RNI No. MAHENG/2009/28962 | Volume 8 Issue 04 | 01st...

RNI No. MAHENG/2009/28962 | Volume 8 Issue 04 | 01st - 15th Apr ’16Mumbai | Pages 48 | For Pr ivate Circulat ion

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

Art Director: Sachin KambleJunior Designer: Harshad Pawar

Operations: Namrata Sabbani

Printed and published by Mr Rakesh Bhandari on behalf of Nirmal Bang Financial Services Pvt Ltd, printed at Uchitha Graphic Printers Pvt Ltd65, 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

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

DB Corner – Page 5

You Lose, They Win

The move to deregulate small savings rates is a win-win for both the government as

well as the banks, but a loss to investors – Page 6

High Stakes

The ongoing assembly polls in five states are crucial for both BJP and Congress

– Page 9

A Sweet Deal

Sugar stocks are back in favour after a period of prolonged lacklustre performance

– Page 12

Cleaning The Space

Home buyers, who have often been at the receiving end of builders’ ploys, are likely

to benefit from the implementation of the Real Estate (Regulation and

Development) Bill – Page 16

Hopes Reignited

The moderate standard goods and services tax rate recommended by the Arvind

Subramanian panel may ensure speedier passage of the GST bill – Page 19

Ticking Time Bomb

Bad loans of banks are alarmingly high, but the situation may be turning around as

restart of stalled projects is helping corporates – Page 22

Both Cheer And Gloom

While the FMCG sector has every reason to cheer, retail and jewellery segments

have witnessed a bit of a setback following announcements in Union Budget

2016-17 – Page 25

Headroom For Growth

Rising disposable incomes, higher standards of living and increasing expenses on

purchase of premium products offers immense growth opportunity in the home

improvement segment – Page 28

When Risky Is Attractive

Investors with a slightly higher risk appetite and an investment horizon of 18 to 24

months can consider credit opportunities funds – Page 31

A Bagful Of Goodies

A number of key announcements were made in Budget 2016, which will eventually

benefit the insurance sector in India – Page 34

Technical Outlook For The Fortnight Gone By – Page 37

A Continuing Pattern

Flags and pennants are two chart patterns that signal the continuation of the

previous trend – Page 38

The Dhandho Way Of Investing

Mohnish Pabrai offers a comprehensive framework on value investing for

individual investors in his book ‘The Dhandho Investor’ – Page 42

Important Jargon For The Fortnight – Page 45

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

Volume 8 Issue: 04, 01st - 15th Apr ’16

Tushita NigamEditor

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

The state of the banking industry in a country broadly signifies the economic condition of that nation. The banking space in India has been seeing a rise in its loan books, and more so in non-performing assets (NPAs) since a while now. Record high NPAs show how adverse the situation is.

Our cover story in the current issue sheds light on the dangerous situation of rising NPAs and the inability of stressed sectors to clear the debt any time soon.

Other articles in this issue cover topics such as deregulation of small savings rates and its impact on the government, banks and investors, the ongoing assembly elections that are crucial for not only the BJP but also the Congress party as well as the sugar sector, which is gaining favour once again and its subsequent impact on stocks of sugar companies.

Also, there are articles on the implementation of the much-awaited Real Estate (Regulation and Development) Bill and its impact on home buyers as well as developers, the recommendations of the panel under Chief Economic Adviser Arvind Subramanian that may help speed up the passage of the Goods and Services Tax (GST) Bill, announcements made in the Union Budget 2016-17 for sectors like FMCG, retail as well as jewellery and growth opportunities for the home improvement segment in the country.

The Beyond Basics section covers two articles. While one talks about credit opportunities funds, the other one is on key announcements pertaining to insurance made in the Union Budget 2016-17 that will benefit the sector in the country.

Do not miss the article ‘The Dhandho Way Of Investing’ in the Beyond Learning section. The article deconstructs the popular book by Mohnish Pabrai and explains how investors can take cues from it to make right investment decisionS.


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

n the previous fortnight, the Reserve Bank of India (RBI) cut its policy interest rate by a quarter percentage point, hinting at another cut later this year if inflation remains under check.

The RBI cut the repo rate — the rate at which it lends to banks — by 25 basis points (bps) to a five-year low of 6.50%. It also raised the reverse repo rate by 25 bps. Apart from this, the RBI has also taken various initiatives to improve liquidity in the system.

The Federal Reserve (Fed) put any increase in US interest rates on hold. It said the rates will remain unchanged for at least another month, indicating slower rate increase in CY16. This led to depreciation of the US dollar, and, hence, appreciation of other currencies.

The Indian stock markets are likely to remain range-bound in the coming fortnight. The Nifty has support at 7,525 and 7,400 levels. It has resistance at 7,740 and 7,820 levels, thereafter.

In the next fortnight, markets are likely to take direction from earnings results of India Inc that have started pouring in, as well as initial expectation build-up on monsoons in IndiA.

I

The Indian stock markets are likely to remain range-bound

in the coming fortnight.

Sensex: 25,022.16Nifty: 7,671.40

(As on 11th Apr ’16)

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

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

areas. The scheme operates through the countrywide network of about 1.5 lakh post offices, 90% of which are located in rural areas, more than 8,000 branches of public sector banks and select private sector banks and more than 5 lakh small savings agents.

Small savings instruments can be classified under three heads. These are: (i) postal deposits [comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme (MIS)] (ii) savings certificates [(National Small Savings Certificate VIII (NSC) and Kisan Vikas Patra (KVP)] and (iii) Social security schemes [(public provident fund (PPF) and Senior Citizens’ Savings Scheme (SCSS)].

While post offices run all the schemes, the scheme of Public Provident Fund and Senior Citizens Savings Scheme are also operated through banks.

The two most popular instruments are MIS and KVP, which account for nearly half of the total outstanding.

Generally, interest rates on SSS tend to be fairly stable, even though other rates like bank deposit rates, government bond yields or inflation in the economy move in a wide range.

The government keeps interest rates on these schemes stable in order to encourage savings in the economy.

From year 2012-13, interest rates on various SSS are being recalculated and notified in the month of March every year. These rates are applicable for the next financial year. From 1st April, rates would be reset every quarter.

n 18th March the Indian government reduced interest rates on various small savings schemes (SSS). The cut was steep in the range of 40-130 basis points (bps).

The last cut in small savings schemes interest rates happened in 2002-2003. While on one side the move is negative for investors who invest in these schemes, positively the move should improve monetary policy transmission in the economy.

The reduction in SSS rates is in line with the recommendations made in December ’14 by the Shyamala Gopinath Committee on Small Savings to ensure that interest rates of SSS are market-linked.

Subsequently, the government announced plans to partially deregulate interest rates on SSS with less than five years maturity, effective from April ’16.

With the current move, interest rates on SSS will be benchmarked against government bonds and will be reset every quarter (instead of annual basis earlier).

SMALL SAVINGS SCHEMES

Small savings schemes (SSS) are deposit schemes offered by the government to provide a risk-free investment and social security option to households.

Investments under these schemes are fully secured as these savings schemes carry implicit guarantee of the government of India.

Small savings schemes is famous in small towns and rural

O

Tax Benefits On Small Savings Schemes

The small savings schemes enjoy income tax exemptions/rebate under different sections of the Income-tax Act. Over 90% of small savings deposits enjoy similar tax treatment of interest as bank deposits do, albeit they have slightly higher yields and tenors. Following are the benefits under these schemes: i) Deposits under National Savings Certificate (NSC-VIII Issue), Public Provident Fund (PPF), 5-Year Post Office Time Deposit Account and Senior Citizen Savings Scheme enjoy income-tax deduction under Section 80C of the Income-tax Act, 1961.ii) Interest accrued on NSC every year is deemed to have been reinvested under the scheme and, therefore, enjoys rebate under Section 80C; whereas interest on PPF is fully exempt from tax under Section 10 (11). iii) Interest earned on Post Office Savings Account enjoys tax exemption under Section 10(15). iv) There is no tax deduction at source (TDS) on withdrawals under any of the small savings schemes except Senior Citizens Savings Scheme 2004.

Source: Shyamala Gopinath Committee Report


Source: Finance Ministry

THE MOVE

The government has kept the interest setting formula intact: The 10-year government of India bond will continue to be the benchmark. For example, now, PPF will continue to earn 25 bps (spread) more than the average 10-year yield on government securities. (See table for schemes and new rates.) The only change now is that notification of rates will be done on a quarterly basis instead of the full financial year. In schemes like senior citizens’ savings scheme, NSC, KVP, etc, the new rates are applicable only to new customers.

Savings Deposit1-Year Time Deposit2-Year Time Deposit3-Year Time Deposit5-Year Time Deposit5-Year Recurring Deposit5-Year Senior Citizen Savings Scheme5-Year Monthly Income Account Scheme5-Year National Savings CertificatePublic Provident Fund SchemeKisan Vikas PatraSukanya Samriddhi Account Scheme

4.0%8.4%8.4%8.4%8.5%8.4%9.3%8.4%8.5%8.7%8.7%9.2%

4.0%7.1%7.2%7.4%7.9%7.4%8.6%7.8%8.1%8.1%7.8%8.6%

InstrumentExisting

RateNewRate

(1st Apr '15 to31st Mar '16)

(1st Apr '16 to30th Jun '16)

Interest Rate On Small Savings Schemes

THE IMPACT

Cut in SSS interest rates is good news for equity and long -dated bond investors. But it is bad news for small savings investors. In order to capture higher interest rates, industry experts expect beeline by investors to invest before 31st March in SSS.

But, over the long term, long-term investors would lose much. For example, the average interest rate on SSS over the last 15 years as per the new formula would have been 7.89%, only slightly lower than the 15-year historical average of 8.36%.

WILL BANKS FOLLOW

With small savings rates reduced, in all likelihood, banks will further cut their deposit rates. With cost coming down due to lower deposit rates, banks have the room to pass on any rate cut from the RBI in the future.

Indian bond prices jumped sharply, with yields touching a low of 7.50% after the government reduced rates on small savings scheme, expecting rate cut by Reserve Bank of India (RBI) in the coming months.

Thus, lower small savings rates, along with marginal cost-based pricing of loans from April ’16 will facilitate an improvement in monetary policy transmission (lower lending rates) from April onwards. Secondly, even government, centre and state both, depend on these SSS for bridging their fiscal deficit. Now, lower SSS participation due to lower rates will mean the government will have to rely more on other sources of financing, especially market borrowings, to finance their fiscal deficit.

But, positively, this will also reduce the interest burden on the central government as interest paid for borrowing from these schemes is higher than market rates.

IN A NUTSHELL

Overall, the move to deregulate small savings rates is a win-win for both the government and the banks. While investors tend to loose, falling inflation and potential interest rate cuts by the RBI should be positive for the investment climate in the economy.

Higher monetary policy transmission will lead to lower lending rates over time and will benefit consumers and corporates thereby boosting growtH.

THE RATIONALE

Recently, banks cited high small savings rates as one of the factors for slower monetary transmission. Even as the Reserve Bank of India (RBI) reduced interest rates by 125 bps to a four-and-a-half-year low of 6.75%, banks have transmitted (cut their base rates) only up to 70 bps.

As per banks, high rates on SSS make banks’ fixed deposits uncompetitive and in turn do not allow banks to reduce the cost of funds. While the data suggests otherwise, banks fear cannibalization from SSS. For instance, small savings are small in the context of total commercial bank deposits in India at 7% now as against a peak of 30% ten years ago. Hence, the importance of SSS has come down significantly over the years.

Outstanding small savings was around `6.41 lakh crore (7% of bank deposits) as of August ’15, while bank deposits were about `90 lakh crore. Within small savings, deposits account for around 64% of total, followed by certificates with 30% and PPF with 7%. Experts think the impact of a cut in small savings rates in terms of banks transmitting any rate cuts by RBI will be less.

lections are once again around the corner - this time to five state assemblies, all important

ones. The elections, which began on 4th April will end on 16th May and the results are scheduled to be announced on 19th May.

The states going to polls are in the south and east - Tamil Nadu, Kerala and Puducherry (Pondicherry) which is a Union Territory, in the south; and West Bengal and Assam in the east.

This is another major test for Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP), which

E has not had a good one year in the electoral arena.

After winning the Lok Sabha election in May ’14, Narendra Modi became Prime Minister with the BJP bagging an absolute majority on its own, and then in its aftermath registering a string of victories in state assembly elections, the BJP has faced two major defeats - the first in New Delhi and the second one in Bihar, both last year (2015).

The defeats in both Delhi and Bihar, the first in early 2015 and the second in the latter part of the year came as a great shock to the BJP as just a year

ago the BJP was winning all elections.

In fact, in the Lok Sabha election of 2014, the BJP gained an absolute majority on its own, a first for any political party in India since Rajiv Gandhi led the Congress to a smashing victory in 1984.

In the state assembly elections that followed, the BJP clinched several victories, including in the prestigious ones of Maharashtra and Haryana. It also formed a government with a coalition partner in Jammu and Kashmir (J&K).

It was felt then that with a



time but the question arises - will it be enough for the BJP to send its members to the Rajya Sabha?

West Bengal with as many as 294 constituencies has a multi-phase election schedule and goes to polls on 4th, 11th, 17th, 21st, 25th and 30th of April and 5th of May.

Tamil Nadu and Puducherry are both again not happy hunting grounds for the BJP. The AIADMK led by Jayalalithaa presently runs the southern state while in neighbouring Puducherry, a regional party - the All India NR Congress (AINRC) is at the helm of affairs.

The BJP tried desperately to forge an alliance in Tamil Nadu but failed to do so. The state faces a multi-cornered contest, which could favour the ruling AIADMK.

The best the BJP can hope for in Tamil Nadu is to touch the double digit figure, which, however, will not help its cause of adding to its Rajya Sabha numbers.

However, if it does touch double digits, it will be the party’s best-ever performance in the state, something it can shout about from the rooftops.

The BJP has virtually no footprint in Puducherry and unless it cobbles up an alliance with the AINRC (as in the 2014 Lok Sabha election), its chances are very bleak.

The only silver lining for the BJP is that the elections in Tamil Nadu and Puducherry are scheduled for 16th May and so there is still a possibility, however remote, of cobbling-up some sort of an alliance even if it be with small parties.

Both Tamil Nadu (234 seats) and Puducherry (30 seats) have their elections on 16th May.

The BJP has never been a major player in any of the states going to polls in April-May barring Assam. A victory in Assam will be a tremendous morale-booster for the BJP after its two huge losses last year.

Modi has already addressed rallies in Assam and the party is investing a lot in the state. Political observers are of the opinion that the BJP has a good chance of winning Assam. A BJP victory here will be a severe blow to the Congress.

Assam has 126 constituencies and goes to polls on 4th and 11th April.

In Kerala, where too the Congress is presently in power, the wind seems to be blowing in favour of the CPM. If the CPM wins, the Congress’ electoral fortunes on a downswing since mid-2014, will slide further southward, so to speak.

However, even if the Congress loses, a CPM victory in Kerala will do the BJP no good as the CPM is one of the staunchest ideological opponents of the BJP. A victorious CPM could get some of its members elected to the Rajya Sabha who then, without doubt, will oppose the BJP there.

Kerala with its 120 constituencies goes to polls on 16th May.

In West Bengal, the Trinamul Congress (TMC) appears to be ahead of all its opposition and according to political observers seems poised to retain power. Here too, the Congress is weak and the CPM has lost much of its clout.

The BJP, despite a heartening performance in the last Lok Sabha election, is still not strong enough to garner a large number of seats.

However, it is expected to put-up its best-ever performance in the state this

comfortable majority in the Lok Sabha and with several assembly wins to boost the party, Modi’s government would be able to function smoothly and proceed rapidly with reforms in all spheres.

However, that was not to be as the opposition led by the Congress was in a majority in the Upper House of Parliament (Rajya Sabha) and it succeeded in blocking the BJP there.

One of the most important bills pertaining to the economy, the Goods and Services Tax (GST) Bill, is still stuck as the Opposition has not allowed it to be passed.

For the BJP, winning state assembly elections has become crucial as members to the Rajya Sabha are elected through these assemblies. Hence, the more state assemblies the BJP controls, the more members it can send to the Rajya Sabha, thereby buttressing its numbers there.

The victories in states such as Jharkhand, Maharashtra and Haryana will definitely help but the losses in both Delhi and Bihar will be to its detriment. So, for the government to get its Bills passed, especially those linked to economic reforms, it is vital for the BJP to do well in state assembly elections.

This brings us to the April-May ’16 round of elections, which are crucial to both the ruling BJP and the opposition Congress. According to observers, both the parties are not in a strong position.

The Congress presently controls Assam and Kerala but it appears that its position is not all that comfortable in both the states. In Assam, the BJP is considered the front-runner while in Kerala the Communists (CPM) are likely to upset the Congress’ apple-cart.


Given that the BJP does not have much of a presence in the states going to polls this April-May (barring Assam), the stakes are not too high for it but for the opposition Congress, losses in Assam and Kerala would be a terrible blow.

If the BJP wins Assam, it will be a great morale-booster for the national party, which will then highlight the Modi factor as a cause for its win in the state. In the other states, whatever the number of seats it wins, it will position the wins as a major achievement for the party.

For example, the BJP has never won a seat in Kerala; this time the party has entered into an alliance with the Bharat Dharma Jana Sena (BDJS) and hopes to open its account in the state assembly. Even if it wins one seat it will be something to crow about for the BJP. Similar is the case in both

Tamil Nadu and Puducherry where the BJP has never been a major factor thus far.

A Congress loss on the other hand could lead to pressure on the party to allow Parliament to function and help pass important bills including the very important GST Bill.

Losses for the Congress in Assam and Kerala will make it very difficult for the party to rationalize its opposition to the BJP in the Rajya Sabha; the party may, in fact, be forced to take a softer line.

On the other hand, a Congress win would make it more aggressive vis-à-vis the BJP and this could make passing bills in the Rajya Sabha very difficult for the ruling BJP.

Thus, the present round of elections is very crucial for both the principal

national parties. The BJP is pinning its hopes on Assam and is investing a lot in the other states with a view to register as many victories as possible in the polls.

In states such as Tamil Nadu and Kerala, even winning half-a-dozen seats would be the equivalent of a big victory for them.

A heartening performance for the BJP could swing public opinion in its favour and thus force the opposition to abandon its confrontationist stance in Parliament.

With the all-important election to the Uttar Pradesh assembly slated for next year, no party would like to go against public opinion and get labelled as obstructionist. It is in this context that a good performance by the BJP could help the party turn the tables on the CongresS.



India is likely to produce 25.64 million tons (MT) of sugar as compared to the production of 28.3 MT in the last SS. The sugar production in SS16 is almost equal to the domestic consumption.

he cyclical sugar sector, which had fallen out of market favour since some time is in the news again. Hopes of better realization for mills on the back of higher sugar prices have supported the

rally in sugar in recent weeks.

Due to a fall in domestic sugar production, owing to bad weather and tightness in the global market, ex-mill sugar prices in India have already crossed `34/kg in the fortnight ended 31st Mar ’16, highest in three years. Even global prices soared to a one-year high in March ’16.

Excess domestic production for the past five years led to subdued sugar prices in India, affecting profitability of sugar mills. Higher ex-mill prices help narrow the gap between what millers earn and what they have to pay to farmers for cane, which typically runs into crores of rupees every sugar season.

As on March ’16 mills were yet to pay around `15,000 crore to farmers for cane supply. With early signs of a demand-supply mismatch in the sector and hopes of government support, stock markets have started anticipating a reversal in the sugar cycle and better fortunes for sugar companies.

THE INFAMOUS CYCLE

Sugarcane and sugar production in India, which is the second largest producer of sugar and the biggest consumer in the world, typically follows a three to five year cycle.

Years of high production improves supply in the market, thereby lowering sugar prices. This leads to lower profitability for millers and higher sugarcane arrears to farmers. Lower income for farmers forces them to shift to other crops, leading to a fall in the area under cultivation for sugarcane.

This leads to lower production and lower sugar availability in the market. Scarce supply follows higher sugar prices, leading to better profitability for millers and lower arrears to farmers and thus the cycle continues.

SUPPLY

India is likely to produce less sugar this year as compared to last year due to bad weather conditions in a few important sugar-producing states.

Most estimates suggest that Indian sugar season (SS) 2015-16 (1st Oct ’15 to 30th Sept ’16) will witness lower production as compared to previous SS 2014-15.

T

12.7

19.3

28.4

26.4

14.5

19

18.5

18.5

19.9

21.922.9

21

10.0

15.0

20.0

25.0

30.0

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Sugar Produc on Internal Consump on

24.4

26.3

25.124.4

28.3

26.0

20.8

22.622.8

24.225.6

25.6

10.0

15.0

20.0

25.0

30.0

2010-11 2011-12 2012-13 2013-14 2014-15 (P) 2015-16 (E)

Sugar Produc on Internal Consump on

Sugar Production & Consumption

Infamous cane and sugar production cycle was a self-correcting mechanism to surplus sugar and shortages

High prices of sugarcane has resulted in surplus sugarcane, which in turn, has caused continuous surplus sugar production for 6 years in a row

India, being one of the largest producers as well as consumers of sugar in the world, influences the world sugar market.

Global sugar production is expected to fall by 13.3 MT to 171.1 MMT in year 2015-16, biggest decline since year 2008-09 as per research firm F.O Licht. This is mainly due to lower sugar production from Asian countries like India and Thailand.

Source: Indian Sugar Mills Association Report


Bumper production in the last five years had kept sugar prices depressed. Even with lower sugar production in SS16, the opening stock (surplus from previous years) is likely to be around 7.5 MT.

THE FACTORS

Higher sugar prices are bad for consumers, but are good for sugar millers. So, will the production trail consumption? There are a few things at play here, which will decide the trend of sugar prices in the coming years.

Opening Stock

Owing to continuous surplus sugar production for six years in a row, the opening stock is still high in the market.

Even with lower production in SS16, India is expected to enter SS17 with an opening stock of 7.5 MT as compared to around 9 MT in the last season. This is still high and will keep sugar prices contained.

Exports

The government has set an export target of 4MT for sugar mills to achieve during the current season. Sugar mills have already exported 1.15 MT this season so far.

More exports are likely to fructify in months to come. Exporting sugar in an environment of rising international prices is good for Indian sugar mills.

Weather

Rainfall shortage was more acute in India in the past two harvest seasons, leading to lower acreage of sugarcane. However, there are expectations that monsoon would be normal this season. This is good for sugarcane plantation for the next year.

However, less rainfall and lower water availability in key cane-producing regions like Maharashtra and Karnataka will lower sugarcane acreage for SS17. Major disruptions in these key cane-producing regions will alter sugar supply dynamics in the future.

Higher Cane Prices

Prices at which sugar millers buy cane from farmers have increased over the years. This price is fixed by the government and called the fair and remunerative price (FRP). The FRP is the minimum price that sugarcane farmers are guaranteed.

However, state governments are free to fix their own state-advised price (SAP). Even millers can offer any price above the FRP.

Higher fixed price burdens millers, making the industry unviable. From `145 in SS12, the FRP for SS16 was fixed at `230/quintal, up by `10 from the previous year. For the next SS17, it is likely that the government may keep FRP at the same level or slightly increase it.

74.579.5 80.25 81.18 81.18

129.84139.12

145

170

210220

230

50

75

100

125

150

175

200

225

250

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Cane Price Fixed By Government Of India As SMP/FRP

Source: Indian Sugar Mills Association Report

Ethanol

Currently, the government has mandated that 5% ethanol, a by-product of sugar be mixed with petroleum. India has witnessed highest production of ethanol SS15 since the mandate has been announced.

Going ahead, it is expected that the government will increase ethanol blend percentage to 10%. As per media reports, against the present annual demand of about 460 crore litres of ethanol for different purposes, only 250 crore litres is available in the country.

Blending of ethanol with petrol will help farmers in getting better prices and would thus increase their profitability. Ethanol blending is environment-friendly as it is less polluting. This will also help in containing imports of fossil oil. Integrated sugar mills with appropriate ethanol production facilities are likely to reap benefits from this additional source of income.

Government Measures

In order to reduce cane arrears, the government has extended financial assistance to millers in the form of soft loans. The government has also extended a direct production subsidy of `4.50 per quintal of cane crushed by mills to farmers. This will ensure timely payment to farmers by mills and reduce their cost of procurement.

Further, some state governments have also taken measures


Source: Government Data

to incentivize exports of raw sugar. All these measures by the government will ensure economic viability of sugar millers in the coming times.

IN A NUTSHELL

Despite delays in payments by millers, farmers keep cultivating sugarcane as it offers better returns as compared to other crops. While a steep increase in FRP for sugarcane from 2009-10 onwards has increased the outgo for millers, subdued sugar prices have only made matters

worse for them.

With sugar prices taking a turn and the government coming into the scene to lighten the debt issue of the sector, sugar mills are likely to make profits going ahead.

For instance, many millers have already started seeing profits as sugar prices crossed above their production costs, which is around `33/kg of sugar. This, along with higher ethanol blend with petroleum, makes the prospect of the sector brighT.

DID YOU KNOW?

India is the largest consumer of sugar in the world and the second largest producer of sugar after Brazil. Sugar industry is the second largest agro-based industry after textiles in India.

Around 5 crore sugarcane farmers and approximately 5 lakh sugar mill workers are directly dependent for their livelihood on sugar industry.

There are 714 installed sugar factories in the country as on 31st Oct ’15 , with total crushing capacity to produce around 33 MT of sugar. The capacity is distributed equally between private sector units and co-operative sector units.

Sugarcane accounted for 6% of the total value of agriculture output and occupied about 2.5% of India’s gross cropped area in 2013-14. The area under sugarcane production has been around 50 lakh hectares since 2011-12, which was a record production year for sugarcane and sugar at 361 million tonnes and 26.3 million tonnes, respectively.

In terms of sugar production, Maharashtra is the largest producer (32%) followed by Uttar Pradesh (28%), though the share of this state in the production of cane is the highest at 38%. Other major producers of sugar are Karnataka and Tamil Nadu with shares of 15% and 7%, respectively.

Based on the production of sugarcane in India, sucrose content in it and the production of sugar, it is estimated that about 70% of sugarcane is used for the production of sugar in the country.

Molasses, bagasse and press mud are three important by-products of sugar. They are used for making ethanol, power generation and manure, respectively.

Domestic demand of sugar primarily arises from direct household consumption and from bulk buyers like beverage companies, confectionaries, etc whereas external demand or export usually depends on global sugar prices and the availability of surplus after meeting domestic requirements.

As per the NSSO estimates (68th round), the per capita monthly consumption of sugar was 777 grams in rural areas and 862 grams in urban areas in 2011-12. The all India per capita direct household consumption of sugar, therefore, would be 804 grams per month.



in obtaining approvals does slow down a project, a good developer will never launch a project without the requisite approvals.

Solomon believes that contractors should also be made liable for maintaining quality and time line of projects. “Though the Bill will bring the real estate sector into strong regulatory framework, there are no strong laws governing contractors like in the USA and other countries. In order to make the bill truly effective and beneficial to home buyers, designs made by architects and engineers should also come under the purview of the bill,” he said.

To be sure, in many ways the Real Estate Bill is quite harsh on developers. For instance, the Bill makes it mandatory for developers to set aside 70% of project funds in a dedicated bank account. The funds that are set aside can be used only for the development of the project and would include construction and land acquisition costs.

India Ratings & Research believes that this will “especially impact developers with projects in cities such as Mumbai or high-end projects in other cities, where the component of land cost is much higher than the construction cost”.

While the Bill is tough on developers, it will go a long way in improving transparency in the real estate sector. Foreign investors have often expressed concern over the opaqueness of India’s real estate sector. With the passage of the Bill, the real estate sector could see more foreign investment.

“The Bill will instill confidence amongst buyers and will boost domestic and foreign investment in real estate. The thrust of the Bill is on transparency, greater accountability

he much-awaited and controversial Real Estate (Regulation and Development) Bill was

passed in the Parliament on 15th March. Will this bill bring succour to the ailing real estate sector or will it make things worse?

To begin with, the Bill covers both commercial and residential projects. It calls for the establishment of a Real Estate Regulatory Authority in states and Union Territories to regulate real estate transactions and appoint officers to settle disputes and provide compensation too.

The Bill has made it mandatory for developers to register projects measuring more than 500 sq meters or more than eight apartments with the Real Estate Regulatory Authority. This will apply to both new and ongoing projects.

Developers will also have to disclose project information such as details of promoters, project plan, land status, status of statutory approvals, names and addresses of real estate agents, contractors, architects, time frame for completion to the regulator and customers, etc.

In case a developer fails to register, a penalty of 10% of the project cost will be imposed and repeat offenders will be jailed. A builder cannot make changes to the approved project plan without the written consent of two-thirds of buyers of the project.

While these measures benefit home buyers, it could severely hurt developers. Firstly, it will put an end to pre-sales (sale of apartments before a project is launched at a 5% to 15% discount to launch price) which is one of the ways builders raise funds for new projects.

In the absence of pre-sales,

T developers could face cash crunch and may have to partner with land owners for new projects.

“This will put pressure on developers to raise more funds (debt or equity),” said a report by research firm, India Ratings & Research.

“Organized players have access to varied sources of funds, namely loans from banks/non-banking financial companies, non-convertible debentures, private equity and structured debt. Thus they are likely to be able to tide over the liquidity crunch, though the debt raising and cost of such funding will result in weaker credit profiles in the short term,” it added

A clause in the Bill says that developers must specify the time frame for completion of projects and adhere to it. If they do not deliver projects as per the time frame, they will have to pay penalty to home buyers at the same rate that they charge home buyers for delayed payments. The Bill has also proposed imprisonment of up to three years apart from monetary penalty for violation of rules.

Understandably, developers are upset over this clause and have demanded that there should be a time frame for municipal and other authorities on granting approval for projects.

“Government authorities have not been included in this Bill though they should have been. We know that many delays in the projects happen because of the tedious nature of getting approvals,” said Prashant Solomon, Managing Director, Chintels & Treasurer CREDAI NCR.

Realty Developers have often argued that their projects are delayed because of the delay in obtaining approvals. This is not entirely true. While delay

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of developers towards customers, ensuring dedicated utilization of project-related payments from buyers. This will certainly lead to growth of the organized real estate sector in the country,” said Navin M Raheja, Chairman and Managing Director of Raheja Developers.

India’s real estate sector is in doldrums with sales at an all-time low. One of the reasons for slow home sales is the lack of trust among buyers. Home buyers are staying away from making buying decisions because they do not trust builders to deliver projects on time.

The Bill could help in ensuring that projects are delivered on time, therefore improving buyer confidence. It will weed out fly-by- night operators and land grabbers.

Gaurav Karnik, Partner & National Leader - Real Estate & Infrastructure at Ernst and Young India, emphasized, “Real Estate Bill will bring greater transparency, timely

completion of projects, reduction in ‘fly by night’ operators in the sector through registration of brokers, etc and ensure that customers are treated fairly by ensuring no arbitrary changes in project plans, full disclosure on apartment size and fairer penalty provisions.”

The Bill will help in balancing supply of homes. In the short- to medium-term, developers would rather complete existing projects than rush to launch new ones. This will help in balancing demand and supply of homes.

The Bill has invited a lot of criticism as well. Many in the real estate industry feel the Bill does not address several issues such as: mechanism to check building bylaw violations, Occupancy Certificate, Violation of Floor Area Ratio, etc. The Bill does very little for developers. It does not address their genuine concerns of delay in approvals, absence of single window

clearance mechanism, red-tapism, etc. Praveen Jain, President of NAREDCO elaborated that it would have been more encouraging if administrative reforms in terms of introduction of a single window process to facilitate quicker approval process, would have been mentioned and provisions made in the Bill.

This would enable realty developers to complete and hand over projects in time and avoid procedural delays at the cost of investments made by developers and investment institutions. We hope that this is done at some stage going forward.

The implementation of the Bill can be done only after all states create their state-level authorities which could take more than a year.

There is also a fear that state-level authorities may create multiplicity of authorities and delay approval process. But if the state governments get it right and implement the Bill, it could change the face of the industrY.

he Goods and Services Tax (GST) bill is the most anticipated bill proposed by the Modi government in the

past one year. The GST bill is expected to end the “cobweb of various taxes” across states prevalent in the current taxation system and change the direction of the markets.

However, constant opposition by the Congress party and lack of majority of the Bharatiya Janata Party (BJP) in the Rajya Sabha and the two-third

T majority required for constitutional amendments has prevented the passage of the landform reform.

Nonetheless, an important question that needs to be answered is what exactly should a common man expect from the passage of the GST bill. Is the GST bill a technical government document that does not trickle down to the common man?

Let us find out. But first we need to look at the recommendations of the

GST panel under Chief Economic Adviser Arvind Subramanian.

Here is a detailed analysis of the recommendations made by the panel on the GST bill and its impact:

BASICS

The government-appointed panel on GST is headed by Chief Economic Advisor Arvind Subramanian. The recommendations submitted by the panel are:



precious metals is set on the higher side, then it will help lower the standard rate and that current rates of taxation of precious metals are extremely concessional.

If the rate is towards the higher end of this slab (2%-6%), then it would be a dampener for the branded jewellery industry as they will become expensive relative to mom-and-pop jewellery stores, which mostly evade taxes. It will give a temporary setback to the market share gain of the organized sector from the unorganized sector.

Alcoholic Beverages

According to experts, beverage alcohol is most likely being kept out of GST. The panel has recommended that in the long run beverage alcohol should be included. It is expected that states will continue to have exclusive rights to tax beverage alcohol.

At present, companies are able to offset the VAT they pay on inputs like glass and ethanol against the VAT paid to the state for the end sale.

However, post-GST, this offset may not be available as these two will become completely independent taxation systems, which could lead to rising input costs and hit margins. According to analysts, companies are anticipating a proper approach by the government to deal with this issue.

Personal Care

At present, home and personal care products like detergents, soaps, toothpaste, skin creams and shampoos have 24%-25% indirect tax levied on them. This tax rate is arrived at by combining 12.5% excise and 13%-14% state VAT as well as 1% entry taxes.

According to analysts, GST will

calculations for various slabs.

IMPACT

Experts believe that most recommendations of the GST panel are likely to be accepted by the government. Assuming this, here is a sector-wise impact of the recommendations made by the panel on the GST bill:

Cigarette

At present, cigarette has a dual tax structure in India. Excise duty is a specific tax, and will continue in its current form outside the GST regime. The state Value Added Tax (VAT) is ad valorem and will be replaced by GST. The recommended rate of 40% is a sharp jump in comparison with the current national tax rate of 25%, which is an average of all states.

However, it is not absolutely certain that the rate will be 40% as excise duty is continuing separately. If there is indeed such a sharp jump, it will be quite negative in the first year of implementation. It must be noted that the cigarette industry has been under pressure with four consecutive years of 12%-22% hike in excise duty.

Naturally, this is likely to push cigarette prices in the long-term. In the past four years, cigarette prices have doubled and cigarette sales volumes have been dropping close to 20% in FY13-16 period.

Branded Jewellery

No excise duty is levied on branded jewellery at present. State VAT of 1% is imposed on it. The panel on GST has not given any specific recommendation on precious metals. The panel has taken a range of 2%-6% GST for calculation purposes.

Also, it has highlighted that if GST on

two main slabs for GST – a low slab at 12% for essential goods and services, and a standard rate of 17%-19% for most products. The slab for demerit/luxury goods is set at 40%. No slab has been recommended for precious metals.

However, the panel has recommended a 2%-6% tax on precious metals to compute standard rates, which is above the 1% VAT applicable on them in most of the states. According to the panel, the current taxation on precious metals is low.

rate for the standard slab could vary. Factors that could impact the final tax rate are (a) what goods and services are exempt from GST, (b) what items are in the low rate, and (c) what is the rate on precious metals where a range of 2%-6% has been used for calculations but not recommended by the panel.

If the rate of precious metals is towards the higher end and if less items are put in the exempt or essential items list, then the standard rate can be lower. The opposite also holds true.

introduce a 1% tax on inter-state movement of goods for the first few years. However, the Subramanian Committee has recommended that this be done away with.

cigarettes should continue outside of the GST framework, as per the panel, citing international examples.

On alcohol, the panel recommends bringing GST in the long run. However, recognizing the massive political opposition to this, they have not used alcohol taxation in their

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become applicable for the entire chain of personal care and home products. Indirect taxes on these products could fall significantly if the standard slab of 17%-19% as proposed by the panel is approved.

Also, paints and appliances attract similar indirect taxes of 24%-25% and would also see a reduction. Some food products like malted beverages also have 22%-23% indirect taxation and would gain from the panel’s recommendation on GST.

If the rate of indirect taxes comes down, companies may either pass it on to consumers or retain the gains in margins or do a mix of the two.

Analysts estimate consumers may benefit once indirect taxes come down. But not all companies may pass on the tax benefits. Analysts say

that those companies that have pricing power in specific categories may retain margin gains while those in competitive categories would pass on the benefits to consumers.

In segments where competition is stiff, companies could gain market share by passing on the benefit of less indirect tax to consumers. It must be noted that if a company passes on the tax benefit to consumers, then the price of the product will automatically be cheaper.

Among companies, analysts point out that Colgate and GlaxoSmithKline Consumer Healthcare India are likely to retain most of the gains in margins due to low tax outgo as they have high pricing power.

Hindustan Unilever (HUL) may follow a strategic approach in which

it will pass on prices in competitive categories like detergents and soaps and gain share from unorganized players. It is likely to gain margins in categories like skin care where it has pricing power.

Asian Paints and Havells are likely to pass on most of the gains to consumers and gain from unorganized players.

Experts say long-term benefits of GST will be visible and fewer companies will evade taxes. GST will ensure smooth transition of companies from the unbranded segment to the branded segment and become more transparent in their dealings with the government.

However, this will be evident at least five years after the Goods and Services Tax bill has been passeD.



the total credit to the sector has now ballooned to 22%. Several infra projects in road and power sectors are stuck due to delays in securing government approvals, land acquisition, hurting corporates’ ability to repay debt.

Also, experts say infrastructure sector entails long payback period and high risks, and should be financed by long-term funding sources such as bonds and by insurance companies, pension funds and other such institutions. Long-term financing by banks leads to maturity mismatches, they said.

Also, the contribution of top corporates to the persisting bad loan problem is immense.

According to a foreign brokerage, debt at the 10 most indebted corporate houses in India, including Lanco, Jaypee, GMR and Essar, has risen seven times over the past eight years. Their loans were 12% of the credit in the banking system in India and formed 27% of corporate loans.

For four of the 10 groups, 40%-65% of group debt has been downgraded to default rating. Financial stress is forcing some of them to cut back on capital expenditure and sell assets to reduce debt.

LOSSES

The RBI review of banks’ books hit profits of public sector banks with some of them reporting huge losses as they have to make higher provisioning for bad loans. For the third quarter, India’s largest lender, State Bank of India reported 61.7% fall in its net profit to `1,120 crore with fresh slippages during the quarter at `20,692 crore, most of which came from its loans to companies. About 70% came out of the RBI review. Almost a similar

ecently, a ticketless traveller in a Mumbai local train refused to pay the fine, stunning the

authorities by asking to first recover dues from liquor baron Vijay Mallya, who owes a whopping `9,000 crore to banks, before telling her to pony up.

She preferred to go to jail, not before an outburst against lakhs of crores of rupees of loans turning bad. The incident showed that the pile-up of soured loans at banks is so huge that it has outraged a majority of Indians.

RECORD RISE IN NPAs

The total gross non-performing assets (NPAs) in the banking system has risen to a record `4.5 lakh crore, or 6% of total advances as on 31st Dec ’15. They are likely to rise to `4.8 lakh crore to `5.3 lakh crore by March ’16, according to a study by ratings agency ICRA.

A total of `8 lakh crore worth of loans are now categorized as stressed assets - where borrowers have not repaid the principal or the interest for over 90 days or restructured where the banks have given the borrowers a longer tenure to repay the loans.

From 8.8% of total advances in 2012, such loans have rapidly risen to 15% in June.

In December ’15 quarter, the 41 banks that collectively account for 90% of the total credit portfolio and deposits of all scheduled commercial banks in India showed gross NPAs addition of `1.4 lakh crore, as against a quarterly average of `50,000 crore to `60,000 crore for the preceding three quarters, the ratings agency estimates.

The grim situation was revealed following an asset quality review ordered by the Reserve Bank of India last year. As most banks are yet to

R fully recognize the NPAs, it is likely that bad loans’ addition will remain high in the March quarter, taking up gross NPAs to 6.2%-6.8% of total assets. Along with this relatively high level of other weak assets (9%-10%) would ensure that bank profitability remains low in this fiscal as well.

Another ratings agency Crisil said loans turning bad from large corporate advances could be in the region of `2.1 lakh crore for the system between January ’16 and March ’17, with gross NPAs rising to 7.7% of total assets in this fiscal.

According to Crisil, around `1.4 lakh crore worth of loans are recognized as NPAs by some banks but not by others, or about 30% of the bad loans. About `40,000 crore of stressed assets are currently not classified as NPAs, and around `30,000 crore under restructured assets.

WHY THE SUDDEN UPSURGE IN BAD LOANS

Experts say between 2010 and 2013, companies went on a debt binge to expand, which is coming to haunt them following a global demand and price meltdown. Also, the banking system’s high exposure to troubled sectors of infrastructure and metals has led them into this situation.

While infrastructure suffers from weak balance sheets, metals sector is facing global demand slump on the onslaught of cheaper Chinese exports. From an average 29% in 2005, the total banking exposure to these sectors has risen to about 50% now. With these sectors in stress, it is showing in the form of high NPAs, said an expert.

In infrastructure, the most bank lending is to the power sector, which is facing falling demand and debt- laden power plants. From 9% in 2005,


amount of fresh bad loans are expected to be thrown up in the March quarter.

Bank of India posted a huge loss at `1,126.24 crore for the quarter ended 30th Sept ’15, the highest quarterly loss posted by a bank in over a decade, on account of loans given to large corporate houses turning bad.

HIGHER PROVISIONING

Banks need to set aside additional capital as provisioning for all accounts under the 5/25 scheme, a special refinance window for core sector loans and the cases where Strategic Debt Restructuring (SDR), is invoked under which banks can change management. About `1.25 lakh crore loans are under the 5/25 scheme for which provisions have to be made till the Q4 FY16.

SDR is a scheme where banks can invoke debt restructuring and change the management. About `30,000 crore loans are under SDR with about 10 companies under SDR currently.

Some of the accounts where the 5/25 scheme is being implemented are Bhushan Steel Ltd (which refinanced `40,000 crore worth of loan), Essar Steel (`25,000 crore) Tata Power (`3,800 crore loan for its Mundra UMPP), Adani Power (`15,000 crore), Vendanta (`10,200 crore), and Jaypee Infratech (with a loan outstanding of `10,300 crore).

While RBI will allow banks to hold most of these accounts as standard, downgrading a few weak accounts banks will have to make a provision in all cases.

Both 5/25 and SDR schemes were introduced in April ’15 wherein the RBI let all core sector projects to be refinanced every five or seven years for a maximum period of 25 years.

THE GOVERNMENT’S ROLE

With the banks in a mess, the government on its part has promised higher recapitalization of banks. It plans to pump in `70,000 crore in the next four fiscals, but the requirement may be huge, say experts.

Rating agency Fitch sees recapitalization to be over `1 lakh crore. The government has promised `25,000 crore in the current fiscal, but the funds come with riders.

The finance ministry has asked banks to pull all stops to recover bad loans or they would not be recapitalized by the government. In a big incentive, the ministry has allowed the proceeds to go directly to banks’ profits.

Also, recoveries need to be 23% higher than the previous year for the banks. The RBI, on its part, has amended some regulatory capital determination principles to bolster banks’ Tier I capital.

The government has also told banks that naming and shaming defaulters, filing suits against the defaulting borrowers, guarantors and attaching the properties should be taken up to recover the dues.

With stressed assets stabilized, the government is planning the next phase of transformation of the sector. It would include consolidation as well as sale of non-core assets, along with other ways of raising funds.

WILFUL DEFAULTERS

While Mallya figures big on the list of wilful defaulters, there are 5,275 such borrowers who owe banks over `6,000 crore ($8.56 billion), according to the Credit Information Bureau (India) Ltd. In 2002, the total amount owed by wilful defaulters was about `6,000 crore. This is a nine-fold

increase in the last 13 years.

Maharashtra has most wilful defaulters with 1,138, who owe `21,647 crore followed by West Bengal with 710 and Andhra Pradesh with 567 cases. But in terms of defaults, Delhi is second with more than `7,299 crore.

LIGHT AT END OF THE TUNNEL

While banks have been in the news for bad loans, there are indications that things might be improving.

The three major troubled sectors, which form the bulk of stressed assets of a bank - steel, power and road building - are seeing easing of their situation. In steel, the government has raised safeguard duties on Chinese steel, helping local firms to raise prices, thus stemming imports.

This is good news for banks, which have around a `1 lakh crore under stress of the total `3 lakh crore exposure to the sector.

In power sector, the crash in global gas prices has come as a boon to gas-based power plants as they can import gas at the level of domestic price of the fuel. The government’s UDAY scheme to clean up debts of power distribution companies will also help banks as demand will go up.

In the road building sector, several stalled projects are being restarted, entailing investment of several thousand crores of rupees.

The borrowers too are making conscious efforts by selling off their assets and repaying the debt; for example Jaypee Group has sold its entire steel business, Anil Ambani Group - its tower arm - in their bid to cut debt, which augurs well for the debt-laden banking sectoR.

he Fast Moving Consumer Goods (FMCG) sector has every reason to cheer with Finance Minister Arun

Jaitley’s emphasis on rural market in Union Budget 2016-17.

It will help the sector to witness a revival in demand, which had tapered

T off in the last couple of years due to lower agricultural yield, resulting in diminished disposable income in the hands of rural consumers.

However, retail and jewellery sectors are likely to be impacted by the government’s announcements in the recent budget.



on the excise duty hike to customers.

Rakesh Biyani, Director of Future Group, said, “Increase in taxes on branded apparel, however, is disappointing at a time when the apparel industry is already going through a slowdown. Due to higher excise duty, domestic demand could be impacted, causing a double whammy to apparel manufacturers.”

Overall the increase in excise duty is negative for branded retail players like ABFRL, Monte Carlo, Shoppers Stop, Indian Terrain and Arvind, among others. This will increase the retail sale price to the consumer, which can impact volumes especially when the overall demand is subdued. This will also increase pricing differential with the unorganized, private label brands which sell below `1,000, experts said.

Arun Ganapathy, Chief Financial Officer of Spykar Lifestyles Pvt Ltd, said, “Budget 2016 doesn’t augur well for apparel retailers. Excise duty, which was withdrawn in Finance Bill, 2013 has again been imposed on branded ready-made garments with MRP of `1,000 and above under two options - 2% tax without input tax credit and 12.5% with input tax credit. The tariff value has also been changed from 30% of MRP to 60% of MRP. This would be an additional cost on apparel players.

“Krishi Kalyan cess of 0.5% which will be imposed effective 1st Jun ‘16 is an additional impact for us. Also, as we are in the discretionary spend sector, no increase in personal income tax slabs or any major tax benefit for the common man is a negative for us as his net cash flow has not improved,” added Ganapathy.

Jewellers across the country went on an indefinite strike since 2nd March against the imposition of excise duty

the FMCG sector, initiatives to support the revival of rural and urban consumption should help bring growth back on track.

Sunil Duggal, CEO of Dabur India Ltd, too said, with a plethora of announcements, be it in the form of greater focus on farmers and rural development, promoting investments in infrastructure and healthcare and opening up of FDI in food processing, Finance Minister Arun Jaitley has taken positive steps that would boost overall confidence and go a long way in generating employment.

Improving connectivity from farm to market, fast-tracking irrigation projects, provisions towards interest subvention for farmers and a crop insurance scheme are also steps in the right direction. These steps will help millions of farmers recover from the rough patch they have been going through and go a long way in boosting confidence and fuelling consumerism in rural India, which would boost FMCG sales.

While the FMCG sector has every reason to cheer the retail sector and jewellery sector witnessed a bit of setback with the finance minister proposing to increase the excise duty on gold jewellery to 1% (with input tax credit benefit; 12.5% excise duty with input tax credit) from nil earlier.

The government has proposed to change the excise duty on branded ready-made garments with a retail sale price of `1,000 and above from ‘Nil without input tax credit or 6%/12.5% with input tax credit’ to ‘2% without input tax credit or 12.5% with input tax credit’.

The increase in taxes would result in increase of branded apparels costing `1,000 and above by around 2% while the cost of gold jewellery will increase by 1% as retailers will pass

The government aims to double the income of farmers by 2022 and has allocated `38,500 crore this year to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) compared to `34,700 last year, highest ever amount spent in a year on MGNREGA. Total amount allocated for rural development in the budget was up by 10.3% from a year ago to `87,800 crore.

The government will also pilot Direct Benefit Transfer (DBT) for fertilizers in a few districts of India after the success of DBT in LPG. According to experts, these announcements would augur well for the FMCG sector and the overall growth of the economy.

It will improve the overall consumption in rural areas and will be a positive for companies with higher rural salience. The focus on broad-based growth with a thrust on rural, agriculture and farmer welfare bodes well for FMCG companies. Overall, the budget attempts to drive inclusive growth focusing on the rural economy, which is a positive for FMCG companies.

A host of measures have been proposed and budgets have been allocated for increasing crop yield, improving irrigation facilities, unleashing new agricultural schemes, enhancement of MGNREGA, improved market access by providing e-commerce platform for farmers, better regulation of minimum support price (MSP), through specific initiatives like online and decentralized procurement, according to Saugata Gupta, Managing Director and CEO of Marico.

Vivek Gambhir, Managing Director of Godrej Consumer Products Ltd, said, “This is a responsible ‘rural-first’ Budget that attempts to revive demand, while continuing on the path of fiscal consolidation. For


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and the worst-affected with this proposal are daily wage artisans.

The Confederation of All India Traders (CAIT) and All India Bullion Jewellers and Swarnkar Federation (AIBJSF) announced that they will not withdraw their strike, till the time the government withdraws the proposed 1% excise duty on non-silver jewellery.

In the aftermath of the strike called by CAIT, in a statement, said, “The basic fundamental of levying excise on jewellery trade is untenable since the finance minister in his budget speech has announced imposition of excise on manufacturing of gold and diamond whereas jewellery traders are sellers and not manufacturers.”

Although the AIBJSF is continuing with the strike, three other associations - GJF, ABJA and GJEPC - called off the strike on 19th March following government’s assurance that there would be no harassment of traders by tax officials.

A three-member committee, headed by former Chief Economic Adviser to the Finance Ministry, Ashok Lahiri, has been constituted to look into issues related to excise duty on jewellery and find a solution. Over 3,00,000 jewellery shops owing allegiance to more than 300 associations across India went on

strike since the excise duty announcement in the budget presented on 29th Feb ‘16.

Mehul Choksi, Chairman and Managing Director of Gitanjali Group, said, “Gold jewellery costs will increase by around 1%, which will have an impact on demand.”

Krish Iyer, President and CEO of Walmart India, however, pointed out that there are a few positive announcements too in the budget for the retail sector.

“The Union Budget 2016 continues to rightly focus on rural and infrastructure sector. The planned investment in these two critical sectors will not only create jobs but also give impetus to demand generation and economic growth. The government’s proposal to create an e-market for our farmers through ‘Unified Agri Marketing platform’ is very bold and forward-looking and will positively impact the country’s farmers. We will continue to strengthen our Direct Farm programme to complement government vision to make a difference to the lives of our millions of farmers,” said Iyer.

The decision by the government to allow up to 100% foreign direct investment (FDI) through FIPB in marketing of food products produced

and manufactured in India is progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally within the country. This far-reaching reform will benefit farmers, give impetus to food processing industry and create vast employment opportunities, Iyer said.

Maintaining fiscal discipline by restricting fiscal deficit to 3.5% for FY16-17 and commitment to ‘no retrospective taxes’ will help control inflation and boost investor confidence respectively, Iyer added.

To discourage consumption of tobacco and tobacco products, the Finance Minister proposed to increase excise duties on various tobacco products other than beedi by about 10% to 15%.

According to industry experts, it will be a negative for all cigarette companies as it is the fifth consecutive hike. Though companies will try and pass on the duty increase, it will have an impact on their volume growth (already facing immense pressure in FY16).

Excise duty on rubber sheets and resin rubber sheets for soles and heels is being reduced from 12.5% to 6% and is a positive for footwear companies like Bata, Relaxo among other, experts saiD.



earning members in a family has led to improved affordability. That apart, easy availability of credit such as personal loan and loan for renovation of houses has made it even more convenient for consumers. This is having a huge impact on the purchasing power of consumers, who are no longer talking about housing as a basic need.

Today, it has moved beyond construction. Gradually, people are spending a lot more on interiors, lighting, tiling, furniture, luxurious marbles, modular kitchens and decorative bathroom fittings.

RISING URBANIZATION

One important factor that is driving the attractiveness of the Indian home segment is growing urbanization in India. Urban India accounted for 31.2% of the population in 2011, up from 27.8% in 2001.

During this period, India’s urban population has grown at 2.8% annually. People are moving from rural places to urban areas in search of jobs and due to the existence of the nuclear family culture. This will only grow in times to come as the working populations increases.

India’s rating agency, Crisil estimates that the working population in the age group of 20-59 years is expected to grow to 54.2% by 2025 from 50.4% in 2005.

Let us now look at each of these segments and markets that are expected to benefit because of the demand drivers mentioned earlier.

TILES

Thanks to product innovations, tiles are slowly finding their place in every nook and corner of a house, including

t is often said that if you want to identify future emerging trends look around you and see how the world is changing. For

instance, today in India people are talking about bullet trains, airports, highways and many other things that have been in existence in the developed world for quite some time.

As a country’s economy grows, the purchasing power improves, which subsequently impacts the living standards of people. They consume things that allow them to enjoy better life. This is why more and more industries in the country are looking at the middle class who have higher income at this disposal.

Home improvement segment is being considered as a potential wealth creator by institutional and savvy investors. This segment comprises of tiles, kitchen accessories, laminates, plywood, bathroom fittings and sanitary products.

DRIVERS OF GROWTH

Before we dwell on individual opportunities in these sectors and industries, let us understand the rationale behind it.

HOUSING SHORTAGE

India is the second most populous country in the world with an estimated population of 1.2 billion, and growing at about 1.5% to 1.6% annually. While India’s population has been growing at a faster pace, the need for housing has also been growing commensurately.

According to the National Housing Bank (NHB), India’s housing shortage is pegged at 43.9 million units in rural and another 18.78 million units in urban areas. Of this, 95% shortage is in rural areas and 90% is in urban areas, among buyers

I from economically weaker and low-income group.

In fact the government has been working to narrow down this gap by earmarking schemes like ‘Housing for all by 2022’. Besides, it is aiming to build 100 smart cities, which is again a big growth driver for ancillary companies and industries that cater to housing needs.

REPLACEMENT DEMAND

As per a government report made by the Technical Group on Urban Housing Shortage, about 10.5% of total households in urban India or approximately 80.4 million buyers are older than 40 years. Importantly, it states that out of these, close to 2.8% or 2.3 million houses are obsolescent.

The report further says that the total number of bad dwelling units as a percentage of the total units is 8.1%. It is quite obvious that there is huge untapped replacement demand in the housing industry, which will open up gradually with further urbanization and rise in incomes. AFFORDABILITY AND PURCHASING POWER

While population has been growing, a large chunk comes from the middle to low-income group. And over the last decade or so because of rising income led by higher government spending, better pricing for agricultural outputs, and increase in pay scale of government employees, most of them have seen a spurt in their overall income levels.

In the last 15 years, India’s per capita income has increased fourfold from $400 to around $1,600 currently. Also, there is a growing trend of families having more than one earning member. The growing working class and addition of women


living room, kitchen, bathroom, terrace, etc. The share of tiles in flooring material is growing gradually as it replaces other forms of flooring mainly stone and marble.

Globally, this is a big industry particularly in the developing and the developed world where income levels are high. India’s per capita consumption at 0.6 in square metres is far lower than 7.64 sq metres of Saudi Arabia, 3.33 sq metres of China, 1.58 sq metres of Russia and 4.12 sq metres of Brazil.

The Indian ceramic tile market is estimated to be around `30,000 crore. Barring the lull period of last two years, largely caused by the slowdown in the realty sector in India, the Indian ceramic tile industry has been growing in the region of 12% to 15% annually, one of the fastest growths recorded globally.

While the share of organized players is estimated to be around 50% of the sector, it is growing with larger players making aggressive bets. Furthermore, industry issues too are getting resolved.

For instance, the availability of cheaper gas has eased pressure on margins for the industry. Further, the anti-dumping duty on Chinese vitrified tiles is expected to help the industry in terms of easing competition in the domestic market.

PLYWOOD AND LAMINATES

After a house is constructed, furniture is the second most important component that individuals go in for. With the passage of time, people have begun spending huge sums on furniture. And this is where the role of plywood and laminates come into play, leading to strong industry growth. The `15,000 crore plywood market, which is largely served by

unorganized players, has grown at the rate of 10%-12% since 2008. Within this laminates, which are largely used for decorative purposes, has grown at more than 15% owing to changing consumer preferences. However, close to 70% of the market is still in the hands of unorganized players.

Thankfully national and organized players are gaining market share due to premiumization and branding of products. Companies like Century and Greenlam have reported 15%-18% revenue growth in the last five years as a result of increased spending on the brand and developing a strong distribution network.

Also, it is expected that once GST is implemented, unorganized players would have limited leeway in terms of tax and that will reduce the price differential, which will subsequently allow organized players to gain market share.

Further, the government’s emphasis on building 100 smart cities and aiming for ‘Housing for All’ by 2022 has sparked more hope for better days ahead. This is also the reason why listed companies like Century Plyboards, Greenlam, Stylam and others are gaining investor attentions in this segment.

BATHROOM AND SANITARYWARE

Bathroom and sanitaryware is another important theme worth mentioning. India has one the lowest ratios of population with access to sanitation. This ratio stands at around 30% to 40% compared to 65% in the case of China and 60% to 80% for other Asian countries.

While long-term drivers are in place, the industry is moving the value chain with the development of new and innovative products taking the market

share of unorganized players. In the listed space, companies like Cera, HSIL and others have already begun showing results of strong demand in the end industry, particularly with premiumization of products and strong demand in tier-2 and tier-3 cities. Bathroom fittings alone has grown from a mere `4,000 crore market to close to `7,000 crore market today, which is still nothing compared to the size opportunity.

Nearly 45% of the market is accounted for by organized players in the area of bathroom fittings. The sanitation market has grown at about 12% since 2010, where organized players account for close to 60% of the market.

KITCHEN ACCESSORIES

Kitchen has become an aspirational thing for the Indian middle class. Popularity of modular kitchen and other accessories has unlocked huge growth potential for Indian companies. While this could be just the beginning, kitchen and kitchen accessories could be amongst the fastest-growing segments.

The market for modular kitchens itself has moved up three times from mere `2,000 crore in 2012 to currently at about ̀ 6,000 crore. While unorganized players still account for 70% to 75% of the market share, national players or organized players are getting noticed though branding and distribution.

With design and product innovations organized players are gaining the market share. In the listed space there are very few players in the home improvement segment. However, Acrysil is well-known in the market. Acrysil, which manufactures and sells kitchen sinks and centres, enjoys almost a monopoly in the organized kitchen markeT.

hile retail investors showed great interest in equity mutual funds in the last two

years, another debt fund known as credit opportunities fund too saw higher participation by investors. In the past 18-24 months retail investors have continued to pour their money into these debt categories as they have given better returns.

Since mid-2014, credit opportunities

W



exposure of about `200 crore to the auto ancillary player.

Such issues have put credit opportunities funds in the spotlight. This article explains the history, advantages and disadvantages of credit opportunities funds and how investors should invest in them.

WHAT ARE CREDIT OPPORTUNITIES FUNDS

A credit opportunity fund is a type of debt fund in addition to liquid, income and gilt funds. The credit opportunities fund adopts an accrual strategy and takes credit risk for the sake of generating high yield to provide better returns.

Many funds like short-term debt funds, which invest part of the overall portfolio in a lower-rated paper to deliver higher returns fall in the ambit of credit opportunities funds. Credit opportunities funds aim to generate higher returns by investing in reasonable credit quality securities with a diversified approach.

Typically, credit opportunities funds invest in low credit-rated funds like less than “AA” rated. Lower the credit rate, higher the return. But on the other hand, the risk of default also increases. This could eventually impact returns on the funds.

Unlike debt funds like income or gilt funds, which generate returns through price appreciation in underlying bonds by timing the interest rate cycle and playing the duration strategy, credit opportunities funds adopts an accrual strategy where returns are generated by high yield instruments.

While income and gilt funds are exposed to interest rate risks, credit opportunities funds face default risks. In a credit fund, liquidity is also a big risk as most securities rated below AA

are not traded actively in the market. In the event of large redemptions, it becomes difficult at times to sell such securities at the desired price. It may force credit opportunities fund to exit from more liquid securities to provide for redemptions, enhancing the risk profile of the fund.

It needs to be noted that, in both the downgrades that have happened in the past, investors have lost some returns as NAVs of the schemes have come down. Fund houses were forced to sell their underlying papers as loss, eventually hurting their profits.

WHAT WENT WRONG WITH SUCH FUNDS?

Credit opportunities funds were delivering stronger returns and had, therefore, caught investors’ attention. In the last three years, credit opportunities funds on an average have given returns of around 10%, higher than income and gilt funds that gave 8% and 9% returns respectively, in the same time frame. Even in the last one year it managed to give 9% returns, which is still higher than other debt instruments.

Here investors thought that these kinds of returns were possible if one took interest rate risks. However, there are a few funds in the income accrual category that deliver high returns for taking on a different kind of risk, known as ‘credit risk’ through investments in corporate bonds.

Fund managers managing credit opportunities funds are willing to bet on improving fundamentals by taking exposures in debt instruments of such companies as they offer attractive coupon rates. Such funds aim to generate higher income on a regular basis, without having to worry too much about interest rate movements.

Global capital markets have

funds have been the flavour of the season as several fund houses have launched them on the back of huge demand from investors.

In 2014 alone, over 15 credit opportunities schemes were launched. In the last calendar year though, it had slowed down to six scheme launches by various fund houses.

Year 2014 was an important one since Narendra Modi-led National Democratic Alliance (NDA) formed the government with a thumping majority. Corporate India believed that the new government would take steps to revive the ailing economy and there would be an increase in capex cycle.

However, owing to sluggish economic recovery, coupled with weak global environment and steady fall of commodity prices many sectors started facing threats of downgrades. This exercise, has directly impacted credit funds which typically invests in papers issues by India Inc.

In February, ratings agency Crisil downgraded Jindal Steel and Power Ltd (JSPL’s) long-term rating to ‘BB+’ from ‘BBB+’ while its short-term rating had been reduced to ‘A4+’ from ‘A3+’. Last month, ICRA too made similar revisions to various debt instruments of JSPL worth `37,650 crore. This impacted the net asset value (NAV) of various debt schemes of a few fund houses.

In August last year, another international fund house faced a problem owing to its exposure to debt securities of Amtek Auto and had restricted redemption from two of its debt schemes.

The move to stop redemptions came in the wake of decline in NAVs of schemes, which had a collective


witnessed extreme volatility in the last one year with a sharp fall in commodity prices, particularly crude oil, sharp depreciation of emerging market currencies and weak global equity markets.

All these have led to a sharp change in fundamentals of many companies, particularly those that are related to commodity sectors like metals, oil and gas, which have been worst hit.

The case is same with other domestic companies and sectors. Credit ratings of a number of manufacturing companies from the steel, oil & gas, textiles, etc, sectors have been downgraded due to the drop in margins. With global commodity prices trading near all-time lows with no signs of reversal, the stress in related sectors may continue in the near term.

But in the last few months, credit quality of portfolios of debt mutual funds have come under the scanner following credit rating downgrades of a few companies by rating agencies.

Having said that, many industry players believe that there is no major structural change in the overall credit environment; there is a need to exercise caution while investing in such financial products.

WHAT SHOULD INVESTORS DO WHILE INVESTING IN CREDIT OPPORTUNITIES FUNDS

Any investment vehicle - be it equity or debt - needs to invest by matching risk profile with the risk return profile of investors, especially now when there is weakness in the global and domestic economic environment.

Investors should remember higher the exposure of a fund to below AAA rated debt papers, higher would be the

return. But at the same time there is higher credit risk in case of a rating downgrade or an eventual default.

Therefore, conservative investors should avoid investing in funds having higher exposure to A or AA-rated papers. On the other hand aggressive investors may select funds with higher below AAA-rated papers depending upon their risk appetite.

Corporate bond funds are suitable only if investors wish to hold it for not less than three years (please note that most funds have a steep exit load for redemptions before this period), and if they can take higher risks than they would take for other debt funds. They should also be prepared for short periods of negative returns.

Investors should match their time horizon with the fund’s modified duration to ensure that their time frame matches with that of the fund. Also, watch out for high exit loads.

Ultimately, investors must invest in them only if they appreciate fully the risks these funds hold. The three-year holding period, besides lowering risk, will also ensure that investors enjoy the capital gain indexation benefit.

The main plan to invest in credit opportunities fund is to cushion the risk of what investors have already in equity investment by diversifying efficiently. So, investors who are not willing to take risks should invest in other debt products, while investors who understand the risks and are willing to have investment horizon of three to five years should allocate some portion of the money to credit opportunities funds.

IN A NUTSHELL

The rate cut by the Reserve Bank of India (RBI) last year and expectations of further rate cut in the current

calendar year will help corporate bonds and credit opportunities funds. Assets under management (AUM) of credit opportunities funds has increased significantly over the last four years on the back of record inflows as low sovereign and high grade bond yields pressed investors to lower-rated securities in search of higher yields.

The cumulative corpus of credit opportunities funds increased significantly from around `12,000 crore in January ’12 to approximately `63,000 crore as on January ’16.

However, investors should not go by names of funds alone. Before investing, investors must look at the holding of corporate bonds, their credit rating, and the average maturity profile of the fund before taking an investment call.

The market outlook and the overall credit environment used to be stable prior to the recent global market turmoil, which led fund managers to take exposure to reasonable level of credit risk.

However, with the sharp fall in commodity prices especially crude oil recently, slowdown in major global economies, particularly China and sharp depreciation in emerging market currencies, the overall credit environment has deteriorated.

Many fund managers have started taking aggressive calls and are moving away from below AA-rated papers over fear of default. Even rate cut expectations have forced several fund managers to look at government securities (G-Secs).

In the changed global and domestic environment, there is a need to re-assess the potential credit risk and take a final decision according to the risk profile of an investoR.

t was argued that the recently concluded Union Finance Budget 2016-17 had a large number of reforms meant for

the rural sector. But the insurance sector too had an equal number of announcements if not more.

Finance Minister Arun Jaitley made a slew of announcements for the

I insurance sector in Union Budget 2016. Some of them include listing of public general insurance companies, launch of a new health scheme and partial tax status to the New Pension Scheme (NPS).

Jaitely also permitted foreign insurance players to hike their stake in insurance companies to 49%

through the automatic route. Although new announcements are likely to give a fillip to the insurance sector, a number of them may, however, take a great deal of time to be implemented.

This article explains four key announcements pertaining to insurance and their probable impact



compensated for by fire insurance. Due to intense competition, margins have diminished. Typically, combined ratio - the total losses and expenses as a percentage of the total premium earned by an insurance company provides a measure of the performance of any insurance company. Only if the combined ratio is less than 100%, can a company show some profit.

While none of the private companies have breached more than 100% of the combined ratio, all four public sector companies have combined ratios in the range of 100% to 125%, which could impact their valuations if they were to be listed.

So it needs to be seen if the government steps in to clear the clutter or general insurance will take some more time to hit the bourses.

NEW PENSION SCHEME (NPS)

National Pension Scheme is probably one of the cheapest financial products in the world. However, since its launch a few years back, it has failed to take off in a big way. In order to attract more retail investors towards NPS, the government in Union Budget 2015-16 announced an additional exemption of `50,000 under Section 80CCD (1b) of the Income-tax Act. The extra `50,000 exemption is above `1.5 lakh under Section 80C of the Income-tax Act, which means investors will now be able to enjoy tax benefits of `2 lakh.

However, owing to a weak distribution network and lack of popularity, NPS had failed to attract investor attention. Many participants believe that such poor response to NPS is also due to taxation.

Earlier, investors could redeem 60% of their corpus in NPS at the age of 60 years, but that entire amount would

have been taxed. While for the remaining 40%, that had to mandatorily buy annuity.

In order to bring parity among pension, in the last Union Budget it was announced that investors can withdraw 40% of the total corpus at the age of 60, which would be entirely tax-free. Another 20% would attract tax and with the remaining 40% investors would have for annuity.

To simplify, if Mr A retires at the age of 60 and has `10 lakh in the NPS account, he can redeem `6 lakh (`4 lakh will be tax-free and the remaining amount is taxable), while he will have to compulsorily buy annuity for the remaining `4 lakh.

This new announcement will have a positive impact on the NPS and it might attract fresh flows as one of the major issues of taxation has been resolved by the government.

However, one of the major drawbacks of the scheme is that investors cannot take out money before the age of 60. But it is one of the cheapest schemes available to those investors who want to avail of additional tax exemption of `50,000 and are willing to wait for their retirement.

AUTOMATIC ROUTE TO RAISE STAKE UP TO 49% AND REDUCTION IN SERVICE TAX

Budget 2016-17 finally simplified the process for foreign players to increase their stake in insurance companies. The budget liberalized foreign direct investments (FDIs) up to 49% in insurance and pension sector through the automatic route.

This move indicates that investors now need to take final approval from insurance regulator - Insurance Regulatory and Development Authority of India (IRDAI) instead of

on the industry.

LISTING OF GENERAL INSURANCE COMPANIES

There have been talks of allowing general insurance companies to list on stock exchanges in the past. But Budget 2016 provides a clear roadmap for the same. If this does happen in the current financial year, it will indeed be quite beneficial for retail investors.

Currently, there are four public sector general insurance companies. These are New India Assurance Co Ltd, Oriental Insurance Co Ltd, National Insurance Co Ltd and United India Insurance Co Ltd.

However, except for New India Assurance - the largest among the four players - none of the remaining three companies are in a position to get favourable response as their balance sheets are a big problem for the government.

One of the main reasons for the underperformance of public general insurance companies in the country is that in the past few years these companies have priced their insurance products in important portfolios like motor and medical health policies with low premiums, eventually impacting their profits.

In the insurance industry it is estimated that motor business is at over 48% and health is at around 22% of the total non-life insurance business in India.

Not only are these four public sector companies facing losses in motor and health insurance categories, even major private players are going through trying times. In the last few years, losses from motor and healthcare have been


Shadow Price

When foreign exchange is rationed, the shadow price of foreign exchange becomes the relevant exchange rate decisions. In other words, where price does not reflect the actual value of a good or commodity, or no market value for a good or commodity exists, shadow pricing can be used. Shadow pricing is a proxy value of a good, often defined by what an individual must give up to gain an extra unit of the good. The value of a good or impact resulting from a project when measured using shadow pricing may, however, differ from the value of that or similar goods or impacts when measured using market prices. This occurs due to market failure in real markets, which affects the shadow value of certain goods and impacts.

approaching Foreign Investment Promotion Board (FIPB) for increasing their stakes.

However, existing guidelines on Indian management and control will have to be verified by the respective regulators - the IRDAI and the Pension Fund Regulatory and Development Authority (PFRDA).

Industry players felt that even after the government increased the foreign investment cap in insurance and pension to 49% from 26%, respectively last year, there was not much activity due to certain obstacles from the FIPB end.

Players from the insurance industry have welcomed the step and this announcement will allow investments in insurance and pension sectors through the automatic route up to 49%. This could easily bring in more foreign money over a period of time and will help simplify the overall process of increasing the stake.

In the past, there have been many instances of insurance players having to wait for months on end for the required approval from FIPB. This kind of inflexible attitude had forced many international players to wait on the sidelines instead of aggressively investing in India. But with the announcement of an automatic route, many new foreign players can invest in India speedily.

The other major relief for the insurance sector came in the form of reduction in service tax on Single Premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.

This initiative by the government could reduce the cost of the policy and the benefits could be passed on to consumers, which would eventually help industry as well as investors.

NEW HEALTH SCHEME

Government continued its focus on introducing financial schemes for social security for poor people in the country. In the current Union Budget 2016-17, the biggest takeaway for healthcare was a signal of the government’s continued commitment to providing health insurance.

Allocation to overall health insurance in the budget was `1,500 crore, up by over 150% compared to last year. Under the National Health Protection Scheme (NHPS), the finance minister announced a cover of `1 lakh per family and an additional cover of `30,000 for senior citizens.

It is believed that this is a positive move and an improvement over the previous Rashtriya Swasthya Bima Yojana (RSBY) scheme. RSBY was successful. But the cover was only `30,000 for a family of five. In that scheme, the premium was shared by

the Centre and the state, and individuals had to pay `30 only.

However, in the current NHPS, many insurance companies are still awaiting clarity on insurance premiums. In Budget 2016 it was announced that for senior citizens of age 60 years and above belonging to poor and economically weak families an additional top-up package of up to `30,000 will be provided.

Further, to make quality medicines available at affordable prices, the government will open 3,000 stores under the Jan Aushadhi Yojana during 2016-17.

In the budget, FM Arun Jaitley also said that about 2,20,000 new patients of end-stage renal disease will be added every year, resulting in additional demand for 34 million dialysis sessions.

In the last two years, the government’s focus has been on insuring more people across India. To increase its penetration, the government had introduced Pradhan Mantri Jeevan Jyoti Bima Yojana-life insurance, Pradhan Mantri Suraksha Bima Yojana-accident insurance and Atal Pension Yojana-pension plan. Insurance players believe that the insurance sector is on the appropriate path with right efforts being put in by the governmenT.

TTECHNICAL OUTLOOK FOR THE FORTNIGHT

echnically, the Nifty is trading near the 100-DMA, i.e. 7,570-odd level. If the Nifty closes

above the 100-DMA, only then is there a possibility of again witnessing a positive momentum towards 7,740/7,800 levels.

An interesting observation is that on the weekly chart the Nifty is trading in the falling channel since the month of March ’15. The channel indicates that the Nifty is taking support of the lower trend line of the channel and we are witnessing a bounce back rally from the same. The downward sloping trendline provides support of 7,370-7,300 levels, whereas 7,740-7,800 will act as a strong resistance.

Technically, the short-term trend has turned slightly positive. But the overall medium trend remains cautious and weak. The Index has observed volatile trading sessions since the past few weeks. The Nifty has an immediate resistance at 7,740 and support at the 7,370 level. The Nifty is also trading below its long-term 200-DMA, which is also not a healthy sign.

The current month’s Nifty Options series suggests that the market will

trade in the tight range of 7,800-7,400 and a big move will be seen only if the Nifty closes on either side of the range. The important oscillators - RSI and MACD - on the daily charts have turned positive, giving a sense of a short rally taking place.

Immediate resistance could be seen at the 100-DMA of 7,570 and stability above this could extend the rally to 7,740/7,800 levels. Strong support is seen at 7,370-7,300 and fresh selling is likely only if the Nifty starts trading below this point. The overall mood of the markets will turn positive only if the Nifty starts trading above the 7,740 level on a closing basis.

On the Nifty Options front for the April series, the highest OI build up is witnessed near 7,500 put strike, whereas on the call side, it is observed at the 8,000 level. We believe the market will remain relatively less volatile this month with strong resist-ances at 7,800 and 8,000 levels. We expect the market to remain within the range of 7,400-8,000 levels in the month of April.

India VIX, which measures the imme-diate 30-day volatility in the market, remained high for most part of March and the first week of April in the

range of 16-20. Going forward, we believe that VIX will cool off giving rise to a sustained trend in the next three months.

The Put Call Ratio-Open Interest (PCR-OI) for Nifty Options has been in the range of 0.80-1.20 in March and is quoting at 0.80, implying negative undertone in the market.

OPTIONS STRATEGYNIFTY LONG STRADDLE

It can be initiated by ‘Buying 1 lot 7600 CE (`92) and buying 1 lot 7600 PE (`108) of the April series’. The net combined premium outflow comes to around `200, which will also be the maximum loss for the strategy. The strategy will break-even above 7,800 or below the 7,400 level.

The maximum profit for the strategy will be unlimited. We expect the Nifty to witness more than 200 points move in either direction. So, if the Nifty moves towards 7,800 or below 7,400, the strategy would give gains.

One can book profits if the total premium comes in the range of around `300-` 320. One should keep a SL of 50 points premium or when the total premium is reduced to 150.

Nifty Daily Chart


f the many technical tools, Flags and Pennants are two chart patterns that have been obscure and,

therefore, need to be plucked from obscurity and made into stars.

Flags and Pennants are basically

O short-term continuation patterns, indicating that a particular trend is likely to continue. These patterns are formed usually after a quick big move on huge volumes. It is followed by a period of consolidation where the price move trades in a range followed by a breakout usually in the direction



successive bottoms eventually converge to form a symmetrical triangular shape or the body of the pennant. Prices trade in this consolidation range anywhere from a few days to a few weeks.

Finally, the price eventually breaks out of the consolidation phase and the breakout is usually in the direction of the original trend, giving rise to the second leg of the continuation pattern.

of the prior trend. In other words, price takes a break before resuming its previous move.

FLAGS

A flag pattern is formed when a sharp initial price move (either upside or downside) pauses and moves into a sideways pattern, which generally slants slightly in the opposite direction of the prior trend. The upper trendline joining successive tops and the lower trendline joining successive bottoms form a channel, giving rise to a slightly slanting rectangular shape or the body of the flag.

Prices trade in this consolidation range anywhere from a few days to a few weeks. Finally, the prices eventually break out of the consolidation phase and the breakout is usually in the direction of the original trend, giving rise to the second leg of the continuation pattern. The sharp initial move before the formation of the body of the flag is known as a flagpole.

gives the length of the flag pole.

Bullish Flag

This pattern forms when the initial trend is up. After the initial sharp up move, the stock consolidates and forms lower tops and lower bottoms forming the rectangular body of the bullish flag, sloping downwards. The breakout of the flag is in the direction of the original trend, i.e., on the upside.

PENNANTS

A pennant is a continuation pattern that is almost same as that of the flag. In fact the two patterns are so similar that flags and pennants are often used interchangeably.

After the initial sharp price move (either upside or downside), the price action pauses and moves into a sideways pattern, which is generally slanting slightly in the opposite direction of the prior trend. The upper trendline joining the successive tops and the lower trendline joining the

The main difference between a flag and a pennant is that during the consolidation phase of the move of a Flag pattern, the upper and lower trendline run parallel to each other, giving rise to a rectangular shape.

On the other hand, in a pennant pattern, the upper and lower trendlines start converging towards each other, leading to the formation of a symmetrical triangle-like pattern.

FLAG POLE

The sharp initial price move before the consolidation phase is rapid and usually on huge volumes. This almost vertical price action is known as flag pole. It is the distance from the first resistance/support break to the high or low of the flag or the pennant.

Draw a vertical line from the starting point of the initial trend to the highest high of the flag or the pennant in an uptrend, or a vertical line from the starting point of the initial trend to the lowest low of the flag or pennant in a downtrend. This distance or length

Bearish Flag

This pattern forms when the initial trend is down. After the initial sharp down move, the stock consolidates and forms higher tops and higher bottoms forming the rectangular body of the bearish flag sloping upwards. The breakout of the flag is in the direction of the original trend, i.e., on the downside.

Bullish Pennant

This pattern forms when the initial trend is up. After the initial sharp up move, the stock consolidates and forms lower tops and higher bottoms, forming the triangular body of the bullish pennant sloping downwards. The breakout of the bullish pennant is in the direction of the original trend, i.e., on the upside.

Flag Pattern (in an uptrend)

Bearish Flag (in a downtrend)

Pennant Pattern (in a downtrend)

Bullish Flag (in an uptrend)


Bearish Pennant

This pattern forms when the initial trend is down. After the initial sharp down move, the stock consolidates and forms higher tops and lower bottoms, forming the triangular body of the bearish pennant sloping upwards. The breakout of the pennant is in the direction of the original trend, i.e., on the downside.

pressure gets exhausted and there is a pause in the trend and some profit booking also takes place.

The stock trades in a range as neither the bulls nor the bears are overly aggressive and, hence, there is a sort of equilibrium. The volume too dips quite sharply.

Since there is some amount of profit booking, there is retracement of the price trend, and the consolidation channel slants slightly in the opposite direction of the initial trend giving rise to the body of the flag or the pennant as the case may be.

The stock spends some time in this tight range, which may last anywhere from a few days to a few weeks. Now that the price has retraced a bit from the original trend, those investors who had missed out on the initial move sense an opportunity to enter.

There is also renewed entry by the original investors and traders who had taken a pause during the consolidation, but who are convinced of trend continuation and, hence, put in fresh order.

All this causes a huge spurt in the volume and prices breakout of the consolidation range, in the direction of the original trend.

Volume

Volume is usually quite huge during the initial up move or down move leg of the flag pole before the actual formation of the consolidation phase, which gives rise to the body of the flag where the volume decreases. Finally, the volume again expands when prices breakout of the pattern.

Duration

The actual duration of the formation of flag or pennant is debatable. Many

experts say that flags and pennants are formed in a time span of 1 to 4 weeks, giving the most reliable signal. If a flag formation takes 8 to 12 weeks or more, it becomes a rectangle and a pennant that takes more than 8 to 12 weeks, takes the form of a symmetrical triangle.

When To Trade

Wait for the prices to break out of the consolidation phase of the flag or pennant. In other words, for a bullish flag or pennant, wait for the prices to break out of the upper trendline (i.e., the same direction as that of the initial trend).

For a bearish flag or pennant, wait for the prices to break out of the lower trendline. Once the price closes above or below the trendline decisively, one can initiate either a buy or a sell in the direction of the breakout. Remember, if the price breaks out on the opposite side, i.e., opposite to the direction of the initial trend, avoid trading.

Note: Many traders enter a trade even before the breakout, i.e., when the pattern is still forming because they believe that the pattern is quite reliable and entering in to such a formation early makes for a better profit potential and lesser risk.

While this may work sometimes, it is not advisable to trade in this manner, as there is always a chance of a break in the opposite direction of the initial trend or it being a false break.

Placing Stop Losses

Stop losses are usually placed a few points above the upper trendline in case of a bearish flag/pennant or a few points below the lower trendline in case of a bullish flag/pennant. In other words, stop losses are placed a few

RATIONALE BEHIND FLAGS AND PENNANTS

During the initial phase of the up move or the down move, smart money flows strongly into the markets. There is a rapid spurt in volume; the price moves in the direction of the trend in quick succession and there may even be huge gap formations.

Seeing this rapid price move, more and more investors and traders enter the market, wanting to get a piece of the action. This inflow of liquidity pushes the price even further in the direction of the trend. Thus, there is an almost vertical chart formation known as the flag pole.

Eventually the buying/selling

Bearish Pennant (in a dowtrend)

Bullish Pennant (in an uptrend)


points outside the trendline opposite the trendline from where prices have broken out.

Fakeout Or False Breakout

Sometimes after a breakout instead of moving in the direction of the breakout, the price action reverses and moves back within the trendline it broke, i.e., back within the consolidation range.

This is known as a fakeout. In case of a fakeout, one should square off their trades since there is a good chance that it may indicate a trend reversal.

Retesting

The best way to avoid a fakeout is to wait for a retest of the level out of which the prices have broken out. i.e., if, after a breakout, the prices reverse, return back to the trendline it had broken, take support at the trendline, and then resume its move back in the direction of the breakout, then one can enter a trade with much more confidence.

CALCULATION OF TARGET PRICE

Conservative Trader (1st Target)If you are a conservative trader, your price target is relatively close and easy to achieve. It is calculated by measuring the distance between the parallel lines in case of a flag, or the distance between the highest high and lowest low in case of a pennant and

adding this distance to the point where the price breaks out of the flag/pennant. This is your price target.

For example, if the distance between two parallel trendlines of a flag, is ` 11, and if the price has broken out on the upside when the upper trendline was at `80, the possible price target for the stock is `80 + 11= 91.

POINTS TO PONDER

1. The main thing to note is that there should be a clear-cut initial trend present for the pattern to be considered valid.

2. Sometimes a flag/pennant forms in the same direction as that of the initial trend, i.e., if the initial trend was up, the flag also slants upwards. Such a pattern should ideally be ignored.

After a steep rise or fall, the pattern should slant slightly in the opposite direction or at the most sideways, for a successful trade set up.

3. The initial price move or the flagpole should be sharp, steep and accompanied by huge volumes.

A move that is relaxed, dull, and on low volumes does not conform to the definition of a flag or a pennant and, hence, should be discarded.

4. A break out on low volumes indicates that the pattern is quite unreliable.

Also, if during the consolidation phase of the formation of the body of the flag or pennant, if the volume is increasing instead of decreasing, then the pattern is questionable.

5. Always wait for the breakout candle to complete before entering a trade. Do not enter at the first sign of a breakout before the candle has closed completelY.

Aggressive Trader (2nd Target): Size Of The FlagpoleIf you are an aggressive trader, your price target is relatively far and requires some patience. It is calculated by measuring the length of the initial upmove or downmove before the formation of the body of the flag or pennant to the high or low of the flag or pennant.

In other words, it is the length of the flagpole. Say, the initial price move was from `70 to `89, and the distance of the flagpole was `19.

If price breaks out of the pattern on the upside of `85, the possible price target is 85 + 19 = `104.

Psychic DistancePsychic distance is “the factors preventing or disturbing the flow of information between potential or actual suppliers and customers.” Studies have concluded that a firm’s international activities relate directly to psychic distance and that further international expansion progresses into markets with successively greater psychic distance. Companies export only to countries that they understand than build on their acquired experience to explore opportunities further afield. In other words, firms enter new markets where they are able to identify opportunities with low market uncertainty than enter markets at successively greater psychic distance. As a consequence, contemporary literature on the internationalization process cites psychic distance as a key variable and determinant for expansion into foreign markets.

2nd targetprojected distancefrom the breakout

ne of the key pillars on which value investing rests is that an investor should not lose money.

This has been reiterated by noted economist and investor Benjamin Graham in the form of margin of safety and philatrohpist and investor Warren Buffet.

The latter urges investors to follow two rules of investing. Rule number 1 is to never lose money and rule number 2 is to never forget rule

O number 1.

In value investing, as an investor you need not take higher risks to generate higher returns. In fact, it allows investors to actually minimize risks and still make good returns.

In the book The Dhandho Investor, author and value investing practitioner Mohnish Pabrai clearly explains how to follow the tenets of value investing, and doing it successfully too.

Mohnish Pabrai discusses India’s savvy business community - Patel’s - and their capital allocation framework of this business savvy community. Patels have flourished in the US.

They not only own best businesses but also pay huge taxes to the government. Pabrai explains this model alongside simple methods and approaches described by Buffett, Graham and Charlie Munger.

Here are a few valuable investing



telephone services providers are today literally out of business with the mobile telephone capturing the entire market in India.

BET HEAVILY WHEN ODDS ARE IN YOUR FAVOUR

It is one thing to be standing right at the top of the gold mine and other to actually be able to carry it. Therefore, the best thing to do is to load the truck when opportunity strikes and you know that the odds are in your favour.

Investors like Warren Buffett and Charlie Munger simply do nothing for years. They hardly make any investment decision till the time they encounter a deal which is seriously worth taking.

For instance, Warren Buffett bought huge shares and invested heavily during the crash of 2008 and bought some of the banks, which were junked by the Street.

FOCUS ON ARBITRAGE

When the risk is controlled or minimized, the focus is on returns and one of the tricks that the book discusses is finding some wide arbitrage in the market which are often available to investors due to mispricing of businesses.

The book defines arbitrage as an attempt to profit by exploiting price differences in identical or similar financial instruments. The trick is to gain mispricing while remaining invested in a stock till the arbitrage shrinks or evaporates. They are often risk-free because of the nature of the underlying instrument.

MARGIN OF SAFETY

When you buy something at `50, which is worth `100, you have clinched a deal. This not only

During the course of its operation, a number of companies go out of businesses for reasons that are often not known to investors because they never understood what drove the particular business. And when things go wrong, investors are left with nothing but losses.

INVEST IN DISTRESSED ASSETS

According to Pabrai, human behaviour and psychology impact share prices, much like a pendulum, which swings to the extremes in both directions. In investing, when the share price of a company goes very low, that is when investors must invest in that stock.

At this time, because of excessive fear, there is high probability of buying some of the cheapest stocks.

Mohnish Pabrai quotes Warren Buffett who says: “Never count on making a good sale. Have the purchase price attractive that even a mediocre sale gives good result”.

INVEST IN BUSINESSES WITH DURABLE MOATS

Again safety of capital is important and one of the things that protect businesses and investor capital is a moat. Moat is nothing but a sustainable competitive advantage that a company enjoys.

If a company has a durable and sustainable advantage, there is a likelihood that the business will never go out of fashion.

Companies which do not have a competitive advantage often die or get wiped out by competition before the companies actually make money for their shareholders.

To cite an example, fixed line

concepts from the famous book The Dhandho Investor.

FOCUS ON AN EXISTING BUSINESS

If you are investing in an existing business, you are in an advantageous position in terms of analyzing it in different cycles and getting the right information required to make sound investment decisions.

This is why it is important to look for companies that have been in the business for long rather than searching for new start-ups or some fancy names, which are making headlines of late.

These are fairly low-risk and predictable businesses because of their existence and ability to demonstrate performance over a period of time.

Here the objective is to remove the risk that comes with new businesses, which may not have a proven track record. It is not new; it is the proven business that makes money.

INVEST IN SIMPLE BUSINESSES

In line with the philosophy of not losing money, the other important thing that he outlines is to invest in simple businesses that are easy to understand and predict without much scientific work or expertise needed to analyze the operation.

So if you have to choose between a railroad company and an aviation company, which one do you think has a simple business model? The objective here is to avoid risks.

Instead, invest only in companies whose business you understand and read about the activities that influence these businesses.

The most intelligent strategy in Chess is to be ready with the next move.

Similarly, currency trading involves moves that are a combination of

knowledge and skill, backed by years of experience.

Currency Derivatives Trading with us keeps you a few steps ahead, always.

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

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prepares you for future volatility in prices but also makes sure that if the prices reach its original value, you will earn handsome returns.

Margin of safety is quite similar. This idea was espoused by Graham where he talked about buying businesses at low prices.

You buy something below its intrinsic value and possibly at a substantial discount so that the possibility of something going wrong does not really impact you as most of the risk has already been factored in the price.

So, the margin of safety is an important concept that Mohnish Pabrai dwells upon in the book both from the point of view of minimizing the risk while generating higher

returns at the same time. LOW RISK, HIGH UNCERTAINTY BUSINESS

When fear rules the roost and there is huge uncertainty, people do not want to own that stock at any price.

But if you are able to figure out that the possibility of the business going bust or permanent loss of capital then there is a huge deal to be made because prices will be so attractive that you can make huge returns over a period of time.

IT IS BETTER TO BE A COPYCAT THAN AN INNOVATOR

Pabrai does not believe in reinventing

the wheel when it is not required. Most people refrain from recreating something that has already been created or proven successful. Pabrai says that Patels paved the way for the next generation and showed them the right path of doing business.

What you need to do is simply copy the business. Similarly, apply this to investing too and copycat ideas that have already been successfully explored by other investors.

So, if your neighbour is a great stock picker, you simply go out there and ask him which stocks he has invested in. Then, you do your homework and see if it makes sense to you, and follow if it does. He calls this cloning of ideas where you actually save a lot of time, energy and moneY.

In the first bi-monthly monetary policy for 2016-17, Reserve Bank of India (RBI) Governor Raghuram Rajan on 5th April cut the repurchase rate by 25 basis points (bps). (One basis point is one hundredth of a percentage.)

The Reserve Bank also introduced various measures to smoothen liquidity supply in the banking system of the country and hinted that further rate cuts can be accommodated in the future.

What Is Repo Rate? Where Does It Stand Now?

Repurchase rate commonly known as the repo rate, is the rate at which banks borrow from the RBI in the event of a shortfall in funds by offering government bonds as collateral. It is kind of a key interest rate in the system and can be seen as a benchmark.

With repo rate coming down, banks’ cost of borrowing also comes down. This time around, in line with expectations, RBI cut the repo rate by 25 bps to 6.50%, lowest rate in the last five years.

How Much Has The RBI Cut So Far?

Before the April cut, in the last one year, the Reserve Bank has cumulatively cut repo rate by 125 bps. However, the banks in the country have reduced their lending rates by only around 70 bps.

High bad debt levels and provisioning requirements have made banks cautious. However, tight liquidity in the system is cited by banks as one of the main reasons for slow policy transmission.

So, What Measures Has The RBI Taken To Address

Tight Liquidity?

Apart from repo rate cut, the Reserve Bank has announced a slew of measures to address the tight liquidity in the financial system. 1) CRRThough the cash reserve ratio (CRR) has been left unchanged at 4%, the central bank has reduced the minimum daily maintenance of the CRR from 95% of the requirement to 90%.

Cash reserve ratio is the portion of deposits that banks keep with the Reserve Bank on which they do not earn any interest. This move leaves banks with more money and thus helps liquidity.

2) MSFRBI has also reduced the marginal standing facility (MSF) rate by 75 bps from 7.75% to 7%. While banks borrow from the RBI at the repo rate by offering government bonds as collateral, banks have to borrow at the MSF rate when they do not have enough bond holdings and need to dip into their statutory liquidity requirement, commonly known as SLR holdings to offer as collateral to borrow from the RBI.

This is kind of a penal rate since banks don’t have enough bond holdings to offer to the government. Statutory liquidity requirement, which is currently at 21.25%, is the proportion of deposits that banks need to compulsorily invest in government bonds.

3) Reverse RepoThe RBI has also raised the reverse repo rate from 5.75% to 6%. As a result, the difference between the repo and

RBI CUTS REPO RATE BY 25 BPS



On 4th April, a huge leak of confidential documents (approximately 11.5 million documents totaling 2.6 terabytes of data) from a Panama (a country in Central America)-based offshore law firm-Mossack Fonseca shook the world as it revealed how the rich and powerful of the world use tax havens to hide their wealth.

The names of many businessmen, politicians and actors have surfaced under the leaks, including a total of around 500 Indians.

Why Are The Leaks Significant?

The leaked data that stretches over 40 years including 2,14,000 offshore entities reveal how rich people across the world evaded tax and laundered money by taking help of tax havens like Panama, British Virgin Islands and Cayman Island.

Rich individuals take the help of law firms like Mossack Fonseca to set up offshore entities in tax havens around the world. The leaks show how black money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues. The leaks are significant because of the secrecy with which entire offshore firms are managed.

Is It Illegal To Use Offshore Firms?

No. People/companies use offshore firms for legitimate reasons like keeping business plans secret, tax planning, M&A and to protect brand identity.

Use of offshore firms becomes illegal when they are used to hide assets from creditors or evade taxes or to launder money. These firms are called shell companies with no core operations and they hold only financial assets.

What Is India’s Stand After The Panama Leaks?

Following the revelation, the government has announced the setting up of a committee comprising officers from the Central Board of Direct Taxes, Financial Intelligence Unit, foreign tax and tax research division and the Reserve Bank of India, to look into the leaks.

What Is Likely To Follow?

Now, it remains to be seen if the offshore firms being set are legal or illegal. The onus of that will be on those 500 named individuals in the leak to prove their innocencE.

THE PANAMA LEAKSreverse repo rates has come down from 1% to 0.5%. Reverse repo is opposite of repo, and banks can park their excess liquidity with banks.

Therefore, banks, which were earning 5.75% will now earn 6% for parking money with the RBI. Banks will now borrow from the RBI at 6.5% and keep excess money with the central bank at 6%.

What Does The RBI Have To Say On Inflation?

The RBI retained its target of 5% consumer price inflation by March ’17. The RBI intends to bring down CPI inflation to 4.2% by fiscal 2018.

A major risk to inflation is the implementation of the Seventh Pay Commission recommendations, weak monsoons and the strength of the recent upturn in commodity prices, especially oil.

However, the Reserve Bank of India believes there will be some offsetting downside pressures stemming from tepid demand in the global economy, government’s effective supply side measures keeping a check on the food prices, and the Central government’s commitment to the task of fiscal consolidation.

What Does RBI Have To Say On GDP Growth?

The Reserve Bank of India has retained its gross domestic product (GDP) growth at 7.6%. The apex bank expects the GDP growth to strengthen gradually into 2016-17, assuming a normal monsoon, the likely boost to consumption demand from the implementation of the Seventh Pay Commission recommendations and one rank one pension (OROP) as well as continuing monetary policy accommodation.

On the other hand, the fading impact of lower input costs in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook could impart a downside to growth outcomes, going forward.

Will Banks Cut Their Lending Rates?

The Indian banking system has moved to the marginal cost-based lending rate, or MCLR, from 1st April onwards. This methodology has indeed lowered their cost of funds. This, along with the cut in the small savings rate, by the government will encourage banks to cut their deposit rate, thereby lowering their costs. All this will improve monetary policy transmission.

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

RNI Reg. No. MAHENG/2009/28962

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