Niveshak November 2021 Issue

FINANCE & INVESTMENT CLUB

NIVESHAK

COVER STORY

FINVIEW

DEALS BREWERY

Telecom Tariff Hike: Life Jacket to drowning telcos

Mr. Murali Vaidyanathan, Senior President, Equitas Small Finance Bank

Flipkart's move to venture into pharmacy space

ISSUE III • VOLUME XV • NOV'2021

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NOV'21

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

Dear Niveshaks, We are delighted to present to you the November edition of Niveshak. This edition highlights a lot of turning events in the landscape of the Indian and the global economy. With Covid 19 infections and new variants still looming around the corner, the conversation about Climate change and sustainability.

This edition begins with covering significant news stories of the month of November 2021, including the crucial COP 26 agreement on Climate change, Zomato exiting the international market, the Indian Government repealing the three farm laws, the value of UPI transactions exceeding $100B, and boost to Ayushman Bharat by GoIsion.

UN climate conference in Glasgow, COP26, was seen as a significant turning point for commitments and action. Rules to create a framework for a global carbon market were approved,

1 | EDITOR'S NOTE

TEAM NIVESHAK

Aagam Parikh

Aayush Jain

Akriti K.

Akshat Sharma

Darshan K.

Nikhil Chadha

Shashwati A.

Shreyansh D.

Unnati Tanwar

Aritro Dutta

Arushi Mathran

Hardik Goyal

Manish Kumar

Nihar Mehta

Pratyush Kumar

Rakesh M K

Sandhaan G.

Vasundhra Misra

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settling a problem that had plagued negotiators since 2015.

The need to reduce global greenhouse-gas emissions by a whopping 45% by 2030 was formally recognized.

The cover story of this edition discusses the tariff hike in the Telecom sector. The crisis stems from the mismatch in the interpretations of Adjusted Gross Revenue (AGR) by the Department of Telecommunication (DoT), Ministry of Telecommunication and Information Technology, and the telecom companies, which has led to different calculations of the amount due by the telcos to Government of India.

In the Finview section, we bring you the insights of Mr. Murali Vaidyanathan, Senior President, Branch Banking: Liabilities, Product & Wealth at Equitas Small Finance Bank, who shares his views on small banks, neobanks and Fin-techs, Covid related stress in banking sector among other things.

Know Your Sector focuses on The Renewable Energy Industry. It elucidates the renewable market – by type, region, end-use; industry trends and the impact of Covid 19 on this sector.

In our newly introduced ‘Deals Brewery’ section, we cover the latest agreement between Flipkart and SastaSundar Agreement, a Kolkata-based digital pharmacy, and online healthcare platform.

NOV'21

FinSupervise’ of this edition talks about Real Estate Investment Trust 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 that you stay safe and sound in these exciting times!

Stay Invested, Team Niveshak

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 The Month That Was

Niveshak Investment Fund

Know Sec

Monthly performance of NIF

Renewab Indu

7-8

18-1

The Finance Bulletin

5-6 7-8

13-17

9-12

Tariff Hike

Cover Story

13-16of Views Mr. Murali Vaidyanathan

FinView

20-2

ESG Inv Puttin Environ Soc Governa Profit

Arti of t Mon

w Your ctor

ble Energy ustry

19

24

nvesting: ng the nmental, cial & nce in the table

icle the nth

FinSupervise

Deals Brewery Flipkart & SastaSundar

Real Estate Investment Trust (REIT)

Let's Fin Up

27-28

The Crossword

25-26

31

24

29-30

Latent View Analytics Bumper IPO

Something New Something Offered

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

COP26 Reaches and Agreement on Key Climate Change Action The UN climate conference in Glasgow, COP26, was seen as a significant turning point for commitments and action after the richer countries were unable to fund the required $100 billion, Climate funding is pledged to disadvantaged people on an annual basis in countries. The United Nations published the first version of the. The political resolution of the 26th Conference of the Parties (COP26), which asks governments to "revisit and reinforce the 2030 objectives in their nationally determined contributions, where appropriate, to line with the Paris Agreement temperature goal by the end of 2022. "

Zomato pulled out of International Markets India, the United Arab Emirates, and the rest of the world (including the United States) are the three geographical segmentst

5 | THE MONTH THAT WAS

that Zomato acknowledges.

Singapore, the United States of America, the United Kingdom, and the United States of America are all members of the United Nations Lebanon, as well as a couple of other countries). The company has decided to focus on the Indian market which is the company's biggest market, and the United Arab Emirates, which is the company's second-largest market Zomato has decided to concentrate its efforts on the following areas: "the territories ", which are currently less profitable than those that are more profitable locations that are well-known The following two years will be critical for the corporation intends to invest more than a billion dollars in this project.

India's e-commerce network will be expanded by startups.

For the First Time, the value of UPI transactions exceeds $100B

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In October, the value of UPI transactions surpassed $100 bn for the first time, strengthening its status as India's most popular digital payment system. The postpandemic shopping spree, particularly during the festive season, has resulted in an increase in e-commerce sales, which has resulted in an increase in UPI transactions.

India's citizens own 3.3 lakh crores in cash. As a result of the increased liquidity required for emergency reasons as a result of the pandemic, the currency to GDP ratio may have fallen in comparison to previous years.

During Diwali, record purchases of 1.25 lakh crores were made, and cash in circulation remained stable compared to the previous year. This indicates that Indian consumers are increasingly turning to high-tech platforms such as UPI.

Indian Govt. Scrapped three farm laws The Farm Laws Repeal Bill of 2021 aims to repeal three farm laws: the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act of 2020, the Farmers' Produce Trade and Commerce (Promotion) Act of 2021, and the Farmers' Produce Trade and Commerce (Promotion) Act of 2020. The Essential Services and Facilitation) Act of 2020, as well as the Essential Services and Facilitation) Act of 2020, the Commodities (Amendment) Act of 2020, as well as the Commodities

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(Amendment) Act of 2021- amends the 1955 Essential Commodities Act. The dread of the people was what prompted the repeal.

Farmers believed that abolishing the system would be beneficial to them. Mandis of the APMC would result in the abolition of their crops Minimum Support Price been paid for the item. Consequently, the need for a Repeal Bill arose as a result of the ongoing Agricultural uprisings against these rules are on rise.

Boost to Ayushman Bharat by GoIsion Systems The Indian government and the Asian Development Bank (ADB) have agreed on a $300 mn loan to help the Indian Government’s Ayushman Bharat program which aims to improve India's health infrastructure. The loan aims to develop and expand access to the financial system.

In urban locations, comprehensive primary healthcare is benefitting over 256 mn urban residents in 13 states, 51 mn people live in slums. ADB also approved a loan of $1 bn.

India will receive $1.5 bn for the purchase of safe drinking water. as well as effective coronavirus vaccinations Through quality assurance procedures, digital tools, and collaboration and involvement with the private sector the healthcare delivery and information systems for the quality of primary health care will be improved a lot of work was required to subdue catastrophic effects of the pandemic.

THE MONTH THAT WAS | 6

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N I V E S H A K I N V E S T M E N T F U N D PERFORMANCE EVALUATION

NIF SINCE INCEPTION

Sensex Scaled Value

Portfolio Scaled Value

Return measures Total investment value: ₹10,00,000 Current portfolio value: ₹30,45,196 Change in portfolio value: -4.07% Change in Sensex: -5.11%

NIF OCTOBER PERFORMANCE

Sensex Scaled Value

Portfolio Scaled Value

Risk measures Standard Deviation NIF: 42.51% Standard Deviation Sensex: 38.705 Sharpe ratio: 4.81 (Sensex: 4.61) Cash remaining: ₹1,84,140

Comment on equity markets & NIF performance November saw both the Nifty and Sensex gave up much of their gains. The Nifty gave up 1,600 points from the peak while Sensex gave up 5,000 points from the peak. If the Zomato and Nykaa IPOs were the highpoint of the digital story, Paytm was a return to reality.

For Nov-21, out of the 10 key sectors with significant presence, only 2 sectors gave positive returns while 8 gave negative returns. IT sector gave +1.85% returns emerging as a safe haven for investors in an uncertain environment while Pharma sector made late gains in the month after the Omnicron variant threatened to have a cascading effect.

NIF saw a portfolio change of -4.07% (Sensex: -5.11%) and stood at a net value of ₹30,45,196 7 | NIF

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NOV'21

INDIVIDUAL STOCK WEIGHTS & MONTHLY PERFORMANCE Portfolio Weight

Performance

TOP GAINERS - NOVEMBER 21

7.29%

- Speciality Rest

4.54%

- Indiabull Hsg

3.20%

- Avenue Supermarket

TOP LOSERS - NOVEMBER 21

(22.63)%

- Thirumalai Chem

(20.71)%

- PVR

(16.44)%

Nocil

NIF SECTORAL WEIGHTS

NIF | 8

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NOV'21

C O V E R S T O R Y TELECOM TARIFF HIKE: LIFE JACKET TO DROWNING TELCOS

The Turmoil The telecom sector in India has been facing a severe crisis that may have significant repercussions for the telecom industry, besides adversely affecting the economy, jobs, and provision of telecommunication services to subscribers.

The crisis stems from the mismatch in the interpretations of Adjusted Gross Revenue (AGR) by the Department of Telecommunication (DoT), Ministry of Telecommunication and Information Technology, and the telecom companies, which has led to different calculations of the amount due by the telcos to Government of India.

According to DoT, which issues licenses and allots spectrum, two major telcos, Bharti Airtel and Vodafone Idea, owe the government over INR 35,600 cr. and INR 53,038 cr., respectively.

9 | COVER STORY

The Supreme Court ordered these companies to pay up the government's revenue share immediately, else the bank guarantees taken by the DoT while allotting licenses to these companies will be invoked. The same will lead these companies, especially Vodafone Idea, on the verge of bankruptcy and a possible departure from India, leaving thousands of employees jobless.

Furthermore, since only two major private players, viz, Bharti Airtel and Reliance Jio, will be left to provide telecom services in India, the load may not be handled efficiently, which will result in increased operational expenses and thus a potential arm-twisting of the customers by pushing up the end-user costs phenomenally.

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What Led to the crisis?

Liberalisation of the telecom sector under the National Telecom Policy in 1994 allowed the entry of private players into this sector encouraging several domestic and foreign companies to jump into the fray.

Initially, the DoT (Department of Technology) allotted spectrum to the telcos for a fixed license fee to offer wireless and wireline services in India (including licenses to Internet Service Providers and licenses to provide passive infrastructures, such as towers and fibre).

In 1999, the NDA government gave licensees the option to migrate to the revenue-sharing fee model.

Rather than a fixed license fee, the telecom operators were asked to share a percentage of their gross revenue with the government's annual license fee and spectrum usage charges.

This is where the real trouble began as the government and the telecom operators interpreted the Adjusted Gross Revenue (AGR) definition in very different ways.

According to the Draft License Agreement, gross revenue included installation charges, revenue on interest, dividend, and value-added services. Calculated on this basis, AGR excluded certain charges, such as the Interconnection Usage Charge (IUC) and roaming revenues passed on to other operators.

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The fundamental difference in the interpretation of the AGR clause is that while the telecom operators want that, they should be charged only based on their core business, which is primarily the usage of the spectrum allotted to them. In contrast, DoT contends that the definition of AGR includes other items, such as dividend, interest, capital gains on sales of assets and securities, and gains from foreign exchange fluctuations. In other words, the operators do not want the non-operational income to be included while computing the AGR. However, when the government did not heed their request, the operators approached the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) in 2002-2003.

A protracted legal battle ensued, and in 2015, the TDSAT ruled that AGR includes all receipts except capital receipts and revenue from non-core sources. However, on 24 October 2019, the Supreme Court set aside that order and upheld the DoT's definition of AGR. The said telcos approached the court for a review, but their plea was rejected on 16 January 2020.

COVER STORY | 10

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As a result of this long-drawn legal battle, the original disputed amount of about Rs 23,000 crore snowballed to the present figure of close to Rs 1.5 lakh crore as the DoT contended that the entire dues accumulated over the past 15 years be paid with interest and penalty.

In a much-awaited relief, the government has recently approved a relief package for the stressed telecom sector that includes a four-year moratorium for companies from paying statutory dues, change in the definition of revenue on levies paid, permission to share scarce airwaves, and 100 percent foreign investment through the automatic route. The four-year breather from paying regulatory dues allows operators time to transform and repair and may cool off price wars between the telecom operators.

These measures aim to provide relief to companies, especially Vodafone Idea, which owe thousands of crores to the government.

Tariff Hike To improve the financials, the three major telecom operators in India, i.e., Airtel, Jio, and Vodafone, announced upto a 25% hike in their prepaid plans tariffs in November. This will result in an improvement in the operating metrics of the industry, with expected industry ARPU (Average Revenue Per User) to improve to around Rs 150-160 in the medium term, which would translate into 11 | COVER STORY

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revenue growth of 12-14 percent in FY23 (for the three telcos combined) and given the high operating leverage, the industry operating profit is expected to grow by 15-18 percent to around Rs 125,000 crore in FY23.

An upward revision in prepaid tariffs by domestic telecom majors is expected to provide a much-needed breather to the overall sector in the run-up to the rollout of 5G services in the country. It will improve the telcos’ free cash flow, aiding the muchneeded network expansion and 5G rollout.

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Bharti Airtel and Reliance Jio are expected to gain over Rs 7,500 crore each as cash flow due to their relatively high market share.

However, Vodafone Idea is expected to show somewhat better margin expansion than its peers due to the tariff hike. Still, retention of subscribers will be the crucial factor to watch as the price hike could further dent the market share of the defunct telco.

Indian telecom companies are now firmly focusing on improving average revenue per user (ARPUs) while retaining their active subscriber base.

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Affordability of services has always been a dominating factor for telecommunication adoption in India. Today such services are within the economic reach of customers. This transformation had a positive impact on customer experience as well. With new technological advancements, the majority of services can be delivered virtually.

The evolution of telecommunication capabilities and adoption of 5G will further fuel the digital transformation of industries such as gaming, banking, healthcare, education, ecommerce, entertainment, manufacturing, fintech, real estate, and automobile. This push will be driven by a model where the telecommunication sector will become the connectivity backbone for other industries.

Conclusion The Indian telecommunication industry's ecosystem has transformed over the last few years. It has come a long way from traditional landlines to future-ready 5G. In the past two decades, we witnessed how telecommunication connected people by penetrating the most remote locations, which has started to change the lives of a billion Indians.

From phone applications to home automation to cashless commerce, digital disruption is the new normal for consumers, telecommunication has been changing the way of life in all spheres.

COVER STORY | 12

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NOV'21

F I N V I E W SPOTLIGHT ON SUCCESS

Mr. Murali Vaidyanathan Senior President, Branch Banking: Liabilities, Product & Wealth; Equitas Small Finance Bank Ltd.

Over the years, you have worn various hats at different organizations, how has your journey been & what is your strongest advice to youngsters who want to venture into the world of finance in India?

It's essential to understand the length parameter of life, that is, how much do you learn, how much do you earn & through that, how you're growing. These are the three fundamental steps that decide the growth of an individual.

I started with the first batch of Mercedes Benz India Limited as a sales officer & then from selling a product, I transitioned into Citi Group to understand the asset & liability side of the business. I then moved to ICICI Russia to set up an entity there. Then moved into Kotak Mahindra to set up the franchisee & finally into Equitas, 13 | FINVIEW

where we are resetting the entire bank. Every individual reading this & who wants to keep life straight, firstly, needs to focus on continuous up-gradation through learning & secondly, how much can you earn through this experience. Don't keep earning as a destination.

Earning keeps chasing you when you learn & start growing. So, focus on the two-legged approach of growth & learning.

Earning will follow.

Remember, work has three dimensions. Immaterial of whether you are doing an entry-level job or a blue collar job, it has three dimensions: knowledge about work, how well you manage relationships with people, & the energy & passion that you bring in. The first two are rather easy but building sustainable energy & passion towards growth & learning is a key differentiator.

Finance is highly underutilized, in terms of knowledge sharing & knowledge gaining, for any individual. Many earn money, but few know what to do with it. In the early phase for management

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professionals, having a grasp of finance can help them understand value of time & derivative product of time is money. One can actually leverage this in their lives & for their organization. So I urge the youngsters here to have a phase where they actually undergo a transformative ideology towards the value of time & money to get into BFSI. That's my view.

The world is significantly different today from what it was six years ago when RBI granted small bank licences. How does the future look like for small banks & how can they add to India's economic development?

For a minute, let's keep banking aside & ask ourselves, what is the ultimate aim of money? There are two sets of people. One, who are called savers & are always looking for a vehicle through which they can save. On the other side, there are people who have a requirement for that money to deploy into businesses & is part of the consumer experience for expenses or for emergency needs, & on. So these are the two sides of money.

When India got freedom, the ultimate aim of banking industry was to reach deeper & deeper into the society so that mobilization & deployment of money became easy.

So small finance banks were created with the intent of going deeper into the society, which includes the middle class, lowermiddle-class & those aspiring entrepreneurs who want to step into the world of business& also mobilize funds from those set of

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people who are actually looking for an avenue to save. Thus, small finance banks were created with geographical excellence, which means most of the small finance banks which turned were licensed in phase one, were microfinance institutions or the smaller legs of NBFCs, who have actually spelled out their objectives earlier in the sense of reaching a deprived part of the society. If you see, after 72 years, we are one of the pioneers in our industry, where we have been lending to microfinance customers, getting into small businesses & start-up entities who need money like oxygen. So small finance banks' ultimate priority is getting more & more financial inclusion, getting deeper into the society which otherwise conventional & big banks will not be looking into, & through this, accomplish the upliftment of society & enhancement of GDP. I think we are doing that job substantially well & I'm sure in the future, more & more small finance banks will come into existence for the simple reason of going deeper into the society.

How does Equitas seek to differentiate itself in the face of competition from not only other banks, but also new age Neobanks & Fin-techs?

Banking has two sides to business.

One is digital, which is physical branches leveraging digital to create footprints across India.

These are basically our branches, our people who use digital technology for transactional FINVIEW | 14

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convenience, communication & ease of operations. Here, we have geographical excellence focused on key markets to cater to our segments. That is one side. We are also an active digital player.

So if you see in terms of B2C customers, that is where we have our own range of products called 'selfie,' through which we reach our consumers directly. We also do strategic FinTech tie-ups to enable transactional convenience for those customers. So coupling this, our entire digital innovation is one of the critical things to keep us ahead of time & to reach the consumer. In terms of product ranges, we mobilize money from those customers who actually want to contribute to a bigger society. This we call 'Beyond Banking,' which means that you save money & it actually goes to the most deserving sector of society who actually want to uplift themselves in the future to grow in life. So we have a microfinance portfolio, a commercial vehicle portfolio, we have retail liabilities, we have affordable housing, & so our stack of products is into multiple segments.

Similarly, on the liability side, we don't charge any non-maintenance charges for not maintaining balances, which I have always found ridiculous because the cost of operations cannot be transferred to the customer. We actually encourage savers to save more so that we can deploy that to the deserving sector of the society & the incentive to save more is 15 | FINVIEW

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leveraging the digital platform through relationship management, better pricing, better reach, & digital banking, convenience. We sell transactional convenience, relationship management, pricing to the targeted segment through liability. We are part of the few banks with high diversification for the underprivileged society to come up in life on the asset side.

Over time, everyone makes money, but our primary intent is to create social capital out of the capital we have deployed for banking. So maybe three, four years from now, the impact that we would have made across the society will be far higher than what you're seeing at this point in time. So, this is where our differentiation lies.

This is our approach & this is our categorization.

Industry wide we have seen the cost of funds reduce for banks. What is the implication of this from a strategic standpoint?

The cost of funds is a very relative phenomenon. If you go back to the late 90s, the cost of funds used to be 10-11%. Its come down up to 4-5% now, so it's very relative liquidity management measure. So I'm not for a minute getting into that. The cost of funds is a significant indicator for the efficiency of the bank, but it should not come at the expense of savers. For us, savers are as key as borrowers. Unless savers are given the incentive to save more, the borrowers will not get required money into the market.

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In that case, money will find its alternate forms & alternative investment modules. So, a bank has to carefully balance the vital parameter of cost of deposits & cost of lending. Through that, they need to arrive at the niche which will differentiate them from others. Another important thing is which segment you are capturing & which segment you are borrowing.

This is extremely important. You cannot correlate a top-end corporate to the bottom end of the pyramid in terms of lending. Similarly, the convenience of the bottom end of the segment saver cannot be compromised or discriminated against. So, we have a very non-discriminatory philosophy at a banking level. All savers at any given point of time continue to earn the same. Plus cost of funds will further come down.

It should propel the economy in multiple sectors. Your manufacturing needs a focus, export needs a refocus & so on. So I think savers need to be further encouraged to bring money into the system & park it with banks so that banks can deploy that parked money into various segments. So the cost of funds is an efficiency indicator, not a scalable indicator, as you move across decades. It's imperative to strike a balance between borrower & depositor. We should not be building up the franchise by one at the cost of another. So it's balancing both.

It's one side you burn & one side you earn. If you understand the basics of the liability business, you're burning money to make

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money through assets. So the longer this cycle, the better it is for the industry. A lot of arbitrage here will do damage. So it's a very indicative efficiency parameter at a banker's level, but for the common man, he should continue to save & he should support those institutions which balance out savers with borrowers.

What is your take on the covid related stress in the banking sector? Do you think the worst is behind us?

I don't know whether the worst is behind us or in front of us. COVID had its own impact on the bottom of the pyramid, one layer above the bottom of the pyramid, bluecollared workers, small shops were terribly impacted by the lockdown. But the good part of this is, when the economy bounces back, this is the first set of people who actually bounce back to action in terms of work & they grow. So we are seeing a good trajectory in the last 2-3 months in terms of consumption, business entity growth, & also a lot of new people venturing into entrepreneurship. So the credit culture is encouraging.

The number of people who want to turn entrepreneurs is increasing at an increasing rate, which means the demand for money & capital in the future will be very good. For whether the worst is behind us, I don't want to comment because we are already discovering a new virus. We should wait & watch. But during this phase, if this pandemic are going to have the third-largest FINVIEW | 16

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GDP by 2050 after US and China, it becomes endemic, we will see massive growth propulsion. There will be huge propulsion of household saving, there should be huge propulsion of money to get into insurance & then this money will get deployed into multiple industries. Thus, we can see the real growth of industries across the board through these activities.

But I think, all said & done, in the next 6-8 months, we should play safe, conserve capital, and deploy money at the right point & most importantly, all of us should focus on our own health, wealth & safety. is obviously a geography that one has to stay invested in.

The world itself, in its global allocation, is underinvested in India. Therefore, if you look at medium to long term, I think India is the place to be, given the innovation and the changes which are happening in the country.

Do you believe we are at the end of the easy money cycle?

And how do you look at navigating next couple of years as we see this extraordinary monetary phase unwind?

That's a very delicate question.

Economists should be answering this more than financial sector guys because you have now caught the tiger by its tail. One of the reasons that secondary & primary equity markets across the globe have sustained is the availability of easy money. You can't just put an end to it overnight & say that from tomorrow, we will get into a controlled regime. That will have 17 | FINVIEW

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lots of ramifications. So one needs to undertake tapering through a periodical & phased approach, which means across the governments, across the countries, central banks may say that for the next six to eight quarters, we will taper it in a phased format. Remember, FIIs, FPIs, and FDIs play a crucial role in many countries. Since domestic consumption & money flow is picking up for us, we should not do anything in a hurry. Yes, money tapering is a reality. I think industries, individuals & institutions should prepare towards that & that should be done in a very calibrated manner.

Because money is like water. It chases its point of least resistance & then starts finding its own way.

But definitely, tapering should start in 2022 & actually, money should get slightly more difficult. That's my perspective too.

Today the speculative money returns are very high.

That's why new currencies and creative asset allocation models are happening.

After tapering, all those speculative asset classes will have a higher risk weightage & people will start getting into reallife calculation & methodology.

This will help the system go back to the old ways. So although money tapering will curb the liquidity, it will allow alternative asset money to come back into the system.

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NOV'21

K N O W Y O U R S E C T O R RENEWABLE ENERGY INDUSTRY

Overview The global renewable energy market was valued at $881.7billion in 2020, and is projected to reach $1,977.6 billion by 2030, growing at a CAGR of 8.4%.

Currently, Renewable energy accounts for 7% of the world’s energy demand.

Implementation of government initiatives to curb carbon emission is expected to drive the growth of the market.

The Industry Renewable energy is derived from natural sources.

Solar, geothermal, wind, bioenergy, hydropower, and ocean power are some of the major sources of renewable energy.

Renewable energy growth is poised to accelerate in 2022, as concern for climate change and support for environmental, sustainability, and governance (ESG) considerations grow and demand for cleaner energy sources from most market segments accelerates

Renewable market, By type In 2020, the hydroelectric power segment was the largest revenue generator, and it is anticipated to grow at a CAGR of 6.5% during the forecast period, followed by solar and wind.

Globally, solar PV electricity generation is expected to increase by 145 TWh, almost 18%. Wind, Geothermal & Bio energy is set to follow the same path in upcoming years.

Renewable market, By region Asia-Pacific renewable energy market size is projected to grow at a CAGR of 9.6% during the forecast period and accounted for 35.2% of renewable energy market share in 2020. China is the leading producer of bio-electricity followed by USA. Renewable market, By End use The Residential segment acquired the top position of the global market in 2020, and it is anticipated to grow at a CAGR of 8.4%.

Rooftop solar energy systems to generate electricity is a common sight in industrial areas KNOW YOUR SECTOR | 18

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Industry trends In such a competitive and complex industry, evaluating financials is not enough.

A more holistic evaluation of industry trends can provide the true picture of the sector: New Technologies Private investment and pilot projects combined with government support could help expedite commercialization of emerging technologies such as green hydrogen, advanced batteries, and other forms of long-duration storage.

Infrastructure Development Transmission development is expected to be an important part of the renewable energy industry’s agenda in 2022.

Enhancing the capacity of existing lines and building new lines could be key in solving the transmission challenge.

Supply chain ecosystem The renewable energy industry is likely to continue to evolve supply chains, as profits have suffered recently amid logistics-related cost pressures and US-China trade tensions.

Sustainable growth Industry stakeholders, regulators, and policymakers have started exploring solutions for extending the life and increasing the performance, recovery, and reuse of products and materials to promote sustainable gro

19 | KNOW YOUR SECTOR

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Impact of Covid-19 The renewable energy market has been negatively impacted due to the wake of COVID-19 pandemic.

The pandemic severely impacted the wind turbine manufacturing in countries such as China and Germany. The limited availability of spares and manpower for maintenance due to the pandemic is a major problem that affects the market growth. Furthermore, project delays and cancellation of orders has affected the key markets.

Road Ahead A shift in trend toward use of localized energy procurement can be seen in the recent years.

Various government bodies in countries such as India have taken the advantage of community choice aggregation (CCA) policies, which permits government to procure renewable energy resources on behalf of their constituents while retaining their existing electricity provider for transmission and distribution services. All these factors are expected to offer future growth opportunities to the global renewable energy market.

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NOV'21

A R T I C L E O F T H E M O N T H ESG INVESTING: PUTTING THE ENVIRONMENTAL, SOCIAL & GOVERNANCE IN THE PROFITABLE

BY NISHANT KUMAR SATYAM & VASU GOLYAN IIM INDORE

Introduction Environmental, Social and Governance investing has taken the financial world by storm, and it has received a fillip in the years of the pandemic. Pandemics and environmental challenges have come to be viewed similarly by investors in terms of impact, and as Covid-19 presents the first major sustainability challenge of the 21st century, the corporate world has awoken to its increased relevance in the upcoming years.

The pandemic has proved to be a catalyst for ESG concerns all around the world, in terms of where investors want their funds to be parked, and how companies adapt in order to be more ESHinvestment friendly. Thereby, it becomes important to understand the relevance of this trend on the investment as well as the corporate world, its impact on how companies go about their businesses, and what the future beholds for the ESG way of investing.

ESG: Present-Day Relevance & Drivers But the pandemic has not been the only thing going forward for ESG investors or corporates. A host of other factors have been at play silently for years, which further validates the spotlight that the trend is enjoying currently. Some of these factors are: Hyper-transparency: Mounting empirical evidence is driving the speed at which ESG concerns are becoming material to corporates.

A host of industry 4.0 technologies such as artificial intelligence, blockchain, and virtual reality are creating unprecedented levels of transparency. These shifts, along with changing regulations in some form or the other across countries, have enabled investors and other stakeholders to look beyond just publicly reported ESG data.

Stakeholder-Activism: Emphasizing Freeman’s holder theory, key

stake

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Increasing Importance of ESG Adoption for Customers, Employees & Corporates Alike

organizational influencers— such as the media, public figures, or NGOs—can increase the materiality of a sustainability issue to businesses.

Given the informational hyper transparency that exists today, when these stakeholders disseminate evidence, they create narratives that change societal expectations from corporates and prompt action by regulators or investors. For example, the world’s largest wealth fund Norway’s Sovereign Wealth Fund with assets over one trillion dollars, declared that it’s working on a strategy to ensure that its investments live up to the carbon neutrality goals as set by the Paris Agreement.

Societal Expectations: At the societal level, materiality of information evolves driven by the influence of key decisions makers, within the organizational hierarchy.

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Headed by legislation-making policymakers, purchasingconsumers, loan-sanctioning banks, or employees in a competitive recruiter-market, these influencers can have a direct impact on a company’s profitability, as well as its existence as a going concern in the years to come.

ESG: The Investor Impact Now that we have established the relevance of ESG, let’s take a look at its impact across various facets of the business world. As expected, the phenomenon is not limited just to investors or companies, but the entire valuechain has become much more aware about these issues, including suppliers, employees and of course, consumers. Even the regulators and governments are taking proactive steps towards integrating environmental, social and governance-based concerns in their policymaking. The following points validate the same:

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Consumer Attitude: As per a BCG analysis, nearly 72% of European consumers reported choosing products that came in environmentally friendly packaging.

Another 46% of consumers worldwide said that they would choose eco-friendly products over a preferred brand if given a choice.

Employees: Another BCG research revealed that nearly 67% of millennials expect their next employer's organization to be purpose-driven and their jobs to have a societal impact.

More importantly, such employees are also more willing to criticize their employers' climate policies publicly. Many such employees are forming ESG-advocacy groups or submitting shareholder proposals to drive change on the ground.

Policymakers: Germany, for example, the government recently decided to phase out coal power by 2038. On an international scale, multilateral agreements have garnered more and more participation, with the emphasis being on sustainability and equity.

In the investing world, investors perform two core functions with respect to the ESG trend. The first one is decisional. Investors have increasingly started to evaluate companies from an ESG perspective, apart from the usual

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standard financial metrics. These concerns now weigh heavily on portfolio construction and asset allocation.

Which in turn, determines where capital flows.

The second function is influential.

Investors shape the market and the workings of organizations by pushing for greater transparency.

Their control over capital flows gives them the leverage to do so.

The Brumadinho dam disaster serves as a good example of this.

In its aftermath, the Investor Mining and Tailings Safety Initiative, which was formed by investors representing a cumulative $13 trillion in assets, called on nearly 700+ companies active in the mining-extraction industry to routinely disclose information on their tailings storage facilities. This prompted the creation of the first global database of tailings dams.

ESG Integration for Effective implementation Going ahead, ESG investing seems to have a bright future and is set to fundamentally redefine how investments will be made in the future. We can expect more and more MNCs to adapt their practices in order to be ESG compliant. As mentioned above, this shift would not only be from an investor-oriented push but due to pressure from all stakeholders including employees, consumers, governments etc. ESG investing is set to play an important role in how the world as a whole delivers on its sustainability promise.

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But there are a few hiccups along the way. ESG funds tout their relatively strong returns.

Yet, they don’t make clear that the real drivers are sectoral characteristics, riding on global business cycles. For example, a heavy emphasis toward technology companies that have seen above-average rates of growth can partially explain the above normal returns and not just ESG practices alone.

However, the ESG trend will allow leading asset managers to carve out a differentiating niche for themselves in the domain of portfolio construction.

In the upcoming years, the ability to create a portfolio that reflects how a client thinks about sustainable investing will transform the ESG product landscape.

Personalized investment portfolios will be the way to go for many climateconscious HNIs, who wish to invest responsibly. Institutions, advisors, and individual investors will increasingly be able to express their views on what they want to own and act accordingly.

This level of thematic customization would generally require an expensive and complex separately managed account (SMA) structure and the associated tracking and operationalization costs.

But emerging mechanisms such as direct indexing and fractional ownership have broken down that barrier, granting such investors the weapon of "choice" at a very 23 | ARTICLE OF THE MONTH

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low price. The future will behold an era where asset managers will be able to build deeply personalized portfolios involving small sums and do so at scale while representing the client's preferences.

Concluding Opinion & the way forward In our opinion, strong performance with regard to ESG factors such as carbon-reduction & enhanced gender-equality can unlock a significant positive impact for society, companies, and investors. Similarly, integrating future-ready ESG considerations into strategy and practice will lead to long-term business resilience and improved allocation of capital.

We believe that consumers, activists, and employees all play a role in determining which ESG issues become material to the business, but companies & investors can become influencers in this materiality-process.

Adopting an ‘always-on’ approach towards such aspired materiality allows investors to develop a competitive advantage through the optimization of performance with respect to issues that are material, both currently & in the future.

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A Framework for ESG Integration at the Investor’s Level

There is simply no denying that sustainable investing is a indeed both messy & confusing as well as an exciting topic for assetmanagers, with the potential to stirr up the industry & develop new sources of competitive advantage. The scale will continue to matter, performance will always matter, and so will fees.

But now, sustainability will matter as well. At its roots, the best investor has a deep-desire in understanding how the world works.

Markets, economies, & people are all connected, as they always have and only now can we put a name to it—ESG. We think that integration of these concepts will be key to how successful they become, and we acknowledge that there is indeed grave confusion regarding the integration of material ESG-info into the investment decisionmaking process. The translation of data in the form of ESG scores to meaningful cashflow impact, is a rather new line of thought for many, and the lack of empirically-

established links doesn’t help the cause either.

At the end, we believe that in order to effectively integrate, investors need to acknowledge ESG info for what it is—a highly flawed, yet meaningful source of data that operates alongside the traditional investment criterion.

Much like other data sources—be it credit scores or investment notes, ESG data is not be taken at face value; rather it is imperative that asset managers should engage in doing their own homework aided with the triangulation of numerous sources of internal & external information, allowing for increased confidence in their decision-making process as well sift the credible information from noise.

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D E A L S B R E W E R Y FLIPKART'S MOVE TO VENTURE INTO PHARMACY SPACE

Deal Highlights Flipkart-SastaSundar agreement comes as API Holdings, the parent company of PharmEasy, India's largest e-pharmacy, has filed draught documents with the Securities and Exchange Board of India (Sebi) for a Rs 6,250-crore initial public offering (IPO).

Flipkart just acquired SastaSundar.com, a Kolkata-based digital pharmacy, and online healthcare platform.

With a network of over 490 pharmacies, SastaSundar.com has delivered to

We are excited to enter this space through this investment in SastaSundar.com, a company that has established itself as a trusted partner for lakhs of consumers through genuine products, a technology-powered platform and a wide network.

- Ravi Iyer Vice President and Head, Corporate Development, Flipkart 25 | DEALS BREWERY

affordable and easy healthcare to thousands of customers across India.

Flipkart has made its entrance into the healthcare sector as a result of the partnership with the introduction of Flipkart health plus.

About Flipkart The Flipkart Group is one of India’s leading digital commerce entities and includes group companies Flipkart, Myntra, Flipkart Wholesale, and Cleartrip.

The Group is also a majority shareholder in PhonePe, one of the leading Payments Apps in India.

Started in 2007, Flipkart has enabled millions of consumers, sellers, merchants, and small businesses to be a part of India’s digital commerce revolution, with a registered customer base of more than 400 mn, offering over 150 mn products across 80+ categories. The group's efforts are to democratize commerce in India, drive access and affordability, delight customers, create lakhs

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Deal Synergies

of jobs in the ecosystem, and empower generations of entrepreneurs and MSMEs have inspired us to innovate on many industry firsts. Flipkart is known for pioneering services such as Cash on Delivery, No Cost EMI and easy returns – customer-centric innovations have made online shopping more accessible and affordable for millions of Indians.

Together with its group companies, Flipkart is committed to transforming commerce in India through technology.

About SastaSundar SastaSundar was founded in 2013 by B.L.Mittal and Ravi Kant Sharma. With its unique model of Personalised application of Technology and Network of Pharmacies, the model has been proven to be the most efficient both in terms of cost and consumer experience.

SastaSundar is backed by Globally acclaimed Investors from Japan namely Mitsubishi Corporation and Rohto Pharmaceuticals.

Flipkart Health+ will combine the Flipkart Group's assets, such as its pan-India reach and technical capabilities, with SastaSundar's deep knowledge to provide consumers with end-to-end health-tech ecosystem services. It will endeavor to provide quality and affordable healthcare to millions of Indian consumers, beginning with e-pharmacy and expanding to include other healthcare services like ediagnostics and e-consultation as time goes on.

For SastaSundar, it will give the opportunity to further grow and reach a larger consumer base, using complementary technologies and logistics infrastructure.

The synergies between the Flipkart Group and SatsaSundar.com, combined with our commitment to prioritizing our customer’s needs, will help us grow and transform online healthcare in India.

- Ravi Iyer Vice President and Head, Corporate Development, Flipkart DEALS BREWERY | 26

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FINSUPERVISE REAL ESTATE INVESTMENT TRUST

Overview India is a country dominated by the majority of the household savings invested in real estate.

The affinity towards purchasing a property is prevalent by the fact that 84% of the average Indian household’s wealth is tied up in real estate and physical properties. They were introduced

by SEBI to the Indian markets in 2007, almost 50 years after they were recognized as investment vehicles.

There is a lack of awareness about Real Estate Investment Trusts in India in spite of them being finally included in Nifty Indexes from this year.

What are REITs A real estate investment trust (REIT) is a company that owns, operates, or finances incomegenerating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. It is created by a sponsor, who transfers the ownership of the assets from a special purpose vehicle (SPV) to a REIT in exchange for its units. The sponsor is 27 | FINSUPERVISE

obligated to hold certain units of the REIT. The remaining units are issued to investors through a public issue of the REIT. These proceeds are then used to purchase the real estate assets and properties.

Subsequently, tenants of the assets owned by the REIT will pay lease rentals to the SPV that manages the asset.

After statutory dues and tax deductions, lease rentals flow to the REIT & it distributes at least 90% of net distributable cash flows as dividends to the unitholders.

In this way, REITS provide retail investors with an opportunity to invest in commercial real estate and generate a stable rental income without having to buy, manage, or finance any properties themselves.

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Advantages of REITs

mammoths like Blackstone and KKR into the real estate industry.

Further, SEBI has relaxed rules for investors to promote the growth of REITs. The minimum lot to be bought has been reduced to 1 unit from a previous lot size of 100 units and the minimum subscription amount is reduced to Rs.10000 from the previous requirement of Rs.50000.

1.9 Liquid Assets 1.9 Inflation Hedge Tax Benefits Steady flow of income Exposure to Real Estate

Tips to assess REITs

Portfolio Diversification Capital Appreciation

Publicly listed REITs in India 1) Brookfield India Real Estate Trust REIT 2) Embassy REIT 3) Mindspace REIT

Rules Governing REITs in India 1) SEBI regulations require REITs to invest 80% of their assets in developed and income-generating assets.

2) Currently, REITs are allowed to invest only in commercial real estate and office spaces.

3) They need to distribute at least 90% of their rental income as dividends once in 6 months.

1) Compare the performance parameters like the occupancy rate, geographical and sectoral diversification, re-leasing spread, and rolling renewals.

2) Consider consistency of income flow 3) Invest in REITs backed by fund houses and corporations with a transparent and consistent track record.

4) Scrutinize the performance of the management team.

Conclusion India is a country of savers and discretionary investors, where a majority believes in capital protection rather than return generation. This trend has only accelerated in the wake of the pandemic, providing an excellent opportunity for the recognition and excellent adoption of REITs that fit into the mindset of Indian investors.

The Indian REIT market is expected to be valued at $30-35 billion by 2030. The quick growth is fueled by the entry of PE FINSUPERVISE | 28

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SOMETHING NEW SOMETHING OFFERED LATENT VIEW ANALYTICS

Overview Incorporated in 2006, Latent View is one of India's leading pure-play data analytics services companies. Their expertise lies in the entire value chain of data analytics, from data and analytics consulting to business analytics and insights, advanced predictive analytics, data engineering, and digital solutions.

Through its subsidiaries in numerous locations, the company services clients in the United States, Europe, and Asia.

Areas of Operation Consulting Services Entails identifying relevant business trends, issues, and opportunities, as well as developing a data and analytics initiative roadmap to solve them.

Data Engineering Design, architect, and deploy the data foundation needed for analytics.

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SUBSCRIBED: 326.49 times IPO: ₹ 600 Cr FRESH ISSUE: ₹ 474 Cr OFFER FOR SALE: ₹ 126 Cr

Business Analytics Provides clients with research and insights to help them make more accurate, timely, and effecient decisions

Digital Solution Develops solutions for working on automating corporate operations, forecasting trends, and generating actionable insights.

Company Management Financial Valuation 0

2.5

5

7.5

Scorecard of the Company Positive

Negative

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Wide-range of capabilities

Relationship with blue-chip clients

Client Concentration

STRENGTHS

Industry tailwind

Intense Competiton

Constant upgradation of technology required

RISKS

Rising Net Cash Flow

Latent View IPO The company raised 600 crores, which was split into two halves. both a new issue and a for sale ad setting a new subscription record with bids worth Rs.1.13 trillion.

The purpose of earnings is to put to good use in order to manage working capital, investments in subsidiaries, as well as funds for inorganic growth initiatives for growth The business, got off to a good start. on the stock exchanges, with a big initial public offering (IPO). The price band of the offer was fixed at Rs.190-197 per share. The stock traded at a 178 percent premium to its issue price of 197 per share.

The stock increased by 169 percent intraday. As per experts, the IPO was valued at 42.6x FY21 earnings and 43.7x FY22 annualized earnings which is a decent price. The portion reserved for retail bidders was subscribed a whopping 123 times, whereas non-institutional bidders' quota was subscribed 882 times.

Institutional investors made bids 151 times their portion.

Foreign Exchange Risk

Investors flushed with liquidity to subscribe for the IPO. It came amid a 150% premium for the shares in the unofficial grey market.

Conclusion Stable and regular revenues, high operating leverage, and low capital requirements underpin the company's business strategy, all of which contribute to a robust free cash flow. It has a high degree of income visibility due to its high levels of client retention and shifts toward multi-year engagement contracts. The growth in IT Sector is expected to be largely driven by investments in digital technologies, as enterprises scale up digital transformation efforts across business units. The investment in digital technologies is expected to double from the 2020 levels to around $2.4 trillion in 2024. The investment in digital technologies is expected to double from the 2020 levels to around $2.4 trillion in 2024

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LET'S FIN UP! THE CROSSWORD

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Across 1. Fall in value of asset overtime (12) 4. Mutual fund scheme that invests in shares forming an index (9) 5. China's currency (4) 8. Returns after reducing taxes and inflation (4) 9. Regulatory authority of capital markets in India (4) 11. Possibility of loss (4) Down 2. Share of profits paid to shareholders (9) 3. Amalgamation of two companies (6) 4. Money paid to the owner of copyright or patent (7) 5. Legal Agreement (8) 8. India farm credit is regulated by (6) 10. Liberalised MSME AEO Package scheme introduced by (4) LET'S FIN UP! | 31

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.

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ISSUE III • VOLUME XV • NOV'2021