rni no. maheng/2009/28962 | volume 8 issue 12 | 16th...

RNI No. MAHENG/2009/28962 | Volume 8 Issue 12 | 16th - 31st Dec ’16Mumbai | Pages 48 | For Pr ivate Circulat ion

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DB Corner – Page 5

A Surprise Move

With the aim to contain negative fallout of abundant liquidity in the

banking system post demonetisation, the RBI has come out with a slew

of measures – Page 6

A Temporary Hiccup

Post-demonetisation blues are unlikely to hamper economic growth

- Page 9

Deal With Don

Donald Trump’s presidency would be a mixed bag for India, hurting

Indian IT, but giving opportunities in pharma and trade pacts – Page 12

Breaking Up: A New Norm

Several companies from India Inc have demerged for value creation

– Page 16

An Uneasy Switch

Although the journey towards a less-cash economy has begun, retailers

fear demonetisation is likely to hurt sales in the short term – Page 19

Why Assets Matter

It makes more sense for investors to opt for asset-based investing

rather than share price-linked investing – Page 22

The Realty Reality

While demonetisation may cause some pain in the short-term, the

long-term outlook for the real estate industry looks positive – Page 24

Flying North

India is the fastest-growing aviation sector in the world thanks to a slew

of policy initiatives undertaken by the government and lower crude oil

prices – Page 27

Timely Turnaround

Once beaten-down by vagaries of the market, mutual funds today are

doing remarkably well – 0

Cyber Resilience

Several companies and customers are insuring themselves against

cyber attacks – Page 34

Technical Outlook For The Fortnight Gone By – Page 37

Buckfast Recommendations – Page 38

Simply Awesome

Awesome Oscillator shows the momentum of a small recent number of

periods compared to the momentum of a larger number of prior

periods – Page 42

Important Jargon For The Fortnight – Page 45

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It’s simplified...Beyond Market 16th - 31st Dec ’16 3

Volume 8 Issue: 12, 16th - 31st Dec ’16

Tushita NigamEditor

It’s simplified...Beyond Market 16th - 31st Dec ’164

Last month, the presidential election came to a close in the United States of America. The Republican Party won with a clear majority with Donald Trump at the helm. All through his campaign, various propositions were made by the now President-elect Donald Trump. While these propositions are a win-win for the US, the impact on various nations is still being debated.

The cover story in this issue tries to explain the implications of the propositions put forward by Donald Trump. As of now, repercussions seem to be mixed and only time will tell how it pans out on the whole. Read more to get a clear picture.

Other topics covered in this issue include the slew of measures introduced for the banking sector by the Reserve Bank of India post-demonetisation, the pros and cons of demerging of companies, the merits of asset-based investing over share price-linked investing and the growth spurt in the aviation industry in India.

Also, articles on the impact of demonetisation on the Indian economy and sectors like real estate and retail have been covered. While economic growth will witness a rather negative impact temporarily, the two sectors will feel the heat for some time. The Beyond Basics section features two interesting topics. While one article dwells on the improvement in the mutual fund industry in India due to various factors supporting it, the other talks about the nitty-gritty of cyber insurancE.


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 US Federal Reserve raised key interest rates by 25 basis points to between 0.50% and 0.75% in line with expectations. The Fed has predicted three rate hikes in 2017, indicating an aggressive stance, going forward.

Crude oil prices rallied to their highest level recently after the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers decided to cut production for the first time since 2001.

In its first policy review after demonetisation, the Monetary Policy Committee (MPC), headed by Reserve Bank of India (RBI) Governor Urjit Patel, went against market expectations and kept the repo rate unchanged at 6.25% owing to volatility related to US rate hike and the demonetisation drive undertaken by the government.

The Indian stock markets are likely to remain range-bound in the coming fortnight. The Nifty has support at 8,050 and 7,950 levels. It has resistance at the 8,180 level on the upperside.

In the coming fortnight, market participants are advised to keep a close watch on the earnings results of India Inc, which will start coming in from the beginning of next month. However, it is important to note that the impact of cash crunch will clearly be evident on the earnings resultS.

I

The Indianstock markets arelikely to remain

range-bound in thecoming fortnight.

Nifty: 8,104.35Sensex: 26,374.70

(As on 19th Dec ’16)


November took many by surprise. In fact, this temporary move to suck out surplus liquidity from the banking system in the wake of the government’s demonetisation drive has spoiled the party for bankers.

Banks were of the view that they could take advantage of low-cost deposits arising out of the sudden gush of liquidity from deposits (and exchange) of old `500 and `1,000 currency notes by people after they ceased to be legal tender from the 9th of the previous month.

Higher CRR, from 4% to 100%, was a double whammy for banks. While on one hand banks do not earn anything on CRR deposits kept with the RBI, on the other hand banks still need to pay for those deposits to depositors.

Though deposits are the cheapest source of funds for banks, they come at a cost. So, from expecting to benefit from low cost funds to boost their net interest margin, banks ended up on the losing side.

WHY THE CRR HIKE

The move to increase CRR on deposits was a bid to absorb excess liquidity with banks arising from the ban in old currency notes of `500 and `1,000. There has been a surge in deposits as compared to expansion in bank credit, leading to excess liquidity in the system.

According to State Bank of India (SBI), liquidity which was in deficit mode in the first three months of FY17 with an average deficit of `652 billion has turned into surplus with an average of `312 billion between July and October.

However, this surplus, due to demonetization, has jumped significantly to an average of `1,860 billion in November.

NEGATIVE FALLOUT

Surplus liquidity is huge. In weeks following the announcement of demonetisation, a question that arose before banks was what to do with the excess liquidity. In an environment where credit offtake is lower and is growing by only 8% per annum, banks did few things with the excess liquidity in the system.

anks and non-banking companies have hogged the limelight post the demonetisation drive of

old `500 and `1,000 currency notes initiated by the government. Currency, which is a raw material for these companies, is available in large quantities as old notes are getting swapped by new `500 and `2,000 currency notes in the system.

But this abundant liquidity is posing challenges to the financial system at large. Recently, yields on government bonds tanked. This made India a less preferred investment destination among foreign investors, resulting in mass withdrawal of funds. In fact mass pullout of foreign money caused the Indian rupee to briefly hit an all-time low of `68.8 against the US currency.

With this systemic risk in mind, both, the Reserve Bank of India (RBI) and the government have come out with measures such as increase in cash reserve ratio (CRR) and hike in the limit of securities under market stabilization scheme (MSS) for liquidity management.

Cash reserve ratio (CRR) of banks, which was hiked to 100% from 4% on deposits made between 16th September and 11th November, has been withdrawn eventually from 10th December. Subsequently, for better liquidity management, limit on issuing securities under market stabilization scheme (MSS) by the RBI has been hiked in consultation with the government.

THE CRR SURPRISE

CRR is a tool that the RBI uses to manage liquidity. Even though the RBI has withdrawn the 100% CRR requirement in the monetary policy announced on 7th December, the move itself announced on 26th

B

Average Liquidity Balance (` billion)

-1000

-500

0

500

1000

1500

2000

Source: RBI

One, banks started parking monies with the RBI under the reverse repo window, making a decent gain of around 2%. In a reverse repo transaction, banks purchase government securities from the RBI and lend money to the banking regulator, thus earning interest. But the RBI has limited stock of government securities to offer. Till 25th November, banks have parked `5.25 trillion with the central bank, accepting government securities as collateral, bringing it dangerously close to `7 trillion government bond holdings with the RBI. This forced the RBI to hike CRR to suck out liquidity.

Two, banks started investing heavily in government securities, artificially leading to their rally and distorting the market. This lowered the future interest rate expectations. As interest rate differential with US treasury narrowed, India became a lesser favourable region to invest in for foreigners. As a consequence of mass withdrawal, the Indian rupee reached a record low of around 68.8, depreciating by over 3% in November


Bagel Land

It is a slang term that represents a stock or other security approaching $0 in price. Arriving in bagel land is due to one or more major business problems that may not be resolvable. This term is used to describe an asset that has fallen from grace as opposed to a penny stock or other historically cheap security.

If a stock or other asset is headed toward bagel land or is approaching $0 (resembling the hole in the middle of a bagel), investors generally feel the security is nearly worthless. In such cases, a company may be nearing bankruptcy or facing solvency issues. While returning from bagel land is possible, the likelihood that equity investors will lose their entire stake in the company becomes very high.

against the US dollar.

Apart from the two mentioned reasons, it was important for the RBI to suck out liquidity to keep check on risky lending. Typically, higher the liquidity in the system, higher is the risk-taking ability of bankers to fund riskier projects. This can throw some systemic risk. With lack of any other liquidity management tool and government taking time to decide limits on MSS, the RBI had to hike the CRR limit.

By increasing the CRR, banks were forced to sell government securities for cash that needs to be parked with the RBI. Thus maintenance of higher CRR has a cost component attached to it for banks. Thus, although the CRR hike served the objective of stabilizing the Indian rupee and bond yields, it was seen as a temporary move by the RBI.

MARKET STABILIZATION SCHEME (MSS)

Another better measure to manage liquidity in the system is the MSS bonds. MSS bonds are like any other government bond; the only difference is that the money realised is not used for government expenditure and the interest is paid by the government and not by the Reserve Bank. A pre-approved limit for FY17 for MSS, which was around `300 billion, has been increased to `6 trillion.

After 10th December, the RBI will take recourse to MSS as against CRR to manage liquidity in the system.

the government’s agenda of black money. There has been virtually no lending by banks in the weeks following demonetisation. Thus, the asset side of the bank has not grown. This is negative news as lending is their core operation.

Also, a negative for banks in the country is the indirect impact of cash crunch and demonetisation on the overall economy. The economy is likely to slow down in the near term throwing some asset quality challenges for banks. However, as things move towards normalcy some reversal can be anticipated, albeit in the medium term.

In order to check the asset quality issue in the near term, the RBI has given some breather for banks in terms of a 60-day extension with respect to bad debt recognition for all dues that fall between 1st Nov ’16 and 31st Dec ’16. This move should help calm the asset quality worry in the near term.

FUTURE RATE CUTS

Recourse to MSS from CRR was badly needed to avoid any further harm to an already burdened banking system. CRR hike has hurt profitability of banks, at least for the near term. With MSS as an instrument to manage liquidity, there is some leeway for banks to cut lending rates, going forwarD.

RBI’s MSS Auction (` billion)

0

100

200

300

400

500

600

700

2-Dec 5-Dec 6-Dec 7-Dec

Source: RBI

CRR PARTY POOPER

Immediately after demonetisation, few big banks, anticipating huge gains from low cost deposits, had lowered their deposit rates. For instance, State Bank of India reduced its bulk term deposit rate by 120-190 basis points. Typically, cut in deposit rates precedes a cut in lending rate.

But, hike in CRR to check liquidity has neutralised any benefit to banks from huge deposits post- demonetisation. Banks see higher CRR as an unreasonable cost. Even though the measure was temporary, it impacted bank’s finances. This is the reason, banking stocks that outperformed the broader market in the week following demonetisation pared gains on the CRR hike news from the RBI.

Bankers are left with a bitter taste given that banks devoted all their resources to garner deposits, helping

ust when it seemed like everything was falling in place for a healthy economic growth this fiscal (FY17), the

recent demonetisation of high denomination currency notes by the Indian government (in early November) raises questions on the nation’s growth.

Will demonetisation of the `500 and

J

Post-demonetisation blues are unlikely to hamper economic growth

`1,000 currency notes which, according to some estimates has sucked out around 80% to 85% of the value of money from the country’s economy, slow down India’s economic growth?

The answer is no. There will be some post-demonetisation blues but the Indian economy with its strong fundamentals will be able to

surmount these problems and continue on its high-growth path.

While there is no denying the long-term beneficial effects of the demonetisation move, there is a school of thought, which suggests that it could perhaps slow down growth, at least in the short-term.

Former Prime Minister and Congress



political climate too is favourable presently for the Narendra Modi-led government at the Centre and in the states as well (his party, the Bharatiya Janata Party (BJP) won the prestigious assembly election in Assam a few months ago).

The BJP also recorded creditable victories in the just-concluded round of by-elections which, significantly, took place post-demonetisation.

Most importantly, the Parliamentary logjam that had blocked the passing of the Goods and Services Tax (GST) Bill for a long time was ended and the Bill was finally passed.

The rate cut effected by the Reserve Bank of India in early October (the repo rate was trimmed by 0.25% to 6.25% from 6.50%) was just the tonic needed to perk up economic growth of the country.

Globally too, the economic climate was beginning to look encouraging. Commodity prices globally are still on the lower side and this too should help keep inflation under control.

However, the demonetisation move announced by Prime Minister Narendra Modi has resulted in a cash crunch in certain segments, especially in rural areas of the country where agriculture is the primary activity.

The urban centres, especially metros, have to a large extent overcome the problems of shortage of cash and the long queues visible in the initial days of demonetisation at ATMs and bank branches have considerably reduced.

The government is now taking steps to increase cash flow into rural areas so that farmers have the requisite cash to undertake agricultural activities. It is very important at this juncture to alleviate the problems arising out of demonetisation in rural areas.

India’s agricultural sector contributes around 15% to the country’s GDP and with the good rainfall received this monsoon season, the government has done the right thing by taking steps to mitigate the shortage of cash in rural areas, thereby helping the farming community. A healthy performance by the agricultural sector is crucial for India’s economic growth.

Apart from agriculture, the retail sector too could be affected as people may not spend as much on purchases, preferring instead to conserve their cash for at least a month or two.

The Small and Medium Enterprise (SME) sector could also witness some hardship as cash flow in terms of both receipts and payments could be affected to a large extent.

Small traders and small businesses also seem to have taken a hit but with the government now taking steps to relieve the cash shortage and with these beginning to take effect, albeit a little slowly, things could turn around within the next couple of months.

One key element that needs to be watched is private consumption. Sales of various items could be adversely impacted due to demonetisation as people may prefer to conserve their cash for at least a month or two more.

This is important as the present period constitutes the festival season in India and sales of various items pick up during this period. One good thing here is that the demonetisation announcement came after the conclusion of the Deepavali festival by which time many people would have made their purchases.

The festival season is, however, still on and various sectors are expected to do well during this period. With Christmas and New Year around the

leader Manmohan Singh is of the opinion that the move could hit growth by around 2% while some other estimates have it at around 1% to 1.5 %.

There is a general feeling in economic circles that the move, though beneficial in the long-term and therefore welcome, could hit growth in the short-term, which means this fiscal (FY17).

The government is, however, optimistic and says that the country’s economic growth story is on track. It may be recalled that ministers of this government have often in the past talked of an 8% growth over the next few years.

While that was on the higher side as far as FY17 was concerned, it was felt by many that a growth rate of 7.5% or even slightly higher at close to 8% was possible to achieve this fiscal (FY17).

Things were falling in place and the government had reasons to be happy. For one, the country’s apex bank — the Reserve Bank of India (RBI) — had trimmed interest rates very recently with a view to give a push up to economic growth.

A rate cut was what India Inc had been demanding for a long time and the Reserve Bank of India obliged them in October this year. The cut came during the tenure of the newly-appointed Reserve Bank Governor Urjit Patel who had only a little while earlier taken over (in September this year) from former Governor Raghuram Rajan.

The apex bank was strongly encouraged to do so by declining inflation. A good rainfall in the June-September monsoon season was another factor that was a big positive. Apart from the above, the overall


Triffin Dilemma

The Triffin dilemma or paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives when a national currency also serves as a world reserve currency. The dilemma of choosing between these objectives was first identified in the 1960s by Belgian-American economist Robert Triffin. He pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit. The use of a national currency, example, the US dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars into the United States. Specifically, the Triffin dilemma is usually cited to articulate the problems with the role of the US dollar as the reserve currency under the Bretton Woods system.

corner, it remains to be seen how consumption pans out - whether people are willing to spend or conserve their cash. This will have an important bearing on the overall economic growth.

The money in banks following deposits of the now-redundant `500 and `1,000 currency notes by people will put more money in the hands of the government and could facilitate increased government spending in vital areas such as infrastructure.

Tax receipts could increase for the government, which will be a positive. Besides, greater capital expenditure by the government will definitely go a long way in energizing the economy. With banks flush with funds, there is also the possibility of lending rates declining which, in turn, will be beneficial to customers.

One big positive presently is low inflation. Both wholesale and retail inflation are at a low of 3.39% and 4.20%, respectively. The Reserve Bank, which accords high priority to combating inflation and for which reason it had been reluctant to reduce rates on several occasions in the past, may be induced to effect one more rate cut in the near future.

Much will, however, depend on food inflation which presently is under

control. However, the government must ensure adequate cash flow in the rural sector so that farmers are not hampered in their regular activities. In the short-term, however, there could be a marginal rise in food inflation.

Prior to demonetisation, many from economic and business circles felt there was a strong possibility of at least two more rate cuts of 0.25% each (a total of 0.50%) by the end of this fiscal (31st Mar ’17). Now, however, demonetisation has injected a new element into the country’s economic environment.

While India Inc and business circles will certainly welcome another rate cut, the Reserve Bank of India may not want to act now.

Instead, it might choose to observe the situation arising out of the demonetisation programme before taking any action on the rate front. Therefore, the likelihood of the apex bank adopting a wait-and-watch position in the near-term is high.

The Reserve Bank could take a decision on a rate cut later, probably in early-2017 when things should hopefully be clearer regarding the fallout from demonetisation.

The Indian economy is resilient enough and its fundamentals equally

strong to weather this slightly turbulent period. It was always felt that the Indian economy would grow rapidly if there were no external disturbances or unexpected developments that crop up.

The recent demonetisation move by the government came as a bolt from the blue. It was totally unexpected and though very welcome, could slow down economic growth in the immediate term.

However, in the long-term it has the potential to considerably strengthen the Indian economy by ridding it of black money and transforming it into a `less cash’ one in the short-to-medium-term.

There could be a slight dip in economic growth this fiscal but the government’s goal of achieving an 8% growth rate over the next two to three years is still achievable as the country’s economy is resilient and its fundamentals stable and strong.

To return to the high-growth track after the dust settles down on the demonetisation programme should, therefore, not be very difficult. It is Prime Minister Narendra Modi’s aim to transform India into a digital economy, going forward and the present demonetisation exercise is a right step in that directioN.


cheaper IT and software solutions, changes if any are likely to push up costs and see Indian IT firms sending fewer developers and engineers to the US, and increasing campus recruitment there.

Nevertheless, anticipating a more protectionist US technology visa programme, India’s IT services companies are speeding up acquisitions in the US and recruiting more heavily from college campuses and universities there.

Staff from top three Indian IT companies accounted for around 86,000 new H1-B workers in 2005-14. The US currently issues 85,000 H1-B visas each year.

“The world over, there’s a lot of protectionism coming in and push back on immigration. Unfortunately, people are confusing immigration with a high-skilled temporary workforce. We are really a temporary workforce,” said a senior official at an Indian IT firm.

“We have to accelerate hiring of locals if they are available, and start recruiting freshers from universities there,” said the official.

This is set to push up the costs as the companies will have to get into a model where they will have to recruit freshers, train them and gradually deploy them.

IT bellwether Infosys typically recruits 500 to 700 people each quarter in the US and Europe, around 80% of whom are locals.

While Infosys is looking to step up acquisitions, Wipro’s growth strategy is to buy companies that offer something beyond what the company already does, or new disruptive firms such as Appirio, a US cloud services firm it bought recently.

Tech Mahindra, which two years ago bought network services management firm Lightbridge Communications Corp, is on the look out for more US acquisitions, particularly in healthcare and fintech.

Indian software companies also face a hit if US companies delay IT budgets. Normally clients work out their IT budgets around December-January, which may get “marginally shifted”, according to an official at a leading software firm.

“Clients in the US could marginally delay their budgeting cycle for technology spends as they wait for Trump to spell out his focus on policies like immigration and creating local jobs,” the official said.

How good is Donald Trump’s argument that Indians are taking away jobs of Americans?

Experts say Indians don’t take up jobs that should have gone to Americans, rather they do jobs not enough Americans are qualified to do.

Despite the high salaries on offer, the trend for computer science degrees as a percentage of all US college degrees awarded has been flat over the last 30 years, stagnating at 2.76% in 2011 as compared to 2.2% in 1981.

Only one in 12 American students pursue an undergraduate degree in computer science.

On the other hand, the students who arrive from other countries, primarily China, India and South Korea, receive 10% of bachelor’s degrees in mathematics and statistics, and 8% of bachelor’s in engineering degrees.

Experts said the evidence is that Google and Microsoft, the two top tech companies in the US are headed by Indian engineers.

he world is on tenterhooks with real estate magnate Donald Trump set to become the US President.

Even before taking over, Trump has forced multinational company Carrier to drop plans to shift a factory from Indiana to Mexico.

The air conditioning major was looking to save $65 million a year by shifting the unit to Mexico when Trump entered with his protecting manufacturing jobs rhetoric, forcing the company to keep plants in the US with threats that it will have to pay more in future if it went ahead with the move.

The flamboyant president-elect also stunned the all-powerful Boeing Corporation with a tweet that the airline manufacturer was making more money than warranted, leading to nosediving of the stock.

Trump’s ‘Make America great again’ pitch thrives on putting America and Americans ahead and he has threatened to impose a 35% tax on companies that move plants out of the US if they export back to the country.

Not only this, the president-elect is also looking to renegotiate all foreign trade deals.

So how will Trump presidency play out for India?

IT SECTOR

On several occasions during his election campaign, Trump has blamed India for taking away jobs from Americans. He has advocated a 15% tax on the US companies for outsourcing jobs to places like India.

While not many expect a complete shutdown of skilled worker visas as US businesses depend on their

T


INDIAN PHARMA COMPANIES

Unlike his opponent Hillary Clinton, who has been very critical of drug companies that raise the prices of old drugs to boost profits, Trump is seen as less of a threat to the sector, at least on this issue.

Trump has favoured allowing the US government’s Medicare programme, which accounted for over 20% of total $3 trillion US healthcare spend in 2014, to directly negotiate drug prices with manufacturers.

Analysts say with Trump in the driving seat and Republicans holding control of both the Senate and the House, proposals to facilitate such direct negotiation for Medicare will gain traction.

Medicare is a US federal health insurance scheme for people who are 65 or older and certain younger people with disabilities and people with kidney failure.

Pharma experts see a window of opportunity for Indian generic makers to become key suppliers for US public healthcare.

However, all may not be positive as Trump has also talked about repealing the Affordable Care Act (or Obamacare) and if he succeeds in doing that, about 22 million fewer Americans would have health insurance in place.

TRADE DEALS

The announcement by the US president-elect Donald Trump that his country will exit the Trans-Pacific Partnership (TPP) trade deal is likely to increase focus on the Regional Comprehensive Economic Partnership (RCEP) agreement and World Trade Organization (WTO) trade deals, which will eventually

benefit India.

“On trade, I am going to issue a notification of intent to withdraw from TPP, a potential disaster for our country. Instead, we will negotiate fair, bilateral trade deals that bring jobs and industry back on to American shores,” Trump had said.

The TPP is a trade agreement under negotiation among 12 nations: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam, which together account for 40% of the world’s GDP.

Although the deal is aimed at countering China’s influence in international trade, India feared that it could adversely affect the country through trade diversion and stringent non-tariff measures.

According to a senior commerce ministry official, India may be the unintended beneficiary of Trump’s move. “There was pressure from Japan and other common member countries between TPP and RCEP trade deals to make the latter more ambitious in intellectual property rights and investment, which India was opposed to. We hope such pressure will subside now,” the official said.

Started in May ’13, RCEP comprises the 10 economies of the Asean region (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and six of its free-trade partners (Australia, China, India, Japan, New Zealand and South Korea).

The grouping envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world, accounting for nearly 45% of the world’s population and with a combined gross domestic

product of $21.3 trillion.

According to an expert so far India was at the receiving end at RCEP. “Now hopefully, other RCEP members will be more accommodative towards India’s demand for greater market access in services to find jobs for its skilled professionals. The effort of importing major provisions of TPP into RCEP may not succeed now,” he said.

GARMENT INDUSTRY TO BENEFIT

The Indian textile and garment industry could breathe easy, as fears of key competitor Vietnam gaining duty-free access to the US abate.

Vietnam has already beaten India as the third-largest garment exporter in the world and the threat had appeared more real, given that the US accounted for 22% to 30% of India’s garment exports in recent years and Indian exporters have to pay 14% to 32% duty for the shipment of textiles and garments there.

This apart, the US withdrawal will also mean potential Chinese investments in TPP nations such as Vietnam and even Malaysia to take advantage of the duty-free access to the US market, may not materialize in a very big way, according to textile sector experts.

‘MAKE IN INDIA’

Donald Trump’s rise is the latest setback for India’s ambition to become a factory for the world.

Having missed the export-led growth that transformed China and fellow East Asian economies over the past several decades, the government has pinned hopes on the ‘Make in India’ campaign to make up lost ground. But with the world’s biggest consumer


market soon to be led by somebody wants to bring manufacturing jobs back to America and raise barriers to imports, it would be an impediment for India.

WTO SYSTEM MAY GAIN

Although Trump even advocated a US pullout of the WTO during his presidential campaigns, the fact that he hasn’t included it in his initial action plan suggests he is perhaps giving it a second thought, said industry analysts.

Trump’s decision may see an American comeback to the WTO, if

not in immediate future. For its part, India has reaffirmed its commitment to the WTO system over other plurilateral trading arrangements.

Also, Trump’s statement that he would focus more on bilateral trade deals holds opportunities for both India as well as the US to explore such a trade agreement.

QUID PRO QUO

There are plenty of reasons for Trump to look favourably on economic ties with India.

American companies like Wal-Mart,

Facebook and Apple want to boost their presence in India, with its swelling middle class, and top executives including Mark Zuckerberg and Tim Cook have toured the country seeking major opportunities in a nation of around 1.3 billion people.

“India represents one of the most attractive long-term growth markets for US exports,” according to an industry expert.

Summing up, any threat to India isn’t imminent, and much depends on whether Trump turns campaign rhetoric into policy realitY.

Several companies from India Inc have demerged for value creation



separate businesses. Valuations are often determined while keeping the assets and earnings power of individual businesses in mind.

This leads to cross holding between the businesses that have been separated. Once these separate businesses are listed individually, they start to trade their own shares on the exchanges and they have their own quoted price.

Investors have the option to keep the share of the separated company or to sell their holdings in the open market if they wish to do so.

Often what happens in these cases is that the risk of two or more than two businesses that have been demerged are separated. Now, the investors have the option to own whichever they like.

One ideal example of how a business split creates shareholder value is Crompton Greaves, whose overall business was severely reeling because of its industrial and power business and related debt in the books.

Owing to problems in the industrial and power business, the company’s consumer electronics business, which has great brand equity, operates at high margins and generates good cash flows with very minimal capital, was getting shadowed.

Just before it revealed its intention to demerge its consumer business and list it separately, Crompton Greaves was selling at around `80 a share.

Later on existing shareholders of the parent company were given one share for one existing share in the ratio of 1:1. On the first day upon listing of Crompton Greaves Consumer Electricals, the company traded at around `126 a share and went on to cross `130 a share.

Even today at `147, the consumer business and parent company have a combined valuation of close to `220 a share, which is approximately 200% return compared to its earlier price of `80 a share. The street started to compare the valuations of the consumer business in relation with Havell’s and other players, which get valuations close to 30 times their earnings. Separate listings allow investors to value businesses separately.

Those who were not ready to take the risk or invest in the debt heavy industrial and power business are now free to own a consumer franchisee, which is comparable with other leading players in the industry.

Crompton is not alone and valuation is one very important aspect of the demerging business.

Aditya Birla Nuvo wants to do the same with its NBFC business.

Sintex plans to demerge its plastic business, which has a strong market and makes healthy returns. However, it hardly gets any valuations as its other business, textile, is capital-intensive and is currently putting pressure on overall margins.

Its comparable businesses like other listed companies - Nilkamal and Supreme Industries - are valued at 20 to 25 times their earnings compared to Sintex, which is trading at about 6 to 8 times its earning.

Fortis is doing a similar thing with its diagnostic business. One common thread among most of the demerger stories is that they often come at a time when sentiments about a particular sector or business are high.

So a company will typically prefer to demerge a business which is doing

emerging and separately listing a business is considered to be one of the best ways to create

shareholder value, particularly when sentiments are high and liquidity is equally huge.

In the year 2016, a number of companies from India Inc demerged their businesses and got them listed on exchanges separately.

There are plenty of instances where large companies have split-off, leading to the birth of new companies that are sebsequently listed on the stock markets.

Crompton Greaves is a perfect example of this kind. Crompton Greaves Consumer Electrical (CGCE) demerged from Crompton Greaves and got listed on the Bombay Stock Exchange.

Birla Group company, Aditya Birla Nuvo some time back attempted to list its NBFC arm, Aditya Birla Financial Services independently.

Fortis Healthcare demerged its diagnostic business run under its subsidiary SRL and Sintex and Jagran Prakashan are looking at listing their subsidiaries on the bourses separately.

The demerging was done to enable a dedicated management or focused approach to the business, provide access to a wide pool of funding necessary for the operation of the business and, obviously to create higher valuations.

When a business is demerged into two or more entities existing shareholders get the share or ownership share of the business, which are detached individually.

The ratio in which the shares are issued depends on the valuation of

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well but not getting enough value while being part of the overall holding company.

Jagran Prakashan, which is into print media and runs Hindi language newspaper Dainik Jagran recently announced its plans to separately list its radio business.

The listed parent, Jagran Prakashan, operates the radio business under the subsidiary Music Broadcast in the brand name Radio City.

The radio industry is in the news with Zee Entertainment acquiring Big FM owned by Anil Ambani Group and strong growth prospects after the government’s policy support.

Entertainment Network (India) Ltd (ENIL), the owner of Radio Mirchi and the only listed player, is currently trading close to 30 times its earnings, which is a sign of investor optimism about the radio sector in India.

FUNDING AND LEVERAGING

Apart from valuations, which is an obvious point to take home, demergers and separate listings are often also used as a vehicle to get funding for the ailing business.

Higher valuation of a subsidiary will lead to higher valuation of the parent company, which, in turn, will allow it to raise funds in the market at a higher price and often used to curb debt in stressed cases.

This also allows balance sheet restructuring whereby a company may use the subsidiary to own some of the liabilities and debt to clean the balance sheet of the parent company.

From a larger perspective, it is often said once a subsidiary is big enough to operate on its own, a separate listing will allow it to grow at its own

pace and means. It can make its own funding plans in case the capital is needed for its growth rather than coming back to the parent company, which may be objectionable to shareholders of the parent company.

Demerging is a great way of performing portfolio diversification as seen in the case of Aditya Nuvo and Grasim Industries. Diversification reduces risks that investors are exposed to.

Demerging is also advantageous to investors where the company is able to concentrate on a market due to better and specialized management, leading to high profits, thus increased dividends to investors.

A major business surgery was carried out on Fortis Healthcare, which was split into two segments, namely, diagnostics business and independent hospital operations.

Fortis Healthcare approved the demerger of its diagnostics business into another group firm Fortis Malar Hospitals aimed at ensuring independent growth of hospital and diagnostics business independently.

The rationale behind this move was that hospitals and diagnostic businesses operate under different models and noting the macro-fundamentals of the healthcare industry, each of these ventures provided a strong positive growth opportunity in the future.

The structuring would also lead to a simpler company organization, which would add value to the shareholders in the bargain.

Fortis, which is demerging its diagnostic business, will require more funds to grow but as it is separately listed it can raise its own funds and make the best use of those funds.

On top of that diagnostic businesses require a focused approach for expansion. They can now concentrate on growth.

Moreover, this move was also looked from the fact that its peer Dr Lal PathLabs has received a huge investor interest post its listing, which is a pure play on the growing diagnostic market in the country.

It is commanding huge valuation premium because of growth, leadership and focus on penetration.

SRL, the Fortis arm, is an equally important player in the industry in a leading position. It is quite obvious that SRL needed greater focus and flexibility to grow when competition was getting fierce.

Second, in most of these cases where two businesses have slightly different areas of operations, it is often believed that a separation will bring in focus and improve management bandwidth, which may be required at the time of higher scale.

As a business grows, it needs its own support system and independent resources with the responsibility of the business resting with the individual companies.

Be it Tata, Reliance, Birla or any other larger or smaller conglomerate, these companies keep on experimenting with different businesses at any given point in time as part of diversification, achieve higher scale and generate wealth for their shareholders.

As those businesses mature and show that they are capable of standing on their own, this is when the parent company looks for demerger or a separate listing on the stock exchanges with the larger aim of creating shareholder wealtH.

Although the journey towards a less-cash economy has begun, retailers fear demonetisation

is likely to hurt sales in the short termIt’s simplified...Beyond Market 16th - 31st Dec ’16 19


where cash is the predominant source of transactions, were perturbed. Most were of the view that a lethal combination of demonetisation and GST could permanently dent their businesses. Apart from this, many businesses also hinted that they might be forced to relieve a few temporary workers if demand fails to recover in the next two to three months.

From a long-term perspective, job losses in the unorganized segment is a key monitorable to assess if the anticipated consumption demand recovery will have to be tempered. Participants expect that upcoming budget is likely to spring a positive surprise to boost morale post-demonetisation. Post the initial shock and awe wherein sales plummeted 80%, normalcy is returning gradually in consumer-facing businesses, though sales are still down 20% to 30%. While jewellery business is down 50%, consumer-facing businesses expect sales to normalise in one to three months once liquidity improves, spearheaded by the salaried class.

In Nashik and Vapi, where 15% customers are farmers, businesses are of the view that once the cash crunch improves and kharif crop sales are realized, demand from these customers will return.

But customers seem to be willing to alter their transaction habits. In segments like auto, BFSI, consumer durables and FMCG, people now prefer cashless transactions. Though formal discounts have not been announced, support has emerged in the form of extension of credit period (FMCG), target relaxation (autos, consumer durables) and sweetening of financing options.

The retail sector too witnessed a mixed response with grocery segment

in organized retail witnessing a rise in demand while other categories like apparel and home furnishings, among others witnessed a slump in demand.

Initially, demonetisation of `500 and `1,000 notes has had an adverse impact on footfalls in malls, high streets and shopping hubs. In the online (e-commerce) segment, bulk of orders placed on ‘cash on delivery’ (CoD) mode are stuck as buyers are facing problems in paying bills.

Sales in some of the mom-and-pop stores had declined by as much as 80%. Some of the best performing malls said transactions have declined to the tune of 15% to 20% in the past couple of days.

The impact has been far deeper in the unorganized sector, with some mom-and-pop store owners stating that their single day business declined by more than 80% one day after the major announcement was made.

Retailers like Shoppers Stop, Big Bazaar and FBB confirmed decline in footfalls and corresponding decline in sales but did not want to quantify any numbers at the moment. According to some estimates, apparel sales could decline by as much as 20% in the next one month.

“Apparel sales have dropped by 30% already. Overall we expect a 15% to 20% drop in sales because people will focus on discretionary spending,” said Rahul Mehta, President of the Clothing Manufacturer Association of India (CMAI), which has a membership base of more than 20,000 companies in ready-made garment and export industries.

Industry experts pointed out that jewellery and luxury fashion retailers will face maximum heat as people have a tendency to pay for these transactions with cash. Mehul Choksi,

he government’s demonetisation drive that was announced on 9th November evinced

extreme reactions across sectors like auto, banking, consumer durables, fast moving consumer goods (FMCG), retail, jewellery and small and medium enterprises (SMEs).

With fewer footfalls in malls and shops due to shortage of cash, retailers could witness 20% to 25% drop in sales in November.

Last month was expected to be weak given that Diwali was celebrated in October but cash crunch has hurt sales severely, lamented Rajneesh Mahajan, Vice-President, K Raheja Corporation, which owns Inorbit Malls across India.

Ravi Kant, CEO of Titan, too confirmed footfalls fell 20% in the initial days post-demonetisation. Quick Service Restaurants (QSR) companies like Yum Foods and Jubilant Foodworks have also been affected due to demonetisation.

Experts said with demonitisation and ban of old `500 and `1,000 notes, the journey towards a less-cash economy has begun. Delhi and West, where the proportion of a cash economy is far higher, were more reticent on demand recovery. Comparatively, South was far more accepting and has quickly adapted to the changing landscape due to relatively well-entrenched banking habits. While queues at ATMs were far longer in North and West, they were minimal in Coimbatore, Nashik and Kolkata, according to experts. SMEs and traders from textiles and chemicals, and larger players were better prepared to quickly adapt to changes in transacting businesses. But smaller and unorganized players,

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Chairman and Managing Director of the Gitanjali Group, said that sales have slumped between 25% and 30% post-demonetisation.

“Following the week soon after demonetisation on an average retail sales in Maharashtra including both mom-and-pop stores and brick-and-mortar stores had dropped by 50% post demonetisation of `500 and `1,000 notes and the loss per day is around `350 crore. Initially, in the first couple of days soon after demonetisation sales had dropped by more than 80% in some of the mom-and-pop stores but now slowly the situation is improving,” said Viren Shah, President of Federation of Retail Traders Welfare Association (FRTWA), which represents more than 50% traders across Maharashtra.

However, Shah said malls were less impacted as customers were able to use cards for purchasing items.

Experts said while apparel and fashion sales were down by more than 50% during this period, hypermarkets like D’Mart, Big Bazaar, StarBazaar and Hypercity, among others witnessed better sales as customers rushed in to purchase essential items through non-cash transactions.

Big Bazaar’s non-cash transactions more than doubled in the last couple of weeks soon after demonetisation. “Our sales in the last couple of weekends increased 20% compared to earlier weeks as with scarcity of cash customers came to our stores to purchase essential items. Our non- cash transaction has more than doubled post-demonetisation,” said a company spokesperson.

Arvind Singhal, Chairman, Technopak, said that sales of organised grocery retailers have gone up as customers bought essential items in stores using cash to pay.

According to RedSeer Consulting, various sectors within consumer internet have been affected differently by the government’s currency demonetization initiative.

While Food-Tech and Hyperlocal Grocery sectors have seen a huge increase in their transaction volumes due to their business models encouraging more cashless transactions, e-tailing and online cabs have seen a decline due to larger dependency on cash on delivery.

Anil Kumar, Chief Executive Officer, RedSeer Consulting said, “Hyperlocal Grocery and Food-Tech are clear winners as customers don’t have any ready cash to do the daily offline purchases, but for e-tailing and online cabs, the month of November has been a hiccup in their growth stories, both heavily dependent on cash transactions. However, the positive side of this is the number of customers becoming comfortable with cashless transactions. Over the longer run, this will enhance the pre-paid model for these companies.”

Sales of larger players like Flipkart, Amazon and Snapdeal, too were impacted as these e-tailers were unable to accept cash on delivery. Other e-tailer such as Zapyle, which sells luxury brands has seen a major dip in its business.

The demonetisation move acts as a further impetus for online players to leverage the shift to digital platforms for consumers, reveals a report by premium lifestyle online portal Luxehues.com. The study, conducted in November, is a result of around 150 qualitative interviews based on a structured questionnaire.

According to the report, demonetisation of `500 and `1,000 notes would impact the way brick-and-mortar retailing of

premium and affordable luxury products had been operating so far. However, the general consensus is that it would not have any impact on consumers already shopping via credit or debit cards. There is a feeling that some of the retail offline demand will eventually move to online due to sheer convenience and value that the channel offers.

The study said a lot of the high-end purchases made at the stores using cash were primarily discretionary spends because consumers could easily afford it.

There is one section of consumers in the country who would not be able to convert this card purchase and, hence, demand from this particular segment will go out of equation over the next two to three years until a fresh cycle of liquidity in the new currency becomes easy to access.

By then the online channel would also have grown significantly. At the same time, several felt that if the cash on delivery facility dried up, it would impact online sales in the near term even as transactions would start to become much healthier.

As per the study, e-commerce will propel faster growth in the affordable luxury segment by providing distribution access. Authenticity of goods purchased is a key criterion for online shoppers, and niche brands must invest in creating brand awareness to facilitate faster growth.

While the cash crunch is still continuing, the wedding season is the silver lining for businesses as demand for ethnic wear, watches and jewellery among others seems to be reviving, with most of the transactions done by card, industry experts said. For the situation to normalize, it would take couple more moths, they opineD.

n investing, the share price of a company is extremely important as it reflects the general sentiment of the

markets about the company.

Many times, historically speaking, if the share price of a company is trading cheap, then interest in that company increases. But this need not be necessarily true. The broad pessimism in the markets could also impact the share price of a company.

In high volatile markets, share prices of companies cannot be the right barometer of investing. It could be misleading. In such a situation, it makes sense to opt for companies that have assets in place and have completed their expansion in the

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It makes more sense for investors to opt for asset-based investing rather than share price-linked investing

industry in which they operate.

Here is a low-down on why one must invest in companies that have assets in place and have completed their expansion process.

EARNINGS VISIBILITY

One of the key factors that will work in favour of companies which have assets in place is the improvement in demand. If a company has failed to expand its capacity in the markets when demand is weak, it is highly unlikely that such a company will be able to provide handsome returns.

This dynamic factor is strongly visible in the cement sector. India’s largest cement company by capacity

Ultratech Cement in the past two years has acquired lucrative cement assets. These acquisitions have enhanced the company’s capacity by 20% to 25%.

At present, demand for cement is not high and it cannot provide brisk business to cement companies. Over the next three to five years, cement demand is expected to touch 8% from close to 2% at present.

In such a situation, Ultratech tends to benefit amply as it has already done the groundwork to make the most of the improved demand in the next three to five years.

Hence, it makes sense for investors to look at such companies, which



product cycle. This works well for companies that embark on expansion ahead of their peers.

IMPROVING CASHFLOWS

Another major advantage for companies that build capacities before demand picks up is the strong likelihood of improvement in cashflow from operations.

Cash flow is the net amount of cash and cash-equivalents, which move into and out of a business.

Positive cash flow indicates that a company’s liquid assets are increasing, helping companies in dealing with interest expense, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges.

Negative cash flow indicates that a company’s liquid assets are decreasing. Once the demand for the product a company manufactures improves, such companies tend to record high cashflows from their respective operations.

With capacity in place, these companies just need to meet the demand, which itself improves its total income. And this makes the company keep in control any increase in liabilities.

More so, once cashflow from operations improves, companies can then reinvest the same in building additional capacities.

LIGHT BALANCE SHEET

One of the important benefits of investing in companies which build capacities during weak demand in the industry they operate in is that these companies reduce their debt faster than their peers.

Since these companies have capacities in place, they make the most of the improvement in demand. They benefit from higher revenue growth than their peers in the industry who refrain from expansion either due to stretched balance sheets or focus on costs.

This improves cashflow from operations for these companies. Consequently, these companies are able to service interest on their debt and they are able to repay their debt much faster.

These are clear advantages of investing in companies, which have assets in place. In times when markets are severely volatile and no sense of logic prevails, it makes sense to be with such companies.

Investors should not be excessively particular of the share price of such companies. Because those companies that do not expand and are peers to such companies may trade at a lower price than them.

But a crucial reason these companies are trading lower than those companies which have expanded because market participants sense that as market cycles change, such companies hardly have any capacity to make the most of improving demand. As a consequence, such companies hardly show any visibility of earnings’ growth.

Hence, given the present market conditions, it would be advisable for investors to look at those companies that have assets in place and invest in them rather than opting for companies from the same sector that are trading at a cheaper price.

In short, investors should opt for asset -based investing instead of share price-linked investing to reap high returns from their portfolioS.

already have capacities in place. In a highly volatile stock market, keeping an eye on companies that have expanded capacities makes more sense than those that have refrained from expanding.

Investors need to bear in mind that when markets fall such companies must be in their radar.

If investors miss investing in such companies when markets plummet, then valuations of these companies would go up and they would be expensive as the street identifies such companies early due to high visibility of their earnings.

OPERATING LEVERAGE

Besides visibility of earnings, companies which expand their capacities when demand is weak also tend to benefit from operating leverage. It is the measurement of the extent to which a company can bear a combination of fixed and variable costs per unit.

So, if a company’s utilization rate increases, then its fixed cost per unit would come down. This works to expand its margins.

Companies that have worked tirelessly to prune their costs in the past four years when demand was tepid has aided them to bring down their break-even rates.

For instance, some manufacturing companies had break-even around 60% to 65% of their utilization rate. But in the past four years, these companies were able to bring it to 30% to 35%.

The margins of the company expand multi-fold. It benefits from dual impact of lower break-even production rate as well as favourable


that the development side paces up to adapt to these changes.”

These investments happen in the primary sector of real estate, which according to many experts will by and large remain unaffected by the demonetisation drive. The reason being that it is driven mostly by the salaried class, which avails of home loans in a transparent manner.

Land sales and leasing won’t be affected to a great extent as transactions in these deals happen through joint ventures, joint development or by facilitating corporate divestments, which are institutionalized and have no involvement of a cash component. The same thing goes for Grade A office real estate.

The adverse impact of demonetisation on the sector is visible when we move from metros to Tier II and Tier III cities, where cash transactions still play an important role even in the primary real estate market. The primary market will surely be impacted adversely in Tier II and Tier III cities.

Secondary and resale market, both in metros and Tier II and Tier III cities, is heavily based on cash transactions.

Samir Jasuja, CEO, PropEquity, said, “We expect a lot of secondary market transactions (resale) to come down in volume. For every five buyers out there, there is only one buyer willing to pay all-cheque. And usually, people want to take at least 20% to 30% of the amount in cash, but this will now go away for the time being.”

“In the residential property sector, the secondary or resale market will definitely see a backlash, as it has historically seen quite a large volume of cash components being transacted. This also holds true for the luxury and

high-end housing segment, where sales have already slowed down on the back of the demonetisation move,” said Anuj Puri, Chairman & Country Head, India, Jones Lang Lasalle (JLL). Prices of luxury homes are likely to fall 25% to 30% as sellers in order to generate liquidity will be forced to offload properties. Some believe this will give home buyers an opportunity to choose from a wider number of options before buying a property.

For the time being, these properties will be bought by buyers who avail of home loans and transact legally.

Shishir Baijal, Chairman and Managing Director, Knight Frank India expresses similar views. “Prices coming down to more reasonable levels in the housing market cannot be ruled out.

“In the immediate future, the sector will be under serious pressure with volume and number of transactions in residential and land markets seeing a substantial downward trend,” he said.

Anshuman Magazine, CBRE Chairman India & South East Asia, called demonetisation a bold move and further said, “While it may cause some pain in the short-term, the long-term outlook for the industry looks positive.”

The bottomline is whether it is the primary market or the resale market, home sales have come to a standstill. In Delhi-NCR, 35% to 40% of the money involved in the sale of pre-owned houses was in black.

Only circle rates were covered in white. Similar is the case in other cities. Primary market witnessed some momentum during the festive season when developers offered various deals in property.

he real estate sector in India is among the most important sectors in the country and is the second

largest employer after agriculture. Unfortunately, it is also one of those sectors that lacks total transparency and is considered to be a hotbed for black money.

Before demonetisation, the real estate sector, especially in metro cities saw a growth in foreign investment. For example, in Mumbai alone private equity investment was more than $2 billion (`13,400 crore) in all segments of real estate, which is an increase of 44 % from a year ago.

A global survey by real estate consultancy firm Cushman & Wakefield talks about how Mumbai climbed 26 positions, reaching 84th rank in global markets for private equity investments in real estate (PERE) because of these investments.

Delhi NCR witnessed a 25% PERE increase last year with the residential segment, accounting for 63% of the total investment. Hyderabad recorded over $453 million in PERE, up 400% from a year ago and accounting for 8% of India’s total PERE, whereas Bengaluru accounted for 12.5% of global PERE in India.

With the announcement of demonetisation by the government, this growth story has taken a twisted turn. There is no one opinion on the impact of demonetisation on the real estate sector in India.

Anshul Jain, Managing Director, India, Cushman & Wakefield, commented, “The recent move of demonetisation is expected to further institutionalize the real estate sector, with investments moving through banking channels. This move, coupled with the Real Estate Regulatory Bill, will further ensure

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In the current scenario even that has taken a back seat as buyers are waiting for price correction.

One property consultant says, “The only hope now is that once the demonetisation drive stabilizes - say in three-four-six months - banks will extend more housing loans. I don’t see a problem since prices have crashed 25%. That is our only hope.”

Though CREDAI, a private real estate developers’ association has supported the demonetisation move, it has said in a statement that there is no further scope for correction in housing prices in the primary market post demonetisation as rates are already ruling at the lowest level. In fact, according to CREDAI, the primary market segment is expected to see an increase in prices at a rate of 15% year-on-year. The reason for this expectation is the belief that interest rates will fall by up to 200 basis points as banks will have additional funds upward of `10 trillion.

Home loans, according to CREDAI, will come down to 7% from the current level of 9.25%, thereby

bringing down EMI for home buyers. CREDAI has also said the mop up of black money will lead to higher tax collection and a lower rate of personal and corporate income tax from the next financial year onwards.

In other words, demonetisation would put more money into the pockets of home buyers through lower tax burden and incentives to buy homes.

Similar views have been expressed by Anuj Puri, Chairman & Country Head, India, JLL. “This, in fact, spells more opportunities for institutional capital. FDI, private equity and debt players will suddenly find the market even more transparent and attractive. Moreover, banks could start funding land transactions, thereby decelerating land prices,” he said.

To further prevent black money transaction and to check reports of alleged profiteering and tax evasion, the income tax department checked the records of real estate companies in Delhi-NCR region and scanned records of some previous sales made and asked the officials of these real estate firms to produce the records at a later stage.

Experts welcomed this move and said that it will bring more of much- needed transparency into the system.

It cannot be denied that black money was a major component in real estate sector, Therefore, after demonetisation, the value of real estate market will be eroded for the next few months at least.

According to PropEquity research, residential real estate valuation in the top 42 cities in India, sold and unsold, will take a tumble and fall up to 30% from `39,55,044 crore by around `8,02,874 crore to `31,52,170 crore.

Mumbai is expected to register the maximum fall in market valuation owing to the high weighted average price of `18,108 per sq ft, of `2 lakh crore, followed by Bengaluru by `99,983 crore and Gurgaon by `79,059.

This means many developers that dealt in cash will suffer but those who conduct business with integrity will survive. These formal and organized developers will not only weather this storm but also will be in a better position in the next 9-12 monthS.

India is the fastest-growing aviation sector in the world thanks to a slew of policy

initiatives undertaken by the government and lower crude oil prices



Under the new civil aviation policy, India plans to enter into ‘open sky’ air service agreements (ASA) with SAARC countries and with countries beyond 5,000 km radius from Delhi.

Recently, India signed a memorandum of understanding (MoU) with Greece to allow unlimited number of flights into each other’s countries. Airlines from Greece can run unlimited flights to six Indian metropolitan airports. However, Indian flights can fly to Greece without any such curbs.

The government has moderated the 5/20 rule, whereby Indian airline companies that were earlier required to have five years of operational experience and a minimum of 20 airplanes before they could fly overseas can now improve international connectivity better to deal with foreign as well as domestic passengers under new norms.

That apart the Indian government has ambitious plans to develop new brownfield and greenfield airports (required airport are estimated at 500 by 2020) to improve connectivity and ease pressure on Indian railways. That apart, developing modern airports, decongesting existing airports and reducing lead time in addition to 100% FDI in the sector are certain initiatives that are expected to help the sector.

CRUDE OIL AND AVIATION

Crude oil prices fell the most in the past two years. It hit a low of $40/barrel in 2015 and has not recovered from it yet. Weak crude oil prices sound good as it significantly improves profits.

Today, airlines are fighting for the top position by offering lowest airfares and consumers are gladly lapping up the available opportunity.

Low cost of oil and lower air fares have led to increased demand for air travel. With this level of sustainability, the Indian government has opened its doors for other international competitors to operate in the country.

Oil accounts for 29% of operating expenses of the aviation industry. Each plane needs taxi fuel, trip or in-flight fuel, and contingency fuel. Globally, airlines spend around $210 billion per year on oil. Owing to cheaper prices today, estimates suggest that airlines will spend roughly only about $140 billion.

With oil prices hitting rock bottom, airline companies world over have reduced air fares. Low fuel price has enabled air carriers to reduce their expenditure incurred on fuel, yet increase passenger traffic, thereby improving cash flow and revenue while reducing operational costs.

This has helped the sector and a lot of Indian aviation companies like Jet Airways, SpiceJet and IndiGo have reported a strong turnaround in their financial performance. Jet Airways is a perfect example of the turnaround. Financials of Jet Airways were bleak in fiscal 2015. Jet made a profit of close to `1,200 crore as against a net of over `2,000 crore in FY15.

Similarly, SpiceJet has seen a huge turnaround in its operation. The company made a profit of close to `407 crore as against `687 crore loss in FY15.

Although trailing behind competition, SpiceJet has proved that it can capitalize its gains based on market situation. It has drastically turned itself around by using low fuel prices to its advantage.

SpiceJet’s management continues to be strong in its focus to manage its

inancial analysts often say that aviation stocks are not a good choice. While it may seem true given the fact that

airlines are one of the most capital-intensive and operationally costly companies to run, the Indian aviation sector is defying odds with airline stocks finding favour with investors on the back of a promising long-term outlook.

What is happening in the Indian aviation sector is that even a man like Rakesh Jhunjhunwala with a net worth of $2.2 billion has a huge stake in these stocks. Jhunjhunwala, a self-made billionaire and a partner in asset management firm Rare Enterprises, has upped the ante by including aviation shares in his portfolio. Now, his portfolio is made up of 2% stake in Spice Jet and 1.05% in Jet Airways.

WHAT HAS CHANGED?

Indian aviation is probably the only sector that has been consistently growing at about 18% to 20% annually. Unfortunately, despite strong growth, companies have not been making good money, hurting shareholder value. However, a slew of changes in recent years have jolted the aviation sector.

Government reforms have also greatly helped the Indian aviation sector thrive in troubled times. For one, the National Democratic Alliance (NDA) government has approved the country’s first National Civil Aviation Policy.

The policy, which came into effect on 15th Jun ’16, has helped improve air connectivity, while allowing domestic airlines to fly abroad quickly with less bureaucratic hurdles. Also, airlines from other countries are now allowed to use Indian skies for travel.

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costs and is poised to take at least 11 million passengers per year. It currently enjoys a 9% market share in the entire industry.

The biggest problem that airlines were facing was that of high operating expenses incurred largely on fuel and low yield due to increased competition. However, competition has nosedived after Kingfisher Airlines faced crisis.

At the same time demand too recovered drastically in the last two years. In fact India is one of the fastest growing aviation markets in the word with passenger traffic growth of 21.3% in fiscal 2015 and 23.14% between January ’16 and August ’16.

In FY16, close to 85.57 million passengers flew with Spice Jet as against 70.54 million in FY15. In the current fiscal, the numbers are expected to cross 100 million. The aviation industry is operating at one of the highest capacity utilizations of around 85%. For low-cost airlines such as

InterGlobe Aviation with close to 36% market share operating under the IndiGo brand, this has come as a bounty. Among Indian airlines, IndiGo is the most profitable and is making close to `2,000 crore profits on revenue of `16,000 crore. Despite selling tickets at the lowest fares, it is making the highest operating margins (at 35%) in the industry.

STRUCTURALLY POSITIVE

Low-cost carriers are likely to benefit the most structurally. Having an asset-light business model comprising a lease or rental-based portfolio of assets like airplanes gives much more flexibility in terms of rightsizing capacity depending on market demand and pricing.

The aviation industry is likely to grow on the back of rising per capita income, which stays at around `93,293 per person compared to `86,879 per person in FY14. It is estimated that over the next 20 years, per capita income will triple and India will become the world’s fifth largest consumer market.

Further, it is estimated that with this growth, India’s middle class will increase from 50 million people to 528 million people and over 290 million people will move from poverty to sustainable lifestyle.

Indian aviation market is highly underpenetrated. To put it in perspective, consider the following facts. About 86 million passengers flew in 2016. This is not even 3% of the total population of India assuming a round trip per passenger in a year.

What is worse is that this ratio compared when with China - at 14% - is nothing. The other side of the coin is that the Indian aviation industry has immense potential for growth. Moreover, demand growth in India has been structurally strong and is expected to gain strength further.

What is more important now is the cost of fuel, which is expected to remain low. Reduced fuel costs and a slew of reforms will allow some of these companies to make decent profits over the years and thus create wealth for their shareholderS.

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he mutual fund industry, comprising over 40 fund houses, has already crossed the `17-trillion

mark in assets under management and is looking at doubling the AUM within the next three years.

It took nearly six years from March ’10 to March ’16 for assets of the Indian mutual fund industry to double from `6 lakh crore to `12 lakh crore. However, in the last eight months, the assets surged to over `16 lakh crore,

T Once beaten-down by vagaries of the market, mutual funds today are doing remarkably well

which is a growth of around 14% in just a few months.

Sharp inflows into equity funds were largely due to the steps taken by the market regulator, Securities and Exchange Board of India (SEBI), coupled with rising equity markets and investor awareness camps undertaken by asset management companies on a ‘war footing’.

Steps taken by the mutual fund industry over the last few years have

started bearing fruits as more money has begun flowing from B-15 cities (Beyond Top 15 cities).

In fact if we look at the available numbers we find that in the last two to three months retail portion (as bifurcated by the Association of Mutual Funds in India) from B-15 cities is higher than T-15 cities, i.e the Top 15 cities of the country.

Even as SIP folio accounts have risen to 1.83 crore as on April ’16, SIPs



ASSESSMENT OF INDIAN MUTUAL FUNDS AND EQUITY FUNDS

The Indian mutual fund industry has come a long way. From being just over `1 lakh crore in 2000, it has now crossed `16 lakh crore.

But it is yet to emerge as the preferred investment choice for retail investors in India. It has been more than five decades since Unit Trust of India (UTI) started its first sale in July ’64 and mutual fund industry has remained true to its label of encouraging and mobilizing savings of small investors in India into equity and debt market.

The blend of emerging technology and enabling regulation will ease the industry to broaden and deepen its reach amongst retail investors.

The Indian mutual fund industry started gaining prominence since the bull market of 2003 - 2008. With inflows came commotion as the industry was accused of mis-selling mutual funds to increase AUMs.

Further, the global financial meltdown of 2008 pushed the industry to the wall. However, the biggest jolt to the sector came in August ’09 when SEBI banned upfront commission.

Since then, the mutual fund industry has been trying to be more transparent and come up with investor-friendly products and not just launch schemes only for the sake of it.

Taking into account the efforts being put in by the industry and also to rejuvenate the beleaguered industry, SEBI, in 2012, asked fund houses to set aside at least 2 basis points (100 basis points is equal to one percentage point) on daily net assets within the maximum limit of total expense ratio

(TER) for investor education and awareness programmes.

Since then fund houses have conducted around 55,000 to 60,000 investor awareness programmes in the past four years, reaching out to millions of people from semi-urban and rural areas.

Investor awareness programme is an ongoing initiative and is expected to improve low penetration of mutual funds in the Indian market. Not only investor education but also strong returns from equity funds were the reasons why investors were attracted to mutual funds in the first place.

Since May ’14 when the present government was sworn-in, equity mutual funds have seen outflows for only three to four months. In 2014-15, equity mutual funds saw net inflows of over `70,000 crore.

Similar numbers were seen in 2015-16. In the last 10, 5 and 3 years, many multi-cap funds have given average returns in the range of 11%, 15% and 18%, respectively.

With individual investors relying heavily on distributors for the purchase of mutual funds, AMCs in the country will continue their focus on the distribution network along with emphasis on increasing sale of direct plans.

While such measures will enable customer acquisition, fund houses need to focus on retaining customers through the sale of simpler products, demonstrating better fund performance, improved service quality and deployment of analytics.

The mutual fund industry has witnessed consolidation, and the trend is expected to continue for a while with increased focus on improving the performance of funds.

inflow volume now stands at `4,000 crore to `4,500 crore on a monthly basis from `2,500 crore a year earlier. According to AMFI data, total number of SIP accounts stood at 98.57 lakh in March ’16 as against over 73 lakh SIP accounts in March ’15. As on October ’16 SIP accounts have crossed the 1 lakh crore-mark.

Despite some ‘green-shoots’ in mutual funds from retail investors, India’s Asset Under Management (AUM) as a percentage of Gross Domestic Product (GDP) is still between 5% and 6% as compared to global markets like the US and Brazil where this figure stands at 77% and 40%, respectively.

With over 40 players in the Indian asset management space, over 80% of the money is managed by top 8 to 10 players. This shows that a lot needs to be done in order to grow assets as well as increase mutual fund penetration in India.

Additionally, investor awareness needs to be improved through strategic initiatives and investor education drives to propel growth.

Let us look at key trends that are likely to have impacted the growth of the mutual fund industry in India.

Though with little help from the government (like insurance has in India), Indian fund houses purely on the basis of their merit and positive performance have seen a surge in assets. But even now with low penetration, a lot needs to be done by fund houses and the market regulator.

Let us see how the mutual fund industry has evolved over a period of time, the challenges it faces and what the fund houses have done to take systematic investment plans or SIPs as they are popularly called, to the Indian hinterland.


UPCOMING TRENDS

Despite reaching rural areas, the overall penetration of mutual funds remains low across the country. Lack of financial education and awareness, limited distribution network and cultural bias towards physical assets (particularly gold and real estate) are some of key hindrances to the growth of mutual funds in B-15 cities.

In order to increase the geographical reach of mutual funds, fund houses are now allowed to charge an extra load of 30 basis points from existing schemes, provided certain conditions are met. The regulation has incentivized fund houses to push mutual fund products in cities beyond the top 15 cities.

The distribution scenario, cost dynamics, fundamental cultural influence and investor behaviour in smaller cities are quite different than in metros. Therefore, fund houses could look at some innovative sales strategies for these geographies.

Many fund houses still rely on a large distribution network, while many are promoting online sales through mobile applications.

Independent Financial Advisors (IFAs) serve as an important link between sellers and buyers of financial products. They have a good hold and influence over their clients and their purchasing decisions. Therefore, it is important to tap IFAs that have client base in B-15 cities. To increase the base of mutual fund distributors, the regulator has permitted a new cadre of distributors, which includes postal agents, retired government and semi-government officials, retired teachers, retired bank officers and other persons (such as bank correspondents) to sell units of simple and performing mutual fund

schemes to investors.

Many mutual funds have already enabled the purchase of mutual fund units through immediate payment services (IMPS) and more recent the National Automated Clearing House system (NACH) platform, which have made buying mutual funds for investors paperless.

The transactions can be done either via SMS or through an application. The technology is further being developed to make it more user- friendly and hassle-free for users. The third tool in the hand of mutual fund houses is enabling their sales channels with technology.

Services like portfolio management and data analytics can easily be performed on the go using smartphones or tablets.

Going To The Hinterland

After the financial crises, there was increased regulatory scrutiny in all countries, including India. Over time, SEBI took various measures to improve mutual funds and bring in more transparency.

SEBI asked fund houses to introduce higher disclosures by them to promote transparency, implement changes in commission structure to prevent mis-selling, merger of similar schemes coupled with the introduction of easy riskometer infographics in product brochures. ‘Riskometer’ with five levels of risks – low, moderately low, moderate, moderately high, and high - replaces colour coding method, which had only three levels - low, medium, and high. These levels suggest investors the level of risk they are taking by investing in mutual funds.

The market regulator also introduced

sale through direct plans through differentiated total expense ratio for areas other than T15.

The launch of mutual fund utility portal and allowing investors to trade through a Common Account Number also helped fund houses to go into the hinterland. These initiatives have had a significant impact on the mutual fund industry in terms of collections, customer acquisition, distributor network, product portfolio, etc.

SEBI has also permitted small investors (who may not be tax payers and do no not have PAN/Bank Account) such as farmers, small traders/businessmen/workers to make cash investment of upto `20,000 in mutual fund schemes. The distributor could find this mode of investment unattractive as handling of cash requires higher safeguards.

Also, cash investments could also encourage money laundering, frauds and meddling by tax officials. Considering the cost involved in handling cash investments, coupled with other complexities, this measure may actually experience several difficulties in implementation. However, more needs to be done to attract more and more people to participate in the Indian mutual fund story and help fund houses to bring in winning propositions that could help them as well as distributors.

IN A NUTSHELL

The mutual fund industry has utilized the last couple of years productively in capacity-building initiatives by augmenting its technology platform and awareness-building programmes, thus creating markets that did not exist earlier.

Technology can be put to dual use – for acquiring customers and meeting

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENC Y | MUTUAL FUNDS # | IPOs # | INSURANCE # | DPDisclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not o�ering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors

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compliance needs in a cost-effective as well as time-efficient manner.

Typically, Indian investors do not like to pay fees for financial advice, more so in times of greater volatility in the markets when there is a likelihood of potential losses on their investments.

In the past, High Networth Individuals (HNIs) who had knowledge and means to appoint someone to manage their finances, paid for the advice. However, in pure retail, paying for advice is a relatively emerging idea.

While SEBI has tried to draw a line between advisers and distributors, there are potential grey areas. Advisers can still earn commissions, with their investors not knowing about the same.

Furthermore, mutual fund distributors also provide informal advice to investors, while still receiving commissions from product manufacturers, which is not in line with SEBI‘s regulations.

As opposed to the developed markets, financial awareness and literacy of an

average Indian investor is relatively low. Given the propensity of the Indian investor to prefer savings in physical form like real estate, housing and gold, investments in mutual fund instruments are relatively low as compared to other financial instruments available to them.

But with the surge in equity markets and government’s efforts to digitize the economy, the Indian mutual fund industry could play a very important role of bringing in unutilized money into the financial markets through the mutual fund routE.

n the last one month, since the government announced the ‘demonetisation’ scheme there have been talks of

transforming India into a digitally empowered society.

Demonetisation has forced many people to transfer money online and even the government is promoting online transactions, which could eventually reduce black money from the economy. Though online

I

Several companies and customers are

insuring themselves against cyber attacks

transactions are convenient and fast, they are laden with various types of inherent risks.

In October this year, India’s largest bank State Bank of India (SBI) said that it had blocked over six lakh debit cards following malware security-related breach in non-SBI ATM networks.

Apart from SBI, banks such as Axis, HDFC and ICICI also admitted being

hit by similar cyber attacks - forcing them to either replace or request users to change the security codes of over 30 lakh debit card holders in India.

This was only one of the many instances that were reported widely in the press. Yet, a number of cyber theft stories continue to be buried even today. One should remember that these are not isolated incidents, but are instances of frauds, scams and cyber-attacks, which are increasing



Coopers (PwC).

Banking systems and large corporates alone do not face the threat of cybercrime. Even small and medium enterprises (SMEs), hotels, hospitals, automobile companies are on the hitlist of fraudsters and hackers as they have critical information of people such as their financials, and even their medical conditions (if any) on multiple servers around the world.

In this article we try and figure out how the menace of cyber security has erupted globally and in India, and how Indian insurers are gearing up to provide cover to those at the risk of being affected by this threat.

WHAT IS CYBERCRIME

Cybercrime refers to illegal activities using, or against, computer systems, computer networks, and the Internet. Although cybercrime is a commonly used term today, there is no standard global definition and the definition varies based on the context. There are few frauds like malware software, industrial espionage, cyber extortion, identity theft and intellectual property (IP) theft among many others. There are also reports of fiscal frauds, which are described as frauds against the government. Fiscal frauds involve attacks on a government’s online channels, and include theft, such as fraudulent claims for benefits, and evasion of taxes.

According to various estimates, the average annual cost of cybercrime is believed to have increased 22% to 35% to 40% in the past five years. Viruses, worms, and trojans are the most common and frequent types of cyber attacks. Around 90% of US companies are estimated to suffer from malware attacks, 64% experienced web-based attacks, 44% experienced stolen or hijacked

computing devices, and 42% experienced malicious codes.

Cybercrime is not limited to any specific industry. Defense, utilities and energy, and financial services are the top industries in the US that suffer from cybercrime in terms of annual cost. Cybercrime is estimated to cost approximately £27 billion per year to the UK economy. The total cost of cybercrime was around $25 billion in China, $15 billion in Brazil, and $4 billion in India during 2010.

Clearly cybercrime has emerged as a serious threat to organizations across the globe. Although actual financial implications of cybercrime are difficult to measure, these statistics help quantify the possible risks and can help insurance companies understand the potential for loss from cybercrime activities.

Thus, it can be said that cyber insurance has gained importance in the modern society that is run with the help of computers and technology. The regulatory mechanism on the cyber world by the government is vague with no proper rapid response team or cyber protection of any sort.

However, more and more insurers have started giving out cyber insurance policies and many companies have begun opting for such insurance even though it is slightly costly.

CYBERCRIME INSURANCE IN INDIA

Although IT security technologies can provide preventive measure against cybercrime, it is impossible to ensure complete protection. The very nature of cybercrime is ever-changing with new schemes developing as rapidly as new technologies emerge.

Despite the implementation of

by the day.

The digital age has brought with it new challenges, especially those related to cyber security. In order to protect companies and customers from cyber attacks, insurance companies are offering cyber liability insurance policies.

As of now, the cyber liability insurance policy is not very popular in India. Companies had been opting for a general insurance policy until now. But given the rise in incidents of security breach in India, soon it will be a necessity.

However in the global markets, especially in the US, hacking attacks on US companies over the past two years have prompted insurers to massively increase cyber premiums for some companies, leaving firms that are perceived to be high-risk scrambling for cover.

The price of cyber coverage, which helps cover costs like forensic investigations, credit monitoring, legal fees and settlements, varies widely, depending on the strength of a company’s security. But the overall trend is sharply up and a lot of companies are opting for cyber insurance these days.

However, the spate of hacks is potentially good and bad for insurers. It means that they have to pay out more in claims to customers. But it also highlights the importance of buying insurance and gives them a reason to increase their rates for this ‘niche product’.

As more companies realize the importance of cyber insurance, and insurers move in to meet that demand, the cyber insurance market is set to touch about $7.5 billion over the next five years, according to a study by consulting firm Pricewaterhouse


preventive measures, cybercrime attacks could still result in substantial financial losses for any company. This financial risk, or exposure, can be mitigated by transferring risks to an external insurance company by buying the cover or setting aside funds to compensate for potential future losses, which is also called as self-insurance. Commercial general liability insurance is available for businesses to protect against potential losses such as property damage, worker’s injury, or natural disasters.

But traditional general insurance products do not cover cybercrime risk for a few reasons: the concept of cybercrime risk is relatively new, and the majority of commercial insurance provides coverage for tangible assets. Therefore, insurers must offer a specialized insurance policy to allow companies to transfer the risk arising from cybercrime.

In order to calculate premium rates and process claims after a cybercrime attack, an insurer needs to estimate the cost of loss from a cybercrime incidence. Since it is not easy to estimate non-financial losses such as reputation loss, companies who

purchase cybercrime insurance can only transfer the calculable financial loss risk to the insurer.

Insurance companies can as well accommodate an added absolute cyber insurance action to those companies and individuals that can authenticate application of an able-bodied cyber aegis basement and techno acknowledged best practices for their business activities.

Even authoritative framework in acceptable insurance area is able-bodied managed by the Indian government. With the access of time, new avenues are now accessible to insurance businesses.

To address the risk of cybercrime in the country, companies should use a combination of technology for prevention and insurance for mitigation. Through cybercrime insurance, companies can transfer financial consequences of IT security incidents to an insurer.

As cybercrime risk is relatively a new type of commercial risk, the challenges faced by the insurance company may result in a barrier to widespread availability of this type of insurance coverage.

Insurers will also experience significant impact across the insurance value chain. Thus, insurance companies offering coverage for cybercrimes will need to make adjustments to both IT and business processes.

Insurance companies need to find the right balance between developing in-house capabilities and seeking assistance from external professionals to effectively manage the life cycle of cybercrime insurance policies.

While putting cyber defence strategies into play, it is vital for organizations to take cognizance of the following key insights of deeper cybercrime risk assessment as constant increase in cybercrime and its impact, it is important for organizations to identify the crown jewels that need to be protected.

Enterprises need to carry out cyber risk assessment in depth to ensure that the right assets are adequately protected to limit the impact of the attacks. It is imperative for firms to build a robust cyber awareness programme that effectively educates its personnel and vendors alike, so that there is minimal damage when a cyber attack or a crime takes placE.

Registered O�ce: Nirmal Bang Securities Private Limited. 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. Through Nirmal Bang Securities Pvt. Ltd. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors investment in securities is subject to market risk. investment in securities is subject to market risk

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TTECHNICAL OUTLOOK FOR THE FORTNIGHT

he year 2016 was a real roller coaster for the markets. The markets were besieged with one

stumbling block after the other. Impediments included Brexit, Donald Trump’s election as President of the US, surgical strikes across the Line of Control and the demonetisation drive initiated by the government of India. However, the indices were resilient to such an extent that the Nifty hovered around the 8,000-7,900 mark.

As the Indian markets usher in 2017, the first two months will be crucial given the fact that quarterly results of India Inc will be released in the month of January. This will be followed by the Union Budget in February, with many expecting income-tax cuts to infrastructure spending to mitigate pains caused by the demonetisation drive.

Going ahead, a slowdown in the Indian markets will continue until companies come out with their third quarter earnings results in January ’17. The markets will witness fresh buying only if there are new triggers.

Trading volumes in the markets remained at a minimum, signalling the start of the holiday season. The markets are expected to remain non-directional for a few more days.

Technically, the Nifty failed to sustain above resistance levels of 8,240-8,270 during the week, indicat-ing a cautious to bearish view. Further, continuous sell-offs by FIIs amid high intraday volatility is likely to keep pressure on equities in the near term as well.

The weekly technical chart indicates that the Nifty has retraced 61.8% from its previous rally (Low-

7,516.85, High-8,968.70) by forming a low of 8,070. Looking at the techni-cal set up of the retracement, the Nifty is likely to continue its downfall as long as it stays below 8,240-8,270 levels on a closing basis.

Going ahead, immediate support lies at the 8,070 level on weekly closing. And any move below 8,070 level on a closing basis, may extend its fall towards 7,900-7,840 support levels provided by 78.6% of retracement.

On a short-term basis, the Nifty daily chart indicates that the Nifty is facing stiff resistance at 8,240-8,270 levels on a closing basis. Any move above the same will extend its rally towards 8,340-8,400.

The overall technical structure indicates that the view on the Nifty is bearish to cautious as long as it trades below 8,270-8,300 levels. Going forward, the Nifty is likely to remain under selling pressure.

The Bank Nifty faces immediate resistance around the 18,700-19,000 levels on the upside. There is an important support at 18,000-17,800 levels on a weekly closing basis and on a decisive close below, market participants can expect it to rally to 17,200-16,900 levels.

On the Nifty Options front for the December series, the highest Open Interest (OI) build up is witnessed near 8000 Put strike, whereas on the Call side, it is observed at the 8,300 level. We believe the market will remain range-bound in December with low volumes.

In the last expiry, we saw lower-than-average Rollovers in Nifty (63.10%) and Bank Nifty (61.49%) with positive cost of carry, indicating

profit-booking. Power (83.24% - long rollover) and Telecom (85.89% - short rollover) saw higher rollovers compared to the previous expiry.

We expect select stocks from Oil&Gas and IT sectors to outperform in this expiry while Automobile, Finance and Telecom stocks are likely to remain under selling pressure.

India VIX, which measures the imme-diate 30-day volatility in the market, remained in the range of 15-20 in early December. Going forward, VIX will likely move down further and settle in the range of 11 - 15.

The Put Call Ratio-Open Interest (PCR-OI) for Nifty Options has been in the range of 0.7-1.05 in November and early December and is quoting around 1.02 currently, implying a positive undertone in the market.

Going forward, one can expect the market to remain fairly range-bound in December with volumes remaining low. 8,300 level is likely to remain a strong resistance while 8,000 level is likely to give support. OPTIONS STRATEGY BANK NIFTY SYNTHETIC SPREAD

It can be initiated by ‘Buying 1 lot 29DEC 18000 CE (`425), buying 1 lot 29DEC 18600 PE (`350), selling 1 lot 29DEC 18000 PE (`93) and selling 1 lot 29DEC 18600 CE (`102). The net combined premium outflow comes to around 580 points. There is no loss in the strategy and the profit is limited to 20 points or `800. Market participants will have to hold the strategy till 29DEC expiry. With low volatility, the low risk strategy will provide a cushion with certain profits in DecembeR.


Buckfast Recommendations

About Buckfast Research

Disclaimer Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.

Source: ACE MF, NAV as on 14th Dec ’16.SIP returns as on 1st Dec ’16. M=Months, Y=Year, D=Days

Past performance is no guarantee of future performance.Returns are of Growth option of Regular plans

Returns which are below 1 year period are Annualized Returns

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.

It’s simplified...38 Beyond Market 16th - 31st Dec ’16

SCHEME NAME

550.1335.73

167.3824.94

220.53

19.7811.5816.5912.6312.50

1 Year

12.018.7111.82

-10.77

10 Years

24.6923.4421.5422.1821.02

21.1820.5318.3219.6519.07

5 Years

12.2410.9312.3813.1412.22

7 Years

34511334130269371802

AUM (Cr)3 Years

Historic Return (%)

Birla SL Equity Fund(G)SBI Magnum Multicap Fund-Reg(G)DSPBR Opportunities Fund-Reg(G)Kotak Select Focus Fund(G)ICICI Pru Multicap Fund(G)

NAV

Diversified Funds

Lumpsum

SCHEME NAME

167.38550.1324.94

220.53483.51

15.8121.5812.1012.8115.94

1 Year

14.1114.90

-13.6913.70

10 Years

15.3217.2914.4513.659.77

18.1720.9418.6517.5114.37

5 Years

15.0016.8816.0914.8412.41

7 Years

1302345169371802

15645

AUM (Cr)3 Years

Historic SIP Return (%)

DSPBR Opportunities Fund-Reg(G)Birla SL Equity Fund(G)Kotak Select Focus Fund(G)ICICI Pru Multicap Fund(G)HDFC Equity Fund(G)

NAV

SIP


SCHEME NAME

34.9124.0844.98

355.10

12.0714.9010.3213.11

1 Year

--

11.2212.70

10 Years

21.0814.4717.9116.07

19.4815.2817.9914.93

5 Years

14.2010.1412.2210.38

7 Years

2467697

218612641

AUM (Cr)3 YearsHistoric Return (%)

Mirae Asset India Opportunities Fund-Reg(G)ICICI Pru Select Large Cap Fund(G)Birla SL Top 100 Fund(G)HDFC Top 200 Fund(G)

NAV

Large Cap Funds

Lumpsum

SCHEME NAME

34.9124.08

355.1044.98

11.1912.9214.277.10

1 Year

--

12.5913.37

10 Years

12.838.988.829.73

17.7312.9712.8315.29

5 Years

15.8411.5811.3113.89

7 Years

2467697

126412186

AUM (Cr)3 Years


Mirae Asset India Opportunities Fund-Reg(G)ICICI Pru Select Large Cap Fund(G)HDFC Top 200 Fund(G)Birla SL Top 100 Fund(G)

NAV

SIP

SCHEME NAME

43.0135.8228.8949.83

17.4217.6017.7520.08

1 Year

----

10 Years

30.1035.9030.7743.74

25.1829.3722.6330.44

5 Years

19.90-

15.4123.51

7 Years

129872943392

4174


HDFC Mid-Cap Opportunities Fund(G)Mirae Asset Emerging BlueChip-Reg(G)Birla SL Small & Midcap Fund(G)DSPBR Micro-Cap Fund-Reg(G)

NAV

Mid and Small Cap Funds

Lumpsum

SCHEME NAME

28.8949.8343.01

100.0935.82

17.6320.9019.5919.3920.87

1 Year

---

18.67-

10 Years

21.6329.6020.1621.5724.73

24.2532.8724.8825.7529.41

5 Years

19.5526.4521.8120.77

-

7 Years

3924174

12987518

2943

AUM (Cr)3 Years


Birla SL Small & Midcap Fund(G)DSPBR Micro-Cap Fund-Reg(G)HDFC Mid-Cap Opportunities Fund(G)L&T Midcap Fund-Reg(G)Mirae Asset Emerging BlueChip-Reg(G)

NAV

SIP

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

SCHEME NAME

36.19259.54

16.8616.74

1 Year

-11.12

10 Years

23.0117.94

21.0417.12

5 Years

13.6312.56

7 Years

14581219


DSPBR Tax Saver Fund-Reg(G)HDFC Long Term Adv Fund(G)

NAV

Lumpsum

SCHEME NAME

36.19259.54

15.3516.15

1 Year

-13.58

10 Years

15.5011.52

19.2915.51

5 Years

16.3413.66

7 Years

14581219

AUM (Cr)3 Years


DSPBR Tax Saver Fund-Reg(G)HDFC Long Term Adv Fund(G)

NAV

SIP


Balanced Funds

Equity Savings (Arbitrage MIP) Funds

SCHEME NAME

31.2734.1627.1735.41

NAV

17.6619.0916.9015.93

3 month

14.4716.5214.4814.17

13.1016.0613.0713.24

3 Years

11.0613.6211.3511.48

5 Years

2871414152651

AUM (Cr)1 Year

Historic Return (%)

Birla SL MIP II-Savings 5(G)Birla SL MIP II-Wealth 25(G)Kotak MIP(G)SBI Magnum MIP(G)

SCHEME NAME

119.78417.29104.8210.80

NAV

14.9122.8223.1010.52

6 month

13.7214.3716.9811.70

21.2820.8420.38

-

3 Years

18.0216.8418.87

-

5 Years

8136146364627338

AUM (Cr)1 Year

Historic Return (%)

HDFC Balanced Fund(G)HDFC Prudence Fund(G)ICICI Pru Balanced Fund(G)Mirae Asset Prudence Fund-Reg(G)

SCHEME NAME

11.3530.2611.65

NAV

9.7721.0116.50

6 month

10.4915.4313.84

-11.09

-

3 Years

-10.03

-

5 Years

358348720

AUM (Cr)1 Year

Historic Return (%)

Birla SL Equity Savings Fund-Reg(G)HDFC Equity Savings Fund(G)ICICI Pru Equity Income Fund(G)

Monthly Income Plans

SCHEME NAME

207.1828.5338.2052.39

13.3617.8316.5918.64

3 month

10.7010.589.909.79

5 Years

15.5620.1022.4321.81

13.1114.6816.5216.60

1 Year

11.3311.7912.7013.16

3 Years

9048430

27553010

AUM (Cr)6 month

Historic Return (%)

Birla SL Treasury Optimizer Plan(G)BNP Paribas Flexi Debt Fund(G)HDFC Income Fund(G)ICICI Pru Income(G)

NAV

Income Funds

SCHEME NAME

29.5320.3417.9619.02

13.3620.4919.7523.11

3 month

11.0312.3710.6411.16

5 Years

20.3022.8621.4523.14

15.6517.5815.9115.91

1 Year

12.7114.2812.5612.48

3 Years

155681959132

1257

AUM (Cr)6 month

Historic Return (%)

Birla SL Dynamic Bond Fund-Ret(G)ICICI Pru Long Term Plan(G)L&T Flexi Bond Fund-Reg(G)UTI Dynamic Bond Fund-Reg(G)

NAV

Dynamic Bond Funds


SCHEME NAME

61.3326.9933.6020.91

10.4213.6612.9914.31

1 month

10.1810.6010.3810.75

3 Years

10.8211.9812.0015.25

11.7813.9913.2017.79

6 month

10.7111.9811.5514.62

1 Year

16659536995541928

AUM (Cr)3 month

Historic Return (%)

Birla SL Short Term Fund(G)Birla SL ST Opportunities Fund(G)ICICI Pru Short Term Plan(G)Kotak Flexi Debt Fund-Reg(G)

NAV

SCHEME NAME

20.1913.3112.8925.67

10.8011.3211.029.82

3 month

10.82--

10.22

5 Years

12.6213.0013.5711.42

11.3511.7411.6310.84

1 Year

10.98--

10.40

3 Years

9007974333682321

AUM (Cr)6 month

Historic Return (%)

Birla SL Medium Term Fund(G)HDFC Corporate Debt Opportunities Fund-(G)Reliance Corporate Bond Fund-(G)SBI Corporate Bond Fund-Reg(G)

NAV

Short Term Funds

Accrual Funds

SCHEME NAME

195.2321.7216.4536.34

9.288.629.73

11.38

1 month

9.439.869.509.51

3 Years

9.469.43

10.3111.54

10.299.81

11.0912.14

6 month

9.799.81

10.3310.42

1 Year

5459688793571111

AUM (Cr)3 month

Historic Return (%)

Birla SL FRF-Long Term Plan(G)Franklin India Ultra Short Bond Fund-Super Inst(G)ICICI Pru Ultra Short Term Plan(G)Kotak Banking and PSU Debt Fund(G)

NAV

Ultra Short Term Funds

SCHEME NAME

21.4023.0516.50

NAV

7.006.826.76

3 month

6.846.716.48

7.667.767.52

3 Years

8.578.348.44

5 Years

610755743816

AUM (Cr)1 Year

Historic Return (%)

ICICI Pru Equity-Arbitrage Fund(G)Kotak Equity Arbitrage Scheme(G)Reliance Arbitrage Advantage Fund(G)

Arbitrage Funds

RETURNS

-4.66%-6.27%0.54%3.39%

-1.96%9.77%8.79%

10.74%7.77%

Investmentin Nifty

-3.10%-1.09%0.43%9.27%3.80%

14.60%12.76%13.14%11.20%

BuckfastFundamentalMarket Model

1.56%5.18%

-0.11%5.88%5.75%4.83%3.97%2.40%3.43%

ValueAddition

Last 1 monthLast 3 monthsLast 6 monthsLast 1 yearLast 2 yearsLast 3 yearsLast 4 yearsLast 5 yearsSince Aug 2011

Returns as on 30th Nov ’16

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 90% allocation to equity and 10% to debt.


Awesome Oscillator shows the momentum of a small recent number of periods compared to the momentum of a larger number of prior periods

hen you hear the name ‘Awesome Oscillator’, what comes to your mind? That, it reminds you of a superhero film like the Amazing Spiderman or

Incredible Hulk!

Much like these superheroes, Awesome Oscillator too is a simple and easy-to-understand tool that can yield awesome results if used correctly.

Developed by famous stock market trader Bill Williams, Awesome Oscillator is a histogram designed to show momentum of a small recent number of periods compared to the momentum of a larger number of prior periods.

In other words, Awesome Oscillator shows how the current short-term momentum is doing in comparison with prior long-term momentum. This helps to understand the strength of the current trend and its direction.

The formula for Awesome Oscillator uses two different moving average periods, one short term and one long term. The short term period is a 5-period Simple Moving Average (also known as the Fast Moving Average) and the long-term period is a 34 period Simple Moving Average (also known as the Slow Moving Average).

In other words, the indicator calculates the difference between a 5-period SMA and a 32-period SMA.

However, unlike other momentum indicators and oscillators, Awesome Oscillator does not use the closing value of each period in its calculations. Instead, it uses midpoints of each period, i.e., High – Low/2.

The other advantage of using Awesome Oscillator is that

W unlike other indicators, which use complicated moving averages such as weighted moving average or exponential moving average, which are difficult to calculate, Awesome Oscillator uses Simple Moving Average, which is very easy to calculate.

Formula

Awesome Indicator = SMA (Median price, 5 period) – SMA (median price, 34 period)

Where,Median price = H-L/2, where H = high of the period and L is the low of the period.

UNDERSTANDING THE OSCILLATOR

As an oscillator, Awesome Oscillator fluctuates above and below a centerline called Zero Line.

Values of the oscillator are in the form of histogram bars, which are a mix of green and red bars both above and below a zero line. The red and green colour depends on the increasing and decreasing nature of oscillator values.


Awesome Oscillator crosses below the zero line, a sell order should be entered.

In Awesome Oscillator, the buy signal is generated with 2 bars, where the second histogram bar is above the zero line and the first one is below the zero line, changing its value from negative to positive.

A sell signal is generated when the second histogram bar is below the zero line and the first bar is above the zero line, changing its value from positive to negative.

WHAT DOES IT INDICATE?

When Awesome Oscillator crosses above the zero line, it means that the short-term momentum is rising faster than the long-term momentum, and the trend is up.

When the Awesome Oscillator crosses below the zero line, it means that the short-term momentum is falling faster than the long-term momentum and the trend is down. Basically, the zero line crossover means that a new 1st wave of a new trend is coming and it is clearly an indication of a reversal.

ZERO LINE CROSSOVER STRATEGY

Buy when Awesome Oscillator crosses above Zero line.Sell when Awesome Oscillator crosses below Zero line.

If the last calculated value of the Awesome Oscillator is lower than the current value, the current bar is Green in colour, whereas if the last value is higher than the current value, the current bar is Red in colour.

In other words, the interpretation of the bars is that a Green bar indicates that the value of the Awesome Oscillator is higher than the prior bar and a Red bar indicates that the value is lower than that of the prior bar.

The Awesome Oscillator fluctuates between the positive and the negative territory (territory above the zero line is the positive territory and the territory below the zero line is the negative territory).

A positive reading means that fast moving average (5-period SMA) is greater than the slow moving average (34 period SMA) and a negative reading means that the fast moving average is less than the slow moving average.

A positive reading means that the histogram bar will be above the Zero line and a negative reading will mean that the histogram bar will be below the Zero line.

The positive and negative territories have no correlation with the colour of histogram bars, i.e., Green does not necessarily mean positive and Red does not necessarily mean negative.

A histogram chart is likely to show Green bars below the zero line when the Awesome Oscillator is negative or a Red bar above the zero line when it is positive.

Values above the centerline suggest that the short-term period is trending higher than the long-term period.

Values below the centerline suggest that the short-term period is trending lower than the long-term period.

(Remember, 5-period and 34-period are default settings in most charting software and it can be changed according to an individual’s needs).

HOW TO TRADE

ZERO LINE CROSSOVER

This signal is generated with 2 histogram bars. When the Awesome Oscillator bar crosses the zero line, it suggests that the market is now trending higher or lower.

In other words, if the Awesome Oscillator crosses above the zero line, a buy order should be entered, and if the

TWIN PEAKS

This is a situation when the Awesome Oscillator forms 2 peaks on the same side of the Zero line. When 2 peaks are formed below the zero line, it provides a trader with the opportunity to go long.

The second peak is usually higher than the first one, i.e., it must be closer to the zero line and it must be directly followed by a green bar. The trough or the histogram bars between the 2 peaks must also remain below the zero line as long as the setup holds.


When the 2 peaks are formed above the zero line, it provides a trader with an opportunity to go short. The second peak is usually lower than the first one, i.e., it is closer to the zero line and it must directly be followed by a red bar. The trough or the histogram bars between the two peaks also need to remain above the zero line as long as the setup holds.

Buy Saucer Setup

Awesome Oscillator is positive, above the zero line.2 bars of Awesome Oscillator are red.The 2nd bar is a little shorter than the 1st barThe 3rd successive bar turns green. This is a signal barBuy on the open of the next bar

Sell Saucer Setup

Awesome Oscillator is negative, i.e, below the zero line2 bars of Awesome Oscillator are greenThe 2nd bar is a little shorter than the 1st barThe 3rd successive bar turns red and this is a signal barGo short on the open of the next bar

PROS

terms of momentum in the current period as against momentum over a longer time frame

their calculation, the Awesome Oscillator uses midpoint, which better captures the volatility over that period

CONS

to its success on larger time frames.

extremely confusing signals as there are a lot of crossovers

colour changes from green to red and vice versa, there are a lot of fake signals

Like all indicators, the Awesome Oscillator too must be used with caution. Picking out correct set ups and avoiding fake signals comes with experience. Till then, it would be wise to use the Awesome Oscillator with other indicatorS.

sell Twin Peaks Setup

Buy Twin Peaks Setup

SAUCER

The saucer method attempts to identify the faster changes

successive histogram bars, which are all on the same side of the zero line when an investor is reading an Awesome Oscillator chart.

A bullish setup or a buy signal is generated with 3 bars when the histogram has reversed its direction from downwards to upwards. The Awesome Oscillator is above the zero line.

There are 2 successive bars of red colour, followed by a green bar. The second red bar needs to be lower than the first one. This is a buy signal.

A bearish setup occurs when the Awesome Oscillator is below the Zero line. There are 2 successive green bars followed by a red bar. The second green bar needs to be higher than the first one. This is a Sell signal.

The Reserve Bank of India (RBI) on 7th December maintained status quo on key policy rates against widespread expectations of rate cut. The policy tone was slightly hawkish.

What Just Happened?The Monetary Policy Committee (MPC) in its second meeting since its formation unanimously decided to hold repurchase rate (repo) at 6.25%. All the six members of the committee voted for status quo.

The decision is against market expectations of a repo rate cut of at least 25 basis points. The policy stance clearly indicates a wait-and-watch mode.

Why Were Many Expecting A Rate Cut?Through its monetary policy, the RBI needs to boost growth while keeping inflation in check. This time around, headline Consumer Price Index (CPI) eased more than anticipated for the third consecutive month in October to 4.2%. The inflation is within the RBI’s target of 5% by March next year.

On the growth front, the Indian economy grew 7.3% in the September quarter after expanding 7.1% in the June quarter of the current fiscal.

But demonetization is likely to impact growth in the near term. Thus, a 25 bps repo rate cut would have considered both - worries on growth and comfort on inflation. What Is Repo Rate? Repurchase rate is the rate at which banks borrow from the RBI in the event of any shortfall of funds by offering government bonds as collateral. It is a kind of key interest rate in the system and can be seen as a benchmark.

IMPORTANT JARGONFOR THE FORTNIGHT

Repo rate can influence interest rates in the short term in the system. This, along with liquidity (which is a function of cash reserve ratio or CRR) in the system, decides whether banks borrowing rates will come down or not. This will, in turn, decide whether banks will transmit monetary policy to its customers or not. Why A Wait-And-Watch Approach?There are a few uncertainties hovering around the Indian economy. On the external front, there is uncertainty regarding the US Federal Reserve’s outlook on interest rates over the next year.

It is highly likely that the US Fed will hike the rate in its 13th and 14th December meet. Another worry on the external front is crude oil prices.

The recent decision by the Organisation of the Petroleum Exporting Countries (OPEC) to cut crude oil production has led to a rise in crude oil prices. Some industry experts predict $60 per barrel for crude oil in the near term as against India’s current crude oil import price of around $45 per barrel.

What Is The Worry On The Domestic Front?On the domestic front, the members of MPC were worried that inflation could shoot up in the months to come. Food inflation is firming up. Award of the Seventh Pay Commission and one-rank, one-pension by the government is also inflationary in nature.

With this in mind the MPC thinks that the risk of achieving RBI’s inflation target of 5% by March next year is tilted to the upside. This is the most hawkish part of the Reserve Bank’s policy. What Will Be The Impact Of Demonetisation?The MPC thinks it is prudent to wait and watch as effects of demonetisation are still unfolding. It feels

RBI IN WAIT-AND-WATCH MODE



With the aim to deepen capital markets, Securities and Exchange Board of India (SEBI) in its board meeting on 23rd November decided to permit foreign portfolio

FOREIGN MONEY IN UNLISTED CORPORATE BONDS

demonetisation will have a temporary impact on growth in the short run. MPC will wait for more data before deciding on its next policy move. The RBI thinks that if the impact of demonetisation is transient as widely expected, growth should rebound strongly.

What Is The Policy On CRR? In the aftermath of the demonetisation announcement, the RBI forced an incremental CRR of 100% on bank deposits between 16th September and 11th November.

This was done to keep a check on abundant liquidity in the banking system. It is now being withdrawn and CRR is retained at 4% on deposits from 10th December.

CRR is the portion of deposits that banks keep with the RBI on which they don’t earn any interest. This move leaves banks with more money, thus helping liquidity.

Why Are Banks Happy?Additional CRR maintenance was a cost to banks. This lowered their margins. This was contrary to their expectations of potential benefits from low-cost deposits due to demonetisation in the country. Since CRR hike was temporary from 26th November to 10th December, banks are happy.

What Are RBI’s Projections? On inflation, the RBI is continuing with projection at 5% in March ’17 with risks tilted to the upside. But the RBI has cut the Gross Value Added (GVA) growth forecast to 7.1% from 7.6% for the year, mostly due to the impact of demonetisation on the economy.

Will Banks Cut Their Lending Rates?Since January ’15, the policy rate has come down by 175 basis points - from 8% to 6.25%. But banks have not cut their lending rates to that extend. This time around, liquidity is ample with banks.

With the Reserve Bank of India maintaining an accommodative stance, banks could lower their lending rates. More clarity would emerge on trajectory of inflation and impact of demonetisation on growth by the next policy on 8th February, which would mostly fall post the Union Budget. Some clarity on the fiscal front would also emerge by then.

investors (FPIs) to invest in unlisted corporate debt securities and securitised debt instruments with a ceiling of `35,000 crore.

Why Allow Foreign Investors In Unlisted Debt Instruments?The attempt by regulators to allow FPIs in unlisted and securitised debt is to further develop and strengthen the debt market in India. The move will enhance investor base for such instruments.

Why Focus On Debt Market?A vibrant corporate debt market is necessary to relieve banks of some burden of funding the borrowing needs of the Indian economy. The relaxation of norms will also help India garner more foreign funds.

What Is The Genesis Of Such A Move?Most recently, in the budget speech for 2016-17, Finance Minister Arun Jaitley announced the government’s intention to permit FPI investment in, among other instruments, unlisted debt securities, as a measure to deepen the corporate bond market. Further, to this effect, the RBI lifted restrictions on FPI investments in unlisted debt in September this year after releasing the Draft Circular for public comments on developing corporate bond market in India.

What Was The Status Of FPI Investments Before The Fresh Move?Before the fresh move by the market regulator, FPIs were permitted to invest only in non convertible debentures (NCDs) which are either listed or to be listed (within 15 days of investment made in them). As an exception, FPIs were permitted to invest in unlisted NCDs in the infrastructure sector.

Further, investment by FPIs in securitised debt instruments was not permitted. Nonconvertible debentures are bonds that cannot be converted to company equity or stock. They are unsecured bonds.

What Is The Limit For FPI Investing?According to SEBI, investment by FPIs in the unlisted corporate debt securities and securitised debt instruments shall not exceed `35,000 crore within the existing investment limits prescribed for corporate bond from time to time by the government, which currently stands at `2,44,323 crore.

As much as 67.59% of that limit has been utilized by FPI, till datE.

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DISCLAIMERIn the preparation of the content of this magazine, Nirmal Bang Securities Private Limited has used information that is publicly available, including information developed in-house. Such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgement of Nirmal Bang Securities Private Limited at the date of this publication/ communication and are subject to change at any point without notice. This is not a solicitation or any offer to buy or sell. This publication/ communication is for information purposes only and is not intended to provide professional, investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual recipients. For data reference to any third party in this material no such party will assume any liability for the same. Further, all opinion included in this magazine are as of date and are subject to change without any notice. All recipients of this magazine should seek appropriate professional advice and carefully read the offer document and before dealing and/ or transacting in any of the products referred to in this material make their own investigation. Nirmal Bang Securities Private Limited, its directors, officers, employees and other personnel shall not be liable for any loss (financial or otherwise), damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary and consequential, as also any loss of profit in any way arising from the use of this material in any manner whatsoever. The recipient alone shall be fully responsible/ are liable for any decision taken on the basis of this material. This magazine is prepared for private circulation only. Nirmal Bang Securities Private Limited, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Securities Private Limited or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

RNI Reg. No. MAHENG/2009/28962

Nirmal Bang Securities Pvt. Ltd.

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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

rni no. maheng/2009/28962 | volume 8 issue 12 | 16th...

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