A Nudge To Large Borrowers: Pushing Large Borrowers To Tap The Bond Market Will Ensure Supply of Bond Papers

RNI No.
MAHENG/2009/28962 | Volume 10 Issue 08 | 16th - 31st Aug ’18

M umbai | Pages 52 | For Pr ivate Circulation
Pushing large borrowers to tap the bond

market will ensure supply of bond papers
A NUDGE
TO LARGE
BORROWERS
12:40 AM 100%
11:15
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XYZ
12:40Sunday, 12 November
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DB Corner – Page 5
Marching On
Inflation remains a threat but the economy is on the right track –
Page 6
Bright Prospects
Despite fears of trade war and high crude oil prices, the Indian
economy is doing well and will continue to do so in the coming fiscal,
says IMF – Page 9
A Nudge To Large Borrowers
Pushing large borrowers to tap the bond market will ensure supply of
bond papers – Page 12
Chinese Dominance
Chinese brands make four of the top five smartphone brands in India
and it’s a Herculean task for Indian players to dislodge them – Page 15
A Slight Diversion
The dip in FDI is in all likelihood a temporary blip in India’s growth
story – Page 18
Growing Clout
Volume 10 Issue: 08, 16th - 31st Aug ’18
In spite of tough competition between the over the top segment and
traditional TV, sector analysts insist the two mediums are likely to
co-exist, going forward – Page 21
Editor-in-Chief & Publisher: Rakesh Bhandari Gaining A Foothold
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil The footwear industry is growing on the back of government sops
and increased spending by buyers – Page 24
Art Director: Sachin Kamble Watch What You Eat
Junior Designer: Orianne Fernandes The ongoing tussle between owners and patrons visiting theatres
over carrying outside food to cinema halls is in bad taste – Page 27
Operations: Namrata Sabbani
Addressing Concerns
Research Team: Sunil Jain, Vikas Salunkhe, The re-categorisation exercise announced by SEBI is aimed to end
Swati Hotkar, Nirav Chheda confusion about the various mutual fund schemes available to
investors – Page 30
Balancing Risks And Returns
Printed and published by Mr Rakesh Bhandari
on behalf of Nirmal Bang Financial Services Pvt
First-time investors can consider balanced advantage funds to ride
Ltd, printed at Uchitha Graphic Printers Pvt Ltd through volatile times – Page 33
65, Ideal Ind. Estate, Senapati Bapat Marg, Fixing Inconsistencies
Lower Parel, Mumbai – 400013 and published
at Nirmal Bang Financial Services Pvt Ltd, 19, Insurance regulator IRDAI hopes to fix anomalies in health insurance
Sonawala Building, 25 Bank Street, Fort, policies by bringing in uniformity in exclusions – Page 36
Mumbai-400001. Editor: Tushita Nigam
Buckfast Recommendations – Page 40

CORPORATE OFFICE Technical Outlook – Page 45
B-2, 301/302, Marathon Innova,
Off Ganpatrao Kadam Marg,
Lower Parel (W), Mumbai - 400 013 Scarily Good
Tel: 022 - 6273 8000/8001
Investors must exercise caution while dealing in high growth
Web: www.nirmalbang.com companies – Page 46
beyondmarket@nirmalbang.com
Tel No: 022 - 6273 8047
Important Jargon – Page 49
Beyond Market 16th - 31st Aug ’18 It’s simplified... 3

A
BENEFICIAL
DIVERSION
T he Securities and Exchange Board of India (SEBI) released a consultation paper last
month on deepening the bond markets in India. The paper, open for public comments, is
one of the many announcements of the Union Budget 2018-19.
Once the paper is finalized, it will be mandatory for large borrowers to tap the corporate
bond markets for their borrowing needs. This will ensure a steady supply of bonds, thus
opening up an asset class for risk-averse retail investors. Our cover story in this issue
talks about this consultation paper in detail. Read on to understand the topic better.
Other articles covered in this issue include the current state of the Indian economy with
the impediments to its growth trajectory and the International Monetary Fund’s (IMF’s)
outlook on the country, how experts contend that the dip in foreign direct investment
(FDI) is temporary and may not last longer than usual, and how Chinese mobile phone
manufacturers are ruling the Indian markets, giving their Indian counterparts a run for
their money.
Also featured are articles on the over the top (OTT) segment in India and its growing
demand among various strata of the society; the growth prospects of the footwear
industry in India, and the ongoing tussle between cinema hall owners and moviegoers
over carrying outside food inside theatres.
In the Beyond Basics section, there is an article on how SEBI is addressing concerns of
mutual fund investors, why balanced advantage funds should be looked at in volatile
market conditions, and how the anomalies in health insurance policies are being fixed by
insurance regulator IRDAI.
Finally, read an article on what precautions investors must take while considering
investments in high growth companies in the Beyond Learning section of this issuE.
Tushita Nigam
Editor
4 Beyond Market 16th - 31st Aug ’18 It’s simplified...

The Indian
stock markets
look good in the
coming fortnight.
I
n line with expectations, the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) under the
leadership of Governor Urjit Patel raised the benchmark interest rate by 25 basis points on inflationary concerns
at the recently held policy meeting. While the repo rate has been raised to 6.50%, the reverse repo rate has been
increased to 6.75%.
The India Meteorological Department (IMD) said rains would revive over eastern and central India in the coming weeks
and weaken in southern peninsula, bringing much-needed relief to the rain-battered states of Kerala and Karnataka.
The months-long trade war between the United States and China has intensified, with both the economic superpowers
imposing tariffs on each other’s goods. Neither of them is willing to relent, thus hurting the global economies.
Several emerging market currencies, including the Indian rupee, have depreciated against the US dollar in recent weeks.
Better earnings results of Indian companies in Q1 FY19 and improved expectations for the coming quarter are
supporting the markets.
The Indian stock markets look good in the coming fortnight. The Nifty has support at the 11,540 and 11,480 levels. The
expected target for the Nifty is at the 12,125 level.
Market participants are advised to see how the ongoing trade war between the US and China pans out and closely check
movements in crude oil prices as the markets are likely to take cues from these two events in the coming weekS.
Nifty: 11,582.75 Disclaimer

Sensex: 38,336.76 It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
(As on 23rd Aug’18) equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.

A
s fiscal year 2018-19 control as food shortages, which is a GDP growth for 2018-19 (for the
(FY19) keeps prime reason for high prices, are financial year ending March ’19) at
advancing, one welcome unlikely to occur. Additionally, the 7.3%. For the next fiscal 2019-20
feature being witnessed government has been working on (FY20), the IMF has pegged the
is the relatively healthy monsoon combating supply-side bottlenecks, country’s GDP growth at 7.5%.
beginning June to mid-August. which should also help in keeping
food inflation under control. All in all, While these two growth figures for
Deficit rainfall in the previous years a good monsoon will positively the current and the next fiscal are
had led to drought-like conditions in impact India’s economy and help good enough, a point that needs
some parts of the country. Farmer boost the country’s GDP growth. highlighting here is that the IMF has
suicides had become a major problem scaled down India’s growth
and in some states, there were farmer The monsoon season will last till projection for both this and the next
protests against the government. mid-September and is expected to be fiscal (FY19 and FY20, respectively).
Economically too, it affected the healthy over the next month, which
country adversely for rural demand augurs well for India’s agriculture Two factors, the first of them being
had slipped; consequently several sector and by extension, India’s high oil prices and the second a tight
business segments had suffered. economy as well.
However, this season monsoon has The country’s economy is

t
u ck
been good so far and this should help expected to register a
the agriculture sector, which employs reasonably healthy growth
b
G
more than 50% of the country’s this fiscal (FY19). The
workforce besides contributing t ra
International
a
e t
around 17% to the country’s GDP, to Monetary Fund
IN
fare well this fiscal. (IMF) has
peggedr t
A good food grains output will result h h
India’s
in more money in the hands of t ig
H N
farmers, which, in turn, will help in
a r
s he
increasing demand in rural areas and
boosting the performance of several
C O
business segments. in t
an
A good performance from
m
e o
R
the agriculture sector
will also help in
keeping food
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n y
A
inflation
i o
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under
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l on
f
I ec
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e
h
t

domestic monetary policy regime has a positive for the Indian economy. by-election losses in recent months,
influenced the International Monetary increased the procurement prices of
Fund to lower the country’s growth Despite this lower projection of major crops. This decision comes
projection for this fiscal (FY19) by India’s economic growth by the IMF, against the backdrop of the general
0.1 percentage point to 7.3% as India’s economy will still be growing election (to the Lok Sabha) scheduled
against its earlier projection of 7.4%. at a healthy rate and a 7%-plus growth for early next year (2019).
rate, which is creditable in the
For the next fiscal (FY20), however, prevailing global situation. Farmers and indeed the rural
the reputed international organization populace constitute a large vote bank
has revised downwards its projection Other reputed international agencies and no government can afford to
by a higher 0.3 percentage points to such as the World Bank (WB) and the ignore them.
7.5% from its earlier estimate of Asian Development Bank (ADB) too
7.8%. This is because the full impact have predicted economic growth for Additionally, there has been a pick-up
of high oil prices and a tight monetary India at around the same level. in domestic demand, which is also
policy regime will be felt more fuelling inflationary pressures.
rigorously then. While oil prices being an external
factor is beyond India’s control, The Reserve Bank, which has already
The country’s economy grew at a inflation, which the country’s apex upped its repo rate twice in recent
lower level of 6.7% in the last fiscal, bank - the Reserve Bank of India months, may be compelled to adopt a
that is FY18. (RBI) - always strives to keep under tight monetary policy if inflation
control, is likely to increase going increases as it seems likely.
“India’s growth rate is expected to forward, which could result in rate
rise to 7.3% in 2018 (2018-19) and hikes by the apex bank. One more rate hike before the end of
7.5% in 2019 (2019-20). The this calendar year, therefore, cannot
projection is 0.1 and 0.3 percentage Indeed, the apex bank has been be ruled out. If indeed, the Reserve
points lower for 2018 and 2019, concerned with the possibility of Bank does hike rates, how the move
respectively, than in the April WEO rising inflation with higher oil prices will impact the country’s economic
(World Economic Outlook), likely to drive inflation upward, going growth remains to be seen. Needless
reflecting negative effects of higher forward. The Reserve Bank has to say, India Inc will not be happy
oil prices on domestic demand and already upped its repo rate for the with the move.
faster-than-anticipated monetary second straight time by 0.25% (25
policy tightening due to higher basis points or bps) to 6.50%. It has Rate hikes will push up interest rates
expected inflation,” the IMF said. also highlighted inflationary on loans from banks for homes and
pressures on the economy. automobiles and EMIs will
Two important factors need to be kept consequently increase. The borrowers
in mind here as these two also have an According to the IMF, the average will, therefore, be impacted and the
influence on the economy. These are inflation is likely to increase to central government will be well
the demonetisation initiative of the around the 5.2% mark this fiscal aware of this situation.
government initiated in late-2016 and (FY19) in sharp contrast to the 3.6%
the introduction of the Goods and inflation last fiscal (FY18). In June India’s growing middle-class
Services Tax (GST) regime in this year itself, India’s annual population is a staunch supporter of
mid-2017. consumer inflation stood at 5% which the present Narendra Modi-led
was well above the Reserve Bank’s government and with the general
These two major initiatives did have medium-term target of 4%. election less than a year away, the
some negative impact on the government would be loath to do
economy and slowed down growth Apart from rising oil prices and a anything that would affect this
but now the after-effects of falling rupee, other factors are also segment negatively.
demonetisation have almost contributing to pushing up inflation;
disappeared. Secondly, the one of them is the political decision Here it must be pointed out that it is
disruptions caused due to the by the government to woo farmers. the middle class in large numbers,
introduction of the Goods and The Narendra Modi-led NDA which goes in for home, auto and
Services Tax (GST) regime have also government at the centre, perhaps other bank loans besides voting for
now begun to dissipate. This is again rendered nervous by a few the BJP in a big way.

Meanwhile, politics is beginning to will directly perk up the general remains to be seen.
take centre stage as is to be expected economy as a whole. The efforts of
in an election year. While the general the government will now be aimed at The just-concluded election to the
feeling is that Prime Minister controlling inflation, especially food post of the Rajya Sabha Deputy
Narendra Modi has done a reasonably inflation, as this will have an impact Chairperson can perhaps be taken as
good job in the last four years (he on elections. an indication of things to come.
took over as Prime Minister in May
’14), recent by-election losses have High food prices will turn voters The BJP, which is in a minority in the
shaken the government. One can also against the incumbent government Rajya Sabha presented Harivansh
take it as perhaps a timely wake-up and, hence, the government will be Narayan Singh as the candidate of the
call for the government. keeping a hawk’s eye on inflation, National Democratic Alliance (NDA)
which could increase in the coming against the Congress Party candidate
That there is rural distress is clearly months. Hence, there is a strong BK Hariprasad.
visible from the by-election results. possibility of one more rate hike in
The results also indicate that the the coming months. Singh who is a member of the Janata
agriculture sector, a big contributor to Dal (U), an ally of the BJP, won the
India’s economy, is still not in good Electorally, the Narendra Modi-led election comfortably with the support
health and needs a helping hand from government seems to hold the edge of parties such as Patnaik’s BJD and
the government. over a fragmented opposition Rao’s TRS. Singh secured 125 votes
presently with moves by the as against Hariprasad’s 105 votes.
Some state governments have opposition to cobble up a united front
announced loan waivers to farmers not bearing fruit. Many regional parties tend to support
with a view to alleviating their the party in power and should the BJP
distress. How far these steps will go However, there is still time for the and its allies cobble up a majority in
in providing a fillip to the agriculture general election, which could be held the next general election, then these
sector and bolstering farmers’ morale around April-May ’19 (though there regional parties will hitch their
remain to be seen. is some talk of advancing the fortunes with the party in power.
election) and the opposition could yet
Demand in rural areas needs to put up a united challenge. This will mean that Narendra Modi
pick-up and for this good will once again lead the country,
performance from the agriculture A united opposition will pose a strong which will be beneficial to the
sector is a must. Food grains output challenge to Narendra Modi and his country in terms of continuity of
must increase as this will put more party the Bharatiya Janata Party (BJP) policies and strengthening investor
money in the hands of the farmers. and its allies. confidence. A change in government
could cause disruptions but continuity
More money in the hands of the rural But whether regional parties such as in policies will help instil confidence
population will mean brighter times the Biju Janata Dal (BJD) led by in the country and its systems.
for business segments such as Naveen Patnaik and the Telangana
tractors, two-wheelers, FMCG Rashtra Samiti (TRS) led by KC Rao, India’s economy will benefit from
products, gems and jewellery, which presently are maintaining continuity in policies and the aim of
electronic goods such as television equidistance from both the main achieving an 8% economic growth
sets and washing machines, etc. This national parties, support the Congress going forward can be a realitY.
Kondratieff Wave
Kondratieff wave is a 50-year-long business cycle, which has been named after Russian economist Nikolai Kondratieff.
He identified cycles of economic activity lasting half a century or more in his 1925 book, The Long Waves in Economic
Life. He wound up in one of Stalin’s prisons because he implied that capitalism, ultimately, was a stable system, in
contrast to the Marxist view that it was self-destructively unstable. He ultimately died in prison. Sadly, there is not enough
evidence to support Kondratieff’s conclusion.

BRIGHT
PROSPECTS
Despite fears of trade war and high crude oil prices,
the Indian economy is doing well and will continue
to do so in the coming fiscal, says IMF
I
n the light of trade tensions, be fragile and uneven. direct impact on resource allocation
higher commodity prices and productivity and by raising
particularly crude oil and a “The balance of risks has shifted uncertainty and taking a toll on
firming global yield curve, the further to the downside, including in investment,” said IMF in its report.
International Monetary Fund (IMF) the short term. The recently
has cut the global GDP growth announced and anticipated tariff IMF advised, “Downside risks, on the
forecast for a majority of countries in increases by the United States and other hand have become more salient,
its World Economic Outlook report retaliatory measures by trading most notably the possibilities of
that was released recently. partners have increased the likelihood escalating and sustained trade actions,
of escalating and sustained trade and of tighter global financial
Moreover, it has raised its actions. These could derail the conditions. Avoiding protectionist
apprehensions about the growth, recovery and depress medium-term measures and finding a cooperative
which at the moment is indicated to growth prospects, both through their solution that promotes continued

growth in goods and services trade uncoordinated financial and local fall in unemployment rate. But with
remain essential to preserve the government regulatory action could rising domestic demand, imports will
global expansion.” have unintended consequences that increase which will increase the
trigger disorderly repricing of current account deficit of the US and
This could hit trade and the abrupt financial assets, increase rollover widen global imbalances.
price movement of the global risks, and lead to stronger-
commodities as is reflected already. than-forecast negative effects on In the euro zone, projected growth is
Countries that are heavily dependent activity,” said the report. It has 2.2% for 2018, which will slow down
on exports or imports may have to reduced the projected growth of to 1.9% in 2019 owing to contraction
bear the brunt. The report has lowered Brazil by 50 basis points. in demand, weak private consumption
the global trade volume in the current and investment.
year, and expects it to grow at 4.8% as On the other hand, a country like
against 5.1% last year. Saudi Arabia is expected to grow at GLOBAL INFLATION: CAUSE
1.9% this year owing to higher crude AND EFFECT
Growth projections have been lower oil prices compared with the negative
by 30 basis points since April ’18. 0.9% GDP growth recorded last year. Global inflation is coming back and is
The largest decline is seen in the case already visible across markets. The
of emerging and developing nations, India on the contrary would shed IMF report suggests global consumer
whose overall trade growth is some growth. Since April, IMF has price inflation will be 2.2% this year
expected to be at 5.7% this year as revised India’s GDP growth as against 1.7% last year. Similarly,
against 6.7% last year, a reduction of marginally downwards. In this report, consumer price inflation is expected
almost 100 basis points. it projected India’s GDP growth to to inch up in emerging and
improve from 6.7% in 2017 to 7.3% developing markets by 40 basis points
TRADE AND GLOBAL in 2018, and 7.5% in 2019. This this year as against 4% last year. One
GROWTH: A CLOSE LINK potential rise is mainly accredited to big influence would be global crude
the demonetization of `1,000 and oil prices.
While trade tensions and growing `500 notes in November ’16 and the
restricting trade policies remains the introduction of the goods and services IMF has indicated that between
topic of the day, its impact for few tax (GST) by the Indian government. February ’18 and early June ’18,
countries is beginning to show. IMF global oil prices increased to 16%,
estimates show that global growth for However, this rate is lower than the implying a situation of short supply.
2018 will be 3.9% as against 3.7% a one reported earlier. “The projection
year before. But the pattern of is 0.1% and 0.3% points lower for The Organization of Petroleum
expansion will remain jagged. 2018 and 2019, respectively, than in Exporting Companies (OPEC) and
the April WEO,” said the report. This the non-OPEC countries have jointly
As per the July WEO report, the is because increased oil prices, decided to increase the production of
overall growth rate projected for although moderate, affected the oil by around 1 million per day to
emerging economies lies at 4.9% for domestic demand and the stringent adjust the undershooting of the
2018, and 5.1% for 2019. For some monetary policies taken to handle November ’16 group target. However,
emerging economies, the rate of expected higher inflation. the plan faces a massive obstacle.
expansion appears to be high. But the
growth rate is out of sync due to ADVANCED COUNTRIES First, Venezuela’s capacity is
intensifying trade tensions, foreign decreasing. Second, the US has
exchange market fluctuations, market The rate of growth for advanced imposed sanctions on Iran. The IMF
pressure on weaker currencies, rising countries will remain at around 2.4%. expects oil prices to be up by about
oil prices, domestic political For the United States, the projected 33% this year and then decline by
disturbances and uncertainty. growth rate is 2.9% for 2018 and 1.8% next year. It further says that
2.7% for 2019. Currently, the US future market estimations are
For instance, IMF expects China’s economy is characterized by showing that in the coming 4-5 years,
economy to grow at 6.6% this year as “substantial fiscal stimulus together prices are likely to decline.
against 6.9% last year. “In China, with already robust private final
where the authorities are taking demand,” which will induce output Increased shale production in the US
welcome steps to slow credit growth, generation beyond its potential and a can be one of the reasons for the

same. Be it oil, agriculture, metal and Moreover, the IMF raised concerns and the jitters of the same are seen by
other commodities, prices have seen a over US inflation, which, if higher- many emerging economies, whose
spike globally, thus being partly than-expected, could shift market currencies have fallen significantly.
responsible for global inflation and a expectations about further rate hike.
reason as to why people around the The report illustrates 20% decline in
world are afraid about interest rates, It also says, “A sudden deterioration Argentine peso and 10% in the case of
particularly firming US yield. of risk appetite could trigger Turkish Lira. Brazilian Real has
disruptive portfolio adjustments, depreciated by over 10%.
THE US YIELD CURVE accelerate and broaden the reversal of
capital flows from emerging markets, The impact of this strengthening is
The US Federal Reserve raised the and lead to further US dollar already visible in India too with the
target range by 25 basis points in June appreciation, straining economies rupee depreciation causing many
and intends to carry two additional with high leverage, fixed exchange companies to book mark-to-market
rate hikes in 2018 and three in 2019. rates or balance sheet mismatches.” losses on foreign currency loans and
As per early July data, US 10-year hitting companies who are dependent
yield is 2.85%, showing slight The US dollar has already on imports like crude products and
improvement since July. strengthened against major currencies metal and energy marketS.
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Commodity segment .The securities quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498 ) : INB011072759, INF011072759,
Exchange Registered Member in CDS; NSE MEMEBR ID- 09391 ) : INB230939139, INF230939139, INE230939139; MSEI Member ID-1067 ) : INB260939138, INF260939138,
INE260939139: PMS Registration No: INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99 and NIRMAL BANG COMMODITIES PVT LTD
– MCX (Member ID -16590 /NCDEX Member ID -0362 /NMCE Member ID –CL0285 /ICEX ( Member ID -1165) : INZ000043630; NCDEX Spot: 10084; Comtrack Participants: CPID -5040;
CDSL Commodity Repository Ltd: 12013300

Pushing large borrowers to tap the bond
market will ensure supply of bond papers
A NUDGE
TO LARGE
BORROWERS
I
n line with the Union Budget THE STATUS credit ratings of AA and above.
announcement, Securities and
Exchange Board of India According to Prime Database, till Almost 60% to 70% of the total issues
(SEBI) recently released a July ’18, there were 647 private are done by financial sector entities
consultation paper mandating large placements of various debt and the private sector non-financial
corporates to raise 25% of their instruments amounting to over entities constitute only around 20% of
incremental borrowings through the `93,000 crore. The figures for whole the total issuances.
bond market. The paper is open for of FY18 stood at 2,421 issues
public comments. amounting to `6.55 trillion, `50,000 Both demand and supply of papers
crore lower than in FY17. remain an issue. Long-term
The proposed framework, expected to institutional investors are not allowed
be implemented from 1st Apr ’19, The current outstanding on all to invest in lower credit rated papers
will change the face of corporate corporate bonds is around $422 by the regulators, which have
borrowing. Thus far, banks used to billion as of March ’18, lower than suppressed demand in the market.
dominate the borrowing requirements that of countries like China, South
of corporates, while bond markets Korea, and Japan. On the supply side, many corporates
would play second fiddle. This is stay away from tapping the markets
reverse in the developed markets. India’s corporate bond market due to higher compliance needs,
remains underdeveloped. The skewed playing field as compared to
In fact, in most developed economies secondary market for Indian financial companies and fears of the
around the world, the bond market is corporate bonds is inactive. Nearly issue getting unsubscribed, thus
even larger than the equity market 99% of offerings are through private constraining supply in the market.
and has a highly active secondary placements. Further, 90% of the
market for debentures. issuances are done by entities having However, in the last few years,

government and regulators have started resolving various crore from the bond market and the rest could be raised
issues to develop the corporate bond market. This has through other sources.
resulted in an uptick in the share of the bond market in
comparison with bank financing to corporates. As a sop, corporates will not be mandated to maintain a
Debenture Redemption Reserve (DRR). A DRR is kind of
BANK VS BOND a reserve account where the corporate needs to set aside a
part of its profits for the purpose of bond redemption.
For instance, the ratio of bank borrowing to bond Corporates further have to set aside money in bank
borrowing in corporate credit has jumped from 63:37 in deposits and government securities, an amount equivalent
FY13 to 49:51 in FY17 - a watershed year when the share to 15% of the debentures maturing during the year.
of bond market financing overtook bank financing. Financial sector companies have been exempted from the
Clearly, corporates are coming to the bond market. requirement of maintenance of DRR. Now, even large
corporates are given this sop, thus levelling the field.
Percentage Share Of Bank Borrowing And Bond
Borrowing In Corporate Credit COMPLIANCE
80% 70%
70% 63%
57% 59%
60%
43%
49% 51% The draft proposes a staggered compliance mechanism.
50% 41%
40%
37%
30% SEBI proposes a “comply or explain” approach for the
30%
20% initial two years of implementation. That is, in case of
10% failure to tap the bond market for incremental borrowings,
0%
2012-13 2013-14 2014-15 2015-16 2016-17 the reasons will have to be disclosed. Failure from the third
Bank Lending Corporate Bond Issues year would attract a monetary penalty in the range of 0.2%
Source: CARE Ratings, SEBI to 0.3% of the shortfall.
The new draft paper wants to build on this momentum. An IMPACT ON CORPORATES
underdeveloped corporate bond market has lead to
increased reliance on commercial banks for borrowing Issuing bonds are complex. It entails higher public scrutiny
needs of corporates. But banks have their own limitations. and compliance. Large corporates fitting the bill will have
Currently, banks are laden with high bad debts requiring to bear extra expenses related to the issue. They will also
higher regulatory provisioning. This has hit the lending have to actively manage the interest rate risk by setting up
activity of banks. in-house treasury. According to one research, 376
companies fit the criteria of large corporates.
Further, banks fear asset-liability mismatch, especially
while funding long-gestation infrastructure projects. Banks Positively, fundraising through bond issuances is cheaper
rely on short-term deposits, while infrastructure lending than bank loans. According to CARE Ratings, average
would run into multiple decades. There are serious bank lending rate currently is 10.11% while money can be
concerns about the ability of banks to finance increasing raised from the bond market at an interest rate of slightly
borrowing needs of corporates. There is fear of systemic under 9%. The figures were 12.33% and 9.40% in 2012-13.
risk due to heavy dependence on banks for credit needs.
But in an increasing interest rate scenario, markets react
FINE POINTS earlier as compared to banks, leading to a spike in bond
yield, making borrowing expensive via bonds as compared
With investment cycle showing an uptick in the economy, to bank borrowing.
a vibrant corporate bond market is the need of the hour.
The SEBI draft mandates large listed corporates with an Issuer Wise Breakup Of Bond Issuances
outstanding borrowing of `100 crores and above, and with
100%
11% 17% 16%
90% 18% 25% 23% 21%
80%
a credit rating (given by various credit ratings) of AA and 70% 6%
7% 5% 11% 9%
60% 9% 12%
above to borrow 25% of incremental requirement from the
25%
50% 35%
29% 32% 41%
40%
36%
bond market. In the future, SEBI may bring down the 30%
20% 45%
36%
31%
rating threshold to A.
30% 30%
10% 19% 16% 21%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Financial InsƟtuƟons and others HFC & NBFC Banks
To illustrate, if a corporate fits into the above category and Public Sector Undertakings State Level Undertakings & State FI Private – Non Financial Sector
needs `100 crore, it will compulsorily have to borrow `25 Source: SEBI, CRISIL

FOR INVESTORS Manner Of Issuance Of Listed Corporate Debt Securities
120.0%
95.5% 97.7% 95.6% 99.2%
93.1%
The draft has proposed to start off with AA-rated 100.0% 88.0% 86.7%
80.0%
companies. This will ensure that there is a lower risk of 60.0%
default. With this investors have one more avenue to 40.0%
invest, provided large corporates tap the bond market via 20.0% 12.0%
4.5%
13.3%
2.3%
6.9% 4.4% 0.8%
public issues. 0.0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Public Issue Private Placement

However, investors will look at corporate bonds as an
Source: SEBI
attractive asset class if supporting regulatory mechanism to
IN A NUTSHELL
resolve conflicts are build. This is where the development
of Insolvency and Bankruptcy code (IBC) in India
Mandating large borrowers to tap the bond market for
becomes significant. IBC can address the default risk of
funding their needs will ensure a steady supply of paper. If
bonds to a large extent as bondholders get higher priority
these corporates come out with public issues as against
than even government dues in case of liquidation.
placing bonds privately can open an asset class for
risk-averse retail investors. Since initially only AA papers
Globally, the implementation of bankruptcy reforms has a
are mandated, the default risk is lower.
significant impact on deepening the bond market.
At a broader level, a vibrant corporate bond market will
For instance, the corporate bond market as a percentage of
take-off load from the banking system. A bond market is
the GDP, increased from 12.7% to 26.3% in Brazil, 8.1% to
more suited to fund long duration infrastructure sector,
13.1% for Russia, 18.8% to 33.4% in China and 68.4% to
which has a large requirement of around $4 billion in the
106.8% for the UK over the 5-year period from the year of
next decade.
the reform.
With the supply side being fixed, the next move for the
For India, at present, the share of the corporate bond
regulators would be to allow institutional investors like
market to GDP is approximately 17%. With the regulatory
pension and insurance companies to invest in lower rated
nudge and proper IBC implementation, the bond market in
papers. This will ensure demand in the bond market,
India can increase to at least 22% to 23% of the GDP by
which, in turn, will lure companies to tap the bond markeT.
2022-23.
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X
iaomi was born in 2010, fortunes of the Indian brands turned (Huawei), occupy the third, fourth
the year when the in the splash in the last two years as and fifth positions with 12%, 10%
home-grown Micromax technology changed and Chinese and 3% market share, respectively.
was the number one players entered. So what’s the way
smartphone brand in India. ahead for the Indian phone mart? According to a CyberMedia Report
(CMR) released this month, about
Eight years down the line, the THE STATUS 60% of smartphone sales in India in
Chinese smartphone brand is valued the second quarter were replacements
at $60 billion globally and has Samsung and Xiaomi are neck and with about 37% swapping with the
captured the No 1 spot in India. neck in the Indian smartphone market Xiaomi models.
Meanwhile, Micromax is not even with a share of 29% and 28%,
among the top five brands in India according to the latest numbers for The top five brands, including
and is rapidly bleeding market share April-June quarter 2018 released by Samsung, Xiaomi, Vivo, Oppo, and
with other local manufacturers Counterpoint Research. The three Huawei/ Honor had 82% of the total
including Karbonn and Intex. The Chinese brands, Vivo, Oppo, Honor smartphone market. On the other
CH IN E SE
DO M I NA NC E
Chinese brands make four of the top

five smartphone brands in India and
it’s a Herculean task for Indian
players to dislodge them
hand, the share of top five Indian the country with a strong online is a rapid erosion of total installed
manufacturers in smartphone sales presence, has now started focusing on base of the Indian brands. The
has crashed 79% during October ’17 offline space as well. feature-rich smartphones under
and May ’18. `7,000 and long battery life that
When it comes to marketing, the Indian brands offer is no longer
CHINESE BRANDS Chinese brands have been wooing Indian users.
outspending others with promotional
The Chinese brands have together tie-ups with marquee events, as well “Indian companies lost on both
captured 34% of the market (both as major Indian festivals. All brands, aspirational value and mindshare. The
smartphone and feature phones) in be it Vivo, Oppo or OnePlus, have market shifted from just buying any
2018, compared to 18% in 2015, leveraged brand partnerships with phone to a good feature-rich device
when they began their ascendancy. Indian celebrities, major sporting with a great after-sales network,”
events such as IPL, or sponsorship of according to an analyst.
Year 2015 was the tipping point for the Indian cricket team.
the Chinese mobile brands in India; Now, Micromax has shifted to selling
they were able to leverage their After making inroads through online aircoolers, air-conditioners, washing
strengths in 4G-ready product strategy, the Chinese brands are now machines and television sets as
portfolio, coupled with their keen shifting their focus to a dual channel consumer appliances are stable in
understanding of the online strategy, online and offline and terms of technology and do not
marketplaces in the country. looking to grow beyond Tier-I and require tweaks every few months.
Tier-II cities. Others, including Lava, Intex and
With their huge economies of scales, Karbonn, are cutting back on the
the Chinese were able to sway a Xiaomi’s success so far has come number of models and retreating from
millennial generation in India with almost entirely from the mid-price the `10,000-plus category to below
their offerings, latest specs, designs segment (between `10,000 and `7,000.
and workmanship, backed by `20,000), with more features than
affordable prices. what the rivals offer. Vivo, too, is Intex is reducing the number of
focused on the `8,000 to `25,000 models to 7 each for smartphones and
“What has worked well for Chinese price band. OnePlus plays at a higher feature phones from about double that
brands in India is the high-quality range, but its products are cheaper earlier and focusing on `6,000 to
product network, quality specs and than Apple’s phones. `7,000 devices. Lava has cut back its
workmanship, supported by clear smartphone models from 10 to 5 and
market understanding, strategic INDIAN BRANDS feature phones from 12 to 8.
marketing and sales strategy,”
according to an expert. Micromax, Intex and Karbonn in Indian brands thrived about a decade
addition to HTC and Gionee were the ago as the country added about 6
The Chinese brands have focused on fastest depleting handset brands in million new mobile phone users every
the core target segment, the Q2, 2018, losing to Chinese brands, month, leading to easing of rules for
millennials, offering AI-infused selfie according to CMR. importing devices. Imported devices,
cameras, increased storage space, rebranded in India, though low
multi-lingual regional language Micromax saw 41.2% dip in net quality, cheap imitations, below specs
support and much more. smartphone additions, followed by allowed the Indian mobile phone
Intex at 11.6% and Karbonn at 5.3% players higher margins.
The ‘online only’ focus helped the in Q2, 2018. Lava was the only local
Chinese brands in creating massive brand which registered positive However, the technology shift from
demand generation, and achieve annual growth during the quarter, 3G to 4G caught the Indian
scale. Since then, they have been able thanks to its entry-level models smartphone players unawares.
to chart their growth with offline including its first Android Go device - Chinese manufacturers shifted to 4G
retail, including investing in channel the Lava Z50. in 2015, a year ahead of India, and
strategy, to grow beyond the markets dumped unsold 3G stock on local
in Tier-I cities. As customers are swapping their manufacturers, who did not anticipate
existing smartphones with the new India’s sudden shift to 4G. The shift
For instance, Xiaomi, which entered ones offered by Chinese brands, there to 4G following the advent of

Reliance Jio was swift and the Indian Counterpoint Research. down to 14% due to a decline in
players could not adapt well, opening shipments for its iPhone 8 and iPhone
up the space for Chinese firms, which “These new launches brought some of X series.
had readily available 4G devices. the most popular and sought-after
features like dual camera, infinity Overall, OnePlus 6 was the
While the Indian mobile phone display, and facial unlock across best-selling model in the premium
brands are now focusing on the different price segments for Samsung segment. This was followed by
low-cost market, they face stiff for the first time ever. Samsung Galaxy S9 Plus and
competition from brands such as OnePlus 5T with the company
Samsung, Xiaomi, Oppo and Vivo. “Additionally, the strong offline clearing off inventory ahead of the
distribution and aggressive marketing launch of its new model.
MANUFACTURING campaign around its J-Series helped
the brand to gain not only the market “OnePlus’s strategy of packing the
With the government’s push towards but also mindshare during the best specs into their phones and
‘Make in India’, Chinese mobile quarter,” the research firm said. offering the most competitive price
companies - including Xiaomi, Vivo has helped. Its strategy has appealed
and Oppo - have set up their It has also played the marketing card to the cost-conscious and
manufacturing bases in India. well by signing up as the principal flagship-aspiring consumers in India
sponsor for the Mumbai team during who want to own the best smartphone
By increasing import duties on the Indian Premier League in the market but at a competitive
mobile phones and making imports of tournament this year. cost,” an analyst said.
the components required for local
assembly duty-free, or taxable at In July this year, the company The top three smartphone brands,
lower rates, the government is inaugurated the world’s largest namely Samsung, OnePlus and Apple
pushing smartphone makers to set up mobile phone manufacturing unit in contributed to 88% of the overall
manufacturing units in the country. Noida, near New Delhi. The `4,915 premium market. However, newer
crore plant will double its players like HMD Global’s Nokia,
Vivo and Oppo have one plant each in manufacturing capacity in India to Huawei, Vivo, Oppo, etc are entering
Greater Noida, Uttar Pradesh. Xiaomi 120 million handsets a year, helping it the market.
has three plants in Andhra Pradesh launch new products and take them to
and has announced plans to set up the market faster. Huawei this year launched its flagship
three more. P20 Pro phone, which has three
PREMIUM SEGMENT cameras, in India for about $950 in
SAMSUNG direct competition to Samsung’s S9.
The premium smartphone segment is Vivo this month started selling the
The major player remains the Korean expected to grow 20% in 2018 too, NEX, which has a camera that pops
brand Samsung, which has regained which is still faster than the overall out, for roughly $655.
the No 1 spot but only by a whisker smartphone market. Here too, the
after being pushed to the No 2 spot by Chinese have an edge. “Chinese brands are launching these
Xiaomi in 2017. phones to prove that they don’t just
OnePlus is leading the premium make phones for the lower end of the
Samsung’s rebound was fuelled by segment (phone priced more than market, but that they are master
the renewal of its mid-tier J series `30,000) in India with 40% market innovators,” according to an expert
Android smartphones with share in the second quarter of 2018 tracking this industry.
high-in-demand features such as compared with zero when it arrived in
facial recognition and infinity display. 2014. OnePlus is ahead of Samsung, IN A NUTSHELL
which has a 34% share.
The success of Samsung during the Experts from this sector are of the
quarter can be attributed to its According to Counterpoint’s research opinion that it will be long before the
refreshed J-Series as it launched the data, OnePlus grew 19% annually and tug-of-war sees a clear winner.
most number of models as compared 10% sequentially during Q2 of 2018. Samsung and Xiaomi are likely to
to any brand across multiple price Meanwhile, Apple has struggled in remain on the top in the near future as
points during the quarter, according to the quarter with its market share per industry analystS.

A SLIGHT
DIVERSION
The dip in FDI is in all
likelihood a temporary blip in
India’s growth story

I
ndia became a preferred $44.86 billion. This is a 3% decline in $1 billion has flown out from
location for global investors FDI from the previous year. exchange-traded funds in India.
right after the Indian economy
was opened up in the 90’s. India needs huge foreign investments India has dropped out of the list of top
in order to overhaul its infrastructure 10 destinations for FDI according to
A thriving economy, cheap labour and sector. A decline in investment can an AT Kearney report. According to
a changing business environment has affect the country’s balance of the report, India has dropped by three
attracted Foreign Direct Investment payments and the value of the rupee, spots, reversing its two-year streak of
(FDI) to India. FDI is not only a major as is already evident with the rupee a rise in rankings.
monetary source for the economic touching an all-time low of `70.08
development of India but also a against the US dollar. India ranks 11th in this year’s index,
critical driver of economic growth. holding its position as the
Data for 2017-18 indicates that the second-highest ranking emerging
Favourable government policies over services sector attracted the highest market, but dropping out of the top 10
the years have ensured a steady flow FDI equity inflow of US $6.71 for the first time since 2015.
of foreign capital into India. billion, followed by
telecommunication at US $6.21 As per the report, some government
There are two ways by which India billion and computer software and policies may have deterred investors -
receives FDI: the automatic route and hardware at US $6.15 billion. at least in the short term. The 2017
the government route. nationwide rollout of the Goods and
In the year 2017-18, India received Services Tax, for example, has faced
In the case of automatic route, no maximum FDI equity inflows from implementation challenges, and the
prior approval from the government Mauritius (US $15.94 billion), 2016 demonetisation initiative
or the Reserve Bank of India (RBI) is followed by Singapore (US $12.18 disrupted business activity and
required, whereas in the government billion), Netherlands (US $2.80 weighed on economic growth.
route, a prior approval is required by billion), USA (US $2.10 billion), and
submitting an application through the Japan (US $1.61 billion). According to Biswajit Dhar,
Foreign Investment Facilitation Professor at Jawaharlal Nehru
Portal. This application is then “This does not augur well for India University, “The status of economy
forwarded to the respective ministries because this not only affects India’s reflects the magnitude of the FDI in a
for their consideration. capital position but also means that country. In the past couple of years,
the external source for funding we have seen a decline in domestic
In 2013, India was ranked 15th in the domestic projects is drying up,” said investment rate and now FDI is
world in terms of FDI inflow. In the Indranil Pan, Group Economist at following suit.”
first half of 2015, it surpassed every IDBI Bank.
other country including China and Some analysts believe the drop in FDI
became the number one destination What is making the situation worse is can also be due to rerouting of
for FDI. the outflow of foreign funds from the investments to economies with higher
country. For the first time in a decade, interest rates and stronger currency
In 2015, India attracted an investment foreign institutional investors have value such as the United States.
of $31 billion compared to $28 billion taken out money from both debt and India’s complex FDI policies and an
and $27 billion of China and the US, equity markets. uncertain future is also a deterrent for
respectively. Three years down the many FDI investors.
line, this trend has reversed. India has Overseas investors sold equity worth
not only lost its position on the list of nearly `6,000 crore and debt worth “While the government has taken
top 10 destinations for FDI, but FDI over `41,000 crore, so far in 2018. substantial efforts in relaxing the
investment in 2017-18 is the lowest in This is the worst outflow since 2009, regulations as well as removing
the last 5 years. and the reasons range from inflation ambiguities, global consumer and
scare to a depreciating rupee, which retail companies are still hesitant to
According to the Department of has fallen about 7%. take decisions to invest in India,” says
Industrial Policy and Promotion Anil Talreja, Partner, Deloitte India.
(DIPP), the total FDI investments in India has become the worst performer
India during 2017-18 stood at US among emerging economies as nearly He adds that although India has done

considerably well in terms of moving towards multinationals and could under the automatic approval route.
up the ranking in ease of doing impact FDI.
business, it needs to reach a level that “FDI is largely a matter of private
creates enthusiasm for overseas Mukesh Aghi, President and Chief business decisions and FDI inflows
investors to pump adequate money Executive Officer of USISPF, said depend on a host of factors such as
into the country. “Today, India needs more FDI not just availability of natural resources,
to create jobs but to bring in global market size, infrastructure, and
The recent e-commerce draft policy technology and to get into the global general investment climate as well as
released by the Ministry of supplychain management. We need macroeconomic stability and
Commerce has put global investors in more IP coming into this area. investment decision of foreign
a cautious mode. E-commerce is still formative. You investors,” R Chaudhary said.
just can’t have government getting
In the year 2016, the government into managing business. You can’t say He is right to an extent. The World
allowed 100% FDI in online retail of how much discount you should give.” Bank has stated that private
goods and services, but this new draft investment in India is expected to
can severely impact not only Although almost all sectors have grow by 8.8% in FY18-19 to overtake
international giants such as Amazon witnessed decrease in FDI, the private consumption growth of 7.4%
and Walmart but also countless small defence sector has been particularly and thereby, drive the growth in
sellers who use these platforms to sell unfortunate with a dismal FDI inflow India’s gross domestic product (GDP)
their merchandise. of $10,000 (about `7 lakh). in FY18-19.
As per the new draft policy, any group The source of this data comes from a As per a report by UBS annual, FDI
company of an online retailer or written reply by the Minister of State inflows in the country are expected to
marketplace may not be allowed to for Commerce and Industry, CR rise to US $75 billion over the next
directly or indirectly influence the Chaudhary to Parliament. five years.
price or sale of products and services Considering the fact that 70% of
on its platform, a move that could India’s military hardware is imported Even the AT Kearney report stated,
completely restrict e-tailers from from different countries, this is a “The sheer size of the Chinese and
giving deep discounts. depressing statistic. Indian markets, however, will
continue to be a draw for investors,
It seeks to regulate all aspects of Also, as many as six sectors, and they remain the highest-ranking
online retail and recommends strict including coal production, ports, dye emerging markets on the index.”
restrictions, including curbs on stuffs and coir industries, have failed
discounts by e-tailers. to attract any FDI. Not taking the The dip in FDI is in all likelihood a
blame, R Chaudhary said that the temporary blip in India’s growth
US-India Strategic and Partnership government has put in place a liberal story. If one is to believe market
Forum (USISPF) has warned against and transparent policy for FDI, experts, the future for FDI in India
this policy stating it is discriminatory wherein most of the sectors are open still looks quite promisinG.
Natural Monopoly
When a monopoly occurs because it is more efficient for one firm to serve an entire market than for two or more firms to
do so because of the sort of economies of scale available in that market, it is known as natural monopoly. A common
example is water distribution, in which the main cost is laying a network of pipes to deliver water. One firm can do the job
at a lower average cost per customer than two firms with competing networks of pipes.
Monopolies can arise unnaturally by a firm acquiring sole ownership of a resource that is essential to the production of a
good or service, or by a government granting a firm the legal right to be the sole producer. Other unnatural monopolies
occur when a firm is much more efficient than its rivals for reasons other than economies of scale. Regulation of natural
monopolies may be needed to protect their captive consumers.

GROWING CLOUT
I
n the past decade, avenues of THE INDUSTRY
entertainment in India have In spite of tough
risen. One of the social media India’s OTT industry is in the nascent
platforms, which has caught on competition stage. More than 65% of India’s
well with people is YouTube. Then, population is below the age of 35,
we saw the emergence of online between the over which is an important demographic
streaming websites. that consumes content offered by
the top segment OTT players.
Today, Netflix and Amazon Prime are
not limited to the elite. Even the and traditional TV, The EY-FICCI 2018 report states that
middle class is lapping up these the total time spent on video
online platforms. sector analysts applications in India has increased by
85% to 40.5 billion hours in CY17 on
Apart from these two international insist the two a year-on-year (y-o-y) comparison.
players, there are Zee’s Zee5 and The online video audience is expected
Star’s Hotstar, dominating the Over mediums are to reach close to 500 million by CY20
The Top (OTT) online content from close to 250 million in CY17.
providers out of 35 that have made a likely to co-exist,
place for themselves in the At present, in India there are more
entertainment industry at present. going forward than 35 OTT players, which include

large- and medium-sized players. business in India, Amazon will According to Google-KPMG, of
Given this range, four types of OTT continue to invest in original content almost every new user coming online
players have emerged in the country. specifically catering to the audiences – roughly 9 out of 10 – is not
These are: in India. proficient in English. Close to 99% of
Indian language users access internet
a) Telecom Companies It is estimated that approximately through their mobile devices,
90% of TV households are still highlighting poor fixed broadband
Telecommunication companies single-TV households. This has penetration in rural areas. This
provide one or more services such as almost necessitated the requirement compares with close to 78% of total
video, music, live TV, or they of a second screen, which in turn has internet users in India accessing
aggregate content from other OTT been one of the key reasons for rising internet through mobile devices.
players in the market. Examples OTT penetration in India.
include JioTV, Vodafone Play, and EY states that the preference of Indian
Airtel Mobile TV. THE TRENDS consumers regarding video
consumption is heavily in favour of
b) Broadcasters Or Channels Given the aforementioned factors, vernacular and regional language
there are a few key trends which are content. In India, close to 93% of the
Channels which have their content or expected to emerge in India’s OTT time spent on videos is in Hindi and
can create original content have industry. These are: other regional languages.
launched digital platforms. For
instance, Star India has launched a) Rise Of Original Content Across With India being a multilingual
Hotstar and Zee has ZEE5. Languages country, it is believed that there is
ample scope for OTT players to reach
c) Independent Content Creators According to Ernst & Young, 70% of out to wide audiences where Hindi
digital video consumption in India may not be the first language. Rural
There are media companies, which was of content, which was less than a India is still highly underserved. This
have been creating content year old, while long tail (over two means that OTT players would look at
exclusively for their platforms. Key years) generated 15% of content expanding beyond Hindi and English
examples are Balaji Telefilms-owned consumption in CY17. and reach out to these consumers
ALTBalaji, Eros Now by Eros and
The Viral Fever (TVF). This illustrates the importance of TV And OTT To Co-Exist In India
fresh and original content. This means
d) Known International Players that these OTT players are expected Analysts say concerns over OTT
to invest in original content given the finishing television are exaggerated
These include global OTT players demand. This helps in retaining and unreal. Given the diversity in
such as Netflix, Amazon Prime customers. Analysts estimate that US culture, literacy rate, pace of
Video, Hooq and YuppTV, which $500 million to US $600 million are acceptance of technology and other
apart from investing in original likely to be invested in OTT platforms key variables, TV and OTT players
content deliver Hollywood, regional, to develop original content. are likely to co-exist.
and local titles.
What is interesting is that a large part Some analysts point out that even
A subset of this would be apps like of these investments will be towards though digital advertisements and
YuppTV, wherein instead of investing the creation of Hindi content. With subscriptions would continue to grow
in original titles they rely entirely on more than 35 platforms now – both rapidly, low TV Average Revenue Per
syndication to source content. For Indian and international – in the User (ARPU) and penetration and
Netflix, from early targeting of only Indian OTT landscape, having a various other factors will result in TV
niche, premium audiences, the distinction is a must in such a and OTT co-existing with TV
company is actively investing in competitive market. remaining the dominant medium.
Indian originals and has mentioned its
long-term commitment to developing Most industry experts believe that in Balance Of Power Still Rests With
content in India. India content in regional languages Broadcasters
will be one of the key ways to
After strengthening its e-commerce penetrate deep into the markets. As the OTT threat increases,

broadcasters have no option but to b) Broadcasters Are Following Suit can bring some sanity in operations.
adapt. The larger broadcasters - ZEE, The reason being broadcasters,
STAR, Viacom18, Sony and Sun TV - Industry analysts point out that original content creators and wealthy
control 65%+ of total TV viewership broadcasters have already prepared business tycoons who also have OTT
and enjoy considerable bargaining themselves from imminent platforms are likely to sustain longer
power against content producers, competition from OTT players. They than those who do not have such
which is quite a fragmented industry have launched their digital platforms. backing. They may either shut
to say the least. ZEE and Sun TV have launched their services or maybe acquired at a
digital channels called ZEE5 and Sun cheaper price.
Broadcasters are likely be at an Nxt, respectively.
advantage as long as they retain Going forward, analysts and sector
content rights for shows and movies c) Consolidation Is The Key experts believe that India’s OTT
(both TV and digital). landscape will likely be dominated by
Consolidation is the key trend that only a few players. And only those
The recent Tata Sky-Netflix deal will will give a concrete picture of the which have a strong content offering
be followed by more deals between business model of the OTT industry across various languages and have
TV distributors and OTT platforms in India. In India there are more than defined their niche clearly, are most
over the coming quarters. 35 OTT players. Only consolidation likely to succeeD.
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quoted are exemplary and are not recommendatory.
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A
fter textiles and dominated by unorganized domestic interesting fact about India’s footwear
garments, India’s SME footwear manufacturers, with industry is that sports goods
footwear industry is one changing consumer behaviour and companies such as Adidas, Reebok
of the oldest sectors, modern lifestyle, the footwear and Puma derive 25% to 30% of their
which has been contributing products made by the medium and revenues through e-commerce.
significantly to employment but also large brands are likely to witness
to export earnings. It has played a increased sales in the near future. In fact, close to 11% of total sales of
crucial role in boosting overall India’s footwear is through
economic growth. Currently, some of the largest e-commerce. India’s e-commerce
footwear manufacturers in India companies expect the demand for
It is estimated that in 2018 India include Bata India Ltd, Liberty Shoes affordable and quality-focussed
emerged as the second largest Ltd, Paragon Group, Relaxo footwear to drive the next phase of
footwear producer after China. The Footwears Ltd, Adidas AG, PUMA, growth in sales of footwear.
industry in India is also one of the top Geox S.p.A., Skechers USA Inc, Nike E-commerce companies are expected
footwear exporters in the world. Inc, and Under Armour Inc. Major to take advantage of this phase and
footwear producing states in India are offer huge discounts to drive sales.
According to a recent Indian footwear Tamil Nadu, New Delhi, Uttar
industry report, the country produces Pradesh, Punjab, Haryana, GROWTH OPPORTUNITIES
over 22 billion pairs of footwear Maharashtra, West Bengal, Rajashtan
annually, accounting for and Kerala. Given the steady growth in demand
approximately 9.6% of the total for the footwear industry in the
global footwear output per year. The Unlike export-oriented readymade country, there are several growth
footwear industry in India employs garment industry, the footwear opportunities. Here are a few key
over 1.1 million workers, making it industry in India is mainly catering to trends which are evident:
one of the top employment sources in its domestic market at present - only
the country. about 10% of footwear production is No Disruption
shipped overseas every year.
Owing to the fact that India is also the In the past five years, like many
world’s third largest footwear However, with growing foreign direct sectors, India’s footwear companies
consumer after China and the US, investment (FDI) in the country’s faced intense competition from online
about 90% of the footwear made in footwear manufacturing sector and players. Aggressive pricing, end of
India is consumed by the domestic constant government support with season sales and easy acceptance of
market and the rest is exported. beneficial policies, India is increasing e-commerce as a way of shopping are
its market share in global footwear the key factors which posed tough
The footwear market in India is now exports year after year. competition to footwear companies.
dominated by men’s footwear, which
contributes close to 58% of the total Many international footwear and But this notion of serious threat from
Indian footwear retail market and is fashion companies such as Nike, online players seemed to be pure
expected to grow at a CAGR of 10% Adidas, Zara and H&M are also exaggeration. Industry experts
by 2020. The women’s footwear manufacturing footwear products in believe that both formats - online and
segment, however, is projected to India, and shipping them abroad. offline (through factory or stores) -
grow much faster at a CAGR of 20%. would co-exist in the coming years
Commentaries from a large number given the diverse demography of
In terms of product type, casual of e-commerce companies point out Indian consumers.
footwear is the largest product that footwear industry in India is
segment in India’s footwear market growing by leaps and bounds. It is Foreign Brands
that contributes approximately 67% estimated that footwear as a category
of the total footwear retail market. has highest penetration online. Increasing awareness of foreign
Moreover, non-leather footwear brands though social media and other
accounts for 56% of the overall One of the early entrants in Indian means, rising disposable incomes,
footwear market in India. e-commerce market, Flipkart, says and high share of adults under 30
that it has more than 50% market have resulted in intense fascination
While the industry is currently share of the online shoe market. An for foreign footwear brands in India.

Global footwear brands such as Asics, pairs of shoes. In fact, most analysts Government support is expected to
Skechers, and Under Armour are a point out that due to growing craze for play a crucial factor in the
few that have entered India recently. fitness most young people on an development of India’s footwear
average have at least four pairs of industry in the future. It recently
The GST Effect shoes. This has resulted in a pattern announced a `2,600 crore special
where one wears shoes according to package for the leather and footwear
The implementation of the goods and occasions and seasons. industry. The package includes the
services tax (GST) in July ’17 has implementation of the scheme ‘Indian
shifted demand in favour of the Analysts believe that these four Footwear, Leather & Accessories
organized players, especially at the factors are expected to drive footwear Development Programme (IFLADP).
price point below `500. sales in the coming years.
Under the scheme, additional
States where indirect taxes were GOING FORWARD 3,00,000 workers will be trained and
relatively higher in the pre-GST 20% to 30% subsidy/grant will be
regime are witnessing stronger As a traditionally labour-intensive offered to the Ministry of Micro,
demand thrust in favour of organized sector, the footwear industry in India Small and Medium Enterprises
players owing to tax arbitrage as is currently transforming itself and (MSMEs) towards capital
compared to unorganized players. moving towards a technology and expenditure for building a plant and
Analysts foresee this to be the key innovation-driven sector, with buying machinery.
demand driver at the mass end of the increasing number of small and big
market for near- to medium-term. footwear manufacturers focusing on The Indian footwear market is likely
developing newer technologies and to grow on the back of growing
Behavioural Pattern introducing better products. fashion consciousness among the
young generation and consumers’
Today, analysts and sector experts Today, India’s footwear industry has preference. In addition to this,
believe increasing consumerism has evolved into a highly specialised improvement in footwear retail sector
created demand for footwear. Due to industry. High-skilled manufacturing as well as growing e-commerce
high discounts and aggressive using technology has made Indian market in India are also expected to
marketing, chances are high that a shoes almost at par with their global further boost sales of India’s footwear
person might have more than two counterparts to a certain degree. industry in the coming quarterS.
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The ongoing tussle between owners and
patrons visiting theatres over carrying
outside food to cinema halls is in bad taste
T
he Maharashtra that prohibits people from bringing More and Justice Anuja Prabhudessai
government recently said food from outside. It also put an end asked the state government.
there’s no restriction on to the practice of selling food items to
moviegoers taking food moviegoers inside the movie hall by “People are not prohibited from
articles from outside and consuming vendors or owners. carrying food to any other public
them inside cinema halls, spoiling the place besides cinema theatres,” it
party for theatre owners. The rule To counter this move and to avoid said, adding, “If people can be
came into effect from 1st Aug ’18. implementing this rule, theatre permitted to carry home food inside
owners said allowing outside food in aircrafts, then why not theatres?” The
The announcement was made by multiplexes could pose security bench also noted that the state’s own
Minister of State for Food and Civil concerns. However, the Bombay affidavit said there existed no specific
Supplies Ravindra Chavan in High Court recently asked the law or statutory provision that
response to a query by NCP MLC Maharashtra government to explain restrained citizens from carrying
Dhananjay Munde. Chavan also said how allowing outside food into outside food into cinema theatres.
that the state government will ask multiplexes and cinema halls could
theatre owners to reduce prices of pose a security threat. The affidavit was filed in reply to a
food items sold at counters at theatres. petition by Jinendra Baxi challenging
“What kind of security concern can the ban on packed food and water
The government said strict action be caused by food inside theatres?” bottles inside cinema halls, especially
would be taken against any multiplex the division bench of Justice Ranjit multiplexes. In his PIL, the film

writer and director highlighted that advertising company, agreed and with 15% for ticket revenues.
patrons are not allowed to carry their called the move a double whammy
own food items and water bottles for multiplexes. As a result, the share of non-ticket
inside theatres when there was no revenues has increased to around 43%
legal restriction on permitting the “Multiplexes earn about 80% margin in fiscal year 2018 compared with
same, but fast food was being served from the sale of food and beverages. 30% in fiscal year 2013. A public
in several theatres, especially For example, if a multiplex operator interest litigation (PIL) pertaining this
multiplexes and also permitted to be earns `100 from one customer the issue is pending before the Bombay
consumed inside theatres, although margin is `80 and after deducting the High Court.
there was a restriction on the same by cost, which is about `30, the operator
Rule 121 of the Maharashtra Cinemas is left with `50 as revenue. However, Crisil estimates that multiplexes will
(Regulation) Rules, 1966. with this move earnings per customer be required to hike ticket prices by
can drop drastically to as low as `20 `70 in Maharashtra to offset the
Baxi contended that the ban violated or nil in certain cases,” he said. impact on the F&B division.
the fundamental right to life of However, such a sharp increase may
medically vulnerable persons and Just to take the case of PVR, which is not go well with moviegoers.
senior citizens, as they cannot carry the country’s largest multiplex
their own food articles and water operator, earned around 25% of its Nitesh Jain, Director, Crisil Ratings,
inside the theatres. overall revenues from food and opined that today, multiplexes
beverages business, which comprises account for half of the box-office
His PIL stated that the Maharashtra sales at multiplex counters. collections despite having only a
government, being the licensing fourth of the total movie screens in
authority for cinema theatres, was Maharashtra accounts for roughly a the country.
legally bound to ensure that the right quarter of the revenues of multiplex
to life of the citizens is not operators and non-ticket segments “They are also the main attraction at
undermined. Further Baxi said comprising food and beverages and shopping malls. Therefore, any
cinema halls charge exorbitant rates advertising are highly profitable and disruption in multiplex operations
for eatables on offer. subsidize losses on ticket sales. will, apart from having a cascading
impact on the film industry, will
According to a report by rating Sachin Gupta, Senior Director, Crisil affect footfalls at malls, too,”
agency Crisil, this move by the Ratings, said “The gross profit margin emphasised Jain.
Maharashtra government will of multiplexes in the food and
severely impact the business of beverages segment is about 75%, and Crisil-rated companies account for
theatre owners as the operating profit in the advertising segment over 80%. about 60% of the multiplex industry
of the Indian multiplex industry could In fiscal 2018, leading multiplexes revenue. In the event the rule is
moderate 200 basis points (bps) or by reported an operating profit imposed, the ability of multiplexes to
`100 crore if half the moviegoers in (EBITDA) of `58 lakh per screen. augment their revenue streams by
the state start carrying their own food raising tickets prices and advertising
and beverages. Further, they will hike “Of this, the gross profit generated by tariffs will be the key monitorable.
ticket prices, it said. the food and beverages segment was
`61 lakh per screen, while Elsewhere, the Delhi High Court too
Industry experts said the move will advertisements reeled in `33 lakh per sought a response from the city
have an adverse impact on the screen. Put another way, these government on a PIL seeking framing
business and the companies multiplexes would have bled if their of guidelines allowing moviegoers to
concerned will have no option but to only source of revenue was ticket carry their own eatables and
realign their business model, which is sales,” said Gupta. beverages inside theatres.
based on total earnings per seat. It
includes earnings from food and Apart from being highly profitable, The plea was moved by a lawyer,
beverages, retail and parking. non-ticket revenues are growing Ekta Singh, who alleged that she was
twice as fast as ticket sales. The not permitted to carry her water bottle
Ashish Malushte, Chief Financial compound annual growth rate inside a movie theatre at Jangpura.
Officer, UFO Movies, a digital (CAGR) for non-ticket revenues was She said theatres in the city charge
cinema distribution and in-cinema 29% in the past five fiscals compared exorbitant rates for food and drinks

they serve. Restrictions on bringing outside food High Court had in July this year
to theatres and compelling or forcing directed multiplexes and cinema halls
In her petition, filed through to purchase junk food, sold at the food in the State not to prohibit
Advocate Kamlesh Kumar Mishra, stalls inside theatre premises, that too moviegoers from carrying their own
she claimed it was “highly at exorbitant rates, particularly affect food and water inside theatres.
unjustified” on part of cinema hall the young generation, senior citizens,
owners to “force” people to buy diabetic patients and those who But the SC recently stayed the Jammu
eatables being sold inside theatres at cannot eat for medical reasons, the and Kashmir High Court direction to
exorbitant prices to “mint money”. PIL added. the cinema hall and multiplex owners
of the state not to prohibit moviegoers
“Cinema hall owners have framed the Such kind of acts on the part of from carrying own food and water
rules of their own and in their own cinema hall owners are against the inside the theatres.
manner just to mint money, which is right to choice of food, including the
affecting the general public at large,” right not to eat junk food and right to Besides the relaxation on carrying
her plea said. The petition alleged that good health, which comes under the food items inside the theatres, the
eatables sold inside theatres were purview of Article 21 of the Jammu and Kashmir High Court in
junk items and the activity was going Constitution, she said. She further July passed a number of directions
unchecked by authorities. said even the Jammu and Kashmir related to cinema hallS.
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T
he Indian mutual fund and Exchange Board of India (SEBI) ’17 to ensure that a clean-up exercise
industry has been in the questioned the rationale behind is done to make it simpler for
limelight for the last launching new mutual fund schemes investors to select and evaluate
couple of years on account with different names, which used to schemes and their performances.
of record inflows, listing on the unnecessarily confuse investors.
bourses and more recently owing to Instead of providing a choice to Mutual funds now have to be
the debate on the way it operates – the investors, the schemes only seemed categorized in the following
number of schemes, the adherence to like ‘old wines in a new bottle’ with pre-defined groups, namely, equity
the investment objective and the just a change in the nomenclature. schemes, debt schemes, hybrid
transparency on the cost structure. schemes, solution-oriented schemes,
Additionally, the SEBI also and other schemes.
As on 31st March, there were 42 asset questioned the rigidity with which the
management companies (AMC), investment objective is adhered to, SEBI went a step ahead and defined
having a total of 840 open-ended given that it is so loosely defined to what each group will comprise. For
schemes with many of them having suit market movement, giving example, equity mutual funds have to
similar names with a word added or investors an inaccurate picture of be categorized into the following ten
changed here and there. where their money is being invested. broad groups. These include large-cap
All this would make investment fund, large and mid-cap fund,
For investors, the sheer number of decision making challenging for mid-cap fund, small-cap fund, value
schemes was definitely weighing investors as the comparisons they fund, contra fund, dividend yield
down on them especially since there made are not similar. fund, ELSS, sectoral/thematic fund
wasn’t much of a difference in a and focussed fund.
number of schemes. On the contrary, Taking cognizance of both these
the sheer number was adding to the things SEBI has made it mandatory Debt schemes have been categorized
clutter instead of providing an for mutual fund companies to into 16 categories, hybrid schemes
investment opportunity, thus meriting categorize and rationalize the into six, solution-oriented schemes
evaluation and attention. schemes by putting out a circular on into two categories and other schemes
‘Categorization and Rationalization into two categories. Thus, there are a
Hence, market regulator Securities of Mutual Fund Schemes’ in October total of 36 categories under the five
broad themes.
ADDRESSING SEBI has clearly mandated that there

can only be one scheme in each
category. Many fund management
CONCERNS houses have more than one scheme in

each category. They have merged
The re-categorisation exercise

announced by SEBI is aimed to end
confusion about the various mutual
fund schemes available to investors
them and re-categorized them after Return of an Index (PRI), which takes management fee, distributor
getting regulatory approvals. into consideration only capital gains. commission, advertising expense,
In order to give investors colour on registrar fee, custodian’s share, etc,
Some examples of rationalization of the total returns earned and the are borne by investors as a percentage
schemes include HDFC Prudence outperformance of the funds, it has of assets managed by the fund house.
Fund, which has been merged with introduced Total Return Variant of an These are expenses the fund has to
HDFC Balanced Advantage Fund. Index (TRI), which includes any bear for keeping it active.
Kotak Mutual Fund has decided to dividends/interest payments that the
rename Kotak Income Opportunities constituents of the fund basket may The mutual fund company discloses
Fund as Kotak Credit Risk fund. have given. the NAV on a daily basis, which is net
of the expenses. So, if annual return is
The definition of large-cap, mid-cap Logically TRI will always be higher 10%, the actual return would have
and small-cap was left to each fund than PRI, which means the been higher by the expense ratio,
house and thus investors were not outperformance of the funds that was which has been deducted to arrive at
getting a fair bargain when they were using PRI as the benchmark was the NAV return. TER is regulated by
comparing schemes because of the being overstated. SEBI and limits have been
fluidity of the definition. pre-defined.
It was actually helping fund managers
To eliminate confusion and bring in by requiring them to make lesser It is essential to mention here that the
more discipline, SEBI has clearly returns to beat the benchmark. TER for direct plans (where no
chalked out what each of these distributor is involved) is lower by 25
categories should include in order to SEBI has also asked mutual fund bps to as much as 1% as the
bring about uniformity. companies to show CAGR of TRI to investment is done by you without
enable investors to compare scheme any middlemen i.e. the
Large-cap mutual fund schemes can returns to the benchmark. This agent/distributor. This will enhance
include 1st to the 100th company in regulatory change will make sure that your overall return.
terms of market capitalization, while there will be full transparency on
mid-cap can include 101st to the what the actual outperformance of a Should You Be Worried When You
250th company, and small-cap 251st mutual fund scheme is. See A Change In TER?
company onwards.
TOTAL EXPENSE RATIO (TER) On a corpus of `10 lakh, a 1 bps
The Association of Mutual Funds in DISCLOSURE change would mean `100 and a 5 bps
India (AMFI), the industry body, has change would mean `500. If changes
been mandated to list all companies If you are an existing investor in are small, then there is no cause for
with rankings based on market mutual funds, have you been concern as is the case currently. Its
capitalization, and would be updated receiving frequent emails from fund impact on returns is negligible.
every six months based on the date as houses giving information on the
on the end of June and December change in TER? Changes in TER Mutual fund houses provide the daily
every year. The data will be available always existed but it was not being NAV (Net Asset Value) to investors
within five calendar days from the communicated to investors regularly. after deducting the TER. For
end of the six month period. example, when an investor makes
SEBI came out with a circular on 5th 12% return on the mutual fund
The other recent changes introduced February asking fund houses to investment, the actual gross return
are as under: disclose any change in TER on a generated by the fund house would be
regular basis. This is why you will higher. Considering an expense ratio
BENCHMARKING OF SCHEME receive emails every time there is a of 2%, the gross return would be 14%.
RETURN TO TOTAL RETURN change in TER.
INDEX IS THE REGULATOR
What Is TER? JUSTIFIED IN MAKING ALL
The scheme’s performance is always THESE CHANGES?
compared to a benchmark index. TER is the total cost an investor has to
Most mutual fund schemes used to bear while investing in a mutual fund There is a school of thought that these
benchmark their returns to the Price scheme. Costs such as fund changes have created far too much

disruption. Why be a spanner in the managers for the first time will have with each scheme along with the
works for an industry that has been to work within the rules set and will returns from them.
sailing smoothly with no investor not have the flexibility to juggle in
outcry for change? and out of large-caps, mid-caps or Increase In Size Of Schemes: The
small-caps based on which one is merger of schemes will lead to a rise
It is this complacency that needs to be performing better. in assets under management (AUM).
challenged especially when there are Managing a large scheme requires
glaring discrepancies. Just changing Large-cap mutual funds must invest skill and expertise. The fund
the nomenclature of a scheme with at least 80% in top 100 companies in managers will definitely be tested for
everything else being the same is no terms of full market capitalization. this sudden rise in assets.
choice to investors. Mid-caps must invest a minimum of
65% of assets in 101st - 250th IN A NUTSHELL
Also, investors should be very clear company and small-caps too must
about where their money is being invest a minimum of 65% of their It has never been easier to deal with
invested. So, water-tight definition is assets in the 251st company onwards. mutual fund companies because they
essential because fluidity in the have all gone digital. Technology has
definition can expose the investor to This may impact the returns as they made it easier to make a new
risks he may not be particularly keen may not be able to outperform by investment, redeem and monitor
on taking. juggling in and out. investments on the go, at any time.
By initiating TRI, investors get a In the immediate term, in order to If you hold investments in multiple
better sense of how good the fund meet the guideline set, they may have mutual fund companies, you have
manager is in stock picking. When the to reshuffle their portfolios, which different websites like CAMS and
going is good, nobody complains. But may also impact the overall returns. Karvy that summarize all your
when the tide turns, you don’t want holdings to give you a snapshot of
investors to be dissatisfied on leeway Investors May Need To Reshuffle your investments.
that this industry has because of lack Their Portfolios: On account of the
of regulation. merger of schemes by fund houses, SEBI has taken steps in the right
investors may need to revisit their direction. It is making this industry
This step is in the right direction as it portfolios to see if the schemes fit even better by rationalizing,
will standardize the industry and their investment objectives. standardizing and bringing in
bring in transparency for investors for transparency at a time when the going
prudent decision-making. Short-term As per the latest AMFI release, that is, in good.
disruption is definitely likely, but June this year, the number of
long-term benefits seem imminent. open-ended schemes has come down These initiatives are encouraging for
to 811 from 840. the investor community that sees the
WHAT CHANGES WILL mutual fund industry as an avenue to
INVESTORS BE WITNESSING? Investors are better placed to make diversify its portfolio and generate
decisions as there will be a returns by handing over money to
Sticking To The Mandate: Fund comparison of the risk associated professional money managerS.
Permanent Income Hypothesis
Over their lives, people try to spread their spending more evenly than their income. The permanent income hypothesis,
developed by Milton Friedman, says that a person’s spending decisions are guided by what they think over their lifetime
will be their average (also known as permanent) income.
A sharp increase in short-term income will not result in an equally sharp increase in short-term consumption. What if
somebody unexpectedly comes into money, say by winning the lottery? The permanent income hypothesis suggests that
people will save most of any such windfall gains. Reality, however, may be somewhat different.

BALANCING
RISKS AND RETURNS
First-time investors can consider balanced advantage funds to ride
through volatile times
I
n the past few months, equity Balanced advantage funds are re-classification of mutual fund
markets in India have turned dynamic in nature and change their schemes by Securities and Exchange
volatile. Even as they continue investment patterns based on market Board of India (SEBI), it has created a
to rise and make new highs conditions. Its flexibility to move new segment for the industry. In the
every day, there is huge divergence in from equity to debt depending on past few weeks we have seen Franklin
the broader stock market indices. fixed formula (changes from fund Templeton and Kotak Mahindra
house to fund house) makes this Mutual Fund launching similar
Out of the top 50 stocks, only 10 to 12 mutual fund the best bet to ride mutual fund schemes.
stocks have managed to rise, while through volatile times.
others continue to languish. In such In the last one year alone, while the
times when volatility is at its peak, This fund category has caught the broader indices have given returns of
investors should look at investing in fancy of investors in the past few around 15%, mid- and small-cap
balanced advantage funds. years. But with categorization and segments have seen a complete
meltdown as both the indexes are to debt instruments, irrespective of perspective, then we see that several
marginally up. Those who entered market conditions. While in balanced of the top funds have generated
mutual funds by investing in such advantage funds, the fund manager returns of over 8% to 10% for the
funds in the last one to two years has the option to move from equity to three-year time frame and 15% to
might be staring at losses at present. debt or even arbitrage. 20% returns in the past five years.
With no clarity on domestic as well as The term arbitrage refers to Before jumping in to buy such funds,
international fronts, balanced simultaneously buying and selling a investors should understand that these
advantage funds will help investors. security in two different markets, with are dynamically managed funds,
Such funds can be invested by new the aim to profit from the price which can take equity exposure to as
and existing investors through difference. Since the transactions are high as 100% and even low of 15% to
lumpsum or systematic investment in either direction, the positions are 20%, if valuations are very high.
plans (SIPs). These mutual funds completely hedged.
invest in a mix of equity, debt and Even long-term returns of few top
arbitrage opportunities. Hence, arbitrage transactions are funds in the category have been
virtually risk-free and are capable of positive. The 10-year returns of
In this article we explain how such earning single digit risk-free returns. HDFC Balance Advantage Fund and
funds invest, their strategy and how it These funds can have some allocation Invesco India Dynamic Equity Fund
can help investors build wealth even to arbitrage strategy, which is not are 15.39% and 13.64%, respectively.
as uncertainty prevails in the market. there in pure balanced funds.
Invesco India Dynamic Equity Fund’s
WHAT ARE BALANCED If we look at Principal Balanced investment objective is to manage
ADVANTAGE FUNDS Advantage Fund, then we see that it volatility. To do this, the fund pursues
seeks to generate long-term capital an active hedging strategy, whereby it
Balanced advantage funds are appreciation with relatively lower takes suitable short positions in
dynamic asset allocation funds and volatility by allocating funds to equity derivatives instruments. Any point of
balanced funds are pure hybrid funds, assets based on Price to Earnings time the short position in derivatives
after new schemes’ re-classification Ratio (PE Ratio) levels. will range between 0% to 50% of the
by the regulators. net assets of the fund.
When the markets become expensive
Balanced funds are hybrid funds, in terms of Price to Earnings Ratio, Further, the net long position (long
which have predetermined asset the scheme will reduce its allocation positions net of shorts) will always be
allocation, whereas dynamic asset to equities and move assets into debt equal to or higher than 50%. Thus, the
allocation funds have asset allocation and/or money market instruments and fund will use futures and options to
which is dynamic, meaning equity vice versa. hedge the values of its investments
and debt allocation is adjusted as per against changes resulting from the
the market conditions. The Axis Dynamic Equity Fund will prevailing market conditions.
focus on P/E ratio, trend and volatility
These funds use valuation matrix to to determine equity and debt Many times, after the deep correction
adjust asset allocation. So, when exposure. The P/E ratio will measure in the equity markets, there is a sharp
equity markets are at their peak, these market valuation, trend will capture rebound and funds having higher
funds reduce their equity exposure market direction and volatility will exposure in debt might lose out on
and enter the debt market. And as capture market risk. booking the gains.
valuations go down, they increase
exposure to equities. Such funds In this scheme, the fund manager will Even as balanced advantage funds set
typically perform better in the follow its periodic re-balancing of the their asset allocation as per the
markets, which is sideways and not portfolio after every two months. This direction of the markets, they tend to
particularly in bull or bear market. fund will also look at investing in keep a minimum 65% exposure to
units issued by REITs and InvITs. equity at all times.
Balanced advantage funds are less
volatile than pure balanced funds as HOW CAN IT HELP INVESTORS If they find valuations are high, then
they maintain a 65% to 100% they move to arbitrage strategy, which
allocation to equities, and 0% to 35% If we look at it from pure returns ensures that they stay at 65% to get

tax benefits. has the option to move from equity, advantage funds, the fund manager
debt and arbitrage at any given point can invest just 40% in equity and the
This is the fund for investors who are of time. This one factor is one of its remaining 25% can be managed
looking at steady growth and are biggest advantages as assets can be through arbitrage investments,
unfazed by market movements. moved from equity to debt if the debt making them tax-efficient as any
Performance of such mutual fund market turns attractive and other equity fund.
schemes also depends on the fund vice-versa.
manager as they take decision on Pure balanced funds have managed to
investments and formula adopted to Another reward for balanced give similar returns in the 10-year
set the asset allocation. advantage funds is that they are more time frame, but with comparatively
tax-efficient than pure balanced higher volatility. However, balanced
IS IT ANY DIFFERENT FROM funds. Pure balanced funds invest advantage funds are not as uncertain
BALANCED FUNDS around 50% (less than 65% to claim as pure balanced funds.
as equity scheme) of their assets in
After re-classification of schemes by equity and the balance in debt. Here, IN A NUTSHELL
the regulator, there are clear strictures hedged equity positions or arbitrage
laid down for each and every category exposure is not allowed. Balanced advantage funds have their
of the fund. For balanced hybrid fund pros and cons. But first-time investors
(which is pure balanced fund), As these funds qualify as non-equity can certainly look at investing in this
investments in equity and equity- schemes, gains on units redeemed category. It is always advisable to
related instruments will be between before the completion of 36 months is start mutual fund investments through
40% and 60% of the total assets, considered as Short-term Capital balanced or balanced advantage funds
while for debt instruments it will be Gains (STCG). and then move on to pure equity or
between 40% and 60% of the total thematic funds. SIPs have taken up in
assets. No arbitrage would be In balanced funds, the fund manager a big way in India in the past five to
permitted in this scheme. can’t invest more than 60% in equity seven years. But in balanced
even though the markets look advantage funds, one can also invest
But for balanced advantage funds it attractive to them. But in balanced through lumpsum amountS.
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FIXING
INCONSISTENCIES
Insurance regulator IRDAI hopes to fix anomalies in health
insurance policies by bringing in uniformity in exclusions
I
nsurance regulator, Insurance working group of 10 members, which working group will offer its
Regulatory and Development will examine the issue and submit recommendations, which is likely to
Authority of India (IRDAI) suitable recommendations. give more clarity to policyholders
last month set up a 10-member about the exclusions.
working group to bring in The working group to be chaired by
much-needed uniformity in Suresh Mathur, ED (Health)-IRDAI WHAT TRIGERRED THIS
exclusions in health insurance intends to examine the exclusions MOVE
policies. Exclusions are worded prevalent in health insurance policies
differently by general insurance and rationalize them by minimizing According to media reports, this
companies that sell health insurance their number to enhance the scope of move by the regulator was triggered
policies. IRDAI plans to reduce the health insurance coverage. after the Delhi High Court passed a
list of exclusions, which will benefit a judgement few months back. In it, the
lot of policyholders, going forward. The group was formed mainly to HC said the current exclusionary
standardize health insurance, to clause for genetic disorders in
Exclusions are illnesses or medical enhance transparency and uniformity. insurance policies is too broad,
conditions that are not covered by IRDAI in its order stated, “With the ambiguous and discriminatory.
insurance companies. In the past we increase in the number of companies
have seen that health insurance providing health insurance, there is an At that time, it had asked IRDAI to
policies cover most common illness. increase in the number of products relook at the exclusionary clause in
But certain medical conditions like offered. It is desired that the industry insurance contracts and ensure that
pre-existing diseases, hospital costs adopts a uniform approach while insurers do not reject claims based on
and injuries caused due to suicide incorporating the ‘exclusions’ as part exclusions relating to genetic
attempts, among others are not of product design as well as for the disorders in claimants.
included in the coverage. These wording of ‘exclusions.’”
conditions are commonly known as One of the most argumentative issues
health insurance exclusions. IRDAI also wants to study today in health insurance policies,
wordings/language of the exclusions which is also the cause for the highest
A health insurance plan plays an and standardize the wordings of number of grievances lodged by
important part in personal finance of exclusions in a simple and health insurance policyholders,
an individual’s family. Apart from easy-to-understand language. It also relates to exclusions under a health
having life insurance and investments wants the committee to study the insurance contract. With more
in equity, health insurance is an scope for allowing individual-specific number of products launched in the
essential part of an investment and/or ailment-specific permanent market, the list of exclusions by
portfolio. Not having proper health exclusions at the time of underwriting insurers is also growing to avoid any
insurance can jeopardize savings of a so that the policyholders are not legal problems.
person’s family in case of a disease or denied health insurance claims
an illness. unrelated to the exclusions. In the past we have seen numerous
disputes between insurers and
This move on part of IRDAI is As stated earlier, insurers decide policyholders due to wordings of
policyholder-friendly, apart from exclusions based on their products, exclusions. According to industry
offering better services and clarity on benefits offered, insured profile, and participants, rationalization of
exclusions. In the past too, IRDAI risk appetite for the segment. It is exclusions will help customers get
had formed a committee to look into noticed that a huge number of better understanding of their health
pre-existing diseases and critical exclusions create more confusion in insurance policies. It is also likely that
illness, which has simplified health the minds of policyholders instead of it will bring uniformity in claims
insurance policies for commoners. offering them more clarity. process across the health insurance
industry, which will reduce customer
WHAT DOES THE REGULATOR Right now if policyholders buy health grievances and litigations.
INTEND TO DO insurance, the wordings of the
exclusions are open and leave room POINTS TO PONDER
To bring in standardization of for interpretation. Many times, these
exclusions in health insurance issues lead to rejection of claims and Till the new norms on uniform
policies, the IRDAI has formed a in some cases litigation too. This exclusions come into existence, the

buyer must do his/her own due called as ‘waiting period’. Claims due that this practice is a good start from a
diligence before buying a health to pre-existing illness will be rejected regulator and will bring in
insurance policy. Whether a person is by insurers. Also, one should properly much-needed clarity in the overall
buying a life, non-life or health read exclusions before buying the health insurance segment. The
insurance policy, he/she must read the policy as having one of the diseases, exclusion list today uses several
fine-print before buying the said which is excluded in the form, might medical as well as legal jargon, which
policy. This is because despite having also lead to rejection of a claim. makes policyholders nervous before
a health insurance policy, a buying a policy.
policyholder’s claims could be Despite reading policy documents
rejected under several conditions. carefully at the time of purchase of Many times, there are people who buy
the policy, many investors are e-policies online or through web
Unpaid premiums and giving wrong unaware about the stated policy aggregators, and in some cases claims
information can lead to claims being exclusions and the waiting period till issue regarding exclusions might even
rejected by insurance companies, as is the point of the claim. Typically, the led to the policy not being renewed.
seen in life as well as non-life waiting period is around three to four
insurance industry. But in health years, after which diseases which The time is right to provide
insurance, several insurers have were not covered start getting covered exclusions in simple wordings which
conditions for pre-existing illness. in the policy. can be understood by everyone. Also,
insurers should look at providing few
Typically, insurers will not cover any IN A NUTSHELL of the diseases or surgeries that are
pre-existing illnesses for the first four currently excluded from a person’s
years of the policy - which is also Several industry participants believe health insurance policY.
eyond Powered by
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Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risks. Investment in Securities/Commodities market are subject to market risks. Read all the related documents carefully before investing. Please read the Do’s and Don’ts prescribed by the
Commodity Exchange before trading. We do not offer PMS Service for the Commodity segment .The securities quoted are exemplary and are not recommendatory. NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498 ) : INB011072759, INF011072759, Exchange Registered Member in CDS; NSE
MEMEBR ID- 09391 ) : INB230939139, INF230939139, INE230939139; MSEI Member ID-1067 ) : INB260939138, INF260939138, INE260939139: PMS Registration No: INP000002981; Research Analyst Registration No: INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99 and NIRMAL BANG COMMODITIES PVT LTD
– MCX (Member ID -16590 /NCDEX Member ID -0362 /NMCE Member ID –CL0285 /ICEX ( Member ID -1165) : INZ000043630; NCDEX Spot: 10084; Comtrack Participants: CPID -5040; CDSL Commodity Repository Ltd: 12013300

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Key Ratios, Shareholding Patterns, Mutual Fund Holdings and much more to help you take
right investment decisions based on information that matters to you.
Download BEYOND App on
Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risks. Investment in Securities/Commodities market are subject to market
risks. Read all the related documents carefully before investing. Please read the Do’s and Don’ts prescribed by the Commodity Exchange before trading. We do not offer PMS
Service for the Commodity segment .The securities quoted are exemplary and are not recommendatory.
NIRMAL BANG SECURITIES PVT LTD – BSE (Member ID- 498 ) : INB011072759, INF011072759, Exchange Registered Member in CDS; NSE MEMEBR ID- 09391 ) : INB230939139,
INF230939139, INE230939139; MSEI Member ID-1067 ) : INB260939138, INF260939138, INE260939139: PMS Registration No: INP000002981; Research Analyst Registration No:
INH000001766; NSDL/ CDSL: IN-DP-CDSL 37-99 and NIRMAL BANG COMMODITIES PVT LTD – MCX (Member ID -16590 /NCDEX Member ID -0362 /NMCE Member ID –CL0285 /ICEX
( Member ID -1165) : INZ000043630; NCDEX Spot: 10084; Comtrack Participants: CPID -5040; CDSL Commodity Repository Ltd: 12013300

Buckfast Recommendations
Finance is a maze of umpteen possibilities and choices. And it is easy for individuals to lose their
way in this tangle. In such a scenario, an expert comes handy. For, he alone can wade through
the enigmatic world of finance and simplify choices for investors.
Buckfast Research, the research arm of Buckfast Financial Advisory Services Pvt Ltd,
recommends mutual fund schemes that can be considered by investors.
About Buckfast Research

Buckfast Research, the research arm of Buckfast Financial Advisory Services Pvt Ltd is guided by
Mr Vijai Mantri and a team of professionals with more than 50 years of cumulative experience
with leading Indian and Global Mutual Fund companies.
A number of parameters have been taken into consideration while making the
recommendations. Some of the guidelines are track record of the scheme and consistency, risks
associated with the scheme, fund house pedigree and credentials of the fund manager.
However, there is no specific time frame for the investment as such. It depends entirely on an
investor’s objectives, investment timeline, risk tolerance and type of scheme he/she wishes to
invest in. By and large, equity schemes are suggested with a long-term investment horizon.
Disclaimer
Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.
Source: ACE MF, NAV as on 15th Aug ’18.
SIP returns as on 30th June ’18. M=Months, Y=Year, D=Days
Past performance is no guarantee of future performance.
Returns are of Growth option of Regular plans
Returns which are below 1 year period are Annualized Returns
Diversified Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
IDFC Focused Equity Fund 39.85 10.80 12.80 16.45 11.90 11.24 1736
Tata Equity P/E Fund 141.68 11.45 16.81 26.96 18.11 16.25 4669
Edelweiss Multi-Cap Fund 14.82 18.44 12.30 - - - 102
Kotak India EQ Contra Fund 52.86 18.31 13.05 18.62 15.93 13.22 496
SIP
Edelweiss Multi-Cap Fund 14.82 3.68 15.20 - - - 102
IDFC Focused Equity Fund 39.85 3.75 18.46 15.37 14.20 12.56 1736
Invesco India Growth Opp Fund 35.00 5.56 15.13 15.95 16.56 15.54 774
Kotak India EQ Contra Fund 52.86 10.53 16.42 15.13 15.33 14.33 496
SBI Focused Equity Fund 138.24 4.45 14.67 17.10 17.54 19.51 2964

Large Cap Funds
Historic Return (%)
Lumpsum
Axis Bluechip Fund 28.58 22.71 12.42 18.16 15.93 - 2568
Edelweiss Large Cap Fund 36.60 20.28 11.30 17.90 15.46 - 141
ICICI Pru Bluechip Fund 41.98 13.09 11.45 18.25 15.36 15.71 18747
Invesco India Largecap Fund 29.30 15.22 10.52 18.04 14.50 - 152
SIP
Axis Bluechip Fund 28.58 19.05 17.59 15.47 15.98 - 2568
Edelweiss Large Cap Fund 36.60 10.27 14.01 13.93 14.73 - 141
ICICI Pru Bluechip Fund 41.98 2.38 12.80 13.63 14.67 15.24 18747
Invesco India Largecap Fund 29.30 5.70 11.94 13.26 14.11 - 152
Mid and Small Cap Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 Year 3 Years 5 Years 7 Years 10 Years
Lumpsum
Reliance Small Cap Fund 43.05 14.94 18.19 36.90 24.49 - 7019
HDFC Small Cap Fund 44.34 21.24 17.85 24.48 18.45 16.89 4578
Edelweiss Mid Cap Fund 28.28 13.97 11.48 28.13 20.53 15.96 786
SBI Small Cap Fund 54.63 20.27 19.07 35.32 26.20 - 917
SIP
Edelweiss Mid Cap Fund 28.28 -4.64 13.12 19.75 21.69 20.72 786
HDFC Small Cap Fund 44.34 3.81 20.89 21.38 20.79 18.99 4578
Invesco India Midcap Fund 50.85 -2.31 11.54 17.31 19.27 19.85 193
SBI Small Cap Fund 54.63 -9.49 17.59 26.65 27.62 - 917
ELSS Schemes (Tax Saving u/s 80-C)

Historic Return (%)
Lumpsum
IDFC Tax Advt(ELSS) Fund 57.24 11.78 11.78 22.00 17.75 - 1635
Invesco India Tax Plan 53.01 20.37 12.51 23.34 17.40 17.35 592
Mirae Asset Tax Saver Fund 17.26 14.97 - - - - 1101
Aditya Birla SL Tax Relief '96 32.57 17.45 12.94 24.16 17.94 14.55 6569
Axis Long Term Equity Fund 45.15 19.98 11.63 25.13 20.32 - 18262
SIP
Aditya Birla SL Tax Relief '96 32.57 5.60 15.65 18.48 19.26 17.28 6569
Axis Long Term Equity Fund 45.15 12.25 15.74 18.44 20.39 - 18262
Invesco India Tax Plan 53.01 9.84 15.25 17.25 18.06 17.65 592
Motilal Oswal Long Term Equity Fund 18.13 1.03 17.92 - - - 1119
Dynamic Asset Allocation Funds

Historic Return (%)
3 month 6 month 1 Year 3 Years 5 Years
Invesco India Dynamic Equity Fund 29.12 0.55 6.58 6.43 8.71 15.67 1154
SBI Dynamic Asset Allocation Fund 13.32 8.31 10.87 10.99 9.81 - 228

Balanced Funds
Historic Return (%)
Lumpsum
Mirae Asset Hybrid - Equity Fund 14.21 10.27 11.88 - - - 1280
Reliance Equity Hybrid Fund 55.77 7.07 10.60 19.22 14.97 15.23 14203
SBI Equity Hybrid Fund 130.16 12.11 10.10 18.69 15.82 13.11 26376
Principal Hybrid Equity Fund 77.41 13.67 14.37 19.17 15.19 12.26 1510
SIP
Mirae Asset Hybrid - Equity Fund 14.21 1.73 - - - - 1280
Reliance Equity Hybrid Fund 55.77 -0.10 11.04 13.85 14.80 14.90 14203
SBI Equity Hybrid Fund 130.16 2.75 10.44 13.33 15.19 14.34 26376
Principal Hybrid Equity Fund 77.41 3.24 15.60 15.76 15.96 14.37 1510
Equity Savings (Arbitrage MIP) Funds

Historic Return (%)
DSPBR Equity Savings Fund 12.53 4.58 4.46 5.13 - - 1679

Kotak Equity Savings Fund 13.85 11.08 8.44 8.50 8.24 - 2260
Axis Equity Saver Fund 12.61 17.06 14.58 10.81 8.03 - 733
Edelweiss Equity Savings Fund 13.64 11.39 9.24 9.83 7.79 - 128
Monthly Income Plans

Historic Return (%)
Axis Regular Saver Fund 19.17 11.10 8.19 7.47 6.48 10.29 339
ICICI Pru Regular Savings Fund 40.56 5.96 7.00 5.83 9.19 12.56 1646
Invesco India Regular Savings Fund 1755.94 11.89 8.27 5.22 6.93 7.51 20
DSPBR Regular Savings Fund 36.75 4.91 3.43 3.58 7.35 10.05 388
Corporate Bond Funds

Historic Return (%)
Edelweiss Corporate Bond Fund 13.50 6.54 4.11 3.61 6.59 - 316
Franklin India Corp Debt Fund-A 62.26 7.56 5.75 5.43 7.72 9.24 818
IDFC Corp Bond Fund 12.08 7.79 5.83 4.58 - - 11002
Reliance Prime Debt Fund 37.20 7.72 6.56 5.97 7.59 8.44 5737
Dynamic Bond Funds

Historic Return (%)
Franklin India Dynamic Accrual Fund 62.67 9.45 6.67 6.23 8.79 9.80 3442
ICICI Pru All Seasons Bond Fund 21.94 7.17 5.86 2.45 8.84 10.72 2088
IIFL Dynamic Bond Fund 14.09 6.60 4.87 4.15 6.95 8.28 446
Kotak Dynamic Bond Fund 22.62 8.64 5.21 3.48 8.35 8.85 728

Credit Risk Funds
Historic Return (%)
Baroda Pioneer Credit Risk Fund-A 13.70 6.73 5.84 5.37 8.83 - 982
BOI AXA Credit Risk Fund 13.70 8.39 8.27 7.55 9.68 - 1649
Franklin India Credit Risk Fund 18.46 9.28 7.04 6.60 8.21 9.61 7100
Invesco India Credit Risk Fund 1392.44 7.04 5.91 5.32 8.11 - 420
Reliance Credit Risk Fund 24.63 8.33 6.03 5.30 7.87 8.90 10912
Banking & PSU Debt Funds

Historic Return (%)
HDFC Banking and PSU Debt Fund 14.20 7.62 4.33 4.15 7.70 - 3178
Kotak Banking and PSU Debt Fund 39.83 7.77 5.31 4.40 7.44 8.57 929
UTI Banking & PSU Debt Fund 14.50 7.56 5.99 5.36 8.25 - 895
Medium to Long Duration Funds

Historic Return (%)
ICICI Pru Bond Fund 24.34 6.72 2.99 1.81 6.96 9.02 3181
SBI Magnum Income Fund 42.75 6.95 3.76 2.13 7.69 8.09 1585
UTI Bond Fund 52.18 4.75 4.59 0.48 7.04 8.28 1094
Medium Duration Funds

Historic Return (%)
Aditya Birla SL Medium Term Plan 22.38 7.85 6.21 5.08 8.27 9.61 11413
Axis Strategic Bond Fund 17.22 7.66 5.76 5.32 8.31 9.57 1495
Franklin India Income Opportunities Fund 21.14 9.79 7.34 6.78 8.28 9.55 3698
UTI Medium Term Fund 12.97 6.41 4.98 4.81 7.99 - 227
Short Term Funds

Historic Return (%)
1 month 3 month 6 month 1 Year 3 Years
Aditya Birla SL Short Term Opp Fund 29.29 7.69 6.99 5.35 4.23 7.54 4202
Franklin India ST Income Plan 3758.08 10.39 9.58 7.42 6.64 8.19 10855
HDFC Short Term Debt Fund 19.57 7.23 7.94 6.46 5.61 7.57 10502
IDFC Bond Fund - Short Term Plan 35.92 7.05 7.50 5.40 4.50 6.93 5223

Money Market Funds
Historic Return (%)
DSPBR Savings Fund 34.89 7.03 8.22 7.07 6.42 6.49 272
L&T Money Market Fund 17.60 6.75 7.41 7.03 6.83 8.03 926
Reliance Money Market Fund 2679.94 7.18 8.02 7.64 7.15 7.28 1340
Tata Money Market Fund 3284.01 7.28 8.12 7.69 7.22 7.31 1610
Low Duration Funds

Historic Return (%)
Franklin India Low Duration Fund 20.51 8.26 8.84 7.95 7.22 8.82 6143
ICICI Pru Savings Fund 340.97 7.00 8.04 7.05 6.38 7.84 18235
IDFC Low Duration Fund 25.17 7.01 7.60 6.74 6.25 7.62 4224
L&T Low Duration Fund 19.06 6.76 7.18 5.94 5.83 8.37 1448
Principal Low Duration Fund 2834.59 6.16 7.16 7.18 6.64 7.74 582
Ultra Short Term Funds

Historic Return (%)
Aditya Birla SL Savings Fund 350.11 7.27 7.89 7.12 6.52 7.96 18728
Kotak Savings Fund 28.51 6.96 7.55 7.24 6.57 7.42 7294
Reliance Ultra Short Duration Fund 2766.50 7.23 7.79 7.06 6.48 6.53 3806
UTI Ultra Short Term Fund 2894.87 6.87 7.22 6.88 6.28 7.56 5682
Liquid Funds
Historic Return (%)
Aditya Birla SL Liquid Fund 285.70 7.09 7.28 7.33 7.02 7.28 53017
ICICI Pru Liquid Fund 263.24 7.10 7.28 7.33 6.99 7.26 46996
Reliance Liquid Fund 4335.71 7.14 7.32 7.33 7.01 7.27 39579
Tata Liquid Fund 2800.73 7.15 7.36 7.34 7.03 7.27 19956
Arbitrage Funds
Historic Return (%)
Edelweiss Arbitrage Fund 13.20 5.73 5.62 5.90 6.26 - 4980

Indiabulls Arbitrage Fund 12.71 5.20 5.18 5.79 6.32 - 260
Kotak Equity Arbitrage Scheme 25.39 5.78 5.82 6.03 6.24 7.32 11805
Reliance Arbitrage Fund 18.21 6.15 6.25 6.29 6.24 7.16 8720

TECHNICAL OUTLOOK
T
he Indian stock market witness some profit-booking at the stocks from Finance and Metals
was euphoric in the fourth higher level. However, traders are sectors are likely to underperform in
week of August as it advised to use this opportunity to take the September expiry.
touched new highs every some profits off the table at 11,670-
single day. The market breadth too 11,700 levels. India VIX, which measures the imme-
improved slightly with small- and diate 30-day volatility in the market,
mid-cap shares participating in the Overall, the view on the Nifty is remained in the range of 11-14 for
rally. Also, the Nifty crossed the positive with an upside at 11,370- most part of June. Going forward,
11,620-mark for the first time ever. 11,400 as immediate support levels. VIX will continue to remain in the
Any move above the 11,670 level on a range of 11 to 17.
Positive cues from the global markets closing basis, and upside of 11,840-
and recovery in the rupee from its 12,000 levels are likely targets. So a The Put Call Ratio-Open Interest
recent all-time low of 70.40 to the positive bias may be maintained with (PCR-OI) for Nifty Options has been
USD helped markets gain. a trailing stop loss of the 11,370 level in the range of 1.5-1.8 in the month of
on a closing basis. The long-term August. Going forward, it is expected
Our indices were resilient in spite of uptrend will change only if it to fall, implying a bearish undertone
negative global headwinds regarding manages to give the breakdown of in the market.
tariff wars, sanctions on Iran and 10,940-mark on the closing basis.
political slugfest among the US, The markets are believed to remain
China and Russia. The Bank Nifty has an immediate highly volatile in the month of
resistance around the 28,400 level. September with bouts of selling
Bull markets are currently ignoring Any movement above this level on pressure near resistances of 11,600
the confrontational attitude of the US the closing basis is likely to extend and 11,800, and strong buying
with the rest of the world in addition the rally towards 29,000 -29,300 support near important supports of
to rupee deprecation, which could levels. There is an important support 11,400 and 11,200.
lead to major disasters. at the 27,800-27,740 levels on a
weekly closing basis. OPTIONS STRATEGY
The only positive worth pointing out LONG STRADDLE SPREAD
is that the earnings outlook is seen On the Nifty Options front for the
improving. One must always remem- September series, the highest Open It can be initiated by ‘Buying 1 lot
ber that bulls prosper in peace and Interest (OI) build up is near 11,400 27Sep 11550 CE (`190) and Buying 1
bears in turmoil. and 11,000 Put strikes, whereas on the lot 27Sep 11550 PE (`120)’. The net
Call side, it is observed at the 12,000 combined premium outflow comes to
Traders are getting more confident of and 11,600 strikes. around 310 points, which is also your
further gains in the market in the short maximum loss.
term. Nifty is being driven by a The index can continue its positive
couple of counters, which may momentum if the rollovers are strong One should keep a SL of 60 points.
continue to take it upwards. Eventu- during expiry. Select stocks from Keep a target of 120-150 points gain.
ally, it will head to 11,670-11840 Pharma and FMCG sectors are A big move is expected, which can
levels, provided it stays above the expected to outperform while certain help the strategy to earn profitS.
11,370-11,400 mark on the closing Nifty Weekly Chart
basis. The Nifty may continue its
upside rally. But there will be volatil-
ity in between.
Technically, the Nifty is trading in an

upward sloping channel, demonstrat-
ing a positive view. The channel
shows that the Nifty has strong resist-
ance at 11,670 level. So, we may

SCARILY
GOOD Investors
must exercise
caution
while dealing
in high
growth
companies

A
t present a host of PETER LYNCH ON HIGH When earnings cycle reverses
financial media are GROWTH COMPANIES investors are often initially seen
putting out studies on the living in denial. They do not accept
list of fastest growing Legendary investor Peter Lynch, the fact that the factors that were
companies and industries. Investors known for investing in high growth driving earnings are no longer
keenly look out for this list. companies, and generating huge supportive. They often describe this
consistent returns for his fund for a as a short-term hiccup and are not
While some consider adding them to long period once said, “Be suspicious able to visualize the impending
their portfolios, others are happy for of companies with growth rates of 50 growth trap.
having bought stocks of such to 100 percent a year – it's too much.”
companies before the rest. Post the global financial meltdown of
He always favoured high growth 2008, companies operating in the oil
GROWTH CONUNDRUM companies. But they were mostly in and gas exploration sector, and allied
the region of 20% to 25%. It is not services like oil and gas rigs,
Most investors invariably look for that he was averse to investing in shipbuilding and shipping, which
high growth companies. By default hyper growth companies. This means were minting money, crashed as a
investors expect their chosen that one must be careful and cautious. result of the sudden drop in earnings
companies to go higher so that they owing to the crash in international
generate huge amounts of earnings, Peter Lynch who compounded crude oil prices.
reflecting in the movement of share investors’ money at 29% annually,
prices of such companies. had an army of analysts. In fact, he The real estate crash post 2009,
was himself engaged with companies infrastructure downfall post 2010,
Moreover, since high growth and products they were selling. He long recession in the capital goods
companies are in demand, they will would do a lot of ground work, which and power sector and PSU banking
command high valuation premium, would involve speaking to customers, sector crisis of 2017 all are examples
much to the delight of investors. suppliers, employees and others in the of investors missing out on the
value chain in order to get the right approaching earnings crisis.
And if you are quick to spot such perspective on his analysis.
companies at lower valuations, then The debacle of the telecom sector
they could be a great source of overall A GROWTH TRAP owing to increased competition
portfolio returns because of resulting from the entry of new
valuations re-rating at a later stage or Often investors find themselves players in the sector is still an eye
at the peak of the earnings cycle. caught on the wrong side of a trade as opener for many as companies have
they lack the required skills. They continuously reported a decline in
While this could be perfectly fine as would buy or invest at the peak of the their earnings.
long as growth is kicking, investors industry cycle or peak of the earnings
are often caught on the wrong side of cycle and become victims of their This is precisely why the timing of
the earnings cycle. own denial that earnings are no longer such investments becomes even more
growing. Telecom is one such important. Investors who are not able
For example, during the boom in the example at the moment. to time these cycles have lost heavily.
infrastructure and real estate space in
the year 2008, these companies Information Technology sector used It is even more risky to hold
reported strong earnings growth, thus to produce many such high growth investments in companies that are
encouraging investors to continue winners. Renewable energy, oil growing at a rapid pace on the back of
accumulating these stocks in the hope drilling companies, education sector temporary sectorial tailwinds or an
that they would keep on delivering and others were producing high exceptionally short-term situation in
with support from sectoral tailwinds. growth companies a few years back. which a company is operating.
Sadly, owing to the change in market Today, however, growth is not visible These companies and sectors become
dynamics and government policies, in companies from these sectors. hot overnight and then attract huge
these same companies are turning Instead, these companies are making investor participation led by
insolvent. Some of them are even all sorts of excuses to keep the faith of institutional investors, taking the
being auctioned. investors intact. company’s prices high.

Smart money would often enter early world over and positive sentiments strong adverse force could deflate
and leave before the others. But for about electric vehicles. This has led to earnings and derail the entire earnings
the rest, it is mostly a case of classic a spurt in earnings for many Indian growth cycle, causing many to fall
growth trap. and global companies that are into the earnings trap.
operating in the graphite and other
WHAT IS HOT TODAY related material space. What will happen to valuations if
industry growth comes down? Many
Today, chemicals, power T&D, Select companies from the companies in IT and pharma sectors
NBFCs, housing finance, retail stores, infrastructure sector like roads and suffered huge valuation de-rating on
graphite producers, companies from railways have attracted investors as account of slow growth.
the non-ferrous metals space as well companies are cashing in on
as mining stocks, and other niche and increased government spending on It is important to look at valuations in
small industries such as plastics and these segments. these cases along with growth. Under
plywood, among others, top the list of these situations, Peter Lynch would
fast-growing companies. The list never intends to illustrate that generally look at PEG ratio, which is
high growth sectors or companies in far more reliable than the price to
The up cycle in the chemical sector is these sectors could face trouble or earnings ratio, which does not take
largely fuelled by the shutdown of challenge. The idea is not to predict into account the growth in earnings.
large chemical capacities in China on what could go wrong. It is, however,
account of concerns over pollution important for any investor to remain The next pertinent question to ask is
and restriction on import of Chinese cautious and prepared. whether you are prepared for any
goods in the Western markets. Many eventuality if the situation arises and
Indian companies have benefited Rather than predicting an event, if your risk measures are in place. As
from this situation and reported which may or may not occur, it would someone said investing is all about
strong earnings growth. be better if investors were prepared managing the odds well. Charlie
for any adversity. One important area Munger, Warren Buffett’s partner,
Similarly, graphite, an electric to look for is re-assessing growth illustrated this dilemma very well
conductor, is much in demand drivers in terms of their durability, when he said, “All I wanted to know
because of global capacity sustainability and possible is where could I die, I would never go
constraints, sudden increase in prices hindrances. It is likely that an equally to that situatioN.”
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.
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Fo r a c c o u n t o p e n i n g , g i v e u s a m i s s e d c a l l o n 1 8 0 0 3 1 5 7 5 7 7

IMPORTANT JARGON
IS TRADE WAR SPIRALLING INTO A What Is The Impact Of Trade War On End
CURRENCY WAR? Consumers?
I n the last six months, the United States of America has As imports get expensive, either imports slow down or the
taken many protectionist measures by imposing tariffs on increase in price (due to tariff hike) gets passed on to the
imports to safeguard its domestic industry. end customers. In the former, domestic industry fills the
gap. But, if the domestic industry is not technologically
Impacted nations, especially China, have retaliated by adept or if it lacks resources, a trade war would help fan
similar moves. It is feared that these trade wars would mediocrity in the local industry.
swell into a fully fledged currency war – where countries
artificially lower their currencies to help exports. A trade war also triggers inflation as the price of imported
goods rise. Higher inflation leads to central banks raising
Apart from the grave impact on global growth, a currency interest rates which hamper growth. A trade war also spoils
war will have serious implications on the financial markets relations between nations.
as well.
At the current juncture, USA is at loggerheads with China
What Is A Trade War? and the European Union, accusing them of artificially
keeping their currencies and interest rates lower, and
A trade war begins when one nation imposes tariffs and dumping cheap goods in the global market.
quota limits on imports from other countries. The
impacting nation retaliates by adopting a similar kind of What Is A Currency War?
protectionist measure.
At the current juncture, it is feared that nations impacted
Take for instance on 2nd August the US announced a 25% by tariff hikes may retaliate by artificially devaluing their
tariff on Chinese goods ranging from industrial equipment currencies to jack up exports. As nations try to manage
like tractors and plastic tubes to chemicals. In response, their currencies and interest rates, the global financial
China announced a 25% tariff on items ranging from system, which is interlinked today, may be at stake.
automobile and coal.
It is feared that a trade war may spiral into a currency war.
What Is The Broader Impact Of A Trade War? China, the world’s largest exporter, may devalue its
currency, it is feared.
Typically, nations indulge in such tactics to help domestic
growth and increase jobs. While in the short run such Is A Currency War Already Underway?
measures help domestic growth and job creation, in the
long run, however, a trade war depresses economic growth The Reserve Bank of India (RBI) Governor Urjit Patel has
for all countries involved. said that we are possibly at the beginning of a currency
war. Global currencies have already turned volatile.
As trade war escalates between nations, it impacts
international trade and lowers global growth. The Chinese currency has depreciated around 8% in the

last few months. The US dollar has appreciated sharply in The fall is already around 7% in 2018. If the Indian rupee,
recent months, partly because of improving economic which has already depreciated much, doesn’t fall in
growth back home and tighter monetary policy by the US proportion to other currencies, it might impact its exports.
Federal Reserve, their central bank. It’s unclear if currency
movements are because of artificial interventions or a This will lead to a widening of trade deficit and current
reaction to market forces. account deficit. India’s CAD is expected to rise to 2.8% of
the GDP from 1.9% in FY18.
But, in the past, China has been often accused of keeping
its currency artificially low. It is likely that other countries What Is Even More Worrisome?
will also join the currency war to help their economies.
For its energy needs, India mainly depends on imports of
Has It Happened In The Recent Past? crude. The depreciating rupee will make crude expensive.
Also, the US has put sanctions on Iran.
Post the financial crisis of 2008, when the US and other
developed economies started with their expansive So, from November, India will have to search for other
monetary policies to help their domestic economies, China avenues to source crude. Higher crude import prices would
was at the receiving end. drastically alter macroeconomic fundamentals. Even if
crude stays stable at around $80/barrel, the depreciating
After years of slowdown, China finally in 2015 had rupee will still make it expensive for India, thereby
abruptly devalued its currency. This spooked global increasing inflation.
markets and triggered panicky capital outflows from all
asset classes. How Can India Safeguard Itself From Trade And
Currency War?
Where Does India Fit Into All This?
In order to safeguard India’s interest, it would be forced to
The US has also accused India of managing currency and keep its currency stable. Indian foreign exchange reserves
interest rates to export more into the US. Indian industries are declining of late. The reserves have dropped from $425
like steel and aluminium have been negatively impacted billion to $405 billion in recent months. The fall in
because of tariff imposition. Thus, even India loses reserves is because of market intervention by the RBI to
because of the trade war. keep the Indian rupee stable.
But the Indian economy is primarily a domestic What Will Be The Impact On The Financial Markets?
consumption story. So, the direct damage of the trade war
would be little. India’s key macroeconomic variables such as fiscal deficit
and current account deficit are at a risk. But the broader
How Could A Currency War Impact India? fear is of capital flight if the macroeconomic situation in
the country worsens.
Although direct impact would be little, an emerging
market like India is vulnerable to a currency war. The Foreign flows have already been falling of late. The trade
Indian rupee has already hit an all-time low by going and currency war would further increase the woes of the
below 70 level to USD. Indian economy and the marketS.
Sterilised Intervention
When a government or central bank buys or sells some of its reserves of foreign currency this can affect the country’s
money supply. Selling reserves decreases the supply of the domestic currency. However, buying reserves increases the
domestic money supply. Governments or central banks can sterilise (that is, cancel out) this effect of foreign exchange
intervention on the money supply by buying or selling an equivalent amount of securities. For example, if the government
increases reserves by buying foreign currency the domestic money supply will increase, unless it sells securities such as
treasury bills to mop up the extra demand.

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MAHENG/2009/28962 | Volume 10 Issue 08 | 16th - 31st Aug ’18

Pushing large borrowers to tap the bond

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