RNI No.

MAHENG/2009/28962 | Volume 9 Issue 12 | 16th - 31st D ec ’17

M umbai | Pages 48 | For Pr ivate Circulation

THE FUTURE
IS ELECTRIC
The government plans to have only
electric vehicles on road by 2030; expect
a massive shift in the auto industry
 Financial
Decisions
On The Go
Stay ahead in a rapidly changing
world by making smart and informed
financial decisions on the move,
using the Beyond app. This app
provides mobile solutions and allows
you to trade from just about any
Android or iOS mobile device –
whenever and wherever you need it.

Key Features
•Trade in Equities, Equity Derivatives,
Currency Derivatives and Commodities
•View real-time streaming quotes and charts
• Route orders using Beyond app, which searches
for the best price and all or part of your order to achieve optimal execution
• Access market news and updates
• Obtain trade reports and account information
• Access NB Research Reports
• View delayed market data for non-subscribed tickers Download Beyond app on

eyond P o w e r e d b y

Disclaimer : Insurance is a subject matter of solicitation .mutual fund Investments are subject to market risk. ‘investment in securities/ Commodities market are subject to market risks, read all
the related documents carefully before investing’ Nirmal bang securities pvt.ltd. Please read the Do’s and Don’ts prescribed by Commodity Exchange Before trading. The PMS Service is not

MCX SEBI No INZ000043630,

w w w.nir malbang.com

Volume 9 Issue: 12, 16th - 31st Dec ’17
Editor-in-Chief & Publisher: Rakesh Bhandari
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
Art Director: Sachin Kamble
Junior Designer: Orianne Fernandes
Operations: Namrata Sabbani
Research Team: Sunil Jain, Vikas Salunkhe,
Swati Hotkar, Nirav Chheda, Nandish Shah
Printed and published by Mr Rakesh Bhandari
on behalf of Nirmal Bang Financial Services Pvt
Ltd, printed at Uchitha Graphic Printers Pvt Ltd
65, Ideal Ind. Estate, Senapati Bapat Marg,
Lower Parel, Mumbai – 400013 and published
at Nirmal Bang Financial Services Pvt Ltd, 19,
Sonawala Building, 25 Bank Street, Fort,
Mumbai-400001. Editor: Tushita Nigam
CORPORATE OFFICE
B-2, 301/302, Marathon Innova,
Off Ganpatrao Kadam Marg,
Lower Parel (W), Mumbai - 400 013
Tel: 022 - 6273 8000/8001
Web: www.nirmalbang.com
beyondmarket@nirmalbang.com
Tel No: 022 - 6273 8047
Beyond Market 16th - 31st Dec ’17
DB Corner – Page 5
Moody’s Timely Recognition
By upgrading India’s rating to ‘Baa2’ from ‘Baa3’, Moody’s has
acknowledged the reforms undertaken by the government in recent years
– Page 6
Truly Secure
Mortgage Redemption Schemes or Loan Protection Covers protect you
and your home in the event of an unforeseen event which may prevent
you from continuing to pay your home loan EMI – Page 9
Extraordinary Gains
Investment in technology could lead to a more profitable business model
for Indian banks – Page 12
The Hidden Truth
Management fiascos often reveal managerial challenges and market
realities as is evident from the infighting at both the Tata Group and
Infosys – Page 15
A Double Whammy
Demonetisation and GST have dealt a blow on the already shaky real
estate market in India – Page 18
The Future Is Electric
The government plans to have only electric vehicles on road by 2030;
expect a massive shift in the auto industry – Page 21
Fashion Blitzkrieg
More than 100 foreign brands are likely to hit the Indian markets soon,
leaving buyers spoilt for choice – Page 24
Moving Ahead
The logistics sector in India is surging ahead owing to significant
investments by the government to improve rail and road infrastructure in
the country – Page 28
Dilip Buildcon Ltd: Stronger And Better
Healthy order books, owned equipment, in-house execution capabilities
and strong bid pipeline bode well for Dilip Buildcon Ltd – Page 31
Growing Influence
ETFs are picking up in India in a big way – Page 34
Technical Outlook – Page 37
Buckfast Recommendations – Page 38
Good Times, Bad Times
Successfully forecasting the ebbs and flows of the stock market can result
in higher returns – Page 42
Important Jargon – Page 44
It’s simplified... 3
 A Tectonic Shift
T he Indian auto industry is all set to witness a change in scenario. With major auto manufacturers hitting bullseye with
innovations in electric vehicles, the Indian government is leaving no stone unturned to capitalize on this
environmental-friendly opportunity. Highways Minister Nitin Gadkari recently said people must switch to clean vehicles
and has asked automakers to switch to alternative fuels, including electric automobiles. He added that India can achieve full
electric mobility by 2030. The cover story in this issue talks about the measures being undertaken to achieve the said target.

The other interesting reads in this issue include the upgrade in credit rating for India Inc by global ratings agency Moody’s,
the importance of Mortgage Redemption Schemes or Loan Protection Covers as they insure home loan EMIs by creating
an insurance cover on the loan, the need for the Indian banking sector to invest in technology and how the banks can profit
from it, an in-depth view of management fiascos and the tales they hide and tell, the impact of demonetisation and the goods
and services tax (GST) on the beleaguered real estate market in India, the entry of nearly a hundred foreign brands into
India, and the growing logistics industry and the opportunities it holds.

While the Beyond Basics section carries an article on how exchange-traded funds (ETFs) are gaining favour among Indian
investors, the Beyond Learning section talks about how investors can successfully time and forecast the stock markets.

Do not miss the cut-and-keep list of international stock market holidays in this issue.

The Beyond Market team would like to wish all its valued readers A Happy 2018!

Tushita Nigam
Editor

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

 The Indian stock
markets look good
at the moment.

I
n the previous fortnight, the Federal Reserve increased interest rates by 0.25%. While maintaining a
positive outlook on growth, the Fed indicated that it was likely to raise rates by 0.25% three times in
the year 2018.

On the domestic front, the ruling party at the Centre won the Assembly Elections in Gujarat and Himachal
Pradesh. Both these wins indicate the presence of a stable government at the Centre.

The Reserve Bank of India’s Monetary Policy Committee kept key rates unchanged at the fifth bi-monthly
policy review of the fiscal year but cited concerns over rising inflation. The RBI kept the short-term lending
rate or the repo rate unchanged at 6%.

The Indian stock markets look good at the moment. The Nifty has support at the 10,320 level. The
near-term upperside target for the Nifty is at the 10,550 level. If it crosses that level, the Nifty could touch
the 10,730 level.

Market participants can look forward to FY18 Q3 earnings results that will build near-term expectations in
the market in the near terM.

Sensex: 33,756.28 Disclaimer

Nifty: 10,440.30 It is safe to assume that my clients and I may have an investment interest in the stocks/sectors
discussed. Investors are required to take an independent decision before investing. Investment in
(As on 21st Dec ’17) equity is subject to market risk. Our research should not be considered as an advertisement or
advice, professional or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and the like and take
professional advice before investing.

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

 MOODY’S
TIMELY
RECOGNITION

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


By upgrading India’s
rating to ‘Baa2’ from
‘Baa3’, Moody’s has
acknowledged the
reforms undertaken
by the government
in recent years
R
eforms undertaken by the
government are finally
getting noticed. Global
credit ratings agency
Moody’s has upgraded India to
“Baa2” from “Baa3” and its outlook
has been changed to “stable” from
“positive”. This has been India’s first
upgrade by Moody’s in 14 years.
The ratings upgrade is important for
Beyond Market 16th - 31st Dec ’17
India as it comes amid clamour over
weak credit disbursement, low private
capital expenditure, a fear of fiscal
slippage and low economic growth.
To be sure, for the last two years, the
Indian government has been pitching
heavily for an upgrade by the ratings
agencies on grounds of improving
fundamentals and reforms undertaken
by the government.
The government argued that India’s
high growth rates, better fiscal stance,
structural reforms and low debt levels
are better than its peers, warranting an
upgrade by ratings agencies.
Therefore, the upgrade came as a
positive surprise for the markets.
Equity, currency and bond markets
reacted positively to the news.
THE RATINGS
Moody’s ratings upgrade has two
components. The ratings now stand at
“Baa2” from “Baa3” earlier. And the
outlook has been shifted from
“positive” to “stable”.
In simple terms, with this upgrade,
government bonds issued in Indian
rupee and foreign currency will have
a lower risk of default, implying a
lower debt cost for India and higher
acceptance by global investors. It is
also positive for companies with high
exposure to external borrowings.
But the shift in outlook from
“positive” to “stable” hints that the
next upgrade can’t be expected soon.
THE RATIONALE
The upgrade is a testimony to the
reforms undertaken by the
government in the past few years. In
particular, Moody’s has been
impressed by the recently-introduced
Goods and Services Tax (GST);
improvements to the monetary policy
framework; measures to address the
overhang of non-performing loans
(NPLs) in the banking system; and
other measures like demonetisation,
the Aadhaar system of biometric
accounts and targeted delivery of
benefits through the Direct Benefit
Transfer (DBT) system intended to
reduce informality in the economy.
FEW TAKEAWAYS
Here are a few takeaways from
Moody’s on the Indian economy,
which led to India’s upgradation.
Transparency And Institutional
Building
The government’s efforts to reduce
corruption and formalize economic
activity through demonetisation and
GST has contributed to the
strengthening of India’s institutions.
The formation of Monetary Policy
Committee (MPC) and the adoption
of a flexible inflation targeting have
enhanced transparency and efficiency
of monetary policy in India.
On Debt
Ratings agencies keep a hawk’s eye
on debt burden of a government.
Moody’s believes that recent reforms
offer greater confidence and that high
level of public indebtedness, which is
India’s principal credit weakness, will
remain stable. Moody’s thinks that
the debt burden will gradually fall.
India’s foreign exchange reserves
have increased to all-time highs
creating significant policy buffers to
absorb any potential external shocks.
On Fiscal Front
Adoption of the new Fiscal
Responsibility and Budget
Management (FRBM) Act is
expected to enhance India’s fiscal
policy framework and strengthen
policy credibility. Moody’s believes
It’s simplified... 7
 Movements In India’s Ratings By Three Major Ratings Agencies these steps will take time for their
Standard & Poor’s (S&P) Fitch Moody’s impact to be seen.
Rating Date Rating Date Rating Date
BB+ 7 Dec’92 BB+ 8 Mar’00 Ba2 (Lowest) 28 Jul’99 IN A NUTSHELL
BB (Lowest) 22 Oct’98 BB (Lowest) 21 Nov’01 Ba1 3 Feb’03
BB+ 2 Feb’05 BB+ 21 Jan’04 Baa3 22 Jan’04
BBB- (Highest) 30 Jan’07 BBB- (Highest) 1 Aug’06 Baa2 (Highest) 16 Nov’17
The government has been working
Source: Bloomberg hard to improve business climate by
enhancing productivity, stimulating
that the broader tax base with GST short-term disruptions. So Moody’s foreign and domestic investment, and
and expenditure efficiency through has downgraded India’s GDP growth fostering strong and sustainable
rationalization of government forecasts to 6.7% in FY17-18 but growth. Approval by other agencies
schemes and better-targeted delivery expects a sharp pick-up to 7.5% of these reforms is welcome.
with the DBT system will support growth in FY18-19, with robust
gradual improvement in India’s fiscal levels of growth from FY19 onwards. A change in ratings will stabilize
metrics over time. foreign flows in the Indian economy.
WHAT NEXT Sectors relying on external sources of
On Banks funds will see lower debt. It is a
Moody’s warns material deterioration positive move for sectors like power,
Recent announcements of in fiscal metrics would put negative telecommunications, steel and IT
comprehensive recapitalization of pressure on the rating. It could also since they have a high exposure to
Public Sector Banks (PSBs) and signs face downward pressure if the health external borrowings.
of proactive steps towards resolution of the banking system deteriorates
of high NPLs through the use of the significantly or external vulnerability Although a ratings upgrade is positive
Bankruptcy and Insolvency Act, 2016 rise sharply. for investors, other ratings agencies
has been acknowledged by Moody’s. are yet to change their stance. This is
These reforms have started to address On the other side, the ratings can see a because much remains to be done.
a key weakness in India’s sovereign further up move if the government They are wary of India’s high public
credit profile. sticks to fiscal consolidation and there debt and low per capita income. There
is sustained reduction in debt. are also implementation challenges
On GDP Growth with GST. Weakness of private sector
Implementation of key pending investment is also worrying.
GST and demonetisation have reforms, including land and labour
undermined India’s growth over the reforms, could also put additional Though over time these issues will be
near term. But Moody’s believes that upward pressure on the rating. But addressed, till then other global
long-term gains will outweigh Moody’s has also acknowledged that ratings agencies will wait and watcH.

THE RATINGS AGENCIES

A credit rating is an independent opinion of a borrower’s ability to service its debt obligations. These ratings are assigned by ratings
agencies. Ratings agencies give ratings to a borrower like a company or a sovereign nation. Key global credit ratings agencies are Standard
& Poor’s (S&P), Moody’s Investor Services (Moody’s), and Fitch. These agencies adopt different rating scales. But they are still
equivalent, which facilitate comparison. For example, Baa1 rating from Moody’s is equivalent to a BBB+ rating from S&P and BBB+ from
Fitch. These grades can also be categorized as investment grade: Baa3/BBB-/BBB- and above. Non-investment grade (or speculative grade,
junk, high yield) are Ba1/BB+/BB+ and below. These grades are attached with an outlook - stable, positive, negative. It indicates the
direction where the rating is likely to move over time.

Utility

Sovereign credit ratings give investors insight into the level of risks associated with investing in a particular country. Institutional investors
subscribe to these credit ratings agencies. A better sovereign credit rating can help a country access funding in international bond markets
and help attract foreign direct investment. Equity investors seek confidence in investing in a country with a better credit rating. Of late
sovereign ratings are considered to be more reactive than pro-active in assigning ratings.

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

TRULY SECURE
Mortgage Redemption Schemes or Loan Protection Covers protect
you and your home in the event of an unforeseen event which may
prevent you from continuing to pay your home loan EMI

B
uying a dream house is
one of the biggest
investments of anyone’s
life. But taking a home
loan does not necessarily mean the
start or end of financial matters.
As a borrower of the loan, one has to
also ensure that loans get serviced on
time and there is no default on paying
equated monthly installments (EMIs)
every month. In such a situation it’s
all the more important to cover home
loan liability and not let trouble pass
on to family members in case of any
death or disability.
Nowadays banks bundle home loan
insurance or mortgage redemption
insurance plans and protection plans
when someone applies for a home
loan. But should a policyholder only
buy home loan insurance, which
covers only liability or should the
individual buy additional policies,
which also cover home insurance and
home loan protection plans, also
known as HLPPs?
Just like a pure-term plan, insurance
companies also offer loan protection
plans that are designed to take care of
outstanding loans in case of
unforeseeable circumstances. But the
home loan cover from the lender may
not be the best option.
There are other policies that can give
more benefits at lower costs and this

Beyond Market 16th - 31st Dec ’17 It’s simplified... 9

 works out to be more cost-effective
for young borrowers.
WHAT IS HOME LOAN
INSURANCE?
Home loan insurance is like any other
life insurance term plan. The
difference is that instead of paying
your nominee, the insurer settles the
claim with the bank to close the loan
on the policyholder’s behalf.
In a term cover, the money would be
given to your nominee or the legal
heir, who would then have to settle
the loan with the bank. If by any
chance, the loan amount is less than
the sum assured of the policy, the
remaining part is paid out to the
family by the insurance company.
Though it’s like term plan cover,
which is offered by life insurance
companies, when you buy term
insurance from a life insurance
company, you pay an annual
premium. However, in home loan
insurance, the premiums are added to
the loan amount and it is part of the
loan’s EMIs.
For example, if a 30-year-old takes a
loan of `50 lakh for 15 years and
suppose premiums of term plan
would be say `4,000 every year,
which he would pay every year.
But in home loan insurance, this
`4,000 is added for the next 15 years
and the loan amount increases to
`50.6 lakh. So, EMI is calculated on
this number and not on `50 lakh.
Also, the insurance offered by the
loan cover will come down as loans
get repaid by the borrower.
For example, if a policyholder buys a
`50 lakh cover for 15 years. But by
the 10th year, the loan cover could
have been reduced to about `20 lakh.
So, it would cover the policyholder on
the exiting `20 lakh only. In pure term
10 Beyond Market 16th - 31st Dec ’17
plan, one could continue to get full
cover on the sum of `50 lakh.
However, many say that like in
investment it is advisable to have
separate buckets for their goals and
the policyholder should not mix term
plan and home loan insurance.
It is always advisable to keep this
cover separate so that it is linked to
the need of the family. So what is the
best option for the policyholder?
The policyholder should instead buy
the cheap term plan as its cover can
not only be a replacement for home
loan insurance policies, but is a better
option in some cases.
As a person’s family and income
grow with time, the amount of
insurance cover he needs also grows.
Therefore, while a term plan protects
the family against outstanding
mortgage, the remainder of the
insurance cover can be useful in
covering the growing insurance needs
of the family.
SHOULD INVESTORS OPT FOR
HOME INSURANCE AND HOME
LOAN PROTECTION PLANS
ALSO KNOWN AS HLPPs
Apart from normal home loan
insurance, bankers also sell HLPPs,
which cover critical illnesses,
accidental deaths and even job losses.
However, these plans are only for up
to three years for individuals and up
to five years for group plans.
Typically, premiums are between
0.8% and 1% of the total sum insured.
So, if we take example of the above
loan amount, then the premium would
come to around `50,000.
The advantage of such policies
against pure term cover is that the
loan insurance plan pays the sum
assured when there is diagnosis of 13
critical illnesses (which changes from
one insurance company to another),
accidental death and permanent
disability. But in a pure term plan, the
nominee of the policyholder is paid
only at the time of natural death.
Home loans are typically given to the
salaried who are young enough to be
able to repay the loan before they
retire. The likelihood of a relatively
young person passing away due to
natural causes is low. But his chances
of meeting with an accident are
relatively high.
An accident seldom leads to death,
but it often causes injury, sometimes
serious in nature. This, in turn, leads
to temporary or permanent loss of
income, which affects a person’s
ability to repay his home loan.
The ideal insurance cover for
guarding against this risk is the
personal accident policy. It covers the
insured against the loss of limbs and
paralysis. These policies also provide
for payment over and above the sum
assured in the event of serious injury
or death due to an accident.
The personal accident cover will
guard against loss of income due to
injury, and also against death, and is a
must-have insurance policy,
irrespective of whether one has taken
a home loan or not.
As the breadwinner of the family,
once you have bought an insurance
cover against the home loan, you can
be rest assured that the asset you have
purchased will stay with the family
under all circumstances at a fraction
of the cost.
However, it is advisable for
policyholders to buy home insurance,
which covers fire, burglary and theft.
Such an home insurance policy
protects one’s home, its contents, and
It’s simplified...
indirectly, his/her other assets in the
event of fire, accident or other
disasters. A standard policy will also
protect the policyholder’s possessions
from the said disasters as well as
theft, if it ever occurs.
IN A NUTSHELL
It is the duty of the bread winner of
the family to protect his/her
dependents financially. But it is
equally important to get the right kind
of protection.
The policy buyer should understand
financial products properly before
buying them. The said person should
also fill in all the requirements
correctly because if not done
properly, claims might get rejected by
insurance companies.
To ensure that claims are done on
time and there is no rejection of
Beyond Market 16th - 31st Dec ’17
claims, the policyholder should also
follow various steps while buying
insurance policies.
Furthermore, since insurance is a
financial contract, it is always
advisable for the proposer before
buying any policy to properly
understand the benefits, coverage and
premium details.
It is also advisable for the customer to
fill the application form carefully
stating his/her personal details and
health profile. The customer must
also ensure that the information
provided in the application form is
not only complete but also accurate.
Also, post receiving the policy
document, the individual must verify
whether all the information listed in
the document is accurate.
Many times in such mortgage
redemption insurance policies that are
bought at the time of taking home
loans, banks fail to remit the money to
insurance companies.
In such circumstances too claims can
be rejected. It is believed that such
cases are high at insurance
ombudsman.
Hence, the policyholder must always
carry the policy document while
buying the cover from banks. Apart
from that, in case of death under
home loan insurance, claims can be
rejected if the family of the
policyholder is unable to submit the
post mortem report for claiming death
benefits under accidental death.
Finally, if you are opting for home
loan insurance, look at the options
yourself, understand the policy
conditions and only then make an
informed choicE.
Contact at: 022-6273 9600
e-mail: sales@nirmalbang.com
It’s simplified... 11
EXTRAORDINARY
GAINS Investment in
technology could
lead to a more
profitable business
model for
Indian banks

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

I
ndian banks are passing
through a difficult phase. In
the last three years, the
non-performing assets (NPAs)
of banks have risen exponentially.
Public sector banks that capture 70%
of the market share a disproportionate
burden of this stress. Some large
private sector banks too are feeling
the heat of asset quality pressure.
Recently, the government announced
it would infuse capital to the tune of
`2.11 lakh crore in public sector
banks for two years - 2017-18 and
2018-19. Of this, `1.35 lakh crore
will come through the issuance of
recapitalization (recap) bonds.
This move by the government has
been appreciated by all the concerned
parties. Ratings agencies have
indicated that if the capital infusion
plan is executed well then there could
be a possible ratings upgrade in 2018.
However, having said that, capital
infusion alone will not solve the
problem of restoring the financial
health of Indian banks.
The banks also need to adopt new
strategies and restructure their
business fundamentally. This is
necessitated by changing customer
preferences, competition from
non-banking financial institutions and
fintech players and digital disruption
of financial services.
The rules of the game are now
completely in favour of all those who
have embraced the digital age.
According to a recent report by
industry body Federation of Indian
Chambers of Commerce and Industry
(FICCI) and global management
consulting firm Boston Consulting
Group (BCG), banks in India need to
make a paradigm shift to digital and
data platform.
Beyond Market 16th - 31st Dec ’17
The changing nature of business is
evident from the fact that the
corporate segment that is large
borrowers which is about 40% of
advances and revenues today, is likely
to shrink to around 27% by FY22
mainly driven by movement of large
corporates to debt markets and
lingering bad debts in the corporate
segments of various industries.
At the same time, retail lending
revenue pool growth is close to its
peak sustainable rate and is expected
to stabilize at the current rate.
However, there are positives too.
Growing retail investment in mutual
funds is one of them. The report says
that evolution in savings habits
towards mutual funds will provide an
inflection in bank’s fee and advisory
income, and banks could gain share
over non-bank distributors to shore up
their profitability.
In addition to this, micro, small and
medium enterprises (MSME) offer
promising upside in the future as the
share in lending revenues could
increase from 20% to 24% by FY22,
driven by substitution of informal
credit with reforms like GST and
digital payments through point-
of-sale terminals.
The MSME segment in the country is
said to be severely underpenetrated. It
has lower NPAs and better pricing
advantage and provides banks with a
unique opportunity to build
disproportionate growth.
In order to reap rich dividends of
these opportunities, Indian banks
need to understand the importance of
data. Banks have a natural advantage
in the data world as they have more
data per unit of revenue than any
other industry – 5330 GB for every `1
crore revenue.
“Treat data as a strategic asset and
prioritize technology investments that
consolidate and monetize data.
In many instances, banks’ internal
data has to be supplemented with
external sources to drive maximum
advantage. Partnerships for accessing
data will need to become a standard
feature of strategy in the coming
days,” the report said.
The report argues that using data in
every component of the banking
business model can add cumulatively
`3 lakh crore to the bottom line over
the next 5 years – almost 0.4% of
incremental annual ROA. This can be
a hidden treasure to build a healthy
balance sheet and business model.
“One brahmastra which can really
unleash unprecedented value for
Indian banks is ‘data’. Banks have the
highest amount of data about their
consumer per unit of revenue earned
compared to any other industry and
can leverage this strength to their
advantage,” said Dr Sanjaya Baru,
Secretary General, FICCI.
The research report’s estimate that
banks can improve their return on
assets by 0.4% will depend on smarter
leverage of data in deepening
customer relationships and share of
wallet through personalization, more
differentiated pricing, pushing lower
cost digital channels, advanced early
warning signals and collection
strategies, geoanalytics for more
efficient placement of physical assets
and analytical insights for
performance improvement.
Additionally, they occupy a position
of trust with their customers. As they
keep customers’ money safe and
deploy it productively with their
consent, they can do the same about
the customers’ data as well. The
report says data can be a hidden
treasure to build a healthy balance
sheet and business model.
It’s simplified... 13
 “The revenue pool of Indian banking
is at an inflection point and is set to
change dramatically over the next 5
years. There has also been a dramatic
shift in transaction profile of banks –
with a noticeable acceleration in
digital adoption, though regional
disparities are significant.
“In the current environment where
Indian banks have to play a
significant role in supporting the
nation, they face headwinds from
multiple fronts” said Saurabh
Tripathi, Senior Partner and Director
at BCG.
The report goes on to suggest banks
that they should embrace data for
credit decisions as judgment has
limitations in a complex world. For
this, analytical credit models will
have to supplement traditional
capabilities of banks.
Digital infrastructure in the country
has matured over the years and is
deployable at scale. The Aadhaar
infrastructure also provides the
possibility for e-KYC that very few
countries are able to offer.
As a result, it is possible to envisage
zero or minimal paper, turnaround
times within minutes in certain
products, and consequently much
lower costs.
Robotics process automation and
artificial intelligence technologies
have matured and deployments in
Indian banking technology
environments have demonstrated up
to 30% reduction in costs.
The report says paper is by and large
not needed as paper causes delays,
increases costs and gives false
comfort. Transform processes with an
intent to make them as straight as
possible with only the most essential
human intervention that is needed.
“Faster decisions are better decisions.
Typically, decisions that take longer
are the ones that should have been
declined but are justified with various
arguments over time,” it said.
It also highlights the importance of
partnerships and termed them as
critical and said banks need to open
up to partnerships with other players
for data access, distribution reach or
customer proposition enhancement.
Such partnerships are not a traditional
strength of Indian banks.
Since the corporate sector is the key
source of asset quality problems of
banks, there is a need for a new credit
model for commercial lending.
The banking industry needs to invest
in new credit models for commercial
customers that rely on surrogate data,
credit bureau information, and
analytics to complement banks’
capabilities in credit assessment and
detecting early warning signals.
It argues for a move towards scientific
pricing of credit, which can increase
profitability of banks. “Pricing in
Indian banks is an area that has not
found sufficient science deployed.
Both in the commercial as well as
retail segments, pricing offers an
opportunity to strengthen
performance in the short term,” the
report elaborated.
One of the problems is that pricing
requires collective action from banks.
If a few leaders in the industry were to
adopt a disciplined approach to
risk-based pricing, it could improve
banking profitability by 20-30 basis
points (bps).
Further, at the bank level, banks need
to deploy models to estimate
customer price elasticity to introduce
value-based pricing and control value
that is destroyed by indiscriminate
discounting by the front line.
And finally there has to be data
privacy and digital literacy. As banks
(and many other industries) start
capturing and leveraging customer
data to access risk and business
potential, it is critical that laws
regarding privacy of customer
information and literacy of customer
regarding their rights are strengthened
in parallel to prevent misusE.

Poison Pill

Poison pill is a strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company
attempts to make its stock less attractive to the acquirer. There are two types of poison pills:
1. A “flip-in” allows existing shareholders (except the acquirer) to buy more shares at a discount.
2. A “flip-over” allows stockholders to buy the acquirer’s shares at a discounted price after the merger.

By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held
by the acquirer. This makes the takeover attempt more difficult and more expensive. An example of a flip-over is when
shareholders gain the right to purchase the stock of the acquirer on a two-for-one basis in any subsequent merger.

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

 THE
HIDDEN

Management fiascos often reveal managerial

challenges and market realities as is evident from the
infighting at both the Tata Group and Infosys

T
here have been several
management fiascos in the
past. Recently, the
boardroom issues at the
Tata Group and Infosys are fresh in
people’s minds.
What is common in these cases is that
investors lost a lot of money when
share prices reacted significantly to
the tussle. Although these issues
appear transitory, investors have
much to learn from them.
An assessment of management
quality, an often ignored aspect while
investing in a company, is quite
critical as it has a far greater bearing
on wealth creation.
It is the company’s top management
that is responsible for taking strategic
decisions, which have a long lasting
impact on the future of the business.
It is, therefore, common prudence that
a ‘strong and reputable’ management
can go a long way in steering a
company towards prosperity and
growth eventually.
While there are no specific metrics to
‘quantify’ management quality, a few
qualitative factors can help determine
whether overall business goals are in
sync with the management of the
company or not.

Beyond Market 16th - 31st Dec ’17 It’s simplified... 15

 CAPABILITY AND
COMPETENCE
First and the most important thing
before investing in any company is to
know the management of the
company in terms of capability as
well as competence.
The best way to assess this is to look
for a 10 to 15 year history of the
company and the kind of decision or
strategies that have been executed by
the company management.
A strong and competent management
has a credible track record of making
some of the best decisions in good
and bad times. In cyclical industries
like commodity, it is worth analyzing
management credentials and
execution capability of a company,
and how it has behaved in downturns.
To put it in perspective, despite great
businesses many companies in the
2007-2008 period suffered or
vanished due to poor management
decisions. Several of them suffered
because of a number of reasons.
The decisions include costly
acquisitions by the management,
entering into non-core activity,
leveraging balance sheets, ill-timed
expansions, etc.
It is often seen that a management has
very little idea about the industry and
the business the company is into.
Company managements often fail to
identify competition early or are
caught off guard when change strikes
due to lack of capability.
Strong management teams of
companies are typically backed by
solid experience and educational
qualifications. As a result, they have
the ability to leverage opportunities
and pre-empt obstacles. Also, a
well-managed company is expected
to have a stable management team
16 Beyond Market 16th - 31st Dec ’17
with low turnover rates.
A stable upper management also
offers comfort to investors and
translates into a reasonable degree of
competency as the management
would have experienced a number of
business cycles in the past, turning it
into a profitable business model.
GROWTH MINDSET
In investing, equity without growth is
often termed as debt. For any equity
investor to make money, growth is
essential. The basic tenet of running a
business is to grow it, that is, to make
it scalable and sustainable.
How a company achieves this growth
largely depends on the strategy and
risk appetite of the management.
Does the management believe in
driving growth the organic way (that
is by way of product diversification or
expanding in new markets, etc) or
inorganic way (that is by mergers and
acquisitions or divestures of
unprofitable business lines) or by a
mix of both?
The inorganic way of growing the
business involves significant risks
and comes with a considerable cost of
capital. Organic expansion requires a
deep understanding of market
dynamics (that is demand potential as
well as peer market share) and the
expertise to offer new
products/services.
Ultimately, the growth will be a
function of the management’s
strategy. Does it aim to be a market
leader or a niche player?
As long as the management is focused
on scaling up the business and
growing at a rate which is in line with
or higher than the peer average, the
business will be able to sustain itself,
which will be reflected in financial
performance of the company.
However, it is important to
understand that companies from
different sectors have a different
sustainable rate of growth. (For
example, a food chain can never grow
at a pace comparable to a technology
company). Therefore, a management
which can judiciously balance risks
and rewards of growth is essential for
the long-term success of a business.
CAPITAL ALLOCATION
Investors such as Warren Buffett and
several others give a lot of attention to
capital allocation decisions taken by a
company, particularly the
management’s view on the same.
Capital allocation refers to how much
capital (equity and debt) is available
or deployed in various businesses (to
grow and generate profit) and for
distribution to the company’s
shareholders (in the form of dividend
payouts or share buybacks).
Capital is treated as a resource and
comes with certain costs. The art lies
in deploying this capital in such a
manner that it makes better returns
compared to the cost of capital.
This is done to see if the capital is
allocated for the purpose of personal
luxuries like modern offices,
helicopters, yachts held in the name
of the company. It is often seen that
promoters destroy value by pursuing
their own needs with the capital
meant for the company.
Promoters often destroy value by
spending money on personal rivalries
and ego clashes. There are examples
of promoters having gone overboard
on costly acquisitions, advertising
campaigns, etc to compete with its
business rivals.
Typically, higher capital allocation to
It’s simplified...
a business means higher expected
growth rate and earnings generation
from it. Capital allocation decisions
are influenced by the management’s
growth strategy.
For example, a company looking for
inorganic expansion may choose to
raise equity or debt capital or keep a
lot of its earnings in cash to fund its
mergers and acquisitions (M&As)
vis-à-vis a company that is looking at
inorganic growth.
Alternatively, a company with a
consistent shareholder return history
may choose to maintain a high
dividend payout ratio rather than
retaining earnings or hording cash in
case there are no feasible
opportunities to deploy the cash.
Capital allocation decisions are,
therefore, one of the most important
responsibilities of the management
and affects a company’s growth
prospects, future earnings and
shareholder value (in case the
company is public).
It is one of the biggest dilemmas
faced by a company management and
strong managements strive to do a
balancing act between pursuing a
solid growth rate and maintaining an
optimal capital structure.
INTEGRITY AND
TRANSPARENCY
Following a spate of debacles in the
last two decades (dotcom bust in
1990, the global financial crisis in
2008), corporate governance and
integrity have gained utmost
importance in all organizations. There
are many facets that demonstrate
integrity. But broadly, it refers to:
i)Adhering to proper accounting
policies (no under reporting or over
reporting)
ii)Making proper disclosures with
regards to legal risks
iii)Integrity with regards to
management practices (no insider
trading, inappropriate remuneration
of the top management, etc)
iv)Integrity with regards to customers
(no miss-selling of products and
services)
v)No conflict of interest (separation
of the post of Chairman and CEO, a
number of independent directors on
the board, etc). A reputable company
will demonstrate trust and integrity to
its customers, employees and
shareholders
PAST PERFORMANCE
The best way to assess quality of the
management is to look into the
company’s past. If investors can lay
their hands on past annual reports and
statements during different cycles in
the industry, then they will get a fair
idea about the credibility of the
company management.
Rather than putting too much
weightage on the future, looking at
historical financials of a company
could be hugely helpful in assessing
the management.
Well-managed companies tend to
have stable or gradually improving
return ratios over the long-term as
opposed to highly volatile companies.
Well-managed companies also have
solid balance sheet strength as is
evident from its asset composition,
debt-equity ratio, etc.
While future financial performance
will depend on a host of factors such
as future growth rate, macro-
economic environment, regulatory
environment, etc.
Typically, past profitability ratios
such as operating margins and costs
give an idea about competitive
advantage that the company has built
in the past. Better return ratios such as
RoE and RoA will indicate how well
the company has managed its capital.
Leverage ratios are important along
with the interest coverage ratio as
they suggest whether the management
has taken too much or undue risk in
the past and how profitability has
behaved in such times.
Managements that are upbeat about
the prospects of the company in an
upcycle tend to raise capital, which
may or may not be sustainable.
The leverage ratios indicate a lot
about a company’s management when
they are analyzed mainly from an
historical perspectivE.

Accounting Cushion
Accounting cushion is the overstatement of a company’s expense provision, in order to create a cushion for future results.
A company can use this to artificially understate income in the current period by overstating liability or allowance
accounts. This will give the company the ability to overstate income in a later period. An accounting cushion can be
achieved by increasing allowances for bad debts in the current period, without any indication that bad debts will actually
rise. This would understate accounts receivable in the current period, and the company could make up for it in the next
period by overstating accounts receivable. This is a method of income smoothing, and if discovered an auditor or analyst
should adjust these back to their proper levels.

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

 A
DOUBLE
WHAMMY
Demonetisation and
GST have dealt a
blow on the already
shaky real estate
market in India

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

I
t is no secret that India’s
property market has been a bit
shaky after the government
introduced policy reforms such
as demonetisation to flush out black
money from the economy. India’s
residential market, especially the
secondary or the resale market is a
known haven for investors with black
money. Cash transactions have been
the norm in the resale market.
The government’s move to ban
high-value currency notes of `500
and `1,000 has had serious
repercussions on the property market.
Cash was not readily available. Real
estate transactions came to a halt,
especially in the resale market, which
is driven by cash transactions.
Investors could not sell their
properties because they wanted to
avoid coming under the radar of the
income tax department.
Demonetisation was meant to reduce
the circulation of black money in the
economy and it had its desired impact
on the real estate sector. Real estate
transactions in cash slowed down and
with it came a drop in home sales.
According to Knight Frank, which
tracks the primary residential market
of eight cities, home sales fell by 44%
in October-December ’16, compared
with the year-ago period while new
launches dropped by 61%.
The property market with a high
proportion of genuine buyers such as
Bengaluru and Hyderabad did not see
much of a fall in sales.
Investor-driven markets such as
Delhi/NCR and Mumbai were hard
hit. The typical black component in
real estate transactions in
investor-driven markets is around
40% and in the absence of cash, these
markets saw a steep fall in sales.
The Delhi-NCR market saw the
maximum fall in home sales during
Beyond Market 16th - 31st Dec ’17
October-December (2016) at 53%,
Mumbai saw 50%, Bengaluru 45%,
Ahmedabad 43%, Hyderabad 40%,
Pune 35%, Chennai 31% and Kolkata
20% decline in sales.
The drop in sales was also because
buyers decided to wait for property
prices to fall before making a
purchase decision. There was a belief
that property prices would see a steep
fall after demonetisation.
Property prices did decline in pockets
with a high cash component. But it
was not a uniform decline in prices.
For the most part, developers held on
to property prices and new launches
dried up during this period.
The good news for home buyers is
that interest rates on home loans are at
an all-time low. Sales in the primary
market have started improving thanks
to low interest rates. Transactions in
the primary market tend to be through
banking channels. So this segment
didn’t take long to recover.
In the resale market, home sales are
still sluggish, though the industry is
hoping sales in the resale market will
pick up through banking channels.
Real estate research firm Liases Foras
says the real estate market has
recovered from the shock of
demonetisation and posted home
sales growth of 28% after
demonetisation. Kolkata saw the
highest growth in sales at 27% in the
first quarter of FY17-18 on a yearly
basis, National Capital Region (NCR)
saw 17% growth and Mumbai
Metropolitan Region saw 23%
growth. Chennai, Bengaluru and
Hyderabad saw a dip in sales at 36%,
28% and 22%, respectively.
Sales were driven by the affordable
housing segment, which contributed
to 17% of overall sales. Luxury
homes priced between `50 lakh and
`1 crore saw a drop of 3% in sales.
Home prices have seen a correction in
some places, though the broader trend
is a status quo on prices. Liases Fores
says the weighted average price in
tier-I cities grew by 2% and 1%
year-on-year (y-o-y) and quarter-
on-quarter, respectively.
The average price across cities was
`6,764 per sq ft, up from `6,660 per
sq ft. Pankaj Kapoor, Managing
Director, Liases Foras, said, “The
growth is mainly on account of the
traction in the affordable segment of
the market. We have seen both
demand and supply flow in the
segment, making it an end
user-friendly market.
“We are witnessing good numbers
despite RERA, GST and
demonetisation, a sign that augurs
well for the market in the future. What
has also helped the market overall is
stable prices over the last few years,
giving buyers a benefit of time
correction,” said Kapoor.
The positive impact of
demonetisation is that it has increased
the confidence of investors,
especially those who believed that the
real estate sector is a hub for unethical
transactions. The fact, however,
remains that demonetisation alone
cannot clean up the sector.
This reform measure will have to be
supplemented through other reforms
in the sector such as eventual
minimization – if not complete
elimination of benami property
transactions, ban on all cash
transactions above a particular value,
etc. These are all long-term steps that
can help clean up the real estate sector
in India.
In 2018, we could see many changes
in the residential property market.
The implementation of reforms such
It’s simplified... 19
 as RERA and GST are expected to
streamline the real estate sector and
bring in more transparency.
Developers have become cautious
about launching new projects
considering the strict rules of RERA.
So, we could see a hit in fresh supply
of homes. RERA will, however,
restore buyer confidence and assure
them that their investment in real
estate is safe.
The law is slightly hard on developers
adding to their compliance costs. But
if we look at it from another
perspective, this will leave only
serious developers in the market. As
home buyers gain confidence in the
sector, developers will be encouraged
to launch new projects.
The other game changer for the
industry - GST - was conceptualized
around the “one nation, one tax”
philosophy. It aims to eliminate the
Contact at: 022-6273 9600
e-mail: sales@nirmalbang.com
20 Beyond Market 16th - 31st Dec ’17
existing complicated tax structure by
creating an uniform tax rate and
structure, across the country.
Earlier, developers had to pay
customs duty, central sales tax, excise
duty, entry tax and a myriad of other
taxes, which resulted in multiple
taxation. The tax burden was
eventually passed on to home buyers.
GST will apply to underconstruction
properties, which will be charged at
12% (this does not include stamp duty
and registration charges). It does not
apply to completed or ready-to-
move-in projects.
GST has introduced the concept of
input tax credit, which means that
credits of input taxes paid at every
stage of construction can be availed
of in the value addition stage. It
remains to be seen whether
developers will pass on this benefit to
buyers though in some instances they
have started doing so.
GST will revive home buyer and
investor interest by bringing in more
transparency in the industry through
single taxation. It will also improve
accountability and this will go a long
way in improving home buyer
confidence. While there is a belief
that GST will reduce home prices,
this may not happen in the short term.
The year 2018 promises to be
interesting one for the residential
property market. While supply of
homes may be hit, there is enough
unsold inventory in India to take care
of the demand for homes.
Meanwhile, real estate developers are
focusing on completion of existing
projects. Home prices are expected to
remain at the same level and this
would be more a function of demand
and supplY.
It’s simplified...
 THE FUTURE
IS ELECTRIC
The government plans to have only
electric vehicles on road by 2030; expect
a massive shift in the auto industry
L
ast month Highways
Minister Nitin Gadkari put
the auto industry on notice
by stating that they will be
bulldozed if they do not go in for
alternative fuels.
“We should move towards alternative
fuel... I am going to do this, whether
you like it or not. And I am not going
to ask you. I will bulldoze it,”
Gadkari thundered before the stunned
who’s who of Motown at a function.
Beyond Market 16th - 31st Dec ’17
Gadkari’s high pitch underscores the
government’s seriousness of its
resolve to have only electric vehicles
in India by 2030 - that’s just little over
a decade. Meantime, in the next two
years, the government wants six
million EVs on roads.
Quite an ambitious target, given that
about 22,000 electric vehicles were
sold in India last year against the 21
million internal combustion engine
(ICE) or traditional fuel ones. In
contrast, 3,36,000 EVs were sold in
China in 2016 and 1,60,000 in the US.
WHY THE SHIFT?
Under the Paris climate agreement,
India is obligated to bring down its
share of emissions by 33% to 35% by
2030 from 2005 levels. The country
imports 82% of its oil requirements
and runs up $85 billion oil imports
bill. If nothing is done, that figure is
likely to rise to $300 billion by 2030.
It’s simplified... 21
 SO WHAT IS THE
GOVERNMENT DOING?
The government has lined up a slew
of measures to reach the target. It is
set to roll out a national policy for
EVs, which will set the standards and
specifications and provide guidelines
to incentivize the use of EVs.
To start with, state-owned Energy
Efficiency Services Ltd (EESL) has
ordered 10,000 electric cars this year
from Tata Motors and Mahindra &
Mahindra to replace existing
government vehicles. The next set of
tenders is expected to source
e-rickshaws and e-autos.
EESL is firming up a £100 million
investment for buying a combined
heat and power utility in the UK, and
investing in firms that are setting up
fast-charging EV infrastructure.
The government plans to bear up to
60% of the research and development
(R&D) cost of developing
indigenous, low-cost electric
technology and has set aside a corpus
of `14,000 crore for it.
INFRASTRUCTURE AND
BATTERY PRICES
Currently, there are only 100-odd
charging stations in India. In contrast,
China plans to install 1,00,000
charging stations along 11 major
routes by 2020, covering 202 cities
and 36,000 km of expressways.
While automakers are worried on the
infrastructure front, the government is
moving on it fast with tenders for
charging stations, electric
three-wheelers and battery-powered
buses expected to be floated soon.
The government has also reportedly
held talks with over 50 Indian and
global companies, seeking investment
on setting up charging stations,
22 Beyond Market 16th - 31st Dec ’17
purchasing electric cars,
three-wheelers and batteries.
In addition to this, the battery prices,
which account for a third of an EV’s
cost, have been falling. From $600
per battery unit in 2012 they have
dropped to $250 in 2017 and are
expected to hit $100 by 2024, which
would make them cheaper than petrol
vehicles in India.
Think tank NITI Aayog says that the
government’s EV campaign can
create $300 billion domestic battery
market by 2030.
In observations with a US research
firm Rocky Mountain Institute, NITI
Aayog said the competition created
by India’s EV demand can bring
down global battery prices by 16% to
$60 per kWh by 2030.
While NTPC is seeking a pan-India
licence to set up charging stations,
other firms such as Exide, Amaron
and Microtek International are
looking to supply batteries and set up
repair shops.
Suzuki India has invested nearly
`1,200 crore to set up a new plant
manufacturing lithium-ion batteries
for electric and hybrid cars, in
partnership with the Denso Corp and
Toshiba of Japan.
Indian Oil Corp too has opened its
first charging station in Nagpur.
SUZUKI AND TOYOTA
Suzuki and Toyota plan to co-develop
EVs for India, with their first car
expected to roll out around 2020.
“Specifically, Suzuki is to produce
EVs for the Indian market and will
supply some to Toyota, while Toyota
is to provide technical support,” the
two companies said.
The two companies together are
likely to have enough volumes in
India and exports for high utilization,
which will bring down the overall
cost per vehicle. Other OEMs
dependent on imports of components
are likely to find it difficult to
compete on costs.
Suzuki intends to build the entire
value chain in India, which would
require a lot of investment. It is likely
to pay off in the medium term, as per
industry reports.
MAHINDRA & MAHINDRA
Mahindra & Mahindra will have three
new offerings in the space by
2019-20, which will have top speeds
of 186 kmph, 150 kmph and 190
kmph and go from 0-100 km in 9, 11
and 8 seconds, respectively.
The range for these electric cars
would be 350 km, 250 km, and 300
km. M&M currently has four EVs,
namely, the e2o (hatchback), eVerito
(sedan), eSupro (mini-van) and the
eAlfa mini (rickshaw).
The company plans to have EV
versions of its all future SUVs and
crossovers. It is also working on
making charging faster to about 40
minutes. For a full charge the e2o
currently takes about 5 hours.
It plans to ramp up production of EVs
tenfold with an investment of `600
crore over the next three years and
enter the cab aggregator sector with
EVs. It may extend tie-up with Ford
to make EVs.
HYUNDAI
Hyundai Motor will introduce its EV
brand Ioniq in India to tap into India’s
ambitious plans to have an all-electric
fleet in the country by 2030. The
brand is likely to be showcased at the
forthcoming Auto Expo scheduled to
be held in February ’18.
It’s simplified...
TATA MOTORS
Tata Motors, which recently flagged
off its first batch of Tigor EV for
EESL order, is running trials of its
electric buses. Its partner Jayem
Automotives would introduce the
electric version of Nano to be used as
a cab in Delhi. JLR, its UK unit, plans
to make only electric or hybrid
versions by 2020.
BAJAJ AUTO
Bajaj Auto is working on a niche
business ‘Urbanite’. The franchise
will make aspirational products in the
electric two-wheeler space. EVs,
including three-wheelers, under the
new franchise, will go on sale before
the year 2020.
OTHER COMPANIES
Engine manufacturer Cummins India
is ramping up research on electric
mobility solutions. Ashok Leyland
has announced a strategic partnership
with SUN Mobility, a transportation-
solutions start-up, to develop a
battery swapping system for electric
buses. JSW Energy plans to launch
EVs and enter the renewable energy
storage sector by 2020. It has
committed about `4,000 crore for the
next three years.
SOON-TO-BE-LAUNCHED
MODELS
Small Toyota EV is expected to be
launched by the year 2020. The car
will be built at the Suzuki facilities
but with technical expertise from the
Toyota team.
Renault is working on a Kwid-based
EV for the Chinese auto market,
which it may export to India by the
year 2022.
M&M is gearing up to launch its first
electric SUV - the KUV100 EV.
Beyond Market 16th - 31st Dec ’17
Reports say the vehicle would be
displayed at the 2018 Auto Expo and
launched later in the year.
M&M may also launch electric XUV
500, since it is lighter and based on a
monocoque chassis.
Tata Tigor, whose launch for EESL
tender proved Indian automakers’
readiness for EVs, is likely to be
launched for general public by end of
next year.
Tata Motors may also launch the
Tiago in electric variant. It is expected
to be displayed at the Auto Expo
followed by a launch in the year.
AUTO COMPONENT MAKERS
Auto component firms are treading
cautiously on the new opportunity.
The Auto Component Manufacturers
Association of India is conducting a
study to assess the impact of EVs on
the industry and a report is likely to be
submitted to the government soon.
Internal combustion engines, which
are used in most cars, have more than
2,000 moving parts, while an electric
vehicle has about 20, resulting in
fewer breakdowns. Autocomp makers
see demand for their products drying
once EVs become dominant.
About half of the $45 billion in annual
revenue that are generated by the
component industry in India comes
from combustion engines and power
trains alone.
According to reports, some of the
component makers have decided
against making further investments in
capacity building.
THE CHALLENGES
EVs in India average 120 km on full
charge, making them unsuitable for
long drives. Also, there is lack of
speed - the top two India-made
battery-powered cars have a top speed
of 85km/hour. Without adequate
charging infrastructure, auto makers
will not have the incentive to
manufacture EVs.
Consumers will not shift to EVs
unless there are charging stations at
regular intervals. Also, convincing
the price-conscious consumer, even if
the infrastructure is in place, boils
down to the cost of ownership and
vehicle quality.
M&M’s e2o, for instance, starts at
`7.46 lakh (ex-showroom), which
compared to a regular hatchback
comes at quite a premium.
While EV costs have fallen, boosting
demand, better performing vehicles
will be key to achieving the 2030
target, according to experts.
Also, the government hasn’t specified
how it plans to generate uninterrupted
electricity in cities, where power
shortages are routine, forget power
supply in rural areas.
Experts say the rush to bring vehicles
to India will be essentially
showcasing models since there was
no market for pure EVs. Since the
government is serious about EVs,
auto firms are looking to hedge their
positions, they said.
With advances in technology - efforts
are being made to bring down
charging time to ten minutes and
Tesla planning a truck, which can go
800 km in single charge - EVs may
soon turn attractive.
Industry experts, however, said for a
significant portion to be EVs a lot
more was needed. They feel getting to
100% e-vehicles over the next decade
or so is quite unlikely, but it would
capture a significant share of the auto
market in the countrY.
It’s simplified... 23
 FASHION
BLITZKRIEG
More than 100
f o r e i g n br a n d s a r e
l i k e ly t o h i t t h e
Indian m arkets
s o o n , l e av i n g b u y e r s
s p o i lt f o r c h o i c e

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

A
s retailers struggle in
their home markets,
India seems to be the
next attractive market for
international brands. More than 100
international brands are queuing up to
enter the country in FY18 to tap the
opportunity in the retail sector and are
trying to form joint ventures or are
opting for the franchisee route.
The first retail wave was a decade ago
when big retailers and brands entered
India. The sector is now gearing up
for the next round of growth.
About 70 global and domestic retail
brands entered or expanded their
operations in Mumbai, Delhi National
Capital Region (NCR) and
Bengaluru, and seven new global
brands entered India in the first half of
2017, CBRE South Asia said in its
India Retail Market View Report for
H1 2017.
During the same period, the demand
for quality retail space remained
robust with a majority of this supply
concentrated in Mumbai, Bengaluru
and Delhi-NCR. Investments in the
retail segment by private equity firms
and wealth funds touched $200
million, the report said.
India’s top position in the 2017 AT
Kearney Global Retail Development
Index, which ranks 30 developing
countries, is indicative of the growing
prominence of the country as a
preferred retail destination for global
brands, it said. So, it is not surprising
that global brands are all trying to
grab a piece of this growth
opportunity as early as possible.
According to Anshuman Magazine,
Chairman, India and South East Asia,
CBRE, “With several legislation and
policies in implementation mode, we
are already seeing an increase in
consumer and investor confidence.
This will have a cascading effect on
Beyond Market 16th - 31st Dec ’17
the retail segment. Overall, retail real
estate will continue to grow and
witness healthy demand across tier-I
and II cities.”
Demand for quality space
outstripping supply indicates that the
retail real estate segment across key
cities in India is growing
exponentially. The year’s first half
witnessed a number of international
brands operating in the country
expanding their presence. Several
hypermarkets, including Big Bazaar,
which opened new stores in Mumbai,
Bengaluru and Chennai, were also on
an expansion mode.
While both international and
domestic brands, which are already
present in the country are in an
expansion mode, there are many who
are rushing in to join the bandwagon
at the earliest and are chalking out
plans to enter the country.
After the success of high-end brands
like Zara, Hennes & Mauritz (H&M),
Gap, Pepe Jeans, Levi and United
Colours of Benetton, among others, it
is now the turn of mid-level brands to
tap the opportunity in India.
Around 14 international mid-segment
brands like Avva, Colin’s, Collezione,
Damat, Dufy, Illycafe, Kiabi, Kigili,
Lina’s Paris, Mavi Jeans,
Metersbonwe, Netwrok, Queen’s
Chops and Tugba Deri, among others
are actively looking to enter India
through franchises or joint ventures.
Gaurav Marya, Chairman, Franchisee
India Holdings (a retail solution
provider), said, “Now, it’s the turn of
small and mid-sized brands as they
look to cash in on the open retail
policy and huge gap in the market for
branded products.”
Earlier this year, the government
allowed 100% foreign ownership in
business-to-business (B2B)
e-commerce businesses and for
retailers that sell food products
manufactured in India, which will
help many food processing retailers to
enter the country.
As a result, food and beverages chains
are looking at entering the country.
Italy-based Illycafe, a food and
beverage coffee shop has 240 cafes in
around 41 countries, France-based
food and beverage fast food chain
Lina’s Paris has 45 stores in 6
countries, Netherlands-based food
and beverage cafe Queen’s Chips has
80 stores across Europe and the
Middle East and wants to set shop
here in India.
Marya of Franchisee India said while
initially most of the fashion brands
are likely to enter through the
franchisee route, they will look at
setting up stores on their own and
even consider manufacturing from
here as they gain scale.
As per Franchisee India’s estimates
around 250 to 300 brands are
expected to enter India, bringing
investment of around $1 billion in the
next couple of years. However, the
infrastructure of the country has to
improve for these brands to penetrate
further beyond tier-II cities.
In September-October, officials from
many of these international brands
visited India to explore the market
and for finding out the possible
potential for entering here either on
their own or through joint ventures.
Experts said many international
brands are making a beeline to the
country as the retail sector is growing
and international brands like Zara and
H&M have been really successful
with strong profits and revenue
growth reported in the country.
Now, slightly mid-level or smaller
international brands too want to
It’s simplified... 25
 explore the Indian market.
Avaa is a ready-to-wear Turkish
brand with 91 stores in countries like
USA, Canada, Russia, Iran, Ukraine,
Australia and Saudi Arabia, among
others. Colin’s is also a Turkish
ready-to-wear brand with more than
700 stores operational in countries
like Turkey, Russia and Greece.
Turkey-based Collezione presently
has 175 shops in 19 countries.
Another Turkey-based brand Damat
has 200 stores operational in 14
countries, Turkey-based Dufy has 30
shops operational in many countries.
Turkey-based Kigili has 213 stores
operational across 9 countries,
fashion ready-to-wear Turkish brand
Mavi has 345 stores that are
operational in 5 countries.
Another Turkish ready-to wear brand
Tugba Deri has 75 owned stores and
102 franchisees in Turkey.
Turkey-based brand NetWork has 132
stores operational in four countries.
“Brands from Turkey, Greece are
much more value-centric compared to
European brands and are expected to
perform well in the country,” Marya
of Franchisee India said.
Kiabi is a France-based ready-to-wear
brand and has 500 stores that are
operational in 17 countries, China-
based Metersbonwe has more than
4,000 stores that are operational
across 4 countries.
In FY18, Tablez India tied-up with
Spanish fashion retailer Grupo
Cortefiel and has launched brands
like Springfield and Women’s Secret
in Bengaluru this year. Tablez India is
a unit of Abu-Dhabi based LuLu
Group and has a franchise agreement
for India and Sri Lanka with Spanish
fashion retailer Grupo Cortefiel. The
company plans to open 40 stores over
the next five years, said Adeeb
26 Beyond Market 16th - 31st Dec ’17
Ahamed, managing director, Tablez.
Grupo Cortefiel is one of Europe’s
leading fashion retailers operating in
the specialized chain segment. The
Group is present in 90 countries with
2,178 points of sale and its turnover
for 2015 was Euro 1,095 million.
Springfield is competing with brands
like Gap, Aeropostale and H&M,
catering to mid-segment fashion and
offers merchandise at similar or
slightly lower price points. Created in
1988, the brand targets clients
between 18 to 35 years old, with a
young, urban and casual style.
While mid-level brands are making a
beeline to India, big brands that have
not yet entered the Indian market too
are keen to enter. For example,
Japanese fashion retail company
Uniqlo has started doing the rounds of
leading malls in Delhi and Mumbai,
scouting for a suitable space to house
its flagship store in India.
The company, which expects to
commence its India operations in the
beginning of 2019, is believed to be
looking for a 30,000-35,000 sq ft
shop. Its other stores will be of a
similar size between 10,000 and
20,000 sq ft, industry experts said.
Other international brands are
planning to enter India partly because
growth in the global markets like the
US and Europe is slowing. Kavindra
Mishra, Managing Director, Pepe
Jeans, said, “India is the best
performing market for Pepe Jeans and
not surprising other international
brands too are getting aggressive to
enter the market.”
Uniqlo, the $16-billion global retail
major with 958 stores worldwide, is
now in the process of obtaining the
requisite permissions to operate as a
single brand retailer in the country.
In the domestic market, Uniqlo is
expected to compete with European
brands, mainly Zara and H&M,
although being a fast fashion brand,
some experts feel its main competitor
will be Forever21.
However, experts feel international
brands must tailor its offerings to suit
local needs and taste.
According to Arvind Singhal,
Chairman of Technopak Advisors,
“Uniqlo’s store assortment in the UK
and in Tokyo are quite different. In
India, the focus on women’s fashion
is likely to be a lot more because that
is the fastest moving segment.”
And this might be more important for
Uniqlo as its rivals Zara and
Forever21 have entered the Indian
market almost 10 year ahead. H&M
launched in India in 2015, while Zara
in 2009. Both H&M and Zara have
anchor stores measuring over 20,000
sq ft, while Forever21 has run smaller
10,000 sq ft to 15,000 sq ft stores.
However, with so many brands
flocking to the country, competition is
steep in top malls across India, which
have less than 5% vacancy levels and
where international brands definitely
want to be seen.
Often, as has been seen in the case of
H&M, mall developers have had to
jostle less productive brands in order
to make space, and that increases the
pressure on the brand to perform and
deliver returns to all stakeholders.
Therefore, brands which are entering
now are struggling to get quality
space in good malls.
To operate under the goods and
services tax (GST) regime, retailers
need to review their product pricing,
align their supply chain and
procurement strategy, rework their
distribution channels, and ensure
greater compliance to laws to be more
cost-effectivE.
It’s simplified...
 Explore...
New frontiers in the
world of stock markets.
eyond

Simply Download The Beyond App

eyond P o w e r e d b y

Disclaimer : Insurance is a subject matter of solicitation. Mutual Fund Investments are subject to market risks. ‘Investment in Securities/
Commodities markets are subject to market risks, read all the related documents carefully before investing.’ Nirmal Bang Securities Pvt. Ltd.

Segment. *Nirmal Bang Commodities Pvt. Ltd. #Distributors. “The securities quoted are exemplary and are not recommendatory.”
 Moving
The logistics sector in India is surging ahead owing
to significant investments by the government to
Ahead
improve rail and road infrastructure in the country

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

I
n recent months, two Initial
Public Offerings (IPOs) of
third-party logistics companies
hit the market.
One was Mahindra Logistics by
Mahindra & Mahindra Group and the
other was Future Supply Chain by
Future Enterprises. These IPOs have
brought India’s logistics industry into
sharp focus. Logistics is an integral
part of corporate Inc’s businesses.
So, how is India’s logistics industry
faring, given that two new companies
recently got listed? Here is a detailed
understanding of the industry:
THE INDUSTRY
According to Press Information
Bureau (PIB) as of May ’17, India’s
logistics cost as a percentage of GDP
is 13% to 14%.
As per a CRISIL Report, the Indian
logistics industry comprises segments
like road freight, rail freight, coastal
freight, warehousing, cold chain and
container freight stations and inland
container depots and is estimated at
`6,40,000 crore in FY17. It is
expected to grow at a Compounded
Annual Growth Rate (CAGR) of 13%
to `9,20,000 crore by FY20.
The industry is dominated by
transportation, which accounts for
approximately 88%, and its share is
expected to remain high over the next
three to four years.
Road transportation in India is highly
fragmented with low average fleet
ownership by transporters. In
warehousing, there is high scarcity of
quality warehouses and competence
to provide value-added services.
The government has increased its
focus on logistics infrastructure. The
CRISIL Report estimates investments
of approximately `10,30,000 crore in
Beyond Market 16th - 31st Dec ’17
roads (national highways, state and
rural roads) between FY18 and FY22.
In case of railways, investment
numbers are estimated at `6,70,000
crore between FY16 and FY20.
Significant investments by the
government is expected to improve
rail and road infrastructure, which, in
turn, is expected to improve overall
logistics across India.
The Ministry of Road Transport and
Highways is developing an
integrated, multi-modal logistics and
transport policy intended to reduce
logistics costs in India to match
globally comparable rates and thereby
increase the competitiveness of
Indian products.
The policy is intended to include,
among other things, the construction
and integration of a network of
transport routes, including freight
corridors, the development of
logistics parks to serve as storage and
distribution centres, and the
development of stations to facilitate
inter-modal transport.
In the current scenario, freight
movement is largely routed through
roads as other networks are still not
well developed. Hence, road freight
accounts for a significant portion of
total freight cost.
However, the expected
commissioning of Dedicated Freight
Corridors (DFCs), development of
inland waterways and the Sagarmala
Project would help in development of
infrastructure in other networks,
leading to traffic movement towards
more cost-efficient modes.
Through the integrated policy, the
government is working towards
construction of over 50 economic
corridors and upgrading key feeder
and inter-corridor routes to improve
overall efficiency of freight
movement. It plans to develop 35
Multi-Modal Logistic Parks
(MMLPs) in India that will cater to
around 50% of freight movement.
The Indian government implemented
a centralized goods and services tax
in July ’17 to replace the existing tax
regime (excise, service and value-
added taxes).
The implementation of GST is
important for growth of road freight,
because tax efficiency was the
company’s primary concern while
setting up its distribution network,
instead of logistics costs or customer
service. The result was the creation of
multiple inefficient stocking and
distribution locations in each state.
GST enables companies to aggregate
state-based warehouses into one
large, regional warehouse that would
offer cost and operational efficiency
in large markets.
As logistical inefficiency and primary
transport costs decline, the hub-and-
spoke model may proliferate,
resulting in improved serviced levels.
IN GIST
Within India’s logistics industry,
third-party logistics (3PL) is gaining
traction. This part of India’s logistics
sector is expected to grow manifold.
The CRISIL Report has defined a 3PL
company as an end-to-end supply
chain management provider who is
able to provide supply chain design
and consulting, access to multi-modal
transportation as well as
infrastructure services like
warehousing, cold storage and
relevant value-added services,
including, repackaging and reverse
logistics, among others.
A 3PL service provider represents a
single vendor for all logistics needs
It’s simplified... 29
 including supply chain design and
consultancy and value-added services
as compared to a 2PL company.
In view of the diversity in geographic
conditions, consumer habits, and
infrastructure across India, Indian
companies need to enhance the
efficiency of their supply chain
operations in order to cut their
logistics spend and simultaneously
improve efficiency.
Supply chain management needs to
transform from an activity-based
function to a service-oriented one.
A 3PL capable of offering end-to-end
services may then become a single
vendor for complete outsourcing by
companies who choose to focus on
their core activities of production,
sale and marketing, while all logistics
services can be provided by a 3PL.
A majority of the 3PL service
providers in India follow an
“asset-heavy” model, wherein the
assets involved are owned by the 3PL
service provider resulting in
significant capital investments.
However, it is anticipated that
ownership patterns are expected to
become consistent over a period of
time with global trend of an
“asset-light” model wherein the assets
involved are leased.
An “asset-light” structure offers
considerable benefits of improved
scalability and flexibility of offerings
to suit varied sectors and customers.
However, the benefits of an “asset-
Black Swan
An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult
to predict. This term was popularized by Nassim Nicholas Taleb, a finance professor and former Wall Street trader. For
example, the previously successful hedge fund Long Term Capital Management (LTCM) was driven to the ground as a
result of the ripple effect caused by the Russian government’s debt default. The Russian government’s default represents
a black swan event because none of LTCM’s computer models could have predicted this event and its subsequent effects.
30 Beyond Market 16th - 31st Dec ’17
light” model are expected to be
commensurate with the scale of
operations. Thus, large organized
service providers with an
“asset-light” model will be better
positioned to acquire a larger share of
the logistics market in the long term.
The CRISIL report has estimated the
3PL market in India at `32,500 crore
to `33,500 crore FY17, which is
expected to grow at a CAGR of 19%
to 21% to reach `57,000 crore to
`58,000 crore by FY20.
It is anticipated that implementation
of GST will result in most business
decisions being focused on supply
chain efficiency and not on state-wise
tax benefits. Many businesses have
already started considering a
complete redesign of their supply
chain network.
Other businesses may do so once the
full impact of GST is apparent. This
may benefit the logistics industry.
This in turn, may lead to an increase
in business opportunities for
organized service providers operating
large warehouses in key geographies.
At present, most warehousing clusters
are near major demand regions such
as National Capital Region, Mumbai
Metropolitan Region, Kolkata,
Bengaluru and Chennai.
While these clusters will continue to
remain major warehousing hubs, the
sector may also witness the
emergence of other warehousing
hubs, which will prove effective for
pan-India logistics service providers.
Experts feel that the implementation
of GST would lead to more organized
logistics service providers to provide
end-to-end logistics solutions and
have a pan-India presence.
Unorganized service providers will
not be able to provide the required
services unless they invest and
transform themselves into organized
service providers.
The GST implementation facilitates
either a complete removal of check
posts or at least speed up clearance at
check posts. This will lead to faster
travelling time, adding to efficiency.
Better efficiency achieved through
the use of organized logistics partners
will lead to lower freight costs and
timely delivery of goods.
India’s multi-layered and complex tax
regime and infrastructure issues have
been primary reasons for increased
logistics costs in the country.
Under the previous tax structure,
Central Sales Tax was levied on inter-
state sales. Due to this, companies
had to maintain small warehouses in
every state to avoid paying CST on
inter-state sales.
These multiple warehouses resulted
in increased inventory costs and other
overheads. With the implementation
of GST, there will be a simplified tax
structure, which will lower costs and
provide an opportunity for
outsourcing, which, in turn, would
boost the third party logistics segment
in IndiA.
It’s simplified...
 Stronger
And Better
Healthy order books, owned
equipment, in-house execution
capabilities and strong bid
pipeline bode well for Dilip
Buildcon Ltd

D
ilip Buildcon Ltd (DBL) is one of the leading
private sector road-focused EPC contractors in
India. The company’s core business is
undertaking construction projects across India
in road and irrigation sectors. It specializes in constructing
state and national highways, city roads, culverts as well as
bridges across the country.

Initially, DBL started out by working in Madhya Pradesh.

After that, it ventured out into other states in India.
Currently, it is present in almost 16 states. DBL’s strength
lies in its ability to execute projects on time, within costs,
and of the highest quality.

Its clientele in the road segment includes National

Highways Authority of India (NHAI), state governments
and private companies. Witnessing opportunities in other
space, the company also diversified into segments like
irrigation, urban development and mining in the years
2014 and 2015.

As on 30th Sept ’17, 53% of the company’s order book is

from NHAI, 27% from Ministry of Road Transport and
Highways, 10% from Northern Coalfields, 6% from
Singareni Collieries Co Ltd, 3% from state governments
and rest from others.

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

 In the last 5 years DBL has completed 73 projects with
17,000 lane km in road portfolio with 8604.6 lane km
being operational. As on 30th Sept ’17, DBL has an order
book of `14,204 crore as compared to `15,629 crore as on
30st Jun ’17.
Under the leadership of Dilip Suryavanshi (Chairman and
Managing Director) and Devendra Jain (Executive
Director and Chief Executive Officer), DBL’s revenue,
EBIDTA and PAT grew by 28%, 25% and 10% CAGR
from FY13 to FY17, respectively.
In August ’16, DBL came out with a public issue of `654
crore at `219 per share, offering 2.98 crore shares. Out of
2.98 crore shares, 1.96 crore shares were fresh issue while
rest was offer-for-sale shares.
INVESTMENT RATIONALE
• Sales Of BOT/HAM Projects Will Free Capital For
Growth
Recently, the company entered into an agreement with
Chhatwal Group Trust (Shrem Group) to sell 24 projects
comprising of 14 operational projects, 4 under construction
projects, and 6 recently won HAM projects.
The company has already invested `682 crore in all these
projects. It was supposed to invest `842 crore in under
construction and HAM projects in the next 1-2 years.
The company will get around `1,600 crore as consideration
on sale of these projects and will be making a nominal
profit (`75 crore) but will free up the company’s capital to
bid for more and more projects under emerging
opportunity in road sector.
DBL has already received `120 crore towards part
payment for the above sale.
The company management expects to receive `550 crore in
FY18 and the remaining amount by FY19. Apart from this,
the borrowing of `1,700 crore in BOT/HAM projects will
also be transferred to the buyer of shares and will improve
the consolidated Debt to Equity ratio of the company post
this deal.
DBL has increased its guidance for order intake during
FY18 from `6,000 crore to `8,000 to `10,000 crore post
this deal. Though the order booking by the company was
very low in H1 as Q1 is generally an inactive quarter, Q2
was impacted by the implementation of the goods and
services tax (GST).
32 Beyond Market 16th - 31st Dec ’17
But presently the bid pipeline is very strong (over `50,000
crore) and considering the relatively low competitive
scenario, the company is hopeful of achieving its order
intake target in FY18.
• Consistent Track Record Of Early Completion Of
Projects
DBL has earned `345 crore till 30th Sept ’17 as early
completion bonus. It has completed 47 road projects on or
ahead of schedule.
The company has been able to achieve this on account of
careful selection of projects, efficient project planning and
management, project tracking to minimize delay, owning
sand and stone mines apart from being the largest owner of
construction equipment and one of the largest employers of
construction manpower.
The company owns one of the largest fleet of construction
equipment (around 9,000) and is one of the largest
employers in the construction industry with a strenght of
27,000 employees.
Early Completion Bonus (` In Cr)
58.52
60
56.38
55
51.49
50 48.33
45
40
35
30
FY14 FY15 FY16 FY17
Source: Company Data, Nirmal Bang Research
• Improvement In Working Capital Cycle
Construction business is working capital-intensive wherein
around 50% of the capital employed is in working capital.
DBL has shown impressive improvement in its working
capital cycle from 5.85 months of sales in FY15 to 4.47
months of sales in FY17. This was mainly driven by
inventory holding, which reduced from 4.3 months to 3.7
months and receivable from 5.2 months to 2.4 months in
the same period.
Creditors of the company also declined from 3.8 months to
2.1 months during the same period. The company is
working towards improving working capital cycles, mainly
inventory with the implementation of SAP and data
analytical tools of IBM.
It’s simplified...
Working Capital Cycle In Number Of Months
6 5.7
4.3 4.2
4 4.0
2
0 48,877km of roads by NHAI and the ministry of road
FY15 FY16 FY17 FY18E
Debtors Inventory Credtors
Source: Company Data, Nirmal Bang Research
• Diversifying To Other Related Infrastructure Sectors
Till FY13, DBL’s order booking was solely from road
sector. In FY14, DBL diversified into irrigation and urban
infra projects. In FY16, DBL further diversified into
mining and cable suspension bridge area. At the end of
FY17 though, road continued to dominate DBL’s order
book with an 80% share.
But DBL is establishing its foot in other sectors like
mining, cable bridges, irrigation, etc. DBL has diversified
into the area where it can utilize its skills and assets more
effectively without sacrificing on margin and the same
principle will be followed to diversify into other areas.
• Industry Leading Margin And ROE
Recently, the government of India announced an
investment of `6.92 trillion for building 83,677 km road
network over the next 5 years. The road construction push
includes the Bharatmala Pariyojana with `5.35 trillion
3.9 3.8 investment to construct 34,800 km of roads.
Also `1.57 trillion will be spent on the construction of
FY19E FY20E transport and highways. To expedite the Bharatmala
Working capital cycle
project, state-run firms - NHAI and National Highways
and Infrastructure Development Corporation Ltd
(NHIDCL) - respective state public works departments
(PWDs) will also be roped in for timely execution.
With a lot of work in the road segment, DBL will be able to
garner a large pie of the same given its higher execution
capabilities, owned equipment and higher borrowing
power after the recent sell-off of its BOT assets.
RISK
Any hurdle in the completion of the deal for the sale of
assets can have a negative impact on the financials of DBL.
Delays in execution of the projects due to lack of land
acquisition or other issues can risk revenue recognition.
With a lot of investment in plant and equipment, lack of
order with DBL can put pressure on its margins.

Early completion bonus along with own construction and FINANCIALS AND VALUATIONS
own asset base is leading to one of the highest operating
margins for DBL. And effective utilization of assets is DBL reported revenues, EBIDTA and PAT of `5,075 crore,
leading to one of the highest ROEs in the industry. `992 crore and `361 crore in FY17, growth of 25%, 45%
and 21%, respectively from FY16. With healthy order
Peer Comparison For Operating Margin And ROE
books, owned equipments, in-house execution capabilities,
strong bid pipeline, the revenues, EBIDTA and PAT of
20.0% 19.5% 25.0%
19.5% 17.6% DBL are expected to grow at a CAGR of 30%, 27.5% and
18.0% 20.0%
16.0% 9.9% 11.3%
13.3%
14.9% 15.0% 41%, respectively during FY17 to FY20E.
14.0% 13.1% 13.1% 10.0%
12.0% 10.7% 5.0%
The EBIDTA margin is likely to remain stable in the range
10.0% 0.0%
rin
g
of 18% to 19%. With the recent sale of BOT assets and
ee
ngi
n
reduction in working capital requirement, the company’s
vE
db
ha EBIDTA Margins ROE debt is likely to come down further, which, in turn, will
Sa
Source: Company Data, Nirmal Bang Research
help ROE and ROCE to improve.

DBL has implemented live tracking system to keep control
over its large fleet of construction equipment and has
implemented effective HRD policy to reduce attrition.
It is now implementing SAP and data analytics tool from
IBM. This will help effective utilization of large resources
and will positively impact margin and capital deployment.
• Capitalizing On Opportunities In Road Sector
ROE and ROCE may improve from 19.5% in FY17 to 25%
in FY20 and 17.6% in FY17 to 24.6% in FY20,
respectively. For the purpose of this research report, DBL
has been compared with 4 others players from the industry.
DBL enjoys one of the best EBIDTA margins and ROE as
compared to others. On the valuation front, it is still
available at a discount to players like Sadbhav Engineering
and KNR constructioN.

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

 growing
influence
ETFs are picking
up in India in a
big way

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

E
xchange-traded Funds
(ETFs) in India are at a
point where investors are
investing in passive funds
and fund houses are trying to give
them various options rather than just
providing them with plain vanilla
index ETFs.
In the last few years, mutual funds
have seen sharp inflows and money
has largely flown into actively
managed equity funds.
But in the current scenario where fund
houses are providing various
opportunities in ETFs such as
US-focused funds or value bias funds
or even equal weightage funds.
A unit of ETF is ‘created’ only when
someone (known as market maker)
exchanges the underlying securities -
in the same proportion and quantity as
it takes to make one such ETF unit -
with the fund house for a unit. The
market maker then makes these ETF
units available on the stock exchange
where investors can buy from.
Similarly, when investors sell ETF
units back on the stock exchange, the
market maker exchanges the same
units with the fund house and thus
gets the underlying basket of
securities in return.
ETFs are still not popular as they are
in developed economies like the US
and Europe where there are thousands
of passive funds.
In India, however, this segment is just
picking up at the right time. There
have also been efforts by fund houses
to launch such schemes that can also
offer specialization in the ETF space.
In this article we try and explain
different types of ETFs that are
currently available in the Indian
markets and how investors can gain
from them.
Beyond Market 16th - 31st Dec ’17
LONG-TERM GILT FUNDS
There is an option for the Indian
investor who wants to ‘go long’ on
Indian debt. ETFs are usually
associated with equity funds.
But owing to the rising popularity of
ETFs in the past few years, schemes
such as Government Securities
(G-Secs) are also benefitting from the
ETF structure.
For example, the objective of
Reliance ETF Long-term Gilt is to
provide investment returns closely
corresponding to the total returns of
the securities as represented by the
Nifty 8-13 year G-Sec Index before
expenses, subject to tracking errors.
On the other hand, SBI Mutual Funds,
SBI-ETF 10-year Gilt will mimic
CRISIL 10-year Gilt Index. Investing
in gilts gives investors the chance to
benefit from movements in domestic
interest rates especially when interest
rates are on a decline.
When interest rates fall, bond prices
rise, pushing up the value of the funds
holding these bonds. Bonds with a
longer duration benefit the most as
they are most sensitive to interest rate
movements. Effectively, investing in
10-year government bond offers
investors a direct play on the interest
rate cycle.
However, investors must take into
account the fact that liquidity plays an
important role in ETFs. Apart from
this, they need to understand that the
success of ETFs will depend mainly
on whether they are able to offer
substantial liquidity.
Unfortunately, ETF products in India
suffer from acute liquidity problems
as trading volumes are sometimes so
low that investors are unable to buy or
sell at the desired price and at the
desired time.
EDELWEISS ETF NIFTY
QUALITY 30
ETFs of pure equity indices like the
Sensex or the Nifty or even sector
ETFs like banking or pharmaceutical
must be known to a lot of investors.
But the Edelweiss Nifty Quality 30
ETF tracks the Nifty Quality 30
Strategy Index.
The investment objective of the
scheme is to provide returns before
expenses that closely correspond with
total returns of the Nifty Quality 30
Index, subject to tracking errors. The
Nifty Quality 30 selects companies
that have durable business models
with sustained margins and returns.
The top 100 stocks in the market are
filtered for return on equity, low
debt-equity ratio, profit growth in the
last three years with individual
holdings capped at 10%.
The National Stock Exchange (NSE)
manages this index. So, other fund
houses can also launch ETFs
benchmarking on it.
The Nifty Quality 30 index will
rebalance the stocks (based on the
three parameters) once a year. The
fund house also aims to keep the
expense ratio limited to 46 basis
points (100 basis points = 1%).
If we look at returns, we will notice
that in the last one year, this fund has
managed to give 14.96% returns as
against the index, which has given
returns of 13.43% for the same time
frame, according to a research data.
The advantage of this scheme is that
Leverage Authorized Participants
(AP) expertise on market making to
accommodate higher volumes and
ease transactions. While there is also
ease of liquidity, these units can be
bought/ sold anytime during market
hours at prices that are close to actual
It’s simplified... 35
 net asset value (NAV) of the scheme.
Thus, investors transact at real-time
transparent prices.
DSP BLACKROCK EQUAL
NIFTY 50 FUND
This is one of the first passive
offerings from DSP BlackRock Asset
Managers in India. Unlike, other pure
Nifty 50 ETFs, this fund offers
differentiation to investors by having
equal exposure in all 50 stocks on the
Nifty index.
The scheme will be managed
passively with investments in stocks
in the same proportion as in Nifty 50
Equal Weight Index.
The investment strategy would
revolve around minimizing the
tracking error through periodic
rebalancing of the portfolio, taking
into account the change in weights of
stocks in the indices as well as
incremental collections/ redemptions
in the scheme.
The fund caps exposure to Nifty
stocks at 2% and sectoral cap of 20%,
which further diversifies the risks
within the index.
The fund has slightly changed its
investment allocation to the top 50
companies by weighing each stock
equally to achieve better stock and
sector level diversification, thereby
eliminating bias towards a particular
stock or a sector.
Owing to this methodology, the DSP
BlackRock Equal Nifty 50 Fund aims
to provide better sector and stock
diversification compared to the Nifty
50 index. Performance-wise, on total
return basis, the Nifty 50 Equal
Weight Index has outperformed the
Nifty 50 index with an alpha of 2.92%
in the last 17 years.
The fund will be re-balanced on a
36 Beyond Market 16th - 31st Dec ’17
quarterly basis. Owing to this
quarterly re-balancing method, an
equal weight portfolio has a built-in
profit-booking mechanism, in effect
buying underperformers ‘low’ and
selling outperformers ‘high’.
ETFs WITH USA ADVANTAGE
Even as this fund is a few years old,
investments in this category makes
sense even now. One who tracks
equity markets will know that the US
market is currently having a strong
run and has given positive returns in
the last few years.
The biggest advantage of investing in
this scheme is that Indian investors
will get exposure to stocks such as
Apple, Amazon, Microsoft, Facebook
and Alphabet, among other countries.
If one is excited about technology
nevertheless, they can own global
greats in technology by buying the
US NASDAQ 100 index.
Motilal Oswal Mutual Fund’s Nasdaq
100 ETF offers you a convenient
vehicle to take this exposure. The
fund was launched in 2011 and
therefore has a five-year track record.
This ETF is quite popular and often
trades at a premium to its NAV in the
secondary markets. The expense ratio
is 1.5%, not cheap for an ETF but
lower than many active funds.
If investors do not want to invest in
ETFs, they can consider Franklin
India Feeder-Franklin US
Opportunities Fund. It invests in units
of Franklin US Opportunities Fund,
an overseas Franklin Templeton
mutual fund. The fund principally
invests in small, medium and large
capitalisation US companies with
strong growth potential across a wide
range of sectors.
While ICICI Prudential Mutual Fund
also has ICICI Prudential US
Bluechip Equity Fund, which invests
in equity and equity-related securities
(including ADRs/GDRs issued by
Indian and foreign companies) of
companies listed on New York Stock
Exchange (NYSE) and/or NASDAQ.
NEXT NIFTY 50 STOCKS!
As said earlier, Indian fund houses
have started coming out with
innovative ETFs that can add value to
the investment portfolio of investors
over a longer period of time.
Nifty Next 50 Index is also one of the
indices where fund houses like
Reliance, ICICI Prudential and IDBI
Mutual Funds have come out with
ETFs linked to this Index.
Nifty Next 50 is an index that
represents the performance of ‘next’
50 stocks which come after the top 50
in order of free float market cap,
subject to index criteria.
The Nifty Next 50 Index thus
represents companies that have the
potential to be included in )Nifty 50 in
the future, subject to index criteria.
Over the long term, the Junior Nifty
has been quite a difficult index to
beat. The Nifty Next 50’s five-year
returns are around 20.16%, beating
Nifty by decent margins.
IN A NUTSHELL
Though ETFs are picking up in India,
this investment product hasn’t
reached the spot where liquidity is
ample. ETFs are a good product if an
investor wishes to avoid the fund
manager’s risk.
One should invest around 5% to 10%
of his/her portfolio in such products
or one can even do systematic
investment plans (SIPs) in such a
category to gain, going forwarD.
It’s simplified...
 TECHNICAL OUTLOOK
T
he Indian equity markets
made an all-time high of
10,494.45 on Wednesday,
20th November. The Nifty
managed to take support of 10,300-
10,270 range, indicating a positive
sign. Looking at the momemtum,
there is a high probability that the
Nifty may test the 10,640/10,700
levels in the upcoming trading
sessions, provided it sustains above
the 10,270-10,200 range.
Technically, the Nifty is trading in an
upward sloping channel, demonstrat-
ing a positive view. The channel
shows that the Nifty has strong
support at the 10,000 level. As long as
it sustains above the 10,000-mark, the
uptrend will remain intact.
December will be a crucial month
given the fact that there will be less
participation by FIIs ahead of Christ-
mas holiday. This event is likely to
have a bearing on the Indian markets.
It is also important to note that the
Nifty is trading near the all-time high.
Hence, some profit-booking at higher
levels may be witnessed. Therefore,
market participants are advised to
stay light with their positions.
Technically, the overall view is
positive as the Nifty is experiencing a
Nifty Daily Chart
Beyond Market 16th - 31st Dec ’17
strong momentum. The Nifty has
resistance at 10,640/10,700 levels,
whereas it has support at the 10,000
level. Market participants should be
stock-specific, and follow the trend
with a trail stop loss level till it
reverses from trading perspectives.
On the Nifty Options front for the
December series, the highest Open
Interest (OI) build up is witnessed
near the 10,300 and 10,000 Put
strikes, whereas on the Call side, it is
being observed at the 10,500 and
10,700 strikes.
The November expiry has seen
lower-than-average rollovers in the
Nifty (63.28%) and in Bank Nifty
(55.62%) with a positive cost of carry,
indicating positive bias as the shorts
did not rollover positions in the
current series.
Finance (88.52% - long rollover),
Capital Goods (87.40% - long
rollover) and Metals (87.91% - long
rollover) saw much higher rollovers
compared to the corresponding period
of the previous expiry. Select stocks
from Finance, Metals and Capital
Goods sectors are expected to outper-
form while certain stocks from the
Cement sector are likely to underper-
form in this expiry.
India VIX, which measures the imme-
diate 30-day volatility in the market,
remained in the range of 12-17 for
most part of December. Going
forward, VIX will likely remain
within 11-14 levels.
The Put Call Ratio-Open Interest
(PCR-OI) for Nifty Options has been
in the range of 1-1.5 in the month of
December. Going forward, it is
expected to remain at elevated levels,
implying a positive undertone in the
stock markets.
The markets are believed to remain
bullish towards the end of December
and early January with bouts of
selling pressure near resistances.
OPTIONS STRATEGY
BULL CALL SPREAD
It can be initiated by ‘Buying 1 lot
28DEC 10400 CE (`75) and Selling 1
lot 28DEC 10600 CE (`15)’. The net
combined premium outflow comes to
around 60 points, which is also your
maximum loss. The maximum profit
in this strategy is capped at 140
points. This Options strategy will
generate profit above the 10,460
level. One can book profits on a gain
of 100 to 120 pointS.
It’s simplified... 37
 Buckfast Recommendations
Finance is a maze of umpteen possibilities and choices. And it is easy for individuals to lose their
way in this tangle. In such a scenario, an expert comes handy. For, he alone can wade through
the enigmatic world of finance and simplify choices for investors.

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

About Buckfast Research

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

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

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

Disclaimer
Mutual Fund Investments are subject to market risks. Please read the offer document carefully before investing.
Source: ACE MF, NAV as on 5th Dec ’17.
SIP returns as on 30th Sept ’17. M=Months, Y=Year, D=Days
Past performance is no guarantee of future performance.
Returns are of Growth option of Regular plans
Returns which are below 1 year period are Annualized Returns

Diversified Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
Axis Focused 25 Fund 25.09 36.06 13.66 17.31 - - 2213
MOSt Focused Multicap 35 Fund 26.06 34.04 19.34 - - - 9966
L&T India Spl. Situations Fund 48.90 35.50 12.46 18.24 13.78 10.58 1184
Principal Growth Fund 145.23 42.19 15.01 20.50 14.25 7.06 551
SIP
Axis Focused 25 Fund 25.09 29.92 18.67 18.82 - - 2213
MOSt Focused Multicap 35 Fund 26.06 28.63 22.65 - - - 9966
L&T India Spl. Situations Fund 48.90 21.84 15.49 18.51 17.47 16.49 1184
Principal Growth Fund 145.23 25.83 18.96 21.00 19.32 15.95 551

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

Large Cap Funds
Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
MOSt Focused 25 Fund 20.65 24.38 10.75 - - - 849
Invesco India Growth Fund 31.50 34.67 12.31 18.09 12.52 9.35 228
Mirae Asset India Opportunities Fund 46.26 32.89 13.70 20.22 15.06 - 5232
IDFC Focused Equity Fund 39.16 49.27 12.31 14.58 9.46 8.21 707
SIP
IDFC Focused Equity Fund 39.16 41.04 19.57 16.97 14.18 12.44 707
Invesco India Growth Fund 31.50 25.75 15.29 18.05 16.63 15.16 228
Mirae Asset India Opportunities Fund 46.26 23.19 17.29 20.62 19.18 - 5232
Reliance Top 200 Fund 32.10 19.28 13.38 17.29 16.30 14.84 5751

Mid and Small Cap Funds

Historic Return (%)
SCHEME NAME NAV AUM (Cr)
1 Year 3 Years 5 Years 7 Years 10 Years
Lumpsum
IDFC Sterling Equity Fund 55.34 51.46 16.35 20.78 16.13 - 1896
Reliance Small Cap Fund 44.61 52.74 23.48 32.44 23.55 - 5143
HDFC Small Cap Fund 43.23 47.45 19.03 22.56 14.87 - 1518
L&T Emerging Businesses Fund 27.02 54.91 24.68 - - - 2283
SIP
IDFC Sterling Equity Fund 55.34 37.62 22.10 23.15 20.62 - 1896
Reliance Small Cap Fund 44.61 29.24 24.19 32.91 28.93 - 5143
L&T Emerging Businesses Fund 27.02 37.38 29.29 - - - 2283
Mirae Asset Emerging Bluechip 50.31 25.72 24.28 31.05 28.46 - 4820

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

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
IDFC Tax Advt(ELSS) Fund 56.32 44.72 15.57 20.40 14.87 - 740
MOSt Focused Long Term Fund 17.23 35.64 - - - - 701
L&T Tax Advt Fund 54.61 34.54 14.23 18.36 12.79 11.29 2730
Mirae Asset Tax Saver Fund 16.22 40.31 - - - - 656
SIP
IDFC Tax Advt(ELSS) Fund 56.32 32.35 18.66 21.03 19.41 - 740
Mirae Asset Tax Saver Fund 16.22 28.50 - - - - 656
MOSt Focused Long Term Fund 17.23 29.01 - - - - 701
Principal Tax Savings Fund 213.66 25.45 18.79 20.90 19.36 15.90 379

Dynamic Equity Funds

Historic Return (%)
SCHEME NAME NAV 1 Year 3 Years 5 Years 7 Years 10 Years AUM (Cr)
Lumpsum
ICICI Pru Dynamic Plan 254.97 14.98 13.90 16.24 15.43 15.16 8641
Tata Equity P/E Fund 134.60 28.86 22.83 25.35 21.66 19.07 2235

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

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

HDFC Balanced Fund 147.16 13.35 22.48 11.71 18.40 17073

L&T India Prudence Fund 25.71 8.74 23.11 12.22 18.04 7776
Mirae Asset Prudence Fund 13.40 13.99 24.24 - - 881
Reliance Reg Savings Fund-Balanced Option 53.91 16.49 25.16 11.92 16.24 9906
Principal Balanced Fund 74.39 23.66 31.48 14.01 16.98 552

Equity Savings (Arbitrage MIP) Funds

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

HDFC Equity Savings Fund 34.66 8.35 14.74 10.01 10.74 3690
Reliance Equity Savings Fund 12.43 10.41 16.23 - - 1513
DSPBR Equity Savings Fund 12.28 11.15 13.79 - - 1295
Principal Equity Savings Fund 34.30 7.64 13.37 7.61 7.41 24

Monthly Income Plans

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

ICICI Pru MIP 25 39.10 7.67 10.79 9.90 11.62 1459

Reliance MIP 40.90 7.27 7.57 8.25 10.25 2409
SBI Magnum MIP 38.26 5.60 7.02 9.97 10.38 1558
Aditya Birla SL MIP II-Wealth 25 38.63 7.56 11.49 11.16 13.33 2446

Income & Dynamic Bond Funds

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

ICICI Pru Long Term Plan 21.35 -2.71 4.93 3.66 9.57 11.40 3529
UTI Dynamic Bond Fund 19.92 -1.75 4.48 3.39 9.38 10.01 1712
Franklin India IBA-A 59.96 4.38 7.39 7.51 8.50 9.24 964
SBI Regular Savings Fund 29.76 3.13 6.83 7.67 9.34 9.79 1367

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

Baroda Pioneer Credit Opp Fund-A 13.22 5.07 7.57 8.15 - - 959
BOI AXA Corporate Credit Spectrum Fund 13.04 7.08 8.91 9.04 - - 1349
Franklin India Dynamic Accrual Fund 60.11 5.46 8.39 8.52 9.77 9.22 2895
Aditya Birla SL Corp Bond Fund 12.67 3.77 6.90 7.39 - - 4291

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

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

Aditya Birla SL Short Term Fund 65.34 3.33 4.07 6.93 6.09 8.71 20900
Franklin India ST Income Plan 3591.35 2.71 5.42 8.56 8.67 8.81 8875
HDFC Regular Savings Fund 33.89 2.35 3.91 6.17 6.30 8.87 5446
UTI Banking & PSU Debt Fund 14.01 2.29 5.25 7.06 6.29 9.08 1016

Ultra Short Term Funds

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

Aditya Birla SL Savings Fund 334.76 5.49 5.59 7.17 6.93 8.53 23453
Franklin India Ultra Short Bond Fund-Super Inst 23.50 6.56 6.87 7.95 8.25 9.30 11584
ICICI Pru Flexible Income Plan 326.40 5.23 5.65 6.95 6.85 8.43 23155
L&T FRF 16.80 5.65 6.27 7.42 7.34 8.40 541

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

Aditya Birla SL FRF-Short Term Plan 226.03 6.45 6.57 6.73 7.66 8.30 11248
Franklin India TMA-Super Inst 2535.49 6.39 6.51 6.70 7.69 8.33 3129
Kotak Floater-ST 2783.08 6.39 6.51 6.68 7.65 8.27 11222
Axis Liquid Fund 1878.80 6.42 6.53 6.71 7.61 8.22 20503

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

Axis Enhanced Arbitrage Fund 12.37 5.67 5.74 6.51 - 1322

Reliance Arbitrage Advantage Fund 17.42 5.72 5.79 6.82 7.62 8222
L&T Arbitrage Opp Fund 12.56 5.92 5.91 6.73 - 382

Returns as on 30th Nov ’17

Buckfast
Investment Fundamental Value
RETURNS Market Model Addition
in Nifty
Buckfast Fundamental Market Model (BFMM) is a asset (One time)
allocation model, which analyses historical market behaviour
taking into consideration various aspects such as fundamental Last 1 month -2.05% 0.50% 2.55%
ratios, long-term trends. It aims to reduce volatility in the short Last 3 months 2.53% 1.57% -0.96%
to medium-term without compromising the opportunity for
Last 6 months 6.35% 3.86% -2.49%
long-term wealth creation.
Last 1 year 24.90% 19.43% -5.47%
Currently as per BFMM, we suggest 0% allocation to equity Last 2 years 13.38% 11.65% -1.74%
and 100% to debt.
Last 3 years 6.13% 6.76% 0.63%
Last 4 years 13.25% 13.75% 0.51%
Last 5 years 11.74% 12.14% 0.40%
Since Aug 2011 10.23% 10.01% -0.22%

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

 GOOD TIMES,
BAD TIMES
Successfully
forecasting the
ebbs and flows of
the stock market
can result in
higher returns

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

T
iming the stock market is
among the most frequently
discussed topics in the
investment domain. Views
tend to be extreme on the subject with
some professing it as a near
impossibility and calling it a myth,
while some others think it can be
exacted to perfection. What does
timing the market imply?
Timing the market is a strategy used
for deployment of funds or exiting
from investments in a timely manner.
The idea is to make the buy or sell
decisions by predicting future market
price movements. The prediction can
be done by using technical and/or
fundamental analysis taking into
consideration the economic
conditions and the market outlook. It
is an investment approach.
WHY DOES ANYBODY THINK
OF TIMING THE MARKET?
The fear of having to stay the course
through an equity market downside is
what makes timing the market an
investment strategy that tempts many.
One wants to avoid the pain of having
to see their portfolio deplete in value.
For those who are impatient and do
not have the holding capacity, it may
cause a lot of anxiety and stress.
Thus, if you want to make a new
investment, the idea is to enter the
markets at a point where there has
been a substantial correction and
going forward there will be a
turnaround. So, enter at a low point,
which will eliminate/ reduce the
probability of an investment loss.
In other words, it means trying to
capture all the upside in the markets
and none on the downside by
tactically investing when the markets
are in a downfall.
WHY TIMING THE MARKET IS
A TOUGH TASK?
Beyond Market 16th - 31st Dec ’17
Equity markets are dynamic in nature
and prone to drastic movements. The
volatile nature of the markets makes it
hard to predict the movements as the
factors that drive the market up or
down may differ and sometimes there
is no single factor at play.
Predicting those movements on a
consistent basis given that the
underlying factors tend to be
different, make it a difficult task. An
indicator that was good 10 years ago
may no longer work as the underlying
factors that are driving market
movements have changed, and it is
impossible for one to master all the
underlying factors.
Corrections have the same symptoms
- pain for downward movements. But
at times they can be short-lived and at
other times shallow.
This doesn’t mean that it is an
impossible task to time the market.
Proponents of market timing say that
successfully forecasting the ebbs and
flows of the market can result in
higher returns. For some it could be
technical factors - watching technical
patterns, particularly when they form
trends, to try to predict major selloffs.
For others, it is through fundamental
factors such as P/E multiple, which
helps identify if the markets are in an
expensive or attractive zone.
IS TIMING THE MARKET
REALLY REQUIRED?
The question then arises - equities as
an asset class is meant for long term
investors i.e. those who have the
capability to hold the investment over
a longer time frame. If that is so, then
why does timing the market matter?
In any case, given the cyclicality of
equity markets, if one stays the course
through ups and downs, there is
enough historical evidence to prove
that investors have ended up with
decent returns over the long term.
Thus, if you are an investor with a
long-term horizon, the need to time
the markets doesn’t arise.
Putting your money to work
systematically beats waiting to try
and enter the market at a perfect
moment. Timing the market, if at all,
should only be opted by those with a
short time frame as in the long run it
may not give a fillip to the returns.
BACK TO BASICS
Buy & Hold
For most investors, the buy and hold
strategy works well, especially when
combined with rupee-cost averaging.
Don’t Follow
Consider the advice of Warren
Buffett: “Be fearful when others are
greedy, and be greedy when others are
fearful.” Doing what everybody else
is doing may land you in trouble. The
euphoria when markets are on an
uptick may tempt one. You would be
better off investing systematically
rather than following the herd.
Be Disciplined
Investing regularly pays off in the
long run. The market
crash/corrections do not wipe out
one’s savings but only delays the
returns one is looking for.
Compounding: Time Is Money
The compounding power of
investments can also help manage
risks over time.
Re-evaluate Portfolios Regularly
Some investors are passive and do not
monitor their investments. That’s like
ignoring the investments made. An
annual review is necessary to make
sure that the investment is on track to
meet the outlined goals. Investment
goals will change based on the stage
in life and return expectations and the
portfolio will have to be re-balanceD.
It’s simplified... 43
 IMPORTANT JARGON
FOR THE FORTNIGHT
GUJARAT ELECTIONS - A SHIFT IN
POLITICAL ECONOMY?
The assembly election results for the states of Gujarat
and Himachal Pradesh were announced on 18th December.
Bharatiya Janata Party (BJP) won in both the states. But
the results, especially in politically more important Gujarat
were lower than expectations. This has forced markets to
crystal-gaze the government’s policy trajectory before the
general elections slated for 2019.
So, What Were The Results?
BJP won 99 out of 182 seats in Gujarat. In Himachal
Pradesh, BJP won 44 seats out of 68. BJP will form the
government in both the states. BJP was the incumbent in
Gujarat, while in Himachal Pradesh, it defeated the Indian
National Congress (INC).
What Do These Victories Mean?
With this win, BJP along with its allies rule 19 out of 29
states in India. BJP and its ally rule 67% of India’s
population. These 19 states control 64% of India’s gross
domestic product (GDP). Both these wins mean that the
BJP led by Prime Minister Narendra Modi is still popular.
Why Is This Important?
BJP’s popularity signifies that citizens still favour BJP
even after few unpopular policy initiatives like
demonetisation and GST, which faced some
implementation challenges. The victory in these two states
- Gujarat and Himachal Pradesh - gives the confidence that
BJP can be more aggressive with reforms.
So, What Is The Issue?
While the outcome of Himachal Pradesh elections was
44 Beyond Market 16th - 31st Dec ’17
positive, the Gujarat election’s outcome was below
expectations. Slicing and dicing of election data by
political analysts has revealed that core voter constituency
of the BJP in Gujarat might have drifted from the party
which has ruled the state successively for the last 22 years.
BJP won by a smaller margin as compared to the state
elections held in 2012. BJP got 16 seats lesser than what it
received in 2012. INC upped its tally to 79 from 61 in the
year 2012.
How Is That A Worry At The Broader Level?
As many as 26 out of 543 Lok Sabha constituencies in
India are from Gujarat. Upset voters can make things
difficult for the BJP-led National Democratic Alliance
(NDA) government in the next general elections in 2019.
The comparatively smaller state of Himachal Pradesh has
just 4 Lok Sabha constituencies.
What Does It Mean For The Markets?
After rallying post the positive exit polls, markets have
somewhat corrected on below anticipated Gujarat election
results. While there is no empirical data on how markets
react post any state assembly elections, or do state
assemblies really matter at a broader level to the markets,
the stakes are high this time.
The stock markets have rallied one side post the 2014
general elections. There is a lot of expectations build-in
from the government in terms of reforms by the markets.
So, How Do Things Change On The Reforms Front
Post The Gujarat Elections?
While there is some comfort that the BJP was able to retain
Gujarat overcoming anti-incumbency, the closer-
than-expected contest between the BJP and the Congress
It’s simplified...
will mean that the government will shift towards pro-poor What Is The Current Tally?
policies to retain voter base. Pro-poor polices mean fiscal
profligacy. Markets will dislike a government that drifts The BJP currently holds 57 of 242 Rajya Sabha seats; the
from its fiscal deficit target, especially if government National Democratic Alliance (NDA) holds 74. Of all the
spending is of non-asset building types. seats up for refilling in 2018, BJP and its allies may win
incrementally a maximum of 18 seats. The NDA will still
What Is The Other Worry? be short of a majority of 122 in the upper house.

Year 2018 will see a busy election calendar. Bigger states And Why Is The Rajya Sabha Important For The BJP?
like Karnataka (currently with INC), Chhattisgarh (with
BJP), Madhya Pradesh (with BJP) and Rajasthan (with BJP has been using the ordinance route to pass reforms
BJP) go for polls in 2018. Smaller states like Meghalaya, because of resistance faced by their reforms in the Rajya
Nagaland, Tripura and Mizoram will also conduct Sabha where it is not in majority. An NDA majority is
assembly elections in 2018. These 8 states represent 18% expected in the upper house only in 2020.
of the Lower House seats.
What Can Be Expected Before The General Elections
It is important for the BJP to convert or retain these states Of 2019?
before the general elections of 2019. The task is important
as the BJP will have to overcome anti-incumbency in 3 big BJP lost seats in rural Gujarat. The trend can rub-off on
states, while it will have to fight out a renewed INC in other states as well as in general elections. Thus, the BJP
Karnataka. BJP lost seats in rural Gujarat. BJP would not has to change its strategy. It will have to attract rural
like to miss out on rural votes. voters. There are just two union budgets left before the
general elections of 2019. The 2018 Union Budget, which
What About The Dynamics In The Upper House Of is likely to be presented in early February, could adopt a
The Parliament After Gujarat And Himachal rural or populist tone.
Elections?
What Can The Markets Factor In?
These state election results are unlikely to change the
Rajya Sabha (the upper house of Parliament) dynamics The markets will have to keep an eye on any major spends
meaningfully over the next year or so. In calendar year on any populist measures to attract voters. The markets
2018, 65 seats will come up for re-election. Rajya Sabha will not mind a mild relaxation in targets for fiscal deficit.
members retire every 6 years. And the seats get filled from On the contrary such a move can be positive for growth. To
the State from where the earlier member retires. Only 4 keep markets and credit ratings agencies happy, the
members from Gujarat are up for refilling in 2018, and government will have to walk a tightrope to balance
none from Himachal Pradesh. macroeconomic stability and political pragmatisM.

Now, Commodity Trading Is No More A Puzzle.

Commodity trading can be confusing especially if one is
inexperienced and lacks the necessary skills to trade
successfully. At Nirmal Bang, our team of seasoned analysts
with years of experience and in-depth knowledge can help
you spot the underlying clues and create the investment
strategies that best suit your commodity trading
requirements.

EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP* www.nirmalbang.com
Contac t at: 022-6273 9600 | e -mail: sales@n irm albang.com | w w w.nirm albang.com
REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 62737500 / 7501; Fax: 022 - 62737510 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

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

 INTERNATIONAL STOCK EXCHANGE HOLIDAYS FOR 2018

Date China India Japan Singapore UK USA Hong Kong Taiwan

01-Jan-2018 Holiday Holiday Holiday Holiday Holiday Holiday Holiday
02-Jan-2018 Holiday
03-Jan-2018 Holiday
08-Jan-2018 Holiday
15-Jan-2018 Holiday
26-Jan-2018 Holiday
12-Feb-2018 Holiday
13-Feb-2018 Holiday Holiday
14-Feb-2018 Holiday
15-Feb-2018 Holiday Holiday
16-Feb-2018 Holiday Holiday Holiday Holiday
17-Feb-2018 Holiday Holiday
18-Feb-2018 Holiday
19-Feb-2018 Holiday Holiday Holiday Holiday
20-Feb-2018 Holiday Holiday
21-Feb-2018 Holiday
28-Feb-2018 Holiday
02-Mar-2018 Holiday
21-Mar-2018 Holiday
29-Mar-2018 Holiday
30-Mar-2018 Holiday Holiday Holiday Holiday Holiday
02-Apr-2018 Holiday Holiday
04-Apr-2018 Holiday
05-Apr-2018 Holiday Holiday Holiday
06-Apr-2018 Holiday Holiday
30-Apr-2018 Holiday Holiday
01-May-2018 Holiday Holiday Holiday Holiday Holiday
03-May-2018 Holiday
04-May-2018 Holiday
07-May-2018 Holiday
22-May-2018 Holiday
28-May-2018 Holiday Holiday
29-May-2018 Holiday
15-Jun-2018 Holiday
18-Jun-2018 Holiday Holiday Holiday
02-Jul-2018 Holiday
04-Jul-2018 Holiday
16-Jul-2018 Holiday
09-Aug-2018 Holiday
15-Aug-2018 Holiday
22-Aug-2018 Holiday Holiday
27-Aug-2018 Holiday
03-Sep-2018 Holiday
13-Sep-2018 Holiday
17-Sep-2018 Holiday
20-Sep-2018 Holiday
24-Sep-2018 Holiday Holiday Holiday
25-Sep-2018 Holiday
01-Oct-2018 Holiday Holiday
02-Oct-2018 Holiday Holiday
03-Oct-2018 Holiday
04-Oct-2018 Holiday
05-Oct-2018 Holiday
08-Oct-2018 Holiday
10-Oct-2018 Holiday
17-Oct-2018 Holiday
18-Oct-2018 Holiday
06-Nov-2018 Holiday
07-Nov-2018 Holiday
08-Nov-2018 Holiday
22-Nov-2018 Holiday
23-Nov-2018 Holiday Holiday
24-Dec-2018 Holiday
25-Dec-2018 Holiday Holiday Holiday Holiday Holiday
26-Dec-2018 Holiday Holiday
31-Dec-2018 Holiday Holiday Holiday

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

 Happ y New Yea r

www.nirmalbang.com

DISCLAIMER RNI Reg. No. MAHENG/2009/28962

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 advice or recommendation and does no t take into account the particular investment objectives, financial situation or
needs of individual recipients. For data reference to any third party in this material 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.