Infineeti Annual 2015 Edition by InFINeeti- The Business & Finance Magazine of IIFT

InFINeeti | Annual Edition | August 2015 1

InFINeeti | Annual Edition | August 2015 2

InFINeeti | Annual Edition | August 2015 3 Dear Readers, Greetings from team InFINeeti!!! The past year has seen major developments in the field of business and finance. The global financial sector has seen high impact events like the US shale revolution to the consequent drop in oil prices. All this has been complemented by a slowing Chinese economy which many attribute to an ageing Chinese population. Across the Himalayas in India, with the new government having finished a year in power, many saw PM Narendra Modi's external focus as an attempt to occupy a void left by China after 25 years of relentless growth. Modi's visits abroad offered a glimpse to the new government's strategy over the coming four years.

With a view to analyze this shift in balance of power to the two giants of Asia, we dedicate this edition of the magazine to the theme 'Chindia-The Next Global Superpowers'. Another reason for a slowdown in China could be decline in demand across Europe over the past five years. The ongoing debt crisis has rung alarm bells among some of the largest economies there raising questions about the region's financial stability. Perhaps the most serious of these is the crisis developing in Greece. In our article on Grexit we try and analyze what the future holds for the precariously positioned region. With China occupying a central role in today's world economy, the sharp collapse of China's stock market made headlines across newspapers all over the world. In this edition, we try and analyze the underlying causes for this collapse and what it means for the Chinese domestic market. Staying with China, we have seen a gradual build-up of foreign exchange reserves to a mammoth $3.65 trillion as of July this year. Talk has been ripe about how China would leverage such a fund. Recent moves by the Chinese government bear hints towards the answer to this question. In late 2013, Chinese President Xi Jinping announced an ambitious revival of the ancient Silk Road. In this edition, we try and understand the underlying motivations and impact of such an initiative. What cricket is to India, football is to much of the world. In this edition, we try and give our readers a financial perspective to the truly global sport. Coming back home, we try and analyze how the new government has performed in our article on the Indian economy. We discuss the measures undertaken and challenges faced. Besides

these,

the

edition

also

features

regular

columns

FIN-Cross,

FIN-Trend

and

News

Chronicle.

With the new team taking over, we see the coming year with hope that we will be able to provide even better content for our

readers. We hope that you will enjoy reading this edition as much as we have enjoyed creating it.

We also see this magazine as an opportunity to learn from our readers through their feedback. Do write to us with your suggestions and recommendations. We can be reached at infineeti@gmail.com.

Happy Reading!!!

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>>> Page 19

>>> Page 6

Reviving the Maritime silk route

>>> Page 23

Index

EQUITY RESEARCH: Britannia Industries

Indian Economy under the New Government

Fin-Cross

China Stock Market Crash: Causes and Effects

Fin Trend: MICROFINANCEThe Fallow Field of Indian Finance Sector

Grexit and its Domino effect

NEWS CHRONICLE

FINANCIAL ANALYSIS OF SPORTS: THE BUNDESLIGA â&#x20AC;&#x201C; A SUSTAINABLE AND PROFITABLE MODE

Summer Internship Experience

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REVIVING THE MARITIME SILK ROUTE BY SAURABH KUMAR & SAKSHAM GUPTA IIFT DELHI

Background The Silk Road was a network of trade routes, formally established during the Han Dynasty of China, which linked the regions of the ancient world in commerce. Built both over land and sea, the network was used regularly from 130 BCE, when the Han officially opened trade with the west, to 1453 CE. The silk route extended 8000 km in length across three continents for more than a thousand years. Art, religion, philosophy, technology, language, science, architecture, and every other element of civilization were exchanged through the Silk Road. But the real value of the route was driven and realized by the commercial trade (primarily silk, which estimates show was almost 30% of the commodities exported by Han Dynasty ) that it offered. Even in 2012, the trade across the land route makes up 22% of the world trade amounting up to $30 trillion. But a new history may well be scripted on Asia's oldest routes if China's ambitious plans about the revival of

Maritime Silk Road are a success. This speculation started on the back of a speech in Kazakhstan by the Chinese President Xi Jinping on “One road running through Southeast and South Asia” through creation of a land and a sea route from China to the rest of the world Chronology of Events In the September, 2013 address at Kazakhstan's Nazarbayev University, Xi Jinping set out set out five specific goals for the Maritime Silk Road:     

Strengthening of economic cooperation Promotion of trade and investment Improvement of road connectivity Facilitating currency conversion and Fostering people-to-people exchanges

Since this announcement, the Silk Road’s inception has followed a slow and steady progress towards its realization. In October 2013, Li Keqiang, the Chinese premier,

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outlined the idea on the maritime road during the 16th Investments ASEAN-China summit in Brunei. The AIIB had last year invested $40 billion in developIn December 2013, Xi urged strategic planning of the ment of the silk route in Indian Ocean out of which $10 ‘Belt and Road’ initiative to promote connectedness of billion had already been poured into projects covering infrastructure at the annual Central Economic Work Concoal and gas, mining, electricity, telecommunications, inference. frastructure and agriculture. In June 2015, China's CITIC In October 2014, twenty-one Asian countries willing to Ltd., the state-owned conglomerate, committed to invest join the Asian Infrastructure Investment Bank (AIIB) as $113 billion to support the MSR initiative founding members signed the Memorandum of UnderIn a recent press release , China Development Bank, standing on Establishing AIIB in Beijing. one of the country's policy banks, also said it will invest In November 2014, President Xi announced that China will contribute 40 billion U.S. dollars to the AIIB to set up the Silk Road Fund. On February, 2015 the first Chinese Cruise Liner carrying 400 people set sail via the Maritime Silk route on its maiden voyage during which it visited many South-East Asian nations including Malaysia and Vietnam. The Route The planned maritime road begins in Fujian province in southeast China. After cruising through Guangzhou and Haikou in China's southern tip, it heads south to the Malacca Strait. From Kuala Lumpur it heads to Kolkata and then crosses the Indian Ocean to Nairobi. It then goes north around the Horn of Africa and reaches the Mediterranean through the Red Sea. After a stop in Athens it ends in Venice where it meets the overland road.

more than $890bn (£579bn) into more than 900 projects involving 60 countries, as part of its efforts to bolster the initiative. Apart from direct investments, various deals such as the $28 billion investment package with Pakistan and $23 billion deal with Kazakhstan have also been signed to bolster the trade route. But after nearly a trillion dollar worth

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of investments what are the returns that China hopes to Indian Perspective draw from this project? The benefits India will get on being a part of MSR are Strategic Returns many. MSR being on the periphery of India will allow it to be a part of the large economic exchanges that may take One important reason China seeks to develop the Silk place through it. It may also help attract some Chinese Route is the potential increase in trade with its neighinvestment that it has desired for so long. Joining MSR bouring countries via the silk route to $2.3 trillion in a may lead to increased investments and development in decade which can be achieved through this initiative. the Northeast and finally it may lead to further integraAnother obvious reason for the increased impetus giv- tion with its neighbours. en to the inception of the silk route is the decline in US Despite the supposed benefits, there has been a lack and Euro markets. The lower demand for Chinese imports of intent shown by India in being part of the MSR. The has serious consequences for the export-driven economy main issue is the involvement of China. The concern beof China which may even have a meltdown if the Chinese ing, it may lead to increased regional influence of China in Government can’t sell its goods. Therefore, a revival of the area, thus further diminishing the influence of India in trade linkages to neighbouring countries makes sense to the subcontinent. Questions have been asked if the proChina in the view of maintaining a sustainable growth traject is simply an extension or a part of China’s String of jectory. From the above plot it can see that the outbound Pearls project to circle India in the Indian Ocean. The investments have surpassed the FDI into China. problems of the northeast also surface and lead to even Further, there has been much talk of the growing eco- more doubts. nomic disparity between the east and west regions of the Conclusion Chinese mainland. While the industrial East has progressed by leaps and bounds, the west side still grapples Whether the initiative will bring prosperity to the rewith poverty. A closer look at the route map of the MSR gion or become a mere geopolitical instrument for leverinitiative will reveal that western China may get increased age, only time can tell. One thing which is certain howevtrade and commercial activity which may kick-start in its er, is that the plan has some undeniably attractive promises which if delivered could lead to the rise of the next wake. global superpower. The Maritime Silk Road may have been conceptualized to cement relationships with countries that are tacitly friendly to China such as Malaysia, Cambodia, Sri Lanka, and Pakistan. This will be accomplished primarily through economic incentives like infrastructure development and trade deals. In this sense, the Maritime Silk Road not only stands side by side with the Silk Road Economic Belt, but also as part of a historical continuum that includes China’s past investment in maritime-related infrastructure. However, it can also be seen as scheme to pacify neighbouring countries, threatened by China’s aggressive territorial claims in the South China Sea. Despite the idealistic claims of peaceful economic development made by Chinese leaders and state media about the Maritime Silk Road, China has continued unabated to strengthen its unilateral claim to vast maritime territory in the South China Sea, turning reefs and other undersea maritime features into full-fledged islands, complete with airstrips that could be used by the People’s Liberation Army.

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INDIAN ECONOMY UNDER THE NEW GOVERNMENT BY - SRAVAN JANASWAMY & ANKIT PATHAK IIFT, KOLKATA

The Initial Hope

to 7.4%. What this means is that for the first time in the last 2 decades, India has outperformed all the emerging economies including China in terms of GDP growth. The GDP figures are very encouraging in the current context where several economists are predicting a global crisis with the World GDP growth projected to fall further to 3.5 -3.7 percent for the year 2015-16 as per the IMF report.

As Mr. Narendra Modi took office on 26 May, 2014, the entire nation looked forward with tremendous hope awaiting the promised ‘Achhe Din’. More than one year has passed and the media is abuzz with analysis of his performance. While one year is too short to judge a government which has a mandate for five years, it can’t be When two elephants fight, usually it is the grass that is ignored that the initial perceptions last long. The first year at loss. But what has happened in the case of the oil prichas been a year of promises with the government focus- es is a boon for countries like India which have benefited ing more on administrative reforms and promulgating a out of it. The unprecedented fall in the crude oil prices have come as a blessing in disguise for the Modi government as the rates have plummeted by more than 60 percent which has led to a huge reduction in the import bill. This has played a very important role in the Government reaching its deficit target of 4.1 percent for the fiscal 2014 -15. This has also brought the inflation down from 7.96 percent in July, 2014 to 5.4 percent on a year on year basis which helped the RBI to enforce 3 rate cuts of 25 basis points each that would increase the liquidity and help in boosting industrial production.

plethora of initiatives but in the coming years, the govern- On the way to becoming a global leader ment is going to be judged by the extent it manages to The ‘Make in India’ initiative launched by the government deliver. on 25th September 2014 with the objective to make India Consolidating Positive Sentiments a global manufacturing hub has been one of the key facThe government has largely been able to sustain posi- tors in boosting the economy. India has been ranked as tive sentiments which have now started to reflect on the the number one investment destination in the world as economy as well. The global rating agency, ‘Moody’s’ has per the 2015 Baseline Profitability Index (BPI). The credit upgraded India’s rating outlook to “positive” from can’t be denied to the government which has allowed “stable” with a view that there is an increasing probability FDIs in various sectors, taking it to 100% in Railway infrathat actions by policy makers will enhance India’s eco- structure and 49% in Defense. In fact, barring the denomic growth. But as per the popular epigram, “There is fense, space and news media sectors, the government no smoke without fire”, the economic upheaval has been has allowed 100% investment in all the other 22 sectors. on the back of major initiatives by the government. The response has been quite enthusiastic with companies Living up to its reputation of being one of the most such as Foxconn, Sony, Hitachi, etc. recently announcing robust economies in the twenty first century, India has to invest in the country under the program. grown steadily. According to latest figures (post the base rate change to 2011-12) India’s growth rate has increased The Indian growth story has drawn traction on the global

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stage where the galore and charisma of Modi has been one of the driving forces. His relentless foreign visits have drawn up positive sentiments and the growth in Foreign Institutional Investments (FIIs) has helped the Sensex to touch the 30,000 mark for the first time. Modi has also been able to make treaties for the bilateral trades with various countries. For instance, Japan has promised an investment of $35 billion in India over the next 5 years while China has promised that of $20 billion over the

measures would increase the fiscal envelope in the coming years which would give Modi-Jaitley and Co. an opportunity to reap the benefits by investing freely in the series of initiatives they have proposed . The Other Side However, it isn’t exactly going to be a bed of roses for the government. They have already burnt their hand while trying to pass the LARR bill and the GST along with several other pending legislatures. The minority in the upper house haunts the government as it tries to implement the

same period. These are signs of growing trust that various countries are posing in India’s future growth. The corporates view India as the last “billion user” market and perhaps that is the reason why the world is so eager to put their resources into the country. On the Domestic Front Apart from the influx of investments from abroad, the government has also performed satisfactorily on the domestic front. In the union budget, finance minister Mr. Arun Jaitley presented an encouraging roadmap for the country’s future. Tax collection is proposed to increase from 9.9 percent to 15.8 percent by the end of next year with the help of 3 major changes. The first of which being an increase in the excise duty on petrol and diesel which is going to fetch around Rs.70,000 crore on an annual basis. Secondly, an increase in the duty on coal, which is projected to fetch around Rs. 7000 crore and finally the increase in the service tax to 14 percent. Corporate tax has been reduced from 30 percent to 25 percent on an yearly basis starting from next year. This appears to be a well thought move by the government because the proposed GST which is set to come into action next year would more than offset the reduction in the income from the corporate tax. Thus, all these

major reforms. Despite its numerous attempts, it has so far been unable to break the deadlock while the opposition remains united. Modi needs to realize that a majority in Lok Sabha means little if the legislatures are impeded in the Rajya Sabha. These reforms are quite essential to improve the country’s rating in the ease of doing business in which it currently ranks 142 among the 189 countries as per World Bank’s data. The Final Take While the economy has performed reasonably well over the past year, we cannot ignore the fact that it has been mainly because of the contribution from the external factors. The government has been benefitted by the positive sentiments, but these are only going to last as long as it keeps performing well. The extent to which the initiatives launched in the past year, deliver, will be a major parame-

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ter on which the economic grow. The government will also have to find a way to wipe away the disguised unemployment from the agricultural sector. It can be stated that the overall scenario seems positive, but we need to make sure that complacency doesnâ&#x20AC;&#x2122;t creep in, as after the Chinese slowdown, the world looks to India with increased expectations and it must strike while the iron is still hot.

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CHINA STOCK MARKET CRASH: CAUSES AND EFFECTS BY - ROHIT GUPTA & SOMYANSHU ARORA IIFT, DELHI

Introduction The Chinese stock markets sent shockwaves across the

globe last month when their meteoric rise since last year came crashing down. The meltdown started in mid-June and saw the values of shares plummet more than 30% in less than a week. The fall becomes even more dramatic when it is juxtaposed with the fact that the values had skyrocketed by around 150% on a year-on-year basis. Just before the crash, the stock markets in Shanghai with

Just to put things into perspective, a 30% loss in the values of shares in these markets, makes the loss equivalent

to nine Greece Economies, is greater than the value of France’s entire stock market and Brazil’s entire output. What Went Wrong? Many pundits have pointed out that part of the failing laid in the pseudo-amalgamation of Mao’s communist China and Xiaoping’s capitalist structure that was bound to fail at some point of time or other. These two forces could not exist together for long. The type of regulated capitalist market that the CPC wants to establish is un-

heard of. It had been pointed out by various pundits, that a crash like this was imminent simply because China had defied all the odds and followed a consistent growth path of 7% and more for the past twenty five years. The fact that the market had risen to exalted heights in the last year had made the fall even more expected. But un831 listed companies, and Shenzhen, with 1,700 hundred listed companies, boasted a combined market capitalization of $ 9.5 trillion dollars.

der this simple explanation lie some bigger red flags. The main cause of the crash can be attributed to the menace of a phenomenon called ‘Buying on Margin’ i.e.

people buying stocks on borrowed money. It increased five-fold in China over the past year to $370 billion. This led the margin debt to reach the dizzying heights of 8.5% of the value of all its tradable shares-by comparison the figure was only 4.5% during the Taiwan stock market crash during 1980s. Also, the deteriorating trading environment caused by

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the scheduled release of non-tradable shares and the

counts and fixed income securities have dipped lower

slowing down of China’s red hot economy had to a large

while inflation has been on a constant upward trajectory.

extent dampened investors’ mood and this further wors-

This means Chinese investors have been earning nega-

ened the slide of the Shanghai Stock Exchange.

tive real returns for some time. In dearth of any other

The Chinese stock market saw more than 30 million trading accounts open in less than a year leading to an influx

alternative investment opportunities, Chinese investors made a beeline for the stock markets.

of unsophisticated investors. Many of the retail investors

As the Chinese economy slowed down over the years,

played their part in the market failure too as they failed

the price of property-the traditional way for many Chi-

to book profits at the right time and kept on injecting

nese households to invest- started to slump. In a country

money into the market. As the bubble grew, P/E ratios

where the underdeveloped financial sector offers few

for Chinese stocks averaged an astounding 70-1, against

other investment opportunities, investing in property

a worldwide average of 17 to 1. This led to a frenzy of

had become the natural way to invest one’s money.

Chinese domestic investors towards the stock markets,

Thus, when the property market started to see a slump,

leading to a situation where people started borrowing

a rising stock market became a better prospect to earn

funds from shadow banks at exorbitant rates. Many in-

on one’s investments. The graph shown below tracks the

vestors entered the market late and for the fear of miss-

correction that the Chinese housing market has been

ing out on this merry making run, they prolonged the

undergoing.

market rally. In fact one in ten Chinese had opened their

trading account in hope of not missing out on a unique opportunity of making quick bucks and this led to huge flow of money from banks to stock markets. All this led to the stock market climbing higher even though the wheels were coming off from the Chinese economy wagon. This in itself should have been an unmistakable warning of a bubble. But why did so many investors rush to the stock market with their hard earned money. Though this increase was

Source:-Kent Troutman, PIIE http://blogs.piie.com

also a result of the relaxation of the rules on margin trad-

One might argue that the rise in margin lending has

ing by the Chinese government post 2008, the main rea-

deeper roots than just relaxation of rules: huge expan-

son can be attributed to poor prospects in alternative

sion in money. The extent of this expansion can be

investment opportunities, like the property markets.

gauged by the fact that China’s money supply is signifi-

The People’s Bank of China has been pumping in money to artificially prop up both manufacturing and exports. In the process the returns on traditional saving bank ac-

cantly larger than US’s money supply even though the Fed has been printing money for years. All that money has to go somewhere, and much of it has been poured

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into the stock markets. The Reaction That Was In 2013, the Chinese government had pledged to let the market play a ‘decisive’ role in governance. The recent market crash made China take a few steps back on this promise. This shows that the government is in panic mode. There is an extra emphasis for the Government to stabilize the market as in April, the state owned media such as Xinhua, had published upbeat articles praising the Chinese government for the rise in the stock markets. In the end of June, the Chinese Communist Party, imposed restraints on margin trading to stop the fall of the market. They stepped in and froze nearly half of all share listings. That is more than 1,200 of 2,808 listed issues worth a total market cap of roughly $ 2.2 trillion were barred from trading in an attempt to arrest further slide. It lent $ 42 billion to brokerage firms so they can purchase stocks. It also announced a new $ 40 billion stimulus package. Further stimulus also remains likely, and further reduction in bank reserve-requirements will probably proceed. The upshot of this move was that on 4th July 2015, 21 major Chinese brokerages made a coordinated announcement, pledging to purchase $120 billion yuan worth of Chinese Stocks to help stabilize the market. Effect on Chinese Households The stock market wealth effect in China is smaller than many assume as stocks account for less than 15% of total household assets and the free-float value of Chinese markets - the amount available for trading – is about a third of GDP, compared with more than 100% in developed economies. Also the Chinese stock market as a proportion of the economy is smaller compared to other developed countries. To put this into perspective, more than half of Americans have investments in stocks, whereas the figure in China is only 6%. So a stock market crash is unlikely to have serious repercussions for the larger economy. A switch out of equities into other asset classes has fueled recent housing recovery. Housing sector has re-

bounded, surprisingly, and the prices have risen 19% and this might start another asset bubble as most of the retail investors’ money will now pour into this sector. This economic downturn may lead to an increased outflow of investment from Chinese shores and force the People’s Bank of China to put restraints on these in order to prevent Renminbi from depreciating. Some of the countries, such as Australia, might come out as losers in the medium term as they are heavily dependent on China for exports.

A raft of measures has been announced to put a floor under the sinking domestic markets and this highlights the alarm sounded within the ruling Chinese Communist Party concerning the economic and political implications of the volatility. According to observers the reaction from the Politburo is not to commensurate the problem. They agree that a collapse of stock market could leave a lot of bad debt in its wake and feed further downward movements. However, with official figures putting margin financing at just over Rmb 2 trillion, it’s difficult to ascertain what’s really troubling the CPC. The intervention from CPC has effectively set back the process of modernizing capital market in China and constraints imposed on IPOs has ruled out an effective channel through which firms can raise financing. This chasing-4500-SSE-level game may become an albatross around government’s neck in the long run.

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GREXIT AND ITS DOMINO EFFECT - BY SAI PAVAN ESWARAPREGADA, IIFT KOLKATA

What Has Happened? As the world was slowly recovering from the devastating effects of 2008 global recession, there are a couple of major economies who have failed to up their ante and avoid further damage in the future. The European Union is one such economy which failed to foresee the iceberg ahead. Before we talk about the current status of the Greek economic crisis, let us look at the factors that contributed towards such a thing happening in first place. 1)

The Euro zone which Greece joined was a one-ofits-kind idea and was bound to succeed. However it failed to evolve post 2008. It has now become a large lose market with no proper institutional support.

Spending on public amenities and the concept of a welfare state was used effectively by the politicians to buy votes, instead of using it as a public welfare scheme and creating a society Marx dreamed of. Even the Koreans were jealous of the welfare state that Greece was at one point.

Like in the movies and novels, Greece failed to completely curb the Mafioso and tax evasion was almost legalized.

The meaning of capitalism was grossly misunderstood. Politicians interested in short-term results supported a series of bad investment and the government, instead of intervening ,acted as a giant

insurance agent and finally banks were the only means of investment. 5)

A lack of leadership with sound structural and economic knowledge.

Source: CIA World Factbook

The demographics of Greece in 2014 were as follows : From the graph we can see that the share of women in the population is steadily increasing from 25 years. Now the key factor is to see whether these women are provided with equal opportunities as men to contribute to the economy. The answer is no. In Greece if we consider the middle class, the income disparities between men and women is much greater than that in the high income groups. A 2007 study by the Bank of Greece found that the pay gap between men and women was 84% on an average (for low and middle income groups).

SYRIZA and The Era of Alexis Tsipras: Riding on populist sentiment and anti-austerity factor, leader of left wing party SYRIZA, Alexis Tsipras won the mandate of people of Greece to govern them and lead them out of this mess. He set new means of negotiations with Germany and the EU. He called for a vote on whether to accept the austerity bailout terms offered by international lenders and the entire nation gave a resounding â&#x20AC;&#x2DC;NOâ&#x20AC;&#x2122;. He further used the Greece exit from the EU as a bargaining chip, but lenders did not cave in. Now let us

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examine the impact of this proposed GREXIT on each continent. Grexit What this simple term effectively means is that the EU has an entry and exit door. In the words of the former

French Finance minister, a Grexit would be detrimental not only for Greece but also EU in general. The market would ask whose next in this case. In particular the southern states of Spain, Portugal and Italy have the greatest risk.

The Falling Dominoes: A) Spain: Experts believe that Spain is more likely to exit the EU than Greece. The SPEXIT-short for Spanish exit is an alarming trend. Let us analyse the current economy of Spain: 1)

Spain is a bigger nation than Greece and they have a ruptured relationship with the EU. The entire market is particularly careful about Spain pushing rates on 10-year bonds to 6.45%, close to the levels hit at the depths of the crisis.

Bank industry is under performing and the Bankia had to be bailed out by government once before. The economy is already in recession and unemployment is at 24% while in Greece it was at 25% at the height of the crisis.

If Spain were to face the same crisis then EU would not be able to bail it out and it would have to do the hard work by itself. Hereâ&#x20AC;&#x2122;s why: The Greece economy is worth 230bill and pumping in 10% of the same is a relatively easy task.

Even before the last of austerity package began in Greece protests started in Spain with the Indignados movement.

Unlike Greece the Spanish economy can bank on its industry. The export to GDP ratio is 26%, similar to UK, France. Their only problem was the currency and inflation which caused a property bubble that burst with severe results. Hence Spain doesnâ&#x20AC;&#x2122;t fear a life outside the EU.

Spain is politically stable and its reasons to stay in EU are more economic than political. Take the case of Latvia which wanted to be a part of EU to prevent Russia making it another Crimea. Ireland wanted a new association apart from Britain.

Below is the graph which shows the effect of Grexit on the Greek economy.

Now let us examine some of the countries that are facing the same economic crisis as Greece and might consider the option of an exit from EU.

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Spanish exports are mainly focused on the Latin American market and little towards EU.

B) Italy: Italy, one of the founding members of EU is in trouble and it did not happen overnight. While all the major economies across world have staged a slow recovery from 2008 recession, Italy’s economic situation has deteriorated. Let us consider the economic facts of Italy: GDP = 2.0149 Trillion USD( 2013)-8th largest in the world. Govt Debt: 132.6% of GDP Reasons for the Economic Crisis of Italy:

Huge gap between haves and have-nots. Italy’s assets (bank and insurance sector) has risen by 1.2 Trillion Euros since 2008 but 12.4% is the unemployment rate. Manufacturing sector lost 200 million Euros/year.

As per World bank statistics (Paying taxes 2014) the total tax burden on companies in Italy is 65.8% making investments in Italy a hard task.

Lack of political stability and will to implement the structural reforms proposed by the EU. PM Matteo Renzi faces opposition even within in his party

As per national statistics institute ISTAT, in Italy’s impoverished South, unemployed youth are at 23.9% and 14% of the population is living in seriously deprived conditions

D) Germany: The last time Greece came to the brink of exit in 2012, Germany blinked and held the EU together. However this time Germany which has lent 70Bil Euros of the total 240 billion debt to Greece is relaxed (perhaps a bit too much) as it believes that it doesn’t affect Euro zone economy much. This might be partly true but it will definitely show that EU has no permanence and might weaken EURO. Further while Spain and Portugal have carried out some hard-line structural reforms, it is essential for Greece to cut back on pension pay-outs, curb corruption and increase govt. treasury. Hence the tough stance adopted by Germany is justified to an extent as even IMF and World Bank agree that Germany has imposed some extreme austerity on Greece. Impact on India: India has witnessed little turbulence due to this event but overall the investors have maintained their confidence on our market. This was made possible by the image of India being an investor friendly image created by our PM, Shri Narendra Modi and the monetary policy adopted by RBI governor Mr. Raghuram Rajan who withstood the pressure from the government to cut the interest rates when the inflation eased. However it has to be noted here that India hopes for Greece to come out of this crisis and for Euro to remain strong. The EU is India's second largest trading partner, accounting for around 20% of Indian trade. The Present:

Verdict: Italy is the 3rd largest economy in EU and it would take massive and almost impossible effort from EU to bail it out in case. In a dramatic turn of events the GDP has grown by 0.3% in Q1 of 2015. Also ITEXIT (short for Italy exit) is not a viable option for Italy as some of the major export partners are Germany, UK, Spain and France which might cause some serious damage to its economy. C) France: France is the second largest lender to Greece after Germany. In the words of President Francois Hollande French economy is robust and is prepared for any eventuality similar to the Grexit. This is partly true since a weak Euro has helped France increase its exports to US, UK and Switzerland. It is even said that the French banks have slowly got rid of the Greek assets from their books since the start of 2013. But their main cause of worry would be repayment of their debt owned by Greece which cannot be repaid in such a short term by Greece.

After many rounds of failed talks, Greece finally agreed to stay in Europe and promised to make some structural reforms to gain the confidence of its lenders. IMF has also confirmed that Greece has cleared overdue debt repayments of €2.05bn (£1.4bn) and is no longer in arrears. The repayments, and another €4.2bn to the European Central Bank (ECB) due on Monday, came after the EU made Greece a short-term loan of €7bn. Also Greece parliament is to vote on crucial reforms like : 

A code of civil protection aimed at speeding up court cases



The adoption of an EU directive to bolster banks and protect savers' deposits of less than €100,000



The introduction of rules that would see bank shareholders and creditors - not taxpayers - cover costs of a failed bank.

InFINeeti | Annual Edition | August 2015 18 ď&#x201A;ˇ

More contentious reforms like phasing out early retirement and increase in taxes for farmers are scheduled for August.

So let us hope that this is the start of many happy days for Greece and it will be out of this crisis in no time.

InFINeeti | Annual Edition | August 2015 19

FINANCIAL ANALYSIS OF SPORTS THE BUNDESLIGA – A SUSTAINABLE AND PROFITABLE MODE -BY ABHINAV RAVICHANDRAN & RENGARAJAN M. IIFT KOLKATA

Ever since Germany’s triumph in the 2014 FIFA World Cup, praise has been pouring in for the German football system. The rejuvenation of German football was not something achieved in a year or two. It can be attributed to the continuous efforts on the part of the German Football Association, starting from 1998, like huge investments in infrastructure, youth training programs and in the German Football League (the German Bundesliga). From, being a ‘me too’ league, the Bundesliga came to be recorded as the most profitable football league in the world in 2014. At the forefront of the league’s business model is its commitment to the supporters. Affordable ticket prices, a comfortable viewing experience and high safety standards helped the league achieve the status of the most attended league in the world with an average per-match attendance of around 43,531 people in 2015. The 2013/14 season saw an average of 42,125 supporters attending each league game; considerably higher than other top leagues like the Premier League - 36,657 and La Liga - 27,053. This is why the Bundesliga is also called ‘The most watched league in the world”.

Ownership Structure Clubs are required to be majorly owned by club members (50+1 rule) to discourage control by external investors. Control by external entities leading to unsustainable expenditures is one of the reasons why many clubs in other leagues have fallen into financial turmoil. If a company person has funded the club continuously, for more than 20years, they can celebrate ownership. Examples are Bayer Leverkusen and Wolfsburg which are owned by Bayer Chemicals and Volkswagen. This ensures that finances are stable and sustainable. A team is given a license only if it has solid financials. Key Financials The combined revenue of the Bundesliga clubs has been on the increase in the past few years. In the 2013-14 season, the clubs posted combined revenues of 2.45 Billion Euros, an increase of 12.9% over the previous year. Out of the 18 clubs in the top-flight of the Bundesliga, 13 operated profitably, one more than the previous year. Including the first and second-divisions, 24 of the 36 clubs made a profit after tax. The main income of the Bundesliga comes locally through marketing rights. But the league continues to

There are several factors which contribute to the league’s success.

InFINeeti | Annual Edition | August 2015 20

REVENUE OF THE GERMAN BUNDESLIGA CLASSIFIED BY SEGMENT

expand its revenues from international markets. More

viewer engagement are very clear, with yearly increases

than 70 million Euros were earned from media rights

in match revenue reaching a record 483 million Euros in

abroad.

2014. The year recorded an average attendance of 43,502 with 92.5% of the stadium seats filled. Ticket pric-

Global coverage of the league expanded ever since the

es are kept considerably low in an effort by clubs to gar-

success of the 2006 FIFA World Cup, which Germany had

ner support within the community. On an average, clubs

hosted.

charge 23 Euros to watch a Bundesliga game. Season

Detailed Analysis

tickets for top drawer teams like Bayern Munich can be bought for as little as 135 Euros, which is in stark con-

Tickets and attendance

trast to top teams in other countries like Arsenal of England (1455 Euros) and Real Madrid of Spain (708 Euros).

The positive effects of the efforts of the league regarding

InFINeeti | Annual Edition | August 2015 21

As per reports, clubs are willing to sacrifice ticket revenue Sharing The Spoils if it means they can bring together “finances, the game and society”. Seventeen of the eighteen clubs in the The revenue sharing ranges from a maximum of 5.8% of league were completely debt-free and were operating on the total amount for the league champions, to at least a profit.

2.9% for the team finishing last.

An important fact to note is that during 2014, out of the The international media rights distribution depends on 2.45 Billion Euros of generated revenue, clubs paid only individual club’s performance in the global stage, taking around 51% of the revenue in player wages. This was the into account UEFA’s (the European football governing lowest in the continent.

body) five-year coefficient rankings and the club’s performance in the league.

Advertising Stadium Naming Rights The consistent performance of top German clubs like Bayern Munich, Borussia Dortmund and others in European The sale of stadium naming rights in quite common in competitions like the UEFA Champions league, in the past Germany and contributes a hefty amount to a clubs yearly few years, has increased the interest in the league global- war chest. Allianz signed a sponsorship agreement with ly. This directly relates to the average yearly growth in Bayern Munich, the league’s record champions, to name advertising revenue of 5.6%.

their stadium - ‘The Allianz Arena’ at least till 2021 in a deal worth 110 million Euros. Bayern CEO Karl-Heinz

Broadcasting

Rummenige said – “We are investing in stones, not on legs”, which clearly shows that the club does not have too

The new media deal signed in 2013 ensures that the much dependency on any one sponsor, but intends to league association will receive around 2.5 billion Euros for form long-term partnerships. This sentiment is echoed the four seasons from 2013 to 2017 from the marketing across the league where there are many sponsors and of domestic coverage rights which amounts to 628 million investors for any given club. Euros per year, an increase of almost 52% compared to the previous media agreement.

Female Customers - A Growing Force

Teams can place more reliance on revenue from domestic Female spectators have doubled to almost 14 million in telecast. Sky Deutschland had bought the television rights the last few years and the Bundesliga clubs have recogfor around 485 million Euros per year, which means every nized their purchasing power and offer customized mersingle Bundesliga game will be telecasted. This steady chandize like logo-embossed nail polish, customized rockstream of income creates stability and allows clubs to ing horses for toddlers, etc. 26% of the merchandise was make reductions for their supporters. The matches are recorded as purchased by female fans. telecasted in over 200 countries.

InFINeeti | Annual Edition | August 2015 22

Short-Comings The Bundesliga doesn’t have a lot of exposure in countries like the USA. Germany’s top club, Bayern Munich opened its US office only in 2014. The Bundesliga has a lot of catching up to do, taking into consideration that the Premier League of England sold broadcasting rights in the USA in deals worth $250 million over three years. Brand awareness is present in Asia ever since Germany’s good performance in the 2002 FIFA World Cup. Keeping in mind the huge population and growing interest amongst the people, Bayern opened a training academy in India to identify local talent and kindle interest in the team. Many teams make sure to include countries in Asia as part of their pre-season programs. The broadcast of Bundesliga started in India from 2006 and was met with great response. Final Words The Bundesliga may not be the most flamboyant league in the world and many superstars may not flock to it. But it’s sustainable nature and long term outlook ensures that the league succeeds in the split between sports performance and economic rationality.

InFINeeti | Annual Edition | August 2015 23

EQUITY RESEARCH REPORT ON BRITANNIA INDUSTRIES -BY GAYATHRI BHUVANAGIRI

Industry and Company Analysis:

Industry Structure: Britannia Industries operates in two different divisions: 1.

Bakery

Dairy

InFINeeti | Annual Edition | August 2015 24

Bakery:

Biscuit forms the largest category accounting for a little over 2/3rd of the overall bakery industry. It is growing at a rate of about 10-14% per annum over the last 5 years. Bread forms the second highest category in terms of growth rate.

II.

Biscuit: Despite it being the largest category, the Biscuit industry in the county still lags in terms of consumption vis-à-vis to the world. The gap exists both in terms of volume consumption depth and extent of value addition. These two gaps would act as a future source of growth in the biscuit category. In segments of value addition such as cookies, the growth rate is faster, leading to premiumization. Competition: Vigorous competition exists in the form of participation from large Indian and multinational companies, mid-sized companies and even from the regional players. Cake: This sub category is still in its nascent stage of growth with a comparatively less differentiated products in the market. Herein lies an immense scope for organoleptic value addition and more over for building consumption. Britannia has been the number one player in this segment. Rusk: This sub category forms a similar structure to that of cakes. The per capita expenditure in this segment has been quite modest. Growth in this category can be expected through an increase in consumption of a specific product with format upgrades and with specific marketing solutions. Bread: This is a product with a lower shelf life. Hence there exists a localized market with the target proximate. Britannia being the largest player in the category encounters local competition.

there exists a threat of supply deficit. This threat is seen as an opportunity for many private players to enter the market thereby increasing competition. While the increase in the dairy segment can be accounted for the increase in milk consumption, the growth of value added products such as Cheese and Dahi is also at a faster rate. Factors which can drive the industry growth faster: i.

There has been a decline in the time available to manage households leading to an increase in the purchases of ready to consume products. Dairy sector, which seems overwhelmingly unorganized, is set to gain as it will slowly move towards an organized structure.

ii.

With an increase in the affluence, there seems an increase in the buying and consumption of the value added products. There exists a potential to shift the sector from basic to processed foods.

iii.

With an increase in the income level, customers tend to gravitate towards a more balanced diet leading to an increase in the consumption of dairy products.

Levers of success for the industry: i)

Access to quality milk which acts as a raw material

ii)

Access to cold chain

iii)

Capability of the right value added product

Business Strategy:



India is steadily growing in terms of affluence



Indian consumers are looking for an upgradation in the food products



Owing to higher economic growths, India and China are still favourite destinations for establishing and expanding business



Hence the evolving customer is met with an increasingly superior product portfolio which is created through domestic innovation and knowledge transfer from overseas

Dairy:

India is the largest producer and consumer of dairy. Despite the fact India still trails the world in terms of per capita dairy consumption. But this gap is slowly getting filled with an increasing demand over the supply. Hence

InFINeeti | Annual Edition | August 2015 25

Four Fundamental Blocks of Britannia’s Business Strategy:



Organoleptically superior product portfolio with a balance in terms of price, quality and consumer aspiration



Identification of more opportunities to reduce recipe cost and optimize cost structurally all across the value chain.

Economic Outlook:



Efficiency in supply chain which helps in continuously improving productivity and quality

It is expected that the economic conditions will not change significantly



Increasing distribution reach thereby increasing diligence in the market and leveraging existing distribution infrastructure

Estimated Industry Growth Rate is 8-10%



Building the BRAND

III.

Bakery:



Strengthening and expansion

Though a higher growth rate of 12-14% is assumed considering the fact that economy will regain its momentum

 Sales  Distribution Network 2.

On the Product Front:

owing to the following virtuous cycle.

 Focus Lies on Organoleptically High-End Segment

Opportunities and Threats:

 Buttressing of its iconic brands by associating with

Bakery:

its marquee properties in Cricket and cinema

 Relaunch of “Britannia.co.in”, the Digital face of the company IV.

Dairy:



Working on strengthening of organoleptic performance of its products



Extracting benefits from an integrated sales and distribution network and diversified sourcing



Implementation of various initiatives in all areas of operations to create an efficient and robust supply chain and improve cold chain capabilities.



Rising Income



Aspirations of the consumer

Opportunity: i.

Actively seeking technological leading to cost efficiency and saving

solutions

ii.

Nascent categories of Cake and Rusk

iii.

Disruptive innovation in the Bakery category

iv.

Large and profitable International markets

Rural growth in the country

vi.

Many untapped geographies in the country

InFINeeti | Annual Edition | August 2015 26

Threat:

iv.

Dairy:

The above opportunities are equally visible to the competitors.

Fast changing regulatory needs

Opportunities:

ii.

Intensive competition due to lower industry growth

Increasing consumer appetite for value added dairy products

iii.

Challenge lies in retaining the pool of talented human capital

ii.

Infrastructure improvement in cold chains that aids in easier distribution

InFINeeti | Annual Edition | August 2015 27

Threat: i.

Increased competitive activity

ii.

Forecasted supply deficit

Risks and Concerns: i.

Primary risk on account of adverse changes to the economy

ii.

Volatility in commodity prices In Millions

2015

Total Revenue

6,946.30

7,946.38

COGS

4171.02

4691.81

Gross Profit

2,775.28

3,254.57

Operating Expenses EBITDA D&A EBIT

2114.49 660.79 83.18 577.61

2302.7 951.87 144.48 807.39

82.9

38.6

PBT

494.71

768.79

PAT

346.297

538.153

Market Value

441383.2

Outstanding Shares

119.9

Intrinsic Share Price: Rs. 3681.261 Current Market Price: Rs. 3314.05 Ratings: Fundamentals: 3/5 Valuation:

Financial and Operational Performance:

3/5

Valuation:

Recommendation: HOLD

Valuation used here for calculating the intrinsic share price is that of DCF using FCFE and Cost of Equity. Cost of Equity Risk Free Rate Beta Market Risk COE

40,100.72 58.76 102.99 51.86 50.15 56.88 32.45 0.48% 2

Industry Growth Rate Assumed to around 8% 2014

Interest Expenses

Market Capitalization P/E Book Value Industry P/E P/C EPS P/B Div Yield Face Value

8% 0.49 13.30% 0.10597

Key Performance Indicators

InFINeeti | Annual Edition | August 2015 28

FIN-CROSS 1

InFINeeti | Annual Edition | August 2015 29

FIN-CROSS Across

Down

3. A market where there is no significant movement in share prices

1. Bank headquartered in twin towers nicknamed debit and credit?

4. Term used for buying a company with the prime motive of selling its assets

2. Country's whose coins have the following lines imprinted, 'This is the root of all evils'

7. Country whose foreign market is known as the 'Rembrandt Market'

4. The scientist whose picture can be found on Israeli currency notes

8. Temporarily provided loan until the long-term arrangements are made

5. First executive in corporate India to get Director Identification Number (DIN), the number being 0001

9. Bank formed in 1921 as a result of amalgamation of the three Presidency Banks in India named Bank of Bengal, Bank of Bombay and Bank of Madras

6. Country having paper currency and no coins and which began introduced cheques only in 1997

11. Term used for the non-convertible paper money in money market

10. Person who introduced the 'Double Entry' book keeping concept 13. Location of the European Central Bank

12. Term used for money spent towards influencing people for the benefit of the organization 14. Which country's currency is known as Drachma 15. India's first Credit Rating Agency set up jointly by LIC, GIC, UTI, ICICI and Asian Development Bank in January 1988

For solutions, check Page No. 43

InFINeeti | Annual Edition | August 2015 30

FIN TREND MICROFINANCE: The Fallow Field of Indian Finance Sector by

Adhiraj Bandyopadhyay Microfinance is believed to be a tool of development that can be used to get rid of poverty. Microfinance can be defined as a range of services which are provided to poor or low income groups who are excluded from the conventional financial services, to provide them financial inclusion. Often it is limited to the narrow definition of ‘micro-credit’; but however, in theory and practice, it includes a wider range of services including savings, insurance, remittance, payments and many more. Microfinance has come a long way since Muhammad Yunus disbursed the initial loans in 1976 in Jobra, Bangladesh and started the path breaking revolution with Grameen. Over the last 30 years, MICROFINANCE achieved a lot across the world; the United Nations declared the year 2005 “The UN year of Micro-credit”; in the following year, i.e. 2006, Mr Yunus and the Grameen Bank Bangladesh, were awarded the Nobel Peace Prize. Microfinance has crossed borders round the globe. It already surpassed the milestone of 90 million1 borrow-

ers and still progressing in leaps and bounds but yet to reach all those 2.8 billion2 people who still have no access to financial services. Again, with its growing popularity the day is not far when Mr Yunus’s dream of “putting poverty in museum” will no longer be a distant one. Evolution in India: The evolution of MICROFINANCE in India is not only old but also quite complex when compared with the same of other developing nations. Micro-

finance has been practised in India through ages, though informally. First legal framework was set up for establishing the cooperative movement in 1904.After that Reserve Bank of India Act was passed in 1934for the establishment of Agricultural Credit Department. Till the end of 1960s, all the demands of credits in the rural India were mostly met by the cooperative banks. Albeit commercial banks came with a great supply of cash in the agri-business and marketing, still the overwhelming demand of credit was never met fully. First time in the year of 1969, after that again in 1980, Government of India took over many banks from their previous owners. One of the main motives of government, behind the nationalization of banks was to increase the flow of credit in rural India. One of the largest programmes of MICROFINANCE in the world was launched by the government of India through the Integrated Rural Development Programme (IRDP). Since the inception in 1979, over nearly two decades, IRDP extended credit to nearly

InFINeeti | Annual Edition | August 2015 31

FIN TREND 54 million families. In the Sixth Five Year Plan, the government also launched other programmes like Training of Rural Youth for Self Employment (TRYSEM), Rural Landless Employment Guarantee Programme (RLEGP), National Rural Employment Programme (NREP), Development of Women and Children in Rural Areas (DWRCA). On 1st April of 1999, the government scrapped all the earlier self-employment programmes and came up with Swarnajyoti Gram Swarozgar Yojna for the credit, asset building and development of rural people. Today the credit requirement of rural India is met by 33,000 branches of commercial banks, 91 Regional Rural Banks (RRB) and cooperatives. Government of India felt the need of specialized chain of banks to cater the needs of rural folks and in 1975, came up with the new range of banks called RRB. RRBs though are not quite successful initially and incurred huge losses. But seeing their importance in rural development, government continued with the project and by 2010, 48 of the RRBs became profit making, wiping out all the accrued losses. Another instrumental role was played by National Bank for Agriculture and Rural Development (NABARD) in this segment. Prior to 1992, banks were not interested to provide loan without collateral e.g. land papers, vehicle papers etc. Then emerged the concept of Self Help Group or popularly called SHG, due to implementation and success of the model promoted by NGOs such as MYRADA. The main three models of SHG are mentioned below: Their success with this model led NABARD to disburse loans without demanding any physical securities and modified policy guidelines to link with SHGs. Originated in a GTZ sponsored project in Indonesia, SHG model ap-

pealed Indian rural folks as the combined liability of the group replaced the indispensability of collateral. The model helped the bank to reduce transaction cost in two ways: one, through the externalization of servicing costs and two by ensuring repayment utilising the peer pressure mechanism within the group. Another new model has been launched recently by NABARD, where it replaced the NGOs by directly linked individual volunteers who are selected by the bank. Current Scenario: Over the past decade microfinance played an important role to fill the gap of supply and demand of microcredit. Microfinance institutions remained pivotal in providing financial inclusion to those who were left out by the banks. In India, most of the loans offered by the MFIs are in a range of 5000-200003.

The MFIs lend on either group based model or individually. The group based model includes Joint Liability Group (JLG) model and Self Help Group (SHG) model. For the JLG model MFIs charge interest at a flat rate of 12% - 18% p.a. whereas for SHG model, MFIs charge 18% - 24% p.a. based on reducing balance method. Regarding the repayment methodology, most of the MFIs

InFINeeti | Annual Edition | August 2015 32

FIN TREND following JLG model, collect payment on weekly or fortnightly basis while MFIs following SHG model opt for monthly collection. On the other hand, individual loans are similar to retail loan financial models applied by the banks. Often MFIs offer individual loans to the most successful member within an SHG for consecutive 3 or 4 cycles. MFIs in India are mostly engaged with extending microcredit. Very few of them provide option for insurance and savings. For insurance MFIs tie up with specialised insurance companies. Saving is generally kept optional for the members but in few cases saving is compulsory. Savings are normally collected on a weekly or

fortnightly basis.



Mutual Benefit MFIs: Registered cooperatives and cooperative societies. Pustikar Laghu Vyaparik Pratisthan Bachat



For Profit MFIs: NBFCs, producers companies, local area banks. SKS Microfinance Ltd, Krishna Bhima Samrudhhi.

The microfinance industry of India has passed the evolutionary phase already, when the profit oriented microfinance was perceived with a negative notion. As on 31st

but in few cases saving is compulsory. Savings are normally collected on a weekly or fortnightly basis.

March, 2009, microfinance and MFIs are estimated to have total disbursed loan of ₹160-170 billion and ₹110120 billion respectively3.

On the basis of legal framework MFIs are classified into the following groups:

Key strengths of Indian MFIs can be mentioned as follows:



Not-for-Profit MFIs: Societies, public trusts and non profit companies. Bandhan, SKDRDP, Cashpor



Strong business growth across geographic regions



Healthy asset quality

InFINeeti | Annual Edition | August 2015 33

FIN TREND 

Improving earnings profile

50 MFIs in India3.

On the other hand, forthcoming challenges for those MFIs are: 

Steady access to capital



Heavy dependence on banks and financial institutions



Absence of regulatory control



Political sensitivity of interest rates



Pressure on processes and control due to aggressive growth plans



Weak governance architecture

The most recent achievement for the MFI space is RBI granting banking license to Bandhan Microfinance on 2nd April, 20144.

Key Players: Credit Rating Information Services of India Limited (CRISIL) started grading of MFIs in India as early as 2002. The rating agency assessed more than 140 MFIs in India and considered as the most preferred agency in the Indian Microfinance sector. Analysing lending model, repayment structure, rate of interest, products of all the microfinance players, CRISIL published a list of top 50 MFIs in India3. Top 10 Microfinance Institutions of India as on 30th September, 2008 Demand & Supply: Though Indian Microfinance sector has been growing in leaps and bounds still it is far from reaching the humongous demand of credit. Looking at the huge population and around 42% of the mass living below $1.25/day, the demand for micro credit in the country is estimated to be nearly rupees 70000 crores with an average loan size of rupees 75005 annually. Whereas by 2011, the demand was expected to be circa 25000 crores yet only about 50% of the demand could been met according to the study.

InFINeeti | Annual Edition | August 2015 34

FIN TREND 

Demand: Currently in India, those who are spending below 32 rupees in rural area and 47 rupees in urban area should be considered as poor6, as per the recommendation by the panel led by C Rangarajan, former governor of RBI. According to this, 29.5% of the Indian population i.e. circa 363 million are Below Poverty Line. In addition to that area which consists of 26.4% of the total urban population are living below poverty. The counterpart has a whooping population of 260.5 million which is 39.5% of the total rural population. A study by BBC shows that only eight

421 million which is greater than the poor population of 26 poorest countries from Africa, which is 410 million. Given the size of population living below the line, it won’t be a hyperbole that microfinance is here to stay.



Supply: According to NABARD, till 31st March, 2007, cumulatively 2.92 million SHG are linked with 500 banks. Banks linked with SHGs are comprised of 10% commercial, 19% regional rural and

Name of MFI

Base State

Lending Model

No. of Branches

Loan Outstanding (mn Rs.)

No. of Borrower

Net Worth (mn Rs.)

SKS Microfinance Ltd.

Andhra Pradesh

JLG

1413

18227

2590950

2395

Spandana Sphoorty Financial Ltd.

Andhra Pradesh

JLG, Individual

696

11987

1668807

1225

Share Microfin Ltd.

Andhra Pradesh

JLG, Individual

666

8568

1231556

1448

Asmitha Microfin Ltd.

Andhra Pradesh

JLG

363

4944

694350

475

SKDRDP

Karnataka

SHG

4060

612482

157

Bhartiya Samrudhhi Finance Ltd.

Andhra Pradesh

Diversified

3882

457668

317

Bandhan

West Bengal

JLG

385

3389

851713

435

Cashpor Micro Credit

Uttar Pradesh

JLG

247

1431

303935

Grama Vidiyal Microfinance Pvt. Ltd.

Tamil Nadu

JLG

126

1316

288311

231

Grameen Financial Services Pvt. Ltd.

Karnataka

JLG

1287

153453

127

71% cooperative. Cumulative loan disbursed by SHGs were around 180.4 billion rupees. Another source of microcredit is the whole range of MFIs. They have disbursed a loan of 70 billion rupees to 79.4 million borrowers. Their cumulative outstanding amount of loan is nearly 33 billion rupees8. Penetration: Though Microfinance sector in India has been growing at around 67% CAGR, still another important factor regarding the supply is the penetration. of the Indian states constitute poor population of

Getting started in the southern part of India, the service is now prevalent in most of the southern states. 52% of

InFINeeti | Annual Edition | August 2015 35

FIN TREND the total borrower pool comes from these states cover-

north eastern states are far behind in spreading the microfinance. Current Scenario: Financial Inclusion, in simple terms, is to include vast sections of disadvantaged and low income groups to deliver financial services at affordable costs. In India, the term was first used in April 2005 in the annual policy statement presented by the then Governor of RBI, Dr. Y.V. Reddy. At that time, there were a lot of concerns that were recognized regarding banking practices that tend to exclude rather include vast population of the country. Issues related to Microfinance and rural credit were examined by the Khan Committee and based on its recommendations RBI asked the banks to make available basic banking account and achieve more financial inclusion. In Jan 2006, commercial banks were permitted by RBI to utilize the services of Non-governmental organizations (NGOs), MFIs and other civil society organizations

ing 54% of the total microfinance portfolio. Not only southern states but also eastern states have come up with numerous ventures. But sadly it could not develop much in western part and quite struggling to get a foothold in the northern states. The biggest challenge is still with the north eastern states. Similar, if not poorer, story goes with the case of SHG model. Again 52% of the clientele comes from the southern part of India covering 68% of total loan portfolio. On the other hand north-eastern, northern and central states of India account 3%, 9%, 3% of the client base with 2%, 8% and 2% of loan portfolio respectively9. Considering the penetration on the basis of gender, again southern states are way ahead than their counterparts in India. Eastern and northern states show dismal performance in this field. Rather central states had out done them in penetration to households. Again

InFINeeti | Annual Edition | August 2015 36

FIN TREND

as intermediaries for providing financial and banking services. Pradhan Mantri Jan Dhan Yojna Aiming 100% Financial Inclusion in India, Prime Minister Narendra Modi, announced on 15th August 2014, the ambitious action plan to open two bank accounts for every household in two phases. First phase was focused on providing basic banking services to every household while second phase will start in Aug 2015 which will focus on Microfinance and unorganized sector pension scheme like swalamban.

Following schemes and programmes are pushed forward by RBI -

A. Initiation of “no-frills” account – These are the basic accounts where accountholders can perform basic banking by cutting extra frills which are not useful for the lower section of the society. Transaction costs will be lower and also RBI has eased KYC (Know Your Customer) norms for such accounts.

B. Banking service through business correspondents-

As the costs of opening brick and mortar branches are high and not economical , The banking system have started adopting business correspondent mechanism to facilitate banking. This is an affordable solution for unbanked population in villages and can people can take the benefits of banking at their doorsteps. Electronic Benefits Transfer (EBT) –As there have been leakages in payment transfers through various levels of bureaucracy, government has started the procedure of

InFINeeti | Annual Edition | August 2015 37

FIN TREND transferring payment directly to accounts of the beneficiaries. Also the cost of transferring and monitoring is expected to be reduced significantly.

Pradhan Mantri Jan - Dhan Yojana (Accounts Opened As on 22.07.2015) Disclaimer: Information is based upon the data as submitted by different banks/SLBCs (All Figures in Crores) Special Benefits under PMJDY Scheme a.

Interest on deposit.

Accidental insurance cover of Rs.1.00 lac

No minimum balance required.

Life insurance cover of Rs.30,000/-

Easy Transfer of money across India

Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.

After satisfactory operation of the account for 6 months, an overdraft facility will be permitted

Access to Pension, insurance products.

Accidental Insurance Cover, RuPay Debit Card must be used at least once in 45 days.

Overdraft facility upto Rs.5000/- is available in only one account per household, preferably lady of the household.

Marking the Reserve Bank of Indiaâ&#x20AC;&#x2122;s 80th anniversary celebrations on 2nd April, Prime Minister Narendra Modi pointed out that the scheme had thus far attracted deposits to the tune of Rs. 14, 000 Crore. This is a credible achievement of the government.

Future: The expected economic powerhouse of the world is still baffled with the economic disparity among the society. Surely, microfinance is a constructive solution to the burning problem. But Microfinance is such a tool which needs to be used with utmost care. Where most of the institutions really work for uplifting of the downtrodden, there are organisations exploiting the ignorance of the working class and turning to next generation loan sharks. Incidents across India show that people are oppressed and even forced to commit suicide. Government of India recently had taken some steps to ameliorate the condition. To restrict the interest rate, Reserve Bank of India (RBI) has put a cap of 26%. The trend of granting banking licences to the MFIs, which is started with Bandhan, may be a potential solution. Government is going to come up with payment banks which may mollify the problem of economic exclusion. The RBI issued NBFC-MFI guidelines on 1st July, 2014. Government has started discussion with all the stake holders and may well bring new legislation for regulating MFIs10. In addition to that, most of the MFIs focus on the rural folks, but very few of them turn up for the urban market. Keeping in mind that it is a different ball game, MFIs also have to address the needs of urban people, that too with a unique model. Finally how the Microfinance industry is going to survive in the coming year, given the enormous potential of the market, depends on what strategy the regulators take and how they implement them in practice. Providing the have-nots a platform to break of the vicious circle of poverty is a noble idea, but it also needs proper understanding and training of the subject as well as market. In addition to that the players need to come up with localised & flexible strategies and tight control form the end of regulators. But all those processes need to be practical and sustainable. The question is how long India will

InFINeeti | Annual Edition | August 2015 38

FIN TREND S.No

No of Accounts

Sector

No Of RuPay Debit Cards

Balance counts

Ac-

% of Zero Balance Accounts

Rural

Urban

Total

7.31

6.03

13.34

12.32

15845.79

50.6

Public Bank

Rural Regional Bank

2.6

0.45

3.05

2.21

3543.14

49.51

Private Banks

0.41

0.28

0.69

0.61

1084.89

47.83

Total

10.32

6.76

17.08

15.15

20473.82

50.23

take to achieve that state. Bringing the underprivileged into the tax system will be a win-win situation for governments and the citizens. To utilise the fullest potential of the human resource India has to provide inclusion for the destitute, at any cost. of India (RBI) has put a cap of 26%. The trend of granting banking licences to the MFIs, which is started with Bandhan, may be a potential solution. Government is going to come up with payment banks which may mollify the problem of economic exclusion. The RBI issued NBFC-MFI guidelines on 1st July, 2014. Government has started discussion with all the stake holders and may well bring new legislation for regulating MFIs10. In addition to that, most of the MFIs focus on the rural folks, but very few of them turn up for the urban market. Keeping in mind that it is a different ball game, MFIs also have to address the needs of urban people, that too with a unique model. Finally how the Microfinance industry is going to survive in the coming year, given the enormous potential of the market, depends on what strategy the regulators take

and how they implement them in practice. Providing the have-nots a platform to break of the vicious circle of poverty is a noble idea, but it also needs proper understanding and training of the subject as well as market. In addition to that the players need to come up with localised & flexible strategies and tight control form the end of regulators. But all those processes need to be practical and sustainable. The question is how long India will take to achieve that state. Bringing the underprivileged into the tax system will be a win-win situation for governments and the citizens. To utilise the fullest potential of the human resource India has to provide inclusion for the destitute, at any cost.

InFINeeti | Annual Edition | August 2015 39

NEWS CHRONICLE India signs revised DTAA with South Korea:

and La Renonâ&#x20AC;&#x2122;s proposal to invest Rs100Cr in brownfield PM Narendra Modi has inked 7 deals including a revised

project.

Double Tax Avoidance Agreement (DTAA) during his visit

However in a strange move the board has decided to

to South Korea on May 18th 2015. The bilateral DTAA

reject the proposal by Baring Private Equity of Mauritius

with South Korea was first signed in 1985 and a revision

to acquire stake in ShareKhan and Human Value Devel-

was necessary on the backdrop of growing economic co-

opers Pvt. LTD from IDFC.

operation among the two nations. Some salient points in the revised DTAA are Source based taxation of capital gains and residence based taxation of shipping income. The current bilateral trade is valued at $16 bill USD and is in favour of South Korea.

Union Govt approves 21 FDI proposals worth Rs. 281 crores 21 FDI proposals were approved by Foreign Investment Promotion Board (FIPB). Some of the biggest FDIs to be approved now are- QuickJet proposal to increase its foreign stake from 62.34% to 74% worth Rs14.4 Cr in FDI

BNP Paribas to acquire Sharekhan Major French global finances services group BNP Paribas is all set to acquire retail brokerage firm Sharekhan for a sum of about 2,000 crore rupees. Sharekhan is the second largest stock broking portal in India. It has 575 branches and deals majorly in online trading and stock marketing. The acquisition will provide a huge potential

InFINeeti | Annual Edition | August 2015 40

customer base and improve the footprint of BNP Paribas in India.

Finance ministry to seek cabinet nod for monetary policy panel; no veto power for RBI governor The Governor of Reserve Bank of India could have a casting vote but no veto on the Monetary Policy Committee, according to the proposal that the finance ministry and RBI have agreed upon to present to the Cabinet. Once Cabinet approves the plan, the government will move legislation in Parliament to amend the RBI Act to pave the ground for the creation of the committee, setting in motion a key reform that was in Finance Minister Arun Jaitley's February Budget. The panel is expected to have balanced representation from the central bank and the government, but RBI will also have a say in the appointment of the independent nominees.

China Has Biggest One-Day Stock Crash Since 2007 China’s stocks tumbled, with the Shanghai index falling the most since February 2007 as Investors are afraid the Chinese government will withdraw supporting measures from the market. The Shanghai gauge had rebounded 16 percent from its July 8 low as officials halted the market that erased $4 trillion from the nation’s equities and allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes and armed a state-run financ-

ing vehicle with more than $480 billion to support the market

Japan’s Nikkei buys Financial Times Asia’s largest independent business media group Nikkei has bought Financial Times in a $1.3bn deal with Britain’s Pearson. Financial Times carries a legacy of 127 years as a pink newspaper and is known internationally for its integrity and accuracy. This acquisition is the biggest ever by a Japanese media organization. Selling off FT would allow Pearson realize its target of expanding the education business.

InFINeeti | Annual Edition | August 2015 41

SUMMER INTERNSHIP EXPERIENCE OF AMARDEEP KUMAR (MBA –IB, IIFT 2014-2016)

How would you describe a typical day for a summer intern at Singhi Advisors?

home”. Also, he expected me to put in a lot of time and effort

The day would invariably begin with a meeting with my

before coming out with the results, analysis etc. Main-

mentor where we would discuss previous day’s work, the

taining veracity was another requirement they stressed

agenda for the day and how to go about it. Then the first

upon. On the skills front, I think they were more than

half of the day was spent reading reports on the sector I

happy if an intern came with a basic understanding of

was assigned and the second half typically on putting

finance, some excel and PPT skills.

together the key insights from those reports, things that I wanted to include in my PPT. In between the two, however, there was a lot of camaraderie. Since it was a small

What challenges did you encounter during your internship in the project(s) which you worked on? How did you tackle them?

office with a team of just about 4 IB analysts, everyone knew everyone else and we would typically take lunch and a couple of breaks together. Towards the later part of the day, I used to work on analysing various companies in the sector. So, each day ended with a deliverable and an agenda for the next day. However, there were

The first of many challenges was the long working hours

despite of the nature of the work being such that you would love to do. Every day we were supposed to work for around 10-12 hours. The interesting work notwithstanding, the body actually feels the effect.

days when I was assigned work which was required ur-

Another challenge was to keep track of all the guidelines

gently before, say, a meeting with a client. Those tasks

and instructions with which we had to work with.

were the most challenging because they demanded a lot

Then there were the strict deadlines, which we had to

in so little time. But it was fun working on them too. Lat-

meet frequently. On top of that we had to produce quali-

er in the evening, I would reach back to my hostel and

ty work, which was challenging at times.

invariably my mentor would have sent me something to work on. This new task would take another couple of hours and lo and behold, the day was over. What were the expectations of the company from you?

What skills did you develop as an intern at Singhi ? How do you think these skills will be useful in your future career ? At Singhi, I was a part of the team which was working on

The Director at Singhi’s New Delhi office had set the bar

three very different projects. I got to work on two of

high on the day of our induction by saying, “We work 9-7

them and the experience taught me a lot.

on weekdays and on weekends we prefer to work from

InFINeeti | Annual Edition | August 2015 42

For one, I got to work on a real life problem, which meant 

Good communication skills, as many a times one

that I was exposed to all the issues that one faces in life.

needs to communicate with the client. Also good

This meant keeping track of so many different things and

communication skills are required in order to make

sometimes working on multiple things in parallel.

a good report.

Secondly, I learnt how mergers take place, about the hard work behind all the mergers, the numbers and the strategies behind them and of course, the rationale behind them.

I also got to learn how to apply the basics of finance to evaluate a firm. We had done this in theory, in one of our courses at IIFT, but in practice it was a different experience altogether. These skills are definitely going to help me in my career ahead. What did you learn about the company - your expectations v/s your experiences? Singhi is a very professional firm, both in terms of the expectations they have from you and the work environment. But this never stops the employees (nor interns) from having fun while at work or from taking some time off, if one needs it. So this was something I found pretty amazing, especially for the industry they are in.

Would you like to share any other information/ experience/ advice with the future batches/readers of the magazine? There are a few things that anyone who wishes to intern in the finance domain should be prepared with: 

Basic understanding of financial concepts, especially the financial statements and the ratios



MS Excel



PPT skills

InFINeeti | Annual Edition | August 2015 43

FIN-CROSS SOLUTION 1

D E U T S 2

V A

C H

T I

R A

A L

E T

N C

R T

N T

N A

I T

E I

L U

A T

N S

C A

E I N

P A C I O L

R A N K F U 15

R T

InFINeeti | Annual Edition | August 2015 44

CREDITS

MEET THE TEAM

SENIOR EDITORIAL TEAM

ADHIRAJ BANDYOPADHYAY



Mechanical Engineer from BESU, Shibpur



Design Engineer for L&T power for 3 years



Finance & Economist enthusiast



Also a die hard Orwell fan and a torrid football goalkeeper

GAYATHRI BHUVANAGIRI MEHUL GAHRANA SURYANARAYAN PANDA

JUNIOR EDITORIAL TEAM NITIN AGARWAL PAVAN ESWARAPRAGADA

PRATEEK GUPTA VAIBHAV AGARWAL

GAYATHRI BHUVANAGIRI 

Has finished B.E (Hons) from BITS Pilani, Hyderabad Campus



Intends to specialize in Finance & Marketing and wants to pursue a career in banking industry



Moreover likes to travel during her free time

COVER DESIGN BY

Rupam Jhanwar & Vysakh P P

MEHUL GAHRANA

 

A software engineer Prior work experience with TCS Limited



Intends to specialize in finance and pursue a career in the same domain



Loves playing football and likes to read nonfiction in his spare time. He also has an avid

FEEDBACK/QUERIES

interest in watching movies

infineeti@iift.edu infineeti@gmail.com SURYANARAYAN PANDA



A Software Engineer

Published by students of Indian Institute of Foreign Trade



Prior experience with Infosys Limited



Has deep interest in politics and economics and intends to specialize in finance

New Delhi | Kolkata



An avid reader and loves reading newspapers , magazines and books

InFINeeti | Annual Edition | August 2015 45