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Indian Aviation, said to be in its golden age since the past decade is the fastest growing Aviation Markets in the world. According to Invest India, the National Investment Promotion and Facilitation Agency of the Indian Government, the market is the third largest domestic Civil Aviation market in the world with an annual passenger traffic growth of 11%, and the sector supporting a whopping 8 million jobs. Although the year 2019 was a turbulent one for the sector, we are only behind USA and China in terms of domestic passenger traffic and as China looks to play catch up game with USA, we are expected to follow the path of China in terms of our growth in this space. This overall rosy picture can be attributed to the very large and fast-growing middle-class population, by and large one of the fastest growing economy, higher disposable incomes and relatively lower penetration levels of the aviation industry. India currently has connectivity with 59 countries in the world through 344 routes supported by 5 Indian Carriers and 6 Foreign Carriers. According to data from IBEF, there are 103 Operational airports currently, and the number is set to increase to 200 by FY2040. The General Competitive Landscape of the Indian Airline Industry With increasing capacity being added regularly, there is intense competition in the market. The major carriers attracting share are Indigo, SpiceJet, Go Air and Vistara while those on whom the competition is seeming to take a toll are Air India which is marred by inefficiencies and AirAsia India, which seems to have a decelerating growth.  Key Cost Drivers: Fuel: Air turbine fuel forms the largest component of cost. Fuel is an external factor that affects the profitability of airline. In case of Indian aviation industry, it stays upward of 50 percent thus operation efficiency becomes very important. Labour cost: Labour cost include wages of pilots, ground staff, maintenance staff and cabin crew. On an average the number of pilots per aircraft is 15. Operational Cost: Airlines need to pay for aircraft parking, slots, terminal space etc. Maintenance, Repair and Overhauling (MRO) challenge: Indian aviation industry suffer from lack of dedicated hangers at airports. Many a times, aircrafts have to be sent to foreign countries like Singapore which further increases the cost of MRO. GST is 18% which is very high for an industry which is burdened by taxes. The spare parts are imported from other countries which further increases the cost. A consolidated view of the break-up of costs of the airline industry according to Data from DGCA India can be seen as follows: (The Flight Operation expense % values are shown in the right vertical axis) Key Revenue Drivers: Capacity: Revenue will be a direct relation to the capacity of the airlines i.e. the number of seats with the airline. Higher capacity can result in higher revenue for the airlines. Capacity addition can be done by expanding the fleet of airlines. Indian aviation industry has exploded over the last decade and government focus on regional connectivity may provide further opportunity for capacity expansion. Passenger Load Factor: This is the most important factor as it impacts the profitability of airline as well. As the load factor increases Airlines increase the ticket prices resulting in higher revenues. Depending upon the load factor airlines also decide their expansion of fleets. A Comparison of the Passenger Load Factor for major airlines is given as follows:  Passenger Yield: Passenger yield is passenger revenue for every mile flown. Higher yield is indicative of higher revenue for the airlines. Fee/Other services: Charges for luggage, Seat selection, on-board meals, Cancellation charges, rescheduling charges, inflight entertainment, in flight sales and other fees adds to the revenue streams. Why was 2019 turbulent for Indian Aviation and what lies Ahead? 2019 was a rough year for many Indian Airlines, with the major hit coming from Jet Airways losing share and finally discontinuing operations in July. This led to a lot of market share being up for grabs for the major players like Indigo, GoAir, Spice Jet and Vistara. Even parking slots of Jet Airways became vacant for the other companies, especially those looking to make headwinds in International routes. It was assumed that on the pricing front, there would be changes owing to the demand-supply mismatch, but that could not really materialise over time. With the increase in parking slots and an opportunity to benefit from with one player opting out, the major airlines like Spice Jet and Indigo started leasing more and more aircrafts. This led to any seat capacity constraint that was expected to crop up to be overcome with ease. No real gap between supply and demand ended up, leading to no significant hike in prices. Not only this, the economy overall was in a bad shape, further adding to downward pressure on tariffs since yield started reducing. There was a possibility that seats would’ve gone empty had prices seen a jump. It was finally in November that tariffs started increasing by around 10% which was important to bring viability back, but then operators faced another setback. IndiGo faced a debacle because of the requirement to replace the Pratt & Whitney Engines on its fleet, leading to a number of cancellations and reduced capacity in the last two quarters. Similarly, for SpiceJet, the suspension of Boeing’s 737 Max Planes Production brought a stall into capacity expansion plans. A rise in demand from the festive end-of-year season is all that brought respite to the sector, even though not greatly. Entering 2020, a key parameter to be monitored by the airlines would be yields. With expansion happening, though slowly, the airlines are expected to be incentivised to offer discounts to passengers, which is expected to transform into increased profitability in the longer run. Another key event to watch out for will be the proposed privatisation of Air India. The airline’s estimated losses for the last financial year have increased owing to over 26 of its aircrafts being grounded without any maintenance checks. The government has agreed to halve its debt followed by completely exiting the carrier and what remains to be seen is who buys it. Ideally, the decision would depend on the price that the bidders would be offered by the government and the framework which would be negotiated as a part of the deal including dealings with past dues, potential disruptions etc.
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What is it? According to Investopedia: “The telecommunication sector is made up of companies that make communication possible on a global scale, whether it is through the phone or the Internet, through airwaves or cables, through wires or wireless.” The industry is divided into following subcategories:
 Market Scenario: According to Maximize Market Research Pvt Ltd, Global telecommunication industry was valued at US$2.4 Trillion in 2019. In India the size of the telecom industry is approximately USD 8.45 Billion as per report released by TRAI. A few facts about the telecom industry in India: It is the second largest industry in terms of subscribers with a total of 1,195.24 Million Subscribers as on 30th September 2019. This figure grew by 0.73% in comparison to the previous quarters. Teledensity i.e. no of telecom connection per 100 individuals stood at 90.52 nationwide, at 160.63 for Urban and 57.79 for rural. The high density in Urban landscape shows the recent trend of having multiple connections by a single user. As we can see from the above graph that almost 89% of the market share is owned by Private players and PSU enjoys only 11% share that too diminishing YOY. The fig stands at mere 7.88% if we talk about Revenue Market Share. Private Player shebang:  In terms of RMS, the market leader is Jio with a share of 32%, followed by Airtel at 30 and Voda-Idea at 28% market share if we look at Q1 of FY20. Jio as we can see led the sector by being the largest Telco player in terms of revenue. The penetrating pricing done by Jio proved to be very fruitful for them and disrupted the whole sector.
But the question that troubled the industry stewards was how Jio was profitable despite such low pricing. Was it so efficient operationally that it could undercut other competitors by hefty margins? The answer lied in the very basic fundamental analysis in Financial Accounting that was the common size statement analysis of all these players. The above fig compares the various line expense items of Income Statement for the Year ended 2019, for all the three players. As we can see from the above and from the below table as well that Jio was charging very low depreciation in comparison to other players. Another insight was the lower financing cost for Jio and very high Network Operating expense for Voda Idea.
Coming back to the main argument of charging very low depreciation. A US based agency called Bernstein found that if Jio used the straight-line depreciation method as used by other players instead of the present “Units Produced Method” amid other normalization such as brokerage. They will be at a loss of nearly, 15,000 Crore. This embezzlement shows company intention to state that it is profitable to fool others and not attract anti-competitive agency due to predatory pricing. Further, using the above financials and a simple click of Goal Seek button, we found out the increase in revenue that would be needed for the other two players to be operationally profitable. The percentage increase stood at 49.695% for Voda-Idea and 4.49% for Airtel. But the industry decided to increase the price by nearly 40%. Assuming perfectly inelastic demand, we could say that the situation is win-win for Airtel but for Voda-Idea they need to increase their operational efficiency to remain relevant. Now adding in factors like the Fine Imposed by Department of Telecom and the price sensitivity of the Indian landscape the picture seems to be grave for Voda-Idea. Keep in mind, we have not yet taken into consideration the non-operating expenses. But there might still be a little scope, maybe the consumer has become so used to being online that they are willing to spend almost twice to keep on consuming data. If past is any thing to bank upon, when minimum recharge commitment was introduced there was a dip in the number of subscribers. White Space Spectrum: An opportunity for Rural Connectivity According to a study by IIT Bombay, in India 12 out of 15 i.e. nearly 80% of the channels are available as Television White Space. A lot of players such as Microsoft, Google BHEL and prestigious institutes such as IIT Delhi, Hyderabad & Bangalore, were conducting research in this field. But government in the year 2017 rejected Microsoft’s license and subsequently banned players entering this field. The main advantage of having a white space spectrum based broadband connection is its low cost, low infrastructure requirement in comparison to let’s say optic fibre while providing the same level of service. Trends in Telecom Industry
Conclusion Telecommunication Industry is going through a lot the consolidation, the whole spectrum sales fiasco and the 100-pound gorilla in the room Jio slowly disrupting the whole industry. A lot is yet to come, we have entered a decade where hopefully India will be able to witness the true sense of what 5G is and get a glimpse of connected world we call future. References: TRAI, Crisil, BCG Insights, Invest India, Airtel Annual Report, Jio Annual Report and Voda-Idea Annual Report, Government of Singapore.  Source: BSE India The paradox: Equity benchmark Sensex has been hitting fresh record highs on a monthly basis even as high-frequency macro-economic data continued to show acute pain in the economy. The Sensex hit a lifetime high of 41,000 recently while Nifty soared past 12,100. But, the economy is in a state of slowdown with the GDP growth rate at a 6-year low of 4.5 per cent. The collapse of the automobile sector or the rising number of non-performing assets (NPAs), sluggish consumer demand or failing manufacturing sector; all have a hand in this deceleration of growth rate. The RBI slashed policy rates a record 5 times in 2019 to support a struggling economy as the shadow banking crisis caused a liquidity crunch in the financial sector. This appears to be counter-intuitive prima facie since the stock market is supposed to be an indicator of the state of the economy. Many believe that the stock market has a positive correlation with the GDP growth rate. But is this really so? Several studies have compared GDP growth rate and stock market indices over different time periods and geographical locations, and have observed that there is either no correlation between the two, or there is a very low degree of correlation, while some observations suggest a negative correlation between the two. Ideally, markets and the economy should move together as price of shares of a company should be correlated with its future earnings. Expectations of future earnings are formed from past and present earnings. Thus, during a slowdown markets should correct to reflect the current level of earnings. But several other factors influence the pricing of shares. Fresh availability of surplus liquidity at cheap rates, along with speculation of future earnings being better than today, can lead to such divergence. The convenient argument during a bull run has been “this time it is different"—however, it never is. Reasons for Current Boom: Optimistic future outlook: Reforms such as the goods and services tax, insolvency and bankruptcy code and the recently announced corporate tax cuts suggest a positive mid-term outlook for India’s growth once banking and financial sector stress is resolved. The other equally important factor is low interest rates in developed economies that have led to fresh inflows into India. All this, coupled with expectations that the direct tax code will be enforced in the next budget, has improved market sentiment. Recent government intervention: After the budget for the FY’20, it was expected that the government will slash down the Corporate tax levied on the companies. However, no such decision was taken and hence, the equity market experienced major crunch as foreign investors withdrew their money from the Indian market In response to the high corporate tax. However, with the crashing economy and stock prices, the Modi Government acted by taking restrictive measures to stable the falling financial market. Modi himself has been taking steps to revive growth from a six-year low. In September, the cabinet slashed the corporate tax rate to 22% from 30% for existing companies and to 15% from 25% for new manufacturing companies. He’s also eased foreign investment rules in retail, manufacturing and coal mining. Also, 10 state-run banks were merged to create four big lenders. An amount of $1.4 billion funds were announced to salvage stalled real estate projects. Ease of Tensions between China & US: The global equity market got a boost up after reports about the end of the trade war between Trump administration and China. The two nations are close to finalizing a modest trade agreement that would suspend tariffs. Trump took to Twitter by tweeting “Getting VERY close to a BIG DEAL with China. They want it, and so do we!” UK Elections: After the landslide win of Boris Johnson in the UK, the clouds finally cleared on Brexit. As per the speculated reports, Boris might take the UK out of the European Union by the end of next month. As a result, domestic companies that earn significant revenues from the UK market hogged the limelight in Friday’s trade. Shares of Tata Motors, which earns around 16.30 percent revenue from the UK, were up nearly 3 percent on BSE. Lack of correlation:
Conclusion: Traders and investors are hopeful that the government will take stronger steps in the next few months. They expect a cut in personal income rate, GST rate cut, labour and land reforms among others. These decisions will take time to impact the economy, but investors are nevertheless optimistic about the prospects. Even as the economy has taken a huge hit, stock market sentiment runs high. Hence, the stock market has factored in future expectations into its prices. All said and done, there might not be a correlation between the stock market and the economy. It is futile to defend the current political leadership and the economic slowdown using the stock market indices. In this article we will be talking about whether GDP is an effective measure to estimate economic development in India or not. Firstly, we will talk about some of the problems of GDP measure that is common to all i.e. arises out of the concept of GDP itself. Then, we will move on to India specific scenarios and try to access whether that GDP paints a complete picture or not. Problems common to all A quick glance at any macroeconomic book will introduce you to the limitations that we will be talking about. But they understanding of which is important nonetheless for understanding the bigger picture. Before moving on to these problems let us define GDP first. GDP is the sum total of all Goods and services produced within the domestic territory of a country within a given period of time. It can be calculated via three approaches sum of all income, sum of all expenditure and lastly sum of value added by different sectors. It excludes goods and services produced for self-consumption because of lack of records for reporting and sales and purchase of second hand goods. GDP assigns equal weightage to the same magnitude of benefit driven by two different income classes. Let us understand the statement with an example: Let us say the income of a person X increases by Rs.1000. Then the GDP will also increase by Rs. 1000. Introducing a microeconomic concept to aid our analysis alias utility analysis. Suppose person X has, 1) an annual income of Rs. 10 Crores or 2) an annual income of Rs. 10 Lakh. In which case this Rs.1000 will provide higher utility? Have we done anything to address that in GDP? GDP assign equal weightage to two types of goods namely Goods and Bads. What we essentially mean, a cigarette of worth Rs. 10,000 carries the same weightage as Essential Medicinal Drug worth Rs. 10,000. GDP doesn’t take into account the externalities. For example, suppose a bridge worth Rs. 100 Crores is constructed. Due to which the travel time was increased by 20 mins while it was under construction and decreased by 10 mins after it was completed. GDP will only take into consideration the monetary value of the bridge and not the positive or negative outlook. Given the climatic conditions of metropolis similar argument can be extended to dust particles emission via construction. Something to ponder upon specifically in Indian context. Arising Because of Indian Scenario The Employment and Contribution to the economy via different sectors leads to some difficulties in assessing the development via GDP. Let us look at certain facts and figures to understand the same.   Contribution of Agriculture sector to GDP is mere 16%. But it employees nearly 43.86% of the populace (as per ministry of labour and ministry of stats). The largest contributor is of course services with 54%. Now suppose the whole GDP is 100, if service sector contribution was to increase by let’s say 10%, and that of agriculture was to decrease by let’s say 10%. The new fig will be 14.4 and 59.4 with a total of 103.8. Even when agriculture sector fell the overall GDP was increasing because of the boost provided by services. This would have not posed a problem, but when we bring in employment into the picture. The whole rosy picture gets distorted. A 10% fall in agriculture impacts a larger share of population than a 10% increase in the services. A counter argument can be the income multiplier i.e. increased income from one sector moves to another and the impact is magnified. But that is a complex phenomenon, with propensity to consume of different sectors. Let us for the sake of argument accept this phenomenon. But the same is not reflected in the income equality. India was the second most unequal country in the year 2016 after Russia. In the year 2019, A survey by Oxfam shows that top 1% of Indian Economy own more than 73% of wealth. Which seems reasonable given the service sector is consolidated industry with a larger share coming from a few major players. Let us look at data of GVA by Agri sector to get a glimpse of its condition.  As we can see from the above graphs, period where we were talking about high GDP growth rate. Our Agri sector was facing problems of its own. We have indeed seen some stress upon the Agri sector in recent times the early signs of which can be seen in above figure. The last argument that we would like to point out is the shadow economy. Before moving on to the complication. Let us define what it exactly means: Bhattacharyya (1999) describes the hidden economy to be a sign of the unrecorded national income “calculated as the difference between the potential national income for the given currency in circulation and the recorded national income.” In the famous paper, the rise of the shadow economy: An Indian perspective. A deeper definition of shadow economy is provided. shadow/hidden/black/gray economy can be defined as— the segment of a country's economic activity that is derived from sources that fall outside of the country's rules and regulations regarding commerce. In simple words, it can be stated as the unrecorded or unaccounted national income. It could also be stated as the contribution of the informal sector that goes unaccounted or the outcome of the illegal activities that are prevalent in the country. In a broader sense, we can say black economy captures part of the income from both the illegal and legal activities that could not be used in the formal compilation of the productivity of an economy. From the above definitions key takeaway is that shadow economy is not just illegal activities but is also the sum of legal activities which cannot be simply recorded because of lack of proper records. Let us look at certain figures to understand why it is a problem:   According to the paper, “Estimating the Size of Black Economy in India, Chandan Sharma, MPRA Paper No. 75211, posted 24 Nov 2016 15:14 UTC”. The size of the shadow economy is greater than 50% in India. As per International Labour Organization (ILO) 81% of Indians are still employed in informal sector. Looking at a figure which represents less than 50% of the economy while ignoring the other part is not a right way of looking at the economy. Also, this figure which uses an estimate called Mixed Income to take into account the informal sector doesn’t paints a fair picture of the Indian Economy. Conclusion: GDP is not an accurate measure if we are looking at just GDP. There are various other parameters which must be stressed upon such as Purchasers Managers’ Index, Index of Industrial Production, GVA of different sectors and lastly qualitative factors such as HDI, Corruption Index, Ease of Doing Business and Electrification etc. But a step must be taken to formalize the economy, GST was one such step in the right direction. We must understand when we force something to change it takes time to adjust. Forcing a large section of economy to shift to formalization is a big move and surely had its impact on the economic development. But we must not forget the big picture of formalization while looking at individual scenarios. References and Data Sources: Ministry of Labour, Ministry of Stats, International labour organization, Estimating the Size of Black Economy in India, Chandan Sharma, MPRA Paper No. 75211, posted 24 Nov 2016 15:14 UTC, The rise of the shadow economy: An Indian perspective by Priyanka Menon, LiveMint & Economic Times Articles, Business Today, Oxfam. What’s plaguing Indian Banking Industry?
The banking industry has been dominated over the past couple of years by NPAs, falling stock prices, failing banks and government recapitalization. The fall in specific bank share prices has illustrated both broader economic credit issues and the lack of speed in non-performing asset identification (NPAs). Nevertheless, the problem surrounding PMC bank reminded us that the clean-up in the banking system in India has significant work that needs to be done not only in terms of credit quality but at the same time in terms of systemic corporate governance issues that form the cornerstone of the economic growth. Four issues that have come to the forefront in the past few years are listed below:
The solution to the first two issues is dependent on lenders ability to evaluate sectoral, corporate and project risk considering the balance sheets while the last two revolve are the level of corporate governance standards. An alternative way of looking at the above issues is as the building blocks on which every credit system is based. The basic premise of a robust and usable credit system is solutions that answer the fourth point stated. Third point solutions are based on those for the fourth, and so on. Essentially, the approaches to the banking system need to draw on each other. Otherwise, solutions that enable higher capacity for the lending institution based on project assessment will become unless in the absence of basic corporate governance standards. NPA story of India defined As of 31 March 2018, the total volume of gross NPAs in the economy stands at 10.35 lakh crores which is interesting as it is around 11% of the entire credit disbursals. 85% of these are a gift from our very own public sector banks. SBI the largest bank of India is sitting on NPAs of Rs 2.23 lakh crore. The ratio of NPA to credit disbursals was a mere 2 odd per cent in 2007-08. The important question to ask is why the tables turned in less than a decade? 
One of the reasons is that the nation has experienced an unprecedented credit boom from the period of 2003-04 to 2007-08. Growth of AUM in mutual funds and the rise of NBFC also has played its part in the credit growth. The important point in consideration is that the boom was happening despite the monetary tightening policy. Repo was 9 per cent in 2008 raised from 6 per cent in 2004 and a CRR of 9 per cent from 4.75 per cent. The policy marked a shift with the financial crisis of 2008 and rates were cut to support the economy in distress. Credit booms are usually followed by banking stress. The expansion of credit was unprecedented, with an average annual growth rate of 18.69%, while nominal GDP growth rates were 12.62. It's rightfully said that every project looks rosy in a period of economic growth. When the tables turned the loans became the NPA’s the bank are not finding difficult to work around with. PCA framework Explained Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put under watch by the RBI. The Reserve Bank has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) framework, in terms of three parameters, i.e. capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points. Since most bank operations are financed by deposits that need to be repaid, a bank must carry enough capital to continue its operations. PCA aims to help warn both the regulator and investors and depositors when a bank is heading for trouble. The aim is to head off concerns until they hit levels of crisis. LIC the saving grace for IDBI bank LIC had to come to the rescue for bailing out IDBI bank picking up 51% cent in the bank and taking it private. The picture looks far from rosy. The massive ₹21,624 crore of capital that LIC infused into the ailing bank last fiscal, has been sucked into the bank’s losses. What’s more, the bank’s bad loan troubles don’t appear to be easing any time soon. Will the so-called synergies for LIC work out is what remains to be seen? PMC bank fiasco and other banking scams Co-operative banking institutions account for about 8% of deposits and 9% of advances and loans in India. PMC frequently extended loans to HDIL and not disclosing NPA led to capital erosion for the bank. The bank without adequate capital had to put a stop on withdrawals. PNB Nirav Modi is the most infamous scam that came to limelight. Bank staffers issued fake bank guarantees of worth more than 13k crores over the years. Mehul Chowksi of Geetanjali gems was also named among those in banking fraud. Religare charged Laxmi Vilas bank of misappropriating funds of their fixed deposit. Bank recapitalization Recapitalization is the strategy to improve the financial stability of the banks by much-needed capital infusion. Government has continuously made capital infusions to take care of continuous losses of the banks and assist in maintaining capital adequacy ratio. Recapitalization of PSBs in FY20 would support growth by encouraging the flow of credit to the economy, although simultaneously adding to the government’s debt. Conclusion It is always possible to be wiser after the event. Nevertheless, we need to research the past to conclude the future. There are lessons to be learned for RBI, Government and the banks. It the regulatory responsibility to track macro indicators such as overall credit growth and decide the monetary policy in accordance. It needs to consider the financial and business cycles. There is no substitute to good governance. The government needs to ensure banks run in the larger national interest but at the same time decision making should be left to the bank board. There is a need to empower the bank boards. Banks need to own the soundness of their credit decisions. The need of the hour is a robust framework for credit decision in the system so that the backbone of the economy keeps flourishing generating prosperity in turn. Sources: The Hindu, The Hindu Business Line, Economic Times, Business Standard, Forbes India, PRS India, Bank report RBI Overview Banking industry is the backbone of Indian financial Industry. The Indian banking industry consists of 27 Public sector banks (The number to be reduced to 12 post the mega merger), 21 private sector banks, 49 foreign banks. 56 regional banks, 1,562 urban banks and 94,384 rural co-operative banks in addition to cooperative credit institutions across the country.  Scheduled banks are accounted for in the second schedule of the RBI Act and are governed by the general rules like CRR requirements, paid-up capital etc. Non-Schedule banks do not have to comply with any RBI regulations. These are local banks which usually maintain cash reserves with themselves. The banking regulator has also allowed new entities such as payment banks and small finance banks to be created thereby adding to the number of entities operating in the sector. However, the financial sector in India is predominantly a banking sector with commercial banks accounting for more than 60 per cent of the total assets in the financial system. In FY 07-18, total lending increased at a CAGR of 10.94 per cent and total deposits increased at a CAGR of 11.66 per cent. India’s retail credit market is the fourth largest in emerging countries. It increased to US$ 281 billion in December 2017 from US$ 181 billion in December 2014. Must-Know Banking Terms
Deciphering the Payment Banks and Small Finance Banks Payment banks are the new mode of banking started by RBI to promote digital, paperless and cashless banking in India. The objective is to reach out to the unbanked and underbanked by using mobile phones and increasing internet penetration as the tool. The banks are allowed to accept deposits up to 1 lakh rupees and they are not allowed to lend money. Payments banks can issue services like ATM cards, debit cards, net-banking and mobile banking. Airtel payment bank was the payment bank to start operations. Paytm payment bank, Indian Post payment bank and Jio Payment bank are some of the popular payment banks in the country. Small finance banks were niche banks started to promote financial inclusion of sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities. The banks can take part in both lending and deposit activities. Post RBI guidelines, a series of banks previously that were microfinance organization have come up and many of them have already made a listing on the Indian bourses. Ujjavan small finance bank had a bumper listing recently as the stock listed at a premium of 59% on exchange. In the latest move, RBI has also allowed conversion of payment banks to small finance banks post 5 years of operations. Key trends in Banking Sector in India The banking sector of late has been in news for wrong reasons be it the case of Chandra Kochar or state of affairs in Yes bank. While challenges from digitisation and fintech remained, it was the asset quality that has remained in limelight for the past few years. The performance has also taken a beating due to stricter provisions. Let’s try figuring out what remains in store for us in the year 2020?
Conclusion Indian economy is going through a tough spot with consumption taking a back seat and private investment slowing down. Government has been pushing for lower interest rates for credit to take off and for demand to stay upbeat. RBI has been constantly cutting down on interest rate but with the rising inflation, the rate cuts may take more time to materialize soon. The government has been focused on recapitalizing the banks on their end and we do expect things to pick up the next year. The Banking sector overall is likely to improve in the next year will the worst behind its back and we can only expect things to improve soon. References: IBEF CRISIL PRSINDIA ALPHAInvesco HinduBusiness line  Source: Google Images Overview: The insurance industry in India has always been characterized as one with tremendous potential. Post- liberalization, it has witnessed tremendous growth with private and foreign players being allowed to enter the market. There are 57 insurance companies with 24 engaged in Life insurance business and 33 non-life insurers. Gross premiums written in India reached US$ 94.48 billion in FY18, with US$ 71.1 billion from life insurance and US$ 23.38 billion from non-life insurance. Over FY12–18, new business premiums of life insurers in India have increased at a 14.44 per cent CAGR, while premiums for non-life insurers increased have increased at 16.65 per cent CAGR in the same period. Despite this, insurance reach in India is still low. Overall insurance penetration (premiums as % of GDP) in India was 3.69 % in 2017, compared to a global average of 6.13 %. Insurance density (premium per capita) is a mere $ 73, nearly one-tenths of the global average density of $650. While the government schemes have aided a growth in the insurance penetration and density, India’s numbers are much lower than the Asian average too. Going forward, this sector will have a key role to play in the economy on two main fronts. First is the element of financial inclusion by insuring the uninsured. In a country with close to 1/4th of the population(over 300 mn) living below the poverty line, protecting people’s assets and source of livelihood becomes even more crucial. Secondly, it will play a major role in generating long term funds. Banks and other financial institutions typically have short term liabilities(demand deposits etc) and hence investing in long term assets leads to AL mismatch. Insurance companies however typically have longer term liabilities and are in the position to provide long term funds by investing in government securities, mutual funds etc. Type of life Insurance Policy
Type of general Insurance Policy
Growth Drivers: Growth in Financial Industry- Overall growth in the financial industry has led to increasing awareness about financial products and services. This has helped to increase the number of Point of Sales (POS) and potential for cross-selling, with third party distributors like banks playing a major role in increasingly advising customers about overall financial portfolio, with insurance being a fundamental part of it. This is commonly known as bancassurance. Digitization- With growing internet penetration, companies like policybazaar, coverfox have provided large scale aggregation of various insurance products, making it easier than ever to have access to insurance related information, products and services. It can be thought of as being analogous to the impact of Zomato and Swiggy on the food service industry. E-commerce companies like Flipkart and Paytm have also tied up with insurance companies to sell insurance on their platforms. Insurance companies also welcome this change as it gives them a higher gross margin compared to offline distribution through banks, Privitization/FDI- The private sectors role in the industry has been increasing over the last 2 decades, with market share of private sector in non-life rising to 55.7% from 13.1% in FY03. Private players bring in innovation, better practices, and greater trust among potential customers, especially since the Indian insurance industry has traditionally been riddled with misselling, fraud and malpractice. The permitted FDI limit has been increased from 26% to 49% for insurance companies, and 100 percent for intermediaries. Greater competition implies better practices and most importantly better prices. Growth in specific segments- Apart from factors impact the industry in general, there are also specific growth drivers for different kinds of insurance. For example- Increase in demand of motor insurance as a by-product of rapidly expanding auto industry; Increase in health insurance due to focus on improvement in healthcare etc; rise in crop insurance due to support to farmers etc. Health and motor insurance in particular are expected to drive growth in the sector over the next decade. Policy Support- Apart from easing of FDI norms, several policies and schemes have provided a boost to the sector. Some of them are:
Is India Under-Insured?
Key trends: Micro-insurance has emerged as a useful means for expansion and has led to creation of new products and exploration of novel distribution channels. For example, Ola Cabs tied up with Acko General insurance to provide travel insurance worth 5lacs while booking a cab through the app, at the cost of ₹1. Cost optimisation- Players in industry are investing in Information Technology to automate various processes and cut costs without affecting service delivery. It is estimated that digitisation will reduce 15-20 per cent of total cost for life insurance and 20-30 per cent for non-life insurance. From October 2016, IRDAI has mandated having an E-insurance (electronic insurance) account to purchase insurance policies. Conclusion: The future looks promising for the life insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. The overall insurance industry is expected to reach US$ 280 billion by 2020. Life insurance industry in the country is expected grow by 12-15 per cent annually for the next three to five years. Demographic factors such as growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will support the growth of Indian life insurance. In the previous part we gave a brief overview of the industry, the growth drivers and the problem faced. We also touched upon the policy support by the government. In this part we will be talking about the recent changes in the industry, what is the possible way ahead and ultimately what is the overall take on this industry.
The Recent Trajectory and the Status Quo – The last year proved to be one of the toughest for the auto industry with the continuously falling sales and piling stock of inventory. The industry grew at a healthy rate of 14% YoY in terms of volume in 2017-18. But the next year saw only single digit growth in the initial months with experiencing a drop in the sales volume as the year drew to a close. The situation deteriorated in April-July 2019 with the sales plunging 14%. The reason for the downturn in late 2018 included increasing fuel prices, reducing rural sales due to bad monsoon and low farm prices. The impact on the rural sector slowed car and two wheeler sales and the commercial segment was impacted by the quicker turnaround times because of GST and also significantly by the change in axle load norms which allowed trucks, etc. to carry higher loads and increase their freight capacity by 20-25 percent, thereby reducing the demand for new trucks in the market. Liquidity crunch in the market post the NBFC crisis also left a huge impact on the sales figures. The impact can be assessed by the fact that about 60% of commercial vehicle sales. 70% of two-wheeler sales, and 30% of car sales are financed by NBFCs. Efforts like reduction in repo rate could not materialize into the benefits sought due to limited transmission of the rate cut to the public by banks. Adding to the misery was the rising insurance costs in the form of premiums on compulsory third party cover which was increased by the insurance regulator. Car and auto manufacturers have cut thousands of jobs and have shut down plants and halted production as the industry grapples with these challenges. The sector saw a slight recovery in October with sales increasing as compared to last year. As per a survey by FADA, at the end of October, the inventory of vehicles in different segments has come down at dealerships. This is a bright spot as it comes at a time when the industry has been witnessing a slump for months and the nearly all manufacturers are showing falling sales. However, it should be kept in mind that the rebound came as there were two festivals Navratri and Diwali during the month this year as compared to only Navratri in last year’s October. And the fact that it was supported by hefty discounts offered by vehicle manufacturers who are desperate to sell the inventory, makes it harder to take the improvement as sustainable. Way Ahead With the BS-VI norms being implemented from 1st April, 2020, there is a slight pre-buying expected in FY 2020 as consumers may get tempted by the discounts which the manufacturers would be offering to sell their old inventory. Post the implementation, there is an expected significant hike in ownership costs due to the more expensive new standard-compliant engine. This is going to dampen the demand of vehicles in the economy. In terms of long run, with the falling prices of batteries and increasing push and supportive policies from the government, electrification is going to significantly pick up the pace. As per the industry experts, people carriers like buses, two-wheeler, luxury passenger vehicles and light commercial vehicles could experience the highest penetration by 2030. In the coming time, the penetration of shared mobility in India is going to increase and while it is not at the same level as it is in developed nations, a significant change is under way in some parts of the countries where shared mobility is economically viable and this trend is also spreading to other parts of the country too. Along with this, Connected Vehicles are almost certain to become the norm in future as the mass adoption of smartphones, combined with low cost of internet could enable this trend to proliferate. With this, there will be some additional protocols and guidelines which will be introduced centering around data security and cyber-threats. Additionally, it will also lead to impacts on other players in the system like insurers, telecom and tech companies. How GST can make a difference? 
A Structure for GST Cess, Suggested in National Auto Policy 2018
One of the interest frameworks for GST Cess suggested in the National Auto Policy 2018, is the matrix shown above. What they suggested was that we can divide the passenger vehicles into two segments i.e. length greater than 4 meters and less than 4 meters. The next was the CO2 (g/km) the initial bifurcation was set at 155 (g/km) which will decrease over the years. What is unique about this structure is that it tackles the two problems that the passenger vehicle transportation faces i.e. The Congestion and The Pollution level. With the help of this, vehicle which contributes to any of these or both of these will be taxed more than those who don't. Conclusion Keeping in mind all the potential hurdles and the change which are going to be implemented soon, it can be said that the times ahead are going to be turbulent for the industry. But with support from the government policies along with the burgeoning middle class, these changes can be very well managed. Also, it can be safe to say that things like electrification of vehicles, shared mobility and connected cars are going to gain even more momentum in the times ahead, and hence the various players in the system should be attentive, agile and quick on their feet to drive this change rather than being driven by it. REFERENCES: CRISIL, Sector Report by Mckinsey and PWC, IBEF Report, Economic Times, Live Mint, Forbes India, The Hindu Business Line, Seeking Alpha Automobile industry is an essential driver of growth in any given economy and plays a vital role in the overall national development. It provides for the requirement of basic industries like steel, non-ferrous metals, fertilizers, refineries, petrochemicals, logistics etc. The automotive industry includes automobile along with the spare parts of the same.
The Automobile industry in India commenced operations in the 1940s. Automobiles were then considered to be a product which only the rich could afford. The production process was licensed and expansion of the market seemed a difficult phenomenon to achieve. After the economic reforms in 1991, this sector was recognized as the Sunrise industry of the Indian economy as it saw exponential growth due to de-licensing of manufacturing and opportunities which got opened post globalization. There are various segments in the automobile industry including passenger vehicles (passenger cars, utility vehicles, multi-purpose vehicles), commercial vehicles (light commercial vehicles and medium & heavy commercial vehicles), two-wheeler (mopeds, scooters, and motorcycles), and three-wheeler (passenger carrier or goods carrier). In terms of domestic market, two-wheeler account for about 80% of the total market share, passenger vehicles come next with about 13%, and followed by commercial segment having 4% share and then comes three-wheeler having about 3% of the total market 
In FY 2019, a total of more than 3 crore vehicles were produced in India and presently it is:
Growth Boosters – Growing economy and growing demand: With the economy's growth and development, the middle class has been growing and has given an impetus to the sector. This is further accentuated by increasing in the country’s population. Not only domestically, but India is also faring well in the international arena with it becoming the hub for exports of automobiles. it is the 4th largest automobile player in the world. India plants have an actual cost advantage as they incur about 25% less costs as compared to their American and European counterparts. There has been a cumulative FDI of about USD 20 Billion across the sector. The GOI expects the automotive sector to attract USD 8-10 Billion by using local and foreign investments by 2023. Policy Support: Different policies from the government is helping the sector to grow further. One of the biggest policies is the Automotive Mission Plan of 2026. The government in coordination with the Automobile industry has set a vision which pertains to India becoming the 3rd largest Automotive player in the world, increase the industry’s contribution to GDP to 12% from the present 7% and also to create about 65 million more jobs. These goals are set to be met by 2026 which implies a targeted CAGR of 15% with the industry quadrupling itself between 2016 to 2026. Along with this, another major initiative is in the form of Faster Adoption and Manufacturing of Electric Vehicles (FAME) India Policy which is aimed at smoothing the transition from the fuel-based model of vehicles to electricity powered vehicles. The GOI has shortlisted 11 cities across India with a population of over a million and will provide 105 Cr grant for buying electric vehicles, and for setting up a proper infrastructure for Electric vehicles. Measures like these provide various avenues for the existing players to enter and grow in a booming sector. Yet another policy is the End of Life (EoL) Policy which is anticipated to come out in the near future and is aimed at reducing pollution. Through this, the government will be pushing for scrapping the vehicles which have completed their life in different scrapping centers. It is like an augmentation of the Inspection and Certification (I&C) under which every single vehicle will be issued a certificate with respect to its road worthiness and any unfit vehicle will not be allowed on the road. This policy may disrupt in the industry for a short time but will prove to be beneficial in the longer run. Under National Automotive testing and R&D infrastructure Project (NATRiP), 5 testing and research centers have been established since 2015. This policy is aimed at setting up of R&D centers at a total cost of USD 389 million to enable Indian industry to meet Global standards and hence make Indian products globally competitive. Disruptors – Shift to BS-VI: The government is also targeting to reduce the time slack between the introduction of emission norms across the world and in India from the current period of 7-8 years to a period of just 4 years. To achieve this, India has decided to jump directly from the BS-IV norms to the BS-VI norms by April 2020. Bharat Stage-VI is equivalent to the Euro-VI emission norms. This would mean that the new vehicles sold from 2020 will be having engines compliant with the new benchmark. This would lead to better efficiency but would be difficult for the producers as it would entail more expenditure as the industry is now investing upwards of Rs 70,000 crore to comply with BS VI. Meeting the deadline may also turn out to be problematic for the manufacturers. The BS-VI norms will make India and Europe similar in terms of standards followed. However, stark differences in the per capita income between two regions may present hurdles in the adoption of the new standards. Push towards Shared Mobility – People now are preferring options of shared mobility over owning a vehicle themselves. This is having a negative effect on the industry as the number of users per car is increasing and this reduces the overall demand of automobiles in the market. However, this will also lead to a little positive impact in the form of increased frequency with which the vehicles used in the shared mobility will get replaced due to wear and tear resulting out of usage. The advent of Autonomous and Connected cars also is a potential disruptor for the industry. Although the impact is rather limited in India as of now but with the passage of time, it is only going to intensify further. The manufacturers will have to be quick to adapt to the latest technologies in order to stay competitive in the global and domestic markets alike. Having discussed the overview of the automobile industry along with its growth boosters and various disruptors, we will, in the next series, talk about the recent trajectory, and the status quo of the sector, and will try to forecast what the future likely holds for the industry. REFERENCES: CRISIL, Sector Report by Mckinsey and PWC, IBEF Report, Economic Times, Live Mint, Forbes India, The Hindu Business Line, Seeking Alpha  Image Source: Google Images Overview: According to Investopedia: “Fast-moving consumer goods are products that sell quickly at relatively low cost. These goods are also called consumer packaged goods.” In other words, the FMCG Industry consists of Goods which have relatively low shelf life, lower price and are consumed and purchased frequently. FMCG Industry Globally is estimated to be a $10,020 Billion Industry (According to PR Newswire). The Industry is predicted to reach $15,361.8 Billions by the year 2025 with a CAGR of 5.4%. FMCG Industry in India is a $ 52.75 Billion Industry. The industry grew from a $31.6 Billion Industry in 2011 to a $52.75 Billion Industry in 2017-18 (As per Emami Ltd. Annual Report 2019). The growth of the top 15 FMCG companies such as HUL, ITC, Nestle and Marico etc. grew at a CAGR of 13.6% in the last 7 quarters. The industry is divided into 3 segments namely Food and Beverages, Healthcare and Household and Personal Care. They have a market share of 19%, 31% and 50% respectively. FMCG industry is considered a defensive industry logic being people cannot postpone the Consumption of Goods like in the case of Durables. Overall, Urban Sector accounts for 55% of the market and Rural Sector accounts for the remaining 45%. The growth in the rural market in the past has been greater than that of the urban market to the tune of 1.5X. The Rural Market is expected to grow at 15-16% whereas for the Urban Market the same is 8%. The market is very fragmented with over 90% of the sales coming from the General Trade and the rest from Modern Trade. E-commerce is one of the emerging segments but it caters to a very small share of the market. Growth Drivers A lot of factors have contributed to the growth in this industry. Such as:
Emerging Challenges: The Millennial Effect: It is the change in the consumption habits of the populace which is observed due to a shift in the spending population from Boomers to Millennials. According to a study by Accenture, the consumer of the future generation is becoming more price-sensitive, less brand loyal and more experience-oriented. In the same study, it was proved that millennials are more likely to switch between physical and online store. What this essentially applies is that the consumer wants to buy premium product i.e. the experience, but he/she is willing to switch to another product if it's available at a cheaper price. The same is witnessed in the Indian Context by a report by HDFC Bank Investment Advisory Group, the share of the premium product increased by 5% and those of mid product by 1% and that of lower strata product fell by 6%. From the company’s perspective, this essentially means that they have to now think of selling experience in the General Trade (which accounts for over 90% of the retail). High Logistics Cost in India: One more challenge faced by the FMCG industry is the high logistics cost in India in comparison to other countries. India has a cost of around 13-14% of the sales whereas it is around 8% for the developed countries. Goods and Service Tax was a step in the right direction, because of GST there was a direct impact on how these companies managed their warehouses. Earlier, they used to have small warehouses in almost every major state to minimize the exposure to the Cross-Border Tax. But after the advent of GST, these taxes were abolished and an origin-based taxation system was introduced. As a result, they were able to use few large warehouses instead of various small warehouses and attain the benefit of economies of scale. But still, we are far from the optimal level of logistics cost. E-Commerce A boon or Bane?: One of the key parameters of success for an FMCG company is the strength of the distribution network. With the advent of E-commerce, the same distribution network is now made available to a new entrant which might have taken Crores of Rupees before. This has made the industry more competitive. Although, there are various other positive externalities such as:
Trends to watch out Male grooming has been one of the emerging segments in the industry given the increasing stress on personal hygiene combined with the increase in disposable income. One more segment in a market which is already the next battlefield for growth for the industry i.e. the Rural Market to watch is the Household and Personal Care. The reason? With the increased government initiatives such as Swatch Bharat Abhiyan and Beti Bachao Beti Padhao Andolan, there has been an increasing awareness about the positive externalities of maintaining good personal hygiene as well as keeping the surrounding clean. Given this increased awareness, the populace is more likely to seek out products that augment the same. As the new generation is getting more health conscious there has been an increasing demand for healthy products be it Baked Snacks (Mondelez the snacking giant recently showed their interest to enter this vertical be it organically or inorganically) to healthier alternative to Carbonated Drinks. Conclusion There are various hurdles that are still needed to be tackled but Government is on its way to address them bit by bit. They have already taken a vow to bring down the logistics cost to sub 10% level. Various Companies such as Udaan, Amazon, Metro Cash and Carry and other E-Commerce Player are already pushing the whole framework towards formalization. On the other hand, FMCG Giants are doing their best to determine where the taste of future generations and lies and are trying to manufacture product that caters to those emerging needs. But in the recent times, the consumer spending has fallen for the first time in 40 years in India. The same can be seen via fall in sales of the FMCG giants in the Rural and Tier 1&2 cities. The time frame for which the recession may last is an issue for another blog, but one thing is clear. The FMCG industry still has a lot of potential in India and growth will come from the untapped market. References: Cision PR NewsWire, Emami Annual Report, HDFC Bank Investment Advisory Group Sector Update, Sector Report by Accenture Strategy, HUL Investor Presentation, Investopedia, IBEF Report, EconomicTimes and Live Mint. |