airIndia

A Suitable Buyer

 

Air India has been bleeding money for quite some time. At the end of March’17, it had piled up debt of nearly Rs. 48,000 crore. Nontheless, it has found suiters in Tata Group and parent company of IndiGo. But, that’s not enough for the government. It wants to raise the stakes, so it may do away with the ‘foreign airlines can own 49% stake in an Indian airline but not Air India’ rule. More bidders, better pricing. Why would a buyer be interested in owning a debt laden company? You ask? Government is hiving off a part of Air India’s loan not linked to the aircraft, a 64% of its debt.

For more news in numbers, read on.

 

84

What is it? The number of seats the Left Alliance in Nepal had won as of Sunday evening in parliamentary elections, as per preliminary results.

Why is it important? With this, the CPN-UML and CPN-Maoist alliance is heading towards a majority, with Khadga Prasad Oli likely to be the country’s Prime Minister. This brings an end to the decade-old civil war in Nepal and completes its move to becoming a federal democracy. It remains to be seen if the Left Alliance’s landslide victory results in the waning of India’s influence on Nepal and China playing a dominant role in the landlocked nation.

Tell me more: The Left Alliance was leading in another 31 seats, while the incumbent Nepali Congress had won just 13 seats. The house of representatives consists of 275 members, of which 165 are to be elected directly under the first-past-the-post system and the rest through the proportional representation system.

 

49%

What is it? The maximum stake that foreign airlines can own in an Indian airline, with the exception of Air India, in which investment from foreign airlines is banned.

Why is it important? The Indian government may reportedly do away with this exception for the disinvestment of state-run Air India, provided the foreign airlines has a joint venture with a local player. This could intensify competition among bidders interested in buying Air India and, perhaps, fetch the government a better price. The parent company of IndiGo is the only airline to have made a formal expression of interest, while the Tata Group has indicated its interest in doing the same.

Tell me more: Jayant Sinha, union minister of state for civil aviation, said on Friday that the process of privatisation of Air India has begun and that it would be finalised in 6-8 months.

 

39%

What is it? Percentage of assets under management (AUMs) of Indian mutual funds in equity funds and balanced funds in November 2017.

Why is it important? This figure was 30% in November 2014. This increase in share of equity-oriented funds comes in the backdrop of consistently rising net inflows into Indian mutual funds, whose total AUMs have increased to an all-time high of Rs 21.8 trillion in November 2017, as against 16.9 trillion in October 2016. More encouragingly, it is individual investors who are driving growth, rather than institutional investors.

Tell me more: The two fund classes that have lost share during this period are both debt funds: income funds (down from 46% to 38%) and liquid funds (down from 21% to 19%).

 

67%

What is it? The rate at which Amazon India’s gross sales volume increased in the July-September quarter from a year ago. Its gross sales by value grew 67% in the same period.

Why is it important? This is more than twice the estimated broader growth rate of the online retail market. It is another indication that Amazon India continues to keep pace with India’s homegrown e-commerce firm and marked leader, Flipkart. In a recent report on customer response and perception by RedSeer Consulting, both e-tailers were tied with a score of 92, similar to the corresponding quarter in the previous year, when they had both scored 95.

Tell me more: Amazon has committed $5 billion in India, of which it has spent over $2 billion, while Flipkart raised $2.4 billion from Japan’s SoftBank Group recently, giving it enough ammunition to battle against its cash-rich rival.

 

14

What is it? Number of consecutive wins recorded by Manchester City in the English Premier League. This is joint best with Arsenal’s run over two seasons in 2002.

Why is it important? On Sunday, leaders Manchester City visited cross-town rivals and second-placed Manchester United in a game with many sub-texts and dominated them in a 2-1 victory. In a weekend when four of the top six teams in the league dropped points, City extended their lead to 11 points. They next travel to Swansea, which is languishing second from the bottom.

Tell me more: The Manchester Derby ended with a fracas in the corridor outside City’s dressing room involving players and staff from the two teams.

 

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Mutual Fund CMOs, Are You Tapping The Stories In Lucknow, Ernakulam, Vadodara?

For the longest time, the Indian mutual fund industry was a story of latent potential as risk-averse Indians, even for their long-term savings, preferred the safety of bank deposits to the savvy of mutual funds. In recent years, that potential is starting to be unlocked as more investors gravitate towards mutual funds as a savings and investment habit. Where in India might be more money like that located?

It’s a business question for chief marketing officers (CMOs) of mutual funds as they try to find new markets and new investors. A dataset that can provide direction to that search is the district-wise data on deposits that India’s central bank releases on a quarterly basis, the last being as of June 2017.

This Reserve Bank of India (RBI) dataset carves India into 666 districts. For each district, it breaks down total deposits available with a scheduled bank into three categories:

Current deposits: Typically, used by businesses. For the sake of the question we are trying to answer, we will keep this aside, and focus on the other two deposit categories.
Savings deposits: Fluid money belonging to individuals.
Term deposits: Sticky money belonging to individuals and businesses.

Here are two takeaways from this dataset:

1. Metros matter: Much as India is growing beyond her big cities, its current economic nerve centres—and personal wealth—are still concentrated in and around the metros. There are only 12 districts where the total savings and term deposits exceeds Rs 100,000 crore. And they are spread across a wide range: from Gurgaon (Rs 103,772 crore) to New Delhi (Rs 1,009,694 crore).

In the map below, these are the yellow dots. Click on the legend to isolate them and mouseover on the dots to see which ones they are and their bank deposits. Other than the five main metros or their offshoots, there’s Hyderabad, Pune, Ahmedabad and Lucknow.
Mumbai and New Delhi stand out by a long way. The deposits in New Delhi, for example, are 9 times that of Lucknow and 4 times that of Chennai.

2. The 3 clusters: The map plots 169 districts that have deposits of above Rs 10,000 crore, divided into four bands. From the point of view of focusing marketing resources, there are 3 clusters that can be seen:

i) The capital cluster: Around Delhi, extending into Punjab, Haryana, Western Uttar Pradesh and Uttarakhand. This houses districts like Jalandhar (rank 26, Rs 55,779 crore of deposits) and Dehradun (rank 28).

ii) The Pune-Ahmedabad cluster: This belt runs from Pune to Ahmedabad, and passes through Mumbai—the biggest of them all—and touches several districts in Gujarat. This includes Vadodara (rank 17), Surat (rank 30) and Rajkot (rank 45).

iii) The Kerala belt: It runs along the length of Kerala, and branches off into Tamil Nadu at two points. This belt has 6 districts in the top 50, led by Ernakulam (rank 16), Thiruvananthapuram (rank 23) and Coimbatore (rank 29).

Then, there are smaller pockets, in terms of number of districts: for example, around Kolkata and Chennai. The question before mutual fund CMOs is this: are they maximizing the potential of these districts.

This data is also available as a time-series for the last 5 years for all districts, which can be used to identify stories of growth. If you are interested in an analysis of this data that is tailored to your needs, please contact us.

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Retail investors show new faith in equity SIPs

In the BSE Sensex’s recent conquest of the 30,000-point milestone, retail investors are demonstrating behaviour that mutual funds have been seeking for a long time: stability through markets good and bad. An analysis of assets under management (AUMs) held by retail investors in equity funds since 2009—when the Sensex hit 10,000—shows a departure from the traditional retail narrative of trying to time the market. Instead, they are investing in greater numbers, especially through systematic investment plans (SIPs), the antidote to the market-timing habit.

Retail AUMs in equity funds

Between September 2014 and March 2017, when the Sensex gained 11%, folios (mutual fund accounts) of individual investors expanded 35% and equity AUMs 76%. Even when the Sensex fell twice (13% and 8%), both metrics kept gaining.

 

1

 

Retail folios

Since a rising market lifts asset values, more than AUMs, a better metric of new investments is number of folios. And since September 2014, retail folios have risen consistently, even in a choppy market.

 

2

 

Investments via equity SIPs

As of March 2017, there were 13.5 million SIP accounts. In 2016-17, the industry added an average of 0.62 million SIP accounts per month and total monthly contributions increased by 39%.

 

3

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News in numbers, Jan 12, 2016: India’s spend to curb road accidents, CAT 2015’s toppers…

 

10%

 

What is it? The maximum a mutual funds can allot from its net assets to debt issued by a single company, according to new rules introduced by the market regulator. It was 15% earlier.

 

Why is it important? Mutual funds will have to expand the pool of companies to invest in. The new rule was introduced when investment by an Indian unit of JP Morgan in debt by Amtek Auto turned bad after credit rating agencies downgraded the auto parts maker. A JP Morgan fund held 20% in Amtek Auto’s debt. These restrictions would force mutual funds to invest in companies, which they would not have previously considered and this could prove to be riskier, according to Murthy Nagarajan, head of fixed income at Quantum Asset Management.

 

Tell me more: Mutual funds can now hold up to 20% of their net assets in companies belonging to the same corporate group while exposure to a single sector is now limited to 25% of their net assets.

 

Rs 11,000 crore

 

What is it? The amount Indian government plans to spend over the next five years to curb road accidents in the country, mainly by fixing 700 odd accident prone locations.

 

Why is it important? This is part of the national plan to reduce number of deaths due to road accidents by half in the next five years. On an average, 51 people road accidents took place every one hour in 2014 wherein 16 were killed, as per data from the National Crime Records Bureau. A total of 4.5 lakh road accidents were recorded in 2014, leaving 4.8 lakh people injured and causing the deaths of 1.41 lakh people. And, according to Nitin Gadkari, Union Minister of Road, Transport and Highways, road accidents cause an annual loss of Rs 55,000-60,000 crore, about 3% of India’s GDP.

 

Tell me more: The government has already started working on 10 black spots, or accident prone areas (such as Sarai Kale Khan and Shahdara Flyover) in Delhi.

 

172,671

 

What is it? The number of cars sold in December in India.

 

Why is it important? The highest number of cars sold in a December season. December is considered a slow month for car sales as buyers tend to postpone purchase during the new year – for sentimental and resale price reasons. However this December, discounts and  lower loan rates – average loan rates of nationalised banks are down to 10.2% from 11.1% in December 2014 – seem to have worked.

 

Tell me more: However, two-wheeler sales declined by 3.1% in December, reflecting poor demand, according to Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM). The overall industry sales including passenger vehicles, three-wheelers, buses, trucks and two-wheelers fell by 0.17%.

 

17

 

What is it? The number of students in the 100th percentile in the Common Admission Test (CAT), the entrance examination for business schools including the prestigious IIMs (Indian Institutes of Management) in 2015.

 

Why is it important? All the 17 toppers have an engineering degree, underscoring the importance of quantitative skills in MBA entrance exam. Around 75-90% of students at the IIMs are from engineering backgrounds. Recently the test format was changed to include descriptive questions to appeal to students with non-engineering backgrounds, besides conducting tests in more centres/cities to attract a broader set of candidates. The impact of these changes are yet to be known.

 

Tell me more: Of the top 17 students, one is a woman. A total of 1.8 lakh students took the test, of which nearly a third were women.

 

5.6%

 

What is it? Likely increase in consumer prices in December from a year ago period, according to a Reuters poll of economists.

 

Why is it important? This is higher than November’s consumer inflation at 5.41%, which was the highest in 14 months. If this happens, this would be the fifth consecutive increase on a monthly basis. A deficient rainfall in 2015 and poor crop output has led to the increase in food prices, especially those of pulses, which increased 46% in November compared to a year ago. This is likely to prevent the Reserve Bank of India from effecting any downward revision of interest rates. It also increases the central bank’s challenges of keeping retail inflation under 6% this month and 5% by March 2017.

 

Tell me more: India has revised its economic growth target to 7% from 7.5% due to low farm production and declining exports.

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