beyond market - issue 124

ABIG

CHANGEThe monetary policy

regime in India is expected to witness a

makeover in the coming months

RNI No. MAHENG/2009/28962 | Volume 8 Issue 08 | 01st - 15th Aug ’16Mumbai | Pages 48 | For Pr ivate Circulat ion

DB Corner – Page 5

A Half-Finished Task

Much has been achieved in the last 25 years of liberalization but key reforms of

land and labour remain – Page 6

A Difficult Transition

The shift from the current reporting format for financial results based on

Generally Accepted Accounting Principles (GAAP) to Indian Accounting

Standards Rules of IndAS Rules will be bumpy for most Indian companies

– Page 9

Lending Support

To improve liquidity and aid lending operations, the government has allocated

`22,915 crore as capital infusion in 13 public sector banks – Page 12

A Big Change

The monetary policy regime in India is expected to witness a makeover in the

coming months – Page 14

Healthy Growth

A number of FMCG companies are focussing on health foods to drive growth

– Page 17

Tough Challenges

New banks comprising of small finance banks and payments banks that are

likely to start operations soon could give existing lenders a run for their money

– Page 20

Perfect Weave

The government has come up with a comprehensive plan to revive the textile

industry in India – Page 23

The Big Picture

More and more multiplex companies are heading into the hinterland to expand

and grow – Page 26

Altering Patterns

The guidelines laid down by the Department of Industrial Policy & Promotion

for e-commerce companies is forcing players to realign their strategies

– Page 29

Bond With Gold

Sovereign gold bonds are proving to be better than physical gold and gold ETFs

– 2

Fostering Growth

The beleaguered insurance sector in India has received a shot in the arm thanks

to the government, which has raised the ceiling for foreign investment

– Page 34

Technical Outlook For The Fortnight Gone By – Page 37

Buckfast Recommendations – Page 38

Identifying Trend Momentum

The Coppock Curve is a technical analysis indicator for long-term stock market

investors to identify the start of a bull market – Page 42

Important Jargon For The Fortnight – Page 45

Editor-in-Chief & Publisher: Rakesh BhandariEditor: Tushita NigamSenior Sub-Editor: Kiran V Uchil

Art Director: Sachin KambleJunior Designer: Harshad Pawar

Operations: Namrata Sabbani

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Research Team: Sunil Jain, Vikas Salunkhe, Swati Hotkar, Nirav Chheda

It’s simplified...Beyond Market 01st - 15th Aug ’16 3

Volume 8 Issue: 08, 01st - 15th Aug ’16

Tushita NigamEditor

The Challenge Of Change

It’s simplified...Beyond Market 01st - 15th Aug ’164

India is likely to see a major change in its economic scenario in the coming months. As the current Governor of the Reserve Bank of India (RBI) Dr Raghuram Rajan steps down after completing his three-year term, the focus will now be on the future of the monetary policy in the country.

The formation of a new monetary policy committee that will decide the policy as well as the new RBI Governor, will decide the future of the country over the next few years while they strive to keep the inflation target under control. In our cover story, we have discussed in detail the near-term challenges for the Reserve Bank of India. Read on to get a better understanding of the topic.

The current issue also features articles on India’s achievements in the last 25 years of economic liberalization, impact of the shift from the current reporting format for financial results based on Generally Accepted Accounting Principles (GAAP) to Indian Accounting Standards Rules (Ind-AS) on Indian companies, the public sector bank capital infusion programme for the current fiscal, how fast moving consumer goods (FMCG) companies are paying heed to the growing demand for health foods and the change in the banking sector in the country with the rise of new banks comprising of small finance banks and payment banks.

There are also articles on policy changes to boost the textile sector in India, the new guidelines laid down by the Department of Industrial Policy & Promotion (DIPP) for e-commerce companies and the growth of the multiplex sector in India.

In the Beyond Basics section, we have covered an article on gold sovereign bonds and the various changes brought about to give a push to the beleaguered insurance industry in IndiA.

It’s simplified...Beyond Market 01st - 15th Aug ’16 5

Disclaimer It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed. Investors are required to take an independent decision before investing. Investment in equity is subject to market risk. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing.

n the previous fortnight, the Rajya Sabha passed the Goods and Services Tax (GST) Constitutional Amendment Bill, paving the way for the biggest tax reform in India. GST aims to have one indirect tax for the whole nation.

The domestic markets experienced an upswing due to the continuous inflow of funds from Foreign Institutional Investors (FIIs) into emerging economies, including India.

Outgoing chief of the Reserve Bank of India, Raghuram Rajan kept key policy rates unchanged in his final policy announcement. He kept the repo rate unchanged at 6.5% citing rising inflation in the economy. The cash reserve ratio (CRR) too remains the same at 4%.

Quarterly earnings results of India Inc released so far have been in line with market expectations. Monsoon rainfall has been widely distributed and above average.

The Indian stock markets are likely to remain range-bound in the coming fortnight. The Nifty has closing support around the 8,640 level. However, market participants can look at fresh buying if the Nifty closes above the 8,760 level on two consecutive days.

Market participants should keep an eye on the remaining earnings results. Also, they should watch out for the US Federal Reserve’s meet to be held in SeptembeR.

I

The Indian stock marketsare likely to remainrange-bound in thecoming fortnight.

Sensex: 28,085.16Nifty: 8,678.25

(As on 9th Aug ’16)

AHALF-FINISHED

TASKMuch has been achieved

in the last 25 years of liberalization but key reforms of land and

labour remain

It’s simplified...6 Beyond Market 01st - 15th Aug ’16

It’s simplified... 7Beyond Market 01st - 15th Aug ’16

companies, which saw the emergence of new-age private sector companies, be it Infosys, Wipro, ICICI or HDFC. The growth of the IT sector, thanks to low-cost sourcing by multinational clients after the Y2K scare saw over six lakh individuals being employed in the IT sector.

However, compared to the changes on the economic front, there hasn't been a huge transformation in the job scenario. While agriculture’s share in the GDP has reduced to about 15%, it still employs half of the workforce.

The fact remains that number of high productivity jobs generated in manufacturing and services are just a fraction of the available workforce. Again with manufacturing staying in dumps, the pace of employment growth has not kept in step with the number of youth entering the employment market every year.

IndustryOpening up of sectors that were reserved for the public sector like ports, telecom, infrastructure and airports, aviation, steel and power saw the rise of new entrepreneurs. Reforms also accelerated the learning curve of the sector, which learnt from its mistakes and fought for survival against competition from MNCs.

Reforms turned the rent-seeking businesses truly global. While the Tatas made a string of acquisitions in Tetley, Jaguar and Land Rover and Corus, the Birlas bought Novelis. The pharma companies, which became major generic players in the US, learnt American standards of plant hygiene and processes.

The 1991 reforms were brought about by a forex crisis, which led to the government turning benign towards the industries that brought in valuable foreign exchange, helping them grow in global scale. This led to the rise of

wenty-five years is a long time to reflect, count the gains and rue the misses. India’s reforms journey

began on a fateful day in 1991 in response to a balance of payment crisis. It had two weeks of foreign exchange left after an oil price shock and was forced to mortgage its gold.

Quarter of a century later, it’s almost change of an era - one from deprivation and shortages to that of relative abundance - which the urban Indians born in the late eighties cannot even fathom.

The reforms ushered in by Congress government and taken forward by subsequent ones saw the depreciation of the rupee, did away with the licence raj, reduced tariffs and interest rates and ended many public monopolies, ushering in huge foreign direct investment in many sectors.

By the turn of the 21st century, India had progressed towards a free-market economy, with a substantial reduction in state control of the economy. Since then, the overall thrust of liberalization has remained the same, though no government has tried to take on powerful lobbies such as trade unions and farmers on contentious issues such as reforming labour laws and reducing agricultural subsidies.

The fruits of reforms have been so visible and tangible – glitzy cities, bulge-bracket salaries, steady growth, new opportunities, never mind that only a few people have benefitted. These have been accompanied by increase in life expectancy, literacy rates and food security, although urban residents have benefited more than the rural folk.

Interestingly, after the global stagnation since 2008, while the world is divided over the virtues, risks and direction of globalization and

T reforms, in India there is a consensus across political parties that the process is unidirectional, though they may differ on pace and constituents.

HOW HAVE THE REFORMS PLAYED OUT

GrowthWhile growth was 4% for 40 years after independence, it has averaged 6.6% since 1991. Though it doesn’t look huge, small incremental changes have led to a big reduction in poverty and raised the standard of living.

While poverty rate declined 5% every decade since independence to 45% till 1991, it halved to 22% between 1993 and 2012. The poverty rate fell from 37% to 225 during 2004 and 2014 when growth averaged 8.3%. About 15 crore people escaped poverty between 1991 and 2012.

Per capita consumption has increased consistently, though bottom 40% of the population has lagged versus average consumption. Infant and child mortality rates have halved, but absolute numbers are still high.

Illiteracy fell by 15% but remains high at 32% of the population. Experts say that India’s per capita income in purchasing power parity terms rose from $1,164 to $6,200 in 2015. They predict it can jump to $52,000 in the next 30 years if above 6% growth rates are sustained.

EmploymentOf all the visible benefits, liberalization has created massive employment opportunities in new sectors such as BFSI, telecom, IT, hospitality, retail, FMCG, healthcare. Reforms saw employers luring right candidates, who now have multiple job choices, at least in urban areas. With FDI coming in droves, capital was never a constraint for Indian


home-grown IT multinationals and TCS, Infosys and Wipro, aided by the Y2K crisis of 1999-2000.

The business process outsourcing or offshore development sector too grew as it gave cost arbitrage to companies. The country was lucky to latch on to the massive underwater data cables built during the dotcom boom that made data travel cheaper, giving rise to a booming services industry.

Today, workers in the services sector earn 10 times of those in agriculture, widening the gap from 3-4 times in 1991. Although the IT boom has subsided, e-commerce and app economy companies have taken over. With the entry of new private sector banks, the financial sector has grown.

“In service sectors where government regulation has been eased significantly or is less burdensome - such as communications, insurance, asset management and information technology - output has grown rapidly, with exports of IT-enabled services particularly strong. In those infrastructure sectors which have been opened to competition, such as telecom and civil aviation, the private sector has proven to be extremely effective and growth has been phenomenal,” says OECD on India’s growth journey.

Government SectorThe fiscal deficit of the government has been well-contained over the last 25 years. While it rose to 6.8% of GDP a year after the first round of reforms were announced in 1991, it fell to a record low of 2.5% in 2007-08. It has, however, risen to 6.5% in 2009-10 thanks to the global economic crisis, but has fallen to 3.9% of GDP in 2015-16.

The government debt that was 63% of GDP in 1991-92 has dropped to 50% now, taking the interest servicing to

4% of GDP in 1991-92 to 3.2% last fiscal. While these have been bright spots, the direct tax collection that was 2% of GDP in 1991-92 is still below 6% now.

The tight lid on government expenditure in the early years of reforms has now slipped. Subsidies that declined to 1% of GDP by 1995-96 have now risen to 1.7% of GDP. The revenue expenditure of the government that was 12% of GDP when the reforms began was 10% in 2015-16. Interestingly, the capital expenditure has fallen to 1.7% in 2015-16 from above 4% in 1991-92.

At the time when government spending is needed to revive growth, the capital expenditure of the state has gone up marginally.

Crony CapitalismWhile there have been favourites, there has been a rise in crony capitalism. One aim of the reforms was to get rid of the licence-permit raj, but they have failed to create a level-playing field not just in the case of natural resources like petroleum, coal, iron and spectrum. The problem is evident from the ballooning non- performing assets of public sector banks that have risen to `8 lakh crore.

THE WAY AHEAD

While product market reforms have been largely successful, the bolder factor market reforms of land, labour, financial markets, infrastructure and regulation have been lagging significantly. The government has tried to liberalize land acquisition, and is looking to reform labour markets along with states.

LabourNew labour laws have been passed in Rajasthan, Madhya Pradesh and Haryana, which allow hiring and firing of workers if the employee

strength in the firm is less than 300 workers. This is the case of 95% of all firms in India. A national law, based on the Rajasthan state law, may be introduced in the parliament this year.

Financial InclusionThe government aims to bring in effective targeting of subsidies with Jan Dhan Yojana, Aadhar, Mobile trinity strategy for financial inclusion. About 22 crore bank accounts under Jan Dhan Yojana have been opened which can push cash transfers.

Make In IndiaWith the campaign, the government is looking to raise the share of manufacturing in GDP (17% currently). An effort has already started in that direction with the passage of the Bankruptcy Code, which makes winding up of companies easy and hassle-free.

The government is looking at the reduction of corporate taxes to the level of East Asian economies of 25% in the next four years, which would make Indian products competitive in the global market. The process has already started in the 2016-17 Budget with a 1% reduction in taxes to 29%.

LandThe UPA government had passed the land acquisition bill, which required the consent of 80% farmers before land could be sold to the government. This bill was amended by the NDA government in 2015, passed in Lok Sabha, but is pending in Rajya Sabha due to opposition from the Congress. The bill may be revived after the state elections in Punjab and Uttar Pradesh. The real estate bill passed in Lok Sabha paves the way for transparency and accountability in the sector.

To sum up, there is no ambiguity over the direction of the reforms in India, whoever may be in power. However, it’s a long road aheaD.

financial statement is the face of a company. And for many companies, it is the only document on

the basis of which important investment decisions are taken. However the credibility, ease of understanding and reliability of financial statements depends solely upon the accounting rules and policies of the respective countries.

India follows its own accounting

A standards. It is commonly known as Indian Generally Accepted Accounting Principles (IGAAP). This is precisely why there is a growing need to integrate Indian accounting and financial reporting practices with internationally followed accounting practices in the light of increasing globalization of businesses and need for common practices that will help attract international investors.

For instance IFRS or International

Financial Reporting Standards is a common accounting practice followed by most developed and developing countries. To put it in perspective, about 140 countries follow IFRS globally. Surprisingly, the US, Japan and India are three countries that do not follow IFRS.

CONVERGING FOR THE BEST

A common reporting and accounting practice is considered to be far more

A Difficult TransitionThe shift from the current reporting format for financial

results based on Generally Accepted Accounting Principles (GAAP) to Indian Accounting Standards Rules or IndAS Rules

will be bumpy for most Indian companies



with the globally-recognized IFRS will be a good start. This is also considered to be critical for improving India’s ranking in the global markets on corporate governance, transparency and financial reporting.

Indian markets and companies have been often debated over poor transparency and accounting frauds internationally. There are many large global investors who have stayed away from the Indian markets because of their perception of poor accounting practices and transparency, especially since Indian companies are closely-held and promoter-driven.

Thankfully, India is now converging its accounting standards with the IFRS, and it will now be known as Ind-AS to reflect the globally followed practices. This will eliminate common disparities in reporting and evaluation of financial statements of companies.

DEVIL IS IN THE DETAILS

This will have a significant impact on financial statement and balance sheet of Indian companies. For instance, under the existing set of accounting standards, the sales or revenue figures of a company, is arrived at after deducting excise and other duties.

However, following the implementation of the new Ind-AS revenues will include excise and other duties or gross sales will be the reported sales figure of the company. This will have a huge impact on the sales of companies like ITC and others who pay a large amount of duties on sales like excise duty.

Similarly, existing rules allow part of the advertising, sales incentives and promotions as part of sales. However, under the new set of rules, they will

be deducted from sales, which will reduce sales and increase the expenses, thus impacting margins of companies. Overall, financial pundits believe that this will increase sales of Indian companies by about 4% to 5% while hitting their EBIDTA or operating profits by 2% to 3% at the same time.

Moreover, from India’s point of view, under the new norms assets and liabilities such as contingent liability, goodwill will be recognized at fair value rather than book value. This will lead to volatility in assets and liabilities, and to some extent volatility in earnings too.

However, this will marginally eliminate the confusion about assets and liabilities that are often abused for having overstated or understated in the books. Losses caused by foreign exchange fluctuations are often transferred to balance sheets while capitalizing the same.

Companies will have to now recognize the same in the profit and loss account. Most companies which have foreign borrowings and exposure to international markets will be impacted.

Besides, new norms advocate indefinite life for intangible assets like trademark, brands as against fixed life in the present case. This will allow or provide companies an extended window to amortize assets, thus reduce the impact on earnings.

Likewise, current investments such as investments in shares, mutual funds and other securities will be valued at fair value instead of valuing them at cost or market value whichever is lower, at present. This will have a huge bearing on companies that often park their cash in these instruments whose value is generally not shown in the balance sheet.

robust and easy for the world financial community as far as integration of financial institutions is concerned. Effectively, irrespective of the country in which a company operates, its financial statements, reporting requirements and disclosure and evaluation of such financial transactions will remain the same, thus allowing each and everyone to interpret and compare these statements more effectively.

People can apply the same set of understanding across companies and countries because of the similarity in the reporting and evaluations of numbers. Today, financial data has gained global importance; one can compare the financials of an Indian company with the financials of other peer group company in Europe and the US over Google, Yahoo and other data providers.

This will only increase with the passage of time and integration of global financial data becomes a reality. There will be common platforms, which will allow people to scan companies in several countries and industries without calculating numbers separately or making several tedious adjustments in the reported financial data.

Currently, there are a few large companies in India that voluntarily declare their results both in the IFRS format as well as IGAAP for the sake of convenience.

In some cases, the difference in sales, operating profits, debt to equity, return on equity is huge, which is a clear indication of the impact it will have on some of the listed companies and their return ratios as they implement the new accounting and reporting norms.

While it may be late on part of India, integrating our accounting standards


Further, things like consolidation of accounts will be impacted. Under existing accounting standards, the consolidation of subsidiaries takes place on the basis of legal ownership. But based on new norms, it will reflect on the basis of control.

Similarly, many companies do drive significant business through foreign and domestic joint ventures, whose business is presently recognized or consolidated based on a proportionate basis. However, new norms say that these joint ventures will need to be consolidated in the books, which will effectively hit sales and operating profits of the company.

Now even if a company does not have a subsidiary, it will have to consolidate its accounts to reflect the performance of joint ventures. Earlier, however, the companies used to escape.

Often performance of other smaller joint ventures used to go unnoticed. These joint ventures are frequently abused for using as vehicle for

undertaking non-related operations and transferring losses, etc, which are often not recognized and not consolidated. With new norms there will be pressure on such companies to consolidate joint venture operations.

Companies often hold their own shares in treasury, which are bought through buybacks or repurchases, etc. Under new norms, these treasury shares will be excluded from the equity capital, which means that the number of shares will drop, leading to higher EPS at the same time increasing the return on equity as a result of reduction in capital.

Similarly, redeemable preference shares, which are considered to be a part of equity, will now be treated as a liability and the dividend declared on the same will be treated as interest. Besides, under existing norms, Employee Stock Ownership Plans (ESOPs) given to employees are typically valued on intrinsic or fair valuations. However, under the new norms they will have to be valued on fair valuations, which will impact

earnings of a company. A BIG TASK

While this is a good step, it will be a huge task for a number of Indian companies to integrate and implement the new norms.

In fact, recently market regulator SEBI gave an extension of one more month to listed companies to report quarterly results for the quarter ended June ’16 and September ’16 so that they can comply with the new norms. Initially under phase one, companies with a net worth of more than `500 crore will have to comply with the new norms.

It is estimated that close to 350 companies out of BSE500 will be covered on the basis of net worth, which is a good way to start with as these companies are globally tracked and researched. In the second phase, that is FY18, companies having a net worth of equal to or more than `250 crore will have to comply with the new normS.

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n 19th July, the government decided to pump in `22,915 crore into 13 public sector

banks. As much as 75% of this would be paid immediately; the remaining amount would be linked to the bank’s performance. The government has thus frontloaded the public sector bank (PSB) capital infusion program for the current fiscal. Frontloading of capital is important for three reasons: One, PSBs are saddled with bad loans. Bad loans need higher provisions, thus higher capital. Two, weak credit growth is haunting the banking industry. More regulatory capital needs to be kept aside if banks want to grow and lend

O more. Three, banks need capital to meet Basel III requirements by 2019. Under Basel III norms, Indian banks need a capital adequacy requirement of 10.5% by 2019. Basel III rules are international banking norms that Indian banks will have to abide by for a prudent banking system.

Also, frontloading of capital for PSBs makes sense as any meaningful economic recovery would need bank support. After all banks have to fund those infrastructure projects!

THE PLAN

The government had promised PSB recapitalization to the tune of `25,000 crore for fiscal 2016-17 in the Union

Budget. This is in line with the seven pronged strategy called “Indradhanush” adopted by the government in August ’15 to revamp India’s state-owned banks.

As planned, the government will infuse `70,000 crore in PSBs from FY16 till FY19. An amount of `25,000 crore will be infused in phases during FY16 and FY17. Further, `10,000 crore will be infused in PSBs in FY18 and FY19. IS THIS ENOUGH?

According to government estimates, PSBs will need `1,80,000 crore of additional capital over the next four years. Of this amount, the

LENDING SUPPORTTo improve liquidity and aid lending operations, the government has allocated `22,915 crore as

capital infusion in 13 public sector banks



To balance fiscal pressures and provide capital support at the same time to PSBs, reform measure like ‘Indradhanush’ is vital. (Last year’s August issue of Beyond Market has covered the entire plan in detail.) As per the plan, the government is working on forming a Banking Investment Holding Company (BIC) structure that will hold the government’s entire PSB stake in BIC.

BIC will ensure autonomy of PSBs and at the same time the government can ease stakes in them in a hassle-free manner. Remember, the government intends to reduce stakes in PSBs. But it still wants to retain majority shareholding. BIC can be a game changer as far as capitalization of PSBs is concerned.

Most importantly, the government will have no role in appointing senior staff of PSBs, which has been a controversial subject as it is arbitrary and fraught with corruption. BIC is not a new concept as many countries have such holding companies for public sector companies. For instance, in the UK, the government has set up UK Financial Investment Ltd as a holding company.

Since BIC will need necessary approvals from the parliament, which is a long-drawn process, the government has set up Bank Board Bureau (BBB), an autonomous body of committee members that will guide PSBs in terms of human resource hiring, operations, capital-raising and bank mergers.

In A Nutshell

Some 27 PSBs, having 70% market share in terms of asset size, play an important role in the economy. In order to preserve capital, most PSBs have shied away from lending and increasing their balance sheet in the recent past. The next phase of India’s growth after the current lull will need support from PSBs, else growth will chokE.

government plans to pump in `70,000 crore into PSBs and the rest `1,10,000 crore will have to be raised by banks by tapping the market by selling equity shares or bonds to investors. A credit growth of 12% to 15% in the next four years has been assumed for these estimates.

Many analysts feel that the allotted capital will fall short of the requirement by at least `50,000 crore. They fear that the bad debt in the system has not yet peaked. This will need more capital provisioning. Gross non-performing assets are 9.7% of overall assets across PSBs. With restructured assets, the number is even higher.

Also, PSBs will not be able to fall back on their internal accruals as their profitability is weak. PSBs cumulatively have reported losses of `180 billion during FY16, resulting in erosion of considerable net worth in most PSBs.

Further, balance sheets of PSBs are not yet in good shape. So, no investor would jump in to buy any equity or debt offerings from PSBs.

BANKING INVESTMENT HOLDING COMPANY

To be sure, the government has never shied away from supporting PSBs in terms of their capital requirements. However, the government does have fiscal pressures. It cannot pump in tax payers’ money endlessly in state-owned banks that are inefficient and loss-making.

Source:

Name Of BankAllahabad Bank Bank of IndiaCanara BankCentral Bank of IndiaCorporation BankDena BankIndian Overseas BankPunjab National Bank State Bank of IndiaSyndicate BankUCO BankUnion Bank of IndiaUnited Bank of IndiaTotal

441784

9971729

677594

31012816757510341033

721810

22915

Allocation of Capital

Capitalization In The Past

Capital infusion from the government comes at a price - higher fiscal deficit. Perhaps this is the reason why the government has been cautious about providing continuous capital in the past.

In FY15, even though `11,200 crore was allocated for the purpose of capital infusion, only `6,900 crore was infused into nine PSUs based on their performance. The government has infused more than `81,000 crore capital in PSBs in the past 15 years, a majority of which was pumped between 2010 and 2014.

Amount (` in crore)

ABIG

CHANGEThe monetary policy

regime in India is expected to witness a

makeover in the coming months



current target is 6% there is speculation that the government could relax the target keeping in mind the growth objective.

CURRENT CHALLENGES

Following are a few of the near-term tasks for the Reserve Bank and future monetary policies can take shape based on these tasks.

Inflation Vs Growth: While on one side, holistic growth revival seems distant, inflation is raising its ugly head. Inflation measured by CPI is at 5.7% for June, above RBI’s March ’17 target of 5%.

Even the government’s acceptance of the 7th Pay Panel suggestions is inflationary in nature. Balancing growth and inflation expectations would be factored in the future monetary policies of the RBI. Real Interest Rate: Keeping real interest rate (interest rates after deducting inflation effects) in the positive territory is going to be a huge task for the RBI in the near future.

After staying in the positive zone after many years in the last one odd year, there are worries that higher inflation will once again drag real interest rates in the negative zone.

This will force investors to move to unproductive assets like gold and real estate. If the RBI cuts rates, banks will cut deposit rates. With inflation higher, depositors, especially senior citizens and pensioners will bear the brunt in the form of lower or negative real interest rate.

FCNR Redemption: Though a known event, a likely redemption of over $20 billion due to maturity of foreign currency non resident (FCNR) deposit scheme in September- November is a macro

ith Dr Raghuram Rajan planning to quit the Reserve Bank of India (RBI) - RRexit -

on the completion of his three year term in September, market focus has shifted to the future course of the monetary policy in India.

Some section of the market has been worried about political interference in framing the monetary policy. Credibility of the central bank, policy continuation and macro stability are also feared to be at stake.

However, amid negative sentiment, the monetary policy regime in India is all set to witness a facelift in the next few months. One, very soon a monetary policy committee (MPC) will be formed that will decide the policy stance in the future. Two, the RBI will have to achieve an inflation target and will be accountable for any misses.

While the RBI has already been functioning as a de facto inflation targeter since January ’14, the monetary policy committee (MPC) will be set soon.

The article looks at these two moves and lists some near-term challenges for the RBI.

THE MONETARY POLICY COMMITTEE (MPC)

The RBI and the government of India signed a Monetary Policy Framework Agreement on 20th Feb ’15. It envisaged forming a monetary policy committee to take policy decisions.

The concept behind MPC is that a committee taking decision is more transparent and carries more value as against the current practice of the RBI governor having a final say on monetary policy decisions. This

W practice is globally followed. For example, the Federal Open Markets Committee (FOMC) of the United States Federal Reserve (US Fed) takes the monetary policy decisions for the US.

On 28th June the government elaborated some of the details of the monetary policy committee (MPC).

The MPC will be a six-member committee comprising of the RBI governor, a deputy RBI governor and one more RBI official. Rest three members will be government appointees. Members will meet at least four times a year and will have a four-year tenure as members.

The MPC will work towards determining the policy interest rate required to achieve the inflation target as decided by the government and the RBI. The MPC will be constituted in a few months time.

Importantly, in the event of its failure to meet the inflation target, the RBI would issue a report to the central government outlining the reasons for the failure, remedial actions proposed and the estimated time period within which it anticipates achieving the inflation target.

INFLATION TARGET

In the monetary policy framework agreement signed by the government and the Reserve Bank in February last year, the inflation as measured by consumer price index (CPI) is targeted as: below 6% by January ’16 and 4% with a band of +/-2% till March ’17 and all subsequent years. The MPC will work towards meeting this CPI inflation target.

It helps to mention that the CPI inflation target will be reset by the government in consultation with the RBI every five years. Though the


economic risk for India. A special three-year FCNR deposit scheme for non-resident Indians (NRIs) and people of Indian origin (PIO) was announced by the RBI in September ’13 to stop the free fall of the Indian currency against the US dollar.

Back then, fears of the US Fed withdrawing quantitative easing had spooked currencies across the emerging markets. Then, the Indian rupee was badly hit.

As the three-year period ends in September, there are concerns that redemption of these deposits could lead to substantial outflows impacting

the rupee, and other asset classes. Though foreign exchange reserves of $360 billion are good enough to cover imports for 10-11 months, volatility in the current market can lead to a drawdown of reserves, impacting India’s macro stability.

Any rapid deterioration of the global situation that coincides with the FCNR redemption period will complicate matters for the economy and the markets.

IN A NUTSHELL

Monetary policy in India, so far, is construed as opaque with little

accountability for policymakers. Both inflation targeting and formation of MPC are global standards.

The new monetary policy regime will bring more transparency, predictability and most importantly less discretion — leaving no room for individual personality to call the shots. This augurs well for the Reserve Bank as an independent and autonomous body.

The new era will also keep any political interference in policymaking at bay. Clearly Indian monetary policy is up for a major change in the next few monthS.

Monetary Policy Overview

Setting the monetary policy is one of the important functions of the RBI. Other functions being banking regulation, foreign exchange management and currency management.

Using various instruments (like repo rate, open market operations and reserve system, among other tools) the RBI controls money supply, thereby controlling consumption and interest rates in the system.

Increasing money supply leads to lower interest rates, which the stock markets like, as discretionary spending boosts growth. But this might lead to unsustainable inflation, which is not good for macro stability in the longer run for a country. To this effect, the RBI tightens liquidity and raises interest rates leading to higher interest rates in the system. And the cycle continues.

Here the job of the RBI, through its monetary policy, is to balance both inflation and growth objective and ensure credit requirements for different sectors of the economy.

The RBI also has to fight one more dilemma - lower interest rates as favoured by companies and stock markets on one side and depositors (senior citizens) on the other side that favour higher interest rates.

Broadly, this is how the monetary policy is decided, that is, on the basis of forward-looking assessment of inflation, growth and other macroeconomic risks, the RBI sets the repo or the policy rate. The RBI also tinkers with various other tools to control liquidity in the system. Repo rate influences banks lending rate, which in turn, influence aggregate demand - a key determinant of inflation and growth.

Very soon a Monetary Policy Committee (MPC) will fix the policy rate to achieve the inflation target. And most importantly this MPC will be accountable for the decisions. This is against the current practice of the RBI Governor calling the shots, sometimes unpopular, locking horns with the government as the latter favours lower interest rates to see higher GDP growth under its rule.

ith competition getting steeper by the day, Fast Moving Consumer Goods

(FMCG) companies are focusing on entering new categories to drive growth and their focus is clear - health food - as consumers are willing to pay a premium for better and healthier

W

HEALTHYGROWTH

A number of FMCG companies are focusing on health foods to

drive growth

products. Indians are willing to trade up more in categories such as health and food more than leisure, beverages, apparels, home care and personal care, according to a recent survey by the Boston Consulting Group (BCG). As many as 39% respondents, who participated in the survey, said they would consciously

spend more to get a product that was better than the rest in health, which BCG said was a sign of trading up. Food came next with 36% respondents saying they were willing to trade up, the consultancy added.

Experts said that consumers in health and food were trading up in two ways.



An analyst tracking ITC said the company has been entering the crowded and polarised categories in the food business and has achieved success. “ITC may give good competition to Nestle and Amul in dairy whiteners, the way it has done in instant noodles and packaged snacks,” the individual said, requesting anonymity. As per AC Nielsen data sourced from the industry, Nestle’s Everyday has around 48% share and Amul’s Amulya has a 38% share in the dairy whitener segment.

Hindustan Unilever too is focusing on health food and natural segments. The company has not yet mentioned in which categories but is working on it. In the June quarter Hindustan Unilever’s refreshments saw growth of 5.4% from a year ago; EBIT growth was 7.5% from a year ago while EBIT margins expanded 31 basis points from a year ago.

In the tea category, Lipton Green Tea and the Natural Care portfolio-led growth through market development; Coffee maintained its strong competitive position in a deflationary cost environment. Ice cream and frozen desserts delivered another quarter of robust growth, driven by distribution expansion and sharper in-market execution.

Food business saw a growth of 4.7% from a year ago; EBIT dipped by 20.7% from a year ago while EBIT margins declined by 203 basis points from a year ago. Kissan sustained its strong growth on ketchups, while Knorr delivered robust growth on instant soups and noodles.

HUL reported a 9.79% increase in stand-alone net profit at `1,173.90 crore for the first quarter ending June, driven by growth across all segments and improvement in margins.

recently relaunched the atta variant as well as Patanjali. As per last publicly available data, ITC is the second largest brand in instant noodles with around 33% to 34% market share having gained ground when Maggi was off-the-shelves for few months last year due to a temporary ban by the nation’s food regulator Food Safety Standards Authority of India (FSSAI). After its relaunch though, Maggi continues to dominate more than half of the `2,000 crore instant noodles market.

Experts said after the instant noodles controversy, companies are looking at ways to build customer connect that their product is safer. In such a scenario, launching an atta variant is the right thing to do to give it a healthier spin.

ITC has also stepped into the dairy whitener market with its Sunfresh brand, its second offering in dairy business, after it entered the space last October with packaged ghee.

With this, the Kolkata-based company intensified its rivalry with Nestle and Amul, the two largest companies in the dairy whitener segment, which together account for more than 85% of the market.

The company has launched Sunfresh in the North-East, the largest market for dairy whiteners valued at over `380 crore due to milk deficit in the region. More than 60% of the dairy whitener business is generated in the North-East, West Bengal and Kerala, according to Nielsen data. ITC had earlier said that it is exploring areas such as ice-cream, butter, cheese, curd, milk-based drinks and ready-to-mix products similar to Complan and Horlicks as part of its dairy business.

One was they were consuming more value-added products and second was they were willing to pay a price premium for select brands. Marketers could win in premium foods if they had a discernible difference in product quality, had a focused approach to advertising and marketing and concentrated on modern trade. Experts say the key is to tap aspirers and affluent consumers and help them find occasions where they can spend on premium products. Advertising and marketing will, therefore, have to be tailor-made keeping this objective in mind. In recent years, the focus of FMCG companies on premium end of the market has only grown even though consumer sentiment has been tepid on account of inflationary pressures. Therefore, it not surprising that companies like ITC, HUL and Dabur, among others are constantly focusing on innovation and healthier food categories for growth.

There has been a lot of concern in the FMCG industry after Patanjali’s revenues crossed `5,000 crore on the back of increased focus on health following the ban on Maggi noodles. Experts believe Patanjali is a strong competitor in spaces of personal care, food and health.

FMCG major ITC is soon going to expand its Sunfeast Yippee! brand of instant noodles into the atta-based variant and will create a complete portfolio of such products including a multigrain one to build a health quotient for a category, which recently was shrouded in controversy regarding product safety. The company plans to focus on healthy and nutritious food products and is aimed at competing with market leader Nestle’s Maggi, which


Hindustan Unilever’s net sales were up 3.56% from a year ago period at `7,987.74 crore. Domestic consumer business growth was at 4%, with 4% underlying volume growth and operating margin expansion by 70 basis points. The growth was broad-based across segments, HUL said in a statement.

The company has also announced an investment of about `1,000 crore to set up a new manufacturing unit at Doom Dooma in Assam.

Another competitor of Patanjali, Dabur too is focusing on product innovation in ayurveda and health categories to drive growth. Dabur has products like honey, chyawanprash, Meswak tooth paste, hair oil, skin care, which directly compete with Patanjali Ayurveda’s items.

“Our domestic FMCG business ended Q1 of 2016-17 with an underlying volume growth of 4.1% even in this tough environment,” Dabur India Ltd

chief executive officer (CEO) Sunil Duggal said. “We are pursuing a prudent growth strategy and have taken steps to efficiently manage the emerging risks and challenges as well as protect our turf in the face of intensifying competitive pressures.

“Despite a sharp fall in growth rates in most consumer product segments, Dabur continues to focus on brand-building while leveraging its strong herbal heritage and positioning as the ‘Science-based Ayurveda’ specialist. This, we feel, will enable us to consolidate our market position as also pave the way for future growth,” Duggal maintained.

He added that the company’s oral care business, riding on strong demand for both tooth pastes and tooth powders, posted a near 12% growth during the first quarter of 2016-17. Dabur’s foods business ended the quarter with an over 4% growth, while the Home

Care business reported an over 2% growth. The international business reported a near 6% growth, led by Nepal, Egypt and Turkey. Dabur India has posted a consolidated net profit of `292.8 crore for the quarter ended 30th June, up 11.8% from `261.8 crore in the corresponding quarter in the previous fiscal. But due to strong macroeconomic headwinds, its consolidated net sales grew by a mere 1.2% to `1,923.9 crore.

Dabur is also focusing on aggressive expansion of its manufacturing capability and will be investing `500 crore within the 2016-17 fiscal to establish new production units as also expand its existing plants in India and countries abroad. Further with a healthy monsoon across the country, demand for FMCG products is expected to revive on the back of improved earnings in the hands of consumers in rural areaS.

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New banks comprising of small finance banks and payments banks that are likely to start

operations soon could give existing lenders a run for their money



The RBI projected that gross bad loans at commercial banks could increase to 8.5% of total advances by March ’17 from 7.6% in March ’16 in its financial stability report.

Rising NPAs have impacted growth of public sector banks in 2015-16 to a great extent.

According to the RBI, public sector banks’ non-food credit growth has been falling relative to credit growth from new private sector banks like Axis Bank, HDFC Bank, ICICI Bank, and IndusInd Bank since early 2014.

The slowdown in loan growth is not only to industry but also in micro and small enterprise credit, agriculture. The question is if the slowdown is due to the lack of loan growth, then why is it not visible for private banks?

According to the RBI data, for public sector banks, loans grew at 4% while it was 24.6% for private banks in financial year 2015-16. Deposits of state-run banks grew by 5.2%, while for private banks it was 17.3%.

“The more appropriate conclusion is that public sector banks were shrinking exposure to infrastructure and industry risk right from early 2014 because of mounting distress on their past loans,” said RBI governor Raghuram Rajan in a speech recently.

“Private sector banks, many of which did not have these past exposures, were more willing to service the mounting demand from both their traditional borrowers, as well as some of those corporates denied by the public sector banks.

“Given, however, that public sector banks are much bigger than private sector banks, private sector banks cannot substitute fully for the slowdown in public sector bank credit. We absolutely need to get

ndia’s banking landscape is dominated by state-run banks with a market share of 70%. This is, however, changing fast.

Over the next 8 months or so, 17 new banks will start operations. Of these, nine are small finance banks and eight are payments banks. One small finance bank - Jalandhar-based Capital Small Finance Bank – has already started its operations.

In August and September of 2015, the Reserve Bank of India (RBI) – for the first time – granted in-principle licence to 11 payments banks and 10 small finance banks. These banks have to start operations in 18 months. Three entities that received licences for payments banks, however, have dropped out.

While these banks are not full-service banks, they could give the existing lenders a run for their money.

Payments banks, for example, are not allowed to lend but can accept deposits – which can give competition to existing banks in resource mobilization. The main objective of payments banks is to provide remittance facilities and they are also allowed to distribute simple insurance and mutual fund products.

Some of the entities that will start payments banks are mobile wallet players Paytm, telecommunication players like Bharti Airtel and Vodafone as well as big corporate houses like Reliance Industries.

Interestingly, Reliance Industries has entered into a joint venture with the State Bank of India, the country’s largest lender, for its payments bank.

On the other hand, the main objective of small finance banks is to extend loans to small households and small businesses, which existing banks are

I apprehensive to lend to as they do not see the proposition viable or the margin accretive.

But small finance banks - most of them started their businesses as micro finance institutions - see the proposition as viable because they have developed their systems and processes to cater to the bottom-of-the-pyramid customers.

Investors have already taken a note of the potential that small finance banks have for growth. Two of the ten entities that have received licence to start a small finance bank – Ujjivan Financial and Equitas Holdings – that came out with an initial public offer – received quite a healthy response from the investors.

Public sector banks, on the other hand, reeling under pressure of non-performing assets (NPAs) saw their valuations remaining subdued.

Shares of most public sector banks are trading at a discount to their book value. Most public sector banks suffered heavy losses in the last two quarters of the previous financial year (2015-16) due to mounting bad loans.

Some of the lenders like Bank of Baroda, Punjab National Bank and Indian Overseas Bank have suffered record losses in the fourth quarter.

As a result of the sharp increase in non-performing assets, public sector banks’ capital position could have worsened but RBI’s decision to revalue their fixed assets saved the day for these banks.

Data shows there was an almost 80% jump in gross bad loans in 2015-16. Gross bad loans of Indian banks widened to 7.6% of gross advances as on 31st Mar ’16, from 5.1% in September ’15 and from 4.6% in March ’15.


Napoleon Option

It is an OTC-traded financial instrument that allows the holder to take views on the volatility of a market. In its simplest form, a Napoleon option has a single payoff coupon payable at expiration date. The payoff coupon consists of a fixed coupon and the minimum return of an underlying index over specific reset or fixing dates.

If the option is capped, the holder will receive the lower of the cap level and the sum of the fixed coupon and the best index return. If the option is floored, the holder will receive the larger of the floor level and the sum of the fixed coupon and the worst index return. Adding a floor to a coupon or index performance will increase the option’s price, whilst adding a cap will have the opposite effect. In more complicated Napoleon options, the single payoff coupon may be based on the performances of many indexes, each of which is the sum of a fixed coupon and the worst return of the index over a specific observation period. Likewise, the multiple performances can be capped or floored or both. Complicated Napoleon options have multiple payoff coupons, each of which is based on multiple performances. The performances and the coupons can be capped or floored or both.

public sector banks back into lending to industry and infrastructure, else credit and growth will suffer as the economy picks up,” Rajan added.

The worst is far from over as far as profitability is concerned for public sector banks. This is because these lenders have to increase provisioning for accounts that were identified as weak in the asset quality review (AQR) of the RBI.

Most of these accounts have been restructured in the past but they continue to stay weak as repayments are not regular.

The Reserve Bank of India has now asked banks to increase provisioning from 5% to 15% by March ’17 that is by 2.5% every quarter for the four quarters in 2016-17. This will put further pressure on the balance sheet.

In addition, the loans that are already classified as sub-standard will slip further to the second and third category of NPA. Sub-standard asset is the first category of NPA, which attracts 15% provisioning. If interest or principal is still not paid,

then the loan becomes doubtful, which attracts 40% provisioning and then becomes a loss account, with 100% provisioning.

So, banks will need to make higher provisioning as an NPA ages, if they are not able to resolve the stress and bring back the project on track.

In this context, the entry of several new banks is set to challenge the incumbents. The small finance banks (most of which are micro-finance institutions), that have already caught investors’ fancy due to their robust business model, can give competition as far as lending in the retail segment is concerned.

The recent acquisition of Grama Vidiyal - a Trichy-based micro lender by the newest private sector bank of the country - IDFC Bank - is a testimony to the way the market perceives these financial entities.

IDFC Bank acquired the MFI in an all-cash deal. Grama Vidiyal has a loan book of `1,502 crore with 1.2 million customers primarily in Tamil Nadu, Puducherry and Kerala, and in parts of Karnataka and Maharashtra.

Similarly, payments banks are aiming to change the payments ecosystem, which are expected to operate an ultra low-cost model where volumes will play a crucial role.

Though three entities that had received licences to start payments banks have dropped out citing competition and long gestation period, others are gearing up to accept the challenge head on with state-of-the-art technology.

The way forward for state-run banks, therefore, is to enhance their risk management practices by tightening loan approval processes.

Also, they have to focus more on resolution processes like strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A) so that sub-standard assets should not slip into doubtful or loss category, which will then call for higher provisioning.

The owner of these banks, that is the government, should speed up reforms in the public sector banks, so that the recovery process becomes more meaningful for iT.

ndia’s textile industry has been in the news for the past few years. It began with the BJP-led government’s focus

on the ‘Make In India’ campaign.

The primary motive of this campaign is to make India one of the hubs for production instead of being a mere exporter of goods and talent. Due to this focus, the government showed keen interest in developing policies related to the sector.

I One of the key policies the government has proposed pertains to the garment segment, a part of India’s textile industry. The government has brought in striking transparency in the way taxes will be levied on manufacturers of garments in the coming quarters.

Will this step strengthen India’s position in the global garment industry where its market share has been dwindling? To understand this,

we have to look at the journey of India’s textile industry and why its dream of becoming a textile giant has thus far remained only a wish.

THE BASICS

India’s textile industry can be classified into the following segments: manufacturing of yarn, manufacturing of cotton, manufacturing of fabrics, manufacturing of garments and

PERFECTWEAVE

The government has come up with a comprehensive plan to revive the textile

industry in India



trade. This is despite the fact that India has the advantage of abundant supply of cotton. Also, India has expertise in the manufacture of apparel with embroideries, trims, and patchworks, which are often used in children’s wear, especially garments for girls.

Furthermore, India has the capability to meet design and product development requirements of the western market, which makes the country a sourcing destination for buyers and buying offices that outsource designs from suppliers. THE POLICY

To address this issue, the government announced initiatives in the garment segment of the textile sector. These initiatives are expected to make India’s garment-exporting companies globally competitive.

There are two critical incentives announced by the government. First, the government has proposed to provide refund of taxes (such as VAT, service tax, electricity duty), which garment-manufacturing companies pay to state governments.

Second, the government has increased the Textile Upgradation Fund Scheme (TUFS) subsidy for garmenting by an additional 10%. Both these measures are expected to make costs of running operations for garment-manufacturing companies a bit economical.

The inclusion of state-level taxes in the computation of duty drawback will address a long standing demand of the industry, and will provide a major relief to exports. According to analysts’ estimates it will result in huge savings of 3% to 4% of sales for garment-exporting companies.

Also, with the TUFS subsidy, the

amount paid by companies to buy machines and other equipment would be reduced further. With the increase in subsidy to 25% from 10%, garment-manufacturing companies would save 25% on the cost for buying machines and other equipment required for manufacturing.

In the period between 2009 and 2014, India’s garment exports grew at a Compound Annual Growth Rate (CAGR) of 8%. In the same period, exports from Bangladesh and Vietnam grew 18% and 20%, respectively. Due to this, at present, India’s share in the global apparel exports stands at 3.5% as compared to 6% of Bangladesh.

Due to the aforementioned savings, garment-exporting companies such as Arvind, Aditya Birla Fashion and Retail, Kitex Garments, Raymond, and Gokaldas Exports, which have reasonably good exports of garments, are expected to ramp up their capacities and export more garments. Apart from this, to promote apparel exports the government has approved 12 locations to set up apparel parks for exports.

The government’s policy will have a few positive consequences. One, business of garment-manufacturing companies will receive a boost in terms of higher sales as tax outgo comes down due to duty drawback. The main reason for this is that Indian garment- manufacturing companies would have to pay higher duty on the export of garments.

Textile Secretary Rashmi Verma recently pointed out, “As far as exporters were concerned, we were giving them duty drawback to cover the central levy, but the state taxes were, however, not being covered. Through the special package, we have covered that. We have set aside an amount of `5,500 crore for duty

branding and retailing. It is estimated that India accounts for close to 14% of the world’s production of textile fibres and yarns.

India is the largest producer of jute, second largest producer of silk and cotton, and third largest producer of cellulosic fibre. Besides, India has the highest loom capacity (this includes handlooms) with 63% of the world’s market share.

The domestic textile and apparel industry in India is estimated to reach US$ 141 billion by the year 2021 from US$ 67 billion in the year 2014. Increased penetration of organized retail, favourable demographics, and rising income levels are likely to drive the demand for textile. India is the world’s second largest exporter of textile and clothing.

According to a research, textile and apparel exports from India is expected to increase to US$ 82 billion by 2021 from US$ 40 billion in 2014. Towards this end, the contribution of readymade garments to exports will be the largest.

It is estimated that in FY15 the readymade garment segment had a share of 40% of all textile and apparel exports. In addition to this, the share of cotton and man-made textile in India’s total textile exports is 31% and 16%, respectively.

Despite this, India’s market share in the global apparel market is tiny. According to data presented by Apparel Export Promotion Council, it is estimated that in 2015 India’s share in global apparel trade was a meagre 2.8% while relatively smaller countries such as Bangladesh and Vietnam’s share in world apparel trade was 4% and 5% that year.

This shows that India evidently lags behind its peers in global apparel


drawback to cover the state taxes. We have taxes like Value Added Tax, Central Sales Tax and electricity duty, which will now be covered under the duty drawback so that our products will be very competitive in the international market.”

The introduction of this special package by the government will benefit garment-manufacturing companies in terms of employment generation and provide a distinct edge to their operations overseas.

Typically, in case of no duty drawbacks, garment-manufacturers pass on the duty to buyers of goods. With the introduction of duty drawback, Indian garment-

manufacturers would be able to compete with garment manufacturers from Bangladesh, Cambodia and Vietnam in the international markets.

Besides, the garment segment will also benefit from improved labour laws in India. The government has relaxed some labour laws to boost employment in the garment segment. For instance, employers’ contribution to the Employees’ Provident Fund Organisation (EPFO) will be given by the government for the first three years of the setting up of a unit for every employee.

Employees also have the choice of contributing to the EPFO if their salary is less than `1,500 crore. This

is a win-win situation for employers and employees.

The government has also allowed fixed-term employment in the garment sector given that it is seasonal. Most employees are hired for 6 to 7 months. They have been in the unorganized sector with no benefits. But with fixed-term employment, the industry can employ them for a fixed period with a contract and offer benefits.

Industry experts point out that this is going to affect workers in a huge way. Many states have already allowed night shifts for women. That too will go a long way in helping the garmenting segmenT.

THE BIGPICTURE

More and more multiplex companies are

heading into the hinterland to expand

and grow



Besides, operating profits of these companies have also grown at a CAGR of 42.7% in the last three years, reflecting the healthy impact of increasing footfalls and the resultant increase in average ticket prices.

A positive outcome of the growth in screen capacity and increase in average ticket prices is increasing contribution of exhibition companies in the overall box office collection in the last three years.

Analysts believe that the sheer increase in the number of films making `100 crore in the last three years can be attributed to the penetration of exhibition companies in the tier-II and tier-III cities.

Sector analysts point out that of the total domestic collections, close to 60% of the collections come from multiplex screens and the remaining from single screen theatres.

Taking into account this fact, it is no wonder that the number of films making over `100 crore collections at the box office has jumped to 22 at the end of first half of the present fiscal from 5 in 2011.

Apart from penetration in tier-II and tier-III cities, the other factor that has augmented domestic box office collection is the cost-efficient way of releasing films through digital distribution. Earlier, delivering physical prints would not ensure simultaneous release across cities in India. Today, due to digital distribution, exhibition companies can release films simultaneously across territories.

Industry experts point out that typically companies save one-fourth of their costs involved in sending 35 mm physical prints when they distribute films digitally. This has helped film producers to release

he multiplex industry is going through its best phase. Apart from rising box office collections of

films across genres and languages, two additional factors, namely, consolidation and change in perception of analysts and experts towards the film industry have brought multiplex companies into focus in recent years.

Due to consolidation, analysts and experts are categorizing multiplex companies under broad consumption theme. For the uninitiated, this may seem a bit outlandish. But with increasing number of screens, the logic seems appropriate. Here is a low-down on the same: CONSOLIDATION PHASE In the past five years there has been a wave of consolidation in the multiplex industry. Segment leader PVR acquired Cinemax. Inox Leisure acquired Fame India. Carnival Cinema acquired Big Cinemas and Cinepolis has done organic expansion. This consolidation in the industry took place along with organic expansion.

In the recent past, even as exhibition or multiplex companies embarked on considerable screen expansion through organic and inorganic routes, increase in the number of footfalls has proved lucrative for these companies.

As per data provided by exhibition companies each fiscal, the number of footfalls across properties has jumped by 2.2 times in the last three fiscals.

During the same period, the number of multiplex screens grew by over 50%. The number of footfalls for PVR, the segment leader in the exhibition industry, in the last three fiscals jumped by 2.2 times to 15.4 million in FY16. Its nearest listed

T peer Inox Leisure showed an equally encouraging growth of 2.1 times in the number of footfalls to 12 million in the same period.

Interestingly, this increase in the number of footfalls has come on the back of penetration of exhibition companies in tier-II and tier-III cities in the last three years. This improvement in penetration comes from tier-II and tier-III cities, which are emerging as those with rising purchasing power.

A point to note here is close to 90% of the screen expansion in these cities is in malls and the remaining is in standalone properties.

Inox Leisure, which has expanded its screen capacity to 420 in FY16 from 102 screens in FY11, has over 69% of its screen capacity dedicated to tier-II and tier-III cities.

Industry analysts say that in the last few years, there has been 15% to 20% growth in screen capacity as a result of which the industry is adding 250 screens to 300 screens every year in the last three years. For PVR, of the total expansion, 65% of screen expansion has been in the tier-II and tier-III cities.

Given this situation of business from emerging cities, exhibition companies have been prompt enough in increasing their average ticket prices in the last three years. On an average, exhibition companies have been increasing their average ticket prices in the range of 7%-8% to around ̀ 188 in the last three years. This, in turn, has boosted the revenue growth of exhibition companies in the period under consideration.

On an average, revenues of exhibition companies have grown at a compound annual growth rate of 35.2% for the last three years.


larger number of prints. Hence, they are able to do simultaneous release of films in metros and more deeply in tier-II and tier-III cities. This has helped boost overall revenue collection at the box office, especially in the opening weekend.

At present, there are 9,000 screens in the industry. Of these 2000 screens are that of multiplexes and of the remaining 7,400 single theatre screens, 6,500 are digitised, pushing the number of releases at a given point. So, the share of multiplex screens is abysmally low at 20% of the total capacity of the industry.

Analysts state that merely acquiring single screen theatres in tier-II and tier-III cities is not a sensible and viable option for expansion for exhibition companies. They feel that acquiring single screen theatres does not work for multiplexes.

First, there is an angle issue with single screen theatres. Second, there is vehicle parking issue as well. And lastly, there is increasing consumer inclination for multiplex-like environment and crowd.

Hence, going ahead, exhibition companies would have to either expand through standalone properties or by being present in malls. Expansion through standalone properties would not be a profitable option given exorbitant real estate prices. Hence, having multiplexes in malls seems to be a viable option.

In the near term, exhibition companies would face challenges due to the slowing down of construction activity in cities. Analysts believe that screen growth depends on growth in commercial real estate.

At present, there is slowdown in the construction of malls for the last one-and-a-half years. This may

hamper screen capacity of exhibition companies. However, over the long term, things seem positive for the exhibition industry given the under-penetration of multiplex companies in comparison with their western peers.

Sector experts say India is grossly under-screened. There are only 10 screens per 1 million Indians. Now, compare this with 35 screens per million Europeans and 125 screens per million Americans.

Exhibition companies at present are cautiously expanding and ensuring that their balance sheets do not get stretched. Crisil estimates that the number of multiplex screens is expected to double in 2011-16 to reach around 2,200 screens from 1,600 screens at present.

Currently, interest expenses of exhibition companies are at manageable levels. Inox Leisure’s interest expenses as a percentage of operating profit were 27% in FY13, while for PVR, its interest expense as a percentage of operating profit was 30% in FY13.

Going ahead, as these companies expand and complete the synergies of their acquisitions - PVR with Cinemax and Inox with Fame - their balance sheets might get stretched.

CONSUMPTION THEME

Due to this consolidation phase and deep attachment for films among Indians, in the past few years, the perception towards multiplex companies has changed considerably. Multiplex companies are not just part of the entertainment sector.

Analysts are classifying these companies under consumption stocks like FMCG companies where rising valuations are justified as the

certainty of earnings can be gauged from their screen presence and the line up of films in a year.

With close to 550 screens (25% of the industry’s capacity) and its presence in prime locations in metros (47 cities, 17 states), PVR continues to reign in the segment. This is why analysts believe multiplexes can command a premium.

In India, given the fact that films are one of the cheapest forms of entertainment compared with theatre and other avenues such as amusement parks, PVR, which accounts for over 30% of Hollywood box office collections and over 20% of Hindi films collections, is set to benefit immensely and is expected to clock higher revenue growth than its peers.

In the coming years, multilplexes will also benefit from maturing of its screen, which they built and acquired more than three years ago. In addition to this, revenues from box office and food & beverages and advertising will boost the topline of multiplexes.

For instance, PVR’s advertising revenues have grown at a CAGR of 32% in the past six fiscals to `214 crore. At present, advertising as well as food and beverages combined contribute 36.1% to its total revenues and in the coming years as the company’s screens mature in terms of operations, their contribution to total revenues is expected to be higher.

Also, this year’s second half has a good line up of Bollywood films such as Sultan, Dangal, Mohenjo Daro, Rustom, Banjo, Rangoon, Shivaay, Ae Dil Hain Mushkil and Bifikre along with a few spectacular films from Hollywood such as Conjuring 2, The Legend of Tarzan, Minecraft and Popeye, which would ensure higher box office collections for multiplexes in the countrY.


said emphatically.

However, for online platforms there are two riders, which have major consequences for their business.

Firstly, marketplaces cannot influence pricing of products and services on their platforms directly or indirectly; and the other is on any e-commerce platform one seller cannot contribute more than 25% of sales. Major players such as Flipkart and Amazon are already formulating strategies to find new ways of offering discounts and are restructuring their businesses.

For Amazon, the largest merchant selling most of its popular products was Cloudtail, which is owned by a JV between Amazon Asia and NR Narayana Murthy. But to not get into trouble with the government by flouting norms, Amazon is looking forward to new merchants to sell the most popular products.

The e-commerce giant has already added Cart2India Online, Amiable Electronics, Apptronics Retail, E-Mobiles, Okay Enterprises, GreenMobiles and S&S Company as its primary sellers. These sellers will sell smartphones exclusively available on Amazon.

Earlier Cloudtail was the exclusive seller of smartphones on Amazon. According to experts, change of sellers in smartphones is significant as it accounts for the largest share of sales for top online retailers, which accounts for almost 45% to 50% of sales while 20% comes from fashion.

Amazon already has huge plans for the Indian market. Jeff Bezos, chief executive officer of Amazon last month announced plans to increase investment in India from $2 billion to $5 billion. In March this year, it has set up a logistics company called Amazon Transportation Services

ith a population of over a billion people and an ever-growing landscape of e-

commerce, India has caught the attention of international companies.

The awareness of online shopping is rapidly increasing even in small towns and villages of India. Needless to say, international companies are seeing huge opportunities in the Indian market.

The entry of international companies will give a boost to the Indian economy. According to available statistics, in 2015 the e-commerce sector received around $5 billion in foreign investment.

After allowing 100% FDI in business-to-business (B2B) segment, in March ’16, the government of India finally permitted 100% FDI for market place model in the e-commerce sector.

Apart from increasing FDI, the Department of Industrial Policy & Promotion (DIPP) has laid down a few guidelines for e-commerce companies to follow.

For instance, a particular vendor’s sales cannot exceed 25% of the total sales on an e-commerce site, market place cannot sell or influence pricing of products so that there’s a level-playing field and guarantee or warranty of the products will become the sole responsibility of sellers.

According to Akash Gupta, partner and leader, regulatory, PwC, “This may require some of the operators to go on the drawing board to comply with the conditions.”

Prior to announcing FDI, the government had to work on a clear definition of e-commerce, inventory-based model and market

W place model, to clear the air over important issues such as taxation and foreign investment.

As per the new definition, in a marketplace model the company will act as a facilitator between buyers and sellers by providing digital and electronic network platform whereas in the inventory-based model, a company owns and keeps the goods in its warehouses.

Increase in FDI and change in regulations have generated mixed reactions. On the one hand international consultants are praising the move claiming it will bring in greater foreign investment into a sector that is set to grow from $16 billion to $70 billion by 2020.

On the other hand, the Confederation of All India Traders (CAIT) is not happy with it. CAIT believes this move will allow backdoor permit to global players and it marks a u-turn in the policy of the government. There are many who are questioning the new regulations, said Aamir Jariwala, secretary, E-commerce Coalition.

Sandeep Aggarwal, the founder and chief executive officer of Droom, who also founded ShopClues believes government has allowed FDI in a wrong segment.

“Marketplace was never in the purview of the government. What should have been done is allowing FDI in the inventory-led model, which would have been a game changer,” Aggarwal said.

Aamir Jariwala, secretary, E-commerce Coalition, believes the regulation will impede the growth of the sector. “Unnecessary restrictions on the number of sellers and placing sole responsibility on them for warranty and guarantee will throttle the growth of the industry,” Jariwala


Private Limited (ATSL) to deliver products directly to consumers as according to the company last mile delivery will increasingly be a crucial front in the war for leadership in India’s e-commerce industry.

The company’s Indian marketplace expects to sell goods worth over `12,000 crore ($2 billion) this fiscal. Apart from ATSL, Amazon has also launched EasyShip, an assisted shipping platform for 12,000 out of its 20,000 sellers where sellers can choose their courier partners, and ship even on the same day.

To further help sellers, Amazon recently opened a fulfillment centre in Sonipat, Haryana - the largest such warehousing centre in the consumer Internet business in the country.

According to the company, about 80% of Amazon sellers opt for fulfillment services by Amazon and over 1.3 million products are available for immediate shipping through fulfillment centers and it is also planning to open another center in Chennai.

While Amazon is transparent in its strategy, Flipkart on the other hand is keeping things secret. According to sources, Flipkart has identified at least four large seller entities that will help it comply with FDI regulations.

Out of the four sellers, two are Health & Happiness Pvt Ltd and Consulting Rooms Pvt Ltd. Other two will be

registered later this year. Like Amazon had Cloudtail, the primary seller for Flipkart was WS Retail, which sold majority of its products.

To follow the norms, Jabong is shifting from an inventory-led model to a marketplace model. Earlier, the primary vendor for Jabong was Xerion Retail who contributed to 90% sales. Xerion has been replaced by three more vendors - Bren Trading Pvt Ltd, Ravenna Fashion Pvt Ltd and Wearhouse Products Pvt Ltd.

The company already has a complex structure. Jabong started out as a platform owned by Jade e-services Pvt Ltd, which, in turn, was owned by Global Fashion Group.

Jade is a B2B entity, which received FDI and sold goods to Xerion who had the license to run Jabong.com through a lease granted by Jade. Xerion will now cease to exist while the license to run Jabong has been transferred to Novarris Fashion Trading Pvt Ltd, which is a wholly-owned subsidiary of Jade e-services Pvt Ltd.

According to sources, these new sellers are floated by the company itself and they will continue to work on the same terms and conditions as Xerion. Jabong was recently acquired by Myntra.

While companies such as Amazon and Jabong are trying to change their structure to comply with the new FDI

norms, Paytm could be in trouble.

In May this year, All India Online Vendors Association (AIOVA), which represents about 500 medium-to-large sellers on various e-commerce platforms, had sought clarification from the Department of Industrial Policy & Promotion (DIPP) on whether Paytm offering cash back over and above the seller-funded discount is within the purview of the latest FDI guidelines.

A seller says, “Cash back offers are either not at all discussed with sellers or is discussed only with select sellers. A select group of sellers benefit from the attractive cash back offers as their products become cheaper than the rest, influencing customers’ decision. This is a way of influencing pricing and not maintaining a level-playing field.”

But Sudhanshu Gupta, vice-president at Paytm, defended their offer by saying, “Everywhere in the world, including India, all financial services and payment companies incentivize consumers to use their products. Banks promote usage of their credit and debit cards by giving extra reward points and cash back.”

Similarly, AIOVA is also demanding a regulatory body for e-commerce marketplaces on the lines of TRAI, SEBI, and IRDA. It remains to be seen if the new FDI rules with its controversial riders will be beneficial for e-commerce playerS.

Inside Money

Inside money is the component of money supply in an economy, which consists of bank deposits. In other words, it is the money created by a private banking system against private debt. A central bank (or monetary authority) has little or no control over inside money, though, in theory, it can change the amount of cash (outside money) and directly affects reserve positions of banks in addition to their loans and deposits. In most countries, central banks impose on bank deposits a minimum level of required cash reserves. Inside money is sometimes called credit money.

Sovereign gold bonds are proving to be better than physical gold and gold ETFs

Bond With Gold



hat the shine of the yellow metal will lure Indians no matter what form they are sold in, is proven by the

fact that the fourth tranche of the Sovereign Gold Bond (SGB) Scheme fetched `919 crore worth of gold.

The concept of SGB was introduced in the last budget and was rolled out in November ’15, with the government planning to incentivize households to hand their gold over to banks in lieu of interest payments.

The fact that over `900 crore was collected in the fourth tranche despite the issue price being fixed at `3,119 per gram of gold is indicative of the fact that the product has found favour among Indian households.

THE LURE OF SGBs

The point to be noted is that SGBs have made a dent among the general public owing to the various advantages it offers.

These advantages include exemption of capital gains tax on redemption, possible use of collateral while making a loan application, no risk of theft or cheating with regards to impurities while dealing in physical gold, the ease of tradability on the exchanges and above all earning an interest of 2.75% per annum (paid on a half-yearly basis on the initial investment) and a sovereign guarantee on gold.

If one compares SGBs to gold ETFs, it is the sovereign guarantee that beats gold ETFs hands down. Gold ETFs, which are offered by asset management companies operating in the private sector, cannot offer any such guarantee.

Also, SGBs are lighter on the pockets of investors as compared to ETFs as they charge up to 1% of their net

T assets each year as asset management fee, not to mention the tax advantage as no TDS is applicable on the interest earned from SGBs.

While SGBs have an edge over ETFs, price appreciation is not what you can bet on. Where price appreciation is concerned, ETFs and SGBs tend to move more or less in tandem.

SHOULD YOU INVEST IN SGBS?

So, the big question now is what should you do as an investor, if you have not participated in SGBs so far because you are not quite sure how it fits into your financial plan? Let’s tell you how to go about it in a step-by-step manner.Identify A Long-Term Goal

Bear in mind that returns from gold can be highly volatile, especially in the short run. Therefore, it is best to link a long-term goal to your investments in gold.

Ideally pick a goal that is 7-8 years away such as the education of your children, a marriage in the family or the likes and invest in SGBs that mature in 8 years.

Treat Investment Like An SIP

These are instruments that are actively traded in the market, so you can always buy more if you wish to balance your portfolio. Till such time,

invest your money in each tranche and let it roll over.

The government is likely to make a sale in tranches every two to three months and the primary issue purchase window is open for a week. Putting small amounts of money in each tranche like SIP is advisable. Not More Than 10% In Gold

SGBs are clearly a way to diversify your portfolio among asset classes. However, do ensure that not more than 10% of your total portfolio is allocated towards gold. If you have a financial goal linked to SGBs you may allocate a specific percentage.

However, do bear in mind that prices of gold can be subject to a high degree of volatility and the returns you receive shall be market-linked and will be determined by the prices of gold on maturity.

Therefore, if it is wealth creation or investments for the long term on your mind, you will be better off putting your money in equities.

Having said that, there is no denying that SGBs are an investment worth your consideration.

If you continue to be a fan of physical gold, then you should consider gold in the paper form. This is because gold in the paper form is more cost- effective and will earn you returns instead of lying idle in your lockeR!

Objective Behind Sovereign Gold Bonds There are three objectives of Sovereign Gold Bonds: 1) To mobilize idle gold held by households and institutions (temples) in the country. 2) To provide alternative source of gold from banks to the domestic gems and jewellery sector. 3) To reduce reliance on imported gold over time to meet domestic demand.

n the last one year alone, India’s insurance industry has received a lot of boost. So much so that the sector can

compensate for low growth in the preceding five years.

The passage of the Insurance

IThe beleaguered insurance

sector in India has received

a shot in the arm thanks to

the government, which has

raised the ceiling for

foreign investment

Amendments Act 2015 and allowing foreign players to increase their stake in Indian companies through automatic route, permitting public sector general insurance companies to list and finally announcement of new initial public offers (IPOs) in the life insurance segment is set to assist the

insurance industry and help investors to participate in IPOs.

Over the last two decades, the growth of the Indian insurance sector has been nothing short of dramatic. Both life and non-life insurance have seen sustained volume growth for the



is a huge scope for growth. Furthermore, with ICICI Prudential Life Insurance, HDFC Life and other general insurance companies planning to go public, it will give immense wealth creation opportunity to retail investors.

GROWTH OF LIFE INSURANCE

The Indian life insurance industry has seen significant turmoil in the last few years. There was a phase of consolidation between 2010 and 2014 when overall growth declined and insurance houses were bleeding. However, the situation is better with improved stability and surge in company profits.

Riding on the back of strong growth on the equity market and their top position in the private insurance space (the market share of Life Insurance Corporation of India (LIC) is around 72%), both ICICI Prudential Life Insurance and HDFC Life are likely to get investor attention.

Recently, there was an announcement that Max Financial Services and Max Life had entered into an agreement for a potential merger with HDFC Life. Under this arrangement, Max Life will first merge with MFS, which will, in turn, merge with HDFC Life. This arrangement will ensure an automatic listing for HDFC Life.

Max Life is known for its management quality, higher proportion of long-term savings business, healthy operational efficiency, strong bancassurance tie-ups, robust return ratios, and excess capital position.

The potential merger with HDFC Life is expected to increase the granularity in the distribution network. The merged entity is valued at `40,000 crore to `45,000 crore and can give immense value to its shareholders.

While, HDFC Life plans to get listed on the stock exchange by acquiring another insurance company. Leader in private sector insurance with a market share of around 21%, ICICI Prudential Life Insurance plans to come out with `5,0000 crore of IPO.

The company looks well-positioned to benefit from the expected surge in India’s life insurance sector on the back of rising savings levels, increased financial awareness, low penetration and stabilized regulation.

ICICI Prudential Life has continued with a unit-linked product heavy business model even after regulatory tightening in 2010-11. With significant improvements to levels of persistency, it has improved new business margins and reported a 16.5% increase in embedded value in FY15.

The success of the insurance business in India also depends on the partnership of insurers with their banking partner - ICICI Bank as their banking channel it can be a trump card for future growth aspiration.

Due to the change in regulations - from ULIPs to pension products - penetration of insurance dipped from above 4% of GDP to 2.6%. New individual business volumes contracted 40% over FY10-14 for private insurers. Persistency ratios collapsed to 10% to 20% and cost over-runs shot up and margins across insurers dipped.

But now private insurers’ business is clearly stabilizing after a long period of consolidation. While insurance is no longer a ‘new’ industry as it was in the last decade, expectations are rife that it can grow at 15% to 18% growth, going forward.

However, the advantage will remain with bank-linked insurers, given their

period. But growth of the life insurance industry had halted in 2010-11 when insurance regulator Insurance Regulatory and Development Authority (Irda) came down heavily on unit-linked insurance plans (ULIPs) and there was stagnation in the sector.

But at the start of 2015, the present government cleared Insurance Amendments Act, which gave huge confidence to the sector. With strong equity markets and overall revival of the economy, many investors have started coming back to the life insurance industry.

In the past 12 months, many foreign players have hiked their stake in their joint ventures to 49% and announcement of IPO of ICICI Prudential Life Insurance. Even HDFC Life has proposed to buy Max Life Insurance, which could make it a leading private insurer ahead of ICICI Prudential Life Insurance.

On the other hand in the non-life insurance space new business premium grew. But its journey has been blemished by huge claim-related losses. In the past few years, huge claims arose from natural catastrophic events like Jammu and Kashmir floods, Cyclone Hud-Hud and recent floods in Chennai, among others.

The recent decision of the Indian government to allow four public sector insurers to list themselves on the exchanges and the recent hike in the health premium might help public sector players to register faster growth in the sector.

The global insurance market has remained soft, which is evident from persistent low interest rates, soft pricing conditions in the non-life sector and frequent regulatory reforms. However, in India with insurance still underpenetrated there


lower operating expense structure and better distribution.

DEVELOPMENT OF GENERAL INSURANCE INDUSTRY

Globally, the general life insurance market is known to grow in line with economic growth. But in India, non-life market has growth higher than the real gross domestic product (GDP) in the range of 15% to 17%. These numbers are short of the growth of more than 20%, which the industry had seen at the start of the bull cycle in early 2001-02.

The key factor driving this relative slowdown has been the lagged impact of sluggish economic growth in recent years. The motor insurance segment, which continues to be the biggest line of business within the non-life space (as it contributes around 45% of non-life gross direct premium), grew at a slow pace.

Weakness in motor insurance premiums’ growth is caused by slow expansion in the passenger vehicle segment where sales grew at 4% both in the domestic market and for exports. But now with growth back in both the two-wheeler and four- wheeler segment, motor insurance is set to see a rise in demand.

But the biggest cause of concern of the general insurance industry is that despite recording a double digit growth in eight out of the last 10 years, the sector has been making significant underwriting losses in the past few years. The only major source of profits has been investment income on policyholder funds.

Among segments, the health and motor insurance lines, also the biggest and the fastest growing segments, had highest claims ratios. If we look at the combined ratio (expense ratio plus loss ratio), which

indicates a product’s profitability, we see that all four public sector players have higher combined ratio of around 110%.

Private players on the other hand have a combined ratio of less than 100%, equaling many of the developed insurers. A ratio of over 100% means that it is not profitable.

Additionally, the inability of general insurers to differentiate on the basis of product offerings along with the lack of customer awareness towards product features has kept customers’ relationship with the general insurance industry extremely price-driven.

In the last few months, several public general insurance companies have hiked their health premiums by 15% to 20%, which could eventually help them get better premiums.

In the previous budget, Finance Minister Arun Jaitley had announced general insurance companies fully owned by the government would be listed on the stock exchanges.

The four general insurance companies are New India Assurance, National Insurance Company, Oriental Insurance Company and United India Insurance Company. The process to list these companies has already begun. One or two entities should hit the market with their IPOs by the end of the current financial year. With rising awareness of insurance and further penetration, general insurance companies may regain their glory, which was lost after the global financial meltdown of 2008.

IN A NUTSHELL

For India to reach its rightful place as a developed nation, it must financially empower its entire

population. A central section of this empowerment is a base risk cover that covers elements of life, disability and health. This empowerment can only be achieved through the collaborative efforts of the government, regulators and industry participants, who must be able to build commercially viable and scalable models for financial inclusion, which could also help the insurance industry.

The governemnt too had announced schemes like health, life and even pension. Further, it also announced a huge change in agriculture insurance, which could eventually benefit farmers across India.

The insurance industry will create substantial shareholder value if it successfully caps costs across the value chain, primarily in the area of claims, by adopting robust claims administration systems, greater use of analytics to prevent frauds and adopt new methods of accurately pricing new businesses.

All these efforts could lead to amplification of shareholder value by writing higher margin products and also by identifying niche segments and greater engagement with global re-insurers, who are now expected to set up local offices.

However, the insurance industry must strive to maintain high governance standards and eliminate risks, particularly relatively new ones such as cyber risk.

Finally the stakeholder who puts it all together, the insurer, will create value for itself by focusing on a balanced rather than rapid growth. Industry should also take care of money that flows into India after foreign partners hike their stake and that money should be employed in the right way for increased penetration of insurance in the countrY.

ITECHNICAL OUTLOOK FOR THE FORTNIGHT

n the previous issue of Beyond Market, we had forecasted that the Nifty had given a breakout of the inverse head and shoul-

der pattern, and will extend the rally towards 8,600, which was our target, and has been achieved.

On a short-term basis, the Nifty daily chart indicates that the Nifty is facing a stiff resistance of 8,720 level on the closing basis. Any move above the same will take the Nifty towards 8,900-9,000 levels. However, support lies at the 8,400-8,470 level. As long as it sustains above the 8,400 level, the Nifty is likely to hold the bull rally towards 8,900-9,000 levels. Technically, the short-term trend has turned positive.

The overall technical structure is intact as the Nifty is trading in the upward rising channel, indicating a positive view. Looking at the chart formation, we believe that the Nifty may continue its upmove towards 8,900-9,000 levels on the upside, whereas 8,400-8,470 levels will act as the support level.

The quarterly results session is going on. So, it will be more of a stock-specific market. We advice investors to focus more on stock-specific trading, but with a strict stop loss.

The Bank Nifty faces immediate resistance around the 19,200 level on the upside. There is an important support at 18,000-18,200 levels. The Bank Nifty faces immediate resist-ance around the 19,200 level on the upside and on a decisive close above, market participants can expect it to rally to 19,800-20,000 levels.

On the Nifty Options front for the August series, the highest OI build up is witnessed near 8500 Put strike. On

the Call side, it is observed at the 9000 level. We believe the market will remain volatile this month with strong resistances at 8,800 and 9,000 and support is placed at 8,500.

In the last expiry we saw lower-than-average (63.21%) rollovers in Nifty and Bank Nifty with positive cost of carry indicating some profit booking. Telecom (83.90% - long rollover), textile (85% - long rollover) and finance (85% - long rollover) saw much higher rollovers compared to the previous expiry.

We expect select stocks from the telecom, textiles and finance sectors to outperform in this expiry.

India VIX, which measures the imme-diate 30-day volatility in the market, remained in the range of 14-18 in July. Going forward, we believe VIX will remain range-bound.

The Put Call Ratio-Open Interest (PCR-OI) for Nifty Options has been in the range of 0.9-1.20 in the month of July and is quoting around 1.00 currently, implying a positive under-tone in the market.

Going forward, we expect the Nifty to test resistances placed at 8800-9000 and eventually breakout towards the end of the expiry or near the start of the next expiry. And 8,500 will provide a good support for the Nifty for the expiry. OPTIONS STRATEGYNIFTY LONG STRADDLE

It can be initiated by ‘Buying 1 lot 8700 CE (`120) and buying 1 lot 8700 PE (`80) of the August series’. The net combined premium outflow comes to around `200, which will also be the maximum loss for the strategy. The strategy will breakeven above 8,900 or below the 8,500 level.

The maximum profit for the strategy will be unlimited. We expect the Nifty to witness more than 200 points move in either direction.

So if the Nifty moves towards 8,900 or below 8,500, then the strategy would give gains. One can book profits if the total premium comes in the range of `300. One should keep a stop loss of 50 points premium or when the total premium falls to 150.

Nifty Daily Chart


Buckfast Recommendations

About Buckfast Research

Disclaimer Mutual Fund Investments are subject to market risks. Please read the offer-related documents carefully before investing. Past Performance

is no guarantee of future performance. Returns are of Growth option of Regular plans except for Tata India Tax Savings Fund where returns are of Dividend Re-inestment option.

*Source: - ACE MF, NAV as on 3rd Aug‘16.

Finance is a maze of umpteen possibilities and choices. And it is easy for individuals to lose their way in this tangle. In such a scenario, an expert comes handy. For, he alone can wade through the enigmatic world of finance and simplify choices for investors.

Buckfast Research, the research arm of Buckfast Financial Advisory Services Pvt Ltd, recommends mutual fund schemes that can be considered by investors.

Buckfast Research, the research arm of Buckfast Financial Advisory Services Pvt Ltd is guided by Mr Vijai Mantri and a team of professionals with more than 50 years of cumulative experience with leading Indian and Global Mutual Fund companies.

A number of parameters have been taken into consideration while making the recommendations. Some of the guidelines are track record of the scheme and consistency, risks associated with the scheme, fund house pedigree and credentials of the fund manager.

However, there is no specific time frame for the investment as such. It depends entirely on an investor’s objectives, investment timeline, risk tolerance and type of scheme he/she wishes to invest in. By and large, equity schemes are suggested with a long-term investment horizon.



SCHEME NAME

177.1031.44

382.4531.37

4.866.923.903.59

1 Year

16.3812.5314.01

-

10 Years

23.7626.0620.6920.93

15.6517.6612.6813.89

5 Years

14.4413.7312.9614.70

7 Years

1233570427375

11126

AUM (Cr)3 Years

CAGR %

Birla SL Frontline Equity FundSBI BlueChip FundFranklin India Bluechip FundICICI Pru Focused BlueChip Eq Fund

NAV

Large Cap Funds

For both Lumpsum & SIP

SCHEME NAME

334.5125.4035.4536.76

8.194.814.327.65

1 Year

13.02--

11.48

10 Years

32.7727.0526.8229.57

17.3117.2216.7916.99

5 Years

14.17-

17.6213.17

7 Years

125750812060880

AUM (Cr)3 Years

CAGR %

Birla SL Advantage FundKotak Select Focus FundMirae Asset India Opportunities FundSBI Magnum Multicap Fund

NAV

Diversified Funds

For both Lumpsum & SIP

SCHEME NAME

34.8548.6645.06

9.1313.5712.28

1 Year

--

17.47

10 Years

42.5951.6042.86

24.9425.6726.14

5 Years

-27.4923.00

7 Years

187131133234

AUM (Cr)3 Years

CAGR %

Mirae Asset Emerging BlueChipDSPBR Micro-Cap FundFranklin India Smaller Cos Fund

48.6645.0634.8529.94

13.5712.289.138.61

-17.47

--

51.6042.8642.5941.79

25.6726.1424.9421.80

27.4923.00

-19.40

311332341871954

DSPBR Micro-Cap FundFranklin India Smaller Cos FundMirae Asset Emerging BlueChipKotak Emerging Equity Scheme

NAV

Mid and Small Cap Funds

Lumpsum

SIP

SCHEME NAME

32.8336.5067.29

4.388.688.87

1 Year

--

13.83

10 Years

31.0328.0126.66

20.9617.3916.79

5 Years

-16.0815.19

7 Years

92911267371

AUM (Cr)3 Years

CAGR %

Axis LT Equity FundDSPBR Tax Saver FundTata India Tax Savings Fund

36.5028.4867.29

8.686.578.87

-10.4113.83

28.0125.9426.66

17.3913.9716.79

16.0811.5515.19

126727

371

DSPBR Tax Saver FundL&T Tax Saver FundTata India Tax Savings Fund

NAV

ELSS Schemes (Tax Saving u/s 80-C)

Lumpsum

SIP


SCHEME NAME

19.3712.7625.4124.72

11.3711.8111.2310.63

3 month

10.65-

9.4710.14

5 Years

12.4111.9211.7511.51

10.2510.2610.189.83

1 Year

11.03-

10.5510.54

3 Years

6273750636031179

AUM (Cr)6 month

CAGR %Annualised

Birla SL Medium Term FundHDFC Corporate Debt Opportunities FundDSPBR Income Opportunities FundSBI Corporate Bond Fund

NAV

Accural Funds

SCHEME NAME

28.0154.1116.8619.05

20.3019.6117.5319.32

3 month

10.619.979.88

11.67

5 Years

20.7420.3316.4921.64

12.3911.9411.8412.70

1 Year

11.9010.9210.6313.16

3 Years

126301744106924

AUM (Cr)6 month

CAGR %Annualised

Birla SL Dynamic Bond Fund-RetHDFC High Interest Fund-Dynamic PlanL&T Flexi Bond FundICICI Pru Long Term Plan

NAV

Dynamic Bond Funds

SCHEME NAME

25.8419.7611.6812.16

19.2925.0414.9113.59

1 month

10.4910.14

--

3 Years

12.6414.5311.399.93

12.9614.2911.7210.62

6 month

10.1211.9110.319.54

1 Year

3904372163815

AUM (Cr)3 month

CAGR %Annualised

Birla SL ST Opportunities FundKotak Flexi Debt Fund - Plan ABaroda Pioneer Credit Opp Fund-AAxis Fixed Income Opp Fund

NAV

Short Term Funds

SCHEME NAME

188.5921.0015.86

13.3210.8214.11

1 month

9.6610.109.49

3 Years

10.119.75

10.53

10.3210.0010.75

6 month

9.289.699.29

1 Year

253651896659

AUM (Cr)3 month

CAGR %Annualised

Birla SL FRF-Long Term PlanFranklin India Ultra Short Bond Fund-Super InstICICI Pru Ultra Short Term Plan

NAV

Ultra Short Term Funds

SCHEME NAME

197.5112.7649.22

14.2412.5018.79

3 month

10.38-

9.21

5 Years

14.0211.8121.08

11.0610.1411.92

1 Year

11.08-

10.44

3 Years

523015073010

AUM (Cr)6 month

CAGR %Annualised

Birla SL Treasury Optimizer PlanKotak Medium Term FundICICI Pru Income

NAV

Income Funds


SCHEME NAME

117.0910.86

622.81

NAV

32.1131.4434.49

6 month

5.687.728.10

25.94-

24.04

3 Years

15.31-

15.14

5 Years

6207244

3140

AUM (Cr)1 Year

CAGR %Annualised

HDFC Balanced FundMirae Asset Prudence FundBirla SL Balanced '95 Fund

Balanced Funds

SCHEME NAME

29.1711.2211.4511.08

NAV

29.8423.3523.7019.57

6 month

10.548.918.308.22

11.87---

3 Years

9.51---

5 Years

164555354234

AUM (Cr)1 Year

CAGR %Annualised

HDFC Equity Savings FundICICI Pru Equity Income FundBirla SL Eq Savings FundSBI Equity Savings Fund

Equity Savings (Arbitrage MIP) Funds

SCHEME NAME

33.3134.0034.0226.13

NAV

29.3520.8518.0822.12

3 month

11.239.70

10.6410.64

17.3014.7412.8113.62

3 Years

12.7911.3110.7910.49

5 Years

11121172441126

AUM (Cr)1 Year

CAGR %Annualised

Birla SL MIP II-Wealth 25ICICI Pru MIP 25SBI Magnum MIPKotak MIP

Monthly Income Plans

SCHEME NAME

16.2318.9222.5220.8916.12

NAV

6.646.616.646.836.47

3 month

6.136.576.456.386.25

7.517.718.198.057.95

3 Years

7.767.988.398.498.49

5 Years

10332083363339732400

AUM (Cr)1 Year

CAGR %Annualised

Birla SL Enhanced Arbitrage FundHDFC Arbitrage-WPKotak Equity Arbitrage SchemeICICI Pru Equity-Arbitrage FundReliance Arbitrage Advantage Fund

Arbitrage Funds

RETURNS

3.70%10.64%14.30%1.09%6.58%

14.67%13.10%9.37%

Investmentin Nifty

2.57%4.82%

11.35%9.08%5.21%

15.43%13.55%12.06%

BuckfastFundamentalMarket Model

-1.13%-5.82%-2.95%7.98%

-1.37%0.76%0.45%2.69%

ValueAddition

Last 1 monthLast 3 monthsLast 6 monthsLast 1 yearLast 2 yearsLast 3 yearsLast 4 yearsSince Aug 2011

Returns as on 31st July 2016

Buckfast Fundamental Market Model (BFMM) is a asset allocation model, which analyses historical market behaviour taking into consideration various aspects such as fundamental ratios, long-term trends. It aims to reduce volatility in the short to medium-term without compromising the opportunity for long-term wealth creation. Currently as per BFMM, we suggest 20% allocation to equity and 80% to debt.

IDENTIFYING TREND

OMENTUMhere are a number of popular indicators in the market. However, Coppock Curve is a

relatively lesser-discussed indicator. Introduced by economist Edwin “Sedge” Coppock way back in the 1960s in Barron’s, Coppock Curve is a momentum oscillator.

Cappock was apparently asked by the Episcopal Church to identify buying opportunities for long-term investors. He believed that stock market downturns were like periods of bereavement (a state of being sad because a family member, friend or a close one has died) and required a period of mourning. He asked church bishops how long does it normally take for people to get over the death of a loved one? Their answer was that it took around 11 to 14 months.

Coppock inferred that recovery of a stock market from a downturn would be similar to this time frame and, hence, used these time periods (11 months and 14 months) in his

T�e Coppock

Curve is a technical analysis

indicator for long-term

stock market investors to identify the

start of a bull market

calculations of the indicator.

This indicator was primarily designed for long-term stock market investors to illustrate changes in the underlying trend of major indices, keeping an extended time horizon in mind. Initially it was intended as an indicator for S&P 500 and Dow Industrials to help identify buying opportunities near the bottom of the bear market. It was not used much for sell signals.

However over the years, the indicator has been used by investors and traders alike in identifying buying and selling opportunities in all asset classes and in any time frame.

Calculation: Basically the Coppock indicator is calculated by adding the 14-period rate of change in price (using the closing price) and the 11-period rate of change in price and taking a 10-period weighted moving average of the same.

Coppock Curve = 10-period WMA of 14-period ROC + 11-period ROCWhere, WMA = Weighted Moving AverageROC = Rate Of Change

Although the entire calculation of the indicator is done by the charting software, it is imperative that you



understand these calculations and underlying principles of the variables so that you are able to get a better grip of the concept of the indicator.

Rate Of Change: The rate of change measures the percentage change of the current price as compared to the price a certain number of periods ago. It is expressed as ROC = (Current close – close n periods ago)/(close n periods ago) x 100.

This forms an oscillator, which fluctuates above and below the zero line moving from positive to negative. In general, prices are rising as long as the rate of change remains positive and prices are falling when the rate of change is negative.

Weighted Moving Average: There is a reason why many analysts prefer the weighted moving average (WMA) to simple moving average (SMA). This is because WMA places more weightage to the most recent price action and less weightage to the previous price action whereas SMA treats all time periods as equal. Thus, a weighted moving average reacts more quickly to price changes than a simple moving average.

Calculation: Say the stock closing price for the past 4 days were `10, `12, `13 and `15, then, Simple Moving Average of this would be 10+12+13+15/4 = 12.5

However, a WMA assigns weightage to these prices according to periods.

As there are 4 days, the most recent price of 15 gets a weight of 4, 13 gets a weight of 3, 12 gets a weight of 2 and 10 gets a weight of 1.

Now the calculation of WMA = [ (4 x 15)+(3 x 13) + (2 x 12) +(1 x 10)]/10 = 13.3

Thus, we see that the Coppock Curve is a smoothened momentum oscillator where the rate of change measures the percentage change between the most recent price and the price of the selected number of periods in the past. The weighted moving average smoothens this data.

STRATEGY

The key aspect of the Coppock Curve indicator is the zero line. The Coppock curve is basically a line that moves above and below the zero line. The main signals are generated when the line crosses above the zero line

entering the positive territory, indicating a Buy signal and when the line crosses below the zero line entering the negative territory, indicating a Sell signal.

Conversely, when the Coppock Curve moves below the zero line, one can close out their long positions and when the Coppock Curve moves above the zero line, one can close out their short positions.

Thus, the indicator can also function as a tool for taking profits or booking losses. Some investors look to go long even as the Coppock Curve turns up from a low below the 0 line rather than waiting for it to cross above the zero line. But this practice is not advisable for all.

The Coppock Curve gives good signals during divergences as well. A bullish divergence occurs when the market makes higher high but the Coppock Curve is unable to exceed its previous high, i.e., the price makes as higher high but the Coppock Curve makes lower highs. Avoid taking long positions.

A bearish divergence occurs when the market makes lower lows but the Coppock Curve is unable to exceed its previous low, i.e., the price makes a lower low but the Coppock curve makes higher lows.

Over time it has been noted that the Coppock curve is generally better at indicating or identifying market bottoms as compared to market tops. Hence, it is more useful for traders looking to go long rather than those looking to go short. Many investors simply ignore the sell signal when it crosses below the 0 line.

FINE-TUNING THE INDICATOR

A weekly chart will produce more signals than a monthly chart and a daily chart will produce more signals than a weekly or a monthly chart.One can increase the speed of


the oscillation of the Coppock Curve line by reducing the level of the ROC variable.

For example, instead of the normal default setting of 14-period ROC, 11-period ROC, 10-period WMA, one can use 12 ROC, 9 ROC, 10 WMA. This will also give you a larger number of trading signals. A shorter ROC would make the Coppock Curve more sensitive and faster, making it more suitable for intraday traders.

If you increase the level of the ROC variable, such as 16 ROC, 13 ROC, and 10 WMA, the oscillations will slow down and consequently you will get lesser number of trading signals. A greater ROC setting will also make the indicator less sensitive and slower, making it more suitable for swing traders.

If you want entry and exit signals that are earlier and occur in greater number, then decrease the weighted moving average setting.

For example, instead of the normal setting of 14 ROC, 11 ROC, 10 WMA, one can use 14 ROC, 11 ROC, 8 WMA. If you want signals that are delayed and occur more infrequently so as to avoid false signals and insignificant moves, increase the level of the weighted moving average, such as 14 ROC, 11 ROC and 13 WMA.

FALSE SIGNALS

Larger the time frame used, lesser the signals and smaller the time frame used, greater the signals. So, when used on a shorter time frame, the Coppock Curve fluctuates more wildly above and below the zero line.

This gives rise to many false signals, which is the major drawback of the Coppock Curve indicator. It occurs when the indicator moves above or below the zero line and immediately moves back below or above the zero line giving rise to false signals.

The best way to overcome this false signal is by following the signal given by the immediately preceding longer time frame, i.e., if you are a short-term trader or a day trader, look for agreement of the short-term trend with the long term or dominant trend.

The best way to achieve this is by identifying your signal and then moving up one charting time frame. For example, if the signal given by daily charts is bullish, then look for the signal given by the weekly chart.

If that signal too is bullish, then one can go long. If,

however, that signal on the weekly chart is bearish, avoid trading. In the same manner, one can confirm the signals on other time frames also, such as confirm the weekly signal on a monthly chart, etc. Another way to avoid false signals is by using the Coppock Curve in conjunction with other indicators such as MACD. If the signals on both indicators match up, one can trade more confidently.

Since it was originally designed as a long-term indicator, it used 14 months as the long-term ROC and 11 months as the short-term ROC in its calculation. This was smoothened by taking a 10-month WMA. It has proved correct 19 out of 22 times since 1920 on the US stock market indices, making it a formidable and reliable tool for long-term investors.

But as you can see, Coppock Curve trading signals are relatively infrequent when using the monthly charts. Hence, it is not of much use for traders looking at large number of trading signals. To achieve more trading signals, traders need to incorporate smaller time frames such as weekly, daily, or even hourly time frames as suited to their trading acumen.

DISADVANTAGES

1. There is increased propensity for the indicator to generate false signals.2. It does not clearly identify the stop loss points.3. It does not clearly identify the buy or sell point.4. It is generally meant for major indices and not really for individual stocks, which are more prone to erratic movements.5. It is not a widely followed indicator and, hence, you would not be trading in unison with the majority of the crowd.6. The indicator is not available on many charting software and you will have to put in extra effort to seek out such software where the indicator is available and, which gives you the facility to modify or edit its default settings.

CONCLUSION

Coppock Curve is a momentum indicator, which is not without its limitations but can be quite effective in generating signals especially for a long-term investor when used in conjunction with other indicators such as MACD, moving averages, etc.

Try using the indicator on different time frames with different Rate of Change setting and Weighted Moving Average setting and see which setting is best suited and gives consistently good results with your trading strategY.

If you have not paid your taxes in the past, knowingly or unknowingly, the Indian government has launched an income declaration scheme (IDS) to help individuals clear up past tax issues.

As mooted in this year’s Union Budget, the Indian government has unveiled a limited period compliance window for domestic taxpayers to declare their undisclosed income.

What Is The Scheme All About?

Simply put, a tax assesse who has not declared her income correctly in earlier years, can declare those incomes, pay taxes and penalty on it and come clean in front of the income tax department.

According to the government, IDS 2016 is the last chance for such tax payers to come clean. Once the limited window gets closed, the tax department can initiate necessary action, like prosecution, as prescribed under the income-tax Act.

How Long Is The Window?

The window will remain open for four months from 1st June to 30th September. Therefore, declaration can be made till 30th September, but tax money can be paid till 30th November.

So What Would Be The Total Outgo?

The declared income will be taxed at the rate of 30%, a Krishi Kalyan cess of 25% on this tax, and a penalty at the rate of 25% of the tax payable. This brings the total tax outgo of 45% of the income declared.

IMPORTANT JARGONFOR THE FORTNIGHT

Can All Tax Payers Avail This Facility?

Not everyone can take advantage of this scheme. A taxpayer involved in litigation or proceeding under the income-tax Act cannot, however, adopt for disclosure under this scheme.

What Are The Benefits To The Tax Payers?

The scheme is a boon to those who are losing sleep over unpaid tax on certain income or assets and fear income tax scrutiny. Assessees will get immunity from prosecution proceedings under the income-tax Act along with a wealth tax waiver. Thus, they can regularize their wealth. Additionally, declarations made under the scheme will be kept confidential.

So, Is It An Amnesty Scheme?

No. IDS 2016 is not an amnesty scheme. In an amnesty scheme, tax payers are given incentives in terms of lower tax rates or zero penalty to disclose their income.

Therefore, in a way dishonest tax payers are given discount on their tax liability. In IDS 2016, the tax liability is in fact higher than it could have been in a natural course (45% tax as against 30%).

What Are The Benefits To The Government?

One, such scheme will keep a check on domestic black money in circulation. Two, revenue thus collected will help the government to fill the fiscal deficit gap.

Will The Scheme Be Successful?

Given the extra tax rate (45% as against 30%), IDS 2016 may not excite many to declare untaxed assets. Also, the fact that the fair market value of declared assets as on 1st

INCOME DECLARATION SCHEME (IDS) 2016



popular dish in Hong Kong; Japanese bonds are named Samurai after the country’s warrior class.

What Are Benefits To The Issuer Of Masala Bonds?

So far borrowers could borrow money in foreign currency and the settlement was done in that currency like the US dollar or Yen or Euro or the UK pound sterling. This involved currency risk for the issuer.

In case the rupee depreciated over the tenure of the bond, the interest cost for the company could increase enormously. With masala bonds, there is no currency risk for the issuer.

What Is The Benefit To The Buyer Of These Bonds?

The buyers of masala bonds will be compensated for the currency risk with higher yield (coupon rate or interest rate on the bonds). Higher yield will seek investors’ attention. Will It Be A Game Changer For Indian Corporates?

Experts are of the view that rupee-denominated bonds will be used by Indian companies extensively. Masala bonds come cheaper to corporates as compared to bank credit, lowering the cost of capital.

Masala bonds can shield corporate balance sheets from exchange rate risks as compared to other foreign currency borrowings. Masala bonds can also help diversify investor pool for companies. How Will It Benefit The Economy?

With masala bonds, Indian financial markets will integrate further with the rest of the world. Masala bonds can help internationalize Indian rupee. Further, the success of masala bonds can trigger development of domestic corporate bond markeT.

Jun ’16, which may be way higher than the acquired cost of the asset, shall have to be considered for computation, and will be a major deterrent.

Why A Need For Such A Scheme?

India’s tax to GDP ratio is one of the worst globally. India’s tax to GDP ratio is 16.6%, which is much lower than the emerging market economy average of 21% and average of 34% in the developed economies. Wider tax base is badly needed by the government to keep spending on infrastructure projects and at the same time keep the fiscal deficit in control.

Masala Bonds are becoming the talk of the town after mortgage lender Housing Development Finance Corp (HDFC) raised `3,000 crore by issuing such bonds to investors in London. Boards of many public and private companies have sought approval to raise money via masala bonds. What Are Masala Bonds?

Masala bonds are Indian rupee denominated bonds that are offered in the overseas markets. The bonds carry a fixed rate of interest and are settled in foreign currency. They can be publicly or privately placed and can be traded on exchanges. The interest rates are market determined.

Why The Name Masala Bonds?

The International Finance Corporation (IFC), the investment arm of the World Bank, after raising `1,000 crore via rupee-denominated bonds in November last year to fund infrastructure projects in India named the bonds as Masala bonds. The bonds were so named keeping in mind Indian culture and cuisine. Globally, there are similar bonds: Chinese bonds are named Dim-sum bonds after a

Contact: 022 39269600E-mail: [email protected]

MASALA BONDS

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Disclaimer: Insurance is a subject matter of solicitation. Mutual fund investments, investments in commodities and securities are subject to market risks. Please read the scheme-related document carefully before investing. Please read the Dos and Don’ts prescribed by Commodity Exchange for trading. The PMS service is not o�ered for commodities segment. * Through Nirmal Bang Commodities Pvt. Ltd. # Distributors

beyond market - issue 124

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