Niveshak Jan18

Citius * Altius * fortius

Dear Niveshaks,

This month can be looked as a month that held high expectations amongst the citizens towards the government given the representation of a local leader at World Economic Forum (WEF) and the presentation of Union Budget on the first day of the next month.

of speech at WEF. It was only the second time that the country’s Prime Minister represented at WEF. It was a wonderful opportunity for India to showcase the happenings of back home at a global platform and given the orator our Prime Minister Narendra Modi is, this opportunity was grabbed Reform, Perform and with both hands and he Transform was the ethos successfully showcased

our country as a proactive & transformative country.

The cover story analyses the much-asked question about the expectations of the budget being populist or reformist. This question stands quite important considering that this is the last full budget by the NDA government before the next elections. We have tried to analyze what

is important to the economy and what is the most possible and expectable scenario going forward.

The month saw the revision of GDP growth rate by IMF and the lay-down of impositions by the government authorities on PwC and Flipkart. Most of the cryptocurrencies corrected owing to negative outlook and regulations being imposed by various countries. Even within the country, many top banks started suspending the accounts of major Bitcoin exchanges.

“I’d be a bum on the street with a tin cup if the markets were always efficient.” Warren Buffet, Berkshire Hathaway. The Article of the Month analyzes if the Indian markets are efficient and can be “beaten” by using various research and statistical methodologies. The FinGyan talks about the existing turmoil and the future of Telecom industry in the country.

With the increasing investments across the nations, companies are going abroad to list the shares and lure the foreign investors.

The Classroom section explains the concept of Cross-listing of shares. At the end, the Juxtapose section compares and contrasts how oil made Mexico and China rich.

Hope you have as much fun in reading the magazine as we had in making it!

Stay invested, Team Niveshak

THE TEAM Akshay Kaushal Anand Mittal Arjun Bhargava Dhruvika Chawalla Girraj Goyal Pratibha Sapra Sankeerth Bondugula Saurabh Gupta Vinay Gundecha Aayushi Garg Abhishek Soni Arpit Murarka Bhushan Bavishkar Mahesh M Priyanshu Gupta Samprit Shah Sheahav Dosi Sriya Gupta

All images, design and artwork are copyright of IIM Shillong Finance Club

©

Finance Club Indian Institute of Management Shillong Disclaimer: The views presented are the opinion/ work of the individual author and the Finance Club of IIM Shillong bears no responsibility

Contents NIVESHAK: JANUARY 2018

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The Month That Was

Niveshak Investment Fund

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Cover Story: Populist Versus Reformist Budget

FinGyaan: The Future of Indian Telecom Industry

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NewsDesk

Clasroom: Cross Listing

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Article of The Month: Are Indian Markets Efficient?

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Juxtapose: How Oil Made Countries Rich

Niveshak Jan’18

The Month That Was Top banks suspend accounts of major TCS becomes 2nd ever Indian firm to top Bitcoin exchanges in India Rs 6 lakh crore in market cap; briefly pips RIL from top spot Top lenders including the State Bank of India, Axis Bank, HDFC Bank, ICICI Bank and Yes Bank, have suspended some accounts of major Bitcoin exchanges in India, suspecting suspicious transactions. The banks have conjointly wanted extra collateral from the promoters of those exchanges on their borrowings and have capped money withdrawals from the few accounts that are still operational.

The banks have started scrutinising current accounts controlled by prime Bitcoin exchanges and action has been initiated against the top ten Bitcoin exchanges including Zebpay, Unocoin, CoinSecure and Btcx India.

Although India hasn’t banned Bitcoins, the cryptocurrency is basically unregulated. The total revenue of the top ten exchanges in India is around Rs 40,000 crore as per tax officers scrutinising these corporations. Many of the exchanges operate at a margin of nearly 20%.

The profit comes from the premium charged by the exchanges, the difference between the buying price and selling price and when the exchanges themselves gets involved in the trading.

On January 24th the market capitalisation of Tata Consultancy Services surpassed Rs 6 lakh crore mark for the very first time to become the second Indian company to attain this milestone after RIL. In the intraday trades, TCS capitalisation shortly broke the market cap leader RIL. Shares of TCS surged the maximum amount as 4.89% to hit the best of Rs 3,254.8 once gap flat at Rs 3,100. Following a sharp spike within the share prices, India’s largest IT Company and Tata group’s money maker TCS added nearly Rs 29,029.91 crore to Rs 6,23,052.49 crore within the market capitalisation at the day’s high price.

Earlier this month, the IT dominant TCS reported a low growth in earnings, as net profit came in at Rs 6,531 crore compared to Rs 6,778 crore in the last fiscal quarter, beating street estimates. Notably, revenue in rupee terms rose 4% percent constantly to Rs 30,904 crore, from Rs 29,735 crore last fiscal. In the last quarter, the company had reported a 4.3% rise in revenue to Rs 30,541 crore.

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The Month That Was

Income Tax department asks Flipkart to reclassify discounts as capital expenditure Flipkart has lost a plea against the income-tax department over the reclassification of selling expenditure and discounts as capital expenditure, which involves substantial tax liabilities. It may impact the way startups are taxed within the country. The problem involves money spent by e-commerce firms on marketing through deep discounts. Flipkart, including Amazon and a few of the big e-commerce firms, are classifying this as marketing expenses and deducting it from revenue, resulting posting losses and so not being liable to tax.

The tax department, however, contends that this is often not a cost but a capital expenditure, which suggests it mustn’t be subtracted from revenue. The Bengaluru IT office had asked Amazon and Flipkart to sort marketing expenditure as capital expenditure.

If that happens, companies like Flipkart and Amazon that incur substantial marketing costs may well be deemed as being profitable and so liable to pay 30% tax.

The income tax department is taking the stand that discounts and huge marketing costs are a part of the brand-building exercise.

Satyam case: SEBI bans PwC entities from auditing listed firms for two years Finding PwC guilty in the Satyam scam, India’s capital markets regulator barred its network entities from issuing audit certificates to any listed company in India for two years.

The Securities and Exchange Board of India (SEBI) further ordered a penalty of over Rs 13 crore against the auditing firm. This is one of the most stringent orders passed by any regulator against a Big Four auditor.

In a 108-page order, SEBI has imposed a two-year ban on entities/corporations practising as chartered accountants in India under the brand and banner of PwC from directly or indirectly issuing any certificate of an

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audit of listed firms, compliance of obligations of listed firms and intermediaries registered with the regulator.

Sebi noted that the order wouldn’t impact audit assignments concerning the financial year 2017-18 undertaken by the corporations forming a part of the PwC network. Besides, Price Waterhouse Bangalore and its two partners—S. Gopalakrishnan and Srinivas Talluri—have been directed to pay the wrongful gains of “Rs 13,09,01,664 with interest calculated at the rate of 12% per annum from Jan 7, 2009, until the date of payment”.

After the consent plea was rejected, PwC had approached the Supreme Court claiming SEBI’s jurisdiction over auditors.

Indian Economy to grow at the rate of 7.4% in FY10 - IMF Just before the Prime Minister Narendra Modi’s speech at World Economic Forum in Davos, International Monetary Fund has said that the Indian Economic growth will pick up in FY19 and the country will regain the fastest growing economy tag. The IMF also said that 2017 was the best year for the world economy in terms of growth.

India is forecasted to grow at 7.4% in FY19 against 6.7% this year, and this will rise to 7.8% in FY20. The global economy is expected to grow at 3.9% this year compared to 3.7% forecast earlier in October. In the current year, China is expected to beat India by growing at the rate of 6.8%, but in FY19 the Chinese growth rate is expected to be around 6.6%.

The IMF said rich asset valuations and faster-than-expected increases in advanced economy core inflation and interest rates, inward-looking policies, geopolitical tensions, and political uncertainty in some countries are key risks to global growth.

IMF director of research Maurice Obstfeld sounded a note of caution. “As the year 2018 begins, the world economy is gathering speed,” he said. “This is good news. But political leaders and policymakers must stay mindful that the present.”

NIF

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Niveshak Jan’18

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Niveshak Jan’18

Article Of the Month Are Indian Markets Efficient?

Shreyans Jain IIM Lucknow

In the past year, the Indian market have given stellar returns to the investors. But is it possible to beat the market and get better return? Or most people just end up following the market trend? The answers to these questions are analyzed in the following article using various research and statistical methodologies.

“I’d be a bum on the street with a tin cup if the markets were always efficient.”

-Warren Buffet, Berkshire Hathaway

Introduction There is an old joke, widely told among economists, about an economist strolling down the street with a companion . They come upon a $100 bill lying on the ground, and as the companion reaches down to pick it up, the economist says, ‘Don’t bother – if it were a genuine $100 bill, someone would have already picked it up’. This example is a fairly accurate rendition of the efficient markets hypothesis (EMH).

porate and reflect all relevant information . He termed this investment theory as efficient market hypothesis (EMH) according to which, stocks always traded at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices . Outperform the overall market became impossible even through expert stock selection or market timing, and the only way an investor could possibly obtain higher returns was by undertaking riskier investments.

In 1970, economist Eugene Fama argued that it was In practice, however, a large number of technical anaimpossible to “beat the market” because stock market lysts base their expectations of stock performance on efficiency caused existing share prices to always incor- historical prices, earnings, and other backward-look-

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Article of the Month ing indicators . They essentially believe that stocks are frequently valued incorrectly in the market, and that sufficient research and wise decision-making can provide investors with an edge over competition. On the other hand, the proponents of EMH often cite randomness of the market as the rationale for building low cost, passive portfolios .

The Random Walk Theory The random walk theory suggests that stock price changes are independent of each other, and thus the past movement or trend of a stock price or market cannot be used to predict its future movement. In other words, stocks follow a random and unpredictable path . It is a natural corollary of the weak-form efficiency theory which stipulates that fundamental analysis can be used to identify undervalued and overvalued stocks by researching financial statements to earn profits.

therefore, the lagged level of the series (previous day return on index) will provide no relevant information in predicting the change in the present day return on market index.

From Exhibit 2, it can be observed that the t-statistic for ADF test is greater than the critical value at 1%, 5% and 10% level of significance and the null hypothesis cannot be rejected for both the market indices – BSE Sensex as well as NSE Nifty for the 16 year period.

Similarly, the Philips Perron test was applied to test the null hypothesis that the time series is integrated of order 1. In other words, it makes the lag values endogenous to test if the present return in market has a higher autocorrelation with the past returns. The test is robust with respect to unspecified autocorrelation and heteroscedasticity in the disturbance process of the test equation .

Again, it is observed that the adjusted t-statistic is In this paper, I have to study the Random Walk phe- greater than the critical value at 1%, 5% and 10% level nomenon by considering the daily market return for of significance so the null hypothesis cannot be rejectBSE Sensex and NSE Nifty for a period of 16 years ed. This confirms that the Indian stock market (BSE from January 01, 2000 to December 31, 2015. I have Sensex and NSE Nifty) does not exhibit random walk conducted the following tests to study the weak-form pattern and is, therefore, not efficient in weak form. A natural implication of this anomaly for the investors efficiency of the Indian stock market: is that they can outperform the market by better pre1. Unit Root Test – Augmented Dickey Fuller and dicting the stock price movements to earn abnormal profits.

Philips Peron Test 2. Variance Ratio Test 3. 4. L-J Box Statistics

Exhibit 1(a): Daily Returns on BSE Sensexf from Jan 01, 2000 to Dec 31, 2015

I.

Unit Root Test

The Augmented Dickey Fuller test was conducted on the BSE Sensex data to null hypothesis that a unit root is present in a time series sample. The presence of a unit root signifies that the data is non-stationary and,

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II.

Variance Ratio Test

The Variance Ratio test is an empirical model of the Martingale hypothesis which states that the best forecast of the next day’s price is the present day price. The non-overlapping price changes are uncorrelated at all

Niveshak Jan’18 lags and leads and hence follow a random walk path.

In other words, the information contained in past stock’s prices is completely reflected in its current price and it is not possible to make gains based on this information alone. The null hypothesis of random walk for the variance ratio test is rejected if it is rejected for some k value and the variance ratio should be close to 1. If variance ratio is less than one than the series is

said to be mean reverting and if variance ratio is greater than one than the series is said to be persistent From Exhibit 3, it can be observed that the variance ratio for different periods is close to 1. So the null hypothesis can be rejected and the market does not follow a random walk pattern. As is evident from the graphs above, the data series for both BSE Sensex as well as NSE Nifty is not mean reverting and diverges

Exhibit 1(b): Daily Returns on NSE Nifty from Jan 01, 2000 to Dec 31, 2015

Exhibit 2(a): Results of the Unit Root Test (BSE Sensex)

Exhibit 2(b): Results of the Unit Root Test (NSE Nifty)

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Article of the Month

Exhibit 3(a): Results of Variance Ratio Test on BSE Sensex Data

Exhibit 4: Results of L-B Statistics Test for BSE Sensex and NSE Nifty

III.

Ljung Box (L-B) Statistics

The L-B Statistics tests the “overall” randomness of a time series based on a number of lags to establish that the correlations in the population from which the sample is taken are 0, so that any observed correlations in the data result from randomness of the sampling process . The null hypothesis assumes the data to be distributed independently.

Exhibit 4 shows the result of L-B Statistics test in which randomness has been ascertained by computing autocorrelations for market returns at varying time lags.

The data series follows a random walk path if the autocorrelations are near zero for any and all time-lag separations. It is not random if one or more of the autocorrelations are significantly non-zero. Since Q-statistic is significant for all time periods and the partial correlation is significantly non-zero at time lag off one period, the BSE Sensex and NSE Nifty data series does not follow a random walk pattern and thus, Indian markets are not weak form efficient.

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Conclusion From the above analysis, it is clear that the Indian stock market is not efficient in the weak form and does not follow a random walk pattern. The data series corresponding to the BSE Sensex and NSE Nifty in the Indian Stock Market are biased random time series.

Therefore, the probability of the presence of undervalued securities in the market is high and the investors can always “beat” the market to make excess returns by correctly identifying these securities.

Efficient market hypothesis has profound implications for corporate finance and investment management .

• Management cannot fool the market through creative accounting.

• Issues of debt and equity cannot be timed successfully by organisations • It is difficult for managers to speculate profitably in securities market.

Arbitrage and hedging strategies may involve too much risk to eliminate market inefficiencies and in turn encourage irrational behaviour among investors.

Niveshak Jan’18

Cover Story Populist Versus Reformist Budget In the famous words of Russian President Vladimir Putin “As a rule,[populism] is done for the sake of political expediency by those who do not care about the consequences, who do not think even one step ahead, who do not want to think & do not intend to honour their commitments”. Given the reformist tone set by the Prime Minister Modi & given the path of fiscal prudence paved by the FM Jaitley, it will be interesting to see if he can walk the talk or will cave in to the political pressures in the run up-to 2019 elections.

T

he heart of democracy are the people, their whims & fancies are the heart-beat of system.

To keep the heart hale & heart the ruling elite needs to frame policies keeping mind the pulse of the nation. Populism, which replaced the erst-while monarchy, has for many years designed the fiscal policy our nation, some-times at the cost of “good” fiscal sense.

Historically, the last budget of any previous government has been marked by a flurry of populist schemes to manufacture tangible results on ground. In past the FM’s have resorted to reforms like the farm loan

waivers, lowering down the tax rates & a generous distribution of nation’s wealth to please the masses. Such budgets do provide instant relief to the economy by increasing the consumption & raising the manufacturing sector output, they have not gone down well with economists who fall under the ambit of “reformists” .These people think that such a budget which looks forward to luring the bourgeoisie segments will have adverse effects on the economy and also leave it more debt stricken than it actually was. They expect the budget to be proactive rather than reactive to the problems

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Cover Story of the country.

appropriate to remove the distinction between ‘plan’ & ‘non-plan’ expenditure, provided the focus shifts to developmental expenditure & not just limited to improving capital expenditure. Also, the budget focussed more on capital formation & tighten revenue expenditure, a move that helped keep fiscal deficit under check in-spite of aggressive spending by the government. The investments made by previous budgets in space technologies have borne tangible results for the economy.

A budget which aims to be reformist should focus on the building of long term assets for the economy rather than spending on policies that fail to create long lasting structural changes. Spending on defence, healthcare, education & infrastructure is far more important than spending on moves for boosting consumptions & spoon-feeding the poor. The government needs to shift it’s focus from providing a substitute of money for the lower strata of the country and instead create opportunities for them to avail the benefits without cash.

Factors suggesting Reformist budget: The Niti Aayog Vice Chairman has expressed his opinion, claiming that the budget will not be a populist one, he is also being supported by Prime Minister Narendra Modi for the same.

Seeing the various reforms already introduced by Narendra Modi government like GST, increase in foreign investment in new sectors, the strengthening of IBC & high decibel efforts to curb tax evasion, it won’t be wrong to expect the reformist tone in FM’s address.

Factors suggesting Populist budget: But there are people who believe that the budget will be otherwise. The Global credit rating agency Moody’s have predicted that the reforms India has been presenting for a few years now, will be slowed down or abrupted for the period of 2018 seeing the future elections.

For instance, the decision to spend on waiving off the farmer’s loans or to focus on creating a better irrigation infrastructure can be categorised in populist and reformist budget accordingly. Employment generation through schemes like MNREGA is more important than religious tourism, creating alternative sources of income must take precedence over reforming the faulty PDS schemes.

Psephologists see a sharp decline in the support base of the ruling BJP among the agrarian community as the Trend of years – how well have they featured main cause of the resistance faced the NDA in Gujarat.

National Food Security Scheme, passed as NFSA in Expectations are ripe that the FM might unleash new 2013, was one of such policy which focused on provid- irrigation schemes, crop insurance schemes & MSP ing sufficient and adequate quantities of food items to deficiency alleviation schemes. The moves may help meet the domestic consumption. This act also showed the BJP government get back public confidence before a shift from being a welfare scheme to actually pro- the election in Karnataka, MP and Rajasthan. viding food to everyone who is rightfully worthy of Also, Prime Minister Narendra Modi has indicated to it. But as the results to the act have suggested, it was achieve 7.5-8% growth in annual economic growth bemore oriented to suffice political motives. The huge fore the next elections, which is possible only by loweramount spent by the government as subsidy made as ing down inflation and increasing spending on goods much as 28% of our total fiscal receipts, leading to in- in the economy. creased burden on the government. Also, not only this, the policy was said to be irresponsibly planned which Predictions of deduction in taxes to “please” the midskewed the production in the favour of pulses, seeing dle class, increase in MSP to woo the farmers & the a definite purchase of their produce, and also lead to advent of 7th Pay commission will create a deadly trio further inflation in the food market. The 2017 budget of high disposable income reforms that can trigger a saw a number of moves on the reforms agenda. It was rise in the existing level of inflation. A reforms agen-

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Niveshak Jan’18 da that can boos the manufacturing sector is a crucial for employment generation. In this arena we expect the corporate tax to come down to 25% as promised

by FM in 2015 budget, increase the MAT credit entitlement years & changes in the DDT(Dividend Distribution Tax) framework. The corpus earmarked for the MUDRA scheme & NABARD bank must be increased keeping in mind the resolution of farm distress & astounding success of both the bodies. The government should focus more on the successful implementation of the Regional Connectivity Scheme (RCS), building on dedicated freight corridors & development of inland water-ways. Infrastructure spending must be increased for speedier implementation of the BharatMala project, that aims to link the entire nation by a

series of new highways. The build-toll-operate model of NHAI can be used for doing so. The FM’s proposal of creating the “institutions of Eminence” need to see the light of day. Given, the excessive digitisation push of the government execution of the BharatNet (optic fibre connecting initiative) should be given a place in the upcoming budget.

The FM needs to take a bird’s eye view of the economy & provide booster shots where required, all the while realising the need for structural reforms. Considering the current political scenario & the turbulence creating by the economic reforms we expect the budget to championing the cause of economic reforms with a splash of populism.

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Niveshak Jan’18

FinGyan: The future of the Indian telecom Industry

By Shivam Mehra IMI, New Delhi

The one industry that is forming the backbone of the digital drive and technological innovations in the country is the Telecom Industry. This industry has been on a roller-coaster ride ever since “Jio� has entered the market and has turned many companies from being cash cows to question marks on BCG Matrix.

So what happens when a person finds a total untapped territory available for commercial exploitation? That person usually gets the first mover advantage, and tries to maintain the monopoly over the concerned field.

However when people get to know of such an attractive opportunity, they start venturing and exploiting the same to their advantage. This continuous entry leads to poaching of profits, which happens till a certain stage, when all the players realize that poaching is nothing, but to their disadvantage and they start cartelizing the segments and creating huge barriers for new entrants. The scene remains quite for a while,

before their emerges on the scene a player who has the capability of damaging all the borders set and dismantling all the barriers of entry. Such is the case of the Indian Telecom Industry, a pearl in the eye of the Indian Investor, characterized by the presence of huge players like Airtel, Vodafone, BSNL etc. and the entry of a new hero on the horizon, capable of changing every possible rules of the game.

The Indian telecom industry is one which has been very close to the hearts of the Indians. It has progressed with the Indian citizens, growing from a second world

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FinGyan country, to now challenging every other country in the charts, this has been a spectacular rise in every essence of the phrase. On a similar scale the India telecom industry has progressed from the likes of the 2g handsets, capable of only making a call, to reaching every nook and corner of the country with high speed wireless connectivity, with a breathtaking speed of more than 1mbps in most of the areas.

• Bharti Airtel’s, one of the biggest wireless operator in the nation, reported figures in red for 6 consecutive quarters, with the Dec, 2017 quarter seeing 11% fall in profit QoQ. • Tata Docomo, one of the famous telecom operators, was sold off at peanut prices. This, no doubt was a strategic move, but the situation it represents is rather pathetic • Vodafone and Idea, one time foes, had to join What has brought such a drastic change is such a short hands to combat the unprecedented pumping of cash span of 20 years? For the Indian economy there are by Jio. This marks the departure of Vodafone from the various reasons, but for the Indian Telecom industry, nation, and surely shows how the competition is drythere is but only one family responsible, i.e. the Am- ing. bani Family, first bringing the handsets in the hands of the common man via reliance telecommunications, and then again with the introduction of reliance Jio, which brought data to the door step of every Indian national.

The reason behind all these were quite evident. Reliance industries, in order to mark its presence started pumping unprecedented cash in its venture, from the very beginning of 2011 when it bought infotel broadband for a staggering sum of 4800 crore. As a result, The Indian telecom subscriber base has seen a stagger- Reliance currently has currently ballooning debt reing growth in the past 10 years. The subscriber base payment and interest payment in its financial statehas grown 4 times from a meagre base of 206 million ments. This is certainly a cause of concern for the back in 2007. The tele-density defined by the number shareholders of reliance industries and other telecoms, of smartphones every 100 individuals, has seen a mind who have burgeoning pressure on their financial stateboggling growth from one in every 10 individual to 9 ments. With upcoming spectrum auctions, the picture in every 10 individual. is, but going to get gloomier as the days pass.

However the present stage of the Indian telecom market is dominated by neck deep competition, where every player resembles a pawn of game theory, whose move is just more fiercely duplicated by the competitors. What this has done is not only reduced the telecom companies from a cash cow to the likes of question mark on a BCG matrix, whose future is, but very unstable. Few incidents to illustrate how grave the situation the situation has turned in the telecommunication sector can be understood from the following points-

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However, there are certain other facts which reliance Jio must be congratulated for. The ARPU (Average revenue Per User) has risen from below 100 per month to more than RS150. This is but the fallout of the marketing tactic displayed by Reliance, where it first gave telecom services at a throw away prices to generate the customer base and completely changed the consumer spending habits, where consumers spent differently for different services. However once the customer base was set, it started charging prices along with incentivizing people to join the prime membership, for incentivized

Niveshak Jan’18 services. To generate a staggering 72 million consumers as prime members, in just 1 month of commercial rollout, is no doubt a matter of appreciation, especially in a country like India.

sector. However the imploding balance sheet will not be able to handle the burden of excessive mortgages that arise from the sale of spectrum. The outcome can be drastic, like default by telecom companies in the loan repayment, thus increasing NPA pressure, or lowNo doubt despite the freebies tossed by telecom giants, er prices in the sale of spectrum which would no doubt we are caught in a sea of turbulence. So with such tur- be a great problem for the economy overall. bulent waters, where do we see the sector heading for?

And is there something that can stop the turbulence, The next step, which is awaiting government’s approval so that the sector doesn’t end up having a crash landing for a long time, is the dynamics of the FDI structure in sort of? Well there are many such ways that can come the telecom sector. 100% FDI is currently allowed in to the rescue of the sector. Let’s delve into each points the telecom sector, but only 49% is through automatic one by one. route. The time is ripe to curtail the barriers, and open the doors for 100% automatic route FDI inclusion. Not The government should try and maintain status quo in only will this be a great boost to the sector which been the environment, so that no more disruption is evident dragged down the previous few quarters by certain exin the times to come. The present case of IUC charges, ternalities. could have been avoided at all cost, despite the fact that it is to the advantage of the final consumer. What the There have been instances in this sector where compegovernment could have done is to let the water settle tition commission just became a spectator in the entire from the entry of a giant like Jio before taking such an foul play going on, because of the entire tweaking and aggressive step of bringing down the IUC down from leakages in the law. It’s high time that the leakages be 14 paise to 6 paise per minute. Once the situation had sealed, so that the incumbents don’t face a hard time settled, there could have been a gradual decline in the in the coming time. The struggle becomes really tough cost than a sudden decline as we saw now. The effect when a new player enters with a whole set of ammunicould be seen from the following facts deciphered from tion to blast off the enemy. However, a fair playing field the results of Airtel declared on 18th January. The no must be maintained for all incumbents, for the overall of customers has seen a spectacular rise of 9.1% YoY betterment of the economy. from the same period in the previous year, plus voice usage has seen a staggering rise of 37.2% YoY from the No doubt, the overall mission of achieving connectivsame period. The most spectacular was the data usage ity to every nook and corner of the nation, is a very consumption, which saw a rise of 450.1% YoY. Howev- tangible dream now. Plus we are on the roads of beer Average Revenue per user saw a drastic fall of 28.6% coming the world’s largest telecommunication market despite the good numbers, primarily because of the in near future. However, the overall wellbeing of the entry of Jio, thus forcing Airtel to lower its costs, and sector is a matter of concern that must be taken into worsening the same would be the impact of a drastic consideration for judging the performance of this secfall of IUC. This has been a cause of concern for all tor. The current turbulence in the sector has no doubt similar enterprises, like Idea. cast a shadow over the entire health of the sector. Turbulence, is but the rule of the nature. However, when The next way could be to delay the 5G spectrum auction turbulence casts a shadow over the longevity of the sales. No doubt, the technology that will be brought by sector, it’s time to take the bitter pill for a better future.

5G introduction would be a great boost to the telecom

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X

ju ta pose How OIL made the Countries ‘RICH’ Mexico

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V/S

hen the oil prices hit record high of almost 150$ per barrel in July 2008, the market was banking on a move towards 200$ per barrel. At the same time Mexican government began to send instructions to the likes of Barclays, Goldman Sachs, Morgan Stanley and Deutsche Bank to buy ‘put’ options, contracts giving them the right to sell oil at a predetermined future price, at levels ranging from $66.50 to $87 a barrel. The banks receiving the orders had never seen an oil deal this big.

And in December 2009, when four banks wired the money to State owned bank account, Mexico had gained a whopping $5,084,873,500. The country made $6.4 billion in 2015 and $2.7 in 2016. This is how the “Hacienda hedge” works.

China

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hen Crude oil prices began to fall in 2014, for the first time in history China formally announced number of its Strategic Petroleum Reserve(SPR). Which was said to be around 91 million barrels. Since then oil price has averaged less than $50 per barrel from 2015 to 2017 and made low of less than $30 in January 2016. Market made reversal from that price owing largely to Chinese demand.

Although China’s SPR has always been shrouded in relative secrecy, it is now estimated to be around 500600 million barrels.

With so much of oil in hand and price flirting with the $70 mark, China definitely chose best time to fill its SPR.

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Niveshak Jan’18

NewsDesk Reform * Perform * Transform Oratory, they say is one of the toughest art to master but when one does so; he can make even a dead man walk. The stage was set in one the most picturesque places on the planet in a small hamlet of Davos, one of greatest contemporary exponent of the art was on display. The show-man had just won a grueling electoral battle in his home state merely using his skills & that was after a marathon over 250 address. But as they say, the big stage has it’s own energy: one not many can handle; one which shakes even the best. This man had set the entire world on fire a few years back with his address in the UNGA & had now set the eye-balls rolling for his inaugural address at the World Economic Forum. The platform was naturally big, the presenter even bigger.

24th January it was, when Prime Minister Modi took the center stage at WEF plenary in Davos. It was the first time his nation’s leader has attended Davos since the late 1990s. To the surprise of the audience the ad-

dress was delivered in Hindi. The big stage naturally got to him. Mr. PM began on a somber note but eventually shrugged away all his raggedness; once his speech picked up pace it was impact written all over it.

The general theme of his 50-minute address rested on inviting the world to be a partner in India’s growth story. He made a humble effort to project India as business friendly nation. The reference to India’s rank in ease of doing business or the passing remark of replacing bureaucracy by the red carpet for the capitalist were all an effort to attract global business houses. The chain of thoughts initiated by PM Modi then moved on to a veiled attack on the protectionist policies of the world. Reference to the failure of rule based global organizations was a reflection & the desire to create a new global order catapulted by the developing economies. This probably was the first time an Indian leader stood up on a global platform to criticize the existing world order & try to shift the onus onto India. Never

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Newsdesk did he in his over 50-minute address leave the aspect of globalization aside. But his repeated reflection to the cultural history of India was definitely a turn-off for many. It would have been great if the PM had focused slightly more on the policy front. In the entire address there was a mention of his policy like a passing shower but never did he discuss about the structural changes & the impact those policies had. A less of chest thumping especially about a reform like GST, whose outcome is yet not clear would have bettered his address. The PM did make statistical error while discussing the demographics of the nation, something not expected at a bullring like the WEF. The PM did make a very strong cause for strategic alliances with India. His reference to the cordial relations with the gulf & the pacific nation would have infused confidence in the smaller nations aspiring to forge alliance with India. The entire remark about how India is nation that believes in co-operative growth, never exploiting the resources of the host nation & working in the benefit of its partner was a tongue-in-cheek stack against the colonialist mindset of the Western world & the expansionist policies of China. PM’s reference on how the world should tackle the climate change issue & the success of his global summit on solar energy was an attempt to show-case the world that India was ready to take leadership on strategic issues of global importance. PM Modi also touched upon the issue of

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terrorism. The message was clear that nations shielding terrorists in the name of “good� terrorism must be isolated & put to gallows. He also raised a concern on the radicalization of modern day educated youth & his shift towards terrorism. He stressed on the need for the global powers to abolish poverty & try to change the status-quo leading to unequal distribution of wealth.

PM Modi finally concluded by bringing in the subject of yoga & the piousness of Indian culture. He tried to hard-sell the idea of wellness tourism but again that could have been done without digging deep in the Indian cultural history. Yoga surprisingly did not find much mention in his speech. He concluded his speech by invoking the famous prayer of Rabindranath Tagore & assuring the world of a peaceful society back in India that can open the doors of prosperity for many & provide the global leaders to positively impact millions of lives through their works.

All in all, the speech was impressive in parts. For the rest it was a mere rhetoric revolving around the rich Indian history & would not have made much sense to the business community. Given the kind of vociferous & verbose writer the PM is, he could have definitely done better in terms of content as far as oratory is concerned he was spot-on. I would not rate it as one of his best but surely it had all the elements of becoming a classic.

Niveshak Jan’18

Classroom : Cross listing

C

ross listing of shares is when a firm lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange.

Generally such a company’s primary listing is on a stock exchange in its country of incorporation, and its secondary listing(s) is/are on an exchange in another country. Cross-listing is especially common for companies that started out in a small market but grew into a larger market.

How can a company get approval for Cross listing?

At the point when a cryptocurrency start-up firm needs to fund-raise through an Initial Coin Offering (ICO), it often, makes an arrangement on a whitepaper which states what the task is about, what need(s) the project will satisfy upon completion, how much cash is expected to undertake the venture, the amount of the virtual tokens the pioneers of the undertaking will keep for themselves, what sort of cash is acknowledged, and to what extent the ICO crusade will keep running for.

Why do companies go for Cross-listing?

Cross-listing accomplishes two things for an issuer.

First, it tends to increase the liquidity of the security because there are more places to buy and sell, there are more participants in the market and there is sometimes more time to trade the stock. Second, it often helps the issuer raise more capital because it makes more investors available from other markets and gives the company more exposure in general.

How does the price discovery take place in the foreign exchange?

Prices are subject to local market conditions, as well as FX fluctuations and are not kept in perfect parity between markets. For example the Stock will be traded in dollar when in US, Rupee when traded in India and GBP when traded in UK.

What are advantages and disadvantage of cross listing?

The primary advantage for why firms seek a cross-listing is that they expect to benefit from a lower cost of capital that arises because their shares become more

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Classroom accessible to global investors whose access would otherwise be restricted because of international investment barriers. Whereas disadvantages of crosslisting are increased reporting and disclosure requirements; additional scrutiny by analysts in advanced market

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economies, and additional listing fees.

Companies like Honda, Siemens, Royal Dutch Shell as well as Indian Companies like Infosys, Dr. Reddys, HDFC Bank are listed on NYSE.

ANNOUNCEMENTS ALL ARE INVITED Team Niveshak invites articles from B-Schools all across India. We are looking for original articles related to finance & economics. Students can also contribute puzzles and jokes related to finance & economics. References should be cited wherever necessary. The best article will be featured as the “Article of the Month” and would be awarded cash prize of Rs.1500/- along with a certificate.

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