Dear Niveshaks, This month, we focus the lens on the economic scenario prevailing in the country which has been an area of contention for quite some time now and the way the Government of India is focusing on tackling it with a range of new economic policies and existing ones going through a lot of significant changes. This month’s Cover Story titled ‘Changing government policies – Just plain Volatility or Transformation?’ examines the particular topic and also discusses how these policies are shaping up. ‘The Month That Was’ provides you with a summary of the happenings in the financial world in the previous month. High fuel price and a further push in India’s demand for fuel has caused the prices to touch a two year high. India’s rising inflation is a cause of concern and is inciting worries towards a situation of Stagflation. The column discusses the BSNL-MTNL disinvestment plan and how India’s sovereign rating is being pondered upon based on the current economic slowdown. It also talks about Future retail raising $400 million, one of the significant capital infusion by a company in November. The company scanner section talks about ICIC Bank, the monumental affect on the performance of the company with the change in leadership, Mr. Bakshi taking over the reigns from Mrs. Chanda Kochhar. Despite the hiccups in 2018, the bank has emerged as the top performer with a 45% climb in 2019. As every month, the section on NIF brings you the latest standing of the Niveshak Investment Fund.
The Deals in Brewery section ponders upon the current Mega public sector bank mergers, the rationale behind it, and what it is going to bring on the table for the Indian economy in the coming days. In the FinView section, we put forth the views of Mr. Sanjeev Sanyal, the Principal Economic Adviser in the Ministry of Finance, Government of India. His insights on the current world economic scenario; how India has grown, i.e. a brief discussion on its trajectory over the years; the way China has been shaping up and the significant changes they have adopted in their economic policies. It also shares his views on the significance of sustainable economic development. The Classroom section for the month educates the readers on the Money market instruments in India. We wish you, our readers, a happy reading experience. Stay Invested, Team Niveshak
All images, design and artwork are copyright of IIM Shillong Finance Club Š 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.
THE TEAM Aman Jain Harsh Jain Rajat Magotra Rohit Garg Shreyansh Parakh Suchitra Mandal Trisha Waghela Vinti Singla Yukti Rajpal Harichandana Hulash Goyal Ishan Pandey Megha Rekhani Mehak Shivangi Siddhant Saha Tushar Gera Vignaesh S
CONTENTS NIVESHAK: November 2019
6
The Month That Was
11
8
Cover Story: Changing Government Policies – Just Plain Volatility or Transformation?
Niveshak Investment Fund
14 16 20 DEALS IN BREWERY
FINVIEW
THE COMPANY SCANNER: ICICI BANK
21 CLASSROOM: IMONEY MARKET IN INDIA
NIVESHAK | NOVEMBER 2019
TMTW
THE MONTH THAT WAS
increased 23.4% to 2.27 million tons and Naphtha sale rose 2.5% to 1.25 million ton in November. Government rules out the possibility of BSNL-MTNL Disinvestment The Government ruled out any plans to sell stake in the loss-making PublicSector Units BSNL and MTNL. Ravishankar Prasad, the Union Telecom Minister, declared that the target for asset monetization for BSNL and MTNL is ₹ 200 crores and ₹ 300 crores, respectively, in the current fiscal year. BSNL posted a loss of ₹ 14,903 crores, and MTNL posted a loss of ₹ 3,398 crores in 2018-19. The loss-making PSU plans to revive through the merger of BSNL and MTNL, which aims to achieve synergy in operations, reduced fixed costs and overheads, sharing of technical infrastructure, and enhanced Enterprise Business.
.India’s rising Inflation incites worries of Stagflation India saw a rise in its retail price Inflation in November to a 40-month high, in spite of the country going through a phase of the economic slump. The annual retail inflation increased to 5.54% in November, as compared to 4.62% in October. Last month, former Prime Minister had also warned that the country might be heading towards Stagflation, with increasing Inflation coupled with rising unemployment and stagnant demand, with the growth rate slipping to a sixyear low of 4.5%. This is also the second month in a row that Inflation has remained above the central bank’s medium-term target of 4% while the demand rose 1.2% that ended in November, with consumption falling for four months straight signaling a worsening slowdown.
S&P to downgrade India’s sovereign rating if the economic slowdown persists Standard & Poor Global Ratings has said that it would downgrade India’s sovereign rating if the country’s economic growth does not recover. India’s current rating is BBB-, which is its lowest investment grade rating to date. This has been a result of the Government’s fiscal position, given the sluggish revenue collection due to the corporate tax rate cuts. S&P has downgraded the forecast for India’s GDP growth to 5.1% for Financial
India’s fuel demand growth hits a two year high in November India’s fuel demand grows 10.5%, the fastest since January. The total consumption of refined fuels was 18.77 million tons in November, according to the preliminary data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry. The major contributors were: Gasoline or Petrol, whose sale rose 9% from a year earlier to 2.53 million tons, Liquified Petroleum Gas (LPG) sale [6]
NIVESHAK | NOVEMBER 2019
TMTW
Year ending 2020. The economy expanded 4.5% in the second quarter of July-September, slowing for a sixth straight quarter.
expected to hit the market in January 2020 for the bond issuance. The exercise is aimed at helping the company reduce related party transactions and boost EBITDA (earnings before interest, taxes, depreciation, and amortization) by eliminating lease rental payouts to Future Enterprises, which amount to close to $100 million per annum.
Future Retail to raise up to $ 400 million through dollar bonds Kishore Biyani led Future Retail plans to raise $ 400 million through the sale of dollar bonds. The company is
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NIF PERFORMANCE EVALUATION As on Nov 30, 2019
Performance of Niveshak Investment Fund since Inception
November Month's Performance of NIF 300
104 102
250
100
200
98 96
150
94 100
Scaled Sensex
Scaled Portfolio
50 0 1 69 137 205 273 341 409 477 545 613 681 749 817 885 953 1021 1089 1157 1225 1293
11/29/2019
11/27/2019
11/25/2019
11/23/2019
11/21/2019
11/19/2019
11/17/2019
11/15/2019
11/13/2019
11/11/2019
11/9/2019
11/7/2019
11/5/2019
11/3/2019
90
11/1/2019
92
Series1
Series2 Value Scaled to 100
Total Investment Value: 10, 00,000 Current Portfolio Value: 19,53,385 Change in Portfolio Value: -4.23% Change in Sensex: +1.56%
Risk Measures: Standard Deviation NIF: 35.66 Standard Deviation Sensex: 24.37 Sharpe Ratio: 2.56 (Sensex: 3.90) Cash Remaining: 1,46,352
Comments on the Equity market and NIF’s Performance This month NIF was dragged down by lowly market sentiments. Logistics firms faced the pinch of the slowdown and stocks such as Blue Dart saw a considerable fall (-14.19%) in the month. Due to lack of clarity on US waivers on Iranian oil sanctions and constant fluctuation of global crude prices, investors shied away from the petrochemical industry. Sensex showed timid returns of less than 2% in the month of November in the wake of slowdown Biggest turnaround stock for NIF was Indiabullls Housing showing a growth of almost 32% when in the month of October it fell by 22%. Key reasons for this turnaround was the statement by government in Delhi High Court that they did not find any irregularities in loans given by them. India’s GDP growth slipping below 5% and subdued inflation, many investors feel that this is the trough and an expansionary phase is just round the corner. [8]
NIVESHAK INVESTMENT FUND NIF Sectoral Weights
INDIVIDUAL STOCK WEIGHT AND MONTHLY PERFORMANCE Monthly Performance Portfolio Weight
7.34%
2.09% 1.84%
11.78%
2.56%
11.48%
9.48%
12.45%
6.23%
34.73%
Auto
Infrastructure
Chemical
Media
Financial Services
FMCG
Pharma
Telecommunication
Misc
Services
Top Gainers for the month
32.85%
Indiabulls Hsg
8.90%
Westlife Dev
5.74%
Dr Reddy's
Top Losers for the month
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-14.19%
Blue Dart
-12.42%
NOCIL
-12.21%
Speciality Rest
COVER STORY Changing Government Policies – Just Plain Volatility or Transformation?
NIVESHAK | NOVEMBER 2019
COVER STORY
From IBC code, through altering Ecommerce policies, towards changing constituents of AGR for telecom industry, our economy has borne the impact of all the government policies whether positive or negative. We’ve seen a lot of changes in recent years in terms of changing and rolling out of new policies as an attempt to reconcile the them with constantly reconstructing environment constituting technological, environmental, social, legal or political aspects of it. These changing rules and regulations have definitely led us to a noticeable transformation of the country in both economic and financial terms. There are many policies and rules whose roll out was imperative and have contributed a lot towards improvement in economic conditions. Also, there has been a significant share of those which have plainly brought in volatility, disrupting the routine functioning of markets and economy in the most effective possible way. The following are some breakthrough policies and their respective effects on our economy: IBC CODE: The Insolvency and Bankruptcy Code came in 2016. This was introduced to untangle a debt of INR 10 lakh crore as varied as cement, steel, real estate, infrastructure financing and jewelry. It was one of the most progressive, determined and ambitious policies that the country had seen. IBC mandates that if an asset becomes insolvent, it should be resolved in 270 days. If the bids are
accepted by the creditors, the assets should be liquidated at the minimum price assessed by the professional managing the process. One of the most vivid and prominent example of the red tapism and bureaucracy witnessed in the functioning of the policy like any other government initiatives and organization is the case of Essar steel insolvency. It took more than 600 days since the INR 5000 crore account entered IBC. As per the data on December 2018 by IBBI, out of the 1484 cases submitted for Corporate Insolvency Resolution Process (CIRP) only 586 got resolved. There are cases which are taking a whole lot of time to get resolved, there had been many cases that had been waiting to even get admitted like Visa Steel.
RCEP:
On November 5, 2019 India decided to opt out of Regional Comprehensive Economic Partnership (RCEP). The demand is India has been spurred by various populism measures including increasing the disposable income of households, providing subsidized goods etc. none of the measures are sustainable. [11]
NIVESHAK | NOVEMBER 2019
COVER STORY
There has been a notion that consumption will continue to drive the investment in the country until the investment reaches a certain threshold. Either this threshold has been diverted away from or the theory doesn’t have relevant implication. This takes us to a conclusion that the domestic demand is not enough to spur the investment cycle in the nation and hence exports become imperative for the nation. The Economic Survey of India 2019 also states that exports from the country can be the only turning point the stimulating factor for our current descending economy. Thus in the wake of the current situation, the GOI taking such a step doesn’t justify its whole process of ‘efforts towards reviving the economy’. We should not forget that the protectionism policy during 1960-85 backfired in a big way. It could actually derail India’s efforts to maintain a free and open economic system. Moreover, the decision could have grave geopolitical implications as Japan was really looking forward to India’s participation to pressure US to track back to the trade framework and also keep China’s domination under control. Super Rich tax: The government under The Union Budget 2019-20, introduced a new tax for Super Rich investors according to which the people having an income level of INR 2-5 crores , the effective tax rate has increased from 35.8% to 39% and for those who have income above INR 5 crore, the effective tax rate increased from 35.8% to 42.7%. [12]
After the decision FPIs pulled out more than 3 billion from the market putting pressure on stocks and the rupee. A lot of fluctuations were seen in the markets. FPIs pulled out a total of INR 7712 Cr. in July from equities. The government wanted to address the inequality in distribution of income through this newly introduced tax and the flow of funds in the capital market. On September 20, 2019 the government rolled back the ’Super rich tax’ for all domestic and foreign investors with Sensex gaining most in 10 years.
AGR and Telecom sector: Liberalization struck the telecom sector in 1994, where licenses were being given to the companies in lieu of
NIVESHAK | NOVEMBER 2019
COVER STORY
a fixed license fee. In 1999, the government gave the telecom companies an option to move to ‘Revenue Sharing Model’, wherein the companies were required to share a percentage of their AGR with the government forming their LF (License fee) and SUC (Spectrum Usage Charges). The dispute arose on what actually constituted of AGR. The companies’ definition of AGR comprised of revenues from only Core activities and not any form of dividends, interest or any sort of income on fixed assets. DoT said that AGR would include all revenues from core and non core activities. In 2015, Cellular Operations Association Of India (COAI) appealed to TDSAT (Telecom Dispute Settlement and Appellate Tribunal) which stayed the case in favor of telecom companies and AGR comprised of only revenue from core activities but the Supreme court on October 24, 2019 upheld the definition of AGR as stipulated by DoT. Due to this, the companies have come under a debt of about INR 92000 Cr. to the government. In the wake of falling ARPUs (Average Revenue Per User) and cut throat competition, the profits of telecom companies are already under pressure. Thus the companies have been highly affected by the same and in any case won’t be able to pay the piled up debt within the stipulated time. Disinvestment: The government is trying to cover up the gap in fiscal deficit by aiming to raise an additional [13]
INR 52000 Cr. by disinvestment in 24 PSUs. The government is anticipating a gap of INR 40000 Cr. in GST collections as compared to that budgeted for 2019-20. Where on one hand, Niti Ayog has already stated and suggested the names of prospective PSUs, RSS leaders have started protesting against the merits of disinvestment. Thus the changing and contradicting government policies and their volatile implications not only removes stability from their own domestic investors but also creates a sense of apprehension for investment from foreign investors which dismantle the whole investor confidence, making India less of a favorable destination for investment. At this point of weakening economy, we really need some strong and stable policies to not only boost investor confidence but also turnaround the economy.
NIVESHAK | NOVEMBER 2019
DEALS IN BREWERY
DEALS IN BREWERY MERGERS,ACQUISITIONS AND TAKEOVERS Last August, Finance Minister, Nirmala SItharaman, announced the ongoing merger of ten PSU banks into four PSU banks. Six weaker PSU banks will be amalgamated with four anchor banks .weaker banks being Oriental Bank of Commerce (OBC), Allahabad Bank, Corporation Bank, Indian Bank, Vijaya Bank, Dena Bank, Andhra Bank, Bank of Maharashtra, UCO Bank, Syndicate Bank, Indian Overseas Bank, IDBI, Central Bank of India. Anchor banks being PNB, Bank of Baroda, Bank of India, Canara Bank, Union Bank of India. Apart from this, the government announced Rs 55,250 crore upfront capital infusion in the PSBs. The rationale behind these mergers is to improve operating efficiency, governance, accountability, and also to provide effective monitoring. When we look at the anchor banks and merger banks, we will observe that not only banks with bad loans and weak operating metrics are being tied with stronger and efficient banks, but also they are being linked with banks working on a similar technological platform to ensure smooth integration. For example, from the merger of Syndicate Bank with Canara Bank as both have identical cultures and geographical presence.
Key numbers to look at: 1)the merger of PNB, OBC and United Bank will make it the second-largest PSB in the country with Rs 18 lakh crore business and second-largest branch network in India 2) consolidated Canara and Syndicate Bank will become the fourth largest PSB with Rs 15.2 lakh crore business and third most extensive branch network in India
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NIVESHAK | NOVEMBER 2019
DEALS IN BREWERY
3)The merged entity of Union Bank of India, Andhra Bank, and Corporation Bank will create India's fifth-largest PSB with Rs 14.6 lakh crore business and fourth-most extensive branch network 4) union of Union Bank of India, Andhra Bank, and Corporation Bank will create India's fifth-largest PSB with Rs 14.6 lakh crore business and fourth-most extensive branch network 5)Among the four mergers, the combined entity of Allahabad Bank and Indian Bank will have the lowest net NPA (non-performing assets), while boasting the highest provisioning coverage and strongest CASA (current account and savings account) franchise 6)Indian Bank's merger with Allahabad Bank will help it emerge as a strong entity with reach, improving provisioning coverage ratio (PCR) and healthy CASA ratio and the merged entity also has the least branch overlap 7) it will also lead to deterioration in
asset quality of Indian Bank owing to Allahabad Bank's unhealthy loan book As we can observe from the numbers above, Each of these mergers has its own merit and demerits. Merits of the mergers: A large capital base of the combined entity would help the acquirer banks to offer larger loan amounts Reduction in the recapitalization need from the government Customer service and service delivery can be improved Customers will have the option to choose from a wide array of products like mutual funds and insurance other than the traditional loans and deposits Demerits of the mergers: in the areas where multiple branches are there, It would be tough to manage issues pertaining to human resource and would lead to job loss Few large inter-linked banks can expose the broader economy to enhanced financial risks The identity of small banks won't be that prominent
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NIVESHAK | NOVEMBER 2019
FINVIEW
Sanjeev Sanyal
1. In
one of your interviews, you were quoted saying that china will transform from being the ”factory to the world” to “Investor to the world”. We have seen it become a reality with many developments going on in POK and other neighbor countries. Is there a cause of concern or latent opportunity of India that there would a room for India to take up the role of being the “factory to the world”? [16]
I began talking about the transformation of china almost a decade ago and it’s not surprising. there are other precedents to it like japan which went through the same cycle. So it was quite obvious to me that china will go through similar cycle at some point.as the demographics turn and as it became richer country, it would move on to doing other things. I do not mean in its entirety. but, it will begin to manufacture other kind of things in decade space. Similarly, as its investment rate begins to decline, obviously there is only so much real estate and bridges etc., to build, those extra savings they are generating internally will have to be deployed abroad.so, I am not at all surprised by these developments as you have mentioned yourself I have been talking about it for a while. Now, as china moves out, no doubt it does create a space and opportunity for us. As I told in the lecture I just gave you, the world is not a deterministic place. It is not obvious that because china vacates a space, it is necessary that India will go in there and occupy it by some right. It is something we to fight for. There are some other countries in the world whether its the Veitnam or the Bangladesh or the Indonesia will try to occupy that space. We need to compete and also remember that technology has changed. The kinds of things that may have been labor intensive may have been taken over by AI. It doesn’t mean there no spaces in supply chain that we cannot occupy. But, we have to make ourselves agile and respond to it. We cannot have the
NIVESHAK | NOVEMBER 2019
FINVIEW
rigid regulations and taxation systems or just even mindset. In order that we do respond to these evolving situations, which by the doesn’t mean only technology and economics, which includes geo-political situations and many of the things that drive economic dynamics are geo-political. So, I think there is certainly a case and meanwhile china itself is transforming to be a investor in the world. Of course there is this whole debate about OBOR. There is no doubt that the china ceases it. It is not just economic move but also geo-political move. We will see that will evolve as these things can evolve in many ways, not necessarily in ways even china envisaged. They have already witnessing all kinds of pushback in the countries they have invested. These are things complex systems are complex by definition and they go in unintended ways. It’s the agile responses to it that are going to lead to the winners, not necessarily to those who came up with grand strategy. 2) This question is not to the economist in you but to the writer of “land of seven rivers”.one of the greatest mindsets that prevail in the India is that the India never existed before 1947 and a lot of scholarship articles or readings are mainly focused on the India after 1947. But, your writings have been focused on how the India has grown and what its maritime history has been, but there is a dearth of scholarship on it. What you think about it? [17]
This idea that the India did not exist before 1947 is a colonial idea. Because colonizers imposed on us and they wanted to designate us as terra nullius, basically saying since you did not exist, we have colonized you and sort of, whatever you are, your civilization, political institutions etc., are our gift to you in our civilization mission. So basically colonizers wanted to say firstly, justify their own colonization, That is why Winston Churchill, well known imperialist, said “there is no such thing as India, Its no more united a country than the equator”. As it turns out, now we can that its turning out to be true for Britain. but, the point is this is an absurd way of thinking, yes it is true that the India for long parts of its history did not exist as unified entity. But it is also true of many other countries. Nobody says that china is not a country but that does not mean that China was always a unified entity. There were periods of time when it was unified country and there were large periods of time when it was divided into small kingdoms. Similarly, when we look at map of China, very often chinese like to show that their empires existed to the maximum extent. But, if you look at the actual history, the Tang empire only existed to the maximum extent for only the short period, may be a decade or two. Similarly, other times it was a large empire, it was not Chinese empire at all. It was empire of the Khublai Khan, who was mongolian emperor. similarly, the last time china was unified was under Manchu empire, who did not consider themselves as Chinese. Now
NIVESHAK | NOVEMBER 2019
FINVIEW
Chinese have colonized them and forcibly converted them into Chinese.so, we have to very careful about the fact that we have ended up accepting narratives about ourselves from others which they did not impose on other countries or on themselves.so, I ask why should we allow that to happen. We had narrative about ourselves as a civilizational nation for a very long time, it is very obvious from our texts, own behavior and how we think of ourselves. it is true that occasionally like in the Mauryan empire, we were united as large parts of the country and there were large parts of history when we were not united. But, that does not mean that we did not have any sense of being united nation. we were not united in sense of political unit but as civilizational nation. Sense of civilizational nation is not even unique to us, for example, the Greek states such as Sparta, Athens etc., were fighting with each other. But, every time Persians turned up they united.so, they clearly had a sense of nationhood because, for example, they had ancient Olympic games, they had cultural idea of themselves as a nation. similarly, the Israelis were divided into small kingdoms but they had sense of nationhood and that sense of nationhood is strong enough that in the 20th century they came and reestablished political entity based on that memory. The china has sense of itself as an ancient civilization or ancient civilizational nation and that drives many things it thinks of itself. That doesn’t mean that the borders of [18]
that nation stayed identical to as today.so, this is also true of us. Borders of modern state of the India does not coincide with the historical empires that have existed does not mean that we did not exist at all as civilizational nation or we did not have sense of nationhood. clearly, those who have fought for independence before 1947 were not fighting for nothing. they clearly had sense of nation they are fighting for otherwise why would they need to give up their lives. This was true of earlier periods as well such as people who revolted against colonizers before the 20th century. For example, Chatrapati Shivaji who had clear sense of liberating India from Mughal rule with clear idea of “Hindavi swarajya”. Also earlier periods like Gupta empire, they were very proud of the fact that they were pushing out the Druksha’s, the Huna’s etc.., when Gupta has risen, it has risen in opposition to Saka occupation of the western India. similarly, the empire of the Mauryan’s was clearly established in opposition to Yavana invasion. Idea of nationhood can be seen in texts predating to this such as it is clearly described in Vishnu Purana that the Bharatha’s as the people who lived to the south of snowy mountains of Himalayas, north of deep oceans. Similarly, Shankaracharya established his maths in the four corners of a geographical space. When we look at the location of Shakti peetha’s such as Hinglaj in the Balochisthan in north and Bhabanipur in the Bangaladesh, they are distributed over certain
NIVESHAK | NOVEMBER 2019 sacred landscape the same way our various pilgrimages are networked. there is an old sense of nationhood that have existed for a very long time which has mixed up in our civilizational memory, religious memory and also with our culture. This is not static over time, it evolved and over certain periods of time we may had different ideas of what this meant. for example, in the early medieval period, Indians would have considered the south-east Asia as part of their civilizational landscape.one of the interesting things is, if we read ancient texts, people of south-east Asia are never referred as barbarians even though they are different looking people caused they were within in the civilizational boundaries. So, in ancient times, they would have considered themselves as part of the India. This sense of Indianness is alive today in many ways. For example, we can see when Indonesia became free in 1949, it named itself as Indonesia, kept its symbol as Garuda and called its currency as Rupiah. Clearly, it is because of strong civilizational memory which does not just impact us but also other countries as well and they are proud about that heritage of civilizational nation. The problem is, because of certain ideological views that have later on became convenient to some political forces, they tend to look-down on this civilizational identity and ironically perpetuated colonial era ideas of imperial domination because
[19]
FINVIEW it serves their ideology. 3) As you are coveted voice for sustainable development, Globally there is a tall order with regards to the global advancement and its environmental impact and these concerns come in the way of largescale governmental and corporate projects such Ratnagiri project, metro projects etc..,what kind of paradigm shift you think is required on part of current leaders and existing corporates to reduce the friction between market stakeholders and environmentalists? I think we need to be very careful about this demarcation between market stakeholders and environmentalists. Unfortunately, the large part of the debate is taken over by ideologically driven activism very often which does not correlate with scientific facts. It is not to suggest that we should not have serious worries about plastic usage, climate change, water pollution etc.., but unfortunately much of the debate becomes ideologically charged captured by single issue activism which leads to larger debate getting thrown out of window. This is damaging both to the economy and environment. So, we should not take ideologically or politically charged decisions. we need to have practical tradeoffs and those tradeoffs must take into account matters of economy and also environmental wellbeing.
NIVESHAK | NOVEMBER 2019
THE COMPANY SCANNER
The Company Scanner ICICI Bank Formed in 1955, ICICI was an initiative of the World Bank, the Government of India and representatives of the Indian industry aimed at providing medium to long term project financing to Indian firms. Liberalization of Indian economy in the 1990s also witnessed the transformation of ICICI with the group promoting the ICICI bank in 1994 and thereby expanding its range of operations and services in the financial domain. In 1999, ICICI Bank became the first Indian company to be listed on NYSE. The long term vision of merging ICICI with ICICI bank was realized in 2002. ICICI offers various services and products ranging from online money transfer & tracking service to loans, automated lockers, credit card, debit card and digital wallet under its corporate and retail banking umbrella. The credit ratings of ICICI for their senior unsecured medium term notes as per Moody’s is Baa3 whereas as per S&P is BBB-. In 2018 ICICI Bank underwent a change in leadership with star banker Mrs. Chanda Kochhar deciding to quit following the allegations of corporate governance violations. The reigns were picked up by Mr. Sandeep Bakhshi who took over as the chief executive officer [20]
in October 2018. Despite the hiccup caused in 2018, the bank emerged as the top performing bank in India with a 45% climb in 2019 and obtained a recommendation consensus of 4.87 on a Bloomberg scale. The economic environment deteriorating and GDP growth rate taking a beating for 6 straight quarters with NPAs and shadow banking being cited as prime contributors, further emphasizes and crowns the growth trajectory of ICICI Bank. The month of November this year saw the bank hit its 52-week high of Rs. 518.60 on the 28th. The drivers identified by various pundits for the soaring performance of the stock include improving asset quality, progress in loan growth, net interest margin and insurance premium growth. As per Morgan Stanley’s analysis, ICICI Bank can double its share price in 2 years thereby crossing the Rs. 1000 mark. ICICI Bank entered a 2 year pact with Ashok Leyland on 25th November, 2019 under whose provision it would offer financing to buyers as the preferred financer with emphasis on semi-urban and rural locations. Time shall tell how this pact turns out, but for all practical purposes, ICICI has the backing of most of the analysts with buy status being flashed across the market for this bullish stock having a predicted rosy path ahead.
NIVESHAK | NOVEMBER 2019
CLASSROOM
CLASSROOM MONEY MARKET IN INDIA Money Market in India is a platform for short term funds whose maturity ranges from a day to one year. The market offers financial instruments which are deemed as close substitute of money, hence the name Money Market. Money Market acts as a source of short term credit to organisations apart from the conventional bank overdraft and loan facilities. It also acts as a source of investment for those with excess money. As a result it balances the demand and supply for money in the market, thereby aids in achieving the general equilibrium in economy. Money Market consists of players from both the organised and unorganised sector. Major players from the organised sector are RBI, public and private banks & NBFCs. Players from unorganised sector includes moneylenders, unregulated nonbanking financial intermediaries. Some of the major instruments traded in the Indian Money Market are: Call Money: Represents short term finance repayable on demand. The maturity period ranges from 1 to 14 days. The interest rate paid on the call money known as the call rate is highly volatile. It is highly sensitive to the demand and supply of the call money in the market.
The commercial banks have to maintain a minimum cash balance as specified by the RBI known as the cash reverse ratio. These are used as bridge finance by banks to maintain this ratio. Thus, it is predominantly an inter-bank market. These are majorly traded in metro cities like Mumbai, Delhi, Chennai and Kolkata. Treasury Bill: These are short term borrowing instruments of Government of India. They are issued as promissory notes at discount and are freely marketable. The difference between the discounted issue price and the redemption par value is the interest earned on these instruments. This comes with a negligible default risk and assured return. It is issued with various maturity periods like 10 days, 91 days, 182 days and 364 days by RBI. They can be further classified into adhoc and regular bills. Adhoc bills are invested in by the state governments, semi government departments and central banks of foreign countries as a source of temporary investment. Regular bills are invested in by the general public and banks. Commercial Paper: It is an unsecured instrument issued in form of promissory note. It is primarily issued by corporates as a source of [21]
NIVESHAK | NOVEMBER 2019
CLASSROOM
short term funds. It enables the corporates to diversify their sources of short term fund borrowings. For the purpose of issuing commercial paper, the corporates has to obtain credit rating either from CRISIL or ICRA or CARE or similar credit rating agency. It can be issued for a period ranging from 7 days to 1 year and are issued in multiples of â‚š 5 lakhs. They are issued at discount and redeemed at par value. The interest earned on these instruments is the difference between the two. Individuals, banks, corporates and NRIs can invest in this instrument.
It can be issued by scheduled commercial banks and All-India Financial Institutions (FIs) permitted by RBI. These are issued in multiples of â‚š 1 lakhs. Individuals, corporates, companies, trusts, NRIs can invest in certificate of deposit. Certificate of deposit issued by banks have maturity period ranging from 7 days to 1 year. The corresponding maturity period for FIs are 1 year to 3 years. These are freely transferable by endorsement and delivery. These can either be issued at a discount on face value or issued on floating rate basis. Issuing bank can freely decide the discount or coupon rate of the issue. Banks have to maintain appropriate cash reserve ratio (CRR) and statutory liquidity ratio (SLR) on the issue of these instrument.
Certificate of Deposit: Certificate of Deposit is a negotiable instrument issued in dematerialised form against funds deposited in bank.
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Fin.
ANNOUNCEMENTS ALL ARE INVITED Team Niveshak invites articles from participants from all B-Schools 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 cash prize of Rs. 2000/- along with a certificate.
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