The IBS Times- January 2015

BY AVIK

INTRODUCTION TO NEW ACCOUNTING STANDARDS OF INDIA CHAKRABARTY

THE IBS TIMES January 2015, Issue No. 177

ALL ABOUT E-IPO

BY SACHI KHESKANI

SECTORS TO WATCH OUT IN 2015

BY NAVJOTH SAHU

URUGUAY- THE BEST NATION?

BY ALISHA SINGH

NITI AAYOG CHECKMATES PLANNING COMMISSION EXPECTATIONS AND MOTIVES OF THE ALL NEW APEX PLANNING BODY OF THE NATION

BY MANJARI SHARMA & RAHUL MISHRA

FinStreet, IBS Hyderabad

ISSUE NO.

177

JANUARY 2015

What’s Inside 2

3

5

Scam

Letter from the Editor

Economic Dominance Come Back of the USA

The Petrobras Scam

7

10

13

Gyan Sangham

The New Accounting Standards Niti Aayog

15

17

20

Education Sector

All About E-IPO

Investments in 2015

22

24

27

Uruguay

Sectors to Shine in 2015

Banking Reforms

Industry Overview

Myth Buster All About UAE

Accounting

Cover Story

Regulation & Reforms

Economy in Focus

Outlook

Specific

29

Vriddhi’s Corner Orchid Chemicals and Pharmaceuticals

5

17

20 24

13

INTELLIGENCE BEYOND SUCCESS

“Together, we can create an environment where all of our companies play leading roles in bringing cutting-edge technologies, equipment, capital, and know-how not just to India but to countless countries that need this growth and development now,”- John Kerry, United States Secretary of State

Letter from the Editor

THE IBS TIMES Faculty Mentor

Dear Readers,

Dr. Ravi Kumar Jain

Greetings from Team FinStreet !

Cover Picture Source: http://www.igovernment.in/

Team IBS Times Chaahat Khattar (Editor-in-Chief) Akshay Gupta Atharva Solanki

Manisha Mohapatra Nikhil Acharya Nishtha Behl Shivam Tandon Vanika Sharma Alisha Singh Apoorva Anusha Avik Chakrabarty Kaushik Chandell

Kolisetty Sai Aishwarya Manjari Sharma Navjoth Sahu Priyanka Malik Rahul Mishra Ripu Daman Tandon Sachi Kheskani Sameena Usman Srishti Karmakar

As I write the last Letter from Editor for this session, my mind is filled with mixed emotions. I along with the entire FinStreet Batch of 2015 have been very attached to The IBS Times and we are sure that the new batch will take it to greater heights. Signatory to this letter will change but our magazine will always be an ocean of knowledge for its readers.

I am highly indebted to the interest of our readers and feedbacks from all across the nation which made sure that we keep learning and growing with every single issue.

My sincere thanks to fellow verticals Vriddhi Research and Events for their invaluable inputs both through the magazine and our regular feedback meets.

This edition of The IBS Times is dedicated to the victims of attack on French satirical weekly newspaper Charlie Hebdo. As an editor, one has to make most out of his/her right to free speech and expression. It is not scary but very disheartening to see that being targeted.

The cover story for the last issue of academic session 2014-15 of The IBS Times puts light on the recent formation of NITI Aayog- successor to the erstwhile Planning Commission. In this special international economy edition, we have analysed and researched on Uruguay, USA and UAE which in their respective geographies are doing really well.

The magazine also discusses the expectations from 2015 including the sectors which would stand out and the asset classes to look out for investments. This issue demystifies the recently revealed plan of SEBI to launch E-IPO and the proposed new accounting standards of the country. The magazine also covers industry analysis on the Education Sector. The magazine includes an exhaustive report from investment point of view on Orchid Chemicals and Pharmaceuticals Limited by Team Vriddhi Research.

Thank You for all your support. It was an honor to be part of FinStreet family.

We will make sure that our legacy continues and the issues of the most regular and read magazine of IBS Hyderabad, The IBS Times keep getting better.

Chaahat Khattar

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful..”- Warren Buffett

Economic Dominance

Comeback of the USA

- Srishti Karmakar & Kaushik Chandell

petroleum to collapse from more than $100 a barrel Looking at the recent data we see that fourth quarter

last summer to barely $50 a barrel at the end of 2014.

has shown falling numbers after averaging nearly

While oil prices may rebound in 2015, they almost

twice that rate in the second and third quarters. But

certainly won‘t return to $100 a barrel any time soon.

this is not a concern as this does not signal slower

So the gift will keep giving this year and further feed

growth in the year 2015. The positives for this year

an accelerating U.S. recovery. Year 2015, starts with a

are mainly fall in the unemployment, decrease in oil

forked road. One path leads to the recovery of world

prices and increase in wages and stronger investments

economy that policy makers have sought in vain ever

leading to higher output. The overall impact of all this

since the crisis of 2007. Lower oil prices, increased

factor may lead to a growth rate around 3% in 2015

spending and business investing, the world will start

for the first time since 2005 with Japan and the

to look like a revitalized USA. But the other track

Eurozone likely to grow just over 1% over the next

returns to the path of global recession. Problems

year and considerable growth risk in China.

stored since 2008-2009 cannot be contained any

Unemployment rate, recording at 5.8% in 2014 may

longer. Financial crisis in the emerging market,

fall down to 5.3% by the end of 2015. US can expect a pickup in 2015 monthly job gains to 250,000 –about 3 million for the year. Wage growth is likely to

China‘s hard landing, Greece struggle for survival in Eurozone and rest of the world stands there with just a blank face like Japan. Let‘s have a look at 5 major

bump up a small amount in 2015 to 2.4%.One of the

economic issues that‘ll make or break the world

main shackles on the economy over the past four

economy in 2015.

years has been stagnant wages. Hourly earnings have

Russia and the Ukraine

risen an average of 2% annually — just two-thirds of the long-term U.S. average. Businesses are already responding: Job openings in November hit the second highest level in 14 years. People quitting jobs are doing it for better pay opportunity and leading to much higher salary in their current jobs. It remained at a steady 2.2% rate in November about the same as last year. These gains will keep incomes and consumption fueling healthy economic growth.

With the economic breakdown of Russia, it looks like Russian economy will go into deep freeze in 2015.

Predicted fall in output is around 4.5% by the central bank. With 10.5 to 17% increase in interest rates, Ruble may stabilize and further depletion might be stopped but still it‘ll be of a greater cost than it appears to be. Two things are still very unclear, First, How Russian President Vladimir Putin will respond.

One side of the bargain laid by Mr.Putin offers a

At $2.35 per gallon, the price of regular unleaded

harsh leadership in Kremlin in return of rising living

gasoline is at its cheapest level in five and a half years

standards. On the contrary, a falling economy can

on 24th December 2014. Surging oil production along

spur Putin into national defiance which‘ll not only

with slower global growth has caused the price of

intensify the recession but will also have a negative

3|JANUARY 2015

impact on the nearby countries of Russia and

be low for China, but the question is how much low

Eurozone. Second, Will Russia get the privilege of

will it be? An economic slowdown will affect the

special case or not. If it is considered as a part of

world economy in two ways, first, exports to China

special case, then the biggest fear will be that it‘ll set

will fall and as a result tools and materials being

a chain of reaction across other emerging markets like

exported from Germany and Australia to China for

Turkey and Indonesia that are attracting a lot of

industrial expansion will decline. Second, China will

footloose market capital generated by the money

deflate the prices all over the world as the prices are

creation programs of the world‘s central bank.

already falling. As a result China will flood the US

Oil

and European markets with cheap Chinese goods, driving down the inflation and resulting in a

From $115 in June 2014 to barely half the price in

slowdown.

December 2014. This big drop is an implication of positive global growth in economy as it gives more

Eurzone

spending power in the hands of people and it cuts

The story of recovery of Eurozone in 2014, was one

costs for businesses. The four recessions of the post

of the recovery that failed to get off the ground. With

war era (1974-75, 1981-82, 1990-91 and 2008-09)

a growth rate of just 0.2% in the third quarter of 2014

have all been associated with rising oil prices.

and an annual inflation rate of 0.3% in the month of

Implications are that low oil prices are stimulus for

November.

consumers and hence, Global growth should pick over

deflationary rut and fear is that the deflationary spiral

in 2015 even with the signs of inflations that would

will spread across the rest of the region. As the prices

necessitate the monetary tightening.

continue to fall down, the fear is that the business and

However, this fall had a negative impact on countries like Russia, Venezuela and Iran because these countries had balanced their books with the oil price of $100 or more.

Greece

and

Spain

are

undergoing

consumer will delay their spending as they‘ll expect the fall further. Europe and Japan will see a growth of 1% and around 6.5% growth for China after decades of enjoying double digit growth.US export account for only 14% of their output. It is protected from the ups

China

and downs in the economy. In some way US will do

Now comes the net exporter of direct investment and

better when other are not performing as most of the

the world‘s biggest economy, China. Its performance

investment will land in the stable hands of US

will be crucial as China can soon join the select club

economy…

of countries with a reserve currency. Though it was observed that 2014 was a year of ups and downs for China as Beijing tried to mop up the credit excess left behind. Policy Makers have turn a tight ship of constraints and has predicted that the year 2015 will

4|JANUARY 2015

Scam

Stuggling Brazil: The Petrobras Scam

- Kolisetty Aishwarya

Scandals here and scandals there, we have scandals

investors. Thus when the racket was out, the investors

everywhere these days. No exception to this story is

went furious. Around 39 people have been placed

our Brazil. Prey to another scandal and victim to

under charges for the same and the different

losses, I can see why Brazilians are completely raged

allegations that cropped up included corruption,

up. So now we have the company Pertrobras who has

money laundering and money racketeering as well as

conveniently managed to pull off a dirty stunt only to

formation of criminal organizations.

be caught at the end of the day.

About the Company: A Brazilian multinational energy corporation which is semipublic has its headquarters in Rio de Janeiro situated in Brazil. The company was founded in the year 1953 and was one of the significant oil producers in the country by 1997. The company had an output of around 2 million barrels per day and also owned oil refineries and oil tankers. The company is spread over 18 countries that include Africa, North America, South America, Europe and Asia. In the year 2008, the company was ranked in the Latin America‘s top 500 companies. The Brazilian government owns around 54 per cent of Petrobras‘ common shares with voting rights and the others who had the share in the company were Brazilian development Bank and Brazil‘s Sovereign Wealth Fund. Pertrobras was the 8th largest company in the world according to Forbes in the year 2011.

The Scandal: The company was no bed of roses for the investors when their deeds finally came to light. Thus when the sham finally showed its face to the shareholders, the chaos knew no ends. Thus the company was allegedly accused of inflating the value of the company and made false statements and reports to present to the 5|JANUARY 2015

In normal terms, the company was accused of forming cartels to drive up the set the prices of all the major Petrobras infrastructure projects. Also a hell lot of money was used to bring the politicians into their palms. No sooner than this made the news did the fingers start pointing towards Dilma Rousseff who was the chair of the company Petrobras board for seven whole years and left in 2010 to which she responded by saying that she was completely unaware of the scenario. Well the scandal definitely does not stop here and so this is what happened next.

The After Effects: The executives charged are from tare from the compare from the companies OAS, Camargo Correa, UTC, Mendes Jr, Engevix and Galvao Engineering — also are from the companies OAS, Camargo Correa, UTC, Mendes Jr, Engevix and Galvao Engineering — along with two former executives from Petrobras itself.ng with two former executives from Petrobras itself.anies OAS, Camargo Correa, UTC, Mendes Jr, Engevix and Galvao Engineering — along with two former executives from Petrobras itself.he companies OAS, Camargo Correa, UTC, Mendes Jr, Engevix and Galvao are from the companies OAS, Camargo Correa, UTC, Mendes Jr, Engevix and Galvao Engineering — along with two former executives

from Petrobras itself..The investigation according to

Management LP expects the company to default on its

the Brazilian Federal police revealed the moving of

bond

around $3.9billion manipulated in various financial

Management reported by writing a letter that the state

transactions. Thus the Brazilian courts have blocked

operated Energy Company was unable to report third

their assets that amounted to $270 million all

quarter results even 90 days after the end of the

belonging to the suspects from the scandal. Also,

quarter can be considered as an event of default. This

contacts worth $22billion are tagged suspicious by

meant that the company had until the December 29th

Federal agents. Former Petrobras Director Paulo

to report its quarterly results to prevent the default on

Roberto Costa who worked for the company from

some of the bonds. The company had issued bonds

2004 to 2012 told the investigators that the politicians

worth $53.6 billion. According to the terms and

received 3% commission on the contracts signed

conditions of bond agreements, if the company fails to

during his period. The executives involved could face

repay them within a span of 60 days after accepting

sentences of more than 20 years in jail.

the notice of default, the acceleration repayment

repayment

obligations.

Aurelius

capital

process would be started and the company would be

The Markets after the Scam:

forced to immediately pay at least one fourth of any bonds issued.

Political Wave: Brazil right now is struggling with a shaky GDP and its downward trend which fell to 2.7 per cent in 2011 and the economy growth now is only about 0.9 per cent. Thus the general trend reveals that the Brazilians are getting less tolerant of corruption after the protests in June last year when millions of people came down to the streets to express their anger towards the The markets of Brazil already looked very bearish and the scandal just boosted the attitude making it even more bearish now. The share of the company is currently trading at $8.20 as of January 06 at 5:52pm BRT. The share price has fallen all time low in the last one year.

Brasilerio Perobras started facing a lot of pressure the

Looking at all the parameters presented and written above, the good days for Brazil investors would arise only after some struggle. As for the country and its markets are concerned, any more scandal would just mean the shattering of the economy is round the

After the entire scenario unleashed itself, Petroleo from

government, congress and all the political parties.

bondholders

6|JANUARY 2015

as

Aurelius

Capital

corner.

Banking Reforms

Gyan Sangham: Reforming Banking Sector

- Ripu Daman Tandon

In the recent years, quite a few voices have come up

were valued for the public sector at Rs. 2.43 lakh

in the market to revamp the overall banking sector in

crore as on the end-September 2014.

India especially concerning the biggest issues of

these factors, the top 30 NPA‘s in the public sector

increasing bad debts, non-performing assets (NPA) in

accounted for Rs. 87,368 crore which is 35.9% of the

the Public Sector Banks (PSB‘S). The government

total gross NPA‘s for the public sector banks. The

organized a two day Gyan Sangam (knowledge

PSB‘s require an equity capital of Rs. 2.4 lakh crore

confluence) for the Public Sector Banks starting

by the year 2018 to meet Basel III norms. These are a

January 02, 2015. This summit or the banker‘s meet

global

was set for the PSB‘s chiefs who were able to present

adequacy, market liquidity risk and stress testing. A

a blueprint for the next generation of banking reforms

comprehensive set of reform measures that have been

in the country to the Prime Minister of India Mr.

developed

Narendra Modi. The retreat included some celebrated

supervision in order to strengthen the regulations,

names in the financial sector of the country.

supervision and risk management of the banking

The retreat was a part of the government‘s

sector. The main reasons that these norms are being

commitment in bringing required reforms in the financial sector.

The basic idea behind it was to

provide an informal academic environment bringing out the creative and the best of the minds of the professionals and also the regulators.

The meet

looked at as a consolidation of the Public Sector Unit (PSU) banks which has been pending for long & has

Along with

voluntary regulatory standard

by

Basel

Committee

on

on

bank

banking

stressed upon as they aim to improve risk and governance; strengthen banking transparency & closures; and in improving the sector‘s ability in absorbing shocks arising out of financial and economic stress, irrespective of the source.

The

government has allocated Rs. 11,200 crore for bank capitalization for the current fiscal year.

not yet happen despite various reports advocating

The consolidation of the PSB‘s was started by the

merger and acquisition of various small PSU banks.

former Finance Minister P. Chidambaram under the

Finance Minister Arun Jaitley in his first budget

UPA led government; however, they were not in the

speech in the month of July had indicated the

support of forcing the banks to merge.

government's intention in mergers and acquisitions of

government

public sector banks. The other top discussions that

announcement after the completion of the summit,

were talked about during the retreat were about the

considering the character of the meet and the

financial

brainstorming to be done in order to bring reforms in

literacy,

interest

subvention,

human

resources and priority sector landing.

One of the key aspects that were concerning the banks have been the non-performing assets. These assets

didn‘t

the banking sector.

any

immediate

The markets were mainly

focusing on the words of the government on three aspects i.e. recapitalization, professionalizing PSU banks and consolidation.

7|JANUARY 2015

make

The

However, there have been

plenty of focus on the aspect on how should the state-

appointments of bank board members. Also, as per

banks run as these have taken a considerable hit from

the article in The Economic Times (ET), the

the issue of NPA‘s in lure of the previous economic

government is thinking to ask PSB‘s to form a

slowdown.

separate holding company in order to hold its stake as

Topping the list of suggestions provided to the government was by the Nayak Committee headed by the Ex-Chairman of Axis Bank which mainly focussed on improving governance standard in the bank boards. The committee report recommended the government in creation of Bank Investment Company (BIC) in which it should transfer its stake and at the same time should have a free hand in appointing bank board members and taking other policy decisions.

Another suggestion made to the government was to

well as the bank‘s stakes in their various subsidiaries.

The Economic time was informed by a senior government

official

that

the

separate

holding

companies would be the precursor in establishment of Bank Investment Company. The BIC would serve as a super holding company of sorts which would exercise control over various individual holding companies and in the long term would facilitate the reduction of government‘s stake to less than 51% in these banks.

reduce its stake in these banks below 51% which

According to the government estimates, the banks

would require scrapping of laws such as Bank

would be able to raise around Rs. 1.6 lakh crore from

Nationalization Act and SBI Act. Along with this it

the market if they are permitted to do so. Finance

also said that in the intervening time, before setting up

Ministry had earlier sought clarity on the legislative

of BIC the government could set up Bank Bureau

part and the changes that might be required in various

Board which would comprise of eminent bankers and

laws such as the Banking Companies act 1970 & 1980

could make senior appointments at the PSU banks.

for the smooth transfer for shares.

One of the considerations that the government would definitely look into would be reducing its stake below 51% from the PSU‘s as these would attract negative sentiments with the bank unions and the opposition.

Though no statement by the government was made whether these suggestions where accepted or have agreed to the recommendations of the committee, they

During the Summit as mentioned by Ms. Arundhati Bhattacharya, ―We as a group (all public sector banks) have decided to adopt five major resolutions.‖.

The points that were mentioned included:- a decision to re-orient the portfolios of small public sector banks to focus on specific and differentiated niches

did indicate that several steps as suggested by the report would be taken. As per Ms. Vijayalakshmi Iyer, CMD, Bank of India, the government has in-

- build people capacities, use of more technology (especially in the top 30 processes)

principle agreed to set up the Bank Bureau Board

- strengthen risk management practises and strengthen

which could take on the task for suggesting the

the partner channels such as business correspondents

8|JANUARY 2015

focus on improving them. Bringing these reforms especially providing more autonomy to the PSB‘s would allow them to work as per their needs and

requirements

and

overall

reduction in these issues such as bad loans or the operational issues. Also, considering the factor where the government would be reducing its stake from these PSB‘s, the banks would have more accountability and responsibility in performance as well.

Overall, a definite requirement for the PSB‘s with the required changes is a must

especially

considering

the

current scenario with decrease in the There were other commitments that were also

oil prices and other factors such as the uncertainty if

requested by these banks to the government which

Greece would be able to be a part of the Eurozone

included issues on creating the right environment for

may lead to further further economic shocks and

minimal interference, empowering banks completely

preventing these banks in the near future would be the

on Human Resource decisions, strengthening the legal

key aspect that the Government and RBI would be

framework for recovery of loans & simplifying and

looking forwards for.

strengthening the process for credit insurance.

The government led by Prime Minister Mr. Narendra Modi assured the bankers with zero interference with their operations and promising to consider the sector‘s blueprint for reforms along with other suggestions provided which would provide a greater autonomy to these banks.

It would be interesting to see if the government would be taking all the suggestions of the Nayak Committee considering the banking overhaul. These issues may have been prevailing for long and the government with a new leadership has definitely being on the

9|JANUARY 2015

Accounting

The New Accounting Standards

- Avik Chakrabarty

Indian accounting standards would be mandatory for ―companies whose equity and/or debt securities be listed or are in the process of listing on any stock exchange in India or outside India and having net worth f Rs500 crore or more,‖ from 1 April 2016.

The deadlines would be applicable for other entities having net worth of Rs500 crore or more, it would also apply for holding, subsidiary, and joint venture or associated companies of these two classes of entities.

Companies with net worth of Rs500 crore or more will have to mandatorily follow the new accounting norms that are converged with global standards from 1 April 2016 as announced by the government.

It would be applicable on a voluntary basis for period starting 1 April 2015. Further, Ind AS would be mandatory from 1 April 2017, for companies- whose equity and/or debt securities are listed or are in the process of being listed within India or outside- having

Besides, corporate having a net worth of less than

a net worth of less than 500 crore.

Rs500 crore but are listed, or in the process of getting listed, will have to compulsorily follow the new norms from 1 April 2017.

Other companies that are listed and having a net worth of Rs250 crore or more but less than Rs500 crore also would have to start implementing Ind AS

Indian Accounting Standards (IndAs) are converged

from 1 April 2017.

with the international Financial Reporting Standards (IFRS). The corporate affairs ministry said the new

Holding, subsidiary, joint venture or associate

road map has been drawn up after ―wide consultations

companies of these entities would have comply with

with various stakeholders and regulators‖.

this deadline.

Finance minister Arun Jaitley had in his budget speech in July 2014 said there was an urgent need to converge the current Indian accounting standards with IFRS.

Companies whose securities are listed or in the process of listing on SME exchanges shall not be required to apply Ind AS. Such companies shall continue to comply with the existing accounting standards unless they choose otherwise.

However, the new road map for Indian accounting standards exempts banking, insurance and non banking finance companies.

Once a company opts for Ind AS, it has to follow the same for all the subsequent financial statements.

Companies not covered by the above roadmap shall continue to apply existing accounting standards

10 | J A N U A R Y 2 0 1 5

prescribed in Annexure to Companies (Accounting Standards) Rules, 2006.

In his budget speech, the finance minister had said, ―I propose for adoption of the new Indian Accounting Standards (Ind AS) by the India companies form the financial year 2015-16 voluntarily and from the financial year 2016-17 on a mandatory basis.‖ ICAI WORKING ON CHANGES TO IND AS The apex body of chartered accounting Institute of Chartered Accountants of India (ICAI) is in the

Not many companies were likely to switch to the

process of making changes to the Indian accounting

International Financial Reporting Standards (IFRS)

standards as part of efforts to converge with

even as the government readied a notification on new

international norms. The council of the ICAI has so

accounting rules to be followed by companies from

far finalized seven ―new/revised Ind ASs (to replace

the next financial year. This is because less than three

the existing Ind AS) along with certain amendments

months are left for the new financial year to begin and

to other Ind ASs‖.

companies need time to shift to the new system.

The proposed changes correspond to the new/revised

"It seems quite unlikely that many companies will be

IFRS

Accounting

able to take the benefit of the voluntary early adoption

Standards Board (IASB). Among the financial Ind

that is permitted for the financial year beginning April

ASs include those related to consolidated financial

1, 2015, for which the transition date is April 1, 2014,

statements, fair value measurement and employee

for comparative purposes," said Sai Venkateshwaran,

benefits.

partner and head of accounting advisory services at

―This new/revised Ind ASs are being submitted to the

KPMG India.

recently constituted National Advisory Committee on

Companies may choose to adopt these standards from

Accounting

its

April 1, 2015, for which the base year will be 2014-

consideration,‖ ICAI president K. Raghu said in a

15. "The transition will be extremely challenging as

statement.

sophisticated judgment will be required in drawing up

Meanwhile, ICAI‘s accounting standards board has

financial statements," said Ashish Gupta, partner at

issued exposure drafts of three new Ind ASs

Walker Chandiok & Co.

pertaining to agriculture, financial instruments and

The Corporate Affairs Ministry has taken a crucial

revenue from contracts with customers.

step in accounting reforms that could help improve

issued

by

the

Standards

International

(NACAS)

WHAT EXPERTS ARE SAYING

for

India‘s ranking in ease of doing business besides encouraging increased inbound foreign investment

11 | J A N U A R Y 2 0 1 5

The revised standard is a welcome change in the direction of increased corporate governance

and

investor

protection.

However, clarifications are still needed on the measurement date of the ‗networth‘ and whether the standard is applicable for both

standalone

and

consolidated

statements.

The revised standard will help elevate corporate financial reporting in India to flows. This new announcement has brought more certainty to India‘s efforts towards convergence with IFRS, a set of globally recognized accounting standards, say accountancy experts.

The revised standard which does not cover banking and insurance companies and NBFCs envisages a two phased implementation. This is a departure to the earlier standard which was to be effective from April 1, 2011 that talked of a three-phased approach.

The adoption of these IFRS converged standards will go a long way in enhancing the transparency in and quality of financial reporting by Indian corporates, as Ind-AS is expected to fill the many gaps in Indian GAAP. The upcoming budget should clear the air around taxation issues, which was one key reason for postponing the implementation of Ind AS in 2011.

While the IFRS/Ind-AS is driven towards meeting the requirements of investors, they are not suitable to determine taxable income. There has to be clarity as to whether income tax computation would continue based on the existing Indian GAAP or not.

12 | J A N U A R Y 2 0 1 5

that of other advanced economies. It will more importantly reinforce to the global community India‘s resolve practices.

towards

strong

corporate

governance

Cover Story

NITI Aayog

- Manjari Sharma & Rahul Mishra

The past week, apart from ushering in the New Year

The conflict of India-Pakistan (1965) disrupted the

also witnessed the birth of a new institution in India.

planning process for some time. The eighth plan

On 1st January 2015, the National Institution for

commenced in the year in 1992 after the market

Transforming India (NITI) Aayog is formed in place

reforms for liberalization was initiated in 1991 by the

of Erstwhile Planning commission. This formation

then

has again brought the attention back on the country's

Subsequently, these plans saw a lesser role for the

reforms process.

public sector and several public sector enterprises saw

The new commission, right from its nomenclature to its below pointed objectives, appears to be in sync with the time and the overall economic landscape.

finance

minister

Manmohan

Singh.

disinvestments. However, these were much more graded than the Russian economy which was seen as a major reason for the 1998 crisis in Russia. Slowly, in India the role of the Planning Commission started to

1. It seeks to provide a strategic, critical and directional input into the governance process.

decline. In real sense, the Yojana Aayog lost its relevance way back in 1991 with advent of the new

2. Implement plans at the village level and club these

era

progressively at higher levels of government.

liberalization. Even though, the Government chose to

3. Ensure areas that are specifically in reference to the

let it flow knowing the fact that the Nehruvian era's

interests of national security are incorporated in

plan panel was largely responsible for the country's

economic strategy and policy.

economic woes which cropped up in 1980s and early

of

open

market

system

and

economic

1990s. The fact is that the policy revolution of 1991 4. Pay special attention to the sections of the society that may be at risk of not benefitting adequately from economic progress.

rendered obsolete much of the methodology of planning that had evolved over decades and got congealed in the minds and working practices of

For understanding the present and to predict the

Yojana Ayog. Domestic production‘s quantitative

future, one often needs to look and study the past. The

targeting became irrelevant with delicensing of

Yojna Ayog or the planning commission came into

production and trade; approval and monitoring of

existence on 15th March1950. Prime Minister

public investment became problematic with the

Jawaharlal Nehru presided as its chairman although

growing integration of the public sector into the

its roots go back to year 1938 when Netaji Subhas

capital oriented economy.

Chandra Bose had been persuaded to set up a National

growth of competitive populace, public spending

Planning Committee. The First 5-year Plan from

shifted away from investments in the productive

Erstwhile Commission was launched in 1951 and it

economy to social welfare doles. The status and the

focused on developing the agricultural sector.

role of the Planning Commission has been the subject

Furthermore, with the

of debate for several decades now. Attempts to 13 | J A N U A R Y 2 0 1 5

reorient it have usually characterized the start of every

markets,

new regime at least from the early seventies. Planning

competition.

Commission in its efforts could never ensure social and economic freedom and justice for the people of India hence the economy plunged into such a disaster that it reached to the brink of collapse by mid 1991.

The structure of NITI Ayog is quite the same as that of the Planning Commission with the Prime Minister as its chairperson, however the difference stays in its governing council that comprises of

lieutenant

governors of Union territories, chief ministers of all states and fixed-tenure regional councils to address specific issues, affecting more than one state or region. Economics professor of Columbia University Arvind Panagariya has been named the vice-chairman of Niti Aayog. Former Defence Research and Development Organization chairman V.K. Saraswat and Economist Bibek Debroy will be permanent members. Union ministers Arun Jaitley, Suresh Prabhu, Rajnath Singh and Radha Mohan Singh will

light-touch

regulation,

choice

and

They are likely to entrust the government's muchawaited reforms push, and will give inputs and feedback for finance minister Arun Jaitley's upcoming full budget due in February and carries the burden of high expectations It is in view of this historical evolution that Prime Minister Narendra Modi had scrapped the Planning Commission and made the announcement during his maiden Independence Day speech on 15th August, last year (2014). While few believe it is a nominal show-off exercise, the reality that planning has been eliminated

from

the

name

provides

that

the

concentration now will be on markets rather than governmental control. The role and obligatory duties of a think tank also seems to be more in tune with the idea of indicative planning rather than central planning

with

massive

governmental

resource

allocations.

be ex-officio members, while Nitin Gadkari and Smriti Irani will act as special invitees, the government said in a statement. The replacement of the Erstwhile Planning Commission with a new body called Niti Aayog was the first big announcement by the government on the 1st day of 2015. We had already seen the ways in which it will be different from the Yojna Ayog, which for more than six decades worked in the soviet-style five-year plans for India.

The spirit of coordinated federalism is also a good point to start with for building stronger states and in turn, a stronger India. While all the criteria that are written in the cabinet resolution look lucrative at first glance, however it will be better to see the actual implementation and functioning of the NITI Aayog.

The

rechristening

of

the

Erstwhile

Planning

Commission to NITI Aayog (National Institution for Transforming India) is a change from the Nehruvian school of Russian thought to a Modi-led philosophy

The naming of Panagariya and Debroy to the new body signals the policy direction that Modi‘s government intends to take. Both of them are wellknown economists and advocates of free form

14 | J A N U A R Y 2 0 1 5

of US inspiration. The shift, however, would become a model only if it helps us move from plans and policies towards action and achievement in the time to come.

Industry Overview

Education Sector

- Apoorva Anusha

―Education is the most powerful weapon which can be

reason why the demand for pre-primary education is

used to change the world.‖

centred by the private sector.

These lines are quoted by Nelson Mandela a South

Secondary education is divided into two stages. One

African anti-apartheid revolutionary, politician and

is lower which is for standard nine and ten (IX & X)

philanthropist who served as President of South

and the other is senior one which is for standard

Africa from 1994 to 1999 and I believe that these

eleven and twelve ( XI & XII) and is regulated at

lines are very true. We live in an ever changing world.

both central and state government level. At present 34

New technologies are coming up and if we don‘t want

secondary boards exists. The Central Board of

to be left behind we must keep up in pace with this

Secondary Education (CBSE), The Council for the

fast moving world. Without education it will be really

Indian School Certificate Examination (CISCE) and

difficult to adapt change or rather make a change.

the National Institute for Open School (NIOS) are the

I am not saying that an uneducated man cannot bring about change or has no chance of being successful, exception are always there, but we cannot deny that

three boards that operate at the national level, while the remaining 31 boards have jurisdiction within a state or part of a state.

educated person gets better opportunities in life. There

India has an advantage of having a huge population

are several reasons why one should be educated.

because maximum portion is youth and it presents a

Education in India is broadly classified into three categories which are provided by public sector as well as private sector. The classification is elementary education, secondary education and Higher education.

India‘s education system is referred to as a ten + two + three system. Primary or elementary education begins from class 1. Education for children between the ages of five to fourteen has been made free and

huge opportunity to the players in the education sector as well as scope to the government for development for this sector and consequently, the country.

Several factors such as growing income levels and favourable foreign policies have attracted many foreign players into the Indian education market. The government of India has also taken several initiatives to provide quality education to the youth in the country.

compulsory under the Right to education Act (RTE) which was passed in the year 2009. By passing this Act India became one of 135 countries to make education a fundamental right of every child.

Post independence, India made huge progress in terms of increasing primary education attendance rate and expanding literary to approximately three-fourth of the population. India‘s literacy rate grew from 52.2%

Pre- primary education in India is not mandatory for

in 1991 to 74.04% in 2011.

children. The central government has not made many provisions for pre- primary education. And that‘s the

The government of India is all set to roll out a new education policy in this New Year 2015, according to

15 | J A N U A R Y 2 0 1 5

Ms Smriti Irani, Union Minister of Human Resource

private players is that Safran, a global aerospace and

Development (HRD), government of India. To make

defence company has announced the Research and

learning more holistic, the government of India has

Development (R&D) collaboration with foundation

decided to introduce a credit transfer scheme in the

for Innovation and Technology Transfer (IIT Delhi)

education system. The Human Resource Development

and Society for Innovation and Development (IISc

(HRD) ministry is also working towards setting up

Banglore) to initiate research and development in the

placement cells at all central universities in the

field

country. The government of India has launched the

development of the next generation aerospace

first skill development training programs of Maulana

technologies. As the Indian education sector has

–Azad National Academy for Skills (MANAS) on

players from both the public and private domains,

pilot

two

some of the successful private sector institutions

Memorandum of Understandings (MOUs) were

include Manipal University, Amity University and the

signed by MANAS, one with the representative of

Indian School of Business (ISB). Schooling and

Health sector council and the other with security

higher education are not-for-profit ventures due to the

sector council.

requirements of being registered as a trust or society.

The Indian Institute of Technology – Bombay (IIT-B)

Some examples of private players in elementary

has developed a prototype of a 10.1 inch notebook

education are Dhirubhai Ambani International School

that costs less than US $100 which was funded by the

by Relience Industries, Stonehill Interntional School

National

ICT

by Embassy group, Educomp Millenium school by

primarily aimed at

Knowledge tree infrastructure. Private investors have

programmers, students and teachers in government –

been carefully monitoring and investing in the

run colleges and institutions. The education sector in

education sector realizing the great potential that the

India has earned global recognition from several

sector has to offer. Global education players are also

quarters. Mumbai University has featured in the world

showing keen interest in the Indian education sector.

top ten lists for institutes with billion alumni and is

Recently the Frankfurt School of Finance and

ranked ninth, according to a report by wealth-X and

Management

UBS. Due to the growth advantage, this sector has

Understanding (MOU) with the Bombay Stock

also received number of investments from several

Exchange giving students greater insights into global

foreign organisations. The education sector in India

markets. Higher education in India is undergoing a

has attracted FDI equity to the tune of US$ 964.03

huge change since last decade. There are over 600

million, according to the depth of industrial policies

million people in India under the age of 25 years who

and promotion (DIPP).

are

basis.

Moreover,

Mission

on

in

this

Education

(NMICT). The device is

regard,

through

In recent past some of the major investments and developments in education and training sector by

16 | J A N U A R Y 2 0 1 5

of

advanced

potential

have

avionics

signed

candidates

a

and

systems

for

memorandum

would

the

of

continue

education, given the right kind of opportunity and convenience.

Regulation & Reforms

All About E-IPO

- Sachi Kheskani

In 1992, SEBI (Securities Exchange Board of India)

successful implementation of the IPO is the

replaced The controller of Capital Issues, and took up

appointment of a merchant banker as per Section 30

the responsibility of protecting the interest of

of SEBI Act,1992. A merchant banker should have a

investors

the

valid SEBI registration to be eligible for appointment.

development of securities market and regulate the

Registrar to the Issue, Bankers to the Issue,

securities market. SEBI formed a host of regulations

Underwriter and Brokers are appointed next. And

for registration and regulation of Venture Capital

various other formalities as regards to registration of

Firms, Mutual Funds, Collective Investment Schemes,

the

for prohibiting insider trading, unfair trade practices

requirements, Promoters contribution etc have to be

etc. But amongst them the most important of all is a

complied with. The current regime is very time

new portal MCA 21 launched on 20th February,2006.

consuming and involves lot of expenses.

in

securities

market,

promote

This move promoted E-Governance, which is an application

of

information

technology

to

the

government functioning in order to bring about SMART (Simple, Moral, Accountable, Responsive and Transparent) Governance. In order to further this move recently SEBI announced to introduce E-IPO facility shortly this year. This article shall provide an insight as to the current IPO process in India and compare it with E-IPO thereby to bring about the advantages of the new system to be introduced.

Offer

Document

with

SEBI,

Lock-in-

With the advent of E-IPO, retail investors could submit their bids electronically for IPO. This facility shall be implemented in two phases and will cover 400 locations. The move is part of SEBI's efforts to provide retail investors with an additional mechanism to submit application forms in public issues using the stock broker network of the exchanges, who may not be syndicate members in an issue. This mechanism can be used to submit ASBA (Application Supported

by Blocked

Amount)

as

well

as

non-ASBA

Currently, Companies in order to issue an Initial

applications by investors. Under ASBA, an IPO

Public Offer (IPO) have to follow the SEBI (Issue of

subscriber‘s bank account is blocked to the extent of

Capital and Disclosure Requirements) Regulations,

his application amount. However, funds are debited

2014 (amended). To start from the basics, an Initial

for the allotted shares. With this, the cumbersome

Public Offer (IPO) is a means of collecting money

procedure of refund is done away with. Stock

from the public by a company for the first time in the

exchanges are required to enable downloading of

market to fund its projects. In return, the company

application forms on their Web site and facilitate

gives shares or fraction of ownership to the investors

online

in the company. A Company, whether listed or

issuers/brokers and banks for encouraging retail

unlisted has to fulfil eligibility criteria as regards to

investors to use ASBA.

net worth, past track record of profits and so on as per 2014 regulations. One of the crucial steps for 17 | J A N U A R Y 2 0 1 5

tracking.

SEBI

plans

to

incentivise

Under this, E-IPO applicants have to approach a

cent. SEBI plans to put in frameworks to expedite

broker with an application either in electronic or

clearance of offer documents and to reject them. Non-

physical format. Brokers will then punch their

retail investors have been barred from withdrawing or

application

lowering their bid size at any stage of a public issue,

on

the

system.

Brokers

will

be

remunerated by issuer companies for using this mode.

though they may increase their bid size.

To widen the shareholder base in public issues, SEBI

For IPOs, issuers are now allowed to furnish the price

plans to ensure that every retail participant gets a

band five working days prior to issue opening as

minimum bid lot irrespective of his application size.

against the erstwhile two working days. SEBI has also

This is subject to availability of shares. The minimum

placed a 25 per cent cap on deployment of issue

application size band in an IPO is being increased

proceeds under ‗General Corporate Purposes‘. Earlier,

from Rs. 5,000-7,000 to Rs. 10,000-15,000.

there was no cap. SEBI plans to regulate investment

To facilitate issuers to raise capital, the average free float market capitalisation requirement for follow-on public offers (FPO) and rights issues has been lowered to Rs. 3000 crore from Rs. 5000 crores. SEBI has allowed the use of bonus and rights issues for companies wishing to comply with the minimum public shareholding norms of 25 per cent. Promoters will not be a part of this. Only non-promoter shareholders will be offered these options. The minimum promoter contribution of 20 per cent may be relaxed by up to 10 per cent if SEBI registered SME funds, infrastructure funds, PE funds and VCFs, pitch in with a maximum of 10 per cent in total. The

advisors (individuals and corporate) who provide investment advice for a fee. As of now, those who do not charge for advice will not be governed under this regulation. Banks and corporate will have to set up a separate

subsidiary/division/department

to

offer

advisory services. Financial planners have to register themselves as investment advisors and can only charge their clients. However, entities such as stock brokers, portfolio managers, lawyers, CAs, subbrokers, financial product distributors, merchant bankers, insurance and pension fund agents providing investment advice incidental to their primary activity are exempt.

lock-in period for these entities will be the same as

At present, the time taken for a company to get listed

that of promoters. SEBI has also allowed a 20 per cent

after initial share sale is around 12 days. SEBI may

variation in the issue size of public issues as declared

reduce the post issue timelines from T+12 days (12

in the red herring prospectus. Earlier, the variation

days from issue closure to listing and trading) to T+6

was 10 per cent and any increase necessitated re-filing

days. Once the process gets stabilised, timelines could

of the offer document. Public offerings through the

be further curtailed to T+2/3 days.

profitability route should have at least Rs. 15 crore as average pre-tax operating profit. For the SME platform or compulsory book building route, the QIB share has been increased from 50 per cent to 75 per

18 | J A N U A R Y 2 0 1 5

Despite a stable government coming into power and the resultant buoyant secondary market, fund raising through IPO was just Rs 1,528 crores in 2014.

Besides, only six main-board IPOs came to the

• Manipulators may face stronger action in the New Year with tougher norms being finalised for insider trading.

• SEBI is also looking to bring global best standards on corporate governance practices of the listed companies.

• New measures are also on the anvil to revive the bond market.

• In the new mechanism, investment in public offerings can be done online without signing any physical documents.

• It will help fast-track the IPO process and lower costs and increase retail investors participation.

Recently Dubai Financial Market (DFM) introduced E-IPO which has resulted in noticeable leap compared to the pilot launch of the platform during the previous IPO. The proportion of electronic applications jumped 10 times to 20% of the total number of applications, from 2% during the previous IPO. Seeing such Global standards SEBI has decided to implement E-IPO in market. The entire year saw just one follow-on offer.

This was by state-run Engineers India Ltd (EIL), which also happens to be the biggest public offer with an issue size of Rs 495 crores. The year, however, witnessed a flurry of activity on the Small and Medium Enterprise (SME) platform. There were as many as 40 SME IPOs which collected a total of Rs 267 crores.

New Listing Guidelines: • SEBI will soon notify new norms to sell shares through electronic Initial Public Offers (e-IPOs).

19 | J A N U A R Y 2 0 1 5

India which will indirectly boost economic growth of country. Let's see if E-IPO does not pave way for increased cyber crimes and does not give birth to CORPORATE CYBER CRIMES.

Outlook

Investment Outlook for 2015

- Priyanka Malik

“Never depend on single income. Make investment to

hold in influencing the markets in 2015 are global and

create a second source.” -Warren Buffett

domestic market environment, inflation, interest rate

With the advent of a new year comes the hope of a bullish market. The year 2014 ended on the same note

scenario, Fiscal/ trade scenario and reform actions by Modi government. Stocks which are positive-

with market going up by over 30 per cent due to which, the Benchmark indices posted their best gains since 2009. The 50-share Nifty index closed 31% higher while BSE Sensex rose 30% making it the second best performer in Asia after Shanghai. The major highlights of 2014 are inclusive of falling crude oil prices, FD- 9% interest rates and negative returns for gold. Therefore, Sensex outperformed several investment categories.

Because of several policies, made by the newly elected Prime Minister Mr. Narendra Modi, such as‗Make in India‘ the manufacturing sector expects good growth in this year. For retail investors there are 5 major investment categories to choose from namelyequities,

gold,

fixed

income,

currency

and

commodities.

Equities: The outperforming equities provide a hope for bullish market this year as well undermining the other categories. Mid cap companies provide money

Fixed

Income

Investments:

Fixed

income

investments can be considered reasonably well as RBI will cut interest rates due to which the investor might capture one time upside to the principal. Also, because of these rate cuts equity portfolio will benefit manifolds. Also, investments should be made in long term bonds of minimum 18 months holding period.

Currency: Rupee is expected to remain stable or gain against other currencies except for the fluctuating US dollar.

making opportunities as the large cap companies have

Gold and Commodities: The oil prices have fallen

reached their fair value.

sharply in the previous year and the OPEC‘s decision

Government‘s focus on increasing the participation in

to produce the same quantity has further exacerbated

retail investment should see some clearer guidelines leading to its reinforcement with continued optimism.

It is expected that there would be an earnings growth of 15% in this year and the best case scenario of 30,000 for the Sensex in case of a market friendly budget. Certain factors which would take a strong 20 | J A N U A R Y 2 0 1 5

the situation. Since, oil has a relation with oil and commodities therefore; there is a likelihood of gold and commodities underperforming. Therefore, stocks like Exxon Mobil(XOM), Chevron (CVX), Halcon Resources ( HK), Chesapeake Energy (CHK) have been battered.

However, not all energy sector stocks have taken the

These reforms (GST) will give a big boost to GDP by

beating. The midstream sector companies, deriving

simplifying taxes and broadening the tax base. Further

income from fee based revenue through their

manufacturing sector will see a new sunshine because

pipelines and natural liquid gas (NGL) processing are

of ‗Make in India‘ policy. Another long awaited

shielded from price swings in Hydrocarbons.

reform that will be enacted this year permits 49 per cent foreign equity ownership in insurance companies. These moves

further

indicate

strengthening of investments and

equities

consistently

outperforming other classes of assets.

India is an emerging market in 2015 which was overshadowed

otherwise

by

China.

According to IMF and World Further housing sector would witness a turnaround

Bank, India would witness 6.4% growth this year

this year. Relaxation of government regulations

against 5.6% in 2014. China on the other hand is

regarding FDI would also give a boost to construction

experiencing a downturn from 10% growth rate to 7%

sector in turn boosting the associated sectors namely

and even lower in the coming years. Amongst the

cement, steel, paints and emulsions.

BRICS nations as well India is expected to have the

The upcoming budget will influence the investment opportunities. There are high chances of the fact that the budget would be market friendly seeing the initiatives taken by Modi. There has been a steady flow of reforms focusing governance, ease of doing business and fiscal prudence. Within 6 months of the government formation labor reforms, diesel price decontrol were announced along with the ‗Make in India‘ movement and progress in GST talks.

Diplomatic

ties

have

been

extended

by

the

government wherein it‘s expected to pour in investments worth $55 billion from Japan and China alone.

21 | J A N U A R Y 2 0 1 5

best economic prospects. Considering India focused funds such as The Wisdom Tree India Earnings Fund (EPI), ishares MSCI India ETF are worth looking along with Omega Healthcare Investors Inc. (OHI).

Finally, it can be said ‗Ache din aa gaye hain‘!

Myth Buster

UAE: It’s Not Just About Fuel !

- Sameena Usman

That‘s right, the United Arab Emirates (UAE) enjoys

who used this advantage to serve their people, by

staggering economic, social and politica l excellence.

investing heavily in development.

Even during turmoil times elsewhere in the Arab

construction boom, an expanding manufacturing base,

world, the UAE has been an epitome to what can be

and a thriving services sector are helping the UAE

achieved with proper vision and careful planning.

diversify its economy.

They say entropy can never get to ‗0‘ ( in laymen

Today it stands as one of the world‘s most stable and

terms: there‘s no ideal situation ever) but this group of

secure economy with a GDP of $570 billion, of which

seven small yet great emirates have defied this law of

a staggering 71 % comes from non-oil sectors!

physics, the UAE‘s economy is as close to perfection

A massive

It enjoys an inflation of less than 1.5 % and the BPL

as any other growing economy could only dream of. It

(below poverty line ) population is 0 % , that‘s right

is evident from its GDP growth rate or from the fact

‗zero‘..it‘s a different thing that the nations journey

that its CAD is 0, in fact it has an economic surplus of

from ‗zero‘ to ‗hero‘ is a long story of strategic

14.9% of its GDP.

planning and smart work.

But most importantly, it is not a fair or even an accurate statement that the UAE‘s success is based on its oil revenue. Iraq has more oil and natural resources, but its deluded leaders chose a totalitarian state based on military prowess. The results have been catastrophic.

The

country

is

fragmented

and

vulnerable on all fronts.

Yes, from rags to riches is what it is, UAE actually started out as a desert barred land with minimum capital and main source of national income coming from the historic pearl diving activity, just a couple of decades later, and today UAE is abode to one of the world‘s largest infrastructure facilities, services firms, huge tourist attractions, high grade educational

Libya is another example of a country with huge oil

institutes and what not...you name it and they have it!

reserves, a large land mass and small population but

• May it be the world‘s tallest building – Burj khalifa,

can easily be described as a failed state. These advantages should have seen the country lift the standard of living of its citizens. The reality has been

( 2760.5 ft ) • World‘s First 7 Star – Atlantis hotel

nothing short of tragic as its narcissistic former leader

• World‘s Largest Airport

regarded it as his personal fiefdom and ran it into the

• World‘s Biggest Shopping Avenue-Arabian mall

ground.

So it is ridiculous to hypothise that oil has been the sole reason for the progress of UAE. This wealth has played an undoubted and significant role, but greater credit must be accorded to the leaders of this country 22 | J A N U A R Y 2 0 1 5

• World‘s First Knowledge Village ( with the likes of Stanford , BITS) • World‘s First Man-made Island – palm Dubai • World‘s First Under Water Hotel

UAE is also a host of many world class events such as

It has thus created a country where safety and

the annual ‗Dubai shopping festival‘ which brings in

security, and the protection of individual freedoms,

tourists from across the world and also recently UAE

have become the bedrock for innovation and

has been chosen to host the world EXPO2020.

creativity. Financial decisions have, to a large extent,

World Expos remain a key meeting point for the global community to share innovations and make progress on issues of international importance such as the global economy, sustainable development and

been looked at holistically and strategically. For example, it is not possible to create an airline without having

a

network

of

hotels

and

transport

infrastructure.

improved quality of life for the world‘s population.

Legislation in the emirates is business-friendly, but is

Every five years, World Expos attract millions of

also aimed at ensuring that citizens are happy with

visitors

pavilions,

their lives. It comes as no surprise that the UAE is

exhibitions and cultural events staged by hundreds of

ranked first among Arab countries and 14th among

participants

156 countries in the United Nations Happiness

who

explore

and

including

discover

nations,

international

organisations and businesses.

Report.

Each World Expo is a catalyst for economic, cultural

UAE thus ranks in the top 25 countries of the world

and social transformation and generates important

when it comes to ‗ease of doing business. Not just

legacies for the host city and nation.

that, UAE is where the East meets the West in terms

UAE‘s success has been based on decentralization

of culture, in terms of business, also UAE is

into a federal-type governance structure, in the form of seven entities (7 emirates), which has proven to be an ideal model for development and positive competition. Also adding onto it is the strict judiciary practices followed by the nation to make it a corruption free or any as such disease free economy.

One of the most important features of the country is the culture of tolerance and openness. It has been able to preserve its identity while opening its borders to foreigners in the form of tourists, employees and investors. This has resulted in creating a social fabric that has withstood any attempts to foster extremism or terrorism.

23 | J A N U A R Y 2 0 1 5

responsible for bringing the world‘s most talented people under one roof cause of the attractive opportunities it offers. Hence, every investors dream go-to is definitely UAE !

Economy in Focus

Uruguay

- Alisha Singh

With an estimated per capita income of USD 16,380 in 2013, Uruguay is one of the richer countries of Latin

America.

Uruguay‘s

population

and

its

economy are relatively small. The country has relatively good public institutions. For example, according to the Corruption Perception Index of Transparency International, it is the least corrupt country of Latin America. Income inequality, though substantial, is low by Latin American standards, and Uruguay‘s politics are relatively consensual. The country has democratized successfully after a 12-year Benjamin Franklin once quoted, "Without continual

period of military rule ended in 1985.

growth and progress, such words as improvement,

THE ECONOMY OF URUGUAY

achievement, and success have no meaning‖, which stands true for a country like Uruguay which has carved a niche for itself when it comes to overall development of a country be it in the field of

Uruguay‘s economy is characterized by an exportoriented agricultural sector, a well-educated work force, and high levels of social spending. After a plunging growth of 5% annually during 1996-1998, in

agriculture, industrialisation so on and so forth.

1999-2002 the economy suffered a major downturn, Uruguay is a country located in South America

stemming largely from the spill over effects of the

bordering the Southern Atlantic Ocean. Neighbouring

economic problems of its immediate and powerful

countries

neighbours, Argentina and Brazil.

include

Argentina

and

Brazil.

The

geography of Uruguay includes mostly rolling grassland and a dense network of rivers. The government system is a constitutional republic. The chief of state and head of government is the President.

Uruguay has a mixed economic system in which there is a variety of private freedom, combined with centralized economic planning and government regulation. Uruguay is a member of the Latin American

Integration

Mercosur.

Association

(LAIA)

and

In 2001-2002, Argentine citizens made massive withdrawals of dollars deposited in Uruguayan banks after bank deposits in Argentina were frozen, which led to a plunge in the Uruguayan peso, a banking crisis, and a sharp economic contraction. Real GDP fell in four years by nearly 20%, with 2002 the worst year. The unemployment rate rose, inflation surged, and the burden of external debt doubled. Financial assistance from the IMF helped stem the damage.

Uruguay restructured its external debt in 2003 without asking creditors to accept a reduction on the principal.

24 | J A N U A R Y 2 0 1 5

the decline in private investment. In the first place, a moderate deterioration in labour conditions caused by rising unemployment (which rose to 7% in February vs. 6.1% at the end of last year) and slower growth in real wages in the private sector (real private-sector wages in fact fell by 1.3% in 1Q14 compared to the increase observed in 1Q13). The researchers expect these conditions will be maintained throughout the year,

limiting

rises

in

consumer

spending.

Furthermore, lending to the private sector is flat, Economic growth for Uruguay resumed, and averaged

which will also put a lid on expansion of consumer

8% annually during the period 2004-2008. The 2008-

spending. However, the Uruguayan government has

2009 global financial crises put a brake on Uruguay‘s

sought to encourage new private projects in

vigorous growth, which decelerated to 2.9% in 2009.

partnership with the public sector in a number of

Nevertheless, the country managed to avoid a

sectors including oil exploration, although none will

recession and keep positive growth rates, mainly

be as large asthe construction of the cellulose plant.

through higher public expenditure and investment, and GDP growth exceeded 8% in 2010.

Finally, the CERES Leading Index (ILC) fell for the third time in a row in January, indicating a sharp

Uruguay‘s economic growth continues to be basically

slowdown or even a possible contraction in the

driven by domestic demand, as has been the case in

economy in the first quarter of 2014 compared to the

recent years. GDP grew by 4.4% in 2013, above our

last quarter of 2013. In this regard, industrial activity

forecast (3.7%) and average market expectations

fell by 3.7% in the first two months of the year (3.9%

(3.9%). All sectors of the economy expanded over the

excluding oil refining) compared to the same period

course of last year except for Manufacturing Industry,

of 2013.

which experienced a minimal contraction. However,

Uruguay‘s economic freedom score is 69.3, making

excluding Electricity, Gas & Water, a highly volatile sector which depends to a great extent on weather conditions, the slowdown last year becomes apparent, as growth slipped from 4.2% in 2012 to 3.7% in 2013, although this is less than we had expected. Various surveys undertaken envisage the ongoing deceleration in growth over the course of 2014. In the early months of this year, short term indicators suggested that growth will continue to slow this year as a result of lower levels of consumer spending and above all of 25 | J A N U A R Y 2 0 1 5

its economy the 38th freest in the 2014 Index. Its score is 0.4 point lower than last year, with decline in fiscal freedom, labour freedom, monetary freedom, and trade freedom outweighing improvements in freedom from corruption, business freedom, and investment freedom. Uruguay is ranked 5th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average. Over the 20-year history of the Index,



GDP Growth Rate (annual %):



GDP Per Capita, PPP (current international $): $19,590 (2013)

Uruguay has advanced its economic freedom score by over 6 points. Improvements in six of the 10 economic freedoms freedom,

investment

include

gains

freedom,

in

trade

business freedom,

monetary freedom, and rule of law as measured by property rights and freedom from corruption, scores for which have improved by 20 points. Uruguay typically has been ranked near the upper boundary of the ―moderately free‖ category. Government policies promote engagement in global trade and investment, and the private sector contributes to economic growth to an enhanced degree. However, state interference in the financial sector and other areas still constrains development of more dynamic growth.

The most astonishing part of Uruguay‘s economy is that it was the only country in America that withstood the economic recession during the period of 2008-09.

Some major economic highlights are as follows: 

Top 3 Trade Partners: Brazil, China, and Argentina



Top 3 Exported Goods: Meat, Oil Seeds, and Cereals



Top

industries:

Food

Processing;

Electrical

Machinery; Transportation Equipment; Petroleum Products 

GDP, PPP (current international $): $67 billion (2013)

26 | J A N U A R Y 2 0 1 5

4.397% (2013)

Specific

Sectors to Watch Out for in 2015

- Navjoth Sahu

As the New Year begins, there are many experts with

connections with net additions in the third quarter of

their speculation and calculation about the upcoming

2014, according to a report by Swedish mobile

year. But before going to any of those expert

network equipment maker Ericsson. The number of

viewpoints we must be aware of various external and

smart phones, which account for just 37 per cent of all

internal factors which will support their view points.

mobile-phone subscriptions, will reach 2,700 million

All industry has an eye on improvement in their own

by 2014, and growing at 15 per cent compounded

sectors, but which one to flourish is a billion dollar

annual growth rate, will cross 6,100 by 2020. The

question. The new government being promising one is

falling cost of handsets, coupled with improved

keen on manufacturing through its "Make in India"

usability and increasing network coverage, are factors

campaign, but the Reserve Bank of India do not

that are making mobile technology a popular

comply with the collaboration with the working

phenomenon in the country.

government body. And last but not the least the falling economy which is at its brink and may engulf the entire economy of the various nations.

The

year

2014,

the various sectoral confinements, stating a few would be Automobile components industry with the recent

simultaneously, investors looked confused and blind

plans of the government initiations of India's

folded in most of the cases. But, despite all, certain

automotive mission plan 2006-2016, it is expected

industries flourished in the year 2014. Naming a few

that this sector is going double its contribution to the

would count Banking industry, according to the

GDP in the year 2016, as there has been a focus on

recent report by the India Brand equity foundation,

the exports of small and multi-utility vehicles, two

the private banks saw a discernable growth in the

and three wheelers and auto components. Also the

credit card and personal loan sectors, reading on the

deregulation of the government norms of FDI has

figures ICICI itself witnessed a growth of around

resulted in a large number of foreign investments in

141.6 percent in the personal loan field, whereas

the sector. This sector has much wider scope of

banks like Axis Bank noticed a growth of around 49.8

expansion in the year 2015 as in the joint meeting by

percent in personal loan and 31.1 percent in the credit

the

card business. Similarly, the Infrastructure industry

Manufacturers Association of India (ACMA) and

also saw a boom in the year 2014, with cumulative

several industries have decided to cut the excise duties

foreign direct investment rising to 209.3 million US

in the following pattern:

dollars in the earth moving equipment with an

• For small cars, motorcycle, scooters and commercial

estimated

vehicles – duty has been reduced from 12 per cent to

of

many

experts have their own individualistic opinions about

down

CAGR

saw

Coming to the predictions of the current year many

around

ups

and

9.7

percent.

Telecommunication made a fantastic turnaround in the previous year with 18 million new mobile-phone 27 | J A N U A R Y 2 0 1 5

Government,

8 per cent.

Automotive

Component

• For mid-sized cars – duty has been reduced from 24

research

per cent to 20 per cent.

Biotechnology (DBT) along with other government

• For large cars – duty has been reduced from 27 per

funded institutions such as National Biotechnology

in

this

field.

The

Department

of

Board (NBTB) and many other autonomous bodies

cent to 24 per cent.

representing the biotechnology sector, are actively Another Sector which is likely to flourish is the power sector as the present government believes that power

working together so as to project India as a global hub for biotech research and business excellence.

sector to be the key sector for sustained development, saying so have taken various initiatives towards this industry like investing Rs 2 trillion (US$ 32.61 billion) in solar and wind power projects in the deserts to compensate for India‘s depleting fossil fuel reserves,

plans

for

accelerating

wind

energy

generation by adding an ambitious 10,000 MW every year, or five times the total new capacity that came up in the last fiscal, in order to reduce India's dependence on costly energy imports, decided to provide automatic clearance for coal linkage to new power plants and will also be allowed to enhance capacity up to 50 per cent, plans to set up a 1,000 MW solar park in Guntur district which comes in the backdrop of Andhra Pradesh seeking to offer 24x7 power supply.

Having a good speculation over the year would not just result in the growth of flourishing of the above mentioned sectors, as the collaboration between the Reserve Bank of India and Government of India is going down. All the above sectors needing huge investments also need to boost up for the development which can be achieved by motivating people to invest in the sectors, which require a little relaxation in the interest rates and increased borrowing capacity of the individual investors. Without the relaxation in the policies there is hardly any scope of improvement in the predestinated plans of the government and the markets. Not to mention all plans are subject to heavy market risks, every plan is a fallacy with the current economical condition, which suggests a major global

Similarly, the Biotechnology seems to have a brighter future in the current year. A Network of Technology Centres and promotion of start-ups by SIDBI are among few of the steps taken by the government to promote innovation and entrepreneurship in agro industry proposed by the MSME Ministry in a new scheme. The scheme follows the announcement of a Rs 200 crore (US$ 31.52 million) fund by Finance Minister Mr Arun Jaitley in his Budget speech this year for promoting innovation and entrepreneurship in agro industry. The Government of India has taken a lot of initiatives to improve the biotechnology sector in the country as well as offer enough scope for 28 | J A N U A R Y 2 0 1 5

breakdown in the near future. What remains at the end is the million dollar question Will this system work?

Vriddhi Research’s Corner

Company in Focus: Orchid Chemicals and Pharmaceuticals Economy Overview: Shares of Pharmaceutical companies did so well in

- V. Karthik Varma

to February 2014 .The numbers really show a great scope of growth in the Industry.

2014, as can be seen from the 45% increase in the

The regulatory norms (US FDA) are really tough for

value of S&P BSE Healthcare Index in the year so far.

the industry. The USFDA inspections of Indian plants

Sales of companies improved in 2014, recovering

in the past few years have resulted in the adverse

from the slump in the previous year caused by the

reports, with some companies facing bans on

market‘s reaction on the new drug pricing policy.

exporting to US markets, While this was continued in

In 2015 the growth is expected to be more healthy, as the momentum continues and increase in the economic growth will lead individual‘s to spend more on healthcare. A major healthcare investment plan

2014 as well and it may continue to be an uncertain factor in 2015. Apart from that Indian Pharmaceutical Industry is famous for generic drugs and it is export oriented sector.

from the Modi‘s government which is one of the expected reforms will give more outlook to the India‘s healthcare industry. The main factors affecting pharma industry are exchange rates, growing and ageing population, increase in infectious diseases, improved access to healthcare and affordability.

Industry Overview: The Pharmaceutical Sector is one of the largest sectors which is split into 4 main categories i.e. API, Generics, Biosimilars and CRAMS with major players like Pfizer, Sunpharma, Wockhardt, Dr.

Company Overview: Orchid Chemicals & Pharmaceuticals Ltd (Orchid) is a globally recognized, integrated pharmaceutical company with core competencies in the development and

manufacture

of

Active

Pharmaceutical

Ingredients (APIs) and Finished Dosage Forms as well as in drug discovery, which was incorporated on 1st July 1992 as a 100% Export Oriented Unit (EOU).

Orchid has two manufacturing sites for APIs (at Alathur near Chennai and at Aurangabad, near Mumbai) and three manufacturing sites for Dosage

Reddy‘s labs etc. The sector contribute to 2% of

forms (at Irungattukottai and Alathur in Chennai),

India‘s GDP and accounts for 1.4% of world

besides two R&D centres (at Sholinganallur and

Pharmaceutical production. Indian Pharmaceutical Industry stands 3rd in volume and 10th in value with the global Pharmaceutical industry and is expected to have CAGR of 14.5% to reach $55bn by 2020.The Generic market of India is expected to grow to reach $26bn by 2016 from $11.3bn in 2011.The sector attracted 5% of total FDI ( $11.6bn) from April 2000

29 | J A N U A R Y 2 0 1 5

Irungattukottai, Chennai), all are state-of-the-art and have several international regulatory approvals, including the US FDA and UK MHRA. In 1998, Orchid, along with Cipla and Ranbaxy, had received approval from the Drug Controller of India (DCI) for the manufacture and export of sildenafil citrate, the main ingredient in Viagra, the drug developed by

Pfizer to treat human male erectile dysfunction; by the

Rs530 Cr in the Fy13. Before 2008 the stock used to

way it had entered into the formulation market.

trade at Rs 300 thereafter global cues affected

Products:

Cephalosporin (largest producer Oral &

injective), Carbapenems, Penicillin, Sildenafil Citrate.

The company have a great range of patents (Filed= 931 Including Process, Formulation, Biotech and Generic out of which 731 were published and 210

Pharmaceutical sector a lot of which this midcap stock have a huge slump.

Increase

in

global

demand

for

API(Active

Pharmaceutical Ingredients) which is the main product of the company through which the drugs were manufactured, good number of patent holding and

were approved).

increase in the total sales revenue in the Fy13 though Pros:

the company is making huge loss, this shows that the



Company have R&D expenditure of 4%

company has a good scope to grow in the near future.



Great number of Patents.

I suggest one can BUY this stock .



Company

is

mainly

into

API

(Active

Pharmaceutical Ingredients) Cons: 

Fire accident in R&D department and ban of Atalur Plant for more than a month due to the environment pollution led to a huge loss of Rs 530 Cr in Fy-13.



The company is undergoing Corporate Debt Restructuring which is usually a bad sign for investors.



Company pays no dividend.

Valuation: For relative valuation the peers I preferred are Sharon Biomedicals and Neuland labs which are having the closer market capitalization. The valuation gave the price of Rs 87.53 . The current market price is Rs 66.30 which shows the company is undervalued.

Analyst’s

Recommendation:

Though

the

fundamentals show the negative aspects of the stock, the downward path is mainly due to the fire accidents in R&D Dept. and few other aspects which led the plant shut for more than 1 month resulting loss of

30 | J A N U A R Y 2 0 1 5

31 | J A N U A R Y 2 0 1 5

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32 | J A N U A R Y 2 0 1 5