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
Top Related