RNI No.

MAHENG/2009/28962 | Volume 9 Issue 10 | 16th - 31st O c t ’17

M umbai | Pages 52 | For Pr ivate Circulation

Diwali Delights

Five hand-picked companies to add

sparkle to your investment portfolio
 Financial
Decisions
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Volume 9 Issue: 10, 16th - 31st Oct ’17
Editor-in-Chief & Publisher: Rakesh Bhandari
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
Art Director: Sachin Kamble
Junior Designer: Orianne Fernandes
Operations: Namrata Sabbani
Research Team: Sunil Jain, Runjhun Jain,
Akansha Jain, Vikas Salunkhe, Swati Hotkar,
Nirav Chheda
Printed and published by Mr Rakesh Bhandari
on behalf of Nirmal Bang Financial Services Pvt
Ltd, printed at Uchitha Graphic Printers Pvt Ltd
65, Ideal Ind. Estate, Senapati Bapat Marg,
Lower Parel, Mumbai – 400013 and published
at Nirmal Bang Financial Services Pvt Ltd, 19,
Sonawala Building, 25 Bank Street, Fort,
Mumbai-400001. Editor: Tushita Nigam
CORPORATE OFFICE
B-2, 301/302, Marathon Innova,
Off Ganpatrao Kadam Marg,
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Tel: 022 - 3926 8000/8001
Web: www.nirmalbang.com
beyondmarket@nirmalbang.com
Tel No: 022 - 3926 8047
Beyond Market 16th - 31st Oct ’17
DB Corner – Page 5
Diwali Delights
Five hand-picked companies to add sparkle to your investment portfolio
– Page 6
Far From True
Contrary to popular belief, the Indian economy is not as bad as it is being
made to believe – Page 11
High Spirits
IPOs of many companies have attracted reasonably good valuations due
to ample liquidity in the markets – Page 14
A Change Of Track
The government’s plans to develop metro rail projects across India
indicates the growth opportunities that lay in the construction sector
– Page 16
Just As Good, If Not Better
Though investors are cautious and are focusing on quality deals, experts
believe that the future of private equity investment looks good – Page 19
India’s Global Appeal
Structural economic reforms and policies are primary reasons for the
growth of India’s textile exports – Page 22
A New Benchmark
An RBI study group has recommended a switchover to an external
benchmark in a time-bound manner to solve the monetary transmission
issue – Page 25
A Game Changer
FMCG firms and retailers are seeing a clear recovery post the
implementation of GST – Page 28
Timely Insights
The Uday Kotak Committee’s recommendations on corporate governance
have come at the right time – Page 31
Reinventing To Stay Relevant
Although the Indian insurance market is facing challenging times, it is
poised for strong growth – Page 34
Buckfast Recommendations – Page 38
Technical Outlook – Page 42
Smart Investment Plan
SIPs are the secret to long-term wealth creation and should, therefore, be
considered by investors – Page 43
To Each His Own
For some investors, Scuttlebutt technique is the perfect way to invest in
the markets, and for others it is Cigarbutt – Page 46
Important Jargon – Page 49
It’s simplified... 3
 Festive Picks
S
Tushita Nigam
Editor
eason’s greetings to all the readers of Beyond Market. This Diwali, add sparkle to your
investment portfolio by considering the five stocks suggested by the Equity Research Team at
Nirmal Bang.

The research team believes that while the Indian stock markets have been on an upswing,
individual stocks have been skewed. Some companies are overvalued and some are yet to reach
their true value. Hence, the team has narrowed down on five such companies and elaborated each
one of them in the cover story of the current edition.

Apart from the special article on stock picks, other topics in this issue are the current state of the
Indian economy, which is not performing as bad as people are making it out to be, the cautious
and focused approach adopted by private equity (PE) players while investing in India, the
upswing in the number of initial public offerings (IPOs) with good valuations that are likely to
come up in the Indian stock markets, the details of the recommendations made by the RBI study
group for a switchover to an external benchmark as well as to solve the issue of monetary
transmission, and the suggestions made by the Uday Kotak Committee on corporate governance.

Also featured in this issue are articles on the growth of Indian textile exports, growth
opportunities in the construction sector due to metro rail projects and recovery in fast moving
consumer goods (FMCG) post the implementation of GST.

The Beyond Leaning section features two very interesting articles. One article dwells on the
basics and importance of systematic investment plans (SIPs), the other talks about two different
investment techniques – Scuttlebutt and Cigarbutt. Read on to know more.

The Beyond Market Team wishes you all a very Happy Diwali and a Prosperous New YeaR!

4 Beyond Market 16th - 31st Oct ’17 It’s simplified...

 The Indian
stock markets
look good in the
coming fortnight.

T
he International Monetary Fund (IMF) upgraded its global economic growth forecast for 2017 by
0.1% to 3.6% in its latest World Economic Outlook. The growth rate for 2018 now stands at
3.7%.

The US Federal Reserve recently announced that it was rolling back quantitative easing (QE). Timelines
have also been drawn to achieve this feat. This programme was introduced nine years back in the wake of
the financial meltdown, hoping that increased money supply would boost the economy.

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) kept the repurchase or repo rate
unchanged at 6% at its monetary policy meet earlier this month. The move was necessitated due to upside
risks to inflation. It further said decline in interest rates would be difficult in the future.

India Inc results have started on a positive note and are likely to show an uptrend in comparison with Q1
earnings results.

The Indian stock markets look good in the coming fortnight. The Nifty has support at the 10,110 level. The
expected target for the Nifty on the upper side is at the 10,600 level.

In the coming fortnight, market participants are advised to look out for the remaining corporate results as
the markets are likely to be driven by them as well as outlook by company managements for the second half
of the financial yeaR.

Sensex: 32,609.16 Disclaimer

Nifty: 10,234.45 It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
(As on 17th Oct ’17) equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.

Beyond Market 16th - 31st Oct ’17 It’s simplified... 5

 Five hand-picked companies
to add sparkle to your
investment portfolio

Diwali Delights

6 Beyond Market 16th - 31st Oct ’17 It’s simplified...

T
he Indian stock markets
have been on an upswing
since some time now.
While some companies
are overvalued and continue to rise,
others have been skewed and are yet
to join the bandwagon.
The Research Team at Nirmal Bang
has hand-picked five companies that
are currently underperforming but
have a huge potential to outperform.
These will delight you this Diwali by
adding the much-desired sparkle to
your investment portfolio.
Shemaroo Entertainment Ltd
Incorporated in the year 1962,
Shemaroo Entertainment Ltd, a
content aggregator, is an established
film entertainment “content house” in
the country.
The content library at Shemaroo
consists of more than 3,500 titles
spanning Hindi films and other
regional languages like Marathi,
Gujarati, etc, as well as non-film
content such as devotional, animation
and spiritual, among others.
Since the past few years, the company
has been incurring a huge capex on
buying titles of movies. From 2013 to
2017, its number of titles has grown at
a CAGR of 6.2%, and inventory has
increased at a CAGR of 36%.
As per management guidance of
FY18, closing inventory is likely to
be lower than FY17 inventory,
indicating that the investment phase
is getting over. Higher profits, aided
by lower capex will lead to a positive
FCFF of the company.
Shemaroo’s New Media Segment,
which was contributing around 8.1%
of FY12 revenue has contributed
Beyond Market 16th - 31st Oct ’17
27.75% in Q1FY18. With an increase
in Internet penetration, the company’s
new media segment is expected to
grow at a CAGR of 39% from FY17
to FY19E.
Being a high-margin business, higher
growth in this segment will not only
improve the overall margin of the
business, but will also improve free
cash flow generation.
With 3,585 titles, 948 perpetual rights
and 2,637 aggregate rights as on
FY17, Shemaroo, has the largest
content base in Bollywood, which
makes it vital for a broadcaster to
purchase contents from Shemaroo in
order to run a meaningful Bollywood
content service.
Going ahead, the company’s sales is
expected to grow by 11.2% in FY18E
and 11.8% in FY19E. Reselling of
historically acquired perpetual
inventory and aggregate rights of over
10 years, which are completely
amortized, will lead to higher profits
for the company.
Apart from this, increased Internet
penetration and the company’s new
media segment are likely to gain
traction, going ahead. Operating
margins of the company are likely to
improve by 186 bps in FY18E and
150 bps in FY19E and inch to 31.8%
and 33.3%, respectively.
With 3,585 titles on books, the major
capex phase of the company seems to
have gotten over and will likely slow
down in the coming years.
Higher profits with low capex will
generate a positive FCFF, which is
believed to come in at `52.5 crore in
FY19E from a negative of `81.1 crore
in FY17.
Owing to higher operating profits,
Shemaroo is likely to acquire new
content mostly from internal accruals,
going forward. So, as debt is believed
to have peaked out, the company will
start repaying debt.
The company is likely to do a PAT of
`88 crore and an EPS of `32.4 in
FY19E. At the current market price,
the share is trading at an EV/EBITDA
of 7.6x and PE of 12.4x FY19E EPS.
S Chand And Company Ltd
S Chand and Company Ltd was
established over 70 years ago and
operates as an education content
company in India. The company
delivers content, solutions and
services across education lifecycle
through its K-12, higher education
and early learning segments.
In K-12 business segment, the
company largely provides content to
CBSE and ICSE-affiliated schools.
Having a seasonal business, nearly
75% of the company’s revenue comes
in Q4 of the financial year.
Himanshu Gupta has been associated
with the company since 2000, and on
1st Jul ’07, he became the Managing
Director of the company. Since
FY12-17, the company has grown at a
CAGR of 31.6% to `684.1 crore in
FY17 from `173 crore in FY12.
In spite of being a 70-year-old
company, major growth was visible in
the last 5 years, organically and
inorganically, indicating that the
management is quite aggressive in
bringing growth to the company.
Looking at the growth potential of the
K-12 market, S Chand is
continuously acquiring different
brands to fill gaps in the portfolio
with respect to individual subject
strengths, which, in turn, will increase
the bag share of a K-12 student and
It’s simplified... 7
 lead to growth of the company.
From FY12 to FY17, the K-12
business has grown at a CAGR of
45.5%. In FY11, S Chand’s three
most important subjects were English
Grammar, Mathematics and Science.
By acquiring Madhubun and Vikas
brands in FY13, and Saraswati brand
in FY15, the company has reinforced
knowledge products in its K-12
business in Hindi and French
language titles, languages, arts and
crafts titles, respectively.
Currently, the company acquired
Chayya and IPP brands, which cover
various subjects including Bengali,
Chemistry, English, Physics, History,
Mathematics and Geography. Other
than this, S Chand currently caters to
around 40,000 institutions and plans
to add 3,500 schools every year.
Going ahead, the management
expects a growth of 14% to 15%
year-on-year (YoY) in FY18E and
FY19E, organically. S Chand is also
looking for inorganic growth, mainly
in western and southern India.
The company’s margins are expected
to remain stable mainly due to the
impact of GST on authors. ROCE
stands at around 7% in FY17, which
is low on account of goodwill,
acquisition, and investment in digital,
which is likely to improve.
As per the research team’s estimates,
the company’s EPS is likely to touch
`35 in FY19E. At the current market
price, S Chand And Company Ltd is
trading at an EV/EBITDA of 5.8x and
a PE of 13.2x FY19E EPS.
Control Print Ltd
Control Print Ltd (CPL) is an
8 Beyond Market 16th - 31st Oct ’17
indigenous, leading coding and
marking solutions player in an
oligopolistic industry, dominated by
global players, with ~18% domestic
market share. The Indian coding
industry is estimated to be around
`10,000 to `11,000 million as of
FY17, and is currently growing at a
CAGR of ~12% to 15%.
It manufactures industrial printers at
its two manufacturing facilities
located at Nalagarh (HP) and
Guwahati. It manufactures printers
for printing variable information and
thereafter also sells their
consumables, preventive and
breakdown services, filters, spare
parts, etc.
CPL caters to varied industries
including personal care, food &
beverages, pharmaceuticals,
construction materials, chemicals and
petrochemicals, among others.
CPL has three revenue streams,
namely revenue from sale/ job work/
lease of printers, revenue from
consumables such as inkjet fluids,
ribbons, ink rolls, and revenue from
annual maintenance contracts.
Sale of printers earns low margins,
but it is quintessential to capture high
margin, repeat consumables, spares,
and services business. While printer
sales is a one-time activity,
consumables, spares and services is
an annuity business, which stays with
the company for a fairly long time
owing to the inelastic nature of the
services business.
Almost 70% of its sales come from
repeat customers. CPL derives over
75%+ revenues from high margin
segment, which boasts gross margins
of over 80%.
CPL has a wider customer base
without any concentration towards a
company or a sector. Over the past 25
years, it has nurtured relationships
with its client, which has benefitted
from repeat and referral businesses.
New product launches, coupled with
a marketing push, is expected to
benefit overall growth for Control
Print, going ahead. New product
launches would help the company to
increase its installations, thus
benefitting revenues from
consumables as well as servicing.
More and more companies are opting
for coding and marking solutions
mainly from regulatory and efficiency
point of view. Moreover, GST
implementation is likely to provide a
fillip to this segment as more and
more unorganized players convert to
the organized segment by
implementing coding and marking for
their products.
Currently, the industry is suffering
from about 15% to 20% sales of
spurious consumables, which is
hurting the organized players. To
counter this issue, Control Print has
started supplying RFID tagged
printers and consumables.
Also, in a price-sensitive country like
India, people prefer lower
denomination packing of goods (price
points like `5, `10, etc) which
provides a boost to the packaging and
printing industry.
CPL has been focusing on a pan India
foot print so that its service is prompt
and service quality is better than or in
line with its global competitors.
The company has already invested in
adding service engineers/sales force
and training. And it is now expected
to leverage on its investments. This is
believed to be margin accretive for
the company.
At the current market price, the stock
is trading at 15.6x FY19E earnings.
It’s simplified...
Minda Corporation Ltd
Incorporated in 1985, Minda
Corporation Ltd (MCL or the
company) is a flagship company of
Spark Minda (Ashok Minda) Group.
It has a major presence in the auto
ancillary industry.
The company operates in three
divisions, namely, (i) safety, security
and restraint system, (ii) driver
information and telematics system
and (iii) interiors system.
Minda Corporation Ltd is one of
India’s leading manufacturers of
security systems, wiring harnesses,
couplers and terminals, instrument
clusters, sensors, die casting,
interiors, keys and key duplicating
machines, that caters to all major
two-, three-, four-wheeler and
off-road vehicle manufacturers in
India and overseas.
Minda Furukawa joint venture
contributed 15% of consolidated
revenue and had reported a revenue of
`496 crore in FY17.
The company reported a net loss of
`55 crore in FY17, largely
attributable to non-profitable contract
with one of its customers, an increase
in raw material prices, and other
operating costs.
The company, along with its JV
partner, has set up a task force to
make MCL profitable by increasing
operational efficiencies and making it
sustainable over the long run. The
management is confident of turning it
around in FY18.
Minda Corporation Ltd has set up
another die casting plant, which will
take the total capacity from 4,600 MT
per annum to 9,600 MT per annum by
Beyond Market 16th - 31st Oct ’17
financial year 2020.
The new die casting facility of Minda
Corporation Ltd is expected to be
operational in FY18, and annual sales
from this plant is expected to be
around `200 crore by FY20.
In Mexico, Minda KTSN inaugurated
a new plant for plastic interiors in
April ’17. Expected annual sales from
this facility is to the tune of `175
crore by FY20.
Minda Corporation has taken various
initiatives to keep the technology of
its products up to the mark and has
always stayed ahead of the learning
curve. The new R&D facility in Pune
will help the company’s existing
businesses to innovate advanced
technology in automotive
sub-systems.
In addition to this, the sensor
business, going ahead, is expected to
expand going by the number of
sensors that will increase per vehicle
once BS-VI norms become effective.
This will substantially add to the
company’s revenue.
The company’s EBITDA margins are
expected to improve from 6.7% in
FY17 to 10.5% in FY19E, mainly
driven by the successful turnaround
on Minda Furukawa JV.
As major capital expenditure related
to its expansion is almost over and
new facilities are geared up to
contribute to the overall revenue, all
this will generate higher free cash
flow for the company.
At the current market price, Minda
Corporation Ltd is trading at a P/E of
23.2/17.3x on FY18E/FY19E
earnings, respectively.
The company’s stock looks attractive
at current valuations given the future
dynamics of the business.
Rane (Madras) Ltd
Rane (Madras) Ltd (RML) is part of
the `44 billion Rane Group, which
was established in year 1960. RML is
into auto ancillary products and
operates under two divisions 1)
steering gear (SGP) steering and
suspension linkage products (SSLP)
and 2) die casting product.
The steering division manufactures
manual steering, hydrostatic steering
system and steering and suspension
linkage products. RML holds 39%
and 72% market share in India in SGP
and SSLP, respectively.
The die casting division manufactures
low porosity, high-quality aluminium
die-casting such as steering housing,
engine case covers, etc.
The company acquired a loss-making
casting business in the US last year.
The US company had a revenue of
around `205 crore and a negative
EBITDA margin of 2.5% in FY17.
The business has already turned
EBITDA positive in FY18, and is
expected to be PAT positive in FY19.
Though the revenue growth will be
limited to single digits, the company
is working on reducing the cost and
wastage to improve its margins.
The company has introduced its own
developed power steering for the
tractor market. Apart from the
company, there are only two MNCs,
which supply power steering for
tractors in the Indian market. The
company’s product has been
approved by customers and has seen
good growth in sales recently.
The die casting division in India is
operating at lower capacity utilization
and as such has lower operating
It’s simplified... 9
 margin. Sales of die-casting is
expected to improve gradually,
leading to improvement in margins.
Steering gear and steering and
suspension linkage products are
seeing good demand from passenger
car MHCV/ LCV and tractor
segments and have been growing
ahead of the industry. The
contribution of sales for passenger
cars in total sales has increased from
28% in FY15 to 36% in FY17 and
further to 40% in Q1FY18.
The company had done a capex of
`300 crore in the last four years,
resulting in increase in debt from
`103 crore in FY13 to `284 crore in
FY17. This has resulted in high
depreciation and interest.
Going forward, the investment will be
limited and the company will be able
to utilize its existing assets rather
efficiently and will be able to reduce
debt with free cash flow generation.
It has also infused `80 crore into the
company at the price of `547 to
reduce its debt. RML’s debt is
expected to come down by `125 crore
over the next two years.
RML is likely to do sales of `1,345
crore and `1,525 crore, EBITDA of
`125 crore and `159 crore and a PAT
of `28 crore and `54 crore in FY18
and FY19, respectively. Higher
growth in PAT is on account of the
decline in interest costs. At the current
market price, the share is trading at
11.5 PE on FY19E EPS of `44.

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Disclaimer : Insurance is a subject matter of solicitation. Mutual fund Investments are subject to market risk. ‘Investment in securities/
Commodities market are subject to market risks, read all the related documents carefully before investing’ Nirmal Bang Securities Pvt.Ltd.
Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not offering for commodity
Segment *Nirmal Bang Commodities Pvt Ltd #Distributors. “The securities quoted are exemplary and are not recommendatory”
MCX SEBI No INZ000043630,

www.nirmalbang.com

10 Beyond Market 16th - 31st Oct ’17 It’s simplified...

 Far
From
True

Contrary to popular belief, the Indian economy

is not as bad as it is being made to believe

M
arket is a strange
space. And stranger
space is the media.
Today, due to access
to copious amounts of information, it
is quite an easy task to paint a
particular scenario depending upon
what one intends to project. So, if one
aims to show a bleak and negative
picture of the economy, an array of
data is available that would
substantiate the particular viewpoint.
And if one wishes to show a scenario
in which things are not that bleak and
worrisome, there is also an array of
data, which could amply prove that
stand. So, depending upon one’s
outlook whether it is philosophical or
factual, one can depict the world the
way we intend to depict.
But can one really ignore realism at a
time when extreme pessimism is
reigning high? One cannot. So, the
moot question is is India really going
through a slowdown as is being
believed by many? Let us view the
other side of the story in this
cacophony of extreme negativity:
A statement on the Indian economy
by a non-Indian would help us save
any criticism of one-sided
presentation of facts. Recently, during
a conference call ahead of the annual
meeting of the International Monetary
Fund and the World Bank, Kim Jim
Yong, President, World Bank said,
“The recent slowdown in India’s

Beyond Market 16th - 31st Oct ’17 It’s simplified... 11

 economic growth is an “aberration”
mainly due to temporary disruptions
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deceleration in the first quarter, but
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temporary disruptions in preparation
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going to have a hugely positive
impact on the economy.”
He added, “We think that the recent
slowdown is an aberration, which will
correct in the coming months, and the
GDP growth will stabilize during the
\HDU:H¶YHEHHQZDWFKLQJFDUHIXOO\
as Prime Minister (Narendra) Modi
has really worked on improving the
business environment, and so, we
think all of those efforts will pay off
as well.”
And to support these statements made
by Yong, there are hard facts also.
Recent announcements of key
companies about their sales - both
expected and reported, point out that
all is not gloom and doom for the
Indian economy. Here are some of the
key announcements:
‡ 6DOHV RI FDUV WHOHYLVLRQV DQG
refrigerators increased more than
15% this Navratri and Dussehra from
last year, pointing to bumper business
in the run-up to Diwali and calming
concerns that the currency swap and
were limited to big cities across the
country. Sales at the company
increased more than 30% over the last
Navratri-Dussehra season.
‡ ,QGLD¶V ELJJHVW FDUPDNHU 0DUXWL
Suzuki reported an 18% growth in
bookings and 15% increase in
volumes during Navratri, while
+\XQGDL 0RWRU ,QGLD¶V VDOHV URVH
50%, making this festive season a
record of sorts for the carmaker. RS
.DOVL 6HQLRU ([HFXWLYH 'LUHFWRU
Marketing and Sales at Maruti
Suzuki, said the momentum built up
GXULQJ 2QDP DQG *DQHVK &KDWXUWKL
continued into Navratri.
‡Rakesh Srivastava, Director, Sales
and Marketing at Hyundai Motor
India said the company is likely to
have sold more than 26,000 units
during Navratri, more than half of
ZKDW LW GRHV LQ D PRQWK ³7KH
momentum is likely to continue into
Diwali. Hyundai may cross retail
sales of 50,000 units in September,”
Srivastava elaborated.
‡ Demand this year is more for
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and large-capacity washing machines.
According to industry estimates, the
WRS IRXU ILUPV  /* 6DPVXQJ 6RQ\
and Panasonic - have increased their
primary sales (to dealers) by 25% this
festive season.
economy, underpinned by good
monsoon rain. YS Guleria, Senior
Vice-President, Sales and Marketing
at Honda Motorcycle & Scooter India
said sales increased more than 30% as
higher capacity increased the
availability of products of the
automobile company.
‡7KHHDUOLHVWVLJQVRIEXR\DQWIHVWLYH
sales this year were visible when
e-commerce marketplaces, led by
Flipkart and Amazon, reported their
best-ever performance. While
Flipkart doubled its overall sales,
Amazon reported similar growth for
more than half the categories of
products on its web site.
‡ *RGUHM $SSOLDQFHV %XVLQHVV +HDG
Kamal Nandi said the online buzz and
strong advertising by large retailers
have boosted demand, even in
markets such as Kerala, where sales
picked up after Onam.
‡ 0DUXWL 6X]XNL VDLG WKH JURZWK
momentum may slow down after
Diwali to 7% to 8% for the industry
due to the statistical base effect.
However, the company is likely to
clock double-digit growth.
‡)OLSNDUWDQG$PD]RQ,QGLDVHHPWR
have battled any signs of customer
fatigue and have had combined sales
of about $450 million during the
recently-concluded second leg of
WKHJRRGVDQGVHUYLFHVWD[*67ZLOO
have a prolonged impact on the
consumer sentiment.
‡0DUXWL6X]XNL+\XQGDL0RWRU/*
6RQ\ 3DQDVRQLF DQG *RGUHM
Appliances said consumers across the
country, including those from smaller
towns, are buying more premium
products this festive season.
‡(YHQFRQVXPHUVIURPVPDOOHUWRZQV
are buying high-end television sets,
VXFKDV.79VWKDWVWDUWDW`65,000,
and large-screen models that hitherto
12 Beyond Market 16th - 31st Oct ’17
‡$MD\6HWK6DOHV+HDGDWPanasonic
India recently said that strong primary
demand is an indicator that Diwali
sales will be big this year, with the
Navratri-Dussehra weekend setting
the stage for a bumper season.
‡ Sony has clocked 15% growth in
volume sales at its stores this
Navratri, and is now hopeful of a 20%
increase by Diwali.
‡ 7ZRZKHHOHU PDNHUV WRR DUH
reporting strong volumes during
Navratri on prospects of a robust rural
festive sales, according to industry
H[SHUWVDQGFRPSDQ\H[HFXWLYHV7KH
momentum is expected to continue
till Diwali sales, with the entire
festive month expected to be twice as
big for e-commerce players from the
festive period last year.
‡ 7HOHYLVLRQ PDNHU 7&/ &RUS¶V
Regional Director (India) Praveen
Valecha said the next online sale will
be closer to Dhanteras-Diwali, and,
hence, expected to be the biggest in
terms of purchases for electronics
since consumers by then get their
It’s simplified...
festive bonuses.
‡ Flipkart said the second sale that
was held from 5th October to 8th
October saw about 35% of the Gross
Merchandise Volume (GMV)
recorded during its flagship Big
Billion Day (BBD) sale and that it is
on track to see 2.5 times growth in
GMV from this 30-day festive period
over last year’s festive month.
‡,QGXVWU\SOD\HUVVDLGWKDWZKLOHWKH
second round of sales for e-commerce
players like Amazon and Flipkart was
much smaller than the first round, it
has grown 200% from the second
round of sales during 2016.
Given these announcements of
Beyond Market 16th - 31st Oct ’17
expected and reported sales, it seems
that the situation is not as bad as it is
being made out to be. One of the
factors that one needs to keep in mind
is what do crucial macro-economic
indicators reveal.
As regards macroeconomic terms, the
HFRQRP\ ORRNV VWDEOH ,QIODWLRQ DQG
current account deficit are low, the
exchange rate is stable and fiscal
consolidation is on track.
Former Vice-chairman, Niti Aayog
Arvind Panagariya in an article stated,
“We have seen growth rates below
7% for only two quarters. This
performance contrasts with the below
7% growth in six of the eight quarters
during the last two years of UPA.”
He said, “Restructuring-related to
demonetisation, the goods and
services tax and cleaning of non-
performing assets, complemented by
tepid export performance, readily
explain the current slowdown in
quarterly growth.
“Given this fact and stable
macroeconomic environment, any
talk of major course correction is
premature,” mentioned Panagariya.”
Probably, one of the consolations for
detractors could be the fact that
,QGLD¶V JRYHUQPHQW LV FRQVLGHULQJ D
plan to loosen its fiscal deficit target
to enable it to spend up to `500 billion
($7.7 billion) more to halt an
economic slowdowN.
It’s simplified... 13
 HIGH
SPIRITS
IPOs of many
companies have
attracted
reasonably good
valuations due to
ample liquidity in
the markets

I
t is that time of the markets
where everything seems to go
up. A situation has developed
where Initial Public Offerings
(IPOs) of companies have attracted
more than reasonable valuation.
So, how has this situation developed?
One of the key reasons as to why the
Indian stock markets are touching a
new peak almost every month is
consistent liquidity in mutual funds
(MFs) post demonetisation.
The money that came in banks had to
be parked in avenues, which give
reasonably better returns than fixed
deposits if not supernormal returns
like real estate.
Consequently, as per the Association
of Mutual Funds in India (AMFI), the
total inflows in MFs in the year-to-
date period (equity, balanced, equity
ELSS) were `10,0325 crore. Given
the massive inflows, the question that
arises is where is this money parked?
Mutual fund distributors observe that
close to 50% of these inflows have
been parked in balanced funds. This is
followed by 25% in equity savings
schemes and remaining - close to
25% - in large-cap, mid-cap and
multi-cap schemes.
This diversification is helping savvy
investors, especially HNIs, protect the
downside risk to their portfolios. This
diversification is a marriage of best of
all categories in mutual funds besides

14 Beyond Market 16th - 31st Oct ’17 It’s simplified...

taking into account the tax benefits.
Balanced funds provide the best of
equity and debt, while equity savings
schemes are a mix of equity, debt and
arbitrage schemes. Equity savings
schemes invest 30% to 35% of the
portfolio in equities and the
remaining in debt and arbitrage. This
structure provides comfort to new
investors as the possibility of fall in
returns of these schemes is quite low
given its diversification.
These schemes are also favourable in
terms of tax. Investments held in
these schemes for a year have no
long-term capital gains tax. Even the
returns of these schemes (10% to
12%) have been far encouraging for
the investors.
Distributors point out that since these
schemes have given far superior
returns than fixed deposits, investors
consider these schemes as a viable
investment option.
Now, the present rally in the market is
driven by this consistent and excess
liquidity, which is being parked in
mutual funds. Since fund managers
have the capacity and legal eligibility
to buy a large number of shares of a
company, these IPOs are being
subscribed by mutual funds.
The recent IPOs are nothing but
supply of new scrips. It is fairly
evident in huge oversubscriptions of
recent IPOs. It is estimated that most
IPOs are subscribed more than 50 to
100 times the amount offered.
Their steep listing premium shows
that fund managers are willing to pay
a steep price for a decent growth
story, which otherwise would receive
reasonably good response in the
markets with already listed
companies performing well.
For example, Avenue Supermarkets
Beyond Market 16th - 31st Oct ’17
(D Mart). The company’s share price
is quoting almost 205% more than its
IPO price. Also, AU Small Finance
Bank is quoting double its issue price
and CDSL is quoting 154% higher
than its issue price.
One important reason why this is
happening is lack of clarity about
improvement in demand. Hence,
there is confusion about improvement
in earnings growth.
Due to this, share prices of large listed
companies have gone up but their
earnings have not caught up with their
valuations. Take for instance, cement
sector, one of the key barometers of
whether construction activity in the
economy has picked up or not.
Going by key trends of the sector, it
seems like it will take a long time for
earnings to justify steep valuation of
cement manufacturers. Large-cap
cement stocks trade at an average
EV/EBITDA of 21 and 16 for FY18
and FY19, respectively which is high
when compared with past 10-year
average of 7-10.
A key reason for this is high
likelihood of postponement in
earnings’ growth at least for the next
two to three years if one considers
present demand growth of 4% to 5%.
There are several factors which point
out why earnings’ growth of cement
companies may delay further. Firstly,
companies have added capacities
through acquisitions and organic
expansion, which put pressure on
pricing across regions and limited any
growth in cement prices.
As a result, companies may resort to
volume growth by slashing prices,
which, in turn, would result in lower
realizations, and, hence, lower
earnings growth. Also, demand from
the housing segment, which
contributes nearly 60% to 65% of
cement demand would not be
sufficient enough to enhance the
overall cement demand to 8% to 10%
from 4% to 5% at present.
Ironically, with the exception of a few
sectors, earnings growth across key
sectors may delay. This is one of the
key reasons IPOs are seeing renewed
interest of key institutional investors.
Besides, lack of availability of
companies in the listed space, which
are a blend of earnings growth and
attractive valuations, the very
business model and performance of
new companies, which are getting
listed, have also triggered off a huge
interest in them.
A good number of companies from
the financial sector would hit the
market with their IPOs. These are
UTI Asset Management Company,
SBI Life, HDFC Standard Life, the
General Insurance Corporation and
New India Assurance, among others.
It is estimated that on the whole these
companies would raise `30,000 crore
to `50,000 crore.
Experts point out that the data
pertaining to the proportion of assets
under management (AUM) and
household savings in the GDP
indicate that the flow may remain
intact in the medium term. The total
AUM of domestic mutual funds is
12% of the GDP as compared to the
global average of 55%.
Penetration level is even lower for
equities. Equity AUM to GDP ratio in
India is 4% compared with the global
average of 29%. Experts estimate that
the share of equity in total AUM may
rise to 44% to 45% from the current
35% in the next five years.
Given this, it is natural that those
companies with high likelihood of
earnings’ growth or those companies
which are untapped stories would
attract massive liquiditY.
It’s simplified... 15
 A
Change
Of Track

The government’s plans to develop

metro rail projects across India
indicates the growth opportunities that
lay in the construction sector

16 Beyond Market 16th - 31st Oct ’17 It’s simplified...

E
nvisioned to decongest
road and rail traffic, the
metro rail projects across
India is the need of the
hour and will indeed boost the
construction sector.
That the government is lining up
investments for metro rail projects
demonstrates the opportunity that lies
ahead for the construction sector.
At present, metro projects with a total
length of 370 km are operational in 8
cities, namely, Delhi (217 km),
Bengaluru (42.30 km), Kolkata
(27.39 km), Chennai (27.36 km),
Kochi (13.30 km), Mumbai (Metro
Line 1-11.40 km, Mono Rail Phase
1-9.0 km), Jaipur (9.00 km) and
Gurugram (Rapid Metro - 1.60 km).
Metro projects with a total length of
537 km are in progress in 13 cities
including the eight mentioned above.
New cities acquiring metro services
are Hyderabad (71 km), Nagpur (38
km), Ahmedabad (36 km), Pune
(31.25 km) and Lucknow (23 km),
according to a release issued by the
Press Information Bureau (PIB).
Metro projects with a total length of
595 km in 13 cities including 10 new
cities are at various stages of planning
and appraisal. These are Delhi Metro
Phase IV - 103.93 km, Delhi and
NCR - 21.10 km, Vijayawada - 26.03
km, Visakhapatnam - 42.55 km,
Bhopal - 27.87 km, Indore - 31.55
km, Kochi Metro Phase II - 11.20 km,
Greater Chandigarh Region Metro
Project - 37.56 km, Patna-27.88 km,
Guwahati - 61 km, Varanasi - 29.24
km, Thiruvananthapuram and
Kozhikode (Light Rail Transport) -
35.12 km and Chennai Phase II -
107.50 km, added the release.
As per industry estimates close to `2
lakh crore is likely to be spent on
metro projects with a standard mix of
underground and elevated sections.
Beyond Market 16th - 31st Oct ’17
These are currently under execution
and at the planning stage.
HUGE INVESTMENTS
Typically, a project in a major city
involves expenditure of around
`10,000 crore and higher. For
instance, Phase I of the Delhi Metro
was completed at `10,571 crore with
60% of the expenditure derived from
a soft loan from the Japan Bank for
International Cooperation, now
known as the Japan International
Cooperation Agency (JICA).
While Phase II of Delhi Metro was
completed at `18,783 crore, Phase III
expansion has been estimated at
`41,000 crore as most of it is
underground. With the present
network of the Delhi Metro spanning
about 217 km mostly of Phase I and
Phase II and small stretches of Phase
III, another 140 km will be added
when Phase III is completed.
The total extent of Phase I and Phase
II is around 190 km with 143 stations.
With costs of around `29,000 crore
for the two phases spanning 190 km,
the cost per km works out to around
`155 crore. The standard cost for a
Metro Rail line is `200 crore per km.
When the track goes underground, the
cost doubles to `400 crore.
INCREASING PRIVATE
PARTICIPATION
Apart from the size of the
opportunity, what is also worth noting
is that the government has
emphasized on private participation.
The 2017 Metro Rail Policy states
that all forms of Public Private
Partnership (PPP) will be encouraged
for future projects including
Design-Build-Finance-Operate-Trans
fer (DBFOT).
The Union Cabinet unveiled its new
Metro Rail Policy in August ’17
wherein private participation in new
project proposals was made
compulsory. Last mile connectivity
and urban development within a five
kilometre catchment area are focus
areas of the new Policy.
The Policy prescribes development of
metros as ‘Urban Transformation’
projects rather than ‘Urban
Transportation’ projects. The Policy
requires Public Private Partnership
(PPP) to be a mandatory component
of proposals made by the states that
seek central assistance.
The three pathways for central
assistance are PPP with central
assistance, Grant in the form of 10%
lump sum and 50:50 equity-sharing
model between the state and the
central government.
A CASCADING EFFECT
While government agencies will have
the overall responsibility such as in
the case of Delhi Metro developed by
Delhi Metro Rail Corporation
(DMRC), it would mean huge
ancillary work for engineering and
construction companies in India.
DMRC has developed expertise in the
construction of Metro rail lines and
has envisaged the development of
projects in Tier II cities at 70% of the
cost involved in Tier-I cities. The
DMRC is currently for the
development of Kochi, Lucknow and
Vijayawada Metro Rail projects.
OPPORTUNITY FOR
DEVELOPERS
Track work tenders are awarded for
design and construction over
viaducts, tunnels, underground and in
depots. Construction of elevated
structures includes viaducts and
stations while underground structures
include tunnels, stations and their
associated tunnels.
It’s simplified... 17
 The Hyderabad Metro Project is a
PPP, which is being implemented by
Larsen & Toubro (L&T) on a Design,
Build, Finance, Operate and Transfer
basis. The company is financing 90%
of the project cost of about `14,000
crore. L&T was among the primary
civil engineering contractors of the
Kochi Metro with projects worth
about `900 crore.
CONSTRUCTION AND
ENGINEERING
The other key segment to watch out
for is construction where companies
like Simplex, J Kumar, NCC and
others are already working.
J Kumar Infraprojects is a major
player in Maharashtra and has
completed Metro Rail projects worth
about `200 crore in Delhi Metro. The
company’s JV with China Railway
Tunnel Group (CRTG) has won
contracts in the Mumbai Metro
Underground project where the work
is set to start this month.
Also in a JV with a Chinese company
STEC, L&T is among the five
contractors currently involved in the
construction of the underground
phase of the Mumbai Metro.
L&T had previously completed the
`500 crore Chennai Metro project as
part of a consortium with Alstom for
design, construction of track work in
viaduct, tunnel, underground, and
depot in corridor I & II of the project.
L&T had partnered with Shanghai
Urban Construction Group (SUCG)
to complete the `700 crore project in
Delhi Metro. It had implemented a
`380 crore viaduct stretch on its own
also in Delhi Metro.
Another company that has won civil
construction contracts in the Mumbai
Metro project is HCC through its JV
with MMS of Russia. MMS had
18 Beyond Market 16th - 31st Oct ’17
previously been involved in a
Chennai Metro `900 crore
construction contract in a JV with
Gammon India. But they left the
project mid-way over payment issues.
JMC Projects implemented a `400
crore project in the Delhi Metro of
elevated viaduct and six stations in a
JV with China Harbour Engineering
Company (CHEC). JMC has won
contracts in the elevated sections of
the Mumbai Metro.
Its previous JV partner CHEC has
now entered into a JV with Tata
Projects for another contract within
the Mumbai Metro Elevated Corridor.
Other major player in this sector
includes Afcons, which has
constructed projects worth `700 crore
in Delhi Metro and ITD Cementation
India, which built elevated viaducts
and stations worth `132 crore.
ELECTRIC AND EQUIPMENT
Beyond construction and
development, the entire value chain in
the equipment business will also get a
boost in the process. The Chennai
Metro’s `300 crore power supply
contract was awarded to Siemens
India consortium.
Air-conditioning of the underground
stations, tunnel ventilation systems,
lifts and escalators will be among the
bid areas of requirements. Companies
like Voltas implemented the `200
crore underground systems air
conditioning project in the Chennai
Metro. Blue Star implemented
projects in Bengaluru and Delhi.
Likewise automated fare collection
systems (AFC), which are largely
dominated by foreign players, will
also be required. The system that
deploys contactless card technology
to achieve 100% ticket checking was
deployed by L&T as part of its
Hyderabad Metro DBFOT project.
L&T had awarded the AFC contract
to Samsung Data Systems India. The
AFC System for the Chennai Metro
was awarded to Nippon Signal
Company for `110 crore.
COMMUNICATIONS AND
SIGNALING
Metro train projects rely heavily on
electric systems and communication
devices. There will be a huge
requirement for such equipment
suppliers. For the Hyderabad Metro
project, L&T awarded the signaling
contract to French company Thales
Group’s Portugal Unit. Bengaluru
Metro’s signaling contract was
awarded to Alstom. Chennai Metro’s
`600 crore signaling, platform screen
doors and telecom work was awarded
to Siemens India consortium.
TRACKS AND COACHES
IRCON, which is the Government of
India company, and operates under
the Ministry of Railways is the prime
contender for the job of laying down
tracks. IRCON International won the
award for tracks for Phase III of the
Delhi Metro.
Other sections of the same Phase III
track contracts were implemented by
Alstom India consortium. IRCON has
also implemented `160 crore track
work projects for Kochi Metro.
Metros will also drive demand for the
rolling stocks and coaches and
Electric Multiple Units (EMUs).
Most of the ongoing manufacturing of
EMUs and all future EMU production
is going to be within the country.
Titagarh Wagons, BEML and few
other companies in the segment that
are currently engaged in refurbishing
rolling stock are eying this segment of
the market. BEML has already
supplied rolling stocks for Delhi,
Jaipur and Bengaluru MetroS.
It’s simplified...
 Just As Good,
If Not Better
Though investors are cautious and are focusing on
quality deals, experts believe that the future of private
equity investments looks good

I
n contrast to the global
economy, which was
relatively stable, the Indian
economy experienced quite a
few ups and downs in the last one
year. India registered a growth of
7.6% in FY16 compared with a 6.5%
growth in 2015. Things were looking
good and then demonetisation
happened, which created an
environment of confusion among
financial institutions and Private
Equity (PE) firms on treading ahead.
Opinion on the demonetisation
exercise was widely split. While there
was a general consensus that in the
longer term, this move would prove to
be extremely beneficial, there were
some critics who saw little to no good
in this decision. The other major
policy change that took place was the
passing of Goods and Services Tax
(GST) Act.
The first quarter of 2017 saw a 22%
decline in PE investments in India.

Beyond Market 16th - 31st Oct ’17 It’s simplified... 19

 PE Deals Khazanah Nasional Berhad-Apollo investments stood at US $4.2 billion
Period Number Value Hospitals deal were the key exits in 173 deals. Overall there were 155
Of Deals ($bn)
recorded for the quarter. transactions that took place with
Q1 2015 408 4.57 Mumbai, the National Capital Region
Q2 2015 414 5.94 (NCR) centered on Delhi and
The slowdown during the first quarter
Q3 2015 489 6.39
was temporary because in May ’17, Bengaluru as the top locations for
Q4 2015 476 5.08
private equity investments jumped by most PE investments.
Q1 2016 432 4.19
Q2 2016 319 2.31 nearly 64%.
Q3 2016 332 2.87 In terms of industry, according to the
Q4 2016 321 3.89 Investors pumped in $963 million report, Information Technology &
Q1 2017 238 3.04 across 67 deals and more than half of IT-enabled Services (IT & ITeS)
Source: News Corp, VCC Edge this was in the start-up and emerging sector retained the top spot this
According to India Quarterly Deals business space. This news came as a quarter, with 78 deals worth
Report for Q1 CY17 released by relief for PE investors, because there approximately US $2.7 billion.
News Corp, the number of deals fell was a looming fear that deal activity Investments in the sector rose 93%
to 238 from 432 while the deal value may slow down with fund managers year-on-year to US $2.7 billion.
fell to $3.04 billion from $4.19 billion taking a cautious approach towards
during the corresponding period last fresh funding. Sandeep Ladda, Leader, Technology
year, showing a decrease of 45% and at PwC India said, “Despite the
27%, respectively. According to Prashant Mehra, Partner slowdown in growth in the Indian
at Grant Thornton India, M&A values technology sector and in the midst of
As a result, PE investments in India recorded a marginal increase of 4% layoffs and US visa issues,
are at a five-year low. Although fund over the same period last year. While technology continued to be a major
infusions got better, investors chose the domestic deal activity recorded a investment theme in the second
to tread cautiously. Investment values nearly two-fold increase, the quarter, with IT & ITeS accounting
doubled against the last quarter to cross-border deal values fell by 49% for a large share of overall deal value
$820 million for Q1 of calendar year due to reduced inbound investor despite growth in volumes remaining
2017, though this was a fraction of the interest in them. rather flat.
$2,500 million for Q1 CY16. Global
PE fund KKR & Co Lp and Canada As far as the second quarter is “Similarly IT & ITeS was the top
Pension Plan (CPP) Investment Board concerned, according to MoneyTree sector in terms of PE exits in this
put together invested $900 million in India Report by quarter, with a total of 14 exits worth
Bharti Infratel in March, making it the PricewaterhouseCoopers (PwC), PE around US $718 million. This quarter
largest in the first quarter. investments in India declined 13% by witnessed significant developments
deal value to $6.3 billion in the around further consolidation in the
The report further adds that mergers second quarter compared with the e-tail segment along with several new
and acquisitions (M&A) saw several preceding quarter. billion-dollar funds flowing into the
large deals being inked during the technology sector.
period. The deal numbers stood at 226 However, the value of deals in this
as opposed to around 237 for the quarter has grown by 51% as “As transactions continue to move
previous quarter. compared to Q2 2016 where online, new areas such as FinTech and

Vodafone-Idea deal was the leader on Largest PE Investments in July - September 2017
charts, contributing $12.4 billion of Amount
Company Investors (US$ mn)
the total deal value of $16 billion. The
year-on-year (y-o-y) exit value has Flipkart SoftBank 2500
Paytm SoftBank 1400
fallen to $1.4 billion for Q1 CY17
Flipkart Tencent, Others 1400
from $2.1 billion for the same quarter
Bharti Infratel KKR, CPPIB 952
last year. GlobalLogic CPPIB 720
IndoSpace Core CPPIB 500
With total exit deal values at $945 ICICI Lombard General Insurance Warburg Pincus, Others 383
million, Providence Equity Tata Technologies Warburg Pincus 360
Partners-Idea Cellular deal and the Source: Venture Intelligence Report

20 Beyond Market 16th - 31st Oct ’17 It’s simplified...

the hyper local and travel segments
are set to benefit in the long term. As
e-Commerce players strive to achieve
profitability, the year could also see
companies opting for an initial public
offering (IPO) as a preferred exit
route.” Ladda further added.
Apart from IT & ITeS, both
manufacturing and energy sectors
displayed notable growth in
nvestments compared to Q1 FY17,
closing with around US $121 million
in five deals and US $541 million in
six deals, respectively.
“Indian manufacturing industry is
looking to focus on new
products/services, R&D, IT and
expanding its facilities in select
sectors. Companies in the
manufacturing space have shown
resilience in the face of challenges
and are confident about the sector’s
growth prospects,” says Bimal Tanna,
Partner and Leader, Industrial
Products, PwC India.
As far as investment in the
manufacturing sector is concerned,
Tanna commented in the report,
“While the number of PE deals in the
manufacturing sector is limited
compared to that in other sectors, we
note that quite a few manufacturing
companies are open to exploring the
PE route to further expand their
business operations.”
According to a report by Venture
Intelligence, PE firms invested about
US $5.7 billion across 106 deals
during the third quarter ended
Private Equity Investments
By Quarter
Amount Investments
($B)
Q3 2016 3.3 153
Q4 2016 4.8 197
Q1 2017 6.2 163
Q2 2017 5.4 133
Q3 2017 5.7 106
Source: Venture Intelligence Report
Beyond Market 16th - 31st Oct ’17
Top PE Deals In Q2 2017
Company Industry
One97 IT & ITeS
Communications
IndoSpace Core Shipping & Logistics
ICICI Lombard BFSI
General Insurance
Tata Technologies IT & ITeS
Aegis BPO IT & ITeS
Source: PricewaterhouseCoopers (PwC)
September ’17, which was 73%
higher than that in Q3 FY16 and 5%
higher than the immediate previous
quarter. Q3FY17 recorded as many as
13 investments above US $100
million as compared to 10 in the same
period last year.
Even though the number of deals in
the first nine months of 2017 are 23%
lower than that in the comparable
period during the previous year,
according to Venture Intelligence
report, private equity firms invested
about $17.6 billion in Indian
companies in the first nine months of
2017, sailing past the previous high of
$17.3 billion in 2015.
The year has already recorded as
many as 21 investments over $200
million in size in addition to 15
private equity deals between $100
million and $200 million.
Mega deals have been dominated by
four sectors: Internet & Mobile,
Infrastructure, IT Services & BPO
and BFSI (Banking, Financial
Services and Insurance). “Private
equity investments have largely flown
into growth stage companies in just
3-4 sectors, which are looking quite
attractive at this point of time. This is
one of the reasons behind the increase
in deal value.
“However, the number of deals has
come down largely because of lack of
interest shown by venture capital
investors in early stage companies. It
is generally this segment that
Investor Amount
(US$ mn)
SoftBank Corp 1400
CPPIB 500
Warburg Pincus, 383
Others
Warburg Pincus 360
Capital Square 275
Partners
accounts for the maximum number of
transaction,” said Arun Natarajan,
CEO, Venture Intelligence.
Japan-based investment giant
SoftBank contributed 24% of the total
investment value, which included
$250 million in budget hotels
aggregator OYO, $1.4 billion in
mobile wallet leader PayTm and $2.5
billion in e-commerce leader Flipkart.
Softbank has invested over $6 billion
in the Indian market in less than three
years alone.
The report further states that while
SoftBank’s $2.5 billion investment in
Flipkart was the largest reported
during the latest quarter, the next
three largest investments during
Q3FY17 were accounted for by BFSI
companies - Carlyle’s $300 million
into SBI Cards; the $260 million
raised by RBL Bank and the $240
million buyout of investor services
firm Karvy Computershare by
General Atlantic.
Though investors are cautious and are
focusing on quality deals, experts
believe that the future of private
equity investment looks good. After
the initial setback in investments
earlier this year, the pace has picked
up again.
“India is clearly maturing as a PE
market with bigger and more complex
deals becoming more commonplace,”
said Mayank Rastogi, partner at Ernst
& YounG.
It’s simplified... 21
INDIA’S GLOBAL
APPEAL
Structural
economic reforms
and policies are
primary reasons
for the growth of
India’s textile
exports

22 Beyond Market 16th - 31st Oct ’17 It’s simplified...

I
ndia’s textile companies are
leaving their footprints on the
global arena as is evident from
the rising exports of textiles
and garments.
This is not a mean feat considering
the fact that the share of India’s Asian
peers in their exports to the US - one
of the key export destinations - has
been declining in terms of realization
per unit.
Let us find out how the journey has
been for India’s textiles industry.
THE BASICS
India’s textile industry is one of the
oldest and can be traced back to
centuries. It is estimated that the
textile sector contributes close to 15%
to India’s total exports. Besides, it is
one of those sectors that provides
sizeable employment.
The textile sector employs about 51
million people directly, and 68
million people indirectly. India’s
overall textile exports during
FY15-16 stood at US $40 billion. The
industry contributes approximately
4% to India’s Gross Domestic
Product (GDP) and 14% to overall
Index of Industrial Production (IIP).
The textile and garment sector can be
divided into two broad segments – the
unorganized sector and the organized
sector. The unorganized sector
consists of handloom, handicrafts and
sericulture, which are operated on a
small scale and through traditional
tools and methods.
The organized sector mainly consists
of spinning, apparel and garments,
which use modern machinery and
employ techniques such as economies
of scale.
A review of the textile industry shows
that while on one hand there is a
Beyond Market 16th - 31st Oct ’17
hand-spun-and-woven segment, on
the other hand are capital-intensive
mills. But a large part of India’s
textile industry comprises of
decentralised power looms, hosiery
and knitting units.
In addition to this, the textile industry
is connected to agriculture as cotton is
one of the essential raw materials for
production. It is estimated that the
size of India’s textile industry is
around US $120 billion, and is
expected to reach US $230 billion by
the year 2020.
GOVERNMENT INITIATIVES
One of the key reasons for the rise in
per unit realization in exports to the
US despite the fall in exports of its
Asian peers is due to the
government’s policies on exports,
including a number of export
promotion policies aimed at the
textile sector.
Most importantly, it has allowed
100% FDI in the Indian textile sector
under the automatic route.
A few key initiatives announced in
the Union Budget 2017-18 to boost
the textiles sector are as under:
1) Encourage new entrepreneurs to
invest in sectors such as knitwear by
increasing allocation of funds to
Mudra Bank from `1,36,000 crore
(US $20.4 billion) to `2,44,000 crore
(US $36.6 billion).
2) Upgrade labour skills by allocating
`2,200 crore (US $330 million).
3) Memorandum of Understanding
(MoU) with 20 e-commerce
companies, aimed at providing a
platform to artisans and weavers from
India in different handloom and
handicraft clusters across the country
for selling their products directly to
the consumer.
4)The government announced a slew
of labour-friendly reforms aimed at
generating around 11.1 million jobs in
apparel and made-up sectors, and
increasing textile exports to US $32.8
billion and investment of `80,630
crore (US $12.09 billion) in the next
three years.
As a result of these initiatives and
other business advantages, India’s
textile sector has witnessed a spurt in
investment in the past five years. The
industry (including dyed and printed)
attracted Foreign Direct Investment
(FDI) worth US $2.47 billion from
April ’00 to March ’17.
INDIA’S EXPORTS
Owing to these revivalistic policies,
India’s exports of locally made retail
and lifestyle products grew at a
compound annual growth rate
(CAGR) of 10% from 2013 to 2016,
mainly led by bedding, bath and home
decor products, and textiles. The
government has set a target of US $45
billion for 2017-18 for textile and
garment sector exports.
In the past three-and-a-half years
(calendar), even as countries like
China, Bangladesh and Vietnam have
been recording a decline in their per
unit realization of apparel exports to
the United States, India has been
successfully able to maintain the per
unit realization.
According to data released by the
Office of Textiles and Apparel
(OTEXA), US, the average
realization per unit of apparels
exported by India to the US has been
in the range of $3.4 to $3.5 for the
past three-and-a-half years.
In comparison with this, in the same
period, the average realization per
unit of apparels exported by China
and Bangladesh fell to $2.3 and $2.6
from $2.7 and $3, respectively.
It’s simplified... 23
 There are three fundamentals reasons
why India has been able to maintain
its average realization per unit in its
apparel exports to the US.
First, unlike its Asian peers, Indian
apparel manufacturers have not been
slashing prices for their products that
are sold to buyers in the US. Due to
high labour costs in China, Chinese
apparel manufacturers have been
slashing prices to get more business
from buyers in the US.
Due to this, their average realization
per unit has come down. Second,
industry veterans point out that there
is an increasing trend wherein man-
made garments are exported to the US
more than cotton-based garments.
Man-made garments such as winter
wear and other specialized garments
fetch higher value than cotton-based
garments. Lastly, experts point out
that more and more Indian apparel
manufacturers are complying with the
norms set by buyers in the US.
Compliances in terms of quality of
products and legalities have increased
the cost of production for India-based
apparel-manufacturers. And buyers in
the US are willing to pay a higher
value to such compliant companies
based in India.
Though rising exports are a healthy
sign for India’s textiles companies, a
lot needs to be done to make them and
the sector highly and consistently
profitable. It would be a great help for
textile companies if domestic
consumption also provided strong
business along with export demand.
The future for the Indian textile
industry looks promising.
With consumerism and disposable
incomes on the rise, the retail sector
has experienced rapid growth in the
past decade with the entry of several
international players like Marks &
Spencer, Guess and Next into the
Indian market.
The apparel market in India is
estimated to grow at a compound
annual growth rate (CAGR) of 11.8%
to reach US $180 billion by 2025.
The Indian cotton textile industry is
expected to showcase stable growth
in FY17-18, supported by steady
input prices, healthy capacity
utilization and steady demand from
domestic buyers.
The government in June ’16 had
approved a `6,006 crore special
package for textile and apparel sector
to create one crore new jobs in the
next three years, attracting
investments of $11 billion and
generating $30 billion in exports.
The minister informed that funds to
the tune of over `1,900 crore had
been given to the apparel industry
under the rebate of state levies to
boost exports from the sector. This
provides high hope for the industry.
Recently, the government exempted
export promotion schemes such as
Advance Authorization Scheme and
Export Promotion Capital Goods
Scheme (EPCG) from payment of
Goods and Services Tax (GST) till
31st March next year. This is
expected to enhance investments in
the textile sector, say experts.
According to estimates, 40% of
India’s textile exports are by
merchant exporters. By providing the
facility that they need to pay a
nominal amount of 0.1% as GST
while claiming goods from
manufacturers for exports will ensure
that there is no cash flow problem.
But we need more such initiatives
taking into account the business
dynamics domestically, and global
competitiveness in comparison with
players outside India. Only then,
India’s textile companies would
achieve peak of earnings’ cyclE.

Catch-up Effect

In any period, the economies of countries that start off poor generally grow faster than the economies of countries that start
off rich. As a result, the national income of poor countries usually catches up with the national income of rich countries.
New technology may even allow developing countries to leap-frog over industrialized countries with older technology.
This, at least, is the traditional economic theory. In recent years, there has been considerable debate about the extent and
speed of convergence in reality.

One reason to expect catch-up is that workers in poor countries have little access to capital, so their productivity is often
low. Increasing the amount of capital at their disposal by only a small amount can produce huge gains in productivity.
Countries with lots of capital, and as a result higher levels of productivity, would enjoy a much smaller gain from a similar
increase in capital. This is one possible explanation for the much faster growth of Japan and Germany, compared with the
US and the UK, after the Second World War and the faster growth of several Asian ‘tigers’, compared with developed
countries, during the 1980s and most of the 1990s.

24 Beyond Market 16th - 31st Oct ’17 It’s simplified...

 T
he Reserve Bank of India
(RBI) and commercial
banks are at loggerheads
over monetary policy
transmission. Banks are slower in
passing benefits to customers even
when the RBI obliges with a rate cut.
Surprisingly, banks are comparatively
quicker in increasing lending rates
when the RBI shifts towards a tighter
monetary policy.
Clearly transmission of RBI’s
monetary policy, which involves
management of money supply and
interest rates in the system, is
currently inadequate. The issue in a
way ridicules RBI’s monetary policy
and undermines the integrity of the
interest rate process in the economy.
An internal group of RBI, formed in
August to study the monetary
transmission issue, recently
submitted its report to the central
An RBI study group has recommended a switchover to
an external benchmark in a time-bound manner to
solve the monetary transmission issue
A NEW BENCHMARK
Beyond Market 16th - 31st Oct ’17
bank. Findings and suggestions of the
study group are far-reaching.
Out of the many recommendations,
the study group wants banks to set
interest rates based on an external
benchmark and not as per internal
benchmarks as is the practice now.
INTERNAL BENCHMARKS
The present loan pricing regime is
benchmarked on the marginal cost of
funds-based lending rate (MCLR).
The previous regime of base rate still
exists for some loans. Both are
calculated based on banks’ internal
factors such as cost of funds and
maturity of deposits.
For beginners, any lending rate of
banks has two components:
benchmark rate (base rate or MCLR
rate) and the spread (bank’s margin).
As per regulation, banks cannot lend
below the base rate.
Ever since deregulation of interest
rates in 1994, the RBI has
experimented with many credit
pricing methodologies: prime lending
rate (PLR), benchmark prime lending
rate (BPLR), base rate and finally
MCLR rate. Successive benchmarks
corrected the short comings of the
previous one.
The latest and current regime is the
MCLR, which was introduced in
April ’16. It is based on banks’
increment cost of funds. So if the
future cost of deposit came cheaper
due to RBI’s loose policy, lending
rates would come down. If the future
cost of deposits were dearer, lending
rates would go up. But the internal
study group of the RBI has found that
MCLR-based lending has some
shortcomings, preventing desired
monetary transmission.
It’s simplified... 25
 Change In MCLR V/s Base Rate V/s Policy Rate
Base Rate Base Rate Change In Change in Change In Difference Between
As Of As Of Base Rate MCLR Policy Rate The Reduction In Base
Apr ’16 Sept ’17 Since Apr ’16 Since Apr ’16 Since Apr ’16 Rate And MCLR
Axis Bank 9.50% 9.05% 0.45% 1.25% 0.50% -0.80%
ICICI Bank 9.35% 9.35% 0.00% 1.00% 0.50% -1.00%
HDFC Bank 9.30% 9.25% 0.05% 1.05% 0.50% -1.00%
Kotak Bank 9.50% 9.40% 0.10% 1.00% 0.50% -0.90%
Yes Bank 10.25% 10.25% 0.00% 0.80% 0.50% -0.80%
Induslnd 10.60% 10.55% 0.05% 1.20% 0.50% -1.15%
SBI 9.30% 9.10% 0.20% 1.20% 0.50% -1.00%
PNB 9.60% 9.35% 0.25% 1.65% 0.50% -1.40%
BOB 9.65% 9.60% 0.05% 0.95% 0.50% -0.90%
BOI 9.70% 9.55% 0.15% 1.10% 0.50% -0.95%
Canara Bank 9.65% 9.45% 0.20% 1.25% 0.50% -1.05%
Source: RBI Data

THE FINDINGS
RBI’s internal study group has found
that under the MCLR regime, banks
are slow in passing benefits to
customers. Further, the study group
found that the MCLR system is
inconsistent among banks, thus
putting borrowers at a disadvantage.
The transmission of interest rates on
outstanding loans to old customers
was significantly lower than on fresh
loans. Banks secure their spread
(margins) first before passing on the
benefit to the customer. The study
group found out that the spreads
charged by some banks seemed
excessive and consistently large.
Further, the study group also found
that the MCLR regime is not in sync
with global practices on pricing of
bank loans.
THE SOLUTION
Given the shortcomings discussed
here, the RBI study group has
recommended a switchover to an
external benchmark in a time-bound
manner. This is significant as the
lending rate will be benchmarked to
market rates. The RBI will take a final
view on the recommendations of the
study group after seeking comments
from the public.
The study group has cited 13 possible
candidates as external benchmarks.
While the study said that no external
instrument in India met all the
requirements of an ideal benchmark,
3 candidates from these 13 can be
considered, they said.
The study group of the RBI is of the
view that the Treasury-Bill rate, the
certificate of deposit (CD) rate and
the apex bank’s policy repo rate are
better suited to serve the role of an
external benchmark.
The T-Bill reflects the rate at which
the government borrows. CD rate is a
time deposit with banks. And
repurchase rate or the repo rate is the
rate at which the RBI lends money to
banks. It signals short-term interest
rates in the system.
According to the suggestion of the
study group, all floating rate loans
from April ’18 can be based on one of
the three external benchmarks that the
RBI selects.
Outstanding loans can be switched
without any fees from March ’19. The
group has also suggested quarterly
interest rate resets as opposed to a
one-year reset as practised now for
better monetary transmission.

Summary Assessment Of Suggested Candidates For Benchmark

Correlation With Liquidity
The Policy Repo Rate

Instruments Robustness High Low To High Low To Linked To Banks' Existence Of

Cost Of Funds A Term Reliability And
Moderate Moderate (At The Margin) Structure Transparency

Market Repo Yes Yes - - Yes Yes No Yes

T-bill Rates No Yes - - Yes No Yes No

CD Rates No Yes - - Yes Yes Yes No

Repo Rate Yes - - - - Yes No No

Source: RBI Data

26 Beyond Market 16th - 31st Oct ’17 It’s simplified...

THE DEBATE transmission: asset liability deposits to an external benchmark can
mismatch, competition from other lead to volatility in returns for
Why do banks not transmit monetary financial saving instruments and more depositors, mostly senior citizens.
policy quickly? There are some recently deterioration in the health of
genuine factors limiting monetary the banking sector owing to rising This can lead to investors moving
transmission. Unlike in other cases of bad debts. from bank deposits to other financial
countries, the liabilities side of a products, subsequently robbing banks
bank, comprising mostly of current Bankers have expressed a need to of cheap funds. Thus, banks relying
account and savings account and move deposit rates to an external on retail funds can take a beating if
fixed deposits, is insensitive to benchmark, in case loan prices are deposit and lending rates are
changes in external policy rates. based on external benchmarks. This benchmarked externally.
will allow quick monetary
So, the bank has to lower the interest transmission, but there are challenges. For banks, migration to an external
rate that it offers on savings account benchmark for pricing credit can lead
first before cutting lending rates in CHALLENGES to volatility to banks’ spread and
order to save margins. Many senior margin. Profitability of banks can
citizens would tend to lose. While the recommendations of the take a hit initially. Further, any
study group will bring in higher manipulation in external benchmark
There are other reasons also that discipline and transparency in loan can trigger a systemic issue for the
impede monetary policy pricing, there are challenges. Fixing Reserve BanK.

Credit Pricing Methodologies Introduced By The RBI

Methodology Introduced Intent Issues
PLR October ’94 Interest rates deregulated. Interest rate PLRs became rigid and did not
charged to most creditworthy reflect the movement in policy
borrowers became PLR rates
BPLR April ’03 To improve transparency and ensure Below-BPLR lending became
appropriate pricing of loans dominant impeding monetary
transmission. Few loan categories
were outside the purview of the BPLR
Base Rate July ’10 The base rate was linked to banks’ cost of funds. Opaque. The discretion in charging
It facilitated better pricing of loans and enhanced of spreads impacted monetary transmission
transparency in lending rates. Quarterly reviews
MCLR April ’16 The lending rate was linked to the marginal cost High reset period and discretionary
of funds for banks. Monthly reviews spreads being charged by banks prevented
the desired monetary transmission
Source: RBI Data

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Beyond Market 16th - 31st Oct ’17 It’s simplified... 27

 A GAME
FMCG firms and
retailers are seeing a

CHANGER clear recovery post the

implementation of GST

28 Beyond Market 16th - 31st Oct ’17 It’s simplified...

A
s the goods and services
tax (GST) roll-out
completes more than
three months, major fast
moving consumer goods (FMCG)
firms, including Hindustan Unilever,
Dabur and Godrej Consumer, expect
full recovery from the pangs of
implementation of the new tax regime
by the end of the third quarter with
clear signs of demand picking up in
the horizon.
Most FMCG firms were hit by
de-stocking by channel partners
ahead of the implementation of GST
in July this year due to uncertainties
of transition to the new system.
FMCG companies have witnessed
strong demand in the sector with
many product prices declining post
implementation of GST.
While cut in product prices has
definitely helped in the revival of
demand in both urban and rural areas
going forward, strong demand in the
FMCG sector is expected to continue
as normal monsoon in most places
would revive rural economy.
However, in some cases where
product prices have gone up
marginally, FMCG companies have
absorbed them.
Prices have fallen in the FMCG
segment after the roll-out of GST. A
host of consumer majors, including
Hindustan Unilever and ITC, have
reduced prices of FMCG products
such as soaps, shampoo, detergents,
biscuits and savoury snacks, among
other items.
This has resulted in a 3% to 8%
decline in prices of goods across
modern retail outlets, including Big
Bazaar and HyperCity, apart from
online grocery firms such as
Bigbasket and Grofers.
After the implementation of GST,
Beyond Market 16th - 31st Oct ’17
hair oil, toothpaste and soaps have
been put under the 18% tax slab,
significantly lower than the previous
22% to 24% slab. The GST rate
schedule indicates that nearly 81% of
all items are in the 18% tax bracket, or
below that figure.
Among consumer goods makers,
Hindustan Unilever was the first
company to cut prices of products
such as Rin bar, while increasing the
weight of others like Dove bathing
bar and Surf Excel bar.
Hindustan Unilever in its Q1FY18
results said that it had reduced prices
of products such as detergent bars,
skin cleanser, toothpastes and hair oil.
For example, a Surf Excel bar, which
would earlier cost `29, is now being
sold at `27. Similarly, the company is
currently selling a pack of four
Lifebuoy Activ Silver at `94, instead
of `104.
The company has brands such as
Wheel, Rin, Surf Excel, Comfort,
Sunlight, Vim, Domex, etc in the
home care segment, while in personal
care it has brands such as Lux, Liril,
Hamam, Sunsilk, Rexona, Lifebuoy,
Dove, Pears, etc. The company said
any “further changes will be
communicated in due course” on
other products.
Industry experts said that after a prod
from the government, other FMCG
companies also followed suit and
brought down product prices, passing
on the benefits of GST to consumers.
The fear that anti-profiteering clause
may be invoked, compelled FMCG
companies to pass on the benefits of
GST to consumers.
A Nestle India spokesperson said, the
company has passed on the benefits to
the consumers in categories where
there is a tax reduction.
According to a Godrej official, in the
soaps segment, where GST rates have
come down, the company has passed
on the benefits to consumers through
price reduction or increase in weight.
In categories where GST rates have
gone up, the company has absorbed
the price increase.
Marico took a price cut of 5% in Vaho
and 3% to 4% in Saffola due to GST.
No price increase has been initiated in
Parachute’s portfolio.
Experts said that FMCG companies
are likely to witness their costs
coming down, going forward with the
implementation of GST on overall
logistics, warehousing, and also enjoy
the benefit of input tax credit.
All these are likely to improve
margins of FMCG companies and
demand is also expected to improve
as the companies are likely to pass on
the benefits partially to consumers.
RS Sodhi, Managing Director,
Gujarat Co-operative Milk Marketing
Federation (GCMMF) said that Amul
had reduced prices on dairy whiteners
and cream by around 6%, which took
the prices back to 2014 levels.
However, the company increased
prices on its Amul and Sagar ghee
brands by 7%, following a GST of
12%, up from 5%. While he expects
consumption growth in dairy
whiteners, cream and paneer to go up,
Sodhi feels ghee sales could be
impacted because of the price rise.
While the price of Amul Ghee has
gone up by 7% to `505 (1 litre refill
pack) from `470, Amulya 1 kg pouch
price has in fact come down from
`358 to `335. Amul cream prices are
down 4% (Amulspray 1 kg pouch -
old price `360, new price `335; Amul
Cream 1 litre - old price `190, new
price `182).
However, major FMCG companies
It’s simplified... 29
 including Hindustan Unilever,
Marico and Dabur India, among
others, had witnessed a dip in sales
and lower volumes impacted by
de-stocking by trade partners due to
transition in the run up to the
implementation of GST.
Most consumer product companies
reported tepid sales growth in the
April-June period despite healthy
consumer demand because of
destocking by trade, especially
wholesalers and retailers that
purchased limited inventory in the
run-up to the new tax system.
However, FMCG sales by volume, or
an actual number of products sold,
rose 6% in July, faster than 2% a year
ago, according to the latest data by
Kantar Worldpanel, the consumer
insights arm of WPP.
This was mainly driven by 12%
growth in rural areas and a 7% rise in
the food and beverages (F&B)
category that has a significant chunk
of unbranded players.
A year ago, both segments grew 2%
each. It’s been driven by a catch-up
from the significant destocking that
the industry saw, along with some
benefits from government
investments in the rural economy and
the impact of a good monsoon.
According to an FMCG report for the
July-September quarter of this year,
industry experts feel most FMCG
companies are likely to report growth
of 4.3%, 5.3%, and 7% in revenue,
EBITDA and net profit, respectively,
on a year-on-year basis.
Despite a subdued year-on-year
performance, a marked improvement
in sequential performance is
expected. Initial glitches post-GST
roll-out in July has had an impact on
all the companies in general. While
corporates and large distributors have
30 Beyond Market 16th - 31st Oct ’17
aligned with the new taxation regime,
problems continue to persist at
smaller wholesale level.
According to a sector analyst, initial
implementation glitches seem to be
over and although the wholesale
channel has taken a bit longer to adapt
to the new tax regime, the retail
channel recovered much faster and
quite smoothly in the July-August
time period.
By the end of the third quarter, a full
recovery in the wholesale channel is
expected and industry watchers are
optimistic about a stronger
performance in the coming quarters
as the problem of destocking has been
almost reslolved.
Modern retail chains agreed that post
the roll-out of GST, prices of many
products have dropped and demand
has seen an upward trend.
“Post the roll-out of the GST, there
has been a downward trend in the
prices of products as far as new stock
is concerned.
“However, as we still have three-five
months of old stock which belongs to
the pre-GST regime, the larger impact
would be seen once the old stock gets
completely replaced by new items,”
said Sadashiv Nayak, CEO of Big
Bazaar, Future Group India.
For instance, biscuit manufacturer
Unibic India has brought down prices
by 10% to 20% across products.
Likewise, retailers claim that prices of
other food products such as museli,
corn flakes and wheat flakes, among
others, too have come down.
At HyperCity, many of the food items
have a zero percent tax and the
retailer have passed on the benefits to
customers mainly in private labels. A
spokesperson of the retail chain said,
Hindustan Unilever too has reduced
prices on certain products and other
FMCG companies too have cut
product prices, which has been passed
on to consumers.
Moreover, lowering of prices has
helped boost sales. An official from a
leading e-grocery chain said that an
e-grocer, prior to the GST regime,
was clocking a 15% spurt in monthly
sales. After the implementation of the
GST, the company posted a 23%
increase in sales in July.
Echoing a similar view, an official
from Bigbasket.com, said that
reduction in prices of products has
helped both consumers as well as
sellers. Post the drop in prices, the
online grocery retail chain has seen an
uptick in sales. Industry experts
opined that as manufacturers get more
clarity on input tax credit, a further
reduction in rates is on the cards.
Industry experts are of the opinion
that with the market sentiment
showing signs of improvement and
stability returning post-GST
implementation, the demand scenario
is expected to move up, both in rural
and urban markets.
Overall the massive destocking seen
in June has been sufficiently refilled
and FMCG firms and retailers are
seeing a clear recovery.
Not surprising that consumption of
groceries and daily essentials picked
up sharply in July, helped by pent-up
demand from traders after orders had
been slashed in June and blunted
competition from unbranded products
that struggled to reach retail shelves
due to difficulties in GST compliance,
especially in rural markets.
The implementation of GST will
certainly usher in a more compliant
environment. FMCG Players who
don’t adapt to play by the rules will
struggle over timE.
It’s simplified...
 TIMELY
INSIGHTS

The Uday Kotak Committee’s

recommendations on corporate
governance have come at the
right time

Beyond Market 16th - 31st Oct ’17 It’s simplified... 31

 T
he 23-member corporate
governance committee
headed by Uday Kotak
submitted its
recommendations to markets
regulator Securities and Exchange
Board of India (SEBI) on 5th October.
The suggestions are so far-reaching
that it has stirred a serious debate over
the subject. The report is open for
public comments till 4th November.
Corporate governance is a broad
concept. It is all about how ethically a
company through its board members
and management runs it, keeping
interests of all stakeholders in mind.
Core principles behind corporate
governance are fairness, transparency
and accountability.
In India corporate governance has
gained much importance in the last
one decade. Serious wrongdoings like
corporate scams, window dressing of
financial statements, shady
related-party transactions, influential
promoter group, exorbitant
managerial remunerations, risky
mergers and acquisitions, and
suppression of minority shareholder
rights warrant fair standards of
corporate governance.
THE JOURNEY
Improving standards of corporate
governance is an ongoing process.
Several committees in the past -
Kumar Mangalam Birla, Narayana
Murthy, Adi Godrej and Naresh
Chandra - have made valuable
recommendations, which have been
largely adopted.
In India the standards of corporate
governance for listed entities are set
by the Ministry of Corporate Affairs
(MCA) through Companies Act, 2013
and SEBI through Clause 49 of listing
agreement that the company needs to
sign with the stock exchanges.
However, even with a robust
32 Beyond Market 16th - 31st Oct ’17
statuatory framework, the spirit
behind corporate governance has yet
not been embraced wholeheartedly by
listed companies in India. To fix the
loopholes, a new committee under
Uday Kotak was set up to enhance
standards of corporate governance in
listed companies in India.
RECOMMENDATIONS
Key suggestions of the Kotak
committee revolve around
effectiveness of company board,
related-party transactions and
improving disclosure standards.
Importantly, the committee has
proposed a timeline between 2018
and 2020 for the adoption of various
suggestions made by it.
EFFECTIVE COMPANY BOARD
Directors
The committee on corporate
governance has said that the
minimum number of directors on the
board of a public listed company be
increased to six from three currently.
The company board needs to have a
minimum of 50% representation of
independent directors, including one
woman director.
The committee has also suggested
that the number of board meetings be
expanded to five every year from four
currently. A director in a listed
company can be a director on the
board of only seven other companies,
as against the current regulation,
which allows one to be a director on
the board of up to 10 companies.
Analysis: The suggestion will prove
expensive to the company as it will
have to pay directors the sitting fees
for attending board meets. Also, there
is a dearth of quality independent
directors in the market who can add
value to the board. The purpose of the
institution of independent directors
could be lost if proxy for promoters
are appointed just for the sake of
numbers. But right spirit can make the
company board effective.
Separate Roles For Chairman And
Managing Director
The committee has recommended that
starting April ’20, companies with a
public shareholding of 40% or more
should separate the roles of the
chairperson and the managing
director, and appoint a non-executive
chairperson in order to prevent
excessive concentration of power in
one individual.
Analysis: This is the most
controversial suggestion of the
committee. Promoters are
entrepreneurs and they would not like
to lose control over the company. If
they become non-executive chairmen,
they will lose control over the daily
functioning of the company. And if
they retain the post of the managing
director, then they tend to lose
influence on the company board.
Perhaps, this is the reason why most
promoters hold both the posts - of the
chairman and the managing director.
Also, as a non-executive chairman,
promoters only get a sitting fee and
lose out on huge salaries they would
have otherwise got if they were in an
executive role. While the proposal
can hamper the ease of doing
business, if done in the right spirit, the
management can get detached from
the influence of the promoter group.
Related-Party Transactions
The committee has recommended that
the related-party transactions (RPT)
be strengthened. From once a year,
the RTP should be disclosed on a
half-yearly basis.
Analysis: Earlier many deals with
related parties used to go unnoticed.
It’s simplified...
The suggestion will keep depository receipt holders with more promoter-management tussle at
shareholders happy. than 1% shareholding to the stock Infosys and Tata companies have
exchanges on a quarterly basis. forced regulators to review corporate
Information Flow To Promoters governance norms.
The committee has proposed that
The committee has recommended the disclosures by companies to stock In that sense, the Kotak committee’s
creation of a formal channel by way exchanges and on their own websites recommendations are timely.
of an agreement to facilitate sharing be in a format that allows investors to Recommendations on independent
of information between promoters find information with ease. The directors, related-party transactions
and the company. company also needs to explain and disclosures are structural in
significant changes in select financial nature. This will enhance
Analysis: Currently, there are ratios in the annual report. transparency and effectiveness in the
instances of flow of information to Additionally, the committee has way the boards of listed companies
promoters or significant shareholders recommended that all listed function. However, it remains to be
through informal channels. Given companies publish cash flow seen how many of these suggestions
their importance as decision makers, statements on a half-yearly basis. will actually be accepted given the
promoters can now seek sensitive mixed reactions from corporates,
information for legitimate purposes. Analysis: This entire proposal will which are mostly promoter-owned.
help small investors. They can now
Disclosure track companies with relative ease. There is no denial that companies that
exhibit sound corporate governance
To increase transparency, the IN A NUTSHELL generate higher returns in the longer
committee has recommended higher term. Good governance practices are
disclosure needs citing reasons for the Several corporate governance failures indispensable for boosting investor
abrupt exit of an independent director across the world have directed the confidence. It’s important for
or an auditor. The company will also focus on good governance in recent corporate India to accept governance
have to disclose details of global times. Back home the norms in letter as well as in spiriT.

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Beyond Market 16th - 31st Oct ’17 It’s simplified... 33

 REINVENTING
TO STAY RELEVANT
Although the Indian insurance market is facing
challenging times, it is poised for strong growth

T
he Indian insurance prospects of life and general
industry continues to lag insurance look good following the
behind its Asian and passage of new rules under the
global peers despite being Insurance Laws (Amendment) Act,
one of the fastest growing economies 2015. Further, deeper penetration of
in the world. insurance among masses and rise in
equity markets are encouraging
However, things have started moving people to save more by going in for
in the right direction now. The insurance as an investment avenue.
In the last financial year, the Indian
life insurance industry’s new business
premiums grew by 26.13%, largely
due to the popularity of single
premium policies (both in individual
segment as well as group business).
While general insurance companies’
gross direct premiums were at `1.27

34 Beyond Market 16th - 31st Oct ’17 It’s simplified...

lakh crore, a growth of 32% in
FY16-17, sharp growth in the non-life
sector was largely due to the growth
in health, motor and new crop
insurance schemes.
Owing to new rules, a surge in equity
markets and overall positive
sentiments for the insurance industry,
life insurance as well as non-life
insurance, have started lining up their
initial public offerings (IPOs).
Till few days back, only one life
insurance company, that is, ICICI
Prudential Life Insurance was listed
in India. But in the last one month,
ICICI Lombard General Insurance
and SBI Life have been listed on the
Indian stock exchanges.
Soon New India Assurance, General
Insurance Corporation of India (GIC
Re), Reliance General Insurance and
HDFC Standard Life Insurance may
hit the equity markets and collect
`25,000 crore to `35,000 crore
through IPOs.
This article sheds light on the Indian
insurance industry and how IPOs
would change the face of this sector.
STORY SO FAR
Though the Indian insurance industry
is a few decades old, we will look at
the sector since the year 2000 when
the sector was opened up to private
players for business.
Since then, the sector has grown
immensely. Competition among
players has provided consumers with
a never-before-seen range of products
and providers, and also enhanced
service levels markedly.
Both life and non-life insurance
sectors in India, which were
nationalized in the 1950s and 1960s,
respectively, were liberalized in the
1990s. Since the formation of the
Beyond Market 16th - 31st Oct ’17
Insurance Regulator and
Development Authority of India
(IRDAI) and the opening up of the
insurance sector to private players in
2000, it has witnessed rapid growth.
To address the need for custom-made
products and ensure prompt service,
many private sector players have
entered the market in India.
Innovative products, aggressive
marketing and effective distribution
have altered fledgling private
insurance companies, thus helping
sign up Indian customers rapidly than
expected. Private sector players are
likely to play an increasingly
important role in the growth of the
insurance sector in the near future.
But changes in unit linked insurance
plans (ULIPs) and passage of the
much delayed bill on foreign direct
investment (FDI) has been passed and
activity levels are high. The most
important piece of regulation ‘FDI in
Insurance’ has finally seen the light of
the day post 2014, after being in the
making for years. This has brought
much-needed speed in the insurance
industry. Following this
announcement, many foreign players
increased their stake in their Indian
joint ventures.
Multiple valuation disclosures, which
had been a bane for investors for
years, is now finally being addressed.
Over the past few years, investors
were grappling with a slew of
disclosures under different valuation
methods adopted by select players.
Potential listings will be a good
beginning and it will enable investors
to do meaningful comparisons.
Listings, which prescribe a uniform
method of disclosures and calculating
embedded value, will enable more
meaningful comparisons across
insurance players. This, in turn, will
bring in more transparency and
reduce discounts that investors used
to ascribe to valuations.
LIFE INSURANCE INDUSTRY
- AWAITING CHANGE
The size of the Indian life insurance
industry is at nearly `4.2 lakh crore
on a total-premium basis as of fiscal
2017. In terms of total premium, the
Indian life insurance industry is the
10th largest market in the world and
the fifth largest in Asia.
New premiums constituted 42% of
total premiums as of fiscal 2017. The
industry’s assets under management
(AUM) grew at a compound annual
growth rate (CAGR) of 19% in fiscal
2001 to fiscal 2017 to `30 lakh crore.
India’s life insurance penetration
stood at 2.7% in 2016 compared with
4.4% in 2010. Among Asian
countries, life insurance sector’s
penetration in Thailand, Singapore
and South Korea was at 3.7%, 5.5%,
and 7.4%, respectively, in 2016. This
suggests the untapped potential of the
Indian life insurance market.
But things are set to change for the
better. After ICICI Life Insurance,
SBI Life is the second life insurance
player to be listed on Indian bourses.
The company is now valued at around
`68,000 crore. While ICICI
Prudential Life Insurance currently
has a market cap of over `58,000
crore, HDFC Standard Life is also
planning to come out with its IPO in
the latter part of this financial year.
Potential listings would help Indian
insurers provide clarity, improve trust
and brand value, and retain talent.
Insurers need to seek approval from
the IRDAI. Companies wishing to list
will have to seek approval from
IRDAI before approaching the
markets regulator Securities and
Exchange Board of India (SEBI).
It’s simplified... 35
 IPOs TO CHANGE FORTUNES
OF GENERAL INSURANCE?
In the months to come, the Indian
equity markets will see the listing of
India’s largest non-life insurance
company, The New India Assurance,
along with national reinsurer, General
Insurance Corporation of India (GIC
Re). Together they are likely to
collect anywhere between `15,000
crore and `20,000 crore.
While GIC Re plans to raise around
`11,372 crore from its IPO, SBI has
managed to raise `8,400 crore and
ICICI Lombard `5,700 crore.
With a total gross premium of `1.3
lakh crore in fiscal 2017, India is
among the top 15 general insurance
markets in the world and one of the
fastest growing markets.
India’s general insurance penetration
(which is defined as gross insurance
premiums as a percentage of GDP)
was 0.8% in 2016, compared with
0.6% in 2007. In comparison, the
global general insurance industry’s
penetration was 2.81% in 2016. Such
hugely under-penetrated market
shows that there is potential for the
non-life insurance industry to grow
from here and investors would gain if
they held such stocks for long term.
Gross premiums of general insurance
companies grew at a CAGR of 17% in
the last five years ending fiscal 2017.
The growth in the industry can be
attributed to increasing penetration
due to continuing growth in segments
such as motor insurance, introduction
of government schemes in specific
segments such as crop insurance,
financial inclusion drive (Jan Dhan
Yojana, etc) that has increased
awareness about the need for
insurance in general segments and
continued growth in the economy.
With economic growth gradually
36 Beyond Market 16th - 31st Oct ’17
picking up and structural drivers in
place (rise in healthcare costs, growth
in retail, auto sector, agricultural
reforms and schemes), the growth
trajectory of the general insurance
sector is expected to remain strong
over the next five years.
Despite recording a double digit
growth in eight out of the last 10
years, the sector has been making
significant underwriting losses from
its core operations for the past many
years. In spite of growing rapidly, a
majority of all non-life insurance
companies are incurring huge
underwriting losses. The only major
source of profit has been investment
income on policyholders’ funds.
The rise in the number of non-life
insurers, coupled with de-tariffing in
2007 led to persistent price wars in a
bid to gain market share. However,
continued restrictions on premium
pricing of the biggest non-life
segment, i.e. third party motor
liability (which is still administered
by tariff) implied that insurers
continued to book heavy losses.
Additionally, the inability of general
insurers to differentiate on the basis of
product offerings along with the lack
of customer awareness about product
features has kept customers’
relationship with the general
insurance industry extremely price-
driven. All such things are likely to
improve once there is transparency
and insurers move out of the
loss-making business and focus more
on money-making options.
IN A NUTSHELL
Although the Indian insurance market
is facing challenging times, it is
poised for strong growth in the long
run. Listing of insurance companies
has many advantages for both life as
well as non-life players as it would
bring in a lot of transparency for
investors. Also, these are the first set
of companies being listed on the
bourses while others will follow soon.
There is also a huge potential in the
micro-insurance segment with a
majority of the Indian population
residing in rural areas. After
de-tarrification, the non-life insurance
segment witnessed a slowdown in
premium growth. However, with one
lakh crore premium mark passed in
the last fiscal, the sector may grow at
a stable rate in the coming years.
Both health insurance as well as auto
insurance are highly promising, and
are expected to increase their share
manifold in the coming years.
On the other side, the reinsurance
industry is likely to increase pricing
rates in the light of rising claims. The
market has to ensure that domestic
companies increase their own
capacities and introduce stricter
guidelines as primary risk carriers.
Insurance companies need to
establish business relations with their
reinsurers to prevent them from
worldwide reinsurance cycle that
affects capacity and stability.
In the future, insurance companies are
likely to compete on a number of
parameters, including competitive
prices, innovative products and sales
techniques and underwriting. Poorly-
managed players with weak capital
base may either drop out of the
market or become uncompetitive on
premium rates and profits.
For insurance companies, profit from
innovation will be key to its success.
Technology will help them develop
and customize products to meet
individual needs. India will continue
strong premium growth momentum,
provided private players stay
innovative with best product designs
and distribution channel usagE.
It’s simplified...
 ;174)1#.5
174':2'46+5'

There is no shortcut to reach your financial goals. But there is always a proper
path. We help simplify the path for you through in-depth research backed by
decades of valuable experience in the industry.

Disclaimer : Insurance is a subject matter of solicitation .mutual fund Investments are subject to market risk. ‘investment in securities/ Commodities market are subject to market risks, read all
the related documents carefully before investing’ Nirmal bang securities pvt.ltd. Please read the Do’s and Don’ts prescribed by Commodity Exchange Before trading. The PMS Service is not
offering for commodity Segment *Nirmal bang Commodities Pvt ltd #Distributors. “The securities quoted are exemplary and are not recommendatory”
MCX SEBI No INZ000043630,
 Buckfast Recommendations
Finance is a maze of umpteen possibilities and choices. And it is easy for individuals to lose their
way in this tangle. In such a scenario, an expert comes handy. For, he alone can wade through
the enigmatic world of finance and simplify choices for investors.

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

About Buckfast Research

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

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

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

Disclaimer
Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.
Source: ACE MF, NAV as on 10th Oct ’17.
SIP returns as on 30th Sept ’17. M=Months, Y=Year, D=Days
Past performance is no guarantee of future performance.
Returns are of Growth option of Regular plans
Returns which are below 1 year period are Annualized Returns

Diversified Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
Axis Focused 25 Fund 24.93 22.75 18.17 17.94 - - 1981
MOSt Focused Multicap 35 Fund 25.86 25.35 24.91 - - - 9179
L&T India Spl. Situations Fund 47.57 23.20 15.31 18.98 13.06 11.62 1090
Principal Growth Fund 137.65 22.88 16.84 21.34 13.16 8.10 503
SIP
Axis Focused 25 Fund 24.93 29.92 18.67 18.82 - - 1981
MOSt Focused Multicap 35 Fund 25.86 28.63 22.65 - - - 9179
L&T India Spl. Situations Fund 47.57 21.84 15.49 18.51 17.47 16.49 1090
Principal Growth Fund 137.65 25.83 18.96 21.00 19.32 15.95 503

38 Beyond Market 16th - 31st Oct ’17 It’s simplified...

Large Cap Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
MOSt Focused 25 Fund 20.67 17.21 15.41 - - - 807
Invesco India Growth Fund 30.64 21.11 15.00 18.75 12.07 10.47 211
Mirae Asset India Opportunities Fund 45.31 21.35 16.54 20.81 14.73 - 4738
IDFC Focused Equity Fund 37.79 33.40 14.10 14.82 8.70 8.75 558
SIP
IDFC Focused Equity Fund 37.79 41.04 19.57 16.97 14.18 12.44 558
Invesco India Growth Fund 30.64 25.75 15.29 18.05 16.63 15.16 211
Mirae Asset India Opportunities Fund 45.31 23.19 17.29 20.62 19.18 - 4738
Reliance Top 200 Fund 30.66 19.28 13.38 17.29 16.30 14.84 5016

Mid and Small Cap Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 Year 3 Years 5 Years 7 Years 10 Years
Lumpsum
IDFC Sterling Equity Fund 53.15 32.69 19.23 21.24 14.80 - 1642
Reliance Small Cap Fund 40.95 31.16 23.20 31.16 22.12 - 4546
HDFC Small Cap Fund 39.33 25.26 19.94 21.63 13.13 - 1316
L&T Emerging Businesses Fund 25.69 36.72 26.76 - - - 1873
SIP
IDFC Sterling Equity Fund 53.15 37.62 22.10 23.15 20.62 - 1642
Reliance Small Cap Fund 40.95 29.24 24.19 32.91 28.93 - 4546
L&T Emerging Businesses Fund 25.69 37.38 29.29 - - - 1873
Mirae Asset Emerging Bluechip 48.88 25.72 24.28 31.05 28.46 - 4428

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

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
IDFC Tax Advt(ELSS) Fund 54.40 27.39 17.88 21.49 14.18 - 685
MOSt Focused Long Term Fund 16.99 25.85 - - - - 661
L&T Tax Advt Fund 53.37 23.93 16.98 18.92 12.17 12.22 2548
Mirae Asset Tax Saver Fund 15.68 26.59 - - - - 586
SIP
IDFC Tax Advt(ELSS) Fund 54.40 32.35 18.66 21.03 19.41 - 685
Mirae Asset Tax Saver Fund 15.68 28.50 - - - - 586
MOSt Focused Long Term Fund 16.99 29.01 - - - - 661
Principal Tax Savings Fund 202.59 - 18.79 20.90 19.36 15.90 347

Dynamic Equity Funds

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
ICICI Pru Dynamic Plan 244.39 14.98 13.90 16.24 15.43 15.16 7382
Tata Equity P/E Fund 135.42 28.86 22.83 25.35 21.66 19.07 1815

Beyond Market 16th - 31st Oct ’17 It’s simplified... 39

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

HDFC Balanced Fund 142.44 16.24 14.60 14.15 18.19 15643

L&T India Prudence Fund 25.38 15.97 15.97 15.04 18.82 7043
Mirae Asset Prudence Fund 13.18 18.42 16.64 - - 795
Reliance Reg Savings Fund-Balanced Option 53.18 21.91 17.05 14.11 16.93 9069
Principal Balanced Fund 72.26 29.90 21.42 15.83 17.79 445

Equity Savings (Arbitrage MIP) Funds

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

HDFC Equity Savings Fund 34.19 8.18 12.25 10.69 10.71 3046
Reliance Equity Savings Fund 12.30 13.66 11.99 - - 1328
DSPBR Equity Savings Fund 12.12 11.67 9.19 - - 1218
Principal Equity Savings Fund 33.87 11.08 8.66 8.33 7.52 23

Monthly Income Plans

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

ICICI Pru MIP 25 38.76 12.26 10.26 11.73 12.02 1440

Reliance MIP 40.77 11.43 8.25 10.23 10.69 2407
SBI Magnum MIP 38.11 10.09 8.11 11.66 10.75 1490
Aditya Birla SL MIP II-Wealth 25 38.86 15.18 11.29 14.01 14.24 2353

Income & Dynamic Bond Funds

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

ICICI Pru Long Term Plan 21.34 2.05 10.63 8.10 11.64 11.64 3134
UTI Dynamic Bond Fund 19.90 2.18 8.41 8.66 10.69 10.12 1686
Franklin India IBA 59.53 6.95 9.07 8.71 9.39 9.40 969
SBI Regular Savings Fund 29.59 6.02 9.46 10.00 10.63 10.09 1232

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

Baroda Pioneer Credit Opp Fund 13.11 7.52 9.28 9.07 - - 926
BOI AXA Corporate Credit Spectrum Fund 12.88 7.92 9.83 9.40 - - 1325
Franklin India Dynamic Accrual Fund 59.60 8.37 9.75 9.47 10.63 9.33 2752
Aditya Birla SL Corp Bond Fund 12.59 6.54 9.97 8.82 - - 3855

40 Beyond Market 16th - 31st Oct ’17 It’s simplified...

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

Aditya Birla SL Short Term Fund 64.85 2.55 6.71 8.23 7.40 9.25 19387
Franklin India ST Income Plan 3562.28 5.62 8.80 10.04 9.62 9.45 8705
HDFC Regular Savings Fund 33.70 4.07 6.56 7.56 7.51 9.44 5391
UTI Banking & PSU Debt Fund 13.87 3.52 6.37 7.64 7.89 9.19 991

Ultra Short Term Funds

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

Aditya Birla SL Savings Fund 331.59 4.49 6.94 7.84 7.46 8.74 22879
Franklin India Ultra Short Bond Fund-Super Inst 23.25 6.39 7.92 8.45 8.65 9.45 11065
ICICI Pru Flexible Income Plan 323.50 5.29 7.01 7.57 7.58 8.63 23487
L&T FRF 16.64 5.86 7.31 7.81 7.75 8.51 564

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

Aditya Birla SL FRF-Short Term Plan 223.86 6.53 6.64 6.79 7.78 8.37 8169
Franklin India TMA-Super Inst 2510.94 6.41 6.59 6.75 7.81 8.39 3230
Kotak Floater-ST 2756.25 6.45 6.55 6.75 7.77 8.34 11479
Axis Liquid Fund 1860.65 6.48 6.57 6.77 7.73 8.29 16680

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

Axis Enhanced Arbitrage Fund 12.27 5.68 6.15 6.61 - 1222

Reliance Arbitrage Advantage Fund 17.27 5.73 5.83 6.89 7.62 7651
L&T Arbitrage Opp Fund 12.45 6.33 6.04 6.77 - 340

Returns as on 30th Sept ’17

Buckfast
Investment Fundamental Value
RETURNS Market Model Addition
in Nifty
Buckfast Fundamental Market Model (BFMM) is a asset (One time)
allocation model, which analyses historical market behaviour
taking into consideration various aspects such as fundamental Last 1 month -1.15% 0.56% 1.71%
ratios, long-term trends. It aims to reduce volatility in the short Last 3 months 2.54% 1.84% -0.70%
to medium-term without compromising the opportunity for
Last 6 months 6.73% 5.70% -1.03%
long-term wealth creation.
Last 1 year 12.87% 8.00% -4.87%
Currently as per BFMM, we suggest 0% allocation to equity Last 2 years 11.36% 8.64% -2.72%
and 100% to debt.
Last 3 years 7.46% 6.60% -0.86%
Last 4 years 14.28% 13.60% -0.69%
Last 5 years 11.51% 10.97% -0.54%
Since Aug 2011 9.87% 10.12% 0.25%

Beyond Market 16th - 31st Oct ’17 It’s simplified... 41

 TECHNICAL OUTLOOK

I
ndian equity markets seem to
be celebrating Diwali early
this year, with the Nifty index
hitting a new all-time high of
10,251.85 in its trade on 17th
October. The Nifty climbed 5.83%, or
187.75 points to 10,251.85 in October
from 9,687 level on 28th Sept ’17.
Looking at the momemtum of the
Nifty, there is a high probability that
the Nifty would test the 10,380/
10,450 levels in a couple of weeks,
only if it sustains above the 10,000-
9,940 range.
Technically, the Nifty is trading in an
upward sloping channel, indicating a
positive view. The channel indicates
that the Nifty has a strong support at
the 9,800 level. As long as it sustains
above the 9,800 mark, the uptrend
will remain intact.
October will be a crucial month given
the fact that quarterly earnings results
of India Inc are likely to be
announced. This event is likely to
have a bearing on the Indian markets.
It is also important to note that the
Nifty is trading at an all-time high.
Hence, we may witness some profit
booking at higher levels. So, market
participants are advised to stay light
with positions.
Technically, the overall view is
positive as the Nifty is under a strong
momentum. The Nifty has a resist-
ance at 10,380/ 10,450 levels,
whereas it has support on the down-
side in the 10,000-9,940 range.
Market participants should be stock-
specific, and follow the trend with a
trail stop loss level till it reverses from
trading perspectives.
On the Nifty Options front for the
October series, the highest Open
Interest build up is witnessed near
10,200 and 10,000 Put strikes,
whereas on the Call side, it is
observed at the 10,200 and 10,500
strikes. The market is likely to remain
bullish towards end October and early
November with bouts of selling
pressure near resistances.
The September expiry has seen
higher-than-average rollovers in Nifty
(70%) and lower-than-average
rollovers in Bank Nifty (65%) with a
positive cost of carry, indicating a
mixed bias. Technology (86.95% -
long rollover), FMCG (85.59% - long
rollover) and Telecom (85.72% - long
rollover) saw much higher rollovers
compared to the same day of the
previous expiry.
While select stocks from Technology,
Fertilizers, FMCG and Banking
sectors are expected to outperform,
some stocks from Automobile and
Capital Goods sectors are likely to
underperform in this expiry.
India VIX, which measures the imme-
diate 30-day volatility in the market,
remained in the range of 11-13 in
October. Going forward, VIX is likely
to remain at elevated levels.
The Put Call Ratio-Open Interest
(PCR-OI) for Nifty Options has been
in the range of 1.2-1.70 in the month
of October. Going forward, it may
remain bullish, implying a positive
undertone in the markets.
The market is likely to remain bullish
towards October end and early
November with bouts of selling
pressure near resistances. The 10,000
and 10,200 levels may remain strong
supports, while 10,300 and 10,500
levels may see supply pressurE.

TECHNICAL STOCK PICKS FOR DIWALI 2017

Potential
Sr No Stock Name Reco Range CMP Targets Upside

1 LUPIN BUY 980-1,040 1,057 1,370 40%

2 HEXAWARE BUY 240-260 269 340 30%
3 DABUR BUY 300-320 325 400 30%
4 FEDERAL BANK BUY 107-114 116 140 30%
5 M&M BUY 1,280-1,320 1,330 1,600 25%
6 MANAPPURAM BUY 90-100 101 140 55%
7 CARBORUNIV BUY 300-320 323 400 30%
8 GOKEX BUY 110-120 123 160 45%
9 DEEPAKNTR BUY 200-210 218 270 35%
10 TNPL BUY 320-330 340 415 30%
Source: Company Data, Nirmal Bang Research

42 Beyond Market 16th - 31st Oct ’17 It’s simplified...

 SMART
INVESTMENT
PLAN
SIPs ARE the secret to long-term wealth
creation and should, therefore, be
considered by investors

A
balanced diet coupled
with regular exercise is
the key to a healthy life.
Each one of us very well
knows and understands this fact, yet
how of many of us are disciplined
enough to follow these key tenets.
The same principle applies to
successful investing too.
Investing regularly and not
impulsively is the secret to amassing
wealth in the long term for a secured
life. Yet, we tend to be tardy. We
procrastinate. And, at times, even
forget about the investment plans we
have made.
Surely many investors can relate to
this scenario wherein they randomly
invest in ELSS or any other
tax-saving product for the purpose of
saving taxes at the end of the financial
year not realizing that this can be

Beyond Market 16th - 31st Oct ’17 It’s simplified... 43

 planned in a much better way.
Wouldn’t it be wiser to invest through
the year to average out your cost
instead of opting for a lumpsum
investment, which may subject you to
timing the market?
One such investment option is
Systematic investment Plans (SIPs).
An SIP is a popular investment
mechanism commonly used in the
mutual fund industry.
WHAT ARE SIPs?
An SIP is an investment
methodology, which enables you to
regularly invest a certain
pre-determined amount towards an
investment product (debt, equity and
gold, among others).
The frequency could be weekly,
monthly, quarterly or half yearly. So
one could decide to invest an amount
as low as `1,000 in a mutual fund
scheme on the 1st of every month for
a period of 5 years, for instance.
The concept is similar to that of
Equated Monthly Installments
(EMIs). However, the key difference
is that SIPs are directed towards
building wealth, while EMIs are used
to pay off debts.
OPERATING MECHANISM
An investor needs to give his/her
bank, a mandate or an instruction to
allow the mutual fund house to debit
from the account a pre-determined
amount at a pre-determined frequency
towards the chosen investment
product, that is, an SIP.
As in the above example, the mutual
fund house will debit the investor’s
account on the 1st of every month and
allocate units of the scheme in which
the investor wants to invest. If the Net
Asset Value (NAV) of the scheme is
44 Beyond Market 16th - 31st Oct ’17
10, the investor would get 100 units
for investing `1,000.
For every additional purchase
subsequently made, units would be
added to the investor’s holdings -
higher number of units if the NAV is
lower and lower number of units if the
NAV is high.
Thus, by investing a sum over regular
intervals, you end up accumulating
units in the scheme through up and
down market cycles. This will enable
the investor to benefit from rupee cost
averaging and also eliminates the
need to time the market.
Apart from these two benefits, SIPs
also inculcate discipline and provide
liquidity, flexibility and much-desired
convenience to an investor.
BENEFITS OF SIPs
Rupee Cost Averaging
Rupee cost averaging doesn’t
guarantee profits or protect against
short term losses. However, because
of the discipline SIPs bring to
investment, this investment tool
ensures that you do not avoid markets
when prices are down.
Markets tend to be cyclical and by
staying invested over a longer time
horizon, you tend to benefit when the
prices rebound.
Timing The Markets
This is one of the most frequently
debated topics in investing. When to
invest in the markets is a million
dollar question. Each one of us wants
to buy cheap to maximize returns.
Experts believe that timing the market
is the toughest job even for financial
industry experts let alone laymen like
us! It is not always possible to predict
market movements as multiple factors
are at play - an event like
demonetisation that shocked the
markets could never have been
predicted. For someone who was
invested in the markets, he/she would
have immensely benefited from the
correction that took place.
Since the last few months, the Indian
stock markets have been on an
upward spiral. If you had waited for
the markets to correct to put in your
money, you would have missed the
rally where appreciation has been
upwards of 20% and would probably
still be waiting on the sidelines for a
correction in the markets.
That’s where SIPs come into play. It
brings to the table the benefits of
rupee cost averaging and also
eliminates the need to time the market
To illustrate, Rohan has decided to
invest `1,000 every month for a
period of six months. In month one, as
the NAV was `10, he was allocated
100 units.
On account of the increase in NAV in
month two, the allocated units
increased to 96.15. In month 4, the
NAV fell to `9.
Rohan benefited from this correction
and was allocated `111.11 units. His
average cost at the end of month 6
was `9.795, lower than the current
NAV of `10.2, which means Rohan’s
investment has appreciated over the
6-month time frame.
Imagine a situation where Rohan
invested a lump sum amount of
`6,000 in month 2, he would be
allocated units at the highest cost and
would end up making losses.
On the other hand, if he had invested
in month 4, he would currently have
been sitting on a decent appreciation.
But human behaviour is such that
when markets correct, we tend to sit
It’s simplified...
on the fence for fear of further losses. impulsive purchases he or she would
SIPs eliminate the need to decide the make othewise.
best time to invest in the markets.
Liquidity, Flexibility, Convenience
To summarize, Rohan has benefited
from the ups and downs of the Mutual funds where SIPs are most
market, which has averaged out his common usually have an open-ended
cost of acquisition and he did not have scheme, which enables the investor to
to bother about tracking and timing redeem at any point in time for any
the markets, something that even requirement. Thus, the corpus can be
investment experts struggle with. withdrawn either fully or partially
providing investors the much-needed
access to liquidity.
Exhibit
Month NAV % Units
(`) Increase/ Allocated However, as it is true with any other
Decrease tax-saving product, which has a lock
1 10 - 100 in period, there is a restriction on
2 10.4 4% 96.15 withdrawal if you are investing in a
3 10 -4% 100 tax-saving instrument.
4 9 -10% 111.11
5 9.5 6% 105.26
The amount to be invested through
6 10 5% 100
SIPs can be changed at any point in
7 10.2 2% -
time, that is, it can either be increased
or decreased based on the investor’s
SIPs Inculcate Discipline cash flow situation, by intimating the
mutual fund company.
Allowing money to remain idle in the
bank account targeting lump sum Also the frequency and the time for
investment can tempt the investor to which the investment is to be made
spend impulsively, postponing the can be modified at the behest of the
planned investment. investor by simply intimating the
mutual fund house.
An SIP will enforce discipline by
debiting the account for an amount SIP is a convenient and hassle-free
that is predefined at a pre-determined mode of investment. You can issue a
frequency, enabling the investor to standing instruction to your bank to
benefit from the cyclicality of the facilitate auto debits from your bank
investment cycle. This will account. Investments will be made at
automatically enable the investor to the desired frequency without having
exercise restrain when making to physically do anything.
Does it mean that once you start an
SIP you forget about it? While SIPs
bring discipline in investing, one
should remember that the
performance of the scheme is
dependent on several factors.
There may be a slippage in
performance due to many factors. So,
tracking one’s investment at least on
an annual basis is essential - even an
SIP cannot eliminate the
responsibility that comes with
managing savings i.e. evaluating
investment decisions.
IN A NUTSHELL
According to Peter Lynch, in the long
run, it’s not just how much money
you make that will determine your
future prosperity. It’s how much of
that money you put to work by saving
it and investing it.
This could not have been put more
aptly. Discipline in saving and
investing will make all the difference
in determining your future wealth
depending on the investments you
have made.
SIPs can do this job for you by
bringing in the much required
discipline and in addition it eliminates
the risk of bad market timing,
averages out costs and provides one
with the much needed flexibility and
liquidity. Procrastination is the thief
of time. Initiate action - start an SIP!

Altruism
It is often alleged that altruism is inconsistent with economic rationality, which assumes that people behave selfishly.
Certainly, much economic analysis is concerned with how individuals behave, and homo economicus (economic man) is
usually assumed to act in his or her self-interest. However, self-interest does not necessarily mean selfish. Some economic
models in the field of behavioural economics assume that self-interested individuals behave altruistically because they get
some benefit, or utility, from doing so. For instance, it may make them feel better about themselves, or be a useful
insurance policy against social unrest. Some economic models go further and relax the traditional assumption of fully
rational behaviour by simply assuming that people sometimes behave altruistically, even if this may be against their
self-interest. Either way, there is much economic literature about charity, international aid, public spending and
redistributive taxation.

Beyond Market 16th - 31st Oct ’17 It’s simplified... 45

 To Each
His Own

For some investors, Scuttlebutt

technique is the perfect way to
invest in the markets, and for
others it is Cigarbutt

46 Beyond Market 16th - 31st Oct ’17 It’s simplified...

C
onfusion abounds about
value and growth
investing in terms of what
separates them. And
investors often take the middle path.
However, ‘Scuttlebutt’ and
‘Cigarbutt’ are two concepts that will
help understand value and growth
investing and what separates the two.
INVESTING STYLES
‘Scuttlebutt’ was popularized by
legendary investor Philip Fisher, ‘the
father of growth investing,’ in the
1950s. He wrote about the importance
of gathering information about a
company from all possible sources in
his book ‘Common Stocks and
Uncommon Profits’ on investment
analysis in 1958. His ideas were later
adopted by investors globally,
including investors like Fidelity’s
Peter Lynch, and Warren Buffett.
On the other hand, Cigarbutt was
coined by Benjamin Graham, ‘the
father of value investing’ and the
author of ‘Security Analysis’ and
‘The Intelligent Investor.’ He
emphasized on buying stocks which
are highly undervalued or available at
low prices.
SCUTTLEBUTT TECHNIQUE:
BEYOND THE BOOKS
Scuttlebutt is a technique that is often
associated with growth investing. It is
about focusing on stocks of high
quality companies, even if they are
seemingly expensive. Scuttlebutt
investment technique is mainly about
finding or looking for this qualitative
information, which may or may not
be part of conventional investing and
assessment practice.
It is about looking for information
beyond what is available in the annual
report or balance sheet of the
company. Rather, it is checking or
verifying what is claimed by the
Beyond Market 16th - 31st Oct ’17
management in the annual report and
financials of the company.
High quality companies tend to have
good products and service offerings,
customer orientation, committed
management, sustainable earnings,
etc. In Scuttlebutt investment
technique, all qualitative information
about a company is taken into
consideration. The Scuttlebutt
technique would involve looking for
very good businesses or companies
with durable competitive advantages,
a sound business model, and high
growth potential.
Moreover, investors are supposed to
do a lot more ground work under this
investment technique. An investor
can judge such companies by actually
being a consumer of a product or
service of companies in which they
are investing.
For instance, if you are looking to
invest in an airline company, it would
be worthwhile to book few flights and
make a small number of trips to get a
first-hand experience of the quality of
services offered by that particular
airline company.
In the end what matters is consumer
satisfaction. Is the company
producing products that delight
customers? In fact, Fisher suggested
talking to a few customers to know
why they buy a product manufactured
by a particular company.
Similarly, the Scuttlebutt technique
entails feedback from customers,
knowing how employees are treated
by the management, talking to
competitors, checking with vendors
and creditors about the credential of
the company and its products.
The qualitative aspect of a business
cannot be judged by the balance sheet
or other traditional financial
statement analysis. It can be
ascertained through a 360 degree
assessment of the company, that is, by
the Scuttlebutt technique.
CIGARBUTT TECHNIQUE:
LOOKING FOR DEEP VALUE
Contrary to Scuttlebutt, the Cigarbutt
technique focuses on buying very
cheap stocks. The analogy was
derived from cigarbutts lying on the
street, which are still supposed to
have a few puffs left in them. What it
means is that if you buy some of the
beaten down stocks at throwaway
prices, there is still money to be made
selling them back when the real value
is discovered.
One can buy Cigarbutt stocks at very
low prices, even below the liquidation
value. But, in reality, they have more
intrinsic value, which can be realized
in the future. They may not be
interested in quality of products,
ignoring or not properly taking into
account the future growth prospects
and quality of earnings, etc.
The Cigarbutt investment technique
helps zero in on investment
opportunities created by
fear-inducing events that cause
short-term shock waves and huge
price dips, like systemic failure,
recessions, other macroeconomic
events, wars, or the company or
stock-level events such as
disappointing quarterly results. The
investor can make good profit
through such investments, when
prices recover.
DRAWBACKS OF
SCUTTLEBUTT AND
CIGARBUTT TECHNIQUES
For a Scuttlebutt investor, valuation is
merely one more criteria to judge the
overall value of the business. The
price of the stock and various
multiples like P/E, P/B, etc may be
high as compared to other stocks. But
It’s simplified... 47
 the price may be high because
investors perceive that the company is
a high potential company with a lot of
sustainable growth in the future, and
accordingly wants to invest in it even
at a high price.
Moreover, the Scuttlebutt technique
too has its own shortcomings. This
method is often considered by many
to be too much of information
seeking. Getting information from
different sources could be a huge task,
which may or may not be possible for
individual investors.
That apart, keeping track of such
companies and frequently talking to
management, consumers, suppliers,
competitors, bankers, employees and
others could appear to be tiring and
nearly impossible.
If an investor fails to do proper
homework, the Cigarbutt technique
could be a deadly mistake. One needs
to avoid the pitfalls of choosing a
company, which has no value in it. If
a company’s value has fallen because
of deterioration of its business or
fundamentals, share prices of that
company may remain low forever or
even fall further.
In India, many Cigarbutts in
infrastructure, real estate, metal,
education and other sectors have
remained Cigarbutts for forever and
now those companies have no value.
While Cigarbutt investing only works
to a point and its success is limited by
the size of Cigarbutt assets, huge
sums of money cannot be invested in
Cigarbutt assets. This limits the
growth of the total portfolio due to
investments in smaller Cigarbutt
stocks. Moreover, the mispricing
mostly occurs in smaller and less
followed stocks.
WHAT DID LEGENDS DO?
Philip Fisher gathered information
from all possible sources for
investment valuation. Fisher used
Scuttlebutt technique when he bought
Motorola, a radio manufacturer at the
time. The value of his stake grew 20
times over two decades.
Warren Buffet learned Cigarbutt
technique from his guru Benjamin
Graham and used this technique in his
initial years of investing.
In the 1960s, the value of American
Express was reduced to half due to the
event of fake salad oil warehouse
receipts collateral. Buffett invested in
the company as he determined that
the company would not be much
impacted by this event, after
thoroughly analyzing the company
and its business model. The value of
his stake in the company increased
five times over a period of 5 years.
Buffett followed the Cigarbutt
technique while choosing one of the
greatest investments See’s Candy. In
1972, he bought the company which
had sales of $30 million and pre-tax
earnings of less than $5 million
available for $25 million.
Globally, legends have practiced both
the techniques based on the comfort
of their style. Both Scuttlebutt and
Cigarbutt techniques have their own
merits in terms of producing excellent
results over a period of time.
It is also about the ability of the
individual. Some investors are quite
learned and can spot deep-value
stocks. Their ability to separate a
good business, which is available at
really cheap prices, could be very
high. Others may not be comfortable
finding deep value stocks. For others,
it is quite handy to spot multibaggers
while seeking information beyond
what is available in the annual report.
Their ability to do ground work could
be high compared to others. These
investors will often be seen in trade
fairs and shopping malls looking for
the next big idea. They are far more
curious, constantly doing channel
checks and speaking with people
from the entire value chain. Unlike
Cigarbutt, which is often termed as
lazy investing, Scuttlebutt involves a
lot of hard worK.

Snake: Snake is an arrangement in which currencies are pegged to each other but left free to float as a group against the
US dollar. It has been named ‘snake’ for the graph that the limits of variation of a currency would follow over time.

Snake In The Tunnel: The ‘snake in the tunnel’ was the first attempt at European monetary cooperation in the 1970s,
aiming at limiting fluctuations between different European currencies. It was an attempt at creating a single currency band
for the European Economic Community (EEC), essentially pegging all the EEC currencies to one another. With the failure
of the Bretton Woods system with the Nixon shock in 1971, the Smithsonian agreement set bands of plus/minus 2.25%
for currencies to move relative to their central rate against the US dollar. This provided a tunnel in which European
currencies could trade. However, in practice, it implied larger bands in which they could move against each other.The
tunnel collapsed in 1973 when the US dollar floated freely. The snake proved unsustainable, with several currencies
leaving and in some cases rejoining.

48 Beyond Market 16th - 31st Oct ’17 It’s simplified...

 IMPORTANT JARGON
MERGER OF MUTUAL FUND SCHEMES
On 6th October, markets regulator Securities and
Exchange Board of India (SEBI) asked asset management
companies (AMCs) to classify various mutual fund
scheme offerings into clearly-defined categories. This
move will lead to the merger of schemes and will give
clarity to investors in mutual funds.
What Is The New Circular On Mutual Funds?
The circular from SEBI says that fund houses have to
re-categorize existing schemes based on investment
strategies. SEBI has offered few buckets under which the
schemes can be categorized.
Which Are These Buckets?
At the broadest level, existing mutual fund schemes will
now be classified into five broad categories: equity, debt,
hybrid, solution-oriented, and others. Index funds, fund of
funds and sector or thematic schemes will be separate from
the above schemes.
What Is The Sub-Categorization Within The Broad
Category?
SEBI has also offered sub-categorization within the broad
scheme category. Equity schemes will have 10
sub-categories. Debt and hybrid schemes will similarly be
grouped into 16 and six sub-categories, respectively.
There will be two categories of solutions-based funds (one
each for retirement planning and children’s future) and one
category each for exchange-traded funds (ETFs) and fund
of funds (FOFs). So, in all there will be 36 categories.
SEBI has asked fund houses to have just one scheme per
category. SEBI has properly defined each category to clear
Beyond Market 16th - 31st Oct ’17
any confusion.
How Will The Equity Schemes Be Categorized?
Equity schemes will have 10 sub-categories: multi-cap
fund, large-cap fund, large- and mid-cap fund, mid-cap
fund, small-cap fund, dividend yield fund, value fund and
contra fund, focussed fund, sectoral or thematic fund and
equity-linked funds.
What Is The Definition For Large-, Mid- And
Small-Cap?
SEBI has defined what constitutes a large-, mid- or
small-cap fund. The stocks of the top 100 companies by
market value will be classified as large-caps. Those
companies ranked between 101 and 250 will be termed as
mid-caps, and stocks of firms beyond top 250 in terms of
market cap will be categorized as small-caps.
What Was The Rationale Behind The Review By
SEBI?
Over the years, picking a mutual fund scheme was
becoming an onerous task. There was a problem of plenty.
The 45 odd fund houses offered around 2,000 schemes -
more than 400 equity funds, around 300 debt schemes and
around 426 hybrid schemes, and more than 800 fixed
maturity plans.
So, What Is The Issue?
Many fund houses have multiple schemes within the same
category. Mandates of many schemes overlapped. Fund
managers used to alter their investing styles. Comparison
with peers was difficult due to non-standardized schemes
offered by various fund houses.
Are There Any Examples?
It’s simplified... 49
 Take for instance the case of a mid-cap fund that would
stray into the large-cap territory. The fund manager would
stray across market caps depending on market conditions.
While this might generate returns for the fund manager, it
dramatically alters the risk profile and beats the purpose of
the investor contributing to the fund.
Straying from the investment mandate defeats the purpose
of investment. Clearly, there is little clarity on the purpose
of different schemes and benchmarking. So far, there were
no clear guidelines on ways to categorize mutual funds.
So, Now What Will Happen?
Over the next few months, there will be a flurry of activity
in fund houses to merge and wind-up schemes. Fund
houses will have to align schemes in line with the new
norms. Experts expect the number of schemes to fall by
40-50 schemes.
Is There Any Timeline? What Will Be The Process?
To start with, fund houses will respond individually to
SEBI within 2 months with a plan of action as to how they
will consolidate their schemes. SEBI will then examine
each fund house’s plan and respond to them.
On SEBI’s approval, fund houses would have a window of
three months to carry out the necessary changes. This
means that by early to mid-next year, the mutual fund
industry will look different.
How Will The New Rules Help Investors?
The new rules will ensure standardization of products. An
investor will be able to make a fair comparison of various
schemes. The fund manager will not be able to drift from
its core investment mandate. The new rules will improve
transparency and help investors choose the apt product.
Is The Move Disruptive?
Although the new regulations by the markets regulator will
ensure that the industry follows best practice, there are a
few challenges. As schemes merge, assets under
management (AUM) of some schemes will sharply
increase. This could hurt the scheme’s performance as the
base number of investors will increase.
Some gains could also be lost as the fund will have to
rebalance or churn the portfolio to ensure that the fund
aligns with new category norms. Now, with limited
flexibility to stray into another segment, the new rules can
50 Beyond Market 16th - 31st Oct ’17
be a drag on the fund’s performance.
What Should An Investor Do?
Investors will have to review their portfolios thoroughly to
meet their requirements. But a wait-and- watch approach is
advisable before immediate portfolio review. Investors
should wait for the fund house to submit their respective
plans. The whole process is expected to take another 5
months to 6 months, after which it would be clear as to
how the scheme would be classified and re-categorized.
A COMMITTEE FOR MARKET
INFRASTRUCTURE INSTITUTIONS
On 16th October, markets regulator Securities and
Exchange Board of India (SEBI) set up a committee to
review norms for market infrastructure institutions (MIIs)
such as stock exchanges, depositories and clearing
corporations. The committee will be headed by former
Reserve Bank of India (RBI) Deputy Governor R Gandhi.
What Would The Committee Review?
The committee will assess existing market intermediaries
like exchanges, depositories and clearing corporations.
The committee will also identify areas of review in
regulation of these entities. The committee will also
identify areas of improvement of systems, procedures and
practices and make recommendations.
What Is The Genesis Behind The Setting Up Of Such A
Committee?
In February this year, SEBI had proposed a review of
regulations related to ownership and governance of market
infrastructure institutions.
After getting feedback from the market on various issues
related to MIIs, SEBI has now decided to form a
committee to review these norms. The review is in line
with the recommendations of the Bimal Jalan Committee,
which tabled its report in 2012 and asked the regulator to
conduct a review every five years.
Why Is This Review On MIIs Important?
After listing of Multi-Commodity Exchange Ltd, Bombay
Stock Exchange (BSE) and Central Depository Services
(CDSL), other MIIs like NSE are in plans to get listed. An
efficient regulatory mechanism is important to safeguard
investors’ interests. The review is also significant given the
recent technological glitches in the exchanges spacE.
It’s simplified...
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