Behavioral finance ALGo TRADING GIG ECONOMY Failure is simply the opportunity to begin again, this time more intelligently - Henry Ford The True & Fair View 2 Words from Editorial Board With the progress our country has made, we as professionals have strengthened our ability to look forward and take the necessary steps to realise our goals and contribute effectively to the growth of our nation. As we continue to turn our ambitions into actions, the hunt for new ideas, innovation and strategies continue to provide developments leading towards a sustainable economy. Our goal is to provide our readers with latest insights and news on the world of finance and accounting. As Chartered Accountants, we understand the importance of staying up to date with the latest developments in the financial world, and we aim to share this knowledge with our readers through our articles and features. We are pleased to present the 4 th edition of our E-magazine, which has been a collective initiative to provide our readers with high-quality content that is informative, engaging, and relevant. We would like to sincerely commemorate each and every one for the efforts they have put towards this cause. We would also like to thank all the dignitaries for sparing their valuable time to send their best wishes. We welcome your feedback and suggestions on how we can improve our magazine and serve you better. Thank you for your continued support, and we hope you enjoy reading our latest issue. Sincerely, The Editorial Board K annan VP Delvin Joseph Jijo Johnson Nin an Thengil HAPPY READING!!!!! Rajasekharan and Mathew Chartered Accountants 3 Contents VOICE Words from Editorial board...............................................................................................2 Partner’s Message............................................................................................................3 FINANCE Behavioural Finance.........................................................................................................7 Psychology of Money......................................................................................................11 Credit Cards and Credit Scores.......................................................................................13 Personal Finance............................................................................................................16 ECONOMY Gig Economy ..................................................................................................................18 The downfall of Sri Lankan Economy................................................................................21 MARKET TRADING Indian Retail Trade and Algo trading.................................................................................24 Approach to Stock Market trading....................................................................................26 BUSINESS A Glimpse about the revival of India’s biggest corporate fraud..........................................29 The Success story of Gautam Adani – Ambitions turn into reality......................................33 Leadership styles in organisations...................................................................................37 TECHNOLOGY Artificial Intelligence – Threat or Opportunity....................................................................39 SUSTAINABILITY Environmental Accounting...............................................................................................41 The Future is low-tech.....................................................................................................44 GALLERY .................................................................................................................................... 47 The True & Fair View 4 Partner’s Message CA. Dileep R, FCA Dear colleagues, It is our immense pleasure and privilege to see yet another wonderful edition of the magazine coming out from the Rajasekharan and Mathew family. The subjects covered in this edition include, but not limited to finance, sustainability and market trading. The magazine team has done a commendable job of bring this edition with relevant and creative topics with sheer determination and enthusiasm. As you are aware, this organisation led by Rajasekharan V focuses not only on improving your academic phases, but also on improving the overall traits of members associated with the organisation and I urge everyone to make use of this environment for an all-round improvement of your personality and to groom yourself into healthy, happy, responsible and proud citizens of a proud country. Nelson Mandela once remarked, “Everyone can rise above their circumstances and achieve success if they are dedicated to and passionate about what they do.” Let us pledge as members of this organisation, we work passionately to balance the best interests of business, society and ourselves. I hope, this year would be a year of bliss and positive growth. Rajasekharan and Mathew Chartered Accountants 5 Partner’s Message CA. Govind P, FCA Dear colleagues, As we move towards the dawn of yet another financial year, I consider it a pleasure and privilege to pen down my message for the 4 th edition of our e-magazine, “The (True & Fair) View. First, I want to take a moment to reflect on our accomplishments and challenges over the past year. Despite any thorns we might have come across our path, I am proud of the progress we have made as a team. We have continued to adapt and evolve to meet the changing needs of our customers and clients, and the dedication and hard work that everyone brings to their roles is inspiring and praiseworthy. As we look to the future, I am excited about the opportunities that lie ahead of us. We must continue to be proactive and innovative in our approach. We live in a rapidly changing world, and therefore must be prepared to adapt and evolve to meet the needs of our customers and clients. There is no dearth of skill or talent in our organisation, and I believe we are well- positioned to continue growing by overcoming any obstacles on our way. The entire team’s commitment to excellence is truly inspiring and I feel honoured to be associated with this talented group of Individuals. But as Helen Keller remarked “Alone we can do so little; together we can do so much”. Therefore, let us continue to work together as a team, supporting and challenging each other to be our best and achieve great things together. Together we can make a positive impact on our organisation, our customers and our community. I also take a moment appreciate the commendable work done by the editorial team and everyone who has worked towards making this e-magazine a reality. Wish everyone a delightful reading experience. The True & Fair View 6 Partner’s Message CA. Bejo K Benny, ACA Dear colleagues, I am really enthralled to know that the fourth edition of our magazine ‘The View’ has been published. You may know that I recently joined as the 7th partner of this prestigious firm which turns 21 this year. As I look back, I am filled with pride that the firm not only took leaps and bounds but also paved the careers of many youths. Joining the firm as a student in 2013 and becoming a partner of the firm in 2023 is still an unbelievable journey for me. I take this opportunity to thank Rajasekharan sir and the organization for their unwavering faith, support, and guidance, which I hope will continue throughout my career. As the financial world changes rapidly, keeping up with its pace is one of the most challenging things in our profession. To enable this the firm works to produce quality professionals by revitalizing education and training. The idea of publishing a trimonthly magazine covering important developments in the financial world was an enabling tool for continuing professional education but whether we have been able to do full justice to that idea is something that we need to critically discuss with ourselves. We all know that there have been some challenges in the past, such as exam leave breaks, relatively high student turnover, etc., where magazines could not be published regularly which we need to overcome as a team. Despite this, I take this opportunity to appreciate the editorial team and students who have compiled their knowledge to make this magazine a concise one. Happy reading to all my professional colleagues!!!! Rajasekharan and Mathew Chartered Accountants 7 It is not difficult to imagine the stock market as a person: It has mood swings (and price swings) that can turn on a dime from irritable to euphoric; it can overreact hastily one day and make amends the next. But can human behaviour really help us understand financial matters? Does analysing the mood of the market provide us with any hands-on strategies? Behavioural finance theorists suggest that it can. The application of behavioural economics to the world of finance is known, unsurprisingly, as behavioural finance. Behavioural finance is an interdisciplinary field that combines psychology and finance to understand and explain why individuals make certain financial decisions. It recognizes that human behaviour and emotions play a critical role in financial decision-making and that traditional finance theories, which are based on the assumption of rational decision-making, do not always accurately predict financial market outcomes. VISHNU NARYANAN , Articled Assistant The True & Fair View 8 Behavioural finance was developed in response to the inability of traditional finance theories to fully explain the market phenomena of stock market bubbles, market inefficiencies, and individual investment decisions. For example, the traditional finance theory of efficient markets predicts that all publicly available information is reflected in stock prices, and that it is impossible to consistently outperform the market. However, behavioural finance recognizes that investor emotions and biases can cause them to act in ways that deviate from rationality and result in market inefficiencies. One of the most well-known concepts in behavioural finance is the idea of cognitive biases. These are systematic errors in judgment that result from emotional and mental shortcuts that the brain takes. Some common examples of cognitive biases include: 1. Heuristics Heuristics, or rules of thumb, make decision making easier. However, they can sometimes lead to biases, especially when things change. These can lead to suboptimal investment decisions. When faced with N choices for how to invest retirement money, many people allocate using the 1/N rule. If there are three funds, one-third goes into each. If two are stock funds, two-thirds goes into equities. If one of the three is a stock fund, one-third goes into equities. 2. Overconfidence People are overconfident about their abilities. Entrepreneurs are especially likely to be overconfident. Overconfidence manifests itself in several ways. One example is too little diversification, because of a tendency to invest too much in what one is familiar with. Thus, people invest in local companies, even though this is bad from a diversification viewpoint because their real estate (the house they own) is tied to the company’s fortunes. 3. Mental accounting People sometimes separate decisions that should, in principle, be combined. For example, many people have a household budget for food and a household budget for entertaining. At home, where the food budget is present, they will not eat lobster or shrimp because they are much more expensive than a fish casserole. In a restaurant, however, they will order lobster and shrimp even though the cost is much higher than a simple fish dinner. If they instead ate lobster and shrimp at home, and the simple fish in a restaurant, they could save money. However, because they are thinking separately about restaurant meals and food at home, they choose to limit their food at home. Rajasekharan and Mathew Chartered Accountants 9 4. Framing Framing is the notion that how a concept is presented to individuals matters. For example, restaurants may advertise “early-bird” specials or “after-theatre” discounts, but they never use peak-period “surcharges.” They get more business if people feel they are getting a discount at off-peak times rather than paying a surcharge at peak periods, even if the prices are identical. 5. Representativeness People underweight long-term averages. People tend to put too much weight on recent experience. This is sometimes known as the “law of small numbers.” 6. Conservatism When things change, people tend to be slow to pick up on the changes. In other words, they anchor on the ways things have normally been. The conservatism bias is at war with the representativeness bias. When things change, people might underreact because of the conservatism bias. However, if there is a long enough pattern, then they will adjust to it and possibly overreact, underweighting the long-term average. 7. Disposition effect The disposition effect refers to the pattern that people avoid realizing paper losses and seek to realize paper gains. For example, if someone buys a stock at Rs. 300, which then drops to Rs. 220 before rising to Rs. 280, most people do not want to sell until the stock gets above Rs. 300. The disposition effect manifests itself in lots of small gains being realized, and few small losses. In fact, people act as if they are trying to maximize their taxes! The disposition effect shows up in aggregate stock trading volume. During a bull market, trading volume tends to grow. If the market then turns south, trading volume tends to fall. Behavioural finance also recognizes that individual investors are not always rational decision- makers and that emotions such as fear, greed, and regret can influence their investment decisions. For example, investors may exhibit “herding behaviour,” which is the tendency to follow the actions of others, even if they do not necessarily have the best information or knowledge. This behaviour can contribute to stock market bubbles and crashes. Another important concept in behavioural finance is the idea of “arbitrage.” Misevaluations of financial assets are common, but it is not easy to reliably make abnormal profits off of these Misevaluations. Why? Misevaluations are of two types: those that are recurrent or arbitrageable, and those that are nonrepeating and long-term in nature. For the recurrent Misevaluations, trading strategies can reliably make money. Because of this, hedge funds and others zero in on these, and keep them from ever getting too big. Thus, the market is pretty efficient for these assets, at least on a relative basis. For the long-term, nonrepeating The True & Fair View 10 Misevaluations, it is impossible in real time to identify the peaks and troughs until they have passed. Getting in too early risks losses that wipe out capital. Even worse, if limited partners or other investors are supplying funds, withdrawals of capital after a losing streak may result in buying or selling pressure that exacerbates the inefficiency. Just who are these investors who make markets efficient? Well, one obvious class of investors who are trying to make money by identifying Misevaluations are hedge funds. A relative value hedge fund takes long and short positions, buying undervalued securities and then finding highly correlated securities that are overvalued, and shorting them. A macro hedge fund, on the other hand, takes speculative positions that cannot be easily hedged, such as shorting Nasdaq during the last 2 years. Behavioural finance has important implications for investors and policymakers. For investors, understanding and recognizing cognitive biases and emotional influences can help them make more informed and rational investment decisions. For policymakers, an understanding of behavioural finance can help inform the development of policies and regulations aimed at promoting more efficient and fair financial markets. In conclusion, behavioural finance is a rapidly growing field that recognizes the importance of human behaviour and emotions in financial decision-making. By understanding the psychological and emotional factors that influence investment decisions, individuals and policymakers can make more informed and rational choices in the financial marketplace. This brief introduction to behavioral finance has only touched on a few points. It is very difficult to find trading strategies that reliably make money. This does not imply that financial markets are informationally efficient, however. Low-frequency misevaluations may be large, without presenting any opportunity to reliably make money. Behavioral finance is, relatively speaking, in its infancy. It is not a separate discipline, but instead will increasingly be part of mainstream finance. Rajasekharan and Mathew Chartered Accountants 11 Money is one of the crucial aspects of our lives that affects our daily decisions and long-term goals. However, managing money is often a difficult task and requires a psychological approach to understand our relationship with it. The psychology of money management refers to the various ways in which people’s attitudes, emotions, and behaviours influence their financial decisions and practices. This includes factors such as their beliefs about money, risk aversion, impulse control, and self-discipline, as well as the impact of cultural and social influences on their financial behaviour. Understanding the psychology of money management is essential for individuals who want to improve their financial well-being and make better financial decisions. Money-related matters mostly involve emotions because money is not just a matter of numbers, but it also has social and psychological dimensions. Money is often associated with our self-worth, status, security, and freedom, which can evoke strong emotions, such as fear, greed, envy, and regret. For example, people may feel anxious or stressed about their financial situation, particularly if they have debt, face financial uncertainty, or cannot afford their basic needs. On the other hand, people may also experience pleasure, excitement, or pride when they achieve their financial goals, such as saving for retirement, buying a house, or paying off THE PSYCHOLOGY OF MANAGING MONEY JIJO , Articled Assistant The True & Fair View 12 their debt. Moreover, money is often intertwined with our relationships, as it can affect our interactions with family, friends, and colleagues. In summary, emotions are involved in money- related matters because money is not only a practical tool but also a social and psychological symbol that reflects our values, goals, and identity. People mostly after taking a bad decision related to money says it was out fear or greed and never say it was their logically bad decision. Money decisions are mostly made with heart and not with brains. Luck plays a significant role in financial success, and it’s essential to acknowledge this fact. People who attribute their financial success solely to their skills and efforts may be overestimating their abilities. A person whose first business was a success would have either found out that he had the skill to do so, or he might have experienced a luck. People doesn’t acknowledge the role of luck in money related matters. They look at people who won by luck and learn things. The first step in managing money is to recognize our emotional relationship with money. Many of us have a negative association with money, often stemming from experiences of scarcity or financial insecurity. This emotional baggage can impact our spending habits, leading us to make impulsive and unhealthy financial decisions. One of the key principles in managing money is setting and sticking to a budget. A budget helps us prioritize our spending and keep track of our expenses, ensuring that we are able to meet our financial goals. However, sticking to a budget can be challenging, especially when temptations arise. To overcome this, it is important to have a clear understanding of our values and what is truly important to us. When we align our spending with our values, it becomes easier to say no to unnecessary purchases and stick to our budget. Another aspect of managing money is developing a savings plan and Regular Investment. Saving is crucial for long-term financial stability and security. One of the best ways to develop a savings plan is to automate it, such as setting up a monthly transfer from our checking account to a savings account. This helps us save regularly and consistently, without having to rely on our willpower. Compounding is a key driver of long-term financial success. The power of compounding is often underestimated because it works in the background, steadily and silently multiplying your money over time. Compounding is a story of patience and persistence, and the value of this boring activity is often underrated in our society. In conclusion, managing money requires a psychological approach, understanding our emotional and mental relationship with money. By recognizing our habits and tendencies, setting, and sticking to a budget, developing a savings plan, and educating ourselves, we can develop a healthy and positive relationship with money, leading to financial stability and security. Rajasekharan and Mathew Chartered Accountants 13 How do credit limits and credit overdrafts work? Your credit limit is the most you can ever spend on a single purchase with your credit card. Credit card restrictions are put in place to prevent people from getting trapped in a debt cycle by ensuring that you can repay the money you borrow within a set time frame. Numerous factors, including income, credit history, credit worthiness, and others, are used to set the credit limit. The credit card limit is typically established by the issuer when the card is issued, but it may be changed from time to time based on the cardholder's payment history, credit score, income, and other factors. When you use your credit card in excess of the authorised credit limit, this is referred to as credit over-limit usage. All credit card customers are permitted to use the credit overlimit feature. You can decide whether to stop the transaction that goes above your credit limit or to keep on anyhow. Even though it is a facility provided by the issuer, you should be aware that using credit over your limit typically comes with a set of rules and regulations. SHAHIN SHAH , Articled Assistant Credit cards and credit scores The True & Fair View 14 Here are some effects of credit cards on credit scores. 1) Your history of credit card payments : Your history of credit card payback is the single biggest factor influencing your credit card. Nearly 35% of your credit score is determined by this. Pay your credit card bill promptly if you want to guarantee that your credit score will remain high. Additionally, you must pay a higher interest rate and an extra late fee if you don't pay your credit card bill by the due date. 2) Overuse of credit limit: Your credit score may be impacted if you use more than 30 percent of your available credit. Very high use could lead to you missing payments, therefore lenders usually approach it with caution. Paying your debts on time is essential to maintaining and raising your credit score. Your credit report and credit score are both affected by the default of even one EMI. 3) Do not pay less than the minimum due amount: Pay the entire balance on your credit card or more than the minimum due amount. Credit card users should never pay less than the minimum due. Remember that paying only the minimum amount due, or MAD, on your credit card payments has no negative effects on your repayment behaviour. It is not regarded as a default, but it is subject to interest and other fees, if any, which could raise the total amount owed. Future payments can be challenging as a result. The convenience of using a credit card to make purchases while enjoying an interest-free period of up to 45 days is unmatched. To prevent being charged interest and fees, one should only be concerned with making prompt repayments. 4) Don't go beyond your credit utilisation rate (CUR): The credit utilisation ratio displays your monthly usage in relation to your credit card limit. Let’s say you have a Rs. 1 lakh credit limit, but you only used Rs. 90,000. Your CUR in this situation will be 90%. A high CUR is interpreted as being credit hungry. Your credit score declines as a result. For crises or important occasions like weddings or international travel, it's acceptable to occasionally exceed your spending limit, but avoid doing so frequently. Try to keep it below 30%. Always pay off all of your debt in the same month. In the event that you start paying interest on your regular purchases, the benefits and reductions won't be worthwhile. Your credit score will increase if you make all of your payments on time, and you'll be able to get loans with favourable terms or increased credit limits as a result. Rajasekharan and Mathew Chartered Accountants 15 5) Create automated payment systems To ensure that due dates are not missed, set up automated payments, even if they are only for a small sum. A planned electronic transfer of funds from your credit card account to a vendor, biller, or merchant to pay a bill is known as an automated payment. The biller automatically collects the amount owed in accordance with the predetermined payment schedule. 6) Avoid submitting numerous credit applications at once Users should refrain from submitting numerous credit applications at once in an effort to take advantage of the promotions, discounts, and credit periods on each credit card. Excessive credit-seeking behaviour frequently lowers your score. You shouldn't have more than three active credit cards, according to the general guideline. It’s possible that you won't be able to monitor every card's transaction. A payment default could result from this. An excessive number of credit cards indicates to a lender that you are overly reliant on credit. In the end, it's critical to keep in mind that your CIBIL score isn't just determined by how much you use your credit cards. All credit products are included while calculating the score. Therefore, having a personal loan or a mortgage will also affect your CIBIL score. 7) Threat of cancelled transactions If one surpasses their credit limit, credit card purchases will eventually be denied. To avoid being caught off guard by exceeding your credit limit before the end of your monthly statement period, you should be aware of the credit limits for each of your credit cards and maintain track of their balances. Additionally, if the card is frequently overshot, the issuing business could deactivate the card. Then, are there any benefits? Yes, there are benefits as long as you utilise your credit card properly. If you utilise your credit card responsibly to control your daily costs, it may be a powerful and extremely beneficial financial tool. Along with collecting reward points, you can take advantage of discounts, holiday deals, and EMIs without interest. There is a predetermined credit limit on credit cards. Although you can spend up to this cap, over it could harm your credit score. Whatever you borrow with your credit card must be paid back within the allotted time. The True & Fair View 16 Understanding the Basics of Personal Finance Personal finance is a broad term that encompasses all financial decisions and activities made by an individual or household. These decisions and activities may include budgeting, saving, investing, borrowing, and managing debt. It is important for individuals to understand the basics of personal finance to make informed decisions about their money and achieve their financial goals. Budgeting Budgeting is the foundation of personal finance. It involves creating a plan for how much money you will earn, spend, and save over a certain period of time. The first step in creating a budget is to calculate your income, which may include your salary, freelance income, rental income, and any other sources of income. The next step is to list all your expenses, including rent or mortgage payments, utilities, food, transportation, entertainment, and other costs. Once you have a clear understanding of your income and expenses, you can create a budget that allocates money for each category of expense and ensures that you have enough money left over for savings. LINSON FRANCIS , A udit Manager Rajasekharan and Mathew Chartered Accountants 17 Saving Warren Edward Buffett is an American business magnate, investor, and philanthropist once said, “Do not save what is left after spending, but spend what is left after saving.” Yes, saving is an important part of personal finance, as it allows individuals to build up a financial cushion for emergencies, invest for the future, and achieve long-term financial goals. There are several types of savings accounts, including traditional savings accounts, high-yield savings accounts, and certificates of deposit (CDs). It is important to choose the right savings account based on your individual needs and goals. Investing Investing is the process of putting money into financial instruments such as stocks, bonds, and mutual funds, with the goal of generating a return on investment. Investing can be risky, as the value of financial instruments can fluctuate based on market conditions. It is important for individuals to do their research and choose investments that align with their risk tolerance and long-term financial goals. Borrowing and Managing Debt Borrowing money can help individuals achieve their financial goals, such as buying a house or starting a business. However, it is important to understand the risks and costs associated with borrowing money, including interest rates, fees, and repayment terms. Managing debt is also an important part of personal finance, as it can affect credit scores and overall financial health. It is important to make timely payments, avoid carrying balances on high-interest credit cards, and work to pay off debt as quickly as possible. In conclusion, personal finance is a complex and multifaceted topic that requires a basic understanding of budgeting, saving, investing, borrowing, and managing debt. By taking the time to understand these concepts and making informed decisions about money, individuals can achieve their financial goals and build a stable financial future. The True & Fair View 18 What is Gig Economy? A gig economy is a free market system in which organisations hire or contract workers for a short span of time or for short term arrangements. Startups like Ola, Zomato and Swiggy have established themselves as the main source of the gig economy in India. This concept has been widened to include freelancing techies, as we all know the country dominates when it comes to software with India contributing half of global freelancers in this domain. NEVIL JOY I CHAN , Articled Assistant Rajasekharan and Mathew Chartered Accountants 19 Who is a Gig Worker? According to the Code on Social Security, 2020 (India), “ A gig worker is a person who performs work or participates in work arrangements and earns from such activities, outside of the traditional employer-employee relationship.” They are independent contractors, online platform workers, contract firm workers, on-call workers, and temporary workers. What is the size of Gig Economy in India? A NITI Aayog study on “India’s Booming Gig and Platform Economy” has estimated that at present, about 47 per cent of the gig work is in medium-skilled jobs, 22 percent in high skilled, and 31 per cent in low-skilled jobs. Research studies by Boston Consulting Group (BCG) indicates that size of gig economy is higher in developing countries than developed countries. Most of these jobs are in lower-income job-types such as deliveries, transport, microtasks, care and wellness. These studies further estimate that in 2020-21, almost 70 lakh workers were engaged in the gig economy. The gig workforce is expected to expand to 2.35 crore workers by 2029-30. What is the Average Age/Income of Gig Workers in India? The median age of Indian gig workers is 27 and their average monthly income is Rs. 18,000 and 70 % of these constitute sole bread winners of their families. Challenges faced by Gig Workers: • While platform companies have created new opportunities for employment, it has often been characterised by low wages, unequal gender participation, and a lack of possibility for upward mobility within an organisation. • Rising stress due to uncertainty associated with regularity in available work and income. • Contractual relationship between the platform owner and gig worker denying the latter access to many workplace entitlements. This means they often do not receive benefits like paid sick and casual leaves, travel and housing allowances, and provident fund benefits. • Coping with the heightened emotional turbulence caused by highs and lows of working independently. • Organising the logistics of work without the support of the administrative infrastructure (e.g., accounting, marketing). The True & Fair View 20 What needs to be done in order to improve the Living Standards of these Gig Workers? Fiscal Incentives Fiscal incentives such as startup grants may be provided for businesses that provide livelihood opportunities where women constitute a substantial portion of their workers, which was highlighted by NITI Aayog in its report “ India’s Booming Gig and Platform Economy”. Unsecured loans which are extended to first-time borrowers in the gig economy can be classified as Priority Sector Lending. Providing and increase in access to institutional credit for these workers. Retirement and Health Benefits The report by NITI Aayog also recommended that firms adopt policies that offer old age or retirement plans and benefits, and other insurance cover for contingencies such as the Covid-19 Pandemic. Businesses should consider providing income support to such workers after the age of retirement. It would be a critical step in granting assured minimum earnings and social security from income loss in the wake of uncertainty or irregularity in work. Employees will be able to perform better if they are offered paid sick leave with necessary proof. Providing Occupational disease and accident policies to the employees are also suggested improvements.