Editorial
SOUMYA RUP CHANDA
Beloved Readers, For some time now, since attending the lecture delivered by the celebrated grassroots inventor and Rolex laureate for enterprise, Shri Sonam Wangchuk, whose pioneering work in Ladakh is helping people overcome adversity and integrate into the mainstream society, I have been wondering about the true meaning of ‘Management with a heart’. Is it just a jargon thrown around in casual talk in a B-school for effect or does it actually mean something more? So I dug a little deeper and found that the true meaning of this can be expressed as follows: If you’ve ever been in a dilemma, don’t quite fathom which path to take, think about the poorest person that you’ve come across in your surroundings, recall his face, recall the soot-covered, tattered and torn clothes on the person’s body, think about the circumstances that might have driven this person to shed their last shred of dignity and start to beg, and after you’ve done so, think how your decision will affect this person. Will it improve this person’s life by even a whisker? Will it help the person to get his next meal? Will it allow the person to lull himself to sleep on the sidewalk under a canopy of stars having had a satisfying meal for just once in his tortuous life? Think about it. Deepavali is just around the corner and IMT is gearing up for it in style. While the SC ban on the sale of firecrackers in Delhi and NCR region comes as a welcome verdict to curb the deteriorating air quality, it also places the onus on us to follow it rigidly. Let’s come together and celebrate a green Deepavali! The magazine publishes its 6th edition this time and every edition allows us to make that incremental change towards getting better. So, contributing to a green future in our own way, we explore the topic of ‘Green Finance’ as our cover story. There’s also the 1997 Asian Contagion, Masala Bonds, the Notion of Return, and a sneak peek into the life of Rakesh Jhunjhunwala, the fabled investment magnate. Lots to keep you occupied! FinNiche wishes our readers a very Happy Deepavali!!
Contents 1) COVER STORY -GREEN FINANCE
2
2)FINSHORTS 3) NATIONAL - TATA Teleservices Merger with Airtel
4
4) MARKET
8
5) CLASS TALKS -NOTION OF RETURNS
6
11
6)SCAMS, SCANDALS & STORIES -ASIAN CURRENCY CRISIS 12 7) WIZARDS -RAKESH JHUNJHUNWALA
14
8) STARTUP TRACKER -LENDINGKART
16
9)INSTRUMENTALLY SPEAKING -MASALA BONDS 18 10)LOCK THE STOCK -RELIANCE INDUSTRIES
19
Let us know your thoughts. Reach out to us on our various social platforms. Your bouquets or brickbats will as always reach a sympathetic ear.
1
GREEN FINANCE
ANANYA NATH
According to NASA, the average global surface temperatures of the first 6 months of 2017 has been 0.94°C higher than the 1950- 1980 average, making it the second highest just after 2016. Every day around 18,000 people die as a result of air pollution. Each year some 26 million are forced into poverty due to the impacts of natural disasters. Hard-won development gains are being reversed by the impact of natural disasters. Hurricane Maria is a perfect example of a natural disaster wiping out years of development.
Source: https://www.ncdc.noaa.gov/sotc/global/201708 But don’t get dismayed. 2016 was the not only the hottest, the dirtiest and the most hazardous year on record but was also the best year ever for green finance. But first what is Green Finance? Green finance is defined as any financial instrument or investment – including equity, debt, grant, purchase & sale or risk management tool (for example: investment guarantee, insurance product or commodity, credit or interest rate derivative, etc.) – issued under contract to a firm, facility, person, project or agency, public or private, in exchange for the delivery of positive environmental externalities that are real, verified and additional to business as usual, whereby such positive externalities result in the creation of transferrable property rights recognised within international, regional, national and sub-national legal frameworks. Developers of biomass and waste, energy efficient technology solar, wind, and other emerging energy options are now getting funding which was once difficult to find. Venture capitalists are now favouring companies which are into research and development of alternate sources of energy. Wall Street firms such as Goldman Sachs, Credit Suisse have started or are expanding investment banking groups dedicated to clean tech. Bloomberg is optimistic about the global clean energy investments for 2017 may exceed 2016’s total of $287.5 billion. This is partly due to several major wind projects undertaken in Mexico, China, United Kingdom, Australia and Germany each costing between $600 million and $4.6 billion causing the year-on-year global clean energy investments to witness a 40% jump in the third quarter of 2017. High fossil fuel prices, geopolitical risks and fear about long term supplies are igniting interests in new, renewable forms of energy more than ever before. Banks and companies such as BP, Wal-Mart, Intel, coupled with policy makers and citizens’ growing desire to tackle global warming and acceptance of green investments are major factor in this new wave 2
of interest in green energy.
Source: https://about.bnef.com/blog/clean-energy-investment-3q-2017-trends/
High fossil fuel prices, geopolitical risks and fear about long term supplies are igniting interests in new, renewable forms of energy more than ever before. Banks and companies such as BP, Wal-Mart, Intel, coupled with policy makers and citizens’ growing desire to tackle global warming and acceptance of green investments are major factor in this new wave of interest in green energy. India has said time and again it would stay steadfast in its commitment to combating climate change. Under the Paris Protocol, it would have to reduce its carbon footprint by 33%-35% from its 2015 levels. In terms of numbers, India would deliver 175 GW of renewable energy by 2025. India is now in the top 10 solar counties. The world’s largest solar power plant in India present in Kamuthi, Tamil Nadu. India’s solar power generating capacity has jumped from 3.2 GW in 2014 to 10 GW in 2017 making India the third largest solar market behind USA and China. The government plans to power 60 million homes by solar power by 2020 and generate 40% of its power from non- fossil fuels by 2030. Due to this we are seeing an explosive growth in the renewable energy sector as prices in clean energy falls and interest in clean power rises. Around the world now 9.8 million people are employed in the renewable energy sector, which includes 3 million in the photovoltaic solar sector up 12% from 2016. The United States has seen a jump of 82% in solar jobs and 100% in wind jobs. China is the world leader with 4 million employed in the renewable energy sector including hydropower. It has projected growth of 2.6 million jobs a year between the years 2016 to 2020.
Source: https://insideclimatenews.org/news/26052017 3
FINSHORTS India will be hosting Italy’s Prime Minister Paolo Gentiloni this month in the first visit of a PM from the country in a decade Gentiloni’s visit is expected to be an attempt by Italy, a G-7 member state, and India to put their ties back on track. Latter would be eyeing on an increase in Italian investments in leather, design sector, food sector and technology, and defence manufacturing. Italy is among India's top five trading partners and a key investor in the EU. More than 130 large Italian companies are actively participating in Indian markets.
Apple’s manufacturing in India is put on hold by the Govt. after it denies the former’s requests for special treatment As per Government officials, Govt. wants Apple and other foreign tech giants to start their full fledge manufacturing under Make in India campaign, rather than following a halfhearted approach wherein they import particular components from outside India, at specially discounted tax slabs, and then either manufacture or assemble the complete unit in India. In January this year, Apple demanded 15-year custom duty relief, along with several other special permissions like no additional tax or surcharges under GST regime, rapid processing of Apple’s Advance Pricing Agreement by Income Tax Dept., Custom Dept. should implement “Always Open” clearance process for faster movements, ‘Integrated Goods and Services Tax’ should be exempted at the point of importation. Reliance is hopeful that Jio will be generating profits in the near future Mukesh Ambani led Reliance Jio Infocomm recorded a net loss of Rs 270.59 crore for the September quarter, on revenues of Rs 6,147 crore and posted unexpected positive earnings before interest and tax (EBIT) of Rs 260 crore. Jio also posted an ARPU (average revenue per user) of Rs 156.4 as compared to Rs 154 of the market leader Bharti Airtel. Company officials are very optimistic about the future and are expecting Jio to gain 50% of the market share in the next few years. Indian Central Bank, RBI, appears to be preparing a policy on cryptocurrency Cryptocurrency is virtual money, which uses cryptography as a medium for the secure online transactions in many countries including India but here it is not legalized. RBI is currently working on the possibilities of developing its own authorized cryptocurrency though it is still not comfortable with the privately owned unauthorized cryptocurrencies like
ANIRUDH MITTAL
Bitcoin. 40 Lakh Businesses File GST Returns for July as the deadline ends Filling under GST is below the expectations of the experts. Only 60% of the total taxpayers have filed returns under GSTR-1 for July. This caused the collection of the government to drop from the expectations of Rs. 94,000 crore to Rs. 90,669 crore for the month of August. Modest filings and declining collection figures have become a cause of concern for the government. Trying to simplify compliance load on taxpayers, the GST Council had relaxed filing norms for small businesses with a business of up to Rs. 1.5 crore, permitting them to file quarterly returns instead of monthly. RBI Chief considers growth important, but not at cost of inflation Urjit Patel, Governor of RBI, considers monetary conditions as conducive to economic growth were a constant consideration for Indian policymakers, but would always consider inflation’s priority over the economic growth. He is confident that the growth of the Indian economy would be recovered to a level of 7% with respect to the present value of 5.7%.
PM leads the plan of 10,000 Electric Cars Purchase from the front Till date Tata Motors Ltd. hasn't sold a single electric car, though it may get a late-mover advantage at a time when technology advances will lead to a fall in costs of manufacturing. Tata along with Mahindra and Mahindra Ltd., India's single electric car-maker that plans to increase its vehicle manufacturing capacity to 5,000 units a month, underscore the distance to be covered when compared to China and the U.S. According to a study by Niti Ayog, automobile ownership in India remains low, with only 18 cars per 1,000 citizens compared to nearly 69 in China and 786 for the U.S. This is what the two giants in the sector are aiming for. Delhi Metro Got Costlier from October 10th Metro tickets will cost Rs. 20 for rides of up to 5 km, Rs. 30 for 5 km to 12 km, and Rs. 40, Rs. 50 and Rs. 60 for longer journeys. The hike was strongly opposed by the AAP led Delhi Government but this would save it from an extra pressure of Rs. 3000 crore annually for 5 years. When it started operating in 2002, the minimum and maximum fares were Rs. 4 and Rs. 8 respectively. Ola raised an amount of 2 billion dollars from SoftBank and Ratan Tata 4
Ola Cabs is preparing for a much tougher, much longer battle in the online cab booking space against its foreign competitor, Uber. Ola is planning to expand aggressively in tier 2 or 3 cities where Uber is still not present and wants to take the first movers advantage. It is safe to assume that the ongoing war between Ola and Uber to dictate app-based taxi service market is far from the end‌ Actually, it has just reached the second level and it will intensify. ISRO will be Helping Indian Railways to prevent train accidents considering safety as top priority
After the appointment of the new Railway Minister, Piyush Goyal, it was declared that safety and security of all trains are the most important and pressing need as of now and ISRO will help Indian Railways to stop train accidents. India’s premier space research organization had already cleared satellite connectivity of trains, with a central hub. In future, with the help and support of ISRO, Indian Railways is looking to setup a comprehensive system, wherein satellite images of all tracks will be checked in real-time for safeguarding that they are in the correct order. Real-time tracking of trains running on different routes can be made, with the help of satellites, so that no two trains are found in the
5
NATIONAL SHASHANK MALLA
TATA Teleservices Merger with Airtel The reform in mobile telecom goes on as the Tata Group left the extremely competitive sector after closely 15 years, merging its unprofitable consumer mobile business (comprising of Tata Teleservices Ltd plus Tata Teleservices Maharashtra Ltd) with Bharti Airtel. The belligerent venture is burdened with financial debt of over Rs 40,000 crores. But as part of the deal they will clear past dues and liabilities. This highpoints the rapid consolidation in the telecom sector after the hostile launch of services Reliance Jio by Mukesh Ambani in September last year. The merger is on similar grounds trailing behind that of Vodafone and Idea that is approving to merge to become second to none with a collective subscriber base that is above 400 million, hence going past Airtel. This acquisition happens to be their seventh in the last five years, allowing them to gain access to about 180 MHz of spectrum distributed across bands 2100 MHz, 1800 MHz, and 850 MHz. Essentially, Airtel will add approximately 40 million mobile subscribers of Tata’s, comfortably taking it beyond the 300 million mark. The companies alleged in a statement that the merger is on a cash free and debt free basis. , Bharti will virtually acquire the Tata consumer mobile business for free. However, Airtel will have to undertake a percentage of Tata's due spectrum payment liability, assessed to be nearly Rs 2000 crore, however it has to be compensated on a deferred basis. Chairman of Tata Sons, N. Chandrasekaran stated "We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us.". Airtel chairman Sunil Mittal stated that they have evaluated numerous options and were delighted to carry out this agreement. Sunil Mittal also stated that this deal further consolidates their stand in the Indian mobile industry. Presently, Tata Group is in the early phases of exploring an arrangement of combining its enterprise business with Tata Communications and Tata Sky. However, it is believed that the deal symbols the foundation of an emergent relationship among the two corporates that could span businesses for example DTH and undersea cable. The joint announcement by the companies made a reference to this. The sale of the bedridden consumer mobile services happens to be the second major transaction in the course of Chandrasekaran's leadership of Tata Sons. Tata Steel decided to merge its European business which is struggling with Germany's Thyssenkrupp. Since taking charge, Chandrasekaran's immediate and key priorities have been to find solutions for the troublesome businesses such as Tata Teleservices, Tata Motors India, and Tata Steel Europe. The agreement with Airtel will be subject to regulatory approvals and hence Tata officials aim that it will be finished within this fiscal. The Tata Group had entered the mobile services business through Tata Cellular in the early 2000’s that was based on GSM technology. It later elated this business to pay more attention on Tata Teleservices, which was based on the CDMA technology platform. Tata Group had earlier explored the possibility of shutting down the unit. However, the group finally found it best to find a shelter for the business rather than closing it down as the latter has huge consequences on business ecosystem. Moreover, the sale option benefits the group to save Rs. 8,000 crore at the minimum. Previously, the group is known to have discussions with Vodafone for a likely deal. Escalating losses and hefty interest charges impelled the Tata Teleservices to depart from the business. Moreover, partner NTT DoCoMo had also decided to put an end to from Tata Teleservices. It was stated by Officials that the group had not been left with many options in sight of tough rivalry and heavy investments. Tata Group is understood to have invested more than Rs 50,000 crore in the mobile services business.
6
MARKET: At a Glance
ASHWIN BANSAL
10167 +378
3.87% 32432
+1148
3.67%
*Change shown on the bi-weekly basis as of 13th October
Weekly Top Gainers NIFTY50 Symbol BHARTIARTL BHARTI INFRATEL Hindalco
Weekly Top Losers NIFTY50
Last Traded Price
Earlier price
% Change
Symbol
431.75
382.30
12.93
GAIL India
Last Traded Price 438.00
449.35
399.95
12.50
ONGC
266.80
250.90
6.34
Zee Entertainment
169.40
452.70 173.85
30 Days % Change -3.25 -2.56
510.15
521.65
-2.20
30 Days Earlier
*Source: www.nseindia.com , www.bseindia .com 7
CLASS TALKS NOTION OF RETURNS
ARCHIT BASER
Hello IMTians, First of all, I would like to congratulate all those who got their Summer Internship Placements and suggest all the unplaced students not to lose hope & keep working hard for the placements. One of the most asked questions during the placement processes, especially to those sitting for Finance domain companies was – How to calculate return? I, in this article, would like to touch upon the concerned topic. When you make an investment, you expect to earn a certain return on it. The main concern is where to invest to earn a healthy return. Should it be only one security, or should it be a basket of investments (aka Portfolio of Investments)? Either you can make an intuitive judgement or you can use past rates of return as an indicator of future performance. The latter one is suggested by most of the analysts. There are multiple ways to compute return, each of which could give a different result. Consider an example, wherein annual returns of two securities, HUL and P&G are given for previous 5 years.
Year
1
2
3
4
5
HUL (%)
18
22
20
17
23
P&G (%)
15
20
30
25
10
Arithmetic Mean
It is the simple average of the annual rates of return. Mathematically, this can be expressed as [(R1+R2+…+Rn)/n] where n is the number of years. In the above example, the return from the first security HUL is 20% [(18+22+20+17+23)/5] whereas the return from the second security P&G is also 20% [(15+20+30+25+10)/5].
Holding Period Return (HPR)
Holding Period Return is mathematically expressed as (1+R1) *(1+R2) *…*(1+Rn). Now we’ll look at the return earned from another angle. Let’s assume that both the stocks began with a market price of Rs. 100 each five years ago. In that case, HUL stock would be quoting at 100*1.18*1.22*1.20*1.17*1.23 = Rs. 249 whereas P&G would be quoting at 100*1.15*1.20*1.30*1.25*1.10 = Rs. 247. In the first case, return earned is 149% [(249-100)/100] over 5 years while that in the second case is 147% being calculated in same fashion. Holding period return is the absolute return for the holding period, unlike other returns it is not reported on an annual basis. Holding period for an asset can range from a single day to perpetuity.
Annual Simple Return (ASR)
The holding return that we calculated above can be converted into annual return for better comparison. Mathematically 8
it would be done by dividing HPR by number of years. In the above example, ASR of HUL would be 29.8% (149/5) while that of P&G would be 29.4% (147/5).
Return from Listed Securities Another simple method to calculate return is by considering Dividends & Capital Gain/Loss on the security. Dividends will also be considered while calculating total return from equities because they are additional monetary benefits received by the equity owner. The formula for this would be: R = [(P1 – P0) + D1] / P0 Where, R = Return from the investment during the period, P1 = Market Price at the end of the period, P0 = Market Price at the beginning of the period. D1 = Dividends earned. Compounded Annual Growth Rate (CAGR) CAGR, in simple words, can be described as the ‘average annual growth rate’ of an investment calculated over a particular period of time being more than a year. Mathematically, CAGR can be calculated as follows: CAGR = [(EV/BV) ^ (1/n)] – 1 Where, EV = Ending Value of the Investment, BV = Beginning Value of the Investment, n =Number of years under consideration. The Preferred One… In financial management, from all the above-mentioned methods, CAGR is the most preferred one as it gives the most accurate representation of return. However, the portfolio theory bases its conclusion on arithmetic mean because: Standard Deviation, which is a measure of Risk, is a deviation from Arithmetic Mean and not CAGR. An investor has the opportunity to enter and exit (buy and sell) at the end of each year and therefore each year’s return should be considered. Stock Markets are supposed to represent a pattern which corresponds to the normal distribution as understood in statistics. I hope I was able to clarify the topic to some extent and hopefully it will help you in your upcoming interviews and your personal investment analysis as well. So, wish you people a very Happy Diwali in advance and a Happy Sleep Deprivation since IMT Never Sleeps…
9
SCAMS, SCANDALS & STORIES ATUL RANJAN
THE ASIAN CURRENCY CRISIS 1997 Among the major financial events and happenings that shaped up the world economy as we see at present, the Asian Currency Crisis stands as a classic example depicting severe flaws in the way the financial world functions. The currency crisis which started around mid-1997 in Thailand eventually spread to other economies and had its effect till as far as Russia. The Asian Contagion as it is called in the world of economics also affected the Asian tigers- Singapore, Taiwan, South Korea, Hong Kong and Malaysia; as well as Indonesia and in some capacity Japan also. Though the signs of an impending crisis were evident since the mid 90’s, the major events started with the devaluation of Thai Baht against the dollar in July 1997. The situation led to the once rapid growing economies to bow down in front of the IMF for emergency financial assistance.
GDP Growth(%) Korea Indonesia Malaysia Philippines Singapore Thailand HongKo ng
1991 9.13 6.95 8.48
1992 5.06 6.46 7.8
1993 5.75 6.5 8.35
1994 8.58 15.93 9.24
1995 8.94 8.22 9.46
1996 7.1 7.98 8.58
1997 5.47 4.65 7.81
-0.58
0.34
2.12
4.38
4.77
5.76
9.66
7.27
6.29
10.44
10.05
8.75
7.32
7.55
8.18
8.08
8.38
8.94
8.84
5.52
-0.43
4.97
6.21
6.15
5.51
3.85
5.03
5.29
*Source: International Financial statistics of IMF.
The Investment Boom In the years preceding the crisis, these economies had transformed into export powerhouses, powered by factors such as cheap and relatively educated labour, technology-based products and relaxation of international trade barriers. In the first half of the 1990’s the export growth in these economies ranged from 12-18%. The high growth of exports was one of the contributing factors to the unprecedented GDP growth of these economies in the same time period. It also led to an investment boom in property, infrastructure and industry sector. This led to soaring land prices in cities like Hong Kong and Bangkok and also easy lending provided by banks. The confidence in the economies led to high investment in industrial expansion by the companies, often overlooking high risk involved with the projects. The government also undertook huge infrastructure projects which required a large sum of investments. All these led to high levels of foreign debt on these economies. High Debt The high investment on industrial assets led to excess capacity in real estate as well as some technology- based products such as electronics goods. By an estimate, Bangkok’s housing boom led to an overcapacity of homes sufficient for its demand for coming five years. The effect of this over-capacity began to show off on the economies as the huge pile-up of inventory and dried up demand supply hit the companies hard. This, in turn, led to depleted earnings by the companies and they were now finding it increasingly difficult to pay back the loans to the banks and other financial intermediaries. 10
Also, the bulk of loans taken by the companies were in terms of US dollars instead of local currencies. This seemed logical because of lower interest rate on the dollar as compared to the local existing currencies. This meant that if the local currencies depreciated, the companies would look into even higher loan repayments and looking at the current scenario of the economy, some companies could even falter in their short-term interest payments. One more thing to be noted is that in the 90s, along with soaring exports, the imports into the country was also increasing. This was due to high consumption of foreign goods in the industrial and infrastructure sector, such as high demand for aircrafts and other heavy industrial equipment. This put stress on the state of the current account of the economies.
Current Account, BOP Definition (% of GDP) Korea Indonesia Malaysia
1990 -0.69 -2.82 -2.03
1991 -2.83 -3.65 -8.69
1992 -1.28 -2.17 -3.74
1993 0.3 -1.33 -4.66
1994 -1.02 -1.58 -6.24
1995 -1.86 -3.18 -8.43
1996 -4.75 -3.37 -4.89
1997 -1.85 -2.24 -4.85
Philippines
-6.08
-2.28
-1.89
-5.55
-4.6
-2.67
-4.77
-5.23
Singapore
8.33
11.29
11.38
7.57
16.12
16.81
15.65
15.37
Thailand
-8.5
-7.71
-5.66
-5.08
-5.6
-8.06
-8.1
-1.9
*Source: International Financial statistics of IMF.
Currency Crisis in Thailand On speculation of companies defaulting on their loan repayments, the Thai stock index already had fallen 45% from its highest level on 1996. The first case of a company defaulting on its payments came up in February 1997 in Thailand. The default was a sum of $3.1mn as interest on a loan of $80bn. This led to a heavy loss of confidence of foreign investors in the Thai market. The already stressed market began a slump that would be the highest ever in its history. Another financial intermediary, Finance One was a major player in the credit market which gave loans to domestic companies by issuing bonds in its name in US Dollar denomination. Since the companies started defaulting on their loan repayments, Finance One, in turn, was not able to pay its creditors. Also, the bad assets of Finance One more than doubled in the first quarter of 1997 and subsequently it announced its bankruptcy. A major blow to the economy came from the currency traders, who speculated devaluation of the currency against the US dollar. A widespread trend to short sell the Baht came into being, wherein a trader takes a loan from a Thai institution and immediately sells it against dollars in the international market. In this way, if the Thai Baht devalues in the future, the trader reaps a profit. In its bid to defend the Baht, Thai government spent close to $5bn to buy the local currency and maintain the fixed exchange rate against the US dollar. But with depleting reserves of foreign currency, it became increasingly impossible to defend Baht. Eventually, on July 2, 1997, the government announced that it would allow the Baht to float freely in the market. This resulted in an immediate decline of Baht from close to 25 to 47 Baht per dollar. With its foreign reserves depleted, the Thai government called upon the IMF for a loan on its immediate interest payments in the international market. With an initial package of $17.2bn, the IMF demanded stringent financial control measures to be applied by the Thai government. These included reduced public spending, raised interest rates and privatization of government sector entities. The IMF has been widely criticized for forcing the government with such conditions as they put pressure on the already stressed economy. But due to the absence of any alternative route, the 11
government was forced to accept the loan with the conditions. At the end of 1997, the Thai stock market had plummeted by 40% of its initial value.
Nominal Exchange Rate (to the US Dollar)-Average Korea Indonesia Malaysia
1990 707.76 1842.8 2.7
1991 733.3 1950.3 2.75
1992 780.65 2029.9 2.55
1993 802.67 2087.1 2.57
1994 803.45 2160.8 2.62
1995 771.3 2248.6 2.5
1996 804.45 2342.3 2.52
1997 951.29 2909.4 2.81
1997# 1695 4650 3.89
Philippines
24.31
27.48
25.51
27.12
26.42
25.71
26.22
29.47
39.98
Singapore
1.81
1.73
1.63
1.6
1.53
1.42
1.4
1.48
1.68
Thailand Hong Kong
25.59
25.52
25.4
25.32
25.15
24.91
25.34
31.36
47.25
7.79
7.77
7.74
7.74
7.73
7.74
7.73
7.74
7.75
*Source: International Financial statistics of IMF. # After Devaluation Effect on Other Economies The Thai crisis set the bell ringing for other sister economies of South East Asia. The local currencies of Malaysia, Singapore, and Indonesia were all devalued sharply. The foreign investors were in a panic to exit the Asian markets after the crisis and there was little to no investment activities. All these economies had to allow their currencies to float freely in the market and subsequently face a sharp downfall. South Korea was another nation affected by the crisis. Being the 11 th largest economy at that time its near collapse created a lot of trouble globally. With many of its chiefly family run corporates called chaebols collapsing under debt, the Korean Won also faced steep devaluation. As in the case of others, the government in its bid to defend the Won, nearly exhausted its foreign reserves and was forced to seek a loan from IMF. In aftermath of this crisis, even economies of Russia and Japan were hit. Russia suffered from a major devaluation of currency as well as high rate of inflation hitting the country. Along with the Chechenya wars and declining global oil demand, the Asian crisis dealt the final blow to the economy. Subsequently, it had to let the ruble float freely in the market. Japan slipped to recession since mid-90’s and has not yet been able to recover from it. Insights from the Crisis The investment bubble created due to a high level of foreign currency inflow as well as reckless loans disbursed by the banks and financial institutions were identified to be the main culprits behind the financial crisis. Stringent financial checks required in disbursing loans and proper government policy is required to sustain an economy which was clearly absent in the present case. It also showed how greatly investor sentiment can affect the market as was seen in the case of Thailand and others. Still, unregulated financial markets wreak havoc internationally as seen in the recent 2008 financial crisis.
12
WIZARDS
ARUSHI BHAMBRI
RAKESH JHUNJHUNWALA Markets are like women – always commanding, mysterious, unpredictable and volatile. - Rakesh Jhunjhunwala
Pick any investor in the world and you will find him or her swear by 2 rules. Rule #1 Never loose money. Rule #2 Never forget rule 1. But this is easier said than done. What sets Mr. Rakesh Jhunjhunwala apart from the rest is his famous advice: “Invest in a business, not a company”. Makes more sense right? Let’s dig deeper into Mr. Jhunjunwala’s life. Born on 5th July 1960, Jhunjhunwala acquired his interest in the commerce field early in life, seeing his father as an Income Tax Official. He thus grew up to be a Chartered Accountant, known in the market for being a middle-class self-made billionaire with a net worth of USD 2.8 Billion. His current portfolio contains the likes of shares like Crisil, Titan, Aurobindo Pharma, Lupin, Escorts, NCC, DHFL, Delta Corp and Federal Bank. These stocks form more than 50% of his investment in the equity market. The latest change in his portfolio has been an increase in his stake in Prakash Industries from 1.01% to 1.64% which led the company’s stock to advance 1.39%. The Badshah of Dalal Street started investing a few decades back when he was still in college in 1985 with only Rs. 5000 as his net worth when BSE was at 150. It is now at 32000. Since the beginning of his career, Jhunjhunwala stood out from the crowd for his risk-taking ability, imagination, and wisdom. His money-making streak started early in 1986. Selling Tata Tea share at 143, bought at 43 per share, he proved that he was in here for a long haul. From then to now, Jhunjhunwala is now 54th richest man in India certified by Forbes. His investments are made as a partner in his own asset management firm – Rare Enterprises. This firm provides partnership opportunities to deserving investors that prove their credibility like Utpal Seth and Amit Suri. Stocks in Mr. Jhunjhunwala’s portfolio gave him a return as high as 200%. Geojit financial services gave him 206% returns while Jaiprakash industries earned 213% return for him. Edelweiss and Escorts also gave him a gain in excess of 105%. His recommendation has always been Titan Ltd with a target of Rs. 625. The stock earned him 84% YoY return. Such winners in his portfolio have led him to be known as India’s Warren Buffet. His key to this success as he shares is- “Give your investments time to mature. Be patient for the world to discover your gems”. Married to Rekha Jhunjhunwala, he is the father of three children. A doting father that he is, he loves to spend quality time with them after his trading routine. Jhunjhunwala has also expressed his desire to donate a large part (more than 50%) of his wealth for charitable and philanthropic activities. He currently sponsors the education of 400 children who come from underprivileged and disadvantageous societies. Mr. Jhunjhunwala currently expects a strong market boom in coming years and an unbelievable opportunity in the retail sector (growth 5 times) that will show itself in the next 5-10 years. His estimates see India grow 9% in 2017-18 and 10% in 2018-19. His mantra in life is- In a capitalist world, just an opportunity won’t make you rich. You have to be competitive and profitable at the same time. He himself invests in an opportunity where demand naturally exists. “All that you need is patience and invest in good businesses. Small caps will eventually become large caps.”
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STARTUP TRACKER TRACKER
GAURAV SHARMA
LendingKart
Do you consider yourself as an active entrepreneur? Do you want your business to keep pace with the current business uptrend and create a whole new disruption in the market while keeping aside the financial headache of raising capital? LendingKart has a solution to uplift your small/medium scale business by providing a loan in just 3 days at reasonable interest rates. LendingKart founded in 2014 is a non-deposit taking NBFC, registered with RBI, that provides SME lending in India. Having its offices in Ahmedabad, Mumbai, and Gurgaon, this fintech start-up has positioned itself in the working capital space. Business lending is not only a time-consuming task but it also attracts sky rocking interest rates from various banks. However, LendingKart is trying to ease out this system by making working capital financing available at the fingertip of the entrepreneur. About the founders: Harshvardhan Lunia (CEO and Co-founder) He is a CA by profession and has done his post-Graduation from ISB, Hyderabad. He started his career by working with various national and multinational banks where he worked in the small loan lending division. This made him realize how difficult it is for a small/medium scale business to raise capital for expansion, thus giving him the idea to fill this void of working capital financing. Mukul Sachan (COO and Co-founder) He has done his B.E in Electronics and Communication and then post-graduation from IIM, Bangalore. His ability to understand patterns in unstructured data has helped LendingKart in designing the Credit Scoring Model. He attained various skills on data analytics from his prior experience of working as a Scientist at ISRO. He has expertise in detailed data analytics on various data banks and here in LendingKart, he handles the function of designing the decision system and operations. What LendingKart does: In simple terms, LendingKart provides loans to small and medium scale companies, wherein the loans are processed at a faster rate and are provided at a customized interest rate based on the company analysis it does internally. The client base of LendingKart is Pan-India ranging from businesses located in business hubs such as Gurgaon, Bangalore etc. to remote areas such as Guwahati, Chandrapur, Hubali, Varanasi, Tirupur etc. The team of LendingKart consists of employees from diverse backgrounds such as bankers, data scientists, and technology geeks. LendingKart believes that their business derives its strength from these 45 employees having expertise in diverse backgrounds. 14 1
All the teams evaluate various touch points required to formulate various data models which are used to analyse the client’s business. LendingKart uses various developed technology tools based on big data analytics which facilitates a company’s data in such a manner that it becomes easy for the lender to evaluate borrower’s creditworthiness. A credit worthiness determines how much loan is to be given to a company and at what interest rate. LendingKart uses various models to analyse thousands of data points from various data sources, of the company being evaluated and the industry it is positioned in, at a rapid rate in order to fast track the whole loan processing process. These data partners provide LendingKart with various kind of information about the vendor including his educational qualification, reputation, family background, competitiveness in the market etc. What differentiates it from other banks is that, it does not focus on vendors past financial records in order to evaluate the credit risk profile of the company. What it does is, it evaluates the current year’s cash flows of the company and the potential business growth drivers of the company. It also gathers data from various data partners which provide client information such as education background, family background, competitiveness of the client and various other background information required to formulate a proper Credit scoring model. Finally, LendingKart does a complete industry analysis by analysing growth points and profit margins and then it customizes the interest rate accordingly. This way a fair deal in terms of the loan amount and the interest rate is given to the client. What customer gets: A
simple online application form needs to fill in order to apply for loan
Bare
minimum documentation is required to apply for the loan. (excludes past financial performance)
Processing
of loan is done in just 3 days at fair interest rates
Future looks bright: A data shows that India houses around 4.88 crore small and medium scale business, wherein a very small share of it is being catered for a fair lending deal. Also, the past scare of dealing on the internet has now been transformed after a new age online business boom, thus entrepreneurs are now looking over the internet for various growth prospects. This opportunity has been grabbed by LendingKart to provide working capital lending online in no time. The current focus for this new age NBFC is e-commerce sector but it plans to tap the retail vendors, salaried people and small and micro-merchants who are a supplier to large and medium-sized corporates. This way, LendingKart is targeting a Rs 9 lakh crore small business market in India and its current projection of a 30% monthly growth since January this year has locked a promising future for the company.
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MASALA BONDS
SNIGDHA RAO
Happy Diwali readers!! We hope you are all having a great time this festival week, wherever you are! Since it’s Diwali, we thought it is only fair that we write up about something closer home. Hence, this fortnight’s financial instrument is “The MASALA Bonds”. Sound appetizing, don’t they? Well, they are not. They are negotiable instruments with some very interesting features. Therefore, without much further ado, let’s get down to the finer points of it. First, what is a masala bond? Well, it is used to refer to the borrowings denominated by rupee taken by Indian firms in the overseas market. International Finance corporation, which is the investment branch of the World Bank, in last November, issued a Rs.1000 crore bond to fund infrastructure projects in India. These bonds were first listed on the London Stock Exchange. IFC, then decided to rename these bonds as Masala bonds to give it an Indian feel.
As per RBI guidelines, the money raised from Masala Bonds can only be used for infrastructure projects in India. They are not to be used for real estate activities and in areas restricted for FDI. Who can issue Masala Bonds Any entity, incorporated under the Companies Act or any other specific act of parliament can issue masala bonds overseas. In a recent development, Banks are also eligible to issue to finance their tier 1, tier 2 capital and infrastructure financing activities. The interest payments should not be more than 500 basis points above the sovereign yield of a government of India security of same maturity period. The currency conversion rate would be the rate on the date of issue. Masala Bonds can be quite a significant plus for the Indian markets since they are issued to foreign investors and settled in US dollars. Hence, the risk of currency lies with the investor and not the issuer. In case of Masala Bonds, the cost of hedging is very low since there is only one currency involved. RBI in April had said that it would issue guidelines to allow corporates to issue rupee bonds in the overseas markets. Advantages of Masala bonds are that the competition from the markets overseas can push the governing bodies and regulatory authorities to increase the pace of development of the domestic bond market. Rupee value would increase and new avenues would be open for retail investors. Masala bonds can help the rupee go global. However, such high foreign loan exposure would also have disadvantages. With our economy on unstable grounds, it is unadvisable to open up the market to such high risk external debts. So, that was about Masala Bonds. A new kind of financial instruments which has its roots in India. Also, this Diwali, let’s go a little easy on those crackers. Let’s invest our savings instead. To watch our money grow is way more exciting than watching our money burn up in sparkles and ruin our environment.
Once again, a very happy and prosperous Diwali to all my readers!
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LOCK THE STOCK
SUSWETA BANIK AKSHIT GOYAL
RELIANCE Industries Ltd. Established: 1966 Founder: Mr . Dhir ubhai H. Ambani Chairman and MD: Mr . Mukesh Ambani NSE Scrip Code: RELIANCE Current Market Price (CMP): Rs. 872.75 (October 13, 2017)
“Growth is Life” – the motto rightly captures the ever-progressing spirit of Reliance. Headquartered in Mumbai, Reliance Industries Limited (RIL) is an Indian conglomerate holding company which owns businesses across India engaged in energy, natural resources, petrochemicals, textiles, telecommunications and retail. With a weightage of 6.87% in NIFTY 50 index, RIL has a free floating market capitalization (value of shares available for public) of Rs 2,77,671.27 crores.
5 year share performance
Source: www.bse.com The share price as on January 23, 2009 was Rs.290.90. Bonus shares were issued in the ratio 1:1 by RIL on October 7, 2009 and September 21, 2017. So, if any person had bought shares that day, he would have gained 302.45% by today and his number of shares would have become 4 times.
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1 year comparison with BSE Sensex
Source: www.moneycontrol.com
1 year comparison with NSE Nifty
Source: www.moneycontrol.com If we take the past 1 year trend, RIL has outperformed the Indian stock market by a substantial margin. One year returns of the NIFTY and BSE Sensex is around 14% whereas that of RIL has been approximately 51%.
Business Performance Pros RIL has shown a higher net margin than the industry average since past 5 years Risk score trend shows consistent return patterns, i.e low volatility Cons Slightly higher debt to capital than industry average for past 5 years Low day sales in receivables than the industry average for past 5 years Delivered a poor growth of around -3.16% over past five years 18
Gross Margin EBITDA Margin Net Profit Margin ROE ROA ROCE Price Earnings Ratio Earnings Yield Price to Book Value Dividend per Share(Rs.)
Ratios Gross Profit/Net Revenue EBITDA/Net Revenue
2017 22.6% 14.1%
2016 23.1% 14.1%
2015 15.9% 10.6%
2014 12.2% 8.5%
2013 12.6% 8.4%
Net Profit/Net Revenue Net Profit/Shareholder's Equity Net Profit/Average Total Assets EBIT/(Long Term Liabilities+Share Capital)
9.0%
10.2%
6.3%
5.2%
5.3%
12.1%
13.5%
11.6%
11.8%
11.9%
4.6%
5.5%
5.1%
5.7%
6.1%
11.49%
11.43%
10.60%
11.52%
12.15%
13.06 0.07
10.37 0.08
10.31 0.09
12.16 0.07
10.94 0.08
1.49
1.41
1.23
1.52
1.40
11.00
10.50
10.00
9.50
9.00
Market Price/EPS EPS/Market Price Market Price/Book Value Net Income per share x Payout Ratio
Sector-wise performance for the past year Petrochemicals: A 5 year high EBIT margin of 14%, which was 27.5% yoy, was recorded as RIL improved its feedstock security and strengthened integration. It has a 33% market share in domestic polymer and 36% market share in domestic polyester. Analysts have a bullish outlook on petrochemical margins. Oil and Gas Exploration: RIL is one of the largest production players of India with a portfolio inclusing onshore, offshore blocks in India and US Shales. However, the production was down by 23% due to unfavorable upstream price environment and declining volumes. RIL is expecting to improve the production of its Coal Bed Methane blocks and lower operating expenses from US Shale until the pricing environment improves. Retail business: 60.2% increase in turnover has been observed and 371 new stores have been added in the past year. A record EBIT of Rs 784 cr is oberved which is an increase of 55.6% yoy. It has also started its e-retail platform Ajio. It is the first and only retailer in India to achieve the $5 bn revenue, i.e a CAGR of 35% in 5 years. Digital Services: Reliance Jio, the only VoLTE providing network in India, has crossed 100 million customers since its launch in Sep 2016. Jio being the largest 4G LTE network has seen a data consumption which is higher than US and twice that of China. It expects the digital economy to rise to $250 bn by 2020; of which wireless would be $45-55 bn. Media and Entertainment: 58% market share is captured by CNBC TV18 and Network18 Media & Investments. However huge investments in launch of new channels and digital businesses has led to a negative EBIT in this unit.
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Peer Analysis The current quarter consensus estimate for earnings has seen a rise of 70.8% over the past 90 days which is significantly higher than the industry average of 36% for the same time period.
Source: Thomson Reuters report
Future Forecasts
Share Price
Source: Thomson Reuters report
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Earnings per Share
*Source: Thomson Reuters report
DISCLAIMER: This research report is a written or electronic communication that includes research analysis, research recommendation or an opinion concerning securities or public offer, providing a basis for investment decisions. The views expressed therein are based solely on information available publicly/internal data/other reliable sources believed to be true. The information is provided merely as a complementary service and does not constitute an offer, solicitation for the purchase or sale of any financial instruments, inducement, promise, guarantee, warranty, or as an official confirmation of any transactions or contract of any kind.
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