The Finapolis March 16 by The Finapolis

Last Minute Tax Tips

Credit Suisse on US Economy

Investment Lessons from Cricket

Which Countries have the Best Image?

1st March 2016 `60

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Sombre Budget for Uncertain Times

The Finapolis l MARCH 2016

EDITOR’S DIARY

The

Your Personal Finance Advisor

Volume 9

Issue 12

March 2016

Editor Mubashir Ansari editor@thefinapolis.com Associate Editor Mandar M Bakre Editorial Board Phani Sekhar Amit Saxena KP Jeewan Jagannadhan T Design & Production Guru Prasath R Vijayendra Kumar Ch Advertising & Circulation Shabna R Iyer Anamika Mitra Vijayendra Kumar Ch

Indian Budget 2016: Something sombre in the leap year

magine all eyes were on India at end-February. The world economy is muddling along and we, the fastest growing emerging economy, were to unveil proposals for the coming year. By those standards, neither Arun Jaitley nor Suresh Prabhu

disappointed. Making the best of what they had (a poor economy) and the compulsions they faced (successive poor monsoons, Seventh Pay Commission recommendations) the two gentlemen delivered sombre budgets for these uncertain times. Yes,

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there were some misses, as most people were opti-

Printed & Published by Mubashir Ansari on behalf of Karvy Consultants Limited. Karvy House, 46 Avenue 4, Street 1, Banjara Hills Hyderabad - 500 034. AP.

a leap year. Of course that doesn’t prevent you from

Printed at Kala Jyothi Process Pvt. Ltd Regd.Office: 1-1-60/5 RTC Cross Roads, Musheerabad, Hyderabad - 500 020. AP. SVPCL Limited Regd.Office: 206/A, Concorse 7-1-58, Greenlands, Ameerpet Hyderabad - 500 016. AP.

mistic and hoped for something extraordinary in making money in the market, as we present our list of stocks that we remain bullish on. Stock market valuations are a function of the underlying economies, so Credit Suisse’s analysis of the US, China and Europe contained within offer some hope in these volatile times: the Swiss bank’s economists believe the US will grow, albeit slowly, China shouldn’t be discounted yet and that Europe could come around. And it’s not just stocks that should be on your radar. As our regular contributor K P Jeewan points out, bonds offer an excellent opportunity at the moment.

Published for the month of March 2016 Printed on March 1, 2016 Total No. of pages 68

For investors, there is the added advice of whether a robo financial advisor is a better bet than a human. And a review of SBI’s new home loan, which seems like a good deal for someone who does their homework.

All charts and tables are sourced from Bloomberg, unless otherwise indicated.

I am also happy to introduce new content: Variety, a new page that has been designed in an interactive and in a lighter vein.

For Editorial Queries Please contact The Finapolis Karvy Centre, 8-2-609/K, Avenue 4, Street No.1, Banjara Hills, Hyderabad-500 034 Tel: +91 40 66072560 Copyright The Finapolis. All rights reserved throughout the world. Reproduction in any manner is prohibited. The Finapolis does not accept responsibility for returning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self addressed envelopes and sufficient postage.

Mubashir Ansari

The Finapolis l MARCH 2016

CONTENTS 24 Rail Budget s Prabhu doe n what he ca

r Covey Stor

COLUMNS

... isan ird K i a J ’s th

ey Jaitl et has a g d bu focus l a r u r

Naveen Kukreja Is it Wise to Increase Credit Limit on Your Credit Card?

26 Economy

Look around the world, and India’s 7.5% growth rate doesn’t seem so bad

AN Shanbhag and Sandeep Shanbhag Some Tips and Tricks for Saving Tax

Manish Kumar Key Tier-II Cities Evolve Into Senior Living Hubs

MARCH 2016 l The Finapolis

WE ARE DIGITAL 28 Investment Advice

Bonds will give you big returns in coming years

With the proliferation of smartphones and tablet devices, reading habits are slowly but surely changing. We understand the importance of giving readers a cross-platform choice to access the magazine. The Finapolis is now available in a digital avatar as well via a global publishing platform such as Magzter and Indiamags. Besides allowing you to read on the go, the digital version offers an enhanced reading experience. It also eliminates delivery delays. You can download the digital magazine on the first day of every month. Go to www.magzter.com, Indiamags.com or Rockstand mobile app, search for ‘The Finapolis’, sample some pages of the digital magazine, and buy a subscription through your netbanking or credit card account. A one-year subscription for The Finapolis digital costs only Rs 540. You need to have a device that runs on Apple’s iOs, Android or Windows 8 operating system. Do let us know what you think of the digital experience by writing in to feedback@thefinapolis.com

Man vs Machine

Get up to date with robo financial advisors

Buy on

Home Loan

SBI has launched a new product

60 A country’s image matters

ETCETERA Follow us on

Adhil Shetty Choosing Between Equities and a Bank FD

twitter.com/KarvyFinapolis facebook.com/TheFinapolis linkedin.com/company/karvy

The Finapolis l MARCH 2016

inbox The Right Way to Invest in Mutual Funds The mutual fund industry is flood-

while investing. I totally agree with

ed with various schemes. So, it’s

the conclusion, “The central point is

difficult for an investor to choose

to select a mutual fund scheme that

mutual fund schemes as per his risk

helps one realise financial goals, is

appetite and goals. An article on

transparent and consistent in per-

“Five things to check before buying

formance, and has a sound invest-

a mutual fund” summaries the im-

ment philosophy.” — Govind Talwar, New Delhi

portant points one should consider

Improving Your Credit Score

Rental Jewellery – Flaunt it and return it indeed!

Playing Football on a Minefield for sure

tance of having good score. It also gave the

Renting of jewellery for occasions /

Indian equity markets don’t

vital tips to improve my score in the precise

marriages is completely new concept

seem to be attractive at this

way. I shall work upon it and re-apply after

in India. Thanks for sharing an article

time of the year. Author has

one year.

on such refreshing topic. I feel it is

rightly pointed out that the

better to rent things that are rarely

problems are troubled banks,

used and incur high expenses. Even

corporates straining under

such jewellery becomes out of fashion

debt burden and an aimless

after few years and then doesn’t earn

government. I see only two

returns. So, it’s better to take on rent.

options which can revive

However, most aging Indians have

growth in India, i.e., RBI cuts

traditional approach to the concept

interest rates and boosts

of jewellery on rent. So, it will be

liquidity to the market, or gov-

challenging to explain the benefits of

ernment increases investments

jewellery on rent. — Meenakshi Iyer, Kochi

by bearing a fiscal deficit - Vinay Garg, Pune

In last month my home loan got rejected due to poor credit score. Your timely article on this topic has explained me the impor-

— Kamal Roy, Indore

Disclaimer: The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Insurance against terror attacks need of the hour The threat of rising terror attacks across the globe has brought in insurance cover against such horrific situations in limelight. It was noteworthy to hear there are insurance companies giving cover for injuries under terror attack and death is covered by term policies — Cyrus Talati, Mumbai

Send your feedback and views on The Finapolis to feedback@thefinapolis.com

The Finapolis l MARCH 2016

 NET NEUTRALITY

FORM IV 1

Place of publication

Hyderabad

Periodicity of its publication

Monthly

Printer’s Name

Kala Jyothi Process Pvt. Ltd.

Nationality

Indian Company

Address

Regd Office, 1-1-60/5, RTC Cross Roads, Musheerabad, Hyderabad - 500 020, AP

Publisher’s Name

Mr. Mubashir Ansari On behalf of Karvy Consultants Ltd.

Nationality

Indian

Address

Karvy House, 46, Avenue Road, St No 1, Banjara Hills, Hyderabad-500034

Editor’s Name

Mr. Mubashir Ansari

Nationality

Indian

Address

Karvy House, 46, Avenue Road, St No 1, Banjara Hills, Hyderabad-500034

The details of equity share holders of Karvy Consultants Limited holding more than 1% as on 18-02-2016

Sl. No.

Name of Shareholder

Address of the Shareholder

C Parthasarathy

D. No.8-2-293/82/A/648, Plot No. 648, Road No. 34, Jubilee Hills, Hyderabad-500034

M.S.Ramakrishna

8-2-309/1 To 8. F.No. F-3, Trendset Vantage, Road No. 14, Banjara Hills, Hyderabad-500034

M. Gangadhar Rao

21 Avenue 4 Street No 1, Banjara Hills, Hyderabad 500034

M. Spandana

8-2-309/1 To 8, F.No. F-3, Trendset Vantage, Road No. 14, Banjara Hills, Hyderabad, 500034

Adhiraj Parthasarathy

D. No.8-2-293/82/A/648, Plot No. 648, Road No. 34, Jubilee Hills, Hyderabad-500034

Rajat Parthasarathy

D. No.8-2-293/82/A/648, Plot No. 648, Road No. 34, Jubilee Hills, Hyderabad-500034

M. Rajini

# 22,Nandagiri Hills, Road no 69, Jubilee Hills, Hyderabad-500033.

M. Ahalya

# 22,Nandagiri Hills, Road no 69, Jubilee Hills, Hyderabad-500033.

M. Rushyanth

8-2-309/1 To 8, F.No. F-3, Trendset Vantage, Road No. 14, Banjara Hills, Hyderabad, 500034

M. Meena

8-2-309/1 To 8, F.No. F-3, Trendset Vantage, Road No. 14, Banjara Hills, Hyderabad, 500034

M.S.Ramakrishna HUF

8-2-309/1 To 8, F.No. F-3, Trendset Vantage, Road No. 14, Banjara Hills, Hyderabad, 500034

C Parthasarathy HUF

D. No.8-2-293/82/A/648, Plot No. 648, Road No. 34, Jubilee Hills, Hyderabad-500034

Jhansi Sureddi

National Litho Printers, 26-3-158, N.R.P. Road, Gandhinagar, Vijayawada - 520003

Compar Estates and Agencies Pvt Ltd.

D. No. 8-2-293/82/A/648, Plot No. 648, Road No. 34, Jubilee Hills, Hyderabad - 500033

I, Mubashir Ansari, hereby declare that the particulars given above are true to the best of my knowledge and belief. Date : 1st March 2016

Sd/-

TRAI guidelines leave activists happy, telcos disappointed The Telecom Regulatory Authority of India (TRAI) ruled against differential pricing for Internet services in February, and said it would ask service providers to withdraw such tariff. “No service provider shall offer or charge discriminatory tariffs for data services on the basis of content,” the regulator ruled in its Prohibition of Discriminatory Tariffs for Data Services Regulations, 2016. TRAI said this prohibition was necessary to keep the Internet open and non-discriminatory. The regulator said that tariff for data services could not vary depending on the website/application/ platform/ or type of content that was being accessed. For example, a consumer could not be charged differently based on whether she was browsing social media site A or B, or on whether she was watching streaming videos or shopping on the Internet, it added. TRAI’s ruling is a major setback to Facebook’s plan to roll out free Internet to the masses under its Free Basics programme. TRAI and Facebook have been at loggerheads over

the issue and TRAI even called Facebook’s attempt to lobby for its Free Basics initiative a “crude” lobbying attempt. In an emailed statement, Facebook said, “While disappointed with the outcome, we will continue our efforts to eliminate barriers and give the unconnected an easier path to the Internet and the opportunities it brings.” Rajan Mathews, Director-General of the Cellular Operators’Association of India (COAI), told reporters: “We are very disappointed with the ruling. Differential pricing is an effective marketing tool and would have helped in bringing online the next one billion people. We are confused as the decision comes at a time when the government is pushing adoption of Internet.” However, TRAI’s decision was cheered by Net Neutrality activists and industry bodies such as Nasscom and IAMAI. TRAI added that a service provider could reduce tariff for providing emergency services or at times of any grave emergency, but said this would have to be reported to the authority within seven working days.

MARCH 2016 l The Finapolis

 DUMPING PROBE

AUTO ERROR Honda India recalls ~58,000 cars, mainly City and Jazz models Honda Cars India has announced the recall of 57,676 units of three models, the City, Jazz and the Civic to replace faulty airbags. The recall is part of a global exercise by the company. The cars being recalled were manufactured between January 2012 and June 2013.

The US voted to continue its investigations on certain new pneumatic off-the-road tyres being imported from India and Sri Lanka, while terminating a similar investigation on tyres from China. In a statement, the US International Trade Commission (USITC) said it determined that there was a reasonable indication US tyremakers were materially injured by imports of certain off-the-road tyres from India, which are allegedly sold in the US at less than fair value, and are subsidised by the governments of India and Sri Lanka. All six commissioners of the USITC voted in the affirmative with respect to India and Sri Lanka and determined that imports under these investigations from China are negligible. Following the commission’s decision, the US Department of Commerce will continue to conduct its investigations on imports of these products from India and Sri Lanka, with its preliminary countervailing duty determinations due on or about April 4, 2016, and its preliminary antidumping duty determinations due on or about June 16, 2016.

the Honda Jazz hatchback produced between February 2012 and

JOINING HANDS

Indian tyres under US scanner

The recall will affect 49,572 units of the Honda City model made between January 2012 and June 2013 and 7,504 units of February 2013, the company said in a statement, adding that 600 units of the Honda Civic sedan made between January 2012 and August 2012 would also be recalled. “The replacement would be carried out free of cost at Honda Cars India dealerships across India in a phased manner, starting from February 20, 2016. The company will communicate with customers directly,” it said. In September, Honda Cars India had announced to recall around 2.24 lakh units of its premium sports utility vehicle model the CR-V, as well as the sedans Civic and City and the hatchback Jazz, manufactured between 2003 and 2012, to replace faulty airbag inflators in which was the largest such exercise in the country then. Later in December, the company announced another recall, covering 90,210 units of the City and the multi-purpose vehicle Mobilio model manufactured between December 2013 and July 2015, to replace a faulty fuel return pipe.

Indian automakers unite to make electric vehicles Three of India’s biggest automakers have come together to develop electric vehicle technology. Maruti Suzuki, Tata Motors and Mahindra & Mahindra will combine their research and development efforts in areas like motor and

The alliance entails an investment of Rs 22-25 crore, and the government will invest an equal amount under the ‘faster adoption and manufacturing of hybrid and electric vehicles’ (FAME) programme that was announced last year. Formation of the alliance will help the three companies keep pace with foreign automakers, some of which

transmission. “It will take at least one-

have already made substantial invest-

and-a-half years before we see some-

ments in this area. Ford plans to have

thing,” Mahindra Reva Chief Executive

13 electric vehicles on the road by

Arvind Mathew said. “The software and

2020. “Foreign companies need not

integration part will remain exclusive to

participate in our local programme

the three companies while motor and

since they are already developing their

transmission knowhow will be shared.”

own,” added Mathew.

The Finapolis l MARCH 2016

 NEW NAMES

2.45 lakh homes lying vacant

DGCA to review airlines’ call signs

There are 2.45 lakh low-cost houses lying vacant all over India, statistics with the ministry of housing and urban poverty alleviation showed, with Gujarat, Maharashtra, Delhi, Madhya Pradesh and Andhra Pradesh accounting for almost 70% of the vacancies. The maximum number of low-cost houses lying vacant are in Maharashtra (52,966), followed by Gujarat (29,126), Delhi (26,759), Madhya Pradesh (26,004) and Andhra Pradesh (23,688). The ministry’s statistics also revealed that despite the sanctioning of 14 lakh lowcost houses, state governments had only built 8 lakh units. Of these, 2.45 lakh had found no takers. These houses had been constructed under different urban housing schemes. The government plans to build 2 crore low-cost houses under its unified housing mission, the Pradhan Mantri Awas Yojana, which includes 14 lakh slum redevelopment dwellings.

The Directorate General for Civil Aviation (DGCA) has decided to review call signs given by air traffic controllers to all airlines in order to prevent confusion in the air, after incidents mid-air near misses between airplanes. A committee headed by DGCA’s joint director general Lalit Gupta has been formed to review the same, and will have representatives from the Airports Authority of India, domestic airlines and the Delhi airport. The move was triggered by an incident in 2014 when two aircraft of different foreign airlines came

TEST OF STEEL

LOW-COST HOUSING

close to each other in the Kolkata airspace due to their call sign being similar. Both flights were bound for the same airport. “The air traffic controller would give clearance to one airline

ArcelorMittal to raise $3 bn capital Lakshmi Mittal-led ArcelorMittal, the world’s largest steelmaker, announced plans to raise $3 bn in fresh capital in a bid to reduce debt in the face of weakness in the steel and mining sectors. The company said it would also receive an additional $1 bn from the

Matyas Rehak / Shutterstock.com

sale of its 35% stake in Gestamp, which manufactures specialized, automotive stee.

“This capital raise, combined with the sale of our minority shareholding in Gestamp, will

‘My name is Smriti Irani. I challenge you to tell me my caste’ - Smriti Irani , Union HRD Minister, speaking in parliament

and due to similar call signs, it could be mistaken as clearance given to another airline which is a serious matter,” a DGCA official told reporters. “The Committee will review all the relevant regulations, international best practices and suggest measures for safety of aircraft operations,” said a letter written by Director General of Civil Aviation chief M. Sathiyavathy. The committee is mandated to submit its report by end of March. A call sign refers to the airline code and number which is allotted to a particular flight.

accelerate the company’s debt reduction plans and enable us to reduce net debt to less than $12 billion,” Arcelor Mittal CEO Lakshmi Mittal said in a statement. The Mittal family, which owns around 37% in the steelmaker, is expected to subscribe to its share of the capital call. ArcelorMittal faces almost $15 bn of bond repayments over the coming six years.

Quote of the month

MARCH 2016 l The Finapolis

 news scan

TAKING CHARGE

AUTO ERROR EXIT STRATEGY

Bengal’s Amit Mitra to chair states’ GST committee

Vijay Mallya loses crown jewel

West Bengal Finance Minister Amit Mitra was unanimously elected as the new chairman of the Empowered Committee of State Finance Ministers on Goods and Services Tax (GST). The meeting was chaired by Finance Minister Arun Jaitley. Mitra, who could not attend the meeting due to illness, was informed about his elevation by Jaitley over the phone. The committee is tasked with framing the rules for the roll-out of the GST regime, which will subsume all indirect taxes and create one national market across the country. Mitra was Secretary General of the Federation of Indian Chambers of Commerce and Industry (Ficci) before he joined politics in 2011.

Vijay Mallya resigned as the non-executive chairman of Unites Spirits in February. “The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo and United Spirits Limited. Accordingly, I am resigning my position with immediate effect,” he said a statement sent to the media. “Having recently turned 60, I have decided to spend more time in England, closer to my children.” In another statement, Diageo said Mahendra Kumar Sharma, currently an independent non-executive director and chairman of the company’s audit committee, would replace Mallya. “The financial terms of today's agreement with Dr Mallya provide for a payment of $75 million (approximately £53 million) to Dr Mallya over a five year period. This payment will be charged to exceptional items in the year ending 30 June 2016,” Diageo said. Diageo and Mallya also signed a global (excluding United Kingdom) five-year non-compete arrangement. However, soon after the announcements, news reports broke out of the capital markets regulator SEBI looking into the agreement for possible violations of corporate governance and insider trading norms.

weet up The Railways are a microcosm of India. Hence making its budget is just as complex. But this minister appears to have done his homework (1/2) - @anandmahindra

The budget is a good balance between growth & operational efficiency. Signals to the world that we have a competent hand at the controls (2/2) - @anandmahindra

Women spend more time than men doing unpaid work. Melinda explains how we can change that: http://b-gat. es/20YwRSm - @BillGates

Society only rewards people who strengthen and fortify the existing beliefs. - @MaheshNBhatt

The Finapolis l MARCH 2016

 newsmaker

Ratan Tata looks on during an Air Asia India launch event in Bengaluru in 2014 — AFP

Ratan Tata Ratan Tata has had a busy February. The chairman emeritus of Tata Group first announced a partnership with the University of California to jointly fund start-ups in India. Next came news of his investing in Invictus Oncology, another in fairly long line of investments in the past 18 months, including Infinite Analytics Inc (data analytics), Snapdeal, Paytm (digital wallet), Ola (cabs), Tracxn Technologies (data analytics), Dogspot.in and Zivame.

Tata’s big news of the month broke out when he asked the government to scrap the 5/20 rule. This is a peculiar rule that requires airlines to have operated domestically for a minimum of five years and to have a minimum fleet size of 20 aircraft before they can fly overseas. New airlines call for the rule to be dumped during their early years, then switch sides as their own qualification date nears (to keep others out). The Tatas, which run two airlines, a low-cost carrier and a full-service airline,

are only the latest to demand the same. But Tata’s words carry weight, and the other private airlines alleged that his letter seeking the removal was an act of “self-interest” and not “national interest”. The real point isn’t that the airlines are divided over 5/20, though. It is that the aviation ministry is undecided. The ministry issued its draft civil aviation policy in December 2014, but hasn’t been able to finalise the policy till date. The final policy will tell us whether 5/20 stays or goes.

The Finapolis l MARCH 2016

results update

We take a look at some companies’ quarterly results to figure out what impact they will have on the share prices Motherson Sumi

Motherson Sumi Systems Ltd. (MSSL) delivered decent performance in Q3FY16 despite overall challenging environment and headwinds in domestic business. Its consolidated revenues/EBIDTA/adj PAT grew by 8%/14%/25% YoY and 7%/2%/ 3% QoQ to Rs 98.6bn/9.7bn/3.3bn. Its EBIDTA margin expanded 57 bps YoY (down 53 bps QoQ) to 9.9%,

Bharat Forge

Bharat Forge Limited (BFL) delivered strong operating performance in Q3FY16 with 137 bps QoQ improvement in EBIDTA margins despite weakness in its export business. In Q3FY16, its Revenue/EBIDTA/ adj PAT declined by 12%/12.4%/14% YoY and 6%/1%/3.5% QoQ to Rs 10.5bn/ 3.2bn/ 1.69bn. The company’s volume has declined by 5% YoY and its average pricing contracted by 7.7% YoY, due to product mix and company passing on commodity benefit. Its EBIDTA margin grew by 137 bps QoQ (marginally down by 9 bps YoY) to 30.2%, as its Raw material/Sales declined 305

Current Market Price Rs 778 Target Price Rs 970 Potential Upside 25%

benefitted by lower commodity prices. Its standalone revenue grew by 2.3% YoY (down 8.9% QoQ), due to passing on commodity benefit to customers coupled with Chennai

Current Market Price Rs 242 Target Price Rs 305 Potential Upside 26% Q3FY16. SMR’s EBIDTA margins

impact of subdued standalone performance and improving overall profitability of MSSL. In view of strong business profile, strong order book, improving margin profile and strong performance in very challenging business environment, analysts maintain positive view on MSSL. Post recent price correction, at CMP, stock

flood impact. Better operating

expanded by 10 bps YoY and

margins at SMR and SMP bene-

100 bps QoQ to 10.6%, highest

potential upside of greater than

fitted overall EBIDTA margins in

margins till now, which nullified

25% from current level.

bps YoY, while Other Expense/Sales rose 126bps YoY (down 73 bps QoQ) to 9.5%. Additional bonus expense due to new bonus act and one time maintenance expense at European subsidiary also pulled down overall profitability during the quarter. The sharp decline in its oil and gas business, subdued domestic industrial segment, lower domestic UV/tractor volume and higher decline in US HCV production impacted overall performance of the BFL. Analysts expect BFL to scale up its performance on the back of (i) Ongoing uptrend in domestic CV and (ii) Improvement in US auto business with client addition, product addition, market share gain and better traction in PV business, (iii) Strong booster from domestic non auto business (Aerospace, Engineering, Defense) over FY17-FY18. Management has guided for strong revenue growth over FY15-FY18 and targets healthy operating margins around current level. In view of higher-than-expected slowdown in overseas business, analysts marginally lower revenue estimate by 2-3% for FY16/ FY17/FY18. Due to strong business outlook over long term and attractive valuation post sharp price correction, analysts see more

ACC

than 25% upside from current market price. The stock is valued at 20x FY18 EPS.

has potential upside

appears attractively valued with

ACC’s Q4CY15, net sales at Rs 28.5 bn (+3% YoY) was in-line with analyst estimates of Rs 28.2 bn though the volume came marginally higher (which increased by 4.3% YoY to 6 mt (vs. estimate of 5.9 mt) and the net realisation at Rs 4744/t (-1.3% YoY, -2.9% QoQ) came a bit lower than expectation. EBITDA at Rs 2.1 bn (+21% YoY) was lower than estimate on account of higher employees cost (which includes Rs 320 mn of one-off expense). The total operating cost of Rs 4383/t declined by 2.5% YoY led by moderation in energy cost and freight cost. EBITDA/tonne improved by 16% YoY to Rs 360/ ton. PAT increased 6% YoY to Rs 1.35 bn. Cement volumes declined by 2.4% YoY in CY15 (positive growth only seen in Q4) on account of poor demand across the regions and lack of capacity addition by the company. Analysts expect volume CAGR of 5.7% during CY15-17, which will be driven by Jamul capacity expansion and pick-up in demand. The stock trades at 13.7x/10.1x CY16/CY17 EV/EBITDA. Based on 11.5x CY17 EV/EBITDA valuation the stock of 12%.

Current Market Price Rs 1266 Target Price Rs 1422 Potential Upside 12%

MARCH 2016 l The Finapolis

results update JK Cement

JK Cement’s Q3FY16, net sales increased by 13% YoY to Rs 9 bn, led by 16% YoY increase in

for FY16/17/18 by 12%/1%/7% to factor in better margin. Blended cement volume estimated to grow 9% CAGR during FY15-18 led by pick-up in

total volumes. The grey vol-

demand and

umes increased 16.3% YoY to

ramp-up of

1.77 mt while white cement

the recent

(including wall putty) vol-

capacity

ume grew by 11% YoY to

expansion at

0.25 mt. The grey cement

Mangrol (Ra-

realisation declined 4%

jasthan) and

YoY on account of decline in prices in north/central regions during the quarter. EBITDA at Rs 1.26 bn grew 28% YoY, on account of operating margin expansion led by moderation in variable costs. Blended EBITDA/tonne increased 10% YoY to Rs 624/ton. Grey cement EBITDA/ton stood at Rs 255/ ton (+5% YoY) as the muted

Jhajjar (Haryana). EBITDA/ton expected to improve to Rs 876/t by FY18 from Rs 619/t in FY15 (led by realisation improvement, moderation in operating cost and operating leverage benefits) implying 23% EBITDA CAGR. With net debt expected to peak out at Rs 23 bn in FY16, net debt/ equity is expected to come

realisations were negated by

down to 0.9x by FY18 (from 1.3x

the lower operating cost.

in FY15). Post the recent cor-

Current Market Price Rs 454 Target Price Rs 672 Potential Upside 48% Analysts cut revenue es-

rection in stock price by 20%, the valuations look attractive at 8.2x/6.1x FY17/18 EV/EBITDA and $62/ton on FY18 capacity.

Current Market Price Rs 374 Target Price Rs 425 Potential Upside 14%

from the recent commissioning of Durg unit. However, the over-

144% YoY as the operating

all demand has been muted in

margin improved significantly

its markets which led to flattish

(+1740 bps YoY) led by higher

realizations. The total cost/ton

realisation and 12% YoY decline

increased 3.7% YoY to Rs 3301/t

in total cost/ton to Rs 3489/t

which further dragged down

(primarily led by 15% YoY de-

EBITDA/ton by 24% YoY to Rs

cline in variable cost). Cement

380/t. Thus, EBITDA declined

EBITDA/tonne increased 161%

by 11% YoY to Rs 669 mn as the

YoY to Rs 1506/t. Going ahead,

muted realizations offsets the

analysts expect realisations to

impact of moderation in energy

remain firm and estimate vol-

cost. Volume is seen growing at

ume CAGR of 4.7% during FY15-

14% CAGR during FY15-18 led by

18. EBITDA/t expected to improve to Rs 1522/t by FY18 from EBITDA CAGR. With increase in

Rs 672 based on 8x FY18 EV/

profitability and no major capex

EBITDA.

going ahead, net Debt/Equity is expected to come down (0.3x by FY18 from 0.9x in FY15). Val-

Ramco Cements Q3FY16, net

uation at 7.6x FY18 EV/EBITDA most of the positives. Based on

offset the impact of better re-

8.5x FY18 EV/EBITDA, the stock

pricing. However, analysts have

alisations. The cement demand

has potential upside of 14% from

increased EBITDA estimates

remained weak in south region

current market price.

quarter on the back of strong performance in US region and Domestic markets. Operating margins

improved to 24.2% compared

enues by 3.3%/2.6%/2.7% for

to 20.4% in Q3FY15, due to

FY16/17/FY18 due to domestic

higher other operating

formulations and EU business.

Net Profit at Rs 3,896 mn in Q3FY16 grew by 38.2% YoY as compared to our estimate of Rs 3,948 mn. Analysts have downgrade rev-

weak in its key markets of North

EBITDA at Rs 2.45bn grew by

Rs 8.1bn as the poor volumes

bn during the

to Rs 3,681/t as prices remained

account of additional volumes

of 48% with target price of

and overhead cost.

1.76 mt. Realization was flat YoY

strong (+9% YoY to Rs 4995/t).

Rs 863/t in FY15 implying 27%

income and lower staff

volume growth of 17% YoY to

volume growth was mainly on

FY17 to factor in weak demand/

YoY to Rs 24.3

YoY to Rs 6.48 bn on strong

the cement realisation remained

sales increased by 3% YoY to

grew by 10.9%

ment’s net sales increased 16.6%

and Central regions. The strong

timates by 2%/5% for FY16/

Cadila’s revenues

In Q3FY16, JK Lakshmi Ce-

in volumes to 1.63 mt. However,

looks fairly valued and factors in

Cadila Healthcare

JK Lakshmi Cement

which led to 5.5% YoY decline

The stock has potential upside

Ramco Cements

Also downgrade EBDITAM by 100 bps for FY16 due to higher research and development expenses. Based on 18x FY18 valuation the stock has potential upside of 10% from current market price.

capacity expansion and higher demand. The stock has potential upside of 44% from current market price based on valuation of 7x FY18 EV/EBITDA.

Current Market Price Rs 276 Target Price Rs 397 Potential Upside 44%

Current Market Price Rs 326 Target Price Rs 360 Potential Upside 10%

The Finapolis l MARCH 2016

the chartist Realty Projects Its Reality for â&#x20AC;&#x2122;16 The year has begun on a mixed note for real estate. What is the participantsâ&#x20AC;&#x2122; mood like? An anonymous online survey by JLL threw up some insights, among which was that participants believe the industry has some bloodletting to do, either via consolidation or rationalisation.

Market Fundamentals Do participants foresee market fundamentals (sales) improving over the next 12 months? Disagree

Agree

66.7%

33.3%

Refinancing Cycle Is the current refinancing cycle likely to meet its logical conclusion over the next 12 months? Disagree

Agree

71.1%

28.9%

Consolidation Due to weak fundamentals currently, the real estate sector will witness consolidation over the next 12-18 months? Disagree

Agree

80%

20% Distressed Deals

Will the incidence of distressed deal change over the next 12 months? Increase

66.7%

Decrease

8.9%

Remain the Same

24.4%

MARCH 2016 l The Finapolis

The Chartist Return on Investment Expectations Will the ROI expectation on an average change over the next 12 months? Increase

Remain the Same

Decrease

4.4%

51.1%

44.4%

Top 3 Asset Types Over the next 3 years, which top 3 asset type would be part of your investment portfolio?

% of respondents

60 40 20

ble

rda

id e nti a

ffo

lM de

nti a de

Re si

l rcia

l Lu

nti a de

Re si

Off

xur y

Com

ice

Off

ice

ITe

SEZ

ice

Off

Re tai

usi

ria

ust

spi

tal

Wa re

3s tar

Ind

2& ity

4& Ho

spi

tal

ity

Edu

cat

ion

5s tar

Top 3 Cities Over the next 3 years, which top 3 cities would be part of your investment portfolio? 120

100

% of respondents

80 60 40 20

Relaxation in FDI Guidelines Impacting Smaller Projects Will the recent relaxation in FDI guidelines lead to a spurt of investments in smaller projects over the next 12 months? Agree

66.7%

Disagree

33.3%

FDI Guidelines

er Ind citi ian es

Oth

Ko lka ta

ne Pu

ba d

Hy de ra

ai nn Che

re ng alo Ba

NC R

Mu & M mbai MR

20 The Finapolis l MARCH 2016

The Chartist REIT Listings Will the first set of real estate investment trust (REIT) listings hit the Indian capital markets in the next 12 months? Disagree

Agree

33.3%

66.7%

Newer Sources of Capital Are newer sources of capital (Japan, China) likely to start investing in India in the next 12 months? Disagree

Agree

62.2%

37.8%

Affordable Housing as an Investment Theme Are funds likely to consider affordable housing as a viable investment theme over the next 12 months? Disagree

Agree

48.9% Active Acquirers and Divestors

Investor Participation

Would the number of active acquirers change over the next 12 months?

71.1%

Decrease

6.7%

As compared to last 5 years, has the investor participation in developerâ&#x20AC;&#x2122;s operations changed today?

Remain the Same

22.2%

Increase

86.7%

Decrease

6.7%

Remain the Same

6.7%

Ideal Holding Period Based on past experiences and strategy, what would be ideal holding period of your investment? 2-3 YEARS

11.1%

3-4 YEARS

20%

4-5 YEARS

44.4%

5-6 YEARS

24.4% Source: JLL

Increase

51.1%

MARCH 2016 l The Finapolis

VARIETY KNOW YOUR COUNTRY(MAN)

n 1974, a young N R Narayana Murthy was hitchhiking his way back to Mysore from Paris. His journey took him through Bulgaria, where he recalls boarding a train on Sunday night and discovering, "the only passengers in my compartment were a girl and a boy". Murthy struck a conversation with the young girl in French, but some time later, they were roughly interrupted by some policemen. Murthy later learnt they had been summoned by the young man, who thought Murthy and the girl were criticising Bulgaria’s communist government. Murthy was thrown into an 8 ft x 8 ft room with a cold stone floor and a hole in one corner by way of toilet facilities and held there without food or water for over 72 hours. When he was finally let go, the guard told him it was because "You are from a friendly country called India". Murthy remembers the subsequent journey as pivotal: "This long, lonely, cold journey forced me to deeply rethink my convictions about Communism. Early on a dark Thursday morning, after being hungry for 108 hours, I was purged of any last vestiges of affinity for the Left. I concluded that entrepreneurship, resulting in large-scale job creation, was the only viable mechanism for eradicating poverty in societies."

WISE WORDS Markets tend to be manic depressive. They move from excessive optimism to excessive pessimism — Nouriel Roubini, American economist

ANSWER BACK # 1 Its only a few questions long, but the Finapolis quiz will still test the mettle of the best: we ask anything on everything. This month, we ask you about overseas Indians. 1) Once known as the ‘Joint Venture King of India’ this billionaire now heads an Indian conglomerate based in Singapore. What is his name? A) B K Modi

B) J V Zariwala

C) Mayuresh Pashankar

D) P V N Rao

2) This Indian Googler was appointed head of operations for a Japanese bank, and became the highest-paid Indian-born executive. Name the executive. A) Nikesh Arora

B) Leslie Matthew

C) Shilpa Senapati

D) Vinita Iyer

3) Brother to a famous Indian-born journalist, this Wall Street banker was unexpectedly fired in 2003 by a CEO who was subsequently disgraced during the subprime crisis. A) Vinny Karkaria

B) Arshad Zakaria

C) James Nalapat

D) Kaizad Zakaria

4) Which of these inventions is not related to Mohan Bhargava? A) 5-hour energy drink B) Space exploration C) Free electricity cycle D) Sea water to fresh water

----------------------------------------------------------------------------------------------------------------------------------------------Send your answers to feedback@thefinapolis.com latest by March 31, 2016. Winners will be acknowledged in the quiz section of the subsequent month’s issue.

SEE AND SMILE

The Finapolis l MARCH 2016

COVER STORY

UNION BUDGET 2016-17

A TALE OF TWO BUDGETS

Jaitley says ‘Jai Kisan ’…

In his third budget, the finance minister looks to make rural folks richer By Team Finapolis inance Minister Arun Jaitley presented his third Budget on February 29, putting forth a plan primarily focused on the rural sector, social sector, infrastructure and recapitalisation of banks. Two years into the NDA’s term in office, Jaitley sought to direct more money to the small farmer, who, he said, forms the backbone of the Indian agricultural system. “Our commitment to farmers runs deep,” Jaitley said in his speech, as he pledged to double farmers’ incomes in five years. The focus on agricultural and rural spending, necessary in part due to two successive poor monsoons, did not prevent Jaitley from meeting the additional spending burdens arising from the Seventh Pay Commission, and still staying true to his promise of fiscal consolidation. A strong push for infrastructure underlined Prime Minister Narendra Modi’s stamp on the budget — robust infrastructure is central to the success of Modi’s ‘Make in India’ scheme — with public spending on infrastructure increased over 22%. The Centre is seeking to build 10,000 km of national highways and upgrade 50,000 km of state highways in FY17E, besides expanding rail networks and power capacity. The investment in the road sector, including Prime Minister’s Gram Sadak Yojana allocation, totalled Rs 97,000 crore. Jaitley also proposed the development of new greenfield ports on the eastern and western coasts, as well as

the revival of underserved airports. The Centre would partner with states to revive small airports for regional connectivity, he said. All this, while sticking to the target fiscal deficit of 3.5% of GDP, as mandated under the Fiscal Responsibility and Budget Management Act. FY16’s fiscal deficit target of 3.9% is also likely to be achieved, despite the global headwinds. Jaitley was optimistic on his income

projections, however. Non-tax revenue was seen at Rs 3,22,921 crore, up from just against the Rs 2,58,576 crore realised in FY16. The finance minister budgeted for about Rs 1 lakh crore to come in from spectrum auctions and Rs 56,500 crore from disinvestment in public sector undertakings — this is more than double the Rs 25,313 crore that has actually been raised from disinvestments in FY16. The growth seen in tax revenue receipts for

Highlights Personal Finance • People with income less than Rs 5 lakh to get deduction of Rs 5,000 under section 87A, up from Rs 2,000 last year. HRA deduction up from Rs 24,000 to Rs 60,000 p.a. • No changes to existing income tax slabs • Additional exemption of Rs 50,000 for housing loans up to Rs 35 lakh, provided cost of house is not above Rs 50 lakh • Dividend in excess of Rs 10 lakh per annum to be taxed at additional 10% • 40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt • Limited tax compliance window from June 1 - Sept 30 for declaring undisclosed income at 45% including surcharge and penalties

The full contents of the FM’s Budget Day briefcase: Budget Speech financial year • Fiscal Policy Strategy Statement for the financial year

MARCH 2016 l The Finapolis

COVER STORY FY17 was also on the higher side, as it factored in 9% growth in corporate taxes, 18 % growth in taxes on income and 12 % growth in excise revenues which is on the pretext of better recovery in the economy.

Start-ups In a bid to boost start-ups, Jaitley did away with tax for the first three years out of the five years from April 2016 to March 2019. Furthermore, the finance ministry is working towards ensuring that new companies can be registered in a single day. Also, shops can now stay open all seven days of the week.

Financial reforms Jaitely announced reforms in the FDI policy in the areas of insurance and pension, asset reconstruction companies, stock exchanges. He also announced Rs 25,000

UNION BUDGET 2016-17 crore towards recapitalisation of public sector banks. Jaitley also announced that the Centre would list the general insurance companies on stock exchanges.

Reactions India Inc seemed to react positively to the Budget. Adi Godrej, chairman of the eponymous business group, said “In the context of a difficult global situation and the stress of two successive bad monsoons in India, I think the Finance Minister delivered reasonable budget proposals,” while highlighting that the best feature of the Budget was the FM’s sticking to the 3.5% fiscal deficit. However, he said it was possible the tax on dividends above Rs 10 lakh could lead to lower investment in the longterm stock market, “as illustrated by past examples”.

“The need of the hour, both to revive consumption & to preserve the social fabric of the country, was to focus on the farm ecosystem,” Anand Mahindra, also chairman of an eponymous business group, tweeted. “So I applaud the focus on farmers from the start. And particularly, not just on handouts but on rural infrastructure, irrigation, insurance”. Financial investors gave the budget a cautious thumbs up, with stocks shedding most of the losses made during the Budget speech.

Stock Picks Post the Budget, The Finapolis is positive on select stocks: Tata Motors, UltraTech Cement, JK Lakshmi Cement, KNR Construction, Ahluwalia Contracts, Infosys, HCL Tech, KPIT, Divis Labs and Torrent Pharma. F

of Union Budget 2016-17 Education and Jobs • 62 new Navodaya Vidyalayas will be opened • Higher Education Financing Agency to be set up with initial capital base of Rs 1,000 crore • Entrepreneurship training to be provided across schools, colleges and massive online courses; Rs 500 crore for promoting entrepreneurship among SC/ST • 10 public and 10 private educational institutions to be made world-class. Digital repository for all school leaving certificates and diplomas • Allocation for skill development is Rs 1,804 crore; 1,500 multi-skill development centres to come up • Govt. will pay EPF contribution of 8.33% for all new employees for first three years

Social and Rural Sector • Allocation for social sector including education and health care is Rs 1,51,581 crore • A new health protection scheme for health cover up to Rs 1 lakh per family; Senior citizens will get additional healthcare cover of Rs 30,000 • 3,000 stores to be set up for generic drugs • Rs 9,000 crore for Swachch Bharat Abhiyan • National dialysis service programme under PPP model. LPG connection for women members of rural homes • Rural sector allocation at Rs 87,765 crore • Allocation under Pradhan Mantri Gram Sadak Yojana increased to Rs 19,000 crore • Allocation of Rs 38,500 crore for MGNREGS • 100% village electrification by May 1, 2018 • Four schemes for animal welfare • Rs 2.87 lakh crore grants to gram panchayats and municipalities – a quantum jump of 228%

Agriculture • Total allocation for agriculture is Rs 35,984 crore • Agricultural credit target of Rs 9 lakh crore; Govt. to allocate Rs 5,500 crore for crop insurance scheme • Paramparagat Krishi Vikas Yojana to bring 5 lakh acres under organic farming • Rs 60,000 crore for recharging of ground water recharging as there is urgent need to focus on drought hit areas cluster development for water conservation • Dedicated irrigation fund in NABARD of Rs 20,000 crore; 28.5 lakh hectares of land will be brought under irrigation

• Annual Financial Statement • Demands for Grants • Appropriation Bill • Finance Bill • Memorandum Explaining the Provisions in the Finance Bill • Macroeconomic framework for the • Medium-Term Fiscal Policy Statement • Expenditure Budget Volume-1 • Expenditure Budget Volume-2 • Receipts Budget • Budget at a glance • Highlights of Budget

24 The Finapolis l MARCH 2016

COVER STORY

UNION BUDGET 2016-17

A TALE OF TWO BUDGETS

...at Railways, Suresh Prabhu Makes the Best of Circumstances With the poor economy having rendered FY16 targets unachievable, the minister is looking forward to next year By Team Finapolis

ailway Minister Suresh Prabhu announced a budget that bet on higher investments and growth in FY17, notwithstanding the fact that the revenue target for FY16 has been torpedoed by the economic slowdown. In his second rail budget, Prabhu left passenger and freight charges unchanged, while announcing a number of improvements to rail infrastructure and services (see box) and budgeting for these investments through a transfer from the Union Budget, internally-generated savings, partnerships with states and contributions from LIC and the Indian Railways Finance Corporation. The minister forecast revenue of Rs 1.84 lakh crore for FY17, only marginally higher than the target for FY16, while pitching for expenditure of Rs 1.21 lakh crore, up from Rs 1 lakh crore in FY16, and announcing plans to broaden and ‘corporatise’ operations. For example, the Railways is looking to increase the number of commodities it services to include automobiles, packaged consumer goods and perishables. “The freight basket... is dominated by 10 bulk commodities which enjoy a share of around 88%,”Prabhu said. “Indian Railways should look beyond these to expand revenue base.” He also mooted plans to bring all rail companies under one holding company, and announced governance changes at the Railway Board, with the setting up of cross-functioned directorates. A K Mital, chairman of the Railway Board, said the reorganisation would mean the board would work as a business company. Prabhu said the ministry would look beyond fare hikes to increase revenues, such as redevelopment of stations, which will allow it to monetise land and buildings through commercial use. The ministry is

MARCH 2016 l The Finapolis

COVER STORY also considering leasing out land adjacent to the rail network for horticulture and tree plantation. The Railways currently earns less than 5% of its revenue from non-fare sources, against 20% in some countries. “Over a period of the next five years, we will strive to reach this world averages,” Prabhu said. Although the budget did not supply any big bang, reactions were generally positive. Hemant Kanoria, Chairman and Managing Director, Srei Infrastructure Finance Ltd, said “The Rail Minister has done a fine job in setting achievable tar-

UNION BUDGET 2016-17 gets for FY17 keeping in mind the ground realities of the present times. He has rightly addressed the key issues like modernisation, capacity augmentation, better governance, enhancement of customer experience, human resource development and at the same time readying Indian Railways for the future. In fact, what I found most impressive is the minister’s shift of focus from ‘completion’ to ‘commissioning’ of rail projects.” Anuj Puri, Chairman & Country Head, JLL India, welcomed the announcement on redevelopment of 400 stations through

the private-public partnership (PPP) model as a “very progressive and welcome” move. “This project will foster a plethora of large transit-oriented developments across the country, possibly resulting in the largest TOD undertaking in the world and leading to higher transit ridership,” Puri said. “This way, Railways can efficiently monetise its land parcels, particularly in cities with higher densities... It will be great to see the arrival of more developments of the kind we see seeing in Seawoods in Navi Mumbai and Karkardooma Metro station in Delhi.” F

Prabhu’s proposals At the station: Coolies will now be referred to as ‘sahayaks’ or helpers; WiFi connectivity and ticket sales from hand held devices to be rolled out; a ‘rail display network’ to be set up across 2,000 stations to disseminate information to passengers through 20,000 screens Inside the train: Coaches with CCTV cameras and information boards; FM radio stations to provide entertainment on trains through the PA system; flexibility in meal menus; passengers can call for ‘cleaners’ by sending SMS. For passengers requiring assistance: Wheelchairs at stations and at least one toilet for differently-abled people on every platform on A1 class of stations (categorized as non-suburban stations with an annual passenger earning of more than Rs 50 crore). Passengers can book

battery-operated cars and porter services, as well as wheelchairs online. For the little ones: Stations will offer baby food, hot milk and hot water; trains will sport a children’s menu and train toilets will have changing boards for babies needing a diaper change. For women: A sub-quota of 33% for women in each of the reserved categories, as well as the reservation of middle bays for women’s security. On the way: Coaches with automatic doors, bio-vaccum toilets (like those on airplanes), better seating and aesthetics, vending machines and entertainment screens and accessible dustbins.

26 The Finapolis l MARCH 2016

ECONOMY SOLID STATE

Nothing negative about our 7.5% growth rate

In today’s gloomy global environment, India’s growth rate should not be underestimated. Instead, we should focus on making our growth more qualitative, says Kiran Nanda

erceptions about our nation’s economic performance have become more important than reality. Short-term thinking has taken centrestage. Authorities have been often expressing the desirability of achieving economic growth rates of 8-9% p.a. or even higher with a view to root out the poverty in the country. But a more fundamental question has arisen, as to whether such a high growth rate is sustainable. India needs to learn from China’s example. High growth rates are welcome, but they need to be first made sustainable and inclusive.

Sustainability and inclusivity comprise numerous dimensions such as being equitable, cost effective, environment conscious, corruption-free and friendly to all stakeholders, among other parameters.

Meanwhile, India, growing at 7.5% p.a., stands out as a “bright spot” in the outlook for global economic growth. Though lower than the high growth rates achieved in the past (early 1990s and twice in recent years), in today’s dismal global environment (one after another emerging uncertainties since Lehman crisis of 2008 indicating deflationary signals), only the Indian economy is ensuring some brightness. India is the fastest growing big economy in 2015 at 7.5%, compared to China at 7%, Brazil -0.2 and the USA -0.7%. Our growth rate has even surpassed that of China, although India doesn’t come close to China in terms of raw economic power: China’s economic output was more than $10 trillion in 2014, compared with India’s $2 trillion. Our manufacturing and services sectors are doing well versus the persistent deflationary apprehensions in the global environment. Gross value added (GVA) for manufacturing sector rose 7.1% in FY15, compared with 5.3% in the previous year, giving a timely boost to the government’s ‘Make in India’ plan. There has been a slight pick-up in investment as well, with gross fixed capital formation rising 4.6% in FY15, compared with 3% in FY14.

MARCH 2016 l The Finapolis

ECONOMY India’s potential of scaling up growth has been improving, as seen by the increase in our ‘Ease of Doing Business’ ranking. Above all, the country does not have to fear overheating The government is set to focus on growth by increasing public spending, as private investment is staying muted due to the uncertain global environment. Although the hike in government capex cannot make up for the fall in private expenditure, it will certainly support the economy and spur private investment. More significantly, India’s potential of scaling still higher growth has been improving, which is not the case with most other nations. India has been improving its score on the World Bank’s ‘Ease of Doing Business’ Index. Further positives include our proactive policy environment, divestment-promising resources, innovative economic inclusion programme ‘Jan Dhan Yojna’, the enabling of easy access to quality education, nutrition, healthcare, financial literacy and affordable housing to all Indian citizens, and lastly, the over-riding priority to eradicate poverty and maximise employment creation. This has been reiterated in the government’s agenda for 2016-17, as outlined in the President’s address to the nation. Conditions are ripe for India to reap the demographic dividend and become a key engine for global growth. More than half of India’s population of 1.25 billion is below the age of 25, with 12 million Indians entering the workforce every year. Above all, India does not have to fear overheating, which affected China. Overheating refers to a prolonged period of good economic growth which causes high levels of inflation (due to increase in consumer wealth). Overheating also creates inefficient supply as producers create excess production capacity in an attempt to capitalise on demand. F

Pointers to the Indian economy The Good  Rupee is being managed well. The Reserve Bank

of India has clarified it will not undervalue the exchange rate to spur growth. Its plan is to minimise extreme volatility through intervention when required  FDI statistics are buoyant. India received the highest-ever FDI in 2015. Foreign money inflow into private equity exceeded the inflow through FIIs  The fall in oil prices has bestowed a bonanza. For FY16, India will spend $88 bn to import crude – a 21.7% reduction from 2014-15, although the quantity imported will be the same. India has always imported 80% of its crude. The country has saved Rs 138,714 crore between FY15 and FY16 alone.

The Bad  Bad debts. For every Rs 100 parked in shares

of public-sector banks, investors carry the burden of Rs 150 as bad loans, which cumulatively reached Rs 4 lakh crore or 1.5 times the market value of these lenders. If loans that risk being declared non-performing are also included, the stressed advances work double to over Rs 8 lakh crore.  Agriculture, another 17% of the economy, and rural India, that houses over 50% of population, are doing poorly with two consecutive droughts and none of the promised value-addition  There is a negative outlook on overall infrastructure sector for 2016-17. The sector continues to grapple with high concentration of poorly-performing assets. Negative outlook on toll roads and thermal power sectors, with high loan exposure, continue to weigh down the overall outlook  The property market, accounting for 17% of the economy, lacks sufficient end-user demand despite the hype about affordable housing, smart cities, and housing for all by 2022.  Manufacturing, a traditional job generator, has been shrinking, although the latest statistics show some pick up.

28 The Finapolis l MARCH 2016

INVESTMENT ADVICE CHOOSE DEBT

Buy Bonds for Big Returns Investors in bonds can expect to reap double-digit returns over the next two years, says K P Jeewan

n January, 14, 2015, the 10-year benchmark bond yielded 7.78%; the three-month commercial paper yielded 8.80% and the call money rate was 8.11%. Since then, the Reserve Bank of India has cut its repo/reverse repo rates by 125 basis points. And on January 14, 2016, the 10-year benchmark bond yielded 7.78%; the threemonth commercial paper yielded 9% (as of February 2, 2016) and the call money rate was 7.25%. Thus, after a rate cut of 125 basis points, most of the key market rates are back to square one, if not higher! The objective of an RBI rate cut is to ultimately stimulate growth. This objective is achieved when the rate cuts result in a reduction in lending rates in economy. This in turn i) reduces the cost of credit for consumers who buy more houses and cars and in turn fuel demand up the chain in to steel, cement, rubber, auto ancillary etc, and ii) reduces the cost for setting up plants for entrepreneurs by reducing their borrowing cost and break-even period.

7.980 7.860 7.740 7.620 7.500 Jan-15

Spot the difference Yield

2015

2016

10 Year Bond

7.78%

3 Month CP

8.80%

9.00%

8.11%

7.25%

Call Rate

So, in this sense it appears that the entire rate cut exercise by RBI over the last one year has been useless. The net effect of the entire efforts of RBI during calendar year 2015 has been a big zero! When RBI reduces the repo rate, it reduces the rate at which banks borrow from RBI for the short term. The borrowing is against the collateral of government bonds held by the banks. But the catch is the RBI only lends 0.25% of NDTL (Net Demand and Term Liability) of the bank at the repo rate. This works out to around Rs 25,000 crores per day. This amount is too insignificant to result in any meaningful reduction in systemic rates. Especially if you compare it to the pre-2013 days when the RBI used to offer almost unlimited amount of funds

through the daily repo. The remaining borrowings by banks are at market determined rates, which in turn are determined by the prevailing liquidity condition. Since 2013, the RBI has kept liquidity tight by design. The result is a minimal transmission of rate cuts by banks. Hence, despite the RBI being on an accommodative policy stance for over a year now, no segment of the economy has really gained meaningfully. As I complete this article, the Union Budget has been announced and the most surprising aspect of the Budget has been adherence to the FRBM target of 3.5% fiscal deficit for FY 17. The market is flush with rumours of an out-of-turn rate cut by the RBI. It is possible the RBI might oblige, but another 25 basis points rate cut at best can give a kneejerk rally in bonds before yields start to harden again. The factors which prevented transmission of the 125 basis points rate cut have not gone away. Apart from the RBIâ&#x20AC;&#x2122;s strategy of keeping liquidity tight, other key factors keeping yields high are:

Tracking the 10-year yield

Feb-15

Mar-15

Apr-15

May-15

Jun-15

MARCH 2016 l The Finapolis

INVESTMENT ADVICE

hh Waning FII flows into debt hh Huge supply of bonds from UDAY initiative (expected around Rs 2.25 lakh crore) hh Progressive reduction in Statutory Liquidity Ratio (the portion of banks’ deposits mandatorily invested in government bonds) hh Reduction in Held-to-Maturity (amount of holding on which banks do not need to provide for losses in the event of adverse market movement) Lack of deposit growth, which reduces incremental demand for government bonds Contrast this with developed countries like Japan and the European Union nations, where the signalling rate has turned negative. For example, German two-year bonds today give a yield of -0.50%. What it

ul-15

Aug-15

Sep-15

means is that the buyer of the bond pays a price which is higher than expected interest receivable from the bond. And is, in effect, is willing to accept less than the invested amount on maturity! Why are people still investing in negative yielding bond? In expectation of a further fall in yield into negative territory, which would result in capital gains. For example, if the twoyear German bond goes from -0.50% to -0.60%, the price of the bond goes up by approximately 0.10%. Hence it is a bet on the European Central Bank moving deeper into negative territory. Theoretically, there is no limit to how much deeper into negative territory a central bank can go. But given that the current negative interest rate policy turns market convention/ foundation of time

Oct-15

Nov-15

value of money on its head, the negatives outweigh any positive outcome these banks have in mind. A section of the market expects that negative yields in developed markets would encourage flows into India. However if we go by history, portfolio flows are influenced more by currency views rather than only on yield differential. Though the current article so far paints quite a bearish case for Bonds in India, the idea was quite the opposite. The lack of transmission of rate cuts so far actually is an opportunity! Indian bonds today offer mouth watering opportunity and investors should increase allocation to their bond portfolio. The bullish view becomes clear once the RBI/ government’s intent is understood. The RBI has administered pain on the system for the last three years, in order to guide the economy on a long-term low inflation environment, while the government has played along so far and has chipped away at systemic bottlenecks on the supply side. It has avoided the temptation to pump prime, as is evident from the current Budget. If we can count on policy continuity, there is little doubt that medium term inflation targets will be met. Once this happens, the RBI will have comfort in allowing systemic rates to come down to levels permitted by low inflation. The FM’s adherence to FRBM is a big statement of intent. On the current trajectory, we will see the RBI gradually encouraging a transmission-friendly environment over next two years. Hence investors in bonds can expect to reap double-digit returns over the next two years. F

Dec-15

Jan-16

30 The Finapolis l MARCH 2016

EQUITY NUMBER GAME

Technical Analysis Our team of analysts pore through technical charts to offer some smart trading tips for the next couple of months By Team Finapolis

GHH has witnessed a rally from a low of 1460 in Februaryâ&#x20AC;&#x2122;11, to its all time high of 7449 in March 2015 forming higher highs and higher lows on the monthly chart and corrected from there to 5178 levels which is 38.2% retracement level for the said rally and bounced back with good volumes from there with a significant unfilled gap in daily and weekly charts indicating huge buying interest to come in coming days. We ex7350 7000 6650 6300 5950 5600 5250 Feb-15

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Current Market Price

Rs 5900

Stop Loss

Rs 5350

Target Price 1

Rs 6725

Target Price 2

Rs 7000

pect the stock to start a fresh leg of rally from these levels to the said targets. Points of Observation XXOn the daily charts as well as weekly charts, the stock is trading above all of its 21/50/100/200 day EMA levels indicating the positive momentum in the counter. XXAmong other leading indicators parabolic SAR is trading below the CMP and suggests a positive trend in the counter on daily charts as well as on weekly charts. Another leading indicator Heiken candlestick also indicate bullish trend in the counter.

XXAmong the momentum indicators MACD is trading above the signal line in weekly charts indicating positive momentum in the stock on medium to long term perspective. XXThe stock has been consolidating above the gap created on 8th February 2015 indicating strong support it has around that level. XXOn fundamental side, PGHH is one of the leading companies in the Indian FMCG sector. The company has declared very good set of results for Q2 in 2016 which also supports our bullish bias.

MARCH 2016 l The Finapolis

EQUITY

he monthly chart structure of this fundamentally strong stock, suggests formation of cycles of higher highs and higher lows, supported by consolidation in the past few months, clearly indicating there is a lot of demand for the stock even at higher levels which is a positive sign in itself. ULTRACEMCO is in a structural uptrend and looks well set to march steadily towards the Rs.3350-3400 mark over the next 9-12 months. The stock has been relentlessly rallying from its Sep, 2013 low of Rs.1402.35 to a lifetime high of Rs.3398, which was clocked in the month of March, 2015.

Current Market Price

Rs 2800

Stop Loss

Rs 2500

Target Price

Rs 3400

XXOn monthly charts the stock is finding support at middle of the Bollinger band (20, 2, S) and stock has formed a bullish hammer on the monthly charts. XXThe stock has seen fresh accumulation in the recent past as it has witnessed a bullish continuation triangle pattern and currently prices are resting above

Points of Observation XXOn the weekly charts, the stock is trading around its short and long term moving averages, indicating the bullishness in the counter.

he stock is trading in a broad range of between 215-450 levels since Oct 2012. Historically, the stock witnessed good buying strength from 215 levels and made high of 452.45 with major pullbacks. The stock has breached its 61.8% Fibonacci support level (306.20) drawn from low of 215.8 to high of 452.45 levels but did not sustain below it and took support and currently trading above its said level.

Current Market Price

Rs 322

Stop Loss

Rs 250

Target Price 2

Rs 470

Points of Observation XXTechnically, the stock has made “DOUBLE BOTTOM PATTERN” on monthly chart at 287 levels which suggest the

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buyers are present near lower levels indicates bullishness of the stock XXThe stock is making higher highs and higher lows on daily charts. The stock witnessed breakout from 310 levels and made a recent high of 334.90. XXThe stock has seen fresh accumulation in the recent past as it has witnessed breakout from “FALLING CHANNEL” pattern on daily chart and currently prices are resting above its upper trend line of the said channel which indicates the stock has further potential to go further upside. XXAmong oscillators, The RSI (14 Month) is started its journey from 39 levels and now trading at 45.17. and we are expecting its may touch 60-65 levels in coming

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its upper trend line which is known as loop in technical parlance. XXOn Elliott wave front, the stock has completed wave 4 at the lows of 2579. From there the stock has seen an impulse indicates fresh up trend has resumed after the corrective phase. XXAmong oscillators, the MACD is in buy mode in daily and weekly time frame indicating bullish bias. XXWe therefore recommend long term investors to go long in the stock around Rs. 2800, and average the long position on dips, if any, around the level of Rs. 2625 for the above mentioned target levels with a strict stop loss placed below the level of Rs. 2500 on a weekly closing basis.

months. Bollinger Band (20, 2) is indicating range bound movement and the price is trading near the lower band and started moved to its upper band.. XXWe therefore recommend long term investors to go long in the stock around Rs. 322, and average the long position on dips, if any, around the level of Rs. 272 for the above mentioned target levels with a strict stop loss placed below the level of Rs.250 on a monthly closing basis.

The Finapolis l MARCH 2016

EQUITY

he stock is in structurally up trend and making higher highs and higher lows and made the high of 1200.80 levels in March 2015. Thereafter, the profit taking from the above said higher levels has placed the stock to the low of 704 levels. However, bounce from the swing low of 704 levels has given the breakout of downward sloping trend line drawn from the life time high of 1200.80 levels. The recent bounce from the said lower levels has given the positive cross over with 14

Current Market Price

Rs 875.35

Stop Loss

Rs 700

Target Price 1

Rs 1100

Target Price 2

Rs 1200

abur is one of t h e leading FMCG company in India. The company is also market leader in Ayurveda with an extensive portfolio of 250 Herbal/Ayurvedic products, and they keep on increasing its presence in other traditional categories like hair care, oral care, household care and foods. In the recent past company has signed a license pact with the Government to produce two new ayurvedic drugs â&#x20AC;&#x201C; Ayush-64 for treatment of malaria and Ayush-82 for management of diabetes. Currently stock is consolidating after brief correction in last couple of months, gives an opportunity to accumulate stock for medium to long term perspective. 308 295 282 269 256 243 230 Feb-15

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period RSI on weekly charts and trading well above the same which suggests strength in the counter. The parabolic SAR has triggered the fresh buy signal on weekly charts on the first week of Jan 2015 and price is comfortably trading above the same. Which suggest that the strength in the move started from the low of 700 levels and up move will remain intact for the near term. The move started from the said lower levels has placed the stock above all its moving averages with notable volume which reflect strength in the counter. The stock is currently consolidating near the

Current Market Price

Rs 238.60

Stop Loss

Rs 190

Target Price 1

Rs 290

Target Price 2

Rs 310

Points of Observation XXIn the start of Augâ&#x20AC;&#x2122;15 stock made a life time high of 316.40, ahead of which witnessed relentless rally in last couple of years started from the lows of 92 levels. After such a stellar rally stock witnessed profit booking from the highs and in last couple of months corrected almost 38.2% of rally projected from the lows of 92 to life time high of 316.40. XXTechnically, stock price is meandering below its major 200-DEMA and also below its 21 & 50-DEMA, consolidating in the range of 235-255 levels from last few weeks now, while gradually volume is picking up which indicates strong hands are accumulating stock on dips and prices are likely to find support and inch up higher in the coming weeks. XXOn the technical setup momentum os-

mid band of Bollinger band on weekly charts and sustaining well above the same with supportive volume which reflect upside potential in the stock. The price action and above discussed trend line breakout is the fresh triggered for the stock and the stock is well placed to take it up move. Hence we suggest buying in the stock on minor dip in the current market scenario for the first target of 1100 levels and sustain above that will placed the stock to the second target of 1200 levels.

cillator 14-period weekly RSI is forming base in oversold territory, while on the daily time frame chart initial signs of recovery can be seen. XXFrom the above observation, technically stock is consolidating and forming base near 230 levels and once ongoing market correction stabilizes stock may witness recovery and eventually rise in the coming months. Hence, one may buy stock at near 235 levels and average the stock price on any dip towards 205 levels keeping a stop loss below 190 levels, for an upside target of 290 and 310 levels over next 6-9 months time frame. F

MARCH 2016 l The Finapolis

NAVEEN KUKREJA

by invite

Is it Wise to Increase Credit Limit on Your Credit Card?

ohit has a credit limit of Rs 30,000 on his credit card and he often ends up availing credit of up to Rs 25,000. However, he makes sure to pay his credit card bill by or before the due date. Given his timely repayment schedule, Rohitâ&#x20AC;&#x2122;s bank has offered to increase his credit limit. However, he is in a dilemma as to whether to enhance the credit limit on his existing credit card or take a new card from other lenders. There are many people like Rohit who desist from increasing their limit due to fear of a higher bill amount. However, if you have been a good borrower or you know how to manage your credit wisely, increasing your credit card limit can be beneficial. Below are some of the benefits of this: 1. Leads to better credit rating: As soon as your credit limit is enhanced, your credit utilisation ratio comes down, provided your credit card usage level remains the same. This ratio is the ratio of credit availed by you against the credit limit available to you. Taking the above mentioned example, if the credit limit on your card is Rs 30,000 and your monthly credit card usage is Rs 9,000, your credit utilisation ratio will be 30%. However, if your credit limit is increased to Rs 50,000, your credit utilisation ratio for that same usage will come down to 18%. A low credit utilisation ratio means that you are less credit hungry and are less likely to default. This, in turn, will improve your credit score. Ideally, your credit utilisation ratio should be about 30%. 2. Helps avoid managing multiple credit cards: Often, people apply for additional credit cards to increase their credit limit. However, multiple credit cards will not only increase hassles for you in terms of tracking them and settling their dues on time, increased transaction costs in terms of annual maintenance charges (AMC), and will also bring down your credit score. Instead, a single credit card

If you know how to manage your credit wisely, increasing your credit card limit can be beneficial with higher credit limit is much cheaper and easier to manage. 3. Helps in making big-ticket purchases efficiently: Suppose, you are planning to buy a smartphone worth Rs 55,000 and the credit limit on your credit card is Rs 40,000 only. Now, even if you want to purchase it through your credit card to earn reward points, you will not be able to do so in entirety. This means that you will have to forgo reward points on at least Rs 15,000. This is where enhanced credit limit on your card will help you. You can route your big-ticket purchases and get reward points from them. You can also convert your large-size transactions into EMIs without any documentation. Many lenders also offer interest-free payment holiday periods after large transactions, which allow you to spread your repayment over a certain period. 4. Increases reward points: Lenders offer attractive reward point programmes, discount offers, loyalty programmes and cash-back offers to their credit card customers. Many stores or online portals offer attractive discounts or cash-back offers on purchases made through specific credit cards. These offers can actually

The author is Managing Director, Paisabazaar.com

bring down your transaction costs while relieving you from carrying cash. The higher credit limit means that you have more elbow room for shifting from a cash transaction to a credit card transaction. More credit card transactions, in turn, will earn you more reward points or avail more discounts. 5. Acts as an emergency fund: Your enhanced credit limit can come in handy during your financial emergencies. Although people usually have emergency funds in place in the form of their savings account or fixed deposits, even savings accounts have ATM withdrawal limits and fixed deposits cannot be withdrawn on public holidays. There might be situations when your emergency fund can also fall short. In such scenarios, your credit card can be used to pay off emergency bills from unforeseen events. However, all these benefits will come to naught if you cannot manage your finances wisely or if you happen to be an impulsive spender. You might, instead, end up with poor credit report and poor financial health. After all, while it is easier to get in to debt trap, it is very difficult to get out of it. F

34 The Finapolis l MARCH 2016 AN SHANBHAG AND SANDEEP SHANBHAG

expert speak

Some Tips and Tricks for Saving Tax

e often find that investors generally fail to plan and structure their investments and taxes optimally. This is not because of negligence or a lack of inclination, but more to do with the fact that one’s work keeps oneself so busy and preoccupied that financial planning becomes an exercise that is forever postponed to ‘next week’. Then, before you know it, March has arrived, and cursing under your breath, you make an appointment with the CA. He is doing the same as he knows you are not going to provide him with all required paperwork. Some last minute, convenient tax-saving investments are done and a resolution is made that next year is going to be different. With March upon us, this is the last chance to act upon the resolution. The trick is to start early and take the necessary actions step by step. Tax planning is at all times a process and not a one time, sporadic exercise. The following are some pointers to help you along the way.

taxable. You ask how is such a miracle possible that your wife starts earning so much overnight? She doesn’t. You transfer money to her which you would have otherwise invested in your name. If you earn it, you pay tax @30%. If she earns it, its going to be tax-free!

Mediclaim Mediclaim is a must for all, taxpayers or otherwise, rich or poor, young or old, in view of the high cost of hospitalisation. If you haven’t bought a Mediclaim policy so far, do so now. There is a tax break of Rs 20,000 available, but that is not the point. Mediclaim is for the financial protection of you and your family members — the tax cut is just an added benefit.

Public Provident Fund (PPF)

In sickness and in health…..and in paying taxes too! But first some ground work has to be done. Have separate joint accounts, one for husband and wife and the other for wife and husband, even if one of them is not assessed for income tax. This may sound trivial but actually is of great importance for proper tax planning. This is especially important if you have or planning to buy a house on mortgage and benefit from the tax breaks.

But there is a glitch. You cannot transfer money by means of giving her a gift. The problem is that income on such gifted amount will be anyway clubbed in your hands for tax purposes. How do you work around this situation? Well, give her a loan! Though an interest free loan is technically possible, it is better to have an arm’s length contract by charging a nominal rate of interest (say an average savings bank rate of around 4%). If she were to invest the gifted funds into a fixed deposit at a rate of say 10% p.a., the difference of 6% p.a. will be tax-free between the both of you.

Loan to Spouse

Housing Finance

You are in the highest tax bracket and she doesn’t have taxable income. (For all you ladies there, we are not chauvinistic, it’s just for writing convenience. The situation could be reverse too and the same principle would apply) Anyway, it is vital to start a tax file in her name. The idea is that she starts earning income up to Rs. 2.50 lakh. This income, being below the tax threshold, will not be

Marriage has benefits even when buying a house. Are you planning to buy a house anytime? Then, even if you are Mr. Deep Pockets, it is better to opt for housing finance. Tax breaks are available only on borrowed funds and not on the use of your own equity. Since real estate can be co-owned, buy the property with both having an equal share. The loan should also be taken equal-

Use the Fringe Benefits of Marriage!

ly and the interest and principal payments for the same should be made separately by each from their respective bank account. If the above is carried out, each is entitled to an interest deduction of up to Rs 2 lakh under Section 24 and a principal deduction of Rs 1.50 lakh under Section 80C. So totally between the both of you, up to Rs 7 lakh of income will escape tax!

In the absence of government social security, a regular PPF investment works like a safety net for the later years. This is especially true in the case of the self-employed who do not have a company provident fund to fall back upon.

Tedious TDS Last, but not the least, the most important thing to do is to aggregate your TDS receipts. Such TDS operates like advance tax already paid i.e. from your final tax liability, you have to pay only such amount that is over and above the tax already deducted. Do this as the year goes along. Most leave this exercise towards the end of the year, leading to huge inconvenience and short counting.

To conclude You will appreciate that the above-mentioned points are really commonsensical and do not need much of one’s time and effort to put into practice. However, these baby steps have a way of adding up and sometimes make all the difference between financial health or the lack of it. F

MARCH 2016 l The Finapolis

ECONOMY SAM IS STAYING ON COURSE

Credit Suisse’s Case Against a US Recession The bank’s Global Markets economists expect the US economy to grow by 2% in 2016, says Alice Gomstyn

he US National Bureau for Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” And the question of the hour: Has the United States entered a recession? If not, is it about to? To both questions, Credit Suisse answers no. The bank’s Global Markets economists expect the US economy to grow by 2% in 2016. The employment picture provides the most compelling argument against a recession. The four-week moving average of weekly jobless claims fell by 8,000 to 273,000 in mid-February, the lowest level since November. The unemployment rate, meanwhile, dipped to 4.9% in January, after holding steady at around 5% for three months, while average hourly earnings rose 0.5%.

al Strategy and Economics team. The US economy has certainly shown signs of stress in the mining and energy sectors, which are struggling with declining oil and commodity prices. A handful of US states where mining and drilling have large footprints – such as Alaska, North Dakota and Louisiana – have seen activity decline, according to data from the Federal Reserve Bank of Philadelphia. The weakness in the mining and energy sectors has also had

knock-on effects on manufacturing, as firms reduce spending on capital equipment used for oil and gas exploration and

of 2015, by contrast, the economies of 40 US states have actually expanded. On the manufacturing front, the purchasing managers index (PMI) has been below 50 since September, but its crucial “new orders” component rose to 51.5 in January, indicating positive growth. “The US is clearly being affected by global weakness, but we expect decent domestic demand growth to prevent a sharp contraction in production,” say the bank’s analysts. The risk of a recession in 2016 isn’t zero. For starters, the risk aversion that has been roiling financial markets in 2016 could escalate enough to cause US companies to cut back on hiring and investment. It’s also possible that the concentrated problems in energy-related businesses could infect the larger economy, particularly if defaults in the highly leveraged energy sector lead to tighter overall credit conditions. As for global headwinds, they will continue to buffet the US economy, but Credit

The retail and leisure and hospitality industries, in particular, enjoyed strong job growth. “While we may not be there yet, this is the sort of [monthly employment] report we would expect once the economy reaches full employment,” says Jeremy Schwartz, of Credit Suisse’s Glob-

drilling. Overall, eight of 23 subcomponents of US industrial production have contracted in the last 12 months. With respect to state economic activity, however, the broader picture is brighter. During recessions, most state economies typically contract. In the last three months

Suisse economists say that exports are too small a percentage of GDP for global woes to throw the US into recession if domestic household incomes and spending remain healthy. In their view, it is more likely that none of the above scenarios will throw the economy off its modest growth track. F

The moving average of US four-week jobless claims fell to the lowest since November, as the retail and hospitality industries enjoyed strong job growth

From The Financialist – Presented by Credit Suisse (www.thefinancialist.com)

36 The Finapolis l MARCH 2016

ECONOMY ENTER THE DRAGON

Don’t count China out yet Recent talk of China’s troubles obscures the fact that its companies still pose a formidable competitive threat to Western multinationals, says Ashley Kindergan

he first days of 2016 showed that China hasn’t escaped its 2015 woes. On January 4, new data showed that manufacturing activity slowed for the tenth consecutive month in December, and the ensuing sell-off in the stock market forced Chinese officials to halt trading mid-day. Global markets sank, and another bout of volatility on January 7 forced Chinese officials had to halt trading once again. But

Chinese manufacturers have been slashing prices. Capital investment still makes up a disproportionately large share of Chinese GDP – 44%, higher than in Japan (36%) or South Korea (38%) when those countries were building industrial capacity in the 1970s and early 1990s, respectively. All that investment has created enormous excess capacity in multiple sectors – 94.5% of Chinese steel production is produced below cost, for example. That

lion worth of projects – equivalent to 70% of China’s GDP – are making “highly ineffective” returns. Net profit margins, long lower than in the developed world, currently stand at just 2.5%, compared to 9.6% in the US, 6.4% in the UK, 5.8% in Germany, and 5.1% in Japan. Cheap, readily available capital has helped sustain investment levels and should continue doing so, despite corporations’ thin profit margins. Chinese

all the recent talk of China’s troubles has obscured the fact that the country’s companies still pose a formidable competitive threat to many Western multinationals. The first concern for multinationals is that after a long period of overinvestment,

means Western steelmakers will have to weather downward pressure on prices from Chinese firms that are willing to incur losses to move product. China’s National Development and Reform Commission estimates that $6.8 tril-

banks offer favourable financing to stateowned and formerly state-owned enterprises, bankroll unprofitable projects, and roll over non-performing loans rather than force firms into default. Banks fund these subsidies to borrowers by paying

MARCH 2016 l The Finapolis

ECONOMY depositors very little interest – 1.75% in a country growing some 7% a year. They also lend a relatively small percentage of their deposits. The loan-to-deposit ratio in China is just 67%. Credit Suisse analysts believe Chinese banks will continue rolling over non-performing loans until the loan-to-deposit rate reaches 100%, at which point the central bank could simply print money to prop up loans. Chinese officials rarely intervene aggressively to reduce excess capacity by forcing state-owned enterprises to slow production or allowing more companies to go bankrupt. Instead, they step in to help them when they run into trouble, because they’re loath to stir up unrest or jeopardise economic growth. “We think that China…is operating a policy of employment maximization at the expense of profit maximisation,” Credit Suisse’s equities analysts wrote in their 2016 outlook. Instead, companies have been trying to export their excess production, slashing prices to lure buyers. In December, China’s producer price index fell 5.9% from the previous year. The competitive threat goes beyond prices, as Chinese companies are increasingly producing high-quality goods. Chinese automakers, for one, are quickly closing the quality gap with the West. (See chart) Domestic companies have learned quickly from foreign partners, many of which were forced to form joint ventures to do business in China. Sometimes, officials require multinationals to develop some technology in China or allow Chinese firms to own or have exclusive license to intellectual property. Not all partnerships are official – or consensual – either. China has very weak enforcement mechanisms for intellectual property rights, despite official pledges to crack down on IP theft.

cations are successful. China produces 15 times more college graduates a year than it did in the 1990s, and many have the kinds of skills that can be put to good use in the technical, industrial sectors that China has flagged as strategically important. Out of 7.5 million Chinese graduates in 2015 (compared to 3.3 million in the US), 1.3 million received degrees in science and engineering, compared to 500,000 in the US. In addition, officials have indicated that they will directly subsidise companies in strategic industries. In its most recent five-year plan, the government prioritised creating “national champions” – companies that can become global

faster up the value chain and continue taking market share. Official policies already give domestic companies preferential treatment in China, including high barriers to entry in certain industries. Google, Twitter, and YouTube are blocked, for example, allowing Baidu, Sina Weibo, and Youku to thrive without foreign rivals. The Ministry of Commerce has also been criticised for antitrust rulings that appear designed to benefit Chinese companies rather than prevent monopolies. Many of its most important firms are quickly catching up to those in the West in terms of quality, and the government has no intention of letting major manufacturers fail or forc-

Evidence suggests that the quality of Chinese production will keep improving. China has more than doubled spending on research and development from 0.6% of GDP 10 years ago to 2%. Chinese innovators apply for 45% more patents a year than those in the US, though fewer appli-

leaders – in 10 industries, including information technology, robotics, and aerospace equipment. Domestic robotics companies, for example, are expected to take significant market share from foreign firms over the next decade. Such government support will allow companies to rise

ing them to make dramatic cuts in production to deal with an excess supply problem. Quite the contrary, officials are doing a great deal to push Chinese firms to global prominence. Investors in vulnerable Western companies shouldn’t discount the idea that they will succeed. F

Official policies already give domestic companies preferential treatment in China, including high barriers to entry in certain industries. Many of China’s most important firms are quickly catching up to those in the West in terms of quality, and government officials are doing a great deal to push Chinese firms to global prominence. Investors in vulnerable Western companies shouldn’t discount the idea that they will succeed

From The Financialist – Presented by Credit Suisse (www.thefinancialist.com)

38 The Finapolis l MARCH 2016

ECONOMY BULLISH SCENARIO

Europe’s Turn to Shine A host of factors play into an increasingly promising forecast for European equities, including the possibility that Eurozone governments may end their austerity policies, say Alice Gomstyn and Ashley Kindergan

he first few days of 2016 were not kind to European and American equities: They each fell 8% in the first nine trading days of the year, the worst-ever start to a new year. But the year’s inauspicious beginning isn’t necessarily a sign of things to come — at least, not for European stocks. From the potential for further easing by the European Central Bank (ECB) to a resilient regional economy, a host of factors play into an increasingly promising forecast for European equities. Even though major European indices have recovered some of their 2016 losses, Credit Suisse believes these rebounds have legs. News of monetary easing tends to bolster share prices, and on January 21, the ECB hinted of future easing and European stocks rose. Following its meeting, the ECB announced that it would keep its benchmark rate (0.05%) and overnight deposit rate ( 0.3%) unchanged. (The announcement came a month after the central bank lowered its deposit rate from 0.2% to the current 0.3%.) Of equal importance to financial markets was the dovish message central bank president Mario Draghi delivered after the meeting. With Europe still far short of its inflation target, the bank will “review and possibly

program to include corporate bonds. Credit Suisse believes that European small-cap stocks, in particular, should outperform following the ECB’s moves because smallcap stocks, as relatively risky assets, tend to be especially sensitive to QE. Further easing by the ECB would also put downward pressure on the euro, which has already declined sharply against the dollar since its 52-week high of $1.17 in August—as of February 25, it was trading at $1.10. A weaker euro would provide further support to European equities because of the prominent role the export sector plays in the region’s econo-

purchasing managers index (PMI) declined to 53.5 in January from 54.3 in December, but the “slight decrease” was expected given January’s economic uncertainty, according to a recent note by Peter Foley, a European economics analyst in Credit Suisse’s Global Markets division. “There doesn’t appear to be much sign of a meaningful slowdown, and we expect the steady domestically driven recovery to continue,” he said. Key to the euro area’s resilience is the health of small and medium-sized enterprises (SMEs), which represent 90% of all businesses in the European Union. In the

reconsider” its monetary policy at its March meeting. Credit Suisse believes that the March meeting will bring, at a minimum, a 10 basis-point cut in the deposit rate as well as changes to the ECB’s asset purchase programme. Those changes could include increasing the size of the bank’s asset purchases or broadening the

my. Exports account for 26% of the Eurozone’s GDP, higher than the US (13%), Japan (19%), and even China (24%). Also supporting European equities: A recovery that continues even in the face of global turmoil. Retail sales growth in Europe is at a 16-year high and employment is at a four-year high. The composite

last two to three years, declining interest rates on short-term loans have benefited such businesses throughout Europe, especially in Portugal and Spain, where rates have dropped more than a percentage point. Loan origination in Europe is also up, increasing about 2% over last year. Put it all together, and the Credit Suisse

MARCH 2016 l The Finapolis

ECONOMY Europe Chief Investment Office team believes the consensus forecast of 8% EPS growth for the year ahead is too low. Using a model based on Eurozone GDP, Credit Suisse forecasts that EPS will grow 15%. The significance of macroeconomic indicators and corporate earnings notwithstanding, there’s one potential driver of Euro area equity performance that’s not domestic: US investors. Over the past eight years, Eurozone equities have underperformed US equities by 50%, but the Europe CIO team thinks a rebalancing may be in

expected to improve from 2% to -1.8% in 2016, but not because governments are cutting spending on programmes. Instead, lower interest rates will reduce debt payments and improving domestic demand should boost government revenues. Meanwhile, the Eurozone’s structural primary balance – the difference between revenues and spending, minus government debt service and adjusted for the stage of the business cycle – will decline from 1.4% to 1.2%. This indicator is more telling about the current direction of fis-

and 5, and boosting education spending. While France’s proposed 2016 budget cuts public spending, it also reduces corporate and income taxes. The budget situations in Spain and Portugal are less clear-cut. Spanish Prime Minister Mariano Rajoy introduced a preliminary budget in September 2015, but Spain has yet to form a new government following inconclusive elections on December 20. The European Commission was skeptical about the budget when it was introduced, predicting that it would cause

the offing. Though US equities aren’t ex- cal policy than the overall deficit number Spain to miss its 4.2% deficit target in 2016. pected to head into bear market territory, for a couple of reasons. Meanwhile, European authorities recently a rally doesn’t appear likely either, thanks First, interest payments only tell observ- issued a letter warning Portugal that its in part to December’s Fed rate hike. The ers about historical borrowing, not current anticipated spending cuts were insufficient. beginnings of interest rate cycles European authorities are also Key to the Eurozone’s resilience is the planning regional fiscal stimulus are associated with “listless” markets, and a Credit Suisse analysis health of SMEs, which represent 90% of programmes of their own. Under of tactical indicators suggests the the so-called Juncker plan, Euroall businesses in the European Union. pean member states are planning US market is likely to remain range-bound for much of this to raise 315 billion euros to invest They have benefitted from declining year. Which means that US invesin large infrastructure projects, interest rates on short-term loans tors might become buyers of Euyouth unemployment measures, rope before too long. funding for small- and medifiscal policy. Second, governments natural- um-sized businesses, and research and ly take in more revenues in good times and development. Since 2009, Europe’s peripheral economies less in bad ones, so at least some of the Even in Germany, the most famous pro– Greece, Ireland, Italy, Portugal, and Spain growth or shrinkage of any deficit is sim- ponent of austerity policies, the likelihood – have tried to dig their way out of a debt ply an artifact of how well the economy is of fiscal stimulus is increasing. While crisis by cutting public spending and rais- doing. Removing these two variables gives Germany’s model of running huge, exing taxes. This year, however, will be differ- a b etter sense of current fiscal policy. port-driven current account surpluses ent. Fiscal policy in the Eurozone is expectFew countries in the Eurozone are plan- shielded the country from the debt crisis, ed to ease for the first time since 2010. ning new austerity measures this year, it’s not holding up as well as demand slows The European economists in Credit Su- with the majority either keeping budgets in emerging markets, which Germany reisse’s Global Markets division say it’s high flat or increasing them. Germany’s states lies on for 25% of its exports. time fiscal policy loosened in the Euro- plan to spend an additional 17 billion euros Though Credit Suisse economists still zone. Had it done so earlier, the region – an amount that exceeds the budget of expect Germany’s economy to grow just might now be experiencing stronger eco- the Ministry of Education and Research under 2% in 2016, they don’t expect it to nomic growth than it is today. Consider – to accommodate an influx of migrants. outperform the Eurozone, as it has in evthat the output gap, the difference between Meanwhile, Italy’s latest budget abolishes ery other year since the crisis began. actual economic growth and what it could property taxes on primary residences, cuts That’s partly because the hardest-hit peproduce if it were running at full throttle, business taxes for companies that pur- ripheral economies are experiencing was still 1.8% of potential GDP at the end chase equipment, awards pay increases to sharp rebounds, but German policy bears

The end of austerity?

of 2015, according to the European Commission. That’s better than 2009, when the gap hit a peak of 3.4%, but it’s still larger than at any point between when the Commission began collecting data in 1996 and the onset of the global financial crisis. The Eurozone’s overall budget deficit is

police officers and soldiers, and gives every 18-year-old 500 euros to spend on cultural activities. Ireland, too, has pledged to cut taxes and increase spending in a number of ways, including raising the minimum wage, introducing free childcare for children between the ages of 3½

From The Financialist – Presented by Credit Suisse (www.thefinancialist.com)

some responsibility, too. “It has been clear for some time that the German growth model needs to change and that the country should revert to more sustained levels of domestically driven economic growth,” Credit Suisse’s European economists wrote in a recent note. F

40 The Finapolis l MARCH 2016

INVESTMENT ADVICE MAN VS MACHINE

Human vs Robo Financial Advisors: Who gives more bang for the buck? Although traditional and robo advisors are being projected as competitors, this may be more an illusionary fight, writes Col. Sanjeev Govila

he word ‘Robo Financial Advisor’ has increasingly started getting heard in the Indian personal finance space in recent times. In our minds, it visually conveys the image of a robot, something like the C-3PO or R2-D2 characters of ‘Star Wars’ fame, whirring and buzzing to provide you financial solutions. But actually, robo advisory merely means an automated investment advice platform that provides algorithm-based advice, devoid of human intervention. The advice provided through this medium is solely based on client information provided to the system, which leads to the generation of automated portfolio allocation and investment recommendations. In the normal course, when you use the services of a financial adviser or distributor, you

then analyses these inputs and suggests a financial plan that includes investments or asset classes where you ought to be allocating money. Then, just like a human adviser, the robo advisor, too, reviews your progress periodically and may suggest changes. The whole premise of this technology is based on the aspect that algorithms can provide sound and logical financial advice at much lower cost than what human advisors charge, without any bias. At present, this form of advisory is relatively new in India, with FundsIndia, Arthayantra,

The whole premise of robo advisors is that algorithms can provide advice cheaper and without bias interact with a physical person who listens to you, takes down notes as you both discuss your personal and financial life, comes down to the financial challenges and opportunities that you face, culls out your future goals and require-

ScripBox, BigDecisions, MyUniverse, Tract & Act from ICICI Securities, and 5nance

ments, looks at what you have done so far and then proceeds to make a financial plan for you and your family. A robo adviser does similar work, but instead of a human being, you deal with a computer–based program. Typically, you fill up a form that asks for details of your family, earnings and expenses, current investments and upcoming requirements. The algorithm

being the most visible players. It is felt that robo a dv i s o r i e s would be ideally suited for investors who are very comfortable dealing with automat-

MARCH 2016 l The Finapolis

INVESTMENT ADVICE ed solutions, who are looking for low-cost solutions to their investment problems, or for first-time investors who wish to test the waters before committing their money to costlier options. This type of advisory also seems to be a good fit for young investors who are more comfortable with things online or have only a small capital to invest on a bulk and/ or regular basis. In a manner, if such automated models succeed in a diverse and vast country like India, it may provide a great opportunity to get first-time investors who otherwise may never have looked at such services, into a financial planning model. Thus, this not only has the capacity to expand the market tremendously, given that almost everybody today has some sort of an electronic device (remember the ubiquitous mobile phone), but also may change the mindset of common investors from an investment view point to a long-term planning point of view.

A question does arise as to whether it is possible for the robo advisors to fully replace the human advisors at all. Do the human advisors merely calculate, take stock of current financial situations and then churn out a financial plan and investment portfolio? If it were so, probably they would be very easily replaceable with technology. However, ask a real, human advisor and one discovers that she provides much more than a mere financial connect to the clients. The human advisor is a person who advises on car purchase, best supermarkets around, solutions to common office politics problems, a good mentor to her children or to give advice on adolescent issues, psychological support, job advisor, even a matrimonial advisor and much more. Financially, apart from the money management part, they also ensure that clients maintain financial discipline, provides re-assurance when markets are down, holds the client back when they are about to be taken in by market frenzy, and provide a flesh-and-blood comfort of ‘main hoon na’, which a robo platform might find difficult to replicate. Somewhere in the various comparisons, the traditional and robo advisors are being projected as competitors, or rather adversaries, fighting for a small piece of cake. This may be more an illusionary ‘fight’ than a reality since the penetration of informed investment advisory services is very low in India. There is a vast potential and low-cost efficient platforms will vastly help in increasing awareness of knowledge-based planning and investments. For example, the younger generation is likely to take on more readily to automated advisory, as it has grown up doing everything online. Investing is just the next thing they do in that manner. But time goes by and things change. As younger investors grow older, and the lower

If you are a techie or do-ityourself type, the robo advisory may be for you. Ultimately, both types of advisors look at the past to project future returns net worth crowd starts to build up their portfolios, both groups will naturally start seeking advice in areas such as estate planning and retirement saving options. Since online-only platforms aren’t built for such higher-order functions, these investors will likely turn to traditional advisors for their nuanced understanding and human touch. Hence, in a matter of time, both the robo and the traditional advisors will find and settle down in their respective operating spaces. After all, the Nanos, compacts, sedans and the luxury cars have their own niches in the vast Indian car market. The decision of whether to go with a traditional or newer variety robo advisor is a personal one. If you want the personal touch and trust the skills and competencies of the financial advisor, you may prefer the traditional variety of financial help. If you are a techie or do-it-yourself type who wants a bit of assistance, the robo advisory may be for you. On the other hand, if you want a combination of both, there are traditional financial advisors who use a technology-assisted platform. Similarly, several technology assisted platforms also offer access to financial advisors. So, the lines of both types of advisors are blurred between service models, fee structures, and investment options. Each of these platforms offers a different approach for the investor. Yet, both the technology algorithm and human investment advisors look at the past to project future financial asset performance. No financial advising system is perfect and there is no assurance that past performance is an accurate predictor of the future. As with all financial decisions, consult your trusted advisors, do your research and decide which financial solutions are right for you. F

The author Col Sanjeev Govila (retd), CFPCM is CEO, Hum Fauji Initiatives, and a SEBI registered investment advisor

42 The Finapolis l MARCH 2016

HOME LOAN PRODUCT REVIEW

Is SBI’s FlexiPay Home Loan Scheme For You? The bank’s new product aimed at younger working professionals seems like a win-win provided borrowers do their homework By Arvind Rao

“E

MIs should not exceed 40-50% of your monthly family income” is the most widely accepted rule on thumb when it comes to budgeting one’s liabilities – especially home loans. But, there is a catch here. Indian banks follow a level-EMI repayment approach for loans, and this leads to an anomaly for a borrower, especially for young borrowers (age group 28-35). If his/her EMIs today are at 50% of monthly income, the EMI will continue at the same level till the tenure of the loan, even as the monthly income keeps growing in the later years. This means the ratio of EMIs to monthly income keeps falling in the later years, and although this is a good sign, it comes at the cost of the borrower having to restrict the home purchase budget, during the initial years to a level which accommodates above EMI levels. In the later years, the individual then looks out for a bigger place to accommodate a bigger EMI without disturbing the ideal EMI-monthly income ratio. The State Bank of India (SBI) has come up with a solution to this. SBI has launched a home loan scheme called as the SBI FlexiPay home loan. Under this scheme, the borrower has the option of paying lower EMIs during the initial years and to step-up the same in subsequent years, while ensuring recov-

The scheme being a floating rate scheme, borrowers are assuming interest-rate risk. With higher rates, the bank may increase the EMI to accommodate the higher rates, thus leading to a double hike in EMIs — the planned hike and the rate increase hike ery of the entire loan amount within the agreed tenor. The bank said in a statement issued at the launch of the scheme, that the new

offering would enable younger working professionals to get a bigger loan compared to their eligibility under normal home loan schemes.

MARCH 2016 l The Finapolis

HOME LOAN Scheme Features The applicant should be in the age bracket of 21 years to 45 years. The minimum loan amount under the scheme will be Rs 20 lakh. The maximum amount would be 1.2 times the loan quantum calculated as per normal EMI ratio method subject to stipulated Loan-To-Value norms. The loan term would be minimum 25 years and maximum 30 years. The loan offers a moratorium period of 36 months for ready-to-move-in properties and a maximum period of 30 months for under-construction properties.

Scheme Analysis Going by the press releases issued by the bank, it appears that this scheme is targeted towards salaried professionals who face difficulties in obtaining home loans on account of their incomes during initial years of their profession. Typically, salaried individuals are offered home loans to the extent of 80-85% of the property value, whereas for professionals, the LTV is restricted to approximately 50%. Under the SBI scheme, the professional can now expect to get up to 20% more than what would have been received under traditional home loan schemes. It can be inferred from the scheme features, that due to the moratorium offered by the bank, the outgo towards the loan will be low in the first three years, which will later be increased moderately by SBI. However, the pattern for moderation in the EMIs has not been clearly specified by the bank as on date.

Peek into the past An interesting precedent here is the case of teaser loans called SBI Flexi Home Loans, which were launched by SBI in 2009. Under this loan scheme, the interest rate was fixed at 8% for the first year and at 8.5% p.a. for the second and third years, respectively. Post completion of three years, borrowers had to choose either fixed or floating rates based on the prevailing State Bank Advance Rates. This scheme translated into higher EMIs for borrowers at the end of three

A prior case involving floating rates translated into fairly higher EMIs for borrowers, which they had not accounted for despite being aware of the risk years, which, although clearly specified at the time of borrowing, had not been budgeted for by many borrowers. This resulted in some panic among borrowers, especially since there was a fair difference between the fixed rates and the State Bank Advance Rates. This scheme was also launched by some other institutions, but taking a cue from borrowersâ&#x20AC;&#x2122; reactions, RBI had to finally issue directions to banks to close down these schemes in 2011. SBI maintains that the new scheme cannot be characterised as a teaser loan as there is no discount in the interest rates being offered to borrowers.

The scheme does sound like a win-win sit-

time for individuals to easily ignore the expected hike in the EMIs and so they should factor this bit in their cash flow statement and financial plan. Expenses/ savings beyond five years should be adjusted to accommodate higher EMIs. During the period of moratorium, if the borrower comes across indicators signifying a flattish trend or even a drop in income for the coming years, adequate provision should be made to cushion the hike in EMIs. Secondly, the scheme being a floating rate scheme, the borrower is also assuming the interest-rate risk, which will be more pronounced in this case. With higher rates, the bank may increase the EMI to accommodate the higher rates, thus leading to a double hike in EMIs â&#x20AC;&#x201D; the planned hike and the rate increase hike.

uation for the targeted borrowers, but it is important that the borrowers do their homework before taking the plunge. Borrowers should keep in mind and be prepared that the EMIs have the potential to go up 20-25% after the moratorium period. Three years or five years is a long enough

If the working professional is able to hedge these risks from Day 1 of the borrowing by implementing financial prudence and discipline, then the scheme is a real boon. However, if the nuances are not understood clearly, the scheme has the potential for a high risk of default. F

Borrowers to be watchful

The author is a Proprietor at Arvind Rao & Associates, a chartered accountancy firm

44 The Finapolis l MARCH 2016

realty check

MANISH KUMAR

Key Tier-II Cities Evolve Into Senior Living Hubs

s the population of senior citizens in India rises to 118 million in 2016, an increasing number of developers are venturing into the senior living space. Many private entities have already made a foray into this sector. While some companies enter it as part of their corporate social responsibility, charitable organisations are also found in the sector. Realising the upside potential and to have first-mover advantage, a few prominent corporate houses have also forayed into senior living. Developers are evolving as realisation dawns that they are not constructing oldage homes and that social infrastructure is important to have around their projects. That’s why select destinations in cities like Pune, Coimbatore, Goa, Chennai, Bangalore, Dehradun and some parts of north-India have become senior living hotspots. As these cities have social infrastructure, people who moved out from here in their youth are coming back after retirement. Projects have started coming up in the outskirts and suburbs of key metros as well. It is estimated that in around five years’ time, there would be many more projects outside prominent cities. Also, while most of the projects being launched in this space are holistically dedicated to senior citizens, many developers are also launching integrated townships, wherein a proportion of total units are dedicated to senior living along with generic residential developments. Interestingly, progressive projects now allow all three levels of care in senior housing facilities – independent living, assisted living, skilled nursing care and optionally Alzheimer’s care facilities – within one campus. However, these facilities may be phased out over a period of time to allow for a continuum of care as residents will benefit from having all facilities in one campus-like environment. Such facilities get termed as continuing care retirement communities (CCRCs).

Projects targeted at senior citizens are expected to come up in India over the next few years as their population touches 118 mn in 2016 CCRCs, catering to all the needs of senior citizens in the age bracket of 60 to 80 years, are yet to arrive in India. However, a few corporates have ventured into this space and are planning to come up with such projects.

Market dynamics Most projects for senior citizens are concentrated either in the budget/ affordable segment or the medium-price segment. Owing to smaller ticket sizes, such projects are relatively more affordable for the senior citizens while they also ensure quicker movement of inventory and increased absorption levels for the developers. Along with affordability, another crucial parameter for the success of a senior living project would include the range of services and amenities being provided by

the developer in the project and the operating expenditure for the same. While moving into such a project, senior citizens have to shelve out not only the apartment’s cost but also the provision for the day-to-day operating expenses. The most important service/ facility sought by a senior citizen while moving into a senior living project is the healthcare facility. Therefore, most of the senior living projects have a daycare facility for minor ailments and regular check-ups of their residents. Further, they also tie up with big hospitals in the vicinity (i.e. a 5-8 km radius around the project), where the resident can be rushed, in case of a medical emergency, or for treatment of any other major ailment. In terms of configuration, the unit size of most senior living projects is in the range of 700–1,400 sq ft and most of the units are designed to ensure mobility and assistance to senior citizens in their dayto-day activities. Most of the projects have either 1BHK or 2BHK units. Smaller configurations are preferred because they result in providing sufficient and easily maintainable space to senior citizens at a relatively more affordable ticket price. The three types of CCRCs are:

MARCH 2016 l The Finapolis

Pre-urban formats

Mid-scale CCRCs spread over 5-10 acres, which can be located within city limits or peripheral locations. They can be apartments, independent houses or villas replete with all amenities, which can be stacked floor-wise or spread out or could be a mix of both.

Sub-urban formats

The BankBazaar Home Loan Index (HLI), an indicator that measures home loan activity in India, has seen a dip below 100 in the period between May 2015 and August 2015. Subsequently, it has been on a broadly increasing trend from September 2015 until the remainder of the calendar year. As of December 2015, the BankBazaar HLI stood at 106, compared to a reference value of 100 as of April 2015. A decrease in the average interest rate of applications in the OctDec period is one of the reasons for the increase in the application submissions in said period. The average loan value applied for in the last one year was Rs 23 lakh. Across demographics, the average monthly income of the applicants was Rs 65,000, the average age was 34, and the

Methodology for calculation of index Large-scale CCRCs, from 10 acres to 50 acres and above, are typically sub-urban formats. These are communities with large expanses of space for amenities and independent houses for residents. Due to lack of space within the city, these formats are located at the outskirts. The target audience for this kind of developments are senior citizens looking for larger spaces. Such CCRCs are sufficient in all respects and do not require occupants to travel outside the campus often. F

The author is the , National Director Strategic Consulting, JLL India.

The BankBazaar Home Loan Index (HLI) is a financial indicator that provides insights on the dynamics of home loan demand and supply. It is an indicator of the home loan activity in India and the broad trends prevailing in the home loan market. The index is calculated by taking into account all the home loan applications and aggregating it at a city and national level. The parameters used in calculating the Home Loan Index are applications submitted, applications disbursed, average loan value, total loan value and % growth Quarter-on-Quar-

106.1 Dec-15

107.9 Oct-15

Nov-15

102.9 Sep-15

89.0

78.7 Jul-15

Aug-15

78.0

99.7 May-15

Jun-15

100.0 Small-scale CCRCs spread over 1-5 acres. Typically, these are located within city limits and are vertical in design owing to a lack of space for spreading out. All amenities are stacked floor-wise and within easy reach of citizens. This gives occupants the feeling of an active lifestyle. There is a heightened sense of social connect, interaction and security, since all residents stay close to each other.

BankBazaar Home Loan Index

Apr-15

Urban formats

121.5

REALTY CHECK

average interest rate was 9.94% for the last one year. The percentage of mobile applications increased from 17% in April 2015 to 22% in December 2015.

City-wise summary On an aggregate level, Bengaluru and Mumbai have been the top cities across four index parameters—application submissions, application disbursals, average loan value, and total loan value. The top 10 cities contribute approximately 70% of the total application submissions and disbursals. The average loan value of Bengaluru applicants was Rs 30 lakh, vis-à-vis Surat, which saw average loan value of Rs 18 lakh. The average monthly income of a Bengaluru applicant was approximately Rs 91,000, whereas that of a Surat applicant was approximately Rs 41,000. ter (QoQ) of applications disbursed. The month of April 2015 is taken as the reference month for an index score of 100. The insights are derived based on statistical calculations, industry knowledge, and logical interpretations. The top 10 cities have also been analysed separately to comprehend the city-wise contribution to the overall index. This helps lenders and customers to get a better understanding of the market, thereby facilitating an informed decision-making. The Home Loan Index movement is broadly in line with the market trends. Hence, this can be considered as a representation of the market.

46 The Finapolis l MARCH 2016

INVESTMENT ADVICE PARABLES

Lessons from a Game of Cricket What happened was a complete and unexpected ‘sell off’ causing severe volatility, which made even class players (companies) looked like duds. But an astute investor would not write them off By Dharmendra Satapathy

friend of mine has written about last week’s cricket match between India and Pakistan. I have taken it a step further into the realm of the stock market. Here are the facts: 1) India scored 85/5 against Pak’s 83 all out, but three Indian batsmen got out for a duck, against none for Pakistan 2) In a low scoring match, India’s best bowler Ashwin was the worst of all Indian bowlers with figures of 3-0-21-0. Only Wahab Riaz was worse than him in the match. Easy (but completely unfair) to conclude from a single match that Ashwin was the worst bowler 3) The second highest score in both teams was “extras”. If we total up the runs in both innings, “extras” was second highest score after Virat Kohli. “Extras” accounted for more than 17% of total runs scored n the match 4) Only 18 boundaries were scored in the entire match. Virat hit seven of those, just one less than the entire Pakistan team’s eight. Not a single six was hit in the whole match Now, here is my interpretation from a markets perspective: What happened was a complete and unexpected ‘sell off’ causing severe volatility. Hence, even class players (companies) looked like duds. Had Rohit Sharma, Ajinkya Rahane, Suresh Raina and Ashwin been companies, would an astute investor write them off? Similarly, when companies in a mutual fund scheme lose value unusually in a ‘sell off’ causing the NAV (total score) to fall sharply, be smart, be astute, gain the ma-

The bus would reach sharp at 8 am. Mr Risk would nonchalantly climb in and gently occupy his seat. The other passen-

perous and chirpy. Soon another companion was seen along with Mr Risk. He too seemed happy and rich. Then one more joined him and one more and so on. This intrigued one of the passengers, who finally mustered up the courage to ask the people who had befriended Mr Risk, “How come you are associating with Mr Risk? How can he be your friend? Don’t you know he is Mr Risk?” One of Mr Risk’s friend volunteered to answer, “He may call himself Mr Risk because he is honest and upfront. He wants you to understand what ‘Risk’ is before befriending him. Mr Risk in fact is the most truthful and honest person and is as transparent as one can be. He neither confuses or cheats. All he says is get educated before shaking hands with him. And by the way, risk has nothing to do with losing your money, but rather it means that you could experience market volatility (market swings up and down) occasionally. And as a result of this volatility, you may experience short-term loss of wealth. But again, over the long term, all these losses would get erased and you could experience some serious big time wealth formation. This is what he calls ‘risk’ because his intention is not to mislead others. What he believes in is, “under-

gers would all step in but choose to sit away from Mr Risk. This went on for several months. Then one day Mr Risk stepped in with a companion who looked quite prosperous. Over the next six months, the companion seemed to become even more pros-

promise and overperform” and not vice versa. While he calls himself Mr Risk, I know he is the best companion to have in the journey of wealth creation.” This high conviction speech had left all and sundry dumbfounded. The only sound that prevailed was the sound of silence. F

turity. Never write them off. For, they will all rise without a warning. Look at Yuvraj and Ashish Nehra. Despite age catching up with them, they continue to deliver. Invest in the Indian team if you believe in them. Ignore volatility caused by some unusual matches. If you believe in the story of India, keep fears of the market in your closet, lock it and throw away the keys.

The Bus Journey

Dharmendra Satapathy is the Founder Director, Next Level Education

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48 The Finapolis l MARCH 2016

STAT DOSSIER All figures as on February 26, 2016

Indian Indices: Performance Close Feb 26, 2016

Close Jan 29, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

23154.30

24870.69

-6.90

-11.90

-21.14

17.81

Nifty

7029.75

7563.55

-7.06

-11.81

-21.03

18.97

BSE 500

9239.56

10014.03

-7.73

-12.31

-19.34

20.02

BSE Auto

16024.44

17046.03

-5.99

-10.30

-19.81

19.87

BSE Bankex

15647.61

17603.89

-11.11

-20.32

-30.68

13.32

BSE Capital Goods

11467.91

12368.05

-7.28

-28.99

-35.50

34.02

BSE Consumer Durables

11251.30

12183.02

-7.65

1.84

8.31

28.27

BSE Oil & Gas

8339.38

9258.06

-9.92

-6.07

-13.90

9.42

BSE Metal

6749.02

6894.01

-2.10

-9.36

-36.15

BSE Realty

1048.26

1208.95

-13.29

-16.85

-42.46

28.57

BSE PSU

5606.02

6234.54

-10.08

-18.93

-30.81

10.83

BSE Power

1599.47

1838.42

-13.00

-12.81

-29.51

18.35

BSE Teck

5625.92

5928.25

-5.10

-7.72

-12.42

19.48

Sensex

Global Indices: Performance Close Feb 26, 2016

Close Jan 29, 2016

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

1554.47

1562.18

-0.49

-5.53

-12.32

18.40

376.70

379.01

-0.61

-6.67

-22.83

11.89

Hang Seng

19364.15

19683.11

-1.62

-10.64

-21.99

8.72

Singapore Straits Times (STI)

2649.38

2629.11

0.77

-9.31

-22.14

12.36

1920.16

1912.06

0.42

-1.10

-3.31

14.72

16188.41

0.00

-14.30

-13.88

17.83

16639.97

16466.30

1.05

0.68

-8.23

15.12

S&P 500

1948.05

1940.24

0.40

-1.22

-7.43

17.59

NASDAQ

4590.47

4613.95

-0.51

-3.89

-7.52

39.38

41593.08

40405.99

2.94

-10.79

-19.37

63.95

FTSE-100

6096.01

6083.79

0.20

-2.43

-12.25

30.41

DAX 30

9513.30

9798.11

-2.91

-7.27

-16.56

20.65

CAC 40

4314.57

4417.02

-2.32

-7.27

-12.86

20.08

MSCI World Index MSCI Asia Pacific Ex Japan ASIA

S. Korea Nikkei 225 AMERICA Dow Jones

Brazil Bovespa EUROPE

MARCH 2016 l The Finapolis

STAT DOSSIER All figures as on February 26, 2016

February International Commodity Futures Price Trends Close Feb 25, 2016

Close Jan 29, 2016

% Change

52 Week High

% Change from 52 Week High

52 Week Low

% Change from 52 Week Low

LME Lead 3 Month ($/t)

1718.00

1686.00

-1.86%

2162.50

-22.03%

1551.50

8.67%

LME Zinc 3 Month ($/t)

1623.00

1730.00

6.59%

2404.50

-28.05%

1444.50

19.76%

8620.00

8340.00

-3.25%

14675.00

-43.17%

7550.00

10.46%

14.24

15.17

6.51%

17.71

-14.34%

13.64

11.26%

4561.00

4601.00

0.88%

6481.00

-29.01%

4318.00

6.55%

33.62

33.07

-1.64%

62.58

-47.16%

26.05

26.95%

1519.00

1557.00

2.50%

1978.25

-21.29%

1432.50

8.69%

13.14

14.24

8.37%

15.85

-10.16%

10.13

40.57%

1116.40

1238.20

10.91%

1260.80

-1.79%

1046.20

18.35%

CBOT Soy Oil (cents/lb)

30.88

30.65

-0.74%

35.29

-13.15%

25.38

20.76%

ICE Coffee (cents/lb)

116.35

114.65

-1.46%

147.35

-22.19%

111.05

3.24%

ICE Cotton (cents/lb)

61.13

58.16

-4.86%

68.30

-14.85%

57.16

1.75%

407.00

405.30

-0.42%

433.50

-6.51%

329.00

23.19%

2.30

1.71

-25.54%

3.11

-44.90%

1.68

1.72%

CBOT Soybean (cents/bushel)

882.25

859.00

-2.64%

1060.25

-18.98%

844.25

1.75%

CBOT Corn (cents/bushel)

372.00

355.50

-4.44%

438.75

-18.97%

346.50

2.60%

CBOT CORN

372.00

355.50

-4.44%

438.75

-18.97%

346.50

2.60%

CBOT Soy Meal ($/t)

272.40

260.00

-4.55%

382.50

-32.03%

259.80

0.08%

CBOT Wheat (cents/bushel)

479.25

445.25

-7.09%

615.75

-27.69%

438.00

1.66%

LME Nickel 3 Month ($/t) Comex Silver (S.oz) LME Copper 3 Month ($/t) Nymex Crude Oil (S/bbl) LME Aluminium 3 Month ($/t) ICE Sugar (cents/lb) Comex Gold (S/oz)

LIFFE Sugar (S/t) Nymex Natural Gas ($/mmbtu)

Commodities: February Gainers and Losers (%) MCX

NCDEX

Gold 11.77% Mentha Oil 7.82% Aluminum 4.53% Lead 0.13% Cotton -3.39% Cardamom -13.52%

Turmeric 6.85%

Zinc 8.88%

RM Seed 2.74%

Silver 7.07%

Soy Oil 0.58%

Copper 1.09%

Soy Bean - 0.99%

Nickel -1.10%

Barley - 1.27%

Crude Oil -3.67% Natural Gas - 20.2%

Wheat -5.29%

50 The Finapolis l MARCH 2016

STAT DOSSIER All figures as on February 26, 2016

NIFTY TOP

Company

Feb 26, 2016

NMDC

Jan 29, 2016

79.95

72.52

10.25

Bharti Airtel

317.95

289.90

9.68

Bank of Baroda

132.75

125.40

5.86

849.90

816.90

4.04

105.65

103.15

2.42

Hindustan Unilever Idea Cellular

Company

Feb 26, 2016

Jan 29, 2016

(%) Change

BHEL

95.10

138.70

-31.43

Punjab National Bank

72.50

91.30

-20.59

ICICI Bank

184.80

230.15

-19.70

Gail India

304.10

365.84

-16.88

3409.20

4095.85

-16.76

Maruti Suzuki

NIFTY MOVEMENT

14160 13675 13190 12705 12220 11735 11250

May-15

Aug-15

Nov-15

Feb-16

BSE BANKEX

Aug-15

Nov-15

Feb-16

DOW JONES

May-15

Aug-15

Nov-15

Feb-16

Loss in NYMEX Natural Gas. Lower HDD levels due to mild weather conditions dragged down NG prices

Feb-15

May-15

Aug-15

Nov-15

Feb-16

May-15

Aug-15

Nov-15

Feb-16

HANG SENG

18400 17950 17500 17050 16600 16150 15700 Feb-15

Feb-15

18650 17375 16100 14825 13550 12275 11000 May-15

28500 26750 25000 23250 21500 19750 18000

May-15

25.5%

BSE CAPITAL GOODS

23000 21750 20500 19250 18000 16750 15500 Feb-15

NIFTY BOTTOM

CNX-MIDCAP MOVEMENT

9000 8650 8300 7950 7600 7250 6900 Feb-15

(%) Change

Aug-15

Nov-15

Feb-16

Feb-15

MARCH 2016 l The Finapolis

STAT DOSSIER CURRENCY

ENERGY

Rupee Movement

11%

Brent Crude (US$/bbl) 73.0 65.5 58.0 50.5 43.0 35.5 28.0

68.7 67.5 66.3 65.1 63.9 62.7 61.5 Feb-15

May-15

Aug-15

Nov-15

Feb-16

Feb-15

May-15

Aug-15

Nov-15

Feb-16

METALS Gold (US$/OZ)

Gold prices surged on strong ETF inflows following weakness in equities and oil prices

Silver (US$/OZ) 18.00 17.25 16.50 15.75 15.00 14.25 13.50

1260 1225 1190 1155 1120 1085 1050 Feb-15

May-15

Aug-15

Nov-15

Feb-15

Feb-16

May-15

Aug-15

Gain in COMEX Gold price.

Nov-15

Feb-16

ECONOMY

Real GDP Growth 7.5

6.1

7.0

7.4

7.3

10500 8000 5500 3000 500 -2000

6500 Prior (%)

Repo

Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Cash Reserve Ratio SLR

10-year bond yield (%)

Loss in MCX Cardamom. Cardamom prices tumbled on excessive supplies and sluggish consumption demand

RBI Monetary Data

8.010 7.925 7.840 7.755 7.670 7.585 7.500

Prior (%)

7.25 6.75

Nov-15

Latest (%) 7.25 6.75 6.25 5.75 4.00 4.00 21.50 21.50

FII DIIâ&#x20AC;Ś

-17500 Reverse Repo

Aug-15

Dec-15

Oct-15

14500 -1500

May-15

13.5%

FII vs. MF (Rs cr)

-9500

Feb-15

Nov-15

Sep-15

Jul-15

Aug-15

Jun-15

Apr-15

-5.0

May-15

-3.5

Mar-15

Dec-14

-2.0

Jan-15

-0.5

10.00 7.75 5.50 3.25 1.00 -1.25 -3.50 Feb-15

Jan-16

Nov-15

Dec-15

Sep-15

IIP (%) Oct-15

Aug-15

Jun-15

Jul-15

Apr-15

May-15

Feb-15

Mar-15

Jan-15

Inflation (%)

Feb-16

Repo

Latest (%)

6.25 5.75

21.50 21.50

4.00 4.00

Reverse Repo Cash Reserve Ratio

SLR

All figures as on February 26, 2016

The Finapolis l MARCH 2016

STAT DOSSIER Performance of Mutual Funds Equity Diversified Mutual Fund Scheme

ELSS NAV

1 yr 2 yr 3 yr

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

DSP-BR Micro Cap Fund - Direct (G)

36.86

-4.4 39.9 33.2

Axis Long Term Equity - Direct (G)

28.08

-11.2 24.9 25.3

DSP-BR Micro Cap Fund - RP (G)

36.08

-5.1 38.9 32.3

Axis Long Term Equity Fund (G)

27.03

-12.1 23.3 23.8

Reliance Small Cap - Direct (G)

22.53

-9.9 35.8 32.1

Birla SL Tax Relief 96-Direct (G)

19.57 -12.0 22.9 20.2

Reliance Small Cap Fund (G)

21.99 -10.6 34.7

31.1

24.88

-12.1 22.3

19.5

Birla SL Tax Relief 96 (G)

19.09 -12.6 22.0

19.2

ICICI Pru Exp&Other Services-DP (G)

42.64

-2.6

Franklin (I) Smaller Co -Direct (G)

35.68

-8.1 34.6 29.7

Reliance Tax Saver(ELSS)-D (G)

38.27 -24.4 23.9 19.0

ICICI Pru Exp&Other Services-RP (G)

41.79

-3.3

18.8 29.5

Birla Sun Life Tax Plan (G)

24.19 -12.8

21.2

18.5

Mirae Emerging Bluechip -Direct (G)

27.98

-6.6

31.6 28.8

ICICI Pru RIGHT Fund (G)

25.07 -16.7

17.9

18.5

70.11

-11.0

31.2 28.7

Reliance Tax Saver (ELSS) (G)

37.46 -24.9 23.0

18.2

31.61 -14.9 20.6

18.1

UTI Mid Cap - Direct (G)

19.5 30.4

Birla Sun Life Tax Plan-Direct (G)

Franklin (I) Smaller Cos (G)

34.55

-9.5 32.8 28.3

SBI Midcap Fund - Direct (G)

53.70

-4.6 27.6 27.9

UTI Mid Cap (G)

68.57

-11.8 30.2 27.8

105.84

-4.5 23.4 27.5

Mirae Emerging Bluechip Fund (G)

27.10

-7.5 30.3 27.5

Can Robeco Emer-Equities-Direct (G)

51.89 -12.7 35.4 27.0

SBI Magnum Midcap Fund (G)

52.41

-5.7 26.5 26.9

Birla SL (I) Opportunities (G)

103.81

-5.3 22.6 26.7

Can Robeco Emerg-Equities (G)

50.55 -13.4 34.3 25.9

JPMorgan (I) Mid and Sm Cap-DP (G)

16.94

Birla SL Opportunities -Direct (G)

Franklin (I) Prima - Direct (G)

-13.1

31.6 25.3

609.70 -10.6 30.5 24.7

Franklin (I) Tax Shield -Direct (G)

382.19

21.4

17.5

Escorts Tax Plan - Direct (G)

54.02 -10.9 24.7

17.0

ICICI Pru LT Equity-Tax Svng-DP-G

242.31 -14.9

18.6

16.8

Escorts Tax Plan (G)

53.54 -11.0 23.9

16.7

BNP Paribas Long Term Eq-DP (G)

26.04 -13.2 20.5

16.7

373.20 -12.0 20.5

16.6

Franklin India Tax Shield (G)

-11.2

Religare Invesco Tax Plan (G)

30.31 -16.4

18.7

16.6

SBI Tax Advantage Sr-2 (G)

18.70 -17.8

17.1

16.4

BNP Paribas Long Term Equity (G)

25.75 -13.8 20.0

16.3

SBI Tax Advantage Sr-1 (G)

18.93 -15.8

18.2

16.3

1 yr 2 yr

3 yr

29.93 -22.6 20.4

11.4

Equity (Banking)

L&T Midcap Fund -Direct (G)

76.88

Birla SL Pure Value - Direct (G)

34.01 -12.4 32.4 24.6

Mutual Fund Scheme

Sundaram SMILE Fund -Direct (G)

57.34

ICICI Pru Bkg&Fin Serv -Direct (G)

Tata Mid Cap Growth - Direct (G)

86.69 -16.0 27.9 24.2

ICICI Pru Bkg & Fin Serv-RP(G)

Franklin Build India - Direct (G)

25.08 -15.3 32.6 24.0

Religare Invesco Banking - D (G)

28.74 -22.0

18.2

8.5

ICICI Pru MidCap Fund - Direct (G)

60.96 -15.9 26.6 24.0

Reliance Banking Fund - Direct (G) 140.07 -25.2

18.2

7.4

Religare Invesco Banking - RP (G)

27.54 -23.5

16.2

7.0

JPMorgan (I) Mid and Small Cap (G)

-11.8 30.7 24.6

Religare Invesco Tax Plan - DP (G)

-19.1 37.4 24.5

16.38 -14.0

30.1 23.9

NAV

29.11 -23.4 19.2 10.5

Sundaram SMILE Fund (G)

56.46 -19.4 36.5 23.9

Reliance Banking Fund (G)

137.88 -25.6

17.3

7.0

L&T Midcap Fund (G)

75.04 -12.5 29.6 23.7

UTI Banking Sector - Direct (G)

52.53 -25.2

14.3

4.7

Sahara Bkg & Fin. Serv. -Direct (G)

35.88 -25.4

13.0

4.1

Birla SL Pure Value Fund (G)

33.21

-13.1

31.3 23.7

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on February 26, 2016

MARCH 2016 l The Finapolis

STAT DOSSIER Performance of Mutual Funds Equity (FMCG) Mutual Fund Scheme SBI FMCG Fund - Direct (G)

Equity (Tech) NAV

1 yr 2 yr 3 yr

70.25 -12.2

13.7

12.7

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

ICICI Pru Technology - Direct (G)

39.33 -10.4

7.3 22.3

ICICI Pru FMCG Fund - Direct (G)

145.59 -12.7

11.7 12.4

ICICI Pru Tech. Fund (G)

38.40 -11.3

6.5

SBI FMCG Fund (G)

68.04

-13.1

12.7

11.7

SBI IT Fund - Direct (G)

44.37 -13.5

6.6 18.9

ICICI Pru FMCG Fund (G)

142.67 -13.3

11.0

11.7

DSP-BR Technology.Com -Dir (G)

52.37 -4.9

8.9

17.8

Birla SL New Millennium-Dir (G)

32.80 -12.1

6.7

17.8

SBI IT Fund (G)

42.92 -14.5

5.6

17.8

DSP-BR Technology.Com -RP (G)

51.49 -5.4

8.3

17.1

Franklin Infotech Fund -Direct (G)

110.66

6.3

17.1

3 yr

Equity (Pharma) Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

SBI Pharma Fund - Direct (G)

134.41

9.4 25.9

31.6

SBI Pharma Fund (G)

130.27

8.0 24.4 30.3

Reliance Pharma Fund - Direct (G)

134.47

4.0 21.9 27.6

Reliance Pharma Fund (G)

131.27

3.1 20.9 26.6

UTI Pharma & Health - Direct (G)

89.00

-1.3

18.4 25.4

UTI Pharma & Health (G)

86.69 -2.2

17.3 24.3

Balanced

-9.8

21.4

Miscellaneous Mutual Fund Scheme

NAV

1 yr

2 yr

UTI Transport&Logistics -Dir (G)

76.95

-12.1

37.2 36.3

UTI Transport & Logistics (G)

74.84

-13.1

35.8

Birla SL Buy India -Direct (G)

92.57

1.7

36.5 24.8

Birla Sun Life Buy India (G)

90.93

1.0

35.7 24.0

JM Basic Fund -Direct (G)

17.89 -18.0

35.1

18.5

11.2

Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

L&T India Prudence Fund -Dir(G)

18.38

-6.8 20.7

18.3

Escorts Balanced Fund - Direct (G)

93.74

-9.2 20.3

18.1

L&T India Eq & Gold Fund -Dir (G)

18.91

-9.2 20.8

18.0

Escorts Balanced Fund (G)

93.36

-9.2 20.0

17.9

SBI Balanced Fund - Direct (G)

90.33

-6.2 20.0

17.2

-7.7

19.5

17.2

Tata Balanced Fund - Direct (G)

153.79 -11.4

19.6

17.1

L&T India Eq and Gold Fund (G)

18.38 -10.2

19.6

17.0

Tata MIP Plus Fund - Direct (G)

25.38

14.7

17.3

HDFC Balanced Fund - Direct (G)

98.80 -9.9

17.4

16.8

Tata MIP Plus Fund (G)

24.80

13.8

16.2

12.1

Franklin India Bal Fund-DP (G)

85.42

-6.5

19.9

16.5

ICICI Prudential Reg Income-Dir (G)

15.11

9.7

12.9

9.6

Tata Balanced Fund - Regular (G)

151.17

-11.7

19.1

16.5

Franklin (I) Low Dura. -Direct (G)

16.70

9.0

9.8

9.9

SBI Magnum Balanced Fund (G)

88.15

-7.3

18.9

16.3

Franklin (I) Low Duration (G)

16.55

8.7

9.5

9.6

L&T India Prudence Fund (G)

17.84

Reliance Media & Enter. -Dir (G)

49.29

-9.4

14.3

10.1

JM Basic Fund (G)

17.36

-19.4

17.0

10.1

Reliance Media & Entertain (G)

48.14

-10.1

13.6

9.3

Religare Invesco PSU Eq-DP (G)

12.07 -15.0

19.7

7.0

MIP Mutual Fund Scheme

NAV

1 yr 2 yr 3 yr

HDFC Balanced Fund (G)

96.55 -10.8

16.4 16.0

ICICI Prudential Regular Income (G)

14.76

8.4

12.1

8.8

HDFC Childrens Gift - Direct (Inv)

76.64 -10.4

13.7

15.9

Sundaram MIP-Conserv-Direct-G

14.29

7.7

10.1

6.6

ICICI Pru Balanced Fund- Dir (G)

85.58 -10.1

16.4

15.7

Sundaram MIP-Conservative (G)

14.06

7.2

9.4

6.1

Source: moneycontrol.com; Note: All returns are annualized and expressed in percentage; all NAVs as on February 26, 2016

54 The Finapolis l MARCH 2016

FUND REPORT CARD SBI Magnum Balanced Fund-Reg (G) Fund Objective/Mission To provide long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt.

Fund House Details AMC Name: Website:

SBI Funds Management Private Limited www.sbimf.com

Scheme Performance as on Feb 25, 2016 Period

Returns

B'mark

3 Months

-31.86

-7.18 221/(207)

6 Months

-12.38

-6.63

159/(194)

1 Year

-7.27

-11.78

140/(167)

3 Years

15.92

7.03

7/(50)

5 Years

12.83

6.90

7/(38)

Since Inception

16.24

11.76

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (January 31, 2016) 3442.99 NAV As On (February 25, 2016) 87.87 Min Investment (in Rs.) Lumpsum 5000 SIP NAV (52WeekHigh){August 05, 2015} 98.82 NAV (52WeekLow){February 25, 2016} 87.88

Total Invest (`)

1 Year

Investment Information

Scheme (`)

Open ended scheme

Launch Date

January 06, 1996

Fund Manager

R. Srinivasan

Bench Mark

Crisil Balanced Fund Index

Max.Entry Load(%)

Max.Exit Load(%)

1.00

60,000

59,229

54,207

1,80,000

2,29,934

1,97,669

5 Years

3,00,000

4,61,476

3,73,371

10 Years

6,00,000

11,97,042

9,42,483

Total Stocks

P/E Ratio

26.37

P/B Ratio

4.92

Avg. Market Cap Rs. on (Jan-2016)

Name

Total Sectors

Top 10 Companies

Bench mark

3 Years

Fund Structure

Scheme

Rank

56482.44

Volatility Measures Fama

-0.04

Beta

1.58

Std Dev

0.69

Sharpe

-0.06

Top 10 Sector Wise Holding (%)

Industry Name

(%)

07.68% GOI - 15-Dec-2023

6.7



Unspecified

13.6



Infosys

5.8



IT - Software

12.9



CBLO

4.2



Other

9.3



HDFC Bank

3.6



Bank - Private

9.0



SJVN

3.0



Finance - NBFC

5.9



State Bank Of India

3.0



Power Generation/Distribution

4.6



Procter & Gamble Hygiene & Health Care

2.9



Electric Equipment

3.5



HCL Technologies

2.8



Automobiles-Trucks/Lcv

3.1



07.35% GOI 2024

2.7



Bank - Public

3.0



08.12% GOI - 10-Dec-2020

2.4



Household & Personal Products

2.9



5 Years History Financial Year NAV in ` (as on 31st March) Net Assets (` Crores.) (as on 31st March) Returns(%) CNX NIFTY Returns(%) Category Rank Latest As on 25 Feb, 16

2015-16

2014-15

2013-14

2012-13

2011-12

208.75

225.59

157.05

129.54

111.98

3443

1616

543

380

374

-8.39

43.51

20.95

14.49

-7.59

-18.82

26.33

17.53

6.86

-9.11

159/(232)

7/(206)

7/(148)

1/(101)

*Absolute Returns

75/(77) Source: ACEMF

MARCH 2016 l The Finapolis

FUND REPORT CARD HDFC Mid-Cap Opportunities Fund (G) Fund Objective/Mission The aim of the fund is to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and mid-cap companies.

Fund House Details AMC Name: Website:

HDFC Asset Management Company Limited www.hdfcfund.com

Scheme Performance as on Feb 25, 2016 Period

Returns

B'mark

Rank

3 Months

-13.31

-12.11

178/(278)

6 Months

-12.45

-9.79 170/(270)

1 Year

-11.20

-11.26

81/(250)

3 Years

22.12

13.64

28/(165)

5 Years

18.50

9.42

16/(154)

14.51

8.19

Since Inception

SIP Details: Invested Rs 5000 Every Month

Financial Details

Period

AUM As On (January 31, 2016) 10094.40 NAV As On (February 25, 2016) 32.39 Min Investment (in Rs.) Lumpsum 5000 SIP 500 NAV (52WeekHigh){August 19, 2015} 40.12 NAV (52WeekLow){February 25, 2016} 32.39

Total Invest (`)

1 Year

60,000

57,919

57,181

1,80,000

2,54,221

2,28,092

5 Years

3,00,000

5,24,384

4,26,890

Fund Structure

Scheme

Open ended scheme

Launch Date

June 25, 2007

Fund Manager

Chirag Setalvad

Bench Mark

Nifty Midcap 100

Max.Entry Load(%)

Max.Exit Load(%)

1.00

Bench mark

3 Years

10 Years

Investment Information

Scheme (`)

Total Stocks Total Sectors

77 47

P/E Ratio

24.59

P/B Ratio

4.33

Avg. Market Cap Rs. on (Jan-2016)

Top 10 Companies

16424.29

Volatility Measures Fama

0.01

Beta

0.85

Std Dev

1.04

Sharpe

-0.06

Top 10 Sector Wise Holding

Name

(%)

Industry Name

(%)

Bajaj Finance

3.4

Aurobindo Pharma

2.6



Pharmaceuticals & Drugs

10.5



IT - Software

7.4



Voltas

2.5



Bank - Private

7.3



Divis Laboratories

2.4



Finance - NBFC

5.2



Hindustan Petroleum Corporation

2.4



Bank - Public

5.0



Torrent Pharmaceuticals

2.2



Pesticides & Agrochemicals

4.6



NIIT Technologies

2.1



Printing And Publishing

4.3



Jagran Prakashan

2.0



Air Conditioners

4.2



Bharat Electronics

1.9



Tyres & Allied

3.2



Cholamandalam Investment & Finance Co

1.8



Bearings

3.0



5 Years History Financial Year

2015-16

2014-15

2013-14

2012-13

2011-12

32.39

36.75

22.50

17.24

16.38

Net Assets (` Crores.) (as on 31st March)

10094

9646

3525

2648

2006

Returns(%)

-12.98

63.24

29.51

4.80

8.06

CNX NIFTY Returns(%)

-18.82

26.33

17.53

6.86

-9.11

62/(288)

48/(274)

17/(218)

102/(204)

NAV in ` (as on 31st March)

Category Rank Latest As on 25 Feb, 16

*Absolute Returns

4/(208) Source: ACEMF

56 The Finapolis l MARCH 2016

Money

CHAT

This monthly series in The Finapolis talks to different families to understand their attitude towards financial planning. Certified Financial Planner Pankaaj Maalde prepares a financial plan and gives his recommendation to the family. If you’d like to talk to us and be featured, write to: feedback@thefinapolis.com

Consolidate Mutual Fund Portfolio and Align Existing Investments with Goals We discuss the case of an independent person in the middle of his career with longterm goals By Team Finapolis Shivanand Pandit is a 41-year-old

term plan or life cover, since no one is financially dependent on him.

living in Goa and working with a private organisation. His monthly income is Rs 57,000. Of this, Rs 26,667 goes towards household expenses, while Rs 4,442 goes towards insurance premiums and Rs 20,000 goes into investments. He is left with a surplus of Rs 5,892.

Health and Disability Insurance Planning As for health insurance, Shivanand has bought a policy with a cover for Rs 5 lakh. Pankaaj advises him to buy a top-up health insurance plan for sum assured of Rs 15 lakh, with deductible of Rs 5 lakh. He even advises Shivanand to increase his critical illness cover from the existing Rs 5 lakh to Rs 25 lakh and accident disability insurance from Rs 12.5 lakh to Rs 25 lakh. This will incur cost of approx Rs 20,000 p.a., but ensures a cover for him in case of future misfortunes.

Financial Goals Shivanand’s goals include building a corpus for a down payment of a home that he plans to purchase within the next five years and creating a retirement fund. Financial advisor Pankaaj Maalde analyses his monthly cash flow, existing investments, insurance policies and future goals.

Analysing Life Insurance Portfolio Shivanand has two traditional and three ULIP insurance plans. He pays annual premium of Rs 44,000 on these poli-

Shivanand’s Smart Moves Seeking financial advice Maintaining a contingency fund Investing in equity via monthly SIP

“I want recommendations on my existing investment portfolio and insurance policies” – Shivanand Pandit

cies. Analysing his insurance portfolio, Pankaaj recommends continuing both the traditional plans as the debt portion in the portfolio and ULIP plans until his home purchase goal is achieved. There is no additional requirement of having

The Road Ahead  Contingency Funding: Shivanand must set aside six months of expenses as a contingency fund, which amounts to Rs 1.92 lakh. For this, Pankaaj aligns existing saving bank balance of Rs 1.20

Shivanand’s Poor Decisions Inadequate disability insurance Not prioritising his goals Investments are not aligned with future goals

MARCH 2016 l The Finapolis

Money Chat lakh and postal investment of Rs 1 lakh. He advises him to invest the amount in ultra-short-term funds.

Shivanand’s current income and expense analysis (Rs) Shivanand’s Income

For life’s major goals Pankaaj advises  Buying home: Buying a house is top priority goal for Shivanand. He plans to buy a house having total cost of Rs 30 lakh in present value after five years. Out of this value, 65% will come from the bank in the form of a home loan, while the remaining 35% will have to be funded by self. Pankaaj worked out how

57,000

INFLOW

Total monthly income

OUTFLOW

Asset Allocation

Total monthly expenses

Existing %

t 20

Deb

Household expenses

Equity 80%

Current:

26,667 Recommended: 26,667

Recommended 5%

Debt 2 Equity 75%

Insurance premium

Investment

Surplus

4,442 5,317

20,000 25,000

5,892 17

years and from the fifth year, consider investing either in an arbitrage fund or a recurring deposit till goal is achieved. For the balance amount (65%), Shivanand should opt for a home loan. Assuming rate of interest at 9.50%, the EMI

would be Rs 32,700 (refer to table Working for…). To pay this monthly EMI, Shivanand can use the surplus of Rs 25,000 savings from rental expense and ULIP premiums which will stop by the time his home is purchased.

Net worth of Shivanand Pandit Asset

Current Value (Rs) Investment Assets

Shivanand could buy a house as explained in the table (refer to table Working for ….). To build a corpus for funding the 35% down payment required on the home, Pankaaj has aligned the three existing ULIP plans. This will give a corpus of Rs 8.62 lakh after five years. Assuming

Cash and Equivalents

120,000

Post Office Monthly Income Scheme

100,000

Public Provident Fund

100,000

Recurring Deposits

15,000

Direct Equity

500,000

Equity & Balanced Mutual Funds

600,000

return of 11.5% after switching from equity to balanced category and with Shivanand continuing to pay the premium in these policies for next five years. Additionally, an investment of Rs 10,500 is required to meet the shortfall. For this, Paankaj advises Shivanand to invest in balanced funds for the first four

Insurance - ULIP Fund Value

340,000

Total Assets (rounded off)

17.75 lakh Less (-)

Liabilities

Current Value (Rs)

Car Loan

Nil

Net Worth (rounded off)

17.75 lakh

58 The Finapolis l MARCH 2016

Money Chat Funds needed to achieve goals

Contingency Fund

Home Purchase

Retirement

Time to achieve (yrs)

Future value of cost (Rs)

Resources utilised

Monthly investments required (Rs)

1.92 lakh

Savings bank and post office MIS

Time to achieve (yrs)

Future value of cost (Rs)

Resources utilised

Monthly investments required (Rs)

48.3 lakh

35% Self funding through savings and ULIP plans

10,500 (for self funding)

Time to achieve (yrs)

Future value of cost (Rs)

Resources utilised

Monthly investments required (Rs)

2.56 Crore

Direct equity, Mutual funds and PPF

14,500

Total investment needed

Assumptions

Rs 25,000

Inflation rate = 8% Returns on ULIP and Balanced Fund = 11.5% p.a., equity mutual fund = 13% p.a., Debt / PPF = 8% p.a. and Ultra short term and Arbitrage fund = 6% p.a.

EXPERT TAKE

household expenses of Rs 27,000 per month in present value at 8% inflation.

Concluding remark

Pankaaj Maalde Certified Financial Planner ď ľ Retirement funding: Shivanand is planning to retire at the age of 60 year. Pankaaj aligns his existing investments in direct equity, mutual fund and PPF, which promise a corpus of Rs 50.98 lakh, Rs 61.19 lakh and Rs 4.32 lakh, respectively (after 19 years) to attain the retirement corpus. Additionally, he should start monthly investment of Rs 14,500 through SIP in diversified equity mutual fund scheme to build the desired corpus for his retirement. Investing in an ELSS scheme will help him save on taxes if required. This execution will aid him in building his desired corpus for retirement, which is Rs 2.56 crore, and can be used up to 80 years of age after retiring at 60. The corpus required has been calculated assuming

Shivanand should shift existing investments in direct equity and thematic (sector) funds to diversified equity mutual fund schemes, since it is not possible at an individual level to track the performance of stocks and various sec-

tors while investing. Also, consolidation is required in the existing mutual fund portfolio which is over-diversified at this stage. Paankaj advises him to invest only in four to five good mutual fund schemes instead of investing in too many schemes. He must review the financial plan from time to time and take corrective action to increase sum assured in his health insurance policies. F

Working for house purchase goal Particulars Current value of house to purchase (Rs) Growth rate Current age (years) Goal required at age (years) Future value of house (Rs) Self funding (down-payment) Total funding from assets utilized (ULIP schemes) Shortfall Investment rate of return Monthly investment required for down-payment (Rs) Loan Funding Interest rate (approx assumed) Tenure (Years) EMI (Rs)

Working 3,000,000 10% 41 46 4,830,000 35% 1,700,000 862,600 837,400 11.50% 10,500 65% 3,130,000 9.50% 15 32,700

MARCH 2016 l The Finapolis

by invite

ADHIL SHETTY

Choosing Between Equities and a Bank FD

n a survey, it was found that a majority of Indians take the fixed deposit route for investment and savings. In comparison, investment in equities is very low. Fixed deposits are tenured deposits in banks where the money remains for a specified tenure earning a fixed interest rate. Despite new venues of investment, fixed deposits haven’t lost their lustre and remain, largely, the most preferred way to save and invest for Indians. Equities are yet not in the radar for many investors. In this article, we will discuss the reasons, the differences between the two asset classes, and how to allocate your money between them.

Returns in FD vs returns in equities FD is a fixed income security, which means the returns are fixed. If the FD is inked at the rate of 9%, you will get 9% returns every year. The interest generated every year will be re-deposited at the same interest rate resulting in compounding returns. Hence, in case of an FD, investors know beforehand the quantum of returns on their investment. FD rates depend on banks, and there could be slight variation in returns from different banks. In case of equities, returns are not fixed. Returns depend on myriad factors, both macroeconomic and microeconomic. The macroeconomic factors include the growth of the economy, interest rate regime in a country, global factors such as demand and supply of the produce of the country, and the flow of funds from foreign institutional investors. Microeconomic factors include the company’s internal matters such as revenue or profit growth, launch of new products, operational efficiency, market position of the firm, and the sector’s overall performance. In a bull market, equities tend to outperform all types of investments by a big margin, while they end up in the red in a bearish market. For example, the returns given by the equity market in 2013-2014

Adhil Shetty is the CEO of BankBazaar.com

Equities are yet not in the radar for many investors. Here, we discuss the reasons, the differences between equities and FDs, and how to allocate your money between them were about 19%—much higher than the returns which FDs can give. On the other hand, equities returned a negative 15% last year, while an FD will never give you a negative return.

Risks in investments Naturally, an investment where the returns fluctuate widely is seen as a risky investment. In this sense, equities are the riskiest investments, whereas FDs are one of the safest investments as the returns are consistent year after year. The risk is higher in equities because businesses and economies are not consistent in performance. New products and firms keep coming up in the market, destabilising the existing businesses, companies and products. Moreover, there are factors such as demand in China, US interest rate, growth prospect of developed markets which are big consumers of products from emerging markets, as well as inherent problems of inflation and infrastructure in developing countries where investors have no control.

Fixed deposits, on the other hand, are risk-free. Banks promise you a rate of interest and you get it. In fact, the risk of FDs lies in inflation and interest rate. For example, if your FD pays 8% interest and the inflation shoots up to 10% and continues for prolonged period, your effective returns are negative from FD. Similarly, if your money is blocked for five years in an FD at 8% and there is upward movement in interest rate, you don’t get advantage of the new interest rate unless you break the FD—wherein you may incur premature withdrawal costs—and start a new one.

How to choose between them FDs by their very nature are time deposits. It means you deposit for a fixed tenure and receive the principle and interest after the end of the tenure. This is an ideal instrument for investors who invest for a specific purpose. For example, if you need Rs 10 lakh at the end of five years to buy a home and you have lump sum amount of Rs 6-8 lakh, FDs could be a better option than equities. FDs ensure that you get the amount at the end of five years. Investing in equities for this purpose may be counterproductive, since there is a real risk of the market crashing before the five-year tenure is up and continuing for a prolonged period. What we see in the stock markets today in India is testimony. The current stock market levels are not much higher than the highs of 2007. This means zero to negative returns at worst, and nominally positive returns at best, in the last eight years, depending on when you made your investment in the stock market. In the same period, your money would have doubled in fixed deposits. Equities are good for building wealth in the long term, but investing directly in equities is not advisable unless you know the market. Investors should rather choose mutual funds for investing in stock market. F

60 The Finapolis l MARCH 2016

ETCETERA Why Countries Need to Take Their Image Seriously Nations should pay attention to how they are perceived by others, says David Reibstein. Countries that figure out how to enhance these perceptions could notch large economic benefits.

ompanies are fully aware of the economic value of their brands and manage them carefully, and branding consultancies regularly publish rankings of global brands based on their estimated value. Given our ever-increasing global interactions and exchanges, is it time for the same to be applied to the branding of nations?

Can Nations Be Brands? Proctor & Gamble produces a number of products we are all familiar with — Crest, Scope, Head & Shoulders, Tide, Pampers, just to name a few. Each of these products has a brand name that the company has been more than willing to invest in. P&G spends billions to create awareness and perceptions of its brands. Why does P&G advertise to help consumers understand that Crest [toothpaste] reduces decay prevention? They don’t do it solely to make us better informed. They do so because there is a good return to the company if we are aware of Crest and have a positive association with its properties. This return is reflected by P&G’s ability to charge a premium price for Crest and perhaps even increase sales of the product. Most companies gain their return for their

A nation’s brand affects its economy — it matters what others think about us. Our actions, visible on a global scale, have economic consequences far beyond the direct cost of those actions

MARCH 2016 l The Finapolis

ETCETERA brand development through a combination of the two. In the same sense, nations and geographies such as cities, states and regions have brand associations as well. Brands are perceptions that people have of the region — anticipation of what they can expect. We certainly have perceptions of regions or states, and even cities. Las Vegas is viewed as an adult playground personified by the advertising tagline, “What happens in Vegas, Stays in Vegas.” Actually, at one point, Las Vegas tried to change its image to more of a fami-

ly-oriented venue, featuring the MGM Grand amusement park. But the city discovered that it was hard to change a brand’s image and also compete with Disney. Hence, it reverted back to its earlier campaign. Dubai, one of the Emirates of the UAE, had very little global awareness not that many years ago. But it has transformed its image to become a destination point for many — both for tourism and foreign trade, given their free trade zones.

Attaining a National Brand Consumer products primarily attain their brand perceptions from experiences people have with them, and in an era of social networks, experiences others have with these goods as well. Singapore Airlines is recognized as one of the best airlines in the world. Some of this prestigious image came from advertising, to be sure, but much of it undoubtedly was attained from travelers’ experiences with the airline and positive word-of-mouth to attract other passengers. Advertising, price, distribution, packaging and other marketing elements also play a role. Similarly, we have perceptions of countries based on our experience as tourists, customers, investors, followers of global news and social media, and what we hear from others. We learn and develop generalizations about various parts of the world – for example, products from Italy are considered quite stylish; people in Brazil are very friendly; the Turkish coast is amazing; and doing business in India can be complicated. These opinions are based on our experiences and what we have learned from others. Countries that want to influence the world’s perceptions about them try to shape our impressions through such things as tourism bureaus, chambers of commerce, foreign trade administrators, among others — just as businesses try to influence customers’ perceptions of their brands through advertising. There is good reason for doing so: Attracting more businesses, trade, exports, investments and tourism strengthens a nation’s economy. At the city and state level, we all know about New York’s “I Love New York” campaign and Virginia’s “Virginia is for Lovers” ad slogan. More recently, India has begun promoting its “Made by India” campaign and China has been touting its “Work with China” tagline. In the same way that personal selling and direct advertising of consumer products aren’t readily visible to the

62 The Finapolis l MARCH 2016

ETCETERA general public, nation-branding efforts are not as outwardly visible since these generally are directed at the business community to encourage economic development, investment or trade. Perceptions of nation brands are derived from all sorts of experiences. Some of this is derived from the products countries produce and export all around the world. Germany is well-known for its development of excellent automobiles, and hence thought of as superior in engineering. Italy is known for fashion, Switzerland for banking and watches, China for low-cost manufacturing and Scandinavian countries for their dairy products. Some companies take advantage of their nation’s positive brand image by promoting the country of origin along with their brands and products. For example, Swiss Army Knives or German engineered BMWs. This does not always work in a positive direction if the nation is not particularly

known for excelling in certain areas. I would contend that the company name Lenovo was created to make it less apparent that it manufactures in China, as the name does not sound very Chinese. This is probably wise as China hasn’t been particularly known for being reliable or technologically innovative. Similarly, Häagen-Dazs ice cream is a brand name that most consumers associate with Scandinavia, and hence carries a positive, wholesome dairy association. But it’s actually manufactured in New Jersey, which is not particularly known for its dairy products. A nation’s brand image affects many other aspects of its economy beyond simply exports. There are some countries that are known for their capabilities in innovation or intelligence/security, such as Israel, or for their low-cost manufacturing capabilities, such as China and India. These capabilities could have arisen because of their human or natural

Dubai had very little global awareness not that many years ago. But it has transformed its image to become a destination point for many — both for tourism and foreign trade, given their free trade zones

resources, such as oil from Saudi Arabia or Russia, or diamonds from South Africa. These perceptions, often borne from reality, lead to commerce in a variety of forms. Perceptions about a nation’s capabilities within certain product categories also lead to increased exports of these products, such as shoes from Italy, beef from Brazil, or electronics from Japan.

Dimensions of a Nation’s Brand What dimensions help form a brand image? It differs by category. If we measure people’s perceptions of toothpaste along a number of attributes, we would find the evaluation centering around two primary dimensions — whitening/brightening and decay prevention. Measuring people’s perceptions of nations reveals more complexity, which is reflected in more dimensions that emerge. The central dimensions that drive people’s view of nations can be reduced to nine general categories: Adventure, Business Ready, Cultural Clout, Global Citizenship, Innovation & Entrepreneurship, Quality of Life, Power & Influence, Values & Heritage, and Differentiation. To be sure, it is possible for a nation to be perceived as strong in one dimension and weak in another. Brazil might be viewed as strong on Adventure, but not necessarily strong on Innovation & Entrepreneurship. Sweden might be viewed as one of the best nations in terms of Quality of Life, yet not necessarily dominant in Power and Influence. The individual perceptional dimensions correspond more to certain parts of a nation’s economy than to others. For example, being perceived high on Adventure clearly supports greater tourism while a high perception of Innovation & Entrepreneurship correlates with high foreign direct investment. Differentiation and Cultural Clout are both positively associated with foreign trade. In short, the perception of a nation’s brand has a direct influence on its economy. Under each of these dimensions are the attributes used to assess the nation. For example, Adventure consists of ex-

MARCH 2016 l The Finapolis

ETCETERA citement, friendliness and culture, among other features. For a country to reposition its image, it must change the perception of the underlying attributes of the dimension — level of excitement, friendliness and culture. How? Not merely by citizens becoming more exciting and friendly. The key is to change others’ perception — through actual visitors’ experiences, blogs, ratings provided by travel sites such as TripAdvisor.com and Lonely Planet — and supported by advertising and public relations efforts. But even in a successful repositioning campaign, change will not happen overnight; it will take time and repeated efforts. Once the perception of a country starts to shift, tourism should see an increase. To understand how its nation brand is viewed globally, a country should first survey how it is perceived by other participants in the global economy so it can more actively manage its image. Documenting the global perception of nation brands is the objective of this inaugural rating of nations. I will note that most people will not agree with their country’s ratings. The ratings are not a reflection of objective dimensions, but rather how the country is subjectively perceived by a large sample of residents, business decision makers, and the educated elite of other counties. This is not to say objective features don’t matter; but a change in brand image and its resulting economic impact will not happen without a shift in subjective perceptions as well. Take Jamaica. For years, its tourism bureau spent considerable money on the advertising theme, “Come Back to Jamaica.” The commercials were enticing — they were bright,

maica. It sparked positive impressions about the country and tourism improved. The point of this work is to emphasize the economic importance of how others view our countries. It is an issue beyond national pride. A nation’s brand affects

colorful, and full of life. But it turned out that many tourists stayed away due to concerns about safety. When considerable effort was made to ensure tourists would be safe, visitors began returning to Ja-

its economy — it matters what others think about us. Our actions, visible on a global scale, have economic consequences far beyond the direct cost of those actions. F

Best countries overall

The central dimensions that drive people’s view of nations can be reduced to nine general categories: Adventure, Business Ready, Cultural Clout, Global Citizenship, Innovation & Entrepreneurship, Quality of Life, Power & Influence, Values & Heritage, and Differentiation

1. Germany 2. Canada 3. United Kingdom 4. USA 5. Sweden 6. Australia 7. Japan 8. France 9. The Netherlands 10. Denmark 11. New Zealand 12. Austria 13. Italy 14. Luxembourg 15. Singapore 16. Spain 17. China 18. Ireland 19. South Korea 20. Brazil 21. Thailand 22. India 23. Portugal 24. Russia 25. Israel Note: The rankings were released in January at the World Economic Forum in Davos, Switzerland.

Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

64 The Finapolis l MARCH 2016

PERSONAL FINANCE

advisor Every month an expert on personal finance will answer all your queries related to the world of investments, taxation and financial management. The personal finance advisor will diagnose the health of your portfolio and offer better advice. In current edition, your questions have been answered by Col. Sanjeev Govila (retd), CEO, Hum Fauji Initiatives. He is Certified Financial Planner and SEBI Registered Investment Advisor. Write in to feedback@thefinapolis.com Bonds What are green bonds? Who are eligible to invest in this bonds and expected rate of returns? – Lalit Singh, Nashik As of now, there is no standard definition of a green bond. As we all understand, a bond is a debt instrument with which an entity, corporate or government raises money from investors. The bond issuer gets capital while the investors receive fixed income in the form of interest. When the bond matures, the money is repaid. A green bond is very similar. The only difference is that the issuer of a green bond publicly states that capital is being raised to fund ‘green’ projects, which typically include those relating to renewable energy, emission reductions and so on. While they have been around in other countries for quite some time now, in India they have lately shot into prominence with SEBI issuing new norms for issuance and listing of such securities in the stock market in January 2016. The move was aimed at helping meet the huge financing requirements worth $2.5 trillion for climate change actions in India by 2030.

These bonds, four of which were issued in 2015 by Indian corporates like Yes Bank, Exim Bank of India, IDBI Bank and CLP India, are not any different from other bond issues. While the rates of interest and eligibility conditions would depend on the target audience of the issuer, green bonds are typically perceived to be carrying lower risk than other bonds. According to a KPMG report, in case of a green bond, “proceeds are raised for specific green projects, but repayment is tied to the issuer, not the success of the projects.” This means the risk of the project not performing stays with the issuer rather than investor. Life Insurance LIC has launched a new endowment plan Jeevan Shikhar. Please advise is it worth to invest into it for tax saving and insurance purpose. I have insurance cover of Rs 20 lakh and paying annual premium of Rs 1 lakh approx. – Vishal Shah, Surat This is a typical single premium, participating, non-linked, savings-cum-protection insurance policy wherein the risk cover is 10 times of the single premium paid. The plan tenure is 15 years. LIC has a history of launching single premium plans in the tax saving season (Jan – Mar) each year to meet the urgent needs of people who’ve not planned their taxes during rest of the year. Like all such insurance endowment plans, the returns are likely to be in 4-6% per annum range and the insurance cover is likely to be minimal. Hence, it would neither meet your insurance nor investment requirements adequately. You are already paying a very large premium on your existing policy wherein just Rs 20 Lakh of insurance requires you to pay a huge premium of Rs 1 Lakh.

MARCH 2016 l The Finapolis

PERSONAL FINANCE ADVISOR unsure of the equity market. Once, they see good returns for a few years, they can graduate to equity funds with more confidence.

Instead of opting for this sub-optimal solution, I would recommend you to take a pure term insurance for your insurance requirements. Any good financial planner would be able to suggest you the amount and duration of insurance cover that you actually need. If you take a term insurance online, it will also save you quite a lot of yearly premium payment by saving you the agent commission. For your tax requirement, we feel PPF is the very best if you wish to go conservatively. If you’re comfortable with market linked returns, you may go in for a good ELSS (Equity-Linked Savings Scheme), which is essentially a tax-saving equity mutual fund. ELSS has the shortest lock-in (of only three years) of all the tax-saving products. Both these products will also give you returns much better than any endowment insurance policy. I would further suggest you to go about your yearly tax requirements in a comfortably planned manner throughout the year rather than responding to it in an adhoc manner towards the end of a financial year. This can be done by regularly contributing to a PPF or for a monthly SIP in an ELSS. Mutual Funds I am 28 years old. My portfolio is very conservative and mainly invested in debt products (90% approx). Now, I want to increase my exposure into equities. Should I opt to invest in balanced funds or equity

funds? Please explain difference between equity funds and equity income funds. – Ajit Kawali, Pune You have correctly concluded that you need to take a gradual exposure to equity since you haven’t invested in this class of products in the past. Balanced or hybrid funds would give you a good starting point. Typically, Equity-Hybrid funds would have more than 65% equity exposure while Debt-Hybrid funds would have lesser equity. Their taxation would also be like-wise calculated. You may start with MIP type of products in the beginning which have about 15-20% equity exposure. Please remember that the debt component of hybrid funds is also generally dynamically managed for duration and/ or credit risks, while the equity portion is managed as a multi-cap fund. Gradually, you could get into Equity-Hybrid Funds and pure equity funds as you gain confidence and get comfortable with equity. Equity Income Funds are a recent entrant to India. These schemes invest more than 65 per cent of the money in equities – for equities tax treatment – and the rest in debt or cash. Out of this 65% equity, generally 25-40% is in pure equity and balance of equity portion is in arbitrage, which is fairly safe. So, the investor is quite protected if the equity market falls sharply due to the arbitrage and debt component of his equity income fund. These schemes are meant to attract first-time or retired investors who are

Mutual Funds In portfolio, one should invest in how many mutual fund schemes? I have a belief multiple mutual fund schemes will help my portfolio to diversify. Please explain. – Rangarajan Kumar, Chennai Diversification in any investment portfolio reduces risks and is a good principle to follow while planning investments. That is why asset allocation is considered the corner stone of any investment plan. However, diversification just for the sake of it without consideration of the underlying securities could be meaningless. E.g., if you have five large cap mutual funds and believe that you have diversified enough, you may be grossly off the mark. Due to the limited universe of stocks that all these five schemes would have in their portfolio, you could simply be having large duplication of underlying stocks. Typically, a portfolio of 6-7 mutual fund schemes should give you good diversification if you’ve carefully selected the schemes from various categories of equity, debt and hybrid (mixed) mutual funds as per your needs and risk profile. Please carefully go through the fund objectives, fund manager’s experience and performance of managing such schemes in the past, fund house philosophy and of course, how the particular scheme has performed during various market cycles in the past. F

66 The Finapolis l MARCH 2016

LEARNING CURVE We all come across issues and ideas related to the world of finance that sound Greek and Latin. Worry not. We are here to guide you through the maze

Beta and Standard Deviation, the two ways to measure risk

“T

he biggest risk is not taking any risk. In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risk”, said Mark Zuckerberg, the king of social networking. This holds true in today’s world. We always look for safety and believe that instruments which offer guaranteed returns are where our money needs to be. But we keep forgetting that there are monsters like inflation eating into our money every day. Without taking some amount of risk, fighting such monsters becomes impossible. How much risk is too much for any portfolio? Unfortunately, it is not a simple question to answer. Do not worry, though. There are some mechanisms to understand the inherent risks in a portfolio and to make our job easier in choosing products that match our risk appetite. Risks in holding securities can be of two types – systematic or unsystematic. Systematic refers to risk associated with economic, political or social changes. Unsystematic risk is one that is associated with a firm, sector or industry.

Beta Beta is a mechanism used to measure systematic risk in a portfolio. Every portfolio has various crests and troughs. Beta measures the portfolio or stock movement with respect to the market, which could mean an index. If Beta is 1, it means the portfolio is moving in the same direction as the market does. If it is less than 1, it is less volatile and if it is more than 1, it implies greater volatility. Let us understand this with an example. If the Beta of a portfolio is 1.1, it means the portfolio

is likely to go up by 110% if the market goes up by 100%. Also, it can go down by 1.1x the drop in the market. So when the market goes down by 50%, a portfolio with Beta of 1.1 will go down by 55%.

Standard Deviation While Beta signifies the risk of a portfolio with respect to market, Standard Deviation (SD) talks about the absolute volatility. As the name suggests, SD refers to the amount of deviation in a stock or fund with respect to the expected returns. Obviously, lesser the SD, lower would be the volatility for the portfolio and vice versa.

If the Beta of a portfolio is 1.1, it means the portfolio is likely to go up by 110% if the market goes up by 100%. Conversely, it can go down by 1.1 times the decrease in the market Scheme Name

Final Word These risk measuring mechanisms cannot be the only factors in deciding a fund’s performance or in portfolio construction. They have to be combined with historical performance, fund manager track record, expenses charged, etc. To give an idea, look at the table, which shows the Beta and SD of various categories of mutual funds belonging to the ICICI stable. F