The Reflection of Management FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS
Pratibimb | December 2011 | 1
Volume II, Issue VI
A Students’ Initiative
December 2011
A Monthly e-Magazine
T. A. Pai Management Institute Manipal, Karnataka
About TAPMI T.A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal and is well known for its academic rigor & faculty-student interaction. The Institute has been recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The Week Magazine. Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed impetus to the task of building professional management capability in the country. In the process, it has also played a role in strengthening the existing educational and health infrastructure of Manipal.
Mission We are committed to excellence in post-graduate management education, research, and practice by nurturing and developing global wealth creators and leaders. We shall continually benchmark ourselves against the best in class institutions. We shall foster continuous learning and reflection, achievement-orientation, creative interdependence and respect for diversity with a holistic concern for ethics, environment, and society.
Recent Update TAPMI was awarded Dewang Mehta Business School Awards for Best Academic Input (Syllabus) in Finance among B-Schools across India. The award was presented at the 19th Dewang Mehta Business School Awards, Mumbai. The Award is supported by Ms. Shaila Mehta-Director, Onward Foundation for Dewang Mehta awards. Pratibimb | December 2011 | 2
About Pratibimb Pratibimb a reflection of management, is an amalgamation of pioneering thoughts, put forth by some of the best brains of the crem de la crem of Indian B-Schools and corporates. It brings out a collection of Ideas concerning the various disciplines of management sciences and provides opportunities to ponder over various management issues and scenarios, to B-Schoolers across the country. Insights of Industry stalwarts and revered academicians also find their place in the magazine. Pratibimb the e-Magazine of TAPMI had its first issue in December 2010. The issue comprised of an interview of denoted writer Ms. Rashmi Bansal along with a series of articles by students and industry experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first rank globally for learning & development. It also introduced a hugely successful and engrossing game for finance geeks called “Beat the Market” to bring out the application based knowledge of students by providing them the platform where they were expected to predict the stock prices of two selected stocks on a future date. The magazine is primarily intended for the development of all round management knowledge by providing unbiased critical insights into the modern developments. In sync with TAPMI`s belief of learning not being restricted to classrooms and textbooks, Pratibimb provides an atmosphere of knowledge sharing and skill enhancement to students and also a competitive platform which allows B-Schoolers to brainstorm and critically analyse real life management situations. Within a short span of time, Pratibimb has been able to create a buzz on most B-school campuses in the country and currently enjoys the confidence and admiration , reflected in the articles sent for publication, of various reputed Management Institutions. Pratibimb has featured interviews of eminent personalities from public and private sector like Ms. Rashmi Bansal (Author of "Stay Hungry Stay Foolish", Editor - JAM Magazine and IIM A alumnus), Dr. Jagdish Seth (Global Marketing Guru, Emory University, USA), Mr. Dhanendra Kumar (Chairman, Competition Commission of India), Mr. Vinit Monga (Head of Finance and Control, Nokia Siemens Network, Bangalore) and Mr. Benny Augustine (Director - Human Resources, Unisys India). Pratibimb became a monthly e-magazine from October, 2011. Views and opinions of long time Veterans of Industry provide a peek into the real churnings of the Corporate world and rare insights into challenges and concerns of industry, bridging the gap between Campus and Corporate. Its commitment to excellence and innovation is growing by leaps and bounds with every new issue, fuelled by the interest shown by avid readers, subscribers and contributors. A host of new innovations, features and additions are in the offing as this dynamic offering from students of TAPMI is in the process of constant reinvention. With better things on the horizon, Pratibimb is poised to be a better reflection of the management world, and a lot more. We invite you to become a part of Pratibimb and help us take this to next level by contributing articles or participating in national level B-School events – “Beat The Market” and “Route To Market”.
Pratibimb | December 2011 | 3
MESSAGE
DIRECTOR’S
Previous Edition’s
I am pleased to state that the team members of PRATIBIMB have continued their sincere efforts to bring out this eighth issue in December 2011. The previous seven issues had a number of management articles written by students of various B-Schools and also from students and faculty of TAPMI. This student magazine is also accessed and appreciated by our alumni and industry and business readers. The magazine provides a platform for our students to use their creativity, imagination and language skills to reflect upon various management areas i.e. operations, marketing, system, HR, finance and entrepreneurship as well as in areas of their interest. It also fosters research culture among students. Research orientation and sharpening analytical mind are crucial for their academic orientation. Generally literary work, research article writing and publication should become part of students’ learning goals while they are in the campus. This would perhaps sow seeds for pursuit for academic career by a few management students after their initial experience in industry and business. It has been observed that on comparison with fast developing country i.e., China in Asia, the focus on research and publishing from Indian students and faculty in management journals and pursuit of Ph.D. programme in leading universities has been moderate in recent past. This situation needs to be improved. To this extent our students and faculty can best express themselves about their creative thoughts, opinions, knowledge and interests by contributing to PRATIBIMB. Let PRATIBIMB grow in content and variety with thoughtful articles in months to come. I congratulate the persistence and continued efforts put in by the team members of PRATIBIMB for timely publishing this volume. I wish them higher performance, joy and success in their endeavor. Dr. A. S. Vasudev Rao
Pratibimb | December 2011 | 4
editor’s corner Dear Readers, This edition marks a complete one year journey for Pratibimb in which it grew by leaps and bounds. We are thankful to all our readers and participants who helped us in making Pratibimb an excellent platform for sharing knowledge. In this short span of one year, Pratibimb has transformed itself from bi-monthly to monthly e-magazine. Continuing our endeavor, we are pleased to release December edition of Pratibimb. We are thankful to all the students from various colleges who put in great efforts in writing articles on various issues/ topics and worked hard to send entries for “Beat The Market” and “Route To Market”. The articles have been selected by the Editorial Team whereas “Beat The Market” has been judged by Prof. Vrishali N Bhat and “Route To Market” has been judged by Prof. Vinod Madhavan. We thank judges for their precious time. We also thank all those who helped us in improving Pratibimb through their feedbacks. We would like to take this opportunity to extend our gratitude to all faculties and students at TAPMI for their continued support, guidance, motivation and inspiration to take Pratibimb to the next level. We wish our readers a very happy and prosperous new year in advance. Please continue to send in your valuable suggestions / feedbacks at pratibimb.tapmi@gmail.com so that we can make improvements in the coming editions. Happy Reading!!
Rohit Kumar Pratibimb | December 2011 | 5
Rohit Kumar, Chief-Editor Ramanuj Vidyanta, Editor-Branding Sarvesh Joshi, Editor-Creative Designer
Sub-Editors
Abhishek Anupam Abhishek Dubey Bijoy Alokkan Kapil Saraswat Manish Mishra Pranaynehru T Sushmit Sinha Vandana Soni
Faculty Advisors
Prof. Chowdari Prasad, Dean (Planning & Development), TAPMI
Dr. Jaba M. Gupta, Associate Professor and Chairperson - eGPX, TAPMI
Special Thanks Prof. Vrishali N Bhat, TAPMI Prof. Vinod Madhavan, TAPMI IT Team, TAPMI Alumni Affairs Committee, TAPMI
contents Beyond Traditional Banking ?
7
Prof Chowdari Prasad, Dean (Planning & Development), TAPMI
Inclusive Growth Of The Unorganized Labor Force
10
Suvrodip Banerjee , XLRI Jamshedpur
China's Economy post 2025
16
Shashank Mahale, NMIMS
Fit of Social Media with Existing Marketing Strategies
20
Sangeetha, IIM Bangalore
Infrastructure Financing In India - Exploring Alternatives
25
Ankur Bhardwaj, MDI Gurgaon
Debt Capital Market in India: The Way Ahead
30
Sudip Kar, TAPMI
Role of HR during Recession
34
Rajesh Sridhar, SIIB
Disruptive Innovation: A new era of Crowdsourced Data Analytics!
36
Ayush Malhotra, NMIMS
Mutual Fund Industry Krishnakant, SJMSOM, IIT Bombay
Pratibimb | December 2011 | 6
40
Beyond Traditional Banking ? by Prof Chowdari Prasad, Dean (Planning & Development), TAPMI
Recently, a new prefix to “Banking” interested me to think on all possible facets of banking in India and world over. This was ‘Tissue Banking’, a medical concept, of course. But, in the world of Commercial Banking, there have been several newer terms coming in from time to time. While most of these prefixes have technical meaning and have attained the world-wide acceptance in the banking and finance industry¸ some popular terms have also been floating round – like ‘Any where banking’, “Any time banking” and also “Any How Banking”! When we want to find out the various types of banks that are operating in India, the picture is always exhaustive and very big. Beginning with RBI, which was itself formed as a private entity in 1934, inheriting its functions and role from the Imperial Bank of India, and was nationalized in 1948, we have a host of banks viz., State Bank Group (State Bank of India and its five subsidiaries), 19 Public Sector Banks or Nationalised Banks (with two rounds of nationalization in 1969 and 1980), Old and New Generation Private Banks, Foreign Banks, Regional Rural Banks, Local Area Banks and Cooperative Banks operating country-wide for over a century. In the Indian Financial System, Pratibimb | December 2011 | 7
we have three more types of players to complete the picture. These are Development Financial Institutions (like IFCI, SIDBI, EXIM Bank, NABARD, etc), Non-Banking Financial Companies (including Lease / Hire Purchase companies, Chit Funds, Nidhis, Merchant Bankers, Insurance Companies, Mutual Funds, etc), and National Small Savings through Post Offices offering a wide range of products and services. Business World (Weekly) issue of October 17, 2011 had, under the heading “In Depth Banking”, published an interesting article with a caption “Palm-Top Banking” dealing with Micro-ATMs to increase the rural coverage. It aroused my curiosity to literally go in depth to find out more details about the new facility. Having spent about three decades in hands-on banking at branches and administrative units of three leading banks and teaching the subject for over a decade in two prominent B-Schools, I have been closely watching enormous changes during the reforms era with the advent of technology, my interest has gone up for more details. In fact, being a rural banker myself in remote backward areas in Andhra Pradesh as a Branch Manager of Agricultural Development Branches of SBI during
eighties, I have also been researching on the current buzz words like “Financial Inclusion”, “Self Help Groups”, “Micro Financing” and “Business Correspondents and Facilitators” sometimes feeling jealous of the current generation banking fraternity for having modern facilities. ATMs have almost equaled the number of bank branches affording 24x7 services to the best satisfaction of customers of all types in all centers – metro, urban or rural areas. Outsourcing is being permitted to be used by the banks in all sectors for business development and ensuring customer satisfaction. In recent times, electronic banking and innovative products and services in banking industry seem to have bridged the gap between the haves and havenots as also the rural and urban clientele. It was in 1969 when the first nationalization of fourteen private sector banks was carried out and introduction of Lead Bank Scheme and Priority Sector lending norms were defined to take the banking services to the grass roots level with a condition that the per branch population served be brought down from the 65,000 to a challenging level of 15,000, the whole banking industry was put to the acid test of branch expansion, recruitment and training of staff, rendering of satisfactory customer service with productivity and profitability began. After experiencing several troubles and tribulations during the seventies and eighties, the industry was blamed to be ‘inefficient’ and was exposed to the ‘reforms’ with introduction of concepts like Prudential Norms, Capital Adequacy Ratio, Non-Performing Asset Management, de-regulation of interest rates, Asset Liability Management, Risk Management, Benchmark Prime Lending Rate, and so on. Pratibimb | December 2011 | 8
While technology has been playing a very dominant role in changing the face of banking industry in India, a whole gamut of new
(Source: Business World) terminology in banking surfaced which are listed out in the table below. These comprise of both traditional and non-traditional banking concepts, co-existing in the twenty-first century.
01.Agricultural
02.Anywhere
03.Any Time
04. Barefoot
05. Branch
06. Business
07. Cooperative
08. Commercial
09.Convenience
10. Core
11. Corporate
12. Central
13.Developmental
14.Door Step
15. e-Banking
16.Eco Friendly
17.Ethical
18.Faceless
19. Girigiri
20. Green
21. Innovative
22. International
23. Internet
24.Investment
25. Islamic
26. Inclusive
27. Lazy Banking
28. Lombard
29. Mobile
30. Narrow
31. Online
32. Overseas
33. Palm Top
34. Paper less
35. Personal
36. Pigmy
37. Priority
38. Private
39.Retail
40. Relationship
41. SMS
42. Shadow
43. Sustainable
44.Tele
45.Transaction
46. Universal
47. Unit
48. Video
49. Virtual
50. Village
51. Wholesale
52. Women’s World Banking
Table no.1. Many facets of Banking Today The above terminology has been captured from Business Magazines, News Paper articles, and search engines like google.com, Wikipedia.com, etc. Concepts like Unit / Branch Banking, Central / Commercial / Corporate/ Cooperative / Developmental / International / Innovative / Investment / Lombard / Overseas / Personal / Pigmy / Priority Banking, etc form part of the traditional banking. Others like Anywhere / Any Time / Barefoot, Business, Convenience, Core, Door Step, e-Banking, Internet, Islamic / Inclusive / Lazy / Mobile / Narrow / Online / Palm Top / Paper less / Private / Retail / Relationship / SMS / Tele / Universal / Video / Virtual / Village / Women’s World Banking etc have emerged in the post reforms era. And the remaining phrases like Eco-Friendly, Ethical, Faceless, Girigiri, Green,
Pratibimb | December 2011 | 9
Shadow, Sustainable, Transaction have all emerged in recent times with entirely new dimensions and call for detailed study by all those who are deeply in to the field of banking in modern times.
Inclusive Growth of the Unorganized Labor Force by Suvrodip Banerjee, XLRI Jamshedpur
The Unorganized Workforce of India
Productive, sustained and decent employment opportunities along with welfare of workers is one major factor on which overall inclusiveness of growth needs to be judged. An estimated one million people will enter the Indian workforce every month for the next 20 years which is already over 500 million strong currently and majority of these will be in the unorganized sector.
The increasing population of unorganized labor force in India could be attributed to the following reasons:
The unorganized workforce constitutes of 93% of the total Indian workforce including the agricultural workers (70% excluding the agricultural workers) and is generally categorized into the following segments:
Unpaid family workers
Landless and marginal farmers
Domestic servants working even on part-time basis with many employers
Self-employed
Full time apprentices in shops, establishments, assistants to street vendors
Regulated but casual wage workers like construction workers
Workers engaged on sub contracts
Pratibimb | December 2011 | 10
All other casual workers
Shifting recruitment preferences of industries: Increasing tendency of Indian and foreign firms operating in India to employ casual and contract workers in the name of cost cutting and avoiding Indian labor regulations and trade unionism among organized workers.
Jobless Growth: Though investments have flowed in trillions in the country and GDP growth has been an average 7% over the last decade, the rate of blue-collared job creation in labour intensive industries have not matched the investments (growth in employment was about 1.4% from 19992008) . Most of the job creation has been in the high skilled services sectors. This has led to decrease in permanent positions in industries further leading to increased casual workers and growth in self-employed population.
Lack of Land reforms: Barring few states, failure to implement a comprehensive land reform policy and increased contract farming have led to increase in landless and
marginal farmers
Boom in non-traditional sectors like construction where the workers were historically unorganized
Large scale migration of rural people to urban areas due to diminishing incomes from agriculture
Though they contribute about 50% of India’s GDP, only 6% of these unorganized workers are included in the legislated social security schemes of the country. They earn just about 10% of the national income. Majority of these unorganized workers belong to the ultra poor category of the society who are bereft of the minimum subsistence income. Why they need to be made a part of the inclusive growth process? Economic capability of an individual is to a very large extent determined by the status of employment. Decent Employment and work conditions not only ensure economic security and dignity, but also promote general participation in society and economy, promoting better health and education not only for the employed but also for their dependents. The Directive Principles Of State Policy of the Indian Constitution (Articles 41 and 42 and Items 23&24 under the List III of Schedule VII) urges the state to take appropriate steps within its limits to ensure decent and productive employment and living opportunities to all Indian citizens, yet the unorganized labor force of the country remain largely excluded from the mainstream of development and progress.
Unorganized workers constitute about 45% of the total population, and considering their dependents this figure is close to 70% of the population. Majority of this population is ultra or upwardly mobile poor. They constitute about 90% of India’s poor population. Including them in the growth process means
Pratibimb | December 2011 | 11
solving India’s poverty issues to a great extent
A majority of this unorganized workforce represent the SC and STs of the country. Inclusive growth of the unorganized workers means fighting their non-inclusiveness in the mainstream
By including this neglected workforce in the mainstream, the system removes the barriers to other forms of exclusion like in the field of health, education, finance not to mention the social inclusion and providing them with the dignity of a human being which is denied to them otherwise
Overall socio economic stability, decreased crime rates, improved HDI scores are the direct benefits of this inclusion
Barriers to Inclusion of Unorganized Workers
CAPABILITY DEPRIVATON:
Capability deprivation happens in terms of inadequate employment, low earnings, low health, low skills, low education etc. A vicious circle of poverty engulfs these workers due to capability deprivation as shown below: The unemployment rate of India is around 10%
currently while the incidence of poverty is around 40%.This implies that a considerable proportion of those involved in employment where productivity is low and hence the remuneration is lower than the minimum wages. The wages vary in favor of organized to casual workers, in favor of salaried (who have a price determined wage) to other wage employment, in favor of male to female and in favor of urban to rural areas. Low remuneration prevents means low skill upgradation and low health which further reduces their productivity.
LACK OF SCHOOL EDUCATION:
Lack of school education definitely adds to the inadequate skill training. The mean year of schooling of an Indian is 4.2 as per NSSO. One third of the 400 plus unorganized workers are illiterate. The main reasons of dropouts among the 6-17 year age group are financial constraint, lack of interest of parents and lack of interest on the part of the children. Public expenditure on education is just about 4% of GDP, thus making financial constraint a huge impediment for education among the poor. Skill enhancement of these sections through a series of steps is vital for their inclusiveness.
To overcome the capability deprivation, these labor forces should have a support mechanism to meet contingency situations. On the state front, most social security benefits have been directed towards the organized sector through various social legislations against loss of income due to unemployment & disability, maternity, old-age, minimum wages, bonuses and other employment risks. Only 6% of the 400 million plus unorganized workers have access to such benefits. Provident funds are there for certain casual workers only. A list of impediments to increasing the reach of the social security systems among the unorganized workers are: a.
Identification of Beneficiaries: Legal obligation to issue identity cards is on the part of employer/contractor concerned. In practice however the employers/ contractors do not show all the workers on their record to avoid recovery of PF contributions, excise duty & cess. Many workers are home based and do not have employer-employee relation and hence difficult to track. Also many genuine workers are left out of the system while many bogus workers gain access to the benefits through dubious means.
b.
Setting the income ceiling: What should be the income ceiling of providing relief? In a country where poverty figures vary considerably across studies, setting a scientific income ceiling below which the relief should be provided becomes complex.
c.
Administration and monitoring costs of such programs are very high.
INADEQUATE AND OUTDATED TECHNICAL EDUCATION SYSTEM:
The need of an efficient technical and vocational education system lies in the fact that it imparts necessary skills to improve employability of workers and thereby improves their quality of life. However the bulk of the technical and vocational institutes are private unaided (ICTs) and almost 47% of the students go to these institutes. The government aided ITIs are suffering from structural deficiencies like outdated infrastructure and curriculum. The ICTs are almost double as expensive as ITIs (GOI report 2010) and hence majority of students cannot afford them. Pratibimb | December 2011 | 12
LACK OF FALLBACK MECHANISM IN CASE OF CONTINGENCY:
LACK OF RIGHTS:
KNOWLEDGE
ABOUT
Research shows that agencies take advantage of
the ignorance of the uneducated workforce about their rights. In a recent incident a contractor for a FMCG MNC kept casual workers out of ESIC benefits citing the excuse that ESIC is applicable to only graduates. Strangely, even the MNC did not take any action against the contractor though it knew of its unscrupulous practices.
LACK OF TRADE UNIONS TO GUIDE:
TUs are often criticized for their policies and practices. But the unorganized workers in the absence of TUs, have nobody to guide them on their rights and fight for them. The TUs have avoided the unorganized sector due to the migratory nature of the workforce, lack of enthusiasm among the workforce itself and lack of will on part of leadership
LACK OF POWER:
ADMINSITRATIVE WILL
As is the case with most of India’s failure stories, an in-efficient and corrupt bureaucracy has been unable to draft a comprehensive plan for the upliftment of unorganized workers. It is only in the eleventh five year plan that a proper focus has been on these sector. Lack of monitoring mechanism means funds meant for various schemes like NREGS gets diverted, workers have to bribe officials in order to get their rightful wages and the list is long.
Overcoming the Barriers
Inclusive growth of the large part of country’s labor force should stress on equality of opportunity in terms of access to markets, resources and unbiased regulatory environment for business individuals. India needs to focus on areas like opportunity creation, education, social security, administrative reforms, including the private sector and innovation in order to conceive inclusive growth for the unorganized workforce.
Education Education plays an important role in unemployment and under employment. So there should be an equal focus on school education and technical education. For School education, the Kothari Commission set up in 1966 suggested at least 6% of the national income to be allocated for the purpose. However the last budget allocated Rs 52057 crore which is just 0.58 % of the GDP of 2010-2011 pegged at Rs8980, 860 crore for primary, secondary and tertiary education. Even after including the contribution from the states, the best of optimists cannot take these figures to more than 4% of the GDP (US $ 80 billion in PPP terms). Compared to US (US $ 815 billion) and China (US $ 138 billion) our budget for education is abysmal and the per capita allocation for reaping the benefits of our demographic dividend stands at as low as Rs6531/year. The increase in allocations for Right To Education by 40% is also very less according to experts. In order to improve our K-12 education system on which 60% of our children depend, the system needs immediate reforms including increased budget allocation, setting up of village level monitoring committees consisting of local leaders and parents with clear role setting for the committees, monitoring mechanisms on teacher absenteeism through ICT and incentives for teachers for better performance. For improving the technical and vocational training the GOI upgraded 500 ITIs with domestic and World Bank help and set up new centers through Public-Private partnership under the National Skill Development Mission 2007. The following can increase the quality and quantity of vocational training: Increasing the intake capacity of the ITIs Revision of the existing system from supply based to demand based Stricter governance monitoring through setting up of various bodies and committees. Developing
Pratibimb | December 2011 | 13
competency
based
modular
Vocational courses of varying durations. Provision of joint responsibility of institute and industry for making a person employable. Orientation programs for trainees in industries
Increasing employment opportunity NREGA is one of the best examples of how opportunities can be created at the grass root level. Though suffering from various structural drawbacks, the scheme has been able to generate productive employment for the rural people thus increasing wage rates and building sustainable rural infrastructure. However there is need to streamline the scheme using Information and Communication Technology, increase funding, removing corruption by giving more power to the Gram Panchayats and extending the scheme among urban poor too. A system of performance appraisal for each village using checklists should be implemented to monitor the program. The differential wage rates for men and women should be done away with as it violates the constitutional idea of “Equal Pay for Equal Work”. NGOs must create awareness and monitor progress through Social Auditing, Work Measurement, Muster Roll Checking, and Work Organization. For more employment generation labour intensive and high employment elasticity sectors should be promoted and re-skilling of retrenched workers for redeployment undertaken. The minimum wages fixed by states should be price adjusted like the organize sector. There should be focus on self employed through access to credit and involving the private sector in the process. Bosch, for example helps self employed rural artisans by providing them with power tools at easy finance and training them to put to use the tools. Vivo, Brazil’s largest telecom provider, helps individual fishermen to thrive by providing free 3G enabled phones and service at minimum rates with real time information on weather, high catchment areas in the sea and information on prices in local markets. Hence Pratibimb | December 2011 | 14
private sector has to play a key role in increasing employment opportunities for unorganized workers. The agriculture should be regenerated through increased investments and the second green revolution should be extended to other states as well.
Social Security Labor reform is necessary in India. Organizations should have more flexibility to hire and fire, the percentage of casual/contract workforce is definitely going to go up. But alongside the social security cover must be extended to the unorganized workers on a priority basis. The Unorganized Sector Social Security Act 2008 has been enacted but not enforced yet. The income ceiling has not been defined in the act and there is confusion regarding whether the scheme should be contribution scheme or benefit scheme. For the unorganized sector a benefit defined scheme would be more desirable. Here the benefits are first determined, then costs and finally the contributions required. The contributions are collected via a cess on organizations. This cess, prevents increasing the reach of the social security. In future the contributions should be from government (some states have already started this) and from employees too. In order to determine the target beneficiaries of the programs NCEUS recommends distributing smart cards to all unorganized workers after a detailed home to home survey based on an income ceiling (may be the nationally accepted BPL ceiling). The surveys need to be carried out by Self-help Groups in collaboration with local authorities. This has to be done in phased manner. Spot verification of unorganized worker status need to be done along with consultation of the local SHGs who would collect information about the person and through employers/contractors. The administration of the social security systems should be on a federal structure with center
providing the umbrella legislation and states building on it and implementing it through local bodies. There should be strict penalty clauses for violation of rules.
structure and may lead to India turning into a failed state. . References
P.Goel,Vijay, Technical and Vocational Education and Training System In India for Sustainable Development
National Rural Employment Guarantee Scheme and factors contributing to the success and failure n implementation., http:// www.napsipag.org/pdf/NEENA.pdf
Education in India, http:// www.worldbank.org.in/WBSITE/ EXTERNAL/COUNTRIES/ SOUTHASIAEXT/ INDIAEXTN/0,,contentMDK:21493265~page PK:141137~piPK:141127~theSitePK:295584, 00.html
Dilip Thakore, Union Budget 2011-12 - Mr. Bumble Mukherjee’s grudging provision for public education, educationworldonline.net, April 2011, http://educationworldonline.net/ index.php/page-article-choice-more-id-2650
Organizing the unorganized In order to prevent exploitation of the unorganized workers, in order to make the aware of their rights and in order to bring them within the ambit of inclusion, the role of organizing them into trade unions is vital. The trade unions need to be pragmatic in the sense that they should understand labor reforms are inevitable, that industries need more flexibility in terms of hiring and firing and hence their focus should be on making sure that the unorganized workforce, the contract and casual workers are provided with social security,decent work conditions , scope of improving their skill sets and more opportunities. The TU leadership should change their strategy to make sure unorganized workers are represented and focus more on plugging the loop-holes in the implementation of the schemes rather than opposing reforms in an archaic system.
Conclusion The degree and pace of inclusiveness of the unorganized workers would to a large extent determine the rate at which India can reduce her dismal poverty levels, meet her Millenium Development Goals and improve her HDI scores. This is a mammoth task and needs prudent planning, faster decision making and flawless execution. The private sector has a huge part to play in the process and reluctance to act may lead to more situations like the strike in Maruti. The middle class and intelligentsia has a big role to play too in order to ensure that the government acts fast and competently. Failure to include our 400 million plus unorganized workforce in the mainstream of development will mean destroying the balance of our socio-economic-political Pratibimb | December 2011 | 15
China’s Economy Post 2025 by Shashank Mahale, NMIMS
“It doesn't matter if a cat is black or white, so long as it catches mice.”
economy which was stagnated in the erstwhile socialistic setup.
- Deng Xiaoping
While the GDP grew at a sustained rate of around 9.5 per cent from 1978 to 2009, the per capita GDP grew at a similar pace as the population growth was tightly controlled by the ‘one-child’ policy in China. The graph in Chart 1 shows the trends in the growth of these three factors.
While most of China was walking the path of communism shown to them by their charismatic leader Chairman Mao Zedong, another prominent figure in the Communist Party of China (CPC) – Deng Xiaoping had a different vision on the means to achieve progress in China. It was with this in mind that he quoted the above phrase, which implied that it did not make a difference whether the policy was socialist or capitalist so long as it brought about economic development for the nation. Although Deng harbored these views before the Cultural Chart 1: Comparative analysis of growth in GDP, population and per Revolution, he put them into capita GDP action in the year 1978, which heralded a new wave of reforms – mainly This unprecedented growth, fuelled mainly by economic reforms – in China. The first phase of exports, has placed China in the spotlight in the the reforms (late 1970s to early 1980s) international economic order, which faces major concentrated on agriculture, foreign investment uncertainties given the condition of the largest and entrepreneurship, while the second phase (late economies in the world, the United States of 1980s to early 1990s) focused on privatization and America, and more so of the nature of its debt. creating a level playing ground for all the players Much of this debt is owned by China, the second in the economy. This led to a rapid growth of the largest economy as of today, making its future as uncertain as that of the US. Hence, it is interesting Pratibimb | December 2011 | 16
to investigate the future of the Chinese economy and the factors that could impact it the most. For this purpose, a PEST analysis of the Chinese economy in 2025 has been described in this article. Since these aspects (Political, Economic, Social and Technological) are interrelated, the PEST analysis has been carried out by assessing the impacts of two of the most dominant phenomena that are occurring or expected to occur in China by 2025.
1. Increase in the GDP per capita The tremendous pace of growth in China has caused the per-capita GDP to shoot up from as low as USD 155 in 1978 to USD 3744 in 2009. The intensity of this increase can be appreciated by looking at the graph of GDP per capita over the years (Chart 1). While this increase has caused the standard of living of the Chinese populace to increase manifold, it has also reduced the competitiveness of China’s exports. This is because the main factor which led to China becoming a hub for carrying out standardized processes such as manufacturing is the relative difference in wages of the Chinese workers to that of the workers in the developed countries. This activity known as ‘wage arbitrage’ is successful only as long as the cost of production (including the risk of operating in a foreign country) and transportation of the goods to the markets is lesser than producing the same goods in the home country. Once a country moves from being a lowincome economy to a mid-income economy, the possibilities of a wage arbitrage disappear and companies find it more profitable to move out of the economy and operate elsewhere. Economic impact: China, which is a manufacturing hub, faces this problem due to a sharp increase in the wages of its workers. While some companies have already shifted bases from China to other low-wage countries including India, Vietnam and the Philippines, this is expected to increase in the future when China completely transitions to being a mid-income economy. This Pratibimb | December 2011 | 17
would result in many of the workers in the exportoriented industries being unemployed. Social impact: The workers thus made unemployed would resort either to illegal activities to sustain their lives or protest for a dole to be meted out to them. In either of the scenarios, the government would be hard-pressed to control the problems caused. The government may try to curb unemployment by employing the labor force for infrastructure development of the nation, but even this is more of a band-aid solution than a permanent fix. Political impact: An increase in the need for social security would have the Chinese government face more ‘incidents’ (read protests), asking for more involvement of the people in the decision-making process i.e. a democratic form of government. Thus the repressed economy which has hitherto been kept satisfied through a fast growing economy would be more difficult to be appeased when the growth slows down. Technological impact: A fall in the competitiveness for wage arbitrage means that China (or any other economy with a similar model) would have to provide more value for the price it quotes for its products and services. This can only be achieved if the economy upgrades the quality of its products and services, through innovation. Thus, with an increasing per capita GDP, China will be moving towards innovations in products and processes to improve its competitiveness.
2. Ageing population After the implementation of the one child policy in China, the population growth was drastically reduced. By this measure, the job of the government to provide better living conditions for its populace was made much easier. This was due to the fact that in its early days, China had scarcity of funds to be used for providing healthcare, education and infrastructure to the people and a rapidly growing population could have easily
overburdened the reserves. This move led to changes in the demographic structure where consumption fell sharply due to a decrease in the dependent population and the economy had an investment-led growth due to the move towards savings. But as the economy matures, the number of people in the later stage in their lives increases and the consumption goes up giving rise to a consumption-led growth for the economy. This growth is sustainable only as long as there are young people in the economy who are able and willing to work. But with a one-child policy, this will be difficult as the population matures at an accelerated rate. This phenomenon can be seen through the age-pyramids shown in Chart 2.
Social impact: With the one-child policy, the parents are more inclined to have a male child who would support them in their old age. This concept is similar to what we see in India, where there is a rule in place against determining the sex of an unborn child. This is done to avoid the cases of female foeticide which were rampant in India. But in China, sex determination is still not banned and hence, the female foeticide still takes place. This has already led to a badly skewed gender ratio, which is worsening by the minute. Political impact: The one-child policy is strictly enforced by the government in China. This is seen by many as a repressive measure, which encroaches on the human rights of the citizens of a country. If the social tensions caused as an
Chart 2: Age-pyramids of the population of China through the years Economic impact: The rise in the number of dependents strains the economy as there are increasingly fewer working age people to support them. This is also known as the "four-two-one" problem; which means that with a one child policy, when the child comes of age, he or she has to support two parents and four grandparents. Thus, if the state welfare system fails and children are unable to care for their elders, then these generations would face extreme hardships to sustain their lives. Pratibimb | December 2011 | 18
outcome of this policy evoke such feelings in the populace of China, they may protest against the government to remove this policy. The government may find it difficult to deal with such protests and may resort to violence to crack down on the protesters, leading to further discontent among the people. This would lead to a vicious circle where the discontent among the people is aggravated by the repressive regime. Another issue is that on an ageing population which would need more social security entailing more government spending. For the government,
making such lasting provisions for social security, in the world of an increasing life expectancy (shown by a death rate lower than the birth rate – in Chart 3 – and increasing medical innovations), would mean a large and sustained investment, which it may not be in a position to bear. This would lead to protests from the older section of society, which would form a large part (around 20 percent) of the total population by 2025.
that will not only be difficult for the government to resolve, but some that would put to test the very basis on which the government operates and the economy is flourishing.
Chart 3: Trends in birth and death rates Technological impact: Since there are more elderly people in the Chinese economy post-2025, there will be an increased need for healthcare facilities. Also, there have been many outbreaks of infectious diseases in China, such as the outbreak of SARS and Bird-Flu. To cater to these needs there will be a host of innovations taking place in the area of medicines by the Chinese.
Conclusion The biggest problems faced by China in the years to come would be due to the changes in its demography, which would be counterproductive to its present core competence of manpower. This will herald a new era in the social and political structure of the nation. Thus it can be said that although China, by 2025 will be a powerhouse in terms of the GDP, given its rapid growth, it will face such tough challenges Pratibimb | December 2011 | 19
References
World Bank data
Ray Medeiros, Corporations Are Moving Out Of China To Even Lower Wage Countries, politicususa.com, May 2011, http://www.politicususa.com/ en/china-move-out
Human Development – Demography, http://www.china-europe-usa.com/ level_4_data/hum/011_7a.htm
Fit of Social Media with Existing Marketing Strategies by Sangeetha, IIM Bangalore
Social Media Marketing is becoming one of the most effective means of marketing. A lot of companies and products leverage Social Media, especially Small and Medium businesses to enable them to compete at equal footing with the sector majors. Usually B2C companies use social media marketing. Consumers use social media to get the information, feedback and opinion of different people before buying a product. 360BuzzAds Pvt. Ltd. claims to be the first integrated Social Media Marketing engine which helps businesses monetize Social Media by growing their online user engagement. Mr. Subramanya R Jois, CEO of 360BuzzAds Pvt. Ltd. says that the number of people visiting the Forum mall in Bangalore has increased from 40,000 to 60,000 on an average during the weekdays after the usage of social media marketing. Benefits to companies using social media
Used to build Viral communities across Social Networks, reducing cost and time to Market
Availability of Facebook on mobiles has enabled companies to reach customers more easily
Pratibimb | December 2011 | 20
Companies can receive the qualitative feedback from users easily
They can also leverage it to promote their products and convey any offers/discounts
Cons of using social media
There are chances of customers of another product giving some negative comments or opinion about the product. That would have a very bad impact. So the companies should keep track of the negative feedback and should take action
Resources should be allocated to keep track of the post and reply to the users queries
Social Media: the game changer Social media has provided, both existing and prospective customers, a channel to voice their opinion in much more powerful way than ever. Any company trying to ignore it would risk losing market share and reputation in long run. Earlier, relation between a company and its customers were either:
One to Many: With companies having the higher ‘preaching’ ground and unidirectional communication through various advertising mediums.
channels to engage with the customers in a bi-directional communication, initially only
One to One: Mainly while addressing customers’ complaints, occasionally during promotional events.
to minimize the damage but now to maximize their value proposition delivery. Reasons for using Social Media Marketing
However, now with advent of social media bandwagon companies need to realize and treat social media channels as a very important complimentary channel to their existing marketing channels, which unlike others enable two way communications and hence, often perceived as a threat by many marketers who now need to be answerable and more responsible in terms of their strategies as the communication has now turned to become Many to Many.
Many to Many: In fact, as the following figure shows that since the world wide web has equipped customers’ with the tools and abilities to interact with each other, irrespective of geographical boundaries, companies have been forced to use the same
Pratibimb | December 2011 | 21
Mary J. Culnan et al, (2010) have discussed on how firms should use social media to interact with customers and how their use varies by industry. They also stated that in order to gain benefit from social media, firms need to develop implementation strategies based on three elements: mindful adoption, community building, and absorptive capacity. The reasons for using Facebook by companies of
Source : 360Buzz Ads.com
various sectors identified by 360BuzzAds are for Branding/awareness, Engagement, Transaction, Loyalty and Recruitment purpose.
transaction. Loyalty
FMCG companies extensively leverage digital marketing for brand awareness. They have different pages for the different products they offer. Information on promotions, gifts and greetings are updated frequently. Videos, pictures and Store locator facility of the product are shared in their page. Loyal users of the brand create communities which help in viral marketing.
Companies were found to encourage loyalty amongst their existing customers or signalling benefits amongst potential customers by giving special discount, some meant for Facebook users only, on the basis of number of purchase and for inviting their friends to join the page. To further reward loyal behaviour and continuous following some companies maintain leader boards, with leaders determined through their contribution to discussions and participation in contests, etc.
Engagement
Recruitment
Few brand pages look beyond brand awareness. They engage with the customers by conducting surveys, quizzes and polls to find the expectations from the customers. Some of them also reward the users for these events. They appoint a person to answer all the queries of the user which can happen through text or video chat. For example in Apollo hospital Facebook page people used to query the availability of the doctors. This brings an attachment and satisfaction of the customer towards the product/service.
Now companies have started uploading the job notifications on the Facebook page. People also use this medium to enquire about the job requirements and vacancy. Summer interns and new hires query about their joining date and posting location.
Branding/ Awareness
Social Commerce/Transaction Companies also use Facebook for the transaction purpose. Customers can buy the goods directly from the link provided in Facebook. The transaction will take them to the payment gateway where they can pay for the product. This is very mostly used by the retail companies. Sometimes exclusive discounts are offered for Facebook customers. There are few products that cannot be sold online via Facebook like baby foods and supplements, medicines and liquor due to the regulatory norms. So the companies selling these products can only use Facebook for awareness and not for Pratibimb | December 2011 | 22
Tools used by companies to analyse the inputs from Social Media Twitter Sentiments Tools like Twitter Sentiment are used to find the positive and negative sentiment of people commenting on a particular topic in Twitter. This will help companies to track the negative sentiments and work on it to resolve it. Twitter Sentiment for Apollo
Social Mention Social Mention is another website that provides statistics related to use of a keyword on various social media platforms, similar to ‘Google Alerts’ but more focused. A snapshot of the website is shown below with the search term ‘Apollo’ and associated statistics on various social media platforms:
other hand it could be perilous too if not properly managed. Establishing presence on Social media and announcing its products would not only suffice for a company but it would also have continuously monitor the on-going dialogue between its existing and potential customers. This could also improve companies’ perception in terms of customer service, garnering positive mentions and corresponding network effects through the social networks of a customer.
To conclude a check-list of Do’s and Don’ts, especially useful for budding companies trying to gain foothold but equally valid for established ones:
Do’s
Define your target customer segment and develop a communication strategy with proper tones
Develop a style of interaction matching the brand personality one wants to project
Define level of moderation
Use all the possible & relevant applications available as each can enhance or affect one of the five parameters discussed earlier
Try to create apps/games specific to your brand/product, increasing their attractiveness
Focus on loyalty building measures, a part often neglected by many
Keep the sales pitch subtle with more emphasis on ‘Engagement’ to influence customers purchasing decisions
Don’ts Social Mention for search on Apollo Conclusion On one hand Social media (specifically Facebook) provides great opportunity for Small and Medium businesses primarily to increase their reach, on Pratibimb | December 2011 | 23
Use Social media for corporate communication purposes – it is not the right platform to find and address relevant audience, and it will alienate the end customers who usually doesn’t have an interest in this
Forget to regularly update the content and come up with ideas to keep customers engaged with your brand/product
Try to thwart a dissenting customer by engaging in a duel of words or trying to discredit/malign his or her image as this could disenchant other users from actively participating due to fear of similar actions
Use same page to communicate about different product segments with possibly different customer segments; create separate product pages in such cases rather than one single brand page
Varying the aim of communication with different Social media channels which is perceived differently and cause a scattered brand image projection
References
http://web.ebscohost.com/ehost/pdfviewer/ pdfviewer?sid=c979e4c8-104e-4a44-985d200e26cff18c% 40sessionmgr15&vid=2&hid=17, DOLLARS, SENSE AND SOCIAL MEDIA MARKETING
http://web.ebscohost.com/ehost/detail? sid=f2af76b9-2bf1-4a74-b03b215818b09820% 40sessionmgr14&vid=1&hid=17&bdata=Jn NpdGU9ZWhvc3QtbGl2ZQ%3d% 3d#db=bth&AN=58657254, HOW LARGE U.S. COMPANIES CAN USE TWITTER AND OTHER SOCIAL MEDIA TO GAIN BUSINESS VALUE.
Beat the Market As Jim Cramer, a former hedge fund manager, and a best-selling author put it, “As long as you enjoy investing, you'll be willing to do the homework and stay in the game… I mean I'm not smarter than the market, but I can recognize a good tape and a bad tape. I recognize when it's right and when it's wrong and that's what my strength is.” Stock markets have never been predictable, you may apply the best of logic and reasoning, but there could be a possibility that you may falter if the emotions of the investors take control. Beat the Market is a game designed to prove your mettle in stock market analysis. This time onwards, we will provide you the name of one listed company from NSE. You need to analyze stock movements of this company till 18th Dec, 2011. On the basis of fundamental and technical analysis you need to give us your share price estimate of this stock as on 30th Dec, 2011. Fundamental & Technical analysis will carry 70% weight while 30 % weight will be given to Accuracy of the estimated prices in the final score. The winning entry will receive a letter of appreciation and prize money of Rs. 1000 /Rules:
Company to be analyzed is Pantaloon Retail (India) Limited
You may analyze in a team of not more than 2 members
The file should not be more than 7 pages long including cover page, the cover page should contain the team name, team members name, Institute name, contact number
File name should be BTM_<TEAM_NAME>_<INSTITUTE_NAME>
Upload entries at http://www.tapmi.edu.in/student-life/pratibimb/participants-submission by 8:59 am, 18th Dec, 2011
The winning entry of ‘Beat the Market’, November 2011 edition will be declared on dare2compete.com. The entries of this contest have been judged by Prof. Vrishali N Bhat, TAPMI.
Pratibimb | December 2011 | 24
Infrastructure Financing in India Exploring Alternatives
by Ankur Bhardwaj, MDI Gurgaon
Infrastructure is the backbone of economic activity in any country, but unfortunately, India suffers from Osteoporosis in this. Time and again various policy measures have been taken to boost infrastructure, but no major progress has taken place barring on telecom infrastructure front. To fuel India’s ambitious growth rate and meet distant targets, a major restructuring is required on governance, legal, administrative and financial front. According to Global Competitiveness Report (GCR) 2009-10, India ranks very low at 76 in infrastructure domain. Also India spends only about 6-7% of its GDP on infrastructure. Finance is one of the most basic requirements for carrying out infrastructure projects, which are capital intensive and are in high risk domains. The low levels of public investment have made India’s physical infrastructure incompatible with large increase in growth. Any further growth will be moderate without adequate investment in social, urban and physical infrastructure. In 11th 5 year plan, 30% of total infra investment is expected to be from private sector & 48.1% of total infra investment is expected to be from Debt sources. This emphasizes the need for availability of cheap and easy finance options for private sector. Pratibimb | December 2011 | 25
Percentage Contribution investment in 11th 5-Yr Plan
in
projected
Source: 11th 5 year plan document, planning commission Challenges in Infra Financing There a lot of hindrances in achieving easy financing for infra projects in India
Savings not channelized – Although India’s saving rate may be as high as 37%, but almost one-third of savings are in physical assets. Also financial savings are not properly channelized towards infra due to lack of long term savings in form of pension and insurance.
Regulated Earnings – Earnings from projects like power and toll (annuity) may be regulated leading to limited lucrative options for private sector and difficulty for lenders.
Also any increase in input cost over the operational life is very difficult to pass on to customers due to political pressures.
Asset-Liability Mismatch – Most of the banks face this issue due to long term nature of infra loans and short term nature of deposits.
Limited Budgetary Resources – With widening fiscal deficit and passing of FRBM act, government has limited resources left to meet the gap in infra financing. Rest of funds have to be met by equity / debt financing from private parties and PSUs.
Underdeveloped Debt Markets - Indian debt market is largely comprised of Government securities, short term and long term bank papers and corporate bonds. The government securities are the largest market and it has expanded to a great amount since 1991. However, the policymakers face many challenges in terms of development of debt markets like •
Effective market mechanism
•
Robust trading platform
•
Simple listing norms of corporate bonds
•
Development of market for debt securitization
Risk Concentration – In India, many lenders have reached their exposure limits for sector lending and lending to single borrower (15% of capital funds). This mandates need for better risk diversification and distribution
Regulatory Constraints – There are lot of exposure norms on pension funds, insurance funds and PF funds while investing in infrastructure sector in form of debt or equity. Their traditional preference is to invest in public sector of government securities.
Pratibimb | December 2011 | 26
Exploring Alternatives To overcome these challenges and find a way for easy availability of funds for infra finance, we can explore following alternatives:
Developing domestic bond market, Credit Default Swaps & derivatives
India receives substantial amount of FII investment in debt instruments. But most of this investment is concentrated in government securities and corporate bonds
FII investment limit in infrastructure bonds has been increased from USD 5 billion to USD 25 billion. However investments of only USD 109 million materialized till August, 2011. This deficit in target investment levels need to be reduced. Just like a well-developed equity market, India needs efficient bond market so that long term debt instruments are available for infrastructure. Currently FIIs can trade Infra bonds only among themselves. Also if credit derivatives are allowed, then FIIs will be encouraged to invest more in these infrastructure bonds due to the presence of credit insurance and better management of credit risk. RBI is in the process of introducing CDS on corporate bonds and unlisted rated infrastructure bonds by Oct 24 2011. However much progress is sought is this domain like minimizing multiplicity of regulators, removing TDS on corporate bonds, stamp duty uniformity, etc.
Priority sector status to Infra
Hitherto, infrastructure financing doesn’t come
under the ambit of priority sector like agriculture, small scale industries, education etc. For every Rs 100 lent to non priority sectors, banks have to lend Rs 140 to priority sectors. Giving priority status will help banks to lend more to this sector.
Take out financing and loan buyouts
One major problem faced by banks while disbursing loans to infrastructure projects is the asset liability mismatch inherent with these projects. Therefore many such projects are denied financing by banks. One way out from this predicament will be the taking over of loans by institutions like IDFC after the medium term. This will allow banks to finance these projects for a medium term by sharing some of the risks with institutions like IDFC. This reduced risk exposure will allow banks to increase their financing of infrastructure projects.
the asset liability mismatch.
The following fiscal policy medications can allow more funding of infrastructure projects.
Rationalizing the cap on institutional investors
Rationalizing the cap on investment in infra bonds by institutional investors like pension funds, PF funds and life insurance companies will lead to more investment in this sector. Currently insurance companies face a cap of 10% of their investible funds for infra sector.
Tax free infrastructure bonds by banks
Currently only NBFCs can float tax free infrastructure bonds. If banks are also allowed to float these bonds, they can raise long-term resources for infrastructure projects, thus reducing Pratibimb | December 2011 | 27
Reducing withholding tax
Currently foreign investors pay withholding tax as high as 20% depending on the kind of tax treaty. It increases borrowing cost as the current market practice is to gross up the withholding tax. So this recommendation would reduce the borrowing cost.
Tax treatment on unlisted equity shares
Unlisted equity shares attract larger capital gains tax than listed ones. Currently capital gains on unlisted equity shares are taxed at 20% instead of 10% for listed equity shares. Most private players in the infrastructure sector are not able to raise capital through public issues. Therefore for these players unlisted equity will be their dominant source of equity capital. Therefore they are adversely affected because of the tax treatment meted out to unlisted equity shares. Hence special consideration should be given to private players in the infrastructure sector to encourage investments.
Fiscal Recommendations
Foreign borrowings
With respect to foreign borrowings, several options are there like increasing the cap rate for longer tenure loans, relaxing refinancing criteria for existing ECBs/FCCBs; allow Indian banks for credit enhance ECBs (which is currently allowed only for foreign banks), etc.
for sub standard unsecured loans). Therefore total amount of loans to infrastructure projects are constrained because of the sub standard unsecured nature of these loans.
Utilizing foreign exchange reserves
India’s foreign exchange reserves stand at USD 311.5 bn (Sep 2011).
The primary source of repayment of these loans is the future cash flows accrued from the project once they are completed and ready for public use. These cash flows can act as a security under certain conditions and debt covenants. For instance in case of road/highway development projects, RBI passed an order that a) annuities under build-operate-transfer (BOT) model and b) toll collection rights where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, be treated as tangible securities..
References
These reserves are primarily meant to provide a buffer against adverse external developments. But they do not add value to any real sector as they are invested in foreign currency assets such as government bonds. So, the returns on these reserves are quite small. The Deepak Parekh committee on infra financing is also in favour of allocating a small fraction of total reserves for infra purpose. This method of funding is already being used in some Asian countries like Singapore. After accounting for liquidity purposes, external shocks, high rate of domestic monetary expansion & real risks of disruptive reversals of capital flows; some of funds can be used for infra. Future cash flows as tangible security The loans given to infrastructure project consortiums by banks are not secured & fall under the unsecured loans asset class for banks. Currently RBI mandates that provisioning of such unsecured loans is kept at 15% (additional 10% Pratibimb | December 2011 | 28
The Global Competitiveness Report, 200910, World Economic Forum
RBI Staff Studies – Infrastructure financing – global pattern and Indian experience
Deepak Parekh Report on Infra Financing
DNB Research – BFSI Sector – Regulatory & Policy environment
Sebi revises bidding norms for FIIs in infra bonds, economictimes.indiatimes.com, September 2011, http:// articles.economictimes.indiatimes.com/ 2011-09-30/news/30228797_1_investmentlimit-fiis-bidding-norms
RBI- Guidelines on Credit Default Swaps (CDS) for Corporate Bonds
Deepak Parekh Report on Infra Financing
RBI Weekly Statistical Supplement
Mr. Mitesh Thacker (PGDM 1997-1999) Alumnus of the Month – December 2011 The Alumni Affairs Committee (AAC) is pleased to announce Mr. Mitesh Thacker (PGDM 19971999) as the Alumnus of the Month (AoM) for December 2011. Mr. Mitesh is a stock market professional with expertise in the field of Technical research. He is the Chief- Trading Strategies and Mentor at www.miteshthacker.com. It was his love for numbers that drew him to stock markets and in particular technical research. Mr. Mitesh gained quick recognition in the field of technical research while working with some of the best stock broking establishments like Kotak Securities / Edelweiss etc. He has been regularly invited by TV channels and business publications to share his trading outlook on stocks and indices. He is currently associated with ET - NOW the leading English news channel (of the Times of India / Economic Times group) where he shares his insights and trading strategies every day at the opening and closing hours of stock markets. Mr. Mitesh is now venturing in the field of Algorithmic (mechanical / software / signal driven) trading, which he believes would be the next trigger on capital markets. He is delighted that fellow TAPMIAN / batch mate and close friend Harsh Kumar is working alongside him on this project. His memories of TAPMI include wonderful friends, the super active hostel life and learning ‘how the speed of working can be inversely proportional to the time for deadlines.’ On a personal front, he loves to read / collect old currency and spend time with his kids. by Alumni Affairs Committee
Pratibimb | December 2011 | 29
Debt Capital Market in India The Way Ahead
by Sudip Kar, TAPMI
Introduction The Indian financial system is now at the threshold of a new era with massive changes beckoning in its awake. The liberalisation and policy change programme which started back in the early 1990â&#x20AC;&#x2122;s have almost successfully played its part in converting once a closed economy into a financial behemoth. Quite obviously, the capital market in the country has played its role in this regard. The two important pillars of the Indian capital market are-the equity market and bond market. While the equity market has expanded in leaps and bounds, the bond market in India has lagged considerably. Boasting one of the largest debt capital market in Asia with market capitalization of 711.1 billion of US dollars, there are still lots of structural defects that we encounter as we delve deeper into this market. The debt market in India has almost always been overlooked by the policy makers and the corporate in terms of strengthening its infrastructure and regulatory policies. Although there had been various examples of how a well developed debt market can help an economy stay afloat during severe economic crisis (Asian financial crisis, 1997), the policymakers in India seem to be lackadaisical in understanding and implementing the same. One of the most important committee Pratibimb | December 2011 | 30
report in this regard, â&#x20AC;&#x153;The Patil Committee Reportâ&#x20AC;? has made many important recommendations of which many had been implemented, while many still remains to be enacted upon. The Debt Scenario
Capital
Market-
Current
The bond market in India is typically classified into three categories viz. the government, the corporate and the financial. Of these three the government bond market constitutes 85% of total DCM followed by the financial (10%) and corporate market (5%). The issuers of these securities are mostly the central and state government, government agencies, corporate and private sector banks. The investors mostly consist of RBI, banks, individuals, PFs and MFs with the whole system coming under the purview of SEBI, RBI and the Ministry of Corporate affairs. The government bond market, at present is quite established and has almost reached its point of critical mass. However the most under-developed part remains the corporate debt market, where even more than 95% of the debt being issued today, are in the form of private placements. Also the non-uniform stamp duty prices and long gestation periods to bring the bond issuances into the market remain other deterrent factors which
have retarded the growth in this sector.
10% respectively.] Going forward we do not foresee a huge deviation from this given data, provided the fact that the country still remains an emerging economy, where much remains to be acted and done upon with regards to financial liberalization and economic development. Among the mature economies, it is the aging population which drives the demand for bonds as the investors look out for more Fig.1: Indian bond market over the years (Goldman Sachs, BIS and more pensions and lifeReport March 2011) insurance schemes. But India, possessing relatively younger demographics According to one study in this field, *2[it has been (median age of 25 today to hover around 27 by estimated that in India, financial liberalization 2016), cannot sustain on this factor and hence remains one of the most important control need to concentrate on the other controlling variable, driving approximately 70% of the growth variables. in the debt capital market. Economic development and demographics contribute the other 20% and Route to Market The market has always been unpredictable for the companies. This holds more significance in the case of international brands trying to enter new emerging markets. Every brand wants to be recognized globally so that they can tap the new markets easily. The role of marketing managers in this age of globalization becomes more important in providing the companies with correct strategy to enter new market. We give our readers a platform to experience this challenge through “Route To Market”. The primary objective that the participant is expected to fulfill is to provide a “Market entry strategy” for an international brand/product into the Indian market. The overall strategy would be divided into three stages: Rules:
Brand for which entry strategy needs to be crafted is “Relaxzen – Day flight and Night Flight Shots ”
Document size should not exceed 4 pages & a maximum of 2 members are allowed in a team
The participant is expected to justify his stand – point in each deliverable
Each stage should be clearly mentioned under sub – heading
Upload entries with file name as “RTM_<TEAM NAME>_<INSTITUTE NAME>” at http:// www.tapmi.edu.in/student-life/pratibimb/participants-submission by 11:59 pm, 18th Dec, 2011
The winner will receive a cash prize of Rs.1000 /-
The winning entry of ‘Route to Market’, November 2011 edition will be declared on dare2compete.com. The entries of this contest have been judged by Prof. Vinod Madhavan, TAPMI. Pratibimb | December 2011 | 31
Future of the market
Macroeconomic Outlook
Central projections by the government and various agencies have predicted that a continual gradual reform in this sector will result in a phenomenal progress by 2016. Goldman Sachs has estimated the debt capital market in India to grow to about $1.5 trillion by 2016, which is almost twice its present size, or roughly 43% of GDP today. This would make a market capitalization of almost 45% of French debt market today, or 15% larger than that of the present UK debt market. The estimate also goes on to say that the most growth would take place in the non-government sector, which would increase by 5.5 times to $575 billion by 2016.
Of course, in India, another important component which will decide the fate of the bond market is the macro-economic condition. The structural reforms which had started two decades ago, have now rendered a much more favourable macroeconomic condition for India which can be utilized to strengthen the debt market. The economy has been on a growth trajectory now for almost a decade with GDP averaging around 8.5% -9%. Of the ground estimates by IMF shows the GDP to hover around the 8% for the next decade or so. This coupled with increased savings & investment, higher productivity growth and rapid urbanization clearly points at a much more favourable economic outlook.
The gross domestic savings of the country has remained at a high for the past few years touching Rs 2320 billion (RBI) mark recently. This reinforces the huge potential of the market and the need to bring in all the investors. Also the gross fiscal deficit as a percentage of GDP has decreased drastically from 10% of the GDP a decade ago to around 5% in the present times. This has served the purpose of reducing 7 Fig.2: Potential Size of Indiaâ&#x20AC;&#x2122;s DCM (CCIL Research Paper * , chances of crowding out effect and 2 Goldman Sachs Report * ) lowering of interest rates. The public debt, too, has remained within nominal However, if India goes on to pursue the financial range and has boosted the investorâ&#x20AC;&#x2122;s sentiment. liberalization more aggressively; there are high Also, the rise in the net capital inflows driven by chances that the bond market will emulate the rising NRI deposits, FDI and external commercial expected scenario much before 2016. One of the borrowings have resulted in a strong economic most controversial issues in this regard is the outlook which together with low external debt and question of fuller capital account convertibility. huge foreign reserves (more than $300bn) have While few are of the view that opening the Indian resulted in a market which is resilient to both resources to world would enable it grow faster external and internal shocks. through improved participation of FIIs and other foreign investors, few others believe that the Indian economy is yet too young to move up to this challenge.
Pratibimb | December 2011 | 32
Conclusion The actual future of the Indian DCM and it true potential will only be realized if the government, policy makers and regulators function in a
References
BIS Report, bis.org, March 2011, http:// www.bis.org/statistics/secstats.htm
Bonding the BRICs: A Big Chance for India’s Debt Capital Market, Global Economics Paper No: 161, Goldman Sachs report, November 2007, http:// personal.lse.ac.uk/debp/Papers/GP161.pdf
CIA world fact book, https://www.cia.gov/ library/publications/the-world-factbook/ fields/2177.html
Population Projection of Indai and States 2001-2026, Census of India report, May 2006, http://nrhm-mis.nic.in/UI/Public% 20Periodic/ Population_Projection_Report_2006.pdf
IMF statistics
Handbook of Statistics on Indian Economy Reserve Bank of India, http:// www.rbi.org.in/scripts/ AnnualPublications.aspx?head=Handbook% 20of%20Statistics%20on%20Indian% 20Economy
Rajesh Chakrabarti, Bond Markets in India, June 2008, papers.ssrn.com/sol3/ Delivery.cfm?abstractid=1149322
Pronab Sen, Nikhil Bahel, Shikhar Ranjan, Developing the Indian Debt Capital Markets: Small Investor Perspectives, July 2003, planningcommission.nic.in/reports/ wrkpapers/wkpr_debt.pdf
Samir K. Barua, V. Raghunathan, Jayanth R. Varma, Research in Indian Capital Markets: A Review, www.iimahd.ernet.in/~jrvarma/ papers/Vik19-1.htm
Emanuele Baldacci and Manmohan S. Kumar, Fiscal Deficits, Public Debt, and Sovereign Bond Yields, IMF working paper, August 2010, www.imf.org/external/pubs/ft/ wp/2010/wp10184.pdf
Fig.3: GDS (World Bank statistics, RBI) coordinated and prudent manner. With huge inflow of funds required in the coming years for ambitious infrastructure projects and other capital intensive industry, the demand for debt market is ought to increase. Also with India’s increasing connectivity with the outside world and the
Fig.4: Reduction in fiscal deficit allows for lower interest rates (CMIE prowess database, RBI) country’s attractiveness to the FIs, more funds are destined to flow. The technological advancements in other economies along with invention of other exotic instruments, too, will be another deciding factor. In this regard, improvement on market infrastructure and putting appropriate checks and balances in place will become absolutely mandatory. The SEBI, RBI and other regulators till now, however, have performed their job quite well. All in all, the future of the market and its potential to realize its capacity will be decided by the course of action to be taken by our policy makers and their willingness to become harbingers of change.
Pratibimb | December 2011 | 33
Role of HR during Recession by Rajesh Sridhar, SIIB
Recession is that curve on the economic circle wherein there is a slowdown in the economic activity characterized by fall in GDP, investments, spending, household income etc. and a rise in unemployment rate. In that gloomy state, executives in the top echelons of a Corporate would wish for this period to phase out fast. If one could infuse positivity into the ergonomic setup during this lull, the positive energy associated, perceived through a magnification lens, brings
scope of influence and have far-reaching implications on the future. The above mentioned positivity could be infused by the HR department of a business organization and this is one of the opportunities for it to step in and ascertain its strategic role in business. In this article, we shall see how the role of HR during economic recession can be strategic â&#x20AC;&#x201C; creativity, bringing new ideas to the table, changing/developing HRM processes and procedures in a cost-effective way.
Strategic Role of HR Articulate Communicator Talent Nourishment Accommodative Mediator Tech-savvy Motivator Increase affinity quotient Advisor to CEO Retention of best talent
about the much needed vibrancy for reversal in fortunes. This amplification would widen the Pratibimb | December 2011 | 34
Economic recession is the time when HR professionals need to develop and retain talent amidst retrenchment, recruitment freezes, salarycuts, and drop in budgets. They need to be
proactive and chip in with early interventions as for any organization to survive during recession the ability to retain its best talent is must. During these uncertain times, companies realize the need to possess competent workforce, which shall ensure that focus stays on trainings. But ironically there may be a constraint in training budgets. This is the time for HR professionals to leverage technology by implementing e-learning solutions with rapid authoring tools which enables creation of content efficiently. The use of technology can be extended to the usage of messenger services that offer free PC to PC calls. This considerably cuts down travelling costs. An HR professional’s ability to articulate is very important. He/she needs to be an eloquent communicator and an accommodative mediator. In the role of the former, it helps stop grapevine discussions among employees regarding company financial position when there is delay in salary/ appraisal. In the role of the latter, it solves conflicts between the management and the employees so as to create a distress-free work environment. It would not be a bad idea to be transparent and make employees aware of the status quo. This paves way for an HR professional to don the hat of a motivator – he/she should suggest employees required measures to improve productivity by which they could make a difference and emerge stand-out performers. Besides, he/she needs to bring to the attention of employees the long term plans of the organization and strategies in place and how they could contribute to implementing them. This establishes a feeling of belonging in employees, which is key to increasing the affinity quotient and thereby translate the same into higher motivation levels. As far as the staffing aspect is concerned, it’s an opportunity to replace hiring with nourishing talent with extra responsibilities. This helps assess the potential of employees, future capabilities and estimate future staffing plans. A check on attrition rate needs to be maintained as employees, doubting the financial stability of the company may feel demotivated and contemplate on queuing Pratibimb | December 2011 | 35
up to quit. This shall enable the organization not lose credibility which is very important in the long run. On the flip side, performance evaluations are to be reviewed to determine the employees the company can afford to lose – the best time to get rid of non-performing human resources. This would be perceived as a natural aftereffect of the economic recession and do not much harm to the company’s image as well as to the effectiveness of its HR policies. Compensation structure is another facet in which the HR department can make a significant contribution. Restructuring could be done in an intelligent way that would help employees save taxes. This would lessen the employee perceived cut in pay. Also, the benefit schemes shall be marginalized to only the top performers. This helps achieve cost cutting as well as retention of best talent in the organization. Professional Development as a relational reward for top performers is an economical way to appreciate employees. The gift of education and provision of opportunities to hone skills greatly help in future. Former NASSCOM Chairman, Mr. Ganesh Natarajan, in a keynote address on ‘The Role of HR in Trying Times’ organized as part of the annual conference of the Pune Chapter of the National HRD Network in 2008, emphasized on the need for HR managers to perform the role of a lighthouse and not get carried away by the effects of the global economic meltdown. He further stated that in tough times, they must act as advisors to the CEOs. A strategic role played by the HRM Function helps not just cut cost for the organization for a short time period but also make the organization more stable and ready for the future. These measures sow the seeds for rapid economic growth by retaining the best talent and ensuring availability of well-equipped and highly motivated employees.
Disruptive Innovation A New Era of Crowd sourced Data Analytics!
by Ayush Malhotra, NMIMS
On Thursday, November 3, 2011, news came out that Kaggle has bagged $11 million through VC funding. The money came from Silicon valley VCs Khosla Ventures, Index Ventures, SV ventures and others including Paypal. Kaggle entered the business of solving complex data analytics problems through contests in April, 2010. Since then it has successfully hosted umpteen contests and boasts of having almost 17000 data scientists across the globe. The point that stands out here is that there is a real substance in crowd sourced data analytics model. More so, when companies are grappling to manage “Big Data” which has exponentially increased in last five years; Kaggle’s success in garnering coveted VC funding is a testimony to this Source: www.crowdanalytix.com
Pratibimb | December 2011 | 36
judgement. Let’s analyse the aforementioned model and its impact on the market. A brief overview of the model The business model explained subsequently is used by crowdANALYTIX which is yet another revolutionary product in the crowd sourced data analytics space.
The CA model (read crowdANALYTIX) encompasses two key aspects: data management and data analytics. CA model talks about helping clients to make protect their Big Data repository by porting it to more trusted integration platforms like Hadoop and Mahout. Post data integration, data analytics will be done on a Revolution Analytics platform, which has strategic partnership with crowdANALYTIX. The data analytics process is seamlessly structured in the following manner: A client details out their requirements to CA to begin with. CA has partnerships with lead analysts, 90% of whom have advanced degrees in statistics. These lead analysts break the problem into subparts and each subpart will inturn be a contest on CA platform. Crowd will solve the problems and submit solutions. The whole process will be administered by lead analysts. When solutions of all the subpart problems are obtained, lead analyst will aggregate the solution in a meaningful manner and submit it to the client. The process adds a significant value over existing process of data analytics through consulting enterprises in:
20-30% cheaper than existing alternatives
Access to large base of global professionals and talents
Quicker delivery of solutions
Impact Assessment The business model has immense capability to bring about a paradigm shift in the way data is managed, analysed and optimized in large and small enterprises. Below are a few impacts listed:
Analytics, now a reality for SMEs
Analytics till today is understood as a luxury of the cash rich companies. SMEs generally abstain from such lavish expenditures and hence they always had to rely on their own intuitive decision making. They still don’t have any robust mechanism to verify their assumptions because Pratibimb | December 2011 | 37
tools like market research and data analytics is not for them, they believe. Not anymore! Companies like Kaggle and Crowdanalytix provides them with such non-expensive and reliable platform for analytics that SMEs can now espouse structured decision making in free will.
Analytics market: Now an open field
The issue that small analytics consultants face today is that they are overshadowed by large consulting organizations. Small consultants include both individual consultants and small boutique consultants. These small consultants have to fight a stiff battle for every single project. Even if they win one, their margins are eaten up by their overboard sales efforts to grab one assignment. Hence, smaller consultants remain low on cash. The new crowd souring model brings them a sigh of relief. Today, they don’t have to bid for projects; they are up on the web. The consultant wins money not because of the size of his organization but solely on his competency. Second way these consultants earn bucks is by joining network of lead analysts as mentioned previously in the article. Hence, the new business model has opened the field and for the first time grass is not greener on the other side!
Coupling of data management and data analytics
As explained earlier, the new crowdanalytix model will not only help companies solve their critical analytics problems, but also help clients port their big data onto platforms like Hadoop, Mahout etc. This signifies that CA (Crowdanalytix) promises to be a complete data management and analytics service provider for enterprises. Do companies need more to cheer about! Especially in the times when enterprises are bombarded with data, petabytes of data, relational data, non-relational data, data which make them go nuts.
Just to put things into perspective, this is an essence of a petabyte of data:
time and money. The model of crowd sourced data analytics will reduce the time of problem solving and the cost is significantly less than the primitive ways of analytics. Hence, as a manager I can get routine analytics stuff done without facing complexities of locating analytics companies, RFP process, Fee negotiation, Handing over the data and so on. In the new crowd souring process all I need to do is contact one company and get the contest on the site very next day. The problem can be painfully complex to extremely simple. Hence, managers don’t have to hesitate or panic before decision making for the lack of channel of verification of their decisions.
Source: http://www.techwhizz.com/visualizingpetabyte-age-inforgraph/
More so, companies are having a hard time to locate the “Big Data” experts, who in turn are having a roll of the lifetime. The new business model will increase accessibility of companies to right experts. Thus crowdsourcing model of analytics and data management is an out and out winner.
Decision lag will reduce
In the fiercely competitive market, companies need to make decisions all the time. Decisions regarding product development, sales promotion success, marketing planning, operational efficiency so on and so forth. But even today, managers rely on their own intuitive judgements to take decisions with no way to verify decisions. Why? The reason is the cost of verification of their decisions which is very high both in terms of Pratibimb | December 2011 | 38
Big analytics companies and management consulting firms will employ Crowd sourced Analytics to reduce costs
An interesting observation is that existing large analytics consultants like Deloitte, HSBC, Boston Analytics, Oracle etc. will see value in crowdsourcing some of their work rather and hence will eventually trim their in-house team sizes. The process of problem solving in big analytics companies is that of breaking down large problem into subparts, finding analytical solutions to each subpart and merging the solutions together. In due course of time even such companies would see a value in transforming some of their fixed costs (of having full time analysts on board) to variable costs (of crowdsourcing some of the analytics problems). The same is true for management consulting firms like Bain and Co., Accenture, Booz Allen etc. It would be apt to say that crowd sourced analytics is not exactly a competitor for large analytics firms, rather it is an efficient tool which fits into their current processes.
After cloud computing, a business model that can boast of disrupting an existing process is that of analytics through crowd souring. However, both the companies, i.e Kaggle and crowdANALYTIX
are new to the market. The success of the model is yet to be tested. The quality of solutions obtained through this model is yet to be verified. Secondly, a certain matrix has to be devised to measure the success of the crowd sourced data analytics model. Parameters like quality, clarity of recommendations, lead/lag time of delivery should be given relevant weightages.
References
Kaggle Raises $11 Million in Series A Financing Led by Index Ventures and Khosla Ventures, November 2011, http:// findarticles.com/p/articles/mi_m0EIN/ is_20111103/ai_n58372600/
Deshpande PR, , July 19,2011, 3 barriers for wide adoption of business analytics in SMEs, http://www.crowdanalytix.com/ blog/3-barriers-for-wide-adoptionofbusiness-analytics-in-smes/
In the present times of weak global economy, crowd sourced data analytics is nothing less than a smooth breeze for businesses.
Inviting Articles We are inviting articles from all the B-schools of India. The articles can be on any field of business from Marketing, Finance, Operations, HR to Systems. You can send us articles on:
Recent developments or trends in any of these fields
Articles covering latest trends, innovative practices, strategies, etc. in the global perspective
We also invite articles on management thinker similar to the current section
Apart from above, creative works in relation to any of the fields will be equally appreciated
The best entry will receive a letter of appreciation and a cash prize of Rs 1000/-. The format of the file should be MS Word doc/docx. Articles should not be more than 2500 words. The last date of receiving all entries is 18th December, 2011. Please upload entries at http:// www.tapmi.edu.in/student-life/pratibimb/participants-submission with file name as BAC_<ARTICLE NAME>_<INSTITUTE> by 18th December, 2011. Best Article: Suvrodip Banerjee, XLRI Jamshedpur Congratulations!! The winner will receive a cash prize of Rs. 1000 & a letter of appreciation.
Pratibimb | December 2011 | 39
Mutual Fund Industry
by Krishnakant, SJMSOM, IIT Bombay
According to the recent figure released by Association of Mutual Funds in India, the asset under mutual fund industry was close to 60 thousand crores rupees. In the last five years (since 2006) the asset under management (AUM) has grown by 20% compounded annual growth (Figure.1) Even though the figure of 20% seems impressive,
Figure.1: Source: AMDFI data, Note: As of 31st March of each year
there is still a lot of growth potential for this industry. In India (year 2009) the commercial banks still account for more than 60% of the total assets of the financial system (Figure 2),much larger when compared to 5% share of mutual fund. Mutual funds are generally classified by their Pratibimb | December 2011 | 40
principal investments. In order to judge the performance of these funds we compare each of the funds with the equivalent investment types.
Equity funds and ELSS vs. BSE Sensex can be compared with stock indices in order to see whether these funds give a better return than
Figure.2: Source: Reports on trends and progress of Banking in India, various issues.
random investments in any stock. In the last 3 years (October 2008 -October 2011) BSE Sensex has increased at a rate of 18.8% compounded annually (Figure.3). In order to analyse the performance of equity funds histogram diagram of last 3 years return (October 2008-
October 2011) (compounded annually) of 220 equity funds (excluding tax saving and sector
The median return of 20.33% is higher and variance of 29.49% is lower (lower variance implies lower risk) than equity fund.
Total no of funds analysed
220
Duration
3 years
Average return
22.15% (compounded annually)
Median return
19.77 % (compounded annual-
Variance in return
ly) 37.98%
Table.1: Statistical analysis of 3 years returns given by 220 Equity mutual funds (Source: mutualfundsindia.com)
funds) is shown in Figure.4.
If an investor is looking for high risk- high return investment opportunity then for them equity fund would be a better option than just randomly investing in stock market. For someone who can take advantage of Section 80C of the Income Tax Act, ELSS is an even better option.
Based on the figures mentioned in table 1, one can infer that an average mutual fund’s return (Average return 22.15%, Median return 19.77%)
Figure.4, Histogram diagram of 3 years returns (annualized compounded) given by top 220 equity funds (Source: www.mutualfundsindia.com) Figure.3: BSE Sensex trend in the last 3 years (Source: Google Finance)
is better than the return given by BSE Sensex in corresponding period. The major cause of concern though is the high variance of 37.88% which reflects the riskiness of return if an investor chooses any one of the 220 mutual funds for investment.
Similar analysis was done with ELSS (Table.2 and Figure.5), which gives an investor the dual benefit of tax saving and high return as of stock market. Key advantages of ELSS over equity funds are:
Money invested in ELSS gets tax deduction.
ELSS has low liquidity compared to equity funds (generally a lock-in period of 3 years)
Pratibimb | December 2011 | 41
Debt schemes vs. Bank Deposit can be compared because debt schemes invests in fixed income securities whose cash flow behaviour is very similar to returns from bank deposits. Key points to note about debt schemes and bank deposits are:
Total no of funds analysed
29
Duration
3 years
Average return
20 %
Median return
20.33 %
Variance in return
29.49 %
Table.2: Statistical analysis of 3 years returns given by 29 ELSS (Source: mutualfundsindia.com)
Bank deposits have low liquidity compared to debt schemes.
Year
2009
2010
(7.46%) and median return (6.86%) given by debt funds (Table.4). Hence if an investor is looking for low risk- low return investment opportunity then for them debt schemes won’t 2011 Average be an appealing option.
Deposit rate (above one year
8.1
7.7
9.5
maturity) (%) Table.3: (Source: Worldbank)
Bank deposits are backed by government of India hence the risk associated with return is much lower.
Figure.6: Histogram diagram of 3 years returns (annualized compounded) given by top 173 Debt funds Source: www.mutualfundsindia.com
The overall performance of debt schemes in the last three years have been below par compared to bank deposit rates. The average bank deposit rate (above one year maturity) in the last 3 years is 8.44% (Table.3) which is more than both average
8.44
Customer perception and awareness: According to Google Insight ‘Mutual Fund’ is most searched phrase by Indians since 2006 till date when compared to the phrases like ‘Investment’ and ‘Stock Market’ (Figure 7). This data implies how much people are interested for mutual fund. On comparing figure 1 with figure 7 we can observe that between 2007-08 people were very interested (peak in Google search volume) in mutual fund and at the same time the growth rate of asset under management (AUM) of mutual fund was also at its peak. For the last one year the search volume is on a decline and so is the AUM (declined by 3.5% in the last 1 year). Overall the trend shows that interest for mutual fund moves in tandem with the stock market.
Ease of investment: While mutual fund in India is metro centric it is also gaining footholds in tier I and tier II cities. As of march 2009 the mutual fund industry had around 90 thousand registered distributors (Source: AMFI). According to the survey done by CII-KPMG in 2009 the two key
Figure.7: Source: Google Insight
Pratibimb | December 2011 | 42
Figure.8
impediments that affects the decision of an investor from investing in mutual funds are (Figure.8): ď&#x201A;ˇ
Too many schemes
ď&#x201A;ˇ
Complicated product features
The latest figure released by SEBI says that there are about 1151 mutual funds currently registered with them, which is good enough to confuse an average investor.
Overall the mutual fund industry has grown by leaps and bounds in the last few years and given the very low penetration, it still holds a lot of growth potential in near future. We already have all kinds of mutual funds for almost all different investment principles but the real challenge for any asset management will be to match an investor with the fund he should invest into. Pratibimb | December 2011 | 43
Follow us on: Contact Us: pratibimb@tapmi.edu.in / pratibimb.tapmi@gmail.com Team Pratibimb TAPMI Post Bag No. 9 Manipalâ&#x20AC;&#x201D;576104 T- +91 7204494284 www.tapmi.edu.in Pratibimb | December 2011 | 44