taken to the National Company Law Tribunal (NCLT), the small loans which are spread over various banks might not be as attractive to the ARC's, because they have to deal with a complex structure and less attractive amounts. Overlapping with IBC – RBI in its February circular said that all stressed assets worth more than 2000 crores, if not resolved within 6 months, should be taken to NCLT. This accounts for about 70 big companies with loan amounting to Rs. 3.2 lakh crores. So Sashakt will essentially look into loans in the SME sector which has value lesser than 2000 crores. Consensus on resolution plan - Some banks may have secured loans and others may have an unsecured loan. So as to reach an agreement that takes into account the charges against the assets and to equalize the process for all banks remains a challenge. Many banks have sold their assets to Asset Restructuring Companies (ARC's). Hence, the Inter-Creditor Agreement should take into consideration the other institutes as well, which own the NPA's. Banks investing in AIF- No bank can contribute more than 10% in AIF and even so for whatever amount has been contributed, the bank has to maintain a 150% capital charge. 49:51 – The deal is to get 51% of nongovernment ownership in AIF, which is a

THE CONCLUSION Project Sashakt, if well aligned to IBC, will clean up the banks' balance sheet. It is not a new framework in the first place, even earlier there have been efforts made to develop an AMC-ARC structure. The major difference this time is that the InterCreditor agreement is a stronger plan as compared to the earlier Joint Lenders forum (which was scrapped by the RBI). More so, the time is ticking for NPA's that have stuck to the banks for so long. Essentially banks have only a few options to resolve the whole mess –: 1. IBC 2. Project Sashakt 3. Writing it off Of course, the better way would be to use the first two options rather than cutting down on their capital and profits.

Economics of the Indian Monsoon

ECO Section

Isha Koolwal, PGDM FS, 2018-2020 Sambhabi Chanda, PGDM FS, 2018-2020 Shreya Baderia, PGDM FS, 2018-2020

M o n s o o n i n I n d i a i s n o t j u st a phenomenon, it's an emotion. India faces around 75% of its rains in a short span of four months from June to September, hence variations in the summer monsoon affect the economy c o n s i d e ra b l y. C ro p p ro d u c t i o n , especially the Kharif crops which are sown with the onset of monsoon is a direct function of the amount and distribution of monsoon. Hydro-electric power generation is also impacted by monsoon and a good monsoon results in a hike in the generation which accounts for nearly 14% of the total energy consumption in India. Agriculture is without doubt, the prime sector which is influenced the most by the monsoon. Despite innumerous reforms and policies, India continues to be an

A g r a r i a n E c o n o m y. T h e h e a v y dependence of the Indian population on agriculture is clearly evident from the fact that nearly 48% of our workforce is employed in the sector. Most of the country's production originates from the sector and their level of abundance has a significant impact on the growth of the trillion Dollar Indian economy. The influence that monsoon exercises over the economy are not just limited to over or underproduction of crops, it has a d e e p e r i m p a c t o n t h e e c o n o my. Agricultural output, inflation and growth are all interdependent. The farmers resort to loans and borrowings to finance their agricultural activities. Lack of rains or means of irrigation results in poor production leading to an inability of the farmers to pay the loans and this results in the initiation of a debt trap. Inflation,

ECO Section

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u n a v a i l a b i l i t y, i n c r e a s i n g n o n performing assets, increased Minimum Support Prices are all that follow. 1. IMPACT ON GROWTH & INFLATION Due to an irregularity of monsoons, the crop yield might not be as expected leading to huge losses. Farmers are unable to recover their costs. Sometimes in times of good monsoon where the crop yield is high, farmers end up producing much more than the requisite demand. This leads to a surplus leading to a fall in prices of the crops. The government tries to offset the loss of farmers by raising the MSP of certain crops. Higher rise in MSP will lead to an increase in inflation like retail price inflation, wholesale price inflation and also add to the fiscal deficit. MSP affects inflation as a rise in MSP impacts food prices since the items on which MSP is announced account for 7.3% of the WPI according to Economic Times. Moreover, MSP is the minimum price at which the Government procures commodities but the whole sale (wholesale) prices are higher than these minimum prices. Therefore, an increase in MSP would lead to an increase in the wholesale prices leading to inflation. According to Devendra Pant, chief economist at India Ratings and Research (Ind-Ra), Retail inflation and wholesale inflation is likely to rise by 70 and 38 basis points respectively following this hike. One basis point is equal to 0.01%. Since the consumers buy commodities from a retail shop, inflation at the retail level presents a true picture of the rising prices. CPI (Consumer Price Index) is the

index used to measure inflation at the retail level. CPI is the cost of a basket of goods and services across the country on a monthly basis. The rise in MSP is not a correct measure as it sets a fixed 150% cost of production of all kharif crops which is equivalent to a margin of 50% over their input costs irrespective of their farm output. It would lead to more production of crops. The rise in MSP will hinder farmers from being aware of the market demand-supply. Higher than expected rise in MSP has forced the RBI to increase its repo rate by 25 basis points to 6.50% at the recently held MPC meet as the RBI governor, Mr Urjit Patel strives to achieve the 4% inflation target. Due to the deficit of rainfall, agriculture is affected in a big way as Indian agriculture is heavily dependent on monsoons. The yield is low and farmers are unable to recover their investment cost. They invest heavily in farming equipment, seeds, fertilisers etc. Farmers usually take loans from banks to procure the equipment. But in absence of a good monsoon, the agricultural produce is very low which results in farmers defaulting on their loan repayments. This leads to an increase in NPAs. Politicians waive off farming loans in most of the states for their electoral gains. This in turn enhances the fiscal deficit of a state and the state tries to recover their expenditure from the consumers or farmers by levying taxes on various products leading to inflation. An increase in NPA will decrease the lending capacity of banks resulting in higher interest on loans offered by the banks. All these countermeasures by the government lead to a slowdown in the economy as the purchasing. In the

ECO Section

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

absence of liquidity in the economy, growth is muted. So, on one hand, it controls inflation to some extent but on the other, it slows down the economy.

Relation between MSP and WPI Inflation

The impact of monsoon has its roots spread deeper into the economy. There is a very significant relationship between monsoon and the functioning of the corporate sector. Primarily the FMCG companies rely heavily on monsoon for their operations. Better monsoon results in better agricultural produce available at a lower rate which serves as a raw material to the FMCG companies. It enhances the rural demand as well as it increases the purchasing power and demand for the product which directly benefits companies like HUL, Dabur, Godrej Consumer, ITC and the likes of those. Demand for transport vehicles and tractors also increases which benefits the automobile sector. Monsoon is sometimes very uncertain and since Indian economy is largely dependent on agricultural produce and thus rainfall for its growth, it would reap huge benefits if the government focuses on latest rainwater harvesting techniques and other alternatives of monsoon.

Relation between MSP and CPI Inflation

Relation between Monsoon and Agricultural growth

ECO Section

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

M E A S U R E S TA K E N BY T H E GOVERNMENT TO REDUCE DEPENDENCE ON MONSOON Ÿ A remarkable move by the Indian

government was to develop drip irrigation facility which is a form of micro irrigation in the year 2003 when it recognised its increasing importance and formed a task force on micro irrigation and provided subsidies through bodies like National mission on micro irrigation which assisted the farmers to implement drip irrigation technology. Drip irrigation is a type of micro irrigation that helps the water to drip slowly directly into the root zone and minimise evaporation. It has proven to be a technology which has the potential to change the face of Indian agriculture Ÿ Recycling and desalination of water

also play a vital role in conservation of water. Industries such as power, textile, and dyeing units have more potential for wastewater recycle and reuse. While recycling is in the nascent stage,

S TO RY BEHIND

desalination has already been accepted as a potential opportunity. The Minjur desalination plant located in the Kattupalli village of Tamil Nadu has solved the chronic water problem of Chennai to some extent. The government should set up more such plants across the country especially in the drought prone areas and geographical sectors that are heavily industrialised to ensure sufficient availability of water Ÿ Government should allocate more funds

in R&D to develop crops which are drought resistant and require comparatively less water to flourish. At the same time, it should put more emphasize on creative and cheap methods of water conservation and adopt as well as promote the 'more crop per drop' policy

ALGOTRADING

Fintech Funda

Kunal Mirchandani, PGDM Core, 2018-20 Prachi Jain, PGDM-IB, 2018-20 Sudarshan Daga, PGDM-FS, 2018-20

The Stock Market is one of the most important indicators of the financial health of any country. It is a place where buying and selling of different securities like equity shares, bonds, derivatives, commodities etc. takes place and where the different modes of finance are mobilized, pooled, bought and sold. An efficient stock market is considered the backbone of the country. With a rise in interest in trading, people from different streams such as students, businessmen, working professionals are becoming active traders. When every sphere in the world is undergoing transformation through automation, how can stock trading stay aloof from it? Trading is getting revolutionized by the concept of algorithmic trading. It made its debut in India in 2009 and has been gaining more popular ever since. With recent announcements from SEBI, it is evident

that algorithmic trading will become more common among investors, where it is already accounting for 30 to 40 percent of turnover of Indian exchanges for institutional investors. WHAT IS ALGO-TRADING ? Algorithmic trading is basically trading by putting an algorithm into place. It is a set of instructions written so as to perform trade on basis of certain rules and regulations. Decisions are dependent on various parameters such as the fluctuating value of stocks, movement of indices, other dependent variables, etc. This concept has found immense popularity among domestic and foreign institutional investors, trading on proprietary books. Algo-trading comes up as a better option in a case when there are a large number of transactions to be done in trading and are

Fintech Funda

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

difficult to be performed manually. A clearly defined set of instructions ease up the process and reduce human intervention. It works with the simple aim of generating more profit than trading done manually. Algo trades are of different types as per the algorithm and degree of human intervention required. The most popular one in India is Application Programming Interface (API), where a user can select strategy as per their choice and execute it. Another one is zero-touch algos, which require least human intervention and decides the strategy as per various conditions.

error is removed. With Manual entries, it can be that the wrong values are entered which is not the case in algorithmic trading. So the human element is removed here.

Ÿ Emotionless- Human trading are

susceptible to emotions that lead to irrational decisions. The two emotions that lead to poor decisions fear and greed are removed here.

WHY IS ALGORITHMIC TRADING USEFUL? Ÿ Process more and faster – Algorithms

are written so that the trades can be executed much faster as soon as the conditions are met. So trades take place within fractions of a second, and they take place at a rapid rate, much faster than humans can do. Algorithms scan multiple indicators at such a fast speed, which is not possible for any human being. It waits for price movements to be favorable and for better opportunities to trade.

Ÿ Analysis based on past trends – Algo-

trading has the ability to back test. Many times traders don't remember what parts of their trading strategy worked and what didn't work. In algo-trading, you can run the algorithms based on past records to check the historical data or past performance of a strategy. This ability lets the user remove any flaws of a trading system before they run it live. Ÿ Automation- Algo-traders don't have to

be present physically in front of the computer all the time, and continuous supervision is not required, which saves a lot of time. Ÿ Accuracy - When you have double

checked the algorithm, and the computer then puts the trade automatically, the element of human

FAST VS. SLOW ALGORITHMS Proprietary algorithmic traders are

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

Fintech Funda

further divided into slow and fast (latter is also known as high frequency or low latency). Many traditional traders were using mathematical models to make an informed decision which has taken over by algorithms (involving large datasets). Although these algorithms are faster than traditional portfolio managers but are "slow" in comparison to other algorithmic traders. High-frequency trade, on the other hand, operates on the microsecond scale making decisions and racing each other to the market using different strategies. HF traders take trading to the extreme level and quickly trade, sometimes holding the stalk for fraction of seconds. Their profitability depends upon the speed in processing and trading. ALGORITHMIC TRADING STRATEGIES They can be broadly classified into the following categories – Momentum / Trend Following - If we assume that there is a particular trend in the market. Further to our assumption if the market falls this week. Now we can determine using stats that the trend will be going to continue to continue or it will change in the coming weeks. So, we have based our strategy on the market trends which we determine using stats. Arbitrage – If we assume that Telecom stock is to be bought by another company than there are chances that the stock price of our company can go up. Here we are taking the decision

based on a certain event happening. Bankruptcy, spin-offs, mergers, and acquisitions could be the events that drive such kind of strategy. These kinds of strategies are widely used by hedge-fund and proprietary traders widely. Statistical Arbitrage – When an arbitrage opportunity arises due to misquoting in prices it can be very helpful for algorithmic traders but such kind of opportunity exists for a very short duration as the prices in the market get adjusted quickly. In this case, algorithmic trading can be very useful since an automated machine can track these changes instantly. For instance, if Facebook's shares fall by $1 than there are chances that Twitter's shares will fall by $0.5, but this has not happened for that time, where algorithms take the decision in microseconds and sell Twitter's share and book the profit before its stock falls. Market Maker – A market maker refers to a bank or Brokerage Company that participates in markets and quotes (bid and ask prices) for the stock buyers and sellers. In a way, they are literally "making a market" for the stock. The primary objective of market making is to infuse liquidities in securities that are not traded on stock exchanges. In order to measure the liquidity, we take the bid-ask spread and trading volumes into consideration and algorithms tend to make the profit from the bid-ask spread.

CORE AREAS OF ALGORITHMIC TRADING Algo-trading is a multi-disciplinary field which requires knowledge in 3 domains –

Fintech Funda

Ÿ Quantitative Modeling - Traders using

fundamental and technical analysis needs to shift gears and start thinking quantitatively. Working on statistical packages such as R, SAS, and Matlab will help them to explore historical data from exchanges and develop new algorithmic strategies. Ÿ Trading knowledge – A professional

coder/ developer is expected to have a good fundamental knowledge about trading instruments, strategies, options, pricing models and risk management. This knowledge is essential for interacting and developing strategies with quant developers and creating robust programs. Ÿ Programming Skills – The strategies

created by the quant modelers are implemented in live projects by p ro g ra m m e rs a n d t h e y re q u i re continuous interaction with IT teams to implement the strategy. So, one should be willing to learn programming languages like Python/C++/Java/R since this has become a pre-requisite for quant developer jobs in trading firms. THE FUTURE OUTLOOK Algo trade comes up as an alluring option for investors, and the number of investors using it is increasing rapidly but it has some key concerns which need to be taken into consideration as well. Being just a piece of code, it is prone to system failures, bugs, glitches, the time lag between orders and executions. If the number of investors using it increases, so will trade taking place in a second, and prices may

FINLY| JANUARY 2018 | Finstreet | SIMSR

fluctuate even in a microsecond. As the complexity of the algorithm increases, more rigorous testing will be required to be assured of the credibility. In spite of these challenges, algo-trading can be regularized and seen as future of trading where every step will be automated, and transactions will take place in a span of microseconds, changing the market trends in a different way altogether. It is a perfect blend of finance and technology where you need the expertise in technology, coding and trading ideas as well. The future of Algo trading is all set to witness an exponential growth. Over the last couple of decades, it was limited to big banks and trading firms but the current retail participation in the last few years has seen a substantial growth. Right now, most of the modelling is done by deploying various statistical methods picked by humans. In future, it will be increasingly done by machine learning algorithms that will pick the methods by themselves. In a nutshell, this is the age of automation, an era of a pizza delivery by drones, selfdriving cars, so we can't expect anything less fascinating in the world's oldest profession – trading!

Alumni Section

my success to the Team Finstreet, and thank them for this opportunity. Finance is not only important for the students who will specialize in finance, but very important for students from other specializations as well. Marketing of financial services is where a lot of jobs are present, along with attractive compensation.

Pasan Choksi MMS | 2016-2018

Firstly, a B School is a place where you come to learn other than what's there in your curriculum. Your academics will always be there and that should be top on your priority list, but not the only major activity of your daily schedule. A piece of advice will be to focus on other activities too. I would like to address this basic question -

It feels good to write again for Finly. In this article, I will emphasize on the aspects on how to make the most of our MBA journey and how to improve in the areas of finance in a simple and efficient manner. I graduated from KJ SIMSR from the MMS 2016-2018 batch and owe a lot of

â&#x20AC;&#x153;I am a beginner in finance, what should I focus on and how will I be able to cope it with my peers who are from a commerce/finance background??â&#x20AC;? I think this is the most common question which definitely everyone would have, and surely of a concern.

Alumni Section

Peter Lynch said â&#x20AC;&#x153;Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.â&#x20AC;? And you guys have definitely cleared math of one of the toughest entrance exams. So relax, the answer for this is simple, very simple read pink papers (meaning financial newspapers). Make it a habit to read a financial newspaper religiously; you can u n d e rsta n d a l o t o f t h e t h i n g s happening in the financial markets. At once you will come across things which you won't understand, do make it a point to get it cleared from your faculties and seniors. The reason being, if you are updated with news and the current happenings in the financial markets, half your battle is won. For the other half, pick up books from your library and go through the workbooks of NCFM/NISM - you're done with it. Career options? I have just graduated a few months back, hence I will not be the right person when it comes to guiding you as to which career options are best suited for any of you. But for the students who are starting their careers, one should look at giving Bonds Markets (Fixed Income) a try. Bond markets are way too dynamic, interesting and challenging than any other asset class in the world. You track everything from the Turkish Lira to the Tax collection of GST. It is a growing area in India, the bond markets are not yet developed, but sooner or later they will have to, with interest rates reducing and India becoming more stable as an

economy. The bonds market in the US are way too bigger than the equity markets, which indicates the depth of any country's economy. What will be your learning in bond markets? A wise man once said everything and anything affects your bond yields. Your base in macroeconomics gets stronger, you will learn a lot about the global economy. Citing an example, the US oil inventory, if reduced, will mean that there's a less supply of Oil, and with less supply and a constant demand, the Crude oil prices would increase. When crude increases, for a country like India, its imports increases, so the country's borrowing would increase, along with an increase in the price of other goods, if it goes beyond a point that the inflation increases and thus the Reverse Bank may be forced to increase your interest rates. And as we know interest rates have an inverse relationship ship with bond prices, the price of bonds would start falling. And when you're aware of all this, "Short the bonds, Make money" What other things to go for along with your usual course curriculum? Take part in college competitions actively, work for the committees, etc., because these will help imbibe those managerial skills sets in you. I always credit Finstreet for that. Other than this, start writing blogs (time is definitely a constraint, but it can be managed). Make write-ups on any major event which took place, or any company

Alumni Section

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

which you want to research, etc., this definitely helps. Firstly, you're aware in depth as to whatever is happening, secondly, it helps you stand apart from your colleagues when it comes to placements as well. Company Profile I work with STCI Primary Dealer. Primary dealers are registered entities with the RBI who have the license to purchase and sell government securities, so we basically work in the bond market. And that is what explains my biases towards the bond market. But again bonds are way too interesting. Before joining the MBA programme at KJ Somaiya, I was hardcore into equities and managed my family portfolio and did a lot of research as a freelancer, but bonds caught my attention and I am into it now. Closing Comments P l a c e m e n t s a n d A c a d e m i c s a re important, but try to get an overall development and make the most of it in these two years.

FINLY| JULY 2018 | Finstreet | SIMSR

PHARMA SECTOR

Sector Analysis

Rohan Thombare, PGDM FS, 2018-20 Yash Manghanani, PGDM FS, 2018-20 Shree Vignesh, PGDM CORE, 2018-20

INTRODUCTION

developments in the field & their impact.

India is the largest exporter of generic drugs & the Pharma sector contributes a major portion of India's exports. This makes pharma very crucial for the Indian economy. The US is the largest market for Indian Pharma companies followed by the UK. Thus, policies by regulatory bodies in these countries have a significant impact on the business of Indian Pharma companies. Nowadays, new markets like Japan & China are being explored to widen the spectrum of exports. Just like foreign regulations, the Indian government's policies also have an impact on the Pharma companies as Indian market is where they get most of their revenues. This article intends to understand the structure & operations in the sector & also tries to interpret recent

MARKET STRUCTURE The pharma market is divided into two types: prescription drugs & over-thecounter (OTC) drugs. The difference between them is that Doctor's prescription is necessary for purchasing prescribed drugs & they can only be purchased from licensed pharmacies whereas OTC drugs don't require Doctor's prescription & can be purchased from any store, be it a pharmacy or a supermarket. The prescription drug segment is further divided into branded/patented drugs & generics. The difference between patented drugs & generics is that patented drugs are prepared by putting in years of effort & a huge amount of money into research and testing whereas

Sector Analysis

FOOD PROCESSING FINLY| INDUSTRY SEPTEMBER 2018 | Finstreet | SIMSR Iwhereas generics are prepared by reverse engineering a patented drug. So, it is possible that a generic drug is not as effective & safe as its patented counterpart. But generic drugs have an advantage. They are significantly cheaper than the patented ones.

western countries. These factors help reduce the cost of drugs & improve profit margins. This cost-effectiveness helps create opportunities for Indian Pharma companies in emerging markets like Africa.

Generics are further classified into the following categories: 1. Branded generics: When the patents of patented drugs expire, they are called branded generics. 2. Unbranded generics: These are the generic drugs developed by reverse engineering the patented ones. 3. Specialty/Complex generics: These are generic drugs prepared by making a minute change in formula or a d m i n i ste r i n g te c h n i q u e o f t h e patented drug to improve its effectiveness.

GROWTH DRIVERS Indian Pharma companies are enjoying t h e b e n ef i t s o f l ow- co st A c t i ve Pharmaceutical Ingredients (APIs), which is the raw material used for drug manufacturing, as it can be developed in India or imported from China at a lower co st . T h e la b o r co st in I n d ia is significantly cheaper than that of

Source: www.ibef.org Penetration of generic drugs in terms of volume in global market also has a positive impact on Indian Pharma businesses as they have developed cheaper manufacturing processes for generics and the time required to develop a generic drug is significantly less as compared to a patented one. As the number of branded products going off-patent increases, so does the market of generics. Though generics is an integral part of the business, Indian Pharma companies have not restricted their products to generic drugs. They are also investing more capital in R&D to develop patented drugs. This will help them become value players instead of just volume players & that's how they will be able to generate maximum revenue; by selling branded drugs at a premium price in the period of exclusivity - that is - the period for which the patent is valid.

Sector Analysis

Growing number of fatal and stressrelated diseases due to changing lifestyles has increased the demand for drugs in terms of volume as well as s p e c i f i c re q u i re m e n t s . M e d i c a l expertise & diagnostic facilities are improving with time & the trend shows that the government budget allocations for healthcare are increasing. These two facts combined have proven to be growth drivers for Pharmaceutical sales. India's medical tourism is getting more popular & increasing number of patients around the globe visit India for cheaper treatment. This improves domestic Pharma sales to a great extent. In addition to this, due to increased penetration of chemists especially in rural areas, the sale of OTC drugs has significantly increased.

Source: www.ibef.org The US being the most lucrative market for Indian Pharma exports, product approval from the US regulatory body, the Food & Drug Administration (FDA) contributes immensely to the revenues of the Indian Pharma Businesses. India has the second largest number of FDA approved manufacturing plants & largest number of company sites outside the US. Reduction in approval time really helps Pharma companies to maximize the sales in terms of both volume & value as it essentially extends the exclusivity of the drug. In addition to

FINLY| DECEMBER 2017 | Finstreet | SIMSR

foreign regulatory bodies, policies made by the Indian government are critical for the growth of the Pharma sector. The government of India is planning to relax FDI norms in the Pharma sector. This will allow the Indian Pharma companies to invest more in R&D and developing branded drugs, which will make them value players. The government is also planning to set up mega bulk drug parks to reduce industry's dependency on raw material imports, as any policy change for foreign bulk drug manufacturers can affect the profit margin of Indian Pharma companies. Opening online pharmacies is one more initiative that will have a positive impact on drug sales.

Economic factors such as fluctuation of currencies could also improve profit margins of Pharma products as Pharma has become a global business. MAJOR PHARMA COMPANIES IN INDIA

Source: www.wikipedia.org

Sector Analysis

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

ANALYSIS BASED ON PORTER'S FIVE FORCES

pressure from consumers to offer drugs at reasonable prices due to the availability of their generic counterparts at significantly lower prices. Ÿ Approval time plays a key role in the

Pharma sector. Because, after getting the patent, the drug is exclusive for a limited amount of time till its patent is expired or till the competitors have developed its generic counterpart & filled for approval claiming that the patent is invalid. Thus, it is very crucial to get the approval as early as possible because the drug loses its exclusivity with time & competitors who are always on top of their game come up with generics in the market. THREAT OF NEW ENTRANTS – LOW

BARGAINING POWER OF CUSTOMERS – LOW TO MEDIUM

Ÿ Pharmaceuticals is a heavily regulated

business, being very sensitive in terms of human health. So, getting approvals for manufacturing facilities & products is a big hurdle for new entrants in the business. Ÿ Also, Pharma companies need to make

heavy investments in setting up factories, distribution networks and marketing. Another key investment is in R&D to develop patented & complex drugs because selling API & bulk drugs can only take you so far. So, if you want to be a value player, investing time & money to develop research capabilities is inevitable. THREAT OF SUBSTITUTES – MEDIUM TO HIGH Ÿ Pharma companies face cut-throat

competition & there is immense

Ÿ Awareness among Pharmaceutical

product consumers is increasing, but it hasn't reached the level where they will ask for generic substitutes if the branded drug is very expensive. The general trend shows that patients buy drugs prescribed by the doctor, as they are more concerned about their health than the prices. BARGAINING POWER OF SUPPLIERS – MEDIUM Ÿ Indian Pharma companies started their

business by manufacturing API & bulk drugs but with time they moved up in value chain & started making branded & complex generic drugs. Currently, China is the biggest manufacturer of bulk drugs & it supplies them at a cheaper cost. But dependency on China for the supply of raw material is not healthy for Indian Pharma companies. Any sudden change in

Sector Analysis

the policy of supplies can affect their profit margins to great extent. Ĺ¸ Thus, initiatives are being taken to

reduce this dependency by creating mega bulk drug parks so that Pharma companies can get a cushion to absorb the impact of any sudden changes in supplier policies. RECENT DEVELOPMENTS The Indian pharmaceutical industry has been taking it in the shins since the middle of 2015. This was due to a multitude of factors such as the increased vigilance of the US FDA after their funding was boosted, leading them to find many lapses in the accepted manufacturing practices of many Indian pharmaceutical companies, the correction of which caused these companies to take a hit on their margins. Pressure from the American people to reign in the spiking drug prices caused the government to attack the pharma companies, painting them as greedy and cold, which led to investors withdrawing support to find more stable and low-key investment opportunities. This impacted the export revenue of Indian pharma companies and that, combined with the policy changes brought about by the NPPA (National Pharmaceutical Pricing Authority) which took out a big chunk of the domestic profits, utterly crippled the entire industry. INDEX PERFORMANCE Over the last couple of months, there have been many signs which point to a

FINLY| NOVEMBER 2017 | Finstreet | SIMSR

potential comeback by the industry. Most stocks have recovered smartly after hitting their 52-week lows this year, with the likes of Glaxo-Smith-Kline, Novartis India, and Merck hitting their 52-week highs after D-Street cheered their Q4 performances. Even more recently, other big pharma companies posted very impressive Q1 2019 results like Dr. Reddy's Laboratories coming in with 12 percent Yo-Y growth in revenue and an eight-fold increase in net profits. The overall prediction for the sector's Q1 2019 results is a net 17 percent increase in revenues and a 50 percent jump in profits according to a report by Edelweiss securities. Now just how excited one should be because of these numbers is the big question. A breakdown of the possible causes of this recovery will help us determine if the gains are sustainable or not. The numbers should be taken with a grain of salt because they were largely due to a very low base value and depreciation of the rupee. The brokerage houses seem to be pessimistic about the sector, most still regarding pharma as being overpriced, meaning, they feel the fall is not yet complete. FACTORS AFFECTING EXPORTS The current developments that could impact the industry need to be analysed. The Rupee may not be done declining, and this will affect the income of the pharma companies, as a good chunk of the companies' revenue comes from exports. An approximate 1 percent depreciation in the Rupee will have an average of 1.1 percent benefit on the EBITDA of the pharma companies. Pharma exports continue to grow, even with the lull in the

Sector Analysis

FINLY| SEPTEMBER 2018 | Finstreet | SIMSR

demand from the United States, other countries seem to be picking up the slack. The recent trade conflicts between the US and China have indirectly led to China widening its doors to Indian pharmaceutical exports, which is a very huge market. China has also been taking many proactive steps such as removing duty on the anticancer drugs and simplifying new product registration which can be utilized by Indian pharma companies to grow their presence there. EASING REGULATORY BURDENS Another positive is that the regulatory issues seem to be easing, proof of which is given by the favourable inspections at Cadila's facility, Sun pharma's Halol plant, and a couple of Dr. Reddy's facilities. The FDA final approvals have increased in the first half of 2018 - from 286 in 2017 to 386 in the same period this year. Cadila healthcare received 8 final approvals in July. Sun Pharma got its first product approval for the Halol site in July, after five years. Aurobindo Pharma has received around 22 approvals from January to June 2018. FUTURE PROSPECTS â&#x20AC;&#x201C; OUR VIEW Pharma sector seems to be recovering from the deep slumber. With improved product approvals & availability of robust pipeline of product fillings, Pharma companies look ready to compensate for the dry season. But to achieve this, they need to tackle the hurdle of intense competition by being aggressive in innovation & having sound business strategies. Future of Pharma

companies will be shaped by new ideas like online pharmacies, personalized medicines, body sensors & artificial intelligence. These disruptive technologies will bring a revolution in the Pharma sector & only making medicines will not suffice. Pricing issues are still a big hurdle to the growth of this sector. There still seems to be even more price erosion possible in the future. The government may also bring in more drugs under the Drug Price Control order (DPCO), which are government orders that set a ceiling price on essential and lifesaving medicines to increase their availability to the public, and they impact profits and hinder investments. This is even more probable now that the general elections approaching, bringing down the prices of medicine would be an easy way to collect votes. Increased government push for price-regulated generics is also a big headache for the industry. The second half of 2018 however, is likely to present a positive picture as most of the Pharma companies are ready with a robust pipelining of drug fillings. That coupled with growing exports and more lenient regulatory policies will give investors more confidence to return to the sector. The money these investors bring with them could be exactly what the companies need to pick themselves up and continue their climb to the summit.

Internship Diaries

FINLY| JANUARY 2018| Finstreet | SIMSR

THE PROCESS Barclays plc, being one of the leading investment bank and financial services company, has its Shared Services division (BSS) in their offices here in Mumbai. The profiles on offer are categorized according to the three verticals present in BSS, i.e. Market Risk, Credit Risk and Capital & Risk Information Systems (CRIS).

â&#x20AC;&#x153;I would definitely say that a stint at Barclays is going to give you a slingshot in terms of every professional aspect of your career.â&#x20AC;? KUSHAGRA SINGH PGDM Finance 2017-2019

Being from a Computer Science background and having worked in a techno-functional role in my previous organization, I diligently applied to the CRIS profile. CRIS is within the Market Risk domain and delivers multi-asset class solutions for the production, control and validation of various internal model risk measures, including but not limited to VaR calculations and Regulatory reporting.

Internship Diaries

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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 an online technical round (included basic quant, reasoning and more importantly some tricky Finance related questions and also 5 questions testing our coding aptitude), followed by technical and HR interview rounds which were conducted at their office by my 'to be' reporting managers. The only point I would emphasize about the interviews is that one should be aware of his strengths and weaknesses. Brush up on the basics of risk and markets and you should be good to go. 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. THE EXPERIENCE I would definitely say that a stint at Barclays is going to give you a slingshot in terms of every professional aspect of your career. The mentors allotted to all interns are at the AVP level if not more, mine being a veteran in the Risk domain with an experience of 15 years. Their knowledge and proficiency shows in their conduct of the on-boarding process. T h e ver y first meetin g o f mine concluded with this statement from my

mentor â&#x20AC;&#x153;I know that managing the deliverables along with all the other requirements will be a really tough task for you, but that's what the internship is about, pushing you far beyond your comfort zone of being a studentâ&#x20AC;?. And I swear the words were truer than what I would have liked. Apart from two simultaneous projects, one involving a process improvement in the team's BAU and another requiring me to report to the Director of CRIS to work upon standardizing the policies and procedures of the Global team, I was required to be a part of the following 1. The Training Programs - Both Online and Offline These include thorough sessions on fundamentals of Banking, Finance and Soft Skill Development by the finest experts in the industry. 2. Interactive Sessions with Senior Management 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 Investment Banking space. Every intern is encouraged to interact with seniors as high as Managing Directors and Country Heads which is quite rare in other organizations. 3. CSR Initiatives Interns are encouraged to take up a CSR activity on their own as a team and put it together in making a difference in the society. It was a humbling experience to

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take a session for 13 underprivileged students. And yes 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 progress. And being so surely boosts productivity and liking about your workplace. MY 2 CENTS My advice to students would be to interact with as many colleagues as possible in the given 2 months irrespective of your company. I changed my workstation 4 times, sitting alongside the VP one week, our immediate senior the next etc. This will be an opportunity to network and pick up some minute habits from each one of them, which will surely help you in the time at the organization and beyond. Speaking of the perks available, we get free food and transportation which makes up for a tiring day at office. In conclusion, I would say the 2 months at Barclays 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 brings with its name will definitely help any finance enthusiast in the long run. KUSHAGRA SINGH has been offered a Pre-placement offer and he has accepted it.

Know your Finance

Apoorva Sakunde, PGDM Core, 2018-20 Saurav Jain, PGDM Core, 2018-20 Yash Gore, PGDM Core, 2018-20

FINANCIAL RATIOS RATIOS TO ASSESS THE FINANCIAL HEALTH OF A COMPANY In order to gauge the financial health of a company, the main areas that can be examined are efficiency, liquidity, leverage and profitability. Among these 4 indicators, profitability provides the best measurement of a company's health. Along with these metrics, financial ratios also give a good insight into the health of the company. Financial ratio analysis can be used in the following ways: To examine the current performance of a company in comparison to the past trends, this can be beneficial to identify the problems that need fixing and even avoid potential problems. These ratios

can also be used to compare the performance of the company with the competitors or other members of the i n d u s t r y. A c a r e f u l s t u d y a n d interpretation of financial statements using various financial ratios, thus provides useful information about the company's financial status, position, and also the borrowing power. 1. LEVERAGE RATIOS: These ratios tell us about the company's long-term solvency, that is, they help us understand the extent to which a company has depended upon borrowing to finance its operations. The common leverage ratios are the debt-toasset ratio and the debt-to-equity ratio. These ratios tell us about how the assets of a company are financed. Ĺ¸ Debt to asset ratio: A debt ratio greater

than 1.0 means that the company has a negative net worth and is technically

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bankrupt. This ratio is similar, and can easily be converted to the debt to equity ratio. Ÿ Debt to equity ratio: A low debt to

e q u i t y ra t i o i n d i c a te s a h i g h e r proportion of owner-supplied capital and hence makes the company safer. A very low ratio can indicate excessive caution. 2. LIQUIDITY RATIOS: These ratios tell us about the amount of liquidity (cash and cash equivalents) that a company has to cover its debts. Ÿ Quick ratio or acid test ratio:- It

measures how quickly a company can access cash to support immediate demands. The quick ratio divides current assets (minus inventory) by current liabilities. Ideally, this ratio should be 1:1. If it is higher, then the comapany may keep too much cash on hand and if it is lower, it may indicate that the company relies too heavily on inventory to meet its obligations.

viability of a company, compare the business to others in the industry and keep a check on various trends by comparing the ratios over a certain period of time. Ÿ Return on Equity Ratio: This ratio

measures how well the business is doing in relation to the investment made by its shareholders. It is calculated by dividing a company’s earnings after taxes (EAT) by the total shareholders’ equity and the result is then multiplied by 100 (%). Ÿ Return on Assets ratio: It is the ratio of

net income to total assets, which measures a company's effectiveness in deploying its assets to generate profits. This ratio is industry sensitive. Capitalintensive industries such as railways will yield a low ROA since they need an expensive infrastructure to do business, while service-based industries such as consulting firms will have a high ROA, as they require minimal hard assets to operate. Ÿ Return on Investment ratio: This is the

Ÿ Current ratio or working capital ratio:

This ratio indicates a company's ability to pay its short-term bills. A general rule is that it should be at least 2:1. A lower current ratio means that the company may not be able to pay its bills on time, while a higher ratio means that the company has money in cash or safe investments that could be put to better use in the business. The formula is the same as that of the Quick ratio, with the inventory included in the numerator. 3. PROFITABILITY RATIOS: These ratios are used to evaluate the financial

ratio of net income to shareholders' equity and indicates a company's ability to utilize its equity investment. A high ROI means that the firm is successful at using the investment to generate high returns, or that the firm is undercapitalized; while a low ROI indicates the inability to utilize an investment or a highly conservative business approach. 4. EFFICIENCY RATIOS: Inventory turnover ratio and receivables turnover ratio are the common efficiency ratios.

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I nv e n t o r y Tu r n o v e r ra t i o : T h i s parameter looks at how long it takes for inventory to move and be replaced during the year. It is calculated by dividing total purchases by average inventory in a given period. This ratio can enable a company to see where it might improve its buying practices and inventory management. Ÿ Receivables Turnover ratio: This is the

ratio of credit sales to accounts receivable and measures the annual turnover of accounts receivable. A high number reflects a short lapse of time between sales and the collection of cash, while a low number means collections take a longer time.

payment must be made regardless of the performance of the company. Companies, to make large acquisitions without having to commit a lot of capital, use Leverage buyouts. A leveraged buyout is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. Ÿ Issuance of debt securities: Instead of

borrowing money from banks, when companies decide to raise capital from a pool of investors, it is known as issuing debt securities. Various ways of issuing debt securities are issuing of bonds, debentures, treasury bills etc.

GENERAL AWARENESS BONDS AND DEBENTURES DIFFERENT WAYS TO RAISE CAPITAL IN A BUSINESS Businesses need to raise money, also called as 'capital', to fund requirements of expanding (expansion), machines, equipment etc. Business can raise money via debt or equity. Debt is a form of borrowing, while equity represents ownership. DEBT When a company borrows money to be paid back in the future with interest, it is called as debt. There are two fundamental ways to borrow money:

The bond is a debt security, under which the issuer owes the holders a debt and is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed as the maturity date. A debenture is a debt security issued by a corporation that is not secured by specific assets, but rather by the general credit of the corporation. Money market securities used to raise money for a short duration i.e. less than one year: Ÿ Treasury Bills - This is a debt security

issued by the Govt. of India to raise money for shorter maturities.

Ÿ Loans from institutions: Corporates

can raise money by borrowing money from financial institutions like banks. The debt is repaid with interest. The

Ÿ Certificate of Deposits - A Certificate of

Deposit (CD) is an instrument issued by a bank or Financial Institution (FI) to raise

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bank or Financial Institution (FI) to raise money, similar to a fixed deposit. Ÿ Commercial Papers - Commercial

paper (CP) is an unsecured debt instrument issued by a corporation to raise money. Ÿ Repurchase Agreements – It refers to

a lending transaction where the borrower uses debt securities as collateral for the borrowing. EQUITY Equity capital is the method of generating capital by the sale of ownership of the stocks. Equity instruments mainly are of two types: 1. Common Shares: Common shares or stocks represent ownership in a company. They (The shareholders) carry voting rights for the owners. They exist as long as the company exists. 2. Preference Shares: Preference shareholders (shares) are a specific type of share. They (The shareholders) carry a fixed rate of dividend but have a claim only on profits. This means that the company will pay the dividends only in years of profit. They do not have any voting rights. There are various ways a company can generate funds. Some of which are explained below: Ÿ Initial Public Offering (IPO): Also

Known as "new issue market" (NIM), it's a process by which a privately held company transforms itself into a publicly owned company. The issuing company offers its equity to investors or

groups and receives cash proceeds from the sale, which is then used to fund operations or expand the business. It is the largest source of funds with long or indefinite maturity for the company. Ÿ Follow on Public Offer (FPO): A follow on

public offer (FPO) is the issuance of shares to investors by a public company that is currently listed on a stock market exchange. An FPO is a stock issue of additional shares made by a company that is already publicly listed and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in capital markets through an issue of stock. Ÿ Offer for Sale (OFS): Offer for sale (OFS)

is a simpler method of share sale through t h e exc h a n ge p l at fo r m fo r l i ste d companies. The mechanism was first introduced by India's securities market regulator SEBI, in 2012, to make it easier fo r p ro m o te rs o f p u b l i c l y- t ra d e d companies to cut their holdings and comply with the minimum public shareholding norms by June 2013. The method was largely adopted by listed companies, both state-run and private, to adhere to the SEBI order. Later, the government started using this route to divest its shareholding in public sector enterprises. Unlike a follow-on public offering (FPO), where companies can raise funds by issuing fresh shares or promoters can sell their existing stakes, or both, the OFS mechanism is used only when existing shares are put on the block. Only promoters or shareholders holding more than 10 per cent of the share capital in a

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company can come up with such an issue. Ÿ Share Buyback: A share buyback is a

program by which a company buys back its own shares from the marketplace, usually because the management thinks the shares are undervalued, and thereby reducing the number of outstanding shares. The company buys shares directly from the market or offers its shareholders the option of tendering their shares directly to the company at a fixed price. This way, the share price automatically is expected to increase. Thus the company ensures a good demand for these stocks and keeps a check on the share price (in the optimal price range - usually on the higher side). The subsequent expected behavior is the re-purchase of the shares by the investors, this time at a higher price, thus leading to more capital for the company. PERSONAL FINANCE TYPES OF MUTUAL FUNDS In this section, the reader will be introduced to the various types of mutual funds available in the market. BASED ON FUND AVAILABILITY: 1. Open-ended funds are open for investors to enter or exit at any time, even after the NFO. (New Fund Offer is the initial public offering for new funds offered by an Asset Management Company/Investment Company) 2. Close-ended funds come with a fixed time frame. Investors can buy units of a close-ended scheme from the fund only during its NFO.

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3. Interval funds combine features of both open-ended as well as close-ended schemes. They are mainly close-ended, but become open-ended at pre-specified time intervals. BASED ON FUND MANAGEMENT: 1. Actively Managed Funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme. 2. Passive funds invest on the basis of a specified index, whose performance it seeks to track. The main objective of an index fund is to beat the benchmark index's growth. BASED ON ITS INVESTMENT COMPOSITION: 1. Equity funds have an investment portfolio invested largely in equity shares and equity-related investments such as convertible debentures. The investment objective of such funds is to seek capital appreciation through investment in these growth assets. TYPES OF EQUITY FUNDS: ŸDiversified equity fund ŸMarket segment based funds (Large-cap,

mid-cap & small-cap) ŸSector funds ŸThematic funds ŸStrategy-based schemes ŸEquity Linked Savings Schemes (ELSS) ŸRajiv Gandhi Equity Savings Schemes (RGESS) (To be phased out by 2019)

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2. Debt funds are funded with an investment objective that limits them to invest in debt securities such as treasury bills, Government Securities, Bonds & Debentures are called Debt funds. The risk and return these securities carry depends on the tenor of the fund and the issuer. The fund manager also adopts various strategies to c re ate a n d m a n a ge a portfolio.

TYPES OF DEBT FUNDS: ŸGilt funds ŸCorporate bond funds ŸLiquid Schemes ŸShort-term plans ŸLong-term debt schemes ŸJunk bond schemes ŸDynamic debt funds ŸFixed maturity plans

3. Hybrid funds provide for investment in both debt & equity. Some of them invest in gold along with either debt or equity or a combination of all three. The risk and return of these funds depend upon the 47

asset allocation to each type of securities in each asset class. Higher the equity allocation, higher the risk. TYPES OF HYBRID FUNDS: ŸDebt-oriented hybrid funds ŸMonthly income plan ŸMultiple yield funds ŸEquity-oriented hybrid funds ŸCapital Protected Schemes

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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