BeyondMarketIssue121 PDF

RNI No.
MAHENG/2009/28962 | Volume 8 Issue 05 | 01st - 15th M ay 16

M umbai | Pages 44 | For Pr ivate Circulation
DB Corner Page 5
Volume 8
Issue: 05, 01st - 15th May 16
Editor-in-Chief & Publisher: Rakesh Bhandari

Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
Art Director: Sachin Kamble
Junior Designer: Harshad Pawar
Operations: Namrata Sabbani
Research Team: Sunil Jain, Runjhun 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,
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at Nirmal Bang Financial Services Pvt Ltd, 19,
Sonawala Building, 25 Bank Street, Fort,
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Beyond Market 01st - 15th May 16
Growing Hopes
If IMDs prediction of a good monsoon comes true, it will have a positive
impact on a host of sectors Page 6
Changing For The Better
Positive leading indicators are likely to bring cheer to the Indian economy as
well as corporate earnings results Page 9
Only Sticks, No Carrots
There is a lot of pressure from investors on e-tailers who have started
evaluating their return on investments, forcing e-commerce players to cut
down on discounts Page 12
Divided Rule
Experts are divided over the future of brick-and-mortar stores vis--vis
e-commerce players Page 15
Poised To Accelerate
The automobile sector is headed for a revival thanks to the governments
focus on the rural sector, drop in interest rates and lower inflation Page 18
Promoting Efficiency
With the launch of a trading platform for Priority Sector Lending Certificates,
margins of banks will not be hurt and lending to categories in the priority
sector will be enhanced Page 21
Making The Right Connection
The mobile sector is making a significant contribution to economic growth
and job creation in the country, while helping realize the goals of Digital India
Page 24
Clearing Roadblocks
The government has proposed a set of reforms to revive the road sector
Page 28
Veto: Making The Switch
The company has negligible debt and has posted consistent growth in
business Page 31
Early Gainers
More and more investors have realized the importance of investing early and
have begun making tax-saving investments at the beginning of the new
financial year Page 34
Technical Outlook For The Fortnight Gone By Page 37
Keeping Loss At Bay
By making use of the stop loss method investors can avoid more losses or
prevent erosion of profit Page 38
Important Jargon For The Fortnight Page 41
Its simplified...
he India Meteorological Department has predicted an above normal rainfall for the country this
monsoon. The positive expectation from this forecast has brought cheer not only to the economy but
also the Indian stock markets.
A good rainfall will boost the economy to a large extent considering the deficit situation the country
faced over the past two years. The trickle effect of an above normal rainfall will also be visible on a
host of sectors.
Our cover story in this issue talks about the positive impact of monsoon on the rural populace,
policymakers as well as various sectors in the country.
Other articles covered in this issue include the positive indicators that are likely to boost the Indian
economy and corporate results, the pressure e-tailers are facing to perform and churn out profits
while reducing the discounts they offer to consumers, the future of brick-and-mortar stores in
comparison with e-commerce players, the push that the automobile sector has received from the
governments focus on rural areas, coupled with the drop in interest rates and lower inflation, the
launch of the trading platform for Priority Sector Lending Certificates, the contribution of the mobile
sector to Indias economic growth and job creation in the country as well as Digital India and, finally,
the reforms proposed by the government to revive the road sector.
While the article in the Beyond Basics section covers the advantages of investing in tax-saving
instruments from the start of the financial year, the one in the Beyond Learning section talks about
the stop loss method and how investors can use it prudently to avoid losses and prevent erosion of
their profitS.
Tushita Nigam
Editor
Its simplified...
In the coming fortnight,

market participants are advised
to avoid fresh buying in the markets.
n the previous fortnight, Bank of Japan (BoJ) announced that it would keep interest rates unchanged at
-0.1% and its asset purchasing value at 80 trillion yen defying market expectations. BoJs decision to hold
rates led to the appreciation of the Japanese yen and depreciation of the US dollar.
The India Meteorological Department (IMD) said monsoon rains from June to September are likely to be 106%
of the long period average (LPA), which is hoped to bring cheer across the country, already reeling under drought
after two continuous years to deficient rainfall during the monsoon season. Skymet Weather too echoed IMDs
views on monsoon rains.
Quarterly earnings results of India Inc are showing signs of improvement, and company managements are positive
about the year, going forward.
In the coming fortnight, market participants are advised to avoid fresh buying in the markets. The Nifty futures
has resistance at the 7,840 and 7,915 levels. If it crosses these levels, markets are likely to be positive.
The markets are likely to take direction from international events, remaining corporate earnings results and, most
importantly, how rains actually pan out across the country in the coming monsoon seasoN.
Sensex: 25,229.70
Nifty: 7,747
(As on 3rd May 16)
Disclaimer
It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.
Its simplified...
Its simplified...
ith
just
about
one-and-a-half
months to go for the
monsoon season (it
begins in mid-June) there is good
news from the weather bureau. An
above normal monsoon has been
predicted for this year and the news
has been greeted with great joy as the
last two years had witnessed scanty
rainfall leading to drought and severe
water scarcity in several parts of the
country this year.
consumption in rural areas besides

other sociological problems such as
mass migration to urban areas and
suicides. Farmers who have taken
loans are unable to repay them and
several have committed suicides
because of this.
The New Delhi-headquartered India

Meteorological Department (IMD),
which is the principal agency
responsible
for
meteorological
observations, weather and seismology
announced this long-awaited good
news in April.
With farmers unable to raise crops,

foodgrains become scarce resulting in
their prices skyrocketing. This leads
to an inflationary situation, which
becomes difficult to control.
The IMD is a Government of India

(GoI) organization under the Ministry
of Earth Sciences. It operates
hundreds of observation stations
across India and Antarctica and is also
one of the six Regional Specialized
Meteorological Centres of the World
Meteorological Organization.
Though there have been some good
years of adequate rainfall in between,
the last few years beginning year
2002 in general have been marked
more
by
rainfall-deficit
and
drought-like situations.
Apart from the human factor,

non-repayment of loans also affects
banks and other lending institutions,
leading to them suffering from
Non-Performing Assets (NPAs).
The lack of consumption and

spending in rural areas quickly
percolates to other segments as well
such as two-wheelers, tractors and
even products such as television sets,
fridges and other consumer goods.
This has an adversarial chain-effect
on the economy as several segments
get negatively impacted.
The Indian economy so far has been
spared much of the adverse
consequences of scanty rainfall and
drought because of its strong
fundamentals. It has been further
aided by a declining rate of inflation.
One of the reasons for the Indian

economy not taking-off as expected is
due to the monsoon playing truant,
especially in the last two years. This
has adversely affected Indias
agricultural sector whose contribution
to the countrys GDP and its economy
is very important.
The Central government under Prime

Minister Narendra Modi has also
adroitly handled the economic
situation. The countrys GDP growth
last year (FY16) was a creditable
7.5%. And an optimistic Arun Jaitley,
the Union Finance Minister, said
recently that India had the capacity to
clock an even higher growth rate.
Scanty rainfall and drought also affect

rural income as farmers dependent on
monsoon for their farming activities
cannot raise crops with the result that
their income-earning capacity is
terribly curtailed. This leads to lower
The good news that the monsoon this

year will be fairly well-distributed
besides being above normal augurs
well for Indias agriculture as well as
its economy. Parched areas in several
parts of the country, especially in
states such as Maharashtra, Telangana

and Karnataka in particular will be
benefited by a well-distributed
rainfall this will not only help
alleviate drought conditions but will
also spur agricultural growth, thereby
helping bring the countrys economy
back on rapid growth track.
According to IMD, the monsoon this
year is likely to be 106% of the
average of 89 cm. Rainfall within
96% and 104% of this average is
considered as normal. This, on the
back of two dry years, is welcome
news indeed.
Agriculture, which in India is heavily
dependent on the monsoon for
irrigation, contributes around 15% to
the countrys GDP. A good monsoon
will, therefore, spur the agriculture
sector and this, consequently, will
have a beneficial effect on the
countrys economic growth.
Besides an uptick in crop and
foodgrains production which will
help in reducing inflation, a pick-up
in agriculture will also positively
impact spending and consumption in
rural India.
Higher earnings in rural areas (about
60% to 65% of Indias population
depends on agriculture) will perk up
the two-wheeler, tractor, consumer
goods and even gold and jewellery
segments, among others. The
fertilizer sector will also be a big
beneficiary of a turnaround in the
agriculture sector.
A point that needs highlighting here is
that government employees will soon
be beneficiaries of the Seventh Pay
Commissions recommendations for
pay increases. This, plus a good
monsoon, also has the potential to
encourage consumption, especially in
segments such as auto and consumer
goods. All this will not only spur
Indias economic growth but can
Its simplified...
perhaps even help achieve Jaitleys

dream of a higher economic growth
rate this fiscal (FY17).
Another positive that can arise from a
good monsoon is further reduction in
inflation, which now seems to be well
under control, thanks to Indias apex
bank, the Reserve Bank of Indias
proactive stance in combating it.
The RBI, which cut its repo rate in
early April by 0.25% (25 basis points)
to 6.50% from 6.75% could be in the
mood for one more cut around August
this year after observing the progress
of the monsoon.
sentiments but will also help perk up

economic growth.
resilience to withstand turbulence,

both internal and external.
With Indias economic fundamentals

strong, a good monsoon will prove a
big aid in pushing up Indias
economic growth. As Jaitley recently
pointed out, India could achieve a
higher economic growth this fiscal on
the back of a good monsoon. Already
there is talk of GDP growth rate being
higher than last fiscal and being close
to around 8%.
It is this which has helped India to

weather the global economic
meltdown and maintain a healthy
economic growth rate in the last two
years. This has been aided by a
proactive government in terms of
creating
a
business-friendly
environment. The government has
also acted promptly to combat rising
prices in the last two years and the
results are now clearly visible in the
form of a lower inflation.
By August, it will be known how

monsoon has panned out and the RBI
will be in a good position to take a call
on its repo rate.
While the Reserve Bank has pegged

Indias economic growth rate at 7.6%
for FY17, the PHD Chamber of
Commerce has said that India could
clock an 8% GDP growth this fiscal
(FY17). Certainly, there is a feeling
that Indias economic growth this
fiscal could be higher than last years.
A good monsoon has the potential to

push down inflation and this could
influence the apex bank to bring
about further cut in its repo rate then.
If there is a rate cut around August, it
will not only positively impact
That India has the capability to

achieve a higher growth rate and that
too rapidly is undoubted. This is
because of strong fundamentals that
the Indian economy enjoys and which
has imparted it with a strong
A good monsoon this year is critical

for Indias economy. The platform is
available for achieving rapid growth.
A healthy contribution from the
agriculture sector to the countrys
GDP will go a long way in speeding
up growth and also pushing it up
higher. After two dry years, the
possibility of a good monsoon
beginning mid-June has injected
optimism in the Indian economy. And
an 8% growth rate does not seem a
distant dream any longeR.
Contact: 022 39269600
E-mail: sales.mumbai@nirmalbang.com
Its simplified...
rediction of better monsoon

this year has renewed hopes
that year 2016 could be the
turning point for the Indian
economy and corporate earnings too.
India Meteorological Department

(IMD) estimates seasonal rainfall in
the forthcoming monsoon season to
be around 106% of the long period
average, good enough to bring cheer
to the markets given that India has
faced drought-like situation in the last
two years. If the IMD prediction
indeed comes true, then it could be

the best monsoon for India in the last
two decades.
This can also be vouched from the
uptick in the stock markets where a
majority of Street analysts believe
that the worst seems to be behind us.
A better-than-expected monsoon can
have a ripple effect on sagging rural
consumption, and could actually add
0.5% to the GDP growth, which is
expected to be in the range of 7.7% to
7.9% in FY17 as against 7.5% last

year, if IMD estimates are right.
Furthermore, Indias annual industrial
output growth, measured by index of
industrial production (IIP) stood at
2% in February as against -1.5% in
January, on the back of strong factory
output, especially electricity and
mining sectors.
Also, bank credit growth has been in
the region of 11% over the past three
months as compared to the average of
Its simplified...
10% in 2015. During the same period

electricity generation grew 9% and
diesel consumption stayed at 8% as
against 4% and 6%, respectively in
the year 2015.
That apart, cement production has
grown at 9% in the last three months
as against 2% growth in 2015.
Two-wheeler sales grew at 13% in
February vis--vis 1.5% growth in
November, an indication of revival in
rural demand.
In 2015, rural household consumption
of FMCG products grew at the fastest
pace of 5.4% on a year-on-year
(y-o-y) basis as compared to 2.9%
growth in urban consumption. This is
also reflected in the growth of
consumer goods, which saw a sharp
increase in February, growing at 9.7%
Commodity prices are down across

the board, in particular energy and
metals, which form a large proportion
of
the
operating
cost
of
manufacturing sectors.
The recent recovery in commodity
prices bodes well for commodity
companies too as these companies
have been able to recover some of
their earlier losses incurred due to
poor realizations that dipped below
their cost of production in aluminium,
oil and gas and steel sectors.
On the policy front too the

government has been able to move
critical bills pertaining to real estate,
national waterways and Aadhaar. The
Street is hopeful that in the coming
sessions, we might see similar action
on key bills like bankruptcy code and
GST, which will be critical in
improving economic efficiencies.
In addition to this, Indias apex bank,

the Reserve Bank of India has cut
interest rates by about 150 basis
points since the start of January this
year. While transmission of the same
to consumers is taking time, going
ahead this will be seen as a positive
trigger as more and more banks have
been cutting their lending rates in line
with the RBI rate cut.
Leading indicators show recovery

seems imminent, despite low earnings
base of the past few quarters. For
instance in financial year 2015
Sensex earnings grew at 1.3% to
`1,355 and is further expected to
de-grow by 2.5% to `1,321 in the
concluded fiscal 2016.
As banks keep on passing rate cuts to

consumers and corporates, it will help
improve demand in the consumer
sector and provide some relief to
stressed sectors that have been facing
huge pressures since awhile now
because high interest costs have been
hitting their profitability.
Owing to the low base of the last two

years, if Street estimates are right,
then the Sensex could make an
earnings growth of close to `1,550`1,560 in the fiscal 2017, which is a
strong growth of close to 16% to
18%. So FY17 could actually be a
turning point for Sensex as well as
corporate earnings.
Because of lower interest rates and

related savings, companies in
interest-sensitive sectors will be able
to report better earnings results in the
coming months.
The recovery will also be aided by

10
lower commodity prices, pushing

consumption and improving margins
of Indian companies, particularly
those companies whose products are
dependent on price movement of
international commodities.
Besides, the RBI has opened up a

window for ample liquidity through
various measures in the recent past,
which is again a good sign that
companies that were not able to
expand or refinance their debt will

now be able to expand their sales and
get adequate fundings for working
capital and other needs.
Further initiatives like reforming
public sector banks, recapitalization
of
banks
and
resolving
non-performing assets issue on a
priority basis is another step that will
clear stress in the banking system and
allow banks to improve their credit or
advances ratio.
On the external front as well the
situation has improved from extreme
fragility as a result of stability in the
international markets led by volatility
caused by China.
The Chinese government is taking
measures to revive growth and abate
investor concerns while announcing
stimulus at the same time. It has
increased fiscal deficit for the year
2016 to 3% of GDP as against 2.4% in
the year 2015.
The Indian rupee, which had become
volatile as a result of numerous
international events, has thus seen
some stability, which is again good
news for exporters as a large number
of companies derive their revenues
from exports.
Importantly, the fear of external
shocks, which prevailed in the minds
of corporate India is easing as the
environment improves on the back of
measures taken by central banks
across the globe.
In fact, the outflow of foreign investor
money is now stabilizing and foreign
investors have again started buying
Indian equities along with a huge
uptick in FDI money in the past led by
the Make In India initiative.
There is ample room for growth on
the demand side too. Better monsoon
rains is obviously good news. Also,
Its simplified...
the gradual implementation of the

Seventh
Pay
Commission
recommendation on the hike of
government employees salaries and
assembly elections in states of Tamil
Nadu,
Kerala,
Puducherry
(Pondicherry), West Bengal and
Assam are reasons good enough for
speeding up further demand.
On top of these events, government
expenditure on agriculture and
infrastructure sectors have been
speeding up.
The road ministry has awarded road
projects of close to 10,000 km in
fiscal 2016 as against the average run
rate of 3,000 km to 4,000 km earlier.

For this fiscal the government aims to
award works for construction of close
to 12,000 km of roads, which is a
good sign for the revival in demand,
particularly in the rural markets.
The government intends to spend
over `2 lakh crore on the road sector
in fiscal 2017, which will provide a
huge impetus to demand in ancillary
sectors as well as generate more
employment in the labour market,
leading to fresh demand.
In addition to this, in the last one year
the government has cleared a number
of stalled projects in road, power and

other sectors, leading to fresh demand
for the economy and the labour
market too.
Overall most leading indicators are
showing signs of recovery. And if
these indicators remain persistently
up, there is reason to believe that over
the next one or two quarters corporate
earnings, which have been depressed
so far, will start looking up.
Moreover, unlike in the past, there are
enough positive triggers, which if
played out well, could result in FY17
experiencing
strong
corporate
earnings growtH.
Its simplified...
11
12
Its simplified...
rick-and-mortar retailers
recently submitted a
presentation
to
the
government alleging that
e-commerce players were not
adhering to the rules announced by
the government last week and even
threatened that they would take legal
action and approach the court on the
same. Last week, the government
allowed 100% foreign direct
investment in online retail of goods
and services for the marketplace
model of e-commerce companies.
New rules have however, disallowed
marketplaces from offering discounts
while capping total sales of group
companies or one vendor at 25%.
According to the press note issued by
the Department of Industrial Policy
and Promotion (DIPP), a marketplace
model is an information technology
platform run by an e-commerce entity
on a digital and electronic network to
act as a facilitator between the buyer
and the seller.
DIPP has prohibited FDI in
e-commerce companies that own
inventories of goods and services and
sell directly to consumers using
online platforms. The marketplace
e-commerce companies will be
allowed to provide support services to
sellers on their platform like logistics,
warehousing, order fulfilment, call
centre and payment collection.
The new policy also mandates such
e-commerce companies to display
contact details of the sellers online.
The warranty/guarantee of products
or services sold online will also be
borne by the sellers, not the
e-commerce company.
Retailers
like
Future
Group,
Starbazaar, Shoppers Stop and Aditya
Birla Fashion & Retail, among others
alleged that despite government
setting clear rules for e-commerce
players they were not adhering to it.
We expect major non-compliance by

a lot of e-commerce players. While
the notification said marketplace
cannot influence sale price, most
online retailers have private brands
and can control their pricing or give
huge discounts. The e-commerce
players are continuing to flout
government
rules.
Only
announcement of rules by the
government is not enough but it
should get implemented, said Future
Group CEO Kishore Biyani.
Marketplace
operators
and
technology platform providers have
been operating against the spirit of the
policy for sometime now and reports
point out ambiguity in the new
guidelines, which can be worked
around by marketplace operators to
overcome restrictions defined in the
B2C e-commerce policy. This means
that they can continue to operate
against the spirit of the policy with no
checks and balances, said Kumar
Rajagopalan,
CEO,
Retailers
Association of India (RAI).
Since the policy forbids marketplaces
from participating in pricing directly
or indirectly, all discounts, coupons,
vouchers be offered by the individual
seller. These could not be issued by
the marketplace. Also, all transactions
are to be strictly between a seller and
a buyer. Therefore, each order on the
marketplace platform be between an
individual seller and a buyer. None of
the rules are being followed, alleged
RAI members.
The government recently allowed
100% foreign direct investment (FDI)
in e-commerce and online retail
consumer businesses that operate as
marketplaces. While it allowed 100%
FDI through automatic route, it also
expanded the scope of marketplace to
include support services (to sellers)
like logistics, warehousing, order
fulfillment, call centre, payment
collection and other services.
Experts said this could lead to revival

both in the retail and the real estate
sector. India is already host to some
of the largest global e-commerce
players. The announcement that
100% FDI will now be allowed in
e-commerce is going to open the
floodgates to a host of other players in
this segment, according to a report
by global real estate services firm
Jones Lang LaSalle.
The new players would require large
office spaces to house their back-end
teams and this demand would be in
major cities. The logistics and
warehousing demand will also rise
and that will spread across the
country. As e-commerce players need
to deliver products quickly to their
customers, there is a sense that the
most important clientele segments for
them are in tier-II and tier-III cities.
Now, e-commerce players will be
unable to sell below market prices
and not more than 25% of sales will
happen via one vendor. This
announcement brings brick-andmortar retailers on a more
level-playing field, and would help to
still the outcry over unfair trade
practices to an extent, an expert said.
Overall it would be a positive for the
retail industry and more rational
behaviour will now prevail in terms
of market trade practices, and
mounting of losses by most
e-commerce companies will be
curtailed. Online sales may reduce as
deep discounts disappear, although
losses will also be capped.
Sanjay Sethi, CEO & Co-founder of
ShopClues, said, 100% FDI in
e-commerce is a great initiative for
the
marketplace
format
of
e-commerce retailing as it will help
attract foreign investments in the
country. It will be beneficial for
consumers and will help in supporting
the vision of Make in India as well
Its simplified...
13
as create more job opportunities in the

country. The clarity of the definition
of e-commerce and marketplace
model categorically will allow many
players (national and international) to
enter
the
industry
through
marketplace route.
The e-commerce sector has been
witnessing huge losses as they offered
high level of discounts to customers
to retain market share. All big
retailers, including Snapdeal, Flipkart
and Amazon India have been
struggling and reported losses in
financial year 2014-15.
Snapdeals financial report revealed a
loss of `1,328.01 crore. Amazon
Indias FY15 losses grew fivefold to
`1,723.6 crore. The highest loss
reported last financial year was by
Flipkart at `2,000 crore. Xerion
Retail, which runs Jabong, posted a
loss of `43.6 crore on sales of
`1,082.9 crore, according to a
Registrar of Companies filing. A year
ago, it had sales of `527 crore with a
net loss of `16.6 crore.
Not surprising that discount levels
have declined and the trend is
prominent post-Diwali. All big
players, including Flipkart and
Amazon, among others, have reduced
discounts. While margins of e-tailers
are expected to improve with this, it is
still a long way for them to become
profitable as cost of infrastructure and
delivery continues to remain high. To
become profitable, they will have to
bring down discounts further and
focus on profitability.
In Indian start-ups investments have
dropped sharply in the first three
months of this year, falling by over
one third compared to the same
period in 2015. Investors are terming
this slowdown as the new normal,
as it comes on the back of a frenzy of
funding in the last two years. The
number of venture capital deals fell
14
by 35% during the first quarter of

2016 to 90 as compared to 138 in the
same period one year ago, according
to data from risk capital data
monitoring service VCCEdge.
The total value of venture capital
invested took a drastic fall of over
80% in Q1 FY16 to $337 million
from $1.79 billion, as mega-financing
rounds disappeared and deal sizes
turned modest. The reduction in the
number and size of transactions has
been the sharpest at growth deals
stage or the so called Series-C, where
the number of deals fell by 75% to
80%. In earlier stages of Series-A and
Series-B, the fall in number of
transaction has been around 50%.
The rush of capital for Indian
start-ups began in 2014, after online
marketplace Flipkart raised a
mammoth $1 billion in July 14. Soon
after, Chinas e-commerce giant
Alibaba successfully listed its stock in
the US markets, providing further
fillip to the global e-commerce boom.
Investors such as Japans SoftBank,
which benefited handsomely from the
Alibaba IPO, turned their attention to
India, lavishing money on promising
start-ups here. Since then the mood
has changed with few hedge funds
making new investments over the last
three quarters, and global Internet
investors like SoftBank and DST
Global turning cautious.
Online retailers like Flipkart, Myntra,
Jabong and Shopclues, among others,
are waking up to the harsh realities of
business.
Offering
deep
and
competitive discounts for years have
got them loyal customers, but
mounting losses cannot be ignored
further, as investors have begun
seeking returns on their investments.
Discounts of 50% and above - a norm
sometime back - are now a thing of
the past, and this high level of
discount can be found only on stock

clearance sales today. Hot-selling
items like womens apparel and
footwear have taken the worst hit,
with discounts dropping to around
30% to 35% from above 50%.
Discounts on smartphones, another
bestselling item, are down by more
than 10%, to 20% to 25%. Furniture
discounts have moved down to
around 10% to 15%. Theres more
bad news for consumers as discount
levels are expected to fall further.
Experts too said that given the current
environment, in the last couple of
quarters, online retailers have been
focusing on bringing down discounts
as there is pressure from investors to
turn businesses profitable and the
trend may continue as online retailers
can no longer sustain the continuous
cash-burn with no returns. Investors
too are wary and have become
cautious to invest in the sector.
Private equity deals in the online
space have dropped 119% in the
second half of FY15-16 compared to
the first half. Between April 15 and
September 15, there were 118 private
equity deals in the e-commerce space,
amounting to $273.41 billion. From
October 15 to March 16, there were
108 private equity deals in the space,
amounting to $124.83 billion. There
is also a lot of pressure from investors
on e-tailers as they have started to
evaluate their return on investments.
Sanjay Gupta, chief marketing
officer, Urban Ladder says it is
difficult to run businesses at a loss for
too long. From the launch itself, our
focus was on profitability. We believe
in honest pricing and we try not to sell
products below the cost price, while
trying to remain competitive at the
same time. We have also seen
discounts dropping in the past one
year as online retailers have realized
it is impossible to run businesses on
loss for too long. he saiD.
Its simplified...
n April 16, Spanish high-end

fashion retailer Zara leased out
50,000 sq ft space in South
Mumbais Flora Fountain for an
annual rent of `30 crore. The deal
raised eyebrows for being the largest
space transaction ever by any
international retailer in India.
Zara has 17 outlets in India including

three stores in Mumbai. But the Flora
Fountain outlet is its first high street
retail store in Mumbai. Zaras
expensive store lease comes at a time
when most of the retail action has

shifted to the online space.
Recently, ITC group said it is
considering introducing its John
Players brand in categories such as
foot wear, eye wear, bags, etc in the
online marketplace. The company is
encouraged by the success of the
brands online sales on sites such as
Myntra and Snapdeal. ITC plans to
launch an exclusive line of clothing
for John Players, which will be sold
only online.
Even Kishore Biyani, the father of

Indian retail who has been quite
skeptical about e-commerce, signaled
his interest in online retail with the
recent acquisition of online furniture
retailer FabFurnish.com.
Online retail space in India is growing
rapidly and is expected to touch $48
billion - $60 billion in size by the year
2020 from $4.47 billion in 2014,
according to UBS AG, a Swiss global
financial
services
company.
Home-grown online retailers such as
Its simplified...
15
Flipkart and Snapdeal have grown

rapidly attracting over $9 billion in
investments from venture capitalists
in the last two years.
This has come at the cost of physical
retailers who have been denied access
to foreign funds. India still does not
allow Foreign Direct Investment
(FDI) in multi-brand retail (retailers
that sell more than one brand). This
rule, however, does not apply to
online retailers, which gives them an
unfair advantage over offline retailers
in the country.
The ratings agency, however, believes

that in the future online retail could
overtake offline retail in some
product categories such as books,
music and consumer durables.
up. For instance, consumers are not

just buying electronic goods and
mobile phones online. They now buy
everything online from clothes,
cosmetics, medicines, lingerie to even
household items such as dust bins.
In our target audience, pretty much

everyone is going online, said Ritesh
Ghosal, Chief Marketing Officer,
Infiniti Retail Ltd, which runs Croma,
the electronics and white goods chain
from Tata Group in an interview to a
leading business daily.
Consumers prefer online shopping

because it is convenient and products
are usually cheaper online. Payment
options such as digital wallets have
made online shopping easier. It helps
that e-commerce giants flushed with
foreign funds often offer heavy
discounts to buyers.
Ideally we would like FDI in

multi-brand retail. However, there has
been no change on the governments
stand for allowing it. Meanwhile,
online retailers who had access to
funds were functioning like retailers,
said Kumar Rajagopalan, chief
executive officer, RAI in an interview
to a leading business daily.
There are 10% consumers who dont

go online at all. They may go to 2-3
physical stores and make a choice.
There will be an equivalent 10% to
15% who dont step out of their home
and do all their research online and
get everything delivered home. The
remaining 75% to 80% buy across
mediums, added Ghosal.
A PwC report says e-commerce

companies have incurred combined
losses of around `1,000 crore because
of their heavy discounting strategy.
The consultancy firm believes this
model is not feasible in the long run.
But e-commerce companies continue
to offer discounts to increase their
market share.
A February 15 report by property

consultancy firm Knight Frank India
Pvt Ltd and Retailers Association of
India (RAI) shows that the share of
e-commerce in retail expected to
increase from 2% in 2014 to 11% in
2019, while the share of organized
brick-and-mortar retail is expected to
fall from 17% to 13%.
Arvind Singhal, Chairman of

management
consultancy
firm,
Technopak isnt all that optimistic
about online retail. He believes that
online retail will still be a small
percentage of the overall retail pie for
three reasons.
Physical retailers cannot offer such

heavy discounts. They are at a severe
disadvantage here. Thanks to
government policies, brick-andmortar stores do not have access to
FDI and they are struggling to make
profits because of the huge rents they
pay for real estate. This has left
several physical retailers disgruntled.
Does this mean brick-and-mortar

retailers are in trouble? Opinion
seems to be divided on this. Average
Indian consumers seem to prefer both
online and offline shopping. This
means that we will continue to see a
growth in physical retail stores.
A research report by credit rating
agency
Crisil
says
that
brick-and-mortar retailers will grow
between 13% and 15% over the next
two to three years. This contrasts with
60% growth for online retailers.
Crisil says physical retailers are
sustaining business by shifting their
16
focus to tier-II and tier-III cities.
Firstly, consumer spending is

dominated by food of which over
50% is accounted for by perishables
that include dairy, vegetables, meat,
and fruit. Secondly, almost 50% of
consumer spending happens in rural
areas where e-commerce has not
made a big impact and the third
reason Singhal cites is that important
e-commerce categories such as
consumer electronics, durables and
appliances, apparel as well as
footwear and furniture account for a
mere 18% of the total consumer
spending on merchandise.
While Singhal makes some good
points, the other side of the argument
is that online shopping is fast catching
A few months back, the Retailers

Association of India moved the Delhi
High
Court
demanding
a
level-playing field in FDI rules for
retail. Their point was that the FDI
rules do not affect e-commerce
companies because they present
themselves as technology platforms.
In March, the government allowed
100% FDI in online retail. Retailers,
such as Future Retail, Shoppers Stop,
Arvind Lifestyle, Infiniti Retail and
Aditya Birla Retail have raised
concerns over this and have asked for
a level-playing field in the retail
sector in the country.
Its simplified...
Small retailers seem to be more

affected by this discrepancy in FDI
rules. For instance, in the last one
year, cash-strapped apparel retailer
Provogue (India) has shut over 60
stores and is struggling to pay salaries
of employees. One of the reasons
cited for its revenue loss is the
competition from online retailers. It is
impossible for physical retailers to
offer the kind of discounts that online
retailers offer to lure customers.
In contrast, the larger retailers
especially foreign ones seem to be
doing well. For instance, UK-based
retail giant Marks & Spencer plans to
open new stores across the country
for maintaining around 20% growth.
The company is present in India
through a joint venture with Reliance

Retail. Marks & Spencer has opened
31 outlets in India in the last three
years and on an average opens 10 to
12 stores in a year.
Walt Disney Co plans to open retail
stores in India in collaboration with
DLF Brands, a subsidiary of real
estate developer DLF Ltd. Disney
sees an opportunity in the growing
demand among Indian consumers for
branded kids clothing and accessories
for them.
Disney will open retail stores on a
licensing and franchisee basis. It even
plans to have large flagship stores of
about 10,000 square feet in size
though most of its stores would be
1,000 sq ft in size.
While there is a growing divide
between online and offline retailers,
analysts believe the future will not be
a tug off war between the two. The
future retail model will be
omni-channel, where a retailer sells to
consumers through both offline and
online medium.
Large retailers have started preparing
for it by consolidating. Last year,
Bharti Retail and Future Retail
merged their operations and Aditya
Birla acquired Jubilants retail
business. E-commerce players such
as Amazon also have some offline
presence through their pick up and
drop facilitieS.
Its simplified...
17
nion Budget 2016 did not bring

much cheer for the Indian
automobile
sector.
Industry
insiders felt the government should
have announced some measures to revive the
ailing automobile sector.
Automobile industry was hoping that the

Budget would focus on creating demand in the
automotive sector and introduce long-awaited
reforms to spur growth in the sector. The
Budget, however, turned out to be a dampener.
In the last four years, Indias automobile sector
has been growing in single digits. According to
Society of Indian Automobile Manufacturers
18
Its simplified...
(Siam), in 2013-14, passenger vehicle

sales declined by 6.05% for the first
time in 13 years; in 2014-15 it grew
by 3.90% and in 2015-2016
passenger vehicle sales grew by
7.24%.
Low domestic demand and a failure
on the part of the government to
introduce reforms - in particular a
delay in the roll out of Goods and
Services Tax (GST) has hit the
automobile sector.
Things are changing though. The
automobile sector is headed for a
revival thanks to the governments
focus on the rural sector, drop in
interest rates and lower inflation.
Indias automotive industry is
expected to witness a gradual
recovery during 2016. informed
Cyrus Mistry, Chairman, Tata Motors
while addressing Tata Motors
shareholders at the companys 70th
annual general meeting.
Mistry said Indias passenger vehicle
sales will grow as the macroeconomic scenario improves and the
growth of the commercial vehicle
industry will hinge on execution of
infrastructure projects and a revival in
the mining sector in India.
A September 15 Ernst and Young
report says the automobile industry
will see an increase in demand in
FY17 as economic environment
improves. To translate the growth
potential into reality, automakers
need to identify profitable niches,
introduce exciting new models, offer
improved customer experience, invest
in localization, create flexible
production capacity and supply
chains, the report said.
After a moderate recovery in FY15,
the automobile sector will have a
good FY16 on the back of new model
launches, low fuel prices, possible
reduction in interest rates and high

discounts, the Ernst and Young
research report said.
Ernst and Young expects market
growth to pick up gradually and
domestic passenger vehicle sales to
reach 4 million units to 4.5 million
units by FY20 (CAGR of 9% to 11%
during FY15-20).
Commercial vehicle demand will
grow from the lifting of mining bans,
governments infrastructure push,
increased freight movement, pent up
demand and positive consumer
sentiment. We expect the Indian CV
industry to grow at a CAGR of 7% to
9% during FY1520 to reach around
0.9 million units by FY20, the Ernst
and Young report said.
In an interview to to a website, Vinod
Aggarwal,
CEO,
commercial
vehicles, Eicher Motors mentioned
that in 2016 commercial vehicles
industry will grow because of
investments in infrastructure primarily road construction.
Ernst and Young has, however,
warned that the commercial vehicle
industry needs to prepare for
upcoming regulatory changes such as
the uniform bus body code and
tightening emission norms. The
industry will also have to explore
innovative sales and service formats
to widen reach as well as reduce
vehicle downtime.
The two-wheeler market will also
pick up in FY16. It will see
single-digit year-on-year growth. The
Indian two-wheeler industry is
expected to grow at a CAGR of 8% to
10% during FY1520 and reach
around 25 million units by FY20.
However, there seems to be no revival
in sight for tractors though. The
tractor market could pick up in the
second half of FY16.
The Indian governments Make in

India initiative is expected to give a
big push to the automobile sector. The
initiative focuses heavily on the
automobile sector. According to the
governments Make in India
website, India will become the third
largest automobile market by 2026
after China and the US and will
account for 5% of global vehicle
sales. India is now the sixth largest
automobile market, behind China,
US, Japan, Brazil and Germany.
According to the governments Make
in India pitch, passenger vehicles
sales will grow at a CAGR of 16%
between 2013 and 2020 to more than
6 million units and two-wheelers and
three-wheelers will grow at a CAGR
of 9% between 2013 and 2020.
Indias automobile sector accounts for
45% of Indias manufacturing gross
domestic product (GDP) and 7.1% of
the total GDP. KPMGs 2015 Global
Automotive Report says Indias
automobile industry employs over 20
million people and the industry is
estimated to be valued at US $115
billion by 2020.
India is expected to become the fourth
largest automobile producer in the
world by 2020. It is the backbone of
Indias manufacturing sector and,
therefore, an important part of the
Make in India initiative.
Automobile companies have reacted
positively to the governments Make
in India campaign. Giants such as
Ford, Delphi, Bosch, Aisin Seiki,
Denso, ZF, FAG, Magna, Honda, and
TRW have already started investing
in India in the states of Gujarat and
Tamil Nadu.
American automobile giant General
Motors has announced a $1 billion
additional investment in its Indian
subsidiary, Chevrolet India. The
company will launch as many as 10
Its simplified...
19
new models from the Chevrolet

family in the next five years. It will
manufacture its vehicles from
Talegaon in Maharashtra.
German luxury car maker BMW has
said that it will increase the level of
localization at its BMW plant in
Chennai to 50%. The future belongs
to India. If you want to benefit from
the dynamics of the Indian market,
you need to act today, affirmed
Philipp von Sahr, President, BMW
Group India.
Austrian motorbike maker KTMSportmotorcycle is likely to develop
and produce bikes at the Bajaj facility
in Chakan, Pune from 2016.
The engine and components produced
and developed in India will be
shipped and assembled at the KTM
headquarters in Austria, and then sold
across the globe. The first batch will
be dispatched to the international
markets from the Chakan facility in
early 2017.
The government is offering several

incentives
to
lure
foreign
manufacturers such as reduction in
tax, customs exception, allowing
100% FDI investment, automatic
approvals for foreign companies,
technology modernization funds for
Small and Medium Enterprises
(SMEs). The central government is
also working on removing red tapism
to ease the entry of foreign investors
into the automotive industry.
The Automotive Mission Plan
2016-26
announced
by
the
government pegs the automotive
industry as the engine of the Make in
India programme. Over the next
decade, the Indian automotive sector
is likely to contribute to 12% of the
countrys GDP.
The government also wants to make
the automotive industry one of the
largest job-creating engines in the
Indian economy. According to a
government estimate, the potential for
incremental number of both direct
and indirect jobs that can be created

by the Indian automotive industry
over the next decade is 65 million.
The Automotive Mission Plan 2026 is
a collective vision of the government
and the Indian automobile industry on
where
the
vehicles,
auto
components, and tractor industries
should reach over the next 10 years in
terms of size, contribution to Indias
development,
global
footprint,
technological
maturity,
and
competitiveness. It envisages that
the Indian automotive industry will
grow 3.5 to 4 times in value to about
`18,88,500 crore by 2026.
This year, we can expect many other
developments that will benefit the
automobile industry. Automobile
manufacturers have lined up several
new launches to meet the new
demands of consumers and to adhere
to stricter emission norms. With the
governments help, a turnaround in
the automobile industrys fortune
seems eminenT.
Now, Commodity Trading

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knowledge can help you spot the underlying clues and
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commodity trading requirements.
EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP* www.nirmalbang.com
Contac t: 022-39269600 | e -mail: sales.mumbai@nirmalbang.com | w w w.nirmalbang.com
REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 39267500 / 7501; Fax: 022 - 39267510 CORPORATE OFFICE:
BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981
20
Its simplified...
eserve Bank of India

(RBI) on 7th April issued
instructions on trading in
Priority Sector Lending
Certificates (PSLCs) for banks.
PSLCs are instruments that can be
traded by banks with an aim to
achieve priority sector lending targets
in the event of shortfall and at the
same time incentivize banks that have
a surplus in priority sector lending. A
trading platform was also launched to
trade in PSLCs.
Priority sector refers to those sectors

of the economy which are socially
important to the economy but may not

get timely and adequate credit. PSL or
directed lending has been in existence
for the last three decades in India.
Typically, these are small value loans
to farmers for agriculture and allied
activities,
micro
and
small
enterprises, poor people for housing,
students for education and other low
income groups and weaker sections.
The RBI has mandated that 40% of all
loans of commercial banks should be
to the priority sectors. Banks are
needed to achieve broader targets, and
sub-targets too.
Its simplified...
21
Targets And Sub-targets For Banks Under Priority Sector

Categories
Domestic Commercial Banks/ Foreign
Banks With 20 And Above Branches
(As A Percentage Of ANBC Or Credit
Equivalent Of Off-balance Sheet
Exposure, Whichever Is Higher)
40
Total Priority Sector
18
Total Agriculture
10
Advance To Weaker Section
Foreign Banks With Less Than 20

Branches (As A Percentage Of ANBC
Or Credit Equivalent Of Off-balance
Sheet Exposure, Whichever Is Higher)
32
No Specific Target
No Specific Target
Source: RBI FAQ
THE PSL CHALLENGE

While the intention behind PSL is bona fide, it doesnt
make good business sense. Banks often miss the target or
meet the target albeit not in the right spirit. Many banks,
especially private sector banks, find lending to the priority
sector a losing proposition mainly due to higher costs and
higher risks.
Banks that miss the PSL target have to deposit the shortfall
with the Rural Infrastructure Development Fund (RIDF) of
National Bank for Agriculture and Rural Development
(NABARD). RIDF offers low-cost fund support to rural
infrastructure projects like irrigation, soil conservation,
watershed management. Banks thus indirectly achieve
their PSL targets.
However, banks are on the losing side as deposits with
RIDF have comparatively lower yields than what they
would have earned lending to other sectors, thus, serving
as a key disincentive for banks to fall below their priority
sector lending targets.
Total Agriculture Credit As Percentage Of ANBC*
21.0
guidelines in April 15, which provided for the

introduction of PSLC as a mechanism to incentivize banks
having surplus in their lending to different categories of the
priority sector.
Simply put, PSLC are instruments, very much like shares,
bonds or mutual fund units, which can be traded by banks
bilaterally to meet their PSL obligations. Secondary
market trading in PSLC is yet not allowed, but it is
something that can be expected in the future.
The bank with a shortfall in PSL target can buy PSLCs
from the bank that has a surplus. This will happen at a
market-determined price on a trading platform. Banks can
issue four kinds of PSLCs - agriculture, small and marginal
farmers, micro-enterprises and those issued for overall
lending targets. The certificates will have a standard lot
size of Rs 25 lakh and multiples thereof and all PSLCs will
expire by 31st March every year.
Most importantly, the loan would remain in the books of
the seller bank implying that the buyer of PSLC will not
bear underlying credit risk from that loan.
THE CONCEPT
19.0
17.0
15.0
13.0
11.0
Public Sector Banks
9.0
Prlvate Sector Banks
7.0
Agriculture Lending Target
5.0
19
95
19
96
19
97
19
98
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
Source: Report On Trend And Progress Of Banking In India, RBI

*Adjusted Net Bank Credit
PRIORITY SECTOR LENDING CERTIFICATES

RBI has acknowledged the practical difficulties of banks in
meeting PSL targets and some flexibility was desired by
the industry. PSLC bridges the gap to some extent. The
Raghuram Rajan Committee on Financial Sector Reforms
had recommended the introduction of PSLCs. More
recently, the RBI comprehensively revised priority sector
22
Every bank has its comparative strength as far as its

lending audience is concerned. For instance, a bank with
an expertise in lending to small farmers can overperform in
lending to farmers or a bank that is better at lending to
small industry, may lend more than required as per PSL
norms to small industry.
Now, with PSLC, the RBI has made it easier for banks to
meet their PSL targets by enabling PSL deficit bank to buy
PSL achievement from these PSL-surplus banks.
To Illustrate: Bank A may sell PSLCs with a nominal value
of `100 crore to Bank B on 15th Jul 16. Bank B will
reckon `100 crore towards its priority sector achievement
as on the reporting dates of 30th Sept 16, 31st Dec 16 and
31st Mar 17, while Bank A will subtract the same from its
Its simplified...
achievement figures for the respective reporting dates.
IN A NUTSHELL
ADVANTAGES
Since buyers of PSLCs have almost no downside risk and

no capital is blocked for the loan amount for buyers, many
experts think the platform can be misused. But since fees
are market-determined, it can be a major disincentive for
banks to misuse, as fees might jump or fall depending on
the supply of such certificates, thereby allowing the
demand-supply rule of economics.
Besides helping meet the PSL target, PSLCs will help

seller banks make additional fee income. The certificates
are a cost to buyer and an income to the seller. Since the
underlying credit risk remains with the seller bank, not
much due diligence will be required by the buyer bank.
They only have to bear the fees, which will be
market-determined.
So far, banks had to buy out priority sector loan assets from
other entities to be counted as part of their priority sector
lending obligations, thereby the credit risk.
On the positive side, PSLCs will encourage specialization

within the banking sector. Banks will focus more on their
core competencies. Most importantly, trading in PSLCs is
credit positive due to lower hit on margins as compared to
the existing practice.
Experts feel that PSLC fees will be lower than the cost that
banks are paying currently for non-compliance with the
priority sector loan norms in the form of lower yielding
RIDF deposits.
Further, PSLCs may turn out to be a good business

proposition in terms of higher fee income for banks that
have a surplus in PSL. With PSLCs even RBI will be able
to fulfil its social mandatE.
Contact at: 022 - 3926 9600

E-mail: sales.mumbai@nirmalbang.com
38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 39268600 / 01; Fax: 39268610
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#Distributors
Its simplified...
23
@
`
`
`
24
Its simplified...
oday, mobile has outlived

its purpose of basic
communication. It has
gone beyond that. With
increasing use of Internet-enabled
smart phones, mobile is contributing
to two main spheres of the society.
According to a detailed research
carried out by Global System for
Mobile Communications (GSM)
Association, the contribution of
mobiles to Indias economy has been
increasing by leaps and bounds. Here
are some quick facts:
app services sector generated nearly

`22,000 crore in 2014
consolidated Indian mobile towers

and infrastructure sector generated
just under `30,000 crore
manufacturing
`36,000 crore
sector
generated
retail sector generated approximately

`37,000 crore in value-added
services.
Given this scale of value generation it
is important to see the role of mobile
industry in digitizing India and in
creation of jobs for Indians in the
sector. As these are two important
parameters to gauge the contribution
of the mobile sector to the GDP, let us
understand in detail how the mobile
sector is contributing to different
spheres of our society.
DIGITISING INDIA
According to GSM Association,
mobile technology will play a major
role in realizing the Digital India
vision. It says mobile has already
become the dominant platform for
Internet access in the country. There
are statistics, which support this. One

of the chief reasons for this is the lack
of alternative infrastructure. It is
estimated that fixed broadband
penetration in India stands at a
meagre 2.5% only. On the other hand,
it is estimated that 60% to 90% of
Indias population has access to at
least 2G service of Internet pack of
leading service providers.
The number of individuals accessing
the Internet over mobile devices has
expanded from less than 100 million
subscribers in 2010 to nearly 300
million at the end of 2014. The
penetration of mobile Internet has
seen a more than threefold increase
over this period, reaching 24% of the
population by mid-2015.
This figure is expected to almost
double again in the next five years to
reach 44% of the population by 2020,
with around 600 million mobile
Internet subscribers by this date.
Given these statistics, users have
access to higher speed mobile
broadband
technologies
which
support a variety of feature-rich
content and value-added services. By
working closely with mobile
operators, the government is more
likely to realise the goals of the
Digital India programme.
The GSM Association report spells
out two critical areas of Digital India
initiative where mobile technology
can play an important role. These are:
to citizens to support mobile money

and mobile-enabled bank accounts
available to customers on demand by

making
financial
transactions
electronic and cashless.
Given the scope and role of mobile
technology in digitizing India, it is
important to scale up money

transactions on mobile. It is estimated
that only 2.4% in India currently have
mobile money account compared
with nearly 6% in Pakistan and an
average of 2.6% in South Asia.
In the past, due to regulatory issues
Indias mobile money industry could
not see its full potential being
exploited. But the government has
realized the role service providers
could play in achieving its dream of
financial inclusion. Through their
relationship with customers and their
reach and distribution, mobile
operators are expected to play a
meaningful role in financial inclusion
and drive to digitize India.
Recently, the Reserve Bank of India
(RBI) issued differentiated bank
licenses to companies which are also
service providers. The RBI granted
in-principle
approval to
11
applicants to set up payments banks,
out of which five are mobile operators
at their core: Aditya Birla Nuvo
(Idea), Airtel M Commerce Services,
Reliance Industries (Reliance Jio),
Dilip Shanghvi (Telenor India) and
Vodafone mPesa.
The mere fact that the government is
using the medium of mobiles to
achieve its objective of financial
inclusion and digitizing India shows
the potential use of mobile
technology in future financial
transactions and interactions. In fact,
it would not be an exaggeration to
assume that mobile technology could
emerge as a one-stop solution for
most basic interactions, which would
otherwise be carried out on a
computer desktop.
JOB CREATION
Another
area
where
mobile
technology is expected to play a
critical role is in the creation of jobs.
The report by GSM Association
Its simplified...
25
states, The direct economic

contribution to GDP of mobile
network operators and the mobile
ecosystem is calculated as the
value-added generated by companies
operating in the mobile ecosystem in
India. In 2014, the total value added
generated by the mobile ecosystem
was `2,50,000 crore (2% of the
GDP), with the greatest economic
contribution among all mobile
ecosystem players coming from
mobile operators, with a total direct
impact of `1,26,000 crore or around
1% of GDP.
It says, As mobile operators and the
ecosystem purchase inputs and
services from their providers in the
supply chain, a multiplier effect on
other Indian businesses is produced,
generating sales and economic value
added in other sectors and industries.
For example, distribution and
transport companies draw a part of
their revenue from supporting the
operations of tower companies when
upgrading and expanding their mobile
Internet networks. The same effect
can be observed in many other sectors
of the economy, including energy,
retail and professional services such
as finance or insurance. We
conservatively estimate that a value
added of around `50,000 crore (0.4%
of the GDP) was generated through

these indirect impacts in India in the
year 2014.
In 2014, it is estimated that mobile
operators and the ecosystem provided
direct employment to approximately
2.2 million people in India. The GSM
Association estimates that around 1.9
million people were employed in the
informal sector through the retail and
distribution of mobile technology,
primarily mobile handsets.
Formal employment in the mobile
ecosystem reached approximately
3,00,000 in 2014, with the largest
employment numbers in the content,
applications and services sector, with
approximately 1,50,000 jobs. A large
number of jobs in this sector are on a
part-time or self-employed basis.
Indian mobile network operators have
also employed a significant amount of
people, estimated at 67,000 in 2014.
Handset manufacturers and the
formal retail sector (large retailers,
small chains and increasingly also
general retailers) generated 46,000
and 33,000 jobs, respectively.
A number of mobile manufacturers
have reported plans to open or
strengthen their presence in India,
while the formal retail sector is also
growing and expanding faster than

traditional retailing. These figures are
expected to increase in the next few
years if emerging trends continue.
Additional jobs have also been
created indirectly from the activity of
the mobile industry. A case in point is
direct supply chain.
The GSM Association estimates that
in 2014 around 1.9 million jobs were
indirectly supported in this way,
bringing the total impact (both direct
and indirect) of the mobile industry to
around 4 million jobs in 2014.
Another impact of the adoption of
mobile technology is improved
productivity. The GSM Association
report points out that the productivity
impacts brought about by the
widespread adoption and use of
mobile technology by individuals,
businesses
and
governments
generated approximately `4.7 lakh
crore in 2014, an estimated 3.7% of
Indias GDP.
Overall, considering direct, indirect
and productivity impacts, in 2014 the
mobile industry supported a total
contribution of `7.7 lakh crore to the
Indian economy in value-added
terms, equivalent to 6.1% of Indias
total GDP.
Black Swan Effect

The Black Swan Effect refers to a rare and surprise event, which has extremely impactful consequences in hindsight. The
term comes from an ancient Western saying that all swans are white. Thus black swans were an impossible occurrence
- until they were discovered in Australia in the 17th century.
The theory is described by Nassim Nickolas Taleb in his 2007 book The Black Swan. Taleb regards many scientific
discoveries - undirected and unpredicted - as black swans. They also exist in almost all fields of life - from government
policymaking and stock market predictions to decisions made in everyday life.
Black swan events include the 1987 stock market collapse, the September 11 attacks and snowstorms across China in
2008. A black swan event may occur more often in the financial markets but it would be one that causes great and
unexpected losses to investors.
26
Its simplified...
Contact : +91-22-39269600 | E-mail: sales.mumbai@nirmalbang.com | www.nirmalbang.com

38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610,
fter years of mindless

aggression that stretched
the balance sheets of
road companies beyond
acceptable limits, business in this
segment had come to a standstill,
subsequently impacting publicprivate partnership model severely.
28
However, with the road sector

catching the eye of policymakers, the
Modi-led government proposed new
set of reforms to revive the sector. Let
us understand these reforms in terms
of various streams of the road sector.
Here is a low-down on the reforms
proposed by the government:
FINANCE
The government has proposed
measures, which cover the entire
gamut of project financing right
from its inception to sustaining and
maintaining it. These are the
following recommendations:
Its simplified...
consortium.
infrastructure ministries and state

governments.
POLICIES
`
BUILD
OPERATE
TRANSFER (BOT)
AND
RISKS
activities.
Its simplified...
29
provide
guidance
authorities.
to
project
Full disclosure of long-term costs,

risks and potential benefits
Comparison with the financial
position of the government at the time
of signing of the
concession
agreement - a negotiated contract
between a company and a
government that gives the company
the right to operate a specific business
within the governments jurisdiction,
subject to certain conditions
Comparison with the financial
position of the government at the time
prior to re-negotiation.
THE WAY AHEAD
With implementation of some of the
aforementioned
reforms,
the
government is slowly reviving the
interest of private companies and
investors alike.
On the impact of reforms undertaken
by the Modi-led government, ICRA,
research and rating agency, said, The
Indian road sector is showing signs of
revival drawing on several measures
announced by the government over
the last 18 months including a policy
decision to award projects only after
acquisition of 80% of land.
According to the ratings agency, there
has been 69% increase in project

awards by National Highways
Authority of India (NHAI) during the
first eight months of 2015-16 to 2,649
km from 1,572 km in the same period
of the previous fiscal.
The research agency in its report
noted that long hindered by execution
delays, project cancellations, stalled
projects, loss of lender confidence,
leveraged
balance
sheets
of
developers and sluggish traffic
growth, the sector now appears to be
on the path to regain its lost sheen.
It pointed out that under the new land
law though the cost of land
acquisition has risen by 122% to `30
million per hectare from `13.5
million in FY15, it would not impact
the private sector.
The ratings agencys research points
out that efforts made by the
government to clear bottlenecks in
execution have started yielding
results and are reflected in the 45%
increase in the pace of execution to
4.96 km/day during April-November
15 from 3.41 km/day during
April-November 14.
It foresees that if the current pace of
execution continues during FY16,
execution of road projects will exceed
1,800 km, which would be higher
than the figures for both FY15 (1,500
km) and FY14 (1,779 km).
The report noted a few reasons for

increase in pace of execution. It said
measures such as award of projects
only after 80% right of way
(permission to make a way from one
piece of land to another) is secured,
focus on quick resolution of stalled
projects, delegation of power to
regional offices to grant forest
clearances and allowance to file
online applications to construct rail
under and over bridges.
Analysts say that with interest rates
coming down even liquidity issues in
the road sector may come down. They
point out that the governments
assurance of compensation to
developers in case the delay is not
attributable to them and relaxation in
exit norms should also address
liquidity issues faced by developers.
With these aforementioned reforms,
business activity in road sector in the
country is expected to pick up further.
However, investors need to bear in
mind a key fact that since road
projects are long-drawn one cannot
expect supernormal growth in
earnings for road companies in the
next few quarters.
Industry analysts point out that
investors need to wait for at least two
years to notice healthy impact of the
governments reforms in earnings
growth of road companieS.
Sinking Fund Bond

Sinking fund bond is a bond that contains a provision stipulating systematic amortization/ retirement of outstanding debt
(notes, bonds, preferred stocks, etc). Conventionally, the issuer puts interest and principal payments aside into a sinking
fund account to pay out or retire portions of the bond issues outstanding debt periodically (usually each year).
Sometimes, the timing of individual payments is determined randomly (by a lottery), leaving bondholders uncertain as to
whether their bonds will be redeemed at a specific time or not. Infrequently, the issuer may have to deposit repayment
money with a trustee (which invests the funds at its disposal and uses the accumulated amounts to repay the bonds on
maturity). Such compulsory redemptions or uncertain payout timings would mean bondholders may not be able to make
profits if secondary market price moves above the redemption price (usually par). This bond is also called a sinker.
30
Its simplified...
ETO Switchgears & Cables Ltd (Veto) is

engaged in the manufacture and marketing of
wires and cables, electrical accessories,
industrial cables, fans, CFL lamps, pumps,
modular switches, LED lights, immersion heaters, MCB
and distribution boards.
Veto is a dominant player in Rajasthan with 12% to 13%
market share. For FY16, the company is likely to get 75%
of its revenues from Rajasthan (from 80% in FY15), 12%
from Gujarat (10% in FY15) and 13% from Rest of India
(10% in FY15).
Product-wise Revenue
LED (2%)
Fan (2%)
CFL (10%)
Wire (45%)
Switch &
Accessories (38%)
Source: Company Data, Nirmal Bang Research
The company supplies products under brands VETO and

VIMAL POWER (VIMAL POWER for its wires &
cables and VETO for its electrical accessories).
Its simplified...
31
Apart from VETO switchgear, the Group has operations in

Dubai also under a separate company, which has a turnover
of ~ `340 crore and ~ `60 crore of EBITDA.
For Rajasthan and Gujarat, the company mainly follows

Dealer Retailer Model for sales, which provides higher
margins and direct control over inventory.
The company got listed on the Bombay Stock Exchanges

SME platform in December 12 and has shifted from there
to the main platform.
However, this business model has its own demerits as well.

The company requires huge investments to fund working
capital needs. The industry usually follows Distributor
Dealer Retailer model, which has lower margins but
gives scalability. Hence, Veto has also decided to expand
its presence through distributors in various parts of the
country to further increase its reach. For the next three
years, the company is targeting 50% of sales from regions
outside Rajasthan.
The company has plants at Haridwar and Vasai, and is

setting up a new plant at Mahindra SEZ, Jaipur.
INVESTMENT RATIONALE
Increasing Pan-India Presence
Veto Switchgears Ltd (Veto) started operations as a small
retail shop in Jaipur in 1968 and gradually it became the
leading dealer in the market. It has become one of the
largest players in Rajasthan with a market share of 12% to
13%. The company has a strong network of 2,000 dealers
in Rajasthan with deep penetration.
Currently, Veto gets 80% of its revenues from Rajasthan,
10% from Gujarat and the balance 10% from other states.
Currently, Veto enjoys higher EBITDA margins (FY15

15.6% vs V-Guards margins of 8%) due to lack of
distributor level of layers in distribution network.
However, the flip side of such a trade is high working
capital (NWC days 178 days vs V-Guards 65 days).
There are two aspects to the above expansion strategy. Due
to addition of distribution level, the company would take a
hit on EBITDA, but its need for working capital would
reduce, benefitting returns ratios.
Business Model
Veto is moving from
Dealer Retailer Model to
Distributor Dealer Retailer Model
Co Dealer Retailer
Higher Margins
Control Over Inventory
Advantages
Disadvantages
Higher Working Capital

Lower ROCE
Co Distributor Dealer Retailer

Lower Working Capital
Higher Return On Capital Employed
Scalability
Lower Margins
Comparison
FY15
Sales
EBITDA
Margins
Working Capital In Days
ROCE
ROE
Distributors
Dealers
Veto
V-Guard
97.3
15.2
15.6%
1745.9
133
7.6%
178
65
12.3%
9.8%
19.5%
20.3%
10
2500
536
6120
The strategy mentioned hereiin would provide higher

scalability to the company due to lower requirement of
funds and would gradually increase returns ratios of the
Rajasthan-based company.
Consolidating Business
The group has wire and electrical accessories business in
different companies. Apart from India, it has operations in
Dubai as well. In India, the holding company of Veto
Switchgears has an old manufacturing plant at Jaipur,
which manufactures wire and electrical accessories and in
turn supplies to its company in Dubai. The company has
revenues of `30 crore. This plant has become inefficient and the Group has planned to set up a new plant in listed company
(Veto Switchgears) at Mahindra SEZ, Jaipur with an investment of `11 crore.
The production from this plant will commence from June 16 and sales to Dubai company will shift to this plant. The plant
is likely to do sales of `30 crore in FY17, which will add to the companys revenues.
32
Its simplified...
Also, the Group has an associate company in Dubai

JMTC, which has revenues of ~`350 crore and EBITDA of
`60 crore. JMTC markets electrical accessories, wires and
appliances in the Middle Eastern and African market.
Veto Switchgears has floated a 100% subsidiary in Dubai
to partially transfer the business of its associate company.
Q3 was the first quarter of the subsidiary and has managed
to earn revenues of ~`43 crore and PAT of `4.3 crore. Veto
has so far invested around `15 crore in the companys
Dubai subsidiary.
Dubai Associate Financials - JMTC
(in Diraham mn)
CY14
Revenues
EBITDA
Margins
PAT
200.9
35.6
17.7%
4.6
again likely to be negative on account of addition of

international operations, which has a high working capital
cycle.
company, which may face hurdles on account of ownership
structure of three brothers in Indian and Dubai operations.
OUTLOOK
The company has grown at a CAGR of 12.4% between
FY12-15 and EBITDA has grown 11% during the same
period. The base business of the company is expected to
grow at a CAGR of 19% for the next 2-3 years based on
expansion outside Rajasthan.
Besides, the Group is consolidating the business. The
group has wire and electrical accessories business in
different companies.
Source: Company Data
RISKS AND CONCERNS
expected to improve on the back of addition of the

distribution level). Due to this, it has negative cash flow
from operations in the past 2 out of 4 years. In FY15, the
operating cash flow was positive as sales growth was
nominal. In FY16 and FY17, the operating cash flow is
Apart from India, it has operations in Dubai too. In India

the holding company of Veto Switchgears has an old
manufacturing plant at Jaipur which the Group is bringing
under the fold of the listed company by setting up a plant at
Mahindra SEZ with an investment of `11 crore.
The production from this plant will commence from June
16 and sales to the Dubai company will shift to this plant.
The plant is likely to do sales of `30 crore in FY17, which
will add to the companys revenues.
Financials
Year
Net Sales
Consolidated
(` cr)
Growth
(%)
EBITDA
(` cr)
Margin
(%)
PAT
(` cr)
Margin
(%)
EPS
(`)
PE
(x)
ROE
(%)
FY14A
94.5
27.4%
10.8
11.4%
6.1
6.4%
3.3
28.7
9.3%
FY15A
97.3
3.0%
15.2
15.6%
7.1
7.3%
3.9
24.4
9.8%
FY16E
169.0
73.7%
22.3
13.2%
12.6
7.5%
6.9
13.8
15.2%
FY17E
277.3
64.1%
36.1
13.0%
18.2
6.6%
9.9
9.6
18.3%
Veto can achieve multiple of 12x easily and success in the planned strategy would further re-rate the stocK.
Garbatrage
Garbatrage is an increase in price and trading volume in a particular sector of the economy that occurs as a result of a
recent takeover, which initiates a change in sentiment towards the sector. Garbatrage is also known as rumortrage.
Garbatrage is usually used to refer to firms that are not directly related to the takeover. Speculators feel that the initial
takeover is a precursor to more takeovers within the sector.
Its simplified...
33
34
one are the days when

investors waited till the
end of March to invest in
tax-saving instruments to
claim exemptions. More and more
people have realized the importance
of investing early during the year,
which can bring relief to them and
make investments sensible too.
in five-year bank fixed deposits (FDs)

or endowment insurance schemes.
Now, instead of going in for these
routine options, they have begun
putting the same amount in
equity-linked
saving
schemes
(ELSSs), which will enable them to
enjoy the benefits of compounding
and rupee cost averaging.
To give an example, it is widely seen

that young investors put money either
With rising awareness not only

individuals but also financial
institutions have started promoting

tax-saving financial products at the
start of the year.
The beginning of a financial year is a
good time to start tax planning as it
will give enough time to understand
various financial products and thus
help get more returns. In India, there
are a range of tax-saving products
from Public Provident Fund (PPF)
and National Saving Certificates
Its simplified...
(NSC) to ELSS.
pension as the NSC starts maturing.
However, instead of blindly putting in

money to save taxes, investors need to
plan for their future and invest
accordingly.
National Savings Certificates are not

inflation-protected. If inflation is
above interest rates, it will fetch
negative returns. But in present
scenario where inflation is low,
investors can earn real return from
this investment product.
In this article we will explain where

investors can invest and how they can
benefit from investing in right
products at the right time.
NATIONAL
CERTIFICATE (NSC)
SAVINGS
National Savings Certificate also

known as NSC is a successful
tax-saving instrument in both rural
and urban India. NSC is backed by
the government of India, and is one of
the safest investment options
available at post offices across the
country. Currently, NSC offers
interest at the rate of 8.10% and is a
popular and safe small savings
instrument that combines tax savings
with guaranteed returns.
The interest is paid at maturity but is
taxable annually. Investment up to `1
lakh per annum qualifies for income
tax rebate under section 80C of the
Income-tax Act. However, the interest
that accrues every year is included in
your taxable income and is liable for
tax payment.
Certificates can be bought from any
head post office or general post office.
The NSC is liquid, despite the 5- and
10-year stipulated lock-in period. The
liquidity is offered in the form of
loans and withdrawals are subject to
conditions. The amount and rate at
which the loan is permitted depends
on the lending institution.
This scheme is mainly for small
businessmen and salaried individuals.
People buy NSC every month for 10
years, which is re-invested on
maturity as after retirement it will
automatically fetch a monthly
FIVE-YEAR
BANK
DEPOSITS (FDS)
FIXED
Five-year bank fixed deposits are not

picked as often as other investment
products despite it giving rebate
under section 80C of the Income-tax
Act. Five-year bank fixed deposits is
a tax-saving investment product with
a shorter duration and can be opted by
risk-averse investors.
FDs offered by various banks have a
lock-in period of five years and the
interest is taxable. Different banks
offer different interest rates on their
tax-saving FDs. Account holders can
earn better interest through FDs as
compared to the 4% to 5% interest
they would otherwise earn from their
savings bank accounts.
Currently, many private banks offer
7% to 8.5% interest on five-year FDs.
The main draw for such FDs is the
guaranteed higher interest on them
instead of regular bank deposits.
Here again investors can enjoy the
benefits on their products when
inflation is below the rates offered by
banks. The interest rate is fixed and
guaranteed for the duration of the
deposit at the commencement of the
deposit. The bank deposit is liquid,
despite the lock-in during the tenure
of the deposit.
The liquidity is offered in the form of
loans and withdrawals are subject to
conditions. In case of an emergency,
investors can close their FDs
prematurely at the cost of losing the
interest they would otherwise earn if

it was kept till maturity.
PUBLIC PROVIDENT FUND
(PPF) AND NATIONAL PENSION
SCHEME (NPS)
Despite interest rates being cut for the
current financial year from 8.7% to
8.1%, Public Provident Fund (PPF)
remains the top choice for tax savers
since many years. PPF is completely
risk-free in nature as it is backed by
the government of India.
A person cannot open more than one
account in his or her name or even
have a joint account. The minimum
amount of investment in a PPF
account is `500 per annum and the
maximum amount of investment in a
year is `1.5 lakh. In case of a minors
account, the investment in the minors
and guardians account together
cannot exceed `1.5 lakh per annum.
Deposits can also be made in 12
installments at the most in a year. PPF
comes with a lock-in period of 15
years, which makes it a long-term
investment option. PPF also offers
liquidity to the investor. If investors
need money, they can withdraw after
the fifth year, but withdrawals cannot
exceed 50% of the balance at the end
of the fourth year, or the immediate
preceding year, whichever is lower.
Also, only one withdrawal is allowed
in a financial year. You can also take a
loan against PPF. But it cannot exceed
25% of the balance in the preceding
year. Invest before the 5th of the
month if you want your contribution
to earn interest for that month as well.
The biggest advantage of the scheme
is that, it is EEE in tax status, meaning
investments are exempt, interest
earned is exempt and final corpus is
tax free in the hands of the investors.
The biggest advantage of NPS is the
additional tax benefit of `50,000
Its simplified...
35
under Section 80C of the Income-tax

Act, which means investors would get
tax benefits of `2 lakh.
However,
investors
have
to
understand that the potential to earn
high returns comes with high risks.
In order to bring parity among

pensioners, in the last Union budget it
was announced that investors can
withdraw 40% of the total corpus at
the age of 60, which would be entirely
tax free. This new announcement will
have a positive impact on NPS and
might attract fresh flows as one of the
major issues of taxation has been
resolved by the government.
These funds can even give negative

returns when markets are volatile and
are in the red. Though most taxsaving schemes can get better returns
than the broader index, there are
many schemes that have lost 12% to
14% in the last one year.
However, one of the major drawbacks

of the scheme is that investors cannot
take out money before 60 years. But it
is one of cheapest schemes available
to investors who want to enjoy an
additional tax exemption of `50,000
and are willing to wait for retirement.
For many investors, this is a positive
feature as it prevents premature
withdrawals. But a number of them
refrain from investing in PPFs due to
the long tenure.
EQUITY-LINKED
SCHEME (ELSS)
SAVINGS
Equity-linked savings scheme or

ELSS gives investors the option to
invest 100% in equities and claim tax
exemption under Section 80C of the
Income-tax Act. ELSS has the
shortest lock-in period of three years
among all tax-saving options under
Section 80C.
Being equity funds, these schemes
can generate good returns for
investors over long term. If they
invest regularly through systematic
investment plans (SIPs) they can earn
better returns compared to other taxsaving products.
In the past five years as well as 10
years, this category has created
wealth for investors with average
returns in the range of 16% to 18%.
36
Therefore, only those investors who

have the patience to stay invested for
a longer duration and can face
volatility should consider this option.
Investors should avoid the dividend
reinvestment option for ELSS
schemes because the lock-in period
will prevent them from exiting fully.
Their best option is to take the SIP
route since the start of the year.
UNIT-LINKED
INSURANCE
PLANS (ULIPs) AND LIFE
INSURANCE POLICIES
Unit-linked insurance plans (ULIPs)
are a category of goal-based financial
solutions and are long-term plans
offering investors the dual benefit of
insurance and investments. In ULIPs,
a part of the investment goes towards
providing for your life cover.
The remaining portion of the ULIP is
invested in a fund, which, in turn,
invests in stocks or bonds; the value
of investments alters with the
performance of the underlying fund
opted by you. There are options for
investors like investing in equity, debt
balanced or corporate bonds.
However, insurance plans have their
own pros and cons. So, investors must
research well before investing in
insurance policies and not jump
merely with the intention to save
taxes by investing in such products.
Investors must ascertain whether the
plan meets their goals. Also, investors
should evaluate the performance of

previous ULIPs. Additionally, they
should find out if they are single or
regular premium ULIPs.
Consider choosing a policy tenure of
at least 15 years, which can give good
amount of money. It is always seen
that investors disband their insurance
policies and not complete their full
term, which impacts their savings. It
is always advisable to either pay
premiums for the full term or take
other life insurance policies.
While investors who want to look at
other insurance products should also
look at investing in term insurance,
endowment or retirement plans that
offer tax benefits under the
Income-tax Act.
In India, life insurance still remains
the most preferred tax-saving
instrument and many believe that by
paying insurance premium they save
taxes as well as money for their
retirement purposes. But investors
should invest only if they are sure of
what they will get after the
investment matures.
Investors should always remember
that investing in life insurance
policies should not be made only to
avail tax benefits but to get life
benefits also. The main aim of an
insurance product is to ensure a
financially-secure future for your
family members.
Finally, remember that before buying
any investment product such as
ULIPs, endowment or money back
policy, investors should always
calculate their need for insurance. If
investors do not believe that
insurance can fulfil their needs, then
they can certainly invest in a term
plan and the remaining money can be
put in ELSS through SIPs, which can
offer both tax advantage as well as
exposure to the equity marketS.
Its simplified...
TECHNICAL OUTLOOK FOR THE FORTNIGHT
echnically, the Nifty is

hovering
near
the
200-DMA (day moving
average), i.e. 7,840-odd
level, indicating that the short-term
trend has turned slightly positive but
Nifty should hold 7,840 level on
closing basis at least for 2-3 trading
sessions only then are we likely to
witness some positive move in the
coming trading sessions.
Interestingly, on the weekly chart the
Nifty is trading near support levels of
the upper trend line of the channel,
showing signs of relief. The channel
indicates that the Nifty is taking
support of the upper trend line and we
are witnessing a bounce back rally
from 7,740-7,700 levels. Taking into
consideration the channel pattern, the
short-term support for Nifty is
7,740-7,700 levels.
Another fascinating development on
the weekly chart is the formation of
the inverse head and shoulder pattern.
The Nifty has formed double tops in
the range of 7,972-7,992 levels,
which are acting as resistance levels.
In the coming days, if the Nifty fails
to hold 7,700-7,640 levels support
provided by the channel as well as the
Gap support formed on 13th Apr 16,
then it may correct towards 7,5707,550 level, which may help the Nifty
to form the right shoulder of the
inverse head and shoulder pattern. On
the flip side, if there is any move
above the 7,992 level on the closing
basis, the Nifty may ride towards
8,040/8,170.
7,972-7,992 levels and support at

7,800-7,770 level. The Nifty is also
trading
above
its
long-term
100DMA-200DMA, which is also a
healthy sign.
On the Nifty Options front for the
May series, the highest OI build up is
witnessed near 7,700 Put strike,
whereas on the Call side, it is
observed at the 8,200 level. We
believe the market will remain
volatile this month with strong resistances at 8,000 and 8,200 levels. We
expect markets to remain within the
range of 7,500-8,200 this month.
In the last expiry we witnessed higher
than average (75%) rollovers in Nifty
and Bank Nifty with a positive cost of
carry, indicating long rollovers for the
month. Power (88% - long rollover),
technology (80% - short rollover), oil
and gas (85% - long rollover) and
banking (82% - long rollover) saw
much higher rollovers as compared to
the previous expiry. We expect select
stocks from power, banking and oil
and gas sectors to outperform in the
May expiry.
India VIX, which measures the immediate 30-day volatility in the market,
remained subdued for most part of
April in the range of 13-19. Going
forward, VIX will be rangebound.
The Put Call Ratio-Open Interest

(PCR-OI) for Nifty Options has been
in the range of 0.75-1.15 in the month
of April and is quoting at 0.95
currently, implying a neutral undertone in the market.
Going forward, the Nifty may test
supports placed at 7,700 and eventually gain strength in mid- May and
move towards 8,000-8,200 levels.
OPTIONS STRATEGY
NIFTY LONG STRADDLE
It can be initiated by Buying 1 lot
7800 CE (`125) and buying 1 lot
7950 PE (`120) of the May series.
The net combined premium outflow
comes to nearly `245, which will also
be the maximum loss for the strategy.
The strategy will break-even above
8,045 or below the 7,555 level. The
maximum profit for the strategy will
be unlimited.
We expect the Nifty to witness more
than 250 points move in either
direction. So, if the Nifty moves
towards 8,000 or below the 7,600
level, then the strategy would give
gains. One can book profits if the total
premium comes in the range of `340`360 points. One should keep a SL of
50 points premium or when the total
premium reduces to 195.
Nifty Daily Chart
Technically, the short-term trend has

turned slightly positive to sideways.
But the overall medium trend remains
cautious and sideways. The Index has
observed volatile trading sessions
since the past few weeks. The Nifty
has an immediate resistance at
Its simplified...
37
top loss is a system meant to

stem losses. It is a means to
avoid more losses or to
prevent erosion of profit.
After taking a position in a

stock/index, you set a fixed price
below which you do not want to keep
your position open. In other words,
you do not want to incur a loss greater
than this price. This fixed price is
where you keep your stop loss.
Consider this: you have bought a
stock at `100, and are willing to take
a maximum loss of `10 on the
position. So, you set a stop loss at
38
`90. Now, if the price falls to `90,

then your stop loss is triggered and
your position is squared off.
However, if the stock moves up to
`130, then your stop loss is still at
`90. If you do not book your profits
anywhere along the route from `100
to `130, and the price reverses from
`130 and falls all the way back to
`100 and below `90, then your stop
loss gets hit. Therefore, instead of a
`30 profit you would incur a loss of
`10. In such a scenario, you curse
yourself for not booking your profits
when you had the chance and blame it
on luck instead.
To overcome this problem, there is a

brilliant system known as Trailing
Stop Loss. As the name suggests,
instead of staying at a fixed level, the
stop loss follows or trails the price
action as it moves in your favour.
Basically, a trailing stop loss is a stop
loss that keeps moving in the
direction of your profits, locking in
bits of profits as the price moves in
favour of either your long position or
your short position.
Thus, in the above example, after
buying the stock at `100, you set your
initial stop loss at `90 and specified
Its simplified...
that for every 1 point upmove in

price,
your
stop
loss
will
consequently move up by 1 point.
Then, if the price moves to `101, your
stop loss moves to `91. And if the
price moves to `118, your stop loss
moves to `108.
Hence, at any given point in time, you
are just `10 away from maximum
profit. In other words, what you have
done is you kept on locking a part of
the profit with every upmove in price.
Note: A trailing stop loss moves only
in one direction; that is in the
direction of your profit. It does not
move in the opposite direction. So, if
after hitting `118, the price falls to
`115, your stop loss does not move
down. It is still at the last kept level of
`108. If the price eventually falls to
`108, then the order gets activated
and the stock gets sold off at `108,
giving you a profit of ` 8.
By slowly earning small bits of
profits, a trailing stop loss frees you
from the worry of losing your entire
profit in case of a countermove. In
other words, you can have your cake
and eat it too.
Many online trading sites have the
provision for trailing stop loss
automatically wherein you set your
preferred criteria. But this facility is
not available on all trading sites.
For the benefit of our readers, we
shall, therefore, discuss manual
trailing stop loss placement. This
requires the trader to manually shift
the trailing stop loss in accordance
with his/her criteria.
TYPES OF TRAILING STOP
LOSS
Price-based Trailing Stop Loss
In this method, a trailing stop loss is
maintained at a fixed price interval
from the current market price (below

the market price in case of long
positions and above the market price
in case of short positions). The stop
moves point to point in the direction
of the profitable trade.
fluctuation
in
prices,
always
maintaining the same percentage
away from the current market price.
This way the trader is always aware of
the minimum assured profit that his
position will garner.
For example, if a stop loss is kept at

`90 when the current price is `100,
then for every point move in the price,
the trailing stop moves higher by
same points. So, if the price moves to
`100.40, the stop moves to `90.4.
And if the price moves to `107.8, then
the stop too moves to `97.8. Thus, at
any given point in time, you always
know your exact minimum profit.
For example, if the trader sets a stop

loss 15% from the current market
price of `100, then his stop loss will
be at `85. Now, if the price moves to
`124, the stop loss will move to
`105.4, which is 15% from `124.
Price Bands-based Trailing Stop

Loss
In this method, the trader specifies a
price band by which the price has to
move to cause a change in the trailing
stop loss. So, if the price is at `100
and the initial stop is placed at `90
and the trader has specified that for
every 5-point move in the market
price, then the trailing stop will move
by 2 points.
Further, if the price moves to `105,
the trailing stop will move to `92. If
the price moves from `105 to `109,
then there will be no change in the
trailing stop since the criteria of 5
points has not been met and the
trailing stop will remain at `92. Only
when it crosses `110 will there be
another 2-point move in the trailing
stop loss.
Percentage-based Trailing Stop
Loss
In this method, the trader simply
decides on a precise percentage below
the market price in case of a long
position or a fixed percentage above
the market price in case of a short
position where he keeps his stop loss.
The trailing stop loss is then
continually adjusted based on the
Target-based Trailing Stop Loss

After entering a trade, the trader
marks the different target level on a
chart. These targets can be random or
as per technical indicators that the
trader follows.
When the price reaches the 1st target
level, the trailing stop moves to the
initial purchase or sell price, which is
the breakeven or the no-profit-no-loss
point. When the price reaches the 2nd
target, we move our trailing stop to
the 1st target level, locking in at least
that much profit. Similarly, as the
price keeps moving up, we keep
moving our trailing stop upwards
with each target level achieved.
Pivot Point-based Trailing Stop
Loss
Pivot point calculators are available
on most trading sites and even if they
are not available, there are formulae
by which they can be easily
calculated manually. These pivot
point calculators help determine the
various support (S1, S2, S3) and
resistance levels (R1, R2, R3).
In a long position, when the price
moves from R1 (1st resistance level)
to R2 (second resistance level) move
your stop loss from pivot level to
below R1. When the price moves
from R2 to R3, move your stop loss
below the R2 level and so on.
Its simplified...
39
Similarly, keep trailing your stop

losses from S1 (1st support level) to
S2 (second support level) and so on
for a short position.
Parabolic SAR
Parabolic SAR or Parabolic Stop And
Reverse is an indicator developed by
Welles Wilder, which helps in
determining when a trend reverses
and helps in placing trailing stop
losses. Although the calculation of
Parabolic SAR is quite complicated,
and is usually done by using software,
the indicator itself is easy to
understand and interpret.
Parabolic SAR appears on charts in
the form of dots. These dots are found
below the price action when prices
are rising and above price action
when prices are falling.
Thus, the indicator will keep trailing
the price until the price stops and
starts reversing. The Parabolic SAR
dots take time to catch up with the
price maintaining a healthy distance
from the price.
Keep your trailing stop loss at the
level of the Parabolic SAR dots until
such time that the dots appear on the
other side of the price action, which
indicates that a reversal has set in and
you should exit your trades.
Moving Average-based Trailing
Stop Loss
As the price moves up, the moving
average also rises. Traders can either
use simple moving averages or
exponential moving averages to keep
their trailing stop losses.
Some important moving averages are
10-day, 50-day, 100-day, 200-day
moving averages. Decide which of
these work best for you and trail your
stop losses by keeping your stops at or
just below these levels.
40
Swing Highs And Lows

If you are long in a trade, look to trail
your stop loss beneath each
significant low. If you are short, look
to trail your stop above each
significant high. The key here is to
stick only to the main or major highs
or lows. Avoid minor high-lows as
they can be detrimental to your trade.
Closing Price-based Trailing Stop
Loss
The simplest way to keep a trailing
stop loss is to keep the previous days
closing price or the lowest closing
price for the past 2 or 3 days as the
trailing stop loss level.
ADVANTAGES OF TRAILING
STOP LOSS
1. You can let your profits run without
the fear of entire profit erosion in case
of a counter move in price.
2. There are no transaction charges for
placing a trailing stop loss order. Only
when the stop loss order is triggered,
does it incur a transaction charge.
3. No need for regular price
monitoring since your downside is
capped. You do not have to stay glued
to your terminal.
4. It does not put a cap on profits.
5. It is flexible. That is, the criteria
and conditions can be changed any
time.
6. It takes emotional quotient out of
your trade.
DISADVANTAGES
TRAILING STOP LOSS
OF
1. You have to constantly reset your

trailing stop loss according to your
preset criteria.
2. If the trailing stop loss is too close,
it may be hit too soon.
3. If the trailing stop loss is too far or
wide, you risk leaving too much profit
on the table and will not be able to
capitalize on sizeable profits.
4. Sometimes the price swings wildly,

goes below the trailing stop loss
briefly and then moves back to the
original level. In such a scenario, your
trailing stop loss will be triggered and
you may lose out on your profit
potential.
5. If there is a gap down or a quick
price drop, your trailing stop loss may
not be triggered and you may have to
sell at a much lower price.
6. You give up your power to make
informed decisions as per conditions
in the markets.
POINTS TO PONDER
1. When price rises, the trailing stop
loss also rises. But when price falls,
the trailing stop loss does not fall with
it. It is fixed at the last kept level,
ensuring minimum profit.
2. Always use a trial and error method
to determine which trailing stop loss
method works for your trading setup
and style.
3. Track the historical price
movement of the stock or index in
question. This will help you
understand how much the stock
moves on an average in a day or week
or month. This will enable you to set
your trailing stop loss in such a way
that you do not get stopped out
prematurely.
4. Check the volatility of the stock or
the index in question. If the stock is
too volatile, it could easily hit your
stop loss and eventually move in the
opposite direction. Exercise caution
when placing trailing stop losses in
such counters.
5. Never chase a trade once your
trailing stop loss has been hit. In other
words do not try and execute the same
trade again in the hope of recovering
the marginal profit that you lost
because of your trailing stop loss.
Instead, you must be happy and
satisfied with the fact that you did the
right thing by keeping a trailing stop
loss and ensuring risk protection of
your investmenT.
Its simplified...
IMPORTANT JARGON
FOR THE FORTNIGHT
FCNR REDEMPTION WORRIES MARKETS
likely redemption of over $30 billion due to maturity

of foreign currency non resident (FCNR) deposit scheme
in September-November has kept all markets - bonds,
currency, commodities and stocks - on the edge. This event
has the potential to keep the markets volatile.
What Are FCNR Deposit Schemes?
FCNR deposit schemes are like fixed deposit schemes for
non-resident Indians (NRI) and people of Indian origin
(PIO). NRIs have the option to invest in other deposit
schemes like Non Resident Ordinary account (NRO)
account and Non Resident External (NRE) account.
While both these accounts mandate investment in Indian
currency, FCNR deposit scheme allows investment in
foreign currency.
What Are The Benefits To NRIs?
In NRE and NRO schemes, foreign currency needs to be
converted into Indian rupee at the investment stage and
reconverted into foreign currency at the redemption stage.
This exposes investors to foreign exchange risks, which
might lower the returns for investors.
of India (RBI) in September 13 to stop the free fall of the

Indian currency against the US dollar.
Back then fears of the US Fed withdrawing quantitative
easing had spooked currencies across emerging markets.
Even the Indian rupee was badly hit.
The logic behind the announcement of a special three-year
FCNR deposit scheme was to bring dollar into the
economy thereby increasing the demand for the rupee so
that the attack on the rupee stops.
What Was The Response?
India witnessed a tremendous response to the scheme
(along with other facilities announced by the RBI then)
garnering $34 billion. This stopped the free fall in the
rupee. The scheme made an instant hero out of the newly
elected RBI Governor Dr Raghuram Rajan in 2013.
What Is The Issue Now?
The three-year period ends in September and redemptions
are slated for the September-November period.
Commercial banks will require the US dollars to repay
depositors. There are concerns that redemption of these
deposits could lead to substantial outflows impacting the
rupee and other asset classes too.
In contrast, in FCNR schemes, investors need not bear

exchange rate risks. Investors can put money in any
approved foreign currency in the FCNR scheme. Investors
in FCNR will get a fixed return as promised by the bank on
their investments irrespective of currency levels.
How Big Is The Risk?
Why Were They Announced?
However, markets can witness volatility in debt and

currency markets around the time of redemptions in
September-November 16 period. Markets do not think the
outflow will be entirely of $34 billion as the amount
A special three-year FCNR deposit scheme along with a

special swap facility was announced by the Reserve Bank
The redemption on FCNR schemes is a one-off payment,

the amount and timing of which is well-known to the
market participants.
Its simplified...
41
includes money from other facilities announced by the

RBI in 2013. But even $15 billion to $20 billion outflow as
expected by experts is not an insignificant amount.
investors by selling units to lend money to infrastructure

projects. Thus, they can be set as either IDF-Mutual Fund
(MF) or IDF-NBFC.
How Good Is Indias Position?
What Are IDF-NBFCs?
From a macroeconomic perspective, India of 2013 is

different from India of 2016. Indias external position is far
stronger now than it was in 2013.
IDF-NBFCs have sponsors as banks and NBFCs having

equity between 30% and 49% in IDFs. Presently, there are
two IDF-NBFCs and three IDF-MFs in India.
Foreign exchange reserves of $360 billion are good

enough to cover imports for 10 months to 11 months. So,
even with $15 billion to $20 billion redemption, the
Reserve Bank can drawdown reserves to curb volatility in
the Indian rupee.
L&T Infrastructure Finance set up an IDF in 2013, while

India Infradebt was set up in the same year jointly by
ICICI Bank, Bank of Baroda and Life Insurance
Corporation of India and are two IDF-NBFCs that are
operational in India.
Will The Outflow Change Indias Credit Profile

Among Ratings Agencies?
What Is The Role Of IDFs?
Even with huge outflows, a change in ratings profile or

Indias image among foreign investors is unlikely as it is a
one-off event, with policymakers well adept at handling
the situation without much deterioration at the
macroeconomic level.
IDFs are meant to refinance existing debt of infrastructure

companies. IDFs were also envisaged to take some
pressure off commercial banks by providing long-term
loans to infra projects. IDF-NBFCs will provide
medium-term loans to banks against banks long-term
infrastructure exposure.
What Can Spoil The Party?
What Is The Policy Move Now?
The global economy is still weak, with central banks

across
developed
and
developing
economies
experimenting with their monetary policies.
The RBI, which regulates the IDF-NBFC, has been

liberalizing the way IDFs function in India. For example,
earlier IDF-NBFCs were allowed to lend only in
public-private partnership (PPP) projects.
Any rapid deterioration of the global situation that

coincides with the FCNR redemption period will
complicate matters for the economy and the markets. It
remains to be seen if Indian policymakers are well placed
to manage the ensuing volatility in the markets.
RBI ALLOWS IDF-NBFCs

SHORT-TERM CAPITAL
TO
RAISE
Recently, the Reserve Bank of India (RBI) allowed

Infrastructure Debt Funds (IDF) Non Banking Finance
Company (NBFCs) to issue short-term bonds and
commercial papers (CPs) (IDF-NBFC). This is a
significant policy shift to support infrastructure financing
in India.
What Are IDFs?
IDFs are an innovation in infrastructure financing. IDFs
are investment vehicles, which can be sponsored by
commercial banks and NBFCs or Mutual Funds. IDFs can
raise money by issuing bonds or raise money from
42
However, the RBI relaxed the norm last year allowing

them to invest in non-PPP projects. Also, earlier IDF
NBFCs were allowed to issue bonds of minimum five year
maturity. Now, IDF-NBFCs are allowed to issue
short-term bonds (to the extent of up to 10% of their total
outstanding borrowings) and also commercial papers.
How Will This Move Help?
The move will help IDF-NBFCs manage their asset
liability mismatch better. Earlier IDF NBFCs had to
either raise long-term debts to pay their short-term
obligations or were forced to exit their existing
investments in infrastructure assets to meet their liabilities.
Now, IDF-NBFC will be able to raise short-term funds
from the open market without selling their existing
long-term investments. With short-term bonds allowed,
the liquidity situation for IDF-NBFCs will ease, which will
help long-term infrastructure projects. This is yet another
reform by authorities to support Indian infrastructurE.
Its simplified...
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, investments in commodities and securities are subject to market risks. Please read the scheme-related document carefully before investing.
Nirmal Bang Securities Pvt. Ltd.
www.nirm a lb a ng.c o m
RNI Reg. No. MAHENG/2009/28962
DISCLAIMER
In the preparation of the content of this magazine, Nirmal Bang Securities Private Limited has used information that is publicl y available, including information developed in-house. Such information
has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgement of Nirmal Bang
Securities Private Limited at the date of this publication/ communication and are subject to change at any point without notice. This is not a solicitation or any offer to buy or sell. This publication/
communication is for information purposes only and is not intended to provide professional, investment or any other type of adv ice or recommendation and does not take into account the particular
investment objectives, financial situation or needs of individual recipients. For data reference to any third party in this mat erial no such party will assume any liability for the same. Further, all opinion
included in this magazine are as of date and are subject to change without any notice. All recipients of this magazine should seek appropriate professional advice and carefully read the offer document
and before dealing and/ or transacting in any of the products referred to in this material make their own investigation. Nirmal Bang Securities Private Limited, its directors, officers, employees and other
personnel shall not be liable for any loss (financial or otherwise), damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary and consequential, as also any loss of
profit in any way arising from the use of this material in any manner whatsoever. The recipient alone shall be fully responsible/ are liable for any decision taken on the basis of this material. This magazine
is prepared for private circulation only. Nirmal Bang Securities Private Limited, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang
Securities Private Limited or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

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RNI No.

MAHENG/2009/28962 | Volume 8 Issue 05 | 01st - 15th M ay 16

Issue: 05, 01st - 15th May 16

Editor-in-Chief & Publisher: Rakesh Bhandari

Printed and published by Mr Rakesh Bhandari

Beyond Market 01st - 15th May 16

Beyond Market 01st - 15th May 16

In the coming fortnight,

Beyond Market 01st - 15th May 16

Beyond Market 01st - 15th May 16

consumption in rural areas besides

The New Delhi-headquartered India

With farmers unable to raise crops,

The IMD is a Government of India

Apart from the human factor,

The lack of consumption and

One of the reasons for the Indian

The Central government under Prime

Scanty rainfall and drought also affect

The good news that the monsoon this

Beyond Market 01st - 15th May 16

states such as Maharashtra, Telangana

perhaps even help achieve Jaitleys

sentiments but will also help perk up

resilience to withstand turbulence,

With Indias economic fundamentals

It is this which has helped India to

By August, it will be known how

While the Reserve Bank has pegged

A good monsoon has the potential to

That India has the capability to

A good monsoon this year is critical

Contact: 022 39269600

Beyond Market 01st - 15th May 16

rediction of better monsoon

India Meteorological Department

indeed comes true, then it could be

7.9% in FY17 as against 7.5% last

10% in 2015. During the same period

Commodity prices are down across

On the policy front too the

In addition to this, Indias apex bank,

Leading indicators show recovery

As banks keep on passing rate cuts to

Owing to the low base of the last two

Because of lower interest rates and

The recovery will also be aided by

lower commodity prices, pushing

Beyond Market 01st - 15th May 16

Besides, the RBI has opened up a

expand or refinance their debt will

the gradual implementation of the

Beyond Market 01st - 15th May 16

rate of 3,000 km to 4,000 km earlier.

of stalled projects in road, power and

Beyond Market 01st - 15th May 16

We expect major non-compliance by

Experts said this could lead to revival

as create more job opportunities in the

Beyond Market 01st - 15th May 16

by 35% during the first quarter of

discount can be found only on stock