Finly October by FINLY

FINLY| OCTOBER 2017 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers,

Bank recapitalisation lifting the market sentiment, Geopolitical tension seems to be easing out, Increased political activity in Gujrat and Rcomm loosing hope, it has been an eventful last one month and to keep track of all this amid the placement season is extremely important but difficult. Team finly understands this and thus we have come up with the latest edition of our monthly magazine “Finly” to help you preparing for placements and increase knowledge. We all remember Raghuram Rajan taking charge when rupee touched 69 against dollar and taking measures to stabilise the rupee. But have you ever wondered how the exchange rate of a currency is defined? And what are the implications of major events taking place across the world on the currency markets? If not, then our cover story will help you understand this as we cover currency markets in this month's edition as our cover story. We are very sure you must have celebrated Diwali with full zeal but did you think how does diwali or any other festival affect the economy? Our eco section explores this for you. In our fintech section the authors share with you how the tax authorities are using Big Data to trace the tax evaders? We are sure you are not evading any taxes but if you are then you must go through this section. Also we bring to you sector Analysis and news buzz trivia to update you with the latest happenings around you and in the stock markets. I would like to extend my gratitude to Dr. Pankaj Trivedi for providing constant guidance and support to our entire team. Also I would like to thank the finance department of our institute and our sponsors Finacue Research & Education for the constant encouragement provided. I would like to thank Miss. Sania Motwai for sharing her experience with deloitte in the Alumni section. I would also like to thank the members of Finly team who strive every month to deliver quality content to our readers. It gives me immense pleasure to announce that Manashvi Mistry from KJ SIMSR has been declared as winner and Krunal Sampat from KJ SIMSR has been declared as the runner up for the Call for article competition. We wish you a great luck in all your future endeavours.

Madhur Saxena Editor-in-Chief, Finly PGDM 2016-18 KJ SIMSR

Team FINLY

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Table of Contents

FINLY| OCTOBER 2017 | Finstreet | SIMSR

Currency Markets

Cover Story

Ankita Sinha PGDM A Saiyam Jain PGDM IB Market which works for 24 Hours Three Things that changed the humankind is Fire, Wheel, and Currency. Fire makes human to eat, Wheel to travel and Currency to exchange. According to Investopedia, 'Currency is generally an accepted form of money, including coins and paper notes which are issued by the government and circulated in the economy. Used as the medium of exchange for goods and services is the basis of trade.â&#x20AC;&#x2122; Currency is required to transact the exchange of goods and services which can be national and international also. For domestic purpose, every country has its own currency stated like U.S.A. has Dollar, India has Rupees, Saudi Arabia has Riyal and many more which they use for exchange within the limits

of their territory. But in order to transact the exchange between the parties of two countries they have to mutually come to one currency through which they can trade or they have to value their currency in relation to other currency. For an instance, if a person in India wants crude oil from UAE then it has to pay in Dirham because Dirham is the local acceptable currency of U.A.E. which is in circulation. Here, the foreign exchange market plays the role of an intermediary in order to find the relative value of one currency in the terms of the other currency, thus providing them the status of the most volatile and liquid market among all other markets as the daily average trade on forex market is estimated to be $5.1 trillion in 2016 which is the largest asset class globally providing high liquidity to it.

Cover Story

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How is the Exchange rate between countries determined? In the regime of floating exchange rate, demand and supply determines the rate of exchange between two currencies. For instance, the exchange rate between British pound and Indian rupee depends upon the demand of British pound and its availability in Indian foreign exchange rate market. a-Purchasing Power Parity Purchasing Power Parity relates the price level of the country to exchange rate by comparing the average cost of goods between the two countries, where the goods will have to be the same or identical available at different prices. For example, 1 Kg. Sugar is available at INR ₹30 and 1Kg Sugar in the US available at USD $15 then in case the $1 USD = ₹2 INR. This theory is known as absolute purchasing power parity. This is one of the oldest forms of calculating exchange rate developed by the 16thcentury scholars of University of Salamanca, Spain. In the present world, Big Mac Index is the commonly known and widely used tool to determine the exchange rate between the countries, based upon the McDonald's standardized burger all over the world. Suppose in USA the cost of Big Mac is $3.57 USD whereas in India it costs around ₹90 INR, hence the $1 USD = ₹25.21 INR and if spot exchange rate is $1 USD = ₹64.72 INR (due to inflation, interest rate, etc.) the Indian currency is undervalued by 58% which enables the arbitrage opportunities. This is known as relative purchase

power parity. However, it is debatable by the various economist, as Big Mac is considered staple food in the US whereas in India it is considered as the premium food product. b-Interest rate parity Interest Power Parity is based on the concept of purchasing power parity, but under this, the parties are not allowed to gain any arbitrage profits due to differences in the interest rates of their respective currencies. This parity is based on the law of one price where one asset class of one country will yield the same as other's in other's country, otherwise exchange rates would have to adjust to make up for the difference. c-International Fisher effect According to Fisher, there is a long-term relationship between the real interest rate and inflation rate. Here the exchange rate between the currencies should change by the difference amount in their nominal interest rate. Change in nominal interest is either due to the change in the real interest rate or inflation rate. Formula for calculating it: Nominal Interest Rate= (1+ Inflation Rate) *(1+ Interest Rate) – 1 For example: If the real interest rate is 4.5% and inflation increases from 2.5% to 3.5% means the nominal interest rate would have to increase from 7.1% to 8.1%. New Nominal Interest Rate = (1+0.035)*(1+0.045)-1 = (1.035*1.045) – 1 = 8.1 International Fisher Effect: Spot rate * (Country A nominal interest rate/ Country B nominal interest rate.

Cover Story

FINLY| OCTOBER 2017 | Finstreet | SIMSR

d-Balance of Payment theory:

World War I:

This theory directly deals with the proportion of exports over the imports. As the balance of payment consists of two accounts capital account and current account, If the country has the surplus in its current account, then in case the country's exchange rate will appreciate in relative terms otherwise vice-versa. Types of currency market transactions a Spot Rate

The 'Great War' or the 'World War' left its footprints all over the world economy. The impact of this world event impacted the value of the US Dollar as well pound sterling long after the ink was dry on the treaty of Versailles. The spending of US was way more than their income through tax revenues, bond sales, and other income streams. The US was now seen as a debtor instead of a creditor, and this affected the value of the dollar and brought a change by introducing a modicum of uncertainty among foreign investors. When foreign investors weren't willing to invest in US Dollars which resulted an increase in the value of their own currency and systematically deflating the value of the US Dollar. Coming to the impact of the World War I on the pounds, it led to the end of the traditional gold standard for the British pound and resulted in inflation and currency devaluation. Post-war, the value of the pound dropped 30% against the U.S. dollar, with the exchange rate going from roughly ÂŁ1 = US$5 to ÂŁ1=US$3.50. From 1915-1918, the year-over-year price increase of consumer goods in the U.K. measured 12.5%, 18.1%, 25.2% and 22%. The fallout from WWI was felt throughout the 1920s, with the U.K. becoming an economic casualty of the global Great Depression.

It is the immediate exchange of one currency in terms of other currency based on the prevailing market prices. For Ex- Tourist exchanging money on airports are the best example of it. b-Forward Contract Under this, unlike the spot rate the contract is bought and sold over the counter for the further trade. Here the terms and conditions are determined by the parties. c-Future Contracts It is same as the forward contracts but all the activities are followed by the standardized procedures through the exchange where price, size, time is allotted Respond of Currency Market to International Events

Cover Story

The Great Depression: After the World War I, when countries were recovering and working towards their employment and resources, there was a shift of agricultural workers towards more established areas to find work and this movement shift had a dramatic impact on the agriculture industry as a whole, and is commonly referred to as one of the key factors of the Stock Market Crash of 1929. The immediate impact on the value of the US Dollar was grievous. Foreign investors were reluctant to invest money in the stock market which had crashed badly. This resulted in the depreciation in the value of the dollar and made the US weak. Due to the lower valuation of the US Dollar, the domestic production became easier to sell overseas due to the lower net cost to produce goods. Earlier under the gold standard system, each country used to set the value of its currency in terms of gold and took monetary actions to defend the fixed price. And there was a possibility that Federal Reserve responded to the immediate effects of this banking panic and due to this, investors lost confidence and further this led to the gold outflows and the devaluation of the dollar. After World War I (1925), Britain continued with the gold standard and due to the inflation the pound was overvalued and this led to trade deficits and substantial gold outflows. World War II: World War II devastated the whole world and its effect was seen in world

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economies. After seeing the horrific pictures of World War I, no one wanted to have the same story again. The Great Depression was still impacting the nation and on top of that when in 1941, the Japanese attacked Pearl Harbor, there was no choice left with the US except to go to war. The impact on the US Dollar, once the US, entered WWII was significant. Foreign investment saw a downfall because of America's involvement in WWII, and this had a negative effect on the value of the dollar. What happened during WWI was getting repeated again and the British economy suffer inflationary challenges during WWII. Dramatic increases in the pricing of consumer goods on a year-over-year basis for 1940 and 1941 measured 17.2% and 11.2% respectively. Due to the increase in inflation the pound value depreciated during WWII. Bretton Woods System: Introduction of Dollar as International Exchange Currency The main aim of Bretton Woods's system was to provide a global monetary system which could ensure exchange rate stability and to develop a plan for the financing of rebuilding efforts related to the destruction caused by WWII. The International Monetary Fund (IMF) and the World Bank came into picture to regulate these two goals. The task was to enforce a set of international exchange rates that were pegged to the dollar, and the management of long-term loans aimed at the restoration of countries destroyed by the war.

Cover Story

The exchange rate was backed by the dollar, whose value was underpinned by the price of gold. The exchange rate of each country's currency was fixed within very narrow bands which were regulated by IMF. Every currency was convertible to dollars, whose price was fixed against gold. If countries found their currency overvalued or undervalued, they could negotiate a change in exchange rates through the IMF. The main motive behind removing the fluctuations in the exchange rate was to stabilize and standardize inflation, prevent financial crises and promote the growth of trade. In December 1945, the U.K. entered into the Bretton Woods Agreement. In accordance with regulations of Bretton Woods system, the U.K. pegged the pound to the dollar at ÂŁ1=US$4.03. This exchange rate held constant until 1949. Subprime Crisis: The US financial market was stable after World War 2 owing to the strict regulations imposed on the market. The 1990's saw the removal of some regulations and this paved the way for

the financial spurt in the US. The introduction of property derivatives in the US around 2004 compounded the problems in the unregulated financial market. As the global recession struck the US, the dollar exchange rate increased, contrary to the fact that a weak performing economy's currency should depreciate. There was a significant impact on the value of the dollar because of the US stock market record losses, unemployment nearly doubled from 2008 to 2009, and total US national debt rose from 63% of GDP in 2008 to over 103% towards the end of 2012. Housing prices fell by approximately 30%, and the net worth of US households (including non-profit organizations) dropped by $15 trillion. The value of the dollar dropped as consumer confidence was low. When the world saw the US plunge into a recession which will take years to overcome, then foreign investment was curtailed almost overnight, and consumer spending was at a low due to dramatically increasing unemployment figures. Uneasy foreign investors pulled their holdings in response to the crisis, further leading to an erosion of confidence in the US financial sector

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Brexit: While America and the rest of the world were reeling under the consequences of the Global Recession, another event was preparing itself to impact the financial world. Membership in the European Union (EU) has always been a controversial topic of discussion in the U.K. for a considerable period of time. A potential settlement to this debate came with the outcome of the “Brexit” vote. The economic consequences of Brexit were soon to be witnessed after. In 1973, Britain became a part of the European Union. Since then, it has been operating as a member of the EU, but has remained independent in terms of its national currency. Monetary interests in the U.K. have remained exclusive from those of other EU countries. The U.K. has resisted the shift towards implementing the euro as its national currency in favor of the preservation of the pound. The term “Brexit” is a combination of the words “Britain” and “exit,” and basically means the exit of Britain from EU. More than 30 million people, 71.8% of all U.K. citizens, cast votes designated as either “stay” or “leave.” The final result was tallied 52% to 48% in favor of the U.K. to “leave” the EU. The effect of the Brexit vote on the pound was devastating. During the trading session as the Brexit votes were being counted, the value of pound versus the dollar at £1=US$1.32. In an attempt to provide stability, the Bank of England pledged a sum of £250 billion to be used in efforts to preserve the value of the pound.

The long-term consequences of the U.K. leaving the EU are largely unknown. Brexit supporters cite the potential for economic growth and the appreciation of the pound as probable through a reduction of government spending and the establishment of trade alliances independent of EU regulation. However, opponents of leaving the EU claim that economic growth is likely to suffer due to a shrinking export sector and lower rates of new foreign capital investment. Ultimately, time will tell if the decision to leave the EU is one that fosters future prosperity for the U.K. There are not only the economic events that have left their impact on the currencies. We often forget to consider the human activities and natural calamities. These events too have affected the currency market in a significant way. 9/11Terrorism: The event of September 2001, was the most horrifying terrorist attack the US would have seen. The death toll must be approximately three thousand on this day as a result of a terrorist attack on the city of New York. Once people absorbed what had happened and were trying to move on, another crushing bomb was dropped. The immediate impact on business was significant. Gold prices plunged from $215.50 an ounce to $287 due to the effect of this event. A week later after the attack, US stocks lost approximately $1.4 trillion dollars in value (2001 dollars). 18,000 small businesses in lower Manhattan were either severely affected by the attacks or were forced to shut down entirely.

The impact on the value of the dollar was immediate. The foreign investors were perturbed that the debt is increasing due to the so much money being spent on overseas operations. Consumer confidence, which is a clear indicator of a strong dollar value and a positive sentiment about the nation, dropped to its lowest level since 1994. The value dropped from 97.0 to 85.5 in just one month.

to jump quickly as investors looked unsettled with the prolonged rebuilding efforts. The impact of the dollar was significant because of this event. Japanese elections could also feel the effects of the event and this led to the appreciation in the value of the Yen, at that time only China was also reforming its currency policy, and German elections were causing some instability in the Euro. Chinese Impact on Currency Markets

2005 Hurricanes Katrina and Rita: Hurricane Katrina of 2005 was another big devastating event for the US. It would be recorded as the single most destructive and costly hurricane in US history â&#x20AC;&#x201C; with more than 1,800 deaths directly and around $108 billion in property damage. Hurricane Rita came just after a month, which made the situation worse causing $12 billion damages and bringing the death toll from both storms to nearly 2,000 individuals. The real extent of the economic damage was seen clearly after the skies cleared and the damage inspection was completed. 24% of Gulf Oil production was stymied, the forest industry lost about $5 billion due to damaged timberlands, and insurance companies found it difficult to cover the losses of the US citizens. This natural disaster created havoc for the national economic concerns, and the value of the US dollar

China has devalued its currency three times in relation to the dollar at the time when its currency has appreciated by 33% in the last 10 years. This move is taken in order to make ensure market-oriented economy and to boost the exports. It allows China to increase its export by giving more value in relation to the dollar. This move helps the Chinese renminbi to weight 10.92% in SDR basket (An international reserve asset that IMF members can use to buy their domestic currency in foreign exchange markets in order to maintain the exchange rates) of IMF which is greater than Pound (8.09%) and Yen (8.33%). As interest rates and currency rates are close interrelated it will help while taking a loan from IMF. Impact of Commodity markets on Currency Markets Predicting the next move of the market is next to impossible for every trader, as they know that they have to look beyond the horizons of the forex market. The fact states that forex market is also affected by the commodities traded over the world.

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Cover Story

Two main correlated commodities and currencies are: Oil and Canadian Dollar Oil is the basic world's necessity and one of the most tradable commodities of the world. Canada is the fifth largest producer of the petrochemicals (comprises 14% of its total exports), its Canadian Dollar showed a strong correlation with the crude oil prices from over 14 years, naming it as a petrocurrency.Recently due to the fall of oil prices in 2015,2016, its value fell by 19.15% in relation to the dollar. Not only the Canadian Dollar, Russian Ruble fell by 49.05% in 2014 due to fall in oil prices to 49%. Norwegian Krone fell by 25.69% in 2014 due to 2014 oil price fall as because its petrochemical sector contributes 21.5% to its GDP. Gold and Australian Dollar Australia is the third largest producer of the gold, showed the strong correlation of 84% between 1999 to 2008, as when the value of gold rises so does the Australian Dollar because Australia is the net exporter of the gold. Apart from that if the central bank purchases the gold from the open market it will lead to inflation as now it has print more currency in the domestic market whichwill lead to currency's value depreciation. Should Foreign Exchange market be preferred over Stock Exchange market Forex Market V/S Blue Chips V/S Index Funds

Foreign Exchange/ Currency Markets is the world's largest financial market having the average daily trade volume of $5 Trillion. It is concerned with the country's currency value in relation to other currency like Dollar, Indian Rupee, Dinar etc. Blue Chips refer to the stocks of financially sound companies having profitability in sever economic conditions and having the past record of giving huge returns like Apple, Microsoft, etc. Index Funds are a combination of similar stocks of the same industry which can be bundled and will use as the benchmark for the particular portfolio of that industry like S&P500, Nifty, etc. Volatility It is the measure of short-term fluctuation in the price. It plays an important role in decision making because day traders prefer profits in the short swings whereas long-term investors who believe in buy and hold prefer stability in the price. Traders dealing in Index funds and Forex enjoy the high degree of volatility in short run whereas Blue chips provide less volatility in short run. Leverage It refers to the margin, a mandatory deposit to be made in order to trade over the financial instruments, which allows the investor to trade in the value which is much higher than what he has actually paid for. Index funds and Forex provides leverage facility which is far better than the Blue Chip stocks.

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Cover Story

Trading Hours

pointing in the other direction, leading to increased volatility and less liquidity.

It refers to the time period for which can the securities or financial instruments can be traded over the stock exchange. For blue chips and Index Funds trading time is limited generally from 9:30 am to 4 pm from Monday to Friday except on declared holidays, whereas the forex market works 24 hours and six days except for the weekends. It includes Asian session (11.p.m. to 8.a.m. GMT), European session (7 a.m. to 4 p.m.), North American session (Noon to 8 p.m.). Just as Forecast Everyone talks about Globalization as a process which looks outward and help countries in building each other better in order to grow their own economies but in reality the picture is different. In case of world war 3, the effects are going to worsen the situation more than the ever. The war is going to push up US federal debt. The value of the currencies of most of the nations will sink like steel shot in water. The already crippled currency of Russia would become nearworthless in a short time as its economy crashes down to a basic survival level. The dollar would depreciate if the United States gets involved in a major crisis, but it is inextricably linked to the stability of the world economy and would not suffer too much in the short term. The Chinese currency will also be affected. This would also cause currency instability as the currencies lose their value despite the fundamentals

Article of the Month - Winner

SMEs In India

Manashvi Mistry KJSIMSR PGDM-IB (2016-18)

Some people look at things as they are and ask why? But some people dream of things those never were and ask why notâ&#x20AC;Ś

sector is one of the most vital sectors for the growth of the country as well as of the economy. What are SMEs and why are they termed as 'Engine of Growth'?

Evolution of SMEs sector in India In earlier times industrial development was believed to occur with large enterprises undertaking huge investments and creating scale economies. Improvements in the costreducing industries, changes in the industrial structure and development of new markets renewed interest in the small and medium-sized enterprises (SMEs). As time passed, the government also started realizing that in a developing country like India where 70% of the population lives in rural areas, this

Every country has their own definition of SMEs. For e.g. China, Hong Kong, Canada etc. have defined their SMEs based on the number of employees. While Malaysia and UK have defined it based on the turnover and in India it is based on investment in plant and machinery or equipment. As per Micro, Small and Medium Enterprise Development (MSMED) Act, 2006 MSMEs have been classified broadly into two categories: (i)Manufacturing (ii)Providing/Rendering of services

Article of the Month - Winner

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These categories of enterprises are further classified into Micro, Small and Medium Enterprises on basis of their investment in plant and machinery (for manufacturing enterprises) or on equipment (for service industry). Distribution of SMEs by region and size From Chart 1 we could say that the highest number of SMEs lies in Southern India while from Chart 2 this can be inferred that the number of medium size enterprises in India is the least.SMEs play a pivotal role in the collective growth of a country. This sector contributes

significantly to GDP, Manufacturing output, Employment and Exports of the country. As per data of 4th Census of SMEs, this sector accounts for around 37% of India's total GDP,45% of the manufacturing output, 40% of total exports and 45% of India's total industrial employment. Growth and Opportunities of SMEs in India The role of SMEs is becoming very crucial for meeting the growing demand of both domestic and overseas firms operating in India. Growth of SMEs in India is determined by assessing the following parametersi)Growth of the number of SMEs in past years ii)Employment provided by SMEs iii)SMEs contribution to GDP

Article of the Month - Winner

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Fig.1

Fig.2

Fig.3 The number of SMEs grew more as compared to 1990s because of ease of government policies, self-employment opportunities, growing demand for SME products in the global market and the government's increased focus on the rural economy. MSME is the only sector (except Agriculture Sector) which provides maximum opportunities of selfemployment and wage-employment. T h e S M E s e c to r i s ge n e rat i n g employment for the vast rural population and is increasing the opportunities for skilled, semi-skilled

and unskilled laborers in the rural areas.As seen from Fig.3-The contribution of SME sector in the total GDP of the country is growing since past 5 years. Moreover, the contribution of SMEs to that of total GDP is around 37.5% which is higher than other developing countries but lower than the developed countries. So this makes us conclude that there is still a scope for improvement. Challenges One of the major challenges that lie ahead for SMEs is the Financing gap (Refer Fig.4).In contrast to large firms who easily get financing from internal sources; SMEs majorly have to depend on alternative sources of financing.

Article of the Month - Winner

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Despite all the potential, SMEs are facing challenges because of the following reasons-: ŸLack of Credit ŸLack of Technology Low level of innovation and little R&D ŸLack of Skilled Labour ŸPoor Infrastructure facilities ŸHigh Taxes ŸInstability in government policies ŸBurdensome Regulations Reforms and Government Initiatives to boost up SMEs in India ŸA concentrated effort to support and

promote SMEs in the context of the globalized competitive world by the implementation of MSMED Act 2006. This aimed at removing the bottleneck faced by SME sector such as: ŸC o m p e t i t i o n f r o m d o m e s t i c companies and MNCs ŸInadequate access to financial resources due to lack of financial information and non-formal business practices ŸLack of access to Interstate and International markets ŸVulnerability to market fluctuations ŸLack of awareness of global best practices ŸCredit Guarantee Scheme

The main objective to develop this scheme was to strengthen credit delivery system and facilitate the flow of credit to the MSE sector. Credits were available to Micro and Small Enterprises for loans up to Rs. 1 Cr without collateral/ third party guarantees. Micro and Small Enterprise Cluster Development Program There is a high disparity in SMEs in terms of geographical location. The Government of India has adopted the cluster development strategy for addressing the various needs of the industries like competence and capacity building of SMEs. ŸLean Manufacturing

To enhance the innovative practices and inculcate good management systems in SMEs through the application of various Lean Manufacturing techniques like 5S, Just in Time (JIT), KANBAN System, Kaizen etc were introduced under National Manufacturing Competitiveness Programme. ŸDigital Initiatives

-e-Office of Ministry of MSME -Social Media -Web portal for MSME Naukri -Laghu Udyog Samachar

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Article of the Month - Winner

Ĺ¸Other initiatives

Concept of Priority sector lending Formation of Ministry of M S M E ( M i n i st r y o f S m a l l S ca l e Industries + Ministry of Agro and Rural Industries) -Establishment of MSME - Technology Centres through World Bank Assistance -Formation of SIDBI -Certification Reimbursement Scheme(ISO-9000/14001/HACCP)

Conclusion As seen from the above analysis we can conclude that despite all the hardships faced by SMEs they are able to survive in India. This shows that they are already the game changers. They are required for sustainable growth and employment of the country. It is also evident that the contribution of the policy framework and timely efficient steps taken by the government had a significant impact on the growth of SMEs. However, SME contribution to GDP has not increased to an acceptable level. It has a potential that has not been optimally exploited. They are on a threshold to thrive into the global market to take full advantage of the available opportunities. However, to survive in this sphere they not only need major changes in the quality of output but also adopt aggressive export and marketing strategies to compete globally. The way ahead - Banks have tied up with private players to create a rating agency that primarily focuses on SMEs in order to improve the credit disbursal given to them. Initiatives like MSME cluster development program will further

increase their efficacy in future as clusters continue to leverage benefits of spatial proximity. Also Campaigns like Make in India and Startup India along with the relaxation of government policies to encourage SMEs, this sector possesses a huge potential to capture the market and grow further.

Article of the Month - Runner Up

Introduction If we speak to fund managers around the globe, many are of the opinion that stock picking is both an art and science based on which often fund management styles are labeled as Growth investing and value investing. Weighing the merits of these two competing investment styles is like deciding between Technical analysis vs. Fundamental analysis. We want both. Growth Investing and its characteristics Growth stocks represent those companies which have delivered better than average gains in earnings as compared to its peers and are expected to continue delivering high levels of earnings and profit growth. Growth investing focuses on the earnings capacity of the company without being overly concerned about the intrinsic

Krunal Sampat MMS 2017-2019 value as long the market price of the said stock is rising. As the growth and earnings of those companies are way higher than their competitors, investors expect those stocks to trade at a high PE. The belief is that this fundamental value will align itself with the increase in stock price. Usually, a stock with very high P-E is considered risky so a small slip in earning causes a big correction. Few examples from Indian stock market are- Colgate, Eicher Motors, Hindustan Unilever (HUL) etc. ŸHigher priced than industry – Investors pay a high P-E multiples with the expectation of booking profits as the company grows. ŸConsistent high earnings growth record – Growth companies continue to achieve high earnings growth even during periods of slower economic improvement. ŸMore volatile than broader market – Any negative news particularly dismal earnings causes a big correction

Article of the Month - Runner Up

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Value Investing and its characteristics A value investors looks for an opportunity to buy a stock that is undervalued by the market as compared to its intrinsic value. He believes that this stock will catch up to its true intrinsic value in future.Value stocks usually belong to companies that are going through a bad business cycle but are very strong financially and the same is reflected in their balance sheet or even in quality of management. Thus value investment takes advantage of mismatch between intrinsic value and market value. Few examples from Indian stock markets are Coal India, HPCL etc. ŸLower priced than the market –Value stocks are usually undervalued and hence available at dirt cheap price. The crux of value investing is that stocks of financially sound companies will bounce back in future when the true intrinsic value is recognized by other market players. ŸCarry somewhat less risk than broader market – Value stocks are usually distressed companies for which there is less volume as compared to growth stocks hence there is less volatility as compared to broader market and growth stocks where a single earning report can cause the stock to nosedive. Direct Comparison between Value Stocks and Growth Stocks

Risks involved in Growth Investing Valuation: Growth stocks have very high valuation levels and higher the valuation level lower is the safety of margin. Earnings Growth: When the company is growing at a phenomenal pace, it catches attention of its competitors which enter the market to capture the market share gained by the growing company. Because of this phenomenon we don't see the company growing at given pace throughout its lifecycle it is bound to stabilize at one point. PE Contraction: When the earnings per share (EPS) falls, the stock takes a bigger hit because of price earnings (PE) ratio. Thus when the growth rate falls, the investors pay a significantly lower multiple for the stock which causes the PE level to contract. Risks involved in Value Investing Wait: An investor has no clarity when the market will discover the real worth, till then the funds are blocked in a company that is moving nowhere. Hence the investor loses a big opportunity cost which could have been invested in growing stock.

Article of the Month - Runner Up

Difficult to find: It is very difficult to find value stocks in vast of array of stocks listed on the exchange. It is almost like finding a pin in the forest.

3 years but suddenly the product is taken off the shelf. 타If the stock is no more available at a bargain

Intrinsic Value: Calculating the intrinsic value of stocks is very difficult and subjective concept. It varies from person to person, every investor has a different set of eyes and interprets data differently which changes the intrinsic value Chart for the PE ratio of growth stocks vs industry vs value stocks As we see in below graph Growth stock has a high PE right from the beginning as compared to its peers in the market while the Value stock has a low PE as compared to its peers in the market

Bottom-line For most investors following a single approach is a risky bet and hence they usually go for the combination of both Growth Investing as well as Value Investing which balances their risk appetite and helps them in booking profits when the market favors a particular style of investing. Consider the below graph Orange block represents Typical Value investor while Yellow block represents Typical growth investor, now most investors do a mix of both which is represented by red color and develop their own unique style of investing

Source: www.shenoudacapital.com Deciding Exit: An exit strategy plays an important role for an investor. It helps in either cutting your losses or booking profits. Investors usually exit from a stock mainly due to following reasons Growth Investing: 타If the stock is trading at very high PE levels and growth rate doesn't continue 타If conviction of growth rate waivers Value Investing: 타If the reason for investing no longer exists. E.g. If you believed that a recently launched product would be a hit after 2-

Economics of Festivals

ECO Section

Shreya Maheshwari PGDM A Neha Singh PGDM A Vaibhav Bhanushali PGDM B

The Economics of Festivals The concept of â&#x20AC;&#x153;festivalisationâ&#x20AC;? serves the dual purpose of socio-cultural integration of a community and helps in an increase in demand and the resultant economic activity. In this article, we will focus on the economics of festivals, the trends they follow and various business strategies derived from them. Macroeconomic Aspect Economic aspect of festivals can be understood by the Keynesian theory of Aggregate Demand and Supply. The aggregate demand has two major components â&#x20AC;&#x201C; Consumption demand: depends on the increase in the level of income of the community and the marginal propensity to consume (i.e. the extent of change in consumption with respect to the change in income).

Investment demand: In the short run, it mainly depends on the existing stock of capital assets and the strength of consumer demand for goods which require a good deal of assets for their production. The investors base their expected Return on Investment in the capital asset on this buoyant market sentiment. The onslaught of the festive season increases Consumption demand, induced by an increase in money income of the households (the pay hike or the year-end bonus given to employees). Result is a greater marginal propensity to consume goods and services during the festive season, increasing the expectations of businesses from a prospective yield of investment in capital assets used in the production of these goods and services thereby strengthening the Investment demand.

ECO Section

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Both these components increase the aggregate demand for goods and services in the short run. The increase in aggregate demand is to be coupled with aggregate supply over a period of time. In this case, it is the consumer goods and services that are to be produced and supplied by private f i r m s fo r t h e co n s u m p t i o n o f households. The Economic impact of major festivals and the Business Strategy derived from them Economics of Indian Festivals Economics of Indian festivals differs from that of the west in the sense that Indian market is predominantly divided into an organised and an even larger unorganised sector. The festive season shoots up the growth of unorganised sector due to the dependency of a major population of the country on this sector. It contributes to the seasonal employment and growth opportunitiesto low skilledlabourers and traditional manufacturing sector along with small to micro level entrepreneurs. As stated by ASSOCHAM, Raksha Bandhan generates around 400cr worth of business and provides employment to 4000 workers in Gujarat. International Kite Festival generated about 500cr worth of business in the country and provided seasonal employment to around 6000 families in Gujarat.

Diwali Bonanza and the major trends that follow The festival of Diwali is considered to be the period of peak demand. In fact, the economic impact of Diwali reflects the overall economic atmosphere of the nation. Thus, the slump in economic growth due to GST and Demonetisation was very well reflected in the consumer demand during this festive season of Diwali. According to the survey conducted by ASSOCHAM Social Development Foundation (ASDF), average spending of about 68 per cent of the families was to be in the range of Rs. 5000 to Rs. 10000 on the occasion of Diwali which was slightly lower to that of last year. There was a decline in overall festival sentiment which was also attributed to slashing of corporate bonuses during Diwali by 35 â&#x20AC;&#x201C; 40 per cent. Consumer Durables Consumer durables markets usually see a growth of around 20-25 per cent growth every year. However, this year it is facing mixed demand due to GST implementation and cash crunch, also it could be attributed to pre-GST sale period. Although, the companies are making efforts to increase sales by offering discounts and additional warranty period, expected growth around this festive season is to remain at 9-10 per cent only. Automobile Sector Car sales experienced a good pre-Diwali sale of 11.32% in September and around 22% rise in October. The increase in sales of two-wheeler and passenger vehicle was found to be at a CAGR of about 11%.

ECO Section

Emerging Online Markets The online market has been successful in impacting Indian market since the time it entered economy. While the brick and mortar retailers struggled to maintain their profit margins this festive season the online retailers managed to not only maintain their growth but also achieve higher targets. In the five days from September 20 to 24, during which many e-commerce websites held festive season sales, gross merchandise value (GMV) for the industry reached Rs. 9000cr or $ 1.5 billion up from $1.05 billion earned in 2016.

Diwali and the Golden Affair India's love affair with gold can be very well illustrated during the festive season of Diwali, especially during Dhanteras when it is considered auspicious to buy gold. Every year trends towards the

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increase in sales of jewellery and gold coins are reported due to increase in consumer demand. The removal of the gems and jewellery sector from the PMLA (Prevention of Money-laundering Act) just ahead of the festive season, lead to an upbeat sentiment as this step minimised compliances, which helped the country to regain its fervour of festive gold. Overall, the current year experienced mixed trends with 20 per cent spike in the sales of gold reported by the organised sector, but at the same time the unorganised sector (contributing around 70% of the sales) experienced a lacklustre Diwali and Dhanteras.

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ECO Section

Impact on Stock Market During this festive season, investor sentiment got a lift after the IMF chief Christine Lagarde said that Indian economy is on a "very solid track" in the mid-term, triggering all-round buying activity. The BSE Sensex closed at an alltime high of 32,633.64 points and NSE Nifty too ended at a fresh life-time high of 10,230.85 points on October 16, 2017. Unabated buying by domestic institutional investors (DIIs) and wholesale price inflation (WPI) falling to 2.60 per cent in September, helped both the key indices to scale new highs. MAHURAT TRADING AT STOCK MARKETS IN INDIA: Mahurat trading (trading performed on the stock exchanges in India for an hour in the evening on the occasion of Diwali) has been observed on Bombay Stock Exchanges for ages. Volumes on the Mahurat day have been raising YoY. Last year's Mahurat trade was a record with a turnover of Rs 4,200 crore and traded quantity of 2,390 lakh shares, with the participation of both foreign investors and domestic institutions. However, in world stock markets, October and November are two of the most feared months. Black Monday, Black Tuesday and Black Thursday occur in October. Economics of Christmas and Business Trends Christmas is one of the most awaited season for the retail sector to increase their sales. This increase in sales is attributed to the increase in consumer demand for various types of goods and

services. According to the Holiday Shopping Intentions Survey released by International Council of Shopping Centres (ICSC), the consumer is expected to spend $ 728 on an average on gifts and other holiday related items this Christmas season while they spent about $ 711 on an average during the previous year. Similarly, National Retail Federation forecast of overall holiday sales to increase by 3.6 â&#x20AC;&#x201C; 4.0 % over 2016 in the US.

At the same time, National Retail Federation (NRF) in the US expects retailers to hire between 500000 and 5500000 this festive season as a part of retail employment.

ECO Section

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Business Trends to be followed: Black Friday and its predecessor the Christmas Creep The day after Thanksgiving is famously referred to by retailers as the Black Friday as it is the time when retailers meant to make the most profit and turn their cash flows from a loss (running red ink) during the year to a profit (when they are in black). The reported sales of Black Friday in 2016 was around 3.34 billion $ online. More than 154 million consumers shopped in stores and online throughout the Thanksgiving weekend last year, 3 million more than the previous year, according to a National Retail Federation survey of US.

Interestingly, it is preceded by a merchandising phenomenon called the Christmas creep, in which merchants and retailers exploit the commercialized status of Christmas associated with heavy shopping during the festive season leading to the substantial increase in sales of the retailers well before Black Friday in US and Halloween in Canada. With the increase in competition the Christmas creep starts as early as September in the United States helping the retailers to lengthen their selling interval for seasonal merchandise in order to maximise profit and give early â&#x20AC;&#x201C; bird shoppers a head start. Impact of Online Retailers over Brick and Mortar Stores The e-commerce space has heavily impacted the brick and mortar retailers by eating away a major share of their market over recent years. While the US saw $3.34 billion worth of amount spent on online shopping which is an increase of about 21.6 per cent over the previous year with $1.2 billion contributed by mobile shopping alone, even in the UK the online shopping done was worth 1.27 billion euros up by 16% over the previous year. This ever-increasing sale of e-commerce giants is attributed to the ease of consumer spending by this generation of consumers. The Case for Amazon Since the recent years Amazon has not only managed to achieve the highest sales during the Christmas but also it has been successful in dominating the online marketplace in the US.

ECO Section

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Although Amazon does not release sales data, a data analytics website InternetRetailer.com estimated $4.74 billion worth of web purchases made on the site from Thanks giving through Cyber Monday A term coined by National Retail Federation (NRF) in 2005 to mark the trend of increase in sales of online retailers on Monday after Thanksgiving. Cyber Monday has been recorded as the largest online shopping day in the US with sale of $3.45 billion in 2016). This comprised 37% of all online sales during the five day period in 2016. Amazon Prime and Amazon Flex Amazon came up with its business strategy of introducing loyalty schemes among consumers with its Prime m e m b e rs h i p , t h e $ 9 9 - p e r - ye a r subscription service that comes with a free two-day shipping on most orders at the site, among other perks. In fact, more than half of the shoppers at Amazon are Prime members, a group that's been estimated at over 60 million and they tend to spend far more at Amazon compared to non-members. Similarly, Amazon Flex was introduced in late 2015 as a crowd-sourced delivery option for Prime Now's one or two-hour delivery options. Inventory Investment and the Supply Chain Management Today, the logistics network is moving closer to the customers in terms of reducing the time from order, to its fulfilment and delivery. There is an increase in demand for the shorter

duration of delivery and fulfilment by the consumer. Amazon's fulfilment network reflects this change in customer preference by using highly automated facility that it has developed and has almost 100 of such facilities in the US. The order placed is located via its warehouse inventory management system and the product within an order is shipped from several different locations depending on the time and availability of the product. However, this extensive network of shipping has resulted in the rise of its cost of shipping as a percentage of net sales to over 15 per cent. Attempts to reduce this fulfilment cost such as streamlining operations and outsourcing fulfilment facilities, increasing the Prime subscription fee, adding sortation centres used to sort aggregated packages and pallets from fulfilment centres and ship to either post office or local carriers. Amazon created a Point of differentiation by developing ways to provide maximum value to the customer by constantly evolving in terms of its service quality and at the same time maintaining profitability in the extremely competitive environment. With these qualities in hand and much more to come, it has become successful in retaining its self-proclaimed title of " Ea r t h ' s m o st C o n s u m e r - C e nt r i c Company".,

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ECO Section

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Alibaba Smashing the Online Marketplace with â&#x20AC;&#x153;Singles' Dayâ&#x20AC;? The Alibaba Group annual Singles' Day online shopping event smashed online marketplace with the record-breaking sales of $17.8 billion. With its strategy of vertical integration of Singles' day theme, the company has created a selfcontained e-commerce ecosystem that is an economy unto itself, comprising of Alipay system of payment, handling more than 1 billion transactions during the 24-hour sale, and its logistics arm, Cainao, which helped in delivering 657 million packages. It was noted that 82 per cent of the sale was made through mobile shopping and 27 per cent of purchases were from international brands. Conclusion With different business strategies evolving every now and then, the economics of festival can never be termed as a stable phenomenon. It keeps on changing with the changing economic conditions reflecting them with the trends that follow as the businesses evolve in those conditions.

Fintech Section

Fintech To Prevent Tax Evasion

Satakshi Gupta PGDM IB Shalini Balakrishna PGDM B Introduction What might have been a regular Tuesday in the life of an individual, turned out to be one of the most critical events for the Indian common man â&#x20AC;&#x201C; 8th November, 2016. The country witnessed a revolutionary decision announced by Prime Minister Mr. Narendra Modi and Finance Minister Mr. Arun Jaitley i.e. Demonetization. T h e f u n d a m e n ta l o b j e c t i ve o f introducing this drive was to establish a corruption free economy, free from the clutches of black money, tax evasion and terrorist funding. There was a conscious decision to scrap 500-rupee and 1000rupee bank notes with the hope of flushing out cash earned by means of illegal activities, or that was earned legally, but never disclosed. Propagating and envisioning a cashless

economy, powered by the use of digital platforms to streamline the use and circulation of cash, in the last eleven months, the Indian government has been able to achieve semblance with respect to curbing tax evasion tactics adopted by the citizens. How Technology is driving Financial Inclusion? Several advancements in FinTech have been able to transform banking, and in turn aid large populations to unify better with the financial system. RegTech is imperative in not only ensuring safety of all transactions, but also stepping up the efficacy with which finance and commerce is provided to the underprivileged segments of the population.

Fintech Section

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When we explore to understand how financial systems adopt and adapt to change and how regulatory institutions not only encourage but also enable institutions and individuals to participate in the new economy, we can see that the discussion in question extends to RegTech and FinTech being intertwined, with a profound impact on emerging finance and trade ecosystems, predominantly focused on developing nations like of the Asia Pacific. For instance, the Government of Indonesia recently opened up its ID card database for the purpose of KYC requirements and sharing of information; while in the Philippines, many citizens use digital methods to make payments, undertake microtransactions, more in number as compared to its conventional banks. Financial inclusion is a critical pull factor, with regulatory institutions aiming to ensure their frameworks help facilitate it. In India, the Demonetization drive was initiated as a means to combat tax evasion and fraud, it has, over the period of time, gone on to create potential opportunities for the unbanked to become banked through mobile payment providers. This is likely to have a profound social impact in a country like ours, which is now well versed with technology and entrepreneurship. In financial ecosystems that are greatly developed, regulation can propagate the adoption of nuances such as datalakes, in which data collected across various segments of the business based on the habits of users is collated to help businesses understand their customers better. Thus, information that is collated

for regulatory purposes provides for substantiation in the commerce space.

India ranks 4th in the measurement of global cost of tax avoidance at $41.2 billion The L&T Infotech Deal The recent buzz of bagging the $100million deal by Infotech arm of engineering giant Larsen & Toubro is the yet another step by government towards nabbing the tax evaders. One of the most popular agenda of Modi government from starting has been the bringing black money back to the system. They have been proving it since then, whether it was Income Declaration Scheme (IDS), 2016 (June to September) or Demonetisation (November 2016) or GST (July 2017); all directed towards one thing- increasing the taxation net by eliminating ways to default. Still, people find many ways to evade tax. Traditionally, Income tax officers used to do the random raids of individuals who showed disparity in their income tax filing. But now, when it is not just about the offline sources but more about the digital sources, the government is trying its hands on advanced technology.

Fintech Section

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That is where the L&T Infotech deal comes in picture. So, essentially if one is an avid social media user and loves to flaunt one's overseas travels and expensive iPhone but fails to declare accurate income to evade tax, then this is bad news in store this whole deal is about 'Social Media Analytics'. Social media analytics is essentially a means by which the bulk amount of data that is present in many social platforms will be analysed to find the pattern and connection about a person. After which, that data can be utilised to estimate what actually that person is portraying and what actually he/she has shown in the disclosure. This will be of great help, as now- a days it is more like, people do boast about their royalty through the various social platforms. And, that is where the underlying technologies come into picture; It employs data mining, big data and analytics to scoop out tax evaders from social media platforms like Facebook, twitter and Instagram. Data Mining It is the process of representing, analysing and extracting actionable patterns and trends from the raw social media data. It helps to find the various patterns such as social media usage, online behaviours, sharing of content and connections between individuals. So, in this digital age where â&#x20AC;&#x153;Data is the new oilâ&#x20AC;?, data mining is the way of finding pattern. Big Data Big data has been a rage for quite a long time in technology world, but now it has a role to play to and that is to shake the

tax-evaders. Big data involves large scale storage and processing of large data sets. There are zillions of zettabytes of data getting created and processed every day or other. It is a very strategic decision to store such a large amount of data, so that it can be processed and required patterns could be found. Combining the aforementioned features, 'Social Media analytics' comes into the picture. It is the process of extracting valuable insights from vast amounts of semi-structured and unstructured social media data to enable informed decision making. The process of social media analytics can be explained in the following stepsIdentification: Searching and identifying the right source of information for analytical purposes. Extraction: Once a reliable and mineable source of social media data are identified, next comes extraction of the data through Cleaning: This involves removing the unwanted data from the automatically extracted data. Analyzing: The clean data is analyzed for business insights. Visualization: The analysis part will lead to relevant visualizations, based on type of data, for effective communication of results. Interpretation: This step relies on human judgments to interpret valuable knowledge from the visual data. Meaningful interpretation is of high importance when we are dealing with descriptive analytics that leaves room fo different interpretations.

Fintech Section

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of the data is part of data preparation. 3. Entity disambiguation: This continues to be a key research aspect and often involves a demanding engineering effort. Identifying the right entity is essential for semantic annotation and data integration.

Fig 1- Steps involved in Social Media Analytics process In Social media analytics various techniques are present, in that semantic web application is the one which is going to be employed here. Semantic Web Application Semantic web application is an approach in social media analytics in which the whole data is divided into a kind of semantics i.e. what actually that particular part mean for (broad category). Semantics actually implies the meaning of that part. The steps involved in this process are described using the below fig 2. 1.Obtaining high quality data: There might be many sites from which data is to be obtained. Thus, metadata extraction from multiple sources is often needed. 2.Data preparation: Preparation typically follows the obtaining of data. Clean-up and evaluation of the quality

Fig 2- Multi step process of semantic web application 4.Metadata and ontology representation: Depending on the type of application, it can be necessary to import or export data using standards such as R D F/ R D F S a n d O W L . A d d r e s s i n g differences in modelling, representation and encodings can require significant effort. 5.Querying and inference techniques: These are needed as a foundation for more complex data processing and enabling semantic analytics and discovery. 6.Visualization: The ranking and presentation of query or discovery results are very critical for the success of Semantic Web applications. Users should be able to understand how inference or discovery is justified by the data.

Fintech Section

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7. Evaluation: Often benchmarks are not available to measure the success of S e m a nt i c We b a p p l i cat i o n s . A frequently-used method is comparing application output with results from human subjects. Tax Fraud and Blockchain Blockchain is a methodology which enables counterparties, who would not trust one another, in the ordinary course of things, to reach a consensus by way of a decentralized ledger, that explicitly provides each and every party with a single and shared source of truth, which is usually a document. According to a study carried out by PWC UK, the Blockchain technology can alter the mind-set of taxpayers owing to the threats and dangers associated with it non-compliance. The probability of getting caught and excluded from the Blockchain network is relatively very high, and hence Blockchain is likely to induce more positive intentions in the potential tax evaders, and more importantly, a trusted means to reduce the tax gap to a large extent. The Road Ahead With a strong affirmation towards a cashless economy, digitalization, developing the Blockchain methodology, the governments of India and other developing nations are working for creating a more effective tomorrow. The fundamental theory of utilizing FinTech as a means to prevent and curb tax evasion is certainly crucial, not only having a strong hold in the present, but also in the days to come.

Deloitte

Alumni Section

Sania Motwani

PGDM 2015-17 About Deloitte Human Capital Consulting: Organizations that invest in human capital invest in the future. Today businesses are realizing this truth and are increasing focus on having the right human capital to take them to the next level of competence. Deloitte Human Capital professionals are more than just HC consultants - they are business consultants who specialize in integrating people issues with business strategies on a broad level. They address a number of issues ranging from organization culture, change and performance optimization to learning strategies complementing individual corporate strategies. Technology projects also need the commitment of people going to use it for effective implementation. Deloitte

HC consulting ensures that the steps to address people impact and prepare people for the change are a part of the implementation strategy. This strategy includes change management, communications and end-user learning solutions. Deloitte HC Consulting analyzes the tactics and activities that work effectively with the client culture and has a very streamlined and mature approach to deal with all the client undertakings. Focus is maintained on people and organization issues that go along with technology implementation. Existing frameworks and data resources are leveraged to ensure quality standards of deliverables are maintained.Deloitte HC Consulting is hence able to help people and organizations perform better, more costeffectively and with greater flexibility.

Alumni Section

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My Team:

Challenges faced during my internship

A Summer Internship allows you to explore the real life of all the preparation put in during your first year of MBA. This experience allows you to understand the industry and its works, and the array of roles in the field of management.

ŸTo keep track of minute details and

I completed my Internship at Deloitte USI in the Organization Transformation and Talent (OTT) service area. During my internship, I worked on a client project that was in the Energy and Resource space. The client organization was transforming from an outdated to a more customized and up-to-date ERP system. I worked on various client requests ranging from project management to turning around the deliverables. Apart from client based projects, I also worked on firm initiatives within Deloitte. Firm initiatives domain can range along many such as engagement, strategic, analytics, digital, etc. to name a few. It allows the practitioner to focus on another area of work, be it for learning or for fun or in my case, for both. I have categorized my Internship experience into the key activities performed, my learnings from those key activities, and the challenges I faced during this period.

ensure quality standards were met for all deliverables ŸTo guide the client interactions in the required direction and ensure that acceptable resolutions were found for all the issues raised ŸTo effectively balance time between actual work on deliverables and the various project related meetings that were scheduled ŸTo understand the various client business processes and the technicalities behind the major changes due to the change impact so that these were correctly captured in the deliverables ŸTo coordinate with and update the persons involved within the dynamic team about the several responsibilities under my basket in order to set the target for completion of the activities accordingly ŸTo raise the flag for risk mitigation to the leads with respect to changes in the estimated time of completion of the deliverables in order to set the right expectations My Advice: Network! Expanding your network can drastically increase the number of opportunities that come across your radar. Keep in touch with the people you meet at your internship. That has been the biggest takeaway! Fun Fact: 80% of todays jobs are landed through networking. Having said all of the above, don't get too down on yourself, and take the time out to have some fun!

Alumni section

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Sector Analysis

OIL & GAS

Introduction The character of Chuck Noland in the movie Cast Away, near the end of the film says, “...because tomorrow the sun will rise. Who knows what the tide c o u l d b r i n g ? ” H e m a ke s t h i s observation after having survived on a desert island for four years before being rescued and returned to civilization. The same is the feeling about the oil and gas right now — optimistic but extremely cautious. Only now is the sector beginning to emerge from its upheaval. If there is hope on the horizon, we must, like Noland in Cast Away, remain mindful of the risk. As per the data available from 19th Sept to 19th October 2017, of BSE listed companies and on the basis of parameters of percentage change in market capital & A/D ratio it can be seen

Jerin Shaji PGDM A Amey Patale PGDM B that the top 4 sectors showing positive trends are as follows: ŸTelecommunication ŸOil & Gas ŸConsumer Durables ŸMetals & Mining The Oil & Gas sector has shown a monthly rise of 9.37 % and an A/D ratio of 3.8. Oil & gas Sector is one of the 6 core sectors of Indian economy and contributes to 15% of the GDP. Constituents Oil & Gas sector is constituted by the following sub-sectors: ŸUpstream segment/Exploration & production segment ŸM i d s t re a m s e g m e n t / S t o ra g e & transportation segment ŸD o w n st re a m s e g m e nt / Ref i n i n g , processing & marketing

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Figure1: percentage change in market capital & A/D ratio, source money control

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Thus it can be concluded that strong performance by refineries is responsible for the strong growth seen in the oil & gas sector. Apart from this the same can be observed from the returns from S&P BSE Oil & Gas index over the varied time frame as shown in table 2:

Figure2 : Classification of Oil & gas Sector, Source-ibef.org Based on the data from 19th September to 19th October 2017, of BSE listed companies rise in oil & gas sector is constituted by the following subsector companies listed on the stock exchange in table 1:

Growth Drivers The growth drivers for Oil & Gas Sector can be attributed to the following factors: Ĺ¸Growing demand from domestic market Oil consumption in India has grown at a CAGR of 2.98 % from FY2008 to 2017E to reach 4.13 mbpd by 2017. Thus increased demand in domestic market is contributing to high sales by companies.

Sector Analysis

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Moreover the demand for natural gas has grown at a CAGR of 3.05% due to the transition of many vehicles into LNG. However this increase in demand has not translated into increased sales for established companies like ONGC & OIL as the decreased oil rates do not allow these companies to function at high levels of production. Thus the excess demand has been met by the private and Joint venture companies

Figure3 : Gas demand & Oil consumption in India, Source: ibef.org ·Rise in price of oil After the fall of oil price in 2011 which led to heavy erosion of margins of oil & gas companies, now the increase in the price due to the various geopolitical reasons has led to increase in share value of companies on account of increased investor confidence & better margins.

Figure 4 : Source-investing.com Some of the geopolitical reasons which have resulted in increase in oil prices are as follows: ŸOPEC nations & Russia implementing production cuts to boost oil prices in the supply market by creating artificial scarcity. ŸDefeat of ISIS in Iraq & Syria has resulted in decrease of sale of crude oil in black market. At its high point ISIS sale of dirty oil was one of the main factors which resulted in decline in oil price to $30-40 per barrel. ŸIn the short run, hurricane Harvey had resulted in the stoppage of many oil rigs in the US Gulf Coast which has resulted in the propping up of Brent crude oil price by 22.52% from 2nd July, 2017 to 15th October, 2017 as shown in figure 4. Average Brent crude price was up 13% YoY

Sector Analysis

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Figure5 : Source-investing.com to USD 51.5/bbl as per Motilal Oswal sector report September 2017. Thus the margins of companies like ONCG & Oil India should see YoY EBITDA increase. ŸSpeculations over embargo over Iran by the new US administration ŸIncreased natural gas demand in lieu of migrating towards greener fuels Increased Gross Refining Margin(GRM) GRM is the difference between the total value of petroleum products coming out of an oil refinery and the cost of crude. The benchmark Singapore complex GRM rose to USD 8.3/bbl in 2QFY18 vs USD 6.4/bbl in 1QFY18 and USD 5.1 /bbl in 2QFY17. Thus the inventory gains are further boosting company earnings. Moreover GRM of RIL for the second quarter of FY18 came in at USD 12/bbl which is a 9 year high GRM clocked by the company which outperformed the Singapore complex margin by USD 3.7/bbl. ·

Government policies Government has enacted various policies such as New Exploration Licensing Policy(NELP) & Coal Bed Methane policy to encourage investments. It has also allowed 100% FDI in upstream & private sector refining projects. The FDI limit for public sector refining projects has been raised to 49% without any divestment or dilution of domestic equity in existing PSUs. Thus the favourable government policy has assisted in Reliance & BP Plc investing Rs 40,000 crore in the D6 gas field of KG basin to boost production over the next 3-5 years. Also policies like UDAN and Regional Connectivity Scheme(RCS) will boost the demand of Aviation Turbine Fuel(ATF) resulting in increased business for Oil & Gas companies. Risk factors Migration to eco-friendly fuel The voluntary implementation of the Paris Climate Accords by participating nations has led to the creation of sentiment due to which fossil fuel will be phased out in due time. The Indian government has also increased efforts to reduced reliance on conventional fuel and migrate to renewable sources of energy.

Sector Analysis

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Moreover electric vehicles have been promoted by countries like China, India, EU nations, etc which has resulted in slightly stagnant demand. Due to this companies in Oil & gas sector will have to devise new strategies in the long run to withstand changing policy landscape. Impact of GST on Upstream Oil & Gas Upstream business, in particular, is situated unfavourably in terms of tax liabilities on account of non-uniform treatment under the GST regime. Taxrelated under-recoveries could seriously affect its profitability.

input GST will be available to the oil and gas industry for the time-being leading to additional tax burden as a result of stranding of taxes. Conclusion Thus Oil & Gas Sector in the foreseeable future due to the plethora of diversified products they provide and recent rise in oil prices after a slump period will result is better earnings of the sector companies making it attractive for investment. Thus it is the rise of the new dawn in oil & gas sector.

While products like kerosene, naphtha and LPG will be under GST regime, the GST law would not apply for the timebeing on five specified petroleum products viz. Crude Oil, Natural Gas, High Speed Diesel (HSD), Motor Spirit (Petrol), and ATF. Consequently, the main products of E&P sector viz Crude Oil & Natural Gas, will continue to attract the existing levies i.e. Royalty, OID Cess, NCCD, VAT/ Sales Tax etc. However, purchase of goods and services required for exploration and production of Crude Oil and Natural Gas would attract GST. Further, exemption on procurement of select goods through ICB Tender have been amended to include 5% GST and also increase in tax on services could lead to substantial additional tax implication on upstream companies. Unlike other industries which can take credit for any taxes paid towards furtherance of business, no credit on

News Buzz

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GST council in its October meeting announces revision in rules and rates on some products

The GST council meeting held on 6th October, 2017 had announced changes to rules in order to ease compliance among Exporters and SMEs and reduced rates on certain products. The Council decided to allow till March 2018 duty-free sourcing of raw materials for export production, thus improving liquidity for exporters by increasing working capital. The council also introduced 0.1% GST rate on merchant exporters (Exporters that do not manufacture products but procure from others to ship overseas) on their procurements. All tax refund claims of exporters for July are expected to be cleared by 10 October and for August by 18 October. The composition scheme under GST has been extended to more businesses by raising the threshold of annual sales from ₹75 lakhs to ₹1 crore. This scheme allows for quarterly tax filing and payment. Small businesses with turnover up to ₹1.5 crores have also been allowed to file tax returns and make tax payments on quarterly basis instead of monthly. In addition, the council has reduced rates on 27 products and some services, the details of which can be found on the website of Central Board of Excises and Customs.

RBI Monetary Policy maintains key policy rate in its October meeting

Monetary Policy Committee (MPC) of Reserve Bank of India met on October 04, 2017. It has decided to maintain status quo in policy repo rate by keeping it unchanged at 6.0%. Five members of MPC voted for 'status quo' while one for 25 bps rate cut. Reverse repo rate is kept unchanged at 5.75%. Marginal Standing Facility Rate which is meant for lending overnight to banks, is also maintained at 6.25%. Cash Reserve Ratio (CRR) which is the amount of funds that banks have to keep with RBI is also kept unchanged at 4%. CRR is used to control liquidity in the banking system. Statutory Liquidity Ratio has been reduced by 0.5% to 19.5% of NDTL (Net Demand and Time Liabilities) with effect October 14, 2017. The MPC expects CPI inflation to rise from current level of 4.2 to 4.6 in the second half of this fiscal year. RBI said that the GST implementation had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which was already hampered by stressed balance sheets of banks and corporates. RBI revised its projection of growth to 6.7% from 7.3% in August Policy. The sharp reversal in the growth projections by the central bank is due to loss of momentum in Q1 of 2017-18, a lower than anticipated kharif food grains production, short term impact of GST and lower consumer confidence.

FINLY| OCTOBER 2017 | Finstreet | SIMSR

Trivia

Impossible Trinity

According to Economists, every country's monetary authority faces the impossible trinity while making monetary policy decisions. As per the impossible trinity, a country cannot have a fixed exchange rate, free movement of capital and an independent monetary policy, at the same time. For the sake of example, let's take a developing country that is growing and till now it's savings has fuelled it's growth. For the policymakers of the country, price and exchange rate stability have been its objectives. Now, for further growth the country needs more investments i.e. foreign savings. Thus, the policymakers decide to liberalise the capital flows (inwards and outwards) in the country. Initially, the policymakers in order to stabilise the inflation within a desired range, had set a certain interest rate. Assuming, the interest rate provided is higher than in their respective countries, it acts as an attractive incentive for the foreign investors. Since capital inflows are allowed, the foreign investors bring in dollars, exchange it for the local currency and invest in the country. As such, it would lead to an increase in demand for local currency, appreciating its value. Given that maintaining the

exchange rate is one of their priorities, policymakers decide to print more currency to meet the demand. As the supply of currency in the economy increases it leads to an increase in inflation rate. Since, maintaining price stability is also their priority, it leads to impossible trinity. Thus, at any time it is possible to manage any two of the three elements in impossible trinity. Know about the Indian Currency

The first paper currency issued by RBI in January 1938 was the â&#x201A;š5 note. It had the portrait of George VI. Within the same year, currency notes of Rs.10, Rs.100, Rs.1000 and Rs.10000 were issued. According to RBI Act 1934, Section 22, the sole right to issue bank notes of all denominations reserves with RBI in order to ensure an adequate supply of clean and genuine notes. The responsibility of coinage vests with Government of India but the RBI issues them for circulation. Currently, notes in the denomination of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.200, Rs.500 and Rs.2000 are legal tender in India, along with the coins of following denominations: 50 paise, Re.1, Rs.2, Rs.5 and Rs.10. The printing of notes in denomination of Re.1 and Rs.2 have been discontinued as these denominations are now minted as coins. The printing of Rs.5 notes once discontinued has been continued now to meet the gap between the demand and supply of coins in the denomination.

Trivia

FINLY| OCTOBER 2017 | Finstreet | SIMSR

Coins can be issued up to the denomination of Rs.1000 in terms of The Coinage Act,2011. The Reserve Bank has the right to print notes of up to Rs.10000. The new rupee symbol (â&#x201A;š) was designed by Mr. Uday Kumar and implemented in 2010. RBI decides the volume and value of banknotes to be printed each year depending on following factors such as- requirements for meeting the demand of banknotes, GDP growth rate, Inflation Rate, Replacement of Soiled and Mutilated Notes etc. RBI currently has 18 Issue Offices which manage the currency operations through the Department of Currency Management. It is supported by a wide network of 4195 currency chests, 488 repositories and 3562 small coin depots. The Issue offices receive fresh bank notes from the printing presses of RBI and then send the notes to the designated branches of commercial banks.

Finly | Ocotober 2017| Finstreet | SIMSR

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