On the other hand, Finance is a very broad term that describes the idea of management of large amounts of money through activities associated with banking, debit, credit, money and investments.

With the continuous advancements in the field of science and technology, there has been the involvement of technology in almost every branch of knowledge that exists in this world be it security, food, currency, architecture, medicine, art, astronomy and so on. Simultaneously, technology has also proved to be fortuitous in the field of finance and that too on a very high scale. Thus, the branch which deals with the symbiosis between finance and technology and consists of software, applications and other digital services that are used by the consumers for activities like mobile banking, investments and loans, is referred to as ‘FinTech,’ a portmanteau of Financial Technology. 

‘Tech’ in ‘Fin’- Applications

Customer Service is one of the major sectors that has exploited Financial Technology in the last few years. A decade ago, an efficient customer service team was essential in order to carry out the financial tasks involved within a company. But, with the advancements in FinTech, AI chatbots have made consumers’ life way too easier and act as an avenue for customers to interact with. The chance of error is significantly reduced and the workload on humans is also minimised. Earlier we needed a separate team to carry out the bank work but now with the evolution of FinTech, we don’t even need to go to the bank personally to open a bank account, transfer cash or update the details. Everything can be done conveniently by using banking apps and other such software on smartphones.

In finance, computer programming has been proved to be extremely useful in a wide range of situations which include setting up and managing electronic trading systems, pricing derivatives, risk management, trade management platforms and so on. Python, in particular, is important for the latter three. Python can also help in creating analytical tools and models and can even modify Excel Spreadsheets to provide greater efficiency. Another advantage of using this language is that it provides a large array of libraries that can be effectively used in finance to build financial models and perform other mathematical operations. 

Some useful Python libraries and packages include –

• numpy: This package is used for performing scientific and computational tasks on python. Besides that, it is also used in numerical programming, finance, industry, academia and so on. With its roots in all these fields, this library specializes in basic array operations.
• pyfin: If the user wants to perform basic options pricing in python, they can simply use the pyfin library.
• ffn: This is a financial function library for python. It is basically used to quickly carry out analysis of trading strategies and financial asset price series and contains many useful functions for those who work in quantitative finance.
• QuantPy: This is a framework created primarily for quantitative finance in python. It has a Portfolio Class that can import daily returns from search engines like Yahoo.
• zipline: This is a Python based algorithmic trading library. Besides being an event-driven system, it also reinforces backtesting and live trading.
• TA-Lib: This is a software that is widely used by software developers involved in trading and required to perform the analysis of financial market data technically. Another advantage is that it has an open-source Application Program Interface (API) for Python.
• trade: This Python framework is used for the development of financial applications. Once the user informs the items he has in stock and a series of subsequent occurrences with those or other items, trade calculates the effects of those purchases, sales and so on and by and by gives back the new amounts and cost of items in stock.
• QuantSoftware Toolkit: This is an open-source software framework on Python, designed to support portfolio construction and management. This QS Toolkit is primarily for finance students, computing students as well as quantitative analysts with programming experience.
• finmarketpy- This is a python-based library that enables us to analyse market data and simultaneously backtest trading strategies using a convenient Application Program Interface, which already has the templates to define backtest.
• pyfolio:  This is a Python library used primarily for risk analysis and performance of financial portfolios. It works efficiently with the Zipline open-source backtesting library.
• finance: This is also mainly used for Financial Risk Calculations. It has been so optimized such that it is easy to use because of features like Class Construction and Operator Overload.
• qfrm: It is abbreviated form of Quantitative Financial Risk Management. It constitutes amazing Object Oriented Programming tools for measuring, managing and visualizing risk of financial instruments and portfolios.
• visualize-wealth: If the user wants to backtest, construct, analyse or evaluate portfolios and their benchmarks then he can easily use this library in Python to perform all the tasks mentioned above.
• empirical: This is used by both zipline and pyfolio and is used for common financial risk analysis and also in performance metrics.
• statsmodels: If the users want to explore data, estimate statistical models or perform other statistical tests then they can use this Python module.
• ARCH: This is used to perform financial econometrics in Python.

Java is another popular language that is used in the banking industry. This is primarily due to its secure and stable design. Java is a platform-independent and portable language and thus it can easily run on the newer versions as well even when a change was made. It is necessary to install a security system since banks handle a lot of sensitive and confidential information. Java acts as a stimulus and helps banks perform all the tasks while maintaining an appropriate level of confidentiality.

Data Visualization in FinTech

Most of the people in this world are visual learners i.e., they prefer to visualize a certain concept to understand it more thoroughly. Charts and graphs allow the users to understand the growth or depreciation of a certain thing by comparing it with the previously stored data. Histograms are the best means to represent such data statistically. A manager can take large quantities of data, can see the bigger picture more clearly and can provide a concise report.

Data visualization is the creation of visual representations of data that clearly communicate insights through charts and graphs. These charts and graphs help leaders and decision-makers make better, data-based decisions more quickly than the traditional data table. And it keeps them from getting lost in a Where’s Waldo-style puzzle maze of stats and data points. (Sisence, 2020)

Data visualization allows us for quick interpretation of results. We can easily create a chart of the data and see the trends of that particular data over a period of time or over any other variable. For example-

This visual data representation is split into a percentage gauge in addition to a detailed bar chart and will help you to accurately calculate your Earnings Before Interest and Tax (EBIT).

Data Visualization can be easily done using the Financial Toolbox in MATLAB. It provides numerous easy-to-digest functions for mathematical modelling and statistical analysis of financial data. We can analyse, backtest and optimise investment portfolios taking into account the turnover, transaction costs, semi-continuous constraints and minimum or maximum number of assets. This toolbox also enables us to estimate risk, analyse yield curves, price fixed-income instruments and European options, and measure investment performance. (MathWorks, 2021)

Stochastic Differential Equation(SDE) tools let us model and stimulate a variety of stochastic processes. Time series analysis functions can also help us perform various productive tasks. They let us perform transformations and regressions with missing data and convert between different trading calendars and day-count conventions. (MathWorks, 2021)

There are various other libraries in our hand which are used for data visualization in finance-

Matplotlib- This has established itself as the benchmark for data visualization and is a robust, reliable and efficient tool modelled after MATLAB’s plotting capabilities. It can be used to create static image files of almost any plot type. (Foy,2021)

Seaborn- This is another common data visualization library that is based on Matplotlib and provides a high-level interface for drawing attractive and informative statistical graphs. (Foy,2021)

Plotly & Dash- Since all the previous graphs were static and could not be altered and interacted with in any way. Plotly library solves this problem using which python creates interactive plots as .html files. Users can zoom in, select, hover and perform several such tasks with these plots but in order to regenerate a plot to see updates you need to re-run the .py script. Dash helps to resolve this problem. Instead of creating a .html file, Dash produces a dashboard web application at your localhost which you can then conveniently visit and interact with. (Foy,2021)

Some other prominent libraries include Pandas and Time Series Visualization which are extremely useful as well.

Business Intelligence (BI)

Business Intelligence has been defined as “a set of methodologies, processes, architectures, and technologies that transform raw data into meaningful and useful information used to enable more effective strategic, tactical, and operational insights and decision-making.” (Forrester, 2021) Thus, Forrester refers to data preparation and data usage as two separate but closely linked segments of the business-intelligence architectural stack.

Business intelligence can help companies make better and appropriate decisions by showing them the present data as well as the historical data within their desired context. BI can be used by analysts to provide performance and competitor benchmarks to make the organization run smoother and more efficiently. Market trends can also be easily spotted to increase sales or revenue.

The best way to present BI is through Data Visualization.

Listed below are few ways in which business intelligence(BI) can help companies make smarter, data-driven decisions:

• Identify ways to increase profit
• Analyse customer behaviour
• Compare data with competitors
• Track performance
• Optimize operations
• Predict success
• Spot market trends
• Discover issues or problems

Conclusion

BI is rapidly evolving according to the needs of the business foundations and technologies. Companies are striving to be more data-driven and efforts to share and collaborate data are continuously increasing. In the future, we can definitely say that data visualization will be even more essential to work together across teams and departments.

And with the continuous advancements in technology and science, we can definitely hope to see a new phase, a new era of modernization where FinTech would rule the world of finance.

References

Evelson, B., & Nicolson, N.(2008). Topic overview: Business intelligence.  https://www.forrester.com/report/Topic+Overview+Business+Intelligence/-/E-RES39218#

Foy, P. (2021). Python for Finance: Data Visualization. https://www.mlq.ai/python-for-finance-data-visualization/#:~:text=%20Python%20for%20Finance%3A%20Data%20Visualization%20%201,Python%20data%20visualization%20library%20based%20on…%20More%20

MathWorks. (2021). Financial Toolbox. https://in.mathworks.com/products/finance.html

Finance Train. (2019). Best Python Libraries/Packages for Finance and Financial Data Scientists. https://financetrain.com/best-python-librariespackages-finance-financial-data-scientists/

8020 Consulting. (2020). The Growing Power of Data Visualization in Finance. https://8020consulting.com/data-visualization-in-finance/

CFI. (n.d.). Programming. https://corporatefinanceinstitute.com/resources/knowledge/other/programming/

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The Formula and What It Means

The formula for calculating the expected return of an asset given its risk is as follows:​

ER_i =R_f + β*(ER_m − R_f)

where:

ER_i = expected return of investment

R_f = risk-free rate

β = systematic risk (of the potential investment)

ER_m = expected return of the market

(ER_m − R_f) = market risk premium

In the stock market, investors are compensated for the risk they take and the time value of money. In the CAPM formula, risk-free rate R_f accounts for the time value of money. In other words, it’s the rate of return one would earn on an investment that has 0 risk.

In practice, a representation of the risk-free rate is given by the yield on 10-year government bonds. They are considered risk-free because the probability that the Indian government defaults and is not able to pay the return is very small.

R_m is the expected return of the stock market. It is what you can expect to earn on an average if you invest in a broad market index. The market risk premium is the difference between the expected return of the market and the risk-free rate. So, it’s like an expected reward for taking the extra risk. Using an estimate of the expected market return (R_m) gives an estimate of the return of the stock (R_i).

The β of a potential investment measures how much the stock moves when the market index moves up or down. The market, by definition, has a β of 1. A β of 1 means that the stock moves exactly like the market in both directions. A β greater than 1 means that the stock moves more aggressively with respect to the market so it gives you more upside potential when the markets are in bullish territory but it also carries a higher risk of money loss in a market downturn. Finally, a β smaller than 1 indicates that the stock is more defensive than the market, so there’s a lower risk but it also results in a lower return when things go well.

The market risk premium multiplied by the factor β [β*(ER_m − R_f)] is termed as ‘securities risk premium’.

So, for example, if the risk-free rate R_f is 5%, the expected return of the market ER_m is 13% and the systematic risk β of the security is 1.2. Then the expected return will be:

ER_i =R_f + β*(ER_m − R_f) = 5% + 1.2*(13%−5%) = 14.6%

Now, what does this mean to a potential investor? If the expected return they are looking for is equal to or more than 14.6%, then this asset is a decent option to invest in.

What the CAPM Implies

The CAPM depicts that the expected rate of return of an investment is fully determined by two factors: the risk free rate Rf and the securities risk premium i.e. the market risk premium multiplied by the factor of β [ β*(ER_m − R_f) ].

Greater Expected Returns require Greater Risk

The graph shows how greater expected returns from an investment(y-axis) require a greater expected risk(x-axis). Starting with the risk-free rate, the expected return increases as the risk increases.

Assumptions that don’t match reality

The CAPM is based on several critical assumptions. Some assumptions which potentially have some issues include:

1. Markets are efficient and all investors have equal access to information captured in the market. Now this generally won’t hold because institutional investors (a professional investor or organization that trades in large quantities) may have much better access to information, i.e., they have analysis, reports and other tools which make them more adept at evaluating securities than a retail investor (an individual or a non-professional investor). Also, different institutional investors are going to have different access to information.

2. Moving on to investor behaviour, markets are assumed to be dominated by risk-averse and rational investors which doesn’t generally hold because all investors do not act rationally all the time. They might invest emotionally or they might invest in things that particularly interest them.

3. Markets are frictionless i.e., there are no transaction costs, taxes or any kind of restraints in the market and one can buy and sell assets without incurring any kind of additional costs. Now, obviously this assumption doesn’t hold up in real life. While trading, there are a number of consequences that can’t be avoided. If you just think about when you trade shares, you incur a fee while buying or selling. You will also incur a bid-ask spread (the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept). Institutional investors, when they trade significant blocks of shares, also incur market impact costs i.e., the impact their trade has on share prices. Which means if they sell a lot of shares, they might depress the price. And, of course, taxes are a real concern. For example, Securities Transaction Tax (STT) is one such tax payable in India.

4. Under CAPM, it is also assumed that all investors invest in the same time horizon. Investment horizon is the term used to describe the total length of time that an investor expects to hold a security before selling it off. This assumption also normally doesn’t hold in markets because all investors usually have different time horizons which varies according to their investment goals.

The CAPM is a very useful tool to calculate a discount rate or expected return rate but it’s not the only one. There are other modern approaches such as Arbitrage Pricing Theory and Merton’s Portfolio Problem. There are also a few Multi-Factor Models at work as well. But the CAPM still remains popular due to its simplicity and utility in numerous situations.

References:

1. Bleve, M. (2020). Capital Asset Pricing Model (CAPM) Explained. The Finbox Blog. https://finbox.com/blog/capital-asset-pricing-model-capm-explained/
2. Capital Asset Pricing Model. University of South Wales. http://research.economics.unsw.edu.au/jmorley/econ487/CAPM_lecture.pdf
3. Kenton, W. (2021). Capital Asset Pricing Model (CAPM). Investopedia. https://www.investopedia.com/terms/c/capm.asp

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The major perspective of Financial Modeling is to predict the future of a business on the basis of past and present data. The predictions are based on the company’s past financial information, the information that is currently available about the company and the industry, and assumptions about how the future will unfold. Conclusions from a Financial Model are then used for analysis and decision making in the company.

Another aspect of Financial Modeling is to perform the valuation of a company/business. It helps investors determine whether the share price of potential investment options is undervalued, overvalued or valued accurately. This valuation is done on the basis of financial statements. For example, the results of a Financial Modeling done on the basis of financial statements gives a particular insight into the valuation of the company, which is then compared to its share price. Imagine that the share price of the company turns out to be less than what the model predicts, then it indicates that the company is undervalued and should be invested in.

Types of Financial Models

There are numerous types of financial models used by professionals but the most relevant ones in today’s corporate finance world include:

Three-Statement Model

As the name suggests, this model includes three financial statements- the Income Statement (also called the Profit & Loss Statement), the Balance Sheet and the Cash Flow Statement.

1. The Income Statement gives the details about the revenue and expenses generated by the company over the required time period.
2. The Balance Sheet tells about what assets (such as cash in the bank, inventory or real estate) and liabilities (like bank loans, debt to suppliers) a company has at a given point of time. Subtracting the liabilities from the assets gives the net worth of the company at that given point in time.
3. The Cash Flow Statement shows how much cash or anything equivalent to cash entered and left the company over the required time period.

These three statements are dynamically linked with formulas in Excel and financial analysis is then performed on the model.

Discounted Cash Flow (DCF) Model

Free cash flow is that part of cash flow that is not required for day to day business operations of the company. Anything done with the free cash flow doesn’t affect the existing business and it is available for distribution among the investors (both debt or equity) of the organization. Free cash flow is used because it shows actual economic value, while metrics like net income or profits may be misleading.

There are two steps in the DCF model- estimation of the company’s free cash flow in the future and then discounting (the opposite of ‘compounding’) it back to today using the appropriate rate to find the present value of the business (called Net Present Value or NPV) and ultimately, the value per share of the business.

The DCF model takes into consideration the initial free cash flow (the average free cash flow generated by the company in the last 3 years), the annual growth rate of the free cash flow of a company (predicted with the help of historic data), terminal growth rate (it is assumed that the cash flow generated at the end of forecast period grows at a constant rate forever, this is because estimates made far off in the future should not be aggressive) and finally the discount rate or the expected return from the business.

To arrive at the discount rate, a measure called Weighted Average Cost of Capital (WACC) is used. The weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.

So, for example, if the calculated WACC is 9%, it is used to discount expected cash flow to see what it is worth today. So, if cash flow is expected to be ₹100,00,000(1 crore) in 2 years for a company being valued today, that ₹1 crore in 2 years is worth ₹91,74,312 today.

Formula to calculate present value

= future value/(1+WACC)^time

= 10000000/(1+9%)²

= 9174311.9

If the company we’re considering has 1 lakh outstanding shares, dividing ₹91,74,312 by 1,00,000 gives a present value of ₹91.74 per share. If our predictions about future cash flows are accurate, this is what the stock is worth today.

Imagine that this stock is trading at just ₹70/share in the market. This indicates that it is undervalued and should be invested in. But, if this stock is trading at ₹100/share, then it means that it is overvalued.

Mergers & Acquisitions (M&A) Model

As the name implies, the M&A Model is an analysis of the combination of two companies that come together through an M&A process. A merger is the “combination” of two companies, under a mutual agreement, to form a single entity. An acquisition occurs when one company completely takes over the other company. In both cases, a single company emerges. This is usually done to reduce competition, increase operational efficiency and for growth.

This model builds on both the Three Statement Model as well as the DCF Model and hence has all the standard components of a Three-Statement and DCF Model. The steps followed in a Merger Model include:

1. Forecasting the valuation of the first company (acquirer)
2. Forecasting the valuation of the second company (target)
3. Combining the two frameworks and making adjustments for various types of synergies

Sum of the Parts Valuation (SOTP Model)

The sum-of-the-parts valuation is typically used for companies that have diversified businesses, i.e., when a company is a conglomerate and derives its revenue through business units in different industries that cannot be valued using a single relative valuation technique. In such cases, the different parts of the business are valued differently and then they are all summed up so as to obtain the final number or the Total Enterprise Value (TEV). For example, Reliance Industries owns businesses engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

The steps followed in an SOTP Valuation include:

1. Determining the different business segments
2. Valuing each segment
3. Combining up the total to get the final result

In the following example, the multinational company Amazon has been divided into different separately valued segments and then added together at the end.

Leveraged Buyout (LBO) Model

Whenever a private equity firm purchases a business using a significant amount of borrowed money and then uses the profits generated by this business to eventually pay down the debt, ultimately reducing the debt and increasing the level of equity, it is called a leveraged buyout.

The private equity firm may borrow as much as up to 70 or 80 percent of the purchase price from a variety of lenders(Banks, NBFCs, Financial Institutions) and fund the balance with its own equity.

Over time, as the debt is paid off, the equity portion increases significantly and over a long time period, the equity investors can achieve an Internal Rate of Return (IRR) of up to 20-30% or even higher.

Comparable Company Analysis (CCA) Model

In this method, a company is valued using the metrics of other businesses of similar size in the same industry. For example, the valuation of an e-commerce startup like Flipkart must be done by comparing it with an e-commerce company like Amazon India.

Using valuation measures like P/E Ratio, P/B Ratio, P/S Ratio, EV/Sales, EV/EBITDA etc, it is determined if a company is overvalued or undervalued.

The basic steps followed while performing CCA are:

1. Finding comparable companies
2. Determining relevant valuation measure
3. Validating key fundamental metrics (this refers to excluding non-recurring expenses and/or income which might reflect in the numbers)

References:

1. Ahern, D. (2020). Explaining the DCF Valuation Model with a Simple Example. https://einvestingforbeginners.com/dcf-valuation/
2. Chen, J. (2020). Comparable Company Analysis (CCA). https://www.investopedia.com/terms/c/comparable-company-analysis-cca.asp
3. Hargrave, M. (2021). Weighted Average Cost of Capital (WACC). https://www.investopedia.com/terms/w/wacc.asp

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Making India $5 Trillion Economy- What Should India Primarily Focus on?

Before the pandemic struck the entire world, India was expected to become a $5 trillion economy by 2025. The Covid-19 Pandemic had distorted all projections and left the world in an unpredictable state for almost a year. The economies all over the world crashed down due to the lockdowns and global unrest. Data from the National Statistical Office projects a 7.7 percent contraction for FY2021. 

But even if we look prior to the pandemic, India’s $5 trillion economy had many obstacles that needed focus to achieve the dream. One of the most important is India’s manufacturing sector. India’s manufacturing sector is not strong enough to allow expansion and integration in the global value chain. The Economic Survey pointed out that the global value chain exports could contribute a quarter of the increase in value-added for the $5 trillion goal and generate four million jobs by 2025 and eight million by 2030 via the Make in India initiative. (Reddy & S, 2021)

In order to integrate our manufacturing sector with the GVCs, it is very important to develop the infrastructure with top most priority. One example of this is China. China has done huge investments on infrastructure in the first half of the 20th century and the results of that can be seen now by the entire world. China has rapidly risen in the GVC due to its investment on infrastructure. This has led China to becoming the centre for world production. At this point in time, China is one of the strongest economies and has almost reached the stage of being self-reliant. 

India has announced Atmanirbhar Bharat (self-reliant India) with the view of transforming India into an important global player and making India self-reliant. The campaign has also created confusion in the minds of the MNCs as in the initial stages of the campaign India put a ban on the import of various non-essential commodities. Although these import restrictions were put to encourage domestic production to make India self reliant, these may also be seen as an obstruction in integrating India with the GVC. The import restriction can discourage global investors and in turn harms the long term goal for becoming a manufacturing hub. 

For India to achieve a $5 trillion economy, it has to encourage more and more foreign investments in the country and be as closely integrated with the GVC as possible. The policies made therefore have to be more welcoming for the global investors and MNCs and less restrictive in terms of import tariffs. 

The government should first and foremost focus on infrastructural development in the country in order to improve the manufacturing sector and be able to competitively produce. It should perhaps create a more open trade environment so that there is free trade of goods and services. The infrastructural development can also be useful for the performance linked incentive sectors. In this regard, the government’s Rs 111 lakh crore or $1.4 trillion investments in the National Infrastructure Pipeline can be seen as an important step towards building the required infrastructure. NIP consists of investment from the centre (39 per cent), state governments (20 percent) and private sector (21 per cent). It is very important at this point that the centre and the state governments work in a collaborative manner in order to devise smooth systems and proper and timely implementations of the policies. The central government should be hands on with any shortcomings of the state government so that there is minimum or no harmful repercussions felt over and beyond. It is important to make India so strong that even though India is a labour intensive country, it can have the ability to also be a major exporter of the capital intensive commodities along with labour intensive commodities. (Reddy & S, 2021)

It is as important to develop the traditional labour intensive commodities market so that India holds its foot strong in the global market when it comes to labour intensive commodities as it is one of the major aspects of the Make In India project.

Efforts of States to Achieve $5 Trillion Goal

UP Budget 2021-22 

The UP government on February 22nd brought the state budget to the table of the state Assembly. Chief Minister Yogi Adityanath presented the first paperless budget including ₹ 5,50,270.78 crore for 2021-22. It is about ₹37,410 crore more than the previous year’s budget. The focus of the budget was to make Uttar Pradesh Atmanirbhar and ensure overall development of the state. (Rudrappa, 2021)

Some of the important Budget Highlights:

1. UP government announced ₹2000 crore for Noida International Airport and also, building electronic city near airport.
2. UP budget proposed at least ₹640 crore for the overall development of Ayodhya.
3. The UP government made provision of ₹1,175 crore for metro rail projects. There is a provision of ₹597 crore for the Kanpur metro rail project in the budget presented by Finance Minister Suresh Khanna.
4. The UP government made ₹7,000 crore provision for Pradhan Mantri Gramin Awas Yojna.
5. A budget provision of Rs 976 crores for the development of canals, ₹610 crores for Saryu Canal Project, and ₹271 crores for the Eastern Ganga Canal Project were proposed. ₹104 crores was also proposed for Ken Betwa Interlink Canal Project. (D’Souza, 2021)
6. ₹1326 crore has been given for Delhi-Meerut RRTS and ₹100 crores each for Gorakhpur-Varanasi metro.

The investments on infrastructure by the UP government is one of the key aspects that could help transform India into a global manufacturing hub. The provisions made in the budget also promises to generate employment for the state leading to a higher SGDP. The infrastructural boost will lead the state to become more efficient in its development. With projects like Sabka Saath Sabka Vikas, the UP government has promised to bring taps, electricity, roads, water in every household along with making the state digitally equipped. The Chief Minister in his speech mentioned that the budget focuses on the poor, women, youth and the farmers. 

Bihar Budget 2021-22

The Bihar government announced a ₹2.18 lakh crore budget for 2021-22 with focus on social sector and infrastructural development. The Chief Minister of Bihar also announced a separate department for skill development and entrepreneurship in the state. The Chief Minister announced that the government has made the highest allocation in the education sector worth ₹38,035.93 crore followed by ₹16,835.67 crore for rural development, ₹15,227.74 crore for roads, ₹13,264.87 crore for health and ₹8,560.00 crore for energy. (Bihar’s Rs 2.18 trillion budget for FY22 prioritises social, infra sectors, 2021)

Some of the important highlights of the Bihar Budget:

1. All villages in Bihar will have the facility of solar street lights.
2. A budget provision of ₹250 crore for building link roads in rural areas of Bihar.
3. The state allocated ₹110 crores towards building of new engineering colleges.
4. Three new medical colleges are already under construction. 
5. 38 districts of the state have been declared as open defecation free.

The Bihar government has also focused on developing the infrastructure of the state along with improving the rural regions of the state. This inclusive development efforts of the state government will generate more skilled employment and improve the lifestyle of the rural people. The state government has made extra effort in building a separate skill development department in order to increase the skilled employment in the state integrating with the idea of Atmanirbhar Bharat. 

West Bengal Budget 2021-22

The West Bengal government announced its budget in the absence of the Finance Minister of the state. The government has announced a ₹29,96,88 crore budget for 2021-2022. (West Bengal Budget 2021-2022, 2021)

Some of the important budget highlights:

1. ₹1500 cr allocated for the construction of 20 lakh houses for SC/STs.
2. ₹50 cr allocated for building the infrastructure of 100 new English medium schools.
3. Building of 100 new schools for Nepali, Urdu, Kamtapuri and Kurmali language.
4. 45 lakh construction and transport workers will be given ₹1000 each under the social security scheme.
5. 100 IAS and IPS aspirants will be trained by the state government along with fooding, lodging and providing stipend.
6. All kinds of road taxes lifted from January 2021 to June 2021.

The budget of West Bengal has seen a rise in the expenditure on infrastructure 3.9 times. The state’s planned expenditure increased by 7.2 times. The expenditure on social sectors has risen by 5.6 times.These highlights show that the state government is perhaps in link with the national goal but has to do more in terms of investing in the infrastructure. To build a self reliant nation, the state governments have to work in synchronisation with the central government. 

CONCLUSION 

In view of the Modi government’s aim to make India a $5 trillion economy, the state governments’ budgets do perhaps look in sync. The state governments have focused primarily on the infrastructural developments and enhancing the skilled employment in the respective states. It is very important for these states to pull up their sock in order to provide a competitive development strategy. In order for India to become a global leader in terms of exports, it is very important that the two most important factors are strongly built-infrastructure and skilled labour. 

Being a country with the largest youth population in the world, it is our responsibility to stand out and become self reliant along with being a provider for the world. The pandemic has brought in many changes and should be seen as an opportunity to develop new skills and explore the untapped potentials of the country. 

References

Bihar’s Rs 2.18 trillion budget for FY22 prioritises social, infra sectors. (2021, February 22). Business Standard.

D’Souza, C. E. (2021, February 22). UP Budget 2021-22: Yogi Adityanath govt proposes Rs 140 crore for development of Ayodhya. ZEE News.

Reddy, K., & S, S. (2021, January 13). Building a $5-trillion economy. The Indian Express.

Rudrappa, P. (2021, FEBRUARY 22). UP Budget 2021 Live Updates: UP Presents ₹ 5.5 Lakh Crore Budget To Make State “Aatmanirbhar”. NDTV.

West Bengal Budget 2021-2022. (2021, February 22). The Times of India.

The post WEAVING INDIA’S JOURNEY FOR $5 TRILLION ECONOMY: THE STATE-CENTRIC APPROACH appeared first on WISER WORLD.

The associated risks can come from (i) rising Oil prices, (ii) rising interest rates due to fiscal deficit, and (iii) synchronous global market correction as US multi-year economic expansion is behind India.

Bond Interest Rate and the Stock Market

In the month of February, the bond investors were revolting against the bond market interest rate. As a result of which reflation (stimulating the economic output by means of fiscal stimulus or reduction in taxes)- the guiding light of treasuries betting on rebounding growth is proving to be resilient. Long-term Treasury yields touched the highest in almost a year, the market stumbled on the expectations of inflation that accelerated to the fastest pace since 2014 and the yield curve reached the steepest levels in more than 5 years (Bloomberg, 2021). 

The reflation trade paused for a while after the government press release on 10 February showed the consumer-price inflation to be revolving around 1.4% annually, which was lower than expected. According to Michael Pond, global head of inflation strategy at Barclays, the CPI report was a disappointment as it doesn’t change the outlook of investors and there is no expectation that it will change investors’ views about expected inflation (Bloomberg, 2021).

Hence the theme of reflation is based on a story about where inflation will move once the majority of the citizens are vaccinated and demand normalisation. 

Does a Change in the Federal Reserve Interest Rate on New Bonds Stimulate the Indian Market?

After Joe Biden swearing as the 46th US President and taking over his role in the White House, the Fed, the central bank of the US has been closely involved in changing the interest rates on new bonds in the month of February. For an emerging economy like India, these changes have a significant effect. The India investors whose speculations are based on the daily movements in the world stock markets are of the view that the decision of the Fed to decrease the interstate rate on bonds will be welcomed by the citizens as the economy struggles to revive from the COVID-19 pandemic. The ultimate goal is to infuse liquidity in the market so that citizens have cash in their hands which will help to pull up the demand in India. 

The Fed expected its interest rate to be close to zero and signalled that it will remain close to zero in many years to come. This is a part of a long-term strategy that the Fed adopted in the year 2020 that proved to be helpful while navigating a world of persistently low-interest rates that makes it difficult to hit its 2 percent inflation goal (Reuters, 2020). 

A sharp increase in demand as Covid-19 inoculations allow more of the economy to reopen could push inflation above the Fed’s 2 per cent target. If markets push up long-run interest rates a bit to reflect expectations for future faster growth, the Fed likely wouldn’t change course. That’s consistent with the new framework if the economy hasn’t achieved sustained 2 percent inflation by then (Reuters, 2020).

RBI Having a Tough Time in Keeping a Check on Bond Yields

After the release of Union Budget 2021, RBI is under constant pressure to keep the traders of bond calm. Although a higher fiscal deficit was expected, it rose to 9.5% as a percentage of India’s GDP for FY21 and is forecasted to touch 6.8% in FY22. A higher fiscal deficit came as a daunting news for the bond market which led to a surge in bond yields. 

There is an estimate made that the market borrowing of the central government will be at Rs 12 lakh crore in FY22. There is an increased supply of government bonds in the market that could lead to a demand-supply gap, thus putting pressure on yields. The investors in the government bonds are receiving higher yields thereby causing a similar demand on corporate bonds (ET Contributors, 2021). This leads to a rise in borrowing cost for corporates, thereby negatively impacting private investments in the country. In addition, higher bond yields further complicate the transmission process of the rate cut by the central bank (ET Contributors, 2021).

The responsibility now falls on the shoulders of RBI to keep a check on bond yields. In the last bi-monthly Monetary Policy meeting (MPC), there were no announcements made in this regard. As the economy is currently recovering from a recessionary phase, the phase of increase in inflation is getting stronger (ET Contributors, 2021). 

Thus given the current circumstances, RBI would be having a tough time in keeping the check on yields. The central bank has to deal with two-fold problems: on one hand to check the inflation while on the other hand has to handle the market borrowings from both the central and state governments. RBI needs to actively participate in the bond market and communicate well with the market participants in order to ensure that the bond yields are in check. 

Pandemic Fatigue Leading to a Fear of Lockdown

As news around the second wave, COVID-19 pandemic in foreign countries like UK, US, Australia are reaching the Indian households, residents are in a fist that there might be phased lockdown across the states in India. Several states like Maharashtra, Uttar Pradesh, Gujarat and Kerala are recording a spike in COVID-19 cases again which is directing the state and central government to impose night curfews in these states. Cities like Mumbai, Pune, Amravati, Aurangabad, Ahmedabad are already observing night curfews due to a rapid hike in COVID-19 cases. 

In a recent report released by Union Health Ministry, the primary reasons for the growing number of cases in few states were reported as – COVID inappropriate behaviour due to “lack of fear of disease”, pandemic fatigue, missed cases, super spreading events and crowds due to recent gram panchayat elections, marriages, reopening of schools, and crowded public transport.

The Recent INR-USD Change

The US Dollar to Indian Rupee Exchange Rate measures the ratio between the US Dollar and the Indian Rupee. Exchange Rates can be used to measure the relative health of an economy versus another. Exchange rates are also important in corporations that operate worldwide because they will directly impact their financials (YC, 2021).

US Dollar to Indian Rupee Exchange Rate is at a current level of 73.92, up from 72.74 the previous market day (February 25, 2021)  and up from 71.65 one year ago. This is a change of 1.62% from the previous market day and 3.17% from one year ago (YC, 2021). 

F&O Cues

F&O stands for Future and Options. These are the major types of stock derivatives traded in a share market. These Derivatives are the financial instruments deriving their values from an underlying such as currency, gold, or the stocks of a company.

Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.

• Nifty February futures ended at 15,195; premium of 22 points 
• Nifty February futures add 1.2% and 1,745 shares in Open Interest
• Nifty Bank February futures ended at 35,854; premium of 102 points
• Nifty Bank February futures add 4.3% and 2,621 shares in Open Interest 
• Nifty Put-Call Ratio at 1.48 Out of F&O Ban: Sun TV Stocks In F&O Ban: BHEL, SAIL 

Brief on FII and DII Trading Activities during February 2021

Foreign Institutional Investors (FII) is the term used for investors who belong to foreign lands and are interested in putting their money in the Indian stock market. These are available in various forms such as mutual funds, investment trusts and pension funds. Domestic Institutional Investors (DII), on the other hand, refer to the investors belonging to India who invest their money in the Indian stock market. This comprises domestic mutual funds, banking and financial institutions, insurance companies and domestic pension funds (Dhanorker, 2020).

Indian stock market attracts millions of investors annually. These investors are primarily driven by institutional money. Both FIIs as well as DIIs constitute the major part of liquidity in the stock market. Therefore the effective tracking of their inflows and outflows are helpful in forecasting the broader trends in the markets. FIIs are believed to have a greater influence on the domestic markets along with the sustained flows from DIIs (Dhanorker, 2020). The countries which constitute a major portion of FII inflows into India are listed below. 

The performance of FIIs and DIIs have been carefully traced to meet the expectations of the investors during the month of February 2021. One of the primary reasons behind this is that the year 2021 will mark the arrival of the COVID-19 vaccine followed by the economic recovery that will see the Indian government taking stimulus measures to cope with the weak performance of the Indian economy during the COVID-19 pandemic. So it becomes of utmost importance to keep a track of previous FII and DII trading activities. 

The above table shows the trading activities of FIIs and DIIs from December 2020 to February 2021. There has been a continuous increase in the gross purchase of FII from Rs. 182 crores (approximately) in December 2020 to Rs. 223 crores (approximately) in February 2021. The gross sales of FII also increased from Rs 134 crores (approximately) in December 2020  to Rs. 180 crores (approximately) in February 2021. This increase was sharp for the month of  January and February because of the speculations surrounding the foreign investors due to the successful release of the COVID-19 vaccine and vaccination of common citizens which ultimately registered a steep increase in the net purchase/sales for the FIIs. 

Similarly, DIIs showed an impressive improvement in their performance as their gross purchases increased threefold from Rs. 84 crores (approximately) in December 2020 to Rs. 104 crores (approximately) in February 2021. Due to the restrictions on the movement across the borders and closing of the economies worldwide, the domestic investors started putting their money in the Indian stock market as a result of which the gross purchase increased. However, the gross sales had reduced from December  2020 to January 2021 2020 but increased during February 2021. 

Conclusion

In my opinion, the COVID-19 pandemic in 2020 delivered some of the greatest shocks to the global economies since World War II. The entire economies have been locked down and people adjusted to the new ways of working, studying and socialising. There are millions of people who have lost their jobs and became unemployed as a result of which inequality and poverty soared. The globalised economies acting as lifelines to billions of people worldwide has suddenly become vulnerable, owing to the disruptions of the global supply chains and government strategies to protect domestic stock market. Given the persistence of COVID-19, the recovery in 2021 will largely depend on how effectively the vaccine is distributed and how the various industry stakeholders reacted to the Union Budget 2021-22. The multidisciplinary robust approach will be required to mitigate the ill-effects of the pandemic and to address longer-term challenges posed by climate change. For this current and former political leaders, scholars, academicians, senior policymakers should provide exclusive analyses of the tasks that lie ahead in order to ensure that we are ready to meet the forthcoming challenges. 

References

Bhise, R. (2021, February 11). February 2021 Stock Market Outlook. investment shastra. https://www.moneyworks4me.com/investmentshastra/february-2021-stock-market-outlook/

Bloomberg. (2021, February 14). Bond market reflation trade absorbs punch to extend 2021 advance. Economic Times. https://economictimes.indiatimes.com/markets/bonds/bond-market-reflation-trade-absorbs-punch-to-extend-2021-advance/articleshow/80906847.cms?from=mdr

Dhanorker, S. (2020, June 29). What stocks are FPIs, FIIs and DIIs buying and selling? Economic Times. https://economictimes.indiatimes.com/wealth/invest/retail-investors-urged-to-stay-away-from-gamestop-inspired-communities/articleshow/80663373.cms

ET Contributors. (2021, February 18). Why is RBI having a tough ride in keeping bond yields in check. Economic Times. https://economictimes.indiatimes.com/markets/bonds/why-is-rbi-having-a-tough-ride-in-keeping-bond-yields-in-check/articleshow/81088372.cms?from=mdr

Reuters. (2020, December 16). Fed will be tested in 2021 as vaccines boost US economic outlook. Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/fed-will-be-tested-in-2021-as-vaccines-boost-us-economic-outlook/articleshow/79751536.cms?from=md

YC. (2021, March 7). US Dollar to Indian Rupee Exchange Rate 73.92 INR/1 USD for Feb 26 2021. Charts. https://ycharts.com/indicators/us_dollar_to_indian_rupee_exchange_rate_h10

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With regard to this, India had already submitted its action plan and promised to reduce its emissions in the Intended Nationally Determined Contributions, INDC before the Paris conference in December 2015. 130 countries including India had submitted their action plans in the official languages for which they were to be held accountable. (Sinha, 2015)

What is the One Nation One Grid Gas Project?

The Narendra Modi government has strongly focussed on creating a self-sufficient economy for India- Atmanirbhar Bharat. The one nation one grid gas project is another important attempt of the government to take a step closer towards Atmanirbhar Bharat. The government has planned to expand the national gas pipeline network from 16500km to 27000km. The government is aiming to increase the share of natural gas to 15 percent in the primary energy basket by 2030. The current share of natural gas in the primary energy basket is 6.2 percent which is considerably a low amount considering the demand for energy fuel in the country. (One Nation One Gas Grid: Betting Big on Infrastructural Development, 2021)

Prime Minister Narendra Modi has introduced a 450km natural gas pipeline in Kochi-Mangalore as a step towards making India self-reliant. The 450km gas pipeline cost INR 3000cr. The power and energy sector infrastructure is due to an upliftment for decades together. This initiative can lead to a positive impact on the economic development of the nation and cater to the ever-rising demand for the energy and power generation sector. It is also looked upon as an important step towards improving the standard of living of the people along with reducing their expenses. The gas pipeline network will provide eco-friendly Piped Natural Gas (PNG) to the households. This has the potential to improve the energy infrastructure by manifolds within a few years. (One Nation One Gas Grid: Betting Big on Infrastructural Development, 2021)

Need for the One Nation One Gas Grid Project

The most important aspect to put into perspective is that India is one of the highest emitters of greenhouse gases in the world. It is therefore high time to realise the impact it has on the world’s environment and the disaster that it could create if not worked upon at the right time. There has already been a delay in understanding and taking a step towards correcting our ways. But nevertheless, the one nation one grid gas is perhaps a very positive step taken by the government to help shift India towards a more sustainable choice.

Secondly, India’s growing population demands a better energy infrastructure to deal with the simultaneously growing demand for natural gas at a reasonable rate. The one nation one grid gas project is therefore needed to supply energy produced from natural gas via a single source. It is important to connect the different regions of the country with a single source of energy. Third, the transition towards completely clean energy or solar energy country is one that will take time and the one nation one gas grid can act as a transition fuel towards clean energy. Thus, if the one nation one grid gas project turns out to be a success, there will be only one power frequency across the nation. (RSTV: THE BIG PICTURE- ONE NATION, ONE GAS GRID, 2021)

One Nation One Grid Gas – India’s Renewable Energy Journey

The Minister of Petroleum and Natural gas and Steel, Mr Dharmendra Pradhan had called for foreign investors and developers to invest in India’s renewable energy sector. In his speech at the third RE-INVEST conference, he talked about how India is now one of the most favoured destinations to invest in the renewable energy sector and that the sector has seen an interesting turn of events. According to an official statement issued by the Ministry of Petroleum and Natural Gas, India has seen an investment of over USD 64 billion in the last 6 years. (ANI, 2020)

The Union Minister also mentioned that India has a very liberal policy for FDI when it comes to renewables. The investors can invest on their own or enter into joint ventures for technical or financial collaborations. The ease of doing business was also brought up and was mentioned that safeguarding investments was a top priority. Adequate measures are being taken to safeguard the businesses that are affected due to the covid-19. (ANI, 2020)

Minister Pradhan also said that India is going through a transformative change and that the nation’s energy agenda is climate-sensitive and market-based. It was also mentioned that the vast natural gas pipeline network will open a vast range of opportunities in terms of investment and employment. He called for participants to look into investment opportunities in the Compressed Biogas initiative. (ANI, 2020)

Even though the pandemic has slowed down the economic pace, India is looking forward to transforming into a sustainably rich country with equitable outcomes for every region. 

Conclusion- A Way Forward

The one nation one grid gas initiative taken by the government requires rigorous maintenance of the policy regime in order to attract the right amount of investments for the sector. As complicated as the policy looks, it will only get more difficult to cater to the demand for such a huge population along with infrastructural requirements. There is also a need to educate and create awareness about natural gas among the people in order to make this project a success. The one nation one grid gas project has the potential to create large-scale employment along with a sustainable choice of living. 

References

ANI. (2020). Pradhan invites foreign developers, investors to be part of India’s renewable energy journey. ANI.

One Nation One Gas Grid: Betting Big on Infrastructural Development. (2021). Wire and Cable India (WCI).

RSTV: THE BIG PICTURE- ONE NATION, ONE GAS GRID. (2021). Insights Editor.

Sinha, A. (2015). India promises to cut greenhouse gas emissions intensity by 2030. The Indian Express.

Tandon, T. (2020). One Nation One Grid Energy Initiative: India paves it’s way ahead. Jagran Josh.

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Jammu and Kashmir is a region bordered between India and Pakistan and has been in conflict since British rule. Both the nations claim the mountainous valley to be part of their respective nations and thus has been in an ever long political dispute (Ishfaq-ul-Hassan, 2018). For the longest time, Kashmir has been a victim of terrorism, unstable political situation and to top that, infrastructure has also been one of the major issues. The difficult terrain of Kashmir makes it especially challenging for construction and thus has been lagging when compared with most of the other states. Kashmir was for a long time, the princely state and the only Muslim majority state which joined India in 1947. Both India and Pakistan have thereon captured parts of Kashmir but are still in a tiff to have a bigger portion of the state.

An Overview of the Infrastructure Scenario of Kashmir

Infrastructure in Kashmir which includes health, education, tourism, industrial development has lagged for an exceptionally long time.  A survey of the Union Ministry of Drinking Water and Sanitation has shown that Jammu and Kashmir have the poorest sanitation facilities compared to the other states.  It is also important to note that the majority of the population still live in rural areas so the health and education infrastructure is not still as developed as it should be (Pandey, 2019). The rural areas lack private schools and the government schools are also in a bad state. Poor school infrastructure is one of the important reasons for the low literacy rate of the state. Several surveys conducted on the schooling facilities of Jammu and Kashmir have shown that due to lack of proper infrastructure, the students are made to sit on the floors, they do not have proper sanitation facilities in those schools etc. The buildings of the schools are in a worn-out state and on top of that, the 2014 floods in Jammu and Kashmir have damaged no less than 1400 schools (Digital, 2019). This leads to higher dropout rates in the state. Another important issue faced is that most of the schools do not have electricity. These infrastructural problems have been identified over the years and even though the government did put in efforts to resolve these issues, the condition of infrastructure in the state has not improved to a large extent.

As more and more tourists turn up each year, the pressure on the mountains is increasing at an alarming rate and poor infrastructure can cause unforeseen disasters if not taken care of immediately.

Why Article 370 Was a Cause of Concern?

According to Article 370 which was drafted by the then Chief Minister of Kashmir, other than a few areas of national concern like defence, foreign affairs, communication and finance, the central government had to take the consent of the state government to apply any laws or policies in Jammu and Kashmir. This article was made to be permanent and henceforth even more stringent. In simpler terms, the people of the state did not fall under the same rules as the rest of the country and lived by the rules of the state, hence given the status of special autonomy (Jaitley, 2016). This also gave the state’s government, the power to decide who could have ownership of land, or who could and could not invest in the land of Kashmir. This led to a huge problem as people who did not belong to Kashmir, could not officially buy land. This in turn meant that there weren’t any major external investments coming to Kashmir. The Modi government has linked Article 370 as one of the major reasons for the state’s infrastructure remaining underdeveloped for an awfully long period of time. In August 2019, Article 370 was finally abolished (TNN, 2019).

All of this has led to a rise in the need for a planned and vast investment boost in infrastructure in Kashmir to look forward to a better and safer future.

Huge Infrastructure Boost on the Way

The central government has aimed to bring a huge infrastructural boost to Jammu and Kashmir. The objective of this investment is to generate employment and investment in the state. Jammu and Kashmir was officially divided into two federally controlled territories on Oct 31, 2019. The region mostly depends on tourism, handicrafts and farming and has suffered poor infrastructure for decades continuously.

Prime Minister Narendra Modi has agreed on an investment boost of $3.8 billion after scraping out article 370. This is done in the view of increasing investments in the territory and generating employment opportunities. 

Let us now look at the investment programs brought through this infrastructural boost:

1. There has been investment in an elevated Mass rapid transit system in Kashmir. Kashmir will have two Light Rail transit systems (LRTS). The LRTS I is a 17 km long corridor that connects Bantalab to Greater Kailash with 17 stations to be crossed. The LRTS II will be 6 km long that connects Udheywala to Exhibition Ground (Digital, 2019).
2. There are infrastructure plans are Srinagar which will have two corridors. It is a 12.5-km-long corridor I which will connect HMT Junction to Indra Nagar crossing 12 stations. The second corridor is a 12.5-km-long corridor II that will connect Osmanabad to Hazuri Bagh. In order to further develop Srinagar and Jammu, the Metropolitan Regional Development Authorities (MRDAs) have been set up. Satellite townships with 50,000 new houses each are being developed in Greater Srinagar and Greater Jammu. These new townships will have one million sq ft IT parks (Digital, 2019).
3.  In view of improving connectivity, there have been investments to develop the Bilaspur-Manali-Leh railway line. The corridor will help improve connectivity with Jammu Kashmir and Himachal Pradesh. This railway line will be the world’s highest railway track and 465kms long. 52 per cent of the total 465 km length will pass through tunnels. The longest tunnel will be 27 km long. The total length of the tunnels is expected to be around 244 km (Digital, 2019).
4. The construction, operation and maintenance of 2-lane bi-directional Zojila Tunnel with Parallel Escape (Egress) Tunnel were approved during 2018 by the cabinet that excluded approaches on Srinagar-Leh section connecting NH-1A at Km 95.00 in Jammu & Kashmir. The 14 km-long tunnel will be India’s longest road tunnel and Asia’s longest bidirectional tunnel. This tunnel will be a sigh of engineering excellence considering the difficult terrain that it will be built on. The construction of this tunnel will provide all-weather connectivity between Srinagar, Kargil and Leh (Digital, 2019).
5. The Dal Lake will also be restored. The government has planned investment to improve and beautify the lake further. Srinagar and Kashmir are also set for new pollution free e-buses (Digital, 2019).

Possible Impact of the Infrastructure Boost on Kashmir’s Economy

The increase in public as well the private investment is looked forward to bringing a significant amount of income through Kashmir. The government is expecting to attract $5-6 million through these investment programs (ANI, 2020). As the Modi government was for long against the special status given to Kashmir, they now hope that the scraping out of Article 370 along with such a huge boost in the infrastructure will not only lead to a better life for the natives of Kashmir but will also help generate income to a very large extent.

The boost in infrastructure will lead to improvements in the tourism sector to a large extent. The tourism sector is one of the most important sectors of Kashmir. As every year, the number of tourists only rise, the infrastructure must be able to support the rising strengths, along with protecting the mountains and the ecology of the place (Vignesh Radhakrishnan, 2019).

The railway lines and corridors approved for construction will lead to better connectivity among the places which has been a major problem for a very long time. These large constructions were due for a long time and a properly planned and executed infrastructural project can generate employment as well as income for the long term.

The geographically difficult terrain makes it even more important focus on the infrastructure of the place for it being able to operate at its optimum capacity. The natives of Kashmir have been in distress for almost all their lives along with the fear of terrorism at any given time (IBEF, 2020). The beautiful landscape has a lot of potential for generating income and employment for its people. And this huge infrastructural boost will hopefully help in attaining that potential along with maintaining an adequate ecological balance.

Conclusion

The debate on stabilizing the economy of Kashmir has been a highlight for decades now. However, with this infrastructural boost on the way and the projects taken up by the government, there seems to be some light at the end of years of the dark tunnel.

Bibliography

Infrastructure boost for Kashmir! From highest railway line to longest tunnel, check upcoming projects. (2019). Times Now.

Ishfaq-ul-Hassan. (2018, January 23). Jammu and Kashmir: Infrastructure development gets massive boost; funds for new bridges, tunnels, highways earmarked. Retrieved from DNA: https://www.dnaindia.com/india/report-jammu-and-kashmir-infrastructure-development-gets-massive-boost-funds-for-new-bridges-tunnels-highways-earmarked-2577795

Digital, E. N. (2019, June 15). Infrastructure boost for Kashmir! From highest railway line to longest tunnel, check upcoming projects. Retrieved from ETNOWNEWS.COM: https://www.timesnownews.com/business-economy/industry/article/infrastructure-boost-for-kashmir-from-highest-railway-line-to-longest-tunnel-check-upcoming-projects/436943

Jaitley, A. (2016, 26 June). India needs $1.5 trillion for infrastructure development: Arun Jaitley. Retrieved from ZeeNews: https://zeenews.india.com/business/news/economy/india-needs-1-5-trillion-for-infrastructure-development-arun-jaitley_1900273.html

ANI. (2020, August 2). Kashmir gets infrastructure boost in higher education sector. Retrieved from yahoo!news: https://in.news.yahoo.com/kashmir-gets-infrastructure-boost-higher-043022239.html

Vignesh Radhakrishnan, S. S. (2019, August 7 ). Is Jammu and Kashmir underdeveloped as stated by Amit Shah? Retrieved from The Hindu : https://www.thehindu.com/data/where-does-jammu-and-kashmir-stand-in-comparison-to-other-states-in-key-indicators-of-growth-and-development/article28855512.ece

IBEF. (2020, November 17 ). Jammu And Kashmir Presentation And Economic Growth Report | IBEF. Retrieved from India Brand Equity Foundation : https://www.ibef.org/states/jammu-and-kashmir-presentation

Pandey, G. (2019, August 5). Article 370: What happened with Kashmir and why it matters. Retrieved from BBC News : https://www.bbc.com/news/world-asia-india-49234708

TNN. (2019, August 3). What is Article 370? Three Key Points . Retrieved from The Times of India : https://timesofindia.indiatimes.com/india/What-is-Article-370Article-370/articleshow/35678708.cms

The post MASSIVE BOOST IN INFRASTRUCTURE OF KASHMIR: A LONG-AWAITED GOOD NEWS! appeared first on WISER WORLD.

About 10 to 15% of gold is used in various applications that use its special properties. Its corrosion-resistant, static-free electrical conductivity process is used in small amounts in about 1.5 billion smartphones sold till date. It is also used in other electronic devices where efficient, high performance is required such as mounting microprocessors and memory chips onto the computer motherboards. Navigation in car and mobile phone depend on the Global Positioning System (GPS) satellites which have gold-plated component to protect them from ultraviolet light and X-ray corrosion.

Silver has the lowest contact resistance and the highest electrical and thermal conductivity of all metals which makes it essential in components of Green Technologies. Silver is needed for solar panels, fast charging, in-road applications and certain types of electrodes. It is used in circuit boards and some batteries where the speed of operation exceeds that which provides copper.

Today 40% platinum, 80% palladium and 80% rhodium are used as catalyst converters for car-bus-truck and other industrial processes. Due to platinum’s high heat resistance, its melting point is 1770°C and wear-resistant properties, it is used for contact points of spark plugs which last twice as long as conventional copper spark plugs. In health care, platinum is used in pacemakers and defibrillators. Platinum compounds are used in chemotherapy to prevent cancer.

Precious metals, their composite products and the products obtained as a result of their use really make our lives more enjoyable, safer, more productive and healthier. They enable us to have a cleaner environment today and their importance is increasing as Europe moves the world towards a low-carbon economy.

Countries With Largest Gold and Silver Reserves

In 2010, central banks around the world went from gold net sellers to gold net buyers. In 2019, public sector activity declined by 1% from the previous year, with central banks adding 650.3 tons. This is slightly less than in 2018, when banks purchased 656.2 tons. 15 Central banks made net purchases of one ton or more in 2019, highlighting the continuous demand for billion globally. Turkey was the number one buyer, adding 159 tons to reserves. Poland made the single largest purchase for the year when it bought 94.9 tons in June.

Below are top 10 countries with the largest gold holdings, starting with the Netherlands, which currently surpasses India:

Netherlands

Tons: 612.5

Percent of foreign reserves 71.4%

India

Tons: 657.7

Percent of foreign reserves: 7.5%

Not surprisingly, the Reserve Bank of India has one of the largest gold reserves in the world. The South Asian country of 1.35 billion people is the second largest consumer of the precious metals and one of the reliable drivers of global demand.

Japan

Tones: 765.2

Percent of foreign reserves: 3.2%

Japan is the third largest economy in the world and yellow is the eighth largest stockholder.

Switzerland

Tons: 1,040.0

Percent of foreign reserves: 6.5%

Seventh is Switzerland, which has the world’s largest gold reserves per capita. During World War II, the neutral country became the center of the gold trade in Europe, trading with allies and Axis powers. Today, most of its gold is traded with Hong Kong and China.

China

Tons: 1,948.3

Percent foreign reserves: 3.4%

In the summer of 2015, the People’s Bank of China began buying gold on a monthly basis for the first time since 2009.

Russia

Tons: 2,299.9

Percent of foreign reserves: 23.0%

The Russian Central Bank has been the largest buyer of gold for the past seven years and the fifth largest reserve in 2018, surpassing China. In 2014, Russia bought 224 tons of bullion in an attempt to diversify from the US dollar, as relations with the west have increased since the annexation of the Crimean peninsula in mid-2014.

Silver has been classified as a technically precious metal, but has many industrial uses. And it is used in a variety of technologies and products that most people in the developed world use on a daily basis. In 2019, silver production rose to 27,000 worldwide.

United States

The United States is the tenth largest producer of silver. In 2019 it produced 980 metric tons of metal from three silver mines and nearly 40 other base and precious metal mining operations around the country.

Argentina

With the production of 1200 metric tons of silver in 2019, Argentina established a relationship with Bolivia for the ninth place in the list. Last year its production increased to 17.6 per cent.

South America

South America is ninth on the list, along with Bolivia, a country bordering Argentina. It produced 1,200 metric tons of silver in 2019, slightly more than the 1,19 metric tons produced in 2018. The country has many silver mines especially the Cerro Rico de Potosi which is estimated to still have large deposits of silver inside.

Chile

Chile produced 1300 metric tons in 2019, which was 1370 metric tons in 2018. The size of Chile is comparable to Texas and has an estimated 27,000 metric tons of silver reserves.

Australia

Australia is a country that has a relatively stable silver production level. The country produced 1400 metric tons in 2019, although it has the third largest silver reserves after Peru and Poland.

Poland

Poland produced 1700 metric tons of silver in 2019, up about 15% from 2018. Poland holds a unique place in the silver markets: despite being a small country the size of New Mexico, it has large silver reserves of 100,000 metric tons.

Mexico

The number one silver producing country is the Mexico. In 2019, the country produced 6,300 metric tons of the metal, an increase of 180 metric tons over the past year.

Role of Precious Metal in World Economy

Metal production and metal consumption are concentrated in a few countries but locations often overlap. China is a primary center for both consumption and production, which is reflected in global industrial production. Several individual entities, including several multinational and state-owned corporations, control large market shares to produce and refine the base metal. The issue of production is not just a complete story of the importance of gold; the gold mine represents an important source of employment.

South Africa has the largest employment at 146k, followed by Russia at 138K, China at about 98K, Australia at 32K and Indonesia at 19K.

Canada spent the most capital on gold production at about $2.5 billion, followed by the United States at about $2.5 billion, Australia at about $2.3 billion, South Africa at about $1.8 billion, and Russia at a little less than $1.8 billion.

The relationship between ongoing investment capital commitment and one-time expansionary investment capital is not so strong. For example, Canada saw businesses spend $2.2 billion on one-time expansion projects, compared to $395 million in ongoing capital expenditures. South African businesses have spent $1 billion on capital needs, while investing $759 million in one-time capital expenditures alone.

The importance of gold is fully usable and is reflected in the export industries. Overall jewelry contributes about 43 percent of the total global demand. This is followed by bars and currency demand at 29%, official banking sector at 12%, electronics at 7%, exchange traded funds and similar investment vehicles at 6%, industrial demand at 2%.

After a spectacular year, the precious metals are poised for further gains in 2021, overtaking silver, but analysts are wary of the potential for gold as the effects of the coronavirus fall on the global economy. In addition to supply shortages caused by the pandemic, gold and palladium prices have risen more than 20% this year, while silver has risen 47% and platinum 10%.

Physical gold demand was hit by the virus but reflects the investment demand of the world’s largest gold-backed exchange-trade fund, SPDR Gold Trust, which has recorded its largest annual profit of about 30% since 2009. A safe-haven asset like gold, but also an industrial metal used in products including solar panels, silver climbed from $18 an ounce in January to almost $30 in August before slipping to around $25. Most analysts expect the deficit to continue in 2021 as the global economy recovers and sales rebound.

People look for precious metals, especially in times of crisis. Many people bought both gold and silver in the 1970s due to high inflation. In fact, silver reacted twice as much as gold to those events. It has become a source of protection.

Silver may play second fiddle to gold, more expensive cousin. White metal has played a leading role in shaping the world economy from ancient Egypt to modern America. It was also an element of the military conflict that helped turn Japan into a global power before World War II. Both India and China have a long tradition of preserving silver. Gold is very rare and very expensive so almost everyone in India and China preserves their silver. China has been a huge importer of silver for many centuries, because they kept their net worth silver.

The most amazing thing about silver is the unintended consequences of Franklin Delano Roosevelt’s pro silver 1930s. This is because the price of silver has dropped by 24 cents an ounce since the Great Depression. There has been a lot of pressure from Western mining states to raise silver prices again. And Franklin Roosevelt needed a Senate vote to pass his controversial New Deal program.

The problem is America was making its coins with silver. Dimes, quarters and half dollars were made with 90% silver. The United States is the largest user of silver. Soon both JFK and LBJ limited restricted the use of silver in currencies.

Silver was four times more valuable between 2008 and 2011 when the whole world was in big trouble. Silver then worked as an insurer.

Impact of Precious Metals on Indian Economy

In the recent past the gold price rush has been so fast that India can be compared to the recession in Greece. However, Indians’ lust for gold is no secret, but it has reached a point where the country’s economy and its currency are being traded as the precious metal has fallen directly for three years. The exchange of billions of dollars of gold from foreign traders resulted in Indian cash being sent abroad and the balance of funds being disrupted. As a result, imports have become expensive and international loans have become difficult to repay.

Gold imports directly affect India’s Current Account Deficit (CAD). The larger the CAD in terms of GDP, the greater the risk to the economy as a whole. The country is currently the world’s largest importer of gold, accounting for one-third of the total supply annually. Ex-finance Minister P.Chidambaram also appealed to Indian consumers to resist the temptation to buy gold, as it would have a more positive impact on the nation’s economy. According to the Reserve Bank of India, the current gold cost is fully met through imports as domestic production of gold has come down to a very low level. Although it is considered that CAD is more sustainable for India at 2.5 per cent to 3 per cent, it is much higher than in 2011, and external resilience has been weakened by gold.

The potentially large but dormant source is the gold locked up with the temples across India. The Tirupati Temple in Andhra Pradesh, Sree Padmanabhasway Temple, Guruvayur Temple and Sabarimala Temple in Kerala Pradesh are believed to have large amounts of gold. Sri Padmanabhasway Temple has a gold holding of thousands of billions of dollars.

Action Taken by Government and RBI regarding Precious Metals

With less national gold coming to India through the banking system, the government has tried to consider raising import duties and changing the rules to address the problem. However, the recent fall in gold prices has provided the most effective solution. In August 2013, the finance minister banned countries from selling gold coins to keep the increased current account deficits. Gold imports fell sharply in 2013 to $650 million, according to the government’s domestic shipments of precious metals.

RBI has introduced 80:20 formulas under which 80% of imports will be for domestic demand, while 20% of total imports will have to be re-exported in the form of jewellery.

Conclusion

The financial crisis in late 2008 rocked global markets. The tendency to increase the temptation to allocate to regular investors began. Gold is a frontier against all kinds of uncertainties. Gold comes to recover from the prevailing global and financial uncertainties. But the government needs to crack down on rising gold prices and help investors offset losses due to uncertainties in other markets. Gold is seen as one of the best options for protecting and saving the 1.24 billion people living in India. The rise in imports over the last few years has led to a rise in the price of gold and a weakening of the rupee against the dollar. The combined effect has helped to widen the current account deficit.

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The Indian stock market attracts millions of investors annually. These investors are primarily driven by institutional money. Both FIIs as well as DIIs constitute the major part of liquidity in the stock markets. Therefore the effective tracking of their inflows and outflows are helpful in forecasting the broader trends in the markets. FIIs are believed to have a greater influence on the domestic markets along with the sustained flows from DIIs (Dhanorker, 2020). The countries which constitute a major portion of FII inflows into India are listed below. 

The performance of FIIs and DIIs have been carefully traced to meet the expectations of the investors during the month of January 2021. One of the primary reasons behind this is that the year 2021 will mark the arrival of the COVID-19 vaccine followed by the economic recovery that will see Indian government taking stimulus measures to cope with the weak performance of Indian economy during the COVID-19 pandemic. So it becomes utmost important to keep a track of previous FII and DII trading activities. 

The above table shows the trading activities of FIIs and DIIs from November 2020 to January 2021. There has been a continuous decline in the gross purchase of FII from Rs. 260 crores (approximately) in November 2020 to Rs. 168 crores (approximately) in January 2021. The gross sales of FII also declined from Rs 194 crores (approximately) in November 2020  to Rs. 160 crores (approximately) in January 2021. This decline was sharp for the month of  November and December because of the speculations surrounding the foreign investors due to the outbreak of COVID-19 which ultimately registered a steep decline in the net purchase/sales for the FIIs. 

While FIIs were registering a decline in their performance, DIIs, on the other hand, showed an impressive improvement in their performance as their gross purchases increased threefold from Rs. 71 crores (approximately) in November 2020 to Rs. 105 crores (approximately) in January 2021. Due to the restrictions on the movement across the borders and closing of the economies worldwide, the domestic investors started putting their money in the Indian stock market as a result of which the gross purchase increased. The gross sales had increased from November 2020 to December 2020 but reduced during January 2021. This is primarily due to the fact that the domestic inventors chose to wait till the releases of Union Budget 2021-22 before taking any financial decision. 

Vaccine, Covid Situation and Geopolitical Trends to Be Major Drivers for Indian Stock Market in 2021

The global outbreak of COVID-19 pandemic, news about the release of vaccines, Union budget 2021-22, economic growth and recovery and geopolitical trends are the major factors that would be driving the sentiments of investors in the year 2021 after the pandemic year 2020 that witnessed both good as well as bad times for the stock market in India (PTI, 2021). There were losses incurred by the investors while few record-shattering gains were also observed which depicted that the investors went on a roller-coaster ride amidst the COVID-19 pandemic followed by announcements of massive stimulus measures.  

The Indian stock market experts are of the view that 2021 will see massive changes in the perception and preference of people towards buying and selling of shares, stocks, assets and equities in the financial markets thus affecting their financial decision. In the words of Mr. Hemant Kanawala, Head, Kotak Mahindra Life Insurance, “If 2020 was a year of COVID infection, lockdown and recession, 2021 will be a year of vaccination, reopening and recovery.” (PTI, 2021).

Some new highs are continuously observed in the markets due to the positive news on the progress of COVID-19 vaccines and US stimulus announcement. The FY21 will be marked with greater hopes of early release and distribution of COVID-19 vaccine, normalisation of economic activities and undisturbed growth recovery. This will result in better recovery in both economies as well as earnings (PTI, 2021).

The optimism surrounding the vaccine release and measures supporting liquidity which was on a rough path during trading sessions in March 2020 has infused positivity and life into the Indian equity market.  As countries are in a race to vaccinate their large number of people against COVID-19 amidst the news of vaccine makers struggling continuously to meet their demand, India is making plans to speed up the manufacturing of vaccines so as to supply it to 60 nations in the coming months of FY21. 

India’s role as the “pharmacy to the world”, which will be reinforced by its supply of vaccines, will win it goodwill that will stand New Delhi in good stead as it looks to carve out a bigger role for itself in world affairs, analysts said (Roche, 2021). 

Companies’ Quarterly (Q3) Results: An Overview of Performance During the Covid-19 Pandemic

Various companies in India are seeking an increase in their net profits during the Q3 following the strategies adopted by them to deal with the pandemic. This makes Q3 extremely important from the economic recovery point of view. 

The following section suffices the performance of several companies in Q3 and highlights the net profits and net losses incurred by them respectively. 

1. Triveni Turbine posts ₹27.54 crore net profit in Q3.
2. IDFC First Bank posts ₹130 crore profit in Q3.
3. Relaxo Footwears Q3 net profit jumps 67% to ₹90 crores.
4. Shree Cements Q3 profit jumps over two folds to ₹632 crores.
5. ICICI Bank Q3 net profit rises 19.1% to ₹4,939.6 crore.
6. Tata Consumer Q3 results: Net profit rises to 29% to 218 crores, revenue up 23%.
7. Escorts’ net profits jumped 83% in Q3. 
8. Reliance Industries Ltd. net profits rose 12% in Q3. 
9. DLF posts 9% jump in net profits in Q3.
10. Tata Motors recorded a 67% rise in net profits on account of festive boost.
11. IRCTC Q3 net profits plunged to 67%.
12. TVS Q3 net profits rose to 120%. 
13. Maruti Suzuki Q3 net profits rose to 24%.
14. HUL Q3 net profits jumped 19% on account of demand recovery.
15. JSW Steel net profit surges 93% in Q3. 

The following companies showed a decline in their net profits during Q3:

1. CITY Union bank Q3 net profits decline 12%.
2. Adani enterprises net profits decline by 10% in Q3.
3. HDFC Q3 net profits decline by 65%.
4. Chevron falls to a fourth-quarter loss on weak refining charges.
5. Union Bank of India net profits drop 37% in Q3.
6. IndusInd Bank net profits fell 34% in Q3.
7. Indigo reports quarterly loss of Rs. 620 crore.
8. Axis Bank net profits drop 36% in Q3.
9. Bardhan Bank Q3 net profit falls 14%.
10. PVR reports net loss of Rs. 49 crore in Q3. 

The net earnings of companies in Q3 points to economic recovery for India. Some of the companies dealing with the consumer durables and automobiles like HUL, TVS, Maruti Suzuki and Tata Motors registered a sharp increase in their net profits due to the festive boost that led to the demand recovery in the economy. 

The oil and gas companies like Reliance Industries Ltd. showed a rise of 12% in their net profits during Q3. However, the analysts are concerned over the issue of transparency as the company made a firm decision of not reporting its gross refining margin. The net subscriber of the Info COMM department of Reliance Industries increased to 5.2 million in the third quarter showing the trust placed by the customers in the reliance company (Bhardwaj, 2021). 

Some of the Banks like City Union Bank, HDFC Bank, Union Bank of India, IndusInd Bank and Axis Bank have announced their quarterly results which reported a decline in their net profits. This is because of the rising NPAs of these banks which is acting as a major driver for losing the confidence entrusted by the customers in these banks. The shareholders are not receiving the due dividends which are making the banks think of the measures to take care of probable hit on the asset quality for the quarter. 

Forecast for Indian Rupee to Average at Rs 75.50/USD for 2021

With the revision in Forecast for the Indian rupee from Rs 77/USD to average at Rs 75.50/USD, the central banks of both the countries- RBI and the Fed are in the row for a stronger 2021 forecast. This is followed by the expectation that the rupee will trade only slightly weaker over the upcoming near term from the current rupee levels. There was depreciatory pressure built up on the rupee due to the declining terms of trade which arose from a rise in oil prices and central bank foreign exchange intervention aimed at combating the imported inflation (Kumar, 2021).

It is expected that over the longer term, the overvaluation of rupee in real terms in India should aim at exerting weakening pressure for the rupee vis-à-vis the US dollar. In addition to this, the experts of the Indian economy are expecting a 50 basis point cut in the interest rates and repo rates by the RBI which will also add to the downward pressure on the Indian rupee. 

According to the forecast made by Fitch Solutions, there are two factors that will partially offset the effect of depreciatory pressure on the Indian rupee. First, the adoption of the loose fiscal and monetary policy by the US Fed will exert downside pressure on the US dollar in 2021 as well that would ultimately offset rupee weakness. 

Second, the RBI, with a foreign exchange reserve position of USD 578 billion as of December 2020, representing an import cover of around 19 months, will likely intervene to prevent excessive rupee weakness to manage imported inflation to reduce the risk of high inflation derailing India’s recovery in 2021 (Kumar, 2021). 

Dalal Street Cheers Budget 2021 as Sensex Surges 2,315 Points, Nifty Settles at 14,281

While the Union Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22 on the morning of February 1, 2021; the Indian stock market reacted to the proposals she announced on the floor of the Lok Sabha. The Indian equity indices responded to the Union Budget 2021 by breaking up the six-day losing streak as they cheered the announcement of the government’s plan for the economic recovery. As a result, the Nifty was up 646.6 points and settled at 14,281 while the Sensex recorded the best Budget day since 1997 and surged 2,315 points. 

The volume of shares on the NSE was highest on Budget day. All the sectoral indices except pharma recorded a gain of 1-8%. The other broad market indices like BSE Midcap and Small cap rose 2-3%. This is because the markets and investors speculated that the Banks, Materials and Metals sector might be benefitted by the increasing privatisation and spending in the Union Budget. The stock market of Asia gained as well after the COVID-19 vaccine maker AstraZeneca agreed to increase their supplies to Europe amidst the worries about the pandemic. 

The manufacturing sector of India also started the year 2021 on a strong note as the Manufacturing Purchasing Managers Index (PMI) for the month of January stood at 57.7, which reflected the strongest improvement in three months. Manufacturing PMI in December 2020 and November 2020 came in at 56.4 and 56.3, respectively (Pachal, 2021).

Top Sensex gainers were  IndusInd Bank, ICICI Bank, Bajaj FinServ, State Bank of India (SBI), Larsen $ Toubro, Housing Development Finance Corporation (GDFC) on the Budget day. On the flip side, Dr Reddy’s, Tech Mahindra and Hindustan Unilever Ltd (HUL) were the only Sensex laggards as shown in the red colour in the following illustration (Pachal, 2021). 

2021: The year of The Great Reset for Indian Stock Market

The sentiments of the Dalal Street in Mumbai have been largely driven by the geopolitical situation with the new US President Joe Biden taking charge of the largest superpower of the world-USA. The experts are of the view that the improvement in the trade relations between US and India under the new US president and his administration will play a major role in speeding up the economic recovery (PTI, 2021). 

The continuity of the global liquidity in the financial markets and the changing geopolitical situation with Joe Biden taking the charge of the White House will drive global sentiments. The global recovery’s leading variables added that the COVID-19 is not going to disappear just like that, as the outgoing US President Donald Trump suggested to the world in his last speech. Although there are instances of substantial recovery of the economy from the initial depths of economic lockdown, the losses to the macroeconomic variables like GDP and employment around the world are yet to pick up its original pace (Mint, 2021). This will hold true with the releases of vaccines and its availability to the masses. 

For the European Union (EU), navigating the COVID-19 crises has been challenging yet the Europeans stuck together in these difficult times and grew together, forging a more cohesive bloc. In 2021, it is believed that global cooperation will make a strong comeback and the EU will pursue its own strategic autonomy in order to safeguard its citizens and their interests in the coming decades (Mint, 2021). 

In my opinion, the COVID-19 pandemic in 2020 delivered some of the greatest shocks to the global economies since World War II. The entire economies have been locked down and people adjusted to the new ways of working, studying and socialising. There are millions of people who have lost their jobs and became unemployed as a result of which inequality and poverty soared. The globalised economies acting as lifelines to billions of people worldwide has suddenly become vulnerable, owing to the disruptions of the global supply chains and government strategies to protect the domestic stock market. Given the persistence of COVID-19, the recovery in 2021 will largely depend on how effectively the vaccine is distributed and how the various industry stakeholders will react to the Union Budget 2021-22. The multidisciplinary robust approach will be required to mitigate the ill-effects of the pandemic and to address longer-term challenges posed by climate change. For this current and former political leaders, scholars, academicians, senior policymakers should provide exclusive analyses of the tasks that lie ahead in order to ensure that we are ready to meet the forthcoming challenges. 

References

Bhardwaj, S. (2021, February 2). Q3 Nifty Earnings Point To Recovery For India Inc. Bloomberg Quint. https://www.bloombergquint.com/quarterly-earnings/q3-nifty-earnings-point-to-recovery-for-india-inc

Dhanorker, S. (2020, June 29). What stocks are FPIs, FIIs and DIIs buying and selling? Economic Times. https://economictimes.indiatimes.com/wealth/invest/retail-investors-urged-to-stay-away-from-gamestop-inspired-communities/articleshow/80663373.cms

Kumar, S. (2021, January 4). Fitch Solutions revises forecast for Indian rupee to average at Rs 75.50/USD for 2021. Hindustan Times. https://www.hindustantimes.com/business-news/fitch-solutions-revises-forecast-for-indian-rupee-to-average-at-rs-75-50-usd-for-2021/story-u0nP8yvh83aeVb77OEz5kO.html

Mint. (2021, January 1). Lessons from COVID-19 pandemic. Mint. https://www.livemint.com/news/world/2021-the-year-of-the-great-reset-11609434044784.html

Pachal, D. (2021, February 1). Budget 2021 Market HIGHLIGHTS: Sensex zooms 2315 pts, ends at 48,600, Nifty at 14,281 as D-St cheered Budget. The Indian Express. https://indianexpress.com/article/business/budget/budget-2021-market-live-updates-bse-sensex-nse-nifty-stocks-shares-benchmark-indices-finance-minister-nirmala-sitharaman-7169479/

PTI. (2021, January 1). Analysis of Budget 2021. Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/vaccine-covid-situation-geopolitical-trends-budget-to-be-major-drivers-for-indian-equities-in-2021/articleshow/80056883.cms

Roche, E. (2021, January 31). India ramps up exports of covid vaccines to plug supply gaps. Mint. https://www.livemint.com/news/india/india-a-major-player-at-home-and-world-in-covid-vaccination-drive-11612085153226.html

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GameStop stock prices is not a vindication of the company’s health rather it is a reflection of the battle of the investors. What basically happened is that investors on the WallstreetBets bought in all the shares when the smart money was shorting to a level that there were no shares left in the market to be traded. The hedge funds(Melvin Capital and Citron) had borrowed the shares that they sold in the hope that eventually when the price of the stock falls, they would purchase them at a lower price and so the difference would have been their profit margin. Instead, what happened is that subreddit WallstreetBets investors kept on buying the shorted shares until a time when the loaned shares that must be returned were greater in number than the actual shares for trade in the market. Now, this has lead to a Reddit v Wall Street battle where the ‘short-sellers’ are helpless since, the longer the WallstreetBets investors hold on to their shares, the higher the prices of GameStock will be. (Good, 2021)

QAnon: The Start of an Era in Anonymity

The QAnon is basically a chain of posts that were made anonymously and posted on 4chan, a message board. The person who posted this series had signed off as ‘Q’ and hence the name QAnon. These posts were known as ‘breadcrumbs’ and were pro-trump posts. QAnon army believes that Donald Trump is waging a war against the paedophiles of the government, media and business. They describe themselves as “people who love the country”. (Wendling, 2021)

The main concern with online forums like 4chan is anonymity. Since people can post anything and not be held accountable for it, they forget the difference between right and wrong. It has led to mass manipulations by such people who in the darkness of such online forums can put forth their destructive and unproductive opinions and influence atleast hundreds of thousands of people. In this age of social media influencers and the over accessibility of internet, the people are easily distracted and mislead in a lot of ways.

The QAnon posts and its supporters were eventually banned from many big social media platforms, but the harm was already done till then. QAnon has created many unproven conspiracy theories which are believed by many supporters of QAnon without having asked questions about its authenticity.

QAnon supporters create abusive hashtags and posts against people that they perceive as enemies or people who they do not consider as the true people of the nation, mostly important politicians, journalists etc. This is not only an online threat but also an offline threat to the life of many such people. Many QAnon supporters have also been arrested after such hateful posts. The QAnon supporters are relentlessly posing threat to the society in general and one of the main reasons of doing so is that Mr. Donald Trump had himself retweeted some posts of QAnon, which shows that in some way or the other QAnon has got the support from Trump and even his son had posted QAnon memes during the elections. (Wendling, 2021)

Another QAnon supporter, Marjorie Taylor Greene of Georgia was elected in the US Congress in November. It is rather shocking that such extreme posts and hashtags are being supported by influential people in the US which can perhaps lead to mass destruction of the community as a whole.

All of this could have been controlled if online forums like 4chan did not have the feature of posting anything anonymously. It gets especially difficult to culminate a wrong action if people cannot be held accountable easily for their actions.

GameStop Shares Sold by Robinhood: An Intentional Mishap

Robinhood is a stock trading platform founded in 2013. Recently, Robinhood was in controversy as a number of its users accused the platform to have sold their shares without taking permission from them.

During the last week, many customers of Robinhood posted screenshots on Twitter and other social media platforms claiming that the trading company automatically sold their shares at a low price lower than the price list. (Eric, 2021)

On 28^th January 2020, two users of Robinhood claimed that it had restricted the transactions of GameStop. Robinhood had basically restricted investors to buy shares of GameStop so as to facilitate short selling hedge funds in their tiff with WallstreetBets. Robinhood had further stopped the users to trade on stocks of AMC, GameStop, Blackberry, Bed Bath & Beyond, Nokia etc. Customers who owned shares of these companies were only given an option of selling their existing shares.

These claims have resulted in negative reviews of the trading company on google which lead to a fall in its rating from 4.2 to 1. Later google deleted a good amount of negative reviews to restore its rating at 4.2. There is already a lawsuit filed against Robinhood which claims that the trading company has tried to manipulate and therefore control the market through its actions and that it’s a clear violation of the functioning of the market. (Mathur, 2021)

On the other hand, Robinhood denied of all these claims and the spokesperson of Robinhood has claimed that they had to sell some of the shares to reduce risk since the shares were bought at the margin, whereas the investors have claimed that they bought the shares outright and planned to hold on to them.

Billions of Dollars at Risk: Who Faced the Actual Loss?

As developed from the above, the investors who have faced the loss is perhaps Melvin Capital. This is because they sold the borrowed shares that actually have to be returned at a price that they thought is higher than at what price they would have to buy. But the opposite happened. So here is the fiasco we are talking about. Now they have no option other than buying all the shorted shares in order to return what they borrowed. But since even that is not possible the other option is to sell off everything in the open market. (Good, 2021)

So, Melvin Capital had to take up a huge loss when they closed up their short position on the 27^th of January. Although the exact loss is not known the investor had taken a cash infusion of $2.75 billion from two investment banks to keep itself away from dissolving in the US stock market.

Citadel to the Rescue After the Loss Incurred by Melvin Capital

Citadel funds have invested $2 billion and the rest $750 million will be invested by Point72 Asset Management. They have planned to invest in Melvin Capital in return of a non-controlling revenue share in the hedge fund. Although many investors had given up on short-selling bets, Gabe Plotkin, the owner of Melvin Capital still has his hopes for short selling, even though he has had a bad time in it this year. Ken Griffin, the founder of Citadel has rather shown his confidence in Gabe Plotkin as he says in one of his statements that “Gabe Plotkin and the team have delivered exceptional results over the history of Melvin,”.

Plotkin has shown great interest in working harder with his team to live up to the expectations and the confidence shown to him by both his investors. (Burton, 2021)

Citadel’s Association With Robinhood Receives Scrutiny

Robinhood has spent years to form a relationship with the big market investors called the ‘market makers’ to receive real-time information about their investors and which stocks its users are buying or selling. The online trading app receives a large number of revenues from Citadel Securities. However, after the entire fiasco of short selling, the relationship between citadel and Robinhood is under scrutiny or rather a criticism. (TORBATI, 2021)

This scrutiny has happened after Robinhood has limited trading of certain stocks, namely GameStop stocks. Several Reddit users have accused Citadel founder Ken Griffin to have pressurized Robinhood to limit trading of GameStop shares in order to prevent further losses incurred by the short-sellers. This is because Citadel is an investor of Melvin Capital, the short seller here in context, to avoid any losses further. Reddit users have taken on to Twitter to accuse Robinhood of giving in under the pressure of its big business partner, Citadel as Robinhood does not charge its users so its revenue highly depends on such big companies as Citadel. (TORBATI, 2021)

Since Robinhood is not directly involved in the trading of shares but it provides information to its partners in return of a small fee and privilege to give its users the best prices for trading in the market. However, later in a post, Robinhood has denied the accusations and said that it was a risk management decision to limit trading of shares.

However, it has also taken a political turn as congress has decided to examine Citadel’s agreement with Robinhood and if there is any manipulation of the stock market by the two business partners. Critics have also said that there is a possibility of hidden tax in this entire context. Overall, the recent developments in the stock market of the US has led to increase in the scrutiny of such business relationships to check if such partnerships are hurtful for the average investors in the market. (TORBATI, 2021)

Conclusion: How Can This GameStop Story Probably End?

The entire issue occurred due to the expectation of one investor based on the normal trading behavior of other investors. The stock market simply works on the lines that there will perhaps be a priced to the share than an investor cannot say no to and eventually one has to lose or win. But here the WallstreetBets investors were refusing almost any price to it. In such situations, the other party has to only go through losses. What can perhaps be taken care of, is a better look at the market and opportunities since human behavior can perhaps be very unpredictable.

References

Burton, K. (2021). Citadel, Point72 Back Melvin With $2.75 Billion After Losses. Yahoo! Finance.

Eric, J. (2021). Users accuse Robinhood of automatically selling shares. Insider Paper.

Good, O. S. (2021). GameStop’s stock market explosion, explained. Polygon .

Kastrenakes, J. (2021). Robinhood denies claims that it sold GameStop shares out from under its traders. The Verge.

Mathur, C. (2021). Robinhood reportedly sells GameStop shares without permission from traders. NewsBytes.

TORBATI, D. M. (2021). Robinhood and Citadel’s relationship comes into focus as Washington vows to examine stock market moves. The Washington Post.

Wendling, M. (2021). QAnon: What is it and where did it come from? BBC News.

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