Lok Sabha poll outcome: May 13 will be a bigger event than May 16

Interesting read...

http://economictimes.indiatimes.com/markets/analysis/lok-sabha-poll-outcome-may-13-will-be-a-bigger-event-than-may-16-say-analysts/articleshow/34727759.cms?utm_source=FBM&utm_medium=FBMARKETS&utm_campaign=FBM

The Scourge of Inflation in India

Reports released in the Indian media yesterday screamed that the headline inflation has reached an eight month high of 7%. But with ever increasing prices, soaring monthly expenses, spiralling cost of living, the inflation felt by the common man in India in much more than 7%.

http://timesofindia.indiatimes.com/business/india-business/Inflation-soars-to-8-month-high-of-7/articleshow/25750139.cms

Let’s first see what inflation is....Inflation is the year-on-year (Y-O-Y) or the month on month (M-O-M) increase in the prices of goods & services. Thus inflation is the change in the prices of goods 7 services in a country or an economy over a period of time. An inflation of 8% (Y-O-Y) means that a particular product which used to cost Rs. 100 in Nov 2012, now costs Rs. 108 in Nov 2013. In India, we have two inflation indexes, i.e. the Wholesale price Index (WPI) & the Consumer price Index (CPI). According to the current WPI, the inflation is 7%. This is because WPI is not a correct indicator of inflation as the index does not include many essential articles. The CPI or the consumer price index suggests something very different. According to the CPI, the inflation is more than 10%. Also there is food inflation data which suggests an 18% increase (y-O-Y). This means that the food articles which were available at Rs. 100 in Nov 2012 are now available at Rs. 118 in Nov 2013.

Now let’s see how it impacts the people..... Let’s assume the monthly income of an individual is in terms of percentage.i.e. 100% or 100 units. Earlier, this individual after deducting household expenses & other necessary monthly expenditure used to save 20% of his salary. Out of this 20%, a ten percent could be spent on aspirational or comfort goods say TV or cars or a foreign holiday. Now with an increase in inflation or increase in the prices of the products & services, this individual will save a lesser percentage say 12%. This means that this individual now has only 2% to spend on the comfort items. Thus spending of people is impacted, which in turn impacts the GDP of the country as the spent amount is reduced. Also it impacts household savings of the people as the same amount of money is now buying less. Also, this individual will now invest less as he has lesser money at his disposal.

Thus right from consumption to household savings to an economy, everything is hampered. Inflation at best should not be more than 3-4% for any economy. But the current Indian inflation of 10% (CPI) index could  spell doldrums for the nation if not addressed urgently.

6 Reasons Why Indians Love Gold...

India is the largest consumer of gold in the world. Since ages, Indians have a love affair with the yellow metal. Annually, about 700 tonnes or 33% of the total gold mined in the world is consumed in India. That also makes India the largest importer of gold. Majority of the world’s jewellery consumption happens in India. The percentage of the world jewellery consumed in India is the highest. A normal middle-class household buys about 18-20 lakhs of gold jewellery in a life time.

Reasons for the love affair—

     1.       Experts regard gold as the best asset class & the best vehicle for an investment purpose. Over the years gold has not only given fabulous returns but has also served as a hedge against inflation. Over the last 5 years gold has been successful in offering the best returns as compared to any commodity. Looking at a period of last 5 years which saw the collapse of several banks, the Euro zone crisis & lot of other disturbing series of events, gold has emerged the best asset class for investments.

2.      Also, in India there is a lot of emotional value attached to buying of gold. Gold offered in small denomination coins is considered ideal for gifting. Gold is considered to be the medium to reinforce closeness of relationships. Gold is gifted to newborn babies & also, the married couples. Gold is bought for the purpose of wedding, for gifting purpose, for corporate gifts & for stamping a seal on the relationships, new or existing, gold is largely used as a preferred medium.

3.      Over the years gold has gained significance as it lends itself as a commemorative medium to various engagements like golden jubilee, gold medals, golden anniversaries. Also, a gold credit card seems to get a lot of attention.  Anything associated with gold  perceives to add a lot of importance to the said engagement.

4.      In India people tend to buy gold at anytime. They do not restrict buying only to special occasions like festivals, weddings, or any special events. Festivals like Dassera & Dhanteras  are considered the most auspicious to buy gold. The price quotient for the yellow metal is considered to be secondary for these days.

5.      One of the most interesting reasons for this love affair is that Indians consider the yellow metal to be highly liquid. Not only do they term it as a hedge against inflation, but also for exigencies. Gold can be converted to liquid cash anytime & people feel that gold is their best friend.

6. Gold is passed on down from one generation to another & along with the real estate has remained the safest investment over decades. This explains why India is the largest consumer of the yellow metal.

Repo & Reverse Repo Rates

The Reserve bank of India (RBI) governor, Dr. Raghu Ram Rajan in his mid term credit policy on October 29^th 2013 raised the repo & the reverse repo rates by 25 basis points (bps). Thus the existing repo rates & reverse repo rates are 7.75% & 6.75% respectively. The CRR (Cash-Reverse Ratio) was left unchanged at 4%.

Since the last two & a half years RBI has consistently increased the Repo & Reverse repo rates from 4.5% to the current 7.75%. The RBI is of the view that by increasing these rates, the scourge of inflation can be countered. Let’s see the logic of these increases.

Repo –rates are the rates at which RBI which is the central bank of India lends its money to commercial banks. Reverse-repo rate is the rate at which commercial banks park their money at RBI. The Repo-rate is always higher than the reverse repo rate. I.e. by logic, the RBI lends at the higher rate than it borrows. This is the basic rule in any business to make money. Thus it also gives an answer as to why lending rates are more than the deposit rates.

The RBI is of the opinion that the hike in repo rate, like the one on 29th October 2013, helps controlling the inflation. Hiking the repo-rate means the central bank i.e., the RBI will lend money to the commercial banks at higher rates. The commercial banks in turn will in turn lend the money at the higher rate to the corporate & individual investors. The home loan, car loan EMIs will be a more costly affair & the demand will reduce. Thus inflation will be tapped.

But there is another side to this logic. If the corporate entities & business houses are getting loans at a higher rate, this would directly lead to an increase in their cost of production & their working capital. Thus they would be forced to increase the prices of their products. Thus people would buy less & ultimately if people are buying less, the GDP (gross domestic product) of the country is reduced, which is not good for any economy.

Thus there has to be a clear cut balance between growth & inflation. Hiking the repo & reverse repo rates would tame inflation, but growth will be driven down. The current scenario is a double whammy. About, two & a half years back India’s GDP was above 8%, which is currently at sub 5% levels. We have sacrificed 8% growth levels by hiking the rates, but the inflation does not seem to come down.

The RBI governor will now have to tread very cautiously maintaining a balance between growth & inflation, & not to say use these rates (repo & reverse repo) to the country’s advantage.

PPF- Serving India through Decades

The Pubic Provident Fund (PPF) is one of the most popular schemes among Indian salaried & business class people. Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves as a retirement planning tool for many of those who do not have any structured pension plan covering them. The product has been darling of Indian middle class investors from quite some time. The selling point of the product is its security: Being a government-guaranteed scheme, the investor’s money is completely secure in this product. The benefits of PPF are two-fold. Not only it enables the investor to save tax on the invested capital, but also the interest income from the scheme is tax-free.

•          Indians rely on PPF to achieve their long term goals.   The money received after the maturity of the product is generally used by the people to accomplish the goals they aspire for. In a span of 15 years people go through a lot of hardships to save a certain amount of money for their PPF account. This wealth, built over period of time, can serve multiple purposes such as catering to the education of children, retirement and even medical emergencies.
•       For instance, Mr. A saves about Rs.1 lakh/ annum in the PPF account. Considering the present rate of interest offered by the trust, which is 8.8%, if Mr. A deposits 1 lakh/annum for 15 years without withdrawing the money in this span, he will end up  with close to 31 lakhs after 15 years. The effective yield comes out to be 15%, which is able to beat the inflation in the longer run.

·           A Public Provident Fund (PPF) account is the most tax efficient vehicle launched by government of India. Not only can the investors reap the benefit of tax saving, but also considerable capital is built over a period of 15 years. An investment of 1 lakh rupees per annum turns out close to 39 lakhs after a time frame of 15 years. The product has been a cynosure of the eyes of Indian investors since quite some time. There is tremendous feeling of likeability for the product as far as the middle class population of the country is concerned
·         The products also allows the investors to withdraw the money after the sixth year, but it cannot exceed 50% of the balance at the end of fourth year, or the immediate preceding year, whichever is lower. The interest rate for the loan is charged at 2% till 36 months, and 6% for longer tenures. Till a loan is repaid, an investor cannot take more loans. Thus, the product serves as a cushion to investors by allowing them to withdraw money from their account which investors can avail of during exigencies.

Conclusion:

A Public Provident Fund (PPF) account is the most tax efficient vehicle launched by government of India. Not only can the investors reap the benefit of tax saving, but also considerable capital is built over a period of 15 years. An investment of 1 lakh rupees per annum turns out close to 39 lakhs after a time frame of 15 years. The product has been a cynosure of the eyes of Indian investors since quite some time. There is tremendous feeling of likeability for the product as far as the middle class population of the country is concerned. Indians investors have witnessed the year 2008 stock markets crash, where all the major Indian indices were at an all time low. This wiped off a huge savings of the people. PPF as a financial instrument provides aversion to such kinds of risks. It also provides the investors a vehicle to park their hard earned funds without any fears. The researcher is of the opinion that PPF will continue to bask in glory as one of the most preferred financial products for the Indian investors.

Chotta Bheem- A Thumping Success

The animated version of the mythological Bheem has captured the hearts of the kids across India. Clad in a dhoti, this nine year old character along with his friends Jaggu, Chutki & Raju come from the village of Dholakpur.

Since the days of Tom & Jerry, Mickey-mouse, there have been very few cartoons which kids can relate directly too. Bheem fills that void. Mickey-mouse born in 1928, Tom & Jerry started its journey from 1940 & the relatively newest of them Doremon is now 40 years old. Chotta Bheem, started in the year 2008 has been going great guns since its launch.

Chotta bheem & his group of friends effortlessly connect to the target audience. The children recognize the qualities of Chotta bheem, i.e. being protective towards his kingdom Dholakpur, a true friend for his mates Chutki, Raju & Jaggu & large-heartiness towards all other people as an instant hit.

Strategy for success — Two basic management strategies are followed by the makers of this animation series. 

The first one is Market Penetration. Chotta Bheem is played daily on the POGO channel for a duration of 3-4 hours. On Sundays & holidays it runs for about 8-9 hours. Kids are in love with this animated Bheem & they even watch repeat telecast of the show, watching the same episode again & again. The next one is the Product Development strategy. Green –gold animation, the makers of Chotta bheem series are aggressively pushing the Bheem merchandise. The company earns close to 40% revenue from this merchandise. Goodies like Bheem apparels, water bottles, Tiffin boxes, Chotta bheem watches easily catches our attention at any market place. Also, birthday goodies are being sold like hot cakes. Bheem is everywhere today. His face is at biscuits, umbrellas, watches, raincoats & even the band-aid. Also, the Chotta Bheem movie, as an extension of the animated series has proved to be a very successful.

The impact of this character can be felt, once you are watching POGO channel. The 10-12 minute advertisement slot is packed with advertisers, selling various brands to the kids. The advertisers are selling everything right from school bags to electric fans displaying the image of the nine year old native of Dholakpur.

Another reason why the animation series is so successful as the nine year old protagonist has the quality of a superhero & at the same time he comes across as a large hearted fun-loving character. The kids simply adore him. Rajiv Chilaka, the founder of animation series says, “India wasn’t ready to accept a completely new superhero. It had to be someone from mythology & someone who is secular.”

7 Reasons Why Maruti-Suzuki is the Market Leader in India....

Every second car in India comes from the stable of Maruti Suzuki. In event of a downturn, where for all the other car manufactures, growth seems to be problem; Maruti tends to show rapid growth year-on-year. In the month of September, the company has shown a 11.7% increase in Y-O-Y (year-on-year) growth & their exports market is also up 29% M-O-M (month-on-month) & an astonishing 181% Y-O-Y. Maruti Suzuki is the undisputed leader for the four wheeler category in India. (Financial data source- moneycontrol) 

How is Maruti Suzuki able to grow every year, whereas its competitors seem to be struggling? Maruti Suzuki has about 40% of four-wheeler market share in the country. There are a number of reasons for its growth. Through this article we have tried to uncover some of them.

Reasons for success

      1.      Efficient distribution— The first principle of economics is that is if you generate demand, you should have the availability of the product to cater to the demand. There are many distribution centres of Maruti within any city in India. Even in the remotest of corner, there will be a Maruti sales outlet. Coupled with the ever increasing service centres for the company, this company seems to have the structure to succeed. Maruti Suzuki has the highest number of service centres across the country. Maruti seems to have an edge over its competitors in this aspect.

2.      Product range- The Company has a large number of products under its basket. Right from the affordable Alto to the high end SX4, the company seems to have it all. The company through its cars like A-Star, wagon R, Swift, & Swift Dzire focuses on the middle class whose purchasing power is rising by the day. Also, the yet to be launched X-Alpha has generated a lot of interest among the auto lovers.

3.      Marketing strategy of cannibalization— In marketing, cannibalization refers to decrease in sales volume or market share of one of the product due to introduction of a new product by the same producer. Maruti-Suzuki believes in the concept of cannibalization. For instance, if the customer’s budget is on a lower side, he or she may purchase an Alto instead of a Wagon-R. Although the volumes of Wagon-R are hit, the sales still remain with Maruti. So Maruti ensures that the customer instead of going to a Tata motors or Hyundai Motors or any of its competitors stays with Maruti-Suzuki

4.      Shift of the co. towards diesel oriented cars— This has been a strategic decision taken by the company. 60% of the cars manufactured by the company are of diesel engines. The variants of Swift, Swift Dzire & SX4 diesel variants are very successful. Petrol in India is now de-controlled. That means that the OMCs like BPCL, IOC & HPCL are free to decide the rates of the petrol based on the rupee-dollar fluctuations. Diesel is not de-controlled as India is a diesel economy. Decontrolling diesel or no govt interference to vary diesel prices has again a direct link with inflation & probably govt vote banks for the 2014 Lok Sabha polls

5.      Focus on rural markets— Currently, about 26% of Maruti’s sales come from the rural India. After the 2009 economic meltdown, Maruti Suzuki started concentrating more on the rural markets. Campaigns like Ghar Ghar Mein Maruti’ and ‘Mera Sapna Meri Maruti’ targeted to the rural India have augured well for the company.

6.      Long Association with India— The company has been associated with the Indian population for more than 40 years. Right from the now defunct in terms of production, but ever popular Maruti 800 to high end vehicles the company seems to have established a strong bond with the Indian population. Younger India in their budding years has travelled a lot in this car with their parents. So they want to take the legacy forward.

7.      Excellent mileage, focussed advertisements concentrating on product features like k-series engine augur well for the company.  Maruti is one of the first companies in India to focus on advertising the engine specifications. i.e. the K-series engine. The advertisements of Maruti Suzuki focuses on Maruti being a value buy.