Volunteer Orientation Day – Bengaluru

Contributed by: Shreyans Jain

The Bengaluru chapter of CFA Society India hosted the Volunteer Orientation Day at The Grand Magrath Hotel on 19th August 2017. The CFA Institute and CFA Society India (IAIP), thrive on the energy and contribution of member volunteers. They are at the core of all its activities and events. They find time from their demanding day jobs to give back to the Institute and Industry through volunteering. The event was organized to apprise its candidates and Charter aspirants of the benefits the membership to CFA Institute brings with it and the benefits of being a volunteer.

We could not have got a person better than Mr. Jayesh Gandhi, MIM, CFA and the present president of the IAIP, Indian CFA Society for this. An active volunteer & board member for over five years, Jayesh made us aware of the opportunities, responsibilities, and resources that becoming a member and volunteer brings. To complement Mr. Jayesh’s volunteering experience, we had on the dais Mrs. Aarti Porwal, Director of Society Relations in India at CFA Institute. Her presence was enough to motivate the budding women CFA Charter holders and Charter aspirants of Bengaluru chapter to put their best foot forward and make the best use of volunteering at CFA events.

Jayesh, after congratulating the Level 3 successful candidates, wasted no time to clear our ”Why” of joining as a volunteer and member of the CFA Institute India’s Chapter. He narrated inspiring tales of leading volunteers who got better professional as well as business opportunities by connecting with the extensive network investment professionals across the globe. He also highlighted how becoming an active volunteer has helped him as well as many volunteers across the globe to develop leadership, communication and organization skills. Few of the material benefits of becoming a regular member of CFA Institute highlighted by him are as under: –

• Connect with a global network of more than 145,000 investment professionals known for their expertise and integrity

• Gain access to outstanding financial publications, education resources, and specialized career services

• Obtain member discounts at our events worldwide

• Getting access to Career Center for job listings etc.

He laid out the benefits, the requirements and the checklist which one must adhere to before applying for the membership. He also informed the audience about the affiliate membership which candidates who don’t qualify for regular membership can opt for to enjoy similar benefits of regular membership. He also encouraged the audience to make the best use of reduced rates of Annual dues for getting membership of $150 against the regular/affiliate dues of $275.

Following the encouraging and in-depth speech of Mr. Gandhi, the audience had the opportunity to gain insights from the rich experience of Mrs. Aarti Porwal. As a Director of Society Relations in India at CFA Institute, Mrs. Porwal has been the responsible for membership growth and volunteer management, in addition to supporting university affiliation and prep providers in India. She narrated all the details related to the eligibility criteria for regular membership and affiliate membership. She addressed queries of the audience and addressed doubts which the audience had related to the membership criteria.

She explained to the audience various volunteering opportunities that were up for grabs for the candidates. Candidates could opt for the volunteering opportunity that best suited their skills set. If someone was good at communication and people to people engagement, he could get himself registered for communication and similar volunteering opportunities. In case someone felt he is better at connecting the society to speakers across new areas of study, then there were opportunities for that also. She also highlighted how one could be a member of the institute without pursuing the CFA program, like herself.

The success of the event could be gauged from the fact that most of the members of the audience who were present had signed up for volunteering event and Bengaluru chapter looked forward to a renewed energy and renewed bank of ideas from its upcoming volunteers and members.


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Topic: Value Investing Pioneers Summit, Delhi. Session on “Not everything that counts can be counted” by Prof. Sanjay Bakshi

Contributed by: Ankur Kapur, CFA


The Delhi chapter of CFA Society-India had the privilege of hosting some of the most famous pioneers of Value investing in India during its inaugural Value Investing Summit on 21st Sep 2017. The bad weather at Mumbai and all the hassles at the airport that our prominent speakers had to endure couldn’t dampen the zeal even one bit and the event was a huge success.

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Prof. Sanjay Bakshi started the much-awaited conference. He shared his thoughts on the topic – “Not everything that counts can be counted”. There are many situations in which applying a financial model may not help in any decision-making. For example, in 2012, Ajay Piramal sold the stake and had a huge pile of cash but no business plan. The company was trading at a value of less than cash, an attractive buy but no financial model could have indicated whether it is a good investment or not since the promoter did not have any business plan. However, given that in the past promoter was able to create immense value for the shareholders was the only basis to assume that promoter will be able to create value going forward as well.


In a presentation to CFA Society India members, Prof. Bakshi in 2012 talked about “understanding the universe of the unknown and the unknowable”. Prof. provided two pointers to assess risk 1) uncertainty is not risk 2) Exposure to uncertainty on favorable terms is desirable. If you are not certain of the risk of investment, it is a speculation at best. Equity markets are volatile and that provides the value investor opportunity to invest. However, these opportunities have to be availed at attractive or favorable terms. Investing in Piramal Enterprises in 2012 provided an opportunity to invest at favorable terms but typical discounting of cash flow approach would not have provided an answer. The way to achieve is to go beyond number and understand the underlying – culture of the company and strength of management.

Prof. Bakshi highlighted the relationship of investor and management through a picture from a hit Hindi movie, Sholay.

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Dharmendra is the management and Amitabh is the investor. An investor has to ride along with the management; therefore, the strength and professional ethos of management have a significant role to play in order to make this relationship work and especially create value.

Albert Einstein “not everything that counts can be counted, and not everything that can be counted, counts”. Piramal Enterprises risk was not measurable but years after 2012 Piramal has created immense value for its shareholders.

Prof. Bakshi quoted Charlie Munger “It’s my view that economies could avoid a lot of trouble that comes from physics envy”. It is particularly for those investors who focus on precise numbers and make investment decisions. Munger provided a solution “I want economics to pick up the basic ethos of hard science..but not the craving for an attainable precision that comes from physics envy”. Financial analysis is an important aspect of investing but it is not the only thing to be looked at, there are other factors that are qualitative and often become more important aspects of investing.

A lot of investors and analysts use various definitions of measuring risk. One of the most popular ways of assessing risk is using CAPM i.e.

r_a= r_f+β_a (r_m+r_f)

Where r_f=risk free rate
β_a=beta of the compnay
r_m=expected market return

It is one of the most popular ways of assessing risk and provides a precise value, but often it is entirely wrong.

Buffet’s risk framework to assess risk:

  1. The certainty with which the long-term economic characteristics of the business can be evaluated.
  2. The certainty with which management can be evaluated, both as to its ability to realize the full potential of the business and to wisely employ its cash flow.
  3. The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself.
  4. The purchase price of the business.
  5. The level of taxation and inflation that will be experienced and that will determine the degree by which an investor’s purchasing power return is reduced from his gross return.


Even the smartest people commit the most stupid mistakes. For example, LTCM founded by Nobel laureates committed the most fundamental mistake of not understanding the risk that eventually led to the winding up of LTCM.

Six factors critical but hard to quantify:

#1 Owner earnings
Buffet “Owner earnings represent A) reported earnings plus B) depreciation, depletion, amortization, and certain other non-cash charges less C) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in C)”

If C) is less than B) the company will be able to grow without investing in growth. However when C) is more than B), the company will need an additional amount of investment to achieve growth. Sustainable growth at a reasonable price may be achieved in the case where A) + B) > C).

Three reasons for the divergence between reported and owner earnings.

  • Capex charged to revenue or vice verse.
  • Depreciation and obsolesce.
  • Changes in working capital.

#2 Unquantifiable people factor

Prof. mentioned about the most fundamental equation in finance.

A= P (1+R/100) ^n

The benefit of compounding is achieved only in the long-term. Focus on quarterly results and daily price movement does not add value. Business leaders must focus on the long-term and take strategic business decisions considering the long-term company goals.

#3 Ability to shut down system 2
A company focused on delighting customers, eliminating unnecessary costs and improving products and services, creates value.

#4 The value of reciprocity
If a company takes care of the stakeholders including suppliers, customers, and employees creates loyalty across the broad ecosystem of the company that is hard to calculate but has a great value.

#5 Reputational advantage
If the buyer has an advantage for the kind of value they bring to the table, the seller often prefers them and ready to sell at a price attractive to the buyer.

#6 Optionality
Operating within one’s circle of competence, avoiding auction type situation, avoiding leverage and a solid exclusive deal pipelines are ways to create value through optionality.


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Meditation – How it helps Investment Professionals

Contributor: Shivani Chopra, CFA


The moment we hear the word meditation, the next closest word that comes to our mind is probably ‘Yoga’! Yogis have been practicing meditation for over a millennium and while we do understand that meditation is an important facet of yoga, how does it help investment professionals? Is the discussion branching out of behaviour finance or is it a new phenomenon altogether? To answer these and many other questions, four chapters of CFA Society India- Mumbai, Delhi, Bengaluru and Chennai organised a speaker event with Jason A Voss, CFA during 6-8 Oct, 2017. Jason is the content director at CFA Institute and author of the book- The Intuitive Investor.

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Jason began the discussion by taking a few famous names who regularly meditates/meditated. The list includes people – Steve Jobs (Apple) and Marc Benioff (Saleforce.com), organizations – AOL Time Warner and Google, business schools – Georgetown University and New York University. In the investing world, there are people such as Ray Dalio (Bridgewater Associates) and organizations like Blackrock, Deutsche Bank, Goldman Sachs, etc who practice meditation. Unlike in India, in developed countries of US and UK, meditation is still a controversial topic. The product got developed due to its advantage as 59% of members in a 2014 Annual Member survey wanted the institute to develop a program and listed better thinking and stress relief as the top reasons.

After an initial background, a few fictions were mentioned-

  • Fiction #1 – “It is for shaven-headed cave dwellers” but the reality is that meditation states are innate to human consciousness and helps us to understand functioning of our minds
  • Fiction #2 – “There is only one way to meditate” but the reality is that there are thousands of ways to meditate and 4-5 have evolved as major practices
  • Fiction #3- “It is hard to do” but the reality is it all depends upon You!

Above all the hard core reality is that while there are thousands of pieces of content offered by CFA Institute, only meditation can improve the quality of our mind and hence improve our understanding of all the readings and articles. Jason then initiated the first activity of the session. He asked the attendees to either colour a sheet or walk around the hall. After the activity was over, he shared how these unifying experiences in everyday life connect to meditation.

Investment professionals face daily obstacles relating to stress, better thinking, overcoming behavioural bias and ethical dilemmas. According to a survey, 80% of the workers feel stress on the job and nearly 50% say they need help to manage stress. There is also intense competition in the industry that requires professionals to outthink their competitors. Another challenging stress is overcoming behavioural biases like loss aversion, overconfidence, confirmation, mental accounting, etc. These biases are hardwired and so difficult to overcome. Ethical dilemmas can stem from three sides- client, firm and personal. They may not always coincide. The participants then delved deeper into understanding how meditation can relieve these daily challenges. There is an overwhelming scientific evidence that supports the case of meditation as it provides physical benefits, improves memory, overcomes decision making biases and develops emotional intelligence. Studies started 100 years ago when hippies came to countries like India and Bhutan and conducted research once back to their home countries. Today there are over 30,000 scientific studies and Jason talked about the most popular ones in detail. Evidence suggests that meditators can also live longer/younger and become more creative.

 The event wrapped up with the most awaited activity- learning how to meditate. Jason helped everyone practice the major styles of meditation-

  1. Focused awareness: Focuses on breath- inhalation, exhalation
  2. Open monitoring : Focuses on areas other than breath like sound
  3. Compassion: Involves thinking about of relationship with oneself, a loved one or colleague etc.
  4. Visualization: Involves imagining to be stronger, more active, getting less tired, etc.



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Implication of GST on the broader economy and Stock Markets: Stakeholders’ perspective

Contributed by:

Mandar Chapekar,CFA

CFA Society, Pune Chapter hosted a session on “Implication of GST on the broader economy and Stock Markets: stakeholders’ perspective” by Mr. Kuntal Shah on 18th August 2017.


Kuntal is one of the founding partners of SageOne and has an opportunistic inclination towards the value-oriented and risk-controlled approach to investments.
The Crux of the Topic was implications of reforms on government finance, corporate profitability, long-term trends, factors to watch out for, impact on broader economy and possibilities ahead.

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In his presentation, Kuntal stressed on the computerized economy, digitization that has taken place which will act like scanning machine of every transaction of each individual. It would be possible to keep a trail of all economic activities, and there would be very few loopholes to evade the computerized system. It would improve tax collection for the Government, curb the parallel economy transactions and will have a huge overall positive impact on the broader economy and stock market.

Kuntal mentioned following few points about the impact of the introduction of GST :

• Margins may not improve as dramatically as widely thought that they would. Most of gains/losses in slab changes would be passed on under anti-profiteering clause, market share expansion preference, etc

• Transition is chaotic, however, the launch has been decently managed so far

• Wise to ignore the first six months of GST – the most important detail to follow will be the Indirect tax numbers, and direct taxes should shoot up as same entities violates both

• SME business has been forced to enroll because the customers and vendors have started demanding it

• It has led to a tremendous working capital demand in the system at the MSME level

• GST – its misunderstood that tax efficiency is the biggest impact of GST, however, it will be the digitization of records which will be far more valuable

• Four benefits of GST will be Digitization , Enforcement, Analytics and Higher tax base

• Privatization of PSU with a higher cost of capital and lower ROCE

• GST will attract Global pension money, Private Equity money

• IT backed digitisation and reconciliation will increase the efficiency

• There is also automation and analytics being employed in taxes

• Demonetization. GST and RERA has ensured that the bad competition in the real estate will go away

To conclude, it was very well informative and educative session. It was full of realistic illustrations which would help attendees to understand Implication of GST on the broader economy and Stock Markets better.


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IAIP – 12th AGM…

IAIP had its 12th AGM on September 23rd 2017 at MCA, BKC, Mumbai. The board made a formal presentation and discussed various questions raised by the members. The resolutions, which were voted by members through remote e-voting and on the spot tablet voting facility, were passed by majority. These included the adoption of the audit financial statements, re-appointment of directors by rotation, resignation of two directors on completion of their terms, change in the auditors, and induction of two new directors viz. Sampath Reddy Baddam and Jitendra Chawla respectively. The annual report covering audit financial report, directors’ report, and AGM notice as well as the scrutinizer’s report are available on the India page on the CFA Society page under Communications->Documents

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By: Gaurang S Trivedi, CFA

In order to better assess the true economics of the business and ascertain its value it is imperative that the off the balance sheet items are recorded in the books.  This could be done by recording all contractual, guaranteed, contingent or at-risk amounts, that are either expected to be received or to be paid, into the books as an asset or liability with a corresponding contra-liability or asset account.

Consider accounting for operating lease transaction for example. Recording of a contractual Operating Lease arrangement could be done by creating Contra Accounts as
   Operating Lease Asset on the asset side and
Operating Lease Obligation on the liability side

Periodic lease rental payments could be credited into
   Lease Rental Payment
Periodic Amortization of Lease Asset and Obligation over contractual life of lease:
   Operating Lease Obligation
Operating Lease Asset

The net impact is:
A progressive approach that explicitly recognizes assets available or liabilities assumed by the corporation.
Provides an objective basis to evaluate the effectiveness of transactions entered into by
managements by linking profits and charges associated with the underlying assets and liabilities respectively.
The contra accounts created have no bearing on profits or cashflow.
The contra asset and liability accounts created do not affect the book value.
Efficiency ratios such as Return on Assets and Asset Turnover will be depressed due to a higher asset base until the corresponding asset is fully amortized.
Debt ratios may be negatively affected if the contra liability is deemed a financing activity.
If the contra asset account is created as a reserve, the following differing effects may materialize:
Book Value will increase.
Debt Service ratios will not be affected.
Debt to Equity and Debt to Total Capital will be positively affected due to higher Equity Capital.
Return on Equity will be depressed due to a higher equity base until the corresponding reserve account is fully amortized.


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Corporate Bond Market










By Sitaraman Iyer

Three seasoned professionals in the fixed income arena viz. Rahul Goswami, Head, Fixed Income, ICICI Prudential AMC, Jayen Shah, Head, Debt Capital Markets, IDFC Bank, and Bhushan Kedar, Associate Director, CRISIL, got together to uniquely share their corporate bond market experiences with an inquisitive audience of CFA Charterholders in Mumbai.

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Wide ranging aspects of the Indian corporate bond markets were presented and discussed. These included evolution of bond market, statistics, recent trends, market ecosystem, role of key institutions, market infrastructure, pivotal role of credit rating agencies, various investor classes and their respective investment patterns, regulatory framework and the areas which need immediate attention, issuer needs & choices both onshore & offshore, innovative structures, deal or credit failures, valuation methodologies deployed by different investor groups and so on.

The market was closely watching the the fate of the cases taken up under the insolvency and bankruptcy code. Successful resolution of cases  will send out a positive signal to bond market participants that issues can be resolved if corporates don’t behave properly. The depth of the market will improve with further encouragement from regulators and stricter norms on bank lending to big corporates. Steps like limiting ISIN numbers issued to a company was also expected to improve liquidity. Around 90% of the corporate bonds bought by Mutual Funds or Financial Institutions were in the AA  or AAA category indicating low depth of the market. Over time the panel also expected dedicated credit funds to set up shop in India which would further increase penetration in the bond market.



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