Niveshak Dec14

Niveshak
THE INVESTOR
VOLUME 7 ISSUE 12
December 2014
FROM EDITORS DESK

Dear Niveshaks,
Niveshak
Volume VII
ISSUE XII
December 2014
Faculty Chairman
Prof. P. Saravanan
THE TEAM
Abhishek Bansal
Akanksha Gupta
Apoorva Sharma
Bhawana Saraf
Gaurav Bhardwaj
Jatin Sethi
Kocherlakota Tarun
Maha Singh Gulati
Mohit Gupta
Mohnish Khiani
Palash jain
Prakhar Nagori
Priyadarshi Agarwal
Ramesh Jaiswal
Rahul Bajaj
Sandeep Sharma
S C Chakravarthi V
Vishal Khare
All images, design and artwork
are copyright of
IIM Shillong Finance Club
Finance Club
Indian Institute of Management
Shillong
www.iims-niveshak.com
With this issue of Niveshak, we bid farewell to an eventful year of 2014. The month of
December saw foreign investors pouring in $2 billion in the Indian capital markets in
December, taking this years total inflows to a whopping $42 billion since January. Foreign Portfolio Investors have invested heavily into the debt market with an exposure of
$26.4 billion, while $16.4 billion have been poured into the equities market. The year
2014 was not very good for IPO market as the funds raised via IPOs in 2014 was lowest
in more than a decade, despite the benchmark indices hitting new highs during the
year. The five IPOs that hit the markets this year raised a combined Rs 1,201 crore, the
lowest since 2001, when 13 companies had raised Rs 296 crore.
Major headlines of this month were - Walmart announcing the opening of new cash
and carry store in Agra after a gap of two years. RBI in its fifth bi-monthly monetary
policy kept the policy rates unchanged. Jyotsna Suri elected as the President of Federation of Indian Chambers of Commerce and Industry (FICCI) and she will succeed
Sidharth Birla. The mid-year economic review projected the 2014-15 growth to be at
5.5%. The Finance Ministry ratified 8.75% interest on PF for 2014-15. Japanese Prime
Minister Shinzo Abe was re-elected for another four year term. Ebola fighters were
named as Time magazines 2014 Person of the Year for their tireless acts of courage
and mercy and for risking, persisting, sacrificing and saving. Indias Kailash Satyarthi
received the Nobel Peace Prize for 2014, sharing it with Pakistans Malala Yousafzai, the
youngest ever Nobel laureate, for their work on promoting child rights in the troubled
sub-continent, where millions are deprived of their childhood and education. The
UNs annual economic report predicted the global economy growth to be 3.1% in 2015
and 3.3% growth in 2016. The report also said the India is estimated to record a 5.4%
economic growth this year and its GDP will improve to 5.9% next year and to 6.3% in
2016. The State Bank of India has launched two indices namely SBI Monthly Composite Index and the SBI Yearly Composite Index that will primarily track manufacturing
activity and offer a forward-looking economic trends.
The highlight of this years budget was Real Estate Investment Trust (REIT) and our
Article of the Month describes everything you need to know about REITs. Startup
ecosystem is maturing in India and 2014 has seen a phenomenal traction in this space,
our coverstory discusses how Private Equity, Hedge fund and VCs investments have
impacted start-ups in India. The year 2014 was also about FDI investments, our FinGyaan section covers FDI investments and how they help the economy. It also covers
both the bright and dark side of the story. And our FinLife section covers the Corporate Social Responsibility aspect of the corporates and how it is helpful to the Indian
economy and people. This year was about blazing stock markets and our FinSight
section covers that in detail by describing the SENSEX movement this year and the
steps taken by Modi government that helped the markets.
To end this brief note, its important that we thank you, our readers, for your constant
support and appreciation. Please continue to motivate us so that we can come out with
more insightful reads in the issues to come. Keep pouring in your suggestions and
feedback to niveshak.iims@gmail.com and as always.
Stay Invested!
Team Niveshak
Disclaimer: The views presented are the opinion/work of the individual author and The Finance Club of IIM Shillong bears
no responsibility whatsoever.
CONTENTS
Cover Story
Niveshak Times
04 The Year That Was
Article of the month
14 Start-up and Private Equity
Real Estate Investment Investments in India

Trusts : A look into the need and
benefit of real estate investment trusts in India
10
FinGyaan
18 FDI- a harbinger of economic
growth?
Finsight
26
The sudden improvement in

stock markets: Will it sustain?
FinLife
FinView
22 Socially Responsible Corpo- 29 Interview with Prof. Natesan

rates
Ramesh,
Professor SJMSOM, IIT Bombay
Classroom
31 DuPont Analysis
The Year That Was
NIVESHAK
The Niveshak Times

Team NIVESHAK
IIM Shillong
PM launched Make In India Campaign to
make India a manufacturing hub
Prime Minister Narendra Modi on 25 September 2014
launched Make In India Campaign at Vigyan Bhawan
in New Delhi to make India a manufacturing hub.
The campaign is aimed to attract foreign companies
to set up their manufacturing units in India and to
seek greater foreign investment.
The
objective of the campaign is to get
manufacturing sector to grow over 10% on a
sustainable basis over a long run. The campaign
is aimed to transform the economy from the
services-driven growth model to labour-intensive
manufacturing-driven growth. This will help in
creating jobs for over 10 million people, who join
the workforce every year.
Union government de-regulated diesel and
hiked natural gas rates
Union
government on 19 October 2014 deregulated the price of diesel and hiked the rates of
domestically produced natural gas.
The price of diesel will be market-linked without
any government intervention and retail rates
reflecting price changes in the global market. Now
the government will no longer provide subsidy on
diesel.
This is the first reduction in diesel rates from
2009. The diesel price was reduced by 2 rupees
a litre to 30.86 rupees in January 2009. After the
deregulation of diesel, the rates of diesel will bring
down rates by 3.37 rupees per litre.
Besides, the natural gas tariff was hiked by 46
percent and will go up from current 4.2 per million
British thermal units (mmBtu) to 6.17 per mmBtu
from 1 November 2014. The increase of natural gas
price will push up fertiliser, power, CNG and PNG
rates. The natural gas price increase will result in
CNG prices going up by 4.25 rupees per kg and
piped cooking gas by 2.6 rupees. Besides, tariff
for power produced from gas will go up by about
90 paisa per unit and fertilizer production cost by
almost 2720 rupees per ton.
Relief in Inflation
SEPTEMBER 2014
Inflation has been one of Indias biggest problems.

It remained elevated for a long period of time, often
growing at a rate over 10%. This year brought cheer
on this end too. Inflation fell the entire year to new
multi-year lows. Wholesale price inflation grew 0%
in November, while retail inflation grew 4.4%, as
per the latest data. This has been predominantly
because of a fall in global oil prices. Food inflation,
which grew 15.4% in November 2013, is down to
3.1% in the same month in 2014. This is good news,
as high inflation eats into the value of money. A
continuous fall in inflation also could open doors for
a cut in interest rates by the Reserve Bank of India.
This could help spur growth.
Quantitative Easing comes to an end
In May 2013, the US Federal Reserve announced
its intentions to cut down its bond purchases,
called the Quantitative Easing programme. The US
central bank infused money into the US markets
through this programme. This money found its
way into riskier emerging markets like India. The
announcement led to market crashes around the
world. The Indian market was the most affected.
2014 has seen a reversal of this effect. The US central
bank slowly reduced its bond purchases to finally
end the programme in October this year. Despite
that, foreign investors continued investing in India
as the underlying economy and fundamentals
improved. The US central bank also indicated it may
hike interest rates next year.
Mergers & Acquisitions in the year 2014
On February 13, Comcast Corporation announced
its proposed acquisition of Time Warner Cable for
a whopping $69.8 bn. It was only first of the many
such handshakes to cheer up World Inc this year.
Some of the major international Mergers & Acquisition
(M&A) deals this year include those between Holcim
(acquirer) & Lafarge (target) for $46.8 bn, Facebook
& WhatsApp ($19.4 bn), General Electric & Alstom
($17.1 bn) and Novartis & GlaxoSmithKline ($16 bn).
The Indian landscape was also flush with such
announcements.
Flipkart- Myntra joined hands in a deal reportedly
NIVESHAK
worth Rs 2,000 cr. Other important deals include RILNetwork 18 Media and Investments (Rs 4,000 cr),
Asian Paints- Ess Bathroom Products, Kotak Mahindra
Bank - ING Vysya Bank (all stock amalgamation),
Merck- Sigma (for $17 bn in cash), Ranbaxy - Sun
Pharmaceuticals ($4 bn), Tata Consultancy Services
(TCS) and CMC and Tech Mahindra Ltd - Lightbridge
Communications Corp ($240 m).
FDI in Insurance, Railways, Defence etc.
Moving ahead with the economic reforms, the
Cabinet cleared the proposal for raising FDI limit
in defence to 49 per cent and fully opened up the
railway infrastructure segment, like high-speed
trains, for foreign investment.
valuable tech companies in the world after raising

$25 billion from its U.S. IPO.
World Economy Snapshot
Its been a mixed year for the worlds economic
indicators.
On Dec 31 last year, oil prices were hovering
around $98 per barrel. In a twist of fortune,
the prices have dropped 22 percent per year to
around $76 in November.
The US meanwhile, is stepping up its way back
as a vibrant economy.
The US stock market, as measured by the S&P
500, is up over 11% so far in 2014.
The decisions taken at the Cabinet meeting headed

by Prime Minister Narendra Modi here came barely
two weeks after the one to raise the cap of FDI in
insurance sector from 26 per cent to 49 per cent.
The countrys currency continued its brilliant

comeback, racing past the Euro, Yen and other
major currencies. The US Dollar has seen one of
its best rallies since the nineties.
The move is aimed at boosting domestic industry

of a country which imports up to 70 per cent of its
military hardware.
The US economy grew at 3.5% in the third quarter,

inflation remained steady and the countrys
unemployment rate hit a six-year low in October.
The Cabinet also approved a proposal to open up

cash-strapped railways to foreign investment by
allowing 100 per cent FDI in areas such as highspeed train systems, suburban corridors and
dedicated freight line projects implemented in PPP
mode. The FDI liberalisation in the sector would
help in modernisation and expansion of the railway
projects.
The International Monetary Fund has trimmed

the growth forecast for Latin American and
Caribbean region to 1.3% in 2014 and 2.2% in
2015.
Alibaba IPO
2014 marked the worlds record-breaking initial
public offering. Alibaba Group, a Chinese e-commerce
company, witnessed an overwhelming response for
the biggest US-listed IPO.
By raising $25 billion, Alibaba surpassed the 2010
offering of Agricultural Bank of China which had
recorded $22.1 billion. On its first trading day, Alibaba
shares soared 38 percent as investors grabbed their
chance to create the largest global IPO.
Reuters reported that according to its prospectus,
Alibaba had agreed to sell $26.1 million additional
shares under the option, and Yahoo Inc an additional
18.3 million, netting the two companies an extra $1.8
billion and $1.2 billion respectively.
Alibaba,
one of the worlds biggest online
e-commerce stores, is now ranked among the most
Things are not looking up for the 28-member

Euro Zone either. Growth is expected to be 1.3
percent in the bloc this year, instead of the 1.6
percent predicted in the spring, according to the
European Commission, EUs executive arm.
During Q3, Japan slipped into recession after
the nations gross domestic product fell for the
second consecutive quarter this year. Signs are
scary. According to The Economist, the Japanese
government debt is now above 240% of GDP and
the government continues to run deficits of
around 8% of GDP per year.
Chinas economic growth has slowed to 7.3
percent in the third quarter and the countrys
government and central banks might slash
interest rates over fears of deflation and rise
in unemployment. According to Reuters, Fullyear growth is on track to undershoot the
governments 7.5 percent target and mark the
weakest expansion in 24 years.
FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG
The Year That Was
The Niveshak Times
Market Snapshot
35000.00
6,000
30000.00
5,000
4,000
25000.00
3,000
20000.00
2,000
15000.00
1,000
10000.00
BSE
FII, DII Net turnover (in Rs. Crores)
Article
ofSnapshot
the
Month
Market
Cover
Story
NIVESHAK
-1,000
5000.00
-2,000
0.00
BSE
-5000.00
DII
-3,000
FII
-4,000
26/12/14
25/12/14
24/12/14
23/12/14
22/12/14
21/12/14
20/12/14
19/12/14
18/12/14
17/12/14
16/12/14
15/12/14
14/12/14
13/12/14
12/12/14
11/12/14
10/12/14
09/12/14
08/12/14
07/12/14
06/12/14
05/12/14
04/12/14
03/12/14
02/12/14
01/12/14
30/11/14
29/11/14
28/11/14
27/11/14
Source: www.bseindia.com
www.nseindia.com
MARKET CAP (IN RS. CR)

BSE Mkt. Cap
LENDING / DEPOSIT RATES
9675058.58
Base rate
Deposit rate
CURRENCY RATES
INR/1USD
INR/1Euro
INR/100Jap.YEN
INR/1PoundSterling
INR/1 USD
Euro/1 USD
RESERVE RATIOS
63.64
77.74
52.93
98.98
GBP/1 USD
10.00%-10.25%
8.00% - 9.05%
JPY/1 USD
CRR
SLR
4.00%
22.00%
SGD/1 USD
3.50%
3.00%
2.50%
2.00%
POLICY RATES
Bank Rate
Repo rate
Reverse Repo rate
9.00%
8.00%
7.00%
1.50%
1.00%
26th Nov 2014 to 26th Dec 2014
0.50%
Data as on 26th Dec 2014

0.00%
DECEMBER 2014
NIVESHAK
Article
Market
of Snapshot
the
Month
Cover
Story
Market Snapshot
BSE
Index
Sensex
MIDCAP
Smallcap
AUTO
BANKEX
CD
CG
FMCG
Healthcare
IT
METAL
OIL&GAS
POWER
PSU
REALTY
TECK
Open
Close
% change
28386.19
10119.95
11180.24
18787.14
20586.35
9630.87
16236.26
7696.85
14809.67
11094.24
11274.31
10874.72
2135.26
8228.54
1660.73
6125.31
27241.78
10115.85
10894.89
18455.13
21253.3
9359.5
15113.05
7686.06
14409.51
10422.16
10562.54
9878.81
2032.64
8121.33
1533.94
5762.49
-4.03%
-0.04%
-2.55%
-1.77%
3.24%
-2.82%
-6.92%
-0.14%
-2.70%
-6.06%
-6.31%
-9.16%
-4.81%
-1.30%
-7.63%
-5.92%
% CHANGE
TECK
-5.92%
REALTY
-7.63%
PSU
POWER
-1.30%
-4.81%
OIL&GAS
-9.16%
METAL
-6.31%
IT
-6.06%
Healthcare
-2.70%
FMCG
CG
-0.14%
-6.92%
CD
-2.82%
BANKEX
AUTO
Smallcap
-1.77%
-2.55%
MIDCAP
Sensex
3.24%
-0.04%
-4.03%
FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG
Niveshak Investment Fund

Information Technology
Cons Non Durable

(6.60%)
HCL Tech.
GODREJ CONSUMER
Wg:6.60%
Gain:8.69%
(15.12%)
Infosys
Wg: 4.40%
Gain : 20.27%
Britannia
Wg:5.25%
Gain:
71.94%
Wg: 5.29%
Gain : 04.55%
TCS
Wg: 5.42%
Gain : 1.65%
FMCG
(24.34%)
Colgate
HUL
Wg:7.18%
Gain:
15.29%
Wg:5.20%
Gain: 6.55%
Banking
(7.40%)
Wg:6.69%
Gain:
7.07%
Auto
(12.04%)
Pharmaceuticals
(13.36%)
Dr Reddys
Labs
Wg:5.43%
Gain:8.53%
Lupin
Wg:7.92%
Gain : 21.87%
HDFC Bank
Wg: 7.40%
Gain : 2.91%
Chemicals
(8.19%)
Amara Raja
Batt
Wg:5.31%
Gain : 13.95%
Tata Motors
Wg:6.73%
Gain : 8.18%
ITC
Asian Paints
Wg:8.19%
Gain:15.62%
Misc.
(5.57%)
Manufacturing
(7.33%)
Titan Company
Wg:5.57%
Gain:-2.09%
Page Industries
Wg:7.33%
Gain:15.20%
Performance Evaluation
Opening Portfolio Value : 10,00,000

Current Portfolio Value : 13,88,872.0
% Change in Portfolio Value : 1.90%
Change in Sensex : 4.61%
Risk Measures:
Standard Deviation : 13.73%(Sensex :
13.11%)
Sharpe Ratio : 2.54 (Sensex : 2.20)
Cash Remaining:2,67,689
Comments on NIFs Performance & Way Ahead: In the month of December (till 26th
December), owing to market entering into consolidation over the performance month of
November, the BSE Sensex witnessed a change of (4.61%) where as the NIF recorded (1.90
%) change. This month the NIF portfolio again witnessed a reshuffle in terms of value and
composition. Since its launch, NIF has made a return of 38.88% compared to the returns of
the Sensex at 32.89%. This has been through the profit booking strategy whenever the
market was overvalued. The recent fall in the markets have held us in a good stead as the
conserved cash has cushioned the fall and has enabled us to take an advantage of the lower
prices. The recent drop in oil prices leading to soft commodity prices is also a net positive
factor for the Indian economy. This coupled with our basic philosophy to conservatively
invest in high quality companies, has led us to introduce Page Industries, HDFC Bank &
Godrej Consumer Ltd. into our portfolio and at the same time about 17% of our portfolio is
still in cash. We expect some more reforms and rate cut as the important driver for the
fundamentals of the companies in the first quarter of the new near 2015 and we would
continue to lookout for maximizing returns by taking as-least-as-possible risk.
10
Article
of the
Month
Cover
Story
NIVESHAK
REAL ESTATE INVESTMENT

TRUSTS
A look into the need and benefit of real estate investment trusts in India
Dylan Jude Fernandes
IIM Bangalore
REAL ESTATE INVESTMENTS
Real estate investments entail the ownership
and management of both commercial real
estate and home ownership. Real estate
investment could be direct or indirect. Direct
investing refers to owning and managing
physical real estate (land, buildings etc).
Indirect investing refers to owning securities
of entities that own and manage real estate.
In case of home ownership, real estate most
likely comprises the single largest investment
of a typical retail investor. However, the
dynamics of commercial real estate investing
are significantly different. The primary motive
of commercial real estate investing is to
generate return through lease rentals and
capital appreciation. Following are some
basic yet typical characteristics of real estate
investments :
DECEMBER 2014
Indivisibility
By virtue of their physical characteristics, real
estate investments are indivisible. For example,
it is not possible for an investor to buy only the
living room of a flat and expect another investor
to buy the bedroom.
Big ticket investments
A derivative of indivisibility is large lot size. A
typical real estate investment entails significant
capital investment.
Difficult price discovery
Real estate values are not easily determinable
as in the case of stocks. This is because the
assets are heterogeneous, have significant
idiosyncratic risks and are illiquid. Therefore,
real estate prices are generally determined
through appraisals, which are infrequent.
11
NIVESHAK
Article
of the
Month
Cover
Story
Search, information and diligence costs

Real estate investments require significant
time, effort and cost to obtain adequate
information about price, ownership and title and
economic viability. Similarly, gathering required
information requires professional due diligence,
which is major source of inefficiency as regards
overheads and time.
Need for active management
Investors who own the traditional bond and
stock portfolio may not be required to actively
manage their investment. However, owners of
real estate assets are required to continuously
involve themselves in maintenance, negotiating
contracts, collecting leases, paying taxes among
other activities.
Idiosyncratic risks
Properties are generally fraught with idiosyncratic
risks i.e. risks which are peculiar only to that
specific property. In most cases, it is difficult to
minimize this risk using the traditional portfolio
theory.
NEED FOR CAPITAL
One of the major problems plaguing real estate
owners is the availability and cost of capital.
Though real estate investments are highly
levered and are characterized by high loan-tovalue ratios (LTVs), equity investment is the
Achilles heel of this asset class. Stable and
long term ownership capital is quintessential
to ensure efficiency of any asset class and real
estate is no exception.
THE WAY OUT
As a logical deduction of the discussion this far,
one plausible way out is allow those investment
products to flourish which widen investor base,
provide efficient tax treatment to investors and
provide liquidity to the asset class.
WHAT ARE REAL ESTATE INVESTMENT
TRUSTS?
Real estate investment trusts (REITs) are
securities created by pooling real estate assets.
These securities make disbursements to holders
from cash generated via lease rentals and capital
appreciation (at the time of asset sale).
REITs are analogous to mutual funds, a mutual
fund is a pool of investment from investors who
mandate the fund manager to invest their money
appropriately and earn the desired return. The
fund manager in an investment professional
who stands in a fiduciary position and uses his
expertise and knowledge to invest these funds
for the benefit of the investors in exchange for

management fees. Whereas mutual funds pool
together stock and bonds, REITs pool together
physical real estate assets.
Benefits of REITs for potential investors:
Diversification and inflation hedge
Real estate, as an asset class, provides significant
diversification benefit to a traditional bond and
stock portfolio.
For example the FTSE NAREIT All Equity REITs
Index was 0.58 correlated with the S&P 500 .
Contrastingly, the NCREIF Property Index, which
measures appraised value of commercial real
estate quarterly, was only 0.09 correlated with
the S&P 500 during the same period .
Superior return performance
The performance of US REITs is summarized in
the table below . It is evident that real estate
has consistently outperformed other asset
classes over the long term
US REITs S&P 500
BAML*
Corp
BAML
High Yield
Returns (% )
5 years
28.3
21.3
5.2
18.3
10 years
8.3
6.9
4.4
8.7
15 years
11.5
5.3
5.4
7.6
*Bank of America- Merrill Lynch

Lower minimum investment
By creating securities and offering them to a
large pool of investors, REITs considerably reduce
the minimum investment size. This allows retail
12
Article
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Month
Cover
Story
NIVESHAK
investors and smaller institutional investors to

participate in the real estate sector.
Eliminates need for active management
Like any commingled investment in trust,
REITs transfer the asset management role to
the trust. So long as investors believe that the
management fees and other establishment
expenses of the REIT justify the saving in time
and effort from their end, REITs offer an attractive
value proposition. It would be worthwhile
to note that in near efficient markets, most
investment returns trail the benchmark by
active management costs.
Price discovery
REITs are listed on stock exchanges and traded
real time. Consequently, the prices of these
securities are determined through an unbiased
demand-supply mechanism, since most
secondary markets are reasonably efficient.
High current income
Since REITs distribute nearly 80% to 90% of their
earnings as dividends, investors who desire
high current income from their investments are
faced with an attractive proposition.
Eliminating search and diligence costs
It is safe to assume that the assets pooled by
the REIT would have performed adequate due
diligence before including the asset in the pool.
Further, REITs benefit from economies of scale
and need to invest incremental effort for
performing the due diligence of every additional
property.
Benefits of REITs for asset holders:
Liquidity
The single largest benefit of REITs to asset
holders is the liquidity it provides. Owners
who hold a portfolio of real estate assets can
easily monetize these holding without ceding
control of these assets. Similarly, asset holders
can expect to receive full value of their holding
without significant time loss.
Equity investments
REITs facilitate equity investment into real
estate assets which lends stability. Further, real
estate developers and other asset holders can
hold more assets since they are in a position to
raise more debt.
Exit options
REITs provide an excellent exit option to asset
holders, who otherwise were required to go
through the agony of an outright sale.
DECEMBER 2014
Benefits of REITs from standpoint of the

asset class
In addition to the above-mentioned benefits,
REITs also provide the following benefits to the
asset class as a whole:
Lowering transaction costs
As is the case with capital market instrument
vis--vis the underlying, the transaction costs
are significantly lower. The rationale for this
lies in economic theory of competitive markets.
A capital market is a structure that reduces
information asymmetry for a large number
of buyers and sellers. The end result is a
favourable reduction in transaction costs.
Efficient taxation
REITs provide a tax-efficient investment vehicle.
The nuances of this, from the Indian context,
has been explored in detail in a subsequent
section.
THE CASE FOR REITS IN INDIA
The India real estate sector has been
characterized by developers being cash
strapped due to upfront investment whose
payback was lengthy. This led developers to
lever their balance sheets and also drop prices
in anticipation of capital appreciation. As the
economy took a turn for the worse at the start
of this decade, many developers came under
pressure to liquidate some of their prime
holdings in distress. The last 2-3 years have
been replete with cases where investors who
underwrote properties with minimal deposits
withdrew their support, leaving developers
in the lurch. However, as the market has
matured and rebounded, commercial real
estate has made a strong case for itself as
a viable alternative asset class. The Xander
Group opines that the real estate market has
adequately matured to look beyond real estate
development as the only means of exposure to
the asset class .
Currently, of the estimated 350 million square
feet of Grade A office space concentrated in
the major urban centres in India valued at
around $65-70 billion , about 80-100 million
square feet is estimated to be eligible for REITs
in the next 2-3 years, valued at about $15-20
billion, according to KPMG.
According to an estimate by Cushman and
Wakefield, the assets that may qualify to be
included in REITs may reach $20 billion by 2020.
In the first three to five years, as much as $12
billion could be raised.
NIVESHAK
RISK-RETURN CHARACTERISTICS
As per a study conducted by Stern University,
mortgage REITs have generated excess returns of
2.20% over the broad-based stock market index
between 1972 and 2013 . Further, the MSCI US
REIT Index generated compounded annual return
of 8.40% over the past 10 years whereas the
S&P 500 generated compounded annual return
of around 7.40% for the same period .
Between 1994 and 2007, REITs have returned
3.55% per quarter with a Sharpe Ratio of 0.37
vis--vis the S&P 500 which returned 3.08% with
a Sharpe ratio of 0.27 .
It should be noted that REITs are suited to
risk-averse investors desiring high income
yield. Around 60% of total REIT returns can be
explained by current income. A report by Lazard
has proven that REIT dividend growth (8.40%)
over the past 30 years consistently exceeds US
inflation (CPI = 2.40%) .
In the Indian context, the near term attractiveness
of REITs is hazy. Yields on commercial assets top
out at around 9-10%. After adjusting for expenses,
an REIT can offer to the investor can be at best
7-8% . However, as the expense ratio reduces in
line with global standards returns are expected
to improve. Further, given high relatively inflation
in India, it may be unreasonable for REIT dividend
growth to consistently outpace inflation.
As a word of caution, it would be nave on our
part to forget the inflation hedge provided by
real estate and therefore REITs.
CONCLUSION
From the argument posited through this article,
it can be reasonably concluded that REITs are
an attractive proposition since they remedy
many ills plaguing the real estate sector as an
investable asset class.
In the current Indian scenario, the risk-return
characteristics may not appear tantalizing.
However, with an uptick in the economy and
increase in rentals, the returns from REITs, on a
risk-adjusted basis will improve.
Article
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Since REITs would be similar to other publicly

traded securities, these instruments are
open to foreign investors. As such, REITs are
inherently capable of improving foreign
exchange inflows and therefore help in
correcting the current account deficit.
LEGAL & REGULATORY FRAMEWORK
Real Estate (Regulation & Development) Bill
In 2013, the UPA government introduced the
Real Estate (Regulation and Development) Bill
which sought to regulate the sector, protect
buyers from erring developers and usher in
transparency . As the asset quality improves
and stakeholders have adequate legal remedies,
monetization real estate assets in the capital
markets will be easier. The only drawback of the
proposed legislation is that it does not extend
its claws to commercial real estate.
Securities Exchange Board of India (SEBI) norms
In the 2014 budget, Finance Minister Arun
Jaitley accorded pass through status to REITs.
Therefore, transfer of real estate to an SPV or an
REIT would not attract capital gains tax. Similarly,
sale of REIT units from one member to the other
would not be a taxable event for the REIT. In
summary, the pass through structure eliminates
double taxation and ensures that each income
and/or gain is taxed only once. Similarly, losses
incurred by investors through an REIT holding
can be offset against other capital gains.
Following up on the impetus from South Block,
SEBI notified rules governing REITs.
Following are some features of the norms :
REITs can invest in commercial real estate
either directly or through SPVs.
REITs can raise funds only through an IPO,
which will be listed on an exchange.
An REIT will have to hold assets worth at least
Rs.500 crore at the time of an initial offer and
the minimum issue size has to be Rs.250 crore.
The minimum subscription size is Rs.2.00
lakh, whereas the minimum trading lot size is
Rs.1.00 lakh.
Not less than 80% of the assets should be
invested in completed and revenue generating
properties.
Sponsors must hold 25% of the issued units
for first three years and 15% thereafter to
ensure commitment.
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14
NIVESHAK
Start-up and Private Equity

Investments in India
Rahul Bajaj & Sandeep Sharma
IIM Shillong
Introduction
Dreams of Indian youth have been gradually
shifting from being corporate leaders to being
business owners over the last few years. More
and more college students are getting inspired
by Mark Zuckerberg and the Bansals. Startup
ecosystem is maturing in India and 2014 has
seen a phenomenal traction in this space.
Raising Funds in a private company is a very
complex and overwhelming exercise. It depends
on the stage in which business is operating,
capital requirement of the business and how
prepared are the owners to part with some
control and equity of the company. Friends &
Family, Angel Investors, Venture Capital (VC),
Private Equity, Banks, Government, Accelerator
programs and Incubation houses are the major
source of financing for the private companies
in India. Let us look at the various financing
options for private companies.
Bootstrapping: Personal savings, loans and
investments from Family and Friends are the
primary source of financing during bootstrapping.
It is the phase in which the business model
of the company is put to test and it lays the
ground for future investments in the company.
Also during this phase the company has
minimum interference from outside world and
revenues are driven by the execution capability
of founders of the company. As the investments
are sourced from personal savings the concept
of frugality in the culture of the company gets
DECEMBER 2014
embedded during bootstrapping.

Seed Financing: It is a type of equity financing
in which a relatively small amount is invested
in the concept stage of the startup. Companies
during this stage need small capital infusion to
cover for expenses and research & development
costs as they start to make revenue or
prototypes. Angel Investors, Seed accelerators,
Incubation houses are the primary source of
such funding in India.
Seed Accelerators: Seed Accelerators are
programs that provide the startups with money,
mentoring and contacts. It is said that meeting
the right people at the right time can be the
best launchpad for a startup. It is during this
phase that maximum startups fail. Accelerator
programs help the startup overcome this stage
and pitch to VCs and angel investors. Generally
such programs charge the startups 6-12%
of the equity. Y-Combinator is the first and
the most famous American seed accelerator
program. Till date four Indian Startups
HackerRank
(previously
Interviewstreet),
TapToLearn, Plivo & Markupwand has been
funded by Y-Combinator. Prominent Indian
seed accelerators are TheMorpheus, Tlabs,
Iaccelerator, Gsf, Microsoft, Target, Ryerson
Accelerator program, Freemont Partners, Kyron,
Catalyzer etc.
Incubation House: Incubation Centres are similar
to seed accelerator programs. They provide
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support and guidance to the new generation of

entrepreneurs and help them stay afloat during
the initial turbulent times. With the backing of
the Indian government all the major institutions
in India have an in-house incubation centre,
and currently there are more than 75 centres
supported by ISBA (Indian STEPs and Business
incubators Association). Prominent Incubation
centres in India are CIIE - IIM Ahmedabad, SIDBI
Innovation and Incubation Centre - IIT Kanpur,
Society for Innovation and Entrepreneurship - IIT
Bombay, TREC-STEP NIT Trichy etc.
Angel Investors: These are a network of high
net worth individuals who invest in the initial
stages of the company to provide seed funding.
As this investments happen in the early stage of
the companies they bear high investment risks
and are subject to dilution in the future. Angel
investors usually are more founder friendly
in comparison to VC or PE but they are carful
to invest in companies that have high growth
potential (10x or more returns). They demand
less of premium in equity as they have other
means of making money and may not be looking
for a specific level of returns. Also autonomy of
decision making is more for the founders with an
angel investor than VC or PE funding. However
a company might need multiple investors to
receive enough money to support its growth
which will result in founders having to manage
multiple investor relationships. Indian Angels
Network, Mumbai angels etc. are the prominent
angel investors in India.
Venture Capital: VCs invest in high growth
potential companies like Angel Investors with a
distinction that the amount invested is higher and
so is the amount of equity and control with VCs.
They also bring expertise and other resources
to the company. In India over the last few years
VC investment was seen only in the established
companies who have tested their business
models and are in need of funding to fuel their
growth, however 2014 has been a year where

early stage investment was also a prominent
phenomenon. Series of funding happens from
the early stage, expansion capital to late-stage
capital, e.g. Series A for Early stage > Series B
> Series C etc. for later stages. PE and Hedge
fund investments in private companies work in
a similar way. Generally they fund companies in
the growth or later stage. Prominent VC funds in
India are Accel Partners, Blume Venture Advisors,
Canaan Partners, Helion Venture Partners, IDG
Ventures India, Inventus Capital Partners, Nexus
Venture Partners, Sequoia Capital India, SAIF
Partners etc.
Crowd Funding: 2014 also has been the year
of discovery for this method of financing.
Startups, regulators, broadcasting channels or
the ecosystem developers are the players who
contribute to the success or failure of a startup.
Crowd Funding as the name suggests sources its
funding from all the stakeholders in the startup
ecosystem & the people. They leverage the
power of the crowd through communities who
contribute to ideas, technology and financing.
Crowdfunding contributors comprise of family
and friends, fellow Indians and it could further
extend to Non-Resident Indians (NRIs) and even
founders of Indian startups who may want to
give back to the community by supporting fresh
startup ideas.
Investments in 2014
More than 300 investment deals in Start-ups
were completed in 2014. The year saw a huge
amount of funding even to companies with little
revenue as long as the Industry in which they
operated had huge growth potential. Venture
Capital funding in Indian startups reached ~USD
5.1 Billion in 2014 (YoY growth of over 380%) in
comparison to ~USD 1.06 Billion in 2013. This was
led by a billion dollar funding round of Flipkart.
Bangalore topped the list of funding with over
30% of the deals and approx. USD 2.5 Billion of
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NIVESHAK
investments in Bangalore based startups. Angel

investments grew 160% from a mere 56 deals in
2013 to over 145 deals in 2014, accounting for
nearly 56% of all deals however they bagged
only USD 210 million in 2014. Demographics,
huge population (implying huge market),
Political stability & government promotions,
constantly improving internet connectivity and
ever growing number of internet users are the
major drivers for rapid growth in private equity
and start-up investments in India.
Travel portals were the pioneers of E-commerce
in India, however slowly they are being overtaken
by the online physical goods companies. Flipkart,
market leader in the E-commerce companies
in 2014 became the first company in India to
have a billion dollar funding round. Tiger Global,
Accel Partners, Morgan Stanley Investment
Management & Singapore sovereign-wealth fund
GIC led the USD 1 billion funding in July, which
was preceded by another round of funding just
two months earlier from DST Global, Tiger Global,
Naspers and Iconiq Capital of USD 210 million.
Also it rounded off the year with another USD
700 million from new investors Qatar Investment
Authority, Baillie Gifford, Greenoaks Capital,
Steadview Capital along with a few existing
investors. Part of the funds went into acquiring
leading fashion portal Myntra. Tiger Global and
Accel were the leading investors in both Flipkart
and Myntra, and are believed to have pushed for
the merger to shore up the battlefront against
Amazon and Snapdeal. After having invested
huge money into these companies what would
be exit route for these investors? Success story
of Flipkart has changed the way investors and
entrepreneurs look at a business. Focus is
shifting from profit margins to revenue growth,
DECEMBER 2014
market share and market potential. Once the

company becomes the market leader, it further
consolidates its position through horizontal and
vertical mergers and acquisitions and finally it
goes for an IPO. Exit strategy for these investors
would be through sale of their holdings to
another VC or PE firm (when their holdings are
small) whereas for investors like Tiger Global
with higher holdings the only route would be an
IPO. The latest rounds of funding in Flipkart has
raised its valuation to around USD 11 billion and
delayed its route to an IPO.
Amazon announced a USD 2 billion investment
in India to expand business, a day after its
largest Indian rival Flipkart announced of having
raised USD 1 billion in funding. To spice up
the fight Snapdeal in October 2014 raised USD
627 million from Softbank Group, which was
followed by fourth and fifth round of funding of
USD 133 million and USD 105 million respectively.
Another Lifestyle and fashion ecommerce portal
Jabong raised US$27.5 million from Britains CDC
Group.
The Real Estate sector also saw a rising interest,
with seven companies successfully raising
investments. Housing.com raised three rounds
amounting to USD 137 million (Last round of
funding of USD 90 million which was cleared by
Softbank in October) and pushing the total for
the real estate sector to nearly USD 240 million.
Housing.com has been a leader among Indian
real estate portals, pioneering the use of mapbased mobile technology to make house-hunting
in a disorganized market easier. It was followed
by Indian homes which is another real estate
portal that raised big money this year, approx.
USD 75 million dollars in 2 rounds of funding.
Another real estate portal Commonfloor.com
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clear exit yet for these companies.

Conclusion
Venture capital investors have raised over three
times more capital so far this year in comparison
to last year, highlighting intense investor
interest in Indias booming startup sector and
indicating greater deal activity in the months
ahead. However this has also driven up the
valuations and ambitions of various start-ups.
Technology startups with Intellectual Property
have been the primary beneficiaries of early
stage VC investments, whereas others have to
go through an acid test of their business model
before they receive funding. The increased fund
flow is coming at a time when the dynamics are
shifting in the Indian venture capital market and
VC funds are increasingly backing early stage
startups which was not seen until last year.
Increasing VC investments provide exit route
to angels which has improved the profitability
of the Angel Investors. Startup atmosphere in
India is currently at a high and this will promote
disruptive innovation in the country. Startups
are highly competitive and focus on customer
satisfaction and process simplification. This
will bring efficiency in the system and promote
optimum utilisation of resources. Startups during
the growth phase are the real job creators for
the country. Maturing E-commerce Industry this
year has been one of the largest recruiters from
major Engineering colleges and B-schools across
India. Currently farming employs more than 50%
of the working population, but contributes only
approx. 14 percent of the GDP. Services sector
contributes nearly 60 per cent to the GDP, but
employs just around 27 per cent of working
population. In order to balance this equation
India will have to not only accommodate the
youth who are joining the workforce every year
but also support the transition of the workforce
from agriculture to manufacturing and services
sector. Make in India and other policies of
Indian government to promote manufacturing
and services Industry along with the creation
of startups will help creation of 10-20 lakh jobs
every year. Therefore it is very important not
only for investors but also for the country that
these investments reap out companies like
Google, TCS, Reliance and Flipkart for the next
generation of India.
Cover Story
which began as a community platform for houseowners, property seekers, leaseholders and
tenants to connect, interact and solve everyday
problems has raised two rounds of funding this
year to raise USD 40 million.
Mobile startups witnessed a newfound interest
and accounted for almost 11% of all deals. Ola a
leading local player received a massive USD 210
million dollars in October from Softbank, on top
of USD 41 million dollars it received earlier. Total
funding for Ola in 2014 was over USD 250 million
dollars making it third largest startup funding in
2014. Taxi for sure raised US$30 million in series
C funding and tied up with Tata Motors to launch
a Nano line, probably the worlds smallest
taxis which will cost less than three-wheelers
(auto-rickshaws) in India. Recent debacle with
Uber has also put significant pressure from the
government on the functioning of online taxi
services and is affecting the functioning of these
companies. These investments will take some
time to mature before the investors can look
at their exit options, however investors looking
to exit now will have to do it at discounted
valuations.
Zomato is leading by example, showing Indian
internet companies how to go global. This
restaurant discovery and rating company is
going global fast, expanding to 20 countries.
Its appetite for growth led to five acquisitions
in New Zealand, the Czech Republic, Slovakia,
Poland, and Italy. It has raised USD $60 million
funding late in the year. Going global is the best
strategy for Zomato, to increase its customer
base by leverage their expertise developed over
the years and then investors can exit through an
IPO. Also Practo which started out in Bangalore
- a doctor discovery and booking platform for
patients, lists more than 100,000 doctors in
India and Singapore, has raised USD 20 million
in the current year. There are huge investments
coming in the healthcare industry and investors
can look to exit as it gets acquired by another
company.
Gaming & Media are the new participants in
2014 and have seen significant growth since
then, largely driven by the big ticket fundings
of NewsHunt, ScoopWhoop & News in Shorts.
Hungama, a digital entertainment company
which has become the repository of Bollywood
movies and music has raised USD 40 million
dollars in 2014. They are still in a nascent stage
and unless an acquisition happens there is no
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FinGyaan
FinGyaan
FDI- a harbinger of economic

growth?
Sainath Zunjurwad
SIMSRE
Introduction
There exists near unanimity among economists
and policymakers that foreign direct investment
(FDI) can positively and substantially influence
the economic growth of the recipient country.
FDI is conservatively understood to be relatively
more stable, permanent foreign capital that brings
along with it advanced technology, managerial
knowhow, and skills versus the flighty portfolio
funds. Although, the recipient economies
experience short term pain, a host of long term
benefits accrue to such countries. Infusion of
new capital results in expansion of production
base, increased employment, and lower prices
for domestic consumers due to increased
competition. FDI typically results in efficient
allocation of resources, increase in efficiency
and productivity, and access to technology
locally unavailable. Increased competition
forces local firms to upgrade. Empirical studies
DECEMBER 2014
suggests that FDI has positive impact on

domestic investments growth and technological
progress resulting from the spillovers from
the affiliates of Multi-National Corporations
(MNCs). Improvements in corporate governance,
deepening of capital markets are palpable. FDI
becomes a self-sustaining mechanism of rapid
economic growth, with trickle down benefits
to even the weakest sections. Forward and
backward linkages develop from the MNCs,
boosting domestic investments and growth
further.
However, misguided attempts at inviting FDI can
wreak havoc in host countries. Numerous issues
like the threat of foreign control of strategically
critical resources, overdependence on foreign
money for growth are being debated in the
public domain. FDI in an environment with weak
technological capabilities, lack of absorptive
capacities, feeble regulatory institutions and
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rudimentary infrastructure will cause more

damage than good. The benefits of FDI may
sometimes be not demonstrable, and where
present may not be equitable. Adjustment costs
such as short term job losses, closure of local
firms may be too heavy to be incurred. The
devastating impacts on poor countries which
opened their economies prematurely are a
sobering lesson.
The net flow of FDI has been from the industrialized
countries to Emerging Market economies
(EMEs). In the 1960s, this FDI flow was directed
due to the abundance of natural resources in
the EMEs. This inflow was independent of the
macroeconomic conditions of the host country.
However, recent flows have been more of the
export-oriented kind, which place tremendous
importance on macro factors.
FDI flows rose manifold in
the nineties. This burgeoning
FDI was seen because of an
attitudinal shift in the policies
of the EMEs, which clearly
recognized the potential
of FDI as the harbinger of
growth. Where blanket bans
on FDI were the norm in the
past, today most EMEs have
liberalized their policies to
the extent that MNCs have
unfettered access to local businesses and

markets. Bilateral Investment agreements have
mushroomed, multilateral fora like the World
Trade organization have pushed for legislations
in the parliaments of member countries,
offering protection of foreign investment, safety
of intellectual property rights.
Global FDI flows skyrocketed during 2003 and
2007, growing 4 times, while the flows to the
EMEs rose 3 times. From the apogee of 2007 which
saw FDI flows mushrooming to $ 2.1 trillion, it
had shrunk to $ 1.1 trillion in the aftermath of
the financial crisis. FDI flows rose by 9% to $
1.45 trillion in 2013.UNCTAD forecasts these to
rise to $ 1.8 trillion by 2016. The optimism stems
from the fact that the flows are directed towards
the EMEs, and at $ 778 billion they constitute
54%, while the developed
countries
constitute
39% at $ 566 billion. On
the outflow front also,
the EMEs are faring
better, with $ 553 billion
outflows constituting 39
% of global outflows, up
from a meager 12% in
early 2000s.
Fewer barriers exist today
to the flow of FDI. Why
has this come to pass?
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NIVESHAK
Interplay between FDI and Growth

EMEs lack financial resources and are therefore
hampered from achieving optimal growth. Inflow
of FDI can bridge this gap and result in total
factor productivity (TFP) growth (stemming from
technological innovation). Endogenous growth
model states knowledge accumulation drives
growth. FDI is the most efficient channel of
dissemination of technology from the developed
to the developing countries. Linkages develop
between MNCs and local firms, aiding diffusion
of foreign technology. This results in increase
in domestic investments, which are termed as
spillover benefits accruing to the host economy.
In the short run, as the stock of capital rises,
output expands directly, while in the long run
it expands because of indirect factors like
the increased disembodied knowledge in the
host due to spillover and diffusion effects.
The uncertainty lies in the fact whether FDI
will stimulate domestic investment (as allied
industries take root) the complementary effect
or will simply drive out local firms and replace
them to form a monopoly-the substitution
effect. If FDI crowds out domestic firms, result
would be a decrease in output. The former is
what the proponents aim for, while the latter
is the proverbial bogeyman for the naysayers.
FDI results in growth because of higher TFP in
industrial nations which are technology leaders,
and through capital accumulation in the EMEs
which are laggards.
DECEMBER 2014
FDI does not automatically result in growth.

Certain pre-conditions have to be met.
Host economy must have a threshold level
of human capital accumulation. Absorptive
capacity must reside in the host to capture
the positive externalities generated by FDI. E.g.
skilled domestic labor force, high educational
attainments among native managers.
The technology gap must not be too wide that
overcoming this bridge should prove too much
for the domestic industry. Competition will force
the locals to upgrade, but a lack of capability
would simply force them to shut down.
The capability of local firms to take upon
complementary activities generated by FDI. In
a moderately developing economy, this is a
countervailing force to the distress caused by
the displacement of local firms.
Financial markets (FMs) are critical in
determining the positive or negative externalities
of FDI. Developed FMs help in mobilizing savings
efficiently and aid in screening investment
projects, fostering the growth of recipient and
allied industries. Underdeveloped FMs tend
to punish the domestic firms more than the
MNCs, hindering the ability of domestic firms to
invest and thereby prevent them from enjoying
spillover benefits.
An analysis concerning the causal relationship
between FDI and growth cannot be compete
without touching upon the mechanism by which
dissemination takes place. That is what we turn
NIVESHAK
continue to be imported from the home country,

enunciating the complementary effect of FDI.
In fact, affiliates can serve as export platform to
a third country. Host countries offer concessions
on import duties for export oriented FDI.
Conclusion
Trade and fiscal policies adopted by governments
have a bearing on FDI flows. These policies
could be enabling or serve as impediments.
Governments in EMEs need to address concerns
relating to intellectual property rights, and
property security. MNCs are reluctant to set up
or expand their R&D bases to EMEs due to these
concerns. Only when these concerns have been
alleviated, can the host economy truly enjoy the
fruits of liberalization.
FDI really took off in a big way that stimulated
growth in the 1960s and continues to be the
driver of development process in much of the
world, particularly so the emerging one. For
FDI to succeed, host countries need to do their
homework. For a country like India, it entails the
deepening of financial markets- reforms including
reduction in entry barriers, establishment of
investment promotion organizations, enactment
and implementation of good, consistent
governance policies, strengthened and able
regulatory environment, with executive powers
devolved upon SEBI, FMC, RBI and others, doing
away with relics of the past such as FIPB, and
better risk management. Rapid strides in the
fields of education and technology should
enhance absorptive capacities of the host
economy. However, the horrific experiences of
LDCs are a cautionary tale and such countries
shouldnt become the fools to rush in, where
angels fear to tread.
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to now.
Is FDI a mere substitute for cross border trade?
One of the noticeable trends has been the
phenomenon of FDI increasingly replacing trade.
Let us take a simple example. A firm which wants
to expand to a foreign market, typically starts by
exporting its products. Gradually, it expands the
range of activities it performs in the recipient
country-marketing, representative offices, after
sales centers, etc. Once it has a solid footing, it
starts a production base. The former constitutes
international trade among open economies,
while the latter is FDI. In this example, FDI
seemingly replaced trade. Is FDI complementary
or substitutionary vis--vis trade?
Recent decades show a surge in FDI, while trade
has more or less been stagnant. FDI could be
substituting trade, but engendering a world
economy growth that is beyond the scope of
mere trade flows. MNCs choose between exports
or FDI based on relative incentives and costs
(Standard trade theory).
MNCs possess intangible assets that are
harnessed by strategically placing production
facilities in different locations with a view for
profit maximization. In this endeavor, they
choose between affiliates and exports. This
choice is influenced by host country policies
(tax holidays, concessions, and easy credit) that
encourages FDI.
Imports are discouraged via high tariffs and
duties. In the late 1980s, a substantial part of
Japanese FDI in Europe was because of antidumping duties imposed by the European
Commission.
Currency exchange rates are a major determinant
in FDI vs. trade decision. An appreciating yen
against the rupee will discourage Japanese trade
to India, resulting in increased FDI flows.
Horizontal FDI- moving the production facility
to the host country has demand enhancing
effects. Local goodwill, customer loyalty,
spillover effects on other products for a multi
products firm contribute to increase demand
both for the base and allied products.
Vertical FDI sees the transfer of only a part
of the production facility to overseas market,
typically the assembly function. Components
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Article
of the
Month
FinLife
Cover
Story
SOCIALLY RESPONSIBLE
CORPORATES
Bhawana
IIM Shillong
The implementation of the Companies Act

2013 has created a lot of buzz by incorporating
clause 135 which deals with Corporate Social
Responsibility (CSR) in both the industry and
the academia.
In simple terms, CSR means the responsibilities
that the business should discharge towards
society. It has been branded as a new concept;
however, it could be very well traced back to
the philanthropies of industry captains Tatas,
Birlas, Modis etc. all in the 19th century. Since
long time, these socially benevolent activities
were revolving around nation building and
socio-economic
emancipation,
ultimately
focusing on labour and environmental
laws in independent India, with PSUs given
the responsibility to take the lead. The
shift in the focus of responsibilities of the
Corporates from the overall development of
nation to promoting the sustenance of the
ecological environment, can be attributed
DECEMBER 2014
to the degradation of environment to

alarming levels. The business community was
considered to be solely responsible for the
imbalance in the environment. By mandating
CSR, Corporates have been called to owe up to
their responsibilities and work for sustainable
living. CSR would require the companies to
focus on a balanced approach of economic
progress, social progress and environmental
stewardship (Triple-Bottom-Line Approach).
World Business Council for Sustainable
Development very aptly defines CSR as the
continuing commitment by business to
contribute to economic development while
improving the quality of life of the workforce
and their families, as well as of the community
and society at large. With the implementation
of CSR there would be a paradigm shift in the
practice of the same from the philanthropies,
i.e. focusing more on the means of earning
profits than on the application of profits.
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Through CSR, the firm also earns the

opportunity to add to its brand value in its
strive to give back to the society. The firm earns
a greater bargaining power and competitive
edge over the competing brands in the market
and attracts, retains and motivates quality
employees. The Government, being the
custodians of public welfare, with its policies
and regulations are supporting these Socially
Responsible Corporates with concessions.
The Corporate Giants leverage upon such
advantages for financial security.
The Corporates are expected to balance three
Ps: People, Planet and Profit by devising
unique business models, the focus of which
would be on community development.
Conglomerates such as Hindustan Unilever
(HUL) has launched Project Shakti in 2002
which trained and inducted rural women
(Shakti Ammas) from very low-income
households to become direct-to-home sellers,
selling basket of HUL products, door-to-door
in their villages. It also came up with the
Shaktimaan programme which was launched
in 2010 and empowered unemployed/
underemployed youths (Shaktimaans) in the
Shakti entrepreneurs family to dwell deeper
into the villages with HUL products. These
programmes enabled HUL to grow its rural
footprint immeasurably and strengthen its
distribution reach with parallel contribution to
the economic welfare and social upliftment of
the participants.
Nestle India ltd. (NIL) came up with Village
Women Dairy Development Programme
that provides training to women on dairy
farming and entrepreneurship to make them
financially stable and independent. The
programme led to the development of the
communities in and around NIL factories,
thereby transforming them from extremely
backward, poverty-ridden hamlets completely
lacking in infrastructural facilities into vibrant,

upcoming settlements. Reiterating its premise
of Shared Value, NIL has ensured a steady
supply chain of stipulated quality raw materials,
trust and devotion. The e-Choupal model
of ITC leverages upon digital technology to
accustom the small and marginal farmers with
services on know-how, best practices, timely
weather information, transparent discovery
of commodity prices etc. e-Choupals have
enhanced productivity, increased incomes,
enlarged capacity for farmer risk management
and so on. ITC takes advantage of the model
by securing raw materials for its personal care
products and packaged foods.
IBM, Tata Group, Infosys, Wipro, Coca Cola,
Britannia Industries, Bajaj Auto, MRF Ltd,
Maruti, ONGC etc. are other major players in
the spectrum of CSR. CSR has been mandatorily
applied in contrast to the earlier voluntary
applications like Corporate Responsibility
for Environmental Protection, 2003, or the
National Voluntary Guidelines for Social,
Environmental and Economic Responsibilities
of Business issued by the Ministry of Corporate
Affairs in 2011. The Principle eight relating to
inclusive development in the above mentioned
guidelines incorporate many aspects which are
included in the CSR clause of the Companies
Act, 2013. The current CSR provisions is
mandatorily applicable to companies with
an annual turnover of Rs. 1,000 crore and
more, or a net worth of Rs. 500 crore and
more, or a net profit of Rs. 5 crore and more.
The clause mandates it for such companies to
spend at least 2% of their average net profit
in the previous three years on CSR activities.
It has also included indicative activities under
Schedule VII which would be covered under
CSR activities.
24
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NIVESHAK
As per the report of the Indian Institute of

Corporate Affairs, at least 6000 companies in
India (including several first-timers) will be
required to undertake CSR projects in order
to follow the Companies Act, 2013 and their
CSR commitments can be as high as Rs. 20,000
crore. Adequate disclosures of such activities
should be given through reports and company
website.
CSR has continued to be a topic of debate
among scholars and practitioners for quite
some time. Still there is a lot of speculation with
respect to the proposition as to whether there
exists any role for business in social upliftment.
With the growing stress on CSR a number of
investors incorporate environmental and social
considerations into their investment decisions.
This growing attention on Corporate Social
Responsibility (CSR) from investors has raised
questions on the financial impact it would have.
Taking a theoretical perspective a good CSR
performance would have an impact on the firms
market value. It may increase the productivity
and financial performance as it implies a good
relation with the key firms stakeholders. Also
Scholars to the likes of Hart Porter and Van der
Linde and Russo and Fouts explain that a good
CSR performance can provide a competitive
advantage increasing the innovation capacity.
Through incorporation of CSR the firms meet
stakeholders expectations which again is
induced by the increasing awareness about
CSR firms generate a reputational capital and
enhance their social legitimacy which in turn
contribute to increase sales and customers
loyalty.
There have been many empirical studies to test
whether CSR performance matters for stock
market investors. In the American context it has
been observed that the firms with a good CSR
performance tend to have higher market-to-
DECEMBER 2014
book ratio. Several researches have concluded

that the firms deleted from the Dow Jones
Sustainability Index because of their bad CSR
performance exhibit negative cumulative
abnormal returns. Also it has been found out
that a good CSR performance reduces the cost
of capital, because of a reduction of a firms risk
and a larger firms investor base. The firms with
a good CSR performance reduces information
asymmetry. If we are to consider that CSR
performance has a negative impact on cost of
equity and decreases information asymmetry,
socially responsible firms would have more
advantages than others to issue equity and
thereby would be less leveraged. Hence, the
question that needs to be answered is that
as to whether the firms adapt their financing
decisions according to the CSR performance
they propagate.
Firms with a good CSR performance tend to
prefer equity over debt when they finance
their activities and exhibit lower leverage
as they have lower cost of capital and lower
information asymmetry. Firms with high
CSR ratings issue larger equity volume than
others to exploit a low asymmetry information
situation. As per the market timing theory
managers issue larger equity volume when
information asymmetry is low as information
asymmetry makes equity issuance more costly.
Thus there exists a positive relation between
CSR performance and size of equity issues.
Firms with good CSR performances are less
dependent on market conditions when issuing
equity.
The determination of financing choice is
dominated by two competing theories which
are the trade-off theory and the pecking order
theory. The trade-off theory establishes the
existence of an optimal capital structure. The
optimal capital structure suggests a tradeoff between the costs and benefits which are
associated with debt and equity. The pecking
NIVESHAK
25
Article
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order theory make an assumption that

information asymmetry between investors
and managers is the most important driver for
firms financing decisions. Market timing theory
is an extension of this theory which states that
firms issue more equity when information
asymmetry is low and market conditions are
favorable.
Theoretically a number of models have been
developed like the equilibrium model where
there exists two types of investors i.e. green
and non-green investors and three types of
firms i.e. non-polluting, neutral and polluting
firms coexist. The boycott of polluting firms
securities from green investors limited provided
opportunities for risk sharing. As a result of
which the securities of these firms have lower
prices and higher cost of capital. In the capital
market equilibrium model the investors only
buy stock if they have information on it. Thus
it implies that because of the reduction of
investors base, firms for which information is
incomplete have a higher cost of capital. The
KLD scores are used to confirm that companies
with high CSR ratings have a lower cost of
equity. Specifically this theory is applicable
for companies that improve their employee
relations and their environmental policies.
Also companies in tobacco and nuclear power
industries have a higher cost of equity. It is
claimed that the environmental performance
signals to the market that the firm is a less risky
investment and hence the investors claim a
lower premium in return for lower risk.
Many authors have found a negative
relationship between CSR performance and
financial risk which are in line with a lower cost
of equity for firms with high CSR performance.

Sin Stocks i.e. firms involved in controversial
activities like tobacco, gaming and alcohol,
faces higher litigation risks because of social
norms. A good CSR performance gives
confidence to investors that the firm considers
stakeholders expectations and generates
a moral capital for firms. CSR performance
improves market liquidity and decreases bidask spreads. CSR performance can also reduce
agency costs. Firms with well-established CSR
norms are more engage with their stakeholders
which limits the likelihood of opportunistic
behaviour and reduce overall contracting
costs.
Aristotle had once proposed one has to think
of oneself as a member of the larger community
and endeavour to excel to bring out what is best
for him and humanitys shared enterprise. There
is an integrating force between the corporates
and the larger community; there is really no
ambiguity between ones self-interest and the
greater public good. It, therefore, is imperative
that a Corporate whose identity is socially
defined would never perform actions that are
wholly immoral and anti-social. Companies
should take this opportunity and treat CSR as
a core business strategy like that of marketing
and finance.
26
Article
of the
Month
Finsight
Cover
Story
NIVESHAK
The sudden improvement in

stock markets: Will it sustain?
Jayraj Dabral
IIM Udaipur
Sensex breached 40000 mark, Nifty at alltime high, stated a headline in a leading
business daily dated 31st Dec 2015. It seems
fascinating and improbable at first sight, but
analyzing recent bull run makes these figures
reasonable. Since May 2014, S&P BSE Sensex
rose approximately 17.5 %, while CNX Nifty
has grown by 15 %. Extrapolating from similar
trends, we can expect 40 % rise till Dec 2015 in
Sensex, which amounts to possibility of Sensex
breaching 40000 mark.
In recent six months, we have seen the stock
market reaching new heights quite often.
Though there were intermittent losses but
overall trends were a bull run further into
untested territories. Factors that fueled this
rise must be scrutinized. General elections in
May 2014 proved to be a watershed event.
From May 2013 to Feb 2014, Sensex hovered in
a narrow range while after March stock market
saw a bull run clearly observable in a sharply
inclined curve, driven by anticipation of a
strong, stable BJP led NDA government. Bull
Run continued further after election results,
riding high on optimism.
Modi factor has been able to lift the prevailing
mood of disappointment about Indian
economy. Bull markets, stable currency,
DECEMBER 2014
softening inflation figures, stable, cohesive

government at the center further boosted
peoples confidence. It augurs well for the
policies that cant find their way out of
parliament due to the coalition government. In
the previous regime, economy has witnessed
plummeting investor confidence. Policy
paralysis and fiscal slippage fear brought the
economy to the lowest growth figures in a
decade.
Recent rise was primarily due to the money
poured by foreign institutional investors (FII)
into equity and debt market in expectations
of better returns and a hope that the new
government will take concrete steps to upturn
the economy. FII bought Rs.1.02-lakh crores
of debt instruments and Rs.78, 400 crores of
debt in the first eight months of financial year
2014. This has been a primary driver of the
stock market. But FII can never be trusted for
a sustained higher level of stock as they can
leave the market quickly in the hope of higher
returns elsewhere. Governments aim should
be to attract FDI and the Central Government
rightfully has taken some initiatives to march
on this path.
Recently, Narendra Modi launched Make in
India campaign aimed at transforming India into
NIVESHAK
27
Finsight
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a manufacturing destination. This will facilitate

investment, foster innovation and enhance
skill development. This has created positive
investor sentiments, which further added to the
optimism about Indian economy. This optimism
manifested itself in the recent rally in the stock
market. But certainly its significant impact will
be observable in the longer duration. Recent
surge in markets is more a result of future
expectations rather than current ground level
development. So it is possible to see market
corrections if policy hurdles continue and the
government doesnt perform much on the
ground level.
In its bid to promote India as world
investment destination and manufacturing
hub government has taken steps to simplify
trade. New schemes as promised will put the
onus of compliance with regulatory norms on
the citizens. Also, there are some significant
developments to curb the inspector Raj making
business inspections more transparent. These
developments are certainly helpful in adding
to the investor confidence as well as if taken in
the right spirit these steps will pave the way for
a sustained bull run in the market.
In the short period, the government in the
power has taken steps to deregulate diesel
prices, bring transparency to the coal mine
auctions, remove bottlenecks in investment
environment, and has also taken initial steps
towards labor and land reforms. Government
has started marching forward to end policy
logjam that was strangling Indian economy
in the past. Recent deregulation of diesel
prices gave a significant boost to the oil firms
and related stocks such as Banks and PSUs.

This step will also reduce the subsidy burden
on government, which eats up a significant
chunk of our earnings, thus making way
for more investments. This sent a wave of
optimism across various international financial
institutions. The Sensex soared over 350
points, tracking the reform measures after this
announcement happened.
Recent macroeconomic data has shown
improvements. Indias GDP advanced at 5.7%
in the second quarter of 2014, and it is the
highest growth rate reported since the fourth
quarter of 2011. In Sept 2014, S&P raised
outlook on Indias sovereign rating to stable
from negative. Our outlook revision reflects
our view that Indias improved political setting
offers a conducive environment for reforms,
which could boost growth prospects and
improve fiscal management, S&P said. On the
same day market witnessed strong FII inflow,
pushing stocks higher.
Governments look east policy and recent
tie-ups especially with China, Japan, and
Singapore has further helped sentiments
go high. In the longer run, Japan will be an
important ingredient in successful Indian
economy. It will play a major role in developing
infrastructure. Government has opened up
economy for various sectors, and there is much
hope that other important sectors like defense
will be soon welcoming foreign players. This
move by government will help in improving
economic prospects as well as strengthening
our defense capabilities. At present India is one
of the largest importers of defense products.
28
Article
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NIVESHAK
Moodys Investors Service has shown faith

that if India successfully implement economic,
financial and fiscal measures, it will be able
to achieve sustainable growth. This will be
manifested in sustained bullish trends in the
market. India: Recent Policy changes to support
Growth Acceleration, a recent report by rating
agency analyzed impact of recent policy
measures taken by government to improve
the investment climate. It rightfully asserts
that MAKE IN INDIA campaign, infrastructure
development initiatives, financial inclusion
measures, clearer inflation targets, as well
as promised reforms in banking and energy
sectors, should be the first step.
Sensex that comprises big banking names
Axis Bank, HDFC Bank, ICICI bank, State Bank
will need banking reforms in the longer term
to keep up the momentum going. PSUs that
form a big chunk of stock markets need to
be revitalized by implementing efficient
and transparent policies. Recent initiative
of rationalizing coal allocation has helped
investors confidence of probable rise in these
stocks. IT companies such Infosys, TCS, Wipro
has continuously increased their profits as
business activity in the United States, a prime
market for IT companies showed modest
performance.
There is a risk of triple dip recession as no
improvement signs are visible in Eurozone
in the near term. Also, Chinese economy
has shown muted growth. The current rally
in Indian stocks comes in the backdrop of
struggling economy of Russia and Brazil.
Indian fundamental needs to be strong to
continuously fuel the market run. As per
European commission, GDP in the 18-nation
Eurozone is forecasted to rise by 0.8 percent
this year and 1.1 percent in 2015, which is lower
from earlier projections, a stronger dollar may
cause some hot money to flow to the U.S.A.
In near term we can see some investors taking
their money off the market as the U.S.A job
data and key economic figures improve. On
the other hand, we can also find lesser liquidity
coming to the stock market as it rollbacks its
Quantitative Easing program. This will have
direct bearing on the market, though recently
announced Japans cheap money may find its
way to Indian market that will further drive
Indian market in the near term.
Riding high on optimism, investors are putting
their money into Indian markets, but there
is a component that is more governed by
DECEMBER 2014
sentiment rather than rational considerations.

Certainly there have been some positive
developments and government has taken
preliminary steps to improve the economy and
clear policy logjam but still there is a long way
for these steps to give a significant boost to
the economy. What we are observing today in
markets is more a result of expectations rather
than something happening at ground level.
Investors have shown much faith in Modi
Government, which is continuously fueling
stock markets. We need to keep in mind that
sentiments can be ephemeral, and FIIs are
hot money that might leave our boundaries
as quickly as they entered. So one should
be cautious about real development in the
economy. Whether these developments in the
stock market will endure or see bearish trend
will largely depend on the seriousness of the
government in reviving the economy.
In the end, several domestic and external
factors are Critical to the recent recordbreaking streak. But certainly new BJP led
NDA government comes as one of the top
factors. Markets have flourished even during
inefficient congress rules so upturn will sustain
or not will be an interesting thing to watch in
the longer term. Government has done some
groundwork for essential reforms such as GST,
fuel price deregulations, approvals, labor, and
land reforms. These have boosted investor
sentiments that have caused recent rally in
the market. But sustainability of such level of
optimism and resulting higher level of stocks
will be dependent on the implementation of
these initiatives.
Interview with Prof. Natesan Ramesh ,

Professor SJMSOM, IIT Bombay
In the phase 2011-2013, in India, we saw

a decline in Private Equity investments.
Some say it was due to the loss of
investors confidence while some say it
was due to government policies. Now
with a new government in place and
investors confidence returning, how
will the PE scenario change?
As an emerging market, India has got great
potential, especially with the population.
Subsequently, you will have to expect that there
will be some seasonality and fluctuations in
terms of investments. You have to look at the
global situations along with the local situations.
As a PE investor, you are looking at the companys
prospects plus the market scenarios. Also you
look at the global trends. We are no longer an
isolated country like we were in 1992. Therefore
you see what impact the global scenario will
have on markets and companies and whether
the company will be able to sustain itself if
there is a global meltdown. Global downturns
may not always be bad as it gives us time to
pause and take a quick look to see where the
valuations are in comparison to when we made
the investment. This is the financial aspect of
these investments. But we have to understand
that PE investments are just like others where
you look at geo-political aspects. In the period
2011-13 India was not politically robust. There
were a lot of negative news which drained
investors confidence. Even though people
might not be concerned about the political side
of these events, they are still concerned about
the economic impact of this. But PE will always
continue looking at our billion dollar market and
those trends may not change. Of course change
in government which is pro-development will
help in infusing more investments.
only more scrutiny but also requires a

lot of experience. In your experience,
what do you think these VC firms see
while evaluating future investments
into an entrepreneurship venture?
VCs are classic early stage investments. PE
comes at larger quantum at later stages but VCs
are at a much earlier stage. So their risk factors
vary as you dont know how these ventures will
evolve. So they look at how these ventures will
do in the markets and if it is sustainable or not.
So you weigh a whole bunch of ideas in terms of
valuations. You also do your market research and
background checks. VCs is not only about type
of technologies or products or solutions. VCs are
the one who gauge people. VC investments is not
only dependent on the novelty or attractiveness
of ideas. They also look at the team in terms of
their execution capabilities. They bet on people
more than ventures and ideas. One of the most
important things is the teams confidence in
executing their plan. VCs are generally stricter
in terms of adherence to plans. That does not
mean that if execution is not according to
plans then everything will break down. VCs
have multiple screening processes. Any project
which reaches the final stage but founders
do not exhibit confidence in themselves then
funding becomes more difficult for them. Most
of the literature on venture capital says that its
the team that matters because the ideas are
plentiful and they have only limited funds. They
also look at the risk and reward ratio. They see
if they are putting the right amount of money
in the plan and what multiples would they get
for the higher risk they assume. So they expect
greater returns for their investors.
India is becoming an attractive market

due to its increasing number of
Between VC and PE investments, VCs are millionaires and billionaires. To satisfy
more risky due to their stage of financing their return appetite VCs and PEs are
in the business cycle. So VCs require not taking more and more risks. So do you see
29
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FinGyaan
NIVESHAK
NIVESHAK
an alarming rate over here or this is the

general industry standards or norms?
When venture capital started, it started in small
amounts. The quantum of money was also very
small and risks were taken in proportion to the
investments. But as markets grow, confidence
builds in the markets, so the valuations will grow.
So I always said If you cant stand in the heat,
get out of the kitchen. So this will always be
an issue and in India valuations are considered
in two ways. There is a science of valuation and
then there is an art of valuation. If the investors
are many and deals are less the valuations will
always be high. But there are many ideas in the
markets which again brings us to see the team
and leadership. This is how the industry has
evolved and it will continue doing so. Again I
am bringing your attention to the fact that India
is a very large market. If you see the consumer
space especially B2C sector, there is still a lot of
potential especially in the lower classes. Tier-3
and Tier-4 cities still are untapped. There is a lot
of room and opportunities. So it is an evolving
business where there will be ups and downs. No
VC can say all his projects has bagged multiples.
For every successful project there could be ten
projects which have made losses for them.
Thats just the nature of the business. VCs will
always have more risk but they also have higher
returns.
FinGyaan
FinView
30
But historically we have seen that 30%

of the investments that PE makes have
generated negative returns. What do you
think are the possible reasons for this?
There are many factors behind negative returns.
One of the reason is that sometimes it happens
that these investment firms ends up chasing the
deals which make them overpay for these deals.
So basically they are already locked in negative
returns in such scenarios. You have to be a bit
savvy as an investor because the quantum is
much larger in the PE world than the VC world.
Therefore in my opinion, prudence dictates.
Also one thing you can never predict is the
uncertainties in the external environment. You
can gauge the local markets, put in the what-if
scenarios but you cant predict events which are
endemic across the world like the 2008 financial
crisis. That was a seismic event which could not
be predicted. There were warning and alerts but
since everything was going well so people didnt
really pay attention. These kind of effects also
reflect on the performance of the companies. So
DECEMBER 2014
negative returns are quite possible. PEs are also

not very far away from VCs in terms of risks.
They also make bets and hope that they are
the right ones. And since quantum is bigger,
the returns are bigger. A $500 million may bag
a PE investor $2.5 billion! Thats 5 times the
investment. Since these investments are large,
any external shocks from the environment will
create problems. In my opinion, the main reason
for this 30% deals with negative returns is due
to the fact that there are too few deals and too
many investors.
What would be your advice to
management students or any other
person looking to make a career in this
sector and how is the career prospects
for them?
The VCs are hunting campuses because they
need talent. This is a vibrant industry and will
continue to grow. VCs always look to recruit
MBAs from top B-schools, as they want to
recruit the best. It is not just about knowing
the industry and how it works, it is also about
the ability to structure things because VC is not
just about money, it is also about structuring
deals in the right way. So they need talent. My
advice to the students studying in B-schools
would be to brush up their finance skills. You
will need it more than you ever think. You are
always expected to know things while working
in VC and PE firms so you have to be savvy
and astute because you will be pitched by many
people. Your ability to separate a good deal
from a bad one will take you a long way ahead
in the industry. It doesnt mean you have to be
shrewd, you just have to be quick, smart and
come up with a win-win situation for the firm.
At your level you will not be able to gauge the
management and the team because that will
come only with experience as it is an art. So it
will be all about finance for you. Your spark will
attract the VC firms towards you.
31
NIVESHAK
DuPont Analysis
FinFunda
of the
Month
Apoorva Sharma
IIM Shillong
Sir, I came across a performance

measurement called DuPont Analysis in
an article. I have never heard that term
before. What is it?
It is a measure of performance that was
started by DuPont Corporation. It is also
called DuPont identity. It breaks down
the ROE i.e. Return on equity into three
different elements. ROE is a measure of the
value created by the management of a company for
its shareholders. The more the ROE, the better is the
companys performance. However its value can be
misleading. A good ROE might suggest a risky stock.
DuPont analysis helps the investor understand the
cause for the movement and hence take informed
decisions.
Sir, how is the ROE calculated? Please give
an example as to how a greater ROE can be
suggestive of a risky stock?
Good! That is an intelligent question.
ROE= Net Income/ Shareholders equity.
If it is more, it is a sign that returns on
shareholders equity is going up and hence
the company is worth investing. If the companys
capital structure is such that it takes more of debt
and less of equity, then the net income generated
would be mostly because of the debt taken, however
the ROE would go up as shareholders equity
has reduced. The leverage of the company has
increased, the stock evidently is more prone to risk
as the company might default on its debt payment
obligations.
What are the components that ROE is
broken into while performing DuPont
Analysis?
There are three components each of which
measures different parameters and help
in determining the cause of movement in ROE and

whether ROE has increased for the right reasons:
a) Net Profit Margin which measures Operating
Efficiency
b) Total Asset Turnover which measures Asset use
efficiency
c) Equity multiplier which measures the Financial
Leverage
ROE= Net Income/ Shareholders equity
= (Net Income/ Sales) * (Sales/Assets) * (Assets/
Shareholders Equity)
= (Net Profit Margin) * (Asset Turnover) * (Equity
Multiplier)
Sir could you please explain the implications
of these components on the movement of
ROE?
Yes, Sure. If the companys ROE increases
due to the Net Profit Margin or Total Asset
Turnover, it is good for the company
indicating that the company is performing
well and is therefore a good investment option.
Equity multiplier is a measure of companys assets
per rupee of stockholders equity. The more the
equity multiplier, higher is the financial leverage
which implies that more debt is being used to
finance the assets of the company. If the increase
in ROE is due to rise in Equity multiplier then it is a
matter of concern as the stocks of an over leveraged
firm are risky because of the chances of default on
debt payment obligations. However if the company is
under leveraged (lower debt component), and equity
multiplier rises, it is a positive sign suggesting that
the company is managing its funds better.
DuPont is therefore a performance
measure which analysts use to understand
returns and compare different companies
in similar industries to determine the best
investment option. Isnt that its use?
Excellent!
Classroom
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Story
CLASSROOM
32
WINNERS
Article of the Month
Prize - INR 1500/Dylan Jude Fernandes
IIM Bangalore
December FinQ Winners
1 st Prize - INR 1000/Aman Singh
FMS Delhi
2 ND Prize - INR 500/Raghav Bhatnagar

IIM Shillong
33
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Niveshak

FROM EDITORS DESK

04 The Year That Was

Article of the month

14 Start-up and Private Equity

Real Estate Investment Investments in India

The sudden improvement in

22 Socially Responsible Corpo- 29 Interview with Prof. Natesan

The Year That Was

The Niveshak Times

Inflation has been one of Indias biggest problems.

valuable tech companies in the world after raising

The decisions taken at the Cabinet meeting headed

The countrys currency continued its brilliant

The move is aimed at boosting domestic industry

The US economy grew at 3.5% in the third quarter,

The Cabinet also approved a proposal to open up

The International Monetary Fund has trimmed

Things are not looking up for the 28-member

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

The Year That Was

The Niveshak Times

FII, DII Net turnover (in Rs. Crores)

MARKET CAP (IN RS. CR)

LENDING / DEPOSIT RATES

Data as on 26th Dec 2014

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

Niveshak Investment Fund

Cons Non Durable

Opening Portfolio Value : 10,00,000

REAL ESTATE INVESTMENT

Search, information and diligence costs

for the benefit of the investors in exchange for

*Bank of America- Merrill Lynch

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

investors and smaller institutional investors to

Benefits of REITs from standpoint of the

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

Since REITs would be similar to other publicly

Start-up and Private Equity

Rahul Bajaj & Sandeep Sharma

embedded during bootstrapping.

support and guidance to the new generation of

growth, however 2014 has been a year where

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

investments in Bangalore based startups. Angel

market share and market potential. Once the

clear exit yet for these companies.

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

FDI- a harbinger of economic

suggests that FDI has positive impact on

rudimentary infrastructure will cause more

unfettered access to local businesses and

FINANCE CLUB, INDIAN INSTITUTE OF MANAGEMENT SHILLONG

Interplay between FDI and Growth

FDI does not automatically result in growth.

continue to be imported from the home country,

FINANCE CLUB, INDIAN INSTITUTE Of MANAGEMENT SHILLONG

The implementation of the Companies Act