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Team IBS Times Shilpam Dubey (Editor in Chief) Sneha Tibrewal (Managing Editor) Antra Bharti Debanjan Paul Dixita Reddy Gagan Kapoor Radhika Gupta Shreya Rani Smriti Patodia Srujana Naik Utsav Changoiwala Aarushi Jandrotia Aishwarya Siram Amit Shovan Mandal Ayush Thalia Ishaan Sengupta Kartik Grover Naman Shah Nishika Tatiya Noel Mathew Sambhav Jain Srivatsasa Sripujitha Tanay Sood Designed By : Gagan Kapoor & Sneha Tibrewal 2
Not So “Achhe Din”... With the unfortunate coincidence of both GST and demonetisation, exacerbating economic health and creating a downward growth spiral at a time when the World’s growth is increasing, India is not witnessing “achhe din” as promised by the BJP government. Yet, IMF is optimistic about India’s future with the hope that the short term distress will pay-off in the long run. Despite disappointing growth stories, there is unexplained euphoria in the India’s stock markets, investors’ love for IPOs has been highest since 2007, raising more than Rs 19,000 crores in just first nine months this year. While the news are positive for the stock markets, they are not so much in the banking sector, and even worse for overly leveraged corporates. There is so much to cover, whether it’s a good or a bad news, or simply a paradox. Please write to us and become of part of these discussions. Email id : editor.ibstimes@gmail.com Shilpam Dubey Team IBS Times 3
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COVER STORY - IPO Rush in India Are there too many Mutual Funds? Economy in Downward Spiral The Great Indian Big Billion Industry No Deal Brexit - The Significance Lehman Brothers- A Colossal Collapse Shinkansen of Indian Railways – Leap Forward or Waste of Money Disruption due to GST: Just short-term or more? Trouble with Reliance Communication Limited INDUSTRIAL ANALYSIS - Insurance Sector MARKET WATCH – Samvat 2074
IPOs Rush in India
- Ayush Thalia The year 2017 is on i ts way to beco me the best year for companies to raise funds in the primary marke ts, several state-run and government firms in defense, railways and insurance sectors are also queuing up to get listed on the stock exchanges.
Networks L td.’s IPO and Dixon Technologies’ IPO raised about Rs 600 crore individually.
Diversified PSUs (public sector undertakings) are in the process of listing there IPOs. IPO fundraising in India is likely to pat an all-time high according to the capital market regulator SEBI Chairman Ajay Tyagi. India remains a flamboyant spot amongst the major economies to invest. Major four Indian insurers are focu sing to price stock offerings b y the end of 2017. In an interview, Ajay Saraf, head of investment banking at India’s No. 1 IPO underwriter ICIC I Se curities L td claimed the to tal fundraising from IPO share sales in the India could rise to $7.8 billion this year. The year 2017 has seen over 18 IPOs so far, including the distinguished ones su ch as that of BSE Ltd — the first stock exchange to get listed in India — HUDCO, Co chin Shipyard, CD SL, D-Mart together raised over R s 12,000 crore. In the mon th of Sep tember four companies have lined up their IPOs to raise o ver Rs 2,500 crore combined. Bharat Road
Source-Prime Database IPO- What and Why..?! An initial public offering is the introductory sale of shares issued by a co mpany to the general public. Prior to an IPO the company is considered pr ivate, with a relatively co mpact number of shareholders made up p rimarily of investors su ch as the founders and professional investors such a s ve nture capita lists or an a nge l investors. The public consists any an individual or an institutional investor who is interested in buying shares of the company. Unless a company’s stock is offered for sale to the public, they are unable to invest in the 6
company. Public companies sells a portion of their shares to the public to be traded on a stock exchange. This is why an IPO is also referred to as "going public." A company might approach an IPO to raise capital for expansion, liquidate funds raised by the angel investors in the initial years or an exit stra tegy by the founders or the venture capitalists to shed off the risk from the company. However, an IPO does not equivalents to a success of the co mpany as there might be disadvantages as well- • If options and shares have been distributed to many too many employees, it might cause pre ssure to the employees to obtain liquidity. • If plenty of investors own shares in the company, they would also like to achieve an exit at some point. • If the private fundraising marke t cools down and a co mpany begins to operate at a negative cash flows and can't generate mu ch inte rest from private investors, they might be compelled to an IPO for fundraising reasons. The Rush & Reasons- In the year 2016, 26 companies raised over Rs 26 ,000 crore through initial public offering to the general public which is more than double the Rs 13,564 cro re grossed by 21 issuers in 2015. A minimum of 18 companies ha ve announced their IPO dates so far in 2017 with fund-raising from these IPOs totalled more than R s 25,903 .02 crore . An additional list of IPOs are lined up worth Rs 46,470 crore. Out of the basket, the
crown like General In surance Corp. of India, National Stock Exchange of India Ltd and HD FC Standard Life Insurance Co. L td are the biggest issuances and are expected to raise around Rs 10,000 crore each . Credit Suisse reported the IPO issuances of India in FY18 are likely to be 35% higher than the peak seen in fiscal 2008. Foreign Institu tional Investors (FIIs) have invested a net of Rs 440.7 cro re in Indian shares due to huge selling witnessed in August when tensions in the Korean peninsula hurt risk appetite globally. Meanwhile the domestic In stitu tional Investors (D IIs) ha ve invested a net of Rs46, 185 .44 crore in the asset class. The figures include the inve stmen ts in primary marke t offerings as well as the retail investors ha ve shown promising interest to invest in equity marke ts directly. The inflows from DIIs have pushed up mainly due to increase o f retail investors investing in equities through the mutual fund routes a fter the interest ra tes declined, making traditional investment destinations such as bank fixed deposits less lucrative. Another major rea son for most o f the companies to offer public shares are the numerous steps taken by the market watchdog Securities Exchange Board of India. The SEBI ha s come up with various steps like Application Supported by Blocked Amount, making it mandatory for all investors.
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The Indian economy faced the downfall post demonetiza tion when the quarterly GDP for the months o f January-March 2017 registered 6.1 GDP grow th rate - a sharp decline o f nearly 3 per cent year- on-year basis. One per cent lower annual GDP grow th equals to a loss o f Rs 1 .5 lakh crore national income and loss of millions of jobs. The secondary market was not seen to be impacted as the money available for the marke t is not finite, any golden opportunity—a good company with good price is likely to attract strong flows. Mutual funds a re flush with inflows and the graph is only shown rising. The large amount of IPOs lined up worth over Rs 45,000 crore will have so me impact on liquidity flowing into the existing listed companies. The reason why we have not yet wi tnessed any high rise in the Indian indices is probably due to the impact o f new IPOs as the allocation decision of fund houses will be limi ted since there is a reserved portion that an institutional investor can be exposed to.
Impact & the Future An IPO is critical to the economy’s ability to generate wealth and innovation as new investors put in their trust instead o f opting for a safer option in a blue chip stock. Yet ano ther benefit of an IPO process migh t be that i t puts an open market to work at determining the value of the company’s shares in a continuous feedback process. The impact of fresh IPOs hitting the market might create an uncertainty among investors whether the market can show profitability and grow the way it was predicted be fore the demonetization. The short term impact of the GST and the recent news regarding the slower grow th o f the Indian economy at 5.7% will definitely hurt market sen timents which in turn can disappoint the fresh IPOs.
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Are There Too Many MUTUAL FUNDS? - Nishika Tatiya The capital markets regulator securi ties and exchange board o f India’s (SEBI) circular on mutual fund schemes categorisation and rationalisation was released on 6th October 2017. SEBI has been asking the industry to merge the schemes fro m past three years but the same did not happen. But with this falling on deaf ears, SEBI has decided to pu sh them into consolidation through new rules. As then they would have no choice instead of merging the schemes. Currently there are 42 asse t management companies in India Collectively managing about Rs 20 trillion across 2 ,000 schemes, which is disproportionately very high. The question is ‘what is the problem that SEBI is trying to solve?’ There a re basically four problems. One, the absence of definitions from SEBI on large, mid and small cap categories. There has always been a con fusion in what an investor is really buying. There can be a situation where a large cap fund could have stocks tha t could be coun ted as mid cap if a di fferen t definition was used in shortlisting large cap stocks. SEBI has now laid down the rules of what these three categories are. The large cap
funds will be the first 100 companies in terms o f full marke t capitalisation. The mid cap category will fall between 101st to 250th companies in terms of full market capitalisation and the small cap funds can buy stocks in firms that have a market capitalisation from the 251st company onwards. This is a step in the right direction to bring an industry standard in the mutual fund industry. Two, clutter has been built up o ver the years in the mutual fund industry with too many similar schemes e ven within a fund house. The move is e xpected to help investors cut through the clutter of 2000 investment sche mes and take better decisions. SEBI nomenclature rules for mutual fund curren tly, loosely defines only two aspects- whether a fund is open - ended or close - ended and whether it invests in equity or debt. Three, the mutual fund industry needs to work on reducing the expense ratio. Now, the question arises, ‘what is e xpense ratio?’ Expense ratio is a percentage of assets spent on running a mutual fund. A lower expense ratio is good for the investors. In 2012, SEBI had provided more flexibility to the fund houses by removing internal sub limits in deciding 9
how they wanted to spend the money they received from investors towards the expense ratio. Under existing norms, the maximum expense tha t an equity sche me can charge an investor is 2 .5% and for the debt funds i t is 2 .25%. According to a report, the total expense ratio in most countries is between 1% to 1.7% . In India it is the most expensive which is over 2%. This step will help in reducing the expense ratio. Four, balanced funds we re unbalanced with some fund houses stuffing theirs wi th far too much equity. SEBI has now split this category into three . Conserva tive hybrid funds, will have equity up to 25% and rest deb t. Balanced hybrid funds will have equity allocation of 40 – 60% . An aggressive hybrid firm can have equity allocation of 65 – 80%. Broadly, these are the four reasons because of which SEBI has to implement the new se t o f rules for bettermen t o f the mutual fund industry. SEBI is now de fining the ma rket better. It has segregated mutual funds in to five broad categories, namely: equity, debt, hybrid, solution oriented and other schemes. Going forward the regulator would permit only one scheme per category excep t in the case o f index funds, exchange traded funds tra cking different indices, fund of funds having different underlying schemes. There would be 10 categories under equity, 16 categories under debt, 6 categories under hybrid, 2 of solution
oriented like re tirement and children funds and one each for other category which includes index funds/e xchange traded funds and fund of funds (overseas/domestic). •Within equity the 10 offerings a re- multi cap funds, large cap funds, large and mid-cap fund, mid cap fund, small cap fund, dividend yield fund, value fund and contra fund, focu ssed fund, sectorial / thematic fund and ELSS. Fund houses will fit in their schemes in any one of the prescribed categories. • There a re 16 subca tegories under debt namely- Overnight funds, liquid, ultra-short duration, low duration, money marke t, short duration, medium duration, medium to long duration, long duration, dynamic bond, corporate bond, credit risk fund, banking and PSU, gilt fund , gilt fund with 10-year constant dura tion and floater funds. • 6 categories under hybrid- Conservative h ybrid, balanced hybrid, aggressive hybrid, dyna mic a sset allocation, multi asse t allocation, arbitrage, equity savings. • 2 under solution oriented schemes namely goal of retire ment and children benefit. • 2 in other schemes which includes index funds or exchange traded funds and fund of funds (overseas/domestic). One more reason that led SEBI to take this decision is that currently the scheme na mes are misleading. For example, the monthly inco me plans, which gave the impression o f giving a guaranteed return, will now be called a conservative hybrid fund. The credit 10
opportunities fund will now be a called a credit risk fund. It is the duty of the regulator to ensure that the investors do not misunderstand the product and ta ke on higher risk than they should. SEBI is also discussing whether to mo ve to a completely advisory based model for mutual fund distribution. Currently, intermediaries can register ei ther as an advisor who ge ts fees from the customers or as a distributor who ge ts commission from the fund. However, in the current model distributors are also allowed to give some advice. SEBI has released discussion papers in the last two years questioning whether distributors can give advice or not. This decision by SEBI will make i t easier for the investors to make decisions who are now faced with plethora of choices. This step is also aimed at improving transparency. Categorisa tion of schemes will also enable a better comparison of funds within the same category and would also bring better accountability. The biggest beneficiary in the merger of schemes would be investors as there would be consolidation of assets and a lower total expense ratio.
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Economy in Downward Spiral
-Aarushi Jandrotia India was doing very well on the global economic scene few years back. The developing countries were in awe by seeing the grow th and the development of India. The Indian economy was being looked upon by the developed nations. In 2008, Indian economy hit a minor bu mp due to the global economic meltdown but it rose again and showed its po tential. But few months back the whole equation changed and now the Indian economy is struggling on almost all aspects, economically, since then. And it was not expected and welcomed at all. So wha t has happened in last few months that changed the whole scenario and led to the slowdown of the e conomy, the answer could be – the implementa tion of Demonetiza tion and GST, which was implemented on 8th Nov 2016 and 1st July 2017 respectively. When Demonetization a nd GST hit the Nation…… a) Downfall of the GDP India had overtaken China and e merged as the fa stest g rowing world economy by the end o f 2015. In the first quarter- Jan- March of 2016 – the GDP g rowth ra te was nearly 9.2% . Bu t in April-June 2016 quarter, there was a decline of 1.3% over
the previous quarter and slipped further to 7.9%. When Demonetiza tion hit the nation 6.1 GD P grow th ra te was registered in the first quarter January- March 2017.And now the curren t GDP growth is recorded to be 5 .7% in the April- June quarter.
b) GST and Manufacturing decline GST (Goods and Services Tax) was implemented to smoo then the transition process but this in turns re sulted in de- stocking o f most manufacturers during period April-June. Due to this trading went up as the sales flew north on the accounts of discounts but as most of the stocks were cleared and new manufacturing was not carried out there was a decline. And the manufacturing sector reported growth rate of 1.6 per 12
cent compared to 3.1 per cent in the previous quarter. c) Ris ing of NPAs a nd Dec line of Demand As there was decline in manufacturing we could see the decline in demand in the domestic and foreign marke ts also. Wi th the rise in NPA (Non-Performing Assets) we could also see the decline in domestic demand. According to Some reports there was negative overall credit o ff-take for July, 2017. Which re flects tha t the industries are no t su re about the futu re trends and consider any big investment in production “risky” on weak demands. d) Un-employment The governmen t has been focu sing on reducing public expenditure in order to manage fiscal de ficit. But this has resulted in overall decline in investment. Low investments has hindered the grow th of mostly all the importan t sectors which are the biggest job providers like health, transport, transport and infrastructu re sectors. According to some reports India is at the lowest in terms of investment rate in 10 years Loss o f e mployment is one the e ffects of Post De monetization. This is the major concern. There wa s a loss o f lakhs of jobs as demonetization a ffected the unorganized sector with the grow th ra te by up to 80%. e) India’s Export and GST GST is not turning ou t to be good fo r the exports. The working capital needs of exporters have increased just like the small and medium enterprises. Under GST, they seek a refund only after the
goods are exported , they first have to pay integrated GST. Smaller exporters, especially for service exporters this has become a financial burden as they are required to furnish bonds and a letter o f undertaking to the local commissioner. The new tax regime has been places for months now but despi te this there is limited clarity on the refund mechanism.
According to the export da ta from July, while Bangladesh reported annual growth o f 26.54% in its July exports, driven by the robust performance of its ready-made garment secto r, India’s export growth slowed to 3 .94% fro m 4.39% in June. Exports of man-made fiber (MMF) textiles has also fell by 4% which includes fabrics, made-ups and yarns. f) Tax rates and GST • Gold is se t to be come costlier with 3% GST, earlier i t was 1% and 1% VAT in many states. • Under GST, the insurance is taxed a t 18% earlier it was 15%. • On various financial services and banking the transaction fee are expected to go up as 18% fro m 15% under GST. • Telecomm industry has also been
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affected as the service tax has risen from 15% to 18% under GST. • Economy class air ticke t ta x rate has been reduced fro m 6% to 5% while for business class the tax has gone up from 9% to 12%. • The tax rate for co mmon use products like soaps, toothpaste and hair oil etc. has been decreased from 22-24% to 18%. g) Fiscal deficit and GST As the ta x collections are lower than expected and because of the sluggish growth India could be forced to cut spending on key infrastructure such as highways and railways. As millions of firms failed to comply with the new GST syste m the Tax receipts were about $7 .8 billion in July which is a little half the monthly target. There is a big worry as the economic grow th which has slipped to a 3 year low in the last quarter, could ta ke a further hit if the public spending that largely underpinned expansion were to be slashed. According to an official the government has to re think on spending as the revenue shortfall could be at least 800 billion rupees if current trend con tinues until the end of the year. The fiscal deficit could slip to 3.5 % of GDP, from the target of 3 .2 %which wa s been se t for 2017/18 without spending cuts.
operations for a while • Many casual laborers lost their work in cities and had to go back to their villages • Even the organized sector felt the impact as sales slowed down Despite of the conducive macro - economic factors which includes low inflation, manageable fiscal de ficit, plenty of forex, stable rupee, re cord inflow of foreign investment, low oil prices, the country is heading to ano ther phase of slowdown as the GDP grow th is recorded as 5.7 per cent in the April- June quarter.
When Demonetiza tion (8th Nov 2016) and GST (1st July 2017) were introduced following other things also happened: • The BSE Sensex and Nifty 50 stock indices fell by 6% • India’s unorganized sector tha t mostly dealt in cash collapsed • Many small businesses and cottage industries were forced to shut 14
The Great Indian Billion Industry - Kartik Grover Do you remember dialogue of TVF pitchers? To get funding for a startup, i t is equivalent to battle o f Mahabharat because today India has become Third Largest Hub for Startups globally ahead of China and Israel. Only United States and United Kingdom stand ahead of it in terms o f Startup initiatives. Digitiza tion is assuming a key part in this situation and has given plentiful chances to crea te Indian online market. The open door today isn't just for India ye t in addition for 'Bharat'. In fact, semi-足urban and rural areas are on their way to get more focus than selected few metro cities. The festive sea son brings in a mo re noteworthy influx of eagerness for every one of the organizations including eCommerce organizations. This a worldwide pattern which is being seen in various parts of the world. While December is a key month for U K and US retailers, in India October and November are the most urgen t month s where achievement deals are b y and large seen. According to many CEOs o f startups, they consider tha t Indian ecommerce is dependent on Festive season such as Praveen Sinha, Jabong: With the merry season around the bend, the re tailers unquestionably have motiva tion to cheer
about. A gigantic ascen t in deals isa predominant patte rn amid this season-足 shopping free for all lifts happy spending each year. This is an all-足inclusive ma rvel and we can see this event comprehensively amid Christmas, New Year, Diwali, Eid and so forth. Like some other re tail industry, eCommerce too is represen ted by the regular and merry patterns. The request is round the year and there are spikes amid celebration season. Generally, clients in India sit tight fo r the bubbly season to shop. Because of this conceded buy, we typically observe an ascent in buy a mid bubbly season. We have seen a sound increment in number of visi ts on our destinations through marked and also non-足marked promo ting channels. Classes like ho me style and ladies' ethnic wear, adornmen ts and excellence see an obvious spike in deals amid Durga Puja and Diwali. The excitement isn 't constrained to this, a huge development in classi fications, similar to men 's and ladies' foo twear is additionally taken no te. Classifica tions like home and living (lighting, divider sketches and cera mics) which are perfect for gifting likewise observe higher than typical request amid this time. 15
Value touchy Indians adore reba tes and lower costs have been vital to web based shopping. As per a 2015 report by Goldman Sachs, 30% of an Indian web based business organization's costs go towards rebates. "With the most recent financing capability, this time around, showcase pioneer Flipkart would undoubtedly increment marking down spends to get new clients and also to pick up force over opponent Amazon," RedSeer Consulting said in the report. Amazon India and Pa ytm Mall are probably going to go with the same pattern, it said. The other region where online retailers will spend more than a year ago is coordination and sto re network ad ministration. "Client socioeconomics have changed con trasted with (the) pre vious year with level II turning into a more i mperative o ffer (o f the client base)… E-posteriors are mo re reliant on outsider cordination players for conveyance (to level II zones) which adds to the general costs," RedSeer said. The one range where spending is seen level or insignificantly bring down this year is promoting. For organizations a re presently progre ssively spending on minimal effo rt channels, for example, computerized advertising. Amazon cocked eyebrows in November when it opened its first physical expansion – a book shop in Sea ttle's University Village. The online monster's ascent, all things considered, is reprimanded for devasta ting to free bookshops the na tion over. Be that as it may, Amazon is just among the most recent, if biggest, web based business players to try conventional retail subsequent to beginning life on the
web. "It's difficult to dispa tch a brand nowadays that is quite re cently online-as it were . It's an extraordinarily troublesome and swarmed online business condition,” said Sucharita Mulpuru, a retail investigator at Forre ster Research. She noted there are more than 800,000 online stores, all compe ting to pull in clients through the passage of Google. Online land has turned ou t to be swarmed and costly. Offering on ca tchphrases against any semblance o f Amazon and huge customary retailers to arrive on the main page of indexed lists is an exorbitant amusement. By opening physical sto res, they mean to expand mindfulness and a ttract clients a domain where the retail alterna tives aren't interminable or affected by an almighty guardian. Furthermore, for purve yors of material and individual items like d ress, eyewear and gems, o ffering stuff face to face ha s a conspicuous in terest. For some, the disconnected raid has begun with a trial fly up shop before propelling leader stores in prominent shopping locale like New York's SoHo neighborhood or Chicago's Michigan Avenue. Energized by the outco mes, some have since extended rapidly. "The huge advantage of the lead store s is that they're fabulous showcasing vehicles," said Jason Goldberg, senior VP o f trade and substance at advanced office Razorfish. "Not exclusively do tho se stores have a tendency to be financially fruitful all alone however they create a colossal lift in incremental shopping to the online store." That has been the si tuation for Warby Parker, which has made a well known brand by o ffering beau tiful eyeglass outlines for under $100. In the 16
wake of beginning on the web in 2010, it opened its Soho leader three years a fter the fact and now has 20 stores across the nation, with plans to include another 20 this year. After all these arguments by the consulting companies and questions raised by the C EOs o f many startups, Now are these Indian e-Âcommerce really dependent on Festive season and has brick-Âand-Âmortar culture of re tailing be back in India soon?
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No Deal BREXIT – The Significance - Naman Shah Brexiters are counting on the EU’s economic self-interest but any breakdown in negotiations could be cata strophic. Conservative politicians are a mong tho se who stand for Bri tain to walk away from the deadlocked Brexit talks and prepare for the repercussions of exi ting the union without any diplomatic agreemen t on table. From grounded airlines to increasing unemployment and empty shops, the infe rence is projected be dramatic. Just as there is a variety of numerous deals that could be struck be tween Britain and the EU , there are many instances in which Brexit talks might collapse. Most nations assume an incapability to agree the terms o f divorce – the size o f the financial settlement, or the role of the European court of justice – followed by a hand wash by negotiators and no talks at all on future trade arrangemen ts. This would mean relying instead on non-Union treaties, such as shared commitmen ts to the Wo rld Trade Organization and the Hague convention, to govern ongoing cross-border affairs. It is possible, however, to imagine a more affable “agreed no deal”, in which divorce talks end with a limited settlement that plans for an orderly exit but is not sufficient for
the EU to allow full-scale negotiations at this stage.
trade
Degree of leverage – Catac lysm on scale The worry is that any fal ter like si tuation among negotiators will be hard to contain. The chancellor, P. Hammond, has warned of a “bad-tempered scenario” in which neither of the wings a cts in its own best economic interests. Many Europeans regard the dispu te over money as a matter of good faith, not as an early round of bargaining. “If the Bri tish canno t be tru sted to settle their past pro mises, why bother striking future deals?”
Walking out could therefore be treated as a legal default, with litigation in the international courts and even asset confiscation. Never mind free trade talks, 18
such an atmosphere could make it impossible to agree a replacement for all : manner of existing arrangements governing travel, immigra tion and customs. What might this mean in practice? The e xtre me scenario raised by Hammond would be one in which e ven basic infrastructure arrangements such as airline treaties are not replaced, preventing UK carriers from landing at EU(27 airports). Aviation industry says this is not so far-fe tched and could begin to bite b y March next year when they will not be able to guarantee the validity of tickets issued one year in advance. Ports and land crossings could be dis- organized, with long queues of heavy goods transporta tion vehicles waiting to clear customs and a politically explosive hard border returning to Northern Ireland. It is even po ssible tha t progress in negotiations on citizens rights could be reversed, forcing EU ci tizens to leave the UK and imposing visa requirements on travelling to Europe. Is there a rosier window? Many Brexi ters, believe the benefits of a “clean Brexi t” easily ou tlaw the risks of being forced to take whate ver deal the EU opts to force upon Britain . Much o f their confidence comes fro m the assump tion that econo mic self-interest would force the EU to agree some basic measure s to keep borders open and trade flowing. In the meantime , they point ou t that bo th China and the US rely on little more than WTO rules to trade perfectly su ccessfully with Europe , as does Britain when trading with them. Though WTO tariffs are high for food and cars, most manufa ctured.
Goods would see the little change in export duties. Over time, it can be hoped that Britain could come back to the negotiating table to agree rules that would facilitate EU trade in services and find alters to compensa te for lost markets(like agricultural) by concentrating in faster-growing markets abroad. Ode to the WTO The issue is that even the WTO op tion no longer looks that easy. The US has just rejected joint effo rts by the UK and the EU to extend existing quota arrangements post-Brexi t. It may instead require extensive negotiations just to restore Britain to the status quo. Inheriting other existing multilateral trade deals may also prove a mbiguous than Britain imagines, let alone striking new ones with countries that seem more interested in accessing the larger EU market first. Under a no-deal scenario, the high cost o f in flicting WTO terms on British farmers and carmakers would come alongside onerous new customs procedures tha t could make the export of fresh produce and JITSCs all but impossible. Unemployment would soar and markets warn of emp ty shelves and rising prices if the oxygen nourishing umbilical cord is cut in such a manner. Degree of preparation by the British The scale of the challenge partially explains Treasury reticence to spend money preparing for this even tuality. But Brexiters fears that unless Britain shows it is ready for a no-deal outco me, i t will inevitably be forced to a ccept the worst deal instead. This may imply buying land near cross-channel ports which can be used to hold lorries awaiting customs 19
clearance and investing in new IT solutions. But a s skeptics have pointed out, even the most streamlined customs process is useless if it is me t wi th indifference or even outright ho stility from disgruntled trade partners on the other side of the border. “The majority people in the UK all the European Union want but it should be thought that it is a serious possibility that the 2 should plan for. Getting down to practical terms contingency planning is a huge importance , although the record of contingency planning over Bre xit doesn't show good results. When we look a t the way how the negotiations a re developing(and differences o f approach in the British government)� It can also be thought that a mo re legalistic approach is advisable. Rosy picture o f 27 Na tions to sit down and come to a common agreement is not rational anymore. Moreover extending article 50 requires unanimity. It is a critical situation and falling o ff the edge would mean a very bad bump.
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LEHMAN BROTHERS: A Colossal Collapse - Ishaan Sengupta The 2008 financial crisis still leaves students and a cademicians confu sed and perplexed, despite having had a profound effect on markets around the world. While economies have seen the b runt of the bullwhip in the financial marke ts;; companies, financial institutions and credit ra ting agencies have seen bankruptcy and lost trust of the stakeholders in the economy. One su ch financial giant, ‘was’ Lehmann Brothers Holdings Inc. which filed for bankruptcy on September 15, 2008 at the prime of the financial crisis. Bu t perhaps what is equally interesting to ponder about is the reasons why, the Governmen t could not bail out such a huge investmen t banking institution (It was ranked 4thwhile it filed for bankruptcy) that had a strong association with the US economy since the 1800s.
the two cataclysmic World Wars that would take the life as well as give birth to old and new companies respectively. The survival can only be attributed with sound and apt policy decisions backed by strong business acumen , that the senior dispensation followed to have an edge over the impedimen ts that the economy faced. Surely, an organiza tion with su ch deep roots and a strong base , could not have gone to the dogs so easily.
Lehmann Brothers Holdings Inc. started out as a fa mily business in Alabama comprising of German immigrants to the US who were brothers;; namely, Henry, Emanuel and Mayer. The company had survived the toils and hardships o f various macro environ mental phenomenon that not only had a profound effect on other companies in i ts compe tition bu t also the economy as a whole. To name a few, the Great Depression in the 1930s and even
Generally, mergers and acquisitions a re thought out processes that are care fully planned, the costs and the bene fits a re weighed against each o ther and inten se financial calculations are done to ensu re that the a sset being acquired is likely to reap enough benefits in the future or not and can be scaled as well. That is what Lehmann Bro thers Holdings Inc tried to do as well, but of-course, their policy decision went extremely wrong. 21
In 2008 , when the crisis was well underway, that is, when subprime borrowers, started de faulting, in addition to o ther borrowers in the U S e conomy, Lehmann started showing jittery signs of a fu ture instability. This can be a ttributed to the acquisitions that the investment banking firm had made a few years back – It acquired 5 ‘successful’ mortgage lenders;; namely, BNC Mortgage, Auro ra Loan services and others which pri marily specialised in provide housing loans to individuals and groups who did not have full documenta tion. Back in 2003-2004, owing to the rapid growth in the housing loan sector, also known as the ‘housing boom’, the decision to acquire the above- mentioned organizations had been made and had also resul ted in re cord re venues in their real estate business, which in tu rn enabled revenues in the capital ma rkets unit to surge 56% from 2004 to 2006, a faster ra te o f growth than other businesses in investment banking or asset managemen t. This fa vourable trend motivated the o rganization to convert their loans into mortgage backed securi ties which it had increased by 10% in 2006 as opposed to 2005. In turn, trading in the same, led to huge ne t pro fits for the organization from 2005 to 2007. But the decision to pri marily provide loans to Alt-A clientele, backfired heavily, because they started defaulting, in fact reaching to i ts seven-year high in the year 2007. Despite being fairly confident about the market si tuation, the company suffered i ts major down fall in the beginning of the first quarter of 2007 when around the mon th o f march, the company suffe red its worst one da y drops in the stock price in 5 years, due to
concerns o ver rising de faults. Following this, around August, the organization had to shut down its BNC Unit and lay o ff around 2500 mortgage related jobs. Despite such concerns, Lehmann Brothers, con tinued to be the biggest underwriter of mortgage backed securities and ultimately paid the price for maintaining a massive mortgage portfolio. The underwriting overhaul was even more than the shareholder’s equity o f the organization. “WHY ONLY ME?” Lehmann Brothers’ stocks fell a colossal 48% over concerns that it would be the next wall street firm to fail after two Bear Sterns hedge funds collapsed completely. Despite raising funds, a multiple of times, the conversion of these funds in to profit driving operations beca me less and less viable. A few unsuccessful negotia tions and overtures led to the confidence to go with the dogs. The stock plunged 77% in the first week of September 2008. The State-Owned Korea Development Bank also stalled talks of a cquiring the company further damaging the company’s stocks by 44%. After a similar failure in negotiations of a takeover with Barclays and Bank of America, the company finally filed for bankruptcy on the 15th of September. While Lehmann was not the only organization to file for bankruptcy, it turned out to be only one of the few which could not find any takers, and the Governmen t also could not provide it with a break. Despite such a long-lasting relationship, Lehmann Brothers ceased to exist. The ta cit support of the Go vernment for Bear Sterns and its successful 22
takeover by J.P. Morgan and Chase Co. raised questions about why Lehmann Brothers had to be left in the lurch. In 2010, former treasury secretary, Henry Paulson spoke about how there wa s no choice left for Lehmann as it had huge capital, huge debts and no buyers to ensure that i t could sta y alive. Adding to that the Govern ment’s emergency bailout fund of $700bn contributed to the su rvival of AIG.
Figure 2: Courtesy - Business Insider This is only because AIG had been a participant in the Troubled Asset Relief Fund, which was a massively unpopular bill. Lehmann had no such agreements with the Govern ment. Hence there we re no other options for the o rganization. The failure of Lehmann Brothers, is coined as the advent of the financial crisis as 46% of marke t capital exited the marke t in one day and the Go vernment had to work in lieu with the Fed to ensure tha t the economy went back on track.
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Shinkansen of Indian Railways – Leap Forward or Waste of Money - Tanay Sood Lifeline of the nation, Indian Railways, connecting the length and breadth of the country providing the required connectivity and integration for balanced regional development. 16 April 1853 was a pioneer in the history of Indian railways, which laid the foundation fo r economic development. Pro viding employment to more than 1 mn population for both the skilled and unskilled workforce. It is one of the largest tran sportation and logistics network in the world which runs approximately 16000 trains and carries 23 mn passengers per day connecting about 8000 stations spread across the sub- continent. In the 21st century, the Indian economy has grown rapidly by over 8 % per annum in real terms, connecting the small traders wi th the global marke ts, thanks to the well-connected road and rail network in frastructure and advancement in the technological fa ctors. Government is spending a huge sum of funds in the gallop of railway operations and in its maintenance ensuring the needs of the individuals and business are fulfilled. Mumbai, the financial capital of our country is well connected wi th cities and countries via road , rail, air, and waterways. Railways or local trains are called the city’s lifeline for a reason, daily
more than thousands of co mmuter’s travels in and ou t of Mu mbai for their livelihood. So, has the good connectivity reforms and infra structure welco med urbanization, the answer is certainly yes. Urbanisation is good for a nation but only to some exten t. It allows the economy to grow and expand holistically by welcoming foreign direct investment, new and advanced technologies are adopted with more employmen t opportunities a re created and establishment of centres of collection and pro cessing of primary goods and services. Yes, the nation builds but at the cost o f terms and conditions of another country. So, the foundation, which was laid in Gujrat on 14 September 2017, viable for India or is Japan using the Indian soil to showcase its power and streng th. Pri me Minister Narendra Modi and his counterpart from Japan Shinzo Abe laid the foundation for the country’s first high- speed rail (HSR ) project Ahmedabad - Mumbai bullet train. Estima ted to cost INR 98 ,000 Cr and the project being funded by Japan a t a no minal cost o f only 0.1 %, with a much larger repayment period i.e. 50 years. India has always been the favourite piggy bank for Japan, from the joint venture of Maruti Udyog 24
Limited and Suzuki Motor Co rporation now commonly known as Ma ruti Su zuki India Limited to development of Delhi Metro Rail with 60% of the cost being financed by Govern ment of Japan and, during the year 2016 -17 Japanese investment has reached USD 4.7 bn.
medium business commercial hub which would be occupying and operating to its full capacity.
So, do we really need a bullet train or improvement in our existing railroad infrastructure? Bullet train is big ‘N O’ for India, and its democra tic power explains everything. Land Acquis ition: The most critical issue. As the alignment would veer away from the existing railway land National High-Speed Rail Corporation Limited (NHSRCL) and hence they would have to take ap t measures to ensure the bullet train is well connected with the existing stations thus providing feasibility to the passengers to commute. It will pass through the India’s biggest tunnel of 21 km, of which 7 km will be under the sea. Out o f the to tal rou te, 351 km lies in Gujarat and 156 km in Maharash tra. The government of Maharash tra is not willing to give land in the major commercial growth node requested. Instead , i t is suggesting the stations to be built on the land that already belongs to the railways. Route Des ign: Train is expe cted to cover the distance of 508 km covering 12 stations between two and three hours with a ticket costing ~ INR 3000. So big buck here would be , is the Indian passenger willing to pay such huge amount or would pre fer to buy an airline ticket which is affordable and convenient. Given the confidence o f the government and by the ministry of railways the 12 station (cities) are known as the small and
Human Res ource Development:: It would be very important to train a large number o f engineers and managers for its design, constru ction, and operations at standards that are much needed for high-speed rail. Vice Versa , Japanese counterparts would also require training and acquaint to the Indian socio- economic working conditions, which would again require an additional investment. The above-cited points can be worked upon and quick solutions would help the government achieve its dream of a bullet train. But the ground reality cannot be changed. Today where time is money, some would p refer to pay INR 3000 (~ticke t price) to reach its de stination in quick time but looking at the history o f Indian travellers they would still prefer to pay a minimum amount to travel. Secondly, in a country like India where sentiments and emo tional values play a vital role, individuals prefer to reside in and around their native places, the distance o f which can be easily covered by either bus or car.
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Japan is being very lenient with India in its loan repayment period , offering a whooping, 50 years tenure and charging a minimal of 0 .1% intere st does look good orally. But if the sta tistics are pu t in place and at present market conditions, rupee being weak, and with future anticipation, it would depreciate further against Japanese yen after factoring in flation and taxes. Our nation is already under seve re deficit and faces the hindrance of maintaining an optimum level of balance of paymen ts, thu s it will need to find alternative solutions of repaying the humongous amount as manipulating in the ticke t prices will not fe tch any re turns. The project has to be funded internally and externally, the governmen t might have to consider the parameter of raising capital in the securities market via Indian railways if they really want to achieve break-even point in the long period. When Me tro project was flagged off in Delhi in 1995, many argued and questioned: “Is India really ready for it?”. If we had though t that these funds could have been used for so me other development purposes then Delhi metro would not have beco me a reality today and we cannot ignore the fact tha t how the metro is a blessing to our national capital. Bullet train project would increase investment in infrastructure , ignite the economy and create jobs but how the authorities wish to pay these employee’s, taxpayers money? Concre te roads and pillars are not a symbol of economic development unless it has an economic value or return on its investment. Project costing above INR 98 ,000 Cr. requires a significant amoun t o f opera tional revenue generating capacity and in a country
where people prefer to co mmute in sleeper class and AC 3 tier, and wi th the rapid expansion of Indian a viation sector, Indian Railways is going to face stiff competition. PM Modi is betting big on this project, but its economic viability is still a major concern. Ye s, i t is good to think big and vision better, but only if the micro and macroeconomic conditions are fulfilled and introducing new policies and programmes the main agenda of the government, withou t p roper implementation of even single policy? The government’s, UD AN scheme ha s also been introduced with the aim of connecting small towns and cities. Prioritising its investment decisions requires immediate a tten tion and team Modi should ensure proper and optimum utilization of funds at i ts disposal thus to avoid any unfavourable economic turbulence. Ignorant towards farmers suicides, decrease in the industrial output due to lack of planning in the implementation of the Goods and Service Tax (GST) and demonetiza tion, decrea se in wage rate and employment opportunities, disinvestmen t of public sector undertakings, and a big concern towards the recovery of non -performing assets should adhere right up front. Will bullet train become a reality or lost opportunity only 15 August 2022 will illustrate.
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Disruption due to GST: Just short-term or more? - Aishwarya Siram The GST is plausibly one o f our most significant and pioneering re forms ever attemp ted. It is widely expected to transform India in to one common market, bringing e fficiency and productivity in the long run. But while the mo ve is a game changer for investor emotion and paves the way for other systematic reforms, stra tegists a re cautious as it could disrupt consump tion and growth, a t least in the short run. At a broad level, it includes higher disrup tive impact on informal , rural, and ca sh-based segments o f the economy. Due to GST the banking sector will face marginally negative pressu re in the short run as loan growth will remain rigid, and asset quality and earnings will be pressurized at the margin. Digital banking and higher banking as well will benefit the banks in the long run. However, Indian governmen t reforms will have long-term structural benefits, but also carry short-te rm execution and adjustment risks. The credit and risk analysis firms believe that demonetisa tion and GST could result in a wider tax base and greater participation as the formal economy is i
concerned. This should benefit India's business climate and financial system in the longer run. It promo tes greater economic flexibility, strengthens the business climate, attract more wealth in to the formal banking system, and help redress public finances over time . In the short term, however, the ru ral and informal sectors a re facing large-scale adjustments. Business sectors that often transact in ca sh, including jewelry and real estate , will also fa ce so me degree of difficulty. What is the macroec onomic im pact of GST on India ’s ec onom ic gr owth or GDP growth? This is di fficult to sta te, partly because it’s not certain how much the GST regime will change in the coming years. However, GST ensures de mand-driven production rather than tax-driven p roduction will add two percen tage points to India’s GDP growth. A more complica ted GST, much like the one we have now, is likely to yield less returns, more in the range o f half a percentage point to one percentage point increase in GDP in the short-term.
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Will it curb tax evasion and expand the tax net? Firstly, India’s curren t GST regime goes against the basic principles of increasing revenue: the lower the rate o f taxation, the more number of people and businesses that will follow. Another closely connected issue is the inco me limit, which exemp ts businesses that make under 20 lakhs per year fro m GST. But, the previous e xemption limi ts we re exploited under earlier tax systems. The GST regime is particularly good at formalizing areas where India’s formal sector interacts with the informal industry through its reversal charge and input tax credit me chanisms. India’s biggest companies across various industries ha ve incentives to adjust their in formal supply chain into the formalized tax syste m and vice versa. Inter pretations of Short term implications for different businesses. Short term pain could be in the form of technical glitches and difficulties in adjusting to the new indirect tax regime. Eventually, GST will lead to a streamlining of processes, bring cost savings and improve ease o f doing business, they say. • The short-term impact of GST could be neutral to negative for the broader economy. Production processes will likely take some time to align with the new framework as firms adjust to the input ta x credit syste m and ge t a handle on working capital requirements. The economy stands to gain over the long term as effectiveness improve s and higher government revenue turns in to higher growth potential. Immediate
challenges will revolve around agreement, infrastructure and logistics of the GST syste m. Over the next few quarters, the fo cus will turn towards shifting business models and gaining productivity. • GST is likely to have lesser direct impact on consumer price infla tion. The i mplications o f the GST reform range fro m creating a simplified tax syste m to directly benefiting the logistics se ctor. The impact of GST rates is likely to be positive for consumer staples and media, and negative for airlines, and oil and gas. For au tos, hotels and telecoms, the impact is likely to be neu tral to marginally negative;; for cement and steel, it should be marginally positive even in the longer run. • There may be so me disruption in business in the short te rm, but the new GST framework would move the economy towards a co mmon Indian market, reducing the cascading e ffect of multiple tax layers and increasing revenue range for the central and state govern ments. By leveraging advanced technology infrastructure and systems, the GST framework is expected to bring grea ter transparency and simplicity in tax administration and co mpliance. Tax uniformity acro ss states would facilitate free move ment o f services and goods, with better compliance. Thereby, benefiting the e conomy a t large in the long term. • GST will lower logistics costs owing to a decline in tran sit time because o f the elimination of multiple checkpoints 28
and consolidation of warehouses. The cement sector incurs higher logistics/freight/transporta tion costs, as a proportion of revenue, followed by packaged consumer goods, and the metal, chemical and paint sectors. • Companies seem to be 100% ready for GST, but distributors are only partially ready, and wholesalers and retailers are still struggling to adapt to the new syste m. Among the most worried lo t is the wholesale category because it works on the thinnest margins and risks narrowing them further on account o f compliance costs. The wholesale channel deals mostly in cash. • GST may disrupt the system for a few days, weeks or month s as people are not ye t fully aware of the transition. Inventory pile-up, reconciliation of stock-in-trade and a host of other issues may create bottlenecks for some time. However, in the long term, the new system will act as a much better taxation syste m as i t will convert the coun ty into one single marke t, deducting the loopholes associa ted with indirect taxation. • There has been much discussion about the increased co mplexity of the GST syste m, as compared with initial expectations, and the hurried manner of implemen tation. On the ground, this lack of readiness at businesses will impose costs in terms o f both money and time which is only for a shorter period. These issues are te mporary. With help, most will adapt to the new tax filing system. 29
Trouble in Reliance Communication Limited -Noel Mathew - Amit Shovan Mandal “We are not just about scale and size;; we are also about the pursuit o f excellence, the integrity o f our values and the quality of our services.” - Anil Dhirubhai Ambani, Chairman, RCom( 2010) “The wireless sector which had 10 players earlier is now under a threat of becoming a potential monopoly. So , we have to rethink strategies for the sector.” - Anil Dhirubhai Ambani, Chairman, RCom (2017) Reliance Communication Limited is a flagship company of Anil Dhirubhai Ambani led Reliance Group. It is a well- established, truly integra ted (Wireless and Wireline) and convergent (Voice , Data, Video) telecommunication service provider in India. The Company has a customer base o f o ver 95 million including over 2.6 million individual overseas retail customers. RCOM also own owns and operates the world’s largest next generation IP enabled connectivity infrastructure, co mprising ove r 280,000 kmsof fibre optic cable systems in India, USA, Eu rope, Middle East and the Asia Pacific region. But as the time goes on , mo re competition came in market. But the
company cannot perform well in that competitive marke t as they fo cused mo re on 2G and 3G se rvices where its competitor gives free 4 G da ta and voice calls and as a result, the company start to run in the loss. So, therefore , they started to borrow more and more money from the bank and o ther organization, but they can’t repay those borrowings. As a result, in 2017 their total debt a mount beco me around INR 45000 crores.
As we see from the chart that company started loss from 2011. In FY 2016- 2017, loss amount o f the company beco me highest. There are several reasons for this loss. But for 2017, the main reason was disruptive en trance Reliance Jio wi th the free offer. Now the question is that why RC OM wanted to merge their wireless business with Aircel?
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There are mainly four reasons to merge- Reduction of debt am ount- By this merging, both companies can transfer INR 14000 crores debt to the proposed new entity, Aircom. And INR 6000 crores, which is payable to TR AI as spectrum installments by RCOM, would be absorbed by the Aircom. Become the third largest c ustomer base service pr ovider : After merging their co mbined user base will be near about 180 million just a fter Airtel (251 million) and Vodafone (198 million). Also, their revenue market share would be 6%. The combined entity will have assets of INR 65,000 crores and ne t worth o f INR 35,000 crore.
As we see in the table tha t to tal debt of RCOM is INR 45733 crores as on 2017. They wan t to reduce their debt by INR 25000 crores in which INR 14000 crores by merging its wireless service with Aircel. RCom and Aircel’s promo ter Maxis Communications Berhad (MCB), planned to merge their wireless business a s Aircom on 14th Sep 2016. But the merging has called off by Rcom on 01st Oct 2017 due to regulatory delay and opposition from some creditors. There are so me key points about the merging face failure- The merging proposal lapse with MU TUAL CONSEN T of both parties, i.e. RCo m and Aircel.
Together they get m ore s pectrum : Their to tal spectrum would become 448 Mhz including spectrum band o f 850 , 900, 1800, 2100 Mhz with the validity till 2033- 2035. The amount o f spectrum could also have make the m second largest spectrum holder in India.
RCom told in their statemen t that "Legal and regulatory uncertainties, and various interventions by vested in terests, have caused inordinate delays in re ceipt of relevant approvals for the proposed transaction."
Get m ore stre ngth to tack le Re lia nce Jio : Wi th reduced debt amount, 3 rd largest customer base and 2nd largest spectrum holding, RCom-Aircel merger might form a third power afte r Airtel and Vodafone to take on Reliance Jio.
They also said that “Unprecedented competitive intensity in the Indian telecom sector, together wi th fre sh policy directives adversely impacting bank financing for this sector, have also se riously affected industry dynamics," The boards of directors decided to reduce their debt amount through an alternate way after reviewing transformation programme. The co mpany have decided to evaluate and different plan for i ts wireless business to opti mise spectru m that it holds and focus only on 4 G technology as part o f its new strategy. 31
National Company Law Tribunal approves this merger on 14th Aug 2017, against petitions by China Development Bank (CDB), Standard Chartered Bank and HSBC to vendors including Ericsson, Bharti Infratel, and GTL Infrastructure. After falling merger wi th Aircel, there is a short fall by INR 14000 crores. Now, the only cash flow will be INR 11,000 crore from the tower deal with Canadian firm Brookfield Infrastructure Group. So, they are looking for alterna tive ways to reduce their debt. RCom has go t ti me from banks and creditors, till Dec 2017, to make interest and principal repayment so that the co mpany could sell assets and reduce debt, a mounting to INR 45 ,000 crore. As a part o f a stra tegic debt restructuring (SDR) programme, they have taken several steps to get rid of debt.
be expired on 21st Nov 2017. A s uccessful merger with SSTL : On 23rd Oct 2017, the Department o f Telecom, gave the green signal to the merger o f Sistema Shya m Teleservices with Reliance Co mmunications. As a result, a nu mber of mobile operator in India comes down to Ten. By this merger, RCom will get 30MHz o f 800/850 MHz band spectru m and extends their validity by 12 years fro m 2021 to 2033 in the major 8 telecom circle in India viz. Delhi, Gujarat, Tamil Nadu, Karnataka , Kerala, Kolka ta, U P- West and West Bengal. This band of spectrum is superior and most valuable for 4 G services. As they focus on 4 G network, so, this will be very worth to them. By this merger, they also ge t approximate 2 million customers and they are going to add an annual revenue amounting INR 700 million.
Spectrum optim isation and s haring : RCom has capital- light access the nationwide 4G mobile network through spectrum sharing and ICR agreements with Jio. Foc us on 4 G only : They plan to shut down their 2 G business and continue their 3G and 4G un til they are profitable. According to RCo m execu tive director Gurdeep Singh, “The company will “continue to opera te international long distance (ILD) voice, consumer voice and 4G dongle post-paid services” and mobile tower business until the time they remain profitable and all the other businesses will be shut down ,” As a resul t, they also going to shut down their DTH service on 18th Nov 2017. Though their license will
Foc ussed on H igher Gr owth H igher Margin B usiness to B usiness N on- Mobile Bus iness : RCom’s fu ture growth strategy is to focus on B2 B nonmobile business which will give the m higher growth. B2B non-mobile business includes Global and Indian Enterprise , Internet Data Centres (IDC) And Global Submarine Cable Network. 32
Sale of their rea l estate assets : They hire a real e state service co mpany na med JLL for selling their corpora te o ffice in central Delhi and Dhirubhai Ambani Knowledge City (DAKC) in Mumbai. By selling these properties they assume they can raise an amount of INR 10000 crores. We can see from the graph that around last 14 months there is a downfall of the RCom’s share price. On 1s t Sep 2016, price was INR 49.09, highest price was INR 51.15 on the day of merger proposal with Aircel, i .e. 14 th Sep 2016 and they record their lowest price INR 15 .80 of last 14 months on 26th Oct 2017. Price downfall around last 14 mon ths is67 .81% which is very significant.
“Domestic banks are ve ry pessimistic and averse to lend to telecom companies amid stagnant revenues with rising capital expenditures and operating costs” a state ment given b y RCom. These practices also reduce employment. As we see that RCo m is going to shut down their 2G and D TH services. So , the e mployees o f this sector will become jobless and tha t in turn will affect the overall economy.
Credit Rating Agencies like CARE, ICRA, Moody’s In vestor Service downgraded their ratings May 2017. CARE downgraded it to ‘D’ i.e . DEFAUL T, ICRA downgraded it ‘ICRA D’ and Moody’s downgraded it to ‘Caa1’. Though Reliance Communication Limi ted rejects the se ratings and filed a case against ICR A and Moody’s. So, to i mprove their ra tings, the raise their equity share price and to regaining trust of investor they must reduce their debt amount. So, they need to follow strict repayment schedule for existing debt in the upco ming years. Govt. should help to resolve this Hyper co mpetition in the telecom sector. If this situa tion continues there are se veral problems must be fa ced by Teleco mmunication sector. The sector already has huge liabilities amount around INR 775 ,000 crores as on 31st March 2017.
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Industial Analysis: INSURACE SECTOR - Sambhav Jain Everyone wants to be risk free . Insuran ce is one way to mitigate risk. The basic motive of undertaking insurance is pooling of resources so that it could be re- distributed to the insured in time s of calamities su ch as fire, floods, epidemics and famine. Generally, there are two types o f insurance - general insurance and life insurance. General insurance can further be categorized in to: personal insurance, rural insurance, industrial insurance and commercial insurance. Li fe insurance can be ca tegorized into- whole life plan, endowment, money back, term plan and unit linked insurance plans(ULIP). The insurance industry in our country is on the threshold of a new era of rapid expansion. A more competi tive environment is emerging with new participants en tering the insurance industry. Indian insurance industry consists o f 53 co mpanies out of which 24 are life insurance and 29 are non-life insurers. Life Insurance Corpora tion (LIC) is the sole public sector co mpany a mong the life insurers. There are six public sector insurers a mong the non-life insurers out of which two are mo re specialized namely, Export Credit Guarantee Corporation o f India fo r Credit Insurance and Agricultu re Insuran ce Company Ltd. for crop insurance. In the
non-life insurance, five priva te sector insurers are registered to underwri te policies for health, personal a ccident and travel insurance . They are Star Heal th and Allied Insurance Company Limited, Apollo Munich Health Insuran ce Company Limited , Max Bupa Heal th Insurance Co mpany Limited , Religare Health In surance Co mpany Limited and Cigna TTK Health Insurance Company Limited. Apart from these, General Insuran ce Corporation of India (GIC Re ) is the sole national re-insurer. Other stakeholders in Indian Insurance marke t include: agents, brokers, su rveyors and third party administrators. Insurance penetra tion has reached 3.4 % in FY15-16 and is e xpected to cross 4 % in FY16-17. This is primarily due to government policies o f insuring the uninsured. ,
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MARKET SIZE: The general insurance industry recorded Gross Direct Premium underwritten in April 2016 at Rs. 105 .25 billion, indicating 12% growth.During FY 15-16, the life insurance industry recorded a premium income of Rs. 1 .38 trillion, indicating a growth rate of 22.5 %. India’s life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a Compound Annual Grow th Ra te (C AGR) of 12-15 % over the next five years. The insurance industry plans to hike penetration levels to 5% by 2020. The country’s insurance market is expected to quadruple in size over the next 10 years from its curren t size of USD 60 billion. The general insurance business in India is cu rrently at Rs. 78,000 Cr. (USD 11.44 billion) premium per annum industry and is growing at a healthy ra te of 17 %. OPPORTUNITIES: There is po tential for g rowth in the insurance sector due to several fa ctors that include government initiative s like Pradhan Mantri Jan-Dhan Yojana aimed towards enhancing financial inclusion, raising financial literacy along wi th increase in domestic savings, expanding coverage of crop insurance, expected revival of the investmen t cycle and increasing penetration of auto and health insurance. Demographic factors such as a growing middle class, young insurable population and growing awareness for protection and retire ment planning will also support the grow th o f Indian insurance companies. The country is the 15th largest insurance market in the world in terms of premium volume and has the
potential to grow exponentially. CHALLENGES: The major challenges faced by insurance industry are: Rising C om petition: Liberalization has created acu te compe tition in the insurance marke t because new players are coming to tap the huge market. Customer Relations hip Ma nageme nt: Customer behaviour will be influenced by environmental facto rs and personal aspirations. The environmen tal fa ctors are socio economic and demographic factors. Relations hip Mana gement: The relationship management o f insurance companies is mainly trapped by individuals as well as corporate agent. The relationship o f the clients should always be maintained but the mista kes of the agent are the major causes in the relationship management. Products Distr ibution: While the traditional channel o f agents or advisors is the most important distribution channel, insurers should innovate and find new methods of delivering products to customers. RECENT PERFORMANCE: General Ins urance B usiness Performance For the FY15-16 , Premium underwritten was Rs. 87 ,385 Cr. and new policies issued were 1,220 .76 lakh. These figures are slightly higher than FY 14-15 where Premium underwritten was Rs. 77,639.57
crores and new policies issued we re 1,182.79 lakh. Net claims incurred in FY15-16 were Rs. 59,868.71Cr. as compared to Rs. 50,998.21 C r. in FY 2014-15. This shows tha t the number of insured people have increased , which is a good sign for our economy. Life Insurance Business Performance : For the FY 15-16, Pre mium underwritten was Rs. 3,66,943 .23Cr. and new policies issued were 267.39 lakhs which is higher than the FY 14-15 where Premium underwritten wa s Rs. 3 ,28,101.14 Cr. and new policies issued were 259.08 lakhs. Benefits paid in FY 2015-16 were Rs. 2,01,766 C r. as co mpared to Rs. 2,11,179Cr. in FY 14-15. Public Sector has performed well than the priva te sector. FUTURE PROSPECTS : The futu re looks promising for the life insurance industry wi th several changes in regulatory fra mework which will further change the way the industry conducts its business. As per the report by the India Brand Equity Foundation the Indian insurance sector is expected to g row at a rapid pace to rea ch around USD 400 billion in premium income by 2020 and with the investment in the pension sector of the country crossing USD 1 trillion in the coming decade.
With the increase in income and exponential growth o f purchasing power as well as household savings, the. insurance sector in India would introduce emerging trends like product innovation, multi-distribution, better claims management and regulatory trends in the Indian market. The government also strives hard to provide insurance to individuals in a below poverty line by introducing schemes like: • Pradhan Mantri Suraksha Bi ma Yojana (PMSBY) • Rashtriya Swasth ya Bima Yojana (RSBY) • Pradhan Mantri Jeevan Jyo ti Bima Yojana (PMJJBY) Introduction of these schemes will help the lower and middle income people to utilize the new policies with lower premiums in India. Demographic factors such as growing middle class, young insurable population and growing awareness will support the growth of life insurance in India. More and more individuals will co me within the ambit of insurance due to the increasing awareness about investment and security.
India’s insurable population is an ticipated to touch 750 million by 2020, with life expectancy reaching 74 years. Furthermore, life insurance is projected to comprise 35% of total savings by the end of this decade, as against 26% in 2009-10
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Samvat 2074 Marketwatch - Srivatsasa Sripujitha The Hindu calendar year starts on Diwali with a lot of expectation tha t lord Laxmi would fetch high profi ts this year. On Diwali stock market would be open for only One hour from 6:30 pm to 7:30 pm which is known as Muhurat Trading. SAMVAT 2074 begins on a weak note, Sensex fell 194 points and stood at 32,389.96. The BSE Sensex opened at 32656.75 and reached 32663.06 on to ken buying activity as investors and funds opened their new account on the first session. The higher levels were not able to sustain due to sudden sell-off by participants and the index slipped to 32,319.37, before se ttling 194 .39 points or 0.60 percent down. NSE Sensex dipped below 10,200 mark in the Muhurat Trading. There was a fluctuation be tween 10211.95 and 10,123.35, and ended up at 10146.55, which is 0.63 percen t lower or 64 .30 points lower than previous session. Banking sto cks fell a s participants booked profits to write their first entry with their gains on first session o f SAMVAT 2074. Banking, metal, PSU, infra structure, power, oil & gas, au to, consumer durables, health care, FMC G and IT sectors were the laggards in the Muhurat session.
Despite their steep valuations and earnings downgrades, Small cap sto cks have sharply outpaced benchmark indices this year as a bull ma rket temp ts many investors to try their luck with these co mpanies. Year to date , the BSE Small cap index ha s jumped 41 .8%, while the BSE Mid-cap index is up 33.6%, beating bo th bench mark indices Sensex and Nifty, which were up 21-24% during the period.
In a typical bull market and expected economic recovery, it is histo rically proven that small caps tend to rise fa ster than large caps. However dome stic institutional investo rs flow is tilted towards the small cap segmen t, compared with foreign insti tutional investor flows that largely prefer large 37
caps. In 2017, domestic institutional investments in Indian equities were at Rs. 72 ,434.67 crore, while the foreign institutional investo rs pu mped in $4 .82 billion. Along with tha t the share of small companies in overall marke t capitalization has increased. At current levels, the BSE Mid-cap index and the benchmark Sensex to India’s market cap is slipping. At curren t levels, the BSE Mid-cap’ and the Sensex’ contribution to to tal market cap is at 13.81% and 40.91%, respectively, down fro m 14.62% and 41.29% at the end of fiscal 2017. The increase in the small cap stocks indicates that investors are shifting to riskier segments as smaller companies are mo re volatile than large caps.
counted under the Preven tion of Money Laundering Act (PML A). Govern ment took the decision of putting ge ms and jewellery industry in 3% GST slab and this improved the market sentiment. Last Diwali, the p rices o f gold were around Rs. 29,900 and curren tly they are Rs 29,886. So we can sa y that if somebody had bought gold last year, they would not have got any returns. Recen tly gold sta rted gaining momentum on the upside back o f intensifying geopolitical rhetoric from North Korea. Technically speaking gold is a sweet spot it had recen tly taken support at its 200 day moving average confirming tha t the bull market remains in place . Finally gold is also above its 20 day moving average which is a positive swing in sentiment. OIL
Top small-cap stocks which have gained sharply this year are Indiabulls Ventures Ltd. (1 ,308%), HEG L td (up 734%), Sanwaria Consumer Ltd (up 556%), Graphite India Ltd (up 517%) and Venkys (India) Ltd (up 453%) Gold The extension o f provision o f pre vention of money laundering act would further add glitters to the festival of lights as the present limit of Rs. 50 ,000 to 2,00 ,000 I case o f jewelry purchases. Estimates put that more than 50 percent of the transaction in gold sales happens in Rs. 50,000- 200,000 rang. Jewellers anticipated increase in demand during Diwali so the gold i mports, commodity’ inward shipments in September rose to 31 percent compared with previous year. Buyers were wary o f purchasing gold last month since higher purchases we re
Recently world oil prices have reached their highest level in over two years. It reached $ 59 a barrel, the interna tional Bren t blend has more than doubled since the dark days of 2016. The world economy enjoys the most broad based period of grow th in a decade;; a global glut has been absorbed. The agreement on output restraint, stru ck last November by OPEC and other big oil- producing countries such a s Russia, has already been extended through March 2017 and is holding. After ballooning in 2016, the developed world’s crude stocks are now almost back in their historical range (the OPEC deal’s key target). The reason rally remained unloved is the high for Brent have been driven largely by speculative buying. Fo r another, it included a weather- driven aberration: Hurricane Harvey took one-third o f the U .S’ re fining capacity off-line, leaving domestic producers with fewer buyers for their output 38
After the steep decrease in trend since April, U .S. crude stocks rose by 15 million barrels in the first week of Sep tember according to Department of Energy. FOREX The dollar traded a t three mon th high against Yen, a fter Japanese Prime Minister Shinzo Abe won a snap election for his party. Traders e xpected that the Bank of Japan would loose monetary policy measure after his election. The U .S dollar index, which measures the greenback’s strength against a trade- weighted basket of six major currencies, rose by 0.19% to 93 .75.There was a positive trend observed when greenback comes on the back of strong gains against the Yen after Prime minister Shinzo Abe’s ruling liberal Democratic party-led coalition won a two-thirds parliamen tary “super majority” tha t gave him a fresh manda te to continue efforts to revive growth with mix of ul tra-loose monetary policy, spending and reform. U SD/JPY rose 0 .14% to Y113.69 easing from three month high of $114.10. There is a constan t range of Rs.64-65 observed against USD
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FINANCIAL TRIVIA According to the Congressional Research Service, since the beginning of 2001, U.S. government's debt ceiling has been raised 11 times , and a whopping 76 times since March 1962. It now stands at $16.394 trillion.
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