DISHA 2018: Day 6: Guest Lecture: ‘The scope and the future of Initial Public Offerings’ – Mr. Sandeep Hasurkar, VP – Project Finance, IL&FS

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On September 1st 2018, the student fraternity at TAPMI had a very informative session with Mr. Sandeep Hasurkur, VP – Project Finance, IL&FS on the scope and future of Initial Public Offerings (IPOs). He explained the need for IPOs and their regulatory and compliance aspects.  He elaborated on the emerging trends seen in the market regarding fundraising. Mr. Hasurkur began by asking the students about what they know about IPOs. He said that one should gain knowledge, think about it, absorb it and form one’s own opinions. this is what we’ll gain from doing an MBA – it will build our perspective.

He then elaborated on why IPOs are different from other forms of fundraising. the major distinguishing feature is that it involves interaction with the public. Any matter that involves the public has a deep regulatory aspect along with responsibility. Regulation in terms of qualification, compliance and disclosure are critical aspects of all functions that involve public interaction.

He then stated the reasons for going for an IPO – funding requirement for growth. When a company reaches a certain size a need will arise to get funding from the public. The IPO ecosystem is evolving at a rapid pace in India. There are many factors that affect the IPOs in India – Risk-return nature of the business, availability of capital, the requirement of capital and understanding the current market. All these factors have segmented a relatively homogeneous market.

Mr. Hasurkur then went on to elaborate on the trends seen in the IPO ecosystem by using movie analogies. He called the first trend ‘ Transformers’ – The irrevocable rise of private equity. It completely changes the composition of the IPO market. The rise of private equity captured the value in the market. The second trend ‘Kingsmen investment bankers’ –

The emergence of new technologies the characteristic of business models has changed dramatically. Customer acquisition and market share are the factors that are driving the business model today.  A winner takes all poker game -in a distant and uncertain future. One aspect to be considered is the regulatory aspect whether this should be allowed. Another issue -the temptation to misrepresent there could be dud presented as a unicorn and the hype drives a buying mania in the public.

The third trend ‘Lion King’ – The composition of the market – a lions share of the market are herbivores and not unicorns. Private investors are not interested in these stable businesses. Stable businesses are the ones driving the business. The fourth trend ‘Red riding hood’ – The other industries that are approaching the public for funds are the loss-making businesses. High leverage system – evergreening no longer works. Dress it up as a unicorn and sell to the public. Many real estate companies are engaging in such acts.

The fifth trend ‘New flying monkeys’ – High Networth individuals (HNIs), anchor investor funds, Qualified institutional buyers (QIBs). The rise of the boom market economies. The rise in liquidity – changing investing opportunities. The sixth trend ‘Ghajini part’ – Cyclical boom and bust companies. The public has a short memory and forgets the past experience of the companies. The last trend ‘Finding Nemo’ – Living in a fishbowl. Increase in regulatory, reporting rules. Risk and compliance costs have raised. While concluding Mr. Hasurkur said that Indian markets have transformed. The Indian investors are seeking returns across different avenues.

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DISHA 2018: Day 6: Guest Lecture: ‘Blockchain in Banking and Financial Institutions’ – Mr. Satya Shankar Mahapatra, Sr VP – Risk & Analytics, Barclays Investment Bank

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On September 1st 2018, Mr. Satya Shankar Mahapatra, Sr VP – Risk & Analytics, Barclays Investment Bank, had an interactive session with the student community of TAPMI on applications of blockchain in banking and financial institutes. He emphasised the fact that new technologies and innovations will help address different risks in the banking and financial service industry.

He started the session by listing the various risks that banks face in today’s world – credit risk, liquidity risk, solvency risk, market risk, operational risk and cyber risk. He said that a lot of new technologies have been developed and this has changed the landscape of the finance industry. Data has become a big problem in today’s world. Nowadays everyone generates a massive amount of data through social media, online transactions and other mobile applications.

The solution to this problem is big data. Big data is high volume, high velocity, high variety information assets that require new forms of processing to enable enhanced decision making and insight discovery and process optimisation.  Big data is revolutionising the financial service sector.

Blockchain technology will make the banking and trade finance sectors more secure. It will help integrate the disparate databases, reduce cost and speed up the process. It helps to mitigate problems in the current system of a transaction – dependency on a single intermediary whose effectiveness is never 100%. In case of any gap in transactions, the parties involved generally blame each other and do not take responsibility for the issues, blockchain will help to prevent such problems.

Blockchain is a new technology that has not be been customised for the banking sector. hence it has a few issues that prevent its implementation – interoperability issues, difficult to modify, cyber security issues if operated on a cloud platform. Blockchain is the way of the future we need to study the risks involved and plan to mitigate them.

 

Disha 2018: Day 6: ‘Indian Asset Management Industry – Mutual Funds’ – Mr. Bhavdeep Bhatt, Head – Institutional Sales and PMS Business, Aditya Birla Sun Life AMC Ltd

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On 1st September 2018, Mr. Bhavdeep Bhatt delivered a guest lecture on Mutual Funds in India. He started off giving a brief background about himself and gave an agenda of his speech which covered household savings in India, Key Mutual Funds (MF) in India, Reforms and Growth Drivers of MF and the outlook of MF in India. He mentioned that MF industry in India has doubled its Assets Under Management in the last 2 years from INR 10 lakh crores to over INR 24 lakh crores.

Mr. Bhatt then compared the trends in savings from 2008 to 2018. In 2008, the percentage of investments in Gold and Real Estate was higher than those in Banks, Insurance in MFs. In 2018, its just the opposite.  There has also been an increase in the transition of savers to investors. The percentage of bank deposits reduced from 71% to 65%, Insurance increased from 19% to 21% and MF increased from 10% to 14% over the last 3 years. The trend is in favour of MFs in India, but the situation is more complex in a global context. The AUM to GDP ratio currently stands at 13% in March 2018 compared to 7.9% in December 2012.

Mr. Bhatt then walked us through the recent history of MF. The year 2012 saw the Revised commission structure for distributors in big cities. In 2013, Direct Plans were introduced. In 2014, the definition of ‘long term’ for debt MF changed from 12 months to 36 months for LTCG. In 2015, the EPFO started investing in the equity market via Exchange Traded Fund (ETF). Demonetization boosted the MF industry in 2016 and 2018 saw the categorization and rationalization of MF schemes.

He then spoke about the global context of MF. The AUM as a percentage of the total investments in the world grew from 0.33% to 0.60% and in Asia alone, it grew from 2.3% to 4.37%. The increase in investor accounts also increased from 3.95% in September 2014 to 7.46% in May 2018. There has also been an upswing in equity MF from INR 2 lakh crores to INR 9 lakh crores between 2010 and 2018. Mr. Bhatt said that the Systematic Investment Plan (SIP) have contributed INR 1.11 trillion inflows in the past 2 years. The SIP accounts accounted for 47% of the record 16 million individual folios added.

Mr. Bhatt went on to speak about Exchange Traded Funds (ETF) which he considers as the future of MF. The Government considers ETF a good way of raising funds through disinvestments. SEBI has recommended a new benchmarking – Total Return Index for MF. He then threw light on consolidation in MF industry. Some of the best performing MF asset classes are Diversified Equity Funds. They outperformed Gold, Debt and Real Estate MF. The CRISIL – AMFI Equity Fund Performance Index outperformed Nifty 50, S&P 500 too.

Mr. Bhatt then spoke about the Mergers and Recategorization of MF. There are over 36 categories with 16 in Debt Funds, 10 in Equity, 2 in Solution Based, 2 in Index and 6 Hybrid Funds. There has also been a digital push to enhance distribution. The e-KYC using Aadhar has proved to be a game changer for online investing. According to Citi Research, robot-advisors are set to grow to $ 5 trillion by 2025 from $ 14 billion in 2014. The future of MF will be solution-based selling instead of product-based selling. Also, ETF will become mainstream investment products as the markets mature. Credit as an asset class is also expected to grow multi fold with pickup in economic growth.

Mr. Bhavdeep Bhatt finally answered a few questions from the audience concluding a highly interactive guest lecture.

DISHA 2018: Day 6: Guest Lecture: ‘Current financial market scenario’ by Mr. Rajeev Pawar, Head – Group Balance Sheet and Investments, Edelweiss Financial Services

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On 1st September 2018, Mr. Rajeev Pawar, Head – Group Balance Sheet and Investments, Edelweiss Financial Services, advised, “Make the right call on the market at the right time” in his lecture on ‘Current financial market scenario’ organised by the Finance Forum of TAPMI.  He analysed the US and global market scenario before and after Trump was elected the President of USA.  He shared his insights on the Indian market scenario after the event of demonetisation and highlighted its effect on equity, rupee value and interest rates.

Mr. Pawar elaborated on ‘Trump trade’.  Upon Donald Trump’s victory in the US presidential election of 2016, because of his take on financial policies, people bought US equities and sold US bonds.  With relevant statistics he established that while the stock market shot high, Trump’s disjointed statements led to a fall in currency.  But he brought to the notice of audience the fact that in the international scene, fall of Indian Rupee was not as huge as the fall of Argentinian Peso, Turkish Lira and Brazilian Real.

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Mr. Pawar then spoke of the happenings in India after the event of demonetization.  Equity saw a stable rise; Rupee dipped during the event, but recovered in the due course of time.  He opined that in terms of fiscal deficit and current account deficit India has done as poor as Indonesia and Philippines.  But demonetization effectively resulted in people paying taxes, either by getting rid of black money or by converting black money to white.  Intervention of RBI, monitored hikes in rate and foreign exchange control could help an economy regulate its currency, Mr. Pawar suggested.  But he said that in times like election season, there will be uncertainty, volatility, liquidity squeeze, currency depreciation and inflation.

Mr. Pawar recommended the audience to gather information, especially ‘price data’ and not rely on generalised notions while buying, selling or holding bonds.  He concluded by suggesting, “Idea alone is not enough; data analytics and implementing ideas at the right time are important too”

DISHA 2018: Day 6: Guest Lecture: ‘Some key issues in Debt market and MF investment pattern in Debt Market’ by Ms. Bekxy Kuriakose , Head Fixed Income PNB, AMC

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On 1st September 2018, the Finance Forum of TAPMI organised a lecture on ‘Some key issues in Debt market and MF investment pattern in Debt Market’ by Ms. Bekxy Kuriakose, Head Fixed Income PNB, AMC.  Ms. Kuriakose, the fixed income specialist, explained to the audience that though fixed income corresponds to 60% of the total assets, its market share is just 5%.  She opined that the increase in the market borrowings of centre and state governments has been a growing concern in the debt market.  Developing a vibrant corporate bond market and changes in IT infrastructure for Indian debt markets could help in this regard, she suggested.

Ms. Kuriakose observed that if the fiscal borrowings are very high, an economy would fail.  So, checks and balances are a part of the market too.  Earlier, state governments borrowed from National Small Savings Fund (NSSF).  Ujwal DISCOM Assurance Yojana (UDAY) scheme, farmer loan waivers, accounting issues due to GST implementation in 2017, natural calamities and such other issues increase the state borrowings too, she said.  Ms. Kuriakose said that out of 3% fiscal deficit for the upcoming financial year, 80% comes from market borrowings.  The increasing volume of fiscal borrowings has worsened supply dynamics.

Ms. Kuriakose expressed concern over the lack of development of corporate bond market.  Only a few of the recommendations of the committee headed by R. H. Patil in 2005 have been implemented with respect to increasing the share of corporate bond market.  Introduction of Delivery Versus Payment (DVP) in settlement of over-the-counter (OTC) trades and standardisation of day count are some of the only few recommendations that have been enforced.  She suggested early implementation of Credit Default Swap (CDS) and standardisation of stamp duty.

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While speaking about the increasing role of IT infrastructure in debt market, Ms. Kuriakose said that bidding in the equity market is entirely electronic, while fixed market still has bidding through OTC, though most of it is electronic.  CCIL’s platform of GSEC, SEBI’s mandatory platform of EBP for bidding are instances of dominance of electronic infrastructure, she explained.

Ms. Kuriakose explained the role of mutual funds in debt market.  They are the largest investors in commercial paper (CP) market.  The share of mutual funds in corporate bonds is 23% and in government bonds, it is less than 2%.  Mutual funds offer many types of funds – short term, credit risk, FMPs, Gilt funds, dynamic and long-term income funds, she concluded.

Disha 2018: Day 5: ‘Role of Treasury in Strategic Management’ – Mr. Bharat Gupta, VP – Model Validation Lead, Northern Trust Corp

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On 31st August 2018, Mr Bharat Gupta, VP – Model Validation Lead, Northern Trust Corp delivered a guest lecture on the ‘Role of Treasury in Strategic Management’. He began by explaining how balance sheets and financial statements work. He mentioned that for a Treasurer, obtaining money or funds at a competitive price is the highest priority. “How easily one can get the required resources from the market is the test of the efficiency of a Treasurer”, he explained.

He elaborated that it is important to decide on means of funding, whether it is through Commercial Papers, Bonds or Deposits. He then went onto explain the Fund Transfer Policy. He explicated that the transfer pricing represents the price paid from one company to another for a product or service when both are owned and report to the same parent company. He added that the transfer pricing policy dictates the approach taken by the two companies when determining the price of a product or service.

Mr Gupta then spoke about the various challenges a Treasurer can face while raising funds for their company. He then outlined the concept of swaps and the effects of the interest rates on it. He emphasized that swap payments are notional, what gets exchanged are the interest payments and not the principal payments. He stressed that when interest rates are increasing, we convert the fixed rate assets into the floating rate assets.

Mr Gupta then spoke about the LIBOR scandal where the banks where rigging the interest rates. He alluded that LIBOR is going to be phased out and as an alternative to LIBOR, a new system, Secured Overnight Financing Rate (SOFR) is going to be implemented. He clarified that SOFR is based on transactions in the Treasury repurchase market, where banks and investors borrow or loan from Treasuries overnight. In the United States, he cited, this work is being led by the Alternative Reference Rates Committee (ARRC), which comprises of major over-the-counter (OTC) derivatives market participants as well as regulatory bodies.

He explained the different types of Options and moved on to the determination of Options Premiums. Using the example of the Black-Scholes Model of Options Pricing, he discussed, how Options are priced. He then commented on the Monte Carlo Simulations (MCS) and how for the American Options, this model of simulations cannot be used. He advised that instead of MCS, Geometric Brownian Motion is followed in Black Scholes process to determine prices of American Options.

Mr Gupta finally spoke about Stress Testing which is the ability of a bank to rebound from the downgrading of loans or losses thereby clarifying which banks lose their capital.

DISHA 2018: Day 2: Cohort Interaction – Mr. Ritesh Kumar Agarwal, Founder- CEO, fonePaisa Payment Solutions Pvt. Ltd.

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“I have a tendency to think without the box, not just outside the box”- Mr. Ritesh Kumar Agarwal, Founder- CEO, fonePaisa Payment Solutions Pvt. Ltd.

On 25th August 2018, Mr. Ritesh Kumar Agarwal, Founder- CEO, fonePaisa Payment Solutions Pvt. Ltd. interacted with the finance enthusiasts of TAPMI. Mr. Agarwal commenced his discussion by walking the students through his career and the choices he made with respect to the same. He spoke about his first experiences in the industry when he began his career in the banking sector. He observed that often these days people define their boundaries. He emphasized the fact that it is not essential to define one’s boundaries and that everyone should be free to be as creative as they can.

He went on to speak about his experiences of founding a startup and the challenges associated with it, stating that a castle cannot be built on a land that is on rent. He stressed the importance of building in-house technological capabilities which would make an organization stronger. He also discussed the impact of recent events like demonetization on various business sectors. He then explained his take on the cashless economy and the strength of banking.

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He concluded the session by inspiring the students with the importance of being unique and agile. He explained that one needs to focus on common sense and practicality, and needs to avoid being greedy in order to succeed in the industry.