FinView: Mr.

Debasish Mallick

AOM: Indian Fintech

Classroom: Smart & Alternative Beta

 Citius, Altius, Fortius
Dear Niveshaks,
This month can be marked
as an important step in the
Indian capital market
where the market indices
reached their all-time high
values. The bull run
continued on the share
market after a brief hiccup
that happened during the
budget announcement.
The fall in crude prices,
proceedings from
insolvency cases, higher
reported quarterly and
annual earnings are some
of the reasons that could
be accounted for this
move. We also saw two of
the largest companies in
India, TCS and RIL,
achieving the market
capitalisation of 1 trillion
USD. On the international
front, the rising trade war
between China and USA
was on the headlines
throughout the month.
In the recent times, there
has been surge in the
news around the word,
“FinTech”. The Article of
the Month by Pranav from
SIMSREE, Mumbai,
breaks the myth around
the around this buzzword
and explains the FinTech
landscape in the country.
Unlike most other
countries, India still relies
a lot on the agriculture sector. The
issues related to welfare of the farmers
keeps coming from time-to-time and
has also been a political issue for very
long now. Establishment of Minimum
Support Price (MSP) for various crops
has been a significant step in this
regard. But, there are various
problems with MSP that needs to be
THE
addressed which is discussed in the
Cover Story of the month.
Since the last few years, India has
TEAM
been in news for the high growth rate
of GDP and the projections around
this. The article in the FinGyan section,
written by Saransh Yadav, IIFT takes a
critique on the idea of “India as the Aayushi
fastest economy”.
The FinView section takes the views of
Abhishek Soni
Mr. Debasish Mallick, Deputy Arpit Murarka
Managing Director of Export-Import Bhushan Bavishkar
Bank of India on the issues around Mahesh M
trade and bilateral relationships of
India with rest of the world. His rich Priyanshu Gupta
experience in the international trade Samprit Shah
can be easily seen in the way he Shievav Dosi
analysis each topic.
To help the students who have joined
Sriya Gupta
the restless curriculum of MBA, the
Juxtapose section shows the
differences between CFA and FRM
course. To improve the knowledge of
our readers, the classroom section
touches upon the topics of “Smart All images, design and artwork are copyright of
Beta” and “Alternative Beta”. IIM Shillong Finance Club

Hope you have as much fun in reading

the magazine as we had in making it!
©
Finance Club
Stay Invested,
Indian Institute of Management, Shillong
Team Niveshak

Disclaimer: The views presented are the

opinion/work of the individual author and the
Finance Club of IIM Shillong bears no
responsibility whatsoever.
Contents
NIVESHAK: JULY 2018
 05 07 09
. . .
The Month
That Was
Niveshak
Investment Fund
Article of the Month:
Indian Fintech

13 18 23
. . .
Cover Story:
Perfecting MSP
FinGyaan: Is India Finview:
Growing Fast Enough? Mr. Debashish Mallick

26 27
. .
Juxtapose:
CFA vs FRM
Classroom:
Smart and Alternate Beta

THE
MONTH
THAT WAS
GST rate rationalisation
After improvement in the nation’s
direct tax collection in the past year
due to GST implementation, the
government and all the stakeholders
involved were looking for a rate
rationalisation in the next meeting for
GST.
As expected, in the meeting on 21st
July, which was 28th meeting this year
after the launch of GST, government
slashed the rate of some consumer
durables like refrigerators, washing
machine, paints, etc from 28 percent
to 18 percent. This government is
expected to lose Rs 7000 crore in the
coming year due to this change.
Also, to improve and simplify B2B and
B2C trading, new simplified tax filling
forms were introduced as well which
was being expected from the past 6
months.
SENSEX-NIFTY all time high
After a lot of highs and lows in the
past month, by the close of month the
SENSEX and NIFTY indexes rose to
all time high. With SENSEX breeching
37500 point and NIFTY going up to
11328, which is a record till date,
made the news. The reason for the
same have been varied with fall in
[5]
NIVESHAK | JULY 2018
crude prices one of the biggest
contributors to this improvement. The Q1
2018 results are expected during this
time, and there is a lot of optimism
attached to it which derive the indexes
price upward.
Also, world economy has performed
better on stock market this month, after
an initial hiccup where Facebook lost
20% of its market valuation in a single
day.
America- China trade war
The ever-growing deficit which US owes
to China now averages up to greater
than $300 billion for USA. The trade war
is basically the outcome of strategies
and practices used by China to protect
their firms from external and
international competition. There are
various restrictions which do not allow
American firms to improve exports in
China. By following these practices,
China have lead to claim itself an
exports economy. It is also said to be the
reason for greater hold of China in Asia
and neighbouring areas.
Recently, in May the Chinese
government laxed the import rates on
US imported goods, to compensate for
the otherwise overpowering Chinese
rules and regulations.
NIVESHAK | JULY 2018 THE MONTH THAT WAS

BRICS summit majority in the parliament. If the

The 10th BIRCS summit took place
towards the end of this month at
Johannesburg. This was a major
summit from the point of view of the
time during which it was carried out. At
the onset of America – China war, a
moment where American President
was looking out for Russian Prime
Minister’s support, the
summit of growing economies in the
world is very important to decide the
course of action in the world for the
next few months.
motion would have been passed, the
ruling government would have had
to resign.
This is the first no-confidence motion
faced by the current prime minister
in his 4 years. Last no-confidence
motion that was put against the BJP
government was against Atal Bihari
Vajpayee in 2003. Since then, this is
the first no-confidence motion
against BJP in 15 years.
The political scenario in India is
going to get more stressed due to
upcoming elections of 2019.

Indian PM Narendra Modi also TCS and RIL join 1-trillion club
attended the summit, where he backed TCS and RIL, both the companies
the multilateralism, international trade with the market capitalisation of Rs
and a rule-based world. The summit 7.51 lakh and Rs 7.43 lakh crore
also saw the extension of support to respectively, have joined the 1 trillion
Joint Comprehensive Plan of Action club from India.
(JCPOA) to deal with Iran nuclear The last to join the list was RIL, the
issue. US, as a country have always Mukesh Ambani led conglomerate
been against this support. surpassed the IT giant TCS to
become most valuable company.
No confidence motion defeated The market price of shares has
A no confidence motion was moved up multiplied by more than 5.5 times
in the Lok Sabha against the ruling since the issue of the shares on the
party this month. The motion needed back of profitable and consistently
majority vote to pass the test. Although growing petrochemical, retail and Jip
the motion was defeated as the NDA business. RIL’s net profit increased
government was able to retain its by 28 percent in the financial year
2018.

[6]
 NIF PERFORMACE EVALUATION
As on July 30th, 2018

July Month's Performance Performance of Niveshak

of NIF Investment Fund since Inception
265
255
245
235
108 225
106 215
205
104
195
102 185
100 175
165
98 155
96 145
135
20-Jul-18
02-Jul-18
04-Jul-18
06-Jul-18
08-Jul-18
10-Jul-18
12-Jul-18
14-Jul-18
16-Jul-18
18-Jul-18

22-Jul-18
24-Jul-18
26-Jul-18
28-Jul-18
30-Jul-18

125
115
105
95
Scaled Sensex Scaled Portfolio
Sensex Scaled values Portfolio Scaled Values
Value Scaled to 100

Total Investment Value : 10,00,000 Risk Measures:

Current Portfolio Value : Standard Deviation NIF: 33.27
24,49,960 Change in Portfolio Standard Deviation Sensex: 16.10
Value : 141.22% Sharpe Ratio : 3.42 (Sensex : 4.29)
Change in Sensex : 77.1% Cash Remaining: 96,190

Comments on Equity market and NIF’s Performance:

Sensex and NIFTY scaled record highs in the month of July. After three
consecutive months of net FII outflows, a trend reversal was observed as
FIIs were net buyers for the month of July. The rupee continued its glide on
downward spiral and touched record lows. RBI hiked repo rates for second
consecutive time. Given current global geopolitical headwinds fumed by
possibility of trade wars, the current volatility is here to stay.
For NIF, India bulls Housing, ITC & Westlife Developers were the biggest
gainers for the month of July earning returns of 20.15%, 14.76% & 11.76%
respectively. While the biggest losers for the month were PVR, PPAP
Automotive & Lupin.
Going forward the NIF team remains bullish on FMCG and Automotive
sectors. Rising discretionary incomes fueled by increased MSP and a strong
monsoon would continue to fuel rural demand.
 NIVESHAK INVESTMENT FUND
INDIVIDUAL STOCK WEIGHT NIF Sectoral Weights
11.20
AND MONTHLY PERFORMANCE 2.42 %
Monthly Performance %
Portfolio Weight 0.78
%
7.84 28.43
% %

29.75 0.80
% %
6.31
%
2.93
9.54
%
%

Auto
Infrastructure
Chemical
Media
Financial Services
FMCG
Pharma
Telecommunication

TOP GAINERS FOR THE MONTH

• Indiabulls Housing
(+20.15%)
• ITC (+14.76)
• Westlife Developers
(+11.76%)
TOP LOSERS FOR THE MONTH

• PVR (-17.08%)
• PPAP Automotive (-7.91%)
• Lupin (-7.62%)
ARTICLE OF THE MONTH
INDIAN
FINTECH
LANDSCAPE
-Pranav Umesh Kahalekar
SY MMS (Finance) Batch 2017-19
SIMSREE, Mumbai
Upon hearing about portmanteau
“FinTech” I often wonder who coined it
and how old it is! It can be perceived
to be a marriage of Finance with
Technology. FinTech is a buzzword
these days and is talked about
extensively across conferences or
seminars. However according to me
finance and technology should not be
seen as newlywed couple. Finance is
yoked with technology since decades.
Let it be invention of pantelegraph by
Giovanni Caselli in 1860 , fed wire
system for RTGS fund transfer in early
19th century , first ATM from Barclays
in 1960s or credit cards & internet
banking thereafter, “Fin” and “Tech”
have always been clasping hands.
Therefore the term FinTech revolution
seems parochial to me. It is FinTech
[9]
NIVESHAK | JULY 2018
evolution and not revolution that
substantiates today’s prominent and
much vaunted technological
advancements in finance sector.
Throwing light upon transformation of
Indian FinTech landscape over decades,
it can be said that electronic revolution,
Economic Liberalization and IT
revolution have led a strong foundation
to India’s recent promising performance
in this sector. It is needless to say that,
for FinTech ecosystem to thrive,
Government, Regulatory Bodies,
Investors, entrepreneurs, technology
vendors,
Financial Institutions, Universities, and
consumers should work in liaison and
play their roles responsibly.
To be a driver of FinTech growth on
global scale, India, unlike developed
economies needs to do groundwork in
terms of improving infrastructure,
financial inclusion, financial literacy and
Internet penetration. According to a
report by Deloitte [1] currently only
52.8% of India’s population have bank
accounts well below global average of
NIVESHAK | JULY 2018
60.7% and only 22% of people use
payment cards. According to report
from Kantar IMRB and IAMAI [2],
although number of mobile phone
users in India is around 1 Billion but
Internet users in India is around 500
Million, which is not even 50 % of
India’s population. However around
80% of people in countries like USA,
UK have internet access [3]. These
statistics and benchmarking show that
a lot of groundwork needs to be done
by India in terms of building a solid
infrastructure and creating a convivial
atmosphere for FinTech growth.
However these challenges are
complemented by favorable
macroeconomic factors of country in
recent years.
Government of India through India
Stack Program, has provided state of
the art technological framework to
corporations and entrepreneurs.
Recent endeavors from government
[10]
ARTICLE OF THE MONTH
include rolling out of Jandhan Yojana
which is aimed at providing banks
accounts for all. Combination of
Jandhan, with Aadhar and mobile
telephony which is called as JAM trinity
would prove to be one of the key drivers
in FinTech growth. With demonetization
coming in, digital
payments got a push. Unstructured
Supplementary Service Data (USSD)
based mobile banking, Aadhar Enabled
payment system, UPI for mobile
payments all witnessed rapid growth
post demonetization. The launching of
BHIM app which witnessed 17 Million
download in first 2 months [4] again
justifies Government’s agenda. All of
these initiatives epitomize Government’s
aggressive push towards building a
strong infrastructure, which would
eventually fortify nation’s FinTech
aspirations especially in fund transfer
and payment sector.
Indian regulators have taken laudable
ARTICLE OF THE MONTH
efforts to build a comprehensive
regulatory framework around FinTech
innovations. However they may be at
stretch to balance the time required to
create a structured regulatory
framework and a pace with which
Indian FinTech landscape is changing.
The financial regulations so far have
been defined keeping in mind the
existing banking sector players and are
often archaic from FinTech
perspective. To bring more clarity in
regulations, the regulatory bodies must
espouse a cautious approach around
consumer protection and try to
benchmark the already existing
FinTech related regulatory policies of
developed countries. The regulators of
the countries like UK, Singapore, and
UAE have built a regulatory sandbox
wherein fledging FinTech firms operate
in controlled environment and
regulators monitor key metrics of
sandbox and adjust regulatory
parameters on periodic basis. After
successful testing of different
regulatory solutions in sandbox, the
FinTech firms are allowed to enter the
mass market. The working panel
[11]
NIVESHAK | JULY 2018
appointed by RBI has suggested to
make use of such Sandbox in Indian
context which shall be administered by
According to FinTech Trends Report
2017 –India by PWC-Startupbootcamp
[8]. India tops the list and is well above
global average when it comes to
expected FinTech annual ROI Index.
When government, regulators and
investors are playing their pivotal role in
creating conducive environment for
FinTech ecosystem, very few
entrepreneurs are audaciously venturing
into FinTech startups. India has over 600
Start ups venturing into FinTech with the
12000 Startups worldwide [9]. In India
there is a dearth of skilled workforce
which results into outsourcing or
importing of talent and technology .In
nutshell, Indian entrepreneurs have tried
to become enabler of FinTech
ecosystem in India rather than becoming
disruptor of FinTech on global scale.
Apart from the aforementioned
stakeholders, Universities/research
institutes should also contribute to
entrepreneurial mindshare in India’s
talent and build incubators and
innovation labs to create competent
NIVESHAK | JULY 2018
entrepreneurs. The financial
institutions also have instrumental role
to play. By embracing
FinTech innovations, mentoring the
FinTech startups and investing in
building technical excellence they
could thrive in the competitive market.
They can pursue global
competitiveness by treating FinTech
not as a threat to compete with but as
an opportunity to collaborate with.
Thus rising consumerism and stiff
competition from peers have left
financial institution with no choice but
to shed their grey hair of conservatism.
According to EY FinTech Adoption
Index, India has the second highest
FinTech adoption rate among digitally
active consumers at 52 percent [10].
According to NASSCOM [11] Indian
FinTech market is expected to touch
2.4 Billion USD by 2020. These all
pompous statistics point to the fact that
[12]
ARTICLE OF THE MONTH
India has been up to the mark so far.
However, FinTech being a broad
concept encompasses lot of sectors like
payments, money transfers, peer to
peer lending, insurtech, roboadvisory,
wealth management and crypto
currencies. From the aforementioned
propositions made so far, it can be
proposed that India has done
exceptionally well in sectors like
payment and money transfer
but there is a long way to go in other
sectors. zealous efforts from all
stakeholders will make sure that
FinTech startups will continue to create
transformational waves across the
financial ecosystem in India. They will
not only help financial institutions
improve their back-end and frontend
processes but will also offer customers
a smooth user experience, more value
added services and an interactive
marketplace.
COVER STORY:
PERFECTING
THE
MINIMUM
SUPPORT
PRICE
SYSTEM
NIVESHAK | JULY 2018
In the early 1960s India was in deep
trouble with a critical shortage of
cereals of other food grains. The
country was procuring only about 12
million metric tonnes of wheat and
was facing a shortfall of about 10
million metric tonnes more. In 1965,
the government managed to import 7
metric tonnes from the united states
under the PL-480 scheme. This set
the stage for a radical change for our
agriculture sector. The very next year,
18000 tonnes of high yielding what
seeds were imported initially on a trial
basis kicking off the Indian Green
Revolution.
The government also set up the Food
Corporation of India to provide the
infrastructure and facilitate in the
procurement of the food grains. The
about of the comment was to procure
these produces at remunerative prices
redistribute these procurements
across the country through a public
distribution system as well as maintain
a buffer stock. Over the last 54 years,
the FCI has since become a Goliath in
the Indian agriculture industry. The
government has since set up a
agricultural prices commission to
come up with an indicative list of
products and the support prices to be
offered.
With time however, the government
came to the realisation that the
farmers at the bottom of the pyramid
were not reaping the benefit of these
MSP operations. The redistribution of
the food grains from a limited number
of prolific procuring states to all the
many consuming states was much too
expensive and wasteful. With this in
[14]
COVER STORY
mind, the government introduced a
scheme for decentralised procurement
of food grains in 1997-98. Many states
including Andhra Pradesh, Chhattisgarh,
Gujarat, Bihar, Karnataka, Tamil Nadu,
Maharashtra, MP, Odisha, West Bengal,
and Uttarakhand have since joined the
government’s decentralised procurement
scheme. The states now take the
responsibility of procurement of major
food grains like wheat and rice, its
storage and distribution under the Public
Distribution System.
Yet, there are several states where
procurement apparatus is or even non-
existent. In Assam, for example, only
about 24,000 metric tonnes of rice have
been procured this year. The other
states in the North East fare even worse
with little to no procurements. Even in
larger rice producing states like Bihar
and West Bengal, the procurement
exercise and infrastructure is not nearly
adequate to ensure that farmers receive
MSP for paddy. In West Bengal, which is
the largest producer of Paddy, of the 149
lakh MT of produce, only about 45000
tonnes have been procured, while in
Bihar, the procurement figures stand at
7.93 Lakh tonnes of the 73 Lakh MT
produced in the state. In Bihar and
Jharkhand, mandi system was abolished
in 2006 with no alternative procurement
mechanisms coming up in place. With
no wholesale markets where farmers
can bring their produce and get fair
remuneration, the sale to wholesalers
happens on the roadsides where the
farmers face rampant exploitation. Open
auctions do not take place and there are
no government employees to monitor
the price at which farmers sell their
COVER STORY
produce. Similarly, in Bihar, now a
major producer of maize, due to the
absence of procurement, the market
prices of maize rule below MSP year
after year. The chart Below shows the
impact of policy application in the state
of Assam before and after it was
enforced around December of 2017.
That said, there is also a problem of
over-procurement. With extreme
political exuberance, the government
at times ends up procuring too much
in its show of political bravado. For
example, the policy mandates the FCI
to create a buffer of 2 MMT of pulses
but, but under political pressure it has
procured much more and is now
saddled with 5.5 MMT of pulses. Such
over procurement creates a two-fold
macroeconomic problem of both
overcrowding the private procurement
and in terms of implications to our
current account deficit with agricultural
products being an important part of the
[15]
NIVESHAK | JULY 2018
country’s exports. Even then the
execution of the recent increase in the
MSP there are significant challenges to
execution. The first is the government’s
claim that ‘MSP would be 50 percent
higher than the cost of production’. The
price increase in most cereal crops over
last year, with some exceptions, was
about 15 to 20 percent. The MSP for
cotton 23.97 percent higher while
Oilseeds were up by 13.42 percent. On
the other hand, castor, jowar and
sugarcane had MSPs marginally lower
than last year.
Across the board, there increase in MSP
over and above the cost of production—
measured as the sum of all paid-out
expenses (A2) and family labour (FL)—
was above 50 percent consistently
across each Kharif crop. So, while the
NITI AYOG has in a sense delivered on
its promise of ‘fifty percent higher than
paid out costs’, the fact of the matter is
NIVESHAK | JULY 2018 COVER STORY

that they have

done this by
shifting the
goalpost. The
National
Commission on
Farmers led by MS
Swaminathan had
recommended that
the MSP be at
least 50 percent
more than the
weighted average cost of production.
This would entail inclusion of the
values of owned land, cost of
interest on own capital, the imputed
value of family labour and the imputed
value of the management function of
the farmer. The current formula
clearly ignores the cost of farmers
own labour and the incurred
opportunity cost. The NITI Aayog’s
argument that interest and rental
components of capital costs should
not be incorporated in MSPs as was
recommended by the Swaminathan
commission, leaves much to be
desired. Rental incomes, as it is
correctly argued, are unearned
incomes. Another key avenue is the
Price Fixing Rules recommend that, in
accordance to the existing practice, DES
apply a normative interest rate of 12.5
percent on working capital employed
and 10.0 percent on gross fixed capital.
However, that rate is a grossly
understates the costs involved as a
large segment of the farmers are forced
resort to non-institutional loans from
sources like moneylenders, a much
higher rate of interest should be
accounted for. The interest rates used
should be a better estimate of the real
interest rates incurred by the farmers.
While the case for including actual
interest costs seems quite clear, it

[16]
COVER STORY
seems quite unlikely that there will be
policy coordination between
agricultural price policy and tariff
policies to protect.
Another interesting criticism of the
MSP is the notion that is goes against
the free market economy and that the
artificially high prices will prove
detrimental in the long run. The
problem of low farmer income is one
of exploitation and information
asymmetry. In a fully efficient
economy, there is enough margin for
the farmers to get substantially more
income. The problem here is the
margins taken up by the middleman-
middlemen in most cases. It is
definitely in governments prerogative
to support the MSP which will iron out
these inefficiencies. By making
markets more efficient, there is
another added benefit in getting the
excess number of middlemen who are
essentially not contributing to the
economy out of this sector into other
sectors.
[17]
NIVESHAK | JULY 2018
Getting large players like Future group
to directly buy the farm produce hence
becomes important to organically
support the MSP. This effort is however,
substantially impeded by influential
trader lobby which has in many places
actively used underhand means to
prevent the implementation of the MSP.
One way to circumvent the impact of
these traders
From licence raj to 2018, we have come
a long way. From years of a trade-
dominated regime we need to finally
face the challenge of the rational
transition away from it. The ghost of the
Alagh Committee, which developed the
ideas discussed here, will keep on
haunting us and will be exorcised only
when we become competitive in our
agriculture. It has already surfaced with
the Bharat Krishak Samaj making this an
election issue, as also the Consortium of
Farmers Organizations taking it up. But
we are now going beyond the
economics of MSP into areas beyond
our competence.
NIVESHAK | JULY 2018
IS THE FASTEST
MAJOR ECONOMY
....FAST ENOUGH ?
SARANSH YADAV
MBA 2017-19
Indian Institute of Foreign Trade
The Indian economy has evolved from
a largely agricultural & trading society
during the Indus Valley civilization to a
mix of manufacturing & services. It
has also witnessed times of being the
world leader, along with Ming China, in
manufacturing by generating one-
fourth of the industrial output during
the Mughal era to contributing just 2%
to the world’s manufacturing output
under the British rule. The economic
drain theory supports the fact that the
British East India company imposed
high taxes on the weaker Indian
economy and depleted food & money
[18]
FinGyaan
stocks which led to famine in 1770s.
The British also left us with another
economic strain of partition. This
refugee settlement led to division of
India into complementary economic
zones. As a result of which India
inherited some economic problems at
the time of independence after missing
the early train of industrialization. The
repercussions proved to be
catastrophic as growth in India
remained at around 3.5% from 1950s
to 1980s, whereas, South Korea grew
by 10% and Taiwan at 12% during the
same period. Indian growth has
grabbed some pace after economic
liberalization in 1991. Recently, the
World Bank has put India ahead of
France in terms of GDP being just $25
billion short of the United Kingdom. As
China’s economic growth has slowed
down, people are looking for the next
big driver of growth and India seems to
 FinGyaan
fit the bill. Under the Narendra Modi
regime, India continues to be the
beacon of growth in the South Asian
region. This is the main reason that
many multi-national companies are
excited about India, dreaming of
selling fast food, smartphones and fast
fashion to a rapidly growing middle
class. And companies like Walmart are
paying top dollar for business deals in
India. While most of the Asian nations
are ageing, India has a median age of
only 27.3 years, compared to China’s
37.6 years & Japan’s 47.1 years. India is
on a track to reap its handsome
demographic dividend. The “Make in
India” campaign is eventually proving its
firepower as India has attracted record
foreign direct investments. The World
Bank has given its nod to Prime
minister’s efforts and his strong reform
agenda to improve India’s business
[19]
NIVESHAK | JULY 2018
environment, improving India’s rank in
its ease of doing business from 130 to
100. According to the IMF economic
outlook, India is expected to grow at
7.4% in 2018-19. Our country has also
done exceptionally well in gaining
political freedom. The maturity that our
democracy has achieved can be
beheld in people who have confidently
chosen to vote out the governments
who lost touch with the people’s needs
& desires during the last 5 years. This
is a big achievement in itself for a
democracy as huge as India. India
has ascended in the list of world
economies. But what does this mean
for Indians looking from within? Not
much, if one juxtaposes the per capita
statistics graphs of India and other top
economies of the world. The ground
realities can only be discovered if we
NIVESHAK | JULY 2018
link the size of an economy with its
geography, population and workforce.
And purchasing power parity is an
appropriate metric to look at in India’s
scenario. According to the World Bank
figures, India has an estimated per
capita income at purchasing power
parity of $7060 while France has
$43,720, around six times more than
that of India. And India stands 6th in
terms of GDP but is at the 123rd
position in terms of per capita income
at PPP while France smiles at the 25th
spot. Thus, we would find an average
Indian far poorer than an average
Frenchman if we use per capita
yardsticks for measurement. India has
a population of approximately 134
million as compared to 67 million
French people. One could cite India’s
large population as a major reason for
its lower per capita figures if China
hasn’t had 2.5 times per capita income
than that of India (whereas, Chinese’s
per capita income was almost
comparable to that of Indians in 1960).
Also, the difference in GDP per capita
between China & India swelled from
9% in 1960 to 80% in 2016. South
Korea is a perfect example to attain a
realization of how India performed in
comparison to a nation that has gone
from being a developing to a
developed one given it historically
suffered extensive poverty and has
hostile neighbours like that of India.
India’s GDP per capita in 1960 was
49% lower than South Korea. Today
India’s GDP per capita is 94% lower
than that of South Korea. The not-so-
satisfactory employment scenario in
the country substantiates the
[20]
FinGyaan
importance of per capita figures at PPP
of the nation. India has about a million
population entering the labour force
every month, we need significantly more
growth to get them good jobs as it’s a big
number that has to be absorbed.
Recently, 90,000 railway jobs found
applicants more than the number of
people residing in Australia. Decent
stable & salaried jobs for most of the
employable youth is still a major
challenge for the economy. Almost 80%
of Indians depend on the informal sector
to make their living. Agriculture
contribution has sunk from 50% at the
time of independence to just 15% at
present but still employs majority of the
Indian population. India anticipated a
manufacturing revolution in 2014 but still
the service sector is carrying a huge
share of India’s GDP on its back.
Within our country, domestic investment
has fallen as businesses have been
hesitant to invest. The Goods & Services
tax is also baffling some businesses for
taxing some products. India’s exports
have dropped despite incentivising the
exporters further in mid-term review of
India’s foreign trade policy 2015-20. On
observing the rising oil prices trend and
India being the 3rd largest oil consumer
after United States & China, Moody’s &
Goldman Sachs have cut their growth
projections for India. Oil prices were very
low in 2014 at around $40 per barrel.
Then, the government was easily able to
impose taxes on diesel and petrol with
minimal rise in inflation. And now, the
government has become strongly
dependent on these taxes which made
up 17% of India’s total revenue last year.
FinGyaan NIVESHAK | JULY 2018

[21]
NIVESHAK | JULY 2018 FinGyaan

Unfortunately, the Indian rupee has people, but we need to repeat this
been the worst performing currency in continuously for at least next 20 years to
Asia this year & is expected to weaken give every Indian a decent livelihood.
further. India is under double hammer Our outperformance is spotlighted
attack of a weakening currency and because the world’s growth is weak, but
rising oil prices. our growth is under sufficient to satiate
hunger of every Indian. Most of the major
The spurt in Indian economy was statistics have shown India as the fastest
mainly driven by consumer & growing economy in the world. These
government spending after a slow macroeconomic parameters’ horse races
down blame due to demonetisation & and their numbers do matter and work to
chaotic implementation of the GST. shape world opinion, and more
India’s GDP has doubled in the last importantly we hope, influence
decade & is expected to power ahead investment decisions. And these
as an important economic engine in numbers have certainly lifted India’s
Asia. But it will take at least a decade image on the world’s pedestal but is the
for India to reach the level of prosperity pace of India’s growth fast enough for its
enjoyed by the Chinese although people? remains a question in the eyes
growth in China has slowed down. The of 1.3 billion people. The visualization of
demographics of the two nations are facts implicitly states that our nation is
almost comparable but the GDP either walking fast or running slowly.
stands at 1/5th of that of China. India
should be able to generate at least
50% of the Chinese GDP in the next 4-
5 years to make the macroeconomic
figures start translating into common
man’s livings & his per capita. We are
amongst the most unequal countries in
the world and are still way under our
true potential. We are the world’s
fastest major economy at the moment
but our country needs some structural
changes to boost the growth path
especially in the current scenario
where protectionism & trade war is
escalating as unlike United States
which is an isolated economy, we are
more export-oriented and international
trade dependent. Despite its
challenges, India continues to grow
quickly. Our current growth reflects the
hard work of the government & its

[22]
FINVIEW
M r.
Debasish
Mallick
was appointed by the Government of
India as Deputy Managing Director of
Export-Import Bank of India in 2014.
Prior to this appointment, Mr. Mallick
was the Managing Director and CEO
of IDBI Asset Management Company
Ltd.
Q-1) Exports to china is one issue
that is coming up continuously with
PM’s commitment to reduce trade
deficit between India and China.
With trade tariffs with US in place,
where do you see the opportunity
for agri-commodity export in
Chinese markets?
Ans.) China is completely a different
ball game. China is one nation which
has virtually all the natural resources
and has the ability to utilise them in
the most efficient way. Except for high
end technology solutions, there is no
other area wherein there can be a
competition to China in
terms of price and
quality.
Substitutability is
a major concern
especially for
commodities like
cotton, therefore,
one needs to see
where we are placed
[23]
NIVESHAK | JULY 2018
in terms of quality and how much is
the need for imported cotton in China
once imports from China stops.
“Exports are based on conformity with
certain standards which include,
product design, regulatory and others”.
It will be crucial to see whether our
commodities are compliant to Chinese
standards or not and it will take some
time for us to build capacity for that.
There is definitely tremendous scope
for agri-exports to China but before we
plunge into filling the space vacated
by US exports, India will have to focus
a lot
on raising the quality standards and
logistical support needed for same.
Q-2) There has been a lot of
discussion about the credit lines
being offered by India to other
nations, their inefficient utilisation
and lack of reciprocity in trade.
With EXIM bank closely working on
building India’s ties for international
trade, what do you think about this
issue?
Ans) Reciprocity is an inherent part of
Lines of Credit, unless and until the
government makes a conscious effort
to fabricate the agreement differently.
The Scheme itself entails for 75% of
imports from India and the rest can be
from own production and internal
capacity building.
Let us understand the reciprocity from
two angles:
As the inherent agreement with other
nations is to have 75% of Indian
exports for the total amount of credit
provided, India itself can plan and
NIVESHAK | JULY 2018
price its exports leveraging strong in-
house potential in synchronisation with
local players and hence we get to play
by our advantage.
The scope of business widens
significantly. Since major investment is
in infrastructure, there is a good scope
for follow up trade in terms of
maintenance contracts, supply of
spares and technicians etc. Hence,
the overall benefit is much higher, and
the relationship will be much stronger.
The main issue is the aggressive
nature of Chinese agreements as
against the India policy. In such cases,
China annexes the mineral resources
from those economies in case of
default which eventually makes them
resource surplus and hence, gives
them access to practically
inexhaustible pool of resources. As
against this, the Indian stance has
been more of co-operation and co-
ordination wherein we rely purely on
government guarantee and do not rely
on mineral resources as collateral.
This eventually makes our approach
more sustainable and effective.
Q-3) The depreciating rupee is a
major concern in the past few
months. Though our exports get
benefits of this, there is always the
escalation of cost while we repay
our import debt and hence that
builds up pressure on the CAD.
Where do you see the Rupee going
from here?
Ans.) The Rupee has been mainly
governed by market driven forces
except for a few particular occasions
wherein the govt. or RBI has
[24]
FINVIEW
intervened. Historically, rupee has
seen a trend wherein there have been
spells of sudden bursts and then the
exchange rate settles down at a
certain point after a series of rallies. If
we look at the trade wars there is
tremendous uncertainty in predicting
as to where it will go, how much will
be the extent of this war and what will
be the impact. My hunch is that it will
go upto 72-73 at the max and will
eventually settle down around the 71
levels, after fluctuating in the range of
68-73. Other uncertainties like the
stance of European banks and US fed
will also impact the movement of
rupee. With the RBI’s declared
objective being to contain inflation and
not intervene in currency policy, the
chances of any un-natural correction
are less. Also, with a weak dollar, RBI
usually goes on a dollar buying spree
and shore up its coffers. Thus, this
becomes a natural floor for the rupee-
dollar exchange. The RBI also might
not intervene owing to the notices
given by the US government and
placing India on the watch list for
generating artificial conditions of
keeping the dollar low. In wake of all
these events I see dollar staying in the
range of 68-72.
Q-4) The balance of trade with
neighbouring countries and ASEAN
nations has been favouring them
owing to cheap exports and
declining high technology exports
from India. What is your
assessment of the situation?
Ans.) This is actually a very sad state
of affairs. There has definitely been a
FINVIEW
lot of dumping of commoditised items
into India. Most of these countries
especially Bangladesh take in primary
products from India and dump in low
cost manufactured products. Items like
cement and textiles are flooded into
India markets owing to this. An ideal
expanse is of limestone being
imported by Bangladesh and low-cost
cement being dumped back into India.
The primary reasons are:
FTA’s rule are giving zero duty market
access to them. As their cost of
production and efficiency of production
are better that India, they are getting
flooded in the Indian markets. With
them having advantage of zero tariffs
and we becoming an expensive
manufacturing sector, there is higher
flooding of Indian markets by them.
With Vietnam and others being in the
category of Heavily Indebted Poor
Countries list, they have a better
access to global markets than us and
hence, eventually owing to lack of
preferential access, we get beaten.
India needs to leverage its place in
services, project exports and
engineering exports. Once, we move
towards that end, lower end products
will move towards these countries and
with passage of time, they will move
out from there as well. The cyclicality
of ship building industry is a classic
case-in point in this matter. We now
need to move from price leadership to
quality leadership.
[25]
NIVESHAK | JULY 2018
Q-5) We would like to know your
opinion on yuan becoming the
global trade currency.
Ans) This is actually a premature
question given the emergence of trade
wars and the uncertainty in global
trade balances. Every currency has a
buy side order and a sell side order. If
you are present on both sides, you
can start dictating terms. A currency
becomes a global currency, once the
global trade starts settling in it, except
for certain specific bilateral
agreements. In the promissory note
nature of currency, it is crucial to have
faith in the central bank issuing it and
with huge trade volumes its presence
in global market has to be very high.
The US dollar has perfect traits to
execute this trade requirements. With
Chinese trade expanding massively
and their banking system becoming
very robust, they could lend in yuan
heavily. Their trade volumes
eventually allowed them to net off
trades in Yuan and not in dollar. With
these volumes increasing and
increased spending in Yuan by nations
to whom they have lend has helped
Chinese currency craft out a place for
itself in the route to becoming global
currency. Also, Zimbabwe’s adoption
of Yuan is a classic case-in point on
this issue. There is good chance that it
may become a global currency over a
period of time, if it sustains its trade
volumes & debt extension at this rate.
NIVESHAK | JULY 2018 JUXTAPOSE

FRM stands for Financial Risk

Manager. It is offered by the Global
Association of Risk Professionals
(GARP). Its main focus is managing
exposure to operational, credit, market,
foreign exchange, volatility, liquidity,
inflation, business, legal, reputational,
and sector risk. FRM is much more
specialized. It specializes in analysing
risk and figuring out ways to minimize
it within a company or portfolio. The
FRM program is divided into two parts.
Exam for both the parts is scheduled
for 4 hours. 1st part has 100 MCQs
whereas 2nd part has 80 MCQs.
CFA stands for Chartered Financial
Analyst. It is the professional credential
offered internationally by CFA Institute.
The CFA charter requires knowledge and
expertise in a much broader range of
financial analysis topics, such as portfolio
management, economics, reporting,
quantitative analysis, and more. CFAs
typically have more career opportunities
than FRMs because their studies and
skills are broad in scope. Typically
CFA Level 1 Exam consists of 240 MCQ
and is divided into two 3 hours sessions,
with 120 questions asked in each of
them.

[26]
CLASSROOM
CLASSROOM
SMART BETA
A set of investment strategies where
priority is given to the use of alternative
index construction rules in contrast to
traditional market capitalization-based
indices is referred to as Smart Beta.
Smart beta focuses on capturing
investment factors in a rule-based and
transparent way. Smart beta investing
is the combination of benefits from the
efficient-market hypothesis and value
investing. It is sometimes also known
as advanced beta. In other words,
smart beta is the return that can be
created from illiquid markets
(example:- infrastructure and real
estate) that gives attractive risk-return
trade-offs and can provide the
diversification advantage which is
required when added to a conventional
portfolio of equities and bonds.
The objective of smart beta is to get
the alpha value, bring down the risk or
increase diversification at a cost which
is lower than the traditional active
management and marginally higher
than straight index investing.
ALTERNATIVE
BETA
Alternative Beta refers to a type of
investment strategy. It is the concept of
[27]
NIVESHAK | JULY 2018
managing volatile "alternative
investments", often using hedge funds is
known as Alternative Beta. The investors
trying to benefit from the alternative beta
investing reveal themselves to risk in
various markets than those using
traditional beta strategies.
An alternative investment is not like the
typical investment types, like cash,
stocks, and bonds. These investments
consist of hedge funds, real estate,
managed futures, private equity,
derivatives contracts, and commodities.
Mostly, the institutional investors or
officially recognized high-net-worth
individuals are the ones who hold
alternative investment assets due to the
complex nature and limited regulations of
the investments.
As compared to mutual funds and
exchange-traded funds (ETFs),
alternative investments have high
minimum investments and fee structures.
Investors might face difficulty while
valuing alternative investments due to
the transactions being unique. Alternative
investments tend to have a low
correlation with those of the standard
asset classes that make them suitable
for the portfolio diversification. Alternative
investments which are held over a long
period of time may provide tax benefits,
as investments that are held for more
than 12 months are subject to a lower
capital gains tax compared to shorter-
term investments.
Fin
.
 ANNOUNCEMENTS
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