Niveshak June 2022 Issue

FINANCE & INVESTMENT CLUB

NIVESHAK

COVER STORY

FINVIEW

SNSO

The Exodus of FIIs: A Dual Tyranny

Mr. Parimal Ade, Co-Founder, Investyadnya.in

Physics Wallah: The Latest EdTech Unicorn

ISSUE VII • VOLUME XV • JUN'2022

NIVESHAK

JUN'22

E D I T O R ' S N O T E QUI N'AVANCE PAS RECULE

Dear Niveshaks, We are delighted to present the June edition of Niveshak. This edition focuses on the critical global events driving the world, from inflation to insurrection, and their impact, as well as some intriguing areas of finance and economics. The month of June saw significant turmoil, with fears that war might trigger global food insecurity. Following double-digit inflation and recessionary concerns in developed markets, the NIFTY 50 remained under bearish pressure, closing 4.5 percent lower for the month.

This edition begins with the unfolding of important news stories from June 2022, such as SEBI's approval to allow FPIs to trade in the commodity derivatives market, the collapse of Revlon's 90-year legacy, the concern of imports being affected by the widening of CAD, the worsening of India's power crisis, and the Nykaa's rival Purplle achieving unicorn status.

1 | EDITOR'S NOTE

TEAM NIVESHAK

Aagam Parikh

Aayush Jain

Akriti K.

Akshat Sharma

Darshan K.

Nikhil Chadha

Shashwati A.

Shreyansh D.

Unnati Tanwar

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The cover story of this edition discusses the reasons and impact for FIIs pulling their money from Indian markets, which accounted for the highest-ever net sell in Indian stock markets by foreign investors in less than five months.

In this section, we provide a brief background of the event, its importance in a global context, the implications of the same on the Indian economy, and how the central bank is trying to support the rupee's stability.

In the Finview section, Mr. Parimal Ade, Co-Founder, investyadnya.in, discusses rangebound volatility in the market and what investors should do in such a scenario, the correction of the Indian market in comparison to their counterparts, and what can be concluded from it, fears of a global recession, and comments on crude oil price targets.

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FinSupervise' of this edition talks about Structured Products. This section will help you understand the benefits, different types of structured products, and what is the risk associated with them.

Finally, test your finance, economics, and market awareness with this edition's newly designed crossword for you. Don't have a physical copy? Don't worry; scan the QR code and 'Go Digital'!

We would love to hear your thoughts, feedback, and ideas.

Please feel free to reach out to us to let us know what you think!

We hope you derive something from this edition and stay safe and sound in these exciting times!

Stay Invested, Team Niveshak

Know your sector focuses on the automobile industry. This section will help you understand the industry's dynamics, growth catalysts, business model, key metrics for analyzing companies in the area, and what the future holds.

Our 'Deals Brewery' section covers the acquisition of instant grocery startup Blinkit by food delivery partner Zomato and how it plans to exploit a rapidly expanding market for quick grocery delivery by increasing its share in the startup, where it already has more than 9% stake.

All images, design, and artwork are copyright of IIM Shillong Finance Club © Finance Club Indian Institute of Management, Shillong Disclaimer: The views presented are the opinion/work of the individual author and the Finance Club of IIM Shillong bears no responsibility whatsoever.

EDITOR'S NOTE | 2

CONTENTS

Know Sect

The Month That Was

Automotiv

The Finance Bulletin

14-1

5-6 7-8

11-13

7-10

The Exodus of FIIs: A Dual Tyranny

Cover Story

13-16 Views of Mr. Parimal Ade

FinView

16-1

Zomato into Q Comme Blin

Dea Brew

Something New Something Offered

w Your tor

ve Industry

15

17

o's Foray Quick erce with nkit

als wery

Physics Wallah

FinSupervise 20-21

Structured Products

18-19

22

The Crossword

Let's Fin Up

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T H E M O N T H T H A T W A S THE FINANCE BULLETIN

Revlon's 90 years of legacy collapses The 90-year-old cosmetics brand Revlon succumbed to the changing industry dynamics. It was wellknown for its iconic red lipsticks and nail paints. Revlon filed for bankruptcy protection, asking for some time before asset liquidation. It has allowed them to continue operations while planning debt repayments.

The primary issue was its inability to innovate and evolve with changing customer requirements and online marketing trends. It continued selling the same old products with a noinnovation strategy.

Moreover, the raw material inflation and global supply chain crisis accompanied by the pandemic increased costs by over 25%. These factors, coupled with a massive $3.7bn long-term debt, led to the most prolonged standing sponsor of the Oscars losing its position in the market. It remains a lesson for companies to focus on innovation and debt management consistently.

5 | THE MONTH THAT WAS

SEBI allows FPIs to trade in the commodities derivative market SEBI has now allowed FPIs to enter the Exchange-Traded Commodity Derivatives (ETCDs).

FPIs can trade in all nonagricultural commodity futures and specific non-agricultural benchmark indices. This move will improve liquidity and help consolidate the country’s commodity derivatives market.

The trading of commodity derivatives is currently open to international companies with direct exposure to the Indian commodities markets. The new rule will allow foreign investors to trade through the Indian commodity exchanges with or without exposure to the physical commodities market. Opening up the commodities derivatives segment for FPI participation is likely to improve the market’s ability to absorb large orders without significantly impacting the price.

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Lenskart Eyes expansion Owndays

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through

Lenskart acquires a majority stake in the Japanese eyewear brand Owndays in a deal valued at around $400M. Lenskart would become Asia's largest omnichannel eyewear brand postacquisition, with a presence in 13 markets. The company recently raised a total sum of $378M, valuing it at over $4B. Owndays has 15 brands under its umbrella, with 460 stores across countries in Asia. The two companies will operate independently, with Lenskart focusing on the budget segment and Owndays targeting the premium segment.

This acquisition was a part of the strategy to launch 'Neso Brands, a Thrasio-style eyewear subsidiary that includes startups focusing on acquiring and scaling high-growth digital-first companies. Lenskart has been working on improving the supply chain automation and integration, which would be helpful for both, Lenskart and Owndays in further enhancing customer proposition and economies of scale.

India's power crisis worsening A surge in global coal prices in late 2021 and Russia's invasion of Ukraine have led to India's severe power crisis. This led to import volume erosion and stockpiles reduction to critically low levels with increased demand.

Widening CAD becomes a concern for imports India's current account deficit hit a record $24.3B alarming the government.

The import of precious metals, like gold, is under heavy scrutiny as its imports surged almost nine times to $7.7B in May FY22. The imports of silver and non-fuel imports like electronic goods, leather goods, and textiles have also witnessed high growth. CAD for the quarter ended March was reduced to $13.4B but was higher than $8B in the previous year. Currently, India faces near-term challenges in managing its fiscal deficit and economic growth.

Nykaa rival Purplle gets a Unicorn status The Indian beauty and personal care industry is booming at a CAGR of 6.3%, reaching a staggering value of $33B by 2027.

The imperative factor attributing to the sector's growth is the emergence of e-commerce retailers coupled with the increased disposable income of the customers and their exposure to trends. Purplle, an e-commerce platform, is among the leading companies that provide an array of makeup and skincare products with personalized solutions. The brand achieved the title of a Unicorn with a valuation surpassing $1.1B and faces stiff competition from players such as Nykaa and MyGlamm. In June, the company raised $33B to incorporate modern technologies.

THE MONTH THAT WAS | 6

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C O V E R S T O R Y THE EXODUS OF FIIs: A DUAL TYRANNY

In the age of transnational capitalism, significant capital flows from the developed world to emerging economies. One of the most prominent forms of capital is 'money,' which primarily flows in two forms across national boundaries: Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). 'FDI' means investment through equity instruments by an entity resident outside India in an unlisted Indian company; or in 10% or more of the post issue in the equity capital of a listed Indian company. FDI is generally for a long span and directly contributes toward the production of goods and services in an economy.

While a Foreign Institutional Investor (FII) also invests in the financial assets of a country outside of the one in which it is registered, it does not invest in the economy for the long term.

Instead, it invests in the capital markets and benefits from market movements in the prices of listed 7 | COVER STORY

securities, making it sensitive to market movements, exchange rates, interest rates, and political scenarios, and it can pull out money anytime.

Current Situation For the last nine months, Indian equity markets have continuously been battered by the incessant selling pressure exerted by the FIIs, forming the longest selling streak by FIIs in the Indian markets. Initially, the FII selling started due to the fear of interest rate hikes and liquidity taper by the US Federal Reserve. It further got exacerbated by the crisis in Eastern Europe when Russia launched an offensive on Ukraine, prompting acerbic sanctions.

FII Inflows/Outflows ($Billions)

Overview

Source: Axis Mutual Fund

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The sanctions led to a steep surge in global crude oil and commodity prices, resulting in a rapid inflation rise globally. As central banks try to rein in inflation and get ahead of the curve by resorting to aggressive hikes in policy rates, bond yields have been consistently rising. Given the rise in bond yields and uncertainty about the overall health of the global economy, FIIs are moving their money to safe havens instead of staying invested in risky equity markets of emerging economies. This is conspicuous as foreign investors have already pulled out close to $6.39 billion in June 2022.

In January 2022, FPIs sold close to $4.46 billion of equities and another $4.71 billion in February.

Further, FPIs sold $5.38 billion in March, while April 2022 saw a relatively subdued sell-off at $2.36 billion. The net outflow in

equities were elevated at $5.16 billion in May 2022. FPIs have cumulatively sold over $29 billion in Indian equities in the first six months of 2022, prodding unsteady movement of benchmarks indexes, right from breaching past high records to settling on a rickety track.

In October 2021, when the Sensex was at its peak, the total assets under custody (AUC) of the FIIs stood at $667 billion.

Three quarters later, the FII AUC stood at $523 billion (Q1 FY23), cumulating a fall of $144 billion (-21.6%). Out of this, $35 billion of funds went out of India, and a balance of $109 billion in value erosion in the markets. This has been one of the sharpest falls in FII AUC since FIIs started investing in India in 1993.

Consequently, the Indian Rupee has also gone into a tailspin,

Source: NSDL (A Sectoral Analysis of FPI Inflows for the month of June 2022 ($ million)

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frequently faltering to new historical lows. The currency has slumped over 5% this year after Russia's invasion of Ukraine sent global markets into shambles. An article published in the RBI's recent bulletin has cautioned that in case of an adverse global scenario, potential portfolio outflows can average up to 3.2% of GDP or $100 billion in a year, alluding to a potentially alarming situation for the already pummeled Indian Rupee.

The continuing outflows of FII have put the Reserve Bank of India (RBI) in a position where it cannot indefinitely go against the headwinds to strengthen the Rupee as it needs to hold on to forex reserves to meet the import requirements and cover the everincreasing Current Account Deficit (CAD).

Central Bank in Action RBI has constantly maintained that the central bank will continue 9 | COVER STORY

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to support the Rupee's stability and would not permit any abrupt rupee fall against the dollar.

According to data from RBI, India's forex reserves stood at nearly $634 billion at the end of the calendar year 2021. Over the last six months, these reserves have fallen to $590 billion in the central bank's quest to support the dwindling Rupee, registering a decrease of over $40 billion – accounting for nearly 7% of the reserves it had at the end of the year 2021.

Apart from selling dollars, RBI has taken a slew of measures recently to support the Rupee further and ensure orderly market functioning. The central bank has eased several curbs on the flow of foreign investments, including the terms governing the rates of interest offered to foreign currency deposits by overseas Indians.

The threshold for External Commercial Borrowing (ECB) under the automatic route has also been doubled. Furthermore, the FIIs (Foreign Institutional Investors) in debt securities will now have a wider choice of eligible instruments. At the same time, the central government has swung into action by announcing a hike in gold import duties, export taxes on petroleum products, and a cess charge on domestic crude production to prevent the current account deficit (CAD) from worsening, hence supporting the Rupee.

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For a nation that is 85% dependent on imports to meet its oil needs and 50% for gas requirements, a further fall of the domestic currency against the greenback will spell a lot of misery.

Soaring international energy and worsening commodity prices will add more pain by bulking on the wrong side of India's current account statement.

What Lies Ahead?

FIIs will likely remain net sellers for the rest of the financial year, at least, until the US Fed cools down its hawkish stance. The Fed has entered a season of rather aggressive rate hikes and an accelerated period of monetary policy normalization, and it will stick to it until and unless there are clear signs of inflation peaking out, which does not seem likely in the near term.

The Indian equities markets are still trading at higher levels than the other emerging markets. The Indian market traded close to 17.2 times leading price/earnings (P/E) in June, which is closer to the 10-year average. However, it's still expensive compared to most of the other emerging and developed markets, which are trading between 8 to 15 times P/E, while the US and China are trading at 16 and 10 times P/E, respectively, making India a less attractive option for now.

Unfortunately, the impact of the rising inflation induced by the weakening Rupee will be most felt by the underserved section of the country, further slowing their quest to recover from the COVID catastrophe in passé.

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F I N V I E W SPOTLIGHT ON SUCCESS

Mr. Parimal Ade Co-founder Investyadnya.in

In this post-covid rising interest rate environment, worsened by the global supply chain disruptions, do you believe a global recession, perhaps one led by the US, is inevitable, or can we see a reversal of trend here?

I feel that the chances of a US Recession are on the lower side compared to that of Europe because the dependency of Europe on Russia, especially from the oil and gas part, is on a higher side.

Plus, the kind of multi-decadal high inflation that they are seeing is going to be a tricky thing. In winter, the energy demand will be on the higher side, so to manage that demand, many issues will be faced by these European countries.

But, when we are talking about the US, the problem is not that grave compared to Europe because they 11 | FINVIEW

are dependent on their own energy production. But China is taking a different stand with covid coming back in China, strict lockdowns, and a zero covid policy. Lockdowns in China created pressure on the US economy, which shows how important China is in the global supply chain. Hopefully, China doesn't repeat these things. Since it's not a democracy, politics sometimes overshadow economics in that part of the world. Yet, the chances of a US Recession will be on the lower side compared to that of a European recession. Still, I think once the interest rates go up, handling the recession would be simpler at these levels when interest rates in the US are around 1.5%.

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Commodity prices have been cooling off recently, with oil even dipping below $100. The general consensus however remains one of high commodity prices with Goldman Sachs even giving Crude a price target of 140 before the end of this year. What is your shortand medium-term outlook for the commodity marketst?

When we are talking about Goldman Sachs giving a target of $140-150 per barrel, in the same week, Citi has given a target of $65 per barrel. So, it's a game of assumptions. I always say when you are tracking commodities, companies, or estimating their earnings, growth, etc., it's a game of assumptions. You don't know what is in mind of Mr. Putin and when he wants to end this war. So that is the biggest problem. So, if we have those things in mind, then we can project these things. But what happens domestically when oil prices go up or down. If they are going down, we don't have any problem. If they are going up, I feel that since the world order is changing, our relationship with Russia will help us manage at least our energy demand at a lower cost compared to the developed world.

That's what I feel in this scenario.

But I am not in a position to project what will happen. But definitely looking at China's situation, when they have planned a $220 billion infrastructure push, commodity prices can go up a little bit from here because we have already seen some kind of fall in those commodities. So let's just

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see how the global supply chain situation works out in the future, and that will decide these things.

But if the recession is confirmed in Europe or US, then definitely commodity prices will go down a big way.

The US markets have corrected more than their Indian counterparts.

Should investors take this as a sign of relative strength or are the Indian markets just lagging behind?

So, the situation in the US and the situation in India are a little different. The US has handled recession in recent history, but they have not handled inflation. So this time, the difference is inflation, not recession or slowdown.

We have handled inflation four times in the last ten years, but they handled inflation over 30 or 40 years ago. Handling inflation can turn out to be quite bad, and the economy can go into recession. That's the problem. For us, it will be easy to manage inflation if the US manages it well.

But if they fail to handle it or they handle it in a little harsh way, they can turn it into a recession, and if it gets prolonged, it will definitely be bad for all countries over the world. Yet, we will be in a better position compared to our earlier dependency that we used to have.

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With all this range-bound volatility in the market, do you think investors are better off betting on defensives for the medium term from here on?

I think retail investors should avoid going into either growth stocks, value stocks, or defensive stocks. I think this strategy should be avoided because it depends on the research people do. So it is always better to follow a systematic plan. The best plan for a retail investor is index investing or investing according to your financial goals, Investment horizon, and risk profile that will give you a clear idea or a path to achieve your financial goals.

Normally changing tracks like defensive, aggressive, growth, and value can backfire because as a retail investor, the biggest problem is time and their capacity to analyze these companies properly. So, investing in stocks Is quite easy, but being a shareholder is difficult. So, investors should try to become shareholders rather than just the stock buyer. That's why I feel that behavior change is very important in India, and that's what we try to communicate to people.

95% is behavior management, and 5% is investment selection.

For someone who is new to the investing world and wishes to enter the market at this point, what would be your one strongest advice in terms of approach?

13 | FINVIEW

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People have a product-based approach. They look at a stock, a mutual fund, a product of insurance, or things like that. That is a bad approach. The approach should be a process-oriented approach. How to decide what this process is?

This process is financial planning. When we know our inflows and outflows, we come out with our surplus income. That surplus income should be attached to your financial goals. You need to derive your risk profile also.

According to that risk profile, we need to decide how much we should be putting in equity, how much into debt, and how much into liquid.

So, a process-oriented approach will always help you protect yourself from reacting to the situations that are going to come. You will always be looking at the greater picture rather than, the smaller one, like a recession coming up or the dire financial results of a particular company.

Those things can backfire. The experts that you are looking for in the news/newspapers are trying to sell something. So, if you want to be an investor, a beginner should always have a process-oriented approach.

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K N O W Y O U R S E C T O R AUTOMOTIVE - THE ROAD AHEAD

Introduction The Indian automobile Industry comprises 4-wheeler, 2-wheeler, heavy vehicle manufacturing, and all related auto-ancillaries. It is the world’s 5th largest auto market, contributing 7% to GDP and a whopping 49% to the country’s manufacturing output.

Automobile exports grew with a CAGR of 3.47% between 20162021. To keep up with the demand, the industry attracted FDI worth $30.78 Billion between 2000 and 2021, accounting for 5.5% of all FDI inflows during the period. The industry is predicted to reach $300 Billion by 2026.

Emerging Trends in the Industry The Automobile industry has historically been positively correlated to the health of the Indian economy. Despite several difficulties, including rising fuel rates, a scarcity of semiconductors, and supply chain interruptions, the automobile

sector is beginning to show indications of returning to its prepandemic levels of sales volume.

Future market growth is anticipated to be spurred by new trends including the electrification of vehicles, particularly three-wheelers and compact passenger cars.

The Automotive Mission Plan 2026, the scrappage policy, and the production-linked incentive scheme are some of the government initiatives that are predicted to strengthen the Indian automotive sector in the upcoming years.

Indian automotive ancillaries are also changing course after sensing a global opportunity in the electric vehicle (EV) category.

Many of the industry's $46 billion (FY21) firms also provide products to industries such as rail transportation, aerospace, and defense.

In India, the adoption of connectivity is still in its infancy.

However, the ecosystem for connected cars in India is quickly KNOW YOUR SECTOR | 14

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Sales of automobiles India FY 2018-2022, by type

(Source: Statista )

growing owing to firms who offer fleet telematics, vehicle navigation, and linked car solutions based on on-board diagnostics (OBD). Key domestic automakers like Mahindra & Mahindra and Tata Motors are leading the development of autonomous cars in India.

Government policies The Indian government has, in the recent past, introduced several new supportive policies to stimulate demand and modernize the auto sector.

BS VI Norms With the aim of minimizing vehicle emissions by treating hazardous pollutants, the government has enforced PAN India compliance with the BS6 emission rules from 1 April 2020 for all cars. This requires specific components to be added or updated to the present vehicle portfolio across classes.

NATRiP (National Automotive Testing & R&D Infra Project) NATRiP was established at a total 15 | KNOW YOUR SECTOR

cost of USD 573 Mn and it attempts to combine India's unrivaled capabilities in IT and electronics with areas related to automobile engineering.

The project aims to enable India to cater to the increasing domestic demand as well as transform the country into a leading automotive tech solutions provider.

Production Linked Incentive Scheme (PLI Scheme) The government announced an investment of USD 8,149 million over the next five years in the vehicle sector in order to increase the global competitiveness of the Indian auto industry, promote export, and improve production in terms of economies of scale.

Key Metrics Utilization Rate The factory utilization rate compares the number of units that a plant actually produces over a given period of time to the number of units that a factory can produce with its current capacity.

Yield Rate The yield rate in the auto sector is the percentage of units produced during a given period that fit the company’s specifications and are acceptable for market sale.

Recall Rate Recall Rate is (1-Yield Rate). It is the percentage of units produced during a given period that do not fit the company’s specifications and need to be recalled from the market.

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D E A L S B R E W E R Y ZOMATO'S FORAY INTO QUICK COMMERCE WITH BLINKIT

Deal Highlights Food-delivery platform Zomato will acquire instant grocery startup Blinkit (up to 33,018 equity shares) for ₹4,447 crores ($569 million) in an all-stock deal at a price of ₹13.45 lakh per equity share, as it seeks to exploit a rapidly expanding market for quick grocery delivery. The transaction will be carried out through the issuance of up to 62.85 crores fully paid-up equity shares of Zomato, with a face value of Re 1 each at a price of ₹70.76 per equity share.

Zomato already owns more than a 9% stake in Blinkit. As part of the deal, Zomato will also acquire the warehousing and ancillary services business of Hands-on Trades Private Ltd (HOTPL). The transaction is expected to be closed in early August 2022, subject to shareholders' and stock exchange approvals.

About Zomato Zomato, launched initially under

the name 'Foodiebay', is an Indian multi-national restaurant aggregator and food delivery company founded by Deepinder Goyal and Pankaj Chaddah in 2008.

It provides information, menus, user reviews of restaurants, and food delivery options from partner restaurants in select cities. Over the years, Zomato has made many acquisitions like Urbanspoon, Nextable, Uber Eats, etc.

About Blinkit Blinkit (formerly known as Grofers) is an instant delivery service. Founded in December 2013

by Albinder Dhindsa & Saurabh Kumar and based out of Gurgaon, Blinkit currently operates in more than 30 cities in India. It primarily delivers groceries, fresh fruits and vegetables, meat, stationery, etc.

The company has an on-ground workforce of 30,000 and has opened 450 new warehouses and dark stores to scale its quick commerce plans. Customers of Blinkit can use a mobile application to order groceries online.

DEALS BREWERY | 16

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Deal Synergies The main synergy for Zomato is expected to be with the integration of the delivery fleet to lower delivery costs.

Cost leadership and operational excellence will be crucial for the combined entity to be a profitable venture.

The combined entity’s success will also depend on the following factors: Zomato’s established delivery fleet of 300K+ partners Blinkit’s relationship with third-party brands Blinkit’s network of dark stores Huge combined customer base Blinkit’s proprietary tech platform Success in quick commerce is heavily dependent on an efficient hyperlocal delivery network, and Zomato intends to leverage Blinkt's existing network.

The Controversy Some High Net Worth investors of Zomato claimed that information about the potential acquisition had been circulated for over a month before the deal was officially announced.

SEBI's insider trading rules require any price-sensitive information to be communicated to investors in a timely manner.

The listed entity must confirm or deny any information available in the public domain through news

17 | DEALS BREWERY

reports or social media. The aim is to maintain information symmetry and prevent any stock-market jerks. Zomato has maintained the stance that their disclosure was as per the rules laid down by SEBI. Will this deal change the direction of wind for Zomato and Blinkit?

Only time will tell!

Quick commerce has been our states strategic priority since the last one year. We have seen this industry grow rapidly... as customers have found great value in quick delivery of groceries and other essentials.

Deepinder Goyal Founder & CEO, Zomato

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FINSUPERVISE STRUCTURED PRODUCTS

Overview Structured products are prepackaged investments that normally include assets linked to interest plus one or more derivatives. They are generally tied to an index or basket of securities, and are designed to facilitate highly customized riskreturn objectives.

This is accomplished by taking a traditional security such as a conventional investment-grade bond and replacing the usual payment features—periodic coupons and final principal—with non-traditional payoffs derived from the performance of one or more underlying assets rather than the issuer's own cash flow.

Benefits of Structured Products Provides protection against market fluctuation This is the most critical and likeable factor of a structured note. There are very few financial securities that provides protection against market fluctuations and a good structured note offers the

maximum returns with the optimum level of protection which is guaranteed. This protection assures a promising risk-adjusted return.

Diversifier to portfolios/Hybrid portfolio creation Structured products are an excellent diversification to an investment portfolio.

With a combination of such investment assets which diversify the risks and generate high returns, one is highly likely to get the expected results irrespective of the direction of the market, to some extent.

Gives predictable results Structured notes are predictable investments because all the conditions that determine the outcome of a structured note are specified beforehand.

Although aspects like the underlying assets, issuing bank, barriers for protection, frequency and coupon size are known, the market behaviour of the underlying assets is highly unpredictable..

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Risk associated with s t r u c t u r e d p r1.9 oducts

Types of structured products

Issuer default risk In the event that a structured product issuer becomes insolvent and defaults on their listed securities, investors are considered as unsecured creditors and will have no preferential claims to any assets held by the issuer.

Structured products can be divided into three categories depending on the risk level at maturity:

Gearing risk Derivative warrants and callable bull/bear contracts (CBBCs) are leveraged and can change in value rapidly according to the gearing ratio relative to the underlying assets. Investors should be aware that their value may fall to zero resulting in a total loss of the initial investment.

Liquidity risk The Exchange requires all structured product issuers to appoint a liquidity provider for each individual issue. The role of liquidity providers is to provide two way quotes to facilitate trading of their products.

Pricing structure The pricing structure of the inline warrants requires investors to assess accurately the value of the inline warrants in relation to the expected probability of the valuation of underlying asset falling within the range between the upper strike price and the lower strike price (both inclusive).

19 | FINSUPERVISE

Structured Deposits An investor buys an underlying asset based on the foreign exchange projection, setting up a timeframe and a mark-up.

It functions similarly to a deposit account, except the earnings are reliant on the market performance of the asset.

Structured Capital Products These are the ones that guarantee the return of the principal capital at the time of maturity. It, thus, protects the initial investment.

They are often structured as loans from financial institutions and banks that remain solvent until the product matures.

Structured Capital At Risk Products These are investment instruments that offer the highest rate of return but do not guarantee the repayment of principal at maturity .

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SOMETHING NEW SOMETHING OFFERED PHYSICS WALLAH:THE LATEST EDTECH UNICORN

Overview During times of a weak funding cycle in India, especially for the blooming EdTech sector, where massive unicorns are on a costcutting spree, a bootstrapped startup led by a college dropout has managed to enter the coveted unicorn club. Physics Wallah, the edtech startup has raised $100 Million in its series A funding round led by WestBridge Capital and GSV Ventures, giving it a valuation of $1.1 Billion. This makes them the 7th Indian EdTech unicorn.

About the Founder Alakh Pandey, the beloved teacher behind this startup, hails from Allahabad, UP. He started teaching in class 8 due to financial necessities but soon fell in love with teaching.

While pursuing engineering, he dropped out of college in his third year and returned back to his hometown to take up a career in teaching. He worked in coaching institutions before starting his own Youtube channel by the name 'Physics

TOTAL FUNDING: $ 100 Million VALUATION: $1.1 Billion YOUTUBE SUBSCRIBERS: ~8 Million FY 23 EST. REVENUE: $65 Million Wallah', which grew rapidly due to his unique teaching style which struck a chord with the students.

His in-class talks motivated students and soon he became a hero amongst them with many of his students shaving their heads and calling themselves "The Taklu Gang" in support of Alakh Pandey's receding hairline. He was joined by Prateek Maheshwari in 2020 as they launched their website and mobile applications during COVID.

The PW journey Alakh Pandey started his first YouTube channel in 2016. The intent was to help students get a good quality education for their engineering and medical entrance SOMETHING NEW SOMETHING OFFERED | 20

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examinations. Soon, his YouTube channels got popular within student circles and he started offering affordable courses to the students. Compared to the bigger online competitors who offer expensive packages, the average cost of his courses fares at around Rs.3500-4000.

He believes in providing value to ambitious students at a bare minimum cost.

This philosophy of his paid off as the word-to-word marketing of the company earned them a lot of subscribers. Physics Wallah has negligible marketing spend compared to the bigger online players. He launched a paid live stream for his app in 2020 which crashed due to technical glitches but he made sure that every student gets their money back as he was not able to deliver what he had promised, thus, increasing the trust they put in him. The venture has been profitable and cash-flow positive right from its inception and that is truly a remarkable achievement. Their FY22 revenues stood at around $45 million and they are at a run rate of clocking $65 million for FY23. Their EBITDA margins stood at a phenomenal 60% with them projecting it to come down to around 40% as they push their marketing and hiring spending. The startup currently has around 1900 employees. The launch of their app has been extremely successful with 6 Lakh active daily users spending an average of 90 minutes on it. The monthly number is 28 lakh users and they have had a total of 10 lakh transacting users to date.

21 | SOMETHING NEW SOMETHING OFFERED

JUN'22

ALAKH PANDEY

Road Ahead Physics Wallah plans for an aggressive expansion with the help of funding. The startup will be coming up with more course offerings in 9 vernacular languages to target students across diverse geographies. Their next major play is to venture into offline coaching with disruptive pricing. They plan on opening 20 offline centers in 18 cities to attract a wider base of students as the effects of the pandemic fade away. Preparation for postgraduate entrance exams is in their vision too as they look for more course offerings. Personal Coaching is a space they look forward to as their pricing gives them a competitive edge. They plan an offering students quality coaching with approachable teachers who can help them whenever required. The teacher who makes the students sing "Hum Hoge Kamyab" before their lectures aim at tutoring 250 million students by 2025.

Will he achieve it or not? Only time will tell.

NIVESHAK

JUN'22

LET'S FIN UP! THE CROSSWORD

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Across 1. Financial contract whose value is dependent on underlying asset (10) 5. Return earned in excess of the risk-free rate per unit of volatility (6) 6. Represents a firm's average cost of capital from all sources (4) 10. Zomato recently acquired this instant grocery startup (7) 11. Model used to determine required rate of return of an asset (4) 12. Simultaneously buying identical put and call options (8) Down 2.

3.

4.

7.

8.

9.

A measure of the risk of loss for investments (3) Measurement of option's price sensitivity to changes in volatility (4) Debtor finance where business sells its receivables to at discount (9) Any privately held startup company with a value of over $1 billion (7) Type of order to buy/sell at a specified trigger price (5) Earnings realized on investment over a particular period of time (5) LET'S FIN UP | 22

ANNOUNCEMENTS Team Niveshak invites articles from participants from all colleges across India. We are looking for original articles related to Finance and Economics. Participants can also contribute puzzles and jokes related to Finance and Economics. References should be cited wherever necessary.

The best article will be featured as "Article Of The Month" and would be awarded a cash prize of 3000/- along with a certificate. The runner-up article would be awarded a cash prize of 2000/- along with a certificate.

INSTRUCTIONS Send in your articles to niveshak.iims@gmail.com Mail subject line must be "Article For Niveshak_<Title>" Mention your Name & Institute Name along with the article Ensure that article has a word count between 1200 - 1600 Please DO NOT send PDF Files and stick to the format Number of authors is limited to 2 for each article Also certain entries which could not make the cut to the magazine will get featured on our website

FORMAT Microsoft Word Font: Times New Roman Size: 12 Line Spacing: 1.5

ISSUE VII • VOLUME XV • JUN'2022