FINOMETRICS DEPARTMENT OF

MANAGEMENT STUDIES

VOL: (5) 29 February 2015

INDEX

Civil Nuclear Deal Not Dead Anymore 1

Eradication of Financial Untouchability 3

Playing the Energy Decline in Emerging Markets 5

Amazon V/S. Flipkart: Rivalry at its Best 7

Divergent Thinking of MSMEs 9

Emerging Trends in Derivatives 11

Green Accounting 13

Book Review: The Financier 15

India US relations have never been better. President Obama’s presence during the republic day celebration was quite a

spectacle but his visit to India was also a significant push in the right direction. Although details regarding how it was

achieved is still unclear but the civil nuclear deal is a clear sign of momentum in what was earlier a stagnant situation.

The original inception of the civil nuclear deal was done in 2008 but the process was held back by US due to concerns over

India’s strict laws for nuclear accidents. Fear was that India would not be able to handle a nuclear accident effectively. The

Modi government has definitely been able to change this perspective. India will now set up a 750 Crore insurance pool for

the purpose of nuclear accidents and other liabilities. This insurance fund will be modulated by General insurance Co. and 4

other companies. The other 750 Crore from a total of 1500 Crore will be provided by the government of India to offset any

liability arising from the same concern. This breakthrough is a sign for India Inc. and foreign investors that Prime Minister

Narendra Modi and his new government are on the right path in the matter of reforms. Several companies have already

taken notice and are making plans to capitalize on the deal.

L&T has entered into several agreements with companies like Atomic Energy of Canada Ltd (AECL), Westinghouse. The idea

is to start construction of nuclear power plants that is going to help satisfy India’s growing power demand. It is also expected

that several other companies will benefit from the deal. Such as BHEL, who had manufactured and supplied certain nuclear

reactor components to Nuclear Power Cooperation of India (NPCIL). If nuclear plants are going to be set up by companies in

India then they will look for indigenous support for the same. NTPC also has initiated a project in 2012 by entering into a joint

1

Civil Nuclear Deal Not Dead Anymore

venture with (NPCIL) for setting up a nuclear power plant but this was put on a hold due to uncertainty in the civil nuclear

environment. This joint venture may take flight now.

At the moment at least things look optimistic but it’s still premature to conclude anything. Looking at India’s growing energy

requirement nuclear energy may become the next big sector in the Indian economy. Several companies may flock to take

advantage of this situation. How things unfold largely depends on how the deal is finalized and how the two governments of

India and US want to implement it.

RAMYA

I MBA (Financial Management)

2

About forty-fifty percent of India's 1.2 billion population is still unbanked, according to reports by KPMG. The new Modi

captained political scenario has also piloted the importance of financial inclusion to a great extent. Pradhan Mantri Jan

Dhan Yojana is our Prime Minister’s first blockbuster social upliftment scheme aimed at improving the lives of millions of India’s

poor by bringing them into the financial mainstream and freeing them from the clutches of usurious moneylenders. Coupled

with Rupay, it operates about 20,000 ATM’s, a life insurance policy (accidental & medical), overdraft facility, routed LPG

subsidy covering more than six lakh villages in the initial phase.

As on November 10, 7.24 crore accounts have been opened under PMJDY. It is interesting to note that Kerala and Goa have

become first states in the country with every household having at least one bank account in addition to Chandigarh,

Puducherry and Lakshadweep and three districts of Gujarat — Porbandar, Mehasana, Gandhi Nagar which have also

covered households under PMJDY with at least one bank account.

Measures adopted by the government to promote financial inclusion includes spreading awareness about the importance

of opening a bank account amongst the lower strata of the society, establishing integrated database so as to decide on

overdraft facility to be given to rural sector etc. India's 937 million mobile subscribers substantially outnumber those with bank

accounts. This is the business opportunity that telecom operators such as Bharti Airtel and Vodafone, several payment

facilitators such as Oxigen and One97, and large companies like Reliance Industries and Aditya Birla group and others, are

looking to tap. RBI is hoping payment banks will boost financial inclusion and provide payment and remittance services to a

migrant workforce, low-income households and others through globally, technology-led platforms on the mobile.

3

Eradication of Financial Untouchability

Domestic remittances market is to grow at 11% to 13% CAGR in the next few years. Transactions done through mobile wallets

have multiplied by three times over the last years and the reason is that it is cost effective and more easily accessible.

Financial inclusion is most likely to be achieved when banks find it to be a scalable and viable business. Payment banks

cannot earn any revenue from the interest spread between loans and deposits as they cannot offer loans. Volumes will be

the key to their survival with revenues gained as fees. One97 Communication, the firm that owns the Paytm mobile wallet

brand founded by Amit Lakhotia, is prepared to wait for about seven to ten years to make money. Pramod Saxena, set up

Oxigen services when he saw an opportunity in automating mobile recharges.

Money transfers become the largest chunk of the business. Oxigen has one of the largest networks of retail partnerships.

When a customer wants to send money to his family in the village, he goes to one of those retail outlets and the merchant

opens a mobile wallet for him and tops it up with the cash he deposits. The retailer then uses the customer's wallet credentials

to transfer the money to the bank account in the village where his family lives. Using the OTP (One time password), the money

is transferred to the bank account and once the transfer is completed, both the customer and the recipient receives a

confirmation on their mobiles. As a payment bank, players like Oxigen will be able to offer direct cash withdrawals and

interest on the money kept with them. For One97, which has about 22.5 million mobile wallets, their aim is to be major player

in the creation of a cashless economy by serving a large segment of consumers. The primary focus area for payments banks

is financial inclusion. And this could make the difference in bringing the financially excluded within the banking system. The

road to profitability may be achieved in the long run for payments banks, but if they can recreate the robust mobile

subscriber growth in banking, the wait will be worth it.

SACHIN PHILIP THEKKOLIL

I MBA (Financial Management)

4

Emerging market is a term to refer to a developing country by investors, in which investment would be expected to achieve

higher returns but is accompanied by greater risk. Energy decline will affect us all. The peak and subsequent decline in global

oil extraction will mean increasing prices for every commodity that is produced from oil or with the energy from oil.

Now, playing the energy decline is the focal point in every emerging market.

After a difficult year for emerging markets and commodities, many advisors probably want to run the other way. But that

could be a mistake: There are bargains to be made. The key, for investment advisors and portfolio managers, is to take a long

-term view and understand that not all emerging markets are the same, even though there’s a tendency to lump them all

together. Many emerging markets are also heavy commodity producers and consumers, so it helps to keep tabs on this

sector.

A panel of portfolio managers in a research state that 2015 might not be the easiest year for investing as a whole, whether in

fixed income or equities. The sharp drop in crude-oil prices and the possibility of more quantitative easing by the European

Central Bank are just some of the issues investors will deal with across markets. The sharp drop in energy prices will have

ramifications across emerging markets, whether it’s for producer or consuming nations. For managers looking to invest with an

eye toward energy producers, there’s only one way to proceed, they have to look at high-cost producers versus low-cost

producers forgetting about OPEC (Organization of Petroleum Exporting Countries) versus non-OPEC.

Most Middle Eastern countries like Saudi Arabia, the United Arab Emirates and Kuwait can extract oil at bargain prices and

have hefty cash reserves to weather the low prices. High-cost producers include countries like Venezuela, Nigeria and

5

Playing the Energy Decline in Emerging Markets

Angola, who are losing money with every barrel they pump. While yields may be attractive, to avoid sovereign debt issued by

the countries hurt by low oil, like Venezuela, as there’s too much risk. Investors - grade sovereign debt is one of the bright spots

for 2015 i.e. they don’t have to take a tremendous amount of risk for exposure. Debt issuances will be negative in the sense

that they will pay more out in interest than they issue in new debt. Oil prices could stay low for a while, but not forever. A

recover in energy prices would prefigure well for cheap producers of oil. It is suggested that when choosing an emerging

market fund, to avoid over concentration in one region or getting into a fund that’s too big. The thing with emerging markets

is, we got to be flexible.

KRITHIKA R.K.

I MBA (Financial Management)

6

Amazon and one of its biggest competitors in India, Flipkart recently got into a Twitter spat which actually turned out to be

very funny. Reddit India had tweeted a photo of an Amazon box in the headquarters of its rival firm, to which Flipkart replied

‘We recycled said packaging as our reception’s dustbin’. To this Amazon reminded Flipkart of its roots through the tweet,

‘There is a bit of Amazon in every e-commerce company’, which Flipkart had to acknowledge. This is just a small glimpse of

how the two Internet retailers have spelled out rivalry in almost every strategic move in their business.

This is seen right from the inception of Flipkart whose founders, Sachin Bansal and Binny Bansal worked at Amazon before

starting their own firm in Bangalore in 2007 with a very similar business model. Then it went on to become India’s largest on line

marketplace in terms of sales. Amazon did not enter India until 2012 after it had acquired Junglee.com, the price comparison

website and then opened its first India website in June 2014. Flipkart raised $ 1 billion in a funding round the very next month.

Next day, Amazon announced that it would put in $ 2 billion in its India operations. Amazon has reacted to every promotion

made by Flipkart, the recent one being “Big Bullion Day Sale”, during which Amazon tried to steal Flipkart’s thunder by buying

the domain name bugbullionday.com, to divert consumers to their homepage while searching for Flipkart’s sale. Amazon

even bought advertisements for the keyword “Flipkart” so people would see Amazon products when they search for Flipkart’s

deals. These instances show that Amazon has been using defensive strategies to overtake Flipkart.

Revenues of e-commerce companies in India are expected to increase from $ 1.5 to $ 2 trillion in next ten years. India boasts

of the world’s third largest population of Internet users after China and US. With shoppers in the country going online to buy

7

Amazon V/S. Flipkart: Rivalry at its Best

everything from televisions and smartphones to groceries, Internet retailer Amazon and its fast-growing local rivals are driving

a boom in commercial property leasing in India as their storage needs rise. Flipkart leased about 3.25 million square feet of

office space in Bengaluru from Embassy Group in October 2014 in one of the biggest ever commercial property deals, and

also Amazon is on the lookout for a million square feet of office space in Bangalore. Amazon is serious about capturing Indian

market share.

Amazon has reported earnings per share of 45 cents, beating expectations of 18 cents, and on revenues of $29.33 billion, up

15% but missing expectations of $29.68 billion. The company turned a profit of $214 million, a slight decline from the same

quarter a year ago but a stark reversal from last quarter. The company’s shares were up more than 10% in after-hours trading.

Amazon expects net revenue for its fiscal first quarter 2015 to be between $20.9 billion and $22.9 billion. As we can see

Amazon’s international growth, despite being its main focus, has not been able to meet expectations. Flipkart, on the other

hand has exceeded expectations by setting a record in India’s startup funding history last year when it raised $ 1.9 billion in

three rounds of fund raising. It is expecting a valuation of $ 15 billion in the latest funding round to be anchored by US-based

Tiger Global Management which is Flipkart’s biggest investor. The latest fund-raising exercise, when complete, will catapult

Flipkart into the ranks of India's most pricey companies.

SHIVANGI BINDAL

I MBA (Financial Management)

8

Micro Small and Medium Enterprises (MSME’s) have an extensive potential in giving job opportunities to the increasing

number of youth in the economy. MSMEs contributes almost 8% of national GDP, employing more than 8 crore individuals in

about 4 crore enterprises and representing 45% of the produced yield and 40% of every penny of exports from India. The

Prime Minister is making contribution for “Make in India” and urging outside manufacturers to set up units in India. This is an

empowering pattern and would positively boost work, development and improvement of MSMEs in India. Thus, the focus of

the legislature on MSMEs at this crossroad of financial slump is justified because these units have potential for giving

development and livelihood.

In perspective of the significance of the sector, since 1948, successive governments have been trying intense efforts to

energize MSMEs. The workplace of advancement commissioner for MSMEs was set up in 1954 and a devoted Ministry for

MSMEs was established in 1999. The Small Industries Development Bank of India (SIDBI) was established in 1990 to serve as a

zenith body for advancement, financing and improvement of the MSMEs. As of late, government had declared various

measures in its first plan reported in July 2014 and a Committee was also proposed to inspect the budgetary construction

modeling with a perspective to uproot bottlenecks and make new rules and structures for the sector.

The MSME ministry can improvise on its current scenario by encouraging 24*7 TV or even web TV exclusively for MSMEs which

would help them in staying up with the latest happenings in the sector. A separate legitimate counsel should be made

accessible in all district headquarters and MSME clusters. Law institutes in each state should think of a record that has

9

Divergent Thinking of MSMEs

Frequently Asked Questions (FAQs) alongwith basic lawful data specific to MSMEs in English and the local language. This

archive should be made accessible online in all MSME forums like SIDBI, Development Commissioner (MSME), Chambers of

Commerce, and so forth. The legislature needs to fabricate some schemes in consultation with the banks. Normally, the first 3

years are the discriminating years that decide on the sustainability of an MSME. The insurance prerequisite should be

uprooted for at any rate in the introductory years, when assessing the stipend of loans.

As on account of micro fund, bankers should be allowed to lend to Joint Liability Groups (JLG’s) or Self-Help-Group (SHG)

while augmenting loans for MSMEs, chiefly to micro institutions which require small amounts. JLG could be structured for the

street where a gathering of few entrepreneurs would be constituted and credit augmented. In the fast evolving world, it is

necessary to have divergent thinking. As MSMEs need resources for in-house R&D, it would be useful to have expansive

industrial houses or the administration helps them with research in growing new products. Illustratively, such research and

advancement would be useful in handicrafts, khadi, handlooms, and calfskin products. Like Agriculture Universities, there

may be a need to have a couple of MSME Universities, exclusively committed to research and improvement of MSME

products. The key research departments in such universities should incorporate R&D for products, work issues, fund, inputs and

advertising. MSME Chairs in universities could be established to support research on issues and distinctive aspects identified

with operations of MSMEs. These chairs can be supported by the legislature or Chambers of Commerce or institutions like

SIDBI.

SHRUTI JAIN

I MBA (Financial Management)

10

Derivatives markets play an integral part of capital markets in developed as well as in emerging market economies in the

current scenario. These markets in emerging economies has continued to grow since 2010, driven especially in OTC market

These instruments are assisting business growth by disseminating effective price signals which concern exchange rates,

indices and reference rates or other assets and hence it renders both cash and derivatives markets more efficient.

These instruments also offer protection from possible increased market movements and can also be used for managing and

offsetting exposures by hedging or shifting risks especially during periods of volatility hence reducing costs. By allowing such

transfers of unwanted risk, derivatives can be promoted for more efficient allocation of capital across the economy which

increases the productivity in the economy. Even though the commodity futures trading has been in existence since 1953 and

also certain OTC derivatives such as Interest Rate Swaps (IRSs) and Forward Rate Agreements (FRAs) were allowed by Reserve

Bank of India in its guidelines in 1999, and the trading in specified "securities" based derivatives on the stock exchanges were

permitted only after June 2000.

The growing trend in emerging market currencies has become more international compared to offshore markets and they

are the major contributor to FX turnover. These days the Chinese Renminbi is playing an active and important role in trading

within emerging Asia. Trading in emerging market currencies is related positively to the size of cross-border financial flows.

Research suggest that the average daily turnover in (emerging market economy) EME derivatives has continued to grow

since 2010, observed mainly by very strong growth in the over-the-counter (OTC). Secondly, the growth of FX derivatives

turnover has become the strongest within other financial institutions, which basically includes official sector financial

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Emerging Trends in Derivatives

institutions. Thirdly, offshore trading of emerging market economy currencies has surged, far outpacing the growth in total FX

turnover in EME currencies. Among the currencies having the highest turnover growth are the Chinese Renminbi, Mexican

Peso, Turkish Lira and Russian Rouble. Fourthly, the Chinese Renminbi is playing a very important role in Asia and hence the

significance of other EME currencies is more limited. Finally, the trading of EME currencies is positively related to the size of

cross-border financial flows.

MARY ANGEL K.K

I MBA (Financial Management)

12

GREEN ACCOUNTING, the approach gaining momentum across the world, values nature’s goods and service. This however is

a controversial practice as it attempts to factor environmental coats into greater financial operations. In India the Gross

Domestic Product factor ignores the environment and its needs, thus the need to incorporate green accounting for the

betterment of the country and to safe guard the environment is felt. The term was first found or brought into common usage

by a well-known economist Peter Wood.

Green accounting is related to environmental information and environmental eco-auditing systems and has been defined as

‘the identification, tracking, analysis, and reporting of the materials and cost information associated with the environmental

aspects of an organization. Green accounting is relatively new and developing field. The green accounting literature has

paid little attention to organizational influences on a company’s practices or a company’s practices influencing its

organization. Green Accounting leads to measures which consist of questioning the departments or functional services

grouped according to processes, and within the processes, the specific environmental activities. A selection technique is

used to reduce the excessive number of specific environmental activities, even a regrouping of these activities into

processes. Based on data collected from the enterprise workers, the information is then analyzed by the Green Accounting

team.

India recognized that protecting biodiversity and ecosystems is a national priority. As a sign of its commitment, India hosted

most important meeting relating to the United Nations Convention on Biological Diversity (CBD) —in Hyderabad, as the most

13

Green Accounting

comprehensive international agreement which aimed to help protect and sustain biodiversity and ecosystems worldwide of

which India is a signatory. As hosts to this important event, India has the chance to show the world that it can take the lead

and deliver on its commitments in preserving and protecting biodiversity and the ecosystem services it supports. India has

taken various steps to improvise on green accounting which in turn helps the country on the whole.

The green accounting is an emerging aspect of accounting science that will influence, in the near future. The implement

tation of basic elements of green accounting will portray the role of environment in the economy as well as render easier the

analysis of macroeconomic questions with the help of green accounting measures and thus, will lead the economy to a

feasible path.

DIVYASHREE V.

I MBA (Financial Management)

14

Theodre Dreiser’s ‘The Financier’ (1912) is the first book from the “Trilogy of Desire” about the life of a high-finance dark winner.

Dreiser as an author is very grubby and harsh in his writings that are deep rooted from his writing as a journalist. He does not

write about a particular occurrence but writes about the nature of mankind and civilization.

This book is based on the real life story of Charles Tyson Yerkes-the conquistador of metroland. The star of the book, Frank A.

Cowperwood, gleams in a momentous line of Western cultural antiheroes- covetous, scheming, captivating big characters

who hit defiance. The author goes right to the heart of American business and industry. This powerful novel explores the

enterprising financial world during the civil war. It is mettlesome and very fresh even after 103 years of its publication.

The first part of the book takes us all the way back to the nineteenth century, to post-civil-war Philadelphia. The protagonist,

from a middle-class wondered boy climbs the ladder to financial heights, masters the world of money and the game of

influencing people with his clever insights. A decisive change occurred in his life watching the drama in a merchant’s fish

tank that takes place over the course of several days, from a lobster hunting to finally killing and eating a squid. This incident

made an intense impression on Frank. He finally fathomed how life works-life feeds on life and predominantly men feed on

other men. This raw-boned realism and the ‘survival of the fittest’ approach would remain Frank’s earnest view of life.

Although being a financial wizard, his life is amplified in other ways, distinctly in his appreciation of visual aesthetics-of women

15

Book Review: The Financier

and art. His relationship with women brings him into disputes with older men and women who hold traditional virtue and

religious values. In fact, the contrast of the America of reverent believers and the America of the realistic non-believers like

Frank is a part of the author’s underlying social narration. The contentment with which Frank gamed the system, it seems that

he would be quite congenial working with today’s bankers. Due to a blunder and a market lurch after the Chicago fire, he is

exposed-both financially and lawfully. The book further describes his tribunals, judgments, his abandoning of his children, his

assault into adultery (where he betrays not only his wife but a business associate) and how he resumes himself into the world of

finance. Toward the end of the novel, he inspires, “I am as rich as I was, and only a little older. They caught me once but they

will not catch me again.”

‘The financier’ rings true even today as the flexibility of a man with cultivated force and temperament in the face of great

market change is a pattern that will per se be tested frequently through the years just as the markets rise and fall.

KAVITHA M.

I MBA (Financial Management)

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EDITORIAL TEAM

CHIEF EDITOR

Dr JAIN MATHEW

HEAD OF DEPARTMENT

MANAGEMENT STUDIES

ACADEMIC CO-ORDINATOR

PROF SURESHA B

FACULTY CO-ORDINATOR

Dr SUNITA PANICKER

EDITORS ANKITA BHATTACHARYA

ANUPAMA SAPRU

ERICA NIKHITA D’SOUZA

NIVYA DEVRAJ

SAI KRISHNA

CREATIVE TEAM UMME SALMA

18

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finometrics@mfm.christuniversity.in

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