IMI Delhi Concludes its Annual Finance Summit, Prahelika 2008

IMI Delhi Concludes its Annual Finance Summit, Prahelika 2008
Post-event Press-release

The rationale for an efficiently regulated and volume-driven debt market was explained by Mr. T. C. Nair, a whole time member of SEBI. He apprised the students of the bullish view that global investors have of India and that they are

constantly on the look-out for investment opportunities to get on the Indian Inc. bandwagon. He also mentioned that according to the reports from Goldman Sachs, World Bank and the City of London report, the Indian bond market as having the potential of growing to the brilliant value of a trillion dollars.

Mr. Nair further explained how crisis at different intervals shaped the present stock markets in India, viz., the Harshad Mehta scam, the Ketan Parekh scam and the debt crisis of 1991 taught priceless lessons to the Indian policy-makers. It actually allowed the market evolution to leap-frog, e.g., the integrated surveillance system - a work of art and one of the most advanced systems in the world - was conceived and implemented after considering the conspicuous shortcomings.

Mr. Arun Kumar Gupta, Senior Manager, Structured Finance Division, CRISIL, then took the floor. He talked about the latest buzz regarding securitisation. The students were in for a pleasant surprise as he, with his enthusiasm and energy, brought out the concept of packaging cash flows through SPV together with giving the Indian market overview and the growth factors. Further, he elaborated upon how CRISIL addresses ratings and issues relating to the instrument like credit risks on part of the originator, the assets underlying the instrument, legal issues like valid sale and bankruptcy remoteness, market risks like interest rates and contemporary issues like commingling.

Mr. Ambuj Jain from Jubilant Organosys inaugurated Day Two by explaining the prevalent corporate structure of currency derivatives. The use of derivatives, the risks connected with knock-outs, currency swaps and improper use of such instruments was highlighted. He also stressed upon the lessons learnt from the currency movements in USD-Re, USD-CHF and USD-Yen scenario, and propagated that the worst case scenario should be available at the time of decision-making, i.e., a pre-defined stop-loss should be identifiable and capable of execution.

The next speaker, Mr. Mann Digvijay Singh, Associate Director Standard Chartered Bank, and an IIM alumnus, addressed the students and asked them specific questions. Based on the queries, he talked about derivatives types and the position of exotic derivatives in the market. He explained exotic derivatives from the point of view of the seller / banks that design such derivatives and float them to the corporates. "Exotic" means "not-understood" in the Indian context and as per his evaluation, Indian firms usually don't probe into the leverage behind a contract. Eventually, with a poor understanding of the risks they are exposed to, they end up making mistakes and incur huge losses in exotic derivatives like snowball, ratchets, multiple knock-ins and knock-outs. Issues like bank capital models, corporate problems and whether the derivatives are at fault were pointed out by him.

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Contributed by -
Ruchi Dhona, Sumit Aggarwal & Varun S. Pilla,
Media Cell,
IMI, Delhi.

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