Vitta Artha - Volume 7

CONTENTS 1. FOREWORD Prof. Nagarajan Ramamoorthy (Director, IIM Amritsar)………………………..………………...…………………..1 2. RISK MANAGEMENT AS A STRATEGIC COMPETITIVE ADVANTAGE Mr. Srinivasan Kannan (Head - South, Corporate Client Banking and Specialised Industries, J P Morgan)……...……….…2 3. COVER INTERVIEW Dr. Sankarshan Basu (Director, PRMIA | Professor, IIM Bangalore)…………………..………………..…………....5 4. THE SHAPE OF INDIAN ECONOMIC RECOVERY Dr. Pavneet Singh (Assistant Professor, IIM Amritsar)…………………………………………………….....……....8 5. EXCHANGE RATES ARE NOT THAT COMPLEX…. WHAT’S NEXT FOR RUPEE AGAINST DOLLAR? Aman Hedau | Akshay Rajgire (PGP 05, IIM Amritsar)…………………….………………………...…………...15 6. WHY OIL PRICES BECAME NEGATIVE, OR DID THEY? Abhimanyu Sadh (PGP 05, IIM Amritsar)…………………….…………………….………………...…………...18 7. INDIA ON ITS WAY TO A BLUE AND GREEN ECONOMY Shubham Shukla (MBA 06, IIM Amritsar)……………………………………………………….………………..20 8. BANKING IN THE AGE OF FINTECH: PARTNER OR PERISH Rohit Voleti (International Management Institute, New Delhi)…..……………………..………………………….23 8. WHY THE STOCKS LIE — THE FALLACIOUS RELATIONSHIP BETWEEN STOCK MARKET AND ECONOMY Attiso Bhowmick (University of Agricultural Sciences, Bangalore)……………………...…………………………...27 9. RAISE OF AGRI FINTECH Inherent Sustainable Development in awakening Vishnu Teja Annamraju (Goa Institute of Management)……...……………………...…………………………..30 10. INTERVIEW PREPARATION……………...…….…………………………………………………….35

11. CFA PREPARATION…………………………….…………………………………………………….40 12. GOLDEN INVESTMENT FUND………………………………………………………………………..41 13. CLUB ACTIVITIES…………………………………………………………………………………….47 14. MOVIE REVIEW……………………………………………………………………………………....50 14. BOOK REVIEW………….…………………………………………………………………………....52 15. COMIC CORNER…………………………………………………………………………………..….54 16. TEAM FEC…………………………………………………………………….………………………55

17. CROSSWORD…………………………………………………………………….…………………..56

CONTENTS

VITTA ARTHA

FOREWORD

PROF. NAGARAJAN RAMAMOORTHY Director, IIM Amritsar

Dear All, I am delighted to announce that FEC (Finance and Economics Club), at IIM Amritsar is ready with the seventh edition of its bi-annual magazine - Vitta Artha. FEC ceaselessly works both at the college level and industry level to keep the students intrigued in the world of finance and economics. It is the endeavour of the club to harness talent and enrich learning experiences of our student community. Vitta Artha – The Finance and Economics magazine of IIM Amritsar is one such manoeuvre in the same direction. Diversified views in the form of articles given by students from prominent B-schools across India and the esteemed insights of the industry professionals provide a valuable resource for students to learn and remain updated about the development and evolution of issues related to finance and economics around the globe.

This edition of Vitta Artha addresses that high level of volatilities in the business world demands for a strategic level attention to risk management in order to gain sustainable advantage in this ever increasing competitive world. Successful decision makers are the ones who recognize that the future is uncertain and follow an effective risk management program to optimise their likelihood of staying on the path to consistent success.

Through its cover interview this edition then navigates its readers through a critical analysis of the state of the Indian economy and its financial markets. The type of policy support to be extended to the MSMEs and the unemployed workers of the country is also discussed further.

The edition also epitomises the various types of economic recovery and the parameters to be considered, while predicting the shape of recovery for the Indian economy. As the economy jumps back the government should focus on a long term resolution in terms of ease of doing business, reforms in the financial system and sustainable increase in domestic production. The varied macroeconomic parameters and their significant impact is accentuated for the finance enthusiasts to better understand this complex field.

Alongside this placement interview preparation strategies of various students of IIM Amritsar in the domain of finance is also articulated. I hope that this issue of Vitta Artha, like the editions before, adds value to its readers and thus blossom their interest and inquisitiveness in this enriching domain of finance and economics.

FOREWORD

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Mr. Srinivasan Kannan Head - South, Corporate Client Banking and Specialised Industries J P Morgan

RISK MANAGEMENT AS A STRATEGIC COMPETITIVE ADVANTAGE No one can predict from where the next crisis can originate. Will it be geo-politics? Will it be another pandemic? Will it be one of the sectoral shocks - oil, financials, or from somewhere else? It could be from anywhere, but what is more easily predictable is that crises do happen, and with an amazing regularity.

However, why do only a few organizations come out of a crisis reasonably unscathed, and why even fewer emerge stronger? Fair to say, most companies do have very able managements that do quite well when things are alright, but falter when faced with a crisis.

So is there one element that separates the thoroughbreds from the also-rans? If I were to hazard a guess, it is the culture of risk management.

In order to fully appreciate risk management, we first got to understand what risk is. When one has to choose between alternatives, we face risk. Should I take this route to work or that? Should I invest in this stock or that? Should I stay in my current job or accept the offer to work in that start-up? When we encounter situations where we need to decide, our mind starts processing the risks. It subconsciously starts assigning probabilities to each outcome, and we ultimately decide in favor of one alternative, depending on where we lie on the risk spectrum.

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Running a company is a lot more complex than deciding on the route to take to the office. The risks involved are several, but to list a few: •

Multinational presence exposes you to risk of nationalisation or expropriation by some random governmental decree

•

Convertibility and Transferability of various currencies you are exposed to and the movement in exchange rates

•

Interest rate risk on your borrowings or investments

•

Commodity price risk for your inputs and output

•

Death or disability risk of key management personnel

•

Regulatory risks

•

Environmental and social risk

These are by no means exhaustive but gives a sense of how broad, wide and unknown, the sources of risk could be, and therefore an effective risk management philosophy is essential for survival in good times and bad. This article is not a discourse on how we go about managing each of the risks identified above.

There are experts who do that for a living. It is about how well-run companies look at risk management in general in order to stay ahead of the pack.

I have always been fascinated by the number seven the 7 seas, the 7 continents, the 7 saints, the 7 habits and most of all, I was born on 7th. I will now attempt to give seven factors that help some companies navigate crises far better than others.

1.

Know your variables

In a complex operating environment, businesses are driven by several variables that drive or affect their performance. And variance is a direct measure of risk.

The key question is, “do you know all those variables?”. It is not necessarily bad to have many variables

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that drive the business performance, but it is mighty essential to know most, if not all of them. It could be oil, metal, currencies, regulations, or anything else, but an ability to model them all and come out with total business at risk at any point in time is a critical differentiator.

2.

Business is boring

Unless you are really into rocket science or casinos, the best run businesses have a unique characteristic they are boring. They just identify their key variables and go about controlling them day in and out. They identify their core competence and go about executing it day in and out. They stick to their core strengths, build their product and delivery innovations around that core and make the whole machinery strong and muscular. They don’t take risks that they can neither control nor model because it is just not in their DNA. 3.

Balance Sheet is King

This can never be overemphasised. Time after time, crisis after crisis, the companies that emerged stronger invariably also had a strong balance sheet to boot. A sensible capital structure, a strong liquidity position, and access to funding are hallmarks of conservative balance sheet management. A well-thought-through hedging and investment policy that puts risk management ahead of profits will help ensure that any temporary shocks caused by movements in various markets - currencies, equities, rates, or commodities, are swiftly absorbed.

4.

Board is Boss

The independence of boards has come under question several times with otherwise well-run companies.

But the best-run companies have strong boards. A board that formulates and approves a risk management framework for the company alongside monitoring it on an ongoing basis shows skin in the game.

The board should review all the business, regulatory and financial risks at least once a quarter and convince

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itself that nothing is out of the ordinary - either currently or expected in the future.

5.

Culture is everything

Having a strong board and an effective management is good, but it only addresses the top of the pyramid.

However, real work happens below, and it is important that every employee and stakeholder buy into the firm's risk culture. This can only happen through regular and direct communication, right from the top, emphasising the company's acceptable risk management culture and how every employee is expected to internalise that as part of their DNA. Frequent training and surprise audits have a great effect in ensuring people follow the risk framework to a large extent.

6.

Timing is for tennis stars

A lot of times, I have seen managements delay taking action, especially on financial risk hedging - be it currencies or rates, as they wait for the opportune moment to enter into a hedge. What they usually don’t get is that this time is better spent elsewhere. Because, if you are attempting to time the market, you have to get it right a whopping 85% of the time to derive the exact result you would have achieved by just blindly following your well-thought-out risk management policy. The key, therefore, is to stay true to your committed policy than to try and outsmart the markets.

Timing is for others to enjoy watching on the cricket field or tennis courts, of a Tendulkar straight drive or a Federer cross-court. Businesses, as we noted before, are supposed to be boring by sticking to their game plan all the time, every single time.

7.

Think long term

Managements come and go; boards come and go, but companies are meant to stay and what makes some of them more alluring than others is that they stay true to their identity over a very long term. The best-run companies always think long term. Once they have laid out a risk management framework, they don’t keep messing with it, except for tweaks that are re-

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quired to keep the policies in tune with changing times. The best boards don’t fall for quarter to quarter pressure and avoid all temptations for taking “calls” that could backfire them. Thinking long-term means that you expect a crisis to come out of somewhere every decade or so and keep your business best prepared to navigate that. It is not your ability to predict outcomes- we are not astrologers, but it is your ability to know the risks that will eventually set you apart from the rest.

While what I laid out above are some of the characteristics you can observe from companies that have stood the test of times, some crises are far more powerful than others and test even the very best to their cores. However, such companies never lose their sense of vision. They remain committed and boring, know the variables that drive them, and have boards and managements that breathe a conservative risk management culture, which they ensure every employee buys into. These are the companies we will continue admiring even several decades later.

Disclaimer :- This article is an extension of an address delivered by the author as a guest speaker at IIM Amritsar. All thoughts and views expressed in the article are personal.

INDUSTRY INSIGHT

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Dr. Sankarshan Basu Professor IIM Bangalore Director PRMIA

COVER INTERVIEW The recommendation by the internal working group of the RBI to allow large, well-run NBFCs to convert to banks has evoked mixed reactions.

While some are of the opinion that it is a progressive step towards rebuilding the economy after the pandemic, others say that it may result in strict regulations and higher cost structures for NBFCs, thereby restricting their growth. What are your opinions about the same?

Looking at it, converting NBFCs into banks has some challenges in terms of structural changes that may happen. The first fundamental problem that the NBFC will face is the cost of funds. They wouldn't like to get out of their existing business. For e.g., Bandhan bank still runs its microfinance business.

Therefore, if the motive is to cross-subsidize NBFC business through a banking business, it is a bad idea.

Looking on the brighter side, NBFC s have a certain reach, which can increase the bank's financial inclusion services, therefore, capitalizing on this increased access.

Converting NBFCs to Banks would require removing the regulatory arbitrage between NBFCs and Commercial Banks since they both will have very different regulatory frameworks for the same products, which will reduce the participants' confidence in the system.

Lastly, It all depends on the objective with which the NBFCs want to become banks. Is it to increase their access or because of the low cost of funds in the

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banking sector?

As per budget 2021 the FM announced the establishment of bad banks in the wake of rising NPA problems, especially after the pandemic. Could you shed some light on the efficiency of such a measure to reduce NPAs from the banking sector, and does India really need a Bad Bank at the moment. If so, what are the things that should be taken care of while setting up a Bad bank?

A bad bank in theory, is an excellent idea. Bad bank as an entity is new to the Indian market, but the concept is not. India also had a bad bank story not in the banking sector but in UTI. I would bring this down to two questions- why are bad banks being talked about today? In other words, why is any NPA a problem there? Do we have the political will to cover the NPA problems?

I believe there are a lot many other factors that come in the process. Unless we have a political will and a transparent system, a bad bank will become another bank that will have to be funded by the taxpayer’s money by the government. Therefore, it will be another moral hazard created. Currently, there is no proper mechanism to deal with the NPA problem.

So, in a market like India, where autonomy is only on paper, coming up with the idea of a bad bank is not a very good idea. It will only be a temporary measure and not a long-lasting solution.

Recently, RBI governor Shaktikanta Das said that the central bank plans to launch its own digital currency, and the work concerning the same is in progress. The move comes after there have been "major concerns" about cryptocurrencies, flagging potential risks to financial stability. Do you think that India’s financial system is ready for such a massive transformation?

Whether we like it or not, we need to accept the reality that the basis of Cryptocurrency and distributed ledger technology is here to stay. Although the technology platform is complex and hard to understand, it

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is no reason to reject and discredit it.We should see what the Monetary Authority of Singapore had done, which is to set up a separate entity to address these issues related to cryptocurrencies to see how they could be in sync with the economic systems.

If we look now, RBI has no jurisdiction over banning cryptocurrencies. They can only not let people buy/ sell cryptocurrencies through their accounts, but if people are traveling abroad, they can do that very quickly. Therefore, the best option right now is to understand the technology so that we adapt to it and add security features.

My argument here is that it is not a question of whether the Indian financial system is ready or not.

We have to make sure our financial system is ready because there is no choice other than to accept cryptocurrencies. Overall, the Indian financial system is robust. It is necessary to figure out a mechanism of building credibility by doing it in stages and not doing it in one go. We should not try to build the entire system from scratch as there are existing technologies out there.

Developing countries like India do not have the luxury of large-scale spending, unlike developed countries? However, do you believe that this is not the time to get obsessed with things like fiscal deficit, the fundamental principle of war finance as suggested by some economists?

At the end of the day, we should fret about the fiscal deficit but not over-fret about it. It is okay to have an exception and go for large-scale spending to offset the effects of the pandemic, but it should be coupled with a credible plan. The questions to be asked here are, if the finance ministry sets a target for fiscal deficit, how will this be achieved. If the target hasn't been achieved in the last three years, is it certain that it will happen in the future? What measures will be taken to reduce the fiscal deficit? All this need not happen in a single year. The government can take three years to do so because we need to survive at

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the end of the day.

As long as we have some level of control over the fiscal deficit and are not getting into a Zimbabwe-like scenario that we have a runaway deficit and the entire economy is in shambles, it is not worrisome in the short term. We need to just have a roadmap associated with it to correct the fiscal deficit in the coming years. Realistic goals have to be set up in that regard.

Therefore, one should not fret too much over the argument that we are overspending in the short-term cause of the pandemic.

Although there has been a sequential recovery across many parameters, there hasn’t really been an increase in employment. There are still many people who lost their jobs during the pandemic and are still out of a job. What are your thoughts on the same and will help them?

This is a big challenge. Businesses do not need an office to operate any longer. Due to this, the major workforce employed in the staff and maintenance department of these offices has gone out of work. There are a large number of skilled and semi-skilled workers who can provide base services. We need to have a massive reskilling drive for them across the country so that they can be gainfully employed.

The relocation that has happened due to the pandemic is a challenge as well. The government should be proactive in taking advantage of this pool by creating employment opportunities that capitalize on these skills. If this is not done, the problem will worsen, as automation already affects the job market, and the downward spiral would be faster. Therefore, offering short-term employment like MNREGA won't work here. Moreover, lack of income and employment will reduce their disposable income. As a result, the entire economic system will regress faster because people won't have enough funds to generate demand in the economy. Therefore, it is necessary to actively engage with them to provide reasonable employment, which is both sustainable and long-term.

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More policy support is needed to help MSMEs navigate the economic distress. While the good news is that business sentiments are recovering across firm sizes, what further policy actions would help them to offset the negative effects of the pandemic?

In this regard, the first thing that we need is that the moratorium scheme that RBI has announced has to be reworked. This is because one is not paying the cost today but is paying a higher cost tomorrow. Due to this, people have been burdened with debt for a longer period, and the question that comes in is, do we need a longer debt period. Secondly, there should have been an interest holiday on both the sides, i.e., the lender and the borrower, to adjust for the increased debt period since interest costs have an unsustainable burden on them. Loan waivers can be given to them in the form of a waiver of interest cost as most of them are okay to pay back at a later point in time.

The MSME sector requires more tax breaks and tax incentives. Today when we compare it with the IT sector, we see that it is no longer a sunrise and startup industry. Moreover, it hasn't been affected by the pandemic. Then why should they continue to enjoy the benefits of tax holidays and exemptions?

These benefits should go back to MSME players, where there is a real need for the same.

Furthermore, MSMEs are across sectors; therefore, one will be looking at focus solutions. Also, there shouldn’t be a gap in the timeline between the delivery of MSME’s product and the time when there is an upswing in business sentiment. In this regard, the government should create a mechanism by which MSMEs operate on a lead model. Credit should be available today so that when the markets become reasonably normal, MSMEs have already started production and meeting the increased demand. They should be helped with additional upfront credit so that by the time demand pulls back, MSMEs are al-

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ready at the same level contributing to the economy.

ESG, in recent years, has been gaining importance among global investors, and India, in the post-pandemic atmosphere, has a golden chance of making the most of this opportunity.

How can India leverage the present opportunity to boost green and blue businesses?

At the end of the day, do the major businesses have the luxury of running the blue and green business. I believe that is the biggest challenge in the situation currently. For example, if I do ESG compliant business, I am sure the cost of doing business will rise. It is not that the solar vehicles are not available, but their cost is higher than their equivalent vehicles run on other fuels. We are not yet in a position where the people are ready to pay more for the additional other benefits. Unfortunately, in a country like ours, people would take shortcuts, beat the system and make it worse. People do not look at the long-term horizon but look for the short-term benefits.

Similarly, the ESG business here have no medium- or short-term benefits, and the industry has not yet geared to take the long-term benefits. So, I do not currently see them having a significant impact in a country like ours, unlike in socially responsible countries like Scandinavia, Northern Europe, etc. The whole cultural and business arguments need to align themselves that say we are ready to look at the longterm benefits and we are prepared to pay for the additional cost because we want to take care of the future.

We need to have a dramatic shift in the ideology to have this in the mainstream.

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Dr. Pavneet Singh Assistant Professor IIM Amritsar

THE SHAPE OF INDIAN ECONOMIC RECOVERY Introduction The Covid-19 pandemic has led to the greatest economic recession in independent India’s history. The global pandemic caused the world GDP to fall by 4.4% in real terms in 2020.1 India’s GDP dropped by 23.9% in the first quarter of 2020-21 in the immediate aftermath of the lockdown imposed in late March last year. As per the World Bank, India’s GDP for financial year 2020-21 is expected to fall by 9.6%.2 The imposition of lockdowns across the world has caused a dual supply and demand shock to the world economy.

With the onset of vaccination drives across the World, and the re-opening of economies over the last few months, the focus has shifted to the nature and shape of the recovery from the global recession. The Indian Finance Minister talked of a ”V-shaped recovery” for the Indian economy in her recent budget speech. In this context, I explain the potential shapes of economic recovery from a recession, and present some views on how the Indian economy might recover from the recession over the next few years.

The Different Shapes of Economic Recovery The global pandemic has caused pervasive damage to the Indian economy. First, the loss in jobs (as per CMIE data, the unemployment rate was over 9% in

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December 20203) has led to a depletion of household savings, reducing the ability of household to spend on consumption. As uncertainty about the prospects of future employment increases among the people, the willingness of households to spend also declines. Second, the supply chains have been drastically altered in the aftermath of the pandemic. The small businesses, which make up a quarter of India’s GDP, and produce about 40% of the manufacturing output, have suffered lasting damage to their revenues4. Many of the small businesses have been driven to bankruptcy, as economic growth in the post-pandemic world has been led by large businesses. Third, the government’s attempt to bring the economy out from the recession is further straining its finances, which were already under pressure before the pandemic. Any attempt to raise more taxes could backfire by further slowing down economic growth. The situation is further complicated by the fact that the economic recovery needs to be both demand and supply-driven.

Let’s look at the various shapes that economic recovery can take in the aftermath of a recession. The different shapes of economic recovery result from the differences in time taken and the speed of recovery of an economy. This in turn depends on how quickly the demand and supply in the economy can reach back to the levels that the economy was projected to operate at before it was hit by a recession.

1.

The Z-shaped recovery- This is the most optimistic scenario for an economy coming out of a recession. In a typical recession, the economy is jolted by an aggregate demand shock. In a Zshaped recovery, the fulfilment of pent-up demand while recovering from the recession period gives a temporary boost to aggregate demand. This causes the GDP to temporarily increase above the pre-recession projections. As the pent-up demand is satisfied, the GDP again returns to pre-recession levels. (Figure 1a) In the current scenario, the demand for many

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products is still below the pre-pandemic levels.

den surge in pent-up demand almost a year after the recession seems an unlikely scenario Thus, the Z-shaped recovery is not a feasible scenario for the Indian economy.

2.

(a) Z-Shaped Recovery

(b) V-Shaped Recovery

Figure 1: Types of Recovery

Table 1: Pre-COVID GDP Growth Projections for India

As per the Retailers Association of India, the demand for retail products was about 93% of pre-pandemic levels in February 2021.5 A sud-

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The V-shaped recovery- In this scenario, the pent-up demand is lost forever, but the GDP rebounds quickly to the pre-recession projections. (Figure 1b). This is the ”V-shaped recovery” that the Finance Minister talked about in her recent budget speech. Is the V-shaped recovery actually feasible?

To understand this, we need to analyze India’s growth projections before the Covid crisis hit the economy. In 2019-20, India had a GDP of 145.66 lakh crore INR (at constant 2011-12 prices)6. Table 1 on the left presents a summary of India’s growth projections for 2020 and 2021 as per various international agencies before the recession hit the Indian economy.7 Let’s take the IMF projection as the benchmark growth projection for FY 2020-21 and 2021-22.

At growth rates of 5.8% and 6.5% from a base of 145.66 lakh crores, India’s real GDP was projected to hit 164.13 lakh crore INR by the end of 2021-22. For a complete recovery from the recession by the end of 2021-22, we would need the GDP to hit the same benchmark. Due to the recession, the Economic Survey forecasts the GDP in 2020-21 to decline by 7.7%. Thus, the GDP for 2020-21 is forecast to be 134.44 lakh crores. The Economic survey also projects a growth rate of 11% for FY 2021-22. This means that real GDP is expected to reach 149.22 lakh crores in 2021-22, which is some way off the earlier projections. To reach the pre - Covid target levels, the Indian economy would need a herculean 22% growth in real GDP in FY 2021-22! Thus, while an 11% growth, if achieved, would be an impressive feat in itself for an economy still reeling from the effects of

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the pandemic, the recovery would not be sufficient to classify it as a short-run V-shaped growth.

ery, as pent-up demand is satisfied, only to be hit by another negative growth shock after showing false signs of recovery. This type of a recession can be extremely painful for investors who invest in the market after the initial downturn in anticipation of a full recovery.

The recent rise in Covid cases and the reimposition of lockdowns and night curfews might hurt consumer sentiment. Thus, we cannot discount the possibility of another dip in economic activity in the coming months, if the virus again starts to spread at a faster rate.

(a) U-Shaped Recovery

(a) L-Shaped Recovery

(b) W-Shaped Recovery

Figure 2: Types of Recovery

3.

The U-shaped recovery- In this recovery, the economy slowly recovers to the baseline after an immediate slump (Figure 2a). Given the pace at which the economy has bounced back already since the lockdowns were eased, this pattern is already out of question.

4.

The W-shaped recovery- This is also known as a double-dip recession. In this scenario, the economy would immediately bounce back from an initial recession much like a V-shaped recov-

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(b) Nike swoosh-Shaped Recovery

Figure 3: Types of Recovery

5.

The L-shaped recovery- Of all the scenarios

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described in this section, this is the most pessimistic scenario. As shown in Figure 3a, the Lshape recovery happens when the recession leaves a permanent mark on GDP, and the demand lost due to the recession is lost forever.

The US recession of 2009 is a prime example of the L-shaped recovery. If the 11% growth forecast in the next financial year actually transpires, we would have avoided the L-shaped recovery.

6.

The Nike Swoosh-shaped recovery- This is the most likely scenario for the Indian economy. In this pattern of recovery, the recession is immediately followed by a bounce back (which is being predicted), but the bounce back is not sufficient to bring the economy back immediately to the pre-recession growth path. After the immediate bounce back, the economy slowly recovers over the next few years to the original growth trajectory. In this case, the economy continues to outperform the pre-recession growth projections for a few years, albeit not by much (Figure 3b).

India seems to be primed for such a recovery.

First, the relief measures announced by the government in May 2020 focused on both demand-side and supply-side measures. This is in contrast with the massive use of fiscal policy for large demand stimuli as announced by many other countries. This approach is better suited for achieving medium to long run growth. Second, the fiscal measures were announced to be carried out in a phased manner, unlike the onetime stimuli announced by many countries. This calibrated response in dealing with the pandemic leaves the government with room for more fiscal measures in the future.

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Figure 4: RBI Consumer Sentiment Index Source: RBI Website9

How to find the correct shape Some leading indicators can help us in predicting the shape of the economic recovery.

1.

Consumer sentiment- Consumer sentiment is an important leading indicator of aggregate demand. A high consumer sentiment typically leads to higher consumer spending. The RBI periodically conducts surveys to gauge consumer sentiment in the economy.8 This survey measures consumer confidence on a variety of parameters, including the economic situation, employment, and prices. Figure 4 above shows the sharp decline in consumer confidence since March 2020. However, as can be seen, the future expectations index started recovering in July 2020, while the current situation index has been improving again since November 2020.

Improvements in these indices point to a recovery in aggregate demand, even though the confidence indices are still some way off the precrisis levels.

2.

Business sentiment indicators- This is an important leading indicator of the supply conditions in the economy. The RBI publishes the Industrial Outlook Survey every quarter. This survey measures the qualitative assessment of

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the business environment by Indian manufacturing companies. As can be seen from Figure 5 before, business expectations seem to have recovered after suffering a sharp decline in the first two quarters of 2020-21.

Figure 5: RBI Industrial Outlook Survey

Source: RBI Website10

3.

Bank lending- The credit taken by businesses from banks is a leading indicator of future investment into productive activity. As per the latest RBI data, bank credit growth improved to 6.2% (y-o-y) in the quarter ending in December 2020, from 5.8% in the previous quarter. The bank credit growth in December 2019 was at 7.4%11. The increase in credit growth points to returning business confidence among new businesses.

4.

Stock market- The stock market is usually considered as the most important leading indicator of future economic activity. At first sight, the surge in the stock markets over the last 9 months, since the steep decline in the initial months of the lockdown, might point to the prevalent positive sentiment among investors.

However, this must be taken with a pinch of salt, since the recent jump in stock markets seems to be driven by the excess liquidity available with financial institutions due to the central banks’ infusion of liquidity into markets across

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the world.

Economic Recovery in India Indicators like consumer confidence, investor outlook, bank credit growth and the stock markets all point to the advent of the recovery phase of the economic cycle in India. The growth projections by various national and international organizations for 202122 also point to an expectation of a sharp recovery.

While the growth rates may not be sharp enough to complete a V-shaped recovery in 2021-22, the signs for future economic growth in the medium and long run seem to be positive. The government’s calibrated policy response to the pandemic (both fiscal and monetary policy) and focus on both supply and demand-side measures in its stimulus, could provide impetus to economic growth in the coming years. However, a few challenges could derail these expectations.

First, and most important, is the recent resurgence in the Covid cases across the country. This has led to the re-imposition of stringent measures in many States already, and lockdowns have returned to various districts. This could once again dent consumer confidence and halt economic activity. The government needs to ensure that the vaccination should reach the citizens of the country in a smooth and efficient manner over the next few months. Second, the economic growth in the post-Covid era has so far been driven by large business houses, while the small and medium businesses have lost out. The government needs to provide adequate measures to ensure that these businesses, which employ a large fraction of the workforce, do not go down. Third, as the economy continues to recover, core inflation has started to rise again, along with rising fuel prices. This could again hurt consumer sentiment. Finally, as the developed countries start to rein in their liquidity measures, there is a danger of a ’new taper-tantrum’, one very much in the spirit of 2013, where foreign investors start pulling money out of emerging markets like India12. This could lead to a devaluation of the Indian rupee and

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further raise the price of commodities, especially oil.

At the same time, as economic growth comes back on track, the government would need to refocus on the larger reform agenda by improving the Ease of Doing Business, introducing structural reform in the banking system, and boosting domestic production through the Atmanirbhar Bharat mission, while ensuring that future growth is environmentally, socially and politically sustainable.

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Footnotes 1.

IMF World Economic Outlook database available at - https://www.imf.org/external/datamapper/ NGDP RPCH@WEO/OEMDC/ADVEC/ WEOWORLD

2.

World Bank Global Economic Prospects report available at- https://www.worldbank.org/en/ publication/global-economic-prospects

3.

https://scroll.in/article/988016/household incomes-in-india-are-yet-to-recover-from-the-covid19-lockdown-shock

4.

https://www.hindustantimes.com/business/ missing-middle-in-india-s-economic-recovery101615347987440.html

5.

https://www.businesstoday.in/current/economypolitics/retail-sales-at-93-of-pre-covid-levels-in-febindustry-expects-revival-by-june/story/434019.html

6.

MOSPI National Accounts Statistics- http:// mospi.nic.in/publication/national -accountsstatistics-2020x

7.

https://factly.in/review-indias-gdp-growthprojections-made-by-different-agencies/

8.

https://www.rbi.org.in/Scripts/ PublicationsView.aspx?id=20320

9.

https://www.rbi.org.in/Scripts/ PublicationsView.aspx?id=20320#CH1

10.

https://www.rbi.org.in/Scripts/ PublicationsView.aspx?id=20323#C1

11.

https://rbidocs.rbi.org.in/rdocs/PressRelease/ P D F s / PR1152CDAD5DFFE13F4AD8A1803071A35D4F 09.PDF

12.

https://www.bloombergquint.com/economy finance/raghuram-rajan-says-a-taper-tantrummoment-possible

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References •

https://www.brookings.edu/blog/up front/2020/05/04/the-abcs-of-the-post-covideconomic-recovery/ https://www.indiatoday.in/ business/budget-2021/story/india-v-shapedrecovery-and-a-once-in-a-century-crisis-economicsurvey-in-10-points-1763994-2021-01-29

•

https://www.business-standard.com/article/ economy-policy/un-expects-india-s-economy-torecover-by-7-3-post-covid-19-impact-121012600144 1.html

•

https://www.livemint.com/industry/energy/indiafuel-demand-return-to-pre-covid-levels-indian- oilchairman-11615900576075.html

•

https://scroll.in/article/989096/indian-economy-to -be-hardest-hit-due-to-covid-19-despite-recoverypredicts-new-oecd-report

•

https://www.livemint.com/news/india/india-ontrack-for-economic-recovery-to-grow-10-in- fy22-sp -11613457362187.html

•

https://www.indiatoday.in/business/story/despiteindia-s-economic-recovery-many-households- arenot-happy-here-s-why-1778243-2021-03-11

•

h t t ps : // w w w . i n v es to pe d i a . c o m /f i n a n c i a l edge/0810/the-6-signs-of-an-economicrecovery.aspx https://www.investopedia.com/ terms/e/economic-recovery.asp: :text=Indicators% 20of%20Recovery,-

•

Economists%20often%20playtext=Leading% 20indicators%20can%20be%20things, somewhat% 20of%20a%20lagging%20indicator.

•

https://economictimes.indiatimes.com/news/ economy/policy/calibrated-response-to-deal-with%20pandemic-leaves-room-for-more-fiscalmeasures-economic-survey/ articleshow/80586453.cms?from=mdr

FACULTY ARTICLE

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Aman Hedau PGP 05 IIM Amritsar

Akshay Rajgire PGP 05 IIM Amritsar

Exchange Rates are not that complex….

What’s next for Rupee What is Exchange rate and how does it work?

An Exchange rate is a rate at which one nation's currency will be exchanged with the currency's value in another nation. Exchange rates are determined in the

foreign exchange market, available to a wide range of buyers and sellers. The trading is continuous for 24 hours except for the weekends.

As the exchange rate is a specific price, -can be explained through the demand and supply of foreign currency. However, in the long run, the foreign exchange rate between the two currencies is determined by the purchasing powers of the two currencies in domestic economies. In a short time, the demand for the import and export of goods and services (which are both visible and invisible goods) as well as the amount of capital flows between countries affects the supply and demand of foreign exchange, and thus the exchange rate decides currencies. A system of the exchange rate in which the value of a currency is allowed to freely adjust or float according to the demand for the supply of foreign exchange is called a flexible exchange rate system. A flexible exchange rate system is also called a floating exchange system. Presently, in most countries of the world (including India), flexible exchange rate systems prevail.

Major factors affecting change in Exchange rate: Inflation: As the inflation rate of a country increases, the purchasing power of money decreases, also

Figure 1: Exchange rate INR vs USD

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the paper currency internally depreciates which in turn appreciates the foreign currency. If both countries have inflation, then the currencies of the countries with high inflation will depreciate against those with low inflation.

Economic Growth: Generally, in the short run, high economic growth rates are not conducive to the local currency's performance in the foreign exchange market; however, in the long run, they strongly support the strong momentum of the local currency.

Net Foreign institutional investors (FII): It is the total amount invested in a country with the help of Foreign Direct Investment (FDI) and Foreign Portfolio Investor (FPI).

Interest rate: It is merely the rate of borrowing capital from another country. When a country increases its interest rate, or its domestic interest rate is higher than the foreign interest rate, it will increase capital inflow, increasing domestic currency demand resulting in domestic currency appreciation and foreign currency depreciation.

country has lesser foreign exchange earnings as compared to its foreign exchange expenditure. Also, as the demand for forex reserves exceeds its supply, the foreign exchange rate increases.

Crude oil: India is an oil importing country, and its imports are around 30% of the total imports. India requires about 4.4% of the total production of oil.

This indicates that small fluctuation in crude oil prices can directly affect the imports, which increases the current account deficit, thereby increasing the exchange rate.

Statistical Observations The major parameters such as GDP, interest rate, inflation, crude oil, current account deficit, FII and Foreign exchange reserves can be considered as independent variables along with exchange rate as a dependent variable.

The data for all the variables has been taken from RBI website.

Table 1: Correlation coefficients of exchange rates w.r.t major macro-economic variables

Foreign Exchange Reserves: When exchange rate fluctuates in the foreign exchange market adversely affect either the nation's economy or the government objective to achieve some policy goals through exchange rate adjustments; the monetary authority can participate in buying/selling foreign currencies in the market. For this purpose, the central bank, or the RBI, uses foreign exchange reserves to control exchange rates fluctuates owing to foreign exchange supply and demand.

Current Account deficit: When a country has an extensive international trade deficit, it means that the

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The table given above shows the correlation analysis (calculated) which is used to find out the impact of each independent variable on the dependent variable i.e., exchange rate

Forex Reserves: The underrated factor After analysing data for the past 20 years from 2001 to 2020, it is found that the foreign exchange reserves accumulated by the central bank are very high compared to other developing economies. The correlation calculated by comparing exchange rate

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and Forex reserves is close to 0.773, which shows a strong relationship between the two variables. If we look at this theoretically, the forex reserves don't exhibit a long-run or short-run correlation with the exchange rate in the case of the Indian economy. Yet, it can be seen that the accumulation of forex reserves is relatively high.

Does increase in forex reserves indicate healthy India’s economy?

assume that any significant event would not hamper India's exchange rate as RBI will use Forex reserves and its accommodative stance in controlling the depreciation of the Indian Rupee.

Source 1.

RBI Database

2.

Database on Indian Economy, RBI https://dbie.rbi.org.in/DBIE/dbie.rbi? site=home

We can imply that the recent increase in reserves gives India a much-needed cushion to overcome external shocks. India is one of the few countries where our forex reserves are more than forex debt. The increase in FDI indicates trust in our economy's future rather than a commentary on its present state. During the pandemic period, there has been lower domestic demand compared to previous years. So, India's case remains a dilemma and challenging to comment that piling up of forex reserves indicates a healthy economy.

During April 2012 to May 2020, India’s forex reserves showed drastic increase inflows which climbed from INR 14.96 trillion to INR 37.32 trillion2.

So, what’s next for exchange rate?

The RBI has been accumulating forex reserves for the past few years, which indicated there is confidence in the future of the Indian economy. Nonetheless, the accommodative stance of RBI to act upon any major roadblock may also hit the economy. The optimistic aspect that we can take from the pandemic is that our fiscal deficit has reduced, which positively impacted the exchange rate due to fewer imports. Recently, various rating agencies like Nomura and Goldman Sachs have given an overweight to the Indian economy as they believe that our economy will outperform compared to other major economies worldwide. So, we feel that India’s currency is in a decent position to hold for the near future, and probably it may appreciate as people will invest in India. We are also safe to

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Abhimanyu Sadh PGP 05 IIM Amritsar

Why oil prices became negative, or did they?

First of all, no, we didn’t get paid at the petrol pumps for ‘buying’ oil. Not in India, not in the USA. And yes, the impact of falling prices was more concentrated in the USA and related economic parties (not countries) and had very little to no impact on oil prices (not the futures price) in India. (Indian oil companies had a healthy buffer stock at the time to deal with fluctuations in both oil production and prices.)

case the actual commodity was not involved but derivative contracts of the same, and they (prices) fell due to fears of supply exceeding demand.

(Remember salt rumours in India when people flocked to ration shops to buy salt due to utterly baseless rumours of salt being wiped off the face of the earth.)

Where’d the excess supply come from? This is a no brainer, there was no excess supply per se (although OPEC production could be a factor, but not a trigger), but COVID pandemic effectuated lockdowns in many countries which saw industrial and household demand for oil crumble. So, there was excess supply only in comparison to severely weak demand.

This observation is important as it restricts the negative prices to the derivatives markets and not physical markets where the prices were more or less stabilised.

What happened then?

1.

WTI May futures were going to expire on Tuesday, April 21. The implication being those who had taken long position on such contracts (bought these contracts and through these contracts the right to be delivered oil) had 2 options: square off their positions or take delivery of oil.

2.

As most of the traders were more or less speculators, delivery wasn’t really an option for them. No one wanted 1 barrel (let alone 1000, the standard size of a WTI Future) of black and thick crude oil outside their home or garage. And those who did deal in physical delivery of oil already had pent up supply and could take no more. Why? Because the cost of storage exceeded the cost of oil itself.

3.

So, the law of demand prevailed. As traders began selling the contracts to square off the long positions so as not take delivery, prices slumped, became negative and kept going down before closing at -$37.63.

2 things: 1.

2.

Fall in oil prices meant fall in the price of crude oil (West Texas Intermediate to be specific) and not petrol or diesel. Though logic dictates that these prices should also decline, it didn’t happen because it takes some time for that ‘benefit’ to reach the consumers, primarily because of the time taken in refining and transporting the oil.

Price of oil didn’t fall (it did to some extent, but didn’t go negative) but the price of futures contracts which had WTI (West Texas Intermediate) as the underlying asset. Specifically, the prices of May Futures saw a steep decline into the negative territory upto -$37.63 per barrel whereas June Futures held on to the positive price tag.

When would prices fall? Common sense says prices fall when supply exceeds demand. Yes, but in this

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What remained?

•

With May futures giving in to the pressures of supply, the last man standing was June Futures of WTI. These also a steep decline in price but didn’t go negative which shows traders were more or less optimistic about COVID, lockdown restrictions and the level of economic activity and expected the same to improve after a month.

•

Brent Crude futures also endured (didn’t go negative), primarily because the physical Brent was more accessible than WTI which was landlocked as compared to Brent which could be easily transported through sea routes to assuage demand pangs in parts of the world.

Notes: •

In India, the April contract of crude oil on MCX (Multi Commodity Exchange) saw a steep decline in prices (they didn’t turn negative though), the reason simply being these futures are also based on WTI.

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Shubham Shukla MBA 06 IIM Amritsar

India on its way to a blue and green economy India has seen a growth rate from around 1% in 1991 to more than 8% in 2016. From $266 billion economy in 1991 to more than $2 trillion economy now. However, the climate has significantly suffered as a result of this economic growth. From 1990 to 2019, India's GDP per capita increased by 470 percent, resulting in a significant reduction in its natural resources. Now, this indeed tells a different story because it means that the population's demand for resources from the environment exceeds the ecosystem's ability to restore those resources. Therefore, it becomes vital to change the course of development so that the environment doesn’t suffer at the cost of economic growth, which will only be temporary once we start losing natural resources. For such changes, the concept of Green Economy and Blue economy has been introduced.

Understanding Green and Blue economy United Nations Environment Programme (UNEP) defines Green Economy as one that results in ‘improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.’ A green economy boosts pro-poor economic growth by increasing natural resources and securing poor people's livelihood choices. A Green economy does not replace the idea of sustainable development; instead, it emphasizes the implementation

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of a holistic approach that takes into account issues such as social marginalization, intergenerational equity, job growth, poverty eradication, and other pressing environmental concerns.

Professor Gunter Pauli of the United Nations University (UNU) first presented the Blue Economy theory in 1994 to reflect the needs of future growth and prosperity, as well as the challenges posed by global warming. It is the long-term use of ocean resources for economic development, better livelihoods & employment, and ocean ecosystems' health. The value addition from the Blue Economy includes : Renewable Energy: Sustainable marine energy has the potential to contribute significantly to social and economic growth.

Fisheries: Sustainable fisheries will bring in more income, produce more fish, and assist in the recovery of fish stocks.

Maritime Transport: Sea transport accounts for more than 90% of all foreign trade.

Tourism: Ocean and coastal tourism have the ability to create employment and economic growth.

Climate Change: Oceans act as a carbon sink (blue carbon) and help mitigate climate change.

Waste Management: Better waste management on land will aid in the recovery of oceans.

Opportunities for India India has expressed its commitment to climate action on numerous occasions, especially in promoting renewable energy. It is, for example, a founding member of the International Solar Alliance and recently proposed the OSOWOG (One Sun One World One Grid) plan for a phased global electricity grid. India has also taken a pragmatic approach to carbon taxation, imposing an INR 400 per tonne coal

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tax and the world's highest motor fuel duties.

Subsidies for fossil fuels have been gradually phased out in recent years. However, the pandemic has exacerbated India's already precarious financial situation, making it more difficult for the country to follow a green transition. The challenge is to concentrate resources on critical sectors such as mobility, storage, agriculture, and solar energy, which can all help achieve economic recovery, social regeneration, and carbon transition goals. In the next 20 years, India's energy demand will skyrocket. Using renewable energy to fuel this growth would improve India's competitiveness and provide clean electricity to millions of households.

India is in a unique role in terms of its maritime position. There are nine coastal states and 1382 islands along its 7517-kilometer-long coastline. As around 95 percent of India's trade by volume transits by sea, the country has 12 major ports and 187 minor ports that handle about 1400 million tonnes of cargo per year. India's Exclusive Economic Zone, which spans over two million square kilometers and is rich in both living and non-living resources, includes substantial recoverable crude oil and natural gas resources. Over 4 million fishermen and other coastal communities rely on the coastal economy. With such extensive maritime interests, India's Blue Economy plays a critical role in the country's economic growth. It is more than just an economic and environmental proposition for India. It provides India with an unprecedented opportunity to achieve national goals, improve relations with neighbours, and exert power in the region.

The inaugural Maritime India Summit 2016 in Mumbai saw nearly INR 83,000 crore (US$ 13 billion) in investment commitments in the shipping, ports, and related sectors. Over the next ten years, the government aims to invest INR 12 lakh crore in developing 27 industrial clusters and improving port connectivity through new rail and road projects.

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These are projected to generate "immense employment opportunities" in the ports, highways, and shipping sectors and above the 10 million potential jobs (four million direct and six million indirect jobs) under the Sagarmala Project over the next ten years. These are projected to generate "immense employment opportunities" in the ports, highways, and shipping sectors. There are different schemes and projects initiated by the government. The Sagarmala project is a strategic initiative for port-led growth, using a broad range of IT-enabled services to modernize ports. OSMART is an umbrella scheme in India that seeks to control oceans and marine resources for sustainable growth. Integrated Coastal Zone Management focuses on coastal and aquatic resource protection and enhances livelihood opportunities for coastal residents, among other things. Coastal Economic Zones (CEZ) will be developed as a microcosm of the blue economy under Sagarmala, with factories and townships that depend on the sea contributing to global trade. India has a national fisheries policy to support the "Blue Growth Initiative," which focuses on the sustainable use of marine and other aquatic resources.

Shipping, ports, Container Freight Stations (CFS)/Inland Container Depots (ICD) and Coastal Economic Zones (CEZ), road, rail, and coastal connectivity, shipbuilding, investments, advisory, technology, training, and leisure, including cruise and lighthouse tourism, are all priority sectors for India's maritime ecosystem.

If India wants to advance its blue economy policy, it needs to focus on improving connectivity. This is just one of the reasons why sea-route and inland water connectivity are crucial for India's efforts to develop its blue economy. Other significant advantages include creating jobs and boosting the country's economic growth by offering a more fuelefficient, less costly, and dependable transpor-

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tation mode.

Conclusion Though India battles COVID-19, it must also embark on a new course of economic revival— one that will alleviate the adverse effects of climate change while also fostering long-term sustainable and inclusive growth. Prioritizing investments in industries that can aid the transition to a greener economy is critical.

With concerns about defense, regional attention has shifted to the Indian Ocean as the new frontier for sustainable economic growth. India should build on its current momentum and assume a more significant role in developing and protecting the Indian Ocean by developing concepts, norms, and road maps for a more inclusive and collaborative ocean governance society.

References 1.

https://www.devalt.org/images/ L2_ProjectPdfs/GTR-Final.pdf

2.

https://www.gatewayhouse.in/wp-content/ uploads/2017/06/FICCI_Blue-EconomyVision-2025.pdf

3.

https://www.drishtiias.com/to-the-points/ paper3/blue-economy

4.

https://www.orfonline.org/research/blueeconomy-beyond-an-economic-proposition/

5.

https://incois.gov.in/documents/ Blue_Economy_policy.pdf

6.

ht tp s: //u pda te c o lle c tive . fi le s. w o rdpress.com/2018/01/occupationofthecoast _trc2017.pdf

7.

https://www.orfonline.org/research/greenrecovery-opportunities-for-india/

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ROHIT VOLETI International Management Institute, New Delhi

The technology giants of today have forayed into most if not all sectors of the economy and their entry Technology

Banking in the age of FinTech: Partner or Perish

Artificial Intelligence & Machine Learning

“A crisis is a terrible thing to waste.” - Paul Romer Every crisis brings to us an opportunity to reimagine the way we operate in this dynamic world. The banking industry over the past few years has witnessed changing customer expectations and growing competition from fintech companies and technology leaders who have forayed into the banking space, leaving banks with no choice but to embrace digital technology. The COVID-19 pandemic has not only catalysed this change but has also depicted that inculcating technological practices is critical to continuity, consistency and resilience. For a world that is recovering from the adverse effects of the pandemic, banks which are at the nerve center of global economies must collaborate with technology providers such as fintechs in shaping the future of economic growth.

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•

Leverage data to derive customer insights

•

Customer centricity through hyper personalisation

•

Smart pricing, product bundling

•

Data privacy and security

•

Fraud detection

•

Risk management

•

Cross-industry collaborations

•

Cutting-edge analytics

•

Seamless connectivity and services

•

Customer care automation

•

Voice support, language processing

•

Enhanced experience

Blockchain

5G

Internet of things (IoT)

Unveiling the potential of technology Banks have sustained desirable levels of stability and continue to command a high level of trust and confidence among customers. This advantage must be leveraged so that banks remain relevant to customers as financial intermediaries in a digital future that will be driven by personalisation, enhanced experience and transparency. It is under this context that technology plays a pivotal role in building upon the inherent strengths of banks in delivering value.

Potential

into the banking space has been a question of “when” rather than “if”. These companies have reset the standards of customer experience and offer lessons to traditional banks - to either adopt or collaborate.

•

Tech giants command a high level of customer loyalty largely due to the frictionless ecosystems that they have created in effectively mapping sellers with customers and offering one-stop-

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shop solutions. Banks must rethink their offerings in such that they are tailor-made to the needs of their customers.

•

or perish” scenario for traditional banks and fintech companies.

A survey by Bain & Company reports that several people tend to trust tech companies more than banks, which correlates to their increasing preference in seeking banking and financial services offered by fintechs. Traditional banks must prioritise customer experience and service quality by making simple digital interventions in their business models, which will go a long way in not only winning over new customers but also resisting customer churn.

Source: PwC •

Fintech companies bring innovative offerings to the table but lack the expertise and competence in managing the entire financial life cycle. This is where traditional banks could offer their valuable experience in managing customer relationships across diverse segments and channels.

Together, such collaborations can capture a wider market across geographies. For example, Commerzbank of Germany had collaborated with IDnow for a mobile-app offering banking services, which had resulted in a 50% increase in customer conversion for the bank.

•

Strategic synergies between fintechs and traditional banks provide mutual benefits to both as it facilitates the creation of omnichannel customer offerings that would increase overall profitability. A case in point would be the example of CurrencyCloud providing a payment engine to Fidor Bank, which was incorporated into their service model with no requirement for any extra infrastructure, which resulted in significant forex cost reduction for their customers.

•

Fintechs have the first mover advantage over

Source: Bain & Company •

Data harnessing capabilities of the tech companies is what differentiates their competitive edge in understanding consumer needs and behaviour. Banks that preside over an ocean of customer data must leverage it in offering better products and services.

Win-Win With the ever-increasing digital presence and usage across all major economies in the world, banks can no longer remain aloof to the new realities of the world.

Given that the banking and financial services industry is highly regulated, it limits the potential and scope of fintech companies in making significant inroads into the banking space. These factors indicate a “partner

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traditional banks in prioritising user experience and the overall customer journey, which has led to rapid growth in their customer base and has enabled them capture market share. For example, major global traditional banks such as ANZ and Westpac have made investments in a fintech startup - ‘Data Republic’, which provided a data hub for them through which their enterprise customers could save, share and analyse data under a safe and secure environment.

•

Physical branches could continue to remain critical for the legacy services of the banks but it is important to take note of the declining traffic in these branches, which poses a question on cost-effectiveness for traditional banks. By partnering with fintech companies, banks can create models that deliver both physical as well as digital banking to its customers, which would elevate the customer experience to a whole new level.

New-age banking ecosystem Source: Deloitte •

The emergence of open banking and application programme interface (API) based ecosystems provides immense opportunities for collaborations between banks and fintechs in such that they are a step forward in the journey of Banking as a Service (BaaS) - ecosystem of third -party service providers access to data to gener-

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ate insights and deliver unique products/ services. For example, HSBC’s partnership with Tradeshift enables the bank use the Tradeshift platform in automatically generating invoices, thereby reducing the payment cycle.

Challenges Despite the fact that traditional banks and fintech companies are approaching a natural convergence in catering to the needs of the new digital world, there are certain factors that impose a challenge to the success of these collaborations.

•

Legacy issues faced by traditional banks are difficult to overcome as there are deep rooted systems and processes that hamper the flexibility of these banks.

•

Regulatory and compliance norms for the banking industry imposed by governments across different nations poses a challenge on the extent and speed at which new collaborations can be made and brought into action.

•

Security and privacy management becomes critical to win over the confidence of customers who are otherwise wary of digital transactions.

Any threat of data theft or security breaches could impose a significant damage to the reputation of these banks.

On the whole, it can be understood that collaborations between traditional banks and fintech companies would result in enhanced profitability, reduction in costs and offers greater value to users. The coming decade would witness path breaking transformations in the financial industry and the success of banks would depend on their ability to collaborate with strategic partners to adopt emerging technologies. The way ahead for banks to thrive in a digital market context would be to drive innovation through technology, for which they must build a comprehensive ecosystem that benefits all stakeholders.

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References 1.

https://www.pwc.in/

2.

https://www2.deloitte.com/us/en.html

3.

https://www.imf.org/en/Home

4.

https://www.fintechweekly.com/

5.

https://www.bain.com/insights/

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ATTISO BHOWMICK

governed by a lot of factors.

University of Agricultural Sciences (UAS), Bangalore

Why this Cacophony?

Why the Stocks Lie — The Fallacious Relationship Between Stock Market

The evaluations of the stock market are in disagreement with the macroeconomic variables which define the general economic conditions. While the macroeconomics predictions are extremely bearish, the stock markets seem to portray a raging bull. This dissonance can be attributed to a multitude of complex socio-economic factors, the accumulated consequences of which resulted in such a phenomenon.

•

The Irrational Relationship Between Indian Stock Markets and Economy When common economic knowledge suggests that the stock markets should suggest the general performance of the country’s economy, the Indian Stock Markets seem to have greatly differed from this notion. The backbone of the stock markets—the stock prices should reflect the investor’s expectations about future corporate performances, which in turn depend on the economic conditions of the nation. When India experienced the strict lockdowns to tackle the COVID-19 problem, businesses, corporates, factories and shops had to bear consequences, which caused the GPD to shrink to negative points. However, the stock markets apparently emerged to have a mind of its own. It was one of the best performing market in the world in June, 2020, when the BSE Sensex rose to almost 8 percent. This queer phenomenon may seem like a fairy tale being played out, but is surprisingly

STUDENT ARTICLE

Optimistic Outlook of the Future

Stock markets run on predictions for the future. If the future is bleak, the market becomes bearish, and if there is positive news for the future, the market becomes bullish. With the current economic conditions, the investors are surprisingly optimistic for the future.

As market trends are always forward-looking, investors already looking towards a fast recovery. The belief that commercial operations will eventually become normal after the pandemic recedes, has actually encouraged a number of investors to buy stocks which has a significantly higher chance of recovery.

This has caused a significant buying pressure, and in turn increased the stock prices.

•

Intrinsic Make-up of the Stock Market Indices

Another major factor is the giant companies the make up the indices operate under different circumstances when compared to the nation’s small businesses, office workers and the general public. A significant portion of their revenue come from foreign investments.

This also enables them to harness more capital and resources to withstand the economic crisis. In fact, market indices like Sensex and Nifty are designed to measure the performance of only the top 30 and 50 companies respectively.

•

Limited number of Investors as compared to the population

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The majority of Indians avoid investments in the stock markets. Only a meagre 18 million out of a total of 1.8 billion people in India are actually investors in the stock market. This causes a reduction of sample size when statistical techniques are used to evaluate the performance of the stock market and the general economy. The investor’s data are insufficient to adequately describe the economic conditions of the general public. Furthermore, most investors are from the educated and economically stronger sections of the society. This does not take into account the vast majority of poorer people in the country.

•

Exposure to Global Markets

Way back in December, 1991, when liberalization of economy began, and allowed foreign investments in India, the stock markets came under the influence of foreign markets. In the present scenario, foreign investments, news, global economic policies are all essential factors that determine the stock market prices.

Revenues from the foreign markets are also increasing each year. However, the macroeconomic analysis is primarily domestic and focuses on the economic conditions of the country. This is also a significant reason why the stock market growth seems to have divorced the economic conditions.

•

Supply and Demand

The push and pull mechanics of demand and supply on the stock prices can never be ruled out. The COVID-19 pandemic has created a skewed market.

For example, biomedical and pharmaceutical companies have experience growth in their businesses however construction enterprises and airlines have incurred heavy losses. Moreover, companies suffering from losses has either laid-off their employees or reduced their numbers. This has caused significant unemployment and loss of income. As a ripple effect, significant changes in the market indices occurred which has further distorted it from the economic realities of the country.

STUDENT ARTICLE

Is There Any Possible Solutions for this Incongruity According to New York Times, economists who have conducted long term research work on the performance of stock market has concluded that there is comparatively very little evidence that stock market performance actually portray the economic growth.

The linkage is weaker than expected. Moreover, the notion that stock markets reflect economic conditions is primarily based on correlation, not causality. The reasons are scientifically thought out hypothesizes which gets fulfilled under certain conditions only. The relationship is empirical in nature, and is only based on observations.

So, as such there is no real solutions as to how it can be rectified. Government regulations and policies can only do very little in this regard. Rather than treating it as an unnatural occurrence, it will be better to treat it as an organic occurrence, which can happen under the right circumstances. Stock markets do have a mind of its own, one which act independently sometimes when the factors favorably aligned.

Conclusion During the earlier decades of the stock market, it was easier and simpler to link the performance of large companies to the economic health of the nation, partly because a large section of the middle class was employed by them. With the rise of numerous new companies, ease of doing business and more lenient government policies, that link has become obsolete now.

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The incongruity of the stock markets and the economy is not a by-product of recent predicaments but a gradual change in the economic and business landscape in India.

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VISHNU TEJA ANNAMRAJU Goa Institute of Management

RAISE OF AGRI FINTECH

Inherent Sustainable Development in awakening The agriculture sector, the forgotten backbone of the Indian economy, is estimated to show a growth of 3.4% in FY 20-21, where GDP estimated to see a contraction of -7.7%.

From a bird's eye view, Pandemic in ally with Economic slowdown diffused a temporary recession into Indian economy which led migrant labourers or the ones who lost their job may be indulged in agriculture activities may be the reason but with an eagle-eye view, we can deduce that Agri Fintech is the prime reason and statistics proves that viz; as of 2020 there are 1000+ startups with $467 Mn funds raised from coveted investors like NABVENTURES by NABARD, Blume Global and other Blue-chip companies.

Prevalence of informal credit- Be it a need of pesticides, flood, drought, a poor harvest, force farmer to look for quick & short-term loans leading them into the debt trap with interest rates as high as 10% per week.

Collateralized debt & Credit rating -Lack of collateral and credit history(rating), repayments in cash & non-availability of data, left out farmers from the credit system with no other option to approach private third-party lenders or NBFCs who exploit farmers by charging 14-26% interest to mitigate high risk associated with those loans.

Even though NABARD has a Kisan Credit scheme, it remained as a half-fulfilled stomach.

MSP & No proper Supply chain – To get the MSP or sell the final product to consumers independently, farmers have to travel a lot; instead, they rely on agents who exploit them by not providing the fair price they get in the open market.

Source: Unitus

What is Agri Fintech?

Let first understand Agri-Tech sector, which has always been in the rain shadow region in means of funding due to multiple challenges involved in such as the

STUDENT ARTICLE

So, an opportunity sensed by many startups devised and developed various financing products & credit evaluation methods to fill the VOID, which established as Agri Fintech

Agri Fintech in INDIA: Sub-Sector Landscape Methodology & Instruments VITTA ARTHA | 30

1.

Unconventional credit evaluation methods – The ability to analyse the risk in rural areas is

uses the same method to evaluate a farmer’s creditworthiness with variables like in an area “La salle Gao” where sending a daughter to college after 12th grade doesn’t mean much, whereas in another location “goatee” in which tribal farmers live, if a farmer sends a daughter to school after 7th grade means he is exceptionally progressive. Like this credit score is assessed depending upon various variables.”

Source: Inc42

different from urban areas. So, these companies are using different yet simple credit evaluation methods like for instance 2.

Psychometric Lending Assessment - A traditional credit score predicts the likelihood of repayment of a loan based on the borrower's past repayment behavioural track record. Similarly, a psychometric test can list out the hidden personality and behavioural traits, including the borrower's value and belief system, which helps assess the willingness to repay debt.

Source: Jai-Kisan

3.

Collaboration- These companies mainly using B2B2C or B2C, or F2C (farmers to consumers) business models. To provide services, these startups partnering with banks, NBFCs, tech companies to integrate more tech as a solution to the supply chain a.

Phygital Model – To pick up rapidly gaining traction, the idea of using a distribution model that combines physical and digital channels, Agri fintechs revamped the supply & distribution channel. For example, let look at these startups, i)

PayAgri uses this model to provide all types of market linkage services to farmers & FPOs (Farmers Producer Organization)

Source: iadb For example, JAI KISAN, an Agri fintech startup,

STUDENT ARTICLE

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Source: Gramcover Source: PayAgri ii) IoTracX – developed two softwares, XAASENSE - enables real-time tracking & distribution process automation for both farmers & buyers through IoT and mobile apps.

Agroblock – a TaaS (Traceabilityas-a-Service) for the agro supply chain in collaboration with Hyperledger Fabric Blockchain & AWS (Amazon cloud service) iii) Sammunati created an Agri value chain ecosystem for farmers & FPOs to provide market linkage 4.

Crop- Insurance & Advisory - Using new age Agri analytics, these companies bringing consistency, dependability and sustainability to agriculture with real-time data collection, reporting, analysis and providing advisory like which crop a what time farmers cultivate, crop insurance, livestock insurance by interpreting & predicting that analysis.

For example, Startups like NaPanta, Gramcover are providing above mentioned services

STUDENT ARTICLE

Source: Gramcover These instruments and methods, coupled with •

No Hidden costs

•

Low-interest rates

•

No Land mortgages

•

Less time process & Minimal Documentation

•

Easy EMIs

are the prime reasons for global investors luring to invest and also closer to farmers

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Sustainable Development Agri Fintech is the quickest & most vital sector to build a sustainable ecosystem, and it has been realised foremost by these companies and started integrating SDGs (Sustainable Development Goals) viz; 1.

Issuing prompt finance

2.

By giving crop advisory-what type of crop at what time, which kind of and how to use organic or natural manures, which reduces the usage of harmful pesticides & fertilizers, thereby getting quality harvest and ample yield

3.

Inhabiting modern methods like Soil moisture sensory tech., using solar panels & generating revenue from biogas etc.

and working on to align SDG 14- Life below water & SDG 15 -Life on Land

Future Outlook Even though this sector is performing better but it has its challenges viz; lack of talented personnel, investors, are also interested majorly in “market linkage products” rather than other departments like Farming as a Service, Farm inputs, innovation etc.; and no fullpledged support from government, even in recent 2021 budget also govt. not included FPOs and digital Agri infrastructure, mainly “Agristack”, which is a crucial element in the development of Agri Fintechs in “SWAMITVA” scheme

Apart from this to make farmers use all these facilities and other innovative products, infusing financial literacy and collaborations, which are creating jobs and value chain.

Benefits Agri Fintechs reap getting prompt interest payments, which keeps the working capital requirement cycle running along with earning profits.

These are all the SGDs currently mapped with the Agri Fintech sector

Source: Yourstory

Source: Inc42 To tackle these issues, Agri Fintech has to work on

STUDENT ARTICLE

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building a 1.

Digital Agri ecosystem with collaborating disruptive innovation like “SOUNDWAVE PAYMENT”, which is a tech going to redefine the realm of digital payments uniqueness of this tech is it works with feature phones, smartphones or any device without internet facility for making payments.

So, if these companies go hand in hand, they can build an ecosystem with all services that will be a solution.

2.

“Agristack” – a database where each & every detail farmer will be made available. As a first step, “SAMMUNATI” developed an ecosystem called AGRI ELEVATE. Like these, “AGRISTACK” has to be build which immensely helpful in the financing, crop insurance, importantly creating a digital footprint for farmers

In a nutshell, if correctly implemented and supported, Agri Fintech the potential of becoming a niche sector and can pace up sustainable development, thereby building a sustainable community.

Source: Sammunati

STUDENT ARTICLE

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INTERVIEW PREPARATION

Final Placement | Gartner

strong and that often brought a lot of arrogance unconsciously while I was answering the questions.

There is a very fine line of difference between being humble and being arrogant. So be humble while answering be it technical or behavioural questions. Your ability to be a smooth conversationalist can take you a long way. A person short on technical can still clear a lot of interviews if the interviewer can get comfortable talking to you.

Summer Intern | Ventura Securities

Technical Skills

Summer Intern | Opulence Business Solutions

Technical skills may differ from role to role but I would like to stress on a few important takeaways from my 2 years of experience:

Aditya Arora PGP05 IIM Amritsar

“Job Interviews are like First Dates, First Impression Counts” Understand the Job Description People often make this mistake; they go to the interview without understanding the JD and the requirements. Understand the requirements, bring out your prior experience of any kind in your resumes or your answers. It is one of those hygiene factors that will bring you in the consideration of interviewers.

Build your story This is the universal truth for any interview be it finance or marketing. So the most important answer that you will have to prepare is “Tell me something about yourself”. This is most cases is the make or break question. You can drive your interview around your introduction. But it should not be bland and come out as you are reading your resume, it should come out as your life story and there should be a logical transition from one thing to other like how you got interested in finance or your past experiences that make you the best candidate for the current role.

First impressions always matter and it will help the interviewer remember you.

Soft Skills

The biggest mistake that I had committed over interviews and realized quite late was that I was technically

INTERVIEW PREPARATION

Sector and Macro Understanding: Pick a sector you like and follow it religiously. It helps a great deal to drive an interview or a conversation. During one of my interviews I had a conversation on the telecom industry for 30 minutes out of 40 minutes of interview. Reading a financial newspaper like Business Standard and Business Line will really help you. You can use PressReader (IIM Amritsar students), The Ken and ET Prime - these will really help you in the long run.

Corporate Finance: Make sure you understand the fundamentals very clearly. People are often grilled on something as simple as WACC. A great source to learn the fundamentals : Aswath Damodaran YouTube playlist Accounting: You need not to be a CA but you should understand how the 3 statements are linked together. You can pick up CFA L1 FRA book to get a clear understanding of the subject.

Corporate Valuation and Portfolio management: There is no better place than the Aswath Damodaran’s Corporate Valuation class on YouTube.

If you have knowledge of the stock markets and invest, do bring that as one of your strengths and you may never know your interview may just revolve

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around the stock market.

These are the skills that I feel are important and I am still persisting to master them.

At the end of the day, you just keep improving and you will get where you want to reach.

INTERVIEW PREPARATION

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by doing projects will not only help you gain deep knowledge about the subject matter but also be a great addition to your resume.

Sambhav Jain PGP05 IIM Amritsar

•

Final Placement | Deloitte USI Summer Intern | Landmark Group The entire preparation can be broadly divided into two components:

Soft Skills: •

Having good communication skills is very important to crack interviews. Good communication skills (both written and verbal) is the one trait that all organizations look for in a candidate, irrespective of the industry/domain/role/company.

Spend a lot of time polishing your communication skills. Preparation for this can be done by mock GD’s and interviews.

•

The ‘Tell me about yourself’ question should be very well prepared. You should do a deep introspection about yourself and build a story accordingly. Try to make sure that your answer doesn’t sound mechanical, and it is something that accurately reflects your personality. This question is also an opportunity for you to drive the interview in the direction you want to.

1. General Preparation: This will include preparation that would apply to most companies that a candidate would be applying for.

2. Organization/Role Specific: This consists of preparation that will be specific to the role/ domain/function and the organization.

Some pointers for general preparation Technical Skills: •

•

•

Be thorough with the basics of all the subjects that you would be studying in your majors. For instance, a Finance major should be comfortable with the basics of Accounting, Corporate Finance, Portfolio Management, Valuation, and Derivatives.

It helps to have knowledge about the tools, databases, etc. that are used in the industry that you • aspire to work in. For example, someone who wants to make a career in financial services is expected to have a good handle on Microsoft Excel. • Having knowledge about financial databases like Bloomberg Terminal can be very helpful. You can show your proficiency in these by doing relevant certifications.

• In-depth knowledge about specific subjects can be gained by doing relevant live/academic pro- • jects. The practical exposure that you would get

INTERVIEW PREPARATION

Stay updated with current events and happenings.

Read newspapers and blogs on a regular basis. My personal recommendation would be ‘Business Standard’ and ‘The Mint’ for newspaper and ‘Finshots’ for online content.

Some pointers for Organization/Role specific preparation Go through the JD thoroughly and be clear about the role and its requirements.

Do in-depth research about the organization. It should include what the organization does, the industry in which it operates, size, geography, and recent developments related to the organization.

Add points in your resume relevant to the role you’re applying for.

Prepare a couple of questions to ask at the end of the interview.

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Some pointers for the day of the interview •

Try not to be too nervous. Be confident in your abilities and preparation to crack the interview.

•

Don’t worry if you get an answer wrong. Nobody is perfect. Organizations are more concerned about traits like culture fit, trainability, attitude, potential, etc.

•

Always smile when you’re interviewing. Try to have a conversation instead of having a VIVA.

Finally…. ‘Believe you can and you’re halfway

there.’

INTERVIEW PREPARATION

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company should select you for the role? Why as a fresher or workex, you are better suited than the other? (This part prepares me well for the final questions to the recruiter themselves and shows a level of commitment and preparation by the candidate)

Kushagra Kukreja PGP05 IIM Amritsar 3.

Always prepare your resume according to the role. The goal is to weave a story around the role and your life. Use the experiences you have had from school to post graduation to further strengthen your candidature for the specific role.

4.

Make sure you are thorough with your internship work. Be informed about the company and its senior management. Read news about it, its products, any mergers in the past, etc. If possible, try to connect it with your expected job role in the final interview.

Final Placement | EY Summer Intern | IndusInd Bank Before filling in for a company or preparing for an interview, know about the company and the role it is offering.

Few things to be well prepared with before placements begin 1.

Read quality newspapers and research articles. I have found “Business Standard” and “The Ken” as extremely well researched sources of news and articles.

Things to do just before interview

2.

Be ready with an “About yourself” and practice it long before any interview, if possible, with a friend who can suggest areas to improve.

1.

3.

Participate in extra-curricular activities, corporate & B-school competitions and sports. They help improve both hard and soft skills. They can grant you a common ground to talk about on. In one of my interviews, I was asked questions about a recent Formula 1 race and how F1 generates revenue?

Placement season can be quite challenging. Even at your 100% you might not get through. Lot more than just your preparation will go into selection, factors which are out of your control – luck, previous workex, pedigree, mood of the interviewer, etc.

Stop your revisions and calm down. All your focus should now be on giving the recruiter a run for their money!

The goal is “To become a better version of yourself” with each interview.

Things to do 1-2 days before interview 1.

Practice your About yourself. Keep what you feel will help you and remove unnecessary details.

2.

Make write-ups of 4-5 pages on the company itself; Its history, products, people, global and local news, and its divisions. Another 2-3 pages about the role that is being offered; Why the

INTERVIEW PREPARATION

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CFA PREPARATION •

Study material - Do not fall into trap of referring to too many books for preparation. Although CFA official material is preferred but in case of paucity of time, Schweser notes coupled with official mocks on the CFA website would suffice.

•

The genre of CFA exam - CFA is more of a conceptual exam rather than a speed-based exam (like CAT) so there is absolutely no need to rush upon questions as you might end up messing up even sitters. Also, CFA L1 tests more concept-based questions rather than questions that involve real calculations so do not waste the last few precious days of your preparation solving lengthy calculation-intensive questions.

•

Keep in mind the subject-wise breakup – It is fine to leave one or two very difficult topics that have less weightage, rather than wasting time on them and not revising frequently asked topics during final days of preparation.

•

Make financial calculator your best friend It is preferred to buy a financial calculator at the beginning of the preparation itself so as to get used to it. Learn as many functions of it as possible as few of them are very useful in cracking complicated quantitative methods questions.

At last, I just want to conclude by saying that do not panic over CFA exams, most of the concepts are already covered in MBA, you just need to brush up on some of the concepts based on exam pattern and your current state of preparation.

Chakshu Chawla PGP05 IIM Amritsar

CFA LEVEL 1 CLEARED My CFA preparation journey was long but I never felt like I was preparing for it until the last ten days of my preparation when I pull out all the stops. I like reading about financial management, especially about portfolio management and personal finances so reading Schweser notes about the same was not problematic for me any day. The big mountain in front of me was ‘Economics’, which I felt was a bit more demanding compared to other subjects as there are so many intersecting and overlapping concepts that it is very normal to confuse/mix them. While studying itself I knew I might forget some of them in the final exam so I made sure to revise difficult concepts (that need more cramming) in the last 2-3 days of my preparation. It worked for me but again there is no hard and fast rule and you should always go with your gut in terms of what you feel like revising in the last few days of preparation. Since most of the other concepts were covered till the 5th term of my MBA so a quick read of Schweser notes worked brilliantly for me. Although I do not consider myself an expert to give tips to crack the exam but a few pointers that I would like to mention that might help you are as follows: •

Driving the last mile - The last 15-20 days are a make-or-break period. You can easily sail through the CFA level 1 if you go all in especially in the last few days even with average preparation before it. The other way around also, it might get problematic for you if you do not revise concepts in the last few days even with decent preparation before it.

CFA PREPARATION

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GOLDEN INVESTMENT FUND The Finance and Economics Club, IIM Amritsar announced the launch of Golden Investment Fund (GIF), the student-run investment fund of IIM Amritsar, in February 2019. It was started with the aim to give hands-on experience to the students about investing and applying their research into the equity markets. Team GIF aims to create a culture of research, analysis, and investment among the members of FEC and Finance Enthusiasts of IIM Amritsar. The equity fund intends to achieve better risk-adjusted returns than its benchmark index through investment in large-cap, mid-cap, and small-cap stocks.

GIF ANALYSTS 2020-21

HARSHIT GARG

URVESH PATEL

AMAN

GOLDEN INVESTMENT FUND

GURNEET KAUR

JAY MASALAWALA VITTA ARTHA | 41

GOLDEN INVESTMENT FUND

VITTA ARTHA | 42

GOLDEN INVESTMENT FUND

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GOLDEN INVESTMENT FUND

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GOLDEN INVESTMENT FUND

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GOLDEN INVESTMENT FUND

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CLUB ACTIVITIES Since its inception in 2017, FEC has been one of the most important student interest groups of IIM Amritsar. To provide students, an enriching learning experience in the world of Finance, the club organizes numerous interactive events throughout the year. It supports students in their journey at IIM Amritsar, helping them harness their potential and enthusiasm and guiding them at every turn. From providing advice about additional certifications and online courses, like Bloomberg Market Certification, to helping them with subject choices and interview experiences, FEC facilitates outside-classroom training to upskill them leading to brighter career opportunities.

Even this year, with sessions going online for an entire term, the impact of Covid were not high enough to mar the spirit of the club that conducted the following events: Finclusion: FEC welcomed MBA06 with its Finclusion induction event. In this, the students of MBA06 were officially welcomed by the club and were apprised about the workings of the club. The event also consisted of a series of quizzes on the topics of Finance and Economics which were played in teams to enhance group dynamics and familiarize the batch with their fellow students. The winners were awarded certificates.

Guest Talks: FEC organized various guest lectures from industry stalwarts like Mr. Simran Pradhan from Goldman Sachs, Mr. Srinivasan Kannan from J P Morgan, and Mr. Akhil Sharma from Adani Airports to give the students more practical exposure in the domain of finance and economics. The students got to know invaluable industry insights and trends which helped the students keep up to date with the current situations prevailing in the industry.

Golden Investment Fund (GIF): It is a studentmanaged investment fund comprising of experts in the field of F&O and intraday trading. GIF team

CLUB ACTIVITIES

releases weekly company reports and monthly fact sheets of its portfolio under management. Along with an overhaul of their reports GIF team also contributes to the IIM Amritsar’s culture by conducting knowledge sessions and investment lectures to engage peers and motivate students to invest in stock markets.

Bridge the Gap: It is an interactive discussion series. It aims to connect students with our alumni and other industry stalwarts through sessions and discussions on various relevant financial topics. To bridge the gap between academia and the industry, FEC successfully conducted two sessions with our esteemed alumni who guided the students on certifications like CFA and FRM. Pariprekshya: From 2017, FEC, in collaboration with the Industry Interaction Cell, has been successfully organizing IIM Amritsar's maiden Finance and Marketing Conclave where eminent industry experts share their view and experience on the big stage in front of IIM Amritsar faculty & students.

Starry Nights: FEC is known for its trademark "Starry Nights" sessions where members share their knowledge and experience in an informal setting. In Starry Nights an informal discussion takes place on particular topics in which every attending student can participate in the discussion sharing their point of view, hence contributing to a healthy discussion on important issues. Various Starry Nights sessions have been conducted since July 2020 on topics ranging from venture capital to the journey of Coca -Cola in India.

Bid-e-Blind: FEC organised Bid-e-Blind, a tworound intra-college event where students of IIM Amritsar gathered to engage in bid wars. It was an offline event where the students were given visual hints relating to the item and were asked to bid for the item. The teams with the highest portfolio at the end of the two rounds won the competition.

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Fin-League: FEC’s Fin-League quizzes put the students’ business acumen to test and helping them keep their minds sharp and ready while fostering a competitive environment. Winners of Fin-League quizzes were awarded prizes and certificates. It was a series of quizzes with each quiz focusing on a particular field of finance and economics and involved learning in a fun way about the concepts relating to the field AArunya 5.0: FEC organized two events as a part of AArunya, the annual college fest. Insight Out, a valuation competition, and Barter it Out, a barter competition.

Budget ki Baat: Students of IIM Amritsar came together to discuss the Union Budget revealed on 2nd Feb 2020. Different students came prepared with different sectors and shared what they had analyzed from the budget.

Activities on Social Media: FEC members released a small post every week to keep students up-to-date with recent news in the financial world. It included crucial events like budget, company mergers, bankruptcies, famous economics concepts, success stories of companies, and many more. A new series of posters under the name of “Fin-Bytes” was also started

by FEC to apprise the students of financial terms like ratio analysis, hedge funds, and many more.

. .

CLUB ACTIVITIES

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CLUB ACTIVITIES

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MOVIE REVIEW

Directed by: Curtis Hanson Distributed by: HBO Release date: May 23, 2011 Running time: 98 minutes Country: United States of America Language: English

SUMMARY It cannot be easy to create a financial thriller. It is very challenging to create excitement when most of the action includes middle-aged men in conservative suits talking on the phone. The film “Too Big to Fail,” which is based on the book of the same name by the reporter Andrew Ross Sorkin of The New York Times, about the financial crisis of 2008, uses every cinematic trick in the book, but ultimately succeeds because of the knowledge that the event was indeed dangerous. Some of the financial companies are so big and so embedded in the system that pulling them out of the system could lead to the collapse of the

MOVIE REVIEW

entire system. Such firms are termed Too Big to Fail.

Many economists believe that if these firms start to feel that they will be insulated against fluctuations of the market, then they will not self-regulate and always resist any outside attempts to do so. The film revolves around the situation and the subsequence bailout of these so-called Too Big to Fail firms during the 2008 crisis. The film is a hybrid between a mystery, drama, and a documentary. The film focuses on Treasury Secretary Paulson and his personal interaction with the other characters—The Chairman of Federal Reserve Ben Bernanke, The New York Federal Reserve President Timothy Geithner, assorted bank presidents, and other financial movers and shakers. The major undertone throughout the film revolved around the perspective that the financial sector which caused the crisis was then called upon to fix it. They did manage to successfully pull out of it, albeit at a very high cost, and that too to the taxpayers. The collapse of the economy into a total economic depression was avoided, but the banks got even bigger through forced mergers, thus aggregating risks. These banks now stood on the foundations of the capital infused by the government, which they used to revert their levels of earning to the pre-crisis era and even higher. ‘Too Big to Fail’ showcases the 2008 financial breakdown, focusing primarily on the actions of U.S. Treasury Secretary Henry Paulson and The Chairman of the Federal Reserve Ben Bernanke, to handle the situation during the period of August to October in the year 2008. The film revolves around how the men and women in power dealt with the impending crisis in 2008 and how the size of the institutions that faced imminent breakdown became a huge threat to the financial system, or so the top echelon thought. This movie takes the viewer through the journey of these people and will help the viewers understand the finer details of the incidents that happened and how the situation was salvaged in terms of finance. The movie does include

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jargon that might require some basic knowledge of finance, but all in all, it inculcates the gravity of the situation and how financial instruments, when not used responsibly, can lead to an event that would shake the entire global financial system.

MOVIE REVIEW

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BOOK REVIEW jority of the investors even today.

Early Years Benjamin Graham graduated from Columbia University in 1914 and then went on to work on Wall Street.

During his 15-year career, he was able to build a sizable portfolio but lost most of his money in the stock market crash of 1929 that marked the beginning of the Great Depression. The experiences gained from it helped Graham minimize the downside risk by investing in companies whose shares traded way below the companies' actual value. He very effectively utilized market psychology, thus using market fears to his own advantage.

What does the book teach you?

Author: Benjamin Graham Publisher: Harper & Brothers Pages: 640 SUMMARY Economist Benjamin Graham who gained fame for his book 'The Intelligent Investor', is often termed as the foremost expert in finance and investment.

Known as the person who first developed the concept of value investing, he has laid down the specifics of his theory and its application in his book 'The Intelligent Investor'. Considered to be one of the most important books on the topic of evaluating companies with surgical precision, the concepts enumerated in the book allowed Benjamin Graham to excel at making money in the stock market without taking high amounts of risks. One of the major contributions of the author was the highlighting of the irrationality and group-thinking that was very prevalent in the stock market. Graham emphasised on the investments aiming to profit from the numerous whims of the stock market. His principles still influence a ma-

BOOK REVIEW

Benjamin Graham and David Dodd began teaching value investing at Columbia Business School in 1928 as an investment approach. Then in the year 1949, Graham and Dodd published The Intelligent Investor. Some of the highlights from the book include: One of the author's favourite allegory used very frequently is the one of Mr. Market. "Mr. Market," an imaginary person, goes every day to the stockholder's office, always offering to buy or sell his shares at various prices. The proposed prices sometimes tend to make sense, but often the proposed prices are way off, according to the prevailing economics.

Value Investing Value investing, in its most basic sense, is deriving the intrinsic value of a common stock independent of its market price. Analysing the various indicators of a company, its assets, earnings, and dividend pay-outs can facilitate the determination of the intrinsic value of a stock, which can then be compared to its market price. If the intrinsic value is more than the market value, then the stock is undervalued in the market, and the investor should buy and hold until the holding becomes profitable when the market price con-

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verges to the intrinsic value. This theory is known as The Mean Reversion Theory, which says that in due time, the market price and the intrinsic price will converge. And when they do so, then the market price truly will reflect the actual value of the company.

Benjamin Graham Formula Benjamin Graham himself only purchased those stocks which traded at two-thirds of their net-net value so as to have some margin of safety. Net-net value is a value investing technique that was developed by Graham. In this, a company is valued based only on its net current assets.

Much later, he revised the formula to include both a risk-free rate of 4.4% (the average yield of high-grade corporate bonds in 1962) and the current yield on AAA corporate bonds.

margins, company debt, nature, whether public or private, how reliant they are in terms of commodities, and how costly they are.

All in all, 'The Intelligent Investor' is a superb read which is sure to tickle the reader's finasensical senses.

It will provide the reader with an understanding of how value investing is to be used in the actual world of markets so as to earn returns while managing the risks effectively as well. Even though the book was written years ago, it is still considered a marvel in this age in financial circles. The concepts and principles covered are very much relevant in the present age and are bound to give you an edge. Happy Reading…

Financial Reporting and Dividends Many of the concepts and principles discussed in the book by Graham remain very relevant today. Graham was a strong critique of the corporations which had obscure and irregular methods of financial reporting, which caused investors difficulty in accurately gauging the health of a company. Graham was also a persistent advocate of companies that paid dividends to their shareholders instead of accumulating retained earnings.

Influence on Warren Buffett Investor Warren Buffett who was mentored by Benjamin Graham describes the book as "by far the best book on investing ever written." He mentions that after reading it at age 19, he enrolled in Columbia Business School in order to study under Graham.

There they developed a friendship which lasted all their life. He later worked for Graham at his investment company, the Graham-Newman Corporation, until Graham retired.

Warren Buffett follows the principles of value investing but also considers company performance, profit

BOOK REVIEW

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COMIC CORNER

Cookie jar accounting: An accounting practice in which a company stores up funds during good times to dip into during bad times. Because it effectively misleads investors — making them think goals are being met even when the company is losing footing.

Sandwich generation: It sounds like a fun term, but the sandwich generation actually refers to the age group sandwiched between their aging parents and young kids. These adults are typically tasked with financially supporting both their older and younger dependents while trying to save for their own retirements.

COMIC CORNER

Dead cat bounce: A small recovery after a sharp decline in price of a stock in the stock market. It is based on the old investment saying goes: "Even a dead cat will bounce if it is dropped from high enough."

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TEAM FEC SENIOR COORDINATORS

SAMBHAV JAIN

ADITYA ARORA

RISHABH JAIN

KUSHAGRA KUKREJA

JUNIOR COORDINATORS

SAURODEEP CHATTERJEE

AMAN MUNDHRA TEAM FEC

HARSHEEN KAUR

ISHIKA AGARWAL

VAIBHAV KAPOOR VITTA ARTHA | 55

CROSSWORD

CROSSWORD

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ACROSS

DOWN

1.

Technical analysts who make investment decisions based on stock trends and charts.

2.

The process of filling orders from one’s own inventory rather than going to an exchange.

3.

When a stock starts trading without rights to an upcoming dividend.

5.

4.

A position in options that does not involve simultaneously owning the underlying asset.

The period of inflation due to irrational exuberance on the part of investors and the belief that prices will continue to rise indefinitely.

7.

Long-term exchange trade options which may not expire for two years or more.

Key stocks that may be indicators of the economy’s direction

9.

The process of buying stock based on the belief that it will continue to rise, without doing research.

10.

The method of analysis used by long-term investors that there is a strong long-term correlation between a company’s ability to generate profits and the performance of its common stock.

12.

Failure to meet credit obligations.

13.

A strategy designed to reduce risk by offsetting an existing position in the spot asset with a position in the futures market

6.

8.

Type of analysis which involves the Examination of a company’s ratios in comparison to those of other companies in the same industry.

11.

The process of earning profits on profits, which creates an exponential increase in wealth over time.

14.

The practice of taking on debt to make an investment, which magnifies gains as well as losses.

17.

A large sell-off of securities that causes a sharp reduction in price.

20.

When a broker requires an investor to send in money in order to cover losses sustained in the market, particularly when the investor is borrowing on margin from the broker.

15.

When an investor sells off a stock after sustaining a loss and then repurchase it after less than 30 days.

16.

from a specific country or geographic region country funds

21.

Trades that are usually large and majorly carried out by institutional investors.

17.

23.

A rolling horizontal list of stock symbols and current financial information about the stock, including its current market price.

Investors who choose stocks that are out of favor, with the intent of capturing gains once the stock becomes popular again.

18.

The final stage in the investing cycle when the individual has more money than they will ever need and thus begin to consider to give money to charities and heirs

19.

The difference between the price at which a security is sold and the amount the owner receives after the broker takes his cut.

22.

The price difference between what the client pays and what the broker pays when the broker’s firm acts as a principal or dealer, selling shares from inventory.

24.

Another name for the New York Stock Exchange, the oldest and largest securities market.

25.

A fee charged for new money invested in a mutual fund.

25.

A stock order that must be executed as soon as it reaches the trading floor or it is canceled.

27.

Analysis of a company’s financial ratios over time, to see if they are improving or deteriorating.

28.

An individual who sells an option.

29.

Low-grade bonds that are deemed more likely to default.

30.

Funds that focus on asset allocation and frequently contain a mix of equities and fixed income securities.

CROSSWORD

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