Message to RBI staff from Dr. Raghuram Rajan.

Dear Colleagues,

I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the “Fragile Five”. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you, including a new monetary framework that focused on bringing inflation down, raising of Foreign Currency Non-Resident (B) deposits to bolster our foreign exchange reserves, transparent licensing of new universal and niche banks by committees of unimpeachable integrity, creating new institutions such as the Bharat Bill Payment System and the Trade Receivables Exchange, expanding payments to all via mobile phones, and developing a large loan data base to better map and resolve the extent of system-wide distress. By implementing these measures, I said we would “build a bridge to the future, over the stormy waves produced by global financial markets”.

Today, I feel proud that we at the Reserve Bank have delivered on all these proposals. A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially. This has reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue – the government has been able to issue a 40 year bond for the first time. Finally, the currency stabilized after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five.

We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management through the creation of the Bank Board Bureau (based on the recommendation of the RBI-appointed Nayak Committee), creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR). We have worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface, which will soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. We are strengthening the specialization and skills of our employees so that they are second to none in the world. In everything we have done, we have been guided by the eminent public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award winner Ela Bhatt of the Self Employed Women’s Association. The integrity and capability of our people, and the transparency of our actions, is unparalleled, and I am proud to be a part of such a fine organization.

I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished. While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term.

While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed.

Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit. We have made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. Morale at the Bank is high because of your accomplishments. I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!

With gratitude

Yours sincerely

Raghuram G. Rajan

The industry analysis report sheds light on the economic health of the company, underlining the understanding whether it will be beneficial for the stakeholders to invest in such a company and offering recommendations and/or corrective actions to take in case of any untoward developments in the company.

As an equity research analyst, you might work on industries like Oil and Gas, Metal, Information Technology, Automobile, Financial Services, Infrastructure, Pharmaceuticals and Consumer durables.

In some companies, there is a dedicated industry analyst who will work on the assigned industry and provide the analysis.

However, as an analyst you should be aware of industry dynamics and hence, it is important to know how to do industry analysis.

An industry analysis is a complicated and time consuming process. If any of the dimensions are missed, the whole analysis becomes faulty. Therefore, in this section, I have highlighted all the necessary steps telling you how to do industry analysis. Use these steps and apply it in your analysis.

What are the steps? Here you go:

Read all the available but relevant industry reports and statistics to see whether it makes sense to dig deeper.

Some of the reports you will find already contain in-depth information that the need for new industry analysis is eliminated.

However, it is unwise to depend on existing industry analysis reports as the market is always volatile and industry factors change constantly.

Therefore, pick up a current report and envisage its relevancy in the current market.

An industry has sub-parts. For example, if you look at the chemical industry, you will find sub-industries like Fertilizers, Pesticides, Paints and Varnishes, Organic chemicals.

Therefore, it is important to focus on the relevant industry. Without this, it will be impossible to draw an accurate industry analysis report. So, take up an industry and find out the sub-industries. Select the one which suits the company’s purpose. Moreover, it is worthwhile to look at the different market segments in a particular industry.

As any economist will know, demand and supply are the primary factors governing any market. Hence, it becomes relevant to look into the demand-supply scenario for a particular product or industry by studying its past trends and forecasting future outlook.

You can do comparative analysis with other companyies competing in the same manner to find out the economic health of the company under consideration.

Future demand and supply forecasting helps investors understand the viability of future investments in terms of profits and losses.

This is the most important step of any industry analysis. In this, you need to study the competitive scenario using Porter’s Five Forces Model.

The model acts as the framework of industry analysis. Michael Porter, a famous strategist and author, first came up with this model. In this model, five parameters are analyzed to see the competitive landscape.

They are:

The Porter’s model is extensively used while analyzing any industry.

Any industry analysis report isn’t just about studying the particular industry on a micro-level.

The analyst needs to incorporate influencing factors at the macro-level. These macro-level factors include recent industrial developments, innovation in your industry analysis report, sector valuations and global comparative valuation.

The industry analysis should be specific to a particular industry and thus, it is important to focus and understand the industry dynamics. Your industry analysis should be in-depth and to-the-point.

For example, if you are tracking the aluminum industry, you should know the per capita consumption in the country.

In India, the per capita consumption of aluminum is 1 Kg, in USA, it is 25 to 30 Kgs, in Japan, it is 15 Kgs and in Taiwan, it is 10 Kgs. Apart from the consumption, you should also know the production of aluminum worldwide.

The above six steps are important and you, as an analyst, should follow them.

The analysts in private equity, investments banks, equity research firms, investment research firms need this skill and if you know how to do industry analysis, you are ahead of 80% of the aspirants as this will not only impress your interviewer, but also add immense value to you and the company hiring you.

In the last section, we learned how to do industry analysis and in this, we will see how to write one.

Writing is also a required skill as you need to present all the findings within a written report in a concise and clear manner.

Begin by writing a concise overview of the industry.

Mention historical data and the nature of the industry, including its growth potential.

State the influencing economical factors and most importantly, don’t forget mentioning the purpose of your industry analysis.

The concise overview of the industry should include its competitors and their operations.

You can write this in the next section. Write about similar products and services.

Now, with the overview aside, move on the detailed analytical presentation of the specific industry.

Highlight factors like geographical growth, consumer base, price fluctuations, past performances and income projections.

Use existing financial data and industry understanding to forecast industry growth for the next five or ten years. You can use statistical graph in this section.

The next sections should be about using Porter’s Five Forces model and a detailed write-up about its five factors, its use and repercussions in the industry. Don’t forget mentioning governmental regulations relevant to the industry.

Lastly, give long-term and short-term valuations impacting the industry such as any foreseeable problems impacting the business in a negative fashion and potential corrective measures. Wind up the industry analysis report with a very three or four line summarization.

Have you ever thought of learning the skill of industry analysis and want to know how to write an industry report?

Share your thoughts and experience here.

Considering oneself to be in the shoes of an Investor, for instance, it is obvious to face the dilemma of choosing the right stock that are easy to predict and forecast so it can meet your investment objectives and generate good contribution. The question arises as to how would you make the choice from among thousands of companies?

The quickest ways being relying on the consensus view initially and studying the past trends of the company. Consensus estimates of leading analysts are readily available on major financial blogs and websites.

Many would argue that these are the best ways to choose the right stock for forecasting while many would be against it.

My opinion says that relying on the past or the people are not the worst decisions especially for an investor seeking forecast closer to the current time period (this year or the next year).

It may not be suitable for longer period estimates because past analysis involves various adjustments against sales and hence growth rates calculated might vary from period to period.

Also, the choice of method to calculate the growth rate can influence the calculations, for example, geometric average, arithmetic average or complex techniques like time-series model.

Similarly, consensus though is better informed if there are more number of analysts in the market, however, a large number of analysts influencing the consensus can also lead to the ‘Risk of Herding’.

Analysts usually base their forecasts on the guidance from the company’s management, and the management follows the practice of under-estimating so as to beat the consensus and witness a rise in stock price, than to miss estimates and witness a price decline. So in a way following the consensus is not a wise decision for longer period forecasts.

Moving away from the consensus or the past trends, another investment barometer would be to use metrics and reasonably calculate the probable earnings for long-term forecasting. For this, it is required to gather factual data and applying analytical tools based upon your earning driven rationale. Also, as an analyst, you should understand that forecasts act as a guide and can only fall within a reasonable range of precision. Hence, it is advised to always calculate optimistic, moderate as well as pessimistic estimates.

Well, coming back to the point of predicting the earnings. I would like to give you a real-life example of two Indian-listed companies, Titan Industries, and Unitech Ltd.

What is the earnings figure we are considering here? It is Earnings Per Share or EPS.

Let’s look at the following table and see which company’s EPS is easy to predict.

Which one do you think is easy to predict?

Company Earnings Estimates

You are right!  It is Titan Industries which is giving strong EPS and that too in upward trend. No doubt, the share price reached Rs. 4000 in 2010 from Rs.40 in 2001 (100times growth).

What propelled this growth? Many factors. More on this, later.

The point I want to make here is, go for companies that are easy to predict and then do the forecasting. There is no dearth of such companies in the market and as a security analyst, your job is to find such gems.

Having seen how one should go for companies with steadily growing EPS, it is important to know that you can conjugate the concept of Stock Charts with P/E Ratios to estimate the earnings of a company.

A Stock Chart shows the graphical mapping of stock prices over a defined period, say for a quarter or a year.

Let us assume a stock of which you want to know the estimated earnings for the last quarter (Q4). The stock chart depicts stock prices of Rs.400, Rs.450, and Rs.600 for Q1, Q2 and Q3 respectively and it seems that the price is moving to Rs.750 in Q4.

Past data shows the following Price Earnings:

Averaging out the P/E of last three-quarters.

Average P/E = (40 + 32.5 + 17.5) times / 3

= 30(times).

The maximum limit (since prices are showing an increasing trend) for Earnings per share in Q4 will be:

EPS in Q4    = Estimated stock price in Q4 / Average Price Earnings

=  Rs.750 / 30(times)

=  Rs.25

Professors in the field of forecasting company earnings often have conflicting views regarding whether or not the company’s operating details impact its future ability to earn. In support of

In support of sustainable growth, I would highlight how Reinvestment and quality of re-investment result in the future growth of earnings.

Expected growth in Earnings per share can be viewed as a function of the following:

Re-investment Rate * Projected Return on Equity

(Re-investment Rate means the proportion of after-tax operating income that is retained and re-invested into new assets for future growth.)

Assuming a Re-investment Rate of 25% and projected Return on Equity of 30%, one can expect growth in EPS of 7.5%.

This way of estimating earnings based upon growth rate not only highlights that growth is not costless, but also defines the difference between growth that creates value vs. Growth that destroys value.

The very simple way to predict a company earnings apart from financial fundamentals like EPS, Current Ration, Growth ratio, etc. we can also look forwards to other areas through which we can predict the earning of the company that could be the external business factor that effects the earnings of the company indirectly.

Local government support in building infrastructure – the more is the focus of the government in promoting the industry and building the infrastructure you are to be rest assured that it is going to give a good earning to the company since the cost of manufacturing will be reduced because of the support of infrastructure facilities like electricity, water, ports, highways, dams, etc. With the reduction in cost of production, your earnings are sure to go high.

Future tenders or contracts received by the company – Another important aspect of predicting a company earnings is by analyzing the tenders and contracts which the company is due to execute in future, through which one can predict the earnings of the company, further if there is any foreign exchange contract then the fluctuation in currency can also be analyzed to predict the earnings of the company.

Analyzing the investment of companies in other company – Many a time companies tend to park few of their funds with other companies, you can analyze and find out the financial and growth of those companies to predict the earnings in the form of capital gain for the investee company.  

To conclude, what ever be the process chosen to estimate the earnings of the company it is futuristic and the probability of achieving the future earning prediction cannot be 100%, analyst always try to figure out how to reduce the gap and try to reach the 100% probability and keep on finding / developing new ways to predict the earnings. But one thing is for sure since the future is not ascertained neither can be the earnings of the company we can always forecast based on the past happenings and future possibilities.

timesofindia.indiatimes.com | May 18



MUMBAI/NEW DELHI: Indian officials say they have proposed an oil-for-drugs barter plan with cash-strapped Venezuela to recoup millions of dollars in payments owed to some of India's largest pharmaceutical companies.
Several of India's generics producers, led by the country's second-largest player Dr Reddy's Laboratories Ltd, bet heavily on Venezuela as they sought emerging market alternatives to slower-growing economies such as the United States.

But the unravelling of Venezuela's socialist economy amid a fall in oil prices has triggered triple-digit inflation and a full-blown political and financial crisis. Unable to pay its bills, the country is facing severe shortages of even basic supplies such as food, water and medicines.

Dr Reddy's wrote off $65 million in the March quarter, which it said was almost all the money it was owed from Venezuela. Rival Glenmark Pharmaceuticals Inc, another major investor, says it is due $45 million.

"The situation in Venezuela is very precarious ... the government knows it needs to do something about the medicine shortage, that's why it is willing to discuss such a deal," one Indian official told Reuters.

"At this point, even if our companies get back 5 or 10 percent of the payment they are owed, they would be satisfied."

Venezuela's Health Ministry did not immediately respond to a request for comment.

Like pharmaceutical companies globally - which used to enjoy a preferential exchange rate in Venezuela - Indian producers have been left badly stung by the collapse of the Bolivar currency.

PAYMENT PLAN

The Indian officials, who could not be named as they are not allowed to speak to the media, said the trade ministry had proposed a payment mechanism that would allow Venezuela to repay some of the amount owed with oil.

The proposal, seen by Reuters, would use the State Bank of India to mediate the transfer. The plan is now awaiting approval on the Indian side from the finance ministry and the central bank, which regulates such payments.

India, one of the world's biggest oil importers along with the United States and China, had similarly elaborate barter deals with Iran, swapping rice and wheat for oil.

The officials said Venezuela had been receptive to the plan "in principle", but not made any concrete commitments yet.

Indian officials said a "high level" meeting with Venezuela was due in the coming months to discuss the proposed deal.

"The finance ministry has assured us that the government is fully committed to it, but it will take time," said P.V. Appaji, Director General of the Pharmaceutical Export Promotion Council of India, a body under the country's commerce ministry.

India's exports to Venezuela between April 2015 and February 2016 almost halved year-on-year to $125.5 million, compared with a year earlier. Most of that was pharmaceutical products.

SOCIAL UNREST

The amount owed to Indian companies is modest on a global scale - Novartis AG, Bayer AG and Sanofi SA took heavier hits when they agreed to take bonds from state-owned oil company PDVSA in lieu of cash, sold at a deep discount.

But Venezuela is India's largest trade partner in Latin America and one of its key suppliers of oil.

A deal could also revive sales, albeit at a reduced level, at a time when Venezuela is desperately short of medical supplies, lacking as much as 80 percent of what it needs to treat its population, according to a Venezuelan industry body.

Of course, many other providers in the oil, food and trade sector are pressuring Venezuela to pay its debts at a time when the cash-strapped government is facing growing social unrest. The OPEC country's oil production is also expected to fall this year due to a lack of resources, a power crunch and maintenance problems, likely leaving it with less crude for export.

Both Dr Reddy's and Glenmark have now stopped shipping to Venezuela. But, neither have said they would pull out yet, as they continue to bet on the market's future potential.

Per capita consumption of medicines in Venezuela is high, and its healthcare market was growing at a rate of about 20 percent a year until 2014, when the economic crisis began.

Dr Reddy's Chief Operating Officer Abhijit Mukherjee said last week that Dr Reddy's remained "very focused" on Venezuela, where it has signed deals with two government organisations. "Only condition to the contract is that we will dispatch (products) only when we get either the LC (licensing certificate) or some advance," he said. Glenmark said it was evaluating its operations in Venezuela on a month-by-month basis. "We are extremely encouraged that the Indian government is taking constructive steps to recover our money that is stuck in our own Venezuela subsidiary," said Chairman and Managing Director Glenn Saldanha in an emailed statement.

The Supreme Court has extended Saharachief Subrata Roy’s parole till July 11 to enable him to deposit Rs 200 crore with market regulator SEBI. Roy walked out of Tihar jail on Friday, May 6 after he was granted four weeks parole for his mother's last rites.



But, do you know why he has been behind bars since March 4, 2014?

Roy and two other directors, Ravi Shankar Dubey and Ashok Roy Choudhary were arrested for the failure of Sahara group's two companies - Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corp Ltd (SHICL) - to comply with the court's August 31, 2012 order.

The top court had that day directed SIRECL and SHICL to return investors money they had collected through OFCDs (Optionally FullyConvertible Debentures) in 2008 and 2009.

The apex court, on March 26, 2014, had said Sahara Group would deposit Rs.10,000 crore as part payment of investors' Rs.24,000 crore that its two companies collected as a condition for the release of Roy, Dubey and Choudhary.

According to market regulator SEBI, this amount now stands at about Rs.38,000 crore

In India, an average healthy family incurs about Rs. 50, 000 for their medical expenses while the expenditure goes even higher when someone in your family suffers from a critical illness. The increasing cost of health care and medical treatment in the country needs you to plan your healthcare expenses. Although the advancements of technology applications in the healthcare system have led to significantly improved procedures followed at the hospitals, you are recommended to opt for a premium health insurance plan for your family, including your parents, spouse, children, and self. Meanwhile, the point that should not be missed is affordability of the premium.

As you know, people in India have a lot of choices when it comes to choosing a health plan for oneself. People these days are liberal and can easily choose from around 20 insurance companies offering hundreds of insurance plans in total. This does seem like a mess to pick up from. Therefore, it is a wise decision to select a few affordable plans and have a fair comparison between them to end up choosing the most affordable and the best health insurance policy in India. While exploring how people choose health insurance plans, they make some common mistakes. Below are some of those mistakes:

It has often seen that people do have their sole focus on premium payment and coverage offered by the policy while purchasing one. Consequently, they overlook the prime features of the policy. For instance, a policy that offers an assured sum of 5 Lakh on maturity requires Rs. 7, 500 as premium looks cheaper as compared to the one that requires a premium of Rs. 12, 500 and offers an assured sum of Rs. 5 Lakh. However, the earlier policy comes with a co-pay option of 5 percent while the latter policy requires you to pay 25 percent under the co-pay option for availing health care services at a hospital. This proves that a policy with less premium payment does not always turn out to be as good as it seems while purchasing.

2. Overlook the Big Picture

You need to analyze your healthcare cost before purchasing a health insurance policy for self or anyone in your family, as it may have huge impacts of your current lifestyle and much more. Another most important thing that matters to a large extent is your location and reachability for availing medical facilities to be covered by the policy.

For instance, if you have no medical institution or hospital nearby your geographical location, which comes under the cashless facility as per your policy and you cannot afford to wait for the medical facilities to be approachable sooner, then you most likely have to visit any hospital that can provide the preliminary treatment.

3. Considering Immediate Requirements Only

In today’s lifestyle, people commonly put their lives at risk of various diseases, such as Diabetes, High/Low Blood Pressure, and so on. Such critical diseases require one to have a health insurance policy that offers coverage for such lifestyle conditions. In fact, buying a health plan that protects you should be the only primary need of everyone today. Paying little high premium results in risk-free days in your old age, as the cost of healthcare treatment is going to be even higher than it is today.

Try not to make these mistakes to help yourself go ahead in a healthy lifestyle. Explore the plans efficiently that require you invest your hard earned money. Therefore, buying health insurance in India requires you compare multiple plans to end up buying a plan that offers comprehensive coverage at a reasonable price.

A major portion of the Indian population comes under the middle class category. The middle class people in India are mostly educated and aspirational.  They want to have a financially secured life with an aim for wealth creation at the same time. This mentality of the middle class has led to a rapid growth in the investment sectors of India.

There are a number of different investment plans where middle class people pour in their money for wealth creation in the future.  Let us check out some of the best investment options for the Indian Middle class.

Unit Linked Insurance Plan: 

Endowment Plan: 

Endowment plan is a type of insurance cum investment plan. It assures substantial life cover. At the time of policy maturity if the policy holder dies, the lump sum assured will be paid to the beneficiary. If the policy holder survives till maturity, he is paid the entire sum assured along with bonuses (if any).  Some benefits of Endowment plans are as follows:

Child plan is a good investment instrument. It is a combination of Investment and insurance plan. Child plans secure your child’s future. At the same time it helps in your future wealth creation. There are two types of child insurance plans available in the market. One is Child ULIP   in which your fund is invested in stock markets. The returns solely depend on the performance of the market. So it has high risk quotient.  The other is Child Endowment plans. In this plan, your fund is invested in debt instruments. The returns of this plan depend on the bonus payable at the time of maturity. So it has a low risk profile. However, some of the benefits of child plans are as follows:

Above are the three investment plans for Indian middle class. Apart from these, there are other instruments also. If your risk appetite is very low you can invest in Public provident fund (PPF) as it is absolutely risk free and provides guaranteed returns. If you can afford a high risk investment plan you can go for Systematic Investment Plan (SIP). You have to understand your own financial goal, risk appetite and personal circumstances, so that you can choose the perfect investment plan that suits your requirements best.