Project Finance

Simply put in layman's language, 'Project Finance' is a long-term funding for infrastructure, industrial projects, and public services using a nonrecourse or limited-recourse financial structure. The debt or equity based loan structure required to finance the project is based primarily and entirely on the projected cash flows and hence, are repaid solely from the cash flow generated by the project's assets, rights, and interests serving as secondary collateral. This approach is especially attractive to the private sector because companies can fund major projects off-balance sheet, which means the debt used to fund the project does not appear on the company's balance sheet and has no impact on its credit rating or borrowing capacity.

Some of the common sponsors of project finance include the following entities:

• Contractor sponsors: for subordinated or unsecured debt. They are crucial to the project's establishment and operation 
• Financial sponsors: are mainly focused on achieving a big return on their investment
• Industrial sponsors: companies with a strategic interest in the project, as the project may align with their core business
• Public sponsors: include governments at various levels

Multibagger

Every investor wishes to own multibaggers in his or her portfolio, but it is not an easy task to find such stocks. Primarily, there are three factors one needs to look at when scouting for these gems. The presence of all three is imperative if you are looking to identify long-term wealth creators in your portfolio. Let us look at them below:

High Growth + High Return on Capital Employed (ROCE)

For a stock to turn multibagger, the company must consistently grow its earnings at a high rate and must achieve the same without deteriorating its returns on capital employed. The table below highlights few multibaggers that have consistently compounded their earnings at a remarkably high ROCE.

Stock Name	5Y Earnings CAGR%	Average ROCE	5Y Return CAGR
Honeywell	28.4%	27.3	31.5%
Divi’s Laboratories	17%	30.4	48.7%
Relaxo Footwears	24.9%	27.2	34.1%
Jubilant FoodWorks	41.3%	24	36.1%
APL Apollo Tubes	28%	25.3	50.9%

Growing Cash Flows

The cash flow of a company is the most accurate yardstick to assess a company’s performance. The cash flow statement determines the ability of the company to grow its earnings in the future. If the company is not able to generate cash from operations, it will have to repeatedly tap markets to raise money either in the form of debt or equity capital to grow its business.

Multibagger companies, apart from compounding profits, also consistently compound their operating cash flows (cash profit - incremental working capital) enabling them to grow at a fast-paced year after year. Companies that may perform well on the earnings and cash flow front but not on the growth front may be in a stagnant phase of their existence and hence might not earn returns for investors.

Stock Name	5Y FCF CAGR%	Average ROCE	5Y Return CAGR
CRISIL	11.7%	43.4	12.2%
Castrol	5%	56.8	-14.2%
Swaraj Engines	-7.6%	48.2	-2.2%
Colgate-Palmolive	12.3%	98.4	8.7%
Accelya Solutions	0%	25.8	-8.3%

Prudent Allocation of Capital

Finally, we come to the point of prudent allocation of capital. As we now know, wealth creation is all about long-term compounding of earnings and cash flows. Companies that tick the above two criteria tend to generate vast amounts of cash and capital but how a company allocates that cash becomes the key differentiator between a good company and a great multibagger stock.

Stock Name	Base Year ROCE%	Incremental 5Y ROCE	5Y Returns CAGR%
Alkyl Amines Chemicals	26%	64.9%	74.4%
MindTree	33%	48.6%	57.6%
Jubilant FoodWorks	20.9%	85.6%	36.1%
TCS	52.1%	111%	25%
Castrol	177.5%	-13.7%	-14.2%
Accelya Solutions	112.6%	-36.3%	-8.3%

Future of Money in India

The digital rupee rollout is a big step ahead in India’s digital transformation. It is an excellent opportunity for India since it has potentially increased the ease of doing business, as well as improved resilience and security of the entire payments' infrastructure. 

A few thoughts and insights on why these are a groundbreaking development in the monetary space in the country -

• Centralization: Ushers in more trust, resilience, and efficiency. Although it has a likeness to cryptocurrencies as far as the form factor being virtual is concerned, but quite unlike the same, the digital rupee will not be decentralized, but will be regulated by the RBI, thus making it completely legal, transparent, and admissible by all financial and legal entities.

• Convenience: Every unit can be uniquely identifiable and traceable. It is programmable, and has the potential to add multiple dimensions like end uses, time limit and transferability. It allows all stakeholders to record the transactions and balances. These three differentiating characteristics – identifiability, programmability, and distributed ledgers – can unleash a new set of economic possibilities.

• Financial Inclusion: No bank account needed like that for UPI. This is one of the major advantages as one does not even have to open a bank account in order to transact.

• Real-time: The payment will be in real-time. The network and customers can easily access all transactions within authorized networks, enable real-time account settlements and ledger maintenance.
• Fraud Prevention: The Digital Rupee can help prevent fraud. While the existing systems rely on post-facto checks to prevent fraud, the innovative solutions can address these proactively with embedded programmability and regulated traceability.
• Operational Costs: Having digitized currency saves costs of printing, distributing, and logistics management of cash. The benefit of digital currency is also that they do not get torn, burnt, lost, or physically damaged.
• Monitoring: Governments can access all transactions happening within the authorized networks, playing a pivotal role in monitoring Direct Benefit Transfers (DBT), making them faster and reducing malpractices in the payment system.

India amid digital payment innovations

India has established itself at the center of digital payment innovation, driven by e-commerce, consumer behavior, and progressive government approaches. There is a growing preference for contactless payments among the consumers, with the Reserve Bank of India supporting this intention by raising the contactless payment limit to INR 5,000 up from INR 2,000, an increase of 150%.

India’s digital trajectory has been accelerating for a while. India has unveiled e-RUPI this fiscal year, a new digital payment system that is neither cryptocurrency nor central bank digital currency (CBDC). India and Singapore have also linked their digital payment systems, in a major push to enable instant and low-cost cross-border remittances which amounts to ~USD 1Bn+ annually.

India is now at the fore of digital payment innovation, and recent moves toward tokenization to maximize security are boosting the country’s status as a digital forerunner.

Tokenization, an alternative to encryption, refers to the process of turning sensitive data into a unique, non-sensitive equivalent by replacing it with a token, which contains none of the original or sensitive data, and serves just as a representative of the original data, making it entirely uninteresting for fraudsters and scamsters. The transaction overall is safer and more secure. There is no change in the way a transaction is made by the user, yet the risk of fraud is reduced considerably.

The benefits of tokenization in e-commerce, travel, retail and many more sectors range from compliance, extra layer of security, increased customer trust, and reduced breaches and frauds.

It is estimated that India’s digital payments industry will grow by more than 3-times by 2025, which is impressive to even envisage, considering that India has a massive unbanked or underbanked population. The government is driving financial inclusion, for this very unfortunate second-largest unbanked population of the world.

The timely introduction of tokenization regulations by the RBI and the government’s commitment to digital technologies has cemented India as a proponent of digital innovation. A holistic payments system will be key to India’s economic success, with innovations that provide optimal customer experiences.

Finance and Emotions

If money brings up a lot of emotions for you, you are not alone. Infact, the psychology and emotions behind our relationship with money is very underrated. Individual persons may make financial decisions, yet they are not for the sake of those decision makers alone.

It is quite common in many households to hire part-time or full-time household help and other support staff. Keeping aside the financial obligation and responsibility, it then becomes a moral responsibility too to financially safeguard that person from untoward large expenses, such as an unexpected medical surgery in their household or for that matter individual's health, and clothing. This kind of support is seldom deducted from the monthly pay of the household help. It is accepted as a routine responsibility, as part of the “contract” between the household and the help. This social contract has implications for the financial decisions for both the household of the person being assisted, and the household employing that person.

The world-over, financial inter-dependencies within a household sometimes stitch a household together and at other times the forces that split it apart. Financially dependent children during their growing up period stick together with their parents but may exit the household when they become financially independent. Similarly, the emotional bond between a husband and a wife is as much rooted in the financial inter-dependency that connects them as it is in pure feeling.

Hence, an individual's financial decision has a social dimension, recognizing which is particularly important because it alerts us to the existence of ongoing relations between different members of the household and between one household and another in a social structure.

Anything important in our lives is emotional. Our relationships are emotional, our work is emotional, and so is our money. One of the misconceptions about money is that it’s all math. There is no doubt that doing math can help answer several money questions, but there is no foolproof formula to making financial decisions.

Our relationship with money is just as personal and valuable as any other relationship in our life.

Business Loan: Secured or Unsecured?

Suppose your small business needs more cash than can be supplied through a line of credit or personal credit cards. In that case, it may be necessary to apply for a small business loan.

As with any form of financing, debt structure, interest rates and payment schedule will depend on the bank, lender's credit history, health of the business and vintage. Owing to these factors along with many others, many times you might not either be able to receive the desired loan amount unless it is secured or at a much higher interest rate. Taking these factors into consideration, before applying for business funding, it is suggested that you determine whether you will need to pursue a secured or unsecured loan.

Secured Loan: the most common and straightforward lending option because they are backed by an asset, either personal or business related. If the borrower defaults, the business lender assumes ownership of the property and may try to recoup their loss by selling it. The types of collateral that could be used to secure a loan: Unpaid Invoices, Inventory, Equipment, and Real Estate (Commercial and/or Personal).

As a small business owner, you may benefit from this option if you want to limit your personal risk in the investment or want lower interest rates and the ability to pay back the investment over a longer period.

Pros:
a) NBFCs and banks are willing to work with small businesses when their investment is assured

b) these allow you to pay back over time for large purchases that you don’t expect to pay off quickly

c) can have a longer payback period of up to 30 years.

d) less risk to lender owing to lower risk backed by a collateral

Cons:

a) limited by the fair value of the asset pledged as collateral

b) the lender has legal authorization to seize the asset if the agreed-upon payments are not made on time

Unsecured Loans: means that the borrower doesn’t have to provide collateral to qualify and receive financing.

Unsecured business loans may be viable for business owners with a strong personal credit score. However, this type of business financing represents more risk to the lender. If you borrow money and default on your payments, there is no asset to seize. Hence, unsecured loans typically come with stringent standards (such as credit score requirements) and higher interest rates. In addition, at times, banks may require a different security feature as an alternative to collateral – like a percentage of your credit card transactions or POS (Point of Sale) transactions.

As there is no collateral attached, the corrective actions that can be employed by the lender in case of a default --
a) Legal action

b) Employ collection agency

c) Sell debt to 3rd Party

Pros:
a) Due to absence of collateral, the disbursal process bypasses lengthy appraisal 

b) in case of bankruptcy of business, the loan has the potential to be forgiven

Cons:

a) more expensive as the risk to lender is higher

b) shorter repayment periods - up to 36 months in most cases

c) harder to obtain as the risk must be absorbed for non-repayment

Defaulting on unsecured business loans can mean financial ruin and damaged credit, so make sure you’re confident in your business before applying.

For new entrepreneurs, secured business loans may be the only available option. Unsecured credit can offer more flexibility, larger amounts, and faster access to cash for established business owners willing to pay higher interest rates. However, they may be held personally accountable if the business defaults.

Entrepreneurs may also want to consider partially secured loans, where the collateral is required but doesn’t have to cover the principal. Lenders assume less risk with these loans because they typically aren’t discharged by bankruptcy. Therefore, the pledged asset guarantees some return in the event of default. Banks may offer more attractive terms for partially secured loans than unsecured, such as lower interest rates and longer repayment time.

The Crypto Tumbleweed

Aman saw one of his neighbours reaping a lot of dividends from the financial market investments, while a few of his friends were bleeding in the stock market. He was confused and perplexed. He did what most of his other peers and the internet search guided him to: CRYPTOCURRENCY

As per him as well as the peer group, keeping money in banks was not safe, with a few reputed too going bust in the recent past, other instruments although stable, took too long to reap benefits (3-5 years). With the quick-fix generation looking at immediate benefits, it was indeed a big concern (pun intended).

After soaring to dizzying levels, cryptocurrencies have lost more than half of their value in the recent months. The recent collapses and the scatter in the crypto market has taken many by shock. Investors are experiencing the deep chill of the current crypto slump, almost half-a-decade after the market’s mainstay, Bitcoin, marked the first digital freeze by tumbling from its then peak. The recent fall has been sharp and spectacular, an overall market that was estimated to be worth more than $3 Trillion barely six months ago is now worth less than $1 Trillion. This “crypto crash” has reinforced the perception of critics that markets for the digital currency - used primarily as an investment vehicle as it is not widely accepted as payment for goods and services - are little more than global casinos operating with virtually no rules or accountability.

The emergence of the latest crypto boom had all the characteristics of being another example of the "Robinhood Economy". Bored white collar workers, confined to their homes due to the pandemic lockdowns but plentiful disposable income, turned to day trading as a way to pass the time. Cryptocurrencies also benefited from the surge in day trading. Bitcoin had an year-on-year growth of 1100% between 2020 and 2021. Even in the latest boom, another crypto, Ethereum saw a phenomenal growth of ~4100% in 2021.

The flood of money washing into the world of crypto did more than simply inflate the monetary value for the incumbent shareholders. It instead led to a surge of interest in, and funding for, the vast array of projects that aimed to capitalise on the underlying technology of cryptocurrencies. For a generation of new investors, the “decentralised finance” opportunities of the sector were appealing. Built on top of the “programmable money”, the “DeFi” [decentralised finance] sector was an attempt to expand cryptocurrency's anti-establishment ethos to cover the global economy. 

The crypto crisis has played out against the backdrop of wider market problems like rising inflation and higher borrowing costs that have stalked investors. Some market watchers play down the prospect of a crypto crash triggering serious problems elsewhere in the financial markets or the global economy but digital assets have been hit by some of the same economic issues that have affected the wider global economy and stock markets. Cryptocurrencies have been affected by concerns over rising inflation and the ensuing increases in interest rates by central banks, which has made risky assets less attractive to investors. This meant that as stock markets declined, so too did crypto assets. 

So, What's Next? The principle of “buy the dip” is based on an assumption price drops are temporary aberrations that correct themselves over time. Dip buyers hope to exploit dips by buying at a relative discount and reaping the rewards when prices rise again. Crypto markets are volatile, so buying cryptocurrencies at any price – let alone a dip that might become a long-term trend – is risky. While prices could return to previous levels, they could also fall even further, leaving your investment underwater. On the other hand, cryptocurrencies prices have shown a degree of seasonality historically speaking. However, as with every kind of investment, let alone the unpredictable world of cryptocurrencies, past performance is no guarantee of future results. It is advisable to buyers to hedge their bets. It is important to diversify your crypto portfolios with different altcoins to mitigate risks.

Non-Fungible Tokens

"Non-fungible” more or less pertains to anything and everything that is unique and can not be replaced with something else. For example, cryptocurrency is fungible — trade one for another, and you will have exactly the same thing. An unique trading card, however, is non-fungible. If you traded it for a different card, you will  have something completely different. Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.

NFTs can really be anything digital (such as drawings, music, or if I may use Sheldon Cooper's thoughts from the sitcom Big Bang Theory, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.

This is where things start getting interesting. If NFTs are all about owning, transferring and trading/transacting in unique items like videos, piece of art, music in digital format, what is the ownership structure and copyright. One can always copy a digital file as many times as you want through the open internet media, including the art that’s included with an NFT. NFTs are designed to give you the ownership of the work, which can’t be copied, although the artist or creator can still retain the copyright and reproduction rights, just like with physical artwork. To put it in terms of understandable tangible physical art collecting, anyone can buy a Hussain or a Van Gogh print, but only one person can own the original.

So who does a NFT interest? As an artist, it gives you an avenue to sell work that otherwise might not have much of a market for, in spite of demand or aspiration. NFTs have a feature that can be enabled to be paid a percentage every time the NFT is sold or it changes hands, much like a royalty, making sure that if your work gets super popular and balloons in value, you’ll see some of that benefit. On the other hand, as a buyer, one of the obvious benefits of buying art is it lets you support the artists you like  or adore, considering believe it or not, NFTs are way trendier than, like, WhatsApp stickers or the likes. Buying an NFT also usually gets you some basic usage rights, like being able to post the image online or set it as your profile picture, along with the bragging rights of owning an original piece of art or creation, with a blockchain entry to back it up.

With the explosive development of decentralized finance, and uptrend in the adoption of NFTS, we have witnessed a phenomenal growth in tokenization of all kinds of assets, including equity, funds, debt, and real estate. It has been successfully applied to digital fantasy artwork, games, collectibles, etc. However, there is a lack of research in utilizing NFT in issues such as Intellectual Property. Applying for a patent and trademark is not only a time-consuming and lengthy process but also costly. NFT has considerable potential in the intellectual property domain. It can promote transparency and liquidity and open the market to innovators who aim to commercialize their inventions efficiently.

CBDC vs Cryptocurrency

While both the Central Bank Digital Currency and cryptocurrencies work solely through technology, each has its own unique characteristics that make it different from one another. 

Let’s begin with a case in point with the decentralised nature of Bitcoin (one of the primary examples of a cryptocurrency for the sake of this discussion). BTC is a cryptocurrency that isn’t governed by any central authority — neither by central banks and other financial institutions nor by its mysterious developer who lurks behind the name of Satoshi Nakamoto. On the other hand, CBDCs are governed and distributed by central bank and regulatory authorities like the RBI in India. This means that transactions and issuance of this currency will run through the government’s review and approval. The limits and distribution of CBDCs will also depend on the RBI. This governing body will be in charge of producing new digital coins should there be a need to release more.

Bitcoin has a maximum supply of ~2 Crore BTC set by its pseudonymous creator. Since BTC has no central authority, no one can change its maximum count—unless the protocol is altered, which is highly unlikely. CBDC, on the other hand, promises less volatility and greater security, something that cannot be controlled with a highly volatile asset like Bitcoin. Bitcoin also serves as an asset or a commodity that can be bought and sold on cryptocurrency exchanges or marketplaces. A CBDC, in contrast, is a digital legal tender and the only way to get it is through central banks.

While both the CBDC and Bitcoin work pretty much the same today, we’ve learned that each still offers its own unique potential. So, is India’s own digital currency really far from the uniqueness of BTC and the wonders it can offer?

Women and Investments

Only about a little over 10% of women make their financial decisions independently, leaving a staggering 9 out of 10 women allowing their male counterparts or advisors to determine their financial lives, which is surprising, considering that females are actually better in managing money and at investing. 

Let me visit the blessing in disguise. Women being over-skeptical and wary with inhibitions embedded by the society, research more, and hence tend to avoid risky adventures driven by whims. They thoroughly investigate all investment decisions and are open to feedback challenging their assumptions. It is thus paradoxical that despite having most the checkboxes ticked in their favour, women still rely on men, due to their own-built shells. In fact, as per several research and reports by lending players, banks, investment platforms and other financial institutions, women are better lenders, re-payers, and risk-tolerant than men. Women are also better investors as they speculate less, plan more, link a goal/objective to the investment, and thus diversify asset allocation better.

On this note, I wish all the ladies out there

 Happy Women's Day & Happy Investing!!