Editorial
SUSWETA BANIK
Beloved Readers, After a short Diwali break, all of us are back to work – fresh and rejuvenated. And now again it’s time for the regular grind of exams, projects and assignments... So, this edition of FinXpress we have tried to give an insight of the burning topics across National and International in the economic and financial sectors like Effect of Government Policies on Shell Companies and how a whopping $1 Billion was recovered, the unnoticed dot in Indian Finance history- The Bhansali scam in scams, scandals and stories, a sneak-peek into the life of the Investing Guru- Peter Lynch, a class talks topic which would be of great help to you and lots more. We hope it will help you to stay up to date on the happenings of India and the world. The hard copies will be placed in the library racks for your ready reference... As the Final Placement season of the senior batch is just around the corner we wish you good luck and hope that you deliver the best version of yourself on D-Day. Thank you all for the love and appreciation you have been showering on us and feel free to share your bouquets and brickbats. Last but not the least, best wishes to the junior batch for the Term 2 examinations… Happy reading!
Contents 1) COVER STORY - SAUBHAGYA SCHEME
2
2)FINSHORTS
3
3) NATIONAL - SHELL COMPANIES UNEARTHED, A WHOPPING $1BILLION RECOVERED
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4) INTERNATIONAL -CHINA’S NEW MEN IN BLACK
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5) MARKET S
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5) CLASS TALKS
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6) SCAMS, SCANDALS & STORIES - BHANSALI SCAM
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7) WIZARDS - PETER LYNCH
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8) STARTUP TRACKER - FAIRCENT
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9) INSTRUMENTALLY SPEAKING - STOCK INDEX FUTURES 14 10) LOCK THE STOCK - INTERGLOBE AVIATION LTD.
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11) FINQUIZ
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1
COVER STORY
SOUMYA RUP CHANDA
SAUBHAGYA SCHEME
Indian villages have been depicted since times immemorial as being guilty of two things, darkness and darkness, one literal, the other figurative. Like Shah Rukh Khan’s character of Mohan Bhargav from the movie Swades, who tried to remove the literal darkness by lighting a bulb, the present government too has been trying to do so since Modi’s audacious Independence Day speech of 2015, claiming to light up 18,000 villages in rural India by March 2019. The PM then announced the launch of the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), with an ambition of electrification of the 18,000 unelectrified villages in India. The scheme though well-meant and urgently needed for the creation of a new India, ran the risk of getting lost in the noise, as has been the case usually with a host of government schemes. But it is to the credit of the current government that 78% electrification has been carried out till date in the targeted villages. Now when is a village called electrified? A village is said to have been electrified if its 10% households are linked with electricity, along with public places like schools, community centres, health centres and panchayat offices. But this leaves 90% of the households without electricity and thus the electricity still remains a contentious issue. Thus, while the earlier scheme was focused on electrification of villages as per the textbook definition, this left a large gap in the actual number of households who had reaped the benefits. To remedy this last mile connectivity issue, the PM on the 25th of September at the inauguration of the new ONGC corporate office in Delhi, acknowledged this challenge in last-mile connectivity and launched the ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana’ or Saubhagya with an allocation of 16,320 crores. Saubhagya scheme is aimed at providing electricity to India’s 40mn rural and urban households. The funds allocated for the scheme have been distributed as 60% from the union as grants, 30% from loans and 10% is contributed by the state. If a state can complete electrification of its rural and urban households by Dec 2018, the centre would give another 50% of their loans as grants. The scheme also plays to the galleries as it sits beautifully with BJP’s election promises of electrification and completes just in time for the General Elections. The way this scheme would rollout is that the SECC (Socio-Economic and Caste Census) 2011 data would be consulted to identify the BPL households, who would be provided electricity free of cost. For other households, a nominal fee of Rs500 would be charged payable over a period of 10 months to the DISCOMS in addition to their monthly bills. For remote places, where the electricity grid can’t reach, households are being provided with solar power packs and battery banks. The state-run Rural Electrification Corp. is the lead agency for this scheme. The scheme is expected to generate a demand for an additional 28,000 MW or 80,000mn units in a year and the DISCOMS are expected to clear an additional 24,000 crore revenues at Rs 3/unit. This also gives a push to the domestic energy sector and injects 16,000 crores worth of revenue into it. With the literal darkness removed from India’s households, improvements in education, healthcare, employment and connectivity is expected to take place. One hopes that the government’s efforts in this field will bear fruit and the night would dawn when India’s villages would shine with the warm glow of LED lights. 2
FINSHORTS
SHASHANK MALLA
1. Indian Bank Stocks surge post the Recapitalization plan Government has announced a INR 2.11 trillion recapitilization package towards revitalizing public sector banks (PSBs) grappling with inadequate capital and non performing assets (NPAs). Out of the entire amount, INR 1.35 trillion billion will be front loaded through recapitalization bonds, in order to help PSBs improve their credit profiles. 2. Food processing and retail to get 10 billion dollars in FDI: Harsimrat Kaur Badal Harsimrat Kaur Badal , Union minister for food processing industries, stated that the government is still considering the insertion of 25% personal care and home care products in multi-brand food retail outlets possessed by foreign companies. She states that global companies have committed 10 billion dollars investment in food processing, technology and retail in the next two years in the build-up to the World Food India event, a mega show of the Indian government scheduled for November 3-5 to attract foreign investment and create 1million jobs. 3. Centre provides close to Rs. 8,700 crore as GST compensation to states The centre has provided approximately Rs 8,700 crore to states to pay compensation for revenue loss following GST implementation. All states excluding Rajasthan and Arunachal Pradesh, have been compensated for the first two months (July and August) after GST rollout. 4. ADIA to invest 1 billion dollars in India's Infrastructure Fund The ADIA (Abu Dhabi Investment Authority) will be investing 1 billion dollars in the NIIF (National Investment and Infrastructure Fund), marking the start of India's determined attempt to raise equity funds for the infrastructure sector. The deal was agreed between a completely owned subsidiary of ADIA and NIIF Master Fund, which is one of the world’s largest sovereign wealth funds, NIIF stated in a statement. 5. India's M&A activity slackens due to 'flagging economy' Corporate India's M&A (Merger and acquisition) agreement tally took a 63.4% hit in the July-September quarter of this year, mainly due to a "flagging economy" that has directed to the decline, according to a Merger market report. As stated by a global deal tracking firm, the 3rd quarter of 2017 suffered a slowdown in Indian mergers and acquisitions, with the deal value declining by 63.4 per cent to USD 6.8 billion, compared to USD 18.5 billion in the same period last year. 6. China enraged over U.S. aluminium foil anti-dumping duties China says that it was "strongly dissatisfied" with the decision of U.S. to enact anti-dumping duties ranging from 97 % to 162 % on Chinese aluminium foil. China have urged Washington to correct its "mistaken methods". The initial ruling on this matter was a triumph for U.S. aluminium foil makers who had filed a complaint with the Commerce Department condemning Chinese producers of putting foil into the U.S. market below the fair market value.
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NATIONAL SNIGDHA RAO
SHELL COMPANIES UNEARTHED; A WHOPPING $1 BILLION RECOVERED
One of the main objectives of the Prime minister’s chef d'oeuvre “Demonetisation” was to curb money laundering and boost foreign investment. To achieve this strategy, the government has been probing into dubious companies and looking past the corporate veil to authenticate their existence and operations. This week, the government discovered over $1 Billion in suspicious cash deposits as a part of its investigations into dubious companies. A minister from the Ministry of Corporate Affairs stated in an interview in New Delhi that the government has already deregistered over 200000 companies and placed restrictions on their bank accounts. The ministry is probing the deposits to the tune of $1 Billion made by 20000 companies during the currency ban last year. Further, the Serious Fraud Investigation Office is investigating 1500 companies for violating Companies Act. Another 809 companies, currently untraceable are being examined by SEBI to check their status and existence of his directors and officers. In the Independence speech on August 15th, Prime minister claimed that his demonetization move has uncovered over 3 lakh shell companies. Following his speech, the ministry struck off the names of 2,17,239 companies which have failed to comply with the regulatory requirements and has disqualified their directors of those boards from taking up directorship at any other firms. Officials estimate that the final list of disqualified directors may touch up to 4,50,000. Massive data mining exercises are being conducted to identify
beneficiaries of such dubious companies. Data analytics and artificial intelligence is being used to gather information which will help the government take action against the wrong doers. Companies Act has certain sections which help the investigators identify such shell companies. Further as a preemptive measure, Ministry of Corporate Affairs (MCA) and Central Board of Direct taxes (CBDT) has signed an MoU to facilitate sharing of data and information with each other on a regular basis. With the public sentiment being unfavourable for the demonetization move made by the Govt., such positive reports will restore the public faith. These favorable conditions will increase foreign exchange and would also help in unearthing black currency from the economy. For the uninitiated, Shell companies as their name indicates are hollow, empty and inoperative. They do not own assets and they do not conduct any significant business operations. They are not necessarily illegal but they are used mostly to carry out illegitimate activities. They exist on paper, get incorporated and act as vehicles for their associated companies for tax evasion and money laundering. It is important to bear in mind that all shell companies may not be money laundering vehicles. They can also be used to outsource or branch out certain teams for ease of operation. Hence, it is important for investors to be wary about the nature of the company and carry out proper due diligence before investing. 4
INTERNATIONAL AKSHIT GOYAL
CHINA’S NEW MEN IN BLACK
Earlier this week China unveiled its new leadership lineup. The unveiling of the new Politburo Standing Committee (PSC)—the Chinese Communist Party’s very top rung of power—came a day after the party’s 19th national congress concluded. The reshuffle is done after every 5 years. Xi inserted his name into the party’s constitution. No Chinese leader has enjoyed this honor since Mao Zedong. The lineup does not include any one young. As usual lineup does not include any women as well. President Xi Jinping is due to retire from his post as Communist Party Chief in 2022. Since no young person is included in the lineup the party leader may continue upon his second term. Xi and premier Li Keqiang, the party’s No. 2 official, retained their positions as was already expected while the rest five in the lineup were elevated from the broader 25-strong Politburo. These new faces are among seasoned politicians who as a group appear to strike a balance between Xi’s allies and others. Their specific government or party positions, have still to be announced. The profiles of the seven most powerful people in the Communist Party: Xi Jinping, 64, Party General Secretary and China’s President He started off as Party's Crown Prince who was accepted by all after the fall of his rival Bo Xilai. He is immensely powerful and has put his own men in key party and government positions. He is known for initiating a war against corrupt officials. Xi became the most dominant leader of China in his first term. Now he has got his own name added to the party’s constitution. He declared that the China is moving closer to the center of the global stage as an influential power. However, one cannot expect his policies to deal with China’s structural problems like excess capacity and debt. Li Keqiang, 62, Party’s #2 and China’s Premier Once an influential training ground for party high-flyers, Li advanced through the Communist Youth League which included ex-president Hu Jintao, but which has now been sidelined. Li is considered to be the weakest in Chinese premier, although he is second person to be held responsible for steering China’s success. Although much of role of Li has been taken by Xi himself after becoming head of economic and financial affairs, Li is a trained economist and may prove out to be useful for Xi in case of critical issues. Li Zhanshu, 67 He has been working in the party since Xi came to power in 2012. He is one of the most trusted persons of the president. His family had extensive ties with communist party during war times. Li pushed for heavy investment in infrastructure and cutting bureaucratic red tape for private businesses back in his days in Guizhou; as Xi’s chief of staff, he has gone beyond his day-to-day brief when it comes to foreign affairs, accompanying Xi to visit world leaders such as Vladimir Putin and Donald Trump. 5
Wang Yang, 62 Wang is currently in charge of agriculture and foreign trade and serves as one of China’s four vice-premiers. Before this, some of the country’s most important regional leadership offices were occupied by him. He was Chongqing’s party boss between 2005 and 2007, and party boss of the southern Guangdong province between 2007 and 2013. Wang urged local media to focus on ordinary people rather than municipal officers. In Guangdong, he also pushed for economic, sustainable and green growth. He also allowed Guangdong’s fishing village of Wukan—once hailed as a cradle of grassroots democracy in China—to elect a new local chief. Wang Huning, 62, Secretary of the Central Committee Secretariat Wang is considered an essential part of party. He is in Xi’s inner circle. Wang acts as senior policy advisor to Xi and his two immediate predecessors, Hu Jintao and Jiang Zemin. He was born in Shanghai and spent most of his academic career as a political scientist specializing in US politics. He published a book called “America Against America” in 1991 criticizing the US political system. He currently heads the party’s Central Policy Research Office and is considered the brain behind Xi’s “Chinese dream” campaign. Like Li, he is also a routine member of Xi’s overseas entourage. It was revealed that he is an advocate of “neo-authoritarianism,” from a diary from his earlier academic career. He has always argued for a more assertive foreign policy, one Chinese scholar, who has known Wang since the 1980s, told the Wall Street Journal(paywall). Now Wang is the first-ranked member of the party secretariat. He helps carry out decisions of the Politburo and its Standing Committee. Zhao Leji, 60, the party’s new top graft buster Zhao does not have any strong factional affiliation. He currently serves as personnel chief of the Communist Party. It took him more than three decades to climb the political ladder in Qinghai province until he became the western region’s party boss in 2003. He is described as shy and uncharismatic by media. He was selected as party’s internal discipline watchdog and he has officially replaced Wang Qishan, to serve as his anti-corruption tsar, a trusted ally of Xi who is no longer in the Standing Committee, Han Zheng, 63 He has spent his entire career in a powerbase of Jiang’s, Shanghai. He became the city’s youngest mayor in five decades at age 48. He has proven to be a political survivor of a 2006 pension-fund scandal that brought down his immediate boss.. Han himself was promoted to become Shanghai’s party chief, a position that traditionally secures a seat in the PSC during the 2012 power transition. Han has overseen Shanghai’s free-trade zone trials and other experiments of financial liberalization.
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MARKETS: At a Glance
ANANYA NATH
10,323.05 +92.9 0.90% 33,157.22 +523.28 1.60% For fortnight ending on 28th October 2017
*Source: www.bseindia.com, www.nesindia.com Diwali marked the end of Samvat 2073. The Indian stock markets along with the Indian economy faced two major shocks in between this Diwali and the previous one: one being demonetization and the other being the implementation of the Goods and services act. The demonetization move on November 8th 2016 caused a major cash crunch due to invalidation of high-value bank notes. GST was implemented on 1st July 2017 which not only disrupted supply chains but also reduced corporate earnings. However, the markets reached a record high at the end of Samvat 2073 due to inflow of funds from domestic investors throughout the year and foreign investors in the beginning of the year. Sensex witnessed a gain of 16.67% and Nifty gained 18.38%, however mid-cap indices and small-cap indices rose even more. Government reforms and a second straight year of good rains made investors optimistic, expecting an increase in consumption thus resulting in the rally.
Indian markets may have risen to records this year, however in comparison to other Asian markets- Japan, Korea, Hong Kong, they have underperformed. Indian stock indices have outperformed many developed markets. But delayed corporate earnings recovery and high valuations have led to gains getting crimped. Indiabulls Ventures Ltd which is the financial arm of Indiabulls ventures group rose over 1000% in Samvat 2073, thus making it the biggest gainers among the BSE 500.Reliance communications Ltd, Religare Enterprise Ltd and Videocon Ltd were the major losers for the year. Mutual flow inflows into equity also reached record highs. Investments by insurance companies and domestic funds hit 10-year record highs. Delayed earnings recovery lead to foreign institutional investors pulling out in the latter half of the year. Lack of positive returns from asset classes such as gold and real estate lead to an increase in domestic liquidity flows in the stock markets leading to a robust growth.
*Source: www.livemint.com 7
CLASS CLASS TALKS TALKS ARUSHI BHAMBRI
DIVIDEND DISCOUNT METHOD Hello readers! Six editions have already been released and we’re pretty sure that we have been successful in evoking our readers’ interest in markets. Consequently, valuation of a share price is most critical if you want to enter the market. For that, there are many methods that can be adopted to value a share. For eg. Discounted Cash Flow Method, Dividend Discount Model etc. We have already covered the discounted cash flow method in previous editions and in this article we will look at the Dividend Discount Method. Let’s take an example. Following are the Bloomberg reports for the year ending 2014 for the company Semco. Let us analyse, how much worth is the share price of the company if one wants to invest in it. Inputs
Mar-14
beta
1.1
Equity Risk Premium
5%
Risk Free Rate
9.00%
Retention ratio (For Terminal period)
0.5
Return on Equity -ROE (For Terminal Period)
12%
Sales Net Profits Dividends Present Value of Dividends
2014 1000
2015 1300 325 98
2016 1690 423 127
2017 2197 549 165
2018 2746 687 206
2019 3433 858 257
2020 4291 1073 322
2021 5364 1073 536
2022 6437 1287 644
2023 7724 1545 772
2024 9269 1854 927
85
97
110
120
131
143
208
218
228
239
Objective- Dividends of a company are brought to present value and then compared with the share price to determine, whether or not to buy a share. To find out the present value of dividends, one needs to consider two periods. One is the explicit forecast period (Summation of Present value of dividends till 2023). The other is Terminal period value i.e. value of that share in the year 2024. For Explicit Forecast Period, the formula used is -
where n is the number years to be discounted. Calculating that for each year, we arrive at the 4th row – present value of dividends. Summation of present value of dividends = 1578 For terminal period value we use, Gordon growth model: Dividend next year (1+G) / Ke – G
87
where, G is the sustainable growth rate of company Ke is Cost of equity
For G = Return on equity * Retention Ratio = 0.5 * 12% = 6% For Ke, we use the Capital Asset Pricing Model, Risk free rate + beta *Equity risk premium = 9+1.1*5 = 14.5%
Therefore by Gordon growth model, 927 (1+0.06) / 14.5% – 6 %= 11560.24 at t=2024 Discounting this value to present = 11560.24 / (1+ 14.5%) ^10 = 2984.77 Total value = 1578 + 2984.77 = 4562.77 If market value is more than 4562.77, then you should be seller If market value is less than 4562.77, then you should be buyer. Hope this helps. All the best for the upcoming exams.
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SCAMS, SCANDALS & STORIES ANIRUDH MITTAL
BHANSALI SCAM
There have been many famous scandals in the world of Indian finance like 2G scam, Harshad Mehta Scam, Ketan Parekh Scam, Satyam Scam and many more which got highlighted. But there were many that went unnoticed but were an important dot in the Indian Finance history, like The Bhansali Scam. This Scam took place in the year of 1995 and was worth of Rs.1200 crores and the mastermind behind this scam was a businessman named Chain Roop Bhansali. From 1992-1996, he ran many financial firms like CRB Capital Markets, CRB Mutual Fund and CRB Custodial Services. Because of his attractive schemes many public and private organizations invested in his outfits. The money raised from these investments was conveniently transferred to shell companies.
Bhansali raised large amount of money through his various financial institutes for an example he raised Rs.176 crores through CRB Capital markets, Rs.230 crores through CRB Mutual Funds and around Rs.180 crores through fixed deposits. Thus, Rs.900 crores was the amount of money that he owned at that time. He used to pay the interest to the investors by borrowing from the markets, but when there was a stock market crash in the year 1995 his all financial institutions were hit hard and he was able to swindle nearly an amount of Rs.1200 crores which belonged to the investors. So who was this mastermind Chain Roop Bhansali who did this scam worth Rs.1200 crores? Chain Roop Bhansali belonged to a middle class Bengali jute trader’s family. He completed his Chartered Accountancy in the year 1980 and it was around this time only that he ventured into his own financial consultancy firm “CRB Consultancy”. Using his contacts with persons in high and important positions, he was able to get, very quickly and successfully, business from well-known and reputed companies in Calcutta. In 1992, the name of CRB Consultancy was changed to CRB Capital Markets and the company went public. It did very well in various fields like merchant banking, leasing and hire purchase, bill discounting and corporate funds management, fixed deposits and resource mobilization, mutual funds and asset management, international finance and forex operations. In a very short span from May 1993 to Dec 1995, CRB Corporation Ltd. raised Rs.84 crores through 3 public offerings. CRB Mutual funds launched a scheme named “Arihant Mangal Growth Scheme” from which it was able to raise an amount of Rs.230 crores from the markets. These financial institutions were able to raise an amount of Rs.180 crores through fixed deposits from the investors’ money. In January 1995, another of his financial institution named CRB Share Custodial Service raised an amount of Rs.100 crores. Bhansali used his contacts in many political parties and religious institutes for bringing in customers and investors.
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For about five years, the scam went unnoticed. It was only in 1996, when the media pointed out the suspicious growth from Rs.2 crores in 1992 to Rs.430 crores in 1996 of the CRB group. Bhansali was then charged on various grounds like fund siphoning from a bank, fraud and cheating among others. An FIR was filled against CRB group as per section 120B read with section 420 of Indian Penal Code and section 13(2) read with section 13(1) D of the Prevention of Corruption Act. As this case occurred in the shadows of the flamboyant Harshad Mehta Scam it did not get highlighted much, though it was of equal scale and importance and whose foundation was already laid in the year 1991. Major financial regulatory bodies like SEBI and RBI were unable to detect this scam. Even the rating agency firm CARE did a foolish thing to give CRB firms AAA rating. It was in the year 1996 that things didn’t favor Bhansali, when the market fell rapidly and heavily and when he had to raise huge amount of money from markets to pay the debts. And it was an SBI official who unveiled the evil intentions of the swindler and brought out in the open the 59 Cr dupe done by him. When the media highlighted the whole scam, Bhansali ran away from from India to Hong Kong with his family but later on CBI arrested Bhansali but set his wife free even though she was the director of the CRB group. CBI then worked in a very well organized and planned manner and it went into the depths of the case and arrested a few SBI officials who cheated the bank of Rs 57 crores. The final report that CBI submitted clearly showed that CRB group used SBI accounts to take the funds out from the bank hiding the true nature of encashment of interest warrants and refund warrants of principal amount. From the above scandal we get to learn that we need to do a thorough check on the credibility of the owners of the company before you invest your hard earned money. It is better to go with a well-established company that has been rated high by rating agencies rather than with newly established companies where the risk is very high. If you seek for good returns with capital safety, remember that you will need to pay a premium for the assurance you are looking for.
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WIZARDS
ATUL RANJAN
PETER LYNCH “Investing without research is like playing stud poker and never
looking at the cards”
There have been many investors who have been counted among the greatest investors in the stock markets and Peter Lynch exemplifies these legends, studying whom we can gain major insights into the mind of an investor. Widely known as a prominent Investing Guru, Lynch is famous for his stint as a manager of Magellan Fund at Fidelity Investments. It is widely acknowledged that during his stint at the Magellan fund, its returns outperformed that of S&P 500 index in all but two years. Born in the year 1944, he graduated from Boston College in 1965 where he studied arts. He interned at Fidelity Investment in the year 1966 helped by the fact that he caddied for the firm’s President before. After a two year stint with the army, he joined Fidelity permanently in 1969 where he looked after metals and chemical industries. It was in the year 1977 that he was made the head of Magellan Fund which at that time had about $18mn as assets. During his stint here which lasted till 1990, the Magellan fund returned 29.2% and its asset value zoomed to $14bn. It is estimated that at the time of his retirement, the fund had 1400 individual stock investments which being a huge number reflected the philosophy of Lynch that “The person that turns over the most rocks wins the game.” He advocated analyzing as many stocks as possible and invest in the ones having strong fundamentals. Lynch was very well known for his assiduous work habit and willingness to work at any time any day. According to estimates, if a person invested $1000 in the Magellan fund in the year 1977 would reap the return of close to $3000 at the time when Lynch retired in 1990. Apart from being an investor, Lynch is also a well-known investment teacher; his well-known books include One Up on Wall Street, Beating the Street and Learn to Earn. Worth mentioning is a famous anecdote, which according to Lynch himself, taught him a lot about investing. It goes like this: in 1989 Lynch got a call from Mr. Warren Buffet who asked whether he could use a line from the book One Up on Wall Street in a report which he was writing. The line was: “Selling your winners and holding your losers is like cutting the flowers and watering the weeds”. According to an interview by Lynch, that single line was the biggest mistake that he committed in the initial years of investment. He advises that one should hold on to the best performing stocks to find the big winners. Peter Lynch’s approach of selecting stocks have the following basic features which have been told by Lynch himself in many of the lectures that he has delivered. The principles say: Invest in what you know; do a thorough research on your investment decision; focus on the fundamentals of a company rather than the market and invest only for the long run. On the topic of small investors versus the large institutional ones, Lynch famously said the small retail investors always have an edge over the large ones because the large investors depend on news spreading on the Wall Street before investing in a stock, whereas small investors can derive this information locally. This was in line with Lynch’s theory of investing locally. Also he greatly valued networking among peers as it helps in gaining crucial insight into some stock which you don’t have any idea of. After Lynch retired from full time employment at Fidelity in 1990, he devoted most of his time to philanthropy and imparting investing education to the public. He, along with his wife Carolyn (till her death in 2015) were active philanthropists through the Lynch foundation formed in 1988. The foundation is active in many areas such as education and historical preservation. 12
STARTUP TRACKER TRACKER
SHASHANK MALLA
FAIRCENT Faster than Uber, cheaper than banks & more rewarding than stock market
Faircent is a peer-to-peer lending platform that caters to retails and business loans and has raised 1.5 million dollars funding from Brand Capital, BCCL(Bennet Coleman and Co.) arm for ad-for-equity investment. Faircent was founded and launched by Rajat Gandhi, Nitin Gupta and Vinay Mathews in 2014 as an alternative lending startup. 2 years after its inception, it has over 6,000 registered lenders and 26,000 borrowers correspondingly and has paid overall loans amounting to â‚š 6.5 crores. The company has been gaining traction as a result of lowering the overall cost of borrowing by eliminating intermediaries such as banks and other financial institutions. Nonetheless, Faircent is a fintech startup that has now been upping the ante as a result of playing on its strong points. "What makes Faircent hot is our leadership in thought, data and technology. With consumers becoming more comfortable using technology over a human interface, technology-enabled solutions need to outpace human-based solutions in product development. This will be our core focus area for 2017," said Rajat Gandhi, Faircent founder and CEO
The company is on verge of introducing what it calls 'Robo-Lending' in the upcoming year, which will be acting as a matchmaker for borrowers and lenders. It is a fully-automated feature that is going to pair up lender investment criteria with borrower requirements and accordingly send proposals to the borrower on behalf of the lender. "This process not only ensures real-time investment and funding but also helps the lender save time and effort required to build a diversified portfolio important to earn higher returns. Pooling in lender money into an online wallet from where they can easily invest in the platform is another soon-to-launch facility. At the heart of all this product development is customer ease and experience," explains Rajat Gandhi. Expecting that the P2P (peer-to-peer) lending market will be growing to a size of 4-5 billion dollars in the coming 5-6 years, Rajat Gandhi states that his objective was to make the procedure at Faircent more effective and competent to reach its ambition of disbursing â‚š 400 crores of loans in the coming two-three years. Although Faircent's task is to make the loan process easier and quicker, the startup is looking towards the manager to foster the right environment for P2P lending to progress. Faircent has a twin objective that is to democratise the financial services in India and to offer wide-ranging asset-class to our lenders. For this to be accomplished, Rajat Gandhi has numerous initiatives on the horizon comprising loans against property, gold and similar other products.
13
STOCK INDEX FUTURES
GAURAV SHARMA
So did the two words ‘Stock Index’ and ‘Future’ together caught your eyes or maybe confused you? If no, then I believe you are an active investor and already know about this investment instrument or I believe some of you might be even trading in it. If yes, then let me help you understand the concept further. But first let me break down ‘Future Contract’ and ‘Stock Index’ for you. Future Contract A future contract is a derivative instrument wherein there is an agreement, to buy or sell a specific quantity of a specific underlying asset at a future date where the price of the asset is set at the current time at which the contract is taking place. However not every type of asset has a future market where it can be traded.
A trader trading in a particular asset chooses to go into a future contract simply to hedge against the risk associated with the rise or fall in the price of the asset. Supposedly, if a trader holding an asset feels that the price of the asset will go down in the future, then he/she can go into a future contract by agreeing to sell the asset in the future at an agreed upon pre-determined price. This way, upon the maturity date, if the price of the asset falls then the value of the contract would have increased and the holder would have made a profit. However even if the price of the asset rises, the holder of the asset is obligated to sell the asset at the maturity date. Also the delivery of the asset will take place at the future agreed upon date only. Stock Index An index is a simple measurement to get information regarding the movement of products in the financial, commodities or any other market. Further a financial index tracks the movement of stocks, bonds, T-bills and various other forms of investment instruments.
Among these forms of investment is the investment in equity and to measure the movement of the equity market, the stock index is considered. A stock market index is based on the value of the individual shares included in the portfolio comprising the index. For example: Nifty and Sensex Now after understanding both the financial instruments, I will narrow down to the spotlight i.e. Stock Index Futures. Stock Index Futures To understand in simple terms, Stock index future combines the concept of trading done through both the above mentioned instruments i.e. trading in stock indices by going into a future contract in the future market available for it. Stock Index Futures are future contracts in which the underlying asset is the stock index on which the futures market is based. These stock index futures are written on a particular stock index. 14
The stock index future instrument was created by portfolio managers for a sole purpose i.e. to hedge their portfolio risk by trading in the stock index future. A stock index already consists of a portfolio of individual stocks, thus as a portfolio manager trades in the stock index, he/she can hedge the risk of the falling value of the stock index by investing in the stock index future (by going in a future contract with the underlying asset as the stock index in the future market available for it) and can then sell the underlying asset at a pre-determined price at a future date. This way, upon the maturity date, if the price of the stock index falls then the value of the contract would have increased and the holder would have gained from the contract. However even if the price of the stock index rises at the maturity date, the holder of the asset (stock index) is obligated to sell the asset on that date. Also the delivery of the asset will take place at the future agreed upon date only. Technicalities to keep in mind While trading in stock index futures, a few technicalities should be kept in mind. These technicalities are:
i. A strong knowledge should be there along with a past analysis of the stock index on trading will be done. ii. The contract size and the contract value: An index has a specific multiplier also known as the contract size. The value of the stock index is multiplied with the contract size to get the total contract value a trader is dealing in. iii. The mode of settlement by trading on stock index future is always cash because index are not traded in the physical market , thus physical delivery is not possible. Stock Index Futures in India Now that I have given you a good idea about stock index futures, you can invest in the following stock index futures available in the Indian Stock Market: S. No. 1
Underlying NSE FTSE 100
2 3 4 5 6 7 8 9 10 11 12
NSE INDIA VIX NSE Nifty CPSE NSE Nifty 50 NSE Nifty IT NSE Nifty Bank NSE Nifty Midcap 50 NSE Nifty PSE NSE Nifty Infrastructure BSE 30 Sensex Futures BSE Sensex mini futures BSE Tech Futures
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BSE Bankex Futures BSE Oil and Gas Futures
Now what are you waiting for, go and grow your wealth and invest responsibly. Happy investing.
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LOCK THE STOCK
ASHWIN BANSAL SUNIL KUMAR BEHRA
INTERGLOBE AVIATION LIMITED InterGlobe Aviation Limited founded in 2006 provides passenger airlines services. The Company offers ground management, air transportation, terminal maintenance, and other services. InterGlobe Aviation conducts its business globally. IndiGo is India’s largest passenger airline with a market share of 38.2% as of September, 2017. They primarily operate in India’s domestic air travel market as a low-cost carrier with focus on three pillars – offering low fares, being on-time and delivering a courteous and hassle-free experience. Managing Director & CEO: Rahul Bhatia NSE Scrip Code: INDIGO CMP: Rs.1, 199.95 (As on 27th October) SHARE PERFORMANCE
*Source: Bloomberg If we compare IndiGO performance with that of the performance of Indian stock markets, IndiGO has outperformed both prime index by quite a good margin. One year returns of BSE Sensex and Nifty has been approximately 14% while that of IndiGO has been 25.5%.
*Source: Bloomberg
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*Source: Bloomberg GROWTH per SHARE Last 1 year Revenue %
15.1
Operating Income %
-28.9
Earnings %'
-18.8
Dividends % Book Value %' Stock Total Return %
105.4 31.9
Mar-13 Sales Expenses
Mar-14
Mar-15 Mar-16 Mar-17 13,925.3 16,139.9 18,580.5 9,203.08 11,116.58 4 1 0 10,608.2 12,021.5 12,975.7 16,361.8 8,306.88 5 4 9 2
Operating Profit OPM Other Income Interest Depreciation
896.2 9.74% 255.23 72.58 85.62
508.33 4.57% 315.53 122.58 226.01
1,903.80 13.67% 394.58 149.65 302.21
3,164.12 19.60% 515.12 350.26 505.47
2,218.68 11.94% 789.07 406.15 457.25
Profit before tax Tax Net Profit
993.22 205.88 787.35 22,747.3 6 69.68
475.3 0.86 474.44 13,363.8 8 79.58
1,846.53 542.35 1,304.17 35,594.5 9 82.79
2,823.51 837.34 1,986.16
2,144.34 485.15 1,659.19
48.89 27.22
42.85 74.07
EPS (unadj) Dividend Payout
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Interglobe aviation has a very good Return on Equity (ROE) for the past three years of 92.34% . Company has been maintaining a good dividend Pay-out ratio of 57% Stocks is trading comparatively very high as compared to book value , PAT also includes a large amount of Rs.824 Crs. Coming through other income.
SWOT Analysis:
*Source: Thomson Reuters
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*Source: Thomson Reuters
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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FINQUIZ
ARCHIT BASER
1) Who was roped in as the ‘Non-Executive Chairman’ of Infosys after the resignation of Mr. Vishal Sikka? a. Mr. Narayana Murthy b. Mr. Nandan Nilekani c. Ms. Kiran Mazumdar Shaw d. Mr. Pravin Rao 2) Which telecom company decided to shut down its major parts of its wireless business on account of widening losses? a. Aircel b. Reliance Jio c. MTNL d. Reliance Communications 3) Who authored the book ‘I do what I do’? a. Nandan Nilekani b. Raghuram Rajan c. Urjit Patel d. Devendra Fadnavis 4) In 2014, which bank acquired ING Vysya Bank in an all share deal? a. b. c. d.
HDFC Bank ICICI Bank Kotak Mahindra Bank HSBC Bank
5) Roshni Nadar Malhotra, the only child of Shiv Nadar, is the CEO of which organisation? a. HCL b. L&T Infotech c. Wipro d. Airtel 6) In a recent round of funding, Ola raised how much combined amount from SoftBank & Ratan Tata? a. 3.1 Billion Dollars b. 1.0 Billion Dollars c. 2.0 Billion Dollars d. 4.2 Billion Dollars 7) TATA Teleservices, the telecommunication arm of the TATA empire, decided to merge with which one of the following companies? a.Idea-Vodafone Group b.Airtel c.Telenor d.Aircel
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8) Recently, Prime Minister Narendra Modi launched a Rs. 16000 crore scheme for household electrification. The scheme is known as: a. Saubhagya Scheme b. Pradhan Mantri Awas Yojana c. Integrated Power Development Scheme d. ‘Prakash Path’ – ‘Way to Light’ – The National LED Programme
9) The current parent organisation of the online payment start-up Freecharge is: a. Paytm b. RBS Bank c. Axis Bank d. Snapdeal
10) The following logo belongs to which global bank / financial institution?
a. b. c. d.
Asian Development Bank International Finance Corporation Western Capital Bank BNP Paribas
Answers: 1-b, 2-d, 3-b, 4-c, 5-a, 6-c, 7-b, 8-a, 9-c, 10-d
-PUBLISHED BY PARV SURANA RITU RAJAN - DESIGNED BY GAURAV SHARMA
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