Disclaimer: The views presented are the opinion/work of the individual author and the Finance Club of IIM Shillong bears no responsibility whatsoever.

F R O M E D I T O R ’ S D E S K

NiveshakVolume X

ISSUE IIFebruary 2017

Faculty ChairmanProf. P. Saravanan

Aaron Keith Rego

Abhishek Jaiswal

Aditya Kumar Jain

Akshay Kaushal

Anand Mittal

Anisha Khurana

Ankit Singhal

Ankur Kumar

Anoop Prakash

Arjun Bhargava

Devansh Sheth

Dhruvika Chawalla

Girraj Goyal

Pratibha Sapra

Sankeerth Bondugula

Saurabh Gupta

Shreyans Jain

Vinay Gundecha

All images, design and artwork are copyright of

IIM Shillong Finance Club

©Finance ClubIndian Institute of Management

Shillong

THE TEAM

Dear Niveshak

This month we bring to you Donald Trump – The Era of Uncertainty as our special coverage. Economy will be at the top of Trumps agenda as Presi-dent and will serve as the most important barometer of his performance. His business origins and his affluent lifestyle will have a huge impact on what he perceives the country to Trump hallmarks are his unaccountabil-ity and impulsive remarks which have become his primary identification marks.

After enjoying the upshots of Demonetization for few months, Paytm re-cently raised another $200 million from Alibaba Group Holding and the ven-ture capital fund SAIF Partners in order to expand its online retail business in the domestic market, which is predominantly conquered by Flipkart and Amazon. The deal is expected to value Paytm E-Commerce at close to $1 billion.

On the regulatory front, the Securities and Exchange Board of India (SEBI) plans to fur-ther tighten the regulations for algorithmic trading to minimize instances of misuse of such systems that can be used to execute complex trading strategies at a very high speed.

On the magazine front, the Article of the Month talks about the fault lines in the world economy as a whole, pondering upon various important questions such as what went so wrong that the American people, who have long championed liberal-ism and free markets are suddenly building walls all around? Why are the British people so eager to leave the EU? Why are so many European countries angry with the world? Why is Japan, once the hallmark of growth, striving endlessly to come out of a bruised and stagnant economic rut? And more broadly, why has the global economy and demand become so sticky that no matter how much money is pumped into it, there are no visible signs of a robust growth? Hence, the author is determined to find out the reasons why the world economy is behaving the way it is and what role does the political risk is playing in all this. In the finsight, the author talks about the most coveted work visa i.e. H-1B visa which is an employment based, non-immigrant visa in the United States and allows US employers to temporarily hire foreign workers in specialty occupations. However, with the recent undergoing reforms in the Trump re-gime, the Indian economy is expected to take a hit as India happens to be the largest recipient of H-1B visas in the world. In the FinGyaan section, the author talks about the Financial Health Clinics, which are the organizations specifically providing services to the sick industries for their revival. The main motive of these type of organizations is to provide the preventive and revival strategies which will create a safe guard to the sick industries by providing them a turnaround measures to follow for financial restructuring. The classroom section specifically talks about IPO valuation and the risks associated with an IPO. It will also help in developing a perspective as to how the valuation and done and what are the different factors that affect an IPO valuation.

Finally, we would like to thank our readers for their immense support and encouragement. You remain our prime motivating factor that keeps our spirits high and gives us the vigour and vitality to keep working hard. We hope you had a great month and wish you the best for the new one.

Stay Invested!

Team Niveshak

C O N T E N T SNiveshak Times04 The Month That Was

Article of the month 12 Houston, We Have a Problem!

Cover Story

FinView26 Mr. Sandeep Kumar - RBI

FinGyaan17 Financial Vaccinations: A Pre-vention Approach by Financial Health Clinics in Industrial Distress Handling

20 Michael Burry: An Outsider Hedge Fund Manager

FinaFame

15 Donald Trump - The Era of Uncertainty

22 H-1B Visa: A Non-Zero Sum Game

FinSight

Classroom27 Initial Public Offering

Equity Research10 Cummins india

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PayTM raises $200 million from Alibaba, SAIF Partners

PayTM recently raised $200 million from Ali-baba Group Holding and the venture capital fund SAIF Partners, in order to expand its on-line retail business in the domestic market, which is predominantly conquered by Flip-kart and Amazon. The deal is expected to val-ue PayTM E-Commerce at close to $1 billion.

Alibaba.com Singapore E-Commerce Pvt. Ltd picked up a 36.31% stake in PayTM E-Commerce for investing $177 million, while SAIF Partners in-vested $23 million for a 4.66% stake in the compa-ny. Following the deal, the stake of Alibaba and its affiliate Ant Financial (the parent company of Ali-pay) in PayTM E-Commerce will increase from the current 40% to 62%. Alibaba and its associates are also the largest shareholders in One97 Communi-cations, which has a stake in PayTM E-Commerce.

The funding round will mark Alibaba’s formal en-try into India’s crowded e-commerce market. The deal is expected to shake up the country’s e-com-merce sector, which is already witnessing a cut-throat rivalry between Amazon, Flipkart and Snap-deal. Interestingly, Alibaba also owns a tad over 3% in PayTM’s rival Snapdeal. Earlier this week, PayTM launched a separate app and website for its online marketplace business, PayTM Mall.

SEBI tightens Algo trading framework

The Securities and Exchange Board of India (SEBI) plans to further tighten the regulations for al-gorithmic trading to minimize instances of mis-use of such systems that can be used to execute complex trading strategies at a very high speed. Algorithmic trading refers to the use of software programs to execute trading strategies at a much faster pace. On the National Stock Exchange (NSE), Algo trades accounted for close to 16% of all trades. On the BSE, it was 8.56% in January.

There have been concerns that Algo traders who locate their servers on exchange prem-ises—called co-location—get an unfair advan-tage over others who don’t have such access.

Former SEBI chairman, U.K. Sinha said that while

India was one of the few countries in the world to regulate algorithmic trading — popularly called Algo trading — the market watchdog is looking to further strengthen the norms so that instances of flash crashes that have happened overseas, and also in India a few times, could be minimized.

“India is one of the very few countries in the world which have some mechanism for control-ling the misuse of Algo. SEBI has been able to come out with some minimal regulations on Al-gos. For instance, we have provided for high order to trade ratio penalty system. We are reviewing whether that penalty should be en-hanced further,” the outgoing SEBI chief, whose tenure ended on Wednesday, told reporters.

Jaitley headed GST council clears IGST, CGST bills – Government aims for July rollout

TThe GST Council unanimously approved the draft central GST and integrated GST laws in its 11th meeting. The Centre wants to bring these bills in the second half of the Budget session as it wants to stick to the July 1 deadline to rollout GST.

“The GST Council has cleared the final draft of CGST, IGST law and the approval of draft of state-GST (SGST) which is to be cleared by state assemblies is on the anvil,” Finance Minister Arun Jaitley said.

“CGST, IGST and Union Territory-GST (UTGST) law to be taken to Parliament in the second half of Budget session starting March 9,” Mr. Jaitley said. “UTGST and SGST draft bills will be taken up for discussion and approval at the council’s next meeting on March 16,” he added.

Finance Ministers from the states, however, say every state government will have to pass their own state-GST and classify tax rates for each item that is sold in the market -- also called fitment -- before GST can be rolled out.

Last month the Council cleared the draft compen-sation law, according to which the Centre will have to fully compensate states for any revenue loss for five years after migrating to the new tax system.

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Infosys board and management at a rift

It has been evident, at least since April last year, that all isn’t well between some of the found-ers of Infosys and the current management and board. The issue blew up in mid-February, with Murthy choosing to air his grievances in public. His strategically timed outburst came months after D.N. Prahlad, a former Infosys employee and a relative of Murthy’s, was ap-pointed to the board—an attempt of sorts by the Infosys board to buy peace with the found-ers—and subsequently named to the Nomina-tion and Remuneration Committee of the board.

Murthy told in an interview that corporate gov-ernance at the firm is down amid concerns about pay hikes and the severance packages of the top management. Murthy said that such pay-ments raised doubts whether the company is using them as hush money to hide something.

This brings to head tensions between the pro-moters (founder and co-founders) of Infosys and the management team and board members. Among the former is CEO Vishal Sikka while the latter consists of chairman of the board R Sesha-sayee and independent director Jeffrey Lehman.

Infosys has dismissed reports of a rift between

Murthy and the management, calling them mere media speculation and its board is “fully aligned with the strategic direction” of Sikka.

N Chandrasekaran to be TCS Chairman

Tata Sons Chairman-designate Natarajan Chan-drasekaran also started to hold the chair-manship of the group’s crown jewel Tata Consultancy Services from 21st February.

The country’s largest software services provider has also named V Ramakrishnan as its Chief Financial Officer to succeed Rajesh Gopinathan, who will take over as the CEO and MD of the Tata Group company.

“TCS has received a letter from Tata Sons, in exer-cise of the powers under Article 90 of the Articles of Association of the Company, nominating N Chan-drasekaran as the Chairman of the Board of Direc-tors of the company in place of Ishaat Hussain, with effect from February 21, 2017,” it said in a BSE filing.

Introducing Chadrasekaran to the people of Jam-shedpur, Ratan Tata expressed confidence that Chandra (Chandrasekaran) will take the group as well as the city to a new level of progress and growth.

The bitter boardroom battle between the Tatas and Cyrus Mistry had led to Tata Sons removing him as the Chairman of TCS. Tata Sons then appointed Ishaat Hussain as TCS Chairman on November 11. TCS had said Hussain would hold office as the Chair-man until a new Chairman is appointed in his place.

“My relationship with the founders? It is wonder-ful.” - Vishal Sikka

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MARKET CAP (IN RS. CR)BSE Mkt. Cap 1,17,59,367

CURRENCY RATESINR / 1 USD 66.72INR / 1 Euro 70.85INR / 100 Jap. YEN 59.55INR / 1 Pound SterlingINR / 1 SGD

82.9147.69

POLICY RATESBank Rate 6.75%Repo rate 6.25%Reverse Repo rate 5.75%

Market Snapshot

RESERVE RATIOS

CRR 4.00%SLR 20.50%

LENDING / DEPOSIT RATES

Base rate 9.25%-9.65%Deposit rate 6.50% - 7.00%

Source: www.bseindia.com www.nseindia.com

Source: www.bseindia.com

Source: www.bseindia.com

Date as on February 28th

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arket Snapshot

Market SnapshotBSE

Sensex, 7.95%AUTO, 6.07%

BANKEX, 13.18%

Capital Goods, 12.21%

Consumer Durables, 22.62%

FMCG, 8.23%Healthcare, 4.46%

IT, 1.97%METAL, 17.64%

MIDCAP, 12.64%OIL&GAS, 11.38%

POWER, 10.48%PSU, 10.05%

REALTY, 18.29%Smallcap, 13.65%

TECK, 4.85%

1

% Change

Index % change Open Close

Sensex 7.95% 26626 28743

AUTO 6.07% 20257 21486

BANKEX 13.18% 20749 23482

Capital Goods 12.21% 13665 15333

Consumer Durables 22.62% 11237 13779

FMCG 8.23% 8131 8800

Healthcare 4.46% 14728 15385

IT 1.97% 10176 10376

METAL 17.64% 10109 11893

OIL&GAS 11.38% 12152 13534

POWER 10.48% 1988 2196

REALTY 18.29% 1264 1495

TECK 4.85% 5498 5765

Smallcap 13.65% 12046 13691

MIDCAP 12.64% 12031 13552

PSU 10.05% 7691 8464

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IIFTShashank Sharma

Houston, We Have a Problem

Donald Trump’s recent inauguration as the 45th President of the US was a black swan event. For many, it was like a nightmare come true. The in-auguration speech was more or less free of any ex-plosive announcements (probably because some-one fixed up his speech well enough to not leak any outrageous plans). But as soon as he got to work, he was out with blazing guns. And the first few shots that he fired have, in essence, killed a lot of the hard work that America has done in the past. USA, under Obama, spent quite a lot of time and energy in getting the Eastern partners like Japan on board the TPP, but Mr. Trump quashed the whole build up with just an announcement. Looking southwards, Mr. Obama had for long kept relations with Mexico quite friendly. It was busi-ness as usual for the people and corporations until Mr. Trump signed an executive order to build a wall bordering Mexico. It would be of significantly bad consequence to the world if he makes good on all of his protectionist election promises.

A few questions worth pondering upon are: what went so wrong that the American people, who have long championed liberalism and free markets

are suddenly building walls all around? Why are the British people so eager to leave the EU? Why are so many European countries angry with the world? Why is Japan, once the hallmark of growth, striv-ing endlessly to come out of a bruised and stag-nant economic rut? And more broadly, why has the global economy and demand become so sticky that no matter how much money is pumped into it, there are no visible signs of a robust growth?

The most probable reason for this has to do with the shock that the globalized and interlinked global economy faced in 2007-08. The world economy was plunged into a recession as world GDP growth fell. And it may seem funny that the root cause of a disaster of this scale was a pair of innocuous sound-ing financial derivatives, namely CDO and CDS. Fi-nancial engineers “invented” derivatives, or “weap-ons of mass destruction” as Warren Buffet fondly calls them, to make money literally out of thin air. Lee Hsien Loong, Prime Minister of Singapore, put it perfectly when he said “When you start thinking that you can create something out of nothing, it’s very difficult to resist.” The Wall Streeters working at the biggest financial firms could not resist falling

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for the juicy bonuses that were in store if they took risks on complex derivatives. Moral hazard and un-believably huge bonuses clouded their decisions and ultimately the whole world had to pay, and is still paying through its nose for these misdeeds.

(The graph is taken from World Bank website. It clearly shows the huge blow to the world economy around 2008-09. The graph rises immediately after that as governments around the world scrambled money and power through bailouts and deals. But the afflicted wound was much deeper. The govern-ments could only do so much. As soon as the stimu-lus started reducing, the GDP growth again started to falter, as can be clearly seen.)

When the crisis hit, two things happened. The obvious tremors of financial damage didn’t take much time to spread to almost every country of the world, thanks to the linked economies. But the less obvious tremor hit the confidence of the gen-eral population. People were suddenly jolted back to reality. The real-estate market, which many “ex-perts” believed would only go up, suddenly came crashing. The governments and economies that they believed to be virtually “bomb proof” sudden-ly started to appear rickety. The venerable banks and other financial institutions started falling like dominoes. It had a doomsday-ish feel to it, with ev-erything seemingly going down.

Wary of the possibility of such incidents, people

shifted from a consumption binge to a more tra-ditional, savings mindset. These results may not tally at the micro level if people are personally in-terviewed, as being parsimonious is considered by many to be a sign of financial distress. But when we look at the broader picture, at the macro level, this

behavior change is quite visible, as evidenced by the graph below. The savings problem is even more exacerbated as populations around the world age and save for post-retirement days.

(The next graph, taken from World Bank web-site shows how the GDP deflator has fallen to record lows. It was around 1.6% for 2015 data which is lower than healthy levels. The cur-rent value is expected to be even lower.)

The case of Japan is a particularly sorry one. We all know about the lost decade (though it has actually been 25 years since the economy saw any sunshine). BoJ’s

current interest rate is 0%, a value which would have been laughing stock a decade ago but now is an ugly truth. The CPI is a meagre 0.3%. Japan has been stuck in a rut for a long time now. Paltry in-terest rates have kept capital investment low, the population is aged, domestic demand is very low, and the country has lost its competitive edge. Abe-nomics was brought in to resuscitate the economy. The BoJ, under the ETF program, bought stocks at an unprecedented rate to boost stock prices, inves-tor sentiment and support growth. But this led to huge distortions in the way a central bank should function. In April 2016, BoJ shocked the world by becoming the top-10 shareholder of 90% of Japan’s stock market. Still the economy is in doldrums and by now Mr. Kuroda may be starting to give up on the economy.

There are many issues that cloud the possibility of a rebound any time soon. One of them is the huge proportion of aging population around the world, especially in DCs such as Japan. This part of the population has either retired or is going to re-tire soon. Those who have retired are holding on to their savings, wary of losing their investments

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onth 2008-style. The aged working population is ineffi-

cient and slow in transitioning to the digital-world order, thereby weighing down on productivity. Cor-porations around the world are replacing these workers slowly with automation, effectively erasing the prospective jobs for the next generation. Also, in China for example, as parents living in the coun-tryside age, the children working in the cities are

having to leave for home to take care of the fam-ily, in what is still a society with traditional-leaning values.

China satisfied the consumption binge of the world for the last few decades and drove the world trade and economy. But it has faltered badly. And the degree of slump in the economy may have been understated in the press, given the secrecy that shrouds the collection and processing of the key economic indicators in the country. There were open revelations of malpractice in the Liaoning provincial office that is responsible for collecting and passing on statistics to the central agencies. And even people as high up the political ladder as Premier Li Keqiang were aware of this. This kind of data fudging can probably be seen as a desperate effort to regain investor sentiment at a desperate time when the slowdown in the economy has be-come obvious.

The idea of global corporation is going down, and

there is no one to save it. Huge corporations have already started shifting, or have plans to shift, man-ufacturing facilities back to the west as rising wag-es in China and lower global aggregate demand, among other issues, have eaten into profits. Adidas, the German multinational sports equipment man-ufacturer is slowly shifting mass production of its shoes back home, on the back of automation and

availability of more ef-ficient production tech-nologies such as 3-D printing. Global food giants such as McDon-alds and KFC have taken a beating internation-ally. Profits and market shares have dwindled to unprecedented levels. They are planning radi-cal transformations and are pulling out of many markets where they are competing against the rise of local competi-tors. The list is really, re-ally long to be discussed in a single article.

For most of us B-School students, it is for the first time in our lives that we are looking at an economy that is being hammered and bruised

so badly for such a long time, especially because of the rise of populism and protectionism around the world. The two biggest exhibits of this are the Brexit vote and Donald Trump’s election as the US President. Elsewhere for example, in France Ma-rine Le Pen has vowed to hold a referendum similar to the Brexit vote if she wins. And going by what is the current trend, it would be foolish to bet on the European Union not collapsing real soon.

Markets are generally robust as they can take mea-sures against known or measurable risks. But we are currently living in a world dominated by politi-cal risk. And it is well known that political risk is very difficult to measure as the factors affecting such risk are really difficult to quantify. It is more lean-ing towards pure uncertainty and bizarre results as we saw in the case of Brexit vote and the US elec-tions. Looking at the roller-coaster ride that the world economy is facing, the bad times, they aren’t a changin’ anytime soon.

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Sankeerth Bondugula

Donald Trump – The Era of Uncertainty

Breaking all expectations Mr. Donald Trump emerged victorious in the recent US Presidential elections and was inaugurated as the 45th Presi-dent of the world’s oldest democracy – USA, be-coming perhaps the most unanticipated figure to ever enter the Oval Office. Economy will be at the top of Trumps agenda as President and will serve as the most important barometer of his perfor-mance. His business origins and his affluent life-style will have a huge impact on what he perceives the country to Trump hallmarks are his unaccount-ability and impulsive remarks which have become his primary identification marks. While Trump has some grandiose ideas and equally lofty rhetoric to accompany them, deciphering the exact nature of his economic policies is a complex task. Given his stance on the existing policy structure and his fu-ture plans, it’s hard to imagine that he will have a smooth sailing in congress, despite its remaining under Republican control.

Immigration

His primary focus would be on immigration reform where he proposed to build a wall between Mexi-co and United States and demanding the deporta-

tion of 11 million undocumented immigrants. His immigration stance has put many businesses in uncertainty which could cost USA dearly, as busi-ness have no incentive to operate from US when trade and immigration policies are tightened.

American Action Forum estimates that enforcing the immigration law as suggested by Trump would cost the fed nearly $500 billion. It potentially could shrink the labor force by 11 million workers, reduc-ing the real GDP by $ 1.6 trillion.

The agriculture sector, along with many labor-in-tensive sectors, would be devastated which might lead to a fall in farm income and a sharp rise in food prices. Immigration is an enormous source of vitality, it will have an effect of both the supply and demand. Companies that sell to immigrant popu-lation will lose revenues and be forced to cut down a sizeable chunk of American jobs. Research sug-gests that each immigrant creates 1.2 local jobs in America, all of which could be washed away is they were deported abruptly.

Legal Immigrants are also under Trump’s scan-ner. He proposes to increase the prevailing wage

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requirements for H-1B visas, which he believes would force companies to give jobs to domestic employees instead of overseas workers. This might benefit a few Americans but will certainly be a loss for USA and American corporations.

Major Tax Code Overhaul

Trumps tax plan unveiled during his campaigning is perhaps the most detailed proposals he put forth till date. Its pro rich and anti-poor is what his oppo-nents criticize it as. One of the most distinguishing feature of his proposal is his hard cap on business at 15%, which might be especially appealing to freelancers and the self-employed. The proposed tax plan would reduce the revenues enormously and inevitable skyrocket the federal budget deficit. Maintaining the entitlement programs like Social Security and Medicare is a very expensive affair for the fed, which would turn into a major burden if there aren’t any spending cuts with the proposed tax plan.

Revamping Obamacare

The Republican Party has already taken steps to begin the process of rolling back the Affordable Care Act. During his campaign, he also emphasized on the allowance of purchases of health insuranc-es across state lines and block-grant Medicaid to states.

Renegotiating NAFTA

NAFTA which allows free trade between Canada, USA and Mexico and Trans Pacific Partnership which allows free trade among 12 countries are on the Trump’s radar too, which he is fiercely critical about. USA is one of those 12 signatories to sign the TPP which was just finalized in Feb 2016. Presi-dent Trump announced his plan to withdraw from TPP and also has signed a Presidential Memoran-dum to the same effect.

Climate Change Stance

Climate Change Regulations and Paris Climate Agreement also is under attack by President Trump. He has sworn to do everything in his power to reverse the climate change regulations. Howev-

er, that is not as easy as US is legally bound to the Paris Agreement for four years.

Added to all this lets also look at what effect Trump’s presidency is likely to have on India

Impact on India

To start off, President Trump speaks warmly of Russian President Vladimir Putin and clearly states his stance of wanting to strengthen the relation-ships with Russia. Good relations between Russia and USA is good for India because we can then pursue closer relations without contradiction. On the other hand, Trump has opened the one-China policy for reconsideration and the country might be penalized for currency manipulation.

Going by the affinity he displayed towards Hindus and India during his campaigns he is in favor of strengthening the existing relationships between India and USA. On the issue like, membership of the Nuclear Suppliers Group or a permanent seat of the Security Council, we can be optimistic of Trump taking a favorable stance for India.

The biggest concern to India is about the H1B vi-sas. Tightening the H1B visa rules poses a threat to the Indian IT Sector as 60% of the $110 Billion exports go to the US. US companies themselves will be effected due to this move as it will increase their employment costs drastically. If Trump and his administration has American citizens best In-terest in mind, he will rethink his stance and ap-proach towards this.

Trump’s attitude to American companies that es-tablish factories abroad is also a factor of concern for India. Ford has three manufacturing facilities in India and exports most of its cars, similarly other American companies which have establishments in India exports majority of their production, all these companies must rethink their strategy. Giv-en the uncertainties and questions yet to be an-swered, everybody has their fingers crossed on how things will pan out in the future. We can only wait to discover what will happen, once it has hap-pened.

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INTRODUCTION

Industrial illness is of considerable significance today which is differently identified as corporate sickness. A developing country like India has more than 1,000 nos. of large and medium sized units and more than 1,00,000 nos. small units which are sick. These units have been provided millions of rupees by different fi-nancial institutions which cannot be recovered. We can have the significance proof of large scale units’ sickness is already aggravated in India in comparison to small and medium scale units. We can find the exponential growth rate of illness of these sectors which cause the decrement of the in financial strength and economic reserve of India. Among these unhealthy organiza-tions have already risen back from their sickness only by their strategic management techniques and math-ematical analysis. Along with it many cases have not been able to achieve their past strength till now.

OBJECTIVES

1. To study about financial health clinics and their approaches for corporate restructuring.

2. To propose a proper financial vaccination sche-matic model for distress prevention.

FINANCIAL HEALTH CLINIC

Financial health clinics are the organizations specifical-ly providing services to the sick industries for their re-vival. The main motive of these type of organizations is to provide the preventive and revival strategies which will create a safe guard to the sick industries by provid-ing them a turnaround measures to follow for financial restructuring.

IMPLICATION FOR THEORY & PRATICES

BRIEF EXPLANATION OF PROPOSED MODELS

In the above proposed model if mainly for every sick industry which will help that industry to revive and re-gain its strength. Through this model it has been tried to show the methods and factors of become healthy and the process of sustaining it. The regular review and systematic following of the above model steps definite-ly make a distressed unit revive from the sickness and make it healthy. In the model the upper part is show-ing the factors and the methods to make the particular

nIT Warangal

Parag Ray

FINANCIAL VACCINATIONS: A PREVENTION AP-PROACH BY FINANCIAL HEALTH CLINICS IN INDUS-

TRIAL DISTRESS HANDLING

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industry healthy. The process of sustaining the healthi-ness has been described in the lower part of the model.

FINANCIAL DISTRESS HANDLING BY PROPER FI-NANCIAL VACCINATION

In the next diagram, we are trying to show the continu-ity of a process to apply the turnaround strategies for revival sick industries in India. The whole model is talk-ing about the steps and points to be followed for reviv-al of the financially distressed industries. First, as a part of rehabilitation process the industry should focus on the opportunity for it in the market by engage its R &

D team intensively in the market to do market research which will help them to repositioning their product newly in the market. It will fetch immense profit to it. To start the process, the fixation of a bench mark as a goal and the higher limit which need to be achieved by establishing the break even for the process. Financial restructuring need to be done by establishing the rela-tionship between achieving cost and the asset efficien-cy. Financial restructuring should be done prior before this by manpower adjustment and sale of unproductive assets from the company which are the one-time steps toward revival.

SCHEMATIC VACCINATION MODEL OF PREVENTIVE MEASURES TO REMOVE FINANCIAL DISTRESS

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FUTURE SCOPES

The future scope of this research is to collect all the information and exact practical implementation of the revival strategies and steps by health clinics or financial restructuring companies and their impact on financial strength building in India.

CONCLUSION

The more and more financial health clinical attempts on Indian sick industries will definitely help in creating healthy industrial environment in India the main steps

of this institutions are Analyzing the financial strengths and weaknesses faced by a company ,Helping it raise its debt or equity capital, Sustaining the growth of an organization through strategic planning, Increas-ing shareholder value through efficient and corporate governance, Helping you to adapt to the unexpected changes in consumer preferences, Optimizing working capital and cash management and analyzing various transactions taking place while structuring or restruc-turing are for better and for improved performance. this vaccination techniques and preventive measure will help MAKE IN INDIA vision successful by providing a sustainable financial strength to the Indian industries.

PROPOSED MODEL FOR ADOPTION OF TURN ARROUND STARTEGIES

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IntroductionA successful investor has a deep insight about the investment and has the patience to materi-alize the plan to their advantage. Michael Burry is one of the greatest examples where a person demonstrates such investor’s traits, his profound insights and patience helped him earning the sig-nificant amount of return when everyone else in the financial world was making massive losses.

Personal LifeMMichael Burry is the founder of the hedge fund Scion Capital, which he named after his favor-ite book – The Scions of Shannara. He pursued medical and started his career as a physician af-ter graduating from Vanderbilt University School of Medicine. Since he has an inclination towards investment, he began investing as a personal in-terest which later on developed as full-time work. From his early days, he used to work hard studying for medical as well as for the particular interest of financial investing. So much was his dedication to-

wards work, that once he fell asleep and crashed onto the oxygen tent which was built around the patient during treatment. While working as a neurosurgeon at Stanford Hospital in 1990’s, as a resident at the hospital, he used to write his ideas about various investment strategies onto a mes-sage board where professional money manag-ers use to copy his ideas and profit free of cost.

Obsession turned profitableIn the initial days, a hedge fund offered him $ 1 million for his investment firm, which was estab-lished by investing a few thousands of dollars contributed by his parents and siblings. Anoth-er firm offered him $ 10 million dollars for the same investment firm. Michael Burry used to do value investing and invest according to overpric-ing and underpricing of the assets. The value in-vesting helped him earned profits of around 55 per cent in 2001 as compared to negative returns of S&P 500 of around 12 percent, and he was able to make a similar streak of profits in com-ing years where he continuously beat the market.

IIM ShIllong

Saurabh Gupta

Michael Burry: An Outsider Hedge Fund Manager

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Story behind the success Michael’s obsession of searching the underval-ued companies led him to find that current pric-es of houses are overvalued, and even his home at San Jose at California was overpriced. The ex-tensive research made him realized that a large amount of the homes are overvalued, and thus a housing bubble is created which will burst any-time sooner or later. The price of houses heated up because of the easy availability of loans to the borrowers. The easy availability of loans is done through a process known as Mortgage-backed securities commonly known as MBS, where the loan on the houses are pooled together to form a single security and exchanged in the market as regular bonds trading. These MBS are of 2 kind in nature – Prime and sub-prime. The sub-prime MBSs were one with a low quality of loans. Thus,

people with limited or even with no ability to pay back loans were provided with the loans and such loan is pooled with good quality loans and sold to the investors. Such Mortgage backed securities were given ratings of investment grade by the vari-ous rating agencies when they were bonds of junk grades. Michael Burry was amongst the few inves-tors who was able to figure out the overheating of housing prices combined with the junk quality of MBS and felt that the collateral damage would lead to catastrophic events which would be of a devastating magnitude that anyone would ever think of. In the year 2003, he estimated that bonds based on these mortgages would crumble within 2 years when people convince themselves that the prices of houses are not correct and when sub-prime mortgages backed securities starts to fail.

Strategy and winning ticketsMichael followed an unconventional way to short the mortgage backed securities using swap strat-egy by persuading the likes of the big bank Gold-man Sachs to sell him the Credit Default Swap against subprime securities which he estimated to be of no value. The names of few other banks he approached are Deutsche Bank, Bank of America, Bear Sterns and Credit Suisse, where he was able to make successful deals. The uniqueness of such transactions is that Michael did not have to have the bonds to insure it, and over the time the return

from the declining of values of the securities will profit him although he has to pay a large amount of money in form of CDS payments which is kind of insurance premium to the banks. Michael faced a huge resentment from the investor of Scion Capi-tal because of the insurance premium payments since they were making consecutive losses and nowhere the fall in the bond prices was noticed. Many of the worried investors left the hedge fund firm and withdrawn their amounts, and some of them also threatened to suit Michael. He used un-orthodox and questionable methods to retain the investors and to make them stay invested in the firm. He knew that the table would turn someday and believe that he made right decisions. The mar-ket tested his patience. By the end of June 2005, Goldman Sachs was writing some huge amount of CDS contracts to Burry which were in the range of $ 100 million.

The default rates of mortgages started rising at a fast pace but their prices remained stable for a long period of time. It was in early January 2007, the index of subprime bond fallen one basis point and the market showed signs of risk of crisis. Soon-er, the large banks realized their mistake as they noticed a growing number of defaults in the sub-prime mortgages and tried to buy back the swap contracts that were sold initially, in the endeavors to protect them from further losses. By that time, Michael realized that he holds the upper hand and refused to sell back the swap contracts. The wait of over 2 years was over for Michael and he started to make a large amount of profit. Finally, Michael walked away with a huge chunk of profit which is calculated to be 489.34 per cent from November 2000 to June 2008.

Exceptional investment careerMichael story justified him to be a great investor and his ability to carefully study the financial mar-kets made him earn a future. Opportunities are rare to come and one who recognizes and grab that opportunity will make tremendous returns. The strong mental ability combined with great emotional control, he demonstrated that other investment pundits and advisors would not af-fect his decision and he sticked to his research in-sights and strategy. By not jumping on to another strategy even after 2 years of losses, he showed discipline which is highly critical in the field of in-vestment. Michael Burry is one of the greatest heroes in the financial world that led to show that short selling is a tool if handled with utmost care can bring in lots of success. He was the paragon of courage and virtue.

“ My natural state is an outsid-er. I’ve always felt outside the group, and I’ve always been

analyzing the group. “

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Introduction

The H-1B visa, the most coveted work visa, is an employment based, non-immigrant visa in the United States, which allows US employers to tem-porarily hire foreign workers in specialty occupa-tions. The number of H-1B visas that can be issued in a year is 65,000 but an additional 20,000 visas are given to foreigners with advanced degrees from US universities. In the year 2016, the US Citizen-ship and Immigration Service announced that they received 2,36,000 H-1B visa applications within 5 days of opening the process. This is more than thrice the mandatory cap of 65,000 H-1B visas that can be issued. Most of these visas issued are taken by employees of major Indian Technology firms.

PROCESS OF APPLYING FOR H-1B VISA

H-1B visas are issued only for ‘Specialty Occupa-tion’. These occupations require the application of highly specialized knowledge in the fields in-cluding but not limited to engineering, math-ematics, biotechnology, social science, medicine and health. The foreigner worker must possess a bachelor’s degree or its equivalent in-order

to practice in this field. Also, H-1B visa is strictly limited to employment by sponsoring employer.

To apply for an H-1B visa, the employer sub-mits a labor condition application with the De-partment of Labor (DoL). The applications that are approved by the DoL, are reviewed by the United States Citizenship and Immigration Ser-vices (USCIS), which then grants the H-1B visas.

As the applications received every year for H-1B visa exceeds the cap of 65,000, the USCIS has been granting visas using a computer generated lottery since 2004. The lottery system makes the entire process unbiased, but the catch is that, while every employee is allowed to submit only one applica-tion, there is no limit on the number of applications that can be submitted by the employer. Therefore, a big firm can improve their odds by nominat-ing large number of candidates for one job in US.

PROBLEMS ASSOCIATED WITH THE H-1B VISA AL-LOTMENT PROCEDURE

There are various problems identified with the current procedure of allotting H-1B visas:

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H-1B VISA: A NON-ZERO SUM GAME

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1. Outsourcing based IT firms have a big share in H-1B visa applications: The rising share of H-1B visas awarded to outsourcing based IT firms indicates that they firms may have found a way to tackle the lottery system.

2. Labor substitution rather than innovation: There is a dominance of foreign workers holding only a bachelor’s degree in the H-1B visa catego-ry. This indicates that these workers are bought for replacing the domestic worker and they are

not involved in any cutting-edge innovation.

3. Employers waiving declaration requirements: Under US federal law, employers are required to declare that employing foreign workers is not dis-placing the domestic workers. However, this dec-

laration is waived if the annual salary of H-1B em-ployees is greater than $60,000 and interestingly, the median salary of most of the H-1B employees of most outsourcing companies hover near $60,000. This shields them from making such a declaration.

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CHANGES PROPOSED BY PRESIDENT TRUMP IN H-1B VISA

President Trump, whose election campaigns centered on protectionism of US, had proposed various changes to H-1B visa allotment. Accord-ing to him, H-1B visa is a bad program, as it takes away the country’s best jobs from the citizen of US for the convenience of the wealthy corpora-tions. Some of the changes proposed by Presi-dent Trump in the allotment of H-1B visa are:

• Doubling the minimum salaries of H-1B visa holders to $1,30,000.

• 20% of H-1B visas are reserved for small and start up employers.

• Removal of ‘per country cap’ for H-1B visas to ensure equal distribution.

• Firms that want to hire H-1B visa holders must

make a good faith effort to recruit Americans first.

• Preference to be given to US educated students for H-1B visa rather than depending on computer-ized lottery system.

• Prohibit spouses of H-1B visa holders from work-ing in US.

• Prohibit companies which have more than 50 employees, of which at least half are H-1B and L1 holders, from hiring more H-1B visa holders.

IMPACT OF PRESIDENT TRUMP’S PROPOSED CHANGES IN H-1B VISA

These changes clearly highlight the emphasis on “America First” goal being pursued by the new government under Trump but nations supporting H-1B visas argue against them saying that this pro-gram does not take away any jobs from Americans as there are not enough skilled Americans avail-

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able to perform these jobs. Many US employers have complained that American universities fail to produce enough mathematicians and engineers to keep pace with an economic sector producing 150,000 new jobs a year. Also, it is a well-accepted fact that the use of protectionist measures will only make it more difficult for employers to hire the best available talent for the job in today’s era of globalisation and open trade.

IMPACT ON USA

The Indian exports to US especially in pharma-ceuticals, textiles, gems and jewellery and auto product industry would be deeply hurt. Such em-bargoes or restrictions would weaken US as the operational cost would rise enormously and the goods produced would become expensive for its consumers. The ability of US to attract the world’s best and brightest talent has always helped them in attaining and maintaining the status of a global leader and thus, any reforms restricting this inflow of talent will surely harm the nation in the long run. Medical and Pharmaceutical Research teams working on multiple projects for the welfare of mankind in US would be greatly impacted as they are constituted by the great minds from across the globe but the new proposed reforms do not en-courage non-Americans to work in US.

The new government also needs to realise that since not enough people with the required quali-fications are present in US to fill these jobs, there are only two choices in their hands: either the jobs remain unfulfilled or companies outsource these jobs. The second option necessitates the distribu-tion of H-1B visas. Also, contrary to the popular belief, Indian IT industry has actually been creat-ing more jobs in the US and promoting economy growth as often H1-B workers bring their families along and in turn, bring additional business for other industries like real estate, banking, hospital-

ity to name a few.

IMPACT ON INDIA

These reforms would jolt the Indian economy the most as India happens to be the largest recipient of H-1B visas in the world. In 2016, 70% of the 85,000 H1-B visas worldwide went to Indians. The Indian IT industry, contributing 9.3 percent to the country’s GDP, draws around 60% of its revenue from the US market using its offshoring model and hence, is deeply concerned with these changes. IT sector provides employment to around 3.7 mil-lion people and is one of the largest private sector employers. United States is also the second largest source of remittances for India and hence any re-strictions on hiring Indians would adversely impact the country.

IMPACT ON INDIAN IT INDUSTRY IN LONG TERM

It is also important to highlight that though the proposed H-1B visa reforms are challenging for In-dia’s IT firms in the short run but these can serve as catalyst for their transformation into global players. The fundamental source of competitive advantage for this sector has been its labour cost but the with current trend supporting and encour-aging automation, technology shifts, commoditi-zation and increasing protectionism, their global delivery model is being undermined. They need to abandon this cost arbitrage and shift from renting out IQ to creating intellectual property. This threat from the US government might impel this sector to start moving more decisively, to look out for new avenues for growth, focus more on innovation and automation, localize work forces and turn them-selves into global hubs. If Indian IT services are able to seize this window of opportunity, they can easily transform themselves into global technol-ogy giants who do not need visas to succeed.

In a candid interview with

Team Nive-shak, Mr Sand-eep shares his

views about the Indian

Banking Indus-try and current happenings in banking space.

He also pres-ents his views

about vari-ous banking

Norms.

Mr. Sandeep Kumar

General ManaGer, reserve Bank Of IndIa

Mr. Sandeep Kumar is the General Manager at Shillong Branch of RBI. He is Chartered Associ-ate of Indian Institute of Bankers, and diploma holder of IIBF with specialisation in Treasury, In-vestment and Risk Management. Mr. Sandeep holds MBA from Faculty of Management Studies, Delhi University.

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Budget 2017 allocated 10000 crore for re-capitalisation of bank. How such small amount will able to deal with in the Huge NPA prob-

lem of banking sector?

The allocation of 10k crore is as per the indradhanush plan, but it is evidently not ad-equate given that indradha-nush plan was released in Au-gust 2015 and in the interim period a lot of developments have taken place including Asset Quality review. RBI has been requesting the govern-ment to allocate more as we are of the view that there is need for adequate recapi-talization of PSBs. Even the government has indicated in the budget that it is open to making more provision for capital as the year progress.

How does RBI planning to implement BASEL III lim-its by 2019. What additional measure we can expect in

near term?

The implementation of Basel III is already laid out by the RBI. The regulations are in place. Howev-er recapitalization is the key to implementation. As mentioned earlier we have requested govern-ment for that. In the meantime RBI has made cer-tain changes like recent changes in the definition of capital (including reserves relating to revalua-tion of fixed assets, deferred tax liabilities as part of Tier I capital) which will further allign Indian definition of capital closely with the Basel norms.

Since BHIM app has already been rolled out by NPCI, what are your expectation with the same. How substantially is it going to impact re-tail payment system in India?

MPC is a body that is formed for the implementa-tion of the flexible inflation targeting framework. It constitutes of 6 members, 3 from RBI (including Governor, DG, ED) and 3 members nominated by the government. In case of tie, Governor has the casting vote. MPC has been operational in deciding the policy stance since October 2016. It is respon-sible for deciding the repo rate which is the op-erating instrument and align the operating target (weighted average call money rate) as close as pos-sible to operating instrument. The idea is to meet the glide path such that CPI combined inflation rate is 5% by March 2017 and 4% (+/- 2%) thereafter.

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Yo Mr. Fin! BSE Ltd recently came up with an IPO! Could you tell me what an IPO is all about, and how do they come up with the value of the Shares? I haven’t really

been able to keep up with all this techy stuff. Hey Sam! An IPO, or an Initial Public Offering is simply the process through which a private company, when in need of funds, can come to the stock market and offer its shares to the public, following which it becomes “publicly-traded” on a stock exchange. Once a company goes public, its ownership then lies with the investors, or shareholders, who purchase the company’s shares when they are offered for sale in the market.Most of the investors, however, have real exposure to the IPO process only a few weeks prior to the IPO, when the public at large is informed through media sources. How exactly the shares of a company get valued remains a mystery, except to the investment bankers involved & some investors who had been tracking the company’s performance through their own contacts.

Sweet! Maybe not the exact process, but could you elucidate the factors that are considered when an IPO is valued?TWell you could fundamentally divide

the components that are considered into two categories. I’d tell you more about these in detail-First, come the quantitative components. Just like any sales pitch, the success of an IPO is dependent on the demand for the shares of that company. A strong demand for the company’s stock would enable the investment bankers to price the shares at a relatively higher value. As an extension to the same point, the timing of an IPO holds significant importance too. The valuation of the IPOs of two companies, who might have similar financials,

could be totally different merely because of the timing of the IPOs and the corresponding market demand and sentiments. You might recall the roof-hitting valuations that tech companies had got during the peak of demand for technology.Second, but not any less importantly, come the qualitative components. A company may not have very strong financials at the time of the IPO, but it might have a product or a service that can bring innovative disruption. In this context, recall the high valuations that internet stocks got back in the

90s.Insightful! Do the industry trends

also affect the valuation process?Indeed! If the company that is coming up with an IPO operates in an industry that

already has comparable publicly traded companies, the IPO valuation may be linked to the valuation multiples that are assigned to these competitors, the rationale behind this being that investors would be willing to pay more or less similar amounts for this IPO as they would have to currently pay for the existing companies.

Umhm! Well considering the huge amounts and the quantum of people involved, there might be some risks associated with IPOs as well, I reckon?You’re a sharp lad, Sam! The risks that exist are for the companies, as well as the investors. For instance, if the IPO is mistimed, that is, it comes at a time of weak demand, it might not be able to attract investors (Stock Exchange regulators across the world set the percentage of minimum subscription required for an IPO to be valid) and the IPO might lapse. However, this risk can be mitigated through the help of underwriters, who buy the balance of the shares that remain unsubscribed.Cool! That certainly helped me develop a perspective. Thanks, Mr. Fin!Cheers, Sam! Stay inquisitive, stay invested!

CLASSROOM

FinFunda of the Month

IIM ShillongAnand Mittal

Initial Public Offering

A N N O U N C E M E N T S

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