RNI No. MAHENG/2009/28962 | Volume 12 Issue 06 | 16th ...€¦ · The easing of lockdown restrictions has helped revive business activity in the country, offering a ray of hope to

The easing of lockdown restrictions has helped revive business activity in the country, offering a ray of hope to the bruised Indian economy

RNI No. MAHENG/2009/28962 | Volume 12 Issue 06 | 16th - 31st Jul ’20Mumbai | Pages 52 | For Pr ivate Circulat ion

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Beyond Market 16th - 31st Jul ’20 It’s simpli�ed...3

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Reason For OptimismThe easing of lockdown restrictions has helped revive business activity in the country, o�ering a ray of hope to the bruised Indian economy - Page 6A Rising SuperpowerReliance Jio wants to become Alibaba, Tencent and Xiaomi rolled into one. But it must cross several hurdles - Page 10‘APP’solutely IndianHome-grown apps may have replaced their Chinese counterparts but they must still tap greener pastures outside India to reach greater heights - Page 14For Rocky TimesAdditional capital will prepare banks for any post-moratorium stress. Management commentary and provisioning trends in Q1 are key to gauge the health of the sector - Page 18Structural Oversupply India may experience overproduction again in sugar season 20-21. Higher diversion to ethanol and sugar exports will be crucial for the health of the sector - Page 21Back On RoadRecent measures announced by the government are likely to o�er a huge relief to road and construction companies in India - Page 24A Storehouse Of Growth The warehousing sector appears to be better placed compared to residential, retail and o�ce segments, according to a study - Page 26Reshaping Retail From being a novelty to a necessity, online grocery retail is being increasingly adopted by customers for a touch-free shopping experience due to the coronavirus pandemic - Page 29Unlocking Its PotentialA credit card can be your friend or your foe based on how you use it in times of �nancial distress like the one we are facing at the moment - Page 32

Cover Against Corona Insurance companies in India are o�ering health policies against coronavirus following instructions from IRDAI - Page 35A Prudent Move Investors must safeguard their capital instead of merely focusing on returns in these uncertain times - Page 38

Mutual Fund Recommendations - Page 40Technical Outlook - Page 45

Avoiding Rush Hour The Fear Of Missing Out is an activity that shows a sheer lack of judgement and can be simply avoided by not participating in the rush hour madness - Page 46

Important Jargon - Page 49

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

Art Director: Sachin KambleJunior Designer: Orianne Fernandes

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Printed and published by Mr Rakesh Bhandari on behalf of Nirmal Bang Financial Services Pvt Ltd, printed at Uchitha Graphic Printers Pvt Ltd65, Ideal Ind. Estate, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 and published at Nirmal Bang Financial Services Pvt Ltd, 601/6th Floor, Khandelwal House, Poddar Road, Malad (E) Mumbai - 400097. Editor: Tushita Nigam

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

Volume 12 Issue: 06, 16th - 31st Jul ’20

Beyond Thinking

Beyond Basics

Beyond Numbers

Beyond Learning

Beyond Buzz

CONTENTS

Beyond Market 16th - 31st Jul ’20 It’s simpli�ed...

The Indian economy was having a tough time even before the coronavirus pandemic hit the country. But just as things started looking up, COVID-19 dashed its hopes of economic recovery.

Now, green shoots of recovery are beginning to be seen yet again with the easing of the lockdown and gradual resumption of economic activities across the country.

However, what needs to be seen is whether this trend will continue in the coming quarters, and put India back on track. Read up on India’s economic recovery in the cover story of this issue.

Similarly, there are articles on how Reliance Jio will grow into a global powerhouse with the infusion of capital by tech giants Google and Facebook, the growing popularity of home-grown applications after Chinese apps were banned by India over security concerns, and how credit card users can benefit from plastic money during the pandemic.

Sectorally, we have featured interesting reads on the current state of the banking sector in India with many of them looking for ways to raise capital to fight the impact of coronavirus on the industry, the problem of oversupply in the sugar sector, the improving condition of road construction companies with the timely announcement of relief measures by the government, and the growing importance of e-commerce companies and home delivery businesses in current times.

Finally, the Beyond Basics section includes two pertinent articles. While one talks about debt funds, the other focuses on the enhanced health insurance policies to cover coronaviruS.

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

The US Congress will meet and discuss the final stimulus relief package in an attempt to bolster the pandemic-stricken economy while offering unemployment assistance and other relief measures to millions of Americans.

European Union leaders agreed on $2.1 trillion coronavirus recovery fund, which is basically an aid package for the hardest-hit countries, to revive their economies.

Coronavirus cases continue to swell in India, and state governments are reimposing lockdowns as a preventive measure to curtail the spread of the deadly virus.

Q1 FY21 results have started pouring in. While the streets had low expectations, the better-than-expected earnings results of some sectors caught everyone by surprise.

Also, monsoon rains have been above normal and evenly spread across most parts of India.

The Indian stock markets look good in the coming fortnight. The Nifty Futures has support at the 11,230 level. If it breaks this level, it could touch the 11,050 level. However, on the upper side, the expected target is around 11,800.

Market participants can look forward to key issues pertaining to the spread of coronavirus and announcements about the development of a vaccine to cure it, monsoon rains across India, and details about the stimulus package in the US as these events will heavily influence the course of the markets in the coming dayS.

On the upper side, theexpected target is around

the 11,800 level.

Nifty: 11,300.55Sensex: 38,492.95

(As on 28th Jul ’20)

5

DB CORNER

Beyond Market 16th - 31st Jul ’20 It’s simpli�ed...

Beyond Thinking

The easing of lockdown restrictions has helped revive business activity in the country, offering a

ray of hope to the bruised Indian economy



The Fear Of Missing Out is an activity that shows a

sheer lack of judgement and can be simply avoided by not participating in the

rush hour madness

economic recovery. It highlighted the healthy increase in total digital retail financial transactions via the National Payments Corporation of India (NPCI) platforms from `6.71 lakh crore in April to `9.65 lakh crore in May.

Kharif sowing was up 104.3% on a y-o-y basis while rabi procurement is in full flow with respect to oilseeds, pulses and wheat due to a bumper harvest. With supply-side issues arising due to the easing of lockdown, food prices should decline in the coming weeks, thus reducing food inflation. There is a likelihood of healthy farmer incomes, which will give a boost to the rural economy by encouraging consumption, which consequently will have a positive chain reaction on the whole economy of the country.

Another significant highlight is that in May, railway freight traffic was up 26% (8.26 crore tonnes). And in April, it stood at 6.54 crore tonnes. Another indicator of rising freight movement by road was the increase in the average daily electronic toll collections from `8.25 crore in April to `36.84 crore in May. It further moved northward to `50.9 crore in June (till 28th June).

There was further encouraging news as the total assessable value of e-way bills climbed sharply by a whopping 130% in May as compared to April.

This clearly reveals an increase in inter- and intra-state road-based movement of tradable goods. In June, it shot up further by 34% over the preceding month.

Another significant indicator of forward movement is the increase in consumption of petroleum products. It was up a healthy 47% from 99.37 lakh tonnes in April to a strong 144.46 lakh tonnes in May.

In June, the GST collection stood at `90,917 crore, which under prevailing circumstances, is a healthy figure indeed. The collections stood at `62,009 crore in May and at `32,294 crore in April, respectively. This rise in the GST collection signals that the country’s economy has started moving.

However, as a matter of detail, it must be mentioned that the June figure is 9% lower on a year-on-year (y-o-y) basis but the `90,917 crore collection is nevertheless a healthy figure. The mop up of GST in the first quarter (Q1) of this fiscal (April to June period) declined 59% as against the year-ago period. The GST collected in May this year was 62% down while it was down 28% in April on a y-o-y basis.

In June, the Central GST (CGST) collected stood at `18,980 crore while State GST (SGST) stood at `23,970 crore. Integrated GST stood at `40,302 crore (which is inclusive of a `15,709 crore collection on import of goods) and cess of `7,665 crore. The government has settled `13,325 crore to Central GST (CGST) and `11,117 crore to State GST from integrated GST as regular settlement.

The total revenue earned by the central government and state governments after regular settlements in June stood at `32,305 crore and `35,087 crore, respectively.

The Union Finance Ministry too has pointed to the green shoots of economic recovery even as it acknowledges that the International Monetary Fund (IMF) has pegged India’s GDP growth for this fiscal (FY21) at -4.5%.

The ministry went on to highlight some key developments, which it flagged as significant pointers of

Even though all attention is focussed on the coronavirus-induced pandemic, both in India and globally, the state of the country’s economy has not received much notice in recent weeks.

While the economy has been moribund from even before the coronavirus struck India early this year, the lockdown that followed hit the economy terribly. The coronavirus pandemic was an unexpected external development that has adversely affected not only the Indian economy, which was beginning to show signs of reinvigoration in early 2020, but also the global economy in general.

However, if one were to consider some developments in the Indian economy presently, then there surely are reasons to be optimistic. While it is no surprise that the Indian economy will gallop at a robust pace, the current developments, if sustained over the next few months, could lay a strong platform for a rapid and vertical take-off by the middle of next year.

What lends credence to this is the fact that the first green shoots of economic recovery are beginning to be visible. One important and encouraging signal is the continuous increase in Goods and Services Tax (GST) collections from the month of April this year onwards, which is also the beginning of this fiscal year (FY21).


Mirroring these encouraging developments, electricity consumption also registered a lower y-o-y contraction from -24% in April to -15.2% in May to -11.3% in June (till 28th June).

The agriculture sector, which is the largest employer in the country and a strong contributor to its GDP, seems to be on course to faring well this fiscal. Tractor sales have been reasonably good in June, which reveals that the agriculture sector is in good health. Rainfall has been good so far in this season (June to end-September).

A record rabi crop, a very good progress in the sowing of kharif crops combined with good monsoon so far and the Narendra Modi-led government’s several measures to support farmers and rural population’s incomes, have raised hopes of the agriculture sector doing well this fiscal.

Here, a significant point that needs highlighting is that tractor sales have been noticeably good in June, which is good for companies that manufacture tractors.

A good harvest provides a plethora of benefits to the economy. First, it ensures food security. Second, it helps to keep food prices under control, thereby reining in overall inflation, which is very important for a developing country like India.

It further brings in more money to farmers and the rural population as a whole, which, in turn, has the potential to perk up consumption. Presently, consumption is low and badly in need of a boost. A well- performing agriculture sector will be just the right antidote for the present crumbling rural economy as consumption boost will help rejuvenate several business segments

such as tractors, farm implements, automobiles, two-wheelers, textiles, electronic goods such as television sets and refrigerators, and gems and jewellery, among others.

Here it must be pointed out that there was a large-scale migration of workers from urban areas to their native places in April following the coronavirus-induced lockdown by the government. These people, called migrant workers, hailed mainly from the northern states of Uttar Pradesh, Bihar, Jharkhand, Rajasthan and Madhya Pradesh.

It was felt that they would suffer economically as they primarily depended on daily wages for their sustenance. However, swift relief measures by the central government, especially that of transferring money directly to their bank accounts, has significantly helped alleviate this problem, benefiting a large section of migrant workers.

Back home, owing to healthy monsoon so far, they have participated in agricultural activities. And with the agriculture sector primed to do well this fiscal, the rural economy should correspondingly look up as well, which will benefit large sections of the population resulting in the country’s overall economy doing well.

In another development, just a few days ago, Nitin Gadkari, Minister of Road Transport and Highways laid the foundation stone for 11 highway projects worth `20,000 crore in Haryana. A part of the new economic corridor, Gadkari said these projects would result in large-scale infrastructure development in the region apart from helping farmers get easier access to markets.

This is a positive development as investments of this magnitude in

highways and other infrastructure projects will give a big boost to the country’s economy during the coronavirus pandemic. Besides, it also has the potential to provide employment to a large number of workers. Here is must be mentioned that usually the workers in such projects are migrant labourers.

Gadkari also said that he was targeting five crore new jobs over the next five years, which, if it fructifies, will be a great achievement for the Narendra Modi-led government at the Centre.

Another important development during this pandemic has been high foreign investments flowing into the country, revealing the confidence that overseas investors have in India.

This is a very important development but has gone relatively unnoticed as the pandemic continues to grab eye balls and attention.

Over US $40 billion investment has come into the country from the United States. This means that Foreign Direct Investment (FDI) from the US has already exceeded the US $40 billion mark so far this year.

One important investor is Google, the US-tech Goliath, which has invested US $4.5 billion (`33,737 crore) in the Mukesh Ambani-led Jio Platforms for a 7.73% stake. This is a part of its investment from its US $10 billion India Digitisation Fund, and also its first investment from this Fund.

The US $10 billion will be invested in a mix of equity investments, partnerships as well as infrastructure and ecosystem investments. Mega global corporations have already invested in Jio Platforms with one of them being Facebook.

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Apart from the US, investments have also flowed into the country from the Middle East and the Far East, reflecting the rapidly increasing confidence of the US and other investors in India.

So, things are not as bad as they may seem. The emergence of the first green shoots of economic revival is

encouraging indeed. The forward movement must, however, be sustained.

With the festival season just round the corner, the retail industry could get just the right kind of boost it needs. Festival sales could push up consumption and this, in turn, has the potential to turn around several

presently ailing business segments.

The Indian economy has definitely begun moving but the next few months are crucial for it to gather momentum.

All eyes will, therefore, be on the festival season to give the economy the much required push that it needS.

Reliance Jio wants to become Alibaba, Tencent and Xiaomi rolled into one. But it must cross several hurdles

Beyond Thinking



True to its promise, the company has become net debt-free nine months ahead of target, but it came with a change in plan. After realizing that Aramco may not have the money to go ahead with the stake buy, Ambani moved swiftly and sold 33% stake in Jio Platforms in a series of deals.

RIL has got investments of `1.52 lakh crore from companies ranging from Facebook, Silver Lake and Qualcomm. These include `43,574 crore from Facebook, `33,737 crore from Google, `11,367 crore from KKR, `11,367 from Vista, a private equity firm, and `9,094 crore from Mubadla, a sovereign wealth fund from Abu Dhabi.

In the first half of this fiscal, Jio Platforms has managed to corner over half the amount spent on telecom deals around the world and is valued at nearly $60 billion.

Moreover, Reliance Industries’ rights issue earlier in the year raised `53,124 crore.

JIOMART

Amid the pandemic, RIL launched JioMart, an e-marketplace that connects consumers with shop owners for basic groceries with plans to expand into fashion, electronics and phones. This is alongside Reliance Retail, where the company sells directly to consumers.

After a shaky start, JioMart, which kicked off across 200 cities in May, offering products spanning across categories such as fruits, vegetables, dairy, bakery, personal, home and baby care, has managed to take a lead in the online grocery segment.

Ambani told the RIL AGM that JioMart was doing 2,50,000 orders per day, According to reports, BigBasket was doing 2,20,000 orders

general meeting, Ambani outlined another vision to disrupt the mobile device market again with Jio Platforms.

Jio Platforms is a much larger plan that spans digital, retail and telecom services under one brand, something which has not been attempted anywhere in the world yet.

It is aimed as a one-stop shop offering a whole host of products and services to its 400 million subscribers. RIL also plans to launch an affordable smartphone in partnership with Google. Also, on the menu is 5G technology, which Jio aims to take global.

The move can open avenues for it to offer cloud-based services, which is a money-spinner for Amazon and other technologies globally.

At RIL’s annual general meeting in July, Ambani also announced a bunch of new initiatives such as Jio Glass, Jio TV+, healthcare and online education app and other steps for the company’s retail business.

The company aims to add 500 million subscribers over the next three years and is targeting 300 million consumers that are still on 2G. Analysts expect Jio to have access to 500 million mobile users, 20 million households and 10 million SMEs over time.

Industry experts believe Jio could see incremental subscriber growth due to their affordable smartphone devices.

DEBT

In the RIL annual general meeting in 2019, Mukesh Ambani had set a target of becoming net debt-free, and was banking on selling a $15 billion stake in the oil unit to Saudi Arabia’s Aramco.

“The foundation of the fourth industrial revolution is connectivity and data. We are at the beginning of an era where data is the new oil,” Reliance Industries Chairman Mukesh Ambani said in 2019 at a Nasscom event.

Coming from the head of a predominantly fossil fuel firm, the statement had then raised eyebrows and disbelief.

But in just a year, Ambani has squeezed more than a gallon out of a byte of data as global behemoths rushed to pick up a slice of his new venture - Jio Platforms.

A plethora of investors, including rivals Facebook and Google, has poured about `1.52 lakh crore into Jio Platforms, RIL’s digital venture, in flat three months when the world was locked down due to the coronavirus pandemic.

And the Street, which largely ignored his words a year back, is doffing the hat with the stock price of Reliance Industries doubling from its March low.

SO WHAT’S UP?

Ambani is looking to repeat his hat-trick of success in the digital world that began with the ‘Monsoon Hungama’ launch of the Reliance Industries’ mobile services in 2001, followed by the launch of Jio one-and-a-half decade later.

During the company’s first pandemic-forced virtual annual


per day, Amazon 1,50,000 orders and Grofers 1,50,000 orders per day currently. The company plans to leverage WhatsApp’s user base of over 400 million users in India to help in the adoption of JioMart.

According to experts, Facebook’s partnership with Jio focuses on integrating the JioMart app inside WhatsApp, which will allow even less tech-savvy people to order online.

The company is onboarding small kirana stores to not only act as delivery partners but also transforming their stores into smart corner shops. It is looking at converging its offline network of around 12,000 stores to the online platform as it aims to create an omnichannel network by giving consumers both online and offline access.

Jio can add value by enabling direct video interactions with offline retail stores via JioMeet and can offer mixed reality on the Jio Glass platform by allowing customers to test products online.

Analysts say JioMart would offer deep discounting to acquire consumers and feel that Jio would be successful as there is room for another player in the unsaturated market.

However, while the pricing power has worked for RIL earlier, it would be a formidable task for Jiomart as the opponents, Amazon, controlled by the richest person in the world – Jeff Bezos - and Wal-Mart-backed Flipkart, are deep-pocketed, they say.

5G TECHNOLOGY

In the AGM, Ambani said Jio Platforms has developed a 5G solution for India, which will be

ready for field deployment next year. The move is set to challenge global players such as Huawei, ZTE, Ericsson and Nokia. Jio is looking to build a ‘virtualized 5G network’, which would see the current hardware-dependent networks shift to software-centric platforms.

The new network will be built on open platforms, with operators having the choice of buying hardware or software separately from different vendors or even building the latter on their own on an open platform.

Apart from flexibility, this will bring down network costs substantially for 5G - a saving of 40% in capex and 34% in terms of lower operational costs.

Experts say that Google, Facebook and the others will provide RIL with the software and technological support it needs for its 5G networks. RIL, if it is successful in 5G technology, can offer cloud-based services, licensing technology and technology services across the world.

RIL has also sought 800 megahertz (MHz) spectrum each in both 26 gigahertz, or GHz, and 24 GHz bands as well as 100 MHz in the 3.5 GHz band for field trials of its new network in a few metros. A successful launch may help it go global with 5G technology.

However, incumbent telcos may be cold to Jio’s 5G plan, as they would be cautious about buying network from a rival, even if it’s a separate company. Also, they may consider system integration costs with a third party.

The 5G spectrum may come at a high cost as the government has shown reluctance to lower the price for even 4G spectrum despite telecom

companies being under strain.

SMARTPHONE

Jio, along with Google, plans to build entry-level 4G and 5G smartphones at a fraction of the existing cost based on optimizations to the Android operating system and the Play Store.

If successful, the move could pose serious challenges to competing mobile companies, especially Vodafone-Idea, whose large number of customers on 2G and 3G may want to switch over to Jio.

The smartphone that would have Google’s Android operating system is also set to pose a major challenge to Chinese vendors such as Xiaomi, Oppo and Vivo brands, which currently dominate a $2 billion market for sub-`7,500 smartphones in India.

The collaboration with Google could also set the stage for further partnerships between smartphone-makers and Reliance to make devices specifically for Jio telecom’s network, according to analysts. Google’s Android team would also ensure access to apps related to health, communications and jobs, and offer ease of use for first-time smartphone owners.

WHY GOOGLE AND FACEBOOK INVESTED IN JIO

The global giants are betting on RIL’s plans to create a vertically-integrated business by linking its mobile subscribers to its 12,000 retail stores.

The rationale behind Facebook’s investment in Jio was to gain a foothold with some 800 million to 900 million users, which it had failed to do previously. Google, analysts

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say, is looking to hedge itself in the advertising space and protect its Android operating system.

While Reliance was already present in the brick-and-mortar format, the partnership with the global biggies is likely to significantly catalyze Jio’s move into the e-commerce format in a big way.

Possibly for the first time in the

world, the telecom operator will be able to meaningfully monetize its network using apps and not just voice and data.

Also, Jio can seamlessly integrate its fintech offerings, with partner Google Pay, to capture transactions as well, or tap WhatsApp Pay, which is in the testing stage.

A fillip may come from the Indian

government that may be looking at pegging the growth model on China, which rode to success on a faster clip on the back of a few capitalists rather than encouraging open competition in their country.

All in all, Reliance through Jio, is aiming to be an Alibaba, Tencent and Xiaomi rolled into one. But only time will tell how successful this powerhouse will bE.

Beyond Thinking

‘APP’SOLUTELYINDIAN

Home-grown apps may have replaced their Chinese counterparts but they must still tap greener pastures outside India to reach greater heights



TikTok influencers have migrated to Roposo, which now claims to have 14 million video creators and 80 million videos created monthly. Roposo is a home-grown app, developed by three IIT Delhi graduates. The app allows users to make short videos and earn followers for their content. It connects with Indian users, since the app is available in many Indian languages such as Hindi, Kannada, Tamil, etc.

The app has many channels titled Haha TV, Bhakti, Look Good-Feel Good, etc, which cater to specific topics so that users can follow the channels for their specific content. Mayank Bhangadia, Co-Founder of Roposo, says “We have built Roposo as a clean and ethical platform. The unique idea of channels in Roposo provides every talented Indian with an opportunity to grow rapidly.”

Chingari, another alternative to Chinese TikTok, saw its downloads rise from 1 lakh to 1 crore on the Google Play Store after the ban. “Since the word spread that Indians now have a home-grown and a more entertaining alternative to TikTok, we have been recording traffic beyond expectations. In the last few days, we have witnessed a 400% growth in the subscribers of the app,” said Biswatma Nayak, Co-founder of Chingari.

Mitron, also similar to TikTok, has over 10 million downloads and an average rating of 4.5 stars on Play Store.

Riding on the wave of home-grown apps, Zee5 launched a short video platform called ‘HiPi’ and has partnered with over 300 creators to bring curated content to users.There are alternatives to other Chinese apps as well. ShareChat, a home-grown multilingual social networking app that offers content in

Browser, had the second highest market share in India at 10.19% after Google Chrome, which has a market share of 78.2%.

While the ban is shocking, it presents a huge business opportunity for home-grown apps. Immediately, after the ban on Chinese apps, India’s Prime Minister Narendra Modi asked India’s IT workforce to “code for an Aatmanirbhar Bharat.”

In a LinkedIn post titled ‘Let us Code for an Aatmanirbhar Bharat,’ Modi wrote: “Today, when the entire nation is working towards creating an Aatmanirbhar Bharat, it is a good opportunity to give direction to their efforts, momentum to their hard work and mentorship to their talent to evolve apps, which can satisfy our market as well as compete with the world.”

Since the ban, users have been looking for home-grown alternatives to the banned apps. Apart from security threat, Chinese apps also had privacy concerns for many users. TikTok, easily the most popular Chinese app in India, is under investigation in the US, because it allegedly failed to take down videos made by children under the age of 13 years. Beijing-based ByteDance, which owns TikTok, has often been accused of sharing user data with China.

India’s very own video creation and sharing app, Roposo, which is available in 12 Indian languages, has emerged as the leading alternative to TikTok. It has claimed the top spot in ‘Free Apps’ list on Google’s Play Store and Apple’s App Store with a 4.5 rating. The app which had 7,00,000 downloads a day before the ban, is now seeing 6,00,000 downloads per hour and now stands at 65 million downloads.

On 29th Jun ’20, India banned 59 Chinese mobile applications, on grounds of threat to the sovereignty, integrity and security of the country. While this was a political move in response to Chinese military aggression against India, the ban has had widespread implications on app users and home-grown apps.

The apps on the ban list include popular names such as TikTok, WeChat, Shareit, CamScanner and UC Browser. In a press release, the Ministry of Electronics and Information Technology, said it had received “many complaints from various sources, including several reports about misuse of some mobile apps available on Android and iOS platforms for stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers, which have locations outside India.”

While the ban won’t affect the installed apps on mobile devices, users cannot download latest versions of these apps on Google’s Play Store or Apple’s App Store. This will have a far-reaching impact because some of these apps were quite popular.

For instance, the video-sharing social networking app, TikTok, had over 611 million downloads in India during its lifetime, with about 200 million active users. File-sharing tool, Shareit had about 400 million users. The Alibaba-owned, UC


15 Indian languages has emerged as the leading alternative to Helo, a Chinese social media platform that allows users to share videos, jokes and Whatsapp statuses.

Zoom, though headquartered in California, has come under the scanner because its product development happens out of China. Zoom has been caught routing non-Chinese calls through China’s servers leading to privacy and security concerns.

India fortunately has come up with alternatives to Zoom such as Jio Meet from Reliance Jio and Say Namaste from a private firm.

Alibaba-owned UC Browser, which came pre-installed on some smartphones, was one of the most popular web browsers in India. It is on the list of banned apps and even prior to the ban, the app has been accused of security and privacy violations.

Citizen Lab published a detailed study of the security and privacy gaps within the app, and concluded that personal information of users was being sent to an Alibaba Analytics tool without any encryption.

India’s alternatives to UC Web Browser are Epic Web Browser and JioBrowser. Epic Web Browser is developed by a Bangalore-based company called Hidden Reflex. The web browser comes with an in-built virus protection for users, giving it an edge over other browsers.

JioBrowser offers a fast and secure surfing experience and it provides users with news and entertainment content.

India-based ShareALL is a good alternative to Chinese owned

SHAREit- a file transfer application. Even before the ban, SHAREit has experienced two security violations in the last year that allowed attackers to download content from a user by bypassing all authentication mechanisms.

India-based, ShareALL is a safer alternative that allows the transfer of all types of files without internet access or cables. It is a free app that supports high-speed file sharing without any restrictions on the file size.

Migration to some other apps may not be so easy. For instance, users of some apps such as CamScanner are not sure how a pdf or portable document format, created via CamScanner and backed up in Google Drive, could be transferred to another app such as the Adobe Scan or Microsoft Office Lens.

Home-grown apps have their own set of unique problems. For instance, in the case of Roposo, users complain that the app does not allow them to watch videos in multiple languages and they have to choose a single language. Users have also complained about fewer views on videos than TikTok and that they have to share the videos on other platforms to get views.

There are some technical glitches as well. “We found that video compression in our app wasn’t that great. We worked on it and now users can compress the video files a lot more without compromising on the quality. This not only reduced upload time but also the data consumption for users,” said Shivank Agarwal, Founder & CEO, Mitron.

Prasanto K Roy, a technology policy consultant believes that Indian app design is not good enough though there are exceptions. “The problem

with Indian apps is that their developers’ focus is on giving more features rather than simplicity and speed.”

Counterpoint Research Associate Director Tarun Pathak, believes that it won’t be so easy for Indian apps to retain users. “An app is as good as its active user base. So, it’s not just the number of users for their app but also about the active users engaging with the platform, which will make it a success,” he said.

Indian app companies have realized the gaps within their apps and have started raising money to improve their offerings. Recently, Mitron raised `2 crore from 3One4 Capital and LetsVenture. According to media reports, ShareChat is in talks with existing investors SAIF Partners, Lightspeed Venture Partners, and Twitter to raise $200 million.

Meanwhile, the Indian government is determined to make India self-reliant even in the area of apps. The Ministry of Electronics and Information Technology, with Atal Innovation Mission, has launched the ‘Aatmanirbhar Bharat Innovation Challenge’, which will promote existing apps and help in the development of new apps.

“There is tremendous scope among these sectors for new apps, which solve specific issues for India and the world. Can we think of making traditional Indian games more popular via Apps? Can we develop Apps with targeted and smart access to the right age group for learning, gaming, etc?” Modi wrote in the LinkedIn post.

Prime Minister Modi is right when he says that there is scope for home-grown apps to go global. No app anywhere in the world, can


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survive on the basis of users from one country. Greyhound Research Founder and CEO, Sanchit Vir Gogia, believes that an app cannot be successful, if it is launched to serve only one market.

“Unless companies are willing to

invest in continuous development, and selling of such applications across borders, many may not go beyond infancy and not see the light of the day,” he said.

Indian app developers should look at the ban as an opportunity to learn,

adapt and grow their business.

It is a great opportunity for home-grown apps to go global and become the next TikTok or Snapchat. The ban may or may not continue but this opportunity should not be floundered awaY.

Beyond Thinking

FORROCKYTIMES

Additional capital will prepare banks for any post-moratorium stress. Management commentary and

provisioning trends in Q1 are key to gauge the health of the sector




sheer lack of judgement and can be simply avoided by not participating in the

rush hour madness

According to ratings agency S&P, gross non-performing loans will shoot up to 13% to 14% of total loans by 31st Mar ’21, from an estimated 8.5% in the previous fiscal year. Individual banks will have to make provisions accordingly from their capital.

The capital position of Indian banks is not bad and it is comfortably higher than the regulatory requirement. The capital position of banks, both private and state-owned, has improved since some time to 14.8% as of March ’20 from 14.3% in the previous year.

State-owned banks are better off because the government has recapitalized public sector banks with around `3 trillion since FY16. The minimum capital required to be maintained is around 11%. Additional capital will provide a cushion to banks in providing against any stress arising out of the lockdown and the anticipated post-lockdown compression in economic growth.

But what about the capital needed to grow? Capital is needed for two purposes: maintaining minimum regulatory capital (as prescribed by the RBI) and for future operations of the bank.

OPERATIONS - DEMAND & INTEREST RATES

With limitations over capital availability, banks are likely to prioritize. Banks will be forced to undertake cuts in their operational expenses, which will have a direct bearing on banks’ lending activities.

In fact banks have already turned cautious in lending. Industry credit growth is already muted at 6% for June ’20 (12% in June ’19). This is a

questions lies in banks’ ability to absorb any shock arising out of a bad debt scenario. Banks have to set aside money for bad debt for which they need capital. Higher non-performing assets could lead to capital erosion for banks and lower profitability.

Roughly, the `100 trillion banking industry has capital of around `12 trillion. A back-of-the-envelope calculation suggests that even if 4% to 5% of loans turn bad due to the pandemic, the capital position of the banking sector will accordingly lower by 40% to 50%.

Such a situation needs to be avoided not only for individual banks but also for the system. Banks are aware of the issue and they have already started to shore up their capital base in anticipation of future stress. While a few private banks have already raised capital, others have readied plans with necessary board-level approvals to raise capital in the future. Weaker public sector banks will have to rely on the government for recapitalization.

According to ratings agency S&P, Indian banks that have expressed their intention to raise equity include ICICI Bank Ltd (`150 billion), Axis Bank Ltd (`150 billion), State Bank of India (`200 billion), Bank of Baroda (`90 billion), and Punjab National Bank (`70 billion). Few private banks like Kotak Mahindra Bank (`74 billion), Yes Bank Ltd (`150 billion) and IDFC First Bank (`20 billion) have already issued large amounts of capital in recent weeks.

Ratings agency ICRA estimates state-owned banks to require `45,000 crore to `82,500 crore of capital even in the scenario of low credit growth of 3% to 4% during FY21.

Indian banks have earmarked a huge capital-raising plan for the next 12 to 18 months. It is estimated that private and state-owned banks are likely to raise around `1,50,000 crore from the market to strengthen their balance sheets in anticipation of any probable asset quality shocks due to the coronavirus pandemic.

Indian banks were first to react to the Covid-19 pandemic by giving a six-month moratorium on loans from March to August.

On an average 20% to 30% of a commercial bank’s loan book by value is under moratorium. It is feared that some portion of the loans under moratorium will go bad, while low economic activities would lead to increase in delinquency levels.

Soon banks will come out with their first quarter results and the investing community is eager to know the health of the Indian banking industry. There are a few lingering questions that will decide the future health of the banking industry.

What if the moratorium gets extended beyond six months? Given the slide in the economy, will borrowers meet their debt servicing obligations? Is a non-performing asset (NPA) bubble imminent? Is the system ready to handle the situation?

SHORING UP CAPITAL The answer to a few of the above


function of both lower demand due to subdued economic activities and risk aversion in the banking system.

Importantly, the weakness in demand is against the backdrop of lower interest rates in the system.

The RBI has reduced the repo rate – the rate at which banks borrow from the RBI during emergency situations and is a benchmark for interest rates in the system - by 115 bps since March ’20. The repo rate is now at 4%.

But banks have opted to save their margins instead of improving market share by lowering lending rates. Key large banks have lowered their lending rates by just 40 basis points to 45 basis points, while they have undertaken significant cuts in deposit rates across tenors to reduce liability arising out of more deposits.

To illustrate, system-wide deposits grew at a low level of 11% as of 19th Jun ’20 compared with a growth of 11.3% in the previous fortnight. The industry benchmark - one-year SBI deposit rate - is now at 5.1% as compared to 6.50% in September’19.

To set the context, consumer price inflation was under 4% in September last year, while the CPI inflation is around 6% now. Lower deposit rates and higher inflation have reduced the real returns of depositors.

IN A NUTSHELL

While the moratorium level of the industry has come down in the last few weeks, any stress arising from the moratorium portfolio will start reflecting on banks’ balance sheets from first quarter onwards.

Management commentary in this

regard and provisioning trends in the first quarter will be the key to gauging banks’ health.

Given risk aversion, credit growth of banks is expected to remain slow in the near term. More provisioning in anticipation of future stress will lower their profits. However, lower deposit rates should provide some relief to banks.

Meanwhile, also offering risk to banks’ balance sheets is any one-time restructuring that the RBI and the government are said to be considering, providing relief to corporates.

Banks with higher unsecured loans will bear the maximum brunt. Capital buffer will be crucial for banks’ health in such a situation. The extension of moratorium beyond August will also weaken banks’ balance sheets.

Few banks have sensed it and have moved ahead by creating a buffer.

This is important for the health of the bank and builds resilience in the financial system. It will also ensure that credit flow is available to needy sectors once the pandemic endS.

Source: Company Data

Capital Raised By Banks

Particulars

IDFC First

JM Financial

Kotak Mahindra Bank

Cholamandalam

Piramal Enterprises

RBL Bank

RBL Bank

Piramal Enterprises

Bajaj Finance

Date

Jun-20

Jun-20

May-20

Feb-20

Jan-20

Dec-19

Dec-19

Nov-19

Nov-19

Raising Route

Preferential Allotment

QIP

QIP

QIP + Preferential

Rights Issue

Preferential Allotment

QIP

Preferential / CCD

QIP

Amount (` mn)

20,000

7,700

74,420

12,000

36,500

6,750

20,250

17,500

85,000

Revised Tier-1 Capital (%)

15.1

-

19.6

15.3

28.5

15.3

14.3

-

21.3

Source: Company Data

Board Approvals Requested

ParticularsYes BankHDFC BankHDFC LtdIndusind BankIDFC BankAxis BankCity Union BankDCBFederal BankAU SFBHDFC LtdShriram TransportShriram TransportMahindra FinancePNB Housing

` mn150,000100,000130,00035,00020,000150,0006,0005,0004,00025,000140,00015,00025,00035,00016,000

Beyond Thinking

STRUCTURALOVERSUPPLY

India may experience overproduction again in sugar season 20-21. Higher diversion to ethanol and sugar exports will be crucial

for the health of the sector



which is nearly 8% higher than SS20 where cane area was around 48.41 lakh hectares.

On the demand front, institutional demand is currently lower due to coronavirus-related reasons. It is estimated that there was 1 MT to 1.5 MT of demand destruction of sugar due to the lockdown across the country.

Ex-mill sugar prices had fallen to around `31/kg to `31.50/kg during the lockdown due to the drop in domestic sales. But now domestic sugar prices have improved to the pre-Covid-19 levels of `32/kg to `33.50/kg.

But if demand continues to be lower, then sugar surplus could increase. The quantity of sugar surplus will also depend on the ability of sugar mills to sacrifice some sugar production for the manufacture of ethanol, which is a key by-product in sugar production, and is blended with petrol to lower India’s dependence on imported crude oil.

BETTING ON ETHANOL

It is highly estimated that larger quantities of cane juice and molasses are likely to be diverted to ethanol production in SS21.

Indian Sugar Mills Association (ISMA), a trade lobby for the industry, estimates that the diversion to ethanol will reduce sugar production by 1.5 MT in SS21. Only 8 lakh tons of sugar production was sacrificed in SS20 for this purpose.

To highlight, the government has an ambitious plan of having a blending percentage with petrol of 10% by 2022, and 20% by 2030.

The current blending ratio as a whole stands at 4.97%. Clearly, the

adding to the overabundance.

There is more that the industry will have to do. Importantly, it will have to convince the stock market that the industry is not venturing into a structurally oversupply situation.

NEXT SEASON

Fears of structural oversupply are real. The industry has been witnessing higher sugar production in the last few years.

Typically, a glut in the market forces farmers to grow less cane as it becomes less remunerative, thereby adjusting supply against demand and keeping sugar prices stable or higher.

But a few policy blunders by the government in the past and farmers’ greed have distorted the demand-supply cycle.

Typically, India keeps a buffer stock of 5 million tons (MT) for its consumption needs. India consumes around 25 MT per year.

Against this, India is likely to produce 32 MT in sugar season 20-21 (SS21). Even in the previous season there was overproduction. And the carry forward of last year is likely to be around 11.5 MT.

Clearly, there will be a higher sugar surplus of around 13.5 MT in SS21. Of this, the industry is likely to export around 6 MT. The surplus of 7.5 MT will keep sugar prices lower.

The above figures are highly contingent on monsoon rains, which are estimated to be good this season. Cane acreage is likely to increase this season.

For SS21, the total acreage under sugarcane in the country is estimated to be around 52.28 lakh hectares,

Sugar sector has been in news in recent weeks. The buzz of a bailout package for the industry by the government and higher sugar production in the next season has left the shares of sugar companies volatile on the bourses.

As things stand today, the industry is in a bad shape marked by higher sugar production leading to lower sugar prices, and, hence lower realizations.

This has led to a payment crisis with dues to sugarcane growers reaching a level upwards of `20,000 crore.

While the government, in all earnest, is trying to rescue the sector and a few policy tweaks are on the anvil, the industry by itself is attempting to solve the glut issue.

It is a known fact that sugar mills are using their distilleries to diversify into hand sanitizer production over higher demand for the product due to Covid-19.

Now, the government has lifted all restrictions on pricing of alcohol-based hand sanitizers, further unlocking a key revenue stream for sugar mills.

But this may not be enough to rescue the sector. There are enough signals that even the next sugar season, which begins from October and ends in September next year, will have higher sugar production, thereby


potential for ethanol production is immense. Both the government and the industry are making efforts to achieve these targets.

Ethanol production serves two purposes of achieving the government’s target of petrol-blending as well as reducing some surplus sugar from the system.

After accounting for the reduction in sugar production due to diversion of cane juice and molasses to ethanol, ISMA estimates sugar production in SS21 to be around 30.5 MT.

For mills, ethanol production improves cash flow as ethanol prices are fixed by the government and is more remunerative than sugar.

POLICY PIPELINE The government is proactive given the involvement of farmers in the industry. While ethanol blending will ensure that mills’ cash flow improves and farmers’ payments are made, there is more that needs to be done to fix the crisis facing the sector.

Here are a few things that the industry has been asking from the government, and it may oblige to some of the demands.

Ex-Mill Sugar Prices:

The government has fixed a minimum selling price of sugar at factory gates at `31/kg. The industry wants this to be upped to `33/kg. The

argument is that the cost of sugar production itself is around `31/kg, leaving very little in terms of margins.

The government may up sugar MSP to `33/kg. The government may revisit this every six months.

Fair And Remunerative Prices (FRP):

The central government in the next few weeks is likely to come out with its FRP, the minimum price that mills are mandated by law to give to farmers for the sugarcane they have supplied.

In the last season, the FRP was fixed at `275/quintal of sugarcane, same as in SS19. The FRP was `230/quintal for SS16 and SS17. For SS18, the FRP was `255/quintal.

The sugar industry wants the government to retain the FRP of SS20 for SS21. Sugarcane costs 90% of sugar prices ex-mills. Any increase in fair and remunerative prices will burden the industry even more.

Export Subsidy:

The government is providing `10.40/kg of sugar as export incentive. The government would continue incentivizing exports to reduce inventory overhang on the sector.

It is worth highlighting that

internationally sugar prices have already collapsed by over 30% since the month of January due to the economic crisis caused by the coronavirus pandemic.

Moreover, Brazil, a key sugar producer globally, is diverting sugarcane to sugar production from ethanol as the demand for ethanol has fallen along with the prices of crude oil.

IN A NUTSHELL

The industry is banking on the diversion of sugar for ethanol production and exports to fix the surplus situation.

But with lower economic activities, the demand for ethanol from oil marketing companies (OMCs) for blending could be lower. This could be a spoiler.

Even for exports, lower global prices mean that the government would have to continue to incentivize the industry for the immediate future at least.

Bumper production in the last two sugar seasons have distorted the demand-supply scenario in India and the government has announced subsidy schemes like buffer subsidy, export subsidy and interest subvention on soft loans in the last few years.

It seems that the Indian government will play an active role in fixing the crisis in the sugar sector. Already there are reports in the media stating that the government has been working on a rescue package worth around `12,000 crore for the sugar sector.

Shares of sugar stocks will continue to react to these news items in the near terM. Source: Industry Data

India Demand-Supply Scenario

In Millions Tonnes (MT) Opening Stock Production Local Consumption Exports Surplus

SS17 8.1

20.324.5

0-4.2

SS18 4.4

32.325.50.56.8

SS19 10.633

25.53.87.5

SS20E 14.527245.23.2

SS21E 11.53225

6 to 77

potential for ethanol production is immense. Both the government and the industry are making efforts to achieve these targets.

Ethanol production serves two purposes of achieving the government’s target of petrol-blending as well as reducing some surplus sugar from the system.

After accounting for the reduction in sugar production due to diversion of cane juice and molasses to ethanol, ISMA estimates sugar production in SS21 to be around 30.5 MT.

For mills, ethanol production improves cash flow as ethanol prices are fixed by the government and is more remunerative than sugar.

POLICY PIPELINE The government is proactive given the involvement of farmers in the industry. While ethanol blending will ensure that mills’ cash flow improves and farmers’ payments are made, there is more that needs to be done to fix the crisis facing the sector.

Here are a few things that the industry has been asking from the government, and it may oblige to some of the demands.

Ex-Mill Sugar Prices:

The government has fixed a minimum selling price of sugar at factory gates at `31/kg. The industry wants this to be upped to `33/kg. The

argument is that the cost of sugar production itself is around `31/kg, leaving very little in terms of margins.

The government may up sugar MSP to `33/kg. The government may revisit this every six months.

Fair And Remunerative Prices (FRP):

The central government in the next few weeks is likely to come out with its FRP, the minimum price that mills are mandated by law to give to farmers for the sugarcane they have supplied.

In the last season, the FRP was fixed at `275/quintal of sugarcane, same as in SS19. The FRP was `230/quintal for SS16 and SS17. For SS18, the FRP was `255/quintal.

The sugar industry wants the government to retain the FRP of SS20 for SS21. Sugarcane costs 90% of sugar prices ex-mills. Any increase in fair and remunerative prices will burden the industry even more.

Export Subsidy:

The government is providing `10.40/kg of sugar as export incentive. The government would continue incentivizing exports to reduce inventory overhang on the sector.

It is worth highlighting that

internationally sugar prices have already collapsed by over 30% since the month of January due to the economic crisis caused by the coronavirus pandemic.

Moreover, Brazil, a key sugar producer globally, is diverting sugarcane to sugar production from ethanol as the demand for ethanol has fallen along with the prices of crude oil.

IN A NUTSHELL

The industry is banking on the diversion of sugar for ethanol production and exports to fix the surplus situation.

But with lower economic activities, the demand for ethanol from oil marketing companies (OMCs) for blending could be lower. This could be a spoiler.

Even for exports, lower global prices mean that the government would have to continue to incentivize the industry for the immediate future at least.

Bumper production in the last two sugar seasons have distorted the demand-supply scenario in India and the government has announced subsidy schemes like buffer subsidy, export subsidy and interest subvention on soft loans in the last few years.

It seems that the Indian government will play an active role in fixing the crisis in the sugar sector. Already there are reports in the media stating that the government has been working on a rescue package worth around `12,000 crore for the sugar sector.

Shares of sugar stocks will continue to react to these news items in the near terM. Source: Industry Data

India Demand-Supply Scenario

In Millions Tonnes (MT) Opening Stock Production Local Consumption Exports Surplus

SS17 8.1

20.324.5

0-4.2

SS18 4.4

32.325.50.56.8

SS19 10.633

25.53.87.5

SS20E 14.527245.23.2

SS21E 11.53225

6 to 77

BACKON ROAD

Recent measures announced by the government are likely to offer a huge relief to

road and construction companies in India

Beyond Thinking

India’s construction industry had been going through several challenges in the wake of the coronavirus

had announced relief measures for construction and road industries a short time ago. Let us understand these measures and their benefits to construction players:

a) Time ExtensionThe National Highway Authority of India (NHAI) will provide Extension of Time (EoT) of at least three months for under-construction projects like Engineering Procurement Construction (EPC), hybrid-annuity and roads.

pandemic. Liquidity crunch and shortage of labour have been causing project delays, impacting order books of construction companies. While liquidity crunch may have been more pronounced, the announcement of relief measures by the government recently has brought a sense of relief to players in the industry who believe these sops many mitigate their woes to some extent. The Ministry of Roads, Transport and Highways (MoRTH)



Secondly, once operations resume there will be a pro rata extension in the concession period for the loss in toll revenue.

If there is a 25% shortfall in toll collections for four days, then it will result in an extension of one day in the concession period. As per estimates, toll collections have currently returned close to 80% of pre-covid-19 levels. This should be reason enough for companies to continue to invest in the maintenance of road projects in coming quarters.

Analysts have welcomed these measures. They say that the timing of the announcement of these measures is quite apt, and add that this will set the tone for ordering activity in the coming quarters.

After analyzing ground-level impact of the measures announced by the government, ratings agency CARE in its report recently made three crucial observations. One, the NHAI has started releasing a large portion of the retention money against completed work for pure construction contractors. Two, retention money is not deducted in bills that have been raised recently for EPC projects. Three, contractors have started raising monthly bills in place of milestone-based billing from May ’20 onwards. These remarks show that the implementation of these measures, to a large extent, has been successful.

Based on these factors, analysts have upgraded earnings estimates of select road and construction companies. They expect 7% to 20% improvement in estimated Earnings Per Share (EPS) of companies such as KNR Constructions, PNC Infratech, Larsen & Toubro (L&T), Ashoka Buildcon and IRB Infrastructure in FY22 in comparison with the current financial yeaR.

Engineer/Independent Engineer.

Analysts say this is a big relief as it will lower working capital requirements of pure construction projects and those where 40% of the costs are borne by the government.

c) Retention Money

Generally, NHAI keeps a percentage of the money it gives to construction companies, called retention money, after they execute the order. With regard to pure construction companies, retention money is 5% of the contract value and is deducted from payments. If a contractor does not breach the contract, the NHAI will release retention money deducted so far in proportion with the work done and will also not make further deductions for the next three to six months. Many say that this consolation, which is applicable for existing contracts only, has improved the execution of projects.

d) Performance Guarantee (PG)

As per current norms, companies have to submit a Performance Guarantee (PG) or Bank Guarantee (BG) for 5% of a project’s cost. Under proposed relief measures, the NHAI will release PGs in four equal instalments linked to interim physical completion milestones. This will address liquidity issues of these companies to a certain extent.

e) Compensation For Loss Of Toll

The government has decided to extend the concession period on a pro rata basis for loss of toll for the period for which toll collections are below 90% of the average daily fee.

This measure can be understood in two ways. Firstly, for 25 days of suspension of toll collections, there will be an extension of 25 days.

These under-construction projects will incur a penalty. The NHAI said that it can increase its EoT to six months based on specific conditions of projects. The Regional Officer (RO) will approve the first three months of EoT while the decision for EoT of additional three months will be taken at the member-level.

Sector analysts insist that since execution levels for highways in June have returned to 50% to 60% of the pre-lockdown period, the extension of up to six months will make up for liquidity issues related to the execution of projects.

In their interactions with companies, analysts say that the time extension has improved business sentiments in the sector. Contractors too have begun executing projects depending upon the availability of labour.

b) Release Of Payments

For pure construction projects and for those where 40% of the cost is borne by the government, payments will be released swiftly, which may ease liquidity issues in the sector. The government will release payments based on milestones on the execution of projects. To help construction companies, the government has made the milestone limit smaller. For example, a construction company has built a two km long road. While it would have received payments earlier, it would now get paid for constructing one km or one-and-a-half km portion of the road. In this context, contractors can now raise monthly invoices on the basis of work progress. The NHAI will pay 75% of the monthly invoice amount within 3 days of it being raised, and the balance 25% within 10 days after scrutiny by Authority

The warehousing sector appears to be better placed compared to residential, retail and office segments, according to a study

Beyond Thinking

A STOREHOUSEOF GROWTH



brought to light the growing need to develop cold storage capacities across the country for perishable items like fruits, vegetables, dairy, fish, meat and pharmaceuticals, among others.

Temperature-controlled solutions will ultimately provide incremental business and boost investments in the warehousing segment. It is also interesting to note that this demand will not only come from private corporations but also from government companies and institutions.

d) THIRD-PARTY LOGISTICS (3PL) SEGMENT

For a long time, in-house logistics service was the central component of supply chain activities. But since the implementation of GST, outsourcing of specialized services in the warehousing segment to third-party logistics (3PL) companies is becoming a norm.

Studies reveal that third-party logistics companies today have the largest share in warehouse demand. The share of 3PL in total warehouse space in top eight cities has gone up to 36% in FY19 from 35% in FY18, according to the Knight Frank study.

The study further states that the disruption caused by the spread of coronavirus would lead to an increase in demand for third-party logistics companies mainly due to the advantages of flexibility and cost efficiencies of outsourcing to 3PL companies. e) BOOMING E-COMMERCE AND OTHER SECTORS

In the wake of the coronavirus pandemic, more and more people are seeking home deliveries through e-commerce companies to eliminate

a) CONSOLIDATION

Investments in the warehousing segment have risen mainly due to the implementation of the Good and Services Tax (GST) in 2017, paving the way for institutionalization of the sector, which was once dominated by unorganized players.

This led to the reorganization of the supply chain, bringing more investments into the warehouse space, resulting in efficiency in operations, and acquisition of small warehouses and the creation of larger ones.

Despite the fact that coronavirus may have disrupted the supply chain, the demand for warehousing may not be impacted much as experts hope for an improvement in business activity in the segment once restrictions on movement are lifted post-lockdown in cities such as Mumbai and Delhi. Furthermore, business in the segment is not as bad as it looks as supply chains are working fine for consumer companies.

b) STOCK LEVELS

A number of corporations kept their supply chains lean. This meant that inventory levels of these companies were low. With the onslaught of coronavirus, these companies faced a shortage of inventory, which affected their ability to cater to demand.

According to analysts, post-lockdown, inventory levels of companies would go up, resulting in the need for more warehousing space amidst increased business activity.

c) DEMAND FOR COLD STORAGE

Essential supplies were more in demand during the coronavirus pandemic than non-essentials. This

The coronavirus pandemic has hurt the Indian economy in general and the real estate sector in particular. Although commercial was doing better than the residential space, the focus has now shifted to the warehousing sector following Covid-19 due to the growing demand for efficient supply chain by enterprises.

According to a study by real estate consultancy firm Knight Frank, the warehouse segment has seen a three-fold growth in transactions between FY17 and FY19. From 14 million square feet in FY17, the demand rose to 46 million square feet in FY19 across top eight cities of India, namely, NCR, Mumbai, Ahmedabad, Pune, Bengaluru, Kolkata, Chennai and Hyderabad.

On the supply side, these eight cities held an estimated 307 million square feet of warehousing stock at the end of FY20. Of this, Mumbai occupies 40% of the stock, states the report.

Besides, the warehousing segment has seen investments from institutions increasing to $1.8 billion in 2019 from $125 million in 2016.

With the onslaught of coronavirus, a key question that needs serious examination is: what are the key themes that are expected to play out in the warehousing segment?

Here is a low-down on the emerging themes in the warehousing sector:


and/or minimize their need to visit stores in person to make purchases of essential items. And these e-commerce companies were more than willing to deliver goods in areas that were not severely impacted by the virus.

E-commerce is the most stable business provider for the warehousing segment. It is estimated that the demand for warehousing space from e-commerce industry went up to 24% in FY19 from 14% in FY18. This shows how the e-commerce industry has provided strong and stable business to the warehousing segment.

In addition to this, there is stable demand from FMCG, manufacturing, and retail, which ensures that business in the warehousing segment is fairly stable even during the

lockdown.

f) INSTITUTIONALIZATION

Investments by global institutional investors into this segment demonstrate its growing importance. Also, the fact that the size of investments in the segment rose by 25% in the past three years ending 2019 highlights this trend.

The size of investment deal in the warehousing segment increased to $282 million per deal in 2019 from $225 million per deal in 2016.

g) PRESENCE IN SMALLER CITIES

Warehousing companies have been increasing their presence in smaller cities to enhance speedy delivery of goods to customers. Coimbatore,

Ludhiana, Vapi, Guwahati, Surat, Bhubaneswar, Patna and Siliguri are creating a strong demand for e-commerce companies, convincing these players to look for third-party logistics service providers in smaller cities like these.

IN A NUTSHELL

Given these trends, it is evident that the business in the warehousing segment is expected to be stable even during the lockdown, and will grow meaningfully as and when these restrictions are eased.

The implementation of GST, the increasing demand for instant delivery and the need to preserve quality of products will continue to provide stability to companies in the warehousing segment in the coming monthS.

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Beyond Thinking

RESHAPINGRETAIL

From being a novelty to a necessity, online grocery retail is being increasingly adopted by customers for a touch-free

shopping experience due to the coronavirus pandemic



The SnapOrder app has witnessed 6 times growth in downloads in the month of April alone, the company asserted, adding that it had recently released several updates to the app that aids kirana stores in solving the many challenges faced by customers during lockdown.

Consumers can use the app directly to view available stocks and place orders with the kirana stores, either for pick-up or for home delivery, enabling the kirana store to manage demand efficiently and prevent over-crowding at stores to ensure that social distancing is maintained during the current crisis.

Also, with over 70% of SnapOrder stores doing home deliveries at no additional cost, this app has become a prominent player in the affordable e-commerce segment, beating out most delivery apps that charge a significant amount for their service, the company stated.

With the country being under lockdown for more than four months, the entire nation of 1.3 billion is relying heavily on kirana stores for their essentials – foods, beverages, personal and household care products.

One can see a new normal emerging in terms of unexpected trends and changing consumer behaviours due to the prolonged lockdown and a new-found relationship that is forming between local kirana stores and customers who live around them.

Prem Kumar, Founder and Chief Executive Officer at SnapBizz said, “The SnapOrder app has been exclusively designed to fulfil the entire kirana store value chain. With the sudden lockdown, the app proves to be a boon for not only the retailer who could easily manage his inventory and its movement but also

online stores for her kid and her entire family as stepping out of the house is dangerous at the moment due to coronavirus. Singh added that even her neighbours and friends prefer online delivery of household items to offline shopping.

The Indian e-retail market is expected to reach 300 - 350 million shoppers, growing at a 30% compound annual growth rate (CAGR) over the next five years - propelling the online Gross Merchandise Value (GMV) to between $100 billion and $120 billion by 2025, according to a new report titled, ‘How India shops online,’ released by Bain and Company in partnership with Flipkart.

The report focuses on how e-retail is democratizing the shopping landscape with access to 97% of India’s pin codes and empowering the country’s small sellers while breaking go-to-market barriers for both insurgent and incumbent brands. KIRANA STORES ONLINE

To take advantage of the present scenario start-ups are focusing on bringing traditional small kirana stores online and providing them with a platform to sell products digitally.

Bengaluru-based SnapBizz has come up with a solution to convert neighbourhood kirana shops into smart stores with a host of features to enable the store owner to leverage on the latter’s current strengths to gain a competitive edge and increase store profitability, the company claimed recently.

The SnapOrder mobile app by SnapBizz enables kirana stores of all sizes to go online with their supplies instantly for their customers.

Interest in online grocery retail has risen tremendously during the coronavirus pandemic as customers have been avoiding going to stores to make purchases ever since several states across India reimposed partial or full lockdown to prevent the spread of the deadly virus.

The $850 billion Indian retail market, fourth largest in the world, is on the cusp of a transformation, led by the emergence of e-retail and its growing influence on Indian shoppers.

While covid-19 has caused an inflection in e-commerce penetration globally driven by consumers’ need for safety and convenience, online retail is gaining salience even in India, industry experts said.

Delhi-resident Reshmi Das (46) said, “I have stopped stepping out of the house even for vegetables, milk and daily groceries. We order all household items online these days as it is safer rather than venturing out during this pandemic.” Reshmi is not alone. Nearly 90% of shoppers from metros and tier-I, tier-II and tier-III cities, where the option of online delivery is available, are opting for online purchases to meet their daily needs, industry analysts revealed.

Sneha Singh (38), a resident of Mumbai, said that she too has been ordering items for daily use from


for the end consumer who can get a bird’s eye view into the neighbourhood kirana store with the app. Not only that, but it has helped customers order essentials from the comfort of their homes and pick it up or have it delivered in a contact-less manner.”

The SnapOrder mobile app has been developed to get kirana stores online in just 30 minutes. The app comes preloaded with 2000 SKUs (stock keeping units), which enables store owners to quickly have a one-to-one connect with customers and get a view of the available SKUs in that particular store.

The customers are now becoming more aware of the services that kirana store owners offer such as credit, home-delivery, hyper-local apps and hyper-local merchandise, among others, Kumar informed.

With a presence in seven major cities in India, SnapOrder is today the only vertical platform exclusively designed for the fast moving consumer goods (FMCG) industry, fulfilling last-mile connectivity with kirana stores, its consumers and other stakeholders in the FMCG ecosystem.

The stakeholders include FMCG brands, distributors, wholesalers,

e-commerce players (B2B/B2C), advertising agencies and financial service players, Kumar elaborated.

The company presently has a network of over 8,000 kirana stores who collectively do a business (GMV) of approximately $1 billion per year.

Given its increasing relevance in the space due to the current circumstances, SnapBizz is on a fast-track mode to build a network of 50,000 Class A stores and 2,00,000 Class B/C stores across 42 cities and become a $21 billion platform, Kumar added.

Market researcher Nielsen in a global report titled ‘online shopping in lockdown’ said online sales surged significantly across the globe.

A survey by LocalCircles a community platform showed that 21% of respondents were ordering essentials and other products through e-commerce platforms, while an additional 19% were opting for home delivery of goods from large retailers and local corner stores.

Many consumers prefer to order products online or through contactless deliveries from local stores, according to the survey, amid rising number of covid-19 cases in

the country. This comes despite India’s e-commerce sector not yet recovering revenues fully after the lockdown was lifted and restrictions on offline store and malls were eased initially in the month of May.

Industry experts said that even as e-commerce revenues were down, recovery has been faster than offline stores.

In categories such as fashion, which has been among the worst hit due to the outbreak, recovery of online sales is far higher than it is offline. So, people are certainly choosing to shop online over offline.

India’s e-commerce sector had recovered close to 90% of its pre-covid-19 order volumes, even as the total value of goods sold online was far lower than before the pandemic.

The survey also showed that 92% respondents were shopping online or requesting home deliveries to minimize their exposure to other people. A few of them said they were facing service issues too.

Despite minor hiccups, the trend of online shopping is likely to continue till a cure for coronavirus is found, and customers start feeling safe to step out of their homeS.

WORTH A MENTION

• Consumers are increasingly opting for e-retail platforms for product searches — nearly one in three product searches in India already starts on an e-retail platform, with vernacular searches on the rise.

• To increase conversion, sellers must invest in high-quality product images and high-impact summary of product descriptions. One in two visitors browses the image gallery and only 1 in 15 clicks on the detailed product description.

• For the next wave of online customers, peers and community will play a much larger role in influencing purchase decisions than for the current online shopping base.

• More than 50 private equity and venture capital investments in social commerce were closed in the last five years.

A credit card can be your friend or your foe based on how you

facing at the moment

Beyond Thinking

UNLOCKING ITSPOTENTIAL



outstanding at one go.

This will also serve two objectives - it will have a minimal impact on your credit score and you will have time to pay or manage your finances. What one needs to note here is that the financial institution will reduce the credit limit by the amount equal to the loan amount and as and when the EMIs are paid off, the limit will be reinstated.

Most banks charge a processing fee, and the rate of interest although lower than the one that is imposed on outstanding credit card dues, is still relatively high. For example, HDFC bank charges 18% interest p.a and a processing fee of 2%.

Ensure that you have carefully analyzed your financial situation before selecting the tenure while converting the credit card outstanding to EMIs because non-payment could cause your debt to spiral, pushing you further into a debt trap.

Cash Withdrawals – A Measure Of Last Resort

Withdrawing cash by using your credit card is an easy option, but as far as possible it should be strictly avoided as it comes with several hidden charges such as cash advance fees, which can be as high as 2.5% to 3% of the transaction amount and high finance charges. All this adds up to the withdrawal amount.

It is better to look for a personal loan or liquidate any investment such as fixed deposit as the interest earned will be far lower than the interest pay-out on such withdrawals.

Cash withdrawals from credit cards should be considered only when all options have exhausted. Remember late payments could tarnish your

announced a moratorium on credit card dues beginning 1st March for a period of three months initially. It has now been extended by another three months, taking the total moratorium period to six months, which will end on 31st Aug ’20.

This measure will give time to those that have experienced financial disruption due to loss of income or other reasons, compelling them to revisit their financial situations and make necessary amends to meet their monetary obligations.

During the moratorium period, customers will not be categorized as defaulters and it will not have a significant impact on their credit scores. However, it is imperative to understand that since it is only a ‘moratorium’, interest will accrue on the outstanding amount, which will be payable once the moratorium ends. In addition to this, for any purchases made during the moratorium period, interest will accrue immediately. Given how high interest rates are on credit card outstanding dues, your interest payment will balloon, making it an irrational decision to opt for moratorium. Hence, it makes sense to pay off credit card dues immediately by liquidating savings or by even taking another low-cost loan or borrowing money from friends and family.

Explore Converting Credit Card Outstanding To A Loan

If the credit card outstanding amount is such that repayment will be an issue, then it is worth approaching the lender seeking the conversion of the outstanding balance into a loan, which will mean EMIs will have to be paid till the loan is exhausted. This will help reduce the burden of having to pay the credit card

The viral outbreak has caused an economic catastrophe. Layoffs, furloughs, and closures have caused disruption and financially devastated those affected by it. But individuals with minimum or no debt obligations and control over their finances have emerged unscathed from this ordeal.

Nonetheless, financial decisions need to be reconsidered, reviewed, and perhaps altered to deal with the aftermath of the coronavirus pandemic. If, however, emergency funds are inadequate or not in place, it may impair people’s ability to repay. So, the best that one can do is to be prepared for any eventuality.

All is not lost for the financially- handicapped. They can use credit cards if an emergency strikes or as a stop-gap arrangement. Moreover, if used sparingly, credit cards can be advantageous on account of free credit days that allow customers to repay albeit only on a few days.

However, it is important to know that how well you utilize this tool will have a direct impact on your credit score, which will form the basis of loan approvals in the future and determine the cost of funds too.

HOW SHOULD YOU VIEW YOUR CREDIT CARDS IN UNCERTAIN TIMES

Moratorium - A Temporary Relief

Reserve Bank of India (RBI) had


credit history as well as put you into a debt trap on account of exorbitantly high interest rates.

Monitor The Credit Utilization Ratio

While credit card limit indicates the maximum credit that is at one’s disposal, credit utilization shows how much of that credit is being utilized. It gives financial institutions a good sense on how efficient an individual is at managing funds.

A good utilization ratio based on general consensus is below 30% in order to maintain a good credit score. Hence, it is critical to keep a watch on the utilization level. In case you have multiple cards, you can spread expenses across cards. If you do not possess more than one card, it is time to approach your credit card company seeking to increase your credit limits.

Be Mindful Of Fraudsters

Credit card users are must be vigilant while using cards online in view of rising number of economic offences. Quite often, scamsters defraud gullible people by encouraging them to do KYC updates, and/or assuring them of gift vouchers, among other offers to dupe them.

Banks have a zero liability policy when it comes to credit cards. Hence, it is easier to recover losses on credit cards. But in the current scenario of lockdowns and restricted movements, getting a replacement/ new credit card may take longer than usual. In the current environment of uncertainty, having a line of credit accessible in addition to adequate emergency funds is a boon.

Use Up Reward Points

More often than not, attractive

reward points entice customers to choose one credit card over another. But the key question is whether you utilize your reward points in time to benefit from them.

If you have already accumulated points, it is wise to use them up before they expire instead of waiting for it to cross a threshold. This will ensure that you monetize the benefit, which could be in the form of vouchers or merchandise or even adjustments in credit card bills. Pay Credit Card Bills On Time

The use of credit cards may have reduced during the pandemic owing to limited spending avenues such as entertainment and dining out due to the lockdown. But, even if one small purchase has been made using the card, then it must be paid off on time.

The quantum of the bill is not as important as its timely payment. Lack of timely payment attracts high interest costs and tarnishes your credit history too.

Pay The Outstanding In Full

Credit card interest charges can be as high as at 3% to 4% per month, which comes to 36% to 48% annually. Thus, resorting to paying the minimum outstanding balance and getting interest levied on you should be avoided unless the situation so demands.

Reassess your financial situation and see if you can opt for a new loan. But the cost will be much lower than what is charged on credit cards.

It may even make sense to liquidate some of your fixed deposits because the interest you earn will be far lower than the interest that is charged on credit cards. Also, paying in full will allow you to ensure that your

utilization levels are under control and a line of credit is available in case of an emergency.

Curb Expenses - Differential Between Need And Want

In times of uncertainty, cutting down on expenses is essential to ensure that extra resources are available to tide over crises so that financial obligations can be met.

Differentiating between wants and needs is a step in the right direction. This may require one to review all subscriptions and memberships on credit cards especially if they are not getting utilized as planned.

Also, curtail the ease of completing transactions through a single click as it ensures that credit card details are not prefilled.

This will give individuals time to think and ensure that he/she is conscious of the purchase that is being made and that it is not being momentarily influenced by discounts and the likes.

Economists have gone to the extent of finding similarities between the impact of the COVID-19 outbreak and the Great Depression of the 1930s. To what extent the eventual damage will be and for how long this will continue is anybody’s guess.

There is no point getting overwhelmed by an issue that is beyond our control. What we can do is prepare ourselves to face any eventuality. In financial terms, it means to take steps to strengthen ourselves monetarily in such a way that access to funds is easy.

Credit cards can be viewed as a line of credit, which if used wisely, can be an effective tool to manage finances even during a pandemiC.

Beyond Basics

COVERAGAINSTCORONAInsurance companies in India are offering health

policies against coronavirus following instructions from

IRDAI



products. It had asked all general and health insurance companies to mandatorily offer this standard health policy.

Bajaj Allianz General Insurance recently announced its Corona Kavach policy that has a sum insured between `50,000 and `5 lakh and the customer can opt for this policy for a period of three-and-a-half months, six-and-a-half months and nine-and-a-half months.

The premium for the base cover ranges between `447 and `5,630 excluding Goods and Services Tax (GST), depending on the age of the person, sum insured and the policy period opted by the policyholder.

For example, the premium for individuals between 36 and 45 years is `1,495 for `50,000 sum insured, and `2,770 for sum insured of `5 lakh for a period of nine-and-a-half months.

According to market participants, the growing number of covid-19 cases in the country has made people prioritize their health.

Health insurance awareness is at an all-time high and possibly the highest we have seen in the last decade. This is the ideal time to channelize the awareness to bring more people under the ambit of health insurance. The Corona Kavach plan brings value to customers who want a cover for treatment costs related to covid-19.

The premium for Corona Kavach plan from Max Bupa for `2.5 lakh cover for an adult (31-55 years age group) is around `2,200 and for 2 adults and children for the same age group, it is around `4,700. The product comes with in-built benefits such as hospitalization cover due to covid-19, treatment availed at home,

health policy, which will be offered on an indemnity basis. Insurers have been asked to launch the product from 10th Jul ’20.

All life, general and health insurance companies have been encouraged to offer standard benefit-based policy, while every general and standalone health insurer shall mandatorily offer standard health indemnity policy.

According to the guidelines laid down by IRDAI, the minimum sum insured for Corona Kavach policy will be `50,000 and the maximum sum insured would be `5 lakh. However, for Corona Rakshak Policy, the minimum sum insured would be `50,000 and the maximum limit has been set at `2.5 lakh.

Corona Kavach policy will be an indemnity-based policy but optional cover shall be made available on benefit basis. The base cover will offer hospitalization expenses like room and boarding charges along with PPE kits, gloves, masks and other similar expenses and even AYUSH treatment.

As part of the Corona Rakshak policy, insurers shall pay lump sum benefits equal to 100% of the sum insured on positive diagnosis of covid-19, requiring hospitalization for minimum continuous period of 72 hours.

Under indemnity health insurance plans, insurers cover the cost of medical expenses during hospitalization, while in defined benefit plans a lump sum is paid irrespective of the actual hospital expense.

IRDAI has issued clearance to 30 general and health insurance companies to launch Corona Kavach policy and in the days to come more insurers will launch similar kind of

In order to ensure people that they have an insurance cover against novel coronavirus, the Insurance Regulatory and Development Authority of India (IRDAI) had asked insurance companies to launch a covid-19 specific cover.

Insurance companies such as ICICI Lombard General Insurance, Bajaj Allianz General Insurance, HDFC Ergo and Max Bupa Health Insurance have launched Corona Kavach policy.

In India, coronavirus cases are on the rise. According to the Ministry of Health and Family Welfare data as on 14th Jul ’20, there are 3.11 lakh active cases in India, while 5.71 have been cured or discharged, and 23,727 have died from covid-19.

Insurance companies have received claims worth over `500 crore for covid-19 alone, and are expecting more claims to come in, going forward.

To ride through such a tumultuous period, insurance regulator in the last week of June had announced guidelines on covid-19 standard benefit-based health policy and individual covid-19 standard health policy.

The guidelines were issued for Corona Rakshak policy, which is a standard benefit-based policy and Corona Kavach policy, a standard


AYUSH treatment, pre- and post-hospitalization, among others and the features can be availed after a 15-day waiting period.

According to officials in the non-life industry, average claims for novel coronavirus is around `2 to `2.5 lakh.

In cases where the condition of the patient is severe and has been admitted in an intensive care unit (ICU), the claims are in the range of `6 lakh to `8 lakh. It is better for investors to buy the policy for a sum insured of `5 lakh due to rising medical costs. Also, premiums of this policy are highly competitive.

Under ICICI Lombard Corona Kavach policy, pre-hospitalization for 15 days prior to the date of hospitalization/home care treatment is allowed. It is also provided for 30 days from the date of discharge from the hospital/completion of home care treatment.

There is also 0.5% of Sum Insured per day subject to maximum 15 days in a policy period for every insured member.

Medical expenses incurred on inpatient care treatment for covid under Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy (AYUSH) systems of

medicines shall be covered up to sum insured during the policy period as specified in the policy schedule.

With only 30% of the population having some form of health insurance protection through individual health policy, government health schemes and group health schemes, the launch of this policy will immensely help policyholders in India.

Insurance regulator has been on the forefront by asking insurers to launch products that can increase penetration of health insurance in India.

Before announcing standard cover for covid-19, IRDAI had asked all insurers to provide standard health insurance policy called Arogya Sanjeevni with minimum sum insured of `1 lakh to `5 lakh. Now, the regulator has allowed providing a policy even for a sum insured more than `5 lakh.

Currently, there are several health insurance products in the market and every insurer designs products based on their underwriting guidelines, claims experience and risk assessments.

Therefore, every product might have different benefits, terms of coverage and premium.

Owing to the availability of such wide range of product offerings, a policyholder needs to undertake a vast assessment before selecting an ideal plan for himself/herself.

In the case of Arogya Sanjeevani, the regulator has advised insurers to develop a standardized offering in terms of benefits and terms of coverage, thus making buying decision for this product simpler.Despite having a disease-specific cover, participants in the insurance industry say that one should have a comprehensive health insurance cover.

To make health insurance sustainable, people should be encouraged to buy comprehensive health insurance plans, which fulfil the evolving health needs of people.

It is important to understand that health insurance is a long-term product that needs to be renewed year after year, keeping in mind the medical inflation and increase in lifestyle illnesses.

To provide maximum value to policyholders, a comprehensive health insurance plan that protects against a wide range of illnesses, including covid-19 will be more suitable. In India, all the health insurance cover allows claims even for novel coronaviruS.

BEYOND WORDS

Alpha

Widely used as a measure of the risk-adjusted performance of a mutual fund scheme, the alpha gives an idea of the excess returns that a fund is likely to generate in comparison with its benchmark. Simply put, the difference between the higher returns earned by the fund and the returns of the benchmark index is known as the alpha.

A positive alpha means that the fund has performed better than expected while a negative alpha suggests underperformance for the level of risk taken. The alpha is also seen as a measure to judge the value added by the fund manager of that mutual fund scheme and value subtracted in case of a negative alpha.

Investors must safeguard their capital instead of merely focusing on returns in these uncertain times

Beyond Basics

The fall of Infrastructure Leasing and Financial Services Ltd (IL&FS) in 2018 continues to rattle debt mutual

other hand investors are lapping up products that are perceived to be less risky like banking and PSU funds.

Even the latest tranche of Bharat Bond exchange traded funds (ETFs) got subscribed by three times and collected `10,000 crore.

This pattern clearly shows that given all the problems in the debt markets, investors want to play safe and not invest in products that are ‘risky’. In this article we try and explain the

fund investors even in 2020. The major jolt came in April this year when Franklin Templeton Mutual Fund closed its six debt schemes due to significantly lower liquidity in the Indian bond markets for most debt securities and unprecedented levels of redemptions after the outbreak of coronavirus and the lockdown that followed subsequently.

While on the one hand, debt funds have seen outflows from credit risk funds in the last few months, on the

A PRUDENT MOVE



savings in bank deposits. This will kick-start the overall economy as savings will not boost consumption. But if India’s economy fails to pick- up significantly, the debt market will bear the brunt of the slowdown.

WHAT CAN INVESTORS DO

Not just investors even fund managers are staying invested in AAA-rated papers and not indulging in any risks at this point in time. Investors should invest only in top quality credits such as government of India bonds or blue-chip AAA credit and AAA PSU bonds to preserve the capital of the funds. It could include funds like banking and PSU and Bharat Bond ETFs, among others.

It is extremely important for investors to remain invested in superior credit quality funds (funds that invest 100% in sovereign bonds or AAA credit quality or a mix of both). In this economic hardship, following this strategy will ensure lower volatility in the portfolio.

Investors should also select funds with a portfolio duration that is slightly longer than their investment horizon in this time of rate easing. This strategy will ensure the interest rate decline is managed in favour of returns on a risk-return matrix.

Also, it is not the right time to look at credit risk funds as the ongoing crisis may put further pressure on credit spreads. Investors must be cognizant of the novel coronavirus-induced investment landscape and ensure that their ‘capital’ is perhaps more important than ‘returns’.

Now, it is better to stay invested in top-quality short-term debt funds with a horizon of 2-3 years. For anything below one year, they could consider ultra-short duration or money market schemeS.

Doing this ensures that while investor money in the debt scheme linked to stressed assets gets locked until the fund recovers money from the stressed company, investors can redeem money from other sources.

Finally, in April when Franklin Templeton MF shut its six debt schemes, investors got nervous. All these events led to discontentment among investors. In fact, there were sharp redemptions from debt funds, especially in credit risk funds.

COVID-19 AND ITS IMPACT ON DEBT MARKETS

The Indian economy is not doing too well because of the lockdown and the spread of coronavirus. This has impacted the income and revenue of corporates, households, individuals, and tax collection of the government. This year seems to be posing an unprecedented challenge to both the private sector and the government. While the government and the Reserve Bank of India (RBI) have announced multiple policy measures as a stimulus to revive economic growth, the results are still awaited.

In this scenario, the government’s ability to push through fiscal stimulus is limited due to low tax collections. Many ratings agencies have predicted negative GDP growth in this fiscal, which can be tough for several companies with weak balance sheets to pass through this storm.

As per market participants, steeper yield curves and higher credit spreads (between AAA and non- AAA) are likely to continue in the foreseeable future. RBI is expected to continue to pursue easy monetary policy like reducing interest rates and infusing surplus liquidity. Interest rates needs to be reduced such that it encourages investors to look at other financial products and not just

problems in the debt markets, what investors should do and how they should invest in such times.

PROBLEMS IN DEBT FUNDS

On 8th Sept ’18, ICRA downgraded long- and short-term ratings of IL&FS. The rating was downgraded to below investment grade after a few days to default. Since the issuer had been downgraded below investment grade, valuation agencies stopped providing scrip-level valuations of various debt instruments of IL&FS. Mutual funds started marking down their investments as per SEBI valuation norms wherein debt instruments of companies rated below investment grade must be valued based on fair valuation norms.

Later at the start of 2019, share prices of one of the entertainment companies fell sharply on reports of pledged shares of promoters being invoked and sold. This resulted in security cover against mutual fund’s exposures falling below the prescribed threshold as per NCD.

But the promoters conveyed their inability to provide additional equity shares as most of their domestic shareholding was already pledged. Later, fund houses entered into a standstill agreement with the firm, attracting the ire of regulators.

After this, there were defaults by Altico Capital, CCD and DHFL, among others. In all the issues the fund houses had to mark down their investments or had created segregation of portfolios, severely impacting the returns of investors.

Segregation of portfolio or side pocketing separates stressed assets from other investment and cash holdings of a particular scheme.

Multicap Funds

SCHEME NAME NAVHistoric Return (%)

1 Year 10 Years5 Years 7 YearsAUM (Cr)

3 Years

Aditya Birla Sun Life Equity Fund - GrowthCanara Robeco Equity Diversified Fund - GrowthMahindra Manulife Multi Cap Badhat Yojana UTI Equity Fund - GrowthKotak Standard Multicap Fund - Reg - GrowthS&P BSE 500 TRI

684 139

11 146

34 17,392

-1.36.85.89.2

-0.20.7

0.36.52.36.12.92.8

6.56.9

-6.87.76.5

1512.3

-12.815.211.6

9.89.9

-11

11.58.5

10,175 2,107

312 9,750

27,976 -

Large Cap Funds



3 Years

Axis Bluechip Fund - GrowthMirae Asset Large Cap Fund - Reg - GrowthNippon India Large Cap Fund - GrowthNifty 50 TRI

30 50 30

15,811

5.70.6

-11.50.4

9.44.4

-0.75.2

8.88.43.76.9

13.115.712.410.7

10.712.5

98.8

14,522 16,381

9,983 -

Beyond Numbers

MUTUAL FUNDRECOMMENDATIONS

Here are a few mutual fund schemes we recommend you to consider from an investment perspective.

Mid Cap Funds



3 Years

DSP Midcap Fund - Reg - GrowthEdelweiss Mid Cap Fund - GrowthAxis Midcap Fund - GrowthInvesco India Mid Cap Fund - GrowthKotak Emerging Equity Fund - Reg - GrowthNifty Midcap 100 TRI

56 26 39 50 37

20,236

9.44.4

12.511.7

2.7-1.9

2.30.38.83.90.2

-4.3

8.15

7.46.86.83.9

19.117.218.117.818.412.7

12.512.8

-13.511.7

7.6

6,962 826

5,511 817

6,449 -

Large & Mid Cap Funds



3 Years

Mirae Asset Emerging Bluechip Fund - GrowthCanara Robeco Emerging Equities - GrowthPrincipal Emerging Bluechip Fund - GrowthInvesco India Growth Opportunities Fund - GrowthSundaram Large and Mid Cap Fund - Reg - GrowthNIFTY Large Midcap 250 TRI

55 94

102 33 32

6,915

7.36.75.73.2

-1.61.5

5.42.71.33.82.2

2

128.67.66.56.46.9

23.521.818.613.513.513.6

18.315.412.610.5

8.79.4

9,834 5,162 1,918 2,498 1,113

-

FoF Overseas



3 Years

PGIM India Global Equity Opportunities Fund 28 45.7 25.4 12.1 9.2 10.8 137


Small Cap Funds



3 Years

HDFC Small Cap Fund - GrowthSBI Small Cap Fund - GrowthNifty Smallcap 100 TRI

33 52

6,166

-15.15

-11.4

-4.43.9

-12.9

4.69.7

-1.4

11.822.4

9.6

8.516.6

3.8

7,511 3,917

-

Dynamic Asset Allocation Funds



3 Years

ICICI Prudential Balanced Advantage Fund - Reg Invesco India Dynamic Equity Fund - GrowthNippon India Balanced Advantage Fund - GrowthSBI Dynamic Asset Allocation Fund - Reg - GrowthNIFTY 50 Hybrid Composite Debt 65:35 Index

37 30 92 13

10,534

4.92.81.60.36.2

5.43.13.22.87.1

7.25.65.55.78.3

11.811.1

11-

10.7

10.99.19.1

-9.2

25,409 741

2,782 576

-

Hybrid Aggressive



3 Years

Canara Robeco Equity Hybrid Fund - GrowthSBI Equity Hybrid Fund - GrowthMirae Asset Hybrid - Equity Fund - Reg - GrowthICICI Prudential Equity & Debt Fund - GrowthNIFTY 50 Hybrid Composite Debt 65:35 Index

169 139

15 127

10,534

8.63.23.2

-4.26.2

6.45.65.41.57.1

7.87.6

-6.38.3

13.813.7

-12.510.7

1110.7

-11.4

9.2

3,041 30,192

3,468 17,615

-

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



3 Years

Aditya Birla Sun Life Tax Relief 96 - GrowthAxis Long Term Equity Fund - GrowthCanara Robeco Equity Tax Saver Fund - GrowthInvesco India Tax Plan - GrowthMirae Asset Tax Saver Fund - Reg - GrowthS&P BSE 200 TRI

31 45 68 52 18

5,654

4.92

8.56.23.81.2

2.65.4

74.85.83.9

6.77.37.36.8

-6.9

15.216.713.215.2

-11.6

10.114.310.411.7

-8.8

10,101 20,292

992 997

3,538 -

Focused Fund



3 Years

Axis Focused 25 Fund - GrowthICICI Prudential Focused Equity Fund - Ret - GrowthSBI Focused Equity Fund - GrowthS&P BSE 500 TRI

28 30

142 17,392

42.11.40.7

5.82.56.42.8

8.95.39.36.5

13.610.615.311.6

-8.4

13.98.5

10,399 681

8,962 -

Solution Oriented



3 Years

HDFC Childrens Gift FundTata Retirement Savings Fund - Moderate Plan - RegTata Retirement Savings Fund - Progressive Plan - RegTata Retirement Savings Fund - Conservative PlanS&P BSE 200 TRI

122 31 30 22

5,654

3.37.35.9

91.2

3.64.24.25.63.9

7.48.29.27.76.9

13.414.714.3

9.611.6

12.2---

8.8

3,022 1,087

728 138

-

Beyond Market 16th - 31st Jul ’20 It’s simplified...41

Contra/Value Fund



3 Years

Invesco India Contra Fund - GrowthUTI Value Opportunities Fund - GrowthS&P BSE 500 TRI

49 60

17,392

7.43.30.7

5.93.32.8

8.54.46.5

18.19.5

11.6

11.79.28.5

4,662 4,017

-

Sector/Thematic



3 Years

Canara Robeco Consumer Trends Fund - Reg - GrowthMirae Asset Great Consumer Fund - GrowthICICI Prudential Technology Fund - GrowthNippon India Pharma Fund - GrowthBNP Paribas India Consumption Fund - Reg - GrowthICICI Pru Banking and Financial Services Fund - Retail S&P BSE 500 TRI

41 34 65

197 13 51

17,392

9.84

11.141.4

9.1-19.3

0.7

6.14.6

16.513.8

--4.82.8

8.88.49.77.4

-6

6.5

1514.416.415.3

-14.511.6

12.2-

1514

-11.7

8.5

372 940 379

3,093 525

2,538 -

Arbitrage Fund


3 Months 3 Years1 Year 2 YearsAUM (Cr)

6 Months

IDFC Arbitrage Fund - Reg - GrowthKotak Equity Arbitrage Fund - Reg - GrowthTata Arbitrage Fund - Reg - GrowthNippon India Arbitrage Fund - Growth

25 28 11 20

33.44.33.7

44.85.94.9

4.65.15.75.1

5.75.9

-5.9

5.76-

6.1

8,237 15,854

2,062 7,847

Index Fund



3 Years

HDFC Index Fund-NIFTY 50 PlanICICI Prudential Nifty Next 50 Index Fund - GrowthUTI Nifty Index Fund - GrowthNifty 50 TRI

102 23 74

15,811

-0.50.5

-0.10.4

4.6-1.64.85.2

6.35.36.56.9

10.112.210.110.7

88.5

88.8

1,622 729

2,362 -

Liquid Fund


2 WeeksYTM

3 Months 1 YearAUM (Cr)

1 Month

Aditya Birla Sun Life Liquid Fund - Reg - GrowthICICI Prudential Liquid Fund - Reg - GrowthKotak Liquid Fund - Reg - GrowthNippon India Liquid Fund - GrowthMahindra Manulife Liquid Fund - Reg - GrowthCRISIL Liquid Fund Index

322 297

4,054 4,893 1,300

-

3.33.23.13.23.33.8

3.63.43.33.43.53.9

4.34.13.94.14.14.5

5.45.45.25.45.45.6

3.673.633.433.573.61

-

36,679 57,335 36,040 30,604

2,144 -



Money Market Funds


3 MonthsYTM

1 Year 3 YearsAUM (Cr)

6 Months

Aditya Birla Sun Life Money Manager Fund - Reg HDFC Money Market Fund - GrowthTata Money Market Fund - Reg - GrowthCRISIL Liquid Fund Index

277 4,302 3,539

-

8.99.18.34.5

8.58.68.15.1

7.97.97.55.6

7.97.75.1

-

4.454.534.59

-

9,214 8,422

424 -

Ultra Short Term Funds


3 MonthsYTM


6 Months

HDFC Ultra Short Term Fund - Reg - GrowthL&T Ultra Short Term Fund - GrowthNIFTY Ultra Short Duration Debt Index

12 34

4,148

9.27.26.3

87.26.7

7.47

6.9

-7.27.5

4.93.8

-

7,697 1,960

-

Short Term Funds


3 MonthsYTM


6 Months

HDFC Short Term Debt Fund - GrowthNippon India Short Term Fund - Growth

24 39

20.414.7

13.811.4

11.910.4

8.87.5

6.715.86

11,138 6,825

Low Duration Funds


3 MonthsYTM


6 Months

Axis Treasury Advantage Fund - GrowthCanara Robeco Savings Fund - Reg - GrowthIDFC Low Duration Fund - Reg - Growth

2,332 32 30

11.910.111.2

9.28.2

9

8.77.88.4

7.97.47.7

4.64.134.12

4,955 1,049 4,575

Banking & PSU Bond Funds


3 MonthsYTM


6 Months

HDFC Banking and PSU Debt Fund - Reg - GrowthKotak Banking and PSU Debt Fund - Reg - GrowthNippon India Banking & PSU Debt Fund - Reg

17 49 16

19.619.419.5

12.813.414.6

11.511.512.2

8.48.88.8

6.416.115.28

6,416 7,146 5,211

Corporate Bond Funds


3 MonthsYTM


6 Months

ICICI Prudential Corporate Bond Fund - Reg - GrowthL&T Triple Ace Bond Fund - Reg - GrowthKotak Corporate Bond Fund - Std - Growth

22 56

2,814

2024.916.6

13.919

11.7

11.613.210.5

8.69.88.7

5.536.545.33

15,799 3,871 4,607

Floater Fund


3 MonthsYTM


6 Months

Nippon India Floating Rate Fund - Growth 34 19.2 14.6 11.5 8.1 5.65 11,636


Disclaimer : Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing. 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. Source: - ICRA MFI, NAV as on 24th Jul ’20

Dynamic Bond Fund


3 MonthsYTM


6 Months

ICICI Prudential All Seasons Bond Fund - GrowthIDFC D B F - Reg - GrowthKotak Dynamic Bond Fund - Reg - GrowthCRISIL Corporate Bond Composite Index*

27 27 28 --

17.318.5

21--

15.820.215.1

--

12.213.311.2

--

8.18.89.2

--

7.875.836.45

--

3,108 2,311 1,322

--

Gilt Fund


3 MonthsYTM


6 Months

Nippon India Gilt Securities Fund - GrowthSBI Magnum Gilt Fund - Growth

30 50

14.615.1

18.218.3

11.911.9

9.28.5

5.896.26

1,452 3,415

Credit Risk Fund


3 MonthsYTM


6 Months

ICICI Prudential Credit Risk Fund - Growth HDFC Credit Risk Debt Fund - Reg - Growth SBI Credit Risk Fund - Growth

23 17 33

1417.2

14

9.99.99.4

10.39.68.8

7.97.16.7

8.9610.05

8.33

6,562 6,309 3,895

Medium to Long Duration Fund


3 MonthsYTM


6 Months

ICICI Prudential Bond Fund - GrowthSBI Magnum Income Fund - Growth

30 53

21.518.1

1614.8

12.913

8.28.3

6.227.11

3,645 1,342

Medium Duration Fund


3 MonthsYTM


6 Months

ICICI Prudential Medium Term Bond Fund - GrowthSBI Magnum Medium Duration Fund - Growth

32 38

1517.3

10.314

10.612.3

7.28.8

8.47.15

4,864 3,384

Overnight Fund


2 WeeksYTM

3 Months 1 YearAUM (Cr)

1 Month

Aditya Birla Sun Life Overnight Fund - Reg HDFC Overnight Fund - GrowthICICI Prudential Overnight Fund - Reg - GrowthNippon India Overnight Fund - Reg - GrowthKotak Overnight Fund - Reg - GrowthCRISIL Liquid Fund Index

1,088 2,981

109 108

1,075 -

2.93

2.93

2.93.8

2.92.82.92.92.83.9

2.92.82.92.92.84.5

4.24.14.24.34.25.6

3.173.143.123.093.14

-

7,621 13,989 10,011

5,363 6,183

-

TECHNICAL OUTLOOK

Beyond Numbers

10,860-mark on closing basis, there is a high probability that it might touch 11,860/12,000 levels in the coming trading session.

If it fails to sustain above 10,860, then we may see profit-booking or fresh shorts below 10,860 level, which might drag the Nifty towards 10,550, that is, 61.8% Golden Ratio support of Fibonacci Retracement.

Looking at the technical set up, the view is positive on Nifty. Investors can trade the uptrend but with a strict stop loss. They are advised to protect profits at higher levels.

On the technical charts, the Bank Nifty was an underperformer compared to the Nifty in July and gave gains of almost 4.82%. The Bank Nifty is facing a resistance of 23,200 on the higher side. As long as it trades below the same, we may not witness fresh longs in the near term.

Last month, it attempted breakouts twice but failed to do so. In August, if the Bank Nifty doesn’t give the breakout, it will be difficult for the Nifty to continue its positive rally.

Currently, the Bank Nifty has support at 20,980. Below this level, a sell-off is likely, which may cause the Bank Nifty to touch the 20,200-19,600- mark. On the flip side, immediate resistance lies at 23,200. Above that, it may extend its rally to 24,000/ 24,800. Investors should not create major long positions as long as it trades below the 23,200-mark and can trade in the small rally, but with a strict stop loss.

On the Nifty Options front for the August series, the highest Open Interest (OI) build up is seen near 11,500 and 12,000 Call strikes,

whereas on the Put side, it is at the 11,000 and 10,500 strikes.

July started with adequate open interest and many sectors witnessed a long build-up. Stocks in Technology, Automobile and Metals sectors saw a build-up in aggressive long positions. Stocks from these sectors may continue to see buying in August.

India VIX, which measures the immediate 30-day volatility in the market, remained in the range of 20-30 for major part of July. VIX is likely to cool further and track global markets for move on higher side.

The Put Call Ratio-Open Interest (PCR-OI) for Nifty Options has been in the range of 1.10-1.90 in July. It is expected to remain in the range of 1.00-1.80 in August.

The markets are believed to remain bullish in August with the likelihood of touching important resistances of 11,500 and 12,000; bouts of volatility are likely due to global scenario with the index finding support at 11,000 and 10,500 levels.

OPTIONS STRATEGY

Long StraddleIt can be initiated by ‘Buying 1 lot 06AUG 11300 CE (`140) and Buying 1 lot 06AUG 11300 PE (`145)’. The premium outflow is around 285 points that is maximum loss. But one should place a stop loss at 200 points (85 point loss). Maximum gain is unlimited and one should place the target at 425 points (140 point gain). With more than 5 working days and festive season approaching, the index is likely to move more than 300 points in either direction, which would result in decent gains for the strategY.

he market was stronger-than-expect-ed and ended July on a positive note. The weekly chart indicates that the Nifty rallied in a higher top and higher bottom pattern throughout the July series and gave returns of almost 9.5%. But after a good performance in July, the Nifty might witness some profit-booking at higher levels.

Technically, the Nifty is well-placed above the 100-day moving average (DMA) and 200-DMA on the closing basis, suggesting positive signs in the near term. Interestingly, the Nifty is placed in an upward rising channel, indicating a potential up-move in the near-term, towards 11,370 (a resistance provided by the 78.6% of Fibonacci Retracement).

The Nifty may not give a one-side up rally as a small correction is likely. After this, it may bounce-back from support levels.

As per the Fibonacci Retracement Theory, the weekly chart suggests that the Nifty may face a resistance of 78.6%, that is, at the 11,370-mark on closing basis. Any move suggests there is a higher possibility that the upside in the market will stay capped between 11,860 and 12,000 levels.

On the flip side, support lies at 10,860 provided by 200-DMA. As long as the Nifty sustains above the

T



sheer lack of judgement and can be simply avoided by

not participating in the rush hour madness

Beyond Learning

AVOIDINGRUSHHOUR



CIRCLE OF COMPETENCE

Nevertheless, as prudent investors, we must completely avoid such feelings because sooner than later rationality will prevail, which will be quite devastating. Warren Buffett reasons, “What fools do in the end, wise do in the beginning.”

Any thoughtful investor can avoid this trap caused by FOMO. Unless we have a clear idea of what we are doing, why we are doing and where we hope to be in the future, it will be impossible to make good decisions.

All successful investors have a clear framework regarding their choice of investments. Be it Howard Marks, Charlie Munger or Warren Buffett. Each of them has an investment process, which they call circle of competence. They stick to what they know, which is to take action rather than suffer from the fear of missing out.

WAITING FOR THE FAT PITCH

It is far better to wait patiently to find good, high-value, quality stocks and hold on to them for the long-term instead of constantly jumping in and out of the market, trying to make profits in the short term by timing the rise and fall of markets.

A good way to look at this is through the analogy of “fat pitch” used by Warren Buffett wherein the baseball player swings in the strike zone in such a way that he has the best opportunity to strike. Similarly, investors who needlessly get in and out of stocks to generate higher returns end up getting trapped in the non-striking zone and ultimately lose money instead of generating high returns. “It takes the character to sit with all that cash and to do nothing. I didn’t

this experience thus: “I can calculate the motion of heavenly bodies, but not the madness of people.”

What this means is that even the most intelligent people have not been able to escape emotional bias, which is contagious in nature and could drive markets in either direction.

Like Isaac Newton, when people see others making gains and are scared of missing out on an opportunity, they end up jumping into the fray when prices have already risen. Controlling fear, greed and jealousy is thus the key driver.

Recently, American investor and philanthropist Warren Buffett suggested that the meteoric rise in the price of Bitcoin was driven merely by FOMO and not supportive underlying factors. In mid-March this year, the prices of crypto currency fell by 20% in an hour, wiping out huge gains people and investors had made in the past.

Buffett suggests that bandwagon-like behaviour drives prices higher. Most investors and traders had jumped in when they saw prices rising and wanted to hop on to the bandwagon. But when reality struck, prices crashed.

The other big issue is that investors are jumping in and out to make quick money. This is similar to greater fool theory, which is based on the belief that a person can make money by speculating on future prices because someone else (a foolish person) will be willing to buy the same thing for a higher price.

However, the reverse is equally catastrophic. When people realize that what they are holding on to is about to crash, they desert it quickly, and the trade in that particular asset class goes for a toss.

The S&P BSE Sensex recently hit 37,000, recovering 11,000 points or 42% from the lows of 25,980 in March this year. And investors, who were expecting to go aggressive at lower levels while sitting on the sidelines, are now lamenting their decision or lack thereof, blaming it on the fear of missing out or FOMO as it is known in common parlance.

FOMO is quite common among market participants. Even intelligent investors like Benjamin Graham, Warren Buffett, Charlie Munger and Peter Lynch have not been spared the pain caused by this emotion. However, these successful individuals eventually learnt to overcome their investment bias through certain tools and techniques.

Let us learn ways to avoid falling into the trap called FOMO.

PSYCHOLOGY BEHIND FOMO

FOMO is a deadly sign and has been historically responsible for many boom and bust cycles in the stock markets. In the early 1820s, Isaac Newton had himself invested in the markets and cashed out with a 100% profit in the South Sea company.

However, the bubble continued to grow. Swept up in the rising tide of emotions, coupled with the fear of missing out on larger profits, Sir Isaac Newton invested again. This time he lost more than his original investment. Later on, he described


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get to where I am by going after mediocre opportunities,”says Charlie Munger.

WARREN BUFFETT’S “TWENTY SLOT RULE”

Another useful approach advocated by Warren Buffet is the twenty slot card.

Warren Buffett says: “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches - representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”

When we know there are only a few moves an investor can make in his entire life, then his thoughts will change. This way we easily realize how thoughtful and careful we’d be, learning every single thing we can about a particular security and going over it several times before choosing to enter the market.

Now, thankfully in real life, we do not face any such limitation but this thought exercise helps us imagine the kind of rational analysis and planning that is required to do well in the market and avoid making poor, spur-of-the-moment financial decisions motivated by fear and jealousy while investing in stocks.

“Waiting helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that,” adds Charlie Munger.

When investors know that they have very few ideas to act on, they will be forced to act selectively, prudently and timely, thus completely avoiding the noise and the feeling of having missed out on a passing opportunity.

GOING BY THE “INNER SCORECARD”

The other challenge is how to stay calm when there is noise around us and the other person is making money. Perhaps the most useful concept proposed by Buffett is that of an ‘inner scorecard’. A lot of people base their idea of success and worth on how and what other people

are doing and saying, which is quite typical in any FOMO trade.

Someone might make a 25% return in a year and be pleased until he hears that his friends have all made 30% returns. Having internally defined goals, values and processes help individuals to stay clear and act sensibly.

During the dotcom boom of 2000 when everyone from retail to institutional investors was jumping into technology stocks, many prudent investors like Warren Buffett stayed out and did not invest in such stocks. It was a huge mental challenge to not participate in technology stocks.

Buffett and Charlie Munger were criticized heavily by outsiders and even by their own shareholders. But in due course of time, the crash of 2001 proved they were right. If they had been swayed by external factors instead of having their own internal values, they too would have lost vast sums of money.

But like Buffett, if we are driven by our inner score card, it is possible to remain rational even in circumstances, which entice us to participate in other people’s follY.

The government has kept interest rates on Small Savings Schemes (SSS) unchanged for the quarter starting 1st Jul ’20. Interest rates in April ’20 were cut sharply by 70-140 basis points (bps) following a fall in the yields on government bonds.

What Are Small Savings Schemes?

SSS provide an alternative avenue to savings in banks. They often offer interest rates that are higher than bank deposits of comparable maturity. An SSS is run by the Government of India’s Department of Post.

Broadly, an SSS is categorised under three heads: (1) postal deposits, comprising savings account (4%), recurring deposits (five year maturity, 5.8%), time deposits of varying maturities (e.g. five years, 6.7%) and a monthly income scheme (MIS) (five years, 6.6%); (2) Savings Certificates, including National Small Savings Certificate (NSC) (five years, 6.8%) and Kisan Vikas Patra (KVP) (6.9%); and (3) Social Security Schemes such as Public Provident Fund (PPF) (7.1%) and Senior Citizens’ Savings Scheme (SCSS) (7.4%) and Sukanya Samriddhi Scheme (7.6%). In brackets are the annual returns as set for Q2 FY21 by the government.

How Are The Interest Rates On Small Savings Schemes Decided?

Interest rates on SSS are set every quarter and are linked to Government Securities of similar maturities. In Q1 interest rates on SSS were cut steeply as yields on Government Securities fell sharply. Yields on G-Secs have corrected following the 115 bps repo rate cut by the RBI’s Monetary Policy Committee (MPC) since March ’20 and due to surplus liquidity conditions in the system.

IMPORTANT JARGON

Yields on G-Secs Are Coming Off. Then, Why Are Interest Rates Not Cut For Q2FY21?

Since there was a sharp cut in interest rates in Q1, the government thought of keeping rates on SSS for Q2 unchanged. Remember, India does not have any universal social security scheme that would aid senior citizens. An SSS is hugely popular among risk-averse, small-time savers and senior citizens.

Why Is It Even More Important To Take Care Of Depositors In Current Times? A 115 bps cut in repo rate by the RBI, which is at 4% now, has led to a sharp cut in bank term deposit rates in recent months. The industry benchmark one-year SBI deposit rate is now at 5.1% as compared to 6.50% in September ’19.

To set the context, consumer price inflation was under 4% in September last year, while currently the CPI inflation is around 6%. Lower deposit rates and higher inflation have reduced the real returns of depositors.

How Much Is The Rate Differential Between A Bank Term Deposit And An SSS?

Banks have cut deposit rates by 70-95 bps in Q1 FY21. In all of FY20, bank deposit rates were cut by 70 bps. The bank’s savings rate has come below 4%. The difference in interest rates between bank term deposit and SSSs is almost nil for short-term instruments. But the spread is huge at 120-190 bps for long-term instruments. Clearly, SSSs are attractive for savers.

How Does An SSS Help The Government?

The Government of India (GoI) has budgeted an amount of `2.4 trillion from the SSS in FY21. This is 30% of its

INTEREST RATES UNCHANGED FOR SMALL SAVINGS SCHEMES IN Q2 FY21

Beyond Buzz


entire borrowing for FY21. This explains why the government is offering higher interest rates on SSSs. For FY20, the government has budgeted to borrow a net amount of `1.3 trillion from such SSS. The reliance on SSS has been increasing in recent years.

Why Is There A Tug Of War Between Banks And SSS?

Banks have to fight with SSS for deposits. Only when banks have deposits at lower interest rates, they can lend at lower interest rates. Else, they take a hit on their margins. Lower deposit rates shoo away savers from banks to SSSs. Banks cite SSS as hindrance to transmission of monetary policy.

Banks complain that there are no reserve requirements for SSS like cash reserve requirements (CRR) and Statutory Liquidity Ratio (SLR), which are applicable to banks, leaving them with a disincentive. Savers should exploit SSS and lock in higher interest rates.

KHARIF SOWING UP 19% TILL 24th JULY

Monsoon sown crops (kharif) have seen a 19% jump in sowing so far till 24th July as compared to the corresponding period of the previous year. Sowing activities reflect rural sentiment, which takes significance given the spread of Covid-19 pandemic and its impact on the economy.

What Is The Status Of Kharif Sowing Till 24th July?

According to the latest data available with the Ministry of Agriculture, the kharif sowing, which collides with the onset of south-west monsoon, has seen a 19% jump till 24th July as compared to the same period last year. Data shows a total of 799.95 lakh hectare have been covered this year, compared to 675.07 lakh hectare covered last year in the same period of the kharif season.

What Are The Expectations By The End Of The Season?

Rice, pulses, cereals, cotton, oil seeds and sugarcane are major crops that are sown in the kharif season. So far 75% of the normal kharif season area has been covered. Total acreage sown by the end of the season could match that of the last season or it could be even slightly higher than last year.

The early arrival of monsoon and its wider reach so far, increased water levels in the reservoirs and better income levels of farmers due to a bumper last season (rabi) has

aided sowing activity in the ongoing kharif season.

Why Is Sowing Activity Important?

Higher sowing brightens the prospects of another year of bumper harvest. Higher acreage sown in the kharif season reflects that rural sentiment is robust and is unimpacted by the Covid-19 pandemic. A good kharif harvest can provide a lot of support to the economy when other sectors have shown negative growth due to the lockdown related to the coronavirus pandemic.

What Are The Challenges In Higher Agriculture Growth?

While it has been predicted as a normal monsoon year for India, rains and its spread in August and September are crucial for a bumper kharif crop. Any spread of locusts attack on standing crops or before harvesting, later in the year, could be a negative for the sector.

What Are Other Challenges For India’s Agriculture Which Can Lower Its Growth This Year?

While the issue of availability of inputs like equipments, fertilizers and agrochemicals have been better as compared to initial days of the nation-wide lockdown announced in late March, there still are some logistical issues, especially for fruits and vegetables, faced by farmers in selling their produce.

On the demand side, institutional demand is still lower. Normal functioning of restaurants and hotels will be vital for demand. Unless demand improves, the prices may be depressed. So, even if there is a bumper kharif crop, the surplus with farmers will remain lower.

What’s The Impact On The Stock Market?

Sectors catering to rural demand have already run up on the stock exchanges in the last few months. Farm inputs to rural Fast Moving Consumer Goods (FMCG) can benefit from improved rural sentiments. In May the government diluted the Essential Commodities Act, terminated the monopoly of State’s Agricultural Produce Marketing Committee (APMC) and passed an ordinance for ‘contract farming’.

The government also announced a `1 trillion Agri Infrastructure Fund to strengthen infrastructure logistics for India’s agriculture. Rural activities will depend on how soon India’s economy will recover in the post-pandemic worlD.


FLIGHT OFUNICORNSThe number of unicorns is likely to rise this year, but global and domestic slowdown may lower the tempo

RNI No. MAHENG/2009/28962 | Volume 12 Issue 01 | 16th - 31st Jan ’20Mumbai | Pages 56 | For Pr ivate Circulat ion

and reforms, the Finance Minister has

wholesome budget that has something or other for all constituents

RNI No. MAHENG/2009/28962 | Volume 12 Issue 02 | 16th - 29th Feb ’20Mumbai | Pages 52 | For Pr ivate Circulat ion

11:15

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