RNI No.

MAHENG/2009/28962 | Volume 10 Issue 02 | 16th - 28th Feb ’18

M umbai | Pages 52 | For Pr ivate Circulation

In view of the upcoming

FIXING polls, the government is

leaving no stone unturned

RURAL to appease the rural

populace with sops and
increased spends

DISTRESS
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Volume 10 Issue: 02, 16th - 28th Feb ’18
Editor-in-Chief & Publisher: Rakesh Bhandari
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
Art Director: Sachin Kamble
Junior Designer: Orianne Fernandes
Operations: Namrata Sabbani
Research Team: Sunil Jain, Vikas Salunkhe,
Swati Hotkar, Nirav Chheda
Printed and published by Mr Rakesh Bhandari
on behalf of Nirmal Bang Financial Services Pvt
Ltd, printed at Uchitha Graphic Printers Pvt Ltd
65, Ideal Ind. Estate, Senapati Bapat Marg,
Lower Parel, Mumbai – 400013 and published
at Nirmal Bang Financial Services Pvt Ltd, 19,
Sonawala Building, 25 Bank Street, Fort,
Mumbai-400001. Editor: Tushita Nigam
CORPORATE OFFICE
B-2, 301/302, Marathon Innova,
Off Ganpatrao Kadam Marg,
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Tel: 022 - 6273 8000/8001
Web: www.nirmalbang.com
beyondmarket@nirmalbang.com
Tel No: 022 - 6273 8047
Beyond Market 16th - 28th Feb ’18
DB Corner – Page 5
Budget 2018: From Bamboo To Blockchain
The Union Budget slips on fiscal front, but doesn’t step into the populist
line; has something for everybody, but just so – Page 6
Mega Plan
The government’s recapitalization and reforms measures will strengthen
PSBs in the country – Page 10
An Ambitious Move
The government’s plan to launch the National Health Protection Scheme
in addition to extension of PMJJBY and PMSBY schemes are highly
appreciable – Page 12
Fixing Rural Distress
In view of the upcoming polls, the government is leaving no stone
unturned to appease the rural populace with sops and increased spends
– Page 16
Sustaining Revival
Makers of consumer goods and companies related to the farm sector are
likely to benefit from increased consumption by the rural folk in India
– Page 19
High Flyers
India’s aviation sector is booming with more and more people opting for
air travel over rail, giving a boost to airline companies – Page 22
Pegging Higher Growth
For FY19, the Economic Survey is optimistic about the growth of the
Indian economy over reforms undertaken by the government – Page 25
Taking The Temporary Route
The growing demand for temporary employees in India bodes well for the
flexi-staffing industry – Page 28
A Long Shot
Thinking about important things from a long-term perspective could be
more lucrative than being occupied with insignificant, day-to-day affairs
– Page 32
Bound By Purpose
Not only can an individual minimize his tax outflows but also meet his
financial goals through appropriate tax planning – Page 35
A Popular Substitute
Investors can consider FMPs over bank FDs in view of higher yields and
better post-tax returns – Page 38
Technical Outlook – Page 41
Buckfast Recommendations – Page 42
Look And Keep
An investor needs to look at the sustainability of a business and consider
how the business and its managers are likely to perform in difficult times
– Page 46
Important Jargon – Page 49
It’s simplified... 3
 GROUND
REALITY Tushita Nigam

I Editor
ndia’s agriculture sector has been the country’s backbone since eternity. A widely known fact is that to give impetus to growth
in a developing economy, work should start at the grassroots level. The current state of the rural economy of India is not at its
best and bringing about an improvement remains the central focus of any ruling government. The same has been followed in the
recent Union Budget for fiscal year 2018-19 as well. The government has left no stone unturned to bring about a change in the
state of the rural economy. The cover story, along with a follow-up story in this issue, throws light on the various measures and
initiatives introduced by the government to boost the rural economy.

The other articles in this issue include an analysis of the recently announced Union Budget 2018-19 and what it means for India
Inc, various industries and the general public; details of the recapitalization (recap) programmes of Public Sector Banks;
initiatives taken to boost the penetration of health insurance in India; the booming aviation sector and how it has negatively
impacted the Indian Railways; the Economic Survey for FY18-19 and how it is optimistic about the growth of the Indian
economy due to the reforms announced by the government for the coming fiscal year; immense growth in India’s flexi-staffing
industry; and the importance of investing with a long-term perspective rather than paying attention to insignificant daily affairs.

The Beyond Basics section covers two interesting reads. While one talks about the growth opportunities in fixed maturity plans
(FMPs) as compared to other traditional investment avenues, the other talks about the importance of tax planning from the start
of the financial year and not waiting till the very end for tax-saving opportunities.

Do not miss out on an interesting article in the Beyond Learning section for it talks about the need to look at sustainability of a
business and consider how the business and its managers are likely to perform in difficult times, before investing in iT.

4 Beyond Market 16th - 28th Feb ’18 It’s simplified...

 The Indian stock
markets are likely to
remain range-bound
in the coming fortnight.

U
S stocks recently saw a meaningful correction in a long time over potential rise in inflation or
interest rates, with many fearing that the US Federal Reserve might tighten its monetary policy
more than expected.

Finance Minister Arun Jaitley presented Union Budget 2018 earlier this month. Despite being populist, it
exhibited additional negative sentiments due to long-term capital gains (LTCG) tax.

India Inc’s third quarter earnings results for FY18 have been rather encouraging as well as in line with
market expectations.

At the sixth bi-monthly monetary policy meeting the Monetary Policy Committee of the Reserve Bank of
India kept interest rates unchanged. However, while expressing concerns over increasing inflation, the RBI
cautioned that it could tighten interest rates in the future.

The Indian stock markets are likely to remain range-bound in the coming fortnight. The Nifty Index has
support at the 10,350 level and 10,275 level, thereafter. On the upper side, the expected levels are around
10,530 and 10,660.

In the coming fortnight, one should watch out for the movements in the US markets. On the Indian front,
expectations of positive FY18 Q4 earnings results are building uP.

Sensex: 33,819.50 Disclaimer

Nifty: 10,382.70 It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
(As on 22nd Feb ’18) equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.

Beyond Market 16th - 28th Feb ’18 It’s simplified... 5


The Union Budget slips on
fiscal front, but doesn’ t
step into the populist
line; has something for
everybody, but just so
BUDGET 2018:
6 Beyond Market 16th - 28th Feb ’18
T
here were huge expectations that
Finance Minister Arun Jaitley would
open his bag of goodies in Budget
2018-19 and generously dole out farm
loan waivers, freebies as well as income-tax
exemptions, among other things.
After all, this was the last Budget of the
government, and the year ahead is full of key state
elections, culminating in the big one next year,
the Lok Sabha polls.
However, to its credit, the government did not
give into temptation and refrained from
announcing a populist Budget.
Surely, that the Finance Minister also had a
limited room for a big spending push – given that
the Budget came in the backdrop of a raft of
reforms, slowdown and fiscal stress – helped.
However, that didn’t stop the FM from
announcing big-ticket plans for rural India
revival, a massive healthcare programme and
FROM BAMBOO
TO BLOCKCHAIN
It’s simplified...
sops to small-scale industries. But
these were mostly high on rhetoric
without being backed by much
budgetary support.
The Budget covers diverse sectors
such as `1,290 crore allocation under
National Bamboo Mission to
incentivizing blockchain investment.
So where does the Budget score and
where does it miss?
BHARAT FIRST
The key theme of the Budget is to
push economic growth by raising
rural demand. It proposed a hike in
minimum support price (MSP) of
crops, export liberalization of agri
products, and increased expenditure
on rural infrastructure.
While the government has an
ambitious target of doubling the
income of farmers by 2022, it has
increased the budgetary allocation for
agriculture and allied activities by just
12.8% for the next fiscal, in line with
the earlier years.
While the MSP hike of 1.5% of
production cost would push up the
government bill by `7,000 crore,
there would be no major impact of
10% increase in credit target for the
agriculture sector.
However, according to experts,
announcing new measures and
committing resources is not enough.
These need to be complemented by
measures outside the Budget, such as
support from states, and
implementation of the existing
schemes and measures.
FISCAL DEFICIT
The government has for the second
consecutive year breached its fiscal
deficit target of 3%. But the more
worrisome part is that the breach is
despite a cut in capital expenditure.
Beyond Market 16th - 28th Feb ’18
Had the government stuck to its
targeted capital expenditure for the
ongoing fiscal, the deficit would have
still been higher.
Also, the fiscal deficit target for fiscal
2019 relies on a large indirect tax
collection target. While the direct tax
target appears achievable, the indirect
tax growth assumption of 19.1% over
an 8.7% growth in fiscal 2018 is
ambitious and assumes a growth of
67.3% in GST collections. However,
it can still be achieved as GST regime
stabilizes and sees greater
improvement in the tax base.
INVESTMENT
The central government investment is
projected to increase 7.2% in fiscal
2019 from 2.7% growth in the
previous one. However, the impact on
overall investment will be modest as
states play a greater role in
investment with 64% of total
government capital expenditure.
Still, the central government’s focus
on infrastructure spending will help
attract private investments. The focus
this time around is on rural
infrastructure, which has been
allocated `14.34 lakh crore.
Capital expenditure for transport has
increased 22% year-on-year to `1.1
lakh crore, driven by 32% increase in
railway expenditure. Cut in corporate
tax rates for micro, small and medium
enterprises (MSMEs) can also
increase investment in these firms.
MSMEs
For the micro, small and medium
enterprises the Budget has measures
such as the cut in corporate tax rate
and incentives for job creation in the
sector. A `0.56 lakh crore increase in
the credit target under Pradhan Mantri
Mudra Yojana to `3 lakh crore is
lower than `1.22 lakh crore increase
to `2.44 lakh crore last year, which
will benefit MSMEs marginally.
The corporate tax cut will make
MSMEs more competitive, facilitate
ease of business and give impetus to
schemes like ‘Start-up India’ and
‘Make in India’.
BOND MARKET
MSMEs and retail borrowers should
witness higher credit flow, as large
corporates tap the bond market to
meet the 25% target. The
government’s support towards
MSMEs in the form of capital
allocation, interest subsidy and
tax-rate cut will boost credit demand
from the segment.
Mandating large corporates to meet
25% of their funding needs from the
bond market would nudge large
borrowers to the bond market,
increasing its breadth and depth.
Introduction of uniform stamp duty
for the issuance of bonds across the
country will help make bond
issuances cost-effective and efficient.
The proposed debt exchange-traded
fund for divestment will lay the path
for fixed income ETFs in the country.
JOBS
The Budget estimates that creation of
two crore toilets under Swach Bharat
Mission would require 16.92 crore
man-days, construction of 51 lakh
rural houses would need 46.55 crore
man-days, the creation of rural roads
under PMGSY would require 28.35
crore man-days, while work under
MGNREGA would provide 230 crore
man-days, totalling 321.8 crore
man-days.
Add to this, the 95,000 direct and
indirect jobs created under mega food
parks being set up, 75,000 jobs for
building cold chains and other agri
It’s simplified... 7
 infrastructure, 2,94,000 jobs under
MSME scheme, 56,000 jobs in the
road sector, 20,000 jobs in Railways,
30 lakh jobs under Pradhan Mantri
Rojgar Protsahan Yojana (PMRPY).
It is estimated that half-a-dozen
government schemes would create 48
lakh jobs in the next fiscal. A 12%
provident fund subvention for new
employees can lift hiring in the
formal sector.
PERSONAL TAXATION
A five-fold increase in the TDS limit
for interest income should make bank
deposits more attractive for senior
citizens. The increase in cess on
income tax to 4% from 3% would
increase the tax bill for all payers.
For salaried individuals, a standard
deduction of `40,000 from salary
income will be allowed, replacing the
current transport allowance of
`19,200 and medical reimbursement
of `15,000, which, experts say, is a
minor solace.
Investment in notified bonds under
Section 54EC of the Income-Tax Act
will be restricted to capital gains from
land or building or both compared
with available all capital assets such
as shares, jewellery till now. Further,
the investment horizon of these bonds
has been increased to five years from
three earlier.
Exports
The Budget is expected to boost
labour-intensive export sectors such
as agriculture, textiles, leather and
footwear. Agriculture exports will rise
with the removal of export
restrictions for crops while MSMEs –
mainly textiles, leather and footwear
industries - will be boosted by the cut
in the corporate tax rate.
The tax cut will also help in
8 Beyond Market 16th - 28th Feb ’18
improving India’s competitiveness
against the neighbouring countries
that are key exporters.
LONG-TERM CAPITAL GAINS
(LTCG) TAX
LTCG tax will have a negative impact
on the equity market. This brings
on-market transfers of listed
securities at par with off-market
transactions. The on-market deals
continue to face securities transaction
tax, which, experts say, is unjustified.
Within the mutual fund space,
equity-oriented schemes which
recorded a sharp growth owing to
inflows and mark-to-market gains
could be adversely impacted.
Taxation on equity-linked savings
schemes (ELSS) will change from
exempt- exempt-exempt (EEE) to
exempt- exempt-tax (EET) and
reduce investments. Dividends paid
from equity funds will be taxed 10%,
which will provide a level-playing
field between growth and dividend
plans of mutual funds.
NATIONAL HEALTH
INSURANCE SCHEME
The contours of the scheme are yet to
be outlined, but its implementation
would be challenging, given the scale
envisaged and the inadequacy of
health infrastructure.
The Union Finance Minister has
made a budget allocation at `52,800
crore for the health ministry, up from
`47,352 crore during the previous
year, an increase of 11%, yet as a
percentage of GDP it is among the
lowest in the world.
DISTRESSED COMPANIES
Budget 2018 has brought some cheer
for companies under Insolvency and
Bankruptcy Code (IBC) by proposing
that such firms can set off both, the
unabsorbed depreciation as well as
past losses. Further, for such
companies, change in shareholding
would not result in a lapse of past tax
losses, which is the case where there
is a change in their shareholding
beyond 49%.
START-UPS
In relation to the 100% tax holiday,
which is available to eligible start-ups
for three years, the budget proposes to
expand the scope of ‘eligible
business’ to include a scalable
business model having a high
potential of employment generation
and wealth creation. However, there
has been no exemption from
minimum alternate tax, which
reduces the efficacy of tax holiday.
DISINVESTMENT
Given the booming stock markets this
fiscal, the government managed to
more than achieve its disinvestment
target of `72,500 crore, hitting the
`1,00,000 crore mark. However, with
markets likely to be in doldrums next
fiscal, it may not be easy to replicate
the feat, and the government may see
a shortfall in its `80,000 crore
disinvestment target.
GOVERNMENT EXPENDITURE
The central government’s
consumption expenditure is expected
to moderate in fiscal 2019, given that
effective revenue expenditure of
central government is expected to
decline modestly to 10.5% of GDP in
fiscal year 2019 from 10.6% in fiscal
year 2018.
AUTO
With an increase in presumptive
income from `7,500 per month to
`1,000 per tonne per month for heavy
trucks over 12 tonnes, transporters
It’s simplified...
 with heavy-duty trucks may not opt HOUSING IN A NUTSHELL
for presumptive tax.
Continuing with its thrust on Housing The Budget has some good features
Customs duty increase in a few for All, the Union Budget has and can aid growth in consumption,
automotive component segments will allocated `27,500 crore to the PM mainly through rural demand, but it
have a marginal impact as these Aawas Yojna. definitely is not a transformative one.
components form less than 1% of It lacked big ideas to boost
total imports in value terms. Establishing a dedicated affordable consumption, although the rural
housing fund under the National thrust could provide some succour.
Since 25% to 30% of radial tyres for Housing Bank will support the
trucks and buses are imported, government’s demand-side It has two major drawbacks – fiscal
increase in customs duty would intervention in the form of slippage and customs duty hike,
increase the price of imported tyres credit-linked subsidy scheme and which is basically a return to failed
by about `500 per tyre, benefiting increase focus on affordable housing import substitution policies that were
local tyre manufacturers. for the people of India. announced by earlier regimeS.

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Beyond Market 16th - 28th Feb ’18 It’s simplified... 9

 A
week before the Union
Budget, the government
unveiled details of the
much awaited re-
capitalization (recap) programme of
Public Sector Banks (PSBs)
announced in October last year.
In October, the government
announced a massive `2.11 trillion
recap package for PSBs to be
implemented over FY18 (current
fiscal) and FY19 (next fiscal).
The recap plan had three components:
`1.35 trillion from recapitalization
bonds, `18,000 crore from the
government as budgetary support.
The remaining `58,000 crore will be
raised by banks from the market.
Now, the first phase of capital
infusion plan includes `80,000 crore
through recap bonds and `8,139 crore
as budgetary support. Banks need to
raise `10,312 crore plus from market.
With the move, the government plans
to address both regulatory capital
needs of PSBs and capital required to
increase lending in the economy.
NEED
All is not well with PSBs. They lack
capital for expansion as well as for
regulatory provisions as mandated by
the Reserve Bank of India (RBI).
The Indian banking sector consists of
21 public sector banks, 26 private
O
IL
sector banks, 43 foreign banks and 56
regional rural banks. PSBs roughly
have a 70% share of the assets of the
banking industry. It’s important to
support banks as they provide credit
to the economy.
Credit ratings agencies have long
criticized India’s weak banking
sector. Fixing India’s banking sector
is vital. Apart from the need for banks
to kick-start the credit cycle in the
economy, PSBs need urgent capital
for the following broad reasons.
PCA
Late last year, the RBI put 12 PSBs
under its prompt corrective action
(PCA) framework. PCA is a

The government’s recapitalization and

reforms measures will strengthen
PSBs in the country

MEGA PLAN
10 Beyond Market 16th - 28th Feb ’18 It’s simplified...
regulatory framework through which
the RBI keeps a watch on weak
banks. If banks lag on certain
performance parameters like non-
performing assets (NPAs), low capital
level and low return on assets, the
RBI triggers a PCA and imposes
restrictions on dividend distribution,
branch expansion and asks for higher
provisions from banks. These banks
needed huge capital to be out from the
PCA framework.
NPA Mess
The RBI’s latest Financial Stability
Report suggests that the gross NPAs
of all banks may rise from 10.2% in
September ’17 to 10.8% in March
’18, and an even higher 11.1% by
September ’18. NPAs need higher
provisions. Banks need capital to
provide for or book losses for bad
loans in order to clean up their books.
Basel III
Banks also need to adhere to the Basel
III norms applicable from 2019.
Under Basel III norms, Indian banks
need a capital adequacy requirement
of 10.5% by 2019. Basel III is an
international banking norm that
Indian banks will have to abide by for
a prudent banking system.
RECAP BONDS
As bit-by-bit infusion of capital into
PSBs in the past has fallen short of
requirements, the government has
taken the bold route of recap bonds to
capitalize banks. Recap bonds are like
any other bond that offers coupons.
Following will be the flow:
1) The government will issue recap
bonds and PSBs will subscribe to it
2) The government will get money by
selling bonds
3) This money with the government
will be invested in PSBs as capital
Thus, money from the bank returns to
Beyond Market 16th - 28th Feb ’18
the bank as capital. In a way it is only
an accounting entry. But it is an
accepted norm globally. In India,
recap bonds worth `20,000 crore
were issued between 1985 and 1995.
BOND DETAILS
The government will issue
recapitalization bonds with six
different maturities and coupon rates
for infusing capital in PSBs. These
bonds will have a coupon of:
-7.35% maturing in 2028
-7.42% maturing in 2029
-7.48% maturing in 2030
-7.55% maturing in 2031
-7.61% maturing in 2032
-7.68% maturing in 2033
Recap bonds will not be tradable.
Banks can hold these bonds under
held to maturity (HTM) portfolio.
Typically, bank categorizes their
treasury book into HTM and
Available for Sale (AFS).
The former portfolio does not require
marked to market (MTM), implying
that banks will not need to account for
change in market price of bonds till
maturity. The AFS portfolio needs
frequent MTM accounting if asset
prices change. Banks rejig their AFS
portfolios continuously.
STRINGS ATTACHED
The 11 PCA banks will receive
`52,311 crore, while the other state-
owned banks will receive `35,828
crore. However, there are strings
attached. The recap plan is supported
by a strong reforms package.
The government has assured no
interference in banks’ commercial
decisions. Banks will be ranked
annually on performance. PSBs will
monetize non-core assets and will
rationalize overseas branches. PSBs
will endeavour for a leadership
position in their area of core
competence and turn specialized
lenders. There are more themes
incorporated in government’s plan.
Clean Consortium Loans
Banks will need to commit at least
10% of the exposure in consortium
loans. This will ensure small banks
don’t just tag along with big large
banks while lending jointly. Smaller
banks will have to stay away from
complex project loans. Consortium
arrangements would, henceforth, be
restricted to few banks.
Clean Corporate Lending
Banks will have to undergo rigorous
due diligence process before lending.
They will have to ring-fence cash
flows of borrowers before loan
disbursement to ensure discipline.
Clean Post-sanction Follow-up
All loans above `250 crore will invite
specialized continuous monitoring. If
any of the covenants decided upon at
the time of a loan sanction are
breached, it will be treated as red
flags. Lenders must act accordingly.
Clear Responsibilities
There will be a separate stressed asset
vertical in each bank for cleaner and
timely recovery. There will be strict
segregation of pre- and post-loan
sanction roles in the bank.
IN A NUTSHELL
Taken together, the government’s
recap and reforms plan will
strengthen PSBs, which will make
credit accessible to small businesses
and retail customers. Reforms agenda
aims to deepen financial inclusion
and digitization in India. Since, recap
plan is front-loaded, it will help banks
to book losses on their bad debts
thereby cleaning their balance sheetS.
It’s simplified... 11
AN
AMBITIOUS
MOVE
The government’s plan to
launch the National Health
Protection Scheme in
addition to extension of
PMJJBY and PMSBY
schemes are highly
appreciable

12 Beyond Market 16th - 28th Feb ’18 It’s simplified...

I
n the past few years, the
insurance sector has seen new
categories like crop and
low-cost health and accident
policies being launched by various
insurance companies.
In all these categories, the
government played the role of a
catalyst and launched schemes under
mission mode, which has helped
hundreds and thousands of people in
the country.
To further boost the penetration of
health insurance in India, the
government plans to launch the
ambitious National Health Protection
Scheme (NHPS), which would
provide a cover of `5 lakh to 10 crore
poor families.
In the recently concluded Union
Finance Budget 2018-19, it was also
proposed to cover all poor households
in the country, including SC/ST,
under the Pradhan Mantri Jeevan
Jyoti Beema Yojana (PMJJBY) and
Pradhan Mantri Suraksha Bima
Yojana (PMSBY).
To address dwindling interest rates
and low returns in various schemes,
the government has proposed to
extend Pradhan Mantri Vaya Vandana
Yojana (PMVVY) up to March ’20
and also raised the existing limit from
`7.5 lakh to `15 lakh.
Apart from that, a host of other
measures were also announced in the
Budget for the insurance sector and
senior citizens.
However, the bigger question is how
will insurance companies cope with
losses seen in some of the schemes
and will it impact its prospects?
But the insurance industry feels that
insurance penetration in India
remains very low, at 2.72% for life
insurance and 0.77% for non-life
Beyond Market 16th - 28th Feb ’18
insurance for 2016, according to
regulator Insurance Regulatory and
Development Authority of India
(IRDAI). The government’s measures
will help increase insurance
penetration in the country.
LAUNCH OF NHPS
Touted as the world’s largest
government-funded healthcare
programme, the National Health
Protection Scheme (NHPS) is set to
benefit around 50 crore people across
the country.
Finance Minister Arun Jaitley in his
budget speech had stated that the
government will launch a flagship
NHPS to cover over 10 crore poor and
vulnerable families (approximately
50 crore beneficiaries), providing a
coverage of up to `5 lakh per family
per year for secondary and tertiary
care hospitalization.
Currently, Rashtriya Swasthya Bima
Yojana (RSBY) provides an annual
coverage of only `30,000 to poor
families. Several State governments
have also implemented/supplemented
health protection schemes by
providing varying coverages.
Under this scheme, the premium paid
by the government is `750 per family
per annum. As per estimates, NHPS’s
premiums would be anywhere
between `1,000 and `1,200 per
family per annum.
Though the outline of the scheme is
yet to come out, the central and state
governments have split the
expenditure in any healthcare
programme in the ratio of 60:40.
According to projections, the
expected coverage to be achieved in
the first year is 50%, and the money
required is around `5,000 crore to
`6,000 crore. As of now, the Finance
Minister has kept aside `2,000 crore
for this healthcare scheme and would
increase the amount if the need arises,
going forward.
The tentative timeline drawn up is
likely to get approvals from the Union
Cabinet and the Expenditure Finance
Committee by March, when
stakeholder consultations will take
place. The tender’s deadline is July.
Insurance companies have welcomed
this move by the government as they
are likely to get huge premiums from
this segment. Senior officials in the
industry believe that the way crop
insurance has helped insurance
industry in the last two year, NHPS is
also likely to have a large share of
new premiums in years to come.
Incidentally, while the Budget
announcement on NHPS came along
with a `1,200 crore preventive
healthcare plan as part of a new
programme called Ayushman Bharat,
Finance Minister Jaitley in his budget
speech said, “I am pleased to
announce two major initiatives as part
of ‘Ayushman Bharat’ programme
aimed at making path-breaking
interventions to address health
holistically, in primary, secondary and
tertiary care systems, covering both
prevention and health promotion.”
The National Health Policy, 2017 has
envisioned Health and Wellness
Centres as the foundation of India’s
health system. These 1.5 lakh centres
will bring health care system closer to
the homes of people.
The centres will provide
comprehensive health care, including
for noncommunicable diseases and
maternal and child health services.
They will also provide free essential
drugs and diagnostic services.
BOOST TO SENIOR CITIZENS
In a move that would help senior
It’s simplified... 13
 citizens of India, Jaitely announced
various incentives like exemption of
interest income on deposits with
banks and raising the limit of
deduction for health insurance
premium on policies.
The most important announcement
for the betterment of senior citizens
was the extension of the Pradhan
Mantri Vaya Vandana Yojana
(PMVVY) up to March ’20.
In his latest budget speech, Arun
Jaitley said, “In addition to tax
concessions, I propose to extend the
PMVVY up to March ’20 under
which an assured return of 8% is
given by Life Insurance Corporation
of India (LIC). The existing limit on
investment of `7.5 lakh per senior
citizen under this scheme is also
being enhanced to `15 lakh.”
PMVVY is a pension scheme
exclusively meant for senior citizens
of the country. The scheme was
launched on 4th May ’17 for a period
of one year. But now it has been
extended by another two years.
Many participants feel that there were
many proposals to improve the lives
of senior citizens and many new
announcements were made in the
budget which can benefit a large
number of senior citizen groups.
Currently, not too many options are
available for senior citizens as bank
fixed deposits (FDs) are giving
returns in the range of 6.5% to 7% and
PMVVY, which will give returns of
8%, is a very good option for many
senior citizens.
Finance Minister Jaitley also
announced that the exemption of
interest income on deposits with
banks and post offices has been
increased from `10,000 to `50,000.
Further, no TDS shall be deducted on
such income under section 194A.
14 Beyond Market 16th - 28th Feb ’18
Even the limit of deduction for health
insurance premium and or medical
expenditure has been proposed to be
raised from `30,000 to `50,000 under
section 80D. This initiative by the
government could be an effective
stimulus to increase the penetration of
health insurance in India.
All senior citizens will now be able to
claim benefit of deduction up to
`50,000 per annum in respect of any
health insurance premium and/or any
general medical expenditure incurred.
Apart from that, the limit of deduction
on medical expenditures in respect of
certain critical illnesses has also been
increased to `1 lakh for all senior
citizens under section 80DDB. These
concessions will give extra tax benefit
of `4,000 crore to senior citizens in
the country.
MERGER OF PUBLIC SECTOR
INSURANCE COMPANIES
The government plans to merge three
public sector general insurance
companies, National Insurance
Company Ltd, United India
Assurance Company Ltd and Oriental
India Insurance Company Ltd into a
single insurance entity and will be
subsequently listed.
If successfully done, this would
create one of the biggest non-life
entities in the industry, far ahead of
current leader New India Assurance
Co Ltd.
The three public sector insurers in the
country, which along with New India
Assurance had received Cabinet
approval in January ’17 to list on the
stock exchanges, had initiated the
process of tapping capital markets.
Following the announcement in the
Budget that the three insurance
companies will be merged and be
subsequently listed, they will now
have to halt the listing process.
National Insurance was planning to
hit the markets in the next two to three
months and had all regulatory
clearances in place.
New India Assurance, which is also
the largest public sector non-life
insurer, got listed in November ’17.
According to the 2016-17 annual
report of the Insurance Regulatory
and Development Authority of India
(IRDAI), New India Insurance
Company was the country’s biggest
general insurer, with gross direct
premium (GDP) collection of
`21,598 crore in FY2017.
The GDP of the unlisted three
insurers put together amounted to
`41,462 crore in FY17. Collectively,
they accounted for 32% of the GDP of
general and health insurers in FY17.
Senior participants in the industry say
that the merger is likely to take place
in the next financial year. But now,
market participants hope that
premium rates might come down in a
few segments. He also added that
there might be a correction in rates in
retail mediclaim policies and rates
might go up for group policies in
health segment.
The incurred claim ratio for public
sector insurers has surged in the last
financial year in the health segment as
per data from IRDAI. In its 2016-17
annual report, the data indicates that
public sector insurers had incurred a
claim ratio of 120.15% as against
115.45% in 2015-16.
While for the private sector, the
insurer had incurred a claim ratio of
74.7% and 74.69% for the year
2016-17 and 2015-16, respectively in
the health segment. Incurred Claim
Ratio is a ratio of the total value of
claims paid or settled to the total
premium collected in any given year.
It’s simplified...
INSURANCE AND INCREASE IN
COVERAGE
Arun Jaitely also announced that the
government will work to cover all
poor households, including SC/ST
households under the Pradhan Mantri
Jeevan Jyoti Beema Yojana
(PMJJBY) and Pradhan Mantri
Suraksha Bima Yojana (PMSBY).
Until now PMJJBY has benefitted
5.22 crore families with a life
insurance cover of `2 lakh on
payment of a premium of only `330
per annum. Likewise, under PMSBY
13,25,00,000 individuals have been
insured with a personal accident
cover of `2 lakh on payment of a
Contact at: 022-6273 9600
e-mail: sales@nirmalbang.com
Beyond Market 16th - 28th Feb ’18
premium of only `12 per annum.
Extending the PMJJY and the
PMSBY is a positive move to bring
more people into the insurance ambit,
say insurance players.
This would also cover all poor
households and will bring the security
of insurance benefits to marginalized
sections, giving basic economic
protection in cases of death or injury
of a family memeber caused by any
kind of accident.
However with heavy underwriting
losses in both segments, it would be
challenging for insurance companies
to take these schemes to a large
number of people.
The budget has also proposed
expanding the coverage under the
Prime Minister Jan Dhan Yojana
(PMJDY) by bringing all 60 crore
basic accounts within its fold and
providing services of micro insurance
and unorganized sector pension
schemes through these accounts,
which will further bolster economic
security of lower income groups.
In the coming months, one can expect
insurance companies in the country to
launch more simple and effective
products in various segments for the
benefit of individuals looking to
become a part of this new categorY.
It’s simplified... 15
 FIXING
RURAL
DISTRESS
I
ndia’s rural economy is the
fulcrum of its growth. India is
predominantly a rural country,
with two out of three citizens
living in villages. In other words,
two-thirds of the population of the
country and 70% of the workforce
live in rural areas.
The rural economy contributes 46%
to the national income. According a
report by United Nations, population
projections indicate that India will
16 Beyond Market 16th - 28th Feb ’18
continue to be a predominantly rural
country till the year 2050 after which
urban population is estimated to
overtake rural population.
This is perhaps why rural distress has
the government worried, especially
since the Lok Sabha elections are
scheduled for next year.
An agrarian crisis has been brewing
in India for many years. Indian
farmers have been at the receiving
In view of the upcoming
polls, the government is
leaving no stone unturned
to appease the rural
populace with sops and
increased spends
end of repeated crop failures because
of climate change and low
agricultural productivity. Farm wages
have been declining since 2002. A
report by “The Economist”, says that
Indian farmers grow 46% less rice per
acre than their Chinese counterparts
and 39% less wheat.
There has been a decline in
agricultural growth, investment in
agriculture, profitability of
agriculture, net sown area under
It’s simplified...
crops, and the area under irrigation.
As Dr MS Swaminathan, the
distinguished agricultural economist,
puts it, “The agrarian crisis has its
roots in the collapse of the rural
economy... Unemployment leading to
out-migration of the asset-less is
growing. The minimum support price
mechanism is not operating for most
commodities. At every level of the
livelihood security system, there is a
tendency to make profit out of
poverty. Something is terribly wrong
in the countryside.”
The problem is less than half of the
Indian farmland is irrigated, which
means farmers are dependent on
monsoon for irrigation.
This has forced many farmers out of
agriculture; India’s agricultural
workforce is shrinking with farmers
looking for employment in urban
areas. The crisis is so bad that the
workforce is expected to shrink to
less than 200 million by 2020.
Demonetisation could not have come
at a worse time for farmers. In
November ’16, after the
demonetisation exercise was
announced, farmers could not sell
their produce despite a bumper
harvest that year.
Traders too suffered losses as they
could not sell the produce or pay the
farmers. It was peak sowing season in
Madhya Pradesh, Maharashtra, and
Uttar Pradesh. But because of the
cash crunch farmers could not buy
seeds and fertilizers for sowing Rabi
crop. In some places, the cash crunch
was so bad that farmers were forced
to barter their produce.
Debt in rural areas increased after
demonetisation. Formal lending
sources such as banks hold half of
rural debt, while the other half is with
informal sources such as money
Beyond Market 16th - 28th Feb ’18
lenders, family and friends. Farmers
have been struggling to repay debt
because for the last several years, the
country has received low rainfall
during the monsoon season. The
surplus monsoon of year 2016 gave
hope to farmers that they could repay
their huge debts.
Unfortunately, the demonetisation
exercise of the government put an end
to farmers’ hopes. Crop prices came
crashing down, forcing farmers to
discard their produce or sell it at
throwaway prices in the market. The
agrarian crisis worsened.
Important agrarian states such as
Maharashtra and Madhya Pradesh
saw an increase in farmer suicides.
Debt has been cited as one of the main
reasons for the rise in farmer suicides.
According to a report by India Spend,
four in ten of 8,007 Indian farmers
who committed suicide in 2015 were
in debt, compared to two in ten in
2014. On an average, 10,000-12,000
farmers have been committing suicide
every year. In the last 20 years, over 3
lakh farmers have committed suicide,
mostly because of their debt burden.
Farmer protests have increased across
the country demanding loan waivers
and government guarantees for higher
prices. Farmers from Tamil Nadu who
were protesting for many months in
their state staged a massive protest in
New Delhi.
Their unusual protest consisted of
carrying skulls and standing
half-naked demanding debt relief. In
Mandsaur, Madhya Pradesh, one such
protest turned fatal where five
farmers were killed in clashes, when
police fired at a group of protestors.
Agrarian expert, P Sainath said, “Do
not try to understand the agrarian
crisis through episodic situations like
the strike in Maharashtra, Tamil Nadu
or even firing in Mandsaur. These are
manifestations of crisis, they are not
the crisis.”
Bowing to the demand of thousands
of protesting farmers and to calm the
tense situation, Chief Minister of
Maharashtra, Devendra Fadnavis
announced that the state government
will write off loans worth nearly $5
billion. He said, “Farmers and their
betterment was, is and will always be
this government’s top priority.” The
Chief Minister has also agreed to
increase the price of milk.
The Chief Minister of Madhya
Pradesh, Shivraj Singh Chouhan,
staged a hunger strike in support of
farmers and announced measures to
tackle the problem.
Under these measures he promised
farmer markets, where farmers can
sell their produce directly to
customers. He also announced a
settlement scheme under which loan
defaulters will be brought under
credit net so that they can get
interest-free loans.
The Chief Minister of Uttar Pradesh,
Yogi Adityanath, also announced a
scheme to write off debt worth $5.6
billion of struggling farmers. These
measures gave rise to calls for similar
measures in other states.
Experts, however, believe that loan
waivers are nothing more than quick
fixes, which do not solve the
structural flaws in farm policies.
India’s central bank, the Reserve
Bank of India has criticized the move,
saying that loan waivers undermined
the market and hit private lenders.
The Rashtriya Kisan Mazdoor Sangh,
a BJP-affiliated organization is of the
opinion that more needs to be done in
terms of improving the condition of
farmers in India. Shivkumar Sharma,
its national convener said, “We are
It’s simplified... 17
 the backbone of the nation. But if the
promises are not kept, the agitation
will spread like wildfire.”
Rural distress can be mitigated if the
government focusses on other sectors
such as manufacturing, construction
and services, which contribute to 61%
of rural output.
The problem is the agriculture sector
still employs 64% of the rural
population, so the government will
have to look at ways of reducing the
dependence of the rural population on
agriculture alone.
Employment in construction sector
has been growing in rural areas. This
is because the work force that moves
out of the agriculture sector lacks the
necessary skills and technical
knowledge to work in the
manufacturing sector. They are,
therefore, left with no options but to
become construction labourers.
encouraging sectors such as food
processing, warehousing and
logistics, which will give
employment to the rural workforce
and reduce wastage of perishable
agricultural commodities.
In the much awaited Union Budget of
2018, the government mostly focused
on rural development and
improvement of the agricultural
economy in the country.
Finance Minister Arun Jaitley said,
“The focus of the government next
year will be to provide maximum
livelihood opportunities in rural areas
by spending more on livelihood,
agricultural and allied activities, and
construction of rural infrastructure. In
the year 2018-19, for the creation of
livelihood and infrastructure in rural
areas, the total amount to be spent by
ministries will be `14.34 lakh crore
from extra budgetary and
non-budgetary resources,” he said.
purchasers. This will help farmers to
sell at attractive prices directly to
consumers, which is right now earned
by middlemen.
The target for agricultural credit is set
at `11 lakh crore – up from `10 lakh
crore last year, and `2,000 crore has
been set aside for the development of
22,000 rural haats.
Funds for the National Rural
Livelihood Mission has been
increased to `5,750 crore in 2018-19
from `4,500 crore in 2017-18. For 96
irrigation-deprived districts, the
Finance Minister announced
allocation of `2,600 crore to ensure
proper irrigation facilities in addition
to the funds to boost fisheries and
animal farming.
Experts believe that these measures
will go a long way in strengthening
the rural economy and will improve
the quality of life in rural India.

Manufacturing sector in rural India
contributes to 18% of the rural output
but employs only 8% of the rural
workforce. This must change and the
manufacturing sector should absorb
more of the rural workforce.
The services sector contributes
around 27% to the rural output and it
offers a lot of scope for growth. The
government should look at
Jaitley said the government will raise
the minimum support price of all
crops to 1.5 times that of the
production cost and announced the
launch of ‘Operation Greens’ to deal
with price crash in tomatoes, onions
and potatoes.
The government also announced
policy measures to help farmers in
selling directly to consumers and bulk
In the words of Sunil Dugga, CEO of
Dabur India Ltd, “It presses all the
right buttons and ticks all the right
boxes when it comes to fueling the
rural and agrarian economy with a
slew of measures including higher
MSPs for Kharif crops, upfront
agricultural focus, institutional
support for price discovery and
up-gradation of rural haats to give
farmers better access to mandiS.”

Usury

Usury refers to charging interest, or, at least, an exorbitant rate of interest. Plato and Aristotle reckoned that charging
interest was ‘contrary to the nature of things’; It was considered on par with homicide. For many centuries, the Catholic
Church regarded as sinful the charging of any interest by lenders and it was not allowed in Catholic countries, although
Jews were exempted, provided they did not charge excessive rates. According to Pope Benedict XIV, in 1745, interest
should be regarded as a sin because “the creditor desires more than he has given.” In most modern economies, interest is
recognized as a crucial part of the economic system, a reward to the lender for the risk taken in giving a loan.

Even so, most developed countries have some form of usury law imposing limits on how high interest charges can be.
These aim to protect borrowers from being exploited by unscrupulous loan sharks.

18 Beyond Market 16th - 28th Feb ’18 It’s simplified...

 5756#+0+0)
4'8+8#. Makers of consumer goods and companies
related to the farm sector are likely to benefit from
increased consumption by the rural folk in India

T
he FMCG sector is all set
to witness growth post
budget with the
government’s focus on
rural India. Finance Minister Arun
Jaitley has pulled out all stops to
boost rural incomes with an aspiration
of doubling farmers’ incomes by
2022. He spelled out his intent by
significantly increasing the spend.
Adi Godrej, Chairman, Godrej
Group, said, “The Union Budget
2018-19 has predominantly focused
on revitalizing the rural economy
with the thrust on the healthcare,
agriculture and infrastructure sectors.
“But there are a couple of
disappointments in the budget, which
will dampen the investment scenario
in the country. We were expecting
more in terms of boosting the
investment cycle and overall demand
in consumption in the country.”
In 2018-19, for creation of livelihood
and infrastructure in rural areas, the
total amount to be spent by ministries
will be `14.34 lakh crore, including
extra-budgetary and non-budgetary
resources of `11.98 lakh crore.
Industry leaders universally
welcomed the move. “It presses all
the right buttons when it comes to

Beyond Market 16th - 28th Feb ’18 It’s simplified... 19

 fuelling the rural and agrarian
economy. These measures, coupled
with the mega health insurance
programme for the poor and spending
on rural infrastructure, will go a long
way in strengthening rural economy
and boosting consumerism. I am quite
happy with the government’s
continued focus on rural India.” said
Sunil Duggal, CEO, Dabur India.
For fast moving consumer goods
companies like Dabur, Colgate and
Hindustan Unilever, the rural market,
comprising about 850 million people
across 6.5 lakh villages, is a big
demand driver and accounts for about
40% of their sales.
Experts said, disposable income in
rural India will increase, resulting in
more discretionary spending and
consumption, benefitting the FMCG
sector. Saugata Gupta, Managing
Director and Chief Executive Officer,
Marico, too agreed, “The Budget has
laid a strong foundation for
fast-tracking economic growth. It is
all-inclusive, forward-looking.”
US Awasthi, MD, IFFCO, said:
“These steps will generate higher
income for farmers and create jobs.”
Other segments likely to benefit are
consumer durables, electronics,
two-wheelers, tractors and
small-ticket lending. Raman Mittal,
Executive Director, Sonalika ITL, a
tractor manufacturer, said, “Strong
pro-farmer focus can provide
much-needed stimulus to agriculture.
Resulting growth can incentivize
farmers to invest in mechanization.”
This Union Budget came against the
backdrop of a raft of reforms,
economic slowdown and fiscal stress:
the launch of the goods and services
tax (GST), the front-loading of
recapitalization of public sector
banks, and some headway in the
implementation of bankruptcy code.
20 Beyond Market 16th - 28th Feb ’18
But the economic environment turned
a tad challenging as crude oil prices
and inflation rose, straining the fiscal
math amid ongoing rural distress.
And the summary indicator of the
health of the economy, gross domestic
product (GDP) growth, slipped to
6.5% in fiscal 2018 from 7.1% the
fiscal before.
Growth has already bottomed out, so
the key drivers in fiscal 2019 will be -
improved ability to benefit from
strong global growth as domestic
headwinds from demonetisation and
implementation of the Goods and
Services Tax fade, enhanced ability of
banks to lend following
recapitalization, and normal
monsoons, according to a report by
ratings agency CRISIL.
To be sure, there was limited
headroom for a big spending push due
to fiscal constraints.
The government has for the second
consecutive year already breached its
fiscal deficit to gross domestic
product (GDP) target of 3%. As
opposed to a budgeted 3.2%, fiscal
deficit in fiscal 2018 stood at 3.5% of
GDP and is budgeted at 3.3% in fiscal
year 2019.
But the more worrisome part is that
the breach in fiscal deficit is despite a
cut in capital expenditure (capex);
that means, had the government stuck
to its targeted capital expenditure for
fiscal 2018, fiscal deficit would have
been still higher, the report said.
Moreover, it is the productive
spending in the economy that has
seen a compromise, making way for
revenue spending. The fiscal deficit
target for fiscal 2019 overtly relies on
a large indirect tax collection target.
In sum, the government’s fiscal
consolidation path has got stretched
by three years. As opposed to
achieving a 3% fiscal deficit in fiscal
2018, the government now hopes to
achieve the same in fiscal 2021.
Yet, the budget has focused on raising
rural demand. The rural sector has
been the primary focus with measures
such as an assured minimum support
price (MSP), export liberalization of
agri products expected to revive farm
realizations, and increased
expenditure on rural infrastructure
expected to improve overall demand
from the rural sector.
The budget has also taken measures
to boost growth of small and medium
enterprises (MSMEs) by measures
such as cut in corporate tax rate. In
addition, incentives given to create
employment in MSMEs can
contribute to private consumption
growth in the country.
Three announcements stood out – the
new National Health Protection
Scheme (NHPS), the facilitations to
deepen the corporate bond market,
and lowering of corporate tax for the
micro, small and medium enterprises.
However, the budget lacked big ideas
to boost overall consumption, which
is a disappointment for consumption-
oriented sectors, although the rural
thrust could provide some succour.
While FMCG companies are tad
relaxed due to the government’s focus
on the rural market, Indian retailers
don’t seem to be satisfied with the
budget announcements.
Retailers are an unhappy lot after the
Finance Minister refrained from
doing anything significant to boost
urban incomes, and thus consumption
by them.
They also suggest that prices of
perfumes, toiletries, sunglasses,
footwear and toys, among other
items, will likely increase as import
It’s simplified...
 duties on these items have been clear inventory, offering discounts as few years and bringing down the
increased from 10% to 20% in the high as 50% to 70%. corporate tax would have helped.
Union Budget 2018-19.
Godrej further said, the Finance Corporate tax of large companies is at
On the business side, large organized Minister also disappointed the large 35%, while for smaller companies it
retailers too had expected some corporates as they have not lowered is 25%. Countries like the US and the
reduction in corporate taxation, which corporate tax for large companies as UK have also reduced corporate tax,
did not happen. promised. Earlier the finance minister and to compete globally reduction of
had assured of reducing it but corporate tax would have helped the
Experts opined that consumers have surprisingly it has been done only for large companies.
already tightened their purse strings small and medium enterprises having
with limited discretionary spending, a turnover of not more than `250 Government’s focus to boost rural
and demand in the sector has crore. Already the capital expenditure economy will help FMCG companies
remained flat. In December, retailers cycle in the corporate sector has and will also help Godrej Agrovet to
announced early year-end sales to witnessed a slowdown over the last witness growth, Godrej addeD.

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combination of knowledge and skill, backed by years of
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a few steps ahead, always.

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Beyond Market 16th - 28th Feb ’18 It’s simplified... 21


India’s aviation sector is
booming with more and
more people opting for air
travel over rail, giving a
boost to airline companies
T
he Indian aviation industry
has witnessed increased
action in recent times.
Given the government’s
focus on developing infrastructure
from road to air travel, India’s
aviation sector has received a lot of
attention from the Centre.
Apart from restructuring of
state-owned Air India’s assets, the
government intends to change the
landscape of aviation in the country
for regional connectivity.
The government introduced the
Regional Connectivity Scheme
(RCS), which is expected to connect
unchartered routes with not-so-
frequently flown destinations. What
is interesting is that these initiatives
have come at a time when the
industry’s passenger traffic growth
has been in double digits for close to
two years.
Here is a low-down on the impact of
22 Beyond Market 16th - 28th Feb ’18
HIGH
these initiatives and reasons for
higher air passenger growth:
THE SHIFT
The Railways has been losing out
passengers to airlines since the past
five years as air travel has become
more profitable in every possible
sense according to the recent
Economic Survey 2018 data.
Railways’ passenger growth dropped
by 0.26% each year over the past five
years ending FY17. On the other
hand, domestic air passenger growth
rose 10% every year in the same
period, according to data released by
aviation industry’s regulatory body,
the Directorate General of Civil
Aviation (DGCA).
One of the key reasons for this is the
narrowing down of fares when one
chooses air and rail travel. For
instance, the fare of Express AC 3-tier
from Mumbai to Delhi is `2,500 and
it takes 17 hours to complete the
journey. On the other hand, if one
books a flight on the same route one
month prior to the date of travel, it
costs around the same fare according
to travel portal ‘makemytrip’.
To tap into the latent demand, rising
young travellers who form a large part
of the total number of travellers,
domestic airlines have increased their
available seat kilometer (ASK) by 8%
every year between FY12 and FY17
to 116.94 million.
As a result, the average ticket price of
India’s largest airline by market share
Indigo declined 1% a year between
FY12 and FY17. The average ticket
price of Indigo was `3,721 in FY17.
Railways, on the other hand,
increased fares to boost passenger
revenue growth. Its passenger
revenue growth grew 10% a year
between FY12 and FY17 on account
of 8% CAGR growth in average rate
It’s simplified...
FLYERS
per kilometer and just 2% increase in
distance travelled.
The average realization for Indian
Railways was 40.30 paise per
kilometer for passengers in FY17. On
an average, a passenger travelled
141.67 kilometer in the same period.
Nearly 10% of passengers of Indian
Railways travelled in AC coaches.
The railways is facing direct
competition from domestic airlines.
Rail fares of the AC segment
increased more than 60% between
FY11 and FY17 when indexed to 100,
while air fares remained flat in the
same period.
The growth in air travellers is likely to
continue as average annual air trips
per person in India stand at 0.06 -
much lower than other emerging
countries like China, Indonesia and
Mexico where average annual air
trips per person stand at nearly 0.5.
Beyond Market 16th - 28th Feb ’18
Countries with higher GDP per capita
have higher air penetration. But the
elasticity is exponential as seen from
the rapid growth in air travel on the
back of increasing income levels.
The Indian railways carried 22.24
million passengers per day in FY17
while all domestic airlines ferried
0.28 million passengers per day in the
same period. Indian Railways had the
largest traveller count of 8,420
million in FY13.
There onwards, passenger growth has
seen continuous moderation.
However, there has been some respite
for the current fiscal year. Passenger
growth grew 0.7% year-on-year
(y-o-y) in the first eight months of the
current financial year.
SALIENT DEVELOPMENTS
Given this immense shift, here are
some salient features of India’s air
passenger growth:
a) Domestic Passenger Growth
India’s domestic passengers carried
increased 17.8% year-on-year
comparison to 11.2 million
passengers in December last year.
Domestic passengers carried in CY17
increased 17.5% to 116.8 million,
crossing the 100 million mark.
Indigo’s domestic passenger growth
slowed down to 15.1% year-on-year
comparison in December last year,
and carried 4.4 million passengers,
while SpiceJet carried 1.4 million
passengers (+17.9% year-on-year
comparison), Jet Airways and Jet Lite
carried 1.9 million passengers (10.5%
year-on-year comparison), and Air
India carried 1.3 million passengers
(4.3% year-on-year comparison).
b) Revenue Per Kilometre (RPK)
Domestic RPK increased 17.5%
year-on-year comparison to `1,070
crore in December last year. Indigo’s
It’s simplified... 23
 domestic RPK increased 11.8%
year-on-year comparison to `440
crore while SpiceJet’s domestic RPK
increased 18% year-on-year
comparison to 1. 3 billion, driven by
record high PLF of 95.6%; Jet
Airways + Jet Lite’s domestic RPK
increased 13.9% year-on-year
comparison to 1.7 billion and
state-carrier Air India’s domestic
RPK increased 6.2% year-on-year
comparison to 1.3 billion.
C) Passenger Load Factor (PLF)
Or Occupancy Rate
In December last year, industry PLF
(domestic) recorded a multi-year load
of 89.5%, driven by moderation in
capacity addition and increased
tourists in the festive season.
In December last year, SpiceJet
reported a record high domestic load
factor of 95.6% (vs. 93.7% in
December ’16). SpiceJet’s load factor
has remained above 90% for over
two-and-a-half years now.
Indigo and Go Air reported 90%+
domestic PLF at 90.8% and 92%,
respectively. Jet Airways and Air
India increased load factor by 2.5ppt
/0.3ppt year-on-year comparison to
88.5%/81.8%, respectively.
Indigo lost year-on-year comparison
market share driven by low capacity
addition: Indigo, a market leader,
reported 0.9ppt year-on-year
comparison loss in domestic market
share (by passengers carried) to
39.5% in December last year.
SpiceJet’s market share remained flat
year-on-year comparison at 12.7%.
Jet Airways + Jet Lite (market share
of 16.7%) and Air India (11.6%) lost
1.1ppt/1.5ppt market share,
respectively, due to their restricted
aircraft addition plans.
GoAir gained 1.4ppt year-on-year
comparison market share to 9.6,
driven by 37.9% capacity addition.
Given these positive signs, the
industry is witnessing considerable
progress. According to the Economic
Survey, India has become the world’s
third largest domestic aviation market
in terms of the number of tickets sold.
To connect the unserved and
under-served airports, the
government has come out with
Regional Connectivity Scheme
(RCS) UDAN (Ude Desh ka Aam
Naagrik) and flights on many routes
have commenced under this initiative.
The government has made provision
of `4,500 crore for revival of 50
unserved and under-served airports/
air strips.
Minister of State for Civil Aviation
Jayant Sinha recently mentioned that
UDAN will add 4% to 5% to total
passenger trips in the country. He said
there were a total of 117 million
passenger trips in 2017.
The number of seats being added
because of UDAN I and II is 50 lakh.
This year we will fly 120-130 million
passenger trips. He added that if one
looks at the UDAN scheme, 3% to
4% of seats are added to total seats.
These seats are vitally important as
they bring connectivity to a large
number of remote areas.
Civil Aviation Secretary RN Choubey
said that to fund the scheme, the levy
will not be increased, but funds will
be diverted from the Airports
Authority of India’s (AAI) dividend
payable to the Centre, to the regional
connectivity fund.
For 2017-18, AAI has contributed a
sum of `200 crore to the fund, and the
civil aviation ministry expects to
receive a sum of `500 crore in the
upcoming financial year, subject to
approval from the finance ministry.
The subsidy cost for the second round
of UDAN will be `620 crore,
compared with the first round that
required `213 crore.
A lot needs to be done for the sector.
But since the government is clear in
its intention to bring about a clear
change in connectivity and air travel,
one can see a ray of hope for airlines.
Even though crude oil prices are
trading high, India’s air passenger
traffic is expected to grow between
10% and 15%, which is a reasonably
good growth when compared with the
developed marketS.

Predatory Pricing

Predatory pricing means charging low prices now so that you can charge much higher prices later. The predator charges
so little that it may sustain losses over a period of time, in the hope that its rivals will be driven out of business. Clearly,
this strategy makes sense only if the predatory firm is eventually able to establish a monopoly.

Some advocates of anti-dumping policies say that cheap imports are examples of predatory pricing. In practice, the
evidence gives little support for this view. Indeed, in general, predatory pricing is quite rare. It is certainly a much less
common in practice than it might appear from the propaganda of firms that are under pricing pressure from more efficient
competitors in the market.
24 Beyond Market 16th - 28th Feb ’18 It’s simplified...
For FY19, the Economic Survey is
optimistic about the growth of
the Indian economy over reforms
undertaken by the government
PEGGING
HIGHER
GROWTH
E
conomic Survey (ES) for
fiscal year 2017-18 was
presented in the Parliament
on 29th January (two days
before the Union Budget). Being the
flagship document of the Indian
government, it is widely followed by
the market.
This year’s ES was important. India
witnessed many structural reforms in
the recent past like demonetisation,
goods and services tax (GST), new
insolvency law and announcement of
a massive `2.11 trillion
Beyond Market 16th - 28th Feb ’18
recapitalization programme for public
sector banks.
ES, which typically makes a critical
assessment of the economy and
economic policies of the government,
has highlighted that reforms must
continue in India for medium term
economic growth rate target of 8%.
The ES has further highlighted that
structural reforms undertaken by the
government will boost India’s
economy in the coming years. The ES
has also warned that macroeconomic
management will be challenging in
FY19 due to rising crude prices.
Following are a few important
takeaways from the ES.
OUTLOOK FY19
GDP Growth
For FY18, the ES has estimated a
growth rate of 6.75% (Central
Statistics Office estimate: 6.5%). ES
has pegged growth rate of 7% to 7.5%
for FY19. The optimism for FY19
arises on the back of reforms
It’s simplified... 25
 undertaken by the government like quick debt resolution,
higher exports and improvement in private investment in
the economy.
GDP Growth At Constant Prices
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2014-15 2015-16 2016-17* 2017-18**
ΎWƌŽǀŝƐŝŽŶĂůƐƟŵĂƚĞƐΎΎϭƐƚĚǀĂŶĐĞƐƟŵĂƚĞƐ^ŽƵƌĐĞ͗^K
Crude Prices
The ES has mentioned that persistently high oil prices
remain a key risk for the economy. Higher crude prices
would affect inflation, current account, the fiscal position
and growth, and force macroeconomic policies to be
tighter than otherwise.
Crude oil prices are expected to go up from last year’s
levels of $55-$60. Industry analysts are already predicting
that crude would reach $80 per barrel in 2018. As a thumb
rule, with every $10 increase in oil prices per barrel, GDP
growth comes down by 0.2% to 0.3%, the current account
deficit deteriorates by 0.4% of the GDP. Inflation also
tends to be higher by 0.2% to 0.3% if crude prices rise by
$10 per barrel.
External Sector
Rising crude prices is also a risk to India’s external sector
as India imports most of its oil requirements. While this is
negative, India can see higher remittances from Indian
workers in the oil-importing nations.
India’s Current Account Deficit (CAD) has increased from
0.4% of GDP in 2016-17 to 1.8% of GDP in the first half
of 2017-18. Exports are already up 12% in the
April-December period. India’s foreign exchange reserves
are at $409.4 billion (April till 29th December) as
compared to $370 billion in FY17.
According to the ES, the prospects for India’s External
Sector in FY18 and FY19 look bright on the back of higher
26 Beyond Market 16th - 28th Feb ’18
global economic growth. World trade is projected to grow
at 4.2% and 4% in 2017 and 2018, respectively from 2.4%
in 2016. For India, trade with major partner countries is
improving, helping India’s export growth.
Inflation And Interest Rates
In the context of inflation, the Economic Survey states that
Inflation during 2017-18 averaged the lowest in the last six
years. The Consumer Price Index (CPI) based inflation
was 3.3% in 2017-18 (April- December). ES gives much
credit to the government’s proactive measures to control
inflation. However, the RBI has not been much enthused
by lower inflation.
There has been only one repo rate cut of 25 basis points by
the RBI during the last fiscal year. ES has not given any
target for the next fiscal year. However, the survey warns
of inflationary risks due to higher crude prices in FY19.
This would limit the RBI’s ability to maintain a loose
monetary policy stance.
Fiscal Deficit
The survey recommends the government to stick to the
fiscal consolidation path and maintain fiscal prudence. At
the same time it prescribes that the target be credible and
not optimistic, especially ahead of the 2019 general
elections. ES has not suggested any number.
Fiscal Deficit (As A Percentage Of GDP)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2014-15 2015-16 2016-17 2017-18*
ΎƵĚŐĞƚƐƟŵĂƚĞƐ^ŽƵƌĐĞ͗WƌĞƐƐ/ŶĨŽƌŵĂƟŽŶƵƌĞĂƵ
FORMALIZATION OF ECONOMY
ES has suggested that demonetisation and GST have
resulted in improved tax compliance and formalization of
the Indian economy. It highlighted that revenue collection
under GST has actually been good so far.
It’s simplified...
The number of unique indirect taxpayers under GST has Forex Reserves (US $ Billion)
increased by over 50% to 9.8 million from 6.4 million in
420
the earlier indirect tax system. Interestingly, voluntary
compliance has also increased under GST, with 1.7 million
400
voluntary registrants. There has also been an addition of
about 1.8 million individual income-tax filers since
380
demonetisation. With stabilizing GST, India’s tax-to-GDP
is likely to increase in the coming years.
360

HIGHER PE: A NEW NORMAL?

340

From the stock markets’ perspective, the ES has an

320
interesting comparison of the Indian and the US markets.
Both markets are highly valued. It says that while the US
300
and the Indian markets have risen by similar levels since 2014-15 2015-16 2016-17 2017-18*
2015, the underlying fundamentals are strikingly different.
ΎƐKŶϮϵƚŚĞĐΖϭϳ^ŽƵƌĐĞ͗WƌĞƐƐ/ŶĨŽƌŵĂƟŽŶƵƌĞĂƵ

The US economy is performing, while US corporates are IN A NUTSHELL

showing profitability. Interestingly, the Indian markets
have risen although the economy has been weak and
corporate earnings have been poor.
Does this imply that Indian Price to Earnings ratio of
around 25 has reached a higher ‘new normal’? The ES
thinks demonetisation has led to higher demand for
equities as an asset class, warranting a higher PE ratio.
However, the ES warns that expectations of earnings
growth are much higher in India. And sustaining current
stock valuations in India would require future earnings
performance. This outlook, in turn, depends on a
significant revival in the Indian economy, the ES adds.
Overall, the Economic Survey was optimistic on growth
revival. The ES has batted for competitive exchange rates
for export-led growth to pickup. However, the ES points
that India is vulnerable to increasing oil prices. Increase in
oil prices will stoke inflation and may lead to a tighter
monetary policy regime.
Positively, India’s tax-to-GDP is likely to rise with
formalization of the economy post demonetisation and the
implementation of the goods and services tax. This draws a
better picture on the fiscal front, allowing the government
to spend more in the run-up to the next national election
scheduled in the year 2019.

Economic Survey

The Economic Survey is the flagship document of the Ministry of Finance, Government of India. It provides an update
on the status of India’s economy. The document is prepared by the Chief Economic Adviser to the government and his
team. It includes independent views of the Chief Economic Adviser and his team, different from that of the government.
It is presented by the Finance Minister in the Parliament, typically a day ahead of the Union Budget.

The ES reviews development in the Indian economy over the previous 12-month period, summarizes the performance
on major development programmes, and highlights policy initiatives of the government and the prospects of the
economy in the short- to medium-term.

The Economic Survey provides an opportunity for the government to communicate its economic agenda to the house and
to people at large via media. It also sorts out issues facing the economy and its priorities to handle the issues.

The Economic Survey is useful to investors, policymakers, economists, policy analysts, business practitioners,
government agencies, students, researchers, and the media. Over the years, the ES has become more reader-friendly with
interesting facts about the Indian economy.

Beyond Market 16th - 28th Feb ’18 It’s simplified... 27

TAKING THE
TEMPORARY ROUTE
The growing demand for
temporary employees in
India bodes well for the
flexi-staffing industry

28 Beyond Market 16th - 28th Feb ’18 It’s simplified...

I
n recent years, with the listing
of Quess Corp and Teamlease,
there has been a growing
interest in companies that are
into flexi-staffing. Besides, these
companies have been recording
superior revenue growth, which is
why savvy investors have taken note
of these companies.
So, what exactly is driving revenue
growth of companies from the
flexi-staff industry? Here is a
low-down on this topic:
THE BUSINESS MODEL
Flexi-staffing business model works
in collaboration. The business model
works in the following manner:
companies inform staffing agencies
like Quess and Teamlease about the
requirement of employees to be hired
on a temporary basis.
The staffing agencies, in turn,
indentify employees which fit the
requirements specified by companies
to staffing companies. The staffing
companies use their own database,
feet-on-ground employees, job
portals, and other means to ensure
fastest recruitment for their clients.
It has been observed that staffing
agencies which provide employees
that suit the requirements of
employers are typically awarded
contracts by companies.
These contracts provide details about
the amount to be paid per employee
per month for a specific duration or
till the completion of the project
depending on the contractual terms.
This also includes the margins for the
staffing agency.
These employees are on the payroll of
the staffing agency and the staffing
agency is the employer. Employees
are placed at clients’ locations and
work under the supervision of the
Beyond Market 16th - 28th Feb ’18
client while all the monetary benefits
in terms of salary and other
mandatory obligations including
provident fund, insurance, medical
coverage and other facilities rest with
the staffing agency.
So, this collaboration works in a
tripartite manner. There is a tri-party
agreement wherein the staffing
agency plays the role of an
intermediary between employees and
companies which intend to hire
employees. The flexi-staffing market
involves both professional and
general staffing.
As far as selecting professional
employees is concerned, a
prospective employee needs to have
specific functional expertise and final
selection is done by the client from
the list of employees shortlisted by
the staffing agency.
However, general staffing does not
require any specific skill. For
example, a delivery boy for a courier
company. In such cases, companies
directly choose from the list of
candidates provided to them by the
staffing agency.
The staffing industry can be classified
into two categories of employment.
These are general and professional.
Growth rates have been similar for
both these categories.
But they differ in margins and return
ratios. It has been observed that
staffing companies which are into
specialized employment tend to have
higher profitability in comparison
with staffing companies, which are
into general employment.
Given this factor, specialist staffing
companies have superior Return on
Equity and premium valuations. It is
estimated that specialist staffing
companies on an average traded at
25% to 30% premium to general
staffing companies.
GROWTH DRIVERS
There are three factors, which have
enhanced revenues of flexi-staff
companies. These three factors are
under-penetration of the industry
itself, employee productivity and the
rising shift to organized way of
functioning of companies.
As per estimates temporary general
staffing market in India had a revenue
of `38,500 crore in 2014, which is
expected to grow at a compound
annual growth rate (CAGR) of 19%
between 2014 and 2019.
In India, there are as many as 1.3
million temporary workers in the
organized sector. It is estimated that
the demand for temporary workers is
likely to improve to nine million in
the next 10 years. This growth in
temporary workers is expected in
sectors such as telecommunications,
banking and financial services,
healthcare and Business Process
Outsourcing (BPOs).
a) Under-Penetration
The flexi-staffing industry constitutes
0.5% of the total workforce in India,
whereas the global average stands at
1.6%. Penetration is higher in
developed countries. It is estimated to
be at 2.2% in the US, 1.8% in the
European Union, and 2% in Japan.
Convergence of the ratio in India with
the global average would in itself
double the opportunity for India’s
flexi-staffing industry
b) Wage Bill
India has 2.1 million agency workers
and the industry derives a revenue of
`40,000 crore from it. This translates
to an average revenue of `3,58,000
per associate per annum (US $2,736
It’s simplified... 29
 per associate per annum). There is a
correlation between the average
revenue per employee and GDP per
capita of that country.
As India’s GDP grows, its revenue per
associate also inches up as well. This
results in increase in the size of the
industry. Analysts and experts point
out that one way to look at the
industry would be to consider average
wage inflation as the minimum
growth that staffing companies will
give if its volumes are constant.
c) The IT Factor
One factor that will also result in
increase in the average revenue per
associate is the penetration of
temporary staffing in high-end jobs. A
great opportunity for the Indian
market lies in the professional IT
staffing market.
Given India’s IT employee
population, and under-penetration of
temporary staffing in this industry as
well, there lies an opportunity for
growth, especially given structural
developments in the industry.
In professional IT staffing, staffing
agencies provide employees
possessing domain expertise and
specific skills to their customers on a
temporary basis. This arrangement
can either be for specific IT projects,
or can be contracted for a stipulated
time duration.
The professional IT staffing market
grew at a CAGR of 19% between
2009 and 2014 to `12,500 crore.
Between 2014 and 2019, it is
Logrolling
It is exchange of political favours, especially among legislators who agree to support each others’ initiatives. It occurs
frequently when lawmakers, unencumbered by pressure from party leaders, push through a bill that benefits their
constituencies, but is financed by all taxpayers. It originates from the days of neighbours helping each other build homes.
30 Beyond Market 16th - 28th Feb ’18
expected to grow at a CAGR of 22%.
The current flexi-staff penetration in
the Indian IT industry stands at 10%
compared to nearly 20% in developed
nations. With increasing competition
and margin pressures, IT companies
are moving towards recruiting more
temporary staff to optimise their
bench and resource allocation.
According to NASSCOM, India
houses 300-380 captives, which
contribute 10% to 12% of the IT
services industry revenue and 10% to
15% of the total employee base.
Growth in the activity of captives, and
consequently, in their use of
temporary staffing, would also result
in an opportunity for staffing agencies
in general.
e) The Organised Shift
There has been an increasing shift
towards flexi-staffing companies.
This can be seen in how globally
these companies are playing a crucial
role in recruitments.
Of the top 100 companies, 49 are
headquartered in Europe, 36 are
US-based, and the other 15 are from
the rest of the world, according to
Staffing Industry Analysts (SIA), a
global advisor on staffing and
workforce solutions. In 2015, the top
10 firms took up about 26% of the
total temporary staffing market.
IN A NUTSHELL
In India, the penetration of
flexi-staffing varies across states. It
has been noted that states with a
higher penetration of agency work
have seen lower unemployment.
This might be because of the
flexibility that this model provides
businesses and employees. Estimates
for state-wise growth in temporary
staffing made by the Indian Staffing
Federation show some acceleration in
most states over 2015-18 compared
with 2013-15.
For Delhi, where agency work
penetration stands at 2.8%, above the
country’s average of 0.5%, the market
is expected to see a CAGR of 14%
over 2015-18.
Similarly, acceleration in growth rates
is seen for the ITeS market, which
already has a penetration of 84% in
terms of formal workforce, and 10%
in terms of flexi-staffing.
In 2018, India will become the third
largest employer of flexi-staff after
the US and China. From 2.2 million
people engaged as flexi-staff in India,
the industry is expected to grow to 2.9
million by 2018, following the US
(14.4 million) and China (8.1
million), according to the Indian
Staffing Federation (ISF).
At a time when hiring has been
constrained across sectors coupled
with layoffs, the flexi-staffing
industry is buzzing with an annual
growth rate of 12% to 15%, with
some of the leading players, such as
TeamLease and other peers pegging
over 20% growth in hiring. Given
these factors, it is evident that the
industry’s growth is expected to
sustain in the coming quarterS.
It’s simplified...
 INFORMATION
THAT MATTERS
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 Thinking about important
things from a long-term
perspective could be more

A
lucrative than being
occupied with insignificant,

LONG
day-to-day affairs

SHOT
32 Beyond Market 16th - 28th Feb ’18 It’s simplified...
T
here was a huge uproar
during the presentation of
Union Budget 2018 by
Finance Minister Arun
Jaitely in the Parliament recently. The
hoopla and hype surrounding the
budget notwithstanding, people
continue to spend a considerable
amount of time mulling over
day-to-day events.
However, investors like Warren
Buffett and a few others feel that the
path to investment success is
different. According to them, thinking
about things that will matter over the
next 5 to 10 years will give investors
a competitive advantage over the day-
to-day issues that are quite irrelevant
to say the least.
BIG PICTURE THINKING
In stock markets, investors rarely
think long term. They lack big picture
thinking. Most of the time they are
busy analyzing quarterly numbers or
looking for short-term triggers such
as capacity expansion, share buy
backs, increased earnings, positive
industry developments and so on.
Markets at best reflect the collective
views of the investing and trading
community who are interested in
short-term or a short-sighted view of
every stock and company listed or
they own. While there is nothing
wrong, as Warren Buffett advocated,
it provides an immense opportunity
for long-term investors.
It is worth noting what Jeff Bezos of
Amazon has to say about long-term
thinking. “If everything you do needs
to work on a three-year time horizon,
then you’re competing against a lot of
people. But if you’re willing to invest
on a seven-year time horizon, you’re
now competing against a fraction of
those people. Just by lengthening the
time horizon, you can engage in
endeavours that you could never
Beyond Market 16th - 28th Feb ’18
otherwise pursue.”
While people might confuse
long-term thinking with timing or the
duration of the investment, it is an
equally important tool for investors to
have a big picture thinking.
Big picture thinking is nothing but a
process of thoughts where one looks
at a particular situation, problem,
people, place or an opportunity in a
manner that generates ideas
comprising of big changes or
substantial departure from the current
state. It is about looking beyond what
is stated and thought of presently.
HOW DOES IT RELATE TO
INVESTING?
If a fellow investor is worried about
inflation, interest rates, oil prices and
predicts a dooms day scenario, then
he is talking about investing from a
short-term view. On the other hand, if
the said person wishes to capitalize on
sentiments and buys such weakness
as an opportunity, then he is certainly
looking at investing in the markets
from a long-term perspective.
A large number of people cry about
the growing menace of e-waste. But
real thinkers have created a business
around e-waste by converting the
problem into a business opportunity.
Similarly, traditional auto companies
were crying about crude oil prices and
how they were working day and night
to increase efficiencies to drive
greater mileage.
On the other hand, many auto
companies saw this as an opportunity
and silently built vehicles powered by
chargeable batteries or electric
vehicles as we know them today.
THE MIND SET
Investors are no exception. They too
can think about the big picture or
changes that would bring in long term
growth. They often lack patience and
have very little tolerance. They are
lazy and find it difficult to think about
the larger picture.
The brain constantly feeds short cuts
and things that would require no
thinking because that information can
be easily fetched and processed in the
mind. On the other hand, big picture
thinking requires little more thinking.
Assume you are on your way to a
remote place in India. You look
around and find that literally no one
wears branded apparels. The
immediate reaction would be to talk
or think about the poor conditions of
people, income levels in some of the
regions and possibly feel pity about
their situation.
However, investors with a big picture
immediately look at this as an
opportunity. Assume 60% of India’s
population is living in rural and
semi-rural markets; this means close
to 75 crore people have no access to
branded apparels.
Even if an average person spends
close to `400 per year on branded
apparels, the rural or semirural market
for branded apparel would be worth
`30,000 crore annually as against the
current sales turnover of the largest
branded apparels company in India in
the corresponding period, which
would be less than `2,000 crore.
Not clear? Here is an example of one
more industry and ways to look at the
big picture.
India’s population is around 125 crore
people and comprises almost 50%
men, which is approximately 62.5
crore of them. If we subtract, 20%
from the sample population, we
would get older and very young
people. Yet, there are still about 50
crore men who would be shaving
It’s simplified... 33
 their beard once every week, costing
about `10 per shave. With these
numbers, the annual size of the
shaving market would be close to
`26,000 crore and if you know there
is one company that is really doing
well in this space you as an investor
have a huge advantage over the ones
who are flipping the coin at every
movement of share price.
ROLE OF MATH
Is big picture about solving a
mathematic puzzle? No! It can be
formed in many ways. If you think as
the economy grows, more and more
people will be working including
women. And as families are
becoming nuclear, there will be a
huge market for baby care or day
care, which is a big change in the
society. Identifying a trend or a big
idea whose time is yet to come could
surely be the next big opportunity
worth exploring.
There are many sources for big
picture thinking. Investors need to
open their eyes, broaden their minds
and think from a long-term view.
Trends like urbanization, rising
income levels, higher education,
infrastructure, standard of living,
lifestyle, working population, age
group, income levels, government
spending, employment and exports
are just a few of the trends that we
miss out on a daily basis as a result of
the short-term noise.
For instance, changing habits of
people could be a great source of
ideas. Companies have developed
electric cigarettes as against
traditional products causing health
issues. Also, companies have built
successful online businesses as more
people opt for online shopping.
RISK OF BIG PICTURE
THINKING
Big picture thinking is essentially the
top down approach of investing and it
has its own set of risks and
advantages. While we have seen what
it offers in terms of benefits, it is also
worth noting why and when this
mindset proves to be a hindrance.
The first and the most important area
of risk is that investors are making too
many assumptions and are constantly
thinking about the future. Second, the
market may not have any clue as to
why you are buying and it is quite
possible that the markets may take
longer than expected to appreciate or
recognize an idea.
There is also a risk that the anticipated
change may never occur. While the
list is long, one need not be afraid.
Investors who remain humble and
flexible about their investment ideas
would be far equipped to tackle some
of these risks. Every strategy and
investment style has its own pitfalls
or shortcomings.
Bottom up investors were buying left,
right and centre all the undervalued
stocks during the stock market crash
of 2008-09. Investors were bottom
fishing or accumulating many
infrastructure, real estate and
engineering companies in hopes of
price recovery. Their share prices
never recovered and investors in that
camp lost huge sums of money.
Contrary to this, growth stocks or
stocks that were trading at relatively
higher valuations and had some story,
did far better and delivered superior
returns. What is important is that
investors need to evaluate what is best
for them and how they can manage
those risks.
Many smart investors who follow big
picture investing are often seen
combining the best of both. They
would identify big ideas and themes
that are going to work and do a
bottom up analysis to find if the
company or business that is related to
the big idea is worth owning.
One would often come across
extremely exciting ideas for the long
term. But when it comes to buying
some of the stocks, there are not many
that could fill the check list. It is not
just buying a great theme. But buying
a right business is equally importanT.

Seasonal Dating

Seasonal dating refers to the term that encourages the buyer of seasonal products to take delivery before peak sales period
and to defer payment until after the peak sales period. Some companies offer lengthened terms through various dating
arrangements such as seasonal dating. Under this arrangement, the seller assists the buyer in financing the merchandise
that he or she has purchased.

Customarily in every industry, there is a relationship between the credit period offered by the seller and the selling period
experienced by the buyer. Thus, seasonal dating is often thought of as recognition on the part of the seller to the buyer’s
marketing period. Some industries are highly seasonal, as for example, the apparel and toy industries. Generally seasonal
dating applies to seasonal purchases, that is, upon merchandise that is purchased for a subsequent selling season.

34 Beyond Market 16th - 28th Feb ’18 It’s simplified...

T
he pronouncement of
long-term capital gains
(LTCG) tax in the recently
announced Union Budget
on 1st February resulted in a manifold
increase in the discussion on
tax-related issues.
Media, discussion boards and
ordinary individuals are all trying to
figure out the impact of the
imposition of the long-term capital
gains tax on equity from the
perspective of minimising tax
outflow on tax payers.
This discussion could not have come
at a more opportune moment albeit
from a broader perspective of tax
planning when the financial year is
about to end. If you haven’t fully
exhausted the various tax-saving
avenues that are at your disposal for
the current financial year, it’s time to
act now.
For those who believe in planning
ahead, it’s the perfect time with the
new fiscal just a month away.
Needless to say, planning ahead is the
perfect recipe for attaining long-term
financial goals.
The word ‘tax’ has a negative
connotation as we often read about
income tax raids and how the
government used demonetisation in
November ’16 as a tactic to get more
people under the tax umbrella.
However, we need to separate “tax
evasion” from “tax planning” as these
are entirely different from each other.

BOUND
BY
Not only can an individual minimize his
tax outflows but also meet his financial
goals through appropriate tax planning

PURPOSE

TAX
Beyond Market 16th - 28th Feb ’18 It’s simplified... 35
 Tax evasion would be trying to defeat
the system to avoid paying taxes in an
illegal manner, that is, it is intentional.
Tax planning on the other hand is to
use various tax deductions/
exemptions under the Income-Tax
$FW WR PLQLPLVH WD[ RXWIORZOLDELOLW\
through legal means.
6XFKGHGXFWLRQVZRXOGEHVXEWUDFWHG
from the gross total income and on the
balance, and tax would be levied
based on the income tax slabs already
in force.
What are the deductions/exemptions
that can be used to limit the overall
tax liability?
SECTION 80C, 80CCC AND
80CCD
The maximum deduction permitted
under any or all these sections is
&&'%DQDGGLWLRQDOEHQHILWRI
`50,000 is provided to an assessee if
KHFRQWULEXWHVWR136
6R WKH WRWDO GHGXFWLRQ WKDW FDQ EH
FODLPHG XQGHU VHFWLRQ & DQG
6HFWLRQ&&'LV`2 lakh.
Investment into any of these
instruments should be done after
careful analysis and consideration.
)RU H[DPSOH 136 VKRXOG EH
considered only if an individual’s
horizon is long term.
While retiring, 40% of the corpus is
tax exempt, 40% has to be
compulsorily converted to an annuity
product and the balance 20% is taxed
depending on the income slab of the
UHWLUHH (DFK LQGLYLGXDO SURGXFW
should be analyzed from the
long-term tax angle, lock in period
and how well it fits in the overall
some cases. If the donation is made in
cash, then the maximum permissible
amount for deduction is limited to
`10,000 only.
SECTION 80D, SECTION 80DD
AND SECTION 80DDB
These three sections allow deductions
if an expenditure is made by the tax
payer for insuring or for medical
treatment of his/her own health or
those of his family members.
‡ ' LV IRU PHGLFDO LQVXUDQFH
premium of self or spouse or children
‡ 6HFWLRQ '' LV IRU PHGLFDO
treatment of handicapped dependents
‡ 6HFWLRQ ''% LV IRU WUHDWPHQW RI
specified diseases
SECTION 54, 54EC AND 54F
`H[FHSW&&'%7KHUH
are several instruments that fall under
these sections and investment can be
made in any one or a combination of
these instruments with a maximum
limit of `1,50,000 for tax-saving
SXUSRVHV 6RPH RI WKH PRVW SRSXODU
instruments under these taxation
sections include:
L ,QYHVWPHQW LQ (TXLW\ /LQNHG
ambit of one’s financials goals.
EDUCATION LOAN UNDER
SECTION 80E
$WD[SD\HUKDYLQJDQHGXFDWLRQORDQ
for himself, spouse, children or
student of whom he/she is a legal
guardian can claim deduction under
VHFWLRQ(RQWKHLQWHUHVWSDLGRQWKH
education loan. There is no limit on
Under section 54, the government of
India has given an option of claiming
exemption from paying capital gains
on long-term capital asset if
‡ $QRWKHU UHVLGHQWLDO SURSHUW\ LV
purchased within one year before or
two years after the due date of transfer
of property sold
6DYLQJV6FKHPH(/66RIDPXWXDO
fund
ii. Repayment of the principal amount
of a home loan
LLL/LIHLQVXUDQFHSUHPLXPSDLG
iv. 5-year bank or Post office
tax-saving deposit
this and it is over and above the
`1,50,000-deduction permitted under
VHFWLRQ&
DONATIONS UNDER SECTION
80G
‡ ,I D UHVLGHQWLDO SURSHUW\ LV
constructed within a period of 3 years
from the date of transfer/sale of the
said property
100% exemption can be claimed if
the cost of the new house exceeds the
Y 3XEOLF 3URYLGHQW )XQG 33) The Finance Ministry has pre- capital gains.
1DWLRQDO 6DYLQJV &HUWLILFDWH 16& specified organizations to which
(PSOR\HHV 3URYLGHQW )XQG (3) individuals can make donations, and 6HFWLRQ (& LV DSSOLFDEOH RQO\ RQ
.LVDQ 9LNDV 3DWUD .93 6HQLRU deductions are permitted for this sale of land or building. Gains arising
&LWL]HQ6DYLQJ6FKHPH6&66 purpose by the government. from it will be exempt only if it is
invested within a period of six months
6HFWLRQ &&' SURYLGHV LQFRPHWD[ 'HGXFWLRQ XS WR  LV SHUPLWWHG in bonds specified by the government
deductions for contributions made to for donations to some organizations, for a period of 5 years with a
WKH 1DWLRQDO 3HQVLRQ 6FKHPH 7KLV 50% for donations to some other maximum limit of `50 lakhs.
falls under the overall ambit of organisations and up to a maximum of
`1,50,000. However, under section 10% of adjusted gross total income in Under section 54F, gains arising from

36 Beyond Market 16th - 28th Feb ’18 It’s simplified...

sale of any long-term asset other than
residential property shall be exempt
in full, provided the entire
consideration is invested by an
individual in purchase of a residential
house before one year or two years
after the date of such transfer.
In case of construction of the
residential house, it should be within
3 years after the date of transfer.
IN A NUTSHELL
Investing just for the purpose of
reducing one’s tax outgo without
considering how well it fits into an
Beyond Market 16th - 28th Feb ’18
individual’s overall financial goals is
not the right approach. Tax planning
should never be done in isolation but
in conjunction with over financial
planning, that is taking into
consideration one’s risk appetite and
overall financial goals.
The cost of buying a wrong financial
product may far outweigh the benefits
of reduced tax outgo if the investment
decisions are not made wisely. Tax
planning is one of the tools towards
attaining the financial planning goals.
Albert Einstein once said, “The
hardest thing in the world to
understand is income tax.”
With so many sections and with
numerous permutations and
combinations such as tax treatment
across different stages of investment
(example, LTCG on long-term gains
of equity instruments for gains above
`1,00,000, no long-term capital gains
tax on ULIPs even if they are equity
based, taxation on withdrawal of NPS
proceeds), proper understanding and
careful analysis becomes important.
Start early not only to minimize your
tax outflow but also to tie it in with
your financial goalS.
Contact at: 022-6273 9600
e-mail: sales@nirmalbang.com
It’s simplified... 37
 `

`
`
`

`
`

`
`

Investors can consider FMPs over bank FDs in view

of higher yields and better post-tax returns

38 Beyond Market 16th - 28th Feb ’18 It’s simplified...

I
n the past few weeks, there has
been sudden volatility in debt
funds as yields of 10-year
government securities (G-Sec)
have spiked and are in the range of
7.5% to 7.6%.
In such a situation, investors having
exposure to long-term bond funds
will be impacted to a large extent.
With inflation at elevated levels
(above expectations of the central
bank), coupled with a surge in global
oil prices and weak domestic macro
factors, it is likely that 10-year yields
may remain under pressure.
In such a scenario what should retail
investors do and what should be their
investment strategy? We try and
explain why investors should look at
shorter duration debt funds at this
point in time and what trap should
they avoid currently.
If investors want to invest for fixed
duration, they can look at investing in
Fixed Maturity Plans (FMPs).
However, it is not advisable to put
fresh money into long-term debt
products now.
WHY THE RISE IN FMPs
Several mutual funds have launched
Fixed Maturity Plans (FMPs), while
many others have filed offer
documents with markets regulator,
Securities and Exchange Board of
India (SEBI), indicating that FMPs
are back with a bang.
One of the major reasons why fund
houses are lining up FMPs is because
in the past few weeks, bond yields
have risen at a faster pace, leading to
locking-in of money at higher yields
by investors.
Owing to concerns over rising oil
prices, coupled with surge in inflation
and uncertainty in the international
Beyond Market 16th - 28th Feb ’18
markets, bond yields have risen by
45-50 basis points and the 10-year
benchmark now trades in the range of
7.60% to 7.65%.
In such a situation, fund managers can
have a debt portfolio with three to
four years of maturity that can yield
7.8% to 8%.
Therefore, in reality, after accounting
for expenses, investors could earn
returns in the range of 7% to 7.5%
while investing in FMPs. Also when
investors invest in the months of
February and March and if FMPs
mature after over three years, they
also get the benefit of indexation.
By indexing, investors bring their
cost of investment to the current value
after factoring in inflation.
In the past, we have seen investors
getting attracted to FMPs as they
lock-in their money for the entire
tenure and there is no interest rate risk
for investors. Besides, these are less
volatile compared to other debt
categories like income or gilt funds.
FMPs are close-ended mutual fund
schemes, which invest in debt
instruments with maturity of the fund.
IT IS TIME TO EXPLORE DEBT
FUNDS
In the last one year, while equity
investors have been enjoying bumper
returns, fixed income investors have
been feeling the heat of volatility in
the debt markets.
In the past few months, we have seen
returns from safer instruments like
bank fixed deposits (FDs) falling, this
makes good time for fixed income
investors to explore debt mutual
funds as an alternative or addition to
their portfolios.
Retirees can use debt funds as a
supplement to bank FDs to earn more
tax-efficient regular income. Senior
citizens or people who get pensions
can opt for hybrid funds to increase
their returns and beat inflation.
Young investors with long-term goals
can park the debt portion of their
long-term portfolios in debt funds,
instead of banks or small savings
schemes, for better growth.
Investors who have an investment
horizon of one year can choose ultra
short-term funds or liquid funds,
while people who want to take a
contrarian bet can look at investing in
credit opportunities funds and
dynamic bond funds.
Returns on credit opportunities funds
have been between 7% and 10%
annually in the last three years and
these funds earn higher returns by
investing in lower-rated corporate
bonds. With a turnaround in the
economy and growth likely to pick up
in the next few quarters, investors can
look at this segment.
On the other hand, dynamic bond
funds use a combination of both
long-term dated bonds and
lower-rated ones in order to bump up
their total returns.
INVESTORS SHOULD LOOK AT
SHORT- TO MEDIUM-TERM
FUNDS
With yields of 10-year Government
Securities (G-Sec) shooting up
sharply in the past few months, there
is a view in the market that investors
should move fresh money to shorter-
maturity fixed income funds such as
ultra-short term and liquid funds,
given that interest rates are likely to
harden, going forward.
When interest rates go up and yields
rise, bond prices fall, which could
result in a loss to investors. The
It’s simplified... 39
 longer the duration of the bond, the
higher could be the fall in its price.
Even the tone of the recent monetary
policy was quite hawkish and there
are growing concerns among
investors over rise in inflation gauge
in the months to come.
Some participants are even
suggesting investors to book profits in
long-term gilt funds and income
funds and move instead to liquid- and
ultra short-term funds. These funds
have a lower maturity and even if
rates were to rise, there is lesser
chance of investors bearing a loss in
their bond portfolio.
Short-term income funds are designed
to generate income from interest on
short- to medium-term bonds. This
accumulated interest, referred to as
accrual income, adds up in the net
asset value of the fund.
While dynamic bond funds are not
restricted to any type of investment or
security, they can earn accrual income
or capital gains from an active
duration strategy. But this type of
strategy adds to interest rate risks.
Funds with high duration can have
volatile returns in the short term.
Short-term funds don’t invest in long
maturity bonds since they try to
deliver steady returns in the one- to
three-year period.
Dynamic bond funds try to take
advantage of any interest rate or
corporate bond opportunity. For
stable returns in a one- to three-year
period, it makes sense to match your
investment timeline with the fund’s
average maturity.
TRAPS TO AVOID IN DEBT
FUNDS
In the last two years, we have seen
interest rates reducing by 2% and now
the benchmark repo rate has come
down to 6%. This move has certainly
impacted someone who is a retiree or
a conservative investor. At the same
time many categories of debt funds
have managed to give better returns,
at times even in double digits in the
past few years.
But if investors are looking to shift all
their safe money into debt mutual
funds, hoping to get similar returns,
then they will be making a grave
financial mistake as recent returns on
debt funds do not indicate the returns
over the next one, three or five years.
And, to look at returns alone and
ignore risks while investing in any
instrument is not a wise move.
Investors should not get trapped into
these funds and must look at multiple
factors before choosing and investing
in debt funds.
Firstly, investors should moderate
their returns as there is no clarity on
both macro as well as micro situation.
Secondly, assuming that higher risks
will lead to higher returns is not right
and investors should always look at
track record of the fund and how it
has performed across market cycles if
investors choose to invest in credit
opportunities, long-term or even
income schemes.
Investors should opt for such schemes
only if they are comfortable with the
volatility of such funds. Those who
want regular income can take money
through systematic investment plans
(SWP) from debt funds.
IN A NUTSHELL
With future uncertainty in debt funds,
investors should think twice before
investing in debt funds. They should
consider the track record of the fund
house and the fund manager and
historic returns of the funds.
If they don’t want to take risks at this
point of time, it’s better to invest in
short-term duration strategies. While
if someone wants to take risks and is
fine with the volatility, they can
consider investing in dynamic bond
fund and credit opportunities fundS. -

Marshall Plan

Marshall Plan is probably the most successful programme of international aid and nation-building in history. It was named
after General George Marshall, an American Secretary of State, who at the end of the Second World War proposed giving
aid to Western Europe to rebuild its war-torn economies. North America gave around 1% of its GDP in total between 1948
and 1952; most of it came from the United States and the rest from Canada.

The Americans left it to the Europeans to work out the details on allocating the aid. The main institution through which
aid was administered was the Organisation for European Economic Co-operation (OEEC), which in 1961 became the
OECD. Nowadays, whenever there is a proposal for the international community to rebuild an economy damaged by war,
such as Iraq’s in 2003, you are sure to hear the phrase ‘new Marshall Plan’.

40 Beyond Market 16th - 28th Feb ’18 It’s simplified...

 TECHNICAL OUTLOOK
T
he Indian markets
witnessed a healthy run in
2017. This is likely to
continue in 2018 as well.
Year 2018 got off to a fantastic start as
the markets hit an all-time high of
11,171.55 on 29th Jan ’18.
No sooner had the markets hit an
all-time high in January end, than it
experienced a correction or profit-
booking at higher levels, plunging the
Nifty down by almost 895 points to
10,276.30 level on 6th Feb ’18.
If we look at the technical chart, the
overall view on the Nifty seems
bullish. But the corrections cannot be
ignored, offering hope to those who
missed out on the previous rally to
re-enter the markets.
The bigger picture suggests that the
Nifty is continuing with its higher
tops and higher bottoms formation,
clearly indicating a positive view on
the whole.
Technically, the Nifty has good
support at 10,200-10,100 levels
whereas resistance is placed at
10,640-10,700.
Currently, the Nifty is trading within
the mentioned support and resistance
levels as long as it stays in the
mentioned range, although the
direction seems unclear.
But on every rise, we are witnessing a
selling pressure, taking the Nifty back
to the support level of 10,270,
indicating that it is in a “Time and
Price” consolidation phase.
Both, traders and investors are
advised to stay alert over the slightest
rally that might take place in the stock
markets. They need to take more
short-term trades and keep on churn-
Beyond Market 16th - 28th Feb ’18
ing out capital.
Once the NSE index - Nifty manages
to achieve a breakout of 10,640-
10,700 range, only then fresh buying
may be seen, which might take the
Nifty back towards the 11,000 and
11,200 levels.
On the flip side, 10,200-10,100 levels
are acting as a strong support level
and as long as it sustains above the
same, we may not witness a sharp
sell-off in the market.
It is important to note that market
participants should be stock-specific,
and follow the trend with a trail stop
loss level till it reverses from the
trading perspective.
The Bank Nifty support lies at
24,500-24,000 levels, which are
cluster supports, whereas resistance is
placed at 25,800-26,200 levels.
A breakout on either side will decide
the trend of the market. As of now it is
trading in a range-bound manner. So
market participants are advised to
trade with a strict stop loss.
On the Nifty Options front for the
March series, the highest Open
Interest (OI) built-up is witnessed
near the 10,200 and 10,000 Put
strikes, whereas on the Call side, it is
being observed at the 10,500 and
11,000 strikes.
The February expiry has witnessed
lower-than-average rollovers in the
Nifty (62.34%) and in the Bank Nifty
(65.27%) with a positive cost of carry,
indicating a positive bias as the shorts
did not rollover positions in the
current series.
Textile (87.44% - short rollover),
Capital Goods (82.61% - short
rollover) and Automobile (85.43% -
long rollover) saw much higher
rollovers compared to the correspond-
ing period of the previous expiry.
Select stocks from Automobile,
Pharma and IT sectors are expected to
outperform while certain stocks from
Textile, Capital Goods and Banking
sector are likely to underperform in
this expiry.
India VIX, which measures the imme-
diate 30-day volatility in the market,
remained in the range of 12-24 for
most part of February. Going forward,
VIX will likely remain range-bound
within 12-18 levels.
The Put Call Ratio-Open Interest
(PCR-OI) for Nifty Options has been
in the range of 1-1.5 in the month of
February. Going forward, it is
expected to rise, implying a positive
undertone in the market.
The markets are believed to remain
highly volatile in the month of March
with bouts of selling pressure near
resistance levels.
OPTIONS STRATEGY
LONG STRADDLE SPREAD
It can be initiated by ‘Buying 1 lot
28Mar 10450 CE (`160) and Buying
1 lot 28Mar 10450 PE (`160)’.
The net combined premium outflow
comes to around 320 points, which is
also your maximum loss. One should
keep a SL of 70 points (When total
premium falls to 250 points, keep a
target of 120-150 points gain).
The Nifty is likely to witness a more
than 300 point move in either
direction, which would help the
strategy make profitS.
It’s simplified... 41
 Buckfast Recommendations
Finance is a maze of umpteen possibilities and choices. And it is easy for individuals to lose their
way in this tangle. In such a scenario, an expert comes handy. For, he alone can wade through
the enigmatic world of finance and simplify choices for investors.

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

About Buckfast Research

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

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

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

Disclaimer
Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.
Source: ACE MF, NAV as on 20th Feb ’18.
SIP returns as on 31st Dec ’17. M=Months, Y=Year, D=Days
Past performance is no guarantee of future performance.
Returns are of Growth option of Regular plans
Returns which are below 1 year period are Annualized Returns

Diversified Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
IDFC Focused Equity Fund 38.59 32.15 10.29 14.52 10.99 9.35 1264
Invesco India Contra Fund 45.86 26.86 12.98 22.10 16.88 14.44 1018
Principal Growth Fund 144.73 28.35 13.81 20.73 16.61 8.75 611
Edelweiss Eco Resurgence Fund 14.05 27.11 11.73 - - - 39
SIP
IDFC Focused Equity Fund 38.59 43.60 24.25 19.40 16.24 13.83 1264
Invesco India Contra Fund 45.86 43.17 24.36 25.55 22.54 19.91 1018
Principal Growth Fund 144.73 39.76 25.63 24.28 22.16 18.07 611
Edelweiss Eco Resurgence Fund 14.05 39.66 - - - - 39

42 Beyond Market 16th - 28th Feb ’18 It’s simplified...

Large Cap Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
Invesco India Growth Fund 31.71 22.57 9.95 17.96 14.37 10.78 300
Mirae Asset India Opportunities Fund 46.32 20.17 11.87 20.23 16.66 - 6612
Edelweiss Equity Opp Fund 29.96 22.74 8.59 16.33 12.89 9.09 273
Axis Equity Fund 24.56 22.01 7.03 14.84 12.98 - 1931
SIP
Invesco India Growth Fund 31.71 33.80 19.68 20.08 18.54 16.55 300
Mirae Asset India Opportunities Fund 46.32 30.87 21.41 22.46 20.92 - 6612
Edelweiss Equity Opp Fund 29.96 31.65 17.50 18.13 16.62 15.06 273
Axis Equity Fund 24.56 29.41 15.72 15.74 15.65 - 1931

Mid and Small Cap Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 Year 3 Years 5 Years 7 Years 10 Years
Lumpsum
HDFC Small Cap Fund 45.31 43.45 20.57 23.80 17.96 - 2423
L&T Emerging Businesses Fund 27.45 38.00 23.60 - - - 4031
BNP Paribas Mid Cap Fund 34.33 21.51 12.83 23.41 21.54 11.10 851
SIP
HDFC Small Cap Fund 45.31 58.78 32.21 28.52 24.51 - 2423
L&T Emerging Businesses Fund 27.45 54.04 36.82 - - - 4031
Mirae Asset Emerging Bluechip 49.12 38.66 29.31 33.45 30.69 - 5302
BNP Paribas Mid Cap Fund 34.33 39.74 23.53 26.93 25.82 22.86 851

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

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
IDFC Tax Advt(ELSS) Fund 57.41 31.55 13.14 20.91 16.92 - 1012
MOSt Focused Long Term Fund 17.67 24.57 18.78 - - - 838
BNP Paribas LT Equity Fund 36.87 18.41 7.22 17.27 16.03 8.34 607
Mirae Asset Tax Saver Fund 16.17 25.50 - - - - 857
SIP
IDFC Tax Advt(ELSS) Fund 57.41 43.69 24.46 23.95 21.95 - 1012
MOSt Focused Long Term Fund 17.67 32.78 - - - - 838
BNP Paribas LT Equity Fund 36.87 32.23 16.78 19.23 18.83 16.88 607
Mirae Asset Tax Saver Fund 16.17 38.89 - - - - 857

Dynamic Equity Funds

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
ICICI Pru Dynamic Plan 258.84 15.19 9.92 17.39 13.73 12.68 10815
Tata Equity P/E Fund 136.18 21.25 14.28 22.57 16.85 13.77 2713
SIP
ICICI Pru Dynamic Plan 258.84 24.00 18.44 18.24 17.21 16.40 10815
Tata Equity P/E Fund 136.18 29.30 24.80 26.17 22.79 19.90 2713

Beyond Market 16th - 28th Feb ’18 It’s simplified... 43

 Balanced Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
HDFC Balanced Fund 147.61 16.42 10.71 18.65 15.81 14.70 20081
Principal Balanced Fund 74.72 24.35 13.27 17.17 14.10 10.35 1018
Reliance Reg Savings Fund-Balanced Option 54.23 16.59 10.52 16.59 14.12 13.77 12200
Mirae Asset Prudence Fund 13.43 15.33 - - - - 1103
SIP
HDFC Balanced Fund 147.61 22.15 17.17 19.50 18.38 18.03 20081
Principal Balanced Fund 74.72 30.85 21.69 20.00 18.23 15.54 1018
Reliance Reg Savings Fund-Balanced Option 54.23 22.55 16.74 18.35 17.31 16.56 12200
Mirae Asset Prudence Fund 13.43 21.92 - - - - 1103

Equity Savings (Arbitrage MIP) Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
6 month 1 Year 3 Years 5 Years

HDFC Equity Savings Fund 34.77 5.61 9.74 10.18 10.73 6751
Reliance Equity Savings Fund 12.50 5.88 11.26 - - 2280
Edelweiss Equity Savings Advantage Fund 13.01 9.12 11.29 6.94 - 135
Principal Equity Savings Fund 34.39 5.52 9.34 6.67 7.09 69
Aditya Birla SL Equity Savings Fund 12.91 0.30 7.58 7.57 - 1438

Monthly Income Plans

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
6 month 1 Year 3 Years 5 Years

HDFC MIP-LTP 43.20 -0.50 6.36 7.48 10.30 3686

ICICI Pru MIP 25 38.95 2.20 9.00 8.59 11.27 1440
Indiabulls MIP 12.89 24.51 18.42 - - 30
Aditya Birla SL MIP II-Wealth 25 37.90 -2.66 7.67 9.05 12.78 2492

Income & Dynamic Bond Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
3 month 6 month 1 Year 3 Years 5 Years

ICICI Pru Long Term Plan 21.29 -1.58 -1.29 6.29 8.21 11.00 3490
SBI Dynamic Bond 20.96 -9.35 -4.37 2.92 6.85 7.40 3733
UTI Dynamic Bond Fund 19.67 -6.58 -2.69 4.21 7.68 9.12 1539
Axis Regular Savings Fund 16.74 2.68 4.48 7.16 8.03 8.82 1224
IIFL Dynamic Bond Fund 13.75 1.98 3.02 6.90 6.46 - 115
SBI Regular Savings Fund 29.85 1.30 2.94 6.75 8.68 9.58 1614

44 Beyond Market 16th - 28th Feb ’18 It’s simplified...

Accrual Funds
Historic Return (%)
SCHEME NAME NAV AUM (Cr)
3 month 6 month 1 Year 3 Years 5 Years

Baroda Pioneer Credit Opp Fund-A 13.30 3.16 4.50 7.43 9.51 - 920
BOI AXA Corporate Credit Spectrum Fund 13.16 5.83 6.34 8.36 - - 1454
Franklin India Dynamic Accrual Fund 60.65 4.09 5.32 7.59 9.28 9.04 3057
Franklin India Income Opportunities Fund 20.40 4.74 5.79 7.85 8.54 9.24 3304
Aditya Birla SL Corp Bond Fund 12.76 2.94 4.00 7.86 - - 5277

Short Term Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 month 3 month 6 month 1 Year 3 Years

Baroda Pioneer ST Bond Fund 18.24 3.85 3.88 4.97 6.72 8.35 361
Franklin India Low Duration Fund 19.74 6.57 5.27 6.09 7.72 9.13 5692
Franklin India ST Income Plan 3624.15 5.89 4.01 5.39 7.92 8.43 9412
HDFC Banking and PSU Debt Fund 13.89 1.29 -0.39 3.44 6.07 8.70 4074
Reliance Medium Term 36.04 5.39 4.09 5.10 6.33 8.06 11794

Ultra Short Term Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 month 3 month 6 month 1 Year 3 Years

Kotak Low Duration Fund 2100.31 5.63 4.83 5.67 6.77 8.25 5649
Aditya Birla SL Savings Fund 338.42 6.43 5.19 5.67 7.00 8.34 19275
Franklin India Ultra Short Bond Fund-Super Inst 23.81 7.36 6.21 6.81 7.91 9.12 12430
ICICI Pru Flexible Income Plan 329.65 5.67 4.74 5.45 6.72 8.19 21564
L&T FRF 17.02 6.68 6.07 6.35 7.26 8.28 702

Liquid Funds
Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 month 3 month 6 month 1 Year 3 Years

Axis Liquid Fund 1904.81 6.60 6.53 6.53 6.70 7.47 25159
Kotak Floater-ST 2821.34 6.61 6.50 6.49 6.68 7.51 18275
L&T Liquid Fund 2356.77 6.59 6.53 6.52 6.70 7.46 15073
Aditya Birla SL FRF-Short Term Plan 229.13 6.50 6.47 6.52 6.73 7.52 12895
Franklin India TMA-Super Inst 2570.53 6.57 6.53 6.50 6.71 7.54 5617

Arbitrage Funds
Historic Return (%)
SCHEME NAME NAV AUM (Cr)
3 month 1 Year 3 Years 5 Years

DHFL Pramerica Arbitrage Fund 12.58 5.69 6.06 6.49 - 1460

Edelweiss Arbitrage Fund 12.86 6.16 6.07 6.67 - 6400
Indiabulls Arbitrage Fund 12.41 6.37 6.04 6.87 - 686
Invesco India Arbitrage Fund 21.20 6.12 5.93 6.44 7.10 495
Kotak Equity Arbitrage Scheme 24.70 6.14 6.18 6.55 7.53 14592
L&T Arbitrage Opp Fund 12.74 6.30 6.24 6.58 - 801

Beyond Market 16th - 28th Feb ’18 It’s simplified... 45

 OOK and
KEEP
An investor needs to look
at the sustainability of a
business and consider
how the business and its
managers are likely to
perform in difficult times

46 Beyond Market 16th - 28th Feb ’18 It’s simplified...

I
n the past two years, small-
caps have attracted the
attention of investors with
most companies trading at life-
time highs. A number of them have in
fact become multibaggers in no time,
pulling more investors into their fold.
While there is nothing wrong about
investing in small caps, the things
worth considering are the risks that
come with investing in small stocks,
the ways by which investors get
trapped in small-cap stocks, etc.
MANAGEMENT MINDSET
Owing to small size of operation,
companies are often seen growing
faster and at a rapid pace with the
management aggressively pursuing
growth through organic and inorganic
route. While growth could be healthy,
it also comes with its own risks. And
one of the biggest risks is how
capable the management is in
managing growth.
Once a company with a `200 crore
sales turnover becomes a company
with a `2,000 crore turnover, it needs
people who can manage that scale.
Many companies fail or face sudden
obstacles at the peak. If a CEO has
very little aptitude, experience and
qualification to support scale, he or
she would make mistakes and some
of them could be costly and fatal too.
In the last cycle, many small-cap auto
component suppliers became big. In
order to grow bigger they acquired
overseas companies at expensive
valuations through huge borrowed
capital, which later on turned out to
be their worst nightmares. Many real
estate companies indulged in
malpractices at the peak of their
growth and promoters were jailed.
A CFO who is suddenly asked to
manage a `2,000 crore company will
require a different aptitude. Many
Beyond Market 16th - 28th Feb ’18
small companies suffered because of
the ill advice they received from their
CFOs who urged them to borrow and
raise capital; they kept their foreign
exchange risks unhedged, relied on
huge working capital and allocated
resources to unproductive assets.
Functions such as finance, marketing,
distribution, human resources and
operations required expertise and
focus as organizations grew.
However, many small companies
suffer as promoters refuse to bring
talent. This is often seen in
family-owned businesses, where the
decisions that are made may not
support growth.
DURABILITY OF BUSINESS
In good times it all looks perfect. But
the real test of any sound company
comes at the time of an economic or
industry downturn. Many smaller
companies grow at a faster rate in the
initial years and then all of sudden
they go bust in one bad year.
Between 2009 and 2014, many large
infrastructure companies turned small
and a few others went out of business
as they failed to sustain themselves
during the downturn.
For instance, many well-known
shipping and steel companies fell
during the economic crisis of 2008-
09. If you had any of those stocks in
your portfolio, you would have been
completely wiped out as share prices
never recovered and hit their peaks.
On the other hand there were few who
still survived and thrived by
demonstrating their ability to manage
a downturn well. Every business and
its manager should have some unique
advantages which make him or her
strong and durable.
This could be a rare phenomenon.
Nonetheless, an investor needs to
look at the sustainability and consider
the ability of the business and its
managers. Further, he/she must see if
these managers have been able to
cope with downturns in the past.
Although an investor would not ask
such questions in good times, he/she
must know the sustainability of a
business as a long-term investor.
FINANCIAL STRENGTH
It is not just earnings and growth that
should excite an investor. What is also
important is the quality of earnings,
strength of the balance sheet and
positive cash flows. As long as a
company is reporting higher earnings
per share each passing year, investors
hardly bother. Soaring share prices
keep them in a positive mood,
overlooking quality aspects.
One common attribute of businesses
that survived many down cycles in
the past is their financial strength.
Companies which constantly work to
develop financial advantages like
improving margins and keeping
higher interest coverage have the
ability to face a downturn. Companies
that do not jeopardize their balance
sheets by raising debt or
misallocating their resources remain
in good health.
One must also be serious about their
operating, investing and financial
cash flows. Insufficient operating
cash flows dent their durability in
difficulties. In a down cycle, liquidity
is crucial and can rescue a business
out of recession. For instance, many
small shipbuilding companies were
facing huge financial stress and
suffered in the past owing to poor
cash flows and huge investments
made through borrowed money.
It is often seen that companies in
cyclical businesses go through ups
It’s simplified... 47
 and downs. Sectors like steel, sugar,
cement, rubber and other
commodities are known for springing
nasty surprises during downturns.
VALUATIONS
Another major risk in investing in
small-caps pertains to valuations.
When a company’s outlook looks
good, investors build a lot of
expectations. In fact, they are willing
to pay or start discounting earnings
beyond one or two years.
As share prices rise and companies do
well, investors’ appetite increases and
they plunge to take more risks by
ascribing higher valuations for the
same amount of earnings.
As long as a stock is doing well and
companies continue to deliver,
nothing worries investors. It is a
perfect situation where earnings
explosion happens at the same time
valuations are rerating.
A company whose shares are trading
at say 10 times its `20 earnings per
share would be worth `200 per share.
Assume two years from now earnings
scale to `60 per share and investors
are willing to pay 30 times its
earnings, then those same shares
would be worth `1,800 now in the
share market.
What if you start buying shares at
`1,800 a share and after that the
company experiences a lull for about
two years? In such a scenario, the
company has done nothing wrong and
its story remains intact. Still, you
wonder why shares are falling?
Investors must seek good investment
ideas and consider valuations before
buying. Even if earnings do not fall,
slow growth and slight correction in
return ratios will compel markets to
ascribe lower valuations, keeping
prices under pressure.
48 Beyond Market 16th - 28th Feb ’18
Banks have gone through this cycle;
capital goods companies have seen
huge derating and sectors like IT and
pharma, which are reporting good
earnings growth were falling each
passing day as investors were afraid
of paying higher valuations.
TOO EARLY OR TOO LATE
Mid- and small-sized companies are
in investors’ radar as they are
considered to be unique businesses. A
leader in a niche growing segment
with a compelling business model and
different products are some of the
reasons to buy them. Investors have
thus bought diagnostic businesses like
Thyrocare, Dr Lal. They also bought
security and recruitment businesses
along with internet stocks.
Buying a broader theme and riding
with individual stocks mainly small-
cap companies is a proven strategy
that has delivered returns.
Legendary investors like Peter Lynch
and a few others have compounded
their money by following this
strategy. But apart from merits, this
strategy also suffers from a number of
other issues. It is important to
understand the longevity and
durability of the theme.
An idea or a theme may be exciting
like buying internet stocks, investing
in companies that would benefit
because of the advent of electric
vehicles, etc. However, in reality
these unique ideas may not deliver
returns if the investor bought them
too early or if the theme itself takes
longer than expected.
The opposite is equally true. What if
you bought a theme at the time of its
maturity? Many niche or individual
themes in the telecom and technology
sector just faded and investors were
stuck buying them at the peak of the
business cycle. Often fancy themes
float in the market, exciting investors.
As a prudent investor, one needs to
take a well thought out view.
Businesses could face sudden
increase in competition or the
development of a substitute product
could be in the pipeline. In those
situations investors would be trapped.
TRANSITORY OR
STRUCTURAL GROWTH
Investors in small- and mid-cap
companies also suffer on account of
short-term thinking. People term
opportunist investing in ideas for
short-term profits. While this could be
perfectly fine as long as one is able to
execute it well, the issues actually
develop when they are not able to
identify or plan their exits well.
Let us assume one found a company
that is going to report a huge jump in
profit over the next one year as a
result of capacity expansion it did
recently. Investors bought chemical
and steel companies under the
impression that owing to the shut
down of excess capacities in China,
the demand will shift to India.
Domestic companies will mint money
as a result of expansion in margins
because of higher prices. This worked
perfectly or is rather working, but
when these transitory changes happen
investors have to be extremely careful
and vigilant since they may not
sustain. These changes may not be
structural in nature. That apart, a lot
of energy is spent on identifying such
extraordinary situations that may not
be within our circle of competence.
On top of it, there is a huge risk
relating to expectations versus reality.
In other words, if one devotes time
and energy on businesses that are
predictable and durable or investing
in some of the structural stories, very
little footwork is needeD.
It’s simplified...
IMPORTANT
JARGON
VOLATILE BOND MARKET
The Indian bond market has been volatile for the last six
months. The yields on 10-year benchmark government
security (G-Sec) has shot up nearly 125 basis points (bps)
since September last year.
Yields on G-Sec is a measure of interest rates in the
economy. Any change in G-Sec yields has a wider
ramification even on the equity markets.
What Is A Government Security (G-Sec)?
A government security or bond is a tradable instrument
issued by the Reserve Bank of India (RBI) on behalf of the
Central Government or the State Governments.
The government borrows from the market to bridge the
fiscal deficit. Such bonds have different tenures ranging
from less than one year (Treasury bills) to more than one
year (government bonds), but up to 40 years.
Why Is The 10-year G-Sec The Benchmark?
It is an international norm. A 10-year security becomes a
measure of interest rates in the economy.
Most (90%) Government of India (GoI) borrowings
happen with a 10-year security. The benchmark security
changes every year as the old benchmark gets replaced by
a new one.
How Does The G-Sec Work?
G-Sec bears a coupon. A coupon is the interest rate that the
bondholder receives on the maturity of the said bond.
Banks, insurance companies and pension firms, and
foreign institutional investors (FIIs) are major players in
Beyond Market 16th - 28th Feb ’18
the G-Sec market.
After initial bidding of government securities, the
securities are also traded on a secondary market. Even
retail investors can buy G-Sec through stock exchanges
(although volumes are lower).
Why Have Yields Shot Up Sharply?
A mix of global and domestic reasons led to a sharp rally
in bond yields. Yields and prices historically move in
opposite directions.
Rising crude oil prices and tightening of monetary policies
in advanced economies led to a rally in bond yields
globally. Even local bonds reacted to these developments.
Back home, there was increasing fear among the people
that the government of India was not walking the talk on
fiscal deficit.
Where Do Yields On Benchmark Stand?
According to the Indian credit ratings agency ICRA, the
yield on the old 10-year Government of India security
(6.79% GS 2027) has increased by 123 basis points (bps)
to 7.72% as on 14th Feb ’18 from 6.48% as on 1st
September last year.
Moreover, the yield for the new 10-year benchmark
government securities (7.17% GS 2028) hardened from
7.17% when it was first issued in January ’18 to a high of
7.60% on 1st Feb ’18, before easing somewhat to 7.49% as
on 14th Feb ’18.
What Is The Impact Of Rising Bond Yield On The
Government?
Rising yields can lead to increased borrowing costs for the
government. For absorption of subsequent paper, the
It’s simplified... 49
 government has to offer a higher coupon. For higher
returns, investors sell their prior paper, thereby depressing
prices and increasing their yields.
What Are The Borrowing Numbers For FY19?
As feared by the bond markets, not only the Indian
government revised the fiscal deficit target to 3.5% of the
gross domestic product (GDP) for FY18, from a target of
3.2%, for FY19, the government set its fiscal deficit target
to 3.3%, as against a promised glide path of 3% of gross
domestic product.
With this, the Indian government plans to borrow around
`6.06 trillion against `5.8 trillion in the current year from
the market in order to bridge the fiscal deficit. The figure
of the net redemptions stands at approximately `4.6 trillion
in FY19.
The government expenditure is slated to grow by around
10% in FY19. But this is likely to happen only by
breaching fiscal promises.
What Is The Other Reason For The Hardening Of The
Bond Yields?
Commercial banks in India, which are the largest players
in the bond market are currently inactive in the market.
Banks have witnessed mark-to-market losses on their
treasury books as bond prices have fallen (yields have
gone up) dramatically.
Banks fear more such rot if yields harden from here. Thus,
to save from investors’ irk, they are staying away from the
bond market. The Q3FY18 results of banks have seen
treasury losses when bond yields were up 67 basis points
during the quarter.
To be sure, these are mark-to-market (MTM) losses for
banks on their investment portfolios, which can be
reversed if bond yields correct from their earlier levels that
have been reported.
Can The RBI And The Indian Government Force The
Banks Into Buying New Bond Papers?
The RBI ensures demand for government papers by
mandating commercial banks to invest in government
bonds and maintain a statutory liquidity ratio, or SLR of
19.5% of their deposits.
However, in the absence of any substantial credit off-take
banks are holding 10% (19.5% plus 10%) more than the
50 Beyond Market 16th - 28th Feb ’18
SLR level that they need to maintain. So, banks cannot be
forced into buying.
What Is The Solution?
In a market economy, buyers and sellers have to come to a
consensus. The government and the RBI will have to talk
down the yields on G-Sec by proving that reforms are
working and the government is fiscally prudent even if
there is a minor digression. This will ensure that buyers
will line up.
In addition to this, if inflation is pushed lower, the Reserve
Bank can cut rates, which can help the sentiment as well as
boost bond prices.
If Not Banks, Why Not Allow Foreigners?
Currently, Foreign Portfolio Investments (FPIs) are
allowed to invest in central government securities to the
tune of 2.55 trillion and up to `45,000 crore in state
government securities. FPIs have already utilized around
98% of those limits. The government typically opens up by
5% every year gradually.
The problem with allowing more FPI money is that it can
lead to strong rupee appreciation, which exporters hate. It
can prove negative for the economy.
FPIs hate rising inflationary scenario, which can mean
tighter monetary policies of central banks, resulting in
lower returns on their bond portfolios.
What Is The Equity Market Impact?
Apart from lower quarterly earnings results of Indian
banks, the sentiment in the bond market can rub-off the
wrong way on the equity markets. FPIs can turn sellers.
Credit ratings agencies also keep a close watch on
government’s borrowing costs as well as the overall debt
of the government.
What Happens To The Monetary Policy Of The
Reserve Bank Of India?
When bond yields are higher, it indicates that interest rates
will rise. It is a signal from the market. The RBI typically
is behind the curve on this.
Current yields are factoring in at least a 50 to 75 bps rate
hike by the RBI. This is negative for equity markets as
tight monetary policy has a negative impact on growth and
thereby on the stock marketS.
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