CHAANAKYA ISSUE 23 | September 2019

INSTITUTE OF MANAGEMENT ……for Social Change

Editorial Note

1

Top Indian Stock of the Month

2

RBI’s JM Financial Product

3-4

Financial Fraud- PMC Bank

5

The Saga of Promoters Pledging Shares – Book

Review

6-7

Too Big To Fail– Movie Review

8

Financial Service of the Month

9-10

CEO Corner 11

Regulator Said

12

Table of Contents

Greetings readers!

It is our pleasure to bring to you the contributions of the first year Finance student writers for

the month of September 2019. The writers have put in their effort on different topics and laced

it with their creativity to put forth a variety of content ranging from highlighting the

achievements of financial leaders and companies to noting the recent financial innovations and

economic numbers. The issue also offers a brief overview of the recent regulatory

announcements and actions as well as the unfortunate frauds that happened. We believe that

this newsletter will provide you with a quick and balanced insight of the recent financial

activity as well as a peek into the students’ co-curricular activities held through the Finance

Club.

Team Chaanakya expresses sincere gratitude to our Dean, Dr. JainMathew, Head of

Specialisation, Prof. Mareena Mathew, Faculty co-ordinator Dr. Priyanshi Gupta, our expert

specialisation mentors and all the contributors whose active co-operation made this issue

possible and fruitful.

PASSIONATE TEAM

Wishing our readers, a happy reading.

Best wishes,

Team Chaanakya

Editor’s Note

1

Top Indian Stock of the Month

Adani Green Energy Ltd

Call for BUY at CMP at 72.22 (expected rise of 14.82%) Target 82.93

As the global energy industry increasingly shifts towards adopting renewable energy, India is also

gearing up to add 500 GW of renewable energy to its electricity grid by 2030, in a bid to reduce the

impact of Greenhouse Gases (GHGs) in its cities. Supporting this mission is Adani Green Energy

Limited (AGEL), which has been making major strides in delivering clean energy while maintaining

reliability and affordability. They have presence across 11 Indian States with 64 projects and

operational capacity of 2020 MW. Total asset base accumulates to $2 billion. AGEL has displaced

3.6 million tonnes of CO2.

On the back of higher capacity and electricity

generation, revenue increased 39% y-o-y to

Rs.2,058 crore in FY19. Operating EBITDA

stood at Rs.1,710 crore, up 105% y-o-y.

Operating EBITDA margin from power sales

was at 90%. Cash profit (EBITDA minus

interest and tax) came in at Rs.792 crore, up

75% year-on-year.

AGEL management uses Cash Profit as the metric of intrinsic performance and follows

accelerated depreciation. With the help of HSBC, JP Morgan, BoAL it has raised $362.5 million

by selling dollar bonds, as it plans to refinance its existing debt and support capital expenditures.

This renewable energy firm has doubled investor wealth in just 1 year. The stock has risen

147 percent, from around Rs 32 last year to Rs 79 currently. In comparison, the BSE Sensex

has gained 8 percent during this period. It has risen nearly 75 percent since the beginning of

this year.

Below graph represents the movement of stock price for AGEL and BSE Sensex during the

period between Jun-2018 to March-2019.

-80.00

-70.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

Mar-18 Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Profit Margins

2

2

3

References

https://www.cnbctv18.com/market/adani-green-energy-renewable-energy-firm-doubled-investor-

wealth-in-just-1-year-4500391.htm

https://www.adanigreenenergy.com/-/media/Project/GreenEnergy/Investor-Downloads/Annual-

Reports/AR-2018-19

https://adityatrading.in/market/company-info/livequotes.aspx?Id=15130762.00&title=Adani%20Green

Harika Nalla

1828047

Financial Product of the month

10.4% JM Financial Products NCD Aug-Sep 2019

The Reserve Bank of India (RBI) has recently cut the rate again. In this view, most of the banks and

corporates may reduce the interest rates on their deposits schemes, Bonds etc.This may induce many

small investors to look out for better fixed income products which can give decent fixed rate of return.

4

Financial Product:

Here comes, Non-Convertible Debentures (NCD) of JM Financial Product with a yield of 10.4%. It

opened for subscriptions on 6th Aug 2019. The yield of 10.4% is attracting investors. It is offering

NCDs of 38 months, 60 months and 84 months.

• Non-resident Indians (NRI’s) cannot invest in these NCD’s.

• CRISIL rated these NCDs as AA/stable and ICRA as AA.

Features:

• The interest options in these NCDs is to pay interest either monthly, annually and at maturity

based on the option chosen.

• Minimum investment is for 10 bonds means, you need to invest for a minimum of Rs 10,000.

Beyond this you can invest in multiples of 1 bond.

References:

https://www.relakhs.com/jm-financial-ncds-aug-sep-2019-public-issue-

details/

https://economictimes.indiatimes.com/markets/bonds/this-ncd-offering-

lucrative-10-30-per-annum

Sharada K

1828054

In 2019, PwC conducted the global economic and crime survey and results are really astonishing

showing 49% of the organisations are the victim of financial fraud. The rest 51% may not be aware of

fraud risks they are facing.(Lavion, 2018) The rate of financial frauds has increased tremendously in

past few years. Africa accounts for major financial frauds but mammoth increment in Asia pacific,

North America and Latin America is a major concern.(CC, n.d.)

Bibliography

CC. (n.d.). frauds, 2019.

Lavion, D. (2018). Pulling fraud out of the shadows.

Of, T., & Prodigal, T. H. E. (2019). The collapse of PMC exposes the

fault lines in the financial system. 1–4.

Ankit Saxena

1828104

5

Financial fraud

Most of the frauds happening across the world are related to disruption of business processes followed

by Asset misappropriation and extortion. These three contributes to 75% of the total of frauds. There are

also frauds related to insider trading, procurement, IP theft and political.

Recent fiasco of one Indian cooperative bank i.e Punjab and Maharashtra cooperative bank made people

losing their trust from cooperative banks for depositing their hard earned money. PMC bank scam

decoded the INR 4635 Crores mischief(Of & Prodigal, 2019). Over 21000 fictitious accounts including

dead people used to hide loans and huge loans that accounts for total 73% of loan book given to

Wadhawan family’s debt-ridden HDIL. PMC Bank, which has fraudulently extended housing loans to

Housing Development & Infrastructure Limited. Co-operative banking institutions account for 8%

of the total share of deposits and 9% of the total share of advances. This is not really true, as co-

operative banks charge higher rate of interest for loans, to mitigate higher chances of risk. There is a

need for strict regulations for financial institutions.

6

INDIA’S SUBPRIME

THE SAGA OF PROMOTERS PLEDGING SHARES

Aug 2019

One of the two sources to corporates to raise loans is through debt market. Similar to retail individuals,

corporates pledge various physical assets such as plant and machinery, buildings as collateral to the loans

taken from the bank. Another major source of through which corporates raise loans is through pledging of

financial assets such as shares and bonds. This is especially been witnessed in corporates where

promoter’s shareholding is high. Borrowing by its very nature is not an offense as far as level of

borrowing is proportional to net worth of an individual. Usage of financial assets by the companies to

raise loans is turning out to be a serious concern because unlike physical asset, the slide in value of

financial asset is quick and deep and causing venerability to lenders unless they have other assets to cover

the loss.

According to the recent data released by BSE the number of companies pledging shares to obtain loans

have increased. The total value of pledged shares is 2,28,100 crore, value to be alarming in markets. Few

other facts such as 45 companies have pledged their share up to 100 percent, 225 companies have pledged

70 percent of their promoter’s share is truly hoisting red flag to investors. Analyst suggest investors have

to be extra cautious and vigilant about companies having more than 75 percent of their share pledged in

bank and NBFC. Purpose of raising loans also play pivotal role and suggest financial position of company.

Shares pledged by the company for very short term might not be risky, however loans raised for the

purpose of working capital requirement indicates stressed balance sheet position of the firm.Moving the

trajectory to subprime crisis in 2008, although the root cause for the crisis was lending loans to subprime

borrowers, the situation worsened when prices of the assets (mortgaged houses) fell down as every lender

was trying to recover the money that was lent to the borrowers. Similarly when most of public listed

company’s shares lies in the hands of fewer number of lenders (NBFC and other investors), any breach in

the covenants of the loan by the borrower would make lender sell the shares in the market. This results in

plunging of share value and causes considerable loss to the company. This behavior according to analyst

is likely to be copied by the peer lender would lead to catastrophic effect.

Unlike banks other lenders would not wait patiently for defaulters to pay the debt. In case of bank all

assets are viewed as assured and 30% of deposits are maintained in liquid form and sovereign bonds

can be turned into cash any time, however other NBFC would not have this privilege at on the other

hand and thus in the view to protect its shareholders would sell the shares in the market. The recent

analysis on BSE 500 companies showed that promoter’s pledge outstanding was 2,28,100 crore which

accounts to 1.38 percent of total market capitalization of BSE 500. Few companies like Ambani

group (95% of promoters share pledged), Zee Entertainment (66.2 % promoter’s share pledge), Jindal-

led JSW Steel ( 46.3%),Adani-led Adani Ports (42.3%) has faced serious repercussions in the prices

of shares due to its pledging. Looking at these developmentsmarket regulator SEBI has introduced

stricter rules regarding the disclosure norms. Every company pledging its shares to raise funds has to

provide detailed of encumbrance if the total pledging exceeds 20% . It was also decided that SEBI

will maintain the record of these share pledging by various company linked with the reasons on its

web page. Definition of SEBI regarding encumbrance includes any pledge, lien, negative lien, non-

disposal undertaking (NDU) and any restriction on the free and marketable title to shares. This ring

fencing action taken by SEBI is likely bring in better transparency to investors about the companies

pledging their shares.

Sahana S Rao

1827952

7

Bibliography

Business Today. (2019, Jun 28). Retrieved from Business Today: https://www.businesstoday.in/current/policy/what-is-sebi-new-mandate-for-pledged-

shares/story/359725.html

Economic times. (2019, may 07). Retrieved from Economic times: https://economictimes.indiatimes.com/markets/stocks/news/zee-group-anil-ambani-

firms-lead-in-share-pledges-with-lenders/articleshow/69221155.cms?from=mdr

Joshi, M. (2019, March 18). Money control. Retrieved from Money control: https://www.moneycontrol.com/news/business/markets/promoter-pledged-

shares-boon-or-bane-for-investors-3654801.html

Kotak Securities. (2019). Retrieved from Kotak Securities: https://www.kotaksecurities.com/ksweb/Meaningful-Minutes/Pledging-of-shares-by-

promoters-How-it-matters

KS, B. (2019, Feb 18). Business line. Retrieved from Business Line: https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-

know-about-promoter-pledging/article26305212.ece

Rangan, M. G. (2019, Feb 22). ET market. Retrieved from ET Market: https://economictimes.indiatimes.com/markets/stocks/news/promoter-share-

pledge-indias-own-subprime/articleshow/68105880.cms?from=mdr

Rangan, M. G. (2019, Feb 22). ET markets. Retrieved from ET markets: https://economictimes.indiatimes.com/markets/stocks/news/promoter-share-

pledge-indias-own-subprime/articleshow/68105880.cms

Sharma, A. (2019, May 2). Business today. Retrieved from Business today: https://www.businesstoday.in/markets/company-stock/should-you-avoid-

companies-with-high-pledged-shares/story/342609.html

Singh, S. (2013, Sep 02). Journal of courage. Retrieved from Journal of courage: http://archive.indianexpress.com/news/watch-out-for-pledged-shares--

theyre-key-to-a-companys-health/1163196/0

Upadhyay, J. P. (2019, Jun 24). Live mint. Retrieved from live mint: https://www.livemint.com/market/stock-market-news/sebi-may-tighten-norms-for-

mandatory-disclosure-of-pledged-shares-by-promoters-1561381713716.html

Zachariah, R. (2019, April 29). ET Markets. Retrieved from ET Markets: https://economictimes.indiatimes.com/markets/stocks/news/share-pledging-

curb-stumps-companies-promoters/articleshow/69089343.cms

Movie Review – Too Big To Fail

8

This movie is an American biographical drama

released in 2011 based on Andrew Ross Sorkin's non-

fiction book “Too big to fail”. This movie portrays the

after effect of the 2008 world economic meltdown

focusing mainly on the US federal system, The

Treasury Secretary Henry Paulson's actions on giant

banks failing to be bailed out through government

inferences. This movie also depicts the after-shock of

Lehman Brothers and Bear Stearns fall out. The

repercussion of getting out of the crisis is been

showcased, where the government takes real-time

efforts to stabilize the US economy.

The movie talks about how difficult was it to maintain relationships between the government and

private industries. After Lehman brothers dropped down to $4/share from $66/share, the treasury

secretary meets up all the investment banks CEO offering them to bail out Lehman brothers with

three different aspects to save toxic assets, sort out the structure of investments and create

contingency on further failure. But Lehman Brothers eventually collapses and forced into applying

for bankruptcy. Meanwhile, AIG insurance gets into $5billion loan hole on CDO’s. After Lehman's

brother fall out the economy starts to tumble down affecting the whole economy. The heat reaches

the General electrics as they face problems doing day to day business has finances were taking a hit.

The treasury secretary exhibits two options to stabilize the financial markets. One, to buy all the

toxic assets from the failing banks. Two, capital infusion all the banks and nationalizing them with

fed having 40% non-voting preferred rights. The secretary team realizes that buying toxic assets will

take too long, leaving direct capital injects into the banks as their only option to use to get credit

flowing again. The team informs the banks that they will receive mandatory capital injections. The

banks eventually agree. An epilogue notes that bank mergers continued in the wake of the crisis and

that now only ten financial institutions hold 77% of all U.S. banking assets and have been

declared too big to fail.

Financial Learnings

• Role of Government in regulating the whole economy. The concept of capital

expansion in matters of macroeconomics is illustrated in more practical manner.

• The corporate governance of each banks are been tested, the banks are limned to be

selfish in making money from mortgage back securities.

• Self-centered credit agencies, Insurance companies, investment banks, commercial

banks resulted in the whole mess of the worst economic downfall after 1930.

Meghana M

1828046

Financial Service of the month

Co-operative Bank: RBI imposes restrictions on PMC Bank

Financial Services (Bank, Co-operative Bank, Insurance, Stock Brokerage Firm etc.) are the backbone

of our economy and the banking system plays one of the major roles by providing the common

platform for the depositors and the borrowers.

A financial cooperative (co-op) is a type of

financial institution that is owned and

operated by its members. The goal of a

financial cooperative is to act on behalf of a

unified group as a traditional banking service.

These institutions attempt to differentiate

themselves by offering above-average service

along with competitive rates in the areas of

insurance, lending, and investment dealings.

Cooperative banks are much smaller than scheduled commercial banks and hence pose less of a

systemic risk. But their connection to the rural masses is much stronger, so signs of weakness in these

entities cannot be ignored.

Source: www.rbi.org

• On 23thSeptember,2019 RBI (Reserve Bank of India) has put regulatory restriction under

section 35A of the Banking Regulation Act on PMC Co-operative Bank (Punjab &

Maharashtra Cooperative Bank) based in the Financial Capital of India, Mumbai because of

providing fudged data and information than what they actually had to the RBI along with this

they had financial irregularities due to which the Cooperative Bank can no further grant,

renew, loans & advances, and make any investments except the fresh deposits without the prior

written approval from the RBI for the period of six months along with the withdrawal limit.

• Three days later, PMC bank fraud was surfaced in which the 73% (Rs. 2500 crore) of the total

advances was made to a single real estate borrower (HDIL) who filed for bankruptcy recently

resulted into a default and the default appear to have surged in the past six month due to the

tight economic condition due to which the bank was unable to meet its commitments but on a

positive note the bank officials voluntarily approached to RBI to look into the matter so that

things could be brought back to order.

9

• It is being noticed that the bad loans almost doubled to 3.76% of gross advances by march 2019

compared to a year earlier whereas, the total number of depositors decreased to 51,000 this year

compared to 62,000 last year.

Features:

• Voluntary and open Membership

• Democratic control

• Organised on the basis of either limited or unlimited

liability

• Limited interest on capital

• Service Motive

• Distribution of Surplus

• Self- help through mutual co-operation

• Equality of Voting right

• Elimination of middleman

References:

https://economictimes.indiatimes.com/industry/banking/finance/banking/

rbi-bars-punjab- maharashtra-co-op-bank-from-business-

transactions/articleshow/71271849.cms

Chandan Bhardwaj

1828108

10

Amy Hood – Chief Financial Officer of Microsoft

11

Amy E. Hood is an American businesswoman currently serving as the Chief Financial Officer

at Microsoft Corporation. Hood joined Microsoft in 2002 holding positions in the investor relations

group. She also served as chief of staff in the Server and Tools Business as well as running the strategy

and business development team in the Business division. Previously, she worked at Goldman Sachs in

various roles including investment banking and capital markets groups.

Hood holds a bachelor's degree in economics from Duke University in 1994 and an MBA

from Harvard University. She currently sits at the #28 spot in the Forbes World's 100 Most Powerful

Women list.

Amy Hood won back Wall Street and helped reboot Microsoft. She re-imagined the CFO job and

played a key role in persuading employees, customers and investors to believe in the company again.

As CFO since 2013, Hood has seen Microsoft nip at the heels of Apple to be the largest publicly traded

company by stock market value. This fall the tech giant briefly edged out Apple on a market cap basis

for the first time in 16 years.

Hood can be credited with much of Microsoft's recent boom; in the five years since she became CFO

the company's stock has surged nearly 300%. She's helped engineer over 57 deals while at Microsoft,

including the recent $7.5 billion acquisition of software development platform GitHub. Hood

strategically shifted money away from some of Microsoft's legacy divisions such as Windows to invest

in their growing cloud computing division.

Sara Susan

1828053

Regulator Said

12

Corporate tax rates slashed to 22% for domestic companies and 15% for New

domestic manufacturing companies and other fiscal reliefs

On 20th September , the Union Minister for Finance & Corporate Affairs Smt Nirmala Sitaraman has

said that Government has brought amendments in the Income-tax Act 1961 and the Finance (No. 2)

Act 2019. In this new provision the domestic companies have to pay 22% , subject to condition that

they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17%

inclusive of surcharge & cess. Any new company incorporated on or after 1st October making new

venture in the manufacturing sector will only have to pay 15 % as their income tax.

Link loans to benchmarks: RBI to banks

The RBI has asked all the banks to link their loans provided to retailer and MSME to be linked to an

external bench mark . This will helping in passing the benefit of rate cuts to the borrower .This will be

applicable from October 1st.This will help transmission of rate change to the borrower . The banks

have to adopt to the uniform external benchmark rate.

MFs, borrowers can’t have standstill pact, says SEBI

On 20th September Mr Ajay Tyagi announced that no mutual company can have a standstill agreement

with borrowers. As asset management company are exposed to high risk due to high number of default

after incidents like Essel group. The SEBI has issued a circular to adopt "Waterfall approach" for the

valuation debt and money market in their portfolio.

References

https://www.narendramodi.in/corporate-tax-rates-slashed-to-22-for-domestic-companies-and-15-for-new-domestic-manufacturing-companies-and-other-fiscal-reliefs-546494

https://economictimes.indiatimes.com/industry/banking/finance/banking/link-loans-to-benchmarks-rbi-to-banks/articleshow/70986204.cms

https://www.livemint.com/mutual-fund/mf-news/sebi-chairman-asks-mutual-funds-to-refrain-from-standstill-agreements-1569487674975.html

Surbhi Jaiswal

1828057

The Newsletter Team

Amulya Anand

Head of

Specialization

Dr. Mareena

Mathew

Faculty

Coordinator

Dr. Priyanshi

Gupta

Chandana N

H Krishnan

Rohini N Sharma

Zeba Ayesha

Sherin Varghese