Friday, October 21, 2016

Value of Key Indicators - Updated as on 4th October 2016

Current Rate

Bank Rate:  6.75 % (4th Oct 2016)
CRR:       4 % (9th Feb 2013)
SLR: 20.75 % (4th Oct 2016)
Repo Rate: 6.25 % (4th Oct 2016)
Reverse Repo Rate: 5.75 % (4th Oct 2016)

Monday, August 29, 2016

New Microfinance Venture

Tata, Nilekani join hands for microfin startup

Friday, May 13, 2016

How Pulse Candy Captured Indian Market

In February last year, the DS Group - manufacturer of brands such as Rajnigandha (Pan Masala), Baba (Tobacco) and Catch (spices) -- entered the candy segment with Pass Pass 'Pulse'. Today, the Kaccha Aam-flavoured hard-boiled candy with a tangy twist, which fans also call the 'magical core' or the 'masala bomb', is a Rs 100 crore brand (as of January 2016), Shashank Surana, vice president, new product development, DS Group, tells us.

Pulse claims to have crossed the Rs 50 crore mark within six months of its launch. It contributed close to 40 per cent to the Group's revenue in the confectionery segment in the year gone by. And, this was achieved without any formal advertising push.

So, when and how was this product, on which the company is pinning its hope of becoming the category leader, conceived?
Pulse was launched to capitalise on the fastest growing HBC (Hard-Boiled Candy) segment in the confectionery basket. As per the market research and insight firm Nielsen India, while the overall sweet candy category, pegged at Rs 6,000 crore, is growing at 14 per cent year-on-year, the Rs 2,100 crore HBC segment is growing at 23 per cent. Kaccha Aam (26 per cent) and Mango flavour (24 per cent) together claim 50 per cent share in the HBC market. Raw mango was thus, the obvious choice. The makers further realised that there were only straight flavours such as mango, orange and caramel in the market. Hence, there was a need for innovation.
"In India, the common practice is to eat raw mango with something tangy. Whether it is 'aam panna' or a slice of raw mango sold on the roadside, it is incomplete without the tang/spices. That's how we got the idea of a powder-filled candy," says Surana.
The 'Pick-me-up' Look
Why 'Pulse'? A succinct response from Surana is, "Because it sets your pulse racing."
The candy market had started shunning the Rs 0.5 price point a couple of years ago with big players such as Mondelez, PVM (Perfetti Van Melle), and Parle launching or re-launching their products at Re 1. High raw material costs, fewer 50 paise coins in circulation, and the demand for higher margins by retailers were some of the factors that propelled the wave.
However, according to Surana, at the time when Pulse was launched, 86 per cent of the industry was at Rs 0.5 for a candy weighing anywhere between 2-2.5 grams. The DS Group decided to go with Re 1 instead, and to justify the price, the weight was increased to 4 grams.
"If you look at the experience life cycle of any other candy in the market, it is usually constant throughout. But, Pulse is an innovative value-added candy, the experience of eating which peaks later as you reach the powder filling. In order to give consumers a full mouth feel for a heightened experience, we increased the grammage," shares Surana.
And, this is indeed true for the visibly large candy that lasts for a good five minutes! Midway, one gets hit with the 'masala bomb' which is released in just the right amounts in a sustained manner. This ensures a perfect balance of the sweet and tangy flavour.
Who Likes Pulse?

Raw mangoes are relished by people of all age groups and geographies in India, so there was no particular target group singled out for Pulse. The candy, with its tangy taste, was expected to cut across age groups in a market focussed on kids, and therefore, flooded with straight and sweet flavours.
In that case, did Pulse think of owning any particular consumption occasion? Says Surana, "Pulse is an anytime, anywhere candy. India is a hot country where you need to keep having something to keep the saliva going. That's exactly the reason why candy sales are maximum in tropical areas."
Since Rajasthani and Gujarati cuisines share a similar tanginess as Pulse, the company decided to test-market it in these states first. The exercise proved so successful that it had to be converted into a full-fledged launch.
Distribution was no challenge for the Group, who are the makers of brands such as Rajnigandha and Baba which are available in the country's remotest corners. The challenge was to scale up production to meet the skyrocketing demand. By January, the brand managed a pan-India presence. Meanwhile, cheaper imitations such as 'Spicy Beats', 'Plse', and 'Plus' exploited the need gap. As of now, Pulse is produced in seven contract-manufacturing units. In December, the guava flavour was also launched.
The Advertising Push
The makers of Pulse believe that it is one of the most successful examples of brands built through word-of-mouth, with social media facilitating the reach. While the company pushed the candy through in-store promotions and an outdoor ad at select locations in NCR, its fans were active in the online world. The brand has, thanks to them, a presence on all social networking platforms including Facebook, Twitter and Instagram. In fact, the catchphrase on the outdoor ad - 'Pulse of India' - was also suggested by them.
To take the story forward, DS Group awarded the mandate for Pulse to Scarecrow Communications last December. Talking about the expectations from the campaign that will be rolled out shortly, Surana says, "Advertising is not going to drive sales. It will be reinforcement. Our objective is to own the innovation Pulse stands for."

And, talking about the challenges of advertising a brand that is already quite successful, he adds, "It is difficult because we have to mean different things to different people. There are various opinions about the product. People are claiming ownership, and we do not want to violate that thought of 'Meri Pulse Candy'."
Category Talk
Speaking about the lack of brand loyalty in this category, Surana remarks, "The unorganised candy market in India is big, and no brand has been able to break the tradition of flavour over brand, wherein customers ask for "orange, mango or mint wali" candy. Pulse has changed that. It has taken the category from impulse-driven to Pulse-driven. This is true of the pricing strategy as well. Looking at the success of Pulse, other players have started launching their 'gold versions' at Re 1."

Says Pravin Kulkarni, general manager, Parle Products, "Pulse is a case of a small, but remarkable innovation that caught the customer's fancy." While he agrees that the brand's success is unprecedented, he differs with Surana on the shift in price points. According to him, factors such as fluctuating raw material costs, especially sugar, fuelled this trend almost three years back, and today, only 30-40 per cent products fall in the Rs 0.5 segment. The rest are Re 1 and above.
Giving a perspective on how big is Rs 100 crore for a confectionery brand, he says, "Rs 100 crore is a big number in confectionery -- anything beyond Rs 50 crore is, particularly in the sugar candy segment. Since the unit price is low, one has to sell large volumes. It is difficult business. Our Kaccha Mango Bite (Rs 0.5) has entered the Rs 100 crore league, while Melody (Re 1) still has to."
Other than Parle, DS group competes with companies such as Perfetti Van Melle, Mondelez India, and ITC which have candy brands such as Alpenliebe, Cadbury Chocolairs, and Candyman, respectively.
According to Nielsen India, the category has low entry barriers as a result of which new players enter the market every year; there are fairly quick exits too. Low entry-exit barriers facilitate innovation on formats and flavours in the category, the most recent one being in the coffee-flavoured segment. The eclairs and soft toffees' segments grew in single digits in 2015. The lollipop segment, too, is witnessing healthy growth.

Commenting on the challenges and opportunities that exist within the category, Vijay Udasi, senior vice-president, Nielsen India Region, adds, "Innovation and introduction of new flavours are two major growth drivers for this category. Distribution continues to play a key role, and newer players and brands in this space face the formidable task of expanding distribution to reach the vast traditional trade universe. Innovation will also help the category move away from the 50-paise price point, as today, consumers are willing to pay a premium for innovative and new flavours. Positive word-of-mouth by consumers will drive trials."

Monday, May 2, 2016

Only 3.81% Indians pay Income Tax


Monday, April 4, 2016

Value of Key Indicators (5th April)

Date in bracket indicates the date of change.

Indicator                             Current Rate
Bank Rate                      7.75 % (29th Sept 2015)
CRR                               4 % (9th Feb 2013)
SLR                                21.5 % (3rd Feb 2015)
Repo Rate                       6.50 % (5th April 2016)

Reverse Repo Rate         6.00 % (5th April 2016)

RBI Announcement - 5th April 2016

RBI cut the repo lending rate by 25 basis points to 6.5 per cent. 

Reverse Repo now 50 BPS below Repo Rate.

Sunday, March 27, 2016

Inflation and Interest Rates - Excellent Explanation by Raghuram Rajan

Nice article by Dr. Raghuram Rajan, RBI Governer
Inflation, Interest Rate and Raghuram Rajan's Dosa Economics:-
Interest rates are always a source of conflict. Borrowers demand low rates. Fixed Depositors desire high rates.
In such a scenario, what should RBI do?
This was beautifully explained by the RBI Governor Dr.Raghuram Rajan with the example of Dosas.
The basic premise of Dr. Rajan's argument is quite simple - one should NOT look at the interest rates in isolation. This will give the wrong picture.
Instead, to assess whether we are better off with high interest rates or low rates, we have to consider the "inflation" factor.
Let us look at Dr. Rajan's example of Dosas to understand this link between interest rate, inflation and our well-being.
Situation on Day 1
Bank balance - Rs.1,00,000
Price of Dosa - Rs.50
No. of dosas you can buy - 2,000
Situation after 1 year
(a) Case 1 (Interest - 10%, Inflation - 10%)
Interest earned - Rs.10,000
New Price of Dosa - Rs.55
No. of dosas you can buy with interest income - 182
(b) Case 2 (Interest - 8%, Inflation - 5.50%)
Interest earned - Rs.8,000
New Price of Dosa - Rs.52.75
No. of dosas you can buy with interest income - 152
Most people look at this picture, and declare themselves as worse off with lower rates. Due to reduced interest income, they can buy less number of dosas. Hence, they always cry and crib for the higher interest rates on their fixed deposits.
This, however, is a mistake:
They fail to account for the impact of inflation on the principal amount.
Is inflation 'rapidly' squeezing the purchasing power of your money?
Situation after 1 year (with principal included)
(a) Case 1 (Interest - 10%, Inflation - 10%)
Interest earned - Rs.10,000
Total savings - Rs.1,10,000
New Price of Dosa - Rs.55
No. of dosas you can buy with interest income - 182
No. of dosas you can buy with principal - 1818
Total number of dosas you can buy - 2000
(b) Case 2 (Interest - 8%, Inflation - 5.50%)
Interest earned - Rs.8,000
Total savings - Rs.1,08,000
New Price of Dosa - Rs.52.75
No. of dosas you can buy with interest income - 152
No. of dosas you can buy with principal - 1896
Total number of dosas you can buy - 2048
Clearly, the interest rate on your fixed deposits - in absolute terms - is not relevant at all for your good financial health.
Instead, the positive difference between interest rate and inflation, is far more critical number to focus your attention on.
In Case 1, the difference between interest rate and inflation is NIL. Whereas, in Case 2 the interest income is 2.50% more than the inflation.
This is the real earning:
Since in Case 1, the real earning is nil, you can buy the same number of dosas after one year.
Whereas in Case 2, where the real earning is 2.50%, you can buy 48 "more" dosas after one year (despite earning lower interest).
Learn: Inflation Demystified
Therefore, fixed depositors should not be fixated on the interest rates alone. They should appreciate that the real value of their principal is depleting day-by-day due to inflation.
As you can see, because of this inflation, your principal of Rs.1 lakh can buy you only 1818 or 1896 dosas after one year, as compared to 2000 on Day 1.
This erosion in the value of your principal is a serious threat. Therefore, it should form an integral part of all your financial planning. This would enable you to live comfortably, without significantly downgrading your standard of living.
Beware : Blind Faith In Fixed Deposits Is Destroying Wealth
In fact, I often get mails from my readers that they want to quickly become a crorepati, so that they can retire and live happily ever after.
And I send them a detailed calculation, as to how they would become beggars within 10-15 years. This seemingly huge amount of Rs.1 crore would surely and steadily shrink to ZERO.
Hence, it is imperative that you must consider the (negative) impact of inflation, in your retirement corpus calculations. If not, you will be in for some serious financial trouble, in the later years of your life.
This is precisely why the central banks world over target a moderate inflation. Since inflation hurts the aam aadmi the most, RBI too focuses all it efforts and endeavours on keeping the inflation low.
Solution: How To Earn Tax-Free Risk-Free Income
You have now been forewarned about the disastrous effect of the silent killer inflation. Therefore, you must ensure that your investments earn real positive income and not just high notional interest.

Thursday, March 17, 2016

Budget Summary - 2016-17

(Prepared by Shriram hegde - CFA)

Union Budget 2016-17
Finance Minister (FM) Shri. Arun Jaitley presented union budget on 29th February. If you compare union budget 2016 with previous two budgets, you can observe that he has tried to build up on previous two budgets where the view is long term. (In last year budget FM has acknowledged suffering agricultural income, inefficiency of PPP model for Infrastructure development and declining manufacturing).
Union budget 2016 focuses on 1)Agriculture and Farmers’ Welfare 2) Rural Sector 3) Social Sector including Healthcare 4)Education, Skills and Job Creation 5) Infrastructure and Investment 6)Financial Sector Reforms 7) Governance and Ease of Doing Business 8) Fiscal Discipline 9) Tax Reforms.
This year’s budget gives the impression of political or farmers’ budget and there is nothing for the industry. However I believe thrust is on creating demand. At this moment industries will be more interested in seeing demand cycle getting revived than any tax breaks or incentives, when their capacities are underutilised. If we are lucky with the monsoon this year then this budget will have far reaching results in giving boost to demand. Having said this, expectation seems to be overoptimistic when it comes to doubling farmers’ income in five years. Salaried class will be disappointed as there is no change in tax slabs for last two years. Also lot could have been done in reviving banking sector. GST is still distant possibility; however I can’t blame the government for the same.
Following table summarises achievement viz-a-viz budgeted targets last year

CPI Inflation
Close to 5%
Projected GDP growth
8% - 8.5%
Fiscal Deficit
3.9% of GDP

Except GDP growth rate government has achieved its target. Considering two consecutive years of monsoon shortfall of 13%, this is really good show by the government.
Agriculture and Farmers’ Welfare
Government expects to double the income of the farmers by 2022. Total allocation for Agriculture and Farmers’ welfare is Rs. 35,984 crore. Government wants to achieve this target by creating new infrastructure for irrigation and providing value addition and connectivity from farm to markets. Out of 141 million hectares of net cultivated area in the country, only 46% is covered with irrigation. Government plans to bring additional 11 million hectors under irrigation (Increase of approx. 8%). The Government is implementing the Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets. Amendments to the APMC Acts of the States are a pre-requisite to join this e-platform.

(Rule of 70:               70                            = Years required to double the investment)
          Growth rate
Rural Sector
A sum of Rs. 2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities. This translates to an average assistance of over Rs. 80 lakh per Gram Panchayat and over Rs. 21 crore per Urban Local Body. This should help in spurring the demand. A sum of Rs. 38,500 crore has been allocated for MGNREGS in 2016-17. Water conservation and natural resource management will be covered under MGNREGS. The Government is committed to achieve 100% village electrification by 1st May, 2018.
Social Sector including Health Care
A sum of Rs. 2,000 crore in this year’s Budget is set aside to meet the initial cost of providing LPG connections. This will benefit about 1 crore 50 lakh households below the poverty line in 2016-17. (75 lakh middle class and lower middle class households have voluntarily given up their cooking gas subsidy, in response to the call given by the Prime Minister)
Education, Skills and Job Creation
Government want to focus on quality education. 62 new Navodaya Vidyalayas will be opened in the remaining uncovered districts over the next two years. A Digital Depository for School Leaving Certificates, College Degrees, Academic Awards and Mark sheets, on the pattern of a Securities Depository will be established. This will help validate their authenticity, safe storage and easy retrieval. 1500 Multi Skill Training Institutes will be set up across the country. Rs 1,700 crore earmarked for these initiatives. In order to incentivize creation of new jobs in the formal sector, Government of India will pay the Employee Pension Scheme contribution of 8.33% for all new employees enrolling in EPFO for the first three years of their employment. This is expected to incentivize the employers to recruit unemployed persons and also to bring into the books the informal employees. In order to channelize this intervention towards the target group of semi-skilled and unskilled workers, the scheme will be applicable to those with salary up to Rs. 15,000 per month. Budget provision of Rs 1,000 crore is made for this scheme. However I am not sure that industries will be keen to avail this scheme.
Infrastructure and Investment
Nearly 85% of the road projects involving 8500 kms are put on track in current fiscal. The total investment in the road sector, including PMGSY allocation, would be Rs 97,000 crore during 2016-17. History shows massive work in roads and highways always helps us in coming out of recession. The total outlay for infrastructure in BE 2016-17 stands at Rs. 2,21,246 crore. Government will enact necessary amendments in the Motor Vehicles Act and open up the road transport sector in the passenger segment. A Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17 to streamline arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility

contracts. Guidelines for renegotiation of PPP Concession Agreements will be issued, keeping in view the long term nature of such contracts and potential uncertainties of the real economy, without compromising transparency. 100% FDI will be allowed through FIPB route in marketing of food products produced and manufactured in India. This will benefit farmers, give impetus to food processing industry and create vast employment opportunities. We have not seen any concrete development of National Waterways that was announced in 2014.
Financial Sector Reforms
Various steps like credit enhancement for infrastructure project, electronic auction platform for primary debt offer, are taken to for deepening corporate bond market. If we want to bring transparency, relieve stress on the banking system, reduce NPAs we need to develop broad, liquid and deep bond market. To support credit growth, FM has proposed an allocation of Rs 25,000 crore in BE 2016-17 towards recapitalisation of Public Sector Banks. If you compare this number with bad debt of 4 lakh crore, number seems to be very low.
Governance and Ease of Doing Business
A social security platform will be developed using Aadhar to accurately target beneficiaries. Direct Benefit Transfer (DBT) on pilot basis will be introduced for fertilizer in a few districts across the country, with a view to improving the quality of service delivery to farmers. The Director General of Supplies and Disposal (DGS&D) will establish a technology driven platform to facilitate procurement of goods and services by various Ministries and agencies of the Government. These are excellent move to curb the corruption and plug the leakage in the delivery system. To remove the difficulties and impediments to ease of doing business, bill will be introduced to amend the Companies Act, 2013 in the current Budget Session of the Parliament. The Bill is expected to improve the enabling environment for start-ups. The registration of companies will also be done in one day.
Fiscal Discipline
The risks of further global slowdown and turbulence are mounting. Since foreign markets are weak, we must rely on domestic demand and Indian markets to ensure that India’s growth does not slow down so we could have adopted slightly expansionary fiscal policy Plan-Non-Plan classification will be done away with from fiscal 2017-18.
Tax Reforms
Ceiling of tax rebate under section 87A increased from Rs. 2,000 to Rs. 5,000. limit of deduction in respect of rent paid under section 80GG from Rs.24,000 per annum to Rs. 60,000 per annum. Beyond this there is nothing for the salaried class. I believe there should have been change in slab or increase in standard deduction allowed under section 80C or both and tax loss due to this could have been compensated with micro increase in indirect taxes. Approximately only 3% of the population are paying income taxes. However indirect taxes affect everyone including affluent class who do not pay any income taxes. Enough confusion is created in taxation of EPF. I firmly believe government can come up with various savings schemes including pension schemes however it should not force anyone for the investment in those schemes as every individual have different risk profile and investments should be done considering the same.

Measures for promoting affordable housing
Any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax.

Followings will be costlier after budget
Cigarettes, Movies, Eating Out, Cars, Gold, Mobile Bill, Readymade Clothes, Air and Railway Tickets, Diamond, Insurance, Smart Watches, Cable

Followings will be cheaper after budget
Aerated Drink, Sanitary Pads, Solar Lamps, Routers, Microwave Oven, Legal Service, Hybrid Electric Vehicles, CCTV Camera, Ready-mix Concrete, Parts of Dialysis Machine, Braille Paper

Monday, February 1, 2016

RBI Announcement - No major change (Feb 2016)

Reserve Bank of India (RBI) kept key rates – repo, reverse repo and the cash reserve ratio (CRR) – unchanged in its sixth bi-monthly monetary policy review.