Blogs and Opinions

  1. Engineering Plastics Growth in the US Led by Nylon and ABS

    There’s a growing market for engineering plastics in the US, spurred by metal replacement, 3D printing and p

      to read | words

    There’s a growing market for engineering plastics in the US, spurred by metal replacement, 3D printing and photovoltaics.

    Demand for engineering resins is estimated to grow at an annual rate of 4.1% through 2019, hitting $7.4 billion compared to 2009 market of $4.9 billion. The growth is attributed to metal replacement in industries such as construction, automotive, and electrical & electronics. Technological advancements such as 3D printing and a growing photovoltaic industry are expected to boost the market further as well.

    The U.S. engineering thermoplastics market is dominated by nylon, followed by ABS and PC in terms of volume.

    Nylon and ABS are in the lead, with 27% and 26% market share, respectively, followed by PC at 22% and PBT/PET at 10%, with 15% market share for all other engineering thermoplastics.

    The market share of nylon is estimated to expand rapidly, driven by demand for metal replacement in under-hood vehicle applications and 3D printing. ABS is projected to grow slowly as a result of competition from lower-cost resins. PC is expected to benefit from growth in the consumer and medical devices market sectors.

    Smaller-volume engineering thermoplastics are likely to exhibit high growth rates as well, driven by growing uses in advanced batteries, photovoltaic modules and medical implants.


    This post first appeared on

  2. Artificial Intelligence Could Boost Good Governance

    Applied Artificial Intelligence (AI) is definitely gaining significant ground among enterprises. It can also help governments

      to read | words

    Applied Artificial Intelligence (AI) is definitely gaining significant ground among enterprises. It can also help governments to usher in better governance, and ultimately, improve overall growth and development. 

    Artificial Intelligence evokes a whole gamut of reactions. The cinematic world has been taking unrestrained creative liberty for ages. Such ambiguities that hound Artificial Intelligence (AI) clearly stem from an inherent lack of understanding of its root concepts. Interestingly, in one form or the other, the human race is already surrounded with AI. The era of Artificial Intelligence has begun.

    Let’s delve a little deeper.

    The truest form of AI is referred to as Strong AI or True AI, which is the stage when machines can behave as skillfully and flexibly as humans. At this stage, machines are capable of making decisions for humans, such as completely autonomous cars, or personal assistants that can choose to approve or reject appointments. Obviously, all while aligned to human values. Hopefully.

    There are predictions about the rise of conscious machines since the advent of artificial intelligence itself. Ray Kurzweil, Director of Engineering, Google, refers to a point in time known as ‘the singularity’, when machine intelligence will surpass human intelligence. Kurzweil has predicted that the singularity will occur by 2045 based on Moore's law, which states that computing processing power doubles approximately every two years.

    The biggest underlying risk of developing such machines is its own ability to develop “machine intelligence” that will always find loopholes in human intelligence and may not approve of customizations provided by its developers. Prominent technology celebrities such as Elon Musk, Stephen Hawking, and Bill Gates have also warned us against Strong AI (True AI). They, notably, had been quoted stating Strong AI could potentially destroy the human race.

    In complete contrast to such anxiety and confusion, there exists Applied AI (AAI) since a few decades. AAI, unlike Strong AI, does not attempt to simulate the full range of a human being’s cognitive abilities. AAI is basically advanced information processing applied to commercially viable smart systems, which are customized for specialized functions.

    Some examples of AAI are Deep Blue, IBM’s computer chess-playing system that beat the then reigning world chess champion in 1997; IBM’s question answering system Watson that beat former winners of the quiz show Jeopardy in 2011; and AlphaGo, DeepMind’s AI-based computer programme that beat the world champion of the board game Go in 2014. Digital assistants such as Apple’s Siri, Microsoft’s Cortona, Yahoo’s editorial system Hadoop, and targeted advertising tools employed by online e-commerce portals that learn from customer behavior also fall under the AAI umbrella.

    Gaining Ground

    AI needs to be assimilated with applications beyond the fields of consumer goods and IT. The need of the hour is to use AI to solve social developmental problems for a sustainable future. The aim should be to garner the benefits of AI while treading carefully to avoid its potential pitfalls.

    Naysayers, largely, see unemployment as one of the biggest negative impacts of AI. As AI advances, machines will become smarter and more adept at doing human jobs. The automation of manual jobs will mean a rise in unemployment levels. In the field of IT, AI can automate many repetitive tasks such as data entry, thus triggering concerns about the future of these jobs. A published survey states that half of the current American jobs will be automated in the next two decades. A deep dive into the field of technology will reveal that, with the current advancements, the automation of many human jobs seems inevitable, albeit not imminent.

    Moreover, several credible scientists and researchers have stressed on the unfathomable, catastrophic consequences of AI, if made pervasive. Now, while the possibility of such threats can’t be ruled out, the likelihood of occurrence of extreme events seem far-fetched, and shouldn’t deter us from reaping its benefits at present.

    Applied AI Can Boost Governance

    From an Indian perspective, AAI could prove to be a boon that could not have come sooner. However, AI in India needs to be applied beyond the private sector to drive innovation and development in the public domain. The time to use AAI in governance is ripe, as a lot of data in government portals today is machine-readable. The use of AAI efficiently could help enhance governance capacity. While governments implement many nationwide developmental schemes, the scale of these initiatives makes it impossible to monitor manually and conventionally, as this would mean a considerable investment of manpower, time and resources that could be put to use elsewhere. Apart from this, other factors such as malpractices, corruption, and inefficient use of allotted resources hinder better governance. Thus, automating some of such processes may prove better.

    This can be done through ‘deep learning’, a process that can be used to recognize patterns, images, spoken words and natural languages, and cross-reference the recognized content using high-level abstractions. Computers with AAI capability can sort tens of thousands of images into predefined categories and tell the distinct differences between them. An example of such a specialized AI tool is the Chinese Internet search engine Baidu’s supercomputer Minwa. It used deep learning to identify more than 95.42% of images in a database of a million pictures, surpassing the previous record error rate set by Google (4.8%). Baidu further intends to use Minwa to analyze speech data and written content in both English and Chinese languages.

    Similarly, AI can be integrated with public sector applications such as (agricultural) crop insurance schemes, detecting tax fraud, and preventing the misuse of subsidies. Gargantuan populations like those in India or China makes it pertinent to use AI to monitor public-sector concerns as well as solve real-time problems. 

    It is important for governments to drive the adoption and proliferation of AI through collaborations with universities and start-up incubators, by promoting the development of cloud infrastructure, and by incorporating need-based development in the AI mechanisms.

    Applied Artificial Intelligence is definitely going to gain significant ground among enterprises and public-sector applications alike. Its potential to usher in an age of better governance, and ultimately, better overall growth and development cannot be underestimated. 


    This post first appeared on

  3. Day One of President Trump: Why It May Not Be As Bad

    As Donald Trump swears in as the 45th President of the US, corporates and governments around the world

      to read | words

    As Donald Trump swears in as the 45th President of the US, corporates and governments around the world are anxious to see how it may all pan out. The undeniable truth is that dust will eventually settle. Today is just day one, and we may need to give Trump a chance.

     ‘It all begins today.’ By the time you read this, the billionaire businessman Donald Trump would have sworn in as the 45th President of the United States. Reams have been written and scores have been spoken about what may transpire in his presidency. While Trump’s government is yet to formalize policies and articulate strategies, the media is rife with speculations on how a Trump administration may adversely affect the world’s geopolitical space and economical state.

    For instance, CNN Money had quoted Oxford Economics while stating that President Donald Trump's economic, tax and immigration policies may not only stifle global growth but also lead to the loss of about 4 million US jobs, cost the US economy US$1 trillion, and reduce consumer spending in the US over the next five years.

    Trump's acceptance speech and the subsequent meeting with President Obama had been a far cry from the fiery and often bizarre election campaign he had subjected all of us to over the past two years.

    While corporates and governments around the world are anxious to see how it may all pan out, the undeniable truth is that dust will eventually settle. Today is just the day one.

    We may need to give Trump a chance.


    How Trump’s Promises May Transpire?

    If the former Hollywood star Ronald Reagan could serve two terms at the Oval Office (1981–1989), then why can't a business mogul like Trump be America's new CEO?

    That being said, let’s take a closer look at some of the implications of three of Trump’s big campaign promises related to trade, environment, and immigration.


    Trade Overseas

    On the back of the underlying commitment to save American jobs and bring back manufacturing, Trump made promises to impose prohibitive tariffs in the range of about 20-45% (particularly on goods from China and Mexico), threatened to withdraw from the Trans-Pacific Partnership (TPP) agreement discussions, and said that NAFTA was the worst trade deal ever.

    Interestingly, Mexico and China are among the top 3 destinations for American exports, holding second and third position after Canada. According to UN Comtrade, the value of US-origin goods to China grew at about 14% CAGR over 2001-2015 to US$116 billion (up from ~US$20 billion), a growth rate higher than what total American exports registered over the same period (~5% CAGR to ~US$1.5 trillion). Also together, Mexico (~6% CAGR to ~US$237 billion) and China accounted for about 23% of total American exports in 2015.

    While on one hand, these tariffs would make importing goods more expensive for American companies, scores of local companies also stand to lose out if China reciprocates with its own set of trade and other restrictions.

    Furthermore, the share of Chinese exports to the US has been in a steady decline from an annual average of approx. 21% of total exports over 2001-2006 to about 17% over 2011-2015. In fact, China has been expanding the reach of its exports to other regions.

    Chinese exports increased at CAGRs of about 23% (to ~US$109 billion) to the African subcontinent, about 22% (to ~US$141 billion) to the Middle East, and about 21% CAGR (to ~US$279 billion) to the ASEAN region over 2001-2015. Together the share of these regions has grown to about 23% of total Chinese exports (~US$2.3 trillion) in 2015, up from approximately 12% in 2001.

    China has been actively seeking other regional trade and as well as investment arrangements. America too would need to retain, if not nurture, trade and agreements with other countries and regions in order to offset a possible loss of its position with China.


    Environmental Promises

    On a positive note, the Trump administration said it would focus on ensuring clean air and water as well as develop alternative energy sources. Yet ironically, Trump called man-made climate change a hoax and vowed to cut off US aid to UN climate change programs, abolish the Environmental Protection Agency and cancel the historic Paris climate agreement.

    Exiting from the Paris agreement which came into force in November 2015 might mean it’ll never see the light of day, at least not during the Trump Era. The agreement comes with a three-year lock-in period along with a year-long notice period.

    However, reduction in climate finance from the US—the Obama's administration had secured a third (~US$1 billion) of the US$3 billion in funding pledged—could be a setback in the fight to reduce carbon emissions and investments in clean energy.

    Reducing climate finance would also deprive developing nations of funds for putting in place preventive measures to combat the effects of climate change such as rising sea levels, flash floods, droughts, wildfires, among others that are becoming increasingly common.

    Nevertheless, Trump’s promises of a cleaner environment can only be achieved by continued if not increased support and investments towards environmental remediation, protection as well as clean technologies.


    Anti-Immigration Policies

    With a larger objective of increasing jobs for Americans, Trump campaigned for increased salary thresholds for workers for H1B visas and also to make it mandatory for American companies to first hire locally. Trump argued that labor was being brought in from low-cost Asian countries, which resulted in young American losing out on entry-level jobs in the tech industry.

    It is also important to note that the H1B visa is used to bring in temporary skilled international workers and student in fields of Science, Technology, Engineering and Mathematics (STEM). Companies then usually go on to sponsor permanent residency for the employees and students who land jobs.  

    A move to change H1B visa qualification criteria could be detrimental to the America tech industry due to its dependence on highly skilled foreign labor. Business Insider pegs the shortfall of about 3.5 million STEM graduates in the US. In fact, local skilled labor shortages have made it difficult for American companies to find and hire qualified workers.

    However, over the course of his campaign Trump focused more on stringent action to curb illegal immigration and also the influx of Middle Eastern refugees as opposed to immigration of skilled workers. This could ease some of the fears of Silicon Valley behemoths and start-ups alike for some time.

    As Trump assumes office today, what he and his administration eventually set out to achieve in his first 100 days at the White House is yet to unfurl. Till then, the world is waiting with baited breath and is hoping for the best.


  4. Chinese Crude Imports Driven by OPEC Debt, Not Local Demand

    China’s insatiable thirst for crude oil imports isn’t due to a surge in consumption; it’s got m

      to read | words

    China’s insatiable thirst for crude oil imports isn’t due to a surge in consumption; it’s got more to do with a spot of luck that’s allowed the country to shore up its strategic petroleum reserves.

    With an economy that’s just about stabilizing, China’s demand for crude could help oil stay afloat.

    Chinese crude imports (volumetric) between 2014 and 2016 increase by a CAGR of 15%, arguably because of an upswing in domestic consumption.

    While it’d be easy to assume China’s oil industry is just capitalizing on sagging crude prices, there’s a different dynamic afoot.

    When oil prices were soaring around USD 110 per barrel between 2012 - 2014, many OPEC nations took out oil-collateral loans from China, agreeing to repay by exporting an equivalent quantity of oil to the People’s Republic.

    Expecting oil prices to stay steady, the borrowing nations didn’t see a necessity to set a fixed price for payback, defaulting to prevailing market prices instead.

    With oil prices falling by 50-60% since their agreements were put in place, these countries now owe China double what they would have if prices hadn’t plunged.

    Underdeveloped oil exporting countries such as Venezuela, Angola, Nigeria, Iraq, and Kurdistan together owe China anywhere between USD 30–50 billion, a debt to be repaid in oil.

    For every USD 50 billion they owe, borrower countries would have had to export nearly 1.2 million barrels when oil was trading at USD 110 per barrel. With current prices hovering around USD 45 per barrel however, they’ll now have to ship more than twice as many barrels to China in order to honor their agreement.  

    This disparity is the biggest factor that’s driving crude exports to China.

    China Is Using the Windfall to Stockpile Surplus Crude

    With half-priced stock and twice their initial debt, the OPEC’s double whammy is a bonanza for China’s Strategic Petroleum Reserve (SPR).

    The Chinese government has been rapidly diverting surplus oil imports towards state-owned SPR tanks since Q4 2014, a reserve that could satisfy the nation for 53 days or more.

    The country’s surplus stores seem to be at capacity however, with China registering a slight decline in crude-oil import over the past few months.

    With government reserves reaching maximum capacity and growing congestion at her major ports, China is now leveraging local private players in order to soak up excess crude and accommodate more imports. The Chinese government has passed a mandate compelling private companies to hold oil reserves, caches that can only be used subject to the government’s guidance or approval.

    With Crude Prices Fickle, Waning Chinese Demand Could be Worrisome for the Oil Industry

    There’s only so much surplus China can stockpile before drowning in its own hoard.

    With several industrial sectors slowing down due to economic uncertainties, domestic crude consumption is waning. It’s just a matter of time before China runs out of places to park its surplus crude and the beeline of obligatory oil-tankers heading there thins.

    Although the OPEC is doing what it can to inflate oil prices to their heyday levels, it’ll be some time before there’s any appreciable rise in crude prices.

    Anyone betting on Chinese crude consumption to brace oil prices ought to reevaluate their options.

  5. 5 Differences the Internet of Things (IoT) Can Make to Healthcare

    With all the imaginative, nay, fanciful solutions to real-world problems that IoT can deliver, the healthcare industry has

      to read | words

    With all the imaginative, nay, fanciful solutions to real-world problems that IoT can deliver, the healthcare industry has a lot to gain.

    The Internet of Things has spurred some interesting developments that could overcome several challenges that always seem to stymie most successful treatments. IoT has the ability to reshape the healthcare space by equipping healthcare establishments with better operational control and reliability, centralized monitoring, and quite possibly, more affordable healthcare.

    Here are some of the biggest advantages of IoT in healthcare.

    Convenience — Through Easy Access and Reach

    Constantly connected devices could reduce a lot of back and forth for physical checkups and appointments.

    Medical professionals can remotely monitor a patient, perform diagnostics, improve adherence to prescribed therapies, check on remotely deployed medical equipment, make provisions for better chronic disease management, and ensure care for patients who live far off or alone — all without the patient having to physically see a doctor at a hospital or clinic.


    Constant Monitoring — Through Wearable Devices

    The beauty of wearable devices is they can be always on.

    Mobility applications and wearable devices enable patients to record and monitor information related to their health, habits, lifestyle and other essential parameters, sharing it with healthcare solution providers in real-time through connected systems. They’d be able to catch everything from the slightest arrhythmia to full-blown emergencies, notifying medical personnel without delay.

    Your doctor would be able to serve you better if he, quite literally, didn’t miss a beat.


    Better Diagnosis — Through Big Data and Analytics

    Always-on devices could be part of us from the day we’re born to the day we break down.

    The constant flow of data isn’t just useful to track real-time vital stats; a gradual patient profile could be built up to create personalized preventive as well as curative treatments.

    Over time, big data systems could develop a more intelligent understanding of a patient, specifics about their genetic history, lifestyle, geography, and any predispositions to ailments they could create.

    Accurate Tracking — Data, Patients, Equipment & Personnel

    Embedded IoT-enabled trackers — both software and hardware — can be handy in keeping track of things other than the patient’s data.

    Within a hospital premises, they could be invaluable in keeping track of a patient’s whereabouts, current vitals, the status of their equipment (life-support, dialysis, pretty much anything they’re plugged into) as well as essential personnel that may need to be informed in case of any developments or emergencies.

    Cost Reduction — Through Preventive, Predictive, and Pervasive Solutions

    By simply improving adherence to prescribed therapies, especially for chronic conditions such as diabetes, countries (like the US, which spends approximately 18% of its GDP on healthcare every year) could reduce healthcare expenditures significantly. 

    Remote data from medical devices can enable live monitoring and data sharing. It’ll allow real-time decision making, perhaps even autonomous response/administration of preventive treatment, all of which could reduce the likelihood of emergency medical distresses and subsequent need for hospitalization.

    Better response and treatment management also means fewer complications, and the need for follow-ups. That could not only reduce overall treatment costs, but also free up healthcare assets.  Greater monitoring and automation in tandem with predictive analytics could also prevent the emergence of chronic conditions outright, eliminating the need for costly treatments altogether.

    Besides the obvious benefits to a patient, reducing the burden of claims on healthcare service providers could really go a long way in allowing them to cut down what they’d charge for both insurance and care.

  6. IoT Could Save Billions in Healthcare Costs Across the US and Europe

    Despite its nascent stage of development and deployment, the global healthcare industry could leverage IoT to develop an

      to read | words

    Despite its nascent stage of development and deployment, the global healthcare industry could leverage IoT to develop an affordable, accessible, and quality care ecosystem.

    The adoption of technology and IoT-enabled products in healthcare is growing across the globe, with remote devices to monitor vital information like fitness trackers already flooding markets. A growing range of medical devices and wearable technology with effective remote patient monitoring could very well allow the point of diagnosis and treatment to shift from medical centers to a patient’s home.

    A growing need for healthier lifestyles coupled with breakthrough technological innovation has been instrumental in boosting adoption, and the global IoT healthcare market is expected to grow from USD32.4 Bn in 2015 to USD163.2 Bn by 2020, a CAGR of 38.1%.

    Besides the obvious benefits of real-time monitoring, remote diagnosis, and possibly automated emergency response systems, IoT-enabled medical devices could also save billions in healthcare costs simply through prevention and more efficient healthcare delivery.

    IoT’s Potential Impact in US Healthcare Savings

    One of the world’s biggest markets for healthcare services, the United States spends approximately 18% of its GDP on healthcare every year.

    By improving adherence to prescribed therapies alone, the US could significantly reduce their healthcare spends. The effective deployment of IoT-based healthcare delivery technologies could help the US save well over USD 300 billion.

    Chronic disease management, a key segment within the US healthcare landscape, is expected to realize more than USD 200 billion of savings, primarily driven by the elimination of redundant and wasteful expenditures.

    The Internet of Things could also help reduce costs in several other disease types, such as:


    Disease State Total Savings Opportunity Commercial Opportunity
    Remote Patient Monitoring Cardiovascular disease, Asthma, and Diabetes. USD 200+ billion ~ USD 15 billion
    Telehealth Routing & Psychological Care. USD 100+ billion ~ USD 12 billion
    Behavior Modification Lifestyle diseases such as Obesity and Smoking Cessation. Indefinitely large ~ USD 6 billion

    Source: Goldman Sachs

    IoT’s Potential Impact in European Healthcare Savings

    Among the world’s biggest growing healthcare markets, the European Union (EU) also stands to save billions by leveraging the Internet of Things in healthcare.

    As per the French National Authority for health, IoT-based healthcare products could save about 10% (­€ 47 billion) of in costs related to chronic disease management. Similarly, healthcare costs could drop by 80% (€ 53 billion) simply if patients adhere to their prescribed therapies and dosage routines, while the cost of remote hospitalization in the EU could be reduced by about 40% (€17 billion) by implementing connected medical devices. 

    Favorable Policies and Better Business Models Could Boost IoMT Market Growth

    Growing awareness and the implementation of favorable policies has been a boon for the IoT- based healthcare market.

    While developed markets like the US and Europe have witnessed significant uptake in IoT-enabled healthcare technology, emerging economies — where instances of ‘western’ diseases are growing — could be huge markets in the near future.

    Constant technological innovation coupled with improving connectivity and infrastructure will gradually accelerate the adoption and deployment of smart devices. It’ll not be long before an intelligent network of connected devices will become commonplace, improving our quality of life the world over.

  7. The Healthcare Industry Could Have a Lot Riding on IoT

    Although just a small sub-set of IoT’s potential applications, its ability to revolutionize the mundane in healthcare a

      to read | words

    The Internet of Things (IoT) has opened up a world of possibilities that make the world of tomorrow seem closer than ever before.

    Although just a small sub-set of IoT’s potential applications, its ability to revolutionize the mundane in healthcare and medicine is spurring some interesting developments.

    For starters, you wouldn’t have to lug around your own paperwork.

    By harnessing the cloud and eliminating the usual challenges related to exchanging and analyzing patient data — traditionally faced by healthcare providers — you could simply walk in to your nearest clinic for a checkup without fretting if they’ve got you on file.  

    If you’ve got a prescription to fill out, just send it to a pill printer from where you’ll pick it up later. Or better yet, you’ll have an online connected healthcare marketplace at your fingertips. Just log in, have your doc’s system automatically tell them what you need, and have it sent home without any hassles.

    If you’re worried about counterfeit pills or someone skimming off your package, don’t.

    Chances are your prescription order is secured by something like SMARTpack, an IoT-enabled product developed by UK-based Eurosoft Systems Ltd. (ESL). With smart packaging, tracking, and counterfeit protection, you can be sure your package hasn’t been tampered with. It’s a pretty nifty system that assures you (and your pharmacy) that you’re getting a pristine product.

    By now, you’ve got to ask yourself - if I don’t have to visit the pharmacy to fill out a prescription, then why the trek to a clinic?

    Well, with wearable (sometimes discrete) devices, you wouldn’t have to go to a doctor in the first place.

    Innovative new sensors with seamless wireless connectivity are transforming conventional healthcare processes. Remote devices monitoring vital information (think fitness trackers) are already pretty commonplace. Policy makers wouldn’t mind transferring the point of diagnosis and treatment from the clinic to a patient’s home. It’ll allow better operational control and efficiency, with centralized monitoring. We’re talking about seriously reliable (and affordable) healthcare. Remote data from medical devices will enable real-time monitoring and sharing, empowering real-time decision making to administer preventive treatment that could reduce the need for hospitalization as well as other costs.

    This is pretty important in countries like the US, which spend approximately 18% of their GDP on healthcare every year.

    IoT technology can reduce the need for physical checkups and appointments, saving time, and cutting expenditures significantly. Through remote monitoring, medical professionals can perform diagnostics, improve adherence to prescribed therapies, check on medical equipment, make provisions for better chronic disease management, and ensure connected care for the aged — all without having to physically consult a doctor.

    In the US — the biggest market for healthcare services right now — estimates suggest that IoT could shave over USD 300 billion  off of conventional expenditures. Similarly, using connected medical devices could reduce the cost of remote hospitalization by €17 billion in the EU.

    Not only could IoT revolutionize diagnostics and healthcare, it could also better the pharmaceutical industry.

    Connected devices on the production floor could enable the aggregation of data from multiple departments. This can also be possible across manufacturing plants that are distributed globally. It’ll allow real-time supervision (and optimization) of manufacturing and logistic activities from any location at any point of time, thus minimizing waste, increasing equipment utilization, and lowering production costs.

    Apotex, a Canadian pharmaceutical manufacturer, knows this well.

    Apotex recently applied IoT to their manufacturing and supply chain, improving their processes through automation. Automation tools such as guided vehicles, RFID tracking, sorting and process flow tracking enabled the company to ensure consistent batch production. Real-time visibility into manufacturing operations increased the company’s productivity, improving their bottom-line, and possibly, allowing them to pass on the savings to customers.

    IoT may be in its nascent stages of development, but its eventual impact across the global healthcare space is indisputable.

    A diverse range of applications will allow IoT to shift the industry toward an affordable, accessible, and quality healthcare ecosystem.

    With the patient’s best interests at the core of an intelligent system that leverages cutting-edge technological innovations, you can expect a radically different — and better — outpatient experience.


    This first appeared on

  8. The Bayer Monsanto Deal is Set to Transform the Agri-business Industry

    Under pressure to shield its turf from increasing market consolidation, Bayer may have finally found the firm footing

      to read | words

    Under pressure to shield its turf from increasing market consolidation, Bayer may have finally found the firm footing it needs.

    Bayer’s acquisition of Monsanto gives it the higher ground while defending its interests, especially against proposed mergers between Dow and DuPont or ChemChina and Syngenta.

    While the Monsanto deal isn’t a steal, Bayer can bet on raking in a big harvest in the long-term.

    Together, they’ll control one-third of the global market for seeds, and one-fourth of the global market for pesticides.

    The seeds and chemicals market is also ripe for the taking right now.

    Monsanto’s portfolio of Dekalb corn, canola, and soybean genetics compliments Bayer’s pesticide’s portfolio, and the deal also eliminates direct competition between Bayer and Monsanto for traits, herbicide, and crop seeds.

    Smart agriculture could be a crucial factor driving Bayer’s agenda as well, with Monsanto’s acquisition giving Bayer access to Climate Corp, a digital agriculture company that hopes to revolutionize farming in the future.

    While the impact of the deal is still uncertain, market dynamics are likely to be imminently altered.

    Will Regulators Approve Such a Deal?

    Yes, eventually.

    The deal will be scrutinized across the US, EU, and China, as well as other significant emerging markets like Brazil and India.

    Similar deals (Dow-Dupont and ChemChina-Syngenta) in the recent past have significantly altered industry dynamics, and regulators are likely to take a holistic view of the industry this time round.

    That could mean it'll be a while before Bayer and Monsanto can seal the deal.

    Will the Value Chain Witness Further Consolidation? 


    The oligopoly will give Bayer significant leverage in edging out a substantial number of market intermediaries.

    Will GM Crops Find Their Way Into the EU Market?

    Unlikely for now.

    Only one GM crop has ever been approved and cultivated in Europe. Half of the EU and three of its regions had also opted out of a GM crop scheme proposed recently, earlier in 2015.

    Given current sentiments, Bayer probably won’t even consider such a move.

    How Will Emerging Economies — Especially Markets like India — React?

    The resulting oligopoly is likely to increase the pricing power of suppliers which could result in a direct appreciation in seed prices.

    This may adversely impact the agricultural community in emerging markets.

  9. Could Private Labels Dominate Seasoned Brands in India's Growing FMCG Market?

    Competition is heating up in India’s FMCG market with retailers peddling their own private labels. Should big b

      to read | words

    Competition is heating up in India’s FMCG market with retailers peddling their own private labels.

    Should big brands be wary?

    Better margins and economies of scale are driving India’s big retailers such as DMart, Big Bazaar, HyperCity, and Nature’s Basket to stock shelves with their own labels.

    Private labels by retailers— also called store brands —are products created by a retailer, for the retailer; usually procured from contract manufacturers.

    Cost-centric consumers are more than happy to swap name brands for private labels on their shopping list, seeing them as a means to economize spending without compromising on quality.  Urban areas with a high penetration of supermarkets/hypermarkets have seen steady growth in private labels across FMCG categories such as staple foods, groceries, beverages, and household care goods.

    Retailers also seem to be amping brand awareness for their private labels, showcasing them more prominently than name brand products on shelves and in sales. That shouldn’t be surprising; their margins are quite high (sometimes as high as 60%) in categories such as sugar and grocery items despite the aggressively competitive pricing. Fewer distribution overheads, lesser number of intermediaries and negligible marketing costs mean private labels can easily afford to sell products up to 15% less than their branded counterparts without a hitch.


    Perhaps the biggest reason why private labels are capturing market share is also the simplest — they’re cheaper, but not cheap.


    Consumer perception is changing, and private label products aren’t the sub-standard alternatives they used to be. They’re making huge strides in quality and competitive pricing, closing the gap between several established players to become an average customer’s preferred choice.

    Private labels are a relatively new dynamic in India right now, having captured just 10–12% of the organized retail pie thus far. With organized retail expected to grow from USD 40 Bn to USD 200 Bn over the next 5–7 years, there’s plenty of scope for private labels to grow. Urbanization and favorable economic climes are sure to boost consumption in one of the world’s biggest consumer markets.

    Given their momentum and current market sentiment, private labels are all set to go head-to-head with well-established FMCG brands.

    Already firmly entrenched in groceries, they are slowly expanding to other food and beverage items such as pickle, jams, chutneys and the likes.

    With private labels already expanding in the supermarket segment — an already congested and competitive space — they could also focus on selling in the tradition retail space, a dominant purchase hub in India. If private labels can gain a foothold in these markets, cementing their stance with efficient supply chains and diverse/tailored product lines, they would stand a good chance to gain a larger share of the end market pie.

    Everybody loves a good deal.

    If the emergence of several private labels in an already diverse (and competitive!) market like India is anything to go by, consumers seem to be getting the best deals they can. As retailers gun for bigger market shares and better customer retention, India’s largest FMCG brands could be in for more competition than they’d bargained for.

  10. Can China’s Steel Industry Survive Increased Global Protectionism?

    As China’s biggest customers stem the flood of cheaper Chinese steel to safeguard their domestic markets, her o

      to read | words

    As China’s biggest customers stem the flood of cheaper Chinese steel to safeguard their domestic markets, her overstocked steel industry will have to shape up to compete on a level playing field.

    With construction booms slowing and global economic sentiment bearish, the global steel industry is recoiling. Plagued by excess capacity and an oversupply in recent years, the resulting low steel prices are threatening the survival of some major steel companies globally.

    This is instigating countries around the world to impose heavy tariffs on imports of cheaper Chinese steel, a move to counter what’s being perceived as an unfair “dumping” of subsidized steel that’s hurting global markets.


    Depressed Domestic Consumption Has Made Exports a Lifeline for the Chinese Steel Industry

    China’s incredible growth over the past few decades led to a stellar increase in domestic demand for steel, with production increasing more than 12 fold over the past 25 years.

    That seems like a thing of the past now though, with China’s current slowdown severely impacting domestic demand for steel.

    According to the World Steel Association, steel consumption in China grew by just 1% in 2014, and growth was expected to slow further by 0.8% in 2015, mostly on account of the country’s waning real-estate and construction sectors. After runaway growth, China’s domestic demand for steel isn’t likely to pick up any time soon.

    As of 2015 China produced more than 803.8 million tons of steel, with a decline of just 2.4% compared to 2014. On the contrary, domestic demand for steel in 2016 is expected to decline at 645.4 million tons, a drop of 4% (as compared to the 5.4% drop over 2015) that’ll compound an already massive surplus.

    While Chinese manufacturers countered the pitfalls of an oversupplied domestic market by boosting steel exports — which jumped 36% y-o-y in the first four months of 2015 — the mounting tariffs and possible embargoes could counteract their most convenient option.


    China’s Overcapacity and Government Subsidies Created an Uneven Playing Field

    The industry blames its woes on China, accusing the country’s low-cost metal producers of flooding the global markets with cheap steel.  China now accounts for more than half of global steel production, up from just 10% under a decade ago.

    In 2015 alone, steelmakers in China shipped a record 112 million tons overseas, up from the 82.1 million exported in 2014. As consumption in China’s booming construction sector waned, manufacturers looked abroad. The global market could now procure Chinese steel at prices 20% to 50% cheaper than its closest competitors. These low prices are hardly sustainable though, and many Chinese steelmakers appear to be afloat solely on government subsidies.

    According to the European Steel Association (Eurofer), Chinese manufacturers receive several benefits from the government such as subsidies, preferential lending rates, and low energy charges; all of which enable Chinese companies to export at prices their European counterparts couldn’t possibly stomach.

    China’s undercutting and oversupply is disrupting trade patterns across the globe, threatening the survival of local steelmakers everywhere from the European Union to Korea and India.

    This is spurring some serious regulatory reform, and the world’s markets are doing what they must to create a level playing field.

    Developed Nations Increase Protectionism 

    Chinese exports to the U.S — the world’s second-biggest steel consumer — jumped 40% in January of 2015. Chinese steel dumps further depressed prices that were already reeling on account of the slump in American oil drilling. U.S. Steel — America’s largest steel company —had to temporarily let go of 614 workers at its Lorain facility.  The company has already idled six plants since 2014, issuing layoff warnings to around 3,500 workers just this year.

    The crisis has threatened steel companies in other western countries as well.

    Major players such as ArcelorMittal and Tata Steel have either closed plants or are planning to do so in near future. The crisis has already claimed more than 5,000 jobs among British steel companies as well, which are under even greater pressure than their European counterparts due to higher costs and less than generous tax regimes, UK steelmakers claim.

    Growing concern from local steel companies has prompted countries like the US, Australia, and the European Union to adopt punitive tariffs on steel from China.

    The US has increased import taxes on cold-rolled steel by five times to 522%, which includes anti-dumping duties of 266% and anti-subsidy duties of 256%.

    The Australian government has imposed a customs duty of up to 57% on Chinese steel, which can vary based on the exporting company and product.

    The European Commission has already imposed punitive tariffs ranging from 13% to 16% on various steel products from China, while countries such as Germany are demanding harsher trade war measures against China.

    Other tactics include more diplomatic discourses.

    The president of the European commission warned China that offloading cheap steel in European markets could very well jeopardize its bid to gain market economy status with the World Trade Organization. The EU has also commissioned fresh investigations that may lead to further tariff hikes.


    China’s Steel Industry Will Need Streamlining and New Markets to Survive

    China’s established overcapacity is unlikely to dissolve in the near future.

    Most Chinese steelmakers are state-owned or linked to local government initiatives. Given their political importance in terms of providing employment, China’s steel mills are unlikely to curb production or fold up. While the Chinese government has reined in lending to sectors that face issues with overcapacity, manufacturers aren’t exactly having a hard time getting their loans refinanced or rolled over.

    While the proposed regulations are unlikely to significantly dent Chinese exports as a whole  — steel constitutes less than 10% of her overall exports — the country has recognized its dire need to address manufacturing overcapacity. The Chinese government announced plans to eliminate 100-150 million tons of annual steel production over the next five years.

    As per a cabinet release, firms controlled by China’s central government will cut steel and coal production capacity by a tenth over 2016-17. However, China's Ministry of Finance said it would "continue to implement a tax rebate policy on steel exports" as it eases what’s been an expensive capacity finance plan.

    China is also looking for new markets.

    Demand from non-major producing regions such as the Middle-East and Africa are China’s best bet to offload its massive industry surplus, at least in the short term.

    While these regulations don’t pose an immediate threat to China’s hegemony, continued pressure and lobbying from major nations will likely accelerate plans to consolidate. If there’s any hope to prevail on a level playing field, the dragon needs to grow lean without losing its bite.

  11. Can Banking Shape Up in a Digital World?

    While we’re still trying to figure out the “Internet of Things” and how it could possibly change anyth

      to read | words

    While we’re still trying to figure out the “Internet of Things” and how it could possibly change anything, you’ve probably missed a silent revolution that’s already well underway.

    Digitization has slowly but surely touched our lives, spawning seamless features and services that we’re pretty much taking for granted. It’s been gaining traction across several key sectors, not the least of which is banking. 

    Digital banking has grown steadily over the years, in part due to better global Internet penetration, which grew from 6.5% to 43% between 2000 and 2015. It’s also a key driver for an increase in non-cash transaction volumes.

    Global non-cash payment volumes touched USD389.7 Bn in 2014, a growth of 8.3% y-o-y, with card instruments (debit cards) contributing the lion’s share. While electronic and mobile payments are usually made using a debit card, this could change in the future due to disruptive payment gateways.

    Online payment providers like PayPal have revolutionized how we handle financial (non-cash) transactions, and they’re one of the biggest threats that traditional retail banks have ever faced. It’s pushing banks to come up with ‘out of box’ measures in order to appease a more demanding digital-age customer.

    Retail banks have begun adopting a digital approach to offset this, coming up with various initiatives to provide customers with efficient and effective transaction channels, while building cost-effective technologies that are agile enough to evolve with changing needs. This digitization isn’t happening uniformly however, differing from region to region depending on factors like Internet penetration, demographics, and the digital divide.

    The banks of tomorrow will be hard-pressed to develop digital strategies that can keep up with changing customer demands as well as fast-paced technological advancements, all while creating an ecosystem that provides value to investors, stakeholders, and customers alike.

    Fintech Challenges the Banking Sector

    Banks today face stiff competition from fintech companies, with private label banks, alternative payment methods and credit providers among their biggest threats.

    Competition is tough simply because banks have a lot of catching up to do in terms of technology adoption; there’s a pretty big digital delivery gap between fintech companies and banks. Fintech companies have a strong focus on digital innovation and adopting newer technologies, while banks are slower to evolve and aren’t readily embracing technological developments.

    While banks may be wary of issues with security and theft prevention, the banking sector as a whole needs to seriously overhaul legacy processes if they’ve got any hope of closing the digital delivery gap.

    Digital Delivery Gaps in Banking Right NowSource:

    What Can Banks Do to Cope With Digitization?

    The conventional “cautious outlook” is a huge hurdle that traditional banks need to overcome.

    Banks that are still trying to gauge the viability of digital banking versus their tried-and-tested methods need to adopt a more dynamic outlook, realigning strategies to cope with the realities of the digital age.

    Millennials — the denizens of digital banking — are keen to engage with banks that offer a wide array of products and services.

    While a traditional bank may not be able to offer everything that tech-savvy new customers expect outright, banks can meet them in the short term by broadening their ecosystem through partnerships, collaborative ventures, and associations with fintech companies.

    Quite a few major banks such as Bank of America, JPMorgan Chase, Goldman Sachs, Wells Fargo, Morgan Stanley, and Citigroup have already taken the initiative, fueling several promising startups and incubation programs. Such collaborations will not only be mutually beneficial in the long run, but could also support some of the bank’s more immediate needs.

    Come to think of it, why try to beat them when you could just join them?

    Joint ventures between banks and competing fintech startups wouldn’t just be mutually beneficial; they’d be the perfect way to mitigate each other’s shortcomings.

    Take something like customer data for instance.

    Traditional banks that have been around for a long time are sitting on a veritable treasure trove of actionable insights. All they lack is a means to tap it.

    With data in abundance at legacy banks, analytics could be easily applied to develop strategies for the future, based on trends from the past. By tying up with fintech startups like Betterment, Visible Alpha, and Square to deploy tech that can do this, banks could dabble in an area they’ve never explored – Big Data Analytics.

    Teaming up with fintech companies could allow banks to create value for customers, not only through the introduction of new products and services, but also by revamping current offerings.

    It’ll certainly allow banks to survive better in an increasingly digital global ecosystem.

    The future of banking is definitely digitization.

  12. Clean Energy — The North American Way

    The North American continent has united to embrace clean energy for the future.

      to read | words

    The North American continent has united to embrace clean energy for the future.

    The US, Canada, and Mexico have joined hands to harness carbon-free energy sources such as wind, solar, hydro, and nuclear, increasing their collective use of carbon free sources for power generation to 50% by 2025.

    Canada is leading the pack, already generating more than 50% of its total energy requirements from carbon-free sources. The US produces just one-third, while Mexico manages just 19%.

    Overall, North America generates just 37% of its power supply from clean energy sources.


    Inadequate Existing Infrastructure Could be a Big Hurdle

    The 50% target is going to be an uphill task for the US and Mexico.

    It’ll be a struggle alright, not just because of its inherent magnitude and complexity, but also due to other crucial factors like poor infrastructure; something that really needs to catch up if it’s going to effectively support a world of carbon-free power generation.

    The US and Mexico don’t exactly have a stellar network of transmission lines right now. For instance, the windy regions of Texas and Iowa or the sunny corners of Nevada and California are quite cut off from grids in other parts of the country.

    There’s a dire need for dependable grids, especially in regions without adequate sources of clean energy that need to tap into their neighbor’s supply. It’ll be the only way to really wean them off of conventional (read more polluting) sources of power.


    Grids Without Borders

    One of the key aspects of this agreement is cross-border power transmission.

    It’s an agreement between the three countries that allows transmission of carbon-free energy from production assets to their nearest areas of need, among any of the three countries, at the lowest possible prices.

    The project would be supported by a set of domestic initiatives and policies.

    Existing initiatives and policies include Mexico’s Energy Transition Law and new clean energy certificates, the U.S. Clean Power Plan and five-year extension of production and investment tax credits, as well as Canada’s efforts to further scale up renewable energy (including hydro).


    Investing in a Bright Future

    According to industry estimates, the overall investment required for this commitment would be around USD 1 trillion.

    At least USD 130 billion of that would be just to upgrade power grids and transmission infrastructure. Other big investments would involve setting up carbon-free energy plants as well as energy storage infrastructure. The overall budget is likely to go well beyond these initial estimates however, given the project’s scope and other macroeconomic factors.

    The project is a brilliant opportunity for companies that dabble in setting up transmission lines, power grids, energy storage infra, as well as other facets of renewable energy projects.  The push for better infrastructure alone could generate a huge number of jobs in the clean energy domain over the coming years. 

    If this ambitious endeavor comes to fruition, it could help North American countries scale up civil and industrial sectors without compromising their clean environment. It’ll also pave the way for a more serious clean energy revolution, showing communities the world over how collaborative effort can make a better tomorrow.

  13. Privatizing India’s Cottage Industries — Popular Apparel Brands Retail Khadi Wares

    India’s home-grown hand-spun fabric is going mainstream, with big apparel brands taking up the erstwhile cottage industry.

      to read | words

    India’s home-grown hand-spun fabric is going mainstream, with big apparel brands taking up the erstwhile cottage industry.

    Khadi, a popular cotton fabric in the Indian subcontinent, is growing beyond its humble origins and strong connect with the nation’s independence struggle. A versatile fabric that’s both cool in summer and warm in winter, private brands have realized khadi’s potential, showing a willingness to adopt it among their mainstream collections. The fabric’s rustic origins also appeal to consumers’ inclination toward natural, sustainable, and eco-friendliness, all of which could make khadi the next big hip trend.

    Established as an apex organization to expand and safeguard the khadi industry in India, the Khadi and Village Industries Commission (KVIC) was tasked with overseeing and regulating the widespread but under grown cottage industry. With limited sales channels and low-slung marketing efforts however, they’ve had limited success in boosting the acceptance, availability, and adoption of khadi products among Indian consumers.

    The KVIC means to remedy this through collaborative sales and marketing however, with plans to achieve 5% market share for Khadi in overall textiles over the next two to three years. If they’re serious about boosting their market share by 400%, then partial privatization of khadi is the industry’s best bet.

    Fabric Market Share by Production  in India

    Source: News Articles, MSME Annual Reports, Desk Research

    The KVIC is all set to allow private companies to manufacture as well as trade khadi apparel, with the Ministry of Micro Small and Medium Enterprises (MSME) expected to set guidelines soon.

    Privatizing the Khadi Revolution

    FabIndia, Raymonds, and Levis have become frontrunners in stacking khadi on their shelves.

    Boutique brands such as Nature Alley and Malkha have also assisted in creating a premium appeal for the fabric through some flamboyant designs.

    In August 2014, Levis took the giant step to launch its made-in-India Khadi denim collection that included jeans, jackets, and shirts to coincide with India’s Independence Day that year. 

    Improved supply chain, tie-ups with private labels and focussed marketing push through other multiple- mediums is expected to increase the khadi market share from 1% to 5%

    Khadi fabric is no longer limited to apparels, having also found its way into accessories, bed and bath, and home décor among popular outlets.

    Weaving a New Fabric of Business

    By improving supply chains and roping in private brands, khadi is set to spread.

    The KVIC and India’s government are also expected to create a favourable clime for young entrepreneurs and existing brands through its ‘Start-up India’ and ‘Make in India’ initiatives in the near future.

    Although the KVIC had tried to breathe new life into India’s khadi industry earlier through tie-ups with numerous fashion institutes as well as well-known designers, they saw limited success.  They’ve decided to  go with the pros this time round, leaving the design and marketing to the professionals.

    Mr. K H Muniappa, Minister of State for Micro, Small and Medium Enterprises (MSME) in his written reply to the Lok Sabha stated Under Khadi Reform and Development Programme (KRDP), a marketing organisation under Public-Private-Partnership (PPP) mode is envisaged to promote effective marketing of KVI products.

    Policy makers hope that private companies can leverage the home-spun fabric’s inherent charm, mass-producing items of better design, quality, price, and availability than anything previously possible.

    The KVIC hopes to ride India’s e-Commerce boom to push sales as well.

    While with prominent e-Commerce websites like Snapdeal, Flipkart, and Ebay already retailing khadi fabric, stitched apparels, and beauty products (albeit with an unauthorized khadi logo), the KVIC has plans to leverage e-Commerce to retail their wares in the near future.

    Khadi Benefits From Push in Public Sector

    Sales took a shot in the arm after India’s Prime Minister Narendra Modi promoted the use of khadi through Mann Ki Baat and Twitter, just as several other public organizations that have taken initiatives to support the growth of khadi as well. The nationalized carrier Air India recently ordered 25,000 amenity kits made from khadi, while IIT Bombay ordered 3,500 khadi convocation robes.

    In accordance with the KVIC’s appeal, the Central Government is also expected to appeal to its public sector employees to make khadi their Friday garb.


    Spinning Toward the Future

    The KVIC’s initiatives toward privatization would not only safeguard existing khadi institutes, but also generate more employment in India’s rural areas.

    KVIC is also taking steps towards using sustainable technology development for the production of khadi through projects like Solar Charkhas, which has helped improve productivity as well as yarn quality.

    The ‘Khadi’ brand needs to reflect organic, fashionable, and versatility in order to improve its acceptance amongst the younger generation. Brand endorsements by eminent personalities from sports and film personalities would also go a long way toward boosting khadi awareness and adoption.

    Through KVIC initiatives and added support from private manufacturers, khadi sales are likely to hit the INR 2,000 crore mark (about USD 350 million) by 2020.

    The bustling trade also has the potential to provide stable employment  for over 35 lakh people, all while renewing interest in India’s somewhat forgotten artisans and their agrestic wares.

  14. Transport and Communication Services are the Fastest Growing Sectors in India

    With over 1.33 billion citizens, India has a lot of people that need to get around and keep in

      to read | words

    With over 1.33 billion citizens, India has a lot of people that need to get around and keep in touch.

    As the economy grows amid favorable local economic climes as well as a healthy monsoon this year, Indian consumers are sure to spend, benefiting a bustling economy.

    If stats released by the National Sample Survey Office are anything to go by, Indians are spending on transportation and communication more than ever before. Data on household expenditure suggests that the transport and communication service sectors saw some serious spending among both rural and urban populations.

    Average household expenditures by Indian consumers was divided into four categories — transport services, miscellaneous consumer services, other services, and durable goods.

    Here’s a snapshot of the Monthly Per Capita Expenditure (MPCE) for these four categories:

    Expenditure Categories

    Rural (MPCE in INR)
    Urban (MPCE in INR)

    Transport Services



    Durable Goods



    Miscellaneous Consumer Services



    Other Services



    Source: NSSO Data

    Transport Services Will Be a Huge Opportunity

    Among transport services, bus/tram is a widely preferred mode of transport among both rural (~66%) as well as urban (~62%) households in India. The next most popular means of transport seem to be auto-rickshaws, with 38% of rural and 47% of urban households opting for it.

    As urban sprawls grow, and road connectivity to smaller townships and villages improves, automotive companies such as Bharat-Benz, Ashok Leyland, TATA Motors, Piaggio would do well to invest in production lines for such modes of transport.

    Expenditure on transport equipment is a major segment as well, some of which fall under the durable goods category. This includes bicycles, bicycle pumps, motorcycles, scooters, motor cars and other transport equipment. Companies such as Hero, Bajaj, Honda, Maruti, Hyundai, TATA Motors, among others, can count on heavy spending among both rural and urban populaces.


    Communication Services Could Follow Suit

    Among miscellaneous consumer services, expenditure on communication is the highest among both rural and urban households. This includes telecom charges (mobile and landline), courier, postage, money order, Internet, fax and e-mail.

    While the Indian telecom market is saturated right now, with several big players (like Vodafone, Airtel, Idea, BSNL, and Reliance) competing fiercely to increase their market share, customers will likely jump ship at the slightest inkling of better reception and data speed.

    This could be a huge opportunity for new telecom providers trying to gain a foothold in the market. It’ll also mean existing players will spend heavily to upgrade their existing infrastructure, setting up new cellular towers across several emerging rural or semi-urban population centers, or shoring up existing tower networks among several growing urban customer bases.

    e-Commerce Boom Boosts Logistics and Postal Services Sector

    Some interesting beneficiaries of India’s Internet connectivity boom are its postal and logistics sectors. With several big players like Amazon, Flipkart, Snapdeal, and eBay in play, In addition, logistic/courier companies and India Post are leveraging the growth in India’s e-Commerce.

    The transportation and communication service sectors recorded the highest expenditures among both rural and urban households in India. These segments likely to remain strong over the near future, presenting a lucrative opportunity for companies in the space.

  15. Does FATCA Translate To Higher Reporting And Compliance Costs?

    FFIs have started discontinuing services to US clients and divesting US assets to ease the cost pressure as

      to read | words

    The US government enacted FATCA to address the deficiencies in its existing anti-money laundering regime. According to reports, less than 7% of seven million US citizens holding foreign accounts file tax returns. The Association of Certified Financial Crime Specialists, a global organization for private and public sector professionals who work in diverse financial crime disciplines, expects FATCA to add USD 800 million to annual revenues for the US Treasury and generate USD 8.7 billion over 2014–2024. However, reports suggest that the act is likely to adversely impact the global banking system, which would incur significant compliance costs of USD 190–220 billion during this period.

    Read: Aranca’s Special Report on FATCA – High Cost Initiative to Curb Tax Evasion

    FFIs have started discontinuing services to US clients and divesting US assets to ease the cost pressure as well as counter related legal and financial risks. For instance, in 2014, VTB, Russia’s second largest bank, planned to discontinue services to 2,000 customers of US origin before the country enacted a last-minute law. ICICI Bank, India’s largest private bank, has declared that it would no longer entertain US customers.

    Overseas US citizens are feeling the impact of FATCA; thousands are contemplating renouncing their US citizenship owing to banks closing accounts or charging higher fees. In 2014, a record 3,415 overseas US citizens renounced their citizenship despite a 400% hike in renunciation fees.

    American Citizens Abroad Association has received multiple testimonies from overseas US citizens who have closed their foreign bank accounts and been disallowed from entering into foreign pension fund or insurance contracts.

    In a few cases, US citizens have become unemployable, as they cannot participate in company pension funds or insurance contracts. This could have serious ramifications on the global growth of US businesses, as overseas US employees have to cope with limited access to foreign banks, pension funds, and insurance coverage

    Moreover, FATCA is negatively affecting “accidental Americans” as their accounts are being closed and mortgages annulled in their native countries. Accidental Americans are individuals who are green card holders living overseas. They include individuals who were born in the US to non-American parents and left as infants, but are considered US persons for the rest of their lives for taxation issues. They also comprise non-American spouses of overseas Americans and other countries' expats living in the US, with bank and investment accounts & mortgages in their respective home countries.

    Concerns also persist regarding the 30% withholding tax, leading to some countries, especially those that have not entered into IGAs with the US, to sell US Treasuries. The sale may adversely affect interest rates and dent the greenback’s position as the de facto global currency.

    FATCA may also affect people with no links to the US, as FFIs are likely to hike banking fees of account holders to offset high operational and compliance costs related to the act. Moreover, a financial institution lacking money, time, or means to identify US citizens may disclose details of all account holders to the IRS, thereby raising privacy concerns.

    * This write-up is an excerpt from the Aranca Special Report: FATCA – High Cost Initiative to Curb Tax Evasion. You can find that and more at Aranca's Knowledge Center.

  16. China Joins The FATCA Ride; Introduces Own Version

    The Chinese version of FATCA, targeted mainly at wealthy citizens who stash money away in Hong Kong and

      to read | words

    Having signed an IGA with the US, China has decided to go one step ahead by taxing citizens living and working abroad, as part of a crackdown on tax evasion by individuals and companies. China has had its own version of FATCA since 1993, when it had undertaken an in-depth study of the US tax system. Currently, China imposes tax on citizens irrespective of the country they reside in. Under China’s tax regime, citizens and entities are required to pay tax on their worldwide income, not just on what is earned in China. This tax policy was introduced as more Chinese are heading overseas to earn money.

    China has been gearing up for the implementation of FATCA. In January 2015, the Guangzhou government summoned executives from 150 of the largest corporations based in the region to a meeting to discuss tax obligations of their overseas employees. Also, the governments in Beijing and other big cities are contacting major firms in their jurisdictions and requesting for detailed information on foreign employees’ incomes. The State Administration of Taxation in Beijing has launched a separate campaign to curb tax evasion by Chinese companies as they begin to make large overseas investments.

    Read: Aranca’s Special Report on FATCA – High Cost Initiative to Curb Tax Evasion

    With these rules, effective February 1, 2015, various international investments deemed tax shelters have been banned. The rules are expected to indirectly affect many wealthy Chinese individuals who invest overseas through specially created companies, often located in the Caribbean.

    The Chinese version of FATCA, targeted mainly at wealthy citizens who stash money away in Hong Kong and other tax havens, is expected to ruffle feathers worldwide. Some firms may discontinue providing services to Chinese clients.

    Maseco, a wealth management firm catering to US and French expats, had to address many client concerns over FATCA. Co-founder James Sellon believes, “There will be a lot of screaming voices concerning the Chinese regulation. The unintended consequence is the cost to the average Chinese citizen living and working in a local jurisdiction who suddenly has to spend more time and effort considering their personal investments and taxation. They have to file two tax returns: a domestic plus a home country one. That adds to the complexity, time, and uncertainty. That also adds to an increase in professional service and accountancy practices to account for this.”

    * This write-up is an excerpt from the Aranca Special Report: FATCA – High Cost Initiative to Curb Tax Evasion.
    You can find that and more at Aranca's Knowledge Center.

  17. FATCA Making Hong Kong A Costly Route To Mainland China

    Hong Kong has forever been a famous entry route to China for foreign businesses due to its proximity

      to read | words

    Hong Kong has forever been a famous entry route to China for foreign businesses due to its proximity to mainland China. Additionally, Hong Kong has a modern, friendly banking environment and a transparent legal system. US citizens particularly have favored the region as a platform to expand operations into the mainland. However, since the enactment of FATCA, many Hong Kong-based banks have been refusing to open accounts for, and are instead closing existing accounts of, US individuals and corporations.

    Hong Kong has fully implemented FATCA since the signing of its IGA with the US in November 2014. However, besides the 30% withholding tax, financial institutions in Hong Kong are subject to penalties from local authorities. Hong Kong-based banks are encountering hurdles in identifying US accounts and, therefore, significantly changing their processes and technologies.

    Read: Aranca’s Special Report on FATCA – High Cost Initiative to Curb Tax Evasion

    According to reports, a major Hong Kong bank has revealed that the costs of locating, monitoring, and reporting on a US-held or -controlled account is at least USD 7,000 a month.

    According to sources, once the costs and benefits of catering to clients are weighed, only accounts with about USD 3 million as balance are worth a bank’s time. Thus, it is easier and more cost-effective for Hong Kong institutions to simply close the accounts of, or reject applications from, US clients instead of incurring high compliance costs or paying penalties.

    Excluding green card holders, nearly 50,000 US citizens reside in Hong Kong; they are required to file US tax returns. Law firms in the region have received a record number of enquiries for renouncing US citizenship or green card status.

    All of these factors have implications for Hong Kong’s future as the preferred gateway to China. Singapore has already replaced Mauritius as the leading source of foreign direct investment into India. Investors have long been comparing the advantages of the city state, its independence from China’s regulatory regime, and political stability against Hong Kong’s proximity to and strong trade links with the mainland. FATCA could tilt the scales toward Singapore as the preferred entry route to the mainland.

    * This write-up is an excerpt from the Aranca Special Report: FATCA – High Cost Initiative to Curb Tax Evasion.
    You can find that and more at Aranca's Knowledge Center.

  18. Russia Criticizes the US FATCA; Follows Up With A Last-Minute Law

    Russia has been one of the most vocal critics of FATCA since its enactment in 2010.

      to read | words

    Russia has been one of the most vocal critics of FATCA since its enactment in 2010. The Russian Ministry of Finance and Rosfinmonitoring, the country’s financial intelligence unit, expressed concerns over the ramifications of FATCA on the independence of the domestic financial sector. In April 2012, the ministry declared FATCA violates the sovereign equality of states. Information sharing by Russian banks is against the country’s laws as it entails divulging bank secrets. Yury Chikhanchin, Head of Rosfinmonitoring, compared FATCA to a sanction, deeming it a serious risk to the Russian economy as it would convert the country’s financial entities into tax informants for the US.

    While criticizing FATCA, Russian agencies began negotiations with the IRS. However, Russia’s annexation of Crimea in March 2014 resulted in the US Department of the Treasury abandoning negotiations. The Russian Banking Association had planned to discontinue services to US clients if no information-sharing agreement was signed before July 1, 2014. However, a day before the deadline to register with the IRS, Russian President Vladimir Putin signed a law permitting Russian financial institutions to share information with the IRS only after obtaining approval from clients. Financial institutions can discontinue services to clients that do not want their information disclosed to the IRS.

    The introduction of FATCA in Russia could lead to complications due to the following reasons:

    • Withholding penalty conundrum: Russian laws disallow banks to withhold money from client accounts without consent or court order. However, FATCA requires banks to act as withholding agents on behalf of the IRS. This could lead to affected clients claiming compensation for payment damages and interest charges on amounts unduly withheld by Russian banks.
    • Long-winded information-sharing process: Russian institutions need to inform Rosfinmonitoring, the Federal Taxation Service, and the Central Bank of their registration with the IRS within three days post registration. Foreign tax authorities need to contact these agencies for information on overseas client accounts held in Russia; information that has to be disclosed to the IRS would have to be sent 10 days in advance to these agencies.
    • Additional costs: Russian banks could incur additional costs, as they would have to hire Aranca Valuation Services for installing internal monitoring and compliance systems as well as requisite software for the implementation of FATCA

    FATCA could dent Russia’s economy and trade ties with the US. Russia holds a significant number of US Treasuries and engages in oil transactions with the US, which significantly contribute to its GDP and are processed in the US dollar. Such transactions are required to be reported to US financial organizations. US organizations processing Russian oil transactions can charge a 30% withholding tax to institutions not complying with FATCA. Uncertain of the US reaction to the Crimean annexation and to avoid losses from further sanctions, Russia sold about 20% of its US Treasuries in March 2014. To reduce dependence on the US dollar for oil transactions, Russia has adopted the de-dollarization strategy, which includes:

    • Acceptance of alternative currencies for oil sales: In May 2014, Russia signed a 30-year USD 400 billion gas supply agreement with China. It inked another deal with China in November 2014.
    • Alternative payment system: Russia is looking at developing an alternative payment system to reduce its dependence on US payment providers Visa and MasterCard, which account for nearly 95% of payments in the country.

    The only silver lining for Russia is the introduction of annual reporting by FFIs on overseas accounts held by Russian citizens and legal entities to the Federal Tax Service. FFIs would have to disclose these details by September 30 every year.

    * This write-up is an excerpt from the Aranca Special Report: FATCA – High Cost Initiative to Curb Tax Evasion. You can find that and more at Aranca's Knowledge Center.

  19. QSR Strategy In India: On Fast Route To Smaller Towns

    Quick Service Restaurants (QSR) have been in India since time immemorial.

      to read | words

    Quick Service Restaurants (QSR) have been in India since time immemorial. Apart from established QSR brands such as McDonalds, KFC and Pizza Hut, other international QSR brands such as Sbarro, Wendy’s, Dunkin Donuts, etc. are slowly gaining space in the palate of the urban consumer. Due to the overcrowding of QSR stores in tier I cities, many QSR brands are now moving to tier II and tier III cities due to low competition and increasing demand.

    Annual consumer spending in tier I cities is comparatively higher at INR 6500, growth is pegged at around 35% between 2012 to 2014. Though a consumer is spending more at a QSR outlet in tier I cities like Mumbai, Delhi, and Bangalore, the growth in spending is more in tier II and tier III cities. Driven by increasing need of a varied appetite, convenience, a liking for international food, and exposure to global media and cuisine, the annual spending of each middle class household in India’s tier-II and III cities on QSR restaurants has increased by Rs 2500 to Rs 5200, a growth of 108% between 2012 to 2014.

    Current QSR landscape of tier II and tier III cities is made up of largely local Indian outlets and foreign brands such as Subway, Dominoes and KFC are currently devising their rural India plans to expand into tier II and tier III Indian cities.

    Another key imperative in targeting tier II and tier III cities is the low cost of real estate in these regions. Though land rates have increased in tier II and tier III cities, but rate of increase is lesser than metros and tier I cities. Rental rates are also almost 50% less than that in metros and tier I cities, for a similar sized property. As QSR outlets in India are largely franchisee driven and the stores are mostly on rent/lease for a period of 5 to 7 years, QSR brands could benefit from low cost real estate in these regions.

    Low rental rates and lesser salary ranges for operational staff could bring down the operating costs for QSR companies, which might lead to increase in per store profitability. Increasing volumes (consumer demand/spending) would help in providing profitability an upswing. QSR companies can then be the real change agents by passing on a larger share of the savings and offer the product at price point which is affordable to the tier II and tier III customers.

    Foreign consumer brands could focus on variable pricing of their food products, based on the profitability in that particular region. It would surely be interesting to see QSR companies of the likes of McDonalds, that offer a McVeggie burger for around INR 90 in Mumbai, would offer the same burger at a much lesser price in a tier III city like Sangli, which is 375 kilometers away.

  20. Why P&G’s Deal with Coty on its Beauty Business May be a Win-Win

    Undoubtedly, the acquisition of Procter & Gamble’s beauty business by Coty will propel Coty into the top league o

      to read | words

    Undoubtedly, the acquisition of Procter & Gamble’s beauty business by Coty will propel Coty into the top league of beauty manufacturers.

    With revenues doubling after acquisition at ~USD 10.3 billion, Coty will be the fifth largest beauty products manufacturer behind L’Oreal, Unilever, P&G and Estee Lauder.

    The acquisition will provide Coty with significant cost synergies to the tune of about US$ 550 million. The deal will also help Coty to expand its global footprint to major markets such as Brazil and Japan while strengthening its current position in the existing markets.

    However, there are certain reports suggesting that the investors of Coty seem to be questioning the benefits of this mega-merger, and thus, are nervous. In my opinion, the drop in share price is just a temporary incident, much similar to earlier incidents of several mega-mergers.

    With P&G’s hair color business, Coty is expected to enter new product category and will strengthen its position in premium offerings in fragrances category with brands such as Hugo Boss, Dolce & Gabbana, Gucci, and Lacoste from P&G’s product portfolio.

    Continued push for organic and inorganic expansion is expected to propel Coty to be the largest fragrance manufacturer and third largest in color and cosmetics globally. For P&G, the selloff will provide them with immediate capital gain and the company can further sharpen its focus on 65 selected profit making beauty brands such as Olay. The deal is expected to be a win-win situation for both Coty and P&G.

  1. Benefits of Bioprinting in Pharma — Faster Testing & Cheaper Drugs

    Testing new drugs and therapies on 3D printed human organs in a lab could reduce the time and

      to read | words

    Testing new drugs and therapies on 3D-printed human organs in a lab could reduce the time and costs of getting a new drug to market.

    Clinical testing is a huge bone of contention for several large industries, not the least of which is pharmacological testing. For lack of a better medium, live subjects have always been used to check the efficacy and safety of drugs or substances undergoing clinical trials. 

    All that could change however, with the advent of 3D-printed human tissues, also known as bioprinting.

    What is Bioprinting?

    Bioprinting is a 3D printing process to create natural human tissue and organs through layered deposition of cells, forming a mesh-like tissue structure.

    Bioprinting organs involves using Bioink — a liquid suspension of living cells, nutrients, and other growth factors — loaded into cartridges (just like in a desktop printer) that feeds into specialized 3D printers. It can be used to “print” a desired shape (sometimes with the help of scaffold) that mimics native tissue in terms of structural organization functionality at the cellular level. Theoretically, it’d be possible to engineer complex (and complete) organs of sufficient quality to be viable for human clinical trials.

    How Can 3D-printed Organs Help in Drug Clinical Trials?

    3D-printed organs could be a viable alternative to using live humans in clinical trials.

    Bioink comprised of human stem cells can be used to successfully create human tissue structures in a lab. That would allow researchers to form micro-tissues or micro-organs that could mimic the reactions of live human tissue to new drugs or chemicals.

    Customized Bioink prepared using materials analogous to the patient’s characteristics, perhaps even derived from the patient’s own genetic profile, could allow medical technicians to recreate large organs with complex functionality. That could even allow manufacturers to create customized drugs, tailored to the exact needs of a specific patient.

    In vitro applications for bioprinting in drug clinical trials could also include:

    • Testing the toxicity of drugs at a specific dosage
    • Measuring the metabolic effects on living tissue
    • Modeling diseases and simulating different treatment regimes
    • Safety and efficacy testing

    Given how expensive and tine-intensive clinical trials are, large-scale 3D printing human tissues for pharmacological and biotech testing could prove far more prudent than existing long-drawn testing and approval processes.

    How Much Could Bioprinting Affect Testing Timelines for New Drugs?

    A new drug could be in the works for at least 12 years before it’s cleared for commercial sales.

    Average Development Timeline for “New” Drugs

    Clinical Trial Phase
    Average Time Taken
    Target Discovery Months
    Validation of Target Months
    Optimization Months
    Pre-clinical Phase Months
    Clinical Trial (Phase 0-4) ~10 years

    Over that time, the average overhead that products accrue usually sum up to about $1.2 billion dollars, on account of research and development costs as well as other investments.

    It isn’t uncommon for most pharma companies to drop up to 90% of their new products, simply because they don’t work out or show late-stage clinical failures. That leaves them with about 10% (or less) of what they started out with that move successfully from clinical trials to market.

    3D-printed organs could help pharma companies shave years off of their RnD timelines.

    Bioprinting could make a huge difference to the clinical testing process as a whole. Pharma companies could test the effects of compounds on human tissue from the get go; allowing them to spot issues early enough to avoid costly mistakes or spends on further research and development.

    3D-printed human tissue and organs could easily replace the need for animal or human test subjects early on, allowing pharma companies to reduce the time and cost of testing new products in their drug discovery pipeline.

    Will 3D-printed Organs Replace Humans in Clinical Trials?

    While natural human organs and their finer functionalities are far too complex to grow in a lab using current technology, they’re not beyond the realm of possibility.

    In fact, someone’s looking into it right now.

    Animal testing has always been an ugly, albeit necessary part of the cosmetics industry.

    Plenty of products such as deodorants, lipsticks, make-up, and other beauty products have been tested on animals for safety issues and side effects. Hoping to reduce their need for such animal testing, companies like L’Oreal are in the process of developing artificial skin for product testing.

    3D-printed skin produced with bioink using bioprinting technology could substitute animals and humans in several cosmetics product trials. Bioprinting could not only automate the testing process, but also reduce the time and resources it takes to get a product through testing and on to market.

    Statistical data indicates that the market size would be more than $10 billion by the end of 2020 for 3D printing in cosmetics and healthcare industry.

    While it’s still a relatively new technology that’s still working out its kinks, there’s no denying that bioprinting is a viable alternative to existing long-drawn, inefficient, and costly product testing and certification protocols.

    If pharma companies could fast-track their development and testing timelines without jeopardizing human lives, it’ll go a long way in developing essential drugs quicker and better suited to improving standards of treatment the world over.

  2. Bioprinting — The Next Big Thing in Organ Transplants

    Made-to-order organs could be just round the corner.

      to read | words

    Made-to-order organs could be just round the corner.

    Organ transplantation is one of medical science’s most complex fields.

    Besides issues with compatibility, viability, and the narrow window of opportunity to work with, a general paucity of available organs is a huge problem for the healthcare industry. At least 22 patients die every day simply because they’re waiting for an organ transplant.

    Recognizing the gravity of the problem, several researchers are looking at recent developments in 3D Printing technologies as a revolutionary solution to the age-old issue. There’s growing interest in new methods to produce complete functional living organs using 3D printing — colloquially referred to as Bioprinting.


    What is Bioprinting?

    Bioprinting is a 3D printing process to create natural human tissue and organs through layered deposition of cells, forming a mesh-like tissue structure.

    Bioprinting organs involves using Bioink — a liquid suspension of living cells, nutrients, and other growth factors — loaded into cartridges (just like in a desktop printer) that feeds into specialized 3D printers. It can be used to “print” a desired shape (sometimes with the help of scaffold) that mimics native tissue in terms of structural organization functionality at the cellular level.


    Developments in Bioprinting

    The first patent in the field of bioprinting was filed in the United States in 2003 by Dr. Thomas Boland at Clemson University, and granted in 2006. Research in this space has come a long way since then.

    While quite a few universities across the globe are working on Bioink, Swedish-based Biotech Company Cellink has the first-mover advantage. It was among the first bioprinting companies paving the way, commercializing Bioink in the field of 3D printing of human organs as well as the replacement of worn-out tissue.

    While initial forays into this space were successful in developing solution-specific Bioinks, the challenge lay in creating a versatile Bioink, something that can be used interchangeably to create different kinds of tissue.

    A research team led by Dr. Adam Perriman from the School of Cellular and Molecular Medicine University of Bristol hopes to solve that problem. They’ve recently developed a 3D bioprinting method using stem cell Bioink, which could allow be used to print diverse types of living tissue,  everything from simple skin cells to complex tissues for surgical implants.

    This could be a game-changer in the development of assistive bioscaffold technology (used to shore up freshly printed organs while they’re curing) as well as assist in the immediate restoration of damaged substrates.

    Thin layers of 3D printed cartilage could also revolutionize the way we handle implants. Cartilage — which comprises of just one type of cell lines and no blood vessels — could be layered onto medical implants before they’re inserted, resulting in its easy integration into bone or soft tissue.


    Bioprinting Applications

    Bioprinting has the potential to revolutionize tissue engineering.

    In its simplest forms, it’s already showing promise in areas such as skin grafting and tissue replacement. As the technology and techniques evolve, it’ll allow medical technicians to recreate large organs with complex functionality that are tailored to a specific patient’s needs.  Customized Bioink prepared using materials analogous to the patient’s characteristics, perhaps even derived from the patient’s own genetic profile, could reduce chances of their immune systems rejecting the transplanted tissue as well.

    While it’s still a relatively new technology that’s still working out its kinks, there’s no denying it’s a viable solution to the ever-growing organ transplant waiting list.

  3. Nuclear Scans and Cardiac Molecular Imaging – A Snapshot

    Recently developed radiopharmaceuticals agents could significantly improve the diagnosis, treatment, and prediction of heart disease.

      to read | words

    Recently developed radio-pharmaceuticals agents could significantly improve the diagnosis, treatment, and prediction of heart disease.

    A relatively new diagnostic method, cardiac nuclear imaging involves the use of radioactive substances in the diagnosis and treatment of disease.

    It’s specifically used to map internal physiological functionality, using novel radio-pharmaceuticals to assess metabolism, dysfunction, post-transplant cellular response, atherosclerotic pathophysiological progress, as well as tissue viability.

    Nuclear scans are routinely used to visualize a patient’s cardiac physiology, and cardiac molecular imaging techniques include cell molecular biology, radiotracers as well as imaging principles to visualize cardiac functioning.

    Molecular imaging provides non-invasive, cost-effective, and in-vivo quantitative modality to study cardiac physiology, minimizing procedural hassles and making things as pain-free as possible for patients.

    Current molecular imaging techniques mainly include:

    • Single Photon Emission Tomography (SPECT Computed)
    • Positron Emission Tomography (PET)
    • Computed Tomography (CT)
    • Magnetic Resonance Imaging (MRI)
    • High Frequency Ultrasound Techniques based on Optical Fluorescence and Bioluminescence

    A hybrid combination of these techniques is also being explored to improve efficiency and accuracy in the detection of disease-specific changes in tissue. 

    Molecular imaging has a variety of diagnostic applications in cardiac medicine, some of which include:

    • Imaging atherosclerotic plaques in ischemic cardiac diseases.
    • Identifying small abdominal aortic aneurysms that could be predisposed to sudden ruptures.
    • Ischemic cardiac assessment using glucose or fatty acid based analogs.
    • Post-infarct assessment, using radiotracers targeted toward metalloproteinase and renin angiotensin systems.
    • Sympathetic innervation studies, performed on cardiomyopathy patients who are at risk of developing arrhythmia.
    • Stem cell transplant assessment, using reporter-based gene imaging in clinical trials.

    Molecular imaging has evolved from many aspects of nuclear imaging.

    Scintiography, SPECT, and PET scans using a radiotracer element and gamma camera to capture images have been employed in clinical diagnostics over the past three decades.

    SPECT and PET are advantageous in their high sensitivity, widespread availability, and low cost as compared to prevalent techniques.  PET also provides better quantitative information and allows the dynamic analysis of cardiac physiology.

    This technology does have its limitations however, with spatial resolution, the necessity of an onsite cyclotron for PET scanning, attenuation artifacts, and the partial volume effect to name a few.

    Current research has focused on the development of hybrid technologies such as PET/CT and PET/MRI to increase image quantification.

    Check out our report on Cardiac Nuclear Imaging and Radiotracers for more on developments in the field of radiotracers used for cardiac imaging.

  4. IoT Experiences Mixed Reactions in India — Enterprise IoT to Grow, but Home Automation Remains a Pipedream

    Proposed smart cities will play significant role in boosting India’s plan to establish $15 billion IoT industry by 2020. H

      to read | words

    Proposed smart cities will play significant role in boosting India’s plan to establish $15 billion IoT industry by 2020. However, lack of the enabling infrastructure and restriction of high-speed inter-networking to certain urban areas are IoT’s biggest bottlenecks in India. While enterprise IoT is finding its roots in the country, home automation is several decades away.

    Internet of Things is indeed changing the world. One connected device at a time. In fact, a few months ago one of our colleagues Divya Iyer, in her blog, wondered Are Smart Homes Still a Thing of the Future?. She concluded that the connected homes market globally is growing and witnessing early signs of consolidation. Connected homes running on Internet of Things (IoT) is definitely an approach that seems to have caught everyone’s fancy for sure, as the markets in are beginning to mature. But, not really in India.

    India is likely to have about 314 million mobile internet users by 2017. The 3G and 4G user base in the country is expected to increase impressively at CAGR of 61% over 2013-2017. In fact, India boasts of the second-largest Internet user base in the world. This indicates that the inter-connectivity infrastructure is improving and should become conducive to growth of IoT in the country. Here lies the irony.

    Despite being the second-largest user base, India has the lowest Internet penetration (mere 19%) in Asia-Pacific. Reports suggest that only about 4.4% of rural population uses mobile Internet, that too largely 2G. This is a significantly low number for India as over 70% of its population resides in rural areas. Internet penetration is largely accounted to urban locations, with Mumbai, New Delhi and Bengaluru topping the demands.

    Incidentally, the Indian government has plans boost IoT among the urban locales. Reportedly, the government plans to establish a $15 billion IoT industry in India by 2020. The smart cities, proposed to be built by the government, are slated to give IoT its major push in India. These smart cities would have facilities such as smart power grids, smart parking and intelligent transport systems. Moreover, while home automation may be an extremely distant dream in India, industry automation is not. Pune-based Altizon Systems is helping enterprises build IoT products. It recently raised $4 million in a funding round led by Wipro.

    Having said that, intermittent and unstable wireless Internet connectivity, vast and varied geographic expanse, inherent concerns over data security, and lack of enabling infrastructure may prove to be IoT’s severe bottlenecks in the country. Presence of inter-connectivity infrastructure in pockets, and lack of pervasive reach of data networking, majority of the country do not have the basic access to the Internet. Implementation of IoT depends on such a fabric to connect devices to back-end infrastructure or cloud systems to run data-intensive applications. Hence, IoT usage would be severely restricted to urban locations and its usage among the distant areas and rural population is several decades away. 

    Hence, considering the constraints, it is quite clear that IoT adoption in India would majorly be for industrial and enterprise purposes in the near future. Pervasive IoT enablement and adoption of home automation on a large scale in India is a pipe dream. It may take several decades for this equation to change.

  5. Assessment Parameters for Radiotracers Used in Cardiac Molecular Imaging

    Capable of improving diagnostic accuracy and prognostic evaluation, radiopharmaceutical agents represent some important developments among life-saving technologies in

      to read | words

    Capable of improving diagnostic accuracy and prognostic evaluation, radiopharmaceutical agents represent some important developments among life-saving technologies in the nuclear age.

    Developed to aid in the visualization of cardiac functioning, cardiac molecular imaging provides non-invasive, cheaper and in-vivo quantitative modality to study cardiac physiology. Cardiac molecular imaging techniques include cell molecular biology, radiotracers, and imaging principles to visualize cardiac functioning.  


    Radiotracers are primarily used for the assessment of neural dysfunction, post-transplant cellular response, atherosclerotic pathophysiological progress, metabolism, and viability assessment of tissue.  


    Since the inception of the Single Photon Emission Computed Tomography (SPECT) myocardial imaging, technetium-99m or thallium-201 has been used extensively. Recent novel radiopharmaceuticals agents targeted toward specific subcellular process are capable of significantly improving diagnostic accuracy and prognostic evaluation.  


    Radiotracers are mainly used for the following assessment parameters in cardiac disease.  

    Myocardial Perfusion Imaging

    201TI and 99mTc are the most commonly used radiotracers for cardiac perfusion monitoring. 99mTc-Sestamibi, 99mTc-Tetrofosmin and 99mTc-Teboroxime are FDA approved salts used for clinical use. They provide benefits such as nonspecific passive diffusion across myocardial membrane and non-specific localization in cytosolic or mitochondrial subcellular components. Major limitations includes rapid washout at high flow in 99mTc-Teboroxime which requires the images to be taken in less than 2 minutes, whereas 201TI creates attenuation artifacts specifically in the inferior wall. Apart from that, 99mTc-nitrido complexes provide high cardiac uptake and retention for more than 2 hours, showing promise as novel agents for the future.  

    Currently 123I-Rotenone, 18F-Flurpiridaz, 18F-Labeled p-fluorobenzyl triphenyl phosphonium cation and 13NH3 and 82Rb+salts are being explored for the perfusion imaging of  cardiac tissue.  

    Myocardial Metabolism and Viability

    Disruption in the blood flow to the myocardium disturbs metabolic functions of cells, which might lead to reversible damage, necrosis, or remodeling. Update of radiotracers depends on the vitality of tissue, and metabolic function is proportional to nutrient consumption. Radiotracers used for metabolic assessment are usually done using molecules that are sugar intermediates.  18F-FDG has replaced 201TI, which was used in initial days to assess vitality. 18F-FDG has been recently used to assess cardiac myocyte metabolism after Cardiac Resynchronization Therapy (CRT). 123I-BMIPP is another complex which includes fatty acids, and is predominantly used as metabolic fuel for myocytes under rest conditions.

    Imaging Atherosclerotic Plaques

    Atherosclerosis is a chronic progressive condition involving the inflammation of the vascular intimal layer. Recent radiotracers used in PET scans such as 18F-FDG images inflammation in the plaque, showing more promising outcome than prior apoptosis imaging agents targeted towards annexin-V cellular subcomponent. 18F-FDG is primarily concentrated in leukocytes, especially in macrophages, and can hence be effective in early stages. Advanced plaque formation on the other hand involves calcium deposition in atherosclerotic layers. Sodium 18F-Fluorid molecules could be useful to assess osteoblastic activity. 

    Autonomic Dysfunction, Apoptosis, and Myocardial Infarct Repair

    Nuclear imaging of autonomic dysfunction is primarily targeted towards the norepinephrine analogues; 123I-meta-iodobenzyl guanidine (123I-MIBG) is a widely used molecule for this purpose to detect the hyper-adrenergic state. 11Cmeta-Hydroxyephedrine is a novel alternative to 123I-MIBG, which is under clinical consideration to assess sympathetic functions.  

    Myocyte apoptosis plays pathophysiological role in development of atherosclerotic plaques, ischemia, chronic heart failure, myocarditis, and graft rejection. The radiotracers used for apoptosis purposes overall quantifies the extent of disease process. Molecules such as 18F-labeled 2-(5-fluoropentyl)- 2-methyl malonic acid, 18F-(S)-1-((1-(2-fluoroethyl)-1H-(1,2,3)-triazol-4-yl)methyl)-5-(2(2,4- difluorophenoxymethyl)-pyrrolidine-1-sulfonyl)isatin, and 18F-fluorobenzyl triphenyl phosphonium are currently used radiotracers.  

    In hybrid techniques the combination of (DTPA-Gd) with the above molecules provides prognostic details.  


    Check out our report on Cardiac Nuclear Imaging and Radiotracers for more on developments in the field of radiotracers used for cardiac imaging.

  6. Shortlisting Appropriate Search Results – Can IP Intelligence Help?

    Looking for the right prior art in a sea of patents is as drawn-out as it is dreary.

      to read | words

    Looking for the right prior art in a sea of patents is as drawn-out as it is dreary.

    It’s about time we tapped Big Data and AI to cut to the chase.

    In a previous post, we mused about how artificial intelligence could make patent searches easier. If Big Data and AI in IP analytics can really help ask the right questions, perhaps they could also help sift through the right answers.

    If you’re someone who dabbles in intellectual property research or advisory for a living, you’ve got over a hundred patent databases to sift through.

    In an effort to set themselves apart from the herd, most patent databases try to lure researchers through features like semantic search, context search, cluster search, and relevancy sorts, among others.

    Most of them are pretty nifty at finding you reams of data.

    Some of them may even help you sort them, with a semblance of sanity.

    All of them fall short in the real grunt work however - figuring out which of those search results matter the most.

    Every IP researcher longs for the day when they won’t have to deep-dive into the results their query returns. If the most appropriate results would, somehow, bubble up to the surface all on their own, it’d save us some trouble; and a whole lot of time.

    Seeing the most appropriate hits at the top of your results pile is, to an IP researcher, what seeing Santa Claus is to a five year old.

    It’d be a dream come true alright.

    To be honest, I’m surprised it’s not already happening.

    Big Data analytics has been around for a while now. It’s certainly matured enough to be able to pull something like that off. Most patent databases use pretty run-of-the-mill information retrieval techniques, usually based on keyword matching and indexing. Some advanced databases use patent-specific sections such as title or abstract, while others are more adept at prioritizing keyword hits from some sections above the rest. Some even go as far as high-level patent classification. All these improved systems can handle your query processing faster and better than ever before.

    It’s still not good enough.

    There’s a lot more that your search tool and database could do for you.

    Most patent searches are about identifying anything out there that may be similar to your invention or idea. A “new invention” is all about solving a problem that hasn’t been bested yet. Any invention described in a patent database generally elaborates a problem to be solved as well as solutions that the invention provides. If database entries and the patent document being searched (by you) both have the same general fields, finding a match should be a simple matter of tallying their problem and solution fields, right?


    Searching through patents is usually a harrowing affair simply because these two key aspects — problem and solution — aren’t always straightforward. 

    Usually, the “Background” section in a patent contains the problem that it’s supposed to address, whereas the “Summary” section contains the solution (or advantages) it brings to the table. There’s also an “Abstract” section that contains briefs on the background of the problem as well as a description of the solution provided.

    When the lines get blurry like that, you’re going to need time to make sense of what’s what. You’ll also need a lot of it. That, or some serious help.

    That’s where Big Data analytics and AI comes in.

    A tandem system could analyze those relevant sections, formulating standardized “Problems” and “Solutions” pertinent to each patent.

    To begin with, we could split patents by a specific domain (say an IPC class) and apply Big Data analytics and heuristic algorithms on specific sections of your patent subset. Dedicated software or tools could do that. The tool could, for instance, scan an entire patent document to locate keywords such as problem, drawback, background, and prior art,  intelligently summarizing the sentences around those words — giving you the problem section for a patent. A similar approach with words like solution, solved, or advantages can then help deduce the solution section.

    Once that’s done, your tool can compare the specific problem and solution that you’re looking into with the deduced problems and solutions that your tool readied — figuring out and shortlisting the most appropriate results.

    To whittle down that list further, advanced semantic techniques and natural language processing can then be applied. Of course, there could be other modalities, logic, and sophistications in play while implementing this approach. Given what Big Data analytics and AI are currently capable of, this looks within reach.

    An intelligent tool that sorts stockpiles of data to give us our best bets you say?

    Boy, something like that could really shave off the time we take to hit pay dirt. Precious time that we’d otherwise waste sifting through the noise.

    While it’ll be a tall order to expect 100% accuracy from some fledgling AI, a functional system like that could sure help take a load off.

  7. 5 Strategies & Key Players That Could Make Exoskeletons Affordable

    Powered exoskeletons could be game-changers for plenty of fields like injury rehabilitation and disaster response. That is of

      to read | words

    Powered exoskeletons could be game-changers for plenty of fields like injury rehabilitation and disaster response.

    That is of course, if anyone can afford them.

    The global market for powered exoskeletons is expected to rise from $68 million in 2014 to $1.8 billion in 2025, a CAGR of 39.6%. Lower-body exoskeletons are going to be a huge driver for that market, with a variety of medical uses in recovery and rehabilitation alone.

    The industry has a long way to go to realize that market potential however, with high costs a huge challenge to overcome.

    Right now, a pair of powered legs could set you back anywhere between USD 70,000 to 120,000. That’s not inclusive of what you’d need to shell out for service, maintenance, training, and other hidden costs. Even with insurance to foot some of those bills, a disabled person would be hard-pressed to pay the USD 105,000 it’d take every year to keep walking. When you factor in the overall costs, a powered wheelchair seems like a sweeter deal.

    The high cost of exoskeletons is causing a catch-22 situation too.

    Private funding from venture capitalists is the only way to drive the innovation and growth that the market needs. However, a lack of quick returns on their investment makes investors more than a little sceptical about their prospects. All this while, companies pioneering RnD in this space can’t develop or sell more products until they’ve received additional funding.

    The obvious way forward is conserving capital, with key players gravitating toward one or more of these simple cost-cutting strategies:

    Stay the Course

    Just keep at it.

    These players are keeping up product development and testing while expanding their sales and distribution networks. They’re hoping that, in time, the orders will come. They’re optimistic that new technology, materials, as well as better designs could drive down costs enough to make their products viable in the future.

    Simplify the Design

    Do we really need that?

    That’s a key question driving these players, whose simple goal is to drive down costs by doing away with anything that isn’t absolutely essential. They’re asking important questions like Does the motor have to be that powerful?, Can we swap out metal for cheaper (and lighter) plastic?, or Do they really need a cup holder on that? 

    Focus On a Single Task

    Does it really need to do that?

    If all you’ve got to do is turn a single screw, you wouldn’t buy a screwdriver set for that would you? By engineering to perform just a single task, companies can reduce the complexity of a design (and its associated costs) significantly.

    Passive Exoskeletons

    Low tech, high impact.

    Some companies are trying to do away with most electronic (and sometimes electrical) and other technical components, producing a purely mechanical device. Through the clever use of elastic materials and some crafty engineering, they’re trying to create passive exoskeletons that can do the heavy lifting while the wearer takes a load off.

    Stay in Research

    Do we need to sell that? 

    Some companies are holding off on plans for a production line just yet, choosing instead to refine their design. Rather than evolving through iterative improvements, they’re banking on the long-term benefits of getting it right the first time; likely hoping to gauge the competition now and enter a mature market with a more robust product.  

    Here are some of the exoskeleton market’s dominant players and their preferred cost-cutting strategies:

    exoskeleton cost cutting strategy

    exoskeleton cost cutting strategy


    Exoskeletons could become commonplace for day-to-day tasks involving heavy lifting or strenuous physical activity if the industry can bring down the cost of owning one.

    A lot of people are waiting for prices to drop soon.

    Here’s hoping it's soon enough that we show up to the next Iron Man sequel in a decent suit.

  8. Are Smart Homes Still a Thing of the Future?

    Smart home technology is becoming a very serious business. We take a hard look at the market, which,

      to read | words

    Smart home technology is becoming a very serious business. We take a hard look at the market, which, like the others, is grappling with economic challenges and imbalances. Are entrepreneurs in the space seeing their grand vision come true? Are start-ups really making a mark? Is innovation living up to its hype?
    Read on for some of the answers.

    The Internet of Things (IoT) has changed the way man looks at technology, and his home.

    A brief glance at the popular press leaves no doubt that the world is in the midst of a transition from traditional to connected homes. ‘Smart homes’ are definitely in vogue.

    Numerous technological innovations are automating and consolidating household lighting, entertainment, security, as well as heating, ventilation and air-conditioning (HVAC) systems, all of which can now be easily controlled with just a smartphone. It is not only about making life easier—smart home technologies are intensely pushing the envelope to improve user experience, increase energy efficiency, and invigorate privacy and protection.

    In fact, when Google purchased Nest for $3.2 billion in January 2014, the who’s who and who’s new of the smart homes world sat up and took note. The acquisition was big news for the mushrooming connected homes market, as it endorsed a concept that no one thought they really needed. The industry has gone into a frenzy, with large companies searching for potential acquisition targets and start-ups scrambling for the big investments.

    Factors such as growing demand, rising awareness among consumers and favorable societal trends are making smart homes ‘smarter’. So, from the larger market perspective, let us figure out where all this headed.

    Home Automation – Then and Now

    The concept of home automation has been in the popular imagination of tech companies and homeowners for more than two decades. Due to technological advancements, home automation technologies became more cost-effective. Today, every household uses them in some form or the other.

    From offering just surveillance and secure locking systems, they expanded to include fire and gas leakage detection, controllable lighting and entertainment systems, and energy efficiency monitoring. With so many areas to explore and innovate, the market looks promising for start-ups as well as established players.

    Prabir Chetia, Vice President of Business Research at Aranca, states, “Wireless technology is expected to continue to drive the market due to increasing penetration of tablets, smartphones and residential Internet connectivity, and low device and set-up costs.

    Other factors expected to boost the market’s growth include the availability of low-cost smart devices, rising demand for energy-efficient solutions, increasing security concerns, and government incentives for green initiatives.

    Mergers & Acquisitions – The Prime Motives

    The industry witnessed many mergers and acquisitions in the recent past; the noteworthy ones include the acquisition of Nest by Google and SmartThings by Samsung and the collaborations between Telefonica and Huawei, and Singtel, Samsung and NCS. Moreover, the market is witnessing strategic alliances between existing players, including technology companies, electronic firms, and telecom operators.

    What are the prime motives behind such acquisitions, mergers or alliances?

    These collaborations help companies offer products at a lower price to customers and thereby develop consumer relationships, find new sources of revenue and gain a competitive edge in the market,” opines Prakash Kailasam, Vice President of Technology Intelligence & IP Research at Aranca.

    Since innovation is the key to unlock the market’s potential, most companies are investing heavily in research and development. However, with the anticipation of weaker global economic conditions, wouldn’t intense R&D prove to be a high entry barrier?

    Prabir feels, “Start-ups are leveraging on the technological foundation laid by big giants and offer focused products and services such as security solutions or mobile apps for remote monitoring and access. Also, with the availability of inexpensive hardware and commonality in app development, offering such services is gradually becoming mainstream and does not require significant R&D.

    Thus, while large technology companies such as Google, Apple, Qualcomm, and Intel concentrate on developing their own protocols, start-ups are expected to continue introducing innovative solutions to cater to a broader customer base.

    Will the Market Grow?

    During 2005–15, the number of patents filed globally in the field of smart homes increased, reaching a high of 1,900 in 2014.

    Patent Filing Trends

    Patent Filing Trends

    Note: Incomplete data for 2016 due to unpublished filings.

    The US notched 11,814 patents, followed by the European Patent Organization (EPO) (5,360), China (4,000), Japan (3,116) and Korea (2,059).

    Geographic Spread of Patent Filing

    Geographic Spread of Patent Filing

    Home automation is considered an effective solution to keep homes safe when not occupied. Surveillance features help in monitoring children and elderly people through smartphone apps. With regard to additional benefits, estimates suggest efficient heating and cooling systems can lead to 5–15% in energy savings. The use of smart energy management devices and smart appliances can reduce additional phantom loads of 7–8% on appliances. Rising concerns about home security amid increasing crime rates, the energy efficiency aspect, and the luxury of convenience may attract more consumers.

    With rising disposable incomes in these geographies, consumers are likely to spend more on electricity and luxury products. Thus, the adoption of home automation devices should increase considerably.

    What May Trip It?

    The picture, however, is not as rosy as it seems, as many problems still lie ahead. Prakash says, “One of the biggest challenges for smart homes is to create an ecosystem, in which disparate devices can connect and communicate with each other irrespective of the type of platform. The lack of standardization with regard to data transmission, collection and storage technologies and their integration with each other for data exchange and other requirements is a major challenge for market players.

    Apart from these, market reports suggest high device costs and data security could be barriers in the adoption of smart homes technology. Adds Prabir, “Although the smart homes market is expected to expand significantly in the coming years, few factors, such as the lack of interoperability of devices, cyber security, and complex and expensive installation processes, are hindering the market’s growth.

    For example, Philips Hue plans to make lighting devices on Apple’s HomeKit Accessory Protocol (HAP). This would imply that only consumers who already own Apple devices could operate a smart light bulb from Philips. Moreover, this light bulb would be compatible with only those devices built on the HAP protocol, thus limiting its interoperability.

    To deal with some of the challenges, companies are focusing on developing hubs to support the various protocols so that consumers can control all smart devices through a single location. Samsung’s smart devices and hubs under SmartThings are compatible with other devices that run on protocols such as ZigBee, Z-wave, and Wi-Fi/LAN.

    Apart from the developments mentioned above, smart home device providers are developing DIY home automation devices that are simple to use and affordable. Consumers can install DIY devices to control multiple devices through a single app; these devices are a viable option compared to custom home automation systems, which require installation by professionals.

    The Road Ahead

    The statistics are encouraging for the smart homes market; with advancing technologies and consumer feedback evaluation, companies are doing their best to revolutionize how people interact with technology. Currently, numerous companies with different value propositions operate in the market. The key market players include technology players such as Intel, Google and Microsoft; consumer electronics companies such as Samsung and Philips; established pure-plays such as Honeywell and Creston Electronics; and start-ups such as Nest Labs, Canary and SmartThings. These players are collaborating with each other to share capabilities or develop industry standards.

    To sum it up, what does the road ahead look like for the industry?

    The market is growing and will mature slowly. It is fragmented and already witnessing early signs of consolidation. Companies need to address the challenges and work toward streamlining technologies that will allow interoperability of devices to taste success,” concludes Prabir.

  9. Is Yahoo’s Patents Portfolio Really Worth $4 Billion? No Way!

    Any news of Yahoo’s auction is almost always rife with frenzied conversations about the worth of its p

      to read | words

    Any news of Yahoo’s auction is almost always rife with frenzied conversations about the worth of its patents portfolio. We, however, not only see a definite high risk to bet on a large volume of the patents, but also wonder if any valuable patents are really left in the portfolio after Yahoo’s patents sales to other tech giants over the last three years.

    Post announcements of Yahoo’s patent portfolio being up for grabs, IP experts and media are rife with speculations regarding the portfolio’s worth and how this once -tech giant’s patents will affect the industry. There are a few (very justified in their views!) who fear Yahoo, going by the ‘Starboard’ incidents, might play the role of a major patent troll.

    To begin with, AIA and Alice practically grounded the uptrend of patent market prices - it’s very doubtful when one declares their patents worth at $4 billion. Can the portfolio be really that valuable?

    Out of the 2000 odd currently active US patents that Yahoo owns, about 70% are classified under software based on USPTO classifications and about 15% under business methods. With the current success rates that petitioners are experiencing at the PTAB, this leaves about 85% of Yahoo’s portfolio exposed to severe invalidity threats. It is very difficult to estimate the validity strength of the patents unless a potential buyer actually checks it as Yahoo has rarely litigated its patents. It is a definite high risk bet on these patents to hold in the PTAB or in court.

    The second most pertinent question then arises is that ‘has Yahoo already done away with the most valuable ones?’

    Based on USPTO data and publicly available sources, Yahoo has sold about 50 patents to Google, about 25 to Energetic Power Investment, 10 to Snapchat, 9 to LinkedIn and a few more to Alibaba,, Visa and Pandora over the last 3 years.

    These patents relate to practically all technologies in the Yahoo portfolio – database & cache management, cloud tech, social search, e-commerce, messaging, traffic analysis, social networking, funds transfer and many more.

    A New York Times articles reported these patent sales to have generated about $600 million over the last 3 years. That’s about less than 200 patents at more than $3 million per patent. Definitely makes you wonder if there really are any valuable patents left! A lot of gray areas, indeed.

  10. Does Section 3(d) Make India Bad for Business?

    Introduced as an amendment to the Indian Patents Act in 2005, paragraph 3d has been a hot topic of

      to read | words

    Introduced as an amendment to the Indian Patents Act in 2005, paragraph 3d has been a hot topic of debate ever since the famous Novartis (Gleevec) case of 2005. This section has long been criticized by international pharmaceutical companies as a bane, viewing it as a hurdle for the industry’s growth as it made India's patent environment unsuitable for doing business.

    Does it really though?

    When India became a signatory to the TRIPS agreement in 1995, it became necessary to include process’ and product patents on medicines and food from January 1, 2005. By this time, India had established itself as a generics hub and had to ensure that Indian generics could enter the market and compete with their international counterparts, while keeping healthcare products affordable for its domestic consumers.

    Section 3(d) states that the mere discovery of a new form of a known substance, which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant are not inventions.

    The most controversial bit here is enhanced efficacy, which became a focal point for debate in the famous Novartis (Gleevec) case.

    Novartis stated that the patent under opposition claimed a crystalline form of the imatinib, imatinib mesylate (Gleevec) salt had better flow properties and was thermodynamically more stable and less hygroscopic.
    In addition, Novartis argued that Gleevec was 30% more bioavailable and, hence, had enhanced efficacy.

    The Supreme Court interpreted the term efficacy in Section 3(d) as therapeutic efficacy, an interpretation that was discussed at length.

    Those elements defined by Novartis weren’t elements measured for determining therapeutic efficacy.

    The court held that increased bioavailability cannot imply higher therapeutic efficacy, which has to be shown by separate experiments. After several arguments, on April 1, 2013, the Supreme Court held that Novartis’ patent application failed Section 3 (d)’s standard and, hence, was rejected.

    This led to strong opposition from large multinational companies such as Bayer, Novartis, and Merck, all of whom complained that India's patent environment was not suitable for doing business. Ranjit Shahani, the Chairman of Novartis (India) was quoted saying: "India is not ready to provide the ecosystem necessary for encouraging innovative products to be launched, even though it joined the WTO 18 years ago."

    Nonetheless, Section 3(d) still stands strong.

    While many believe the Indian Patents Act squelches incremental innovations based solely on their interpretation of section 3(d), they’ve probably not accounted for Section 54 (patents of addition) that grants patents for an improvement in or modification of an invention with regard to a main invention.

    Section 3(d) isn’t a hurdle while applying for patents as it doesn’t really hamper the pharmaceutical industry’s growth.
    Patents are continuously being filed and granted by both Indian and foreign innovators.

    Since 2005, a substantial number of product patents have been granted in India. According to a newsfeed on Livemint , “from April 2005 to March 2010, the patent office granted 3,488 drug patents, of which more than 3,000 were granted to foreign pharma companies”.
    The foreign companies include big names such as Pfizer, Novartis and F Hoffmann La Roche.

    Considering its benefits, developing countries such as the Philippines, Argentina, and Brazil have also introduced their versions of Section 3(d).

    India should certainly maintain its current position on Section 3(d) which not only keeps medicines affordable for people in India as well as abroad, but also prevents patent evergreening by protecting only those applications that are truly innovative.

  11. Intelligent Patent Searching? It’s All About Pulling the Right Strings

    In a couple of previous posts, we’ve discussed the necessity of intelligence in IP searches as well a

      to read | words

    In a couple of previous posts, we’ve discussed the necessity of intelligence in IP searches as well as the importance of drawing on additional data sources in order to derive more meaningful insights.

    In this post, we’ll talk about an important aspect of IP analytics — "search query" or "search string".

    In layman’s terms, a search query is an intelligent combination of words/terms that are used to dig a database for references/results of interest. It’s not unlike what you’d do while looking something up on Google.

    "Intelligent" is the key word here.

    A proper search query ought to help IP researchers shave off precious time while fetching the appropriate results they’re looking for.

    “Appropriate results” here means finding those two or three crucial patent references from among the millions of worldwide patents they’re sifting through.

    As you may imagine, it’s as hairy as finding a needle in a haystack.

    Your best bet is to weave a brilliant search query. It can be something as handy in an age of multi-million dollar infringement lawsuits as a silver bullet on a full moon night.

    Making proper search query however, is easier said than done.

    Some say it’s a difficult art to master; others think it cannot be mastered at all.

    The usual drill for an IP researcher is to use combinations of various keywords.

    You’d have to prepare and run your first query, scour the results, figure out whether you’re in the ballpark, and modify your query to get the results you’re looking for.

    Then you run your second query, throw in some more keywords, and then start over again till you’ve got something better.

    Lather, rinse, repeat …

    The process is as cumbersome as it is fallible.

    Hey, wait a minute.

    Aren’t we living in an age of AI and Big Data Analytics?

    Think they’d help?

    Imagine an intelligent query forming tool.

    Something embedded in the patent databases you’re searching.

    You’d have to enter the first round of keywords, and the tool “intelligently” combines and rearranges your terms to provide one or more queries.

    The tool could have more features too.

    Instead of entering keywords, what if you could just scan a patent document that you’re looking into — perhaps looking for prior art — and the tool figures out the relevant keywords all by itself.

    What if it also figured out and assigned a weightage to your keywords, a priority order to determine what the most important keywords are, and which are to be located first.

    How would such a tool even function?

    For starters, it could use a simple word database to look for synonyms and semantic variations of your keywords. It can then analyze the citations of your subject patent and figure out how the keywords have been used to create logic, perhaps even with the help of some crafty AI. The tool can then use the observed logic to combine keywords and create a relevant query. Finally, the tool can conduct multiple iterations to perfect the query.

    The process could involve manual intervention, or it could be completely automated.

    The tool could also be heuristic, capable of creating and validating intelligent queries without any human oversight at all.

    As Big Data and AI technologies mature, intelligent and self-learning tools that assist you in your day-to-day research could be as commonplace as cellphones.

    As far as I’m concerned, the future can’t get here fast enough.

  12. How Does 3D Printing Impact the IP Ecosystem? Challenges and Risk Mitigation

    The advent of 3D printing promises the rapid and inexpensive creation of objects and prototypes. It also holds

      to read | words

    The advent of 3D printing promises the rapid and inexpensive creation of objects and prototypes. It also holds the potential to disrupt the intellectual property (IP) frameworks that govern key activities in supply chains and traditional manufacturing. As with other disruptive technologies that offer greater control to consumers (the photocopier, the video recorder and peer-to peer file sharing technology), IP laws struggle to keep pace with the rapid changes that 3D printing enables. Will 3D printing be disruptive to established manufacturing processes and supply chains?

    A decent precedent for what’s in store due to the advent of 3D printing is the impact of digital media in the music and software industry. With rise in the availability of low-cost copying equipment, it was inevitable that people would start making personal copies of copyrighted products for use in homes and offices. IP lawyers believe that 3D printing would be the epicenter of the next tech thermonuclear war, much like the ubiquitous smartphone wars.

    The 3D-printing revolution raises legal issues in the areas of IP, product liability with respect to infringement, and data protection.

    The IP Challenges Related to 3D Printing

    A copyright owner has the exclusive right to copy or reproduce copyright-protected work. The process of scanning a copyright-protected 3D object involves scanning (or its equivalent) in order to make unauthorized copies of the work.

    This may raise copyright infringement concerns and may subject the infringer to significant legal liability. Copyright protection is applicable to objects copied using 3D printers that are design-oriented. Useful articles are ineligible for copyright protection. For example, a chair is a useful article and is not copyright protectable. However, the ornamental design on the back of the chair is. When consumers turn manufacturers, monitoring of consumer-oriented home-based printers for infringement becomes difficult, leaving many such cases undetected.

    While copyright law protects the original works of authorship, trademark law protects logos, symbols, brand names, and designs. If a consumer uses a digital blueprint to print a product, deploys such product for personal use, and does not intend to sell it, it is not considered trademark infringement. However, if a design file that includes a registered trademark for goods is made available online, it is considered an instance of trademark infringement. Scanning a trademark-protected 3D object and making unauthorized copies of the protected work paves the way to piracy and is a sure instance of trademark infringement. This may subject the infringer to substantial legal liability. However, it is difficult to track an infringer who prints a product (intending to commercialize the product) using a digital file that contains trademark of the product.

    Brand piracy does not end here.

    If an object printed by a consumer does not carry a brand, it may still be protected by a trade dress. Trademark law also protects trade dress, which shelters the design, color, appearance, shape, and packaging of a product. If a consumer prints a 3D object that might be mistaken for a trade-dress-protected product, the owner of the latter may successfully claim trade-dress infringement. Furthermore, a trademark might protect the shape of an object if it is non-functional and is synonymous with the brand itself. For example, the Coca-Cola Company sought and obtained federal trademark registration for the shape of Coca-Cola bottle, which safeguards the bottle design indefinitely for the company.

    Patent law protects inventions that are novel and non-obvious. If 3D printing forms a crucial part of a patented manufacturing process, digital copying of the design files of such processes amounts to infringement. Consider these examples: General Electric owns the patent for a jet engine fuel nozzle produced by the additive manufacturing process (3D printing); Nike has patented a manufacturing process for shoes, in which a layer of material is printed on a substrate. A design file is integral to the manufacturing process for such items and anyone who sells the design file would commit contributory infringement, even if the infringer were to create the file independently.

    In the patent world, the expiry of the first patent of a particular technology is not enough to develop and sell such a product on the market without legal constraints. Although several basic patents related to 3D printing have expired, low-cost printers may be limited by new patents, which are often filed for improvements to an expired patented technology. While 3D printers are generally covered by hardware patents (filaments, printer head, platform, circuitry, etc.), software associated with the 3D printer could also be covered by some patents. 3D Systems filed a lawsuit against Formlabs and Kickstarter for infringement of the former’s Stereolithography (SLA) patent. The original SLA patent expired years ago, but 3D Systems filed a lawsuit claiming an improved method over the original version. Often newer technologies enter into issues with patents broader in scope (those covering a few, but not all, aspects of a printer or patents with altered linguistics). Therefore, lawsuits involving such patents are expected to become commonplace as the industry grows.

    Who is Liable for IP Infringement in 3D Printing?

    Patent infringement can take two forms: direct and indirect.

    Direct infringement refers to the manufacture, sale and/or offer of sale, use, or import of a patent invention in the US. Indirect infringement can be further subdivided into induced infringement and contributory infringement. Induced infringement is the process of encouraging others to infringe. Contributory infringement refers to the sale or offer of sale of a component of a patented invention combination or composition, or material or apparatus for use in a patented process.

    Consider a hypothetical scenario involving five entities: W sells a 3D printer; X sells a scanner; Y scans a patented object and posts the design file online; Z (a consumer) uses the design file to print the patented object; and T is the host for the design files. In this scenario, Z (the consumer) directly infringes on the patent, and Y and T are liable for indirect infringement.

    In the case of copyrights, any person or company can be held responsible for direct infringement for unauthorized copying and distribution of copyright protected objects, and indirect infringement if they enable a third party to directly infringe on copyrights.

    For example, a party that distributes a hardware device or software that enables infringement can be held liable, in spite of its lawful uses. Online platforms offering peer-to-peer sharing of 3D design files may be guilty of contributory copyright infringement. Contributory copyright infringement is generally decided on by the degree of infringing and non-infringing use.

    What Can Industries and Consumers Do to Overcome Patent Infringement Challenges in 3D Printing?

    Technology companies should be aware of amendments to IP laws and technology changes that could make old laws obsolete; due diligence on account of 3D printing should be no different.

    Copyright Infringements

    Possible solutions to mitigate copyright-infringement risks include licensing and encryption.

    Objects and designs can be distributed with permissive licenses, such as those provided by Creative Commons. An example is the open source license released by Youmagine in 2015, based on the idea that each 3D printing design file uploaded under 3DPL remains the uploader’s intellectual property. 3DPL allows the uploader to decide the conditions under which others will be allowed to use the design.

    Counterfeiting and copyright infringement can also be addressed by using preventive measures such as identification and encryption software. Digital encryption or watermarking schemes such as Digital Rights Management (DRM) can help restrict the unauthorized distribution of 3D printing blueprints.

    Trademark and Trade Dress Infringements

    Stratasys filed for a trademark on FDM in 1992 with regard to a “computer-driven machine for making a physical embodiment of a graphic design by a material deposition process”. Thus, no one else can sell a machine with the above definition as an FDM printer in the US.

    Furthermore, Stratasys has been trying to expand the scope of its FDM protection by filing more trademarks. 3D printer manufacturers should therefore ascertain the scope of this protection.

    The trade dress protects the packaging as well as design of a product, where the packaging or design signifies the source of the product to a consumer. For such trade dress protection, the packaging or design must be naturally distinctive or have developed a secondary meaning (used in the marketplace for at least five years), which allows the consumer to identify the source of the product. One possible solution for protecting the design in the initial few years is to use design patents along with trade dress protection. The owner of a 3D design may first secure a design patent. The 15 years of design patent protection can be used for developing the secondary meaning for trade dress protection of the design.

    Patented Design Infringements

    When a consumer purchases a patented 3D printer device, the rights and license to use the purchased 3D printer is granted under the patent law. The license may limit the printer for personal use only. However, some consumers may try to print and sell products covered by patent/copyright protection.

    In such cases, 3D printer manufacturers can embed functionality in the printer to refuse printing if digital rights do not evidence appropriate payment by the user. Design patents protect the way an object or article looks and are valid for 15 years from the grant date. Businesses that sell ornamental or unique designs can consider filing design patents to avoid infringements by 3D printers.

  13. The Right Information to Display in a Patent Search – Can IP Intelligence Help?

    As a growing number of countries see the gains in establishing and empowering systems to safeguard intellectual property,

      to read | words

    As a growing number of countries see the gains in establishing and empowering systems to safeguard intellectual property, global patent databases are likely to witness an exponential growth in the data they’re burgeoned with.

    In a previous post, we delved into the impact of Big Data analytics on methods and processes to conduct a search of existing intellectual property. In this post, we’ll examine why it’d be good to draw on other allied databases in tandem in order to derive more meaningful insights.

    We’re grappling with a deluge of patent databases today, insightful stores where one can execute complex patent search queries that address specific parameters or needs. The most common process of performing a search is:

    • Prepare a Query — based on a particular concept
    • Run the Query — through the available search interface
    • Analyze the Results — which usually consist of patent sets that your query pulls up

    The returned results will have plenty of information about the patents you’ll need to evaluate, mostly bibliographic details that help in analyzing your results. Databases usually provide convenient options to customize how these details are displayed and sorted.

    Most patent researchers resort to the basics such as Title, Abstract, Assignee/Inventor, and so on. More often than not though, these details fall far short of being useful while handling our assignments.

    As patent databases mushroom worldwide — with constant additions to their fields and features — handling Big Data will need to be an integral part of IP analytics.

    With advanced analytics tools that provide easy-to-understand insights within the web of patent connections, Big Data analytics can be brought into play here to display a host of other useful information.

    A database equipped with Big Data analytics can make intelligent decisions about the congruence between patents/results and display intelligent information. Let’s consider a case where you’re looking for prior art related to patent X. As per current database capabilities, we can sort the query’s results (say Y patents) as per relevancy, which is done by mapping of the search terms with patent keywords. Existing Big Data features can scour through additional data for Y’s patents and display other useful information. For example, if any of Y’s patents have been used for re-examination/litigation against a patent similar to X, that particular Y patent can be highlighted.

    One can also sort the result set of Y patents according to their usage in common litigation/re-examination cases. This can help club similar patents for analysis in a more efficient manner. We would need to link up re-examination/litigation databases for this however, although it wouldn’t be really difficult to manage.

    Similarly, you could also hook up databases for non-patent literature in order to draw additional information around a patent. It could, for instance, throw up something like a research paper by the patent’s inventor for a similar concept.

    Envisage a brilliant interface for IP analysts wherein we’ve moved on from archaic views of bibliographic details – all thanks to Big Data analytics in intellectual property.

    The possibilities are indeed endless, and there’s a lot more to come.

  14. Smartphone OS Evolution: Top Market Contenders

    Mobile operating systems change faster than you wish your phone would.

      to read | words

    Mobile operating systems change faster than you wish your phone would.

    Devices that came into being as simple (and somewhat) mobile telephones now include features that were considered implausibly futuristic at a time. Sought-after features such as touchscreens, speech recognition, maps and navigation applications, multimedia suites, as well as web browsing and high-speed Internet access in particular, have been adapted from desktop computing systems for handheld use.

    Globally, smartphones have a glut of operating systems to choose from, with Google’s Android and Apple’s iOS consistently dominating a somewhat fragmented market.

    Current Mobile OS Market Shares

    OS Market Shares 2012-15

    OS Market Shares 2012-15

    Statistics shows that Google’s Android has been a consistent winner for the last few years. A major driver behind Android’s success is its open-source origins, with software designed primarily for smartphones by a vibrant and active developer community.

    Apple’s new programming language — Swift — unveiled about a year ago is gaining popularity as well. Unveiled at Apple’s Worldwide Developer Conference (WWDC), Swift is a replacement for Apple’s long-time favorite: Objective C. It promises to make lives easier for developers, encouraging them to drop Android in favor of iOS.

    A popular notion has taken root over the last decade - Apple doesn’t just sell hardware; it sells an experience.

    Apple has garnered some significant advantages in terms of customer satisfaction and perceived brand value. While Android clearly dominates iOS in market share, iOS users are more willing to spend on paid Apps and services, allowing Apple to successfully trade market share for profitability.

    As open source software, Android is also facing stiff competition from Chinese companies that are rolling out Linux-based operating systems. These Chinese operating systems could be a viable alternative to Android on millions of Chinese devices.

    While Android and iOS are far ahead, Blackberry and Windows are certainly hot on their heels and poised to make inroads in the mobile OS market.

    Microsoft pulled out all the stops for Windows 10, creating a unique OS that runs on desktop PCs, smartphones, and a plethora of other hand-held devices. Although the technology and software provided are cutting-edge, the Windows app ecosystem is not as mature as its biggest rivals. Understandably, Microsoft still hasn’t quite cracked customer satisfaction in some aspects.

    Once ubiquitous among business users and high-end consumers, Blackberry seems to have faded from the global scene. One could draw parallels between its decline and that of Nokia back in 2008, another forgotten hero of old. Don’t count RIM out just yet though, the company is working on upgrades and updates that it hopes will turn its fortunes around.

    Future Outlook

    With every new update, Android has always been a bundle of joy for loyal users.

    There’s a universal messaging app in the works for instance, that bundles SMS, email and video calling, all integrated into one convenient application. Google’s upcoming "authenticator" app is also creating some hype, a breakthrough system that allows users to make seamless and secure online payments by simply syncing the user’s device NFC and Gmail account.

    While Apple’s recent launch of iOS 9.0.2 is still a hot topic, their recent patents applications offer more tantalizing clues about what’s in store for the future. Some of these patents seem like teasers for devices that sport sidewall displays. There may soon be iPhones and iPads that blend displays seamlessly along their sides and edges.

    Apple isn’t far behind in terms of security either. With a patent for "personal computing device using face detection and recognition" in their stable, perhaps Apple products of the future would simply look at who’s using the device and decide their appropriate access levels.

    To secure online payments, iOS users can opt for Apple Pay, a digital wallet service that uses NFC to allow you to pay using your mobile device, replacing conventional magnetic strip or chip readers. Customers could use their Apple smartphones or their Apple Watch as easy modes of payment.

    The race is still on, with more players joining the mix. Mobile operating systems such as BADA, Palm OS, Open WebOS, Maemo, MeeGo, are gaining a foothold, with most of them focusing on Chinese markets.

    Surprisingly, China is Apple’s second biggest market, growing three times faster than its markets in Europe and the Americas. Android on the other hand, is focused on penetrating and gaining a foothold in upcoming global markets, besides solidifying its stance in well-established ones of course.

    As Apple and Android go head to head to dominate the mobile OS market, will other contenders make a play for the big league?

    Only time will tell.

  15. 3D Printed Drugs: A Gateway To Customized Medicine

    Ever since research into the field started producing appreciable results in the late 90’s, 3D printing has revolutionized d

      to read | words

    Over the past decade, 3D Printing has been blurring boundaries between imagination and fabrication.

    Developed at the Massachusetts Institute of Technology (MIT), this computer-aided 3D-printing technology has opened the pharmaceutical manufacturing industry to exciting and revolutionary new possibilities in customized medicines.

    As MIT licensed its patented 3D printing technology for use in different fields, US-based Aprecia Pharmaceuticals picked up the exclusive rights to 3D-printing technology for pharmaceutical purposes in 2007.

    Aprecia successfully deployed the technology and developed the world’s first 3D-printed Spritam (chemical name: Levetiracetam), a drug to treat seizures in epileptic patients.

    Produced by sandwiching a powdered form of the drug between liquid materials and bonding them at a microscopic level, these printed pills are superbly porous and dissolve rapidly on contact with liquids. It’s an unparalleled feature for sure, and one that makes it remarkably effective in its core purpose - countering sudden seizures.

    3D printing has enabled the creation of high-dose rapid-dissipation pills, affording doctors reliable customization and complete control over the speed and strength of delivered dosage.

    By simply altering a pill’s surface area through the printing of complex shapes, one can not only control the strength of a released dose, but also the time over which it’s released. This goes a long way toward making administered dosage safer and far more effective. Manufacturers can also modify their products according to individual preferences, with customized dose strength, pill size, flavors and colors to choose from. Assuming easy availability of pharmaceutical compounds in powder form, patents can ditch unwieldy tablets, capsules, or liquids in favor of medicines that are far easier to consume. Customizability is especially useful while preparing doses for patients who find swallowing difficult, such as young children or the physically impaired.

    3D printing represents a significant breakthrough in an era of customized medicine and tailored treatments.

    This breakthrough technology could also allow manufacturers to shift their production and distribution processes closer to consumers. With constant improvements in design and operational efficiency, printers of varying sizes and capacities could be deployed at bespoke locations that are convenient for patients. Hospitals and pharmacies could manufacture prescriptions within their own premises, eliminating the need to stock vast quantities of generics. It’ll also allow them to produce specialized or uncommon compounds in-house, saving patients a considerable wait, and perhaps, saving more lives in time-sensitive critical situations. With such flexibility and scalability afforded to supply chains, both suppliers and consumers can benefit from the low costs and prices that operational efficiencies bring.

    Some speculate 3D printing will become so commonplace that patients could print their own drugs at home.

    The technology could, in theory, allow users to print drugs of any size, shape, and dosage with ease. All they’d need is a downloadable recipe, basically a set of instructions that the printer reads and follows. As long as their home printer is stocked with the necessary base compounds, they could synthesize any and every formulation they’d need. It’d be just like using recipes from a cookbook.

    To make a batch of cookies you’ve never made before:

    • Find the recipe you want
    • Download a copy
    • Print
    • Follow the recipe
    • Bake
    • Clean up after yourself

    To make a batch of pharmaceutical prescriptions you’ve never made before:

    • Find the recipe you want
    • Download a copy
    • Print

    About half as much work I’d wager.

    When it’s easier to make a batch of pills than it is to bake cookies, it ought to make you wonder.

    While there’s little scope for tampering in current pharmaceutical manufacturing processes, there’s some concern about its likelihood while implementing 3D printing methodologies. There’s also the possibility of hacked machines producing counterfeit medications or being used to mask illegal drugs as legitimate medication.

    The wide reach and global nature of such technologies also means the lines for liabilities are blurry.

    Drug companies would need to ensure that their products’ recipes and regulatory norms were adhered to. They’d have to ensure foolproof print processes that are safeguarded against human error as well as sabotage. Pharmaceutical companies would need to ensure their devices are well secured in case unscrupulous entities tried to reverse-engineer proprietary products. Drug regulatory authorities would also have to establish unprecedented guidelines for the approval of mass-marketed 3D printed drug products.

    More importantly, in case of technical errors or malfunctions that result in incorrectly printed dosages that cause harm to or the demise of a patient – who is to blame?

    Does the onus fall on the drug company that created the recipe, on the patient who printed the recipe, or on an intermediary that manufactures doses or maintains the machines?

    While there are several significant concerns that need addressing before 3D pharmaceutical printing technology goes mainstream, the benefits are well worth the bother.

    This technology stands to revolutionize the pharmaceutical manufacturing industry, with possibilities that sound straight out of science fiction. Pills created to release a cocktail of drugs over definite intervals could wrap up a whole day’s worth of dosage in a single easy to swallow pill. Tell grandpa to toss out that old pill organizer; he’ll get everything he needs from a single tab, no fuss or chance to forget. Imagine the possibilities for specialized pills that treat niche ailments, which can be developed and produced at a fraction of current costs, all tailored to your prescription and individual preferences.

    Perhaps, someday, there will be a pill for everything.

    And it’d taste just like a Tic Tac.

  16. Mechanism of Targeting Tumor Cells Using Nanoparticles

    With an ability to enter tissues at the molecular level, nanoparticles have promising applications in diagnostic and therapeutic

      to read | words

    With an ability to enter tissues at the molecular level, nanoparticles have promising applications in diagnostic and therapeutic systems for cancer. Over the past several decades, the development and application of engineered nanoparticles to more effectively treat cancer have witnessed significant advancements.

    Nanoparticles provide a new platform for cancer diagnostics and therapy, serving as a carrier for entry through fenestrations in tumour vasculature, allowing direct cell access.

    Modified nanoparticles allow binding to cancer cell membranes, microenvironment, cytoplasmic or nuclear receptor sites. This initiates the delivery of high drug concentrations to the targeted cancer cell with reduced toxicity of normal tissues.

    Over the past several decades, the development and application of engineered nanoparticles to more effectively treat cancer have witnessed significant advancements.

    Nanoparticles target tumour cells in two ways: active and passive.

    • Passive Targeting: This term refers to the accumulation of the drug in areas around the tumour with leaky vasculature; it also known as the enhanced permeation and retention (EPR) effect.
    • Nanoparticles target tumour cells
      Nanoparticles target tumour cells
    • Active Targeting: This term refers to specific interactions between the drug/drug carrier and target cells, usually through specific ligand receptor interactions or antibody-antigen recognition, for intracellular localisation of the drug.

    The EPR effect — a unique characteristic of tumour cells — enables targeted delivery of anticancer agents. Passive targeting is based primarily on size; the nanoparticle surface may be modified with several ligands that would interact with specific receptors over-expressed on the surface of the tumour cells, thus imparting specificity for active targeting.

    For more information about the use of Nanoparticles and their applications in cancer treatment, check out our report on Nanoparticle Drug Delivery Systems for Cancer Treatment.

  17. Advantages of Nanoparticles Over Conventional Dosage in Cancer Treatment

    Over the past several decades, the development and application of engineered nanoparticles to more effectively treat cancer have

      to read | words

    Over the past several decades, the development and application of engineered nanoparticles to more effectively treat cancer have witnessed significant advancements.

    We expect precisely engineered nanoparticles to emerge as the next-generation platform for site-specific cancer therapy and several other biomedical applications.

    Conventional Drug Delivery Systems Have Some Significant Disadvantages

    • Drug resistance
    • Lack of selectivity
    • Lack of drug solubility
    • Dynamic changes of cancer cells
    • Serious side effects of chemotherapy
    • Poor targeting of heterogenic tumours
    • Small amount of drug reaches the cancer cells
    • Nonspecific targeting of conventional delivery
    • Inability of the drug to enter the core of tumours, resulting in impaired treatment with reduced dose and low survival rate

    Nanoparticles show tremendous promise in their ability to selectively target cancer cells without significantly damaging healthy tissues. Drug-loaded nanoparticles evade the efflux mechanism and maintain high concentration within tumour cells, thereby avoiding the development of resistance.

    Nanoparticle-based Drug Delivery Systems are Superior in Many Ways

    • Entry into tissues at the molecular level
    • Increased drug localisation and cellular uptake
    • Cancer diagnosis and treatment applications
    • Feasibility to programme nanoparticles for recognising cancerous cells
    • Selective and accurate drug delivery, and avoiding interaction with healthy cells
    • Direct and selective targeting of the drug to cancerous cells (both active and passive targeting)
    • Larger surface area with modifiable optical, electronic, magnetic and biologic properties vis-à vis macroparticles
    • Assisting therapeutic agents to pass through biologic barriers, mediate molecular interactions and identify molecular changes

    Nanoparticles have been modified and enhanced to enable the delivery of drugs across the blood–brain barrier (BBB) as well as improved upon to create polyethylene glycol (PEG) modified (PEGylated) nanoparticles with a prolonged blood circulation time. Targeting ligands (such as small organic molecules, peptides, antibodies and nucleic acids) have been added to the surface of nanoparticles to specifically target cancerous cells by selectively binding to the receptors over-expressed on their surface.

    Multiple types of therapeutic drugs and/or diagnostic agents (such as contrast agents) could be delivered using the same carrier to enable combination therapy to overcome multidrug resistance and achieve real-time determination of treatment efficacy.

    For more information about the use of Nanoparticles and their applications in cancer treatment, check out our report on Nanoparticle Drug Delivery Systems for Cancer Treatment.

  18. Volkswagen - Not The First Time It Broke Emission Laws; But Should Be Its Last

    Volkswagen recently copped to installing “cheat devices” on their diesel vehicles to pass emission tests, turning over 11 million car

      to read | words

    Volkswagen recently copped to installing “cheat devices” on their diesel vehicles to pass emission tests, turning over 11 million cars worldwide into nefarious nitrogen oxide (NOx) producers.

    These devices used crafty software to toggle filters that are designed to trap nitrogen oxide in exhaust fumes. The devices sensed whether vehicles were operating under test or real-world conditions, and accordingly, switched the filter on or off.

    Volkswagen’s deceit was motivated by enhancing mileage, which was otherwise reduced by the nitrogen oxide filters’ activation.

    As better mileage boosted Volkswagen’s sales and profits, mother Earth paid the price.

    The filter hack adversely affected the environment; the German automaker’s product line released over 948,691 tons of nitrogen into the atmosphere for over seven years.

    This isn’t Volkswagen’s first time; they’ve been penalized in 1973 and 2005 for trying to skirt the rules.

    Volkswagen isn’t the only automobile giant to have engaged in such practices.

    General Motors, Ford, Chrysler, American Motors, Nissan, Toyota, and other big players have been found guilty of installing defeat devices in their vehicles in the past. The following chart depicts several related instances.

    Penalties on Automotive Giants

    Penalties on Automotive Giants

    As evident from past transgressions, the penalties they’ve paid are a paltry percentage of their profits; profits reaped by violating the norms.

    Social responsibility, community service, and the environment are, at best, a cursory consideration for such car makers.

    In spite of being ordered to pay a hefty fine and provide extended warranty to consumers, Volkswagen has carried on with business as usual, unabashed. To really make a difference and stop history from repeating itself, a strict ruling should be issued against Volkswagen.

    What would be an ideal judgment against Volkswagen?

    • Recall vehicles, and provide compensation to car owners for a reduction in vehicle mileage after the removal of defeat devices
    • Impose a heavy fine
    • Ban vehicle sales for a period
    • Conduct strict checks before re-launch

    An ideal judgment would be to impose a heavy fine, reparation that comes as close to — 100% of their profits since 2008 — as possible. This would make other automakers realize that there’s no real profit by violating the norms.

    In my opinion, apart from this heavy fine, special initiatives such as tasking Volkswagen with reducing emissions from state-owned power plants, capturing and treating harmful industrial emissions, or setting up recycling plants — all in regions where they’ve sold their cars — would go a long way in undoing the damage they’ve undoubtedly done.

  19. Magnesium – Is it Really The Metal of the Future?

    Over the decades, harmful emissions from the automotive industry (such as those from cars and trucks) have negatively

      to read | words

    Over the decades, harmful emissions from the automotive industry (such as those from cars and trucks) have negatively impacted the environment and human health.

    Growing environmental degradation has prompted government agencies to impose strict regulations on automakers in order to bring emissions under permissible limits. Many automakers have been researching heavily on the different techniques to curb emissions and adhere to set standards.

    Weight reduction is one such strategy that automakers have adopted to curb emissions from vehicles and increase fuel economy. Research suggests that replacing different heavy components of an automobile with lighter materials has demonstrated significant success in achieving weight reduction.

    Leading automakers such as GM, Toyota and BMW have shown keen interest in Magnesium (Mg) as an attractive metal for automotive use, mainly because its weight is around 35% less than Aluminum (Al) and around 75% less than Iron (Fe).

    Furthermore, magnesium, when alloyed, has the highest strength-to-weight ratio compared to other metals, and is recyclable.

    Due to these benefits and its abundant availability, the metal has found a strong foothold in various automotive parts such as engine blocks, bed plates, transfer cases, clutch housings, cradles and interior components.

    Considering its benefits over other metals, is magnesium the hot metal of the future for automakers?

    The answer may be vague at this stage, but let us shed some light on the negative impacts of the magnesium extraction process on the environment and human health.

    Mining magnesium for industrial use leads to the emission of greenhouse gases such as sulfur hexafluoride (SF6), hydrochloric acid (HCL) and carbon monoxide, which pollute the environment.

    During the extraction process, magnesium reacts with underground water and pollutes groundwater reserves. This significantly impacts human life by rendering the water useless for domestic and agricultural purposes. It also affects wildlife habitats and fauna that depend on such reserves.

    Magnesium and its alloys are highly flammable and explosive compared to aluminum and HSS steel, thus posing a risk to human life during the mining process.

    Although magnesium possesses better properties than aluminum and steel, in terms of producing a light-weight automobile, automakers must look at the whole picture before selecting materials; ensuring that the environment is unharmed during the extraction and processing stages.

    Automakers ought to look into mix-metal compositions such as a mix of aluminum, calcium and magnesium, rather than solely depending on magnesium.

    There’s also a dire need for significant research into magnesium recycling technologies that could considerably reduce its environmental impact.

  20. Edible Smart Tags Could Beat Drug Counterfeiting

    The $200 billion counterfeit drugs market is a constantly shifting target. Pharmaceutical industry is expected to spend about $3.4 billion

      to read | words

    The $200 billion counterfeit drugs market is a constantly shifting target. Pharmaceutical industry is expected to spend about $3.4 billion in 2015 on anti-counterfeiting technologies to intensify its battle. Edible smart tag technology is the industry’s newest weapon in combat against counterfeits, which promises to bridge potential gaps left by the prevalent RFID technologies.

    Edible smart tags in the pharma industry are said to be partially inspired by their increasing presence in the food industry. NutriSmart is one of the leading provider that uses RFID-based sensors to track the food supply chain, improve the consumption experience, and simplify food purchases across supermarkets.

    One of the early innovators exploring the use of edible smart tags in the pharmaceutical sector is Honolulu-based TruTag. The startup has developed edible micro-sized spectral barcodes etched on a porous silicon layer. Each microtag is assigned a unique identity code in the form a spectral pattern chosen from millions of combinations. Details pertaining to the unique identity are stored in a secured database, which also contains information such as the batch number, lot number, expiry date, date of manufacture, manufacturer information, or country of authorized sale.

    These microtags, each gram of which contains 12 million unique tags, can be embedded into solid dosage forms by incorporating it in the form of powder during manufacturing process or mixed in the coating solutions. The barcode-embedded products can be then scanned with a portable spectrometer to authenticate all information relevant to the unique identity code.

    Numerous strategies have been tested in the past to combat, drug counterfeiting including RFID tags, holograms, packaging barcodes, invisible ink, and magnetic threads. However, these strategies could be easily replicated by the counterfeiters, leading to invasion of the supply chains to get the counterfeited products into the market. Theoretically, the technology developed by Trutag could revolutionize supply chain management in pharmaceuticals due to minimal chances of the unique identity code being duplicated as the spectral pattern would change constantly.

    Although conventional RFID-based tracking system may remain a key segment for the anti-counterfeiting technologies, a lot of potential would be realized this incumbent technology - edible smart tags as it does bridge the gaps of RFID. The successful incorporation of edible smart tags in supply chain management would not only help prevent brand value and revenue losses for drug companies, but also gain consumers’ trust and reduce health risks.

  21. Will IP Intelligence Revolutionize Patent Search?

    About 615,243 patent applications were filed in the year 2014.

      to read | words

    About 615,243 patent applications were filed in the year 2014.

    That works out to about 1700 applications per day; of which almost 900 made it through.

    That’s 900 odd new patents granted, every day, for a whole year.

    Those figures are only expected to grow, perhaps exponentially, in the coming decades.

    Not impressed?

    Well, those 900 new patents are added to an already extensive list of over 6 million patents granted since 1963.

    That’s a veritable ocean of innovation and intellectual property.

    It grows deeper and deeper as mankind surpasses the limits of our knowledge and innovation, constantly pushing the boundaries of our aspirational accomplishments.

    While that’s all well and good, wrap your head around a simple fact — as an IP researcher, you’d need to navigate that immense ocean. Traverse its vastness for pearls of intellectual property.

    Mind boggled?

    Well, you’re not the only one.

    As the global web of protective and prohibitive patents grows thicker by the day, there’s a pressing need for innovative and intuitive approaches to patent research. We’re witnessing a growing need for an "IP Intelligence" of sorts, something that can assist a patent researcher in finding relevant information with ease.

    Consider some facts:

    • The United States Patent Office (USPTO) generates a whopping 12 GB of compressed patent data every week.
    • China is ahead of the US, with its annual volume of invention applications likely to grow well over 900,000 by 2018.

    This burgeoning number of applications has led to new and innovative solutions that help analyze patents. Some new companies such as Innography, Ambercite, and Aistemos, have created proprietary IP analytics tools that can help researchers analyze huge volumes of patent data, extracting insights at the click of a button.

    However, before extracting any intuitive insights, one of the foremost requirements of any patent-related search is arranging patents in a specified order that suits your unique requirements.

    Let’s consider this necessity for arrangement.

    While conducting a patent search, you’ll certainly have some criteria in mind. Let’s say you need to look at patents filed before date X, examine patents filed by company Y, check patents awarded to inventor Z, and so on.

    You will need to arrange your set of patents in a specific order, or filter them by some specific criteria. Almost all bibliographic data associated with a patent — filing date, assignee, inventor, etc. — can be used to sort patents. Most patent databases such as Google Patents, Thomson Innovation, and Questel Orbit, provide such filters and sorting options. However, as a researcher, there may be times when it seems you’ve run out of options, and you desire other more advanced ways to sort your data.

    While performing a patent search, you’ll have three generic objectives:

    • Locate exact prior art (to invalidate a patent)
    • Locate close and nearby prior art (to validate a new invention)
    • Locate certain features in patent claims (to analyze infringement)

    Each of these search objectives demands a different set of guidelines and filters to be applied on patent data.

    For example, in the third case, you’d be more interested in locating information in the claims of the patent. Similarly, for the first case, you would look for patents filed before a certain date that explicitly mention certain features.

    With the amount of available patent data constantly on the rise, applying multiple or varying filters as per specific requirements can be rather cumbersome for a researcher. There is a dire need for intelligence in this aspect.

    You’d probably envisage a solution wherein we sort patents by a straightforward filter named "Objective", drawing from the aforementioned three objectives.

    An ideal solution would go like this:

    • Execute a patent search query and get a result set
    • Apply an objective filter
    • Sort the patents as per their relevancy with the input query

    Such a system could conduct multiple analytics projects at the same time using the same search query.

    With the kind of work being done in IP analytics, such intuitive features may soon be commonplace in existing patent databases, heralding a new age of ease and efficiency in intellectual property research and analytics.

  22. Can New Shape Memory Alloys Become The Next Big Actuators?

    Shape Memory Materials (SMM) are those materials that on deformation can return to its original shape and size

      to read | words

    Shape Memory Materials (SMM) are those materials that on deformation can return to its original shape and size when subjected to high temperatures beyond a critical point. There are two types of SMM –shape memory alloy (SMA) and shape memory polymer (SMP). Ni-Ti, Fe-Pt, Cu-Al-Ni, and Cu-Zn-Ti, among others, are some of the SMAs currently being researched across industries.

    SMAs tick most of the checkboxes pertaining to mechanical properties in terms of those required of a suitable actuator material, such as density, stress, strain, efficiency, and operating temperatures; however, they fail to compete with piezoelectric actuators due to low bandwidth, i.e., SMAs exhibit high response time. This particular shortcoming has been a major roadblock in SMAs being accepted as a superior replacement to current actuators, which demonstrate high bandwidth and fatigue cycles.

    Recently, a team of researchers claimed to have developed a Ni-Ti-Cu based SMA that can endure 10 million fatigue cycles and still regain its remembered shape. The researchers attribute this development to Ti2Cu, a Ti-Cu based chemical. And they believe that this chemical impurity has improved the phase switching process of the SMA without undergoing physical degradation over the course of cycle.

    So how does this development affect various major industries?


    Research activity in this industry has been significant over the past decade, but most research was focused on SMAs’ application in orthopedic and dental implants. With the recent development, we can expect the use of SMAs in many critical applications, such as artificial heart valves.


    Mechanical actuators are used to operate aircraft wings; however, considering the recent developments, SMAs may prove to be a suitable replacement to these actuators, as a lightweight, economical, and durable option.


    Companies such as GM, Hyundai, and Toyota have been exploring the potential applications of SMAs. GM introduced an SMA-based hatch-vent actuator,which helped them reduce 500 grams. As SMAs can operate consistently through 10 million cycles, it could be used as a valve actuator in combustion engines. Other applications areas may include regenerative braking, auto-transmission, and so on.

    In conclusion, this development does seem to be a major breakthrough for researchers in the field of SMAs. The major challenge for SMA, henceforth, would be to prove itself as a reliable alternative to existing actuators, which looks highly likely in the long run.

  1. What Does Demonetization Mean for the Indian Banking Sector?

    The Indian Government's move to ban the circulation of two of its highest currency denominations is a positive

      to read | words

    The Indian Government's move to ban the circulation of two of its highest currency denominations is a positive step toward fighting black money and fake currency. It also has the undertones of a transformation, pushing India to embrace the notion of a cashless economy in 2017.

    Of the all sectors that stand to benefit from sweeping change, banking will likely emerge as the biggest beneficiary.

    The World Bank pegs India’s shadow economy at 23% of the country’s GDP in 2007. Assuming the current economy stands at about $2 trillion, a shadow economy of similar proportions could be worth at least $450 billion.

    Even if all of that doesn’t find its way back to formal banking channels, the sizeable portion that’s expected to surface in the near future will create a massive ripple effect in the ebb and flow of India’s economy.


    Growth in the Banking Sector’s Penetration

    Even after a moderately successful Jan-Dhan Yojna, India still has a lot of catching up to do when compared with developed economies.

    Around 25 crore Indians have no access to commonplace banking channels. The sector has been plagued further by high operational costs as well as a growing number of  dormant bank accounts; just 20% of accounts among developed economies lay dormant, whereas 43% of Indian accounts are inactive.

    Demonetization is expected to change this scenario drastically.


    Higher Deposits Will Boost Credit Growth

    Given the minuscule limits attached to physical currency exchange right now, most of the country’s legitimate (but untaxed) income and wealth is expected to flow into banks through micro deposits and the disclosure of untaxed wealth.

    This will spur the volume of deposits, an influx of capital that will fuel credit growth.


    Electronic Payments Will Generate More Revenues

    With the bulk of the nation’s currency deposited in banks, the baking sector's growing penetration, as well as the increasing awareness of digital payment methods — net-banking and card payments will surge.

    The nation’s unified payment interface apps will also increase the ease (and quantum) of transfers within personal accounts as well as to merchant accounts.

    Indian banks can use this unique opportunity to push their electronic payment and mobile money solutions.


    Lower Inflation Will Result in Rate Cuts in the Medium-term

    In the recent past, RBI has been perennially citing higher inflation as a reason for lower than expected or no benchmark rate cuts.

    Most economists associate the nation’s big shadow economy with its higher than expected inflation.

    With a sizable portion of the country’s unaccounted-for money being eliminated or entered into formal banking systems, the increasing money supply would moderate the country’s inflation outlook.  Short-term illiquidity of physical notes could further support some short-term moderation in the level of economic activity, helping lower inflation.


    The Real Estate Sector — Problem Child, or Blessing in Disguise?

    Considered as the most prominent sector for black money funding, the real estate sector’s asset valuations are very likely to drop a good deal, and developers may experience some liquidity issues for ongoing projects.

    Declining prices in the real estate sector could create some downside risk for existing loan portfolios, possibly leading to higher risks of loans turning NPAs.

    In the medium to long-term however, the softening in valuations expected will help attract investors, causing the uptake of much higher volumes.


    Recent developments will definitely have significant long-term benefits for the banking sector, and in turn, the overall economy.

  2. Could a Single Tax Help Revive India’s Real Estate Sector?

    The Indian government’s uniform taxation system for goods and services across the nation is expected to come i

      to read | words

    The Indian government’s uniform taxation system for goods and services across the nation is expected to come into play from 1 April, 2017. This is good news for several sectors in India, especially real estate.

    That is of course, assuming the as yet undecided uniform rates will be favorable.

    In the works for well over a decade, the Indian Goods and Services Tax (GST) is a single tax rate that will be uniformly applicable to the manufacture, sale, and consumption of goods and services across the nation. The complexity in pulling something like that off in a country as large and diverse as India cannot be overstated.  It’s also one of many other reforms meant to improve India’s prospects through uniformity and good governance.

    What Does the GST Mean for the Indian Real Estate Sector?

    Meant to be a single uniform tax, the GST will replace various state and indirect local taxes such as the Value Added Tax (VAT), Central Sales Tax (CST), Excise Tax, Service Tax, and Customs.

    When enforced, it’ll streamline and simplify several existing processes, making things easier (and transparent) for everyone from builders down to buyers, and hopefully, boost a sector that’s been somewhat sagging of late.


    Lower Cost of Construction

    Commercial property developers are usually saddled with high costs/debt during construction — especially among commercial buildings that are rented out and need time to accrue any serious ROI — predominantly due to a lack of credit facilities.

    The GST will ensure smooth flow of credit and reduce restrictions on the availability of construction-related credit, liquidity that could lower costs and overhead in the construction sector


    Clarity, Consistency, and Ease in Taxation

    There are two primary levies in the Indian real estate sector right now — Service Tax and VAT — with overlapping tax bases and no fixed rate of taxation. Inevitably, this has led to developers across various Indian states following multiple standards/practices with respect to compliance, leading to persistent disputes.

    The elimination of multiple taxes (such as VAT, service tax and stamp duty) in real estate transactions could really simplify the process for both buyers and sellers.

    A single GST will also do away with the plethora of tax authorities that have to be dealt with, consolidating supervision under one authority.


    Lower Unit Costs for Real Estate Buyers

    At the moment, Service Tax and VAT on the purchase of residential units (when a project is under construction) fall on property buyers instead of developers, thereby increasing the overall cost to consumers. All local and state taxes remain recurring until a property buyer takes final possession. Taxes that developers pay (such as excise duty, customs duty, taxes on the cost of construction materials, and CST) are also factored into the pricing of units.

    Back-of-the-envelope calculations indicate that such taxes account for a 22% – 25% increase in the usual price of units.

    These inflated costs inevitably dissuade buyers, resulting in low demand for property purchases. It also makes Tax compliance and the associated processing/paperwork tedious. With the GST in play, developers and buyers alike would have a consolidated simplified tax to pay, thus decreasing the cost of transactions and transfer.

    Indirect taxes aren’t paid for “ready to move in” properties however; the GST won’t make a significant difference to buyers for such flats.

    The overall rationalization of property prices will benefit buyers however, and demand for real estate is expected to climb after the GST is rolled out, boosting the real estate and construction sectors as well as India's economy as a whole.


    The GST’s Real Impact on the Indian Real Estate Sector Depends on the Rates That Will Be Established

    India’s GST Council has hinted at four tier GST slab structure— 5%, 12%, 18% and 28% — with lower rates for essential goods and higher slabs for luxury and demerit goods.  

    The eventual impact of the unified GST on India’s real estate sector will depend on which of these slabs it’ll fall under.

    However this plays out, the Indian real estate sector has already seen several positive developments this year in the form of a Real Estate Regulatory bill as well as the GST Bill.

    Such regulatory changes are likely to have a positive impact on India’s real estate sector, helping it overcome several challenges — especially those pertaining to taxation and transparency — that often mired developers and buyers alike in long-drawn litigation.

  3. Coming Soon in 2017 — The Second-largest Firm in the Oilfield Services Sector

    This could be the first of more mergers as the oilfield services sector weathers volatile oil prices.

      to read | words

    This could be the first of more mergers as the oilfield services sector weathers volatile oil prices.

    On the 31st of October, 2016, General Electric (GE) announced the merger of its oil and gas unit with Baker Hughes.

    Expected to finalize by mid-2017, the merger — subject to regulatory and shareholder approval —  will lead to the formation of a new entity that will be one of the largest players in the oilfield services sector, second only to Schlumberger.

    Revenues of New Entity vs. Peer - 2015 (US$ bn)
    In 2015, the combined revenues of GE’s oil & gas division and Baker Hughes stood at US$32bn as compared to Schlumberger’s US$35bn, making them the second-highest entity in the oilfield services sector.

    GE will hold a 62.5% stake in the new entity, while Baker Hughes will hold 37.5%.

    In addition to folding in its oil and gas segment into the new entity, GE will pay a special cash dividend of US$7.4bn to Baker shareholders as part of the deal.  

    This Deal Brings Together the Best of Both Worlds

    While GE specializes in equipment manufacturing, Baker Hughes provides services such as hydraulic fracturing and horizontal drilling.

    Their complimentary —and now combined — products and services will provide seamless oil-field services/solutions across the value chain, giving them an edge over their immediate competitors.

    The Combined Entity’s Spectrum of Services Could Give It an Edge Over Its Peers

    Service offerings - Combined Entity Relative to Peers

    GE’s management also expects the new entity to have a strong footprint across production and mid/downstream segments, putting the new entity in a better position to compete with the industry leader Schlumberger. 

     According to Barclays, global Exploration & Production (E&P) spending is expected to increase by 5.0% YoY in 2017, following an estimated 22% and 26% YoY decline in upstream spending during 2016 and 2015, respectively. We believe this is largely driven by:

    • Investments in the North American onshore sector.
    • Recovery in oil prices on declining inventory builds, which would incentivize producers’ to increase their E&P activity.

    Fitch also expects global E&P spending to increase moderately in 2017 and report a robust growth in 2018. The increased E&P spending indicates that demand for oil and gas field services could potentially rise in 2018 as producers ramp-up operations.

    With a diversified and strong product portfolio, the combined entity will be better able to capitalize on growing demand, which will in turn help support business growth.

    GE expects the deal to contribute US$1.6bn in synergies by 2020. This includes US$1.2bn in cost synergies and US$0.4bn in revenue synergy. Considering GE increased cost focus and that the projected synergies are based on a high implied cost base of US$27bn; some market participants believe that these expected synergies are realistic (and well-within reach) even though execution risks remain.

    GE also expects a positive impact of US$0.04/share and US$0.08/share on its 2018 and 2020 earnings per share (EPS), respectively.

    The deal is valued at 2018 EV/EBITDA multiple of 11.0x. Based on Bloomberg consensus estimates, Baker Hughes EBITDA is projected at US$2,310mn for 2018 and US$1,376mn for 2017. Accordingly, the implied Enterprise Value (EV) stands at US$25.4bn (excluding synergies).

    Synergies included, the implied EV is US$30bn.

    While media reports suggest (based on Baker’s closing price, 27 October 2016) that the deal is priced at a 17% premium, the premium could be as high as 25-30% with synergies included.

    The proposed merger appears to be a win-win situation for both companies.

    This deal is indicative of the leverage to be gained through M&A opportunities, especially by companies who not only want to withstand the current volatility in oil prices, but also increase the size and scale of their operations.

    It’s also the latest in a series of signs of that hint at consolidation in the oil and gas industry, with smaller companies ripe for the taking. 

  4. India’s Largest Online Travel Agent Just Bought Out its Biggest Competitor

    Other mergers could follow suit to counter the new behemoth.

      to read | words

    Other mergers could follow suit to counter the new behemoth.

    MakeMyTrip, India’s largest Online Travel Agent (OTA) is set to buy ibibo Group (owned by South Africa’s Naspers) in an all-stock deal for just under $2bn.

    With MakeMyTrip dominating the online air bookings segment and ibibo’s solid traction in the hotel bookings segment over the past year (second only to MakeMyTrip) this merger could mean a one-stop-shop for all your online travel booking needs, giving customers an end-to-end seamless service like never before. 

    The combined entity is estimated to have ~45% market share in online flight bookings and ~49% market share in online hotel bookings, making it the single largest player in India’s crowded online travel market.   

    Overall Indian OTA Market Shares

    India’s online travel and tourism industry could be worth $16.5bn by 2020, up from $8.5bn in 2015.

    The overall Indian travel and tourism industry in India could be worth about $42.4bn by 2020, up from $25.7bn in 2015.

    It’s grown steadily over the past few years as a growing number of Indians with a penchant for travel indulge in some quality time off.

    India's Travel Industry (Size in $bn)

    This steady surge in India’s domestic tourism is driven by the a number of factors such as:

    International tourism is booming as well, spurred by:

    • Evolving business and pleasure destinations in India.
    • Value-for-money, with several economical holiday destinations well within reach
    • Opening up of larger sections of the economy to private sector/foreign investments.
    • Local government initiatives in states such as Kerala, Rajasthan and Gujarat that promote tourism.
    • Campaigns such as “Incredible India” & “Clean India” that have cleaned up the country’s grimy image.
    • Reforms in India’s aviation sector such as the ‘Open Skies Policy’ that encourage greater international airline connectivity.

    The Indian online travel market is a highly competitive market right now; existing players are burning through cash trying to boost their own transaction volumes and establish a firm foothold.

    If this deal is anything to go by, consolidation could be the only way forward to survive in India’s OTA space.

    Going forward, international OTAs such as Expedia and Priceline ( may opt to acquire smaller players as well; especially if they want to lock horns with the new online travel booking behemoth in India's increasingly competitive travel market.

  5. Will a Governor’s Exit Really Hit the Indian Markets?

    When one of the world's best central bankers calls it quits, markets will wince, policies will change, and

      to read | words

    When one of the world's best central bankers calls it quits, markets will wince, policies will change, and economic reforms will unravel.

    Or will they?

    At the helm since 2013, Reserve Bank of India Governor Raghuram Rajan has been a beacon of hope for Indian banking.

    He’s kept a $1.7 trillion economy steady in a turbulent global economy.

    He steered the mammoth economy true, slashing inflation by half.

    He did that while keeping interest rates low — their lowest in over five years — spurring economic growth and consumer spending.

    He put a successful plan in play to curb bad debt, restoring faith in the nation’s credit growth.

    He ushered in a new age of banking, making services available to over two-thirds of a population that was otherwise cut off from mainstream banking.

    He tackled the Rupee’s volatility head-on, reducing India’s foreign exchange deficit by $118bn.

    He did it all in three years.

    Through sustained policy focus and structural reforms, Rajan has completed some herculean tasks without faltering. With the worst behind him, a second tenure as Governor would be a milk run as compared to the past few.

    And that’s precisely why his decision to drop out dropped jaws everywhere. 

    Raghuram Rajan took the world by surprise when he announced that he wouldn’t serve a second term as Governor. Indian markets and the Rupee saw a knee-jerk reaction, but soon recovered.  With Rajan all set to bid adieu in September, many believe India has a tough road ahead. 

    Opinion is divided on whether Rajan’s exit — popularly known as Rexit — could stall the momentum of India’s economic recuperation.  As investors fret about the possibility of resurging inflation and a volatile currency, there’s probably good reason for them to doubt the Indian economy’s ability to come out unscathed. 

    Speculators are wary of a Foreign Institutional investor (FII) sell-off in debt markets. 

    Foreign investors have poured USD40bn into the relatively stable Indian debt market, hoping for high yields. They were counting on  Rajan to stave off the Rupee’s depreciation. A Rexit could lead to falling interest and exchange rates, pushing foreign investors to pull out in the short term.

    There’s also growing uncertainty over many unresolved issues such as injecting liquidity into distressed public sector banks, implementing a nation-wide Goods and Services Tax (GST) , as well as the land acquisition bill, that are damping investor sentiments. 

    The State Bank of India (SBI) believes India has nothing to fear from a Rexit however. 

    They’re cautioning against taking drastic action based on speculative assumptions. It’s arguable that India has been grappling with inflation since ’83, well before Rajan’s time. In any case, the consumer price index (CPI) would not have any stable correlation with monetary policy instruments over short and medium terms, simply because it’s susceptible to supply-side tremors.

    Some even believe Rajan has been given more credit than due. 

    When Rajan took over, the Rupee was in a stable position due to a digression from quantitative easing and low interest rates as the economy improved. While India’s inflation seems to have been reined in during Rajan’s tenure, some attribute it to the massive decline in oil and commodity prices. Since 2013, oil prices have dropped to less than half of what they used to be.  The low current account deficit could be attributed to the fall in crude prices as well.  In this light, it wouldn’t be fair to say that inflation is under control only due to the RBI’s monetary policy and high interest rates.

    Rajan’s move to cut interest rates in order to control inflation was also slower than the banking industry expected, adversely impacting the amount of India’s capital inflow. This particularly hit SMEs, who now have to pay higher interest rates (16-22%) than their larger corporate counterparts (9%).

    While Rajan’s exit would cause some inevitable market fluctuations, they’re likely to be knee-jerk reactions that’ll diffuse in the long run. If the next Governor can strike the right chord on continuity versus change, shifting the markets’ focus toward improving macro fundamentals, such short-term volatility won’t amount to much. 

    India’s economy seems to be doing well, bolstered by favorable reform as much as by the will of the Gods. Given its steady momentum and relative isolation from upheavals in global markets, it’s unlikely that a single factor, even one as significant as the Rexit, would significantly sway the Indian markets.

  6. India Will Be a Better Bet for Foreign Investors After the GST Bill

    Marketed as “one nation, one tax”, a single levy applicable throughout the country will turn India into a sin

      to read | words

    Marketed as “one nation, one tax”, a single levy applicable throughout the country will turn India into a single, unified market that does away with the calculus that was inter-state taxation.

    The Upper House of the Indian Parliament passed the Goods and Services Tax (GST) Bill on Wednesday August 3, 2016. While there are still quite a few details about implementation that still need to be established and ironed out, the entire nation will be adopting a uniform taxation system for goods and services, an agreement that’ll be iron-clad in less than a year if everything goes to plan.


    It’s Not Set Yet

    The bill still needs to get through some legislative hoops before it’s implemented however, needing approval from India’s Lok Sabha (the lower house of parliament) , a majority of its 29 state governments, as well as another bill that details its implementation. 

    This bill has been in the works for well over a decade though, and that’s plenty of time to acclimatize to something. Having already gotten past the worst rungs of its approval process, and with most of the deciding states more or less on board, the GST’s last leg of the approval process should wrap up without a hitch.


    How Does It Impact India?

    While that’s all well and good, what does the GST really mean for trade and commerce within the country?

    The significance of a single tax rate that’s uniformly applicable to all goods and services for country as large and diverse as India cannot be overstated.

    The GST will meld a myriad of taxes at the Central and State levels into fewer taxes — a Central GST, a State GST, and an Integrated GST. The GST covers all but a few goods such as alcohol and petroleum products. Thus, for all practical purposes, the GST will be a default tax for almost all goods and services across the country.

    A uniform taxation framework is immensely significant from tax administration point of view.

    The actual rate of GST is yet to be established and revealed at the moment, and markets are eager for information that’ll help assess which sectors will come out on top, and which could be pulled under by heavier taxes. Assuming a speculated rate of ~17 or 18 per cent GST however, erstwhile highly taxed sectors such as automobiles, cement, logistics, retail, and consumer goods are expected to benefit, whereas sectors like telecom — where service tax (~15 per cent) is applicable — may witness higher tax outgo.

    For the most part though, policy-makers will do their best to set GST levels such that overall fluctuations in taxation remain relatively neutral after the bill’s implementation. The net effect could mean a surge in trade and consumerism within the country however, bolstering its already bettering economy.


    Will the GST Beget More Foreign Investments?

    The GST’s implementation will probably make a bigger difference to foreign investors.

    Besieged by a volatile global macroeconomic environment beset by slow growth, falling commodity markets, and ineffectual stimulus strategies by central banks in developed markets, a stable Indian market will seem far more appealing to foreign investors.

    India is a large consumption-driven economy, with relatively untapped domestic demand (thus far) by global standards.

    Something like the GST bill coming to be is indicative that the government is functioning cohesively, and that it’s capable of bringing about the political consensus necessary to implement essential reforms.

    This stands in contrast to government inactions in several developed nations that are beset with problems at the government level, such as the obstructionist strategies of the opposition party in the US, or the fiscal conservatism and political pressures to adopt more populist policies in Europe.

    The GST is a harbinger for several other reforms that the Government of India is spearheading, and they’re all angling to make India a lucrative investment option for foreign investors.

  7. Will Rising Oil Prices Hit Saudi Arabia's Petrochemical Margins?

    The Kingdom of Saudi Arabia’s petrochemical sector could see a dip in their margins post 2Q if o

      to read | words

    The Kingdom of Saudi Arabia’s petrochemical sector could see a dip in their margins post 2Q if oil prices keep rising.

    Prices of Brent crude rebounded to USD48.9/bbl in June from its lowest level of USD27.9/bbl in January.  This is bad news for Saudi Arabia’s petrochemical sector, as rising oil prices have a cascading effect on the prices (and profitability) of downstream petrochemicals.

    Naphtha Prices More Sensitive to Movements in Oil Prices

    With most downstream products produced directly from crude or its immediate derivatives, oil is a major cost driver in the petrochemical industry. Naphtha — a key precursor for a number of downstream products — is particularly susceptible to fluctuations in oil prices. Japanese naphtha prices (a key indicator) are highly correlated with those of oil, as evident in the chart below. A correlation of 0.99 between 1Q FY10 and 2Q FY16 is indicative that naphtha prices closely follow movements in oil prices. On the other hand, the correlation between the prices of Brent crude and other petrochemicals were lower than that of naphtha and oil prices, an average of 0.77 during 1Q FY10–2Q FY16.

    oil & petrochemical prices

    oil & petrochemical prices

    Oil Prices Could Hit USD47.0/bbl by the End of 2016

    Based on the short-term energy outlook released by the U.S. Energy Information Administration (EIA) in June 2016, Brent oil prices are expected to average USD44.8/bbl in 2Q FY16. They’re expected to be higher than 1Q’s USD35.3/bbl, touch USD46.0/bbl over 3Q, and likely hit USD47.0/bbl by 4Q FY16E. This would spike naphtha prices faster than those of downstream petrochemicals, leading to a contraction in spreads.

    Petrochemical Spreads

    Petrochemical Spreads

    While most petrochemical prices have increased during 2Q FY16 as several producers recorded a healthy turnaround across most key regions, normalization in petrochemical supply would dent product prices in 2H16.

    Petrochemical Margins Will Shrink Significantly Over 2016

    Most petrochemical companies in Saudi Arabia use naphtha and natural gas (ethane) as feedstock for downstream products. There are fixed ethane supply contracts in place (at around USD0.75/mmbtu) for the near future, an effective buffer against contracting PE-naphtha spreads for now. 

    While gross margins would remain unfazed in the short term, most such contracts would get over during or after 4Q FY16. Thus, any drastic increase in oil prices would impact petrochemical margins in 2017. Moreover, a contraction in PP-naphtha spreads could dent the gross margins of petrochemical companies in Saudi Arabia.

    Petrochemical Sector Margins

    Petrochemical Sector Margins

    Saudi Arabia’s petrochemical companies still have room to breathe, with the impact of rising oil prices deferred due to existing supply contracts. Nonetheless, profit margins are expected to shrink after 2Q FY16 or 3Q FY16 for a while, stumbling the sector’s Bull Run during the oil glut.

  8. The Brexit Won’t Really Affect Britain’s Trade

    While the markets are rife with speculation about an exit’s aftermath for both the UK and the E

      to read | words

    While the markets are rife with speculation about an exit’s aftermath for both the UK and the EU, Britain’s trade turnovers ought to bounce back with gusto after an initial lull.

    The UK is staring down the barrel of a recession if it decides to leave the EU officially.

    If Britain really pulls out, it’s going to be a turbulent two years ahead, marked by plenty of political posturing and speculation in her financial markets. An unsettling state of affairs to be sure, and one that’s likely to last for the next 18 months at least.

    Beyond that however, the Brexit will be mildly positive for the UK.

    Free trade with Europe will most likely be the same, as the UK is a big importer (i.e. €100 bn p.a) and a truly international market. EU regulations would no longer apply to several segments of the economy, allowing them far more leeway and the flexibility to grow.

    While manufacturing contributes just about 11% to Britain’s GDP, a weaker Sterling could be good news for the sector, boosting earnings from exports.

    Autonomy would also allow the country to establish trade deals with non-European countries more easily, primarily as they’d have less bureaucracy to contend with.  The UK could also see a mild increase in inflation, as imports from EU members will be expensive on account of customs and trade tariffs.

    The world’s fifth largest economy still hasn’t invoked Article 50 of the Lisbon Treaty, which would signal its formal withdrawal from the EU.

    If it does, the UK will have just two years to hammer out fresh trade agreements with its former EU associates.

    The markets won’t wait that long though.

    They’ve likely already worked out their workarounds.

  9. 5 Sectors and 6 Stocks That Will Flourish After a Flush Indian Monsoon

    India's expecting more rain than it'll need this year, a welcome respite after two years of shortfall. While

      to read | words

    India's expecting more rain than it'll need this year, a welcome respite after two years of shortfall. While cloudy skies don't impact the Indian stock market significantly, they're definitely good news for some of the country's agri sectors that have been too long in the gloom.

    The monsoons have finally arrived in India, moving further inland after having touched its southern states. After two years of deficit rainfall, the monsoons in 2016 are expected to remain 106% of the Long Period Average (LPA) with a deviation of above or below 5.0%, as per the estimates issued by the India Meteorological Department (IMD).

    Rainfall Range (% of LPA)
    Forecast Probability (%)
    Climatological Probability (%)
    Deficient <90 1 16
    Below Normal 90 – 96 5 17
    Normal 96 – 104 30 33
    Above Normal 104 – 110 34 16
    Excess >110 30 17

    Source: India Meteorological Department

    The Above Normal monsoon expected is wonderful news for India’s farmers, over 70% of whom rely directly on the rain for irrigation.

    While 2015 was an El Nino year that resulted in weak monsoons and droughts in several regions of the country, 2016 is expected to be the opposite — a La Nina year— and bring bumper harvests due to better rainfall.

    The chart below shows food grain production versus rainfall for the last ten years in India:

    Food Grain Production versus Rainfall in India

    Source: India Meteorological Department and Ministry of Agriculture & Farmers Welfare
    Note: Normal rainfall/LPA is the 50-year (1951-2000) monsoon season average of 89 cms (35 inches)

    It’s no secret that agriculture is a big part of the Indian economy; 2015’s CIA Factbook figures pegged the sector’s influence at 16.1% of India’s GDP.

    The likelihood of good monsoons has renewed hope for stable food prices and lower inflationary pressures in the country, allowing the Central Bank of India to reduce its benchmark lending rate.

    Trading in the Rain — Monsoons and the Indian Stock Market

    While there’s no doubt that the monsoons impact movements in the Indian stock market, there are several other factors in play as well. Local political and economic factors in addition to global variables have a stronger impact on fluctuations in India’s markets.

    An analysis of stock market returns from the past decade demonstrates that there’s no direct or binding relationship between the monsoons and market fluctuations in India. There have been years when the market generated good annual returns despite deficit or below average monsoons, and vice versa.

    Index Returns versus Rainfall in India

    Source: CAPIQ, NSEI | *As of June 14, 2016

    The Monsoon’s Impact on Key Indian Sectors

    A good monsoon in India inevitably boosts its economy, and subsequently, the purchasing power of Indian consumers. Some of these sectors are listed below:


    Although agriculture and allied sectors such as fertilizers and agrochemicals have been negatively impacted due to two years of weak monsoons, the push for 2016’s bumper harvests is bound to boost demand in the agri-input sector.


    Rural and semi-urban India are huge markets for India’s automotive sector, and a good monsoon will have a direct bearing on the purchasing power of these customers. The tractor and two-wheeler segments have been sluggish over the last two years due to several factors, including weak rural demand and low minimum support price (MSP) for farm products.

    The industry is expecting a surge in sales, with demand likely to rise in tandem with rural affluence after reaping the benefits of a good monsoon.

    Fast Moving Consumer Goods (FMCG)

    Indian companies in this space count on rural India for nearly 35% of their total revenues.

    Although falling commodity prices have driven down input costs in this sector, the quality of monsoons also impacts these companies’ annual performance.

    Public Sector Banks

    The monsoon winds are a breath fresh air for public sector banks that have been grappling with agricultural non-performing assets (NPAs). They can now expect to collect on debts that the government waived in order to help farmers cope with the below average monsoons of the last two years.

    Power Sector

    Low water levels at hydroelectric dams were detrimental to the generation of electricity, causing a number of power cuts in the country every year when the monsoons are weak.

    Not only could healthy monsoons boost power production, they could in fact reduce its consumption as well, as the cool monsoon climes reduce the necessity for air-conditioning during India’s hot and humid months of May-June-July.

    The Monsoon’s Impact on Key Indian Stocks

    Companies in agri-based sectors are counting on this year’s monsoon to offset some of the deficits they’ve suffered over the last two years.

    They’re hoping that the heavy rains encourage growth in India’s agricultural sectors, boosting demand for fertilizers, tractors, chemicals and pesticides.

    Here’s our pick of a few leading firms in this space that are positive they’ll reap the benefits of a good harvest.

    Dhanuka Agritech Ltd.

    With plans to launch two molecules — Maxsoy (a soya bean herbicide) and Conika (a fungicide for various crops, fruits, vegetables and pulses) — this year, Dhanuka Agritech expects a 20% growth in revenue in the current fiscal. It’s sure to sustain its margins and expects it to grow it by a few basis points (bps).

    PI Industries

    With plans to introduce 2-3 products , both for domestic as well as international markets, PI’s outlook looks positive this year.

    Insecticides India Ltd.

    Hoping for a bull run as demand picks up and distributors build inventory, Insecticides India Ltd is optimistic about a 20-25% growth in revenue over FY17.

    Mahindra & Mahindra Ltd.

    Having reported sustained momentum in tractor sales during May this year, Mahindra expects demand to grow, with increase in agri income due to a good monsoon, advance estimate of Rabi crop production, and a rise in minimum support price (MSP).

    VST Tillers

    Optimism fueled by government subsidies and other benefits for irrigation and mechanization.

    Hero MotoCorp

    With nearly 45% of the company’s total sales derived from rural India, Hero MotorCorp Expects good business from rural markets if the monsoons are good. After nearly two years of sluggish growth, the company is optimistic about selling 12 million units this year.

  10. Would You Tango With Google? Perhaps Not

    Tango is being touted as an affordable Augmented Reality platform without having the clutter of the Cardboard or

      to read | words

    Tango is being touted as an affordable Augmented Reality platform without having the clutter of the Cardboard or other headgears. However, Tango seems far from being a game changer for the way users may consume indoor navigation using AR on mobile devices.

    Google Tango (running on Lenovo’s latest Phab2Pro) raised a fundamental question with its commercial launch recently – will it significantly influence the way an average user may deal with augmented reality? We believe, not really.

    Tango is being touted as a leap in promising new frontier in augmented reality (AR) and is being dubbed as an affordable AR without the clutter of the Cardboard or other headgears. Lenovo’s Phab2Pro is smart enough to grasp your physical surroundings, such as the room’s size and the presence of other objects and create virtual maps which may potentially transform how we interact with physical objects in space and time. This could enhance our day to day experience in the e-commerce, education and gaming space.

    In fact, several brands are eager to experiment with AR. For example, media reports suggest that Walmart and Tesco are creating virtual reality supermarket that one can wander in around using VR headgears such as Oculus Rift; or Marriot is intending to use it to showcase the sprawl of their properties.

    However, as far as Tango and its avatar on Lenovo are considered, I believe Tango is pretty basic at the moment and has only marginally evolved over its earlier version for tablets. It’s still riddled with bugs related to image rendering, reflective subjects and structured light, virtual reality quality and resolution. Horizon re-localization, frequent camera crashes and device orientation capability are some of prominent bugs the platform suffers from.

    In fact, its prolonged use may be an agonizing experience at start, and the form factor of the Lenovo Phab2Pro may not find a widespread adoption. Average users may not find it apt and useful enough.

    Tango does prove that AR and VR as technologies may not have leapfrogged from their nascent stages when they were introduced a few years ago. Tango is far from being a game changer for the way users may consume indoor navigation using AR on mobile devices.

    Ironically, Tango isn’t feeding into a much anticipated Google’s AR & VR project called Daydream. In fact, Google’s Daydream apps are slated to run only on newer Google-certified devices that need various VR-friendly components based on strict specifications. Only 6 manufactures have been appointed for its production. And, the list of approved manufacturers that will produce mobile devices to run the Daydream platform doesn’t include Lenovo, ironically.

    The whole project suggests that Google would like to shape and drive all the parts of VR experience. And, there seems no play for Tango here.

    Nevertheless, certain technology and telecom hardware manufacturers are indeed banking on Tango’s vision-based navigation capabilities to perform localization and navigation in the outer space. Google has partnered for this with the likes of Apelab, AutoDesk, Bosch, Dive, Infineon, JPL, Sagivtech, SideKick and Inuitive for the program.

    Also, the partnership between Google and Qualcomm will see the chipmaker incorporate the technology into its smartphone reference designs which may interest its competitors and a few imaging (video card) manufacturers. Since the technology involves 3D sensing, it may provide a boost to commercial 3D printing.

    Having said that, the technology platform may struggle to gain market acceptance. Limited apps and functionalities, and heavy dependence on developers hang its fate in limbo at present. It looks likely that Tango may have a slow start, similar to Curved OLED devices, VR headgears and Wearable devices showcased a few years ago at the CES. Fingers crossed.

  11. Could the Nuclear Suppliers Group Supercharge India’s Power Sector?

    nuclear deals India’s vying for a seat at the big table. The Nuclear Suppliers Group (NSG) is e

      to read | words

    India’s vying for a seat at the big table.

    The Nuclear Suppliers Group (NSG) is expected to take a call on India’s membership later this month.

    Membership to this selective club entails sanctions to trade in nuclear materials and technologies — some mighty crucial privileges that’d bolster India’s ability to power its future.

    If things go India’s way, this could mean big business for the nation’s energy infra sector.

    What is the Nuclear Suppliers Group?

    In place since 1974 to control nuclear proliferation, the Nuclear Suppliers Group (NSG) comprises countries that produce nuclear fuel or manufacture technologies used for nuclear purposes. Member countries influence and control commercial activities related to nuclear materials and technology transfers.

    Why Does India Want to be Part of the Group?

    India is a big market for Uranium.

    With initiatives like Make in India, Digital India, and plans for a 100 Smart Cities across the country, India is going to need some serious wattage to power its plans.

    Membership to the NSG would allow India better access to uranium, helping the nation scale its energy production capacity using nuclear power. This would go a long way toward boosting India’s urbanization and industrialization as well, a boon for the country’s booming population.

    Being a member would also allow India to exert more control over global nuclear commercial activities, allowing her to export nuclear fuel as well as technological know-how.

    What Could Membership Mean for India’s Energy Sector?

    India has big plans for its future.

    It’ll need to amp up power production significantly if it wants to realize any of those goals.

    That amped up production will have to be both economically and ecologically feasible.

    India needs nuclear power.

    With plans already afoot to construct six nuclear reactors, India is going to need a steady supply of nuclear fuel to keep those reactors running.

    NSG membership could cement India’s stance as a nuclear superpower.

    It’ll also bolster some big players in India’s power and infra sectors.

    Stocks to Look Out for if India Gets into the Nuclear Suppliers Group

    Bharat Heavy Electricals Ltd
    Supplied certain reactor components to Nuclear Power Corporation of India (NPCIL) for its 220 MW and 540 MW reactors.
    Formed a joint venture with NPCIL and was looking to set up a 2,000 MW nuclear plant.
    ABB Group
    Manufactures components for power projects; and its parent company has exposure in nuclear power plants, systems and components.
    HCC Group
    Constructed four nuclear power projects in India, and is an EPC contractor for nuclear projects.
    Larsen & Toubro
    Signed four agreements with foreign nuclear power reactor vendors to supply reactor components.
    Sets up high-voltage switchyards at nuclear power plants.
    Walchandnagar Industries
    Manufactures critical equipment for nuclear power plants.
    KSB Pumps
    Preferred supplier of pumps to NPCIL.
    Alstom India
    Can benefit from potential demand for turbine generators used in nuclear power plants.

    Source: Aranca Research

    India has already established itself as a responsible nuclear superpower.

    The US already has civil nuclear deals in place with India, deals that have the NSG’s blessings.

    Four major nuclear superpowers — the US, the UK, France, and Russia—have already pledged support for India's bid for membership.

    All eyes are on the Nuclear Suppliers Group’s next plenary scheduled in Seoul on the 24th of June.

    The suspense is electrifying.

  12. Will India’s Auto Industry Pay the Price for Clean Air?

    13 of the 20 most polluted cities in the world are in India. In a quest to reduce air pollution,

      to read | words

    13 of the 20 most polluted cities in the world are in India.

    In a quest to reduce air pollution, the Indian Supreme Court banned registrations for cars with diesel engines that exceeded 2,000cc capacity, a ban imposed within the nation’s capital until March 31, 2016.

    This ban has now been extended indefinitely, and will likely be enforced in other states as well.

    While a noble and necessary reform, could this policy cause more harm than good in India?

    Jolted into action after a World Health Organization (WHO) report stated that 13 of top 20 polluted cities in the world are in India, the National Green Tribunal (NGT) has put a policy into motion that’ll help control pollution levels in the nation’s capital.

    The NGT extended similar bans across six cities in the state of Kerala during May 2016 as well. The Kerala High Court stayed the decision for two months however, holding off until July of 2016.

    The NGT is now considering a similar ban in 11 more Indian cities — which may include hubs like Mumbai, Kolkata, Bengaluru, Chennai, and Hyderabad.

    Indian states will soon have to submit a detailed report that includes data on total population, ambient air quality, the number of vehicles (with detailed classifications) as well as their pick of the two most polluted cities and districts in the state.

    A subsequent decision on banning diesel vehicles in these states is expected during the NGT’s next hearing between July 11th and 12th, 2016.

    While these bans could be instrumental in reducing pollution levels, there’s a fair chance they’ll also stunt overall growth in the nation’s automotive industry.

    Is the Ban on Diesel Vehicles Crucial to Reducing Pollution Levels?

    According to Society of Indian Automobile Manufacturers (SIAM), diesel vehicles with capacities in excess of 2,000cc are not a key cause of pollution. They believe the contribution to pollution from such vehicles is relatively minor.

    A study conducted by IIT Kanpur during 4Q15 revealed that only 20% of Delhi's emissions were caused by automobiles, a figure that’s aggravated by older vehicles. Emissions by new passenger vehicles was less than 2.0%, BS VI diesel vehicles contributed just 0.5%, and the diesel vehicles with engines in excess of 2,000c added a mere 0.13%.

    Automakers argue that the ban targeted at 2,000cc diesel engines is unjust, questioning why this isn’t simply a blanket ban on diesel engines in general. The ban primarily impacts brands such as Toyota (Innova, Crysta, and Fortuner) and Mahindra (variants of XUV 500 and Scorpio) for the moment.

    During May of 2016, the Delhi government informed the NGT that pollution levels in the city remained elevated despite taking diesel vehicles older than 10 years off the roads, banning new diesel vehicles >2,000c since December 2015, and implementing phase II of the odd-even car rationing scheme.

    A ban on new registrations of BS IV diesel vehicles would encourage people to continue using BS III cars, which do not meet current emission control norms, and is contrary to the overall objective of the ban.

    Will the Ban Impact Growth and Investment in the Automobile Sector?

    The automobile sector in India is a big employer.

    The ban in Delhi has already pared about 5,000 jobs, with production losses of over 11,000 vehicles between December 2015 and April 2016.

    The automobile industry contributes over 47% of the country’s manufacturing GDP and 8% of foreign direct investment under the Make in India campaign. The Indian Department of Heavy Industry (which is in favor of relaxing the ban) has stated that the sector has attracted US$ 5.1bn in investments under the Make in India campaign, and such a ban could adversely impact investments and further the growth in the booming sector.

    India has emerged as a hub for global car manufacturers.

    A ban on diesel vehicles could however, force key auto manufacturers such as Mercedes-Benz and Toyota Kirloskar Motor to re-consider their investment plans in India. Mercedes-Benz has already put future investments (into India) on hold after the ban, putting India's position as an attractive investment destination in jeopardy.

    Toyota has criticized the reforms, stating that they’re “against the principles of natural justice” and “unfair”, as the ban was imposed without consulting automotive manufacturers.

    Since the ban pertains to only those diesel engines with capacities in excess of 2,000cc, Toyota believes that it’s bearing the brunt of this ban, having limited sales of its key products —the Innova Crysta and Fortuner. The Innova Crysta has seen huge success elsewhere in the world, with ~20,000 bookings post its launch in May 2016.

    The trajectory of Toyota’s domestic vehicle sales has clearly witnessed a decline during January – April 2016 as compared with the same period in 2015.

    Toyota Vehicle Sales

    Toyota Vehicle Sales

    Will Implementation from BS IV to BS VI be a Formidable Challenge?

    India announced plans in January of 2016 to implement BS VI (from the current BS IV) by April of 2020, expediting its earlier target of 2022-23.

    BS VI norms are more stringent on diesel engines as compared to petrol engines.

    A BS VI diesel engine will result in reduction of 68% and 82% in nitrogen oxide and particulate matter respectively as compared to BS IV norms, while a petrol engine requires a 25% drop in carbon footprint as compared with the BS IV norms.

    By skipping BS V, India plans to upgrade to BS VI from BS IV in just 4 years, whereas Europe and other developed countries took about 10 years for a similar upgrade.

    Banning Beefy Diesel Engines — Good, Bad, Ugly?

    While the ban on >2,000cc diesel vehicles is only enforced in the national capital for the moment, it has given diesel vehicle manufacturers across India the jitters.

    Automakers have already invested in technology and are scaling up production of diesel vehicles, having anticipated future benefits in an upcoming market.

    This ban however, has created significant concern about India’s policies toward investments and growth, raising fears of strict and stifling governmental regulations.

    Rather than taking hasty decisions, the government ought to consult automakers and find a win-win solution — limiting pollution while also keeping automakers’ best interests in mind.

    Academic studies suggest that the real cause for pollution is elsewhere (primarily industries) causing over 80% of emissions. The government should also look into this facet, rather than simply penalize a particular segment.

    While hastening the process for implementing BS VI norms (particularly stringent towards diesel engines), will the government also impose stringent tests for pollution control, ensuring there’s no scope for violations or fraud ?

    Will the eventual environmental benefits outweigh the initial hit that the Indian automotive industry stands to take?

    It’s important to analyze the underlying motivation for such regulatory policies.

    After all, the road to hell is paved with good intentions.

  13. Will the RBI Keep Interest Rates Steady?

    Reserve Bank of India (RBI) Governor Raghuram Rajan presented its second bi-monthly policy review on the 7th of

      to read | words

    Reserve Bank of India (RBI) Governor Raghuram Rajan presented its second bi-monthly policy review on the 7th of June, 2016.

    As market experts and analysts expected, the central bank maintained its benchmark repo rate at 6.5%, amid inflationary pressure.

    Other key policy rates such as cash reserve ratio and statutory liquidity reserve have also remained unchanged.

    Nonetheless, the RBI remained accommodative in its monetary policy, and will continue to monitor macroeconomic and financial developments in order to identify further scope for policy action - if any.

    The RBI last cut its repo rate by 25 basis points to 6.5% in the first bi-monthly monetary policy review on 5 April 2016.

    There are numerous discussions and arguments about the decision and possible reasons for the RBI maintaining the interest rates. Let us analyze these matters in detail and identify the importance of each.


    The RBI closely monitors inflation — a key indicator — to set its policy rate.

    The Consumer Price Index (CPI) has declined around 50% owing to tight monetary policies, fiscal consolidation, and a fall in global crude oil prices. The CPI increased to 5.39% in April (up from 4.83% in March) however, primarily due to food inflation. Inflation numbers have already surpassed the RBI’s target of 5.0% for January 2017. This inflation impeded the RBI from cutting interest rates further The central bank plans to wait and assess India’s monsoon season before taking a call on food prices. India is expecting a good monsoon after almost two years of insufficient rainfall, and a positive outcome is likely to lower food inflation.

    Domestic Growth

    Economic growth in the country is expanding, fueled by an increase in demand and consumption.

    Recently published data revealed that India’s GDP grew at 7.9% y-o-y in Q1 2016, well above the market consensus, and recorded a growth of 7.2% in Q4 2015. With the possibility of a good monsoon and an implementation of the Seventh Pay Commission hike, consumer demand is anticipated to increase. The central bank will monitor growth in addition to inflation and liquidity levels before taking a call on easing interest rates.


    Global economic growth remains a concern, with a plethora of prevalent market issues.

    The prices of crude oil have rallied over the past two months, reaching US$50 per barrel in June. Although prices remain volatile, any surge would cause inflationary pressure in India. The US Fed’s inkling of a second interest rate hike has kept markets on the edge as well. With weak job data reported for May, the rate hike has been deferred. However, considering Fed Chair Janet Yellen’s positive take on the US economy, an interest rate hike remains a possibility in the near future.

    Another possible snag in the matter is the vote on Brexit, coming up on the 23rd of June. Britain’s exit from the European Union (EU) may cause uncertainty for FDI, immigration, and trade relations between India and Britain.

    Considering the gloomy conditions globally, the RBI’s stance on maintaining its interest rate is justified.


    With the RBI maintaining status quo in its last policy meeting, owing to uncertainties in both domestic and global economies, its future course of action ought to be interesting.

    Recent trends in inflation have been detrimental, and the central bank is facing difficulty in maintaining inflation within its target.

    Although an expectant good monsoon season would aid the central bank’s target, the recent rally in crude oil and commodity prices is exerting considerable pressure on fuel and related prices. Furthermore, the cereals inflation (around 2.5%), which should be abated by a good monsoon, is not extremely significant. The prices of vegetables and pulses are expected to be volatile, considering that the production of pulses contracted for the second year in a row.

    Beyond the home front, the vote on Brexit remains a concern. Britain opting to leave the EU may lead to turmoil in the Forex and currency markets. The RBI would also need to keep a close eye on the US Fed’s take on interest rates, as higher interest rates imply greater pressure on the value of the Rupee, which may require monetary defense.

    India’s issues with inflation (in the near future) coupled with the negative impact brought on by global factors could defer any changes to interest rates that the RBI makes in its next meeting.

  14. Should the UK Leave the European Union?

    To be or not to be – that is the question. The United Kingdom will take a long overdue c

      to read | words

    To be or not to be – that is the question.

    The United Kingdom will take a long overdue call on the 23rd of June 2016; a decision that could adversely affect its financial future.

    While there are several social, political, and economic undertones that will determine the ultimate consensus, the bottom line is that a Brexit could affect big business.

    As the debate rages on among citizen groups and policymakers alike, here’s a gist of events leading up to the referendum, and what could be in store for one of the EU’s biggest economies.

    Why is the UK Having it Out With the EU?

    The UK joined the European Common Market — now known as the EU — in 1973.

    The membership’s merits have always been debatable from the outset, and British perceptions of its benefits have always been mixed.

    This isn’t the first referendum on its membership with the EU.
    The UK held a referendum in 1975, when the popular vote favored staying in the EU.

    Nonetheless, there is discontent among the general public over several issues such as the outflow of funds to the EU and the influx of immigrants into the UK, to name a few. In addition, British influence in the organization diluted as the EU’s membership swelled from 8 (when the UK joined) to its current strength of 28.

    With growing dissent among British citizens, the Conservative Party’s election manifesto for 2015 pledged to hold a referendum on the UK’s membership in the EU by 2017. The party came to power in 2015, and British Prime Minister David Cameron then set a referendum on membership on the 23rd of June, 2016. While Cameron supports remaining in the EU, particularly after he negotiated certain important issues for the country , several key party members openly support leaving the EU, fueling political tension that’s likely to continue until the referendum.

    Should Britain vote itself out of the EU, it’d have to decide on an economic model that best suits its traits. Some of the potential options ahead include:

    • The Norwegian Model, according to which Britain would leave the EU and join the European Economic Area. That would give the UK access to the EU as a single market, with the exception of some financial services. The country would be free from regulations on agriculture, fisheries, justice, and home affairs.
    • The Swiss Model, as per which the UK would imitate Switzerland. While this would mean the UK wouldn’t be a member, it could still negotiate trade treaties on a sector-by-sector basis.
    • The Turkish Model, in which the UK would enter into a customs union with the EU. That would allow it access to the free market in manufactured goods but not financial services.
    • A Free Trade Agreement with the EU; similar to the Swiss model, but with better access to financial services.
    • Leaving the EU outright, and relying on its membership of the World Trade Organization.

    What’s the Potential Fallout from this Falling Out?

    Membership Fee

    Leaving the EU would result in immediate cost savings for the UK as it would no longer contribute to the EU’s budget.

    In 2015, Britain paid £13bn and received £4.5bn, recording a total expenditure of around £8.5bn (around 7% of the government’s National Health Service expenditure). Britain would certainly fare well on this front should it decide to leave the EU.


    One of the world’s largest markets, the EU accounts for roughly 25% of global GDP.

    A single market with no tariffs on imports and exports between member states, the EU is one of the UK’s biggest trading partners - accounting for 45% of the country’s exports and 50% of her imports.

    High volumes of trade within the EU give Britain significant leverage while drawing up trade rules as well. Britain also benefits from trade deals between the EU and other world powers. The EU has also engaged in active negotiations with the US to create the world’s biggest trade area.

    Needless to say, there exists a clear quid pro quo between the EU and the UK.

    If Britain opts to vote out of the EU, it would encounter trade barriers, higher taxes and stringent trade terms, which would negatively impact its trade numbers.

    In addition, the single market provides opportunities for economies of scale, competition, and innovation, all of which enhance productivity, and would be hard to completely replicate through trade outside Europe.

    Foreign Investment

    The EU is one of the most important sources of foreign direct investment (FDI) for the British economy.

    As per recently available data, the EU accounted for around 46% of the UK’s inward FDI.

    Firms and investors in various non-EU nations have been using Britain as a gateway to Europe, gaining from the zero-tariff environment and free movement of labor and capital. However, the inflow of FDI from the EU has slowed over recent years, with more investment flowing in from non-member countries.

    Inward investment is likely to slow in Britain until the referendum due to the uncertainty of the outcome and its consequences. An exit from the EU could hurt Britain in the short term until it renegotiates tariff and regulation terms. However, being a member of the EU and access to the single market are not the only reasons for firms to invest in Britain. There are other advantages to investing in the UK that are likely to keep foreign investments (and firms seeking a foothold in the country) firmly entrenched. Thus, in the long term, Britain would cope with the initial setbacks and maintain its position as a preferred destination for FDI.


    As per EU law, Britain cannot deny entry to citizens of another member state. This has led to a significant surge in immigration, particularly from Eastern and Southern Europe.

    As per the Office for National Statistics, 942,000 Eastern Europeans, Romanians, and Bulgarians, in addition to over 791,000 Western Europeans, work in the UK. While the pace of immigration led to certain difficulties with regard to housing and service supplies, the net impact has been positive.

    Immigration helped solve skill shortages and offset the consequences of an ageing population.

    Free movement also provided UK firms access to specialists with skills essential for high value-added industries. Around 63% of the members of the Confederation of British Industry voted in favor of benefitting from free movement. Going forward, estimates hint at the creation of about 1.5 million high-skilled jobs for EU15 migrants in the UK. This clearly showcases the influence of migrants on the UK’s industries and potential workforce.

    The impact on immigration following a Brexit would depend on the UK’s future relationship with the EU, as well as on changes to its immigration policy.

    If Britain introduces a policy to restrict the number of low skilled workers entering the country, leaning instead toward attracting skilled labor, it could create difficulties for low-wage sectors that are dependent on migrant labor. On the flipside though, this could be a boon to other sectors that face a shortage of skilled labor.

    In the medium term, net migration from the EU would decline if Britain was outside the single market, stunting the growth rate for Britain’s labor force. This may lead to higher pressure on wages and inflation, benefiting some workers — but at a hefty cost to some employers.

    On the contrary, the UK would be free from certain restrictive regulations of the EU, which may boost the overall flexibility of the labor market and offset some of the cost to firms from lower migration.

    Overall, it would be disadvantageous for Britain considering the influence of migrants on its industries as well as the restricted opportunities for its own citizens to work in the EU.


    The effect of leaving the EU on British employment depends on a number of interconnected factors, including trade, investment, and immigration.

    If trade and investment decline following a Brexit, jobs would be lost, and vice-versa.

    While a decline in immigration would mean more jobs, labor shortages could hold back the economy, reducing its potential for growth.

    Political Climate

    A Brexit in the current referendum could lead to a political breakdown in the UK.

    In light of the fact that several members of his party favor a Brexit, David Cameron’s government may immediately fall and he might have to resign.

    Moreover, a positive vote would add fuel to the independence movement in Scotland, as most Scots want to be part of the EU.

    In addition, a Brexit would mean the creation of a physical international border between the Republic of Ireland and Northern Ireland, which would be another difficult situation to manage.

    The UK’s decision to leave the EU would negatively impact growth prospects considering the country’s strong trade partnerships with member nations, political instability following the Brexit, and an unavailability of skilled labor in high-growth industries.

    However the referendum plays out, it’s likely more beneficial for the UK to remain a part of the EU.

  15. Wondering What UK Sector is Your Safest Bet in 2016?

    With global equity markets still adjusting to 2015’s turbulence, sectors such as housing as well as travel and t

      to read | words

    With global equity markets still adjusting to 2015’s turbulence, sectors such as housing as well as travel and tourism look like they’ll weather the storm to come out on top in the long run.

    Global Markets Overview 2015

    The year 2015 was a fairly mixed one for global equity markets.

    While they followed an uptrend in the first half of the year, a series of upheavals in oil and commodity prices, coupled with China’s lowest GDP growth in 25 years, impacted investor sentiment significantly —resulting in a volatile second half.

    On the other hand, the Eurozone witnessed modest growth due to fragile international trade, low domestic demand, and slower growth in emerging economies.

    Confidence in the US economy surged as well as the much anticipated Fed rate hike finally materialized toward the end of 2015.

    Here’s a recap of how the major indices in 2015 performed:

    Return (YoY %)

    S&P 500



    FTSE 100






    NIKKEI 225






    The S&P 500 declined 0.7% for the year, its worst performance since the financial crisis in 2008 when it dropped nearly 40%. The Shanghai Composite advanced 9.4% after a year of tumultuous swings, while Japan’s Nikkei 225 rose 9.0% due to a stable Yen.

    The year 2015 was a difficult one for FTSE 100, with the index losing 4.9%, marking its worst performance since 2011.

    Here are the top five performing sectors of 2015, arranged in order of their weight:

    FTSE 100 Performance Overview

    Return (YoY %)
    Oil & Gas Producers 12.7 -20.6
    Banks 11.9 -12.7
    Pharmaceuticals and Biotechnology 9.7 1.4
    Tobacco 7.0 13.3
    Insurance 6.4 3.7

    The year 2015 saw major heavyweights in the index registering losses, with Oil & Gas losing the most.

    Tobacco was the only one to generate healthy returns.

    2016 — A Difficult Year Ahead?

    The outlook for oil and commodity prices remains gloomy in 2016.

    As per a recent World Bank report

    , oil prices would average US$37 per barrel in 2016.

    It also reduced the forecast of 37 out of the 46 commodities it monitored.

    Iran entering the marketplace following the lifting of oil sanctions would result in a supply glut and more pressure on oil prices.

    Moreover, weakening demand from China, one of the largest consumers of gas and all major commodities, would burden commodity prices.

    The basic resource sector does not look promising in 2016.

    The US Fed’s decision to increase its benchmark rates in December was initially well received, with major indices registering upswings after the news. The global economy had other plans though, and a series of fluxes and a general slowdown did not bode well with the Fed’s decision.

    The US GDP grew slower than expected at 0.7% in Q4 2015 vis-à-vis the 2.0% growth recorded in Q3 2015.
    The slowdown was not restricted to just the US either.

    Asia’s powerhouses — China and Japan — had a terrible start to the New Year

    China’s momentum in the manufacturing sector is still declining, with its official PMI displaying a contraction for 11 consecutive months.

    Japan on the other hand continues to grapple with low inflation, with the Bank of Japan making an effort to curtail it through a policy of negative interest rates. Japan’s GDP contracted 1.4% in Q4 2015 after increasing 1.3% in Q3 2015, while the economy expanded a mere 0.4% in FY 2015.

    The Eurozone is feeling a chill from the global slowdown as well. The European Central Bank has had to intervene with additional stimulus to boost the economy time and again. In addition, the European Central Bank (ECB) continues to struggle with low inflation.

    While 2016 doesn’t look like a good year for economies across the globe, the UK is likely to fare better than other economies.

    Although the British economy didn’t come out of 2015 unscathed, the growth in domestic demand remains strong due to low oil prices. The services sector continues to drive the country’s economy as well, contributing 79% to its total GDP.

    Consumer spending in the UK has grown about 2.5% over the last three years, mainly due to a rise in jobs growth and a drop in the savings rate. This was further bolstered by an increase in consumer confidence and borrowing. We expect the trend to continue, helped by near zero inflation rates, which would boost income growth and help maintain low mortgage rates.

    Business sentiment is likely to remain strong in 2016 as well, boosted by cuts in corporation tax rates. Although growth will likely be sluggish as compared to previous years on account of risks related to China and other emerging markets (and continuing uncertainties in Greece and the Middle East) it is expected to follow a slow and steady pace in 2016.

    Amidst the prevalent volatile conditions, dividend yielding stocks are your best bet for stability and steady revenue.

    Firms with long track records of paying dividends tend to have share prices that are less volatile than others in challenging trading situations. In general, most companies that pay high dividends are quite mature, with substantial cash flows and good prospects. In addition, dividend yielding stocks help narrow losses on investments, as a portion of it is covered by dividends.

    With this background and framework in mind, here are our picks of sectors that are expected to perform well in the UK over 2016.

    Home Construction

    The house building & construction sector is currently booming in the UK.

    The sector is well supported by several government initiatives, including Help to Buy and Starters Home.

    The ‘Help to Buy’ scheme allows purchasers to borrow up to 20% of their purchase price — interest free — for the initial years, with a minimum deposit of 5%. The ‘Starters Home’ initiative aims to make 100,000 newly built homes available for first-time buyers under the age of 40, with a discount of at least 20% on the property’s value. Britain's Chancellor George Osborne also announced an investment of £7bn for house building, with the ultimate aim of creating 400,000 new homes.

    Rising disposable income among UK households is another positive for the sector.

    Moreover, mortgage rates are currently at record lows, and they’re expected to hold steady in 2016, with a hike in interest rates unlikely.

    Here are the top five FTSE 100 constituents in this sector, arranged in order of dividend yields:

    Dividend Yield
    Taylor Wimpey 5.8 11.7

    Barratt Developments

    5.4 10.5

    Berkeley Group Holdings

    5.1 9.4


    5.0 11.7

    Reckitt Benckiser

    2.1 24.3

    Among the above stocks, the best pick is Taylor Wimpey, which has the highest dividend yield of 5.8 and lower P/E than the average P/E of 13.5 of the group.

    Taylor Wimpey

    Taylor Wimpey is one of the largest UK-based house building companies. The company has a market cap of £6.1bn and posted revenues of £2.7bn in FY 2014.

    As per the latest trading updates, Taylor Wimpey delivered strong performance in FY 2015, led by a rise in house completions and an increase in average selling prices. The company expects its operating margin to be more than 20% (2014: 17.9%) and return on operating assets to be over 25% (2014: 22.5%).

    Taylor boasts of a healthy balance sheet, with £225m in cash as on 31 December 2015. The company began 2016 with a record order book of £1,779m.

    We believe Taylor Wimpey would generate lucrative returns in the long run, well aided by the improving macro-economic conditions and supportive government schemes.

    Barratt Developments

    Another top pick in the segment is Barratt Developments, which has a market cap of £5.9bn and generated revenues of £3.8bn as of 30th June 2015.

    The company displayed drastic improvement in the six months leading up to December 2015, with a 20% y-o-y increase in forward sales and a 9.4% rise in total completions.

    Barratt Developments has set a target to achieve a minimum gross margin of 20% and minimum return on capital employed of 25% by FY17 vis-à-vis 19% and 23.9% in FY15, respectively.

    Additionally, the company remains committed to shareholders and plans to return £667m to them by November 2017.

    The company’s performance is certainly indicative of its bright prospects.

    Travel & Leisure

    2015’s slump in oil prices was a boon to the airline and travel industry.

    Cheaper fuel allowed airlines to increase their coverage, and the low prices are expected to hold true throughout 2016, which also bodes well for these firms.

    In addition, unemployment in the UK for the three months leading up to November 2015 stood at 5.1% — its lowest since October 2005.

    With wages rising in the UK, the introduction of a National Living Wage scheme in April 2016 would only be a shot in the arm for consumer spending.

    Interest rates are also at record lows, and they’re unlikely to increase given the low inflation scenario and current global slowdown. In addition, the consumer price index (CPI) is currently hovering around the 0% mark.

    All these factors are likely to stimulate consumer spending.

    Here are the top five FTSE 100 stocks in this sector, arranged in order of their dividend yields:

    Dividend Yield
    EasyJet 3.7 10.2
    International Consolidated Airlines 2.9 8.6
    Compass Group 2.7 19.2
    Intercontinental Hotels 2.3 20.6
    Whitbread 2.3 16.9
    Carnival 2.2 14.7
    Merlin Entertainments 1.6 22.2


    The UK’s largest airline (in terms of passengers carried) is your best bet.
    It has the highest dividend yield and a lower P/E than most of its peers.

    The company has consistently delivered solid performance in 2015, with a record number of passengers and load factors for the month of August 2015. EasyJet has a clear strategy of easy and affordable travel at lowest prices. The company delivered strong performance last year, with improved revenues and higher margins.

    EasyJet’s solid cash position paved way for a 21.6% higher dividend last year, amounting to £219m.

    The airline has leveraged the low oil price environment by launching strategic routes, including Vienna and Basel, which would result in a higher number of passengers carried annually.

    If the company’s progress in 2015 is anything to go by, we expect it to continue its strong performance in 2016, augmented by positive macro-economic conditions.

    International Consolidated Airlines (IAG)

    Another pick from this segment is International Consolidated Airlines (IAG), the third largest airline in Europe in terms of revenue.

    The company was formed in January of 2011 following the merger of British Airways and Iberia, the flag carrier airlines of the UK and Spain, respectively. Since then, IAG has made a series of acquisitions to expand its fleet size and presence across geographies. Its most recent acquisition was the Aer Lingus Group, which contributed €45m to IAG’s operating profits since its merger.

    The company consistently reported an increase in passenger unit revenue and load factors over 2015.

    As per the recently declared results for the first nine months of 2015, IAG recorded a jump in revenues and pre-tax profits. The company remains well supported by persistently low oil prices, which have boosted IAG’s operating margins and free cash flow. Capitalising on its healthy balance sheet and strong performance in the first nine months of 2015, IAG announced the first dividend payment to its shareholders this year.

    Going forward, IAG plans to add eight Airbus Group SE A350 long-range jets to Iberia in order to augment an aging fleet. They’re also slated to add five A330 wide-bodied aircraft to increase the capacity of the Spanish carrier. In view of the positive prospects, the management made a material upgrade to its long-term (2016–20) financial targets as well.

    IAG is well placed to maintain its earnings growth momentum, benefiting from the positive demand scenario and acquisition synergies. It’s a definite Buy.

  16. CLP Group Enters the Indian Solar Market — Bold Entry Backed by a Unique Business Model

    Hong Kong’s CLP Group is optimistic about the Indian solar market, with talks underway to acquire a s

      to read | words

    Hong Kong’s CLP Group is optimistic about the Indian solar market, with talks underway to acquire a sizable portion of India-based Suzlon Energy’s 100 MW solar park project in Telangana, India.

    After establishing itself in the Indian conventional and wind energy industry, this acquisition represents the group’s first foray into India’s solar market.

    The Hong Kong-based CLP (formerly China Light & Power) group recently announced its intent to invest USD 1 Billion in the Indian solar industry, setting up a ~1 GW production capcity over the next 3 to 4 years. The company aims to achieve this by bidding for projects under the Jawaharlal Nehru national Solar Mission (JNNSM) as well as by investing in projects bagged by other firms.

    The group’s Indian subsidiary is in talks to finalize its entry into the Indian solar industry through an acquisition.

    Suzlon Energy won tenders for a cumulative 210 MW worth of solar PV projects in the state of Telangana via competitive bidding processes in January this year, signing Power Purchase Agreements (PPAs) with the state utility Telangana State Southern Power Distribution Company Limited (TSSPDCL). This represents Suzlon Energy’s first foray into the solar energy sector, and they’re leveraging their wind business model of developing and deploying projects.

    Suzlon’s planned cumulative capacity of 210 MW includes a 100 MW solar farm that CLP is looking to acquire.

    The deal may be announced in a couple of days if everything is finalized.

    The Telangana project represents a sizable chunk of the PV projects that Suzlon Energy plans to undertake this year.

    Suzlon Energy Telangana

    Suzlon Energy Telangana

    Source: PV Magazine

    In addition to the 100 MW project, Suzlon Energy bagged additional projects for a 50 MW and four projects of 15 MW each. All these six projects would be developed under separate Special Purpose Vehicles (SPVs).

    Suzlon Energy plans to oversee the 100 MW project itself, handing over the other five projects to five of its recently acquired subsidiaries:

    • Amun Solar Farms Private Limited
    • Avighna Solar Farms Private Limited
    • Prathamesh Solar Farms Private Limited
    • Rudra Solar Farms Private Limited
    • Vayudoot Solar Farms Private Limited

    Suzlon plans on commissioning these projects in FY 2016-17.

    The 100 MW project in consideration is worth INR 800 Crores and needs INR 150 Crores in terms of equity, with the rest being financed through debt. CLP India would initially acquire a 49% stake in the project so as to comply with PPA norms. CLP may then acquire majority control a year after commissioning the project, or perhaps even buy Suzlon out entirely. Suzlon will, however, remain involved in the Engineering, Procurement, and Construction (EPC) phase.

    This is a business plan that defies the norm.

    Developers in the solar industry normally bid for various projects, then handle the EPC phase through to completion either on their own or by leveraging specialized EPC companies.

    Suzlon’s business model on the other hand is based on winning bids for such projects, developing them, and then looking for potential investors who would be interested in taking over a majority or complete ownership of the project.

    Suzlon has perfected this model in its wind business, and it hopes to replicate that success in its fledgling solar endeavor as well. The company is in the process of monetizing its first 100 MW solar park through this deal with CLP India. Both stakeholders will mark their entry into the Indian solar industry with this project, and a fairly new business model to boot.

    With India’s 2022 solar target and the recent World Bank push to distributed PV technology, this may just be the shot in the arm that boosts the country’s solar park-level projects. Having EPC players as key partners would go a long way toward easing investors’ apprehensions with such projects as well.

    This model has proved beneficial for such players in the wind energy sector, allowing them to focus on their core competencies and deliver value across the value chain.

    Whether the same holds true for the solar value chain (and its profitability) for both players remains to be seen.

    It’s definitely a step in the right direction though, and looks promising enough to generate interest with various stakeholders.

  17. Pharmaceuticals – An Industry at Crossroads

    With patent cliffs, competition from generics to contend with, and mounting pressure from healthcare players, insurance companies and

      to read | words

    With patent cliffs, competition from generics to contend with, and mounting pressure from healthcare players, insurance companies and governments to provide vital products at affordable costs — the pharmaceutical industry may be in for some tough times ahead.

    The competitive landscape of the US$300 billion* pharmaceutical industry is changing rapidly, with focus gradually shifting from drug research companies to generic drug companies.

    The pharmaceutical industry can be bifurcated into research companies and generic drug companies. The industry is heavily skewed in favor of branded drug makers — primarily located in Europe and the US — that control more than one-third of the market.

    However, patent expiries and loss of market exclusivity have exposed these pharmaceutical giants to a patent cliff (2011–16), wherein they stand to lose revenues worth billions of dollars. Branded drug sales worth US$54.7 billion lost patent protection in 2012 *.

    A second patent cliff was likely to follow in 2015, resulting in an estimated loss of US$47.5 billion, the true extent of which still remains to be seen.

    Pharmacy majors are facing high uncertainty in terms of future revenue streams, considering that rising competition, patent expiries and declining sales are mounting pressure on them to develop blockbuster drugs.

    Research companies incur steep R&D expenses and rely on patent monopolies to recover costs. On expiry, a patent is rendered insignificant and the related formulation becomes a public property. Capitalizing on this opportunity, the manufacturers of generic drugs aggressively launch their products at a fraction of the price of research companies’ drugs, seizing almost 90% of the revenue generated by research companies from those drugs.

    The research pharmaceutical industry is governed by a set of stringent regulations on authorization and marketing.

    Approvals for new drugs entail long lead times, and R&D activities on new drugs have a poor success rate. These factors make it difficult for companies to develop a drug that would become commercially viable in a short span of time and replace drugs that have expired patents. For every drug that hits the market, there are at least 10 others that do not see a commercial launch. Moreover, sales of a single new drug may not compensate for the loss incurred on drugs with expired patents.

    Companies face intense competition and challenges while launching new drugs and products in the market. Although the product pipelines for specialty diseases and oncology have witnessed considerable improvement, the pharmaceutical industry’s output level has remained stable in the past decade. Therefore, companies must embrace technological innovation to boost productivity.

    Research companies face additional challenges as a result of pricing pressure from healthcare players, insurance companies and governments, which constantly seek new therapies that are clinically and economically better than the existing alternatives. This has compelled research companies to reassess their current operating models. Some companies are considering inorganic growth methods, thus paving the way for a series of licensing and acquisition deals. For instance, under the Novartis-GlaxoSmithKline (GSK) deal, Novartis bought GSK's cancer drugs and GSK took over Novartis's vaccine business. The mutually beneficial deal allowed the companies to increase their specialization in oncology and immunization, respectively.

    Drug research companies have entered an uncharted territory, and it remains to be seen whether these companies perform or perish.

    Even as research companies reel under the effects of drying revenue streams, the outlook for generic manufacturers appears bright, as their lower-cost alternatives are in high demand. Consumers, insurance companies and governments are propelling the generic drug industry. For instance, the UK has decided against buying GSK’s Benlysta for lupus, saying the drug is not cost-effective.

    The generic drug industry plays an important role in maintaining the sustainability of affordable healthcare programs. According to a report published in 2015 by the Generic Pharmaceutical Association, the use of generic drugs helped the US economy achieve US$254 billion in healthcare savings in 2014. We can safely surmise that such cost savings would only increase in the future.

    The outlook for the industry appears positive.

    Factors such as ageing demographics and growing use of generic drugs has the potential to attract long-term investors. In addition, emerging markets are expected to account for a sizeable share of global medical spend in the coming years.

  18. The World Bank Gives India’s 100 GW Solar Journey a USD 750 Million Push

    The World Bank Board approved a provisional sum of USD 750 million toward the development of the Grid Connected

      to read | words

    The World Bank Board approved a provisional sum of USD 750 million toward the development of the Grid Connected Rooftop Solar Photovoltaic (GRPV) project across India. The project aims to finance at least 400 MW worth of power generation projects across the country.

    This is a huge shot in the arm for what could be the world’s fastest growing solar market.

    India is one of the lowest per capita consumers of electricity, with over 200 million people living off the grid.

    Power shortages also affect industrial output, with manufacturers relying on expensive diesel-based back-up power supplies.

    During the 2015 UN Climate Change Conference in Paris, India pledged to generate around 175 GW of clean energy, of which 100 GW would be from solar. Out of this 100 GW, at least 40 GW is the projected output from solar rooftop installations.

    India Renewable Power Target 2022

    India Renewable Power Target 2022

    The World Bank provisioned* a USD 625 million loan from the International Bank for Reconstruction and Development (IBRD) to support the Government of India’s Solar Program for rooftop installations across the country.

    The board further approved a co-financing loan of USD 120 million on concessional terms, and a USD 5 million grant from Climate Investment Fund’s (CIF) Clean Technology Fund.

    The Grid Connected Rooftop Solar Photovoltaic (GRPV) project aims to strengthen the capacity of key institutions, and support the development of the overall PV market in the country. Growth in clean energy generation was in-line with targets set for the financial year 2015-2016*, with the country establishing the production capacity of around 3.2 GW against its target of ~1.5 GW during the year.

    India Clean Energy Generation Growth

    India Clean Energy Generation Growth

    The project will be implemented by State Bank of India (SBI), which will further on-lend these funds to solar PV developers, aggregators, and end-users, with investments mainly focused around commercial and industrial rooftop PV systems. These will be provided under the SBI Rooftop PV Program to a variety of customers, with support for a number of PV business models.

    While some customers can afford to install the PV system, others may prefer the pay-to-use model. This program will include third-party ownership, leasing, rooftop rental, as well as direct end-user ownership.

    The IBRD loan has a 19.5 years grace period with a maturity of 20 years, while the loan from CIF’s Clean Technology Fund has a 10 year grace period, with a maturity of 40 years.

    As India forges ahead with modernization, the establishment of smart cities, and its home-grown Make In India campaign, the country’s industrial as well as private sectors can look forward to clean air and plentiful power.

  19. The Drone Industry Presents a Compelling Case for Future Investments

    Having evolved at an astonishing pace over the last few years, with a myriad of applications ranging from

      to read | words

    Having evolved at an astonishing pace over the last few years, with a myriad of applications ranging from photography to disaster rescue, the drone industry is set to grow at an equally astonishing rate in the years to come.

    2016 saw the unveiling of world’s first autonomous passenger drone — the Ehang 184 AAV (Autonomous Aerial Vehicle). Still in its prototyping stage, the 184 is capable of carrying a payload of up to 220 pounds over a distance of 10 miles with top speed of 60 miles an hour.

    The Ehang 184 boasts just one of the many capabilities the drone industry promises to offer, a fact corroborated by the heavy investments that PE funds and Wall Street bellwethers are making in drone development programs. In 2015 alone, the investments received by VC backed drone firms located in Europe, China, the US and Israel skyrocketed to register more than 800%* increase in investments compared with 2014.

    Drone Companies Investments

    Drone Companies Investments

    Last year, Amazon, America’s biggest e-commerce company, announced trials of its drone delivery system under the Prime Air project.

    Furthermore, social networking giant Facebook is exploring options to deliver high-bandwidth Internet connectivity through drones.

    These and many other developments have led to an increased focus on the drone industry’s market size.

    According to Drones Market Shares, Strategies, and Forecasts, Worldwide, 2016 to 2022, the drone industry would be worth USD 36.9 billion by 2022, up from USD 6.8 billion currently. However, this sum looks meager when compared to a total addressable market of more than USD 100.0* billion estimated by Goldman Sachs over the next five years. In the report titled The Age of The Drone(paywall), Goldman Sachs further states that military applications (65%) would drive the drone market in 2020, followed by commercial applications (19.1%), consumer applications (13.4%) and civil applications (2.5%).

    The outlook for the drone industry looks positive.

    The US Federal Aviation Administration (FAA) expects drone sales in the US to increase from 2.5 million in 2016 to 7.0 million by 2020*. The FAA has projected hobbyist sales (sales for recreational purposes) to rise from 1.9 million to 4.3 million over 2016–20. Business sales are expected to surge from 0.6 million to 2.7 million over this period. According to the Association for Unmanned Vehicle Systems International, the US economy would gain significantly from the drone technology by 2025* in terms of job creation (100,000 jobs) and economic benefits (USD 82.0 billion).

    A positive outlook for the drone market has put the spotlight on sectors that stand to benefit from this burgeoning space as well.

    A rapidly growing drone industry is expected to benefit four*categories of companies:

    • Drone manufacturers
    • Drone software developers
    • Drone component manufacturers
    • Companies involved in services enabled by drones

    Among drone manufacturers, the Chinese company DJI is most notable. Often referred as “The Apple of Drones”, DJI sales stand close to USD 1.0 billion, and market analysts already value the company around USD 8.0 billion.

    Other major drone manufacturers include Parrot (France) and 3D Robotics (US).

    The market for military drones is led by Lockheed Martin, Boeing, and BAE Systems, among others.

    At present, the majority of drone software is proprietary in nature, although the use of cross-product solutions is on the rise. Just like the computer revolution gave a boost to companies like Microsoft, Intel and, mobile revolution to Qualcomm, in the same manner component makers of drone are expected to benefit immensely from the rising industry. Moreover, in the services segment, companies like FedEx, UPS, Amazon, and Pizza Hut are already exploring ways to deliver products via drones.

    Despite a promising outlook for the drone industry, safety concerns persist over increased drone sightings in the vicinity of aircraft. The FAA reported that between November 2014 and January 2016, more than 1,300 cases* of drone encounters were registered in the US. Reports of drone landings in the White House and other sensitive places have caught the attention of authorities as well.

    These concerns forced the FAA to announce regulations for drones in December 2015.

    Under the new rules, drone owners are required to register their drones with the FAA if a drone weighs 0.5–55.0 pounds. As per the latest data, about 400,000 drones were registered* with the FAA until mid-March.

    Looking forward, it is highly likely that the rules and regulations for drones are going to be more stringent, with other countries establishing their own laws as the drone traffic above their skies thickens. It’s unlikely that such regulations would severely impact sales though, with plenty of legitimate business ventures around the budding drone industry likely to take off.

  20. Founder’s Stock Sale — How Not to Turn it Into a 409A Nightmare

    A Founders’ Stock sale can have serious and far reaching implications on the pricing of stock options due t

      to read | words

    A Founders’ Stock sale can have serious and far reaching implications on the pricing of stock options due to 409A provisions.

    While the extent of the impact can vary significantly, it’s important to understand when this affects companies the most as well as how they can structure such transactions to mitigate these effects.

    Trends indicate that venture capitalists have increasingly become comfortable with providing partial liquidity to the founders, which often occurs during new financing rounds. In most cases, this is achieved by facilitating the buyback of a portion of the Founder’s equity (typically common stock) by the Company out of proceeds of preferred financing round or sale of founder’s equity directly to the investors.

    Founders typically own common stock, and while common options are valued at 15%-40% of preferred stock price (depending upon the company’s stage of development), founders’ stock is mostly sold at the preferred stock price. With the 409A regulation in place, such a transaction triggers the arm’s length presumption, and can lead to the Founder’s stock’s sale price arguably becoming the new benchmark for pricing future options.

    Needless to say, unattractively priced options can severely impact a company’s ability to maintain employee motivation — a situation that start-ups can ill afford.

    While a Founder’s stock sale certainly has an impact on 409A valuation, the degree to which it affects the company’s valuation varies significantly. What matters here is to understand when this impact is highest, and what a Company can do (before and after the transaction) to minimize the impact.

    Although the actual impact depends upon the facts and circumstances of each case, here are some factors that determine how the transaction price affects 409A valuation, and thus, be taken in cognizance by a CFO:

    • Is the Founder’s stock sale facilitated through Company buyback, or is it negotiated directly between founder and the investors?
    • If it is a buyback, and the Company has bought back common shares from founders, has it issued the same class of shares (common) to new investors, or has it issued a different class of shares (preferred) to new investors?
    • Was it a standalone transaction, or was it in conjunction with a capital raising transaction?
    • Was the option to sell shares restricted just to founders and/or a select group of management personnel, or was it open for all common shareholders.
      If yes, was there any limit on number of shares that can be sold as a part of the transaction?
    • What was the key objective of this transaction?
      Was it to give liquidity to shareholders/founders; or was the transaction structured to give a minimum required stake to new investors, without raising excess capital?

    An experienced Valuation Expert would evaluate all these questions, and much more, to see if (and how much) consideration is to be given to the transaction for 409A purposes. He can always identify any unique anomalies that limit such consideration, and demonstrate how the transaction price in question is not at arm’s length, and thus, not a good proxy for option price. More importantly, he or she needs to document all relevant data-points and arguments coherently in a 409A report.

    A skilled CFO on the other hand will make sure that:

    • He speaks with his 409A valuation firm during the initial stages of planning in order to understand the impact of the various transaction structures being considered.
    • He apprises investors on the need to be flexible with the transaction structure being considered in order to ensure there's no adverse impact on the company's 409A valuation.
    • He discusses the transaction's objectives (both the buyer's and the seller's) with his attorneys and valuation firm in order to determine the most suitable structure that meets their desired objectives.

    In the end, the 409A impact of a Founder’s stock sale should never be a reason to deny Founders their well-earned right to make partial exit, nor can it be allowed to affect your employee’s motivation. The job of a CFO and his valuation partner is to ensure the two don’t conflict, and a good understanding of some of the above points would go a long way toward ensuring that.


    Manish is a qualified Chartered Accountant (CPA equivalent in India) and a CFA® level 3 candidate, with over eight years of experience in business and intellectual property valuation, project finance and transaction advisory services across diverse industry sectors, particularly technology and healthcare.

    He currently manages the team focused on intellectual property valuation and deal advisory for middle market investment banks and PE funds.

    You can look him up on LinkedIn, or follow him on Twitter @goyalmanish.

  21. The World’s Lowest Solar Tariff — MENA's Solar Journey

    Dubai Electricity and Water Authority (DEWA), the UAE’s biggest utility provider, received the lowest-to-date bid of US2.99 c

      to read | words

    Dubai Electricity and Water Authority (DEWA), the UAE’s biggest utility provider, received the lowest-to-date bid of US2.99 cents per kilowatt-hour among five bids to build 800 megawatts (MW) of solar power generation capacity as part of an expansion of the iconic Mohammed bin Rashid Al Maktoum Solar Park.

    This is the lowest unsubsidized tariff in the history of the PV industry.

    The lowest tariff was tabled by a consortium led by Saudi-owned Abdul Latif Jameel Energy and Environmental Services, Fotowatio Renewable Ventures (FRV) of Spain and Masdar of the UAE. FRV is now owned by Abdul Latif Jameel Energy and Environmental Services.

    Saudi Arabia recently announced its “Vision for the Kingdom of Saudi Arabia” which aims at bringing the country out of the Oil-era and diversify its economy into non-Oil sectors by 2030. It’s a common vision for all the gulf countries, and it has been underway long before the unveiling of Vision 2030. Dubai ,for example, aims to achieve 7 percent of its power from clean energy sources by 2020, and Saudi Arabia plans on living without oil by the same time.

    These claims might appear ambitious, but they aren't without merit.

    Dubai has been expanding its solar power generating capacity with its DEWA solar project. The DEWA solar project had an original capacity of 1 gigawatt (GW), but the authority hopes the park will be around 5 GW by 2030. This is in-line with “Dubai Clean Energy Strategy 2050” which aims to increase its share of clean energy sources in power generation to 25 percent (by 2030) and 75 percent (by 2050).

    This 800 MW plant is in addition to a 13 MW operational facility and another 200 MW under construction in the same park. This round will have three phases with commissioning of Phase A (200 MW) by April 2018, Phase B (300 MW) by April 2019 and Phase C (300 MW) by April 2020.

    DEWA 800 MW Bids

    DEWA 800 MW Bids

    The lowest bid of US2.99 cents per kilowatt-hour is ~18 percent lower than next best bid of JinkoSolar of China at US3.650 cents per kilowatt-hour. The winner of the last round of DEWA’s solar park — ACWA Power— was at US3.950 cents per kilowatt-hour.

    DEWA is currently evaluating the bids for technical and financial feasibility.

    Abdul Latif Jameel, a Saudi-owned company, bettered yet another Saudi company in terms of PV unsubsidized tariffs. Taqnia Energy signed a Memorandum of Understanding (MOU)1 with King Abdul Aziz City for Science and Technology (KACST) and the Saudi Electricity Company (SEC) in July 2015 to build the first 50 MW standalone solar power station in KSA at the then-lowest unsubsidized tariff of ~US5 cents per kilowatt-hour. This was way before the country unveiled it Vision 2030 last month and shows the resolve of the Kingdom in inching towards an economy independent of oil.

    The MENA region is gearing up for an era after oil, and alternate energy is one of the cornerstones on which this future will be built.

    With an abundance of natural solar irradiance in the region, authorities are promoting and conducting research in the solar industry value chain.

    More solar projects and ambitious targets are bound to bloom in the desert.

    Although the solar industry took ground in Europe and the USA, its growth was stunted on account of socio-economic upheavals. It wouldn’t be far fetched to assume that the MENA region will be a center of the next big solar flare in the near future.

  22. The Grim Economic State of Ukraine Continues

    Nothing much seems to have changed since the Maidan protests at Ukraine. Even the new regime hasn’t b

      to read | words

    Nothing much seems to have changed since the Maidan protests at Ukraine. Even the new regime hasn’t been able to stem the economic and political crises that had fueled the revolutions earlier. Tensions within the government and delay in implementing key reforms have held up the review of IMF’s US$40bn EFF program. Not only the funding has been postponed, IMF has even warned that substantial new effort is required to invigorate reforms for the rescue package to continue.

    Ukraine recently marked the second anniversary of the Maidan protests (Feb 18-23, 2014). The day supposed to honor the victims of the revolution ironically turned into a platform that calls for a Third Maidan revolution.

    The new government under Petro Poroshenko and Arseniy Yatsenyuk had promised to end corruption, curb the power of oligarchs, and deepen ties with Europe that would create new opportunities and new growth avenues for Ukrainians. However, two years after the Maidan revolution, Ukrainian nationalists were rallying at Kiev’s Independence Square, yet again asking for the government’s ouster.

    Ukraine’s slow pace of reform has created much public frustration, and the country is falling fast in a political quagmire of its own creation. From the perspective of those who rallied at Maidan two years ago, the same politicians are enmeshed in an all-too-familiar proxy war, each lobbing accusations of corruption at the other.

    The government under Prime Minister Arseniy Yatsenyuk is under immense pressure from all quarters to follow through on reforms and fight corruption. Tensions within the government and delay in implementing key reforms have held up the review of IMF’s US$40bn EFF (Extended Fund Facility) program.

    Deepening Economic Crisis

    After the formation of the new government, Ukraine agreed to a US$17.5bn bail-out package with IMF in Mar-15, which was supplemented by EU contributions, bringing the total package to US$40bn. The IMF package was spread over 4 years, of which US$5bn was to be issued immediately and a total of US$10bn was to be disbursed in 2015.

    The bailout was contingent on Ukraine generating about US15.3bn of savings in public financing, which the Finance Ministry successfully achieved through debt restructurings. Debt restructuring negotiations over the controversial US$3bn that Ukraine owes Russia failed and Russia recently sued Ukraine in London High Court over its non-repayment. Interestingly, Russia considers the debt as sovereign in nature while Ukraine considers it commercial.

    IMF has recognized the sovereign status of the US$3bn debt, and on December 15th moved to change its arrears-lending policy to be able to continue to fund Ukraine’s bail-out program, despite Ukraine defaulting on the Russian debt. Ukraine received US$6.7bn in 2015, and was expecting to receive two more tranches of about US$1.7bn.

    However, the funding has been postponed and IMF has warned that substantial new effort is required to invigorate reforms for the rescue package to continue. Failure to pass the tax reforms and budget has held up US$2.7 bn in international financing for 2015, in addition to the IMF loan tranche.

    Meanwhile, the Ukrainian economy witnessed GDP growth (+1.5%, seasonally adjusted) for the second consecutive quarter in 4Q15, a first in the last two years. Inflation slowed to 0.7% in Dec-15. vs. 2% in Nov-15.

    However, the economy is still struggling with industrial activity in the east hampered by the conflict with Russia and UAH devaluation that left many corporates with unsustainable levels of debt. For the full year 2015, the GDP fell by 10.4% vs. a 17.2% decline in 2014. Annual CPI hit 43.3% in 2015 as compared to 24.9% in 2014.

    In contrast, the GDP growth was flat with core CPI at 0.1% in 2013 before the crisis erupted. The National Bank of Ukraine expects the economy to grow marginally by 1.1% in 2016 with inflation at 12%.

    Grim Outlook

    The future for Ukraine looks grim. The eastern region of Donbas appears to be in state of frozen conflict with neither party moving forward on the conditions set out in the Minsk agreement. While Ukraine is dragging its feet over the decentralization of power and local elections in the region, Russian separatists have not handed over control of the border to the government.

    Key factions of the coalition government, including those of PM Yatsenyuk and former PM Tymoshenko, have warned of an ultra-nationalist revolution if Ukraine complies with the autonomy conditions under the Minsk accord.

    Meanwhile, the war continues to drain the state coffers. The paralysis in the Parliament, proliferation of right-wing movements, and limited funding make the present situation in Ukraine very volatile; kleptocracy remains entrenched and oligarchs continue to wield their power freely.

    Two years and over 9000 deaths later, one does wonder, what did the Maidan revolution really achieve?

  23. 2016’s a Good Year for Indian Real Estate — Do You Buy It?

    The Indian real estate sector remains an important investment destination for investors looking at tangible investments. Although the

      to read | words

    The Indian real estate sector remains an important investment destination for investors looking at tangible investments.

    Although the sector showed sluggish sales and low index returns in 2015, we expect that the accommodative government policies coupled with resilient and strong economic growth to renew investors’ confidence in the coming months.

    India’s Real Estate Sector is Expanding

    Led by an infusion of funds from PE investors and the rising number of deals

    India’s real estate sector has been through some trying times due to sluggish economic growth and structural challenges that include delayed approvals, high construction costs, limited institutional funding, and an inventory overhang.

    However, shored up by a robust GDP growth of 7.3% in FY2015 , the introduction of structural reforms, and a general sentiment of optimism in the country catapulted India to emerge as an influential country in the global financial market. This impressive growth boosted investors’ confidence in the country’s economy, and in turn, the real estate sector — which contributed 5% to India’s GDP in FY2015. Moreover, the approval of the Real Estate Bill 2015, lowering of interest rates, higher disposable income, and stable real estate prices augur well for the sector.

    Private Equity (PE) investments into the sector rebounded in 2015, reaching new highs since 2008, signaling a growing optimism in the sector. PE funds invested nearly $2.77 billion in real estate projects and companies over 2015 through 81 deals, marginally higher than the $2.1 billion invested in 2014 via 90 deals. The average size of deals struck increased in 2015, complemented by a large number of companies engaged in mergers and acquisitions. For instance, the online classifieds platform Quikr acquired CommonFloor in December 2015 for $200 million. This was a move aimed at creating an industry leader in the online real estate segment. In addition, Quikr acquired Indian Realty Exchange (IRX), a mobile-first aggregator of real estate brokers, and RealtyCompass, a platform that provides builder rating and project analysis.

    Here are some of the other significant deals that shaped the sector in 2015:

    Top Five Private Equity Deals in 2015




    Deal Value

    (in $ million)

    Deal Profile


    SPREP Ltd., alliance between Canada Pension Plan Investment Board (CPPIB) and Shapoorji Pallonji Group

    Faery Estates Pvt Ltd.


    Investment in IT Central Park, Chennai.


    Warburg Pincus

    Piramal Realty Ltd


    Entity-level Investment.


    Goldman Sachs Group Inc

    Piramal Realty Ltd


    Entity-level Investment.


    Asian Development Bank, International Finance Corp, SCM Real Estate Singapore Pvt. Ltd.

    Shapoorji Pallonji Group


    Investment in affordable housing projects.


    GIC Pte Ltd.

    DLF Home Developers Ltd.


    Investments in residential projects in Delhi.

    Source: VCCEdge

    Sluggish 2015 — Characterized by Unsold Retail and Residential Inventories

    Although 2015 was characterized by large investment deals, only the commercial real estate segment flourished.

    The residential and retail segments were subdued as inventories remained unsold, primarily due to weak consumer sentiment. According to a report by Knight Frank , unsold inventory stood well over 690,000 units in 2015, a stock that’s likely to run out in three years.

    Expecting prices to fall, customers were reluctant to invest money in a market where residential real estate prices remained stagnant for over two years. Stated prices continued to be high, while transaction prices fell 10–15%. Moreover, discounts increased significantly in the secondary market and distress sales became common. All this resulted in alarming levels of unsold inventories, with Mumbai and Bangalore contributing majorly to the inventory overhang.

    In Mumbai, the property portal reported an inventory pile up of 46 months. The absorption of old homes in the region declined 9% YoY to 28,446 units, while new launches fell sharply by 47% YoY to 18,887 units during H1 2015. This was primarily due to low demand and high property prices. Bangalore reported a high unsold inventory of 84,000 units in Q2 2015, surpassing Mumbai during the quarter, due to weak consumer sentiment coupled with new project launches.

    Developing Trends in the Indian Real Estate Sector

    India’s real estate sector has witnessed a new alignment of supply and demand over the past two years. Developers are focusing on a buyer’s requirements now more than ever before.

    Interestingly, affordable housing has emerged as a preferred segment, with developers supplying a greater proportion of mid-segment apartments priced in the range of INR7.5–10 million, particularly in Tier1 cities1. This trend is in line with consumers’ objective of making small, effective investments. As a result, smaller units in popular localities are gaining traction. In addition, most buyers that invest in real estate for their own use end up shifting to other cities, or perhaps choose to exit one market to enter another. As such, smaller units allow a buyer greater liquidity in the real estate market.

    The real estate sector is also experiencing high demand for ready-to-move-in projects, and a growing number of developers now focus on completing existing projects that have been too long in the making. On average, construction projects face a delay of about 33 months till completion. According to a report by the Associated Chambers of Commerce of India (Assocham), 75% of 3,450 live projects tracked across the country did not commence construction as of FY2015. Consequently, consumers are wary of investing in projects that have a lower completion percentage. Such apprehension consequently dissuades buyers from investing in real estate.

    Government Reforms to Fuel Growth

    The Indian government has rolled out a number of reforms to alleviate some of the sector’s woes such as declining sales and mounting debts. Of the various reforms introduced in 2015, one key regulation involved an amendment to the Foreign Direct Investment (FDI) laws governing the real estate sector. The government reduced the minimum built-up area as well as capital requirement for projects, while also easing exit norms. Improvements in the REITs tax structure as well have attracted PE investors who are geared for investments in these structures. A much anticipated Real Estate Bill aimed at ensuring consumer protection and standardizing business practices has also been passed, and is likely to revive consumer interests.

    Outlook — India’s Real Estate Market in 2016

    We expect 2016 to be a crucial year for India’s real estate sector.

    Although overall business sentiment improved in 2015, the actual trickle-down effect of several reforms and policies announced over the past two years will likely be evident only during 2016.

    The current year could witness a balanced demand-supply equation that ought to reduce unsold inventories across major cities to more sustainable levels. Sales are expected to pick up in the residential segment as well, with prices expected to remain muted.

    There is also a growing interest among mid-sized and retail investors who wish to expand their portfolios by investing in retail shops, office space, and leased assets, a factor that’s likely to propel the commercial real estate segment.

    Although news of the government keeping interest rates unchanged in 2016 dampened investors' spirits, the announcement of sops in the upcoming union budget would provide the necessary impetus to turnaround the stressed sector.

  24. No-Price-Influence Condition Lacks Clarity; May Significantly Impact the Ecommerce Sector

      to read | words

    The way the ecommerce sector had been shaping up lately, it is clearly the question of how long can one pull on. If the absence of the clear definition of influencing prices continues and discounting is restricted, then ecommerce platforms may see sharp decline in their transactions. These conditions may accelerate the pace toward major consolidations.

    The new FDI policy for ecommerce prompts more questions than answers. While it legitimizes the way online marketplaces are operationally structured, its ambiguity begets confusion. For example, how are vertical ecommerce players—many of whom operate on inventory-led model and have foreign private equity investments—supposed to now behave, as FDI isn’t allowed for inventory-based models? Will this apply retrospectively and require such players to make changes to their structures or will this apply to fresh funding going forward? The policy is quite ambiguous in such areas and open to interpretations.

    However, what may have a far reaching impact, on the ecommerce sector itself, is one specific condition out of the ten put forth by the Department of Industrial Policy & Promotions. It states that ecommerce marketplace players will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field.

    Ambiguity of this condition, as to what exactly constitutes influencing price, can be widely translated as end of ‘promotional funding’ or event/theme-based mega discount sales. While it may enforce level-playing field with the offline market, this restriction will lead a regressive domino effect on the entire sector.

    For the ecommerce sector in India, the fundamental differentiator—and the prime driver—is discounted pricing. Market-shares were being governed by discounted pricing, giving rise to such discount-wars and fiercely fought promotional battles. Allied convenience of cash-on-delivery and return-policies further sweetened the deal for online buyers.

    If one takes discounts out of the equation, it impacts two-folds.

    First of all, despite the FDI policy, most of the ecommerce entities have and will continue to rely heavily on private equity funding. The prevalent trend of investors is to valuate ecommerce companies on their Gross Merchandizing Value (GMV), a highly debatable approach in the first place. It gave birth to the whole gamut of heavy discounts and huge spends on advertising and promotions, to enable larger volumes of transactions. For example, the top four e-commerce marketplace players have spent a whopping $700 Mn on advertising and promotions during FY2015. Ironically, this funding has considerably dried up in last few months. Almost all of the ecommerce entities have been losing money, and have been finding it harder to get funded further. In fact, while one of the ecommerce giants saw its valuation being reduced by a third recently, the only profitable ecommerce entity in India has been IRCTC—the online ticket booking and allied services platform run by the subsidiary of the Indian Railways.

    Now if the absence of the clear definition of influencing prices continues and discounting is restricted, then ecommerce platforms may see sharp decline in their transactions, directly impacting their GMV. And in turn, their valuations.

    Interestingly, the way the ecommerce sector had been shaping up lately, it is clearly the question of how long can one pull on. PE money will not be easy anymore to come by for startups and early-stage companies that are struggling to gain traction or momentum. The sunrise sector has been inching toward the market consolidation. Conditions of no-discounts and lesser funding may accelerate the pace toward major consolidations.

    While the DIPP policy that allows 100% FDI in marketplaces is welcome, one wonders if the specific no-price-influence condition in its ambiguous state is moot, as we anyway follow the free market economy. It will be interesting to observe how the ecommerce companies and their legal advisors craft innovative ways to interpret this condition in their bid to remain competitive on pricing and promotions.

    However, if left ambiguous, this condition may accelerate the drivers for market-wide consolidations, and we may witness major changes within the next couple of years.

  25. Production Freeze: Saudi Arabia and Russia Attempt to Limit Oil Price Decline

    In a "secretive" meeting held in Doha on Tuesday between Saudi Arabia’s oil minister Ali Al-Naimi and h

      to read | words

    What Happened?

    In a "secretive" meeting held in Doha on Tuesday between Saudi Arabia’s oil minister Ali Al-Naimi and his Russian counterpart Alexander Novakin, it was agreed upon to freeze oil output at January 2016 levels. Representatives from Venezuela and the host Qatar were present during the accord.

    What Does it Mean?

    Venezuela, whose economy has been hit due to the low oil prices, has been lobbying exporters including Russia, Iran, and Saudi Arabia to arrange a meeting between OPEC and other suppliers in an attempt to curtail supply to acceptable levels.

    The international media wan’t privy to the meeting until the morning of Tuesday, the 16th of February.

    It has happened before..

    This oil diplomacy is synonymous to the one seen earlier during 1998 and 1999 when the OPEC was able to pull off something similar that led to a decade-long bull market. They were able to realize crude prices from $10 to more than $140 per barrel owing to these tactics.

    The cartel did all this secretively over months of deliberations in closed door meetings across the globe, eventually announcing production cuts that included OPEC as well as Mexico and Norway.

    It’s a Long Road Ahead

    Venezuela and other affected nations are hoping to pull off something similar this time, with the current meeting being just a start to what is in store. The two countries have made it clear that the accord depends on other exporters agreeing to it, including Iran — an OPEC member that just came out of continued sanctions and is gearing up to increase production.

    Crude Oil Production

    Crude Oil Production

    Both Saudi Arabia and Russia produced more than 10 million barrels per day, with Saudi Arabia producing 10.2 million barrels a day (planned and unplanned production combined) and Russia producing another 10.8 million barrels a day. Cumulatively, these two countries contributed ~ 22 % of global oil production in January 2016. The countries have agreed at retaining these levels for the foreseeable future, pursuant to other producers also freezing production.

    After the continued rout in oil prices since the beginning of 2015 — owing majorly to producers’ un-relenting measures to maintain their market share — this may come out as a positive sign towards a recovery in oil prices.

    However there are many challenges at hand that first need to be looked at, namely:

    • Even if President Vladimir Putin agrees to such an accord, Russia faces many obstacles in the near future.
      • With winter temperatures as low as 40 degrees Celsius, the pipelines in Siberia may freeze if pumping is stopped due to the water content in oil and gas that flows through them.
      • Moreover, productions from shut-in wells might never recover to full capacity.
      • The nation will face shortage of storage for the significant proportion of production and entail billions of dollars in investment.
      • Government’s revenues from energy sector which accounts for roughly 40% of the national budget will decline.
    • OPEC’s second biggest producer before sanctions in 2012, Iran is just prepping to increase production by about 1 million barrels per day on the road to regaining its market shares after sanctions were lifted.
      • Iran might not be willing to halt production after a hiatus of years from the oil market.
      • If Iran doesn’t freeze production, Saudi Arabia would be inclined to follow suit.

    Iran’s oil minister Bijan Namdar Zanganeh will meet his counterparts from Iraq and Venezuela for further deliberations on Wednesday, as it is believed that Iran and Iraq would play a major role in determining whether Venezuela’s attempts at oil diplomacy result in an end to the rout or not.

  26. Real Estate Regulatory Bill Passed — A Big Step Toward Reform

    A hot topic of debate since 2013, the Real Estate Regulatory Bill was finally passed by the Upper House

      to read | words

    A hot topic of debate since 2013, the Real Estate Regulatory Bill was finally passed by the Upper House of the Parliament (Rajya Sabha) on the 10th of March and was cleared by the Lower House (Lok Sabha) as well on the 15th of March this year.

    Having undergone several amendments before it was finally accepted in its current form, the bill aims to bring transparency and accountability to a sector that’s notorious for issues like project delays that span years, routine overpricing and cost escalations, shoddy construction quality, floor plan changes that shortchange buyers, and far worse.

    This bill is definitely good news for home buyers who’ve always wanted to buy but have been kept at bay by the sector’s somewhat inherent risks.

    The bill mandates that developers deposit 70% of their project’s booking money in an escrow account

    This ensures the availability of funds to mitigate possible project delays, an issue that’s plaguing numerous projects. In the past, developers routinely routed the booking money generated from one project to another that’s just getting off the ground, a system that more often than not delays the initial project due to an unavailability of funds. The new rule ensures the timely completion of projects as well as reassures consumers that the money they’ve invested is secured.

    Developers are required to disclose all relevant information about a project when they begin advertising

    This ensures transparency and assures prospective buyers that everything is in order. Developers will now have to share information such as whether the project has the necessary government approvals, details about the finalized project layout, an estimated project completion date, as well as the project’s current completion status. Developers are expected to file this information with their respective state real estate regulatory authority, information that would subsequently be available on easily accessible public forums. Consumers can look forward to timely updates about a project they’re interested or already investing in.

    The developer is liable for any delays in project completion

    Consumers needn’t fret about long-drawn projects that tie up their investments indefinitely. Developer will now have to compensate buyers for any project delays and associated costs, paying them an interest that’s equivalent to what the buyer would have to pay in case of payment defaults.

    The bill has also changed how a property’s selling area is defined

    A developer is not permitted to sell a property based on “super area” anymore; the relevant metric now is "carpet area" alone. This ensures there are no hidden costs that get slapped on for additional built up areas or amenities.

    Developers can no longer make arbitrary alterations to the project layout

    Any changes to the layout will now require the consent of at least two-thirds of the projects buyers. If consumers identify any structural deficiencies within a year of possession, they’re entitled to corrective alteration/renovation at no extra cost.

    The Real Estate Regulatory Bill is Definitely a Step in the Right Direction.

    In its current form, the government’s new regulatory mandates ensure transparency, accountability, and boost confidence in India’s housing sector. The bill also covers several commercial projects such as malls and commercial properties that have been afforded the same checks and safeguards enjoyed by residential customers. This is a shot in the arm for investors looking to diversify their portfolios and take a stake in large and lucrative commercial construction projects.

    This Also Bodes Well for FDI in the Nation’s Construction Sector

    As the government’s reforms and stringent regulations gradually gain momentum, India’s rating on the Global Real Estate Transparency Index is sure to improve. With India opening up to big-ticket investors, the nation could look forward to greater capital inflow and a surge in housing as well as infrastructure construction projects.

  27. China Carrying More Than the UK Economy in its Books - But is it Enough?

    Sitting on copious foreign exchange reserves, China is on a spending spree to defend its depreciating currency and

      to read | words

    Sitting on copious foreign exchange reserves, China is on a spending spree to defend its depreciating currency and stem capital outflow.

    Its foreign exchange reserves peaked at USD4 trillion in June 2014, but subsequently declined by almost USD 760 billion to USD 3.2 trillion as of January 2016. Capital is flowing out of China at a rapid pace, with asset values shrinking as international holdings depreciate in US dollar terms.

    The sharp fall in reserves over 2015 will likely raise concerns about China's reserve sufficiency, liquidity, and adequacy.

    How Much Foreign Exchange Reserve Does China Have?

    As per the State Administration of Foreign Exchange (SAFE), China's official foreign exchange reserves amounted to USD 3.33 trillion at end of December 2015.

    Total official reserves, which include gold reserves, special drawing rights (SDRs), and other reserve assets, were moderately higher, at USD 3.41 trillion.

    In addition, China has USD 200.7 billion in "other foreign currency assets" as of December 2015, which are liquid foreign currency assets and aren’t included in official reserve assets.

    Continuous current account surpluses contributed to about 70% of the foreign exchange reserve accumulation between 2005 and 2014. FDI inflows were another key source for the increase during the same period.

    China's Foreign Exchange Reserves

    China's Foreign Exchange Reserves

    China's Foreign Exchange Reserves are Mostly Liquid

    As per the Bank of America Merrill Lynch estimates, about two-thirds (65%) of China’s foreign exchange reserves are held in dollar-denominated assets, whereas 35% of its reserves are non-U.S. assets. Most of these non-U.S. assets are held in short-dated euro-denominated bonds, with the rest in G10 currencies and a very limited amount in Emerging Market currencies.

    According to the latest monthly US Treasury International Capital System (TIC) data, China remains the largest holder of U.S. Treasuries, with direct holding of USD 1.25 trillion in US treasuries as of December 2015.

    China's Foreign Exchange Reserves Composition

    China's Foreign Exchange Reserves Composition

    While it’s difficult to know the exact amount of reserves that are illiquid, the majority of China’s foreign exchange reserves are held in US Treasuries and other major countries’ government bonds.

    The US treasury market is the world’s most liquid securities market, while other European bonds are also considered highly liquid. Though these assets are liquid and readily available for sale, they could prove difficult to sell in a short period of time without causing some turmoil in the financial markets.

    Capital Flight Risk

    China is experiencing rapid capital outflows.

    As per IIF estimates, capital outflows from China — including errors and commissions — amounted to USD 676 billion in 2015. Heavy capital outflows resulted in falling official reserves, as the central bank used reserves to defend its currency.

    The People's Bank of China had spent about USD 405 billion in 2015 to stabilize the RMB.

    These interventions helped slow the pace of CNY depredation, which weakened by 4.6% against the USD in 2015.

    China Net Capital flows(USD)

    China Net Capital flows(USD)

    Does China Have Enough Foreign-exchange Reserves?

    China’s reserves have dropped by 13% in 2015 from a year ago.

    This substantial decline has raised concerns about China's reserve adequacy to cover its potential liabilities. Going by traditional measures, China’s routine international payments and external debt obligations are well protected. Its reserves are sufficient to buy all the imports for the next 24 months while the relevant international standard requirement is 3 months.

    China’s foreign debt repayment ability monitoring indicators have also remained well above international standards.

    As per State Administration of Foreign Exchange (SAFE) data, China's foreign currency denominated external debt declined to USD 804 billion as of September 2015, down USD 91 billion from its peak in Q2 2014. The short-term external debt ratio stood at 3.25, well above the recommended ratio of 1.

    Over the years, the IMF has refined its composite metric to calculate the ‘reserve-adequacy’ metric. Based on the latest IMF Metrics, China may need to hold at least USD 2.8 trillion of reserves without capital control or about USD 1.8 trillion if adjusted for capital controls to be "adequate".

    China has strict restrictions on capital outflows through quotas and administrative regulations.

    The People's Bank of China has also stepped up its efforts to curb capital outflows by cracking down trade over-invoicing and freezing outbound investment quotas. However, imposing strict capital controls could upset the market and likely to derail the RMB internationalization process.

    Weights Under the Fixed Exchange Rate Regime

    Without Capital Control With Capital Control
    EXPORT: potential loss from drop of external demand 10% 10%
    SHORT TERM DEBT: Rollover risk 30% 30%
    OTHER LIABILITY: Portfolio outflow 20% 20%
    BROAD MONEY: Potential resident’s outflows 10% 5%
    MINIMUM RESERVE FOR CHINA USD 2.8 Trillion USD 1.8 Trillion

    Source: OCBC Bank

    Will the Dragon Lose its Trove?

    In the last three months, China’s exchange reserve declined by about USD 300 billion.

    If the current pace of fast capital outflows of USD 100 billion per month were to continue, its reserves would fall below the IMF’s minimum security line in next three to six months. However, with effective capital control, its exchange reserves are still high enough to defend against exchange rate volatility.

    The clock is ticking.

    Amid worries of an intense economic slowdown, the speed of reserves depletion may be somewhat alleviated in the short term. The People's Bank needs to decide if (and how much more) they can afford to spend to defend a currency that’s stronger than what it should be.

  28. India Budget FY17 - Expectedly Steady and Staid

    India’s finance minister, Mr. Arun Jaitley, chose fiscal prudence and rural revival as key themes for Budget 2016–17.

      to read | words

    Budget 2016-17

    Taking the rural road to growth, while staying within the lane of fiscal limit.

    India’s finance minister, Mr. Arun Jaitley, chose fiscal prudence and rural revival as key themes for Budget 2016-17.

    He managed to achieve the fiscal deficit target of 3.9% of the GDP for 2015-16 and maintained the previous target of 3.5% of the GDP for 2016-17 in an increasingly slowing global growth environment. Instead of accelerating growth by incentivizing corporate India, he chose to focus on areas such as rural economy, social sector, and continued infrastructure spending.

    To account for the large increase in salary and pension expenses on account of the Seventh Pay Commission, the finance minister chose to curtail plan expenditure on capital account, thereby risking slow gross capital formation for FY17.

    Furthermore, increase in several indirect taxes, introduction of new cess, withdrawal of exemptions for income tax, and aggressive assumptions for increase in direct tax collections for FY17 reveal the stress of wanting to meet an ambitious fiscal deficit target for FY17, which may appease global investment community and credit rating agencies, but not find any favors with the Indian corporate sector. All eyes may now turn to the Reserve Bank of India Governor Raghuram Rajan to see if monetary action turns accommodative to reciprocate the discipline shown in fiscal policy.

    Several of Our Expectations Came True in Budget 2016-17

    In our pre-Budget report, we had outlined several key expectations which were announced in Budget 2016-17.

    Fiscal deficit target for FY16 was met apart from increased outlay for infrastructure segments such as roads and railways. Support for export sector was announced. While service tax rate remained the same, several new cess were announced (infrastructure and rural cess) as forecasted apart from increase in few existing cess (Clean Energy cess). As expected headline tax rates were unchanged and several concessions in taxes were withdrawn.

    While import duty on gold was kept unchanged, 1% excise duty on gold and diamond jewelrywas introduced to achieve the same effect of curtailing gold demand.

    Rural, Social, Infrastructure

    Thrust on key focus areas to boost economic growth

    Budget 2016-17 was as much about reviving economic growth in weak areas as about maintaining fiscal deficit.

    With successive years of poor monsoon affecting rural economy, the finance minister chose to announce several initiatives to renew focus on the agriculture and allied sectors. Without an outright announcement of a large stimulus package, the minister provided for several programs in the areas of crop insurance, rural credit, connectivity and irrigation that can bring about fundamental improvements in the conditions of agriculture, thereby reducing dependence on nature. In addition, direct support in the form of higher allocation to the ongoing rural employment guarantee scheme (MGNREGS) and inclusion of projects benefiting agriculture as part of MGNREGS, if implemented diligently and efficiently, should help improve the rural economy.

    With regard to infrastructure, the budget attempts to provide for the large-scale need for quality infrastructure across the country. Extensive allocation for the overall sector, especially roads, is to be supplemented by fundraising from agencies such as National Highways Authority of India (NHAI).

    With regard to the social sector, the budget focuses on the lower income strata with support in the form of Liquefied Petroleum Gas (LPG) connections to Below Poverty Line (BPL) families, lower income tax for low income groups, a new health protection insurance scheme, and additional interest deduction for small houses.

    From the Micro Small and Medium Enterprises (MSME) viewpoint, increase in the turnover limit under the presumptive taxation scheme (section 44AD of the Income Tax Act) to INR 20million will positively affect a large number of MSMEs.

    Key Focus Areas of Budget 2016-17

    Key Focus Areas of Budget 2016-17

    Pushing the Government’s Growth Agenda

    Incentives for Startups and Digital India

    While focusing on the fundamental growth drivers of infrastructure and the rural and social sectors, the finance minister also attempted to create an enabling environment for the startup ecosystem taking roots in India. From tax holiday to incentivizing entrepreneurship skill training, the budget boasts supportfor startups in the form of:

    • Tax holiday for startups for three of the first five years of setting up acompany.
    • Lowercorporate IT rate for companies witha turnover of less than or equal to INR 5 crore, to 25% plus surcharge.
    • Amendmentsto the Companies Act that ensure speedy registration for startups.
    • 100% deduction in profits for startups for three of the first five years; MAT to apply.
    • Tax exemption for capital gains on investments in regulated fund of funds for startups.
    • Long-term capital gains for unlisted firms lowered from three to two years.
    • Hub to support SC/ST entrepreneurs.
    • INR 500 crore earmarked for SC/ST and women entrepreneurs under the Startup India scheme.
    • Entrepreneurship to be taught through MOOCS. This will open up access to educational resources across the country.

    Similarly, the budget attempts to support the initiative of Digital India by providing several avenues to expand the reach of IT infrastructure across India through initiatives such as:

    • A bill on targeted delivery of financial services, using Aadhar, to be introduced.
    • Digital repository for all school leaving certificates and diplomas.
    • Unified e-platform for farmers to be inaugurated.

    The Finance Minister Respects "red lines" of Fiscal Deficit Targets

    While allocating resources for various initiatives, the finance minister has been mindful of the fiscal consolidation framework.

    The expectation to meet the fiscal deficit target of 3.9% of the GDP for 2015–16 was fulfilled by the finance minister. Surprisingly, the finance minister retained the target of 3.5% of the GDP for 2016–17,despite large expenses on account of the Seventh Pay Commission recommendations on hike in salary and pension. While conforming to fiscal consolidation - despite slowing global growth and moderate domestic growth — is commendable, we took a close look at the fiscal math for any unrealistic assumptions for FY17 andfound a few.

    Nevertheless, the numbers and commentary will satisfy global credit rating agenciesand relieve investors (especially in the fixed income market) who suspected breach in the fiscal deficit targets.

    Fiscal Deficit as GDP%

    Indirect Taxes Aid Fiscal Deficit in 2015-16

    Direct Taxes to Assume Burden in 2016-17

    As outlined in our previous article on budget expectations, indirect taxes such as service tax and excise helped offset the lower-than-estimated collection of direct taxes in FY16.

    However, for FY17, the finance minister expects an 18% increase in income tax collection and 9% increase in corporate tax collection, without any outright increase in tax rates. On the other hand, service tax is expected to increase by a modest 10%. With regard to expenditure, while plan expenditure on revenue account expectedly increased on account of provision for the Seventh Pay Commission, the plan expenditure on capital account is accounted to increase by a marginal 3.3% compared with 39% in FY16.This raises doubts about the government’s intent on capital investments.

    Budget FY16-17 - Key Segments

    All Amount (INR billion) 2014–15 2015–16 (BE) 2015–16 (BRE) 2016–17 (BE) Growth (%) Comments for 2016–17 BE
    Revenue Receipts 11,015 11,416 12,061 13,770 14.2
    Tax Revenue (net) 9,036 9,198 9,475 10,541 11.2 Assumed 18% and 9% increase in tax collection under income tax and corporate tax, respectively
    Non-tax Revenue 1,979 2,217 2,586 3,229 24.9 INR 989.95 billion from spectrum auction assumed
    Non-debt Capital Receipts 515 803 442 671 51.8 Divestment target of INR 565 billion very high
    TOTAL RECEIPTS 11,529 12,218 12,503 14,442 15.5
    Non-plan Expenditure 12,010 13,122 13,082 14,281 9.2
    Plan Expenditure 4,626 4,653 4,772 5,500 15.3 S29% increase in pensions
    On Revenue Account 3,576 3,300 3,350 4,036 20.5 Large increase for FY17 due to Seventh Pay Commission payout
    On Capital Account 1,050 1,353 1,422 1,464 2.9 Marginal 3.3% increase in Central Capital Plan Expenditure compared with 39% in FY16
    TOTAL EXPENDITURE 16,637 17,775 17,854 19,781 10.8
    Fiscal Deficit 5,107 5,556 5,351 5,339
    Fiscal Deficit (%GDP) 4.1 3.9 3.9 3.5
    Source:, Aranca Research BE - Budget estimates, BRE - Budget revised estimates

    Revenue Growth Commendable in FY16

    Do FY17 estimates indicate lurking tax rise?

    Overall gross revenue receipts for FY16 increased 17.2% YoY, better than the expectation of 16.4% in budget estimates (BE).

    This was led by indirect tax collections, with excise duty collections increasing a staggering 50% on account of successive excise hikes on petroleum fuels during the year. Service tax collections increased 25%, in line with the estimate. Both corporate tax and income tax collections fell short of expectations, highlighting the struggling growth in domestic economy.

    On the backdrop of muted growth in corporate and income tax collections, the high growth assumptions for both these taxes for FY17 is both surprising and concerning. Although several deductions under Income Tax have been phased out, the underlying economic growth may not be strong enough to offset the deductions and boost income tax collections. Considering the stable economic growth expectations (between 7 and 7.75% for FY17), the finance ministry could introduce an increase in tax rates during the year to meet its ambitious tax collection targets.

    In FY16, after the slow tax collections in the first half of the fiscal year, the ministry introduced a new cess in November 2015 (Swachh Bharat Cess), in addition to successive excise duty hikes for petrol and diesel, which helped shore up indirect tax collections.

    Incidentally, for FY17, the finance ministry expects muted growth in tax collections for customs, service, and excise taxes at 9.8%, 10%, and 12.2%, respectively, despite introducing various new cess such as KrishiKalyan Cess, Infrastructure Cess, and increase in Clean Energy Cess at the start of the year. The low growth in customs is understandable from the viewpoint of slow global trade. However, the 10% growth assumption in service tax for FY17 due to 25% growth in FY16 indicates a high base effect considered while estimating revenues from service tax.

    In terms of non-tax revenues, budget 2016–17 assumes INR 989.95 billion from spectrum auction. Considering the government received revenues in excess of INR 1 trillion in the previous auction, the assumption for FY17 appears reasonable. On the other hand, the expected revenues from divestment of INR 565 billion appear to be a tall order, if we take into account the volatile equity market environment and past record of lower-than-estimated funds raised from divestment.

    Proposed Changes in Taxes for 2016-17

    Tax 2015–16 (BE) 2015–16 (BRE) 2016–17 (BE) Growth (%) Changes for 2016–17 BE
    Corporate tax 4,706 4,530 4,939 9.0
    • New manufacturing companies incorporated on or after March 01, 2016, to be given an option to be taxed at 25%.
    • Lowered corporate tax rate for small enterprises with turnover not exceeding INR 5 crore (inFY15), to 29%.
    • 100% deduction of profits for three of five years for startups setup from April 2016 to March 2019. MAT will apply in such cases.
    Income Tax 3,274 2,991 3,532 18.1
    • Additional tax at 10% of gross amount of dividend payable by recipients of dividend in excess of INR10 lakh a year.
    • Surcharge to be raised from 12% to 15% on persons, other than companies, firms, and cooperative societies, having income above INR 1 crore.
    • Domestic taxpayers can declare undisclosed income by paying45% of undisclosed income.
    • Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax in case of misreporting of facts.
    Customs 2,083 2,095 2,300 9.8
    • Changes in customs rates on certain inputs to reduce costs and improve competitiveness of domestic industry.
    • Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.
    Excise 2,298 2,841 3,187 12.2
    • Excise duties on various tobacco products other than beedi raised by 1015%.
    • Excise duty on aerated water, lemonade, and other water (flavored or containing added sugar/other sweeteners) is being increased from 18% to 21%.
    • Excise on readymade garments with retail price of INR 1,000 or more raised to 2% without input tax credit or 12.5% with input tax credit.
    • Excise duty of 1% without input tax credit or 12.5% with input tax credit on articles of jewelry.
    Service Tax 2,098 2,100 2,310 10.0
    • Assignment of right to use the spectrum and its transfers has been deducted as a service leviable to service tax and not sale of intangible goods.
    • Several exemptions to service tax have been withdrawn for select legal services, and work related to monorail and metro.
    • Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases.
    Other Taxes 35.8 39.5 41.2 4.4
    Source:, Aranca Research BE - Budget estimates, BRE - Budget revised estimates

    New Taxes and Cess Introduced

    • KrishiKalyan Cess, @ 0.5% on all taxable services, w.e.f. June 01, 2016. Proceeds would be exclusively used to finance initiatives for improvement of agriculture and welfare of farmers. Input tax credit of this cess will be available.
    • Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs. No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.
    • "Clean Energy Cess" levied on coal, lignite, and peat renamed to "Clean Environment Cess" and rate increased from INR 200 per ton to INR 400 per ton.
    • Tax to be deducted at source at the rate of 1% on purchase of luxury cars exceeding value of INR 10 lakh and purchase of goods and services in cash exceeding INR 2 lakh.
    • Securities Transaction Tax (STT) in case of “Options” proposed to be increased from 0.017% to 0.05%.

    Taxes Revenue(INR Crore)

    Taxes Revenue(INR Crore)

    Expenditure to Increase in FY17

    Due in no small part to Seventh Pay Commission payouts, expenditure to increase by about 11%

    Budget 2016–17 accounts for the recommendations of the Seventh Pay Commission, leading to a sharp increase in plan expenditure on revenue account.

    The provisions for pensions alone are estimated to increase by 29% in FY17, leading to a 21% hike in plan expenditure on revenue account compared with a decline of 6.3% in FY16. To offset and control the increase in overall expenditure, the finance minister has curtailed growth in plan expenditure on capital account to a marginal 3% compared with 35% in FY16.

    We expect to see the effects of slow capital expenditure in the gross capital formation component of the GDP in FY17.

    Income and Expenditure(FY 2017)

    Income and Expenditure(FY 2017)

    Will a Fiscally Prudent Budget be Followed by Monetary Policy Action?

    Now that budget 2016–17 is considered to respect the boundaries of fiscal consolidation, the investor community will look forward to the monetary policy to support the fiscal policy in shoring up growth.

    Although the stated stance of Reserve Bank of India Governor Raghuram Rajan is to target inflation, he expects to maintain fiscal discipline in the fight against inflation. Now that this expectation has been met for the time being and the focus on growth revival through targeted spending has been outlined by the budget, it is to be seen whether the RBI governor will support the growth agenda by lowering interest rates in the near term. A stable currency, relative calm on the global macroeconomic front, and the US Federal Reserve not being in a hurry to undertake another rate hike may create a window of opportunity for the RBI to cut rates at least once by 25 basis points. If the RBI governor would like to err on the side of caution, he may wait till the next set of monthly inflation figures are released to be sure about his action.

  29. India Budget FY17 - Will Be Steady and Staid

    India’s annual budget is a tightrope walk for any finance minister, considering the underlying challenge of drafting a

      to read | words

    Budget 2016-17

    India may meet fiscal deficit target for FY 2016, although marginally.

    India’s annual budget is a tightrope walk for any finance minister, considering the underlying challenge of drafting a policy document that’s a steady mix of what is desirable and what is achievable.

    The financial year 2015 – 16 was a trying period for a relatively insulated India.

    Despite a weak currency due to the slowdown in global growth (that affected exports and capital outflows) there was relief in the form of robust indirect tax collections. These were primarily from opportunistic higher excise duties on petroleum products as well as new levies such as the Swachh Bharat cess (announced in November 2015) in addition to the service tax rate hike announced in the previous budget. The increase in indirect tax earnings helped the government tide over a shortfall in direct tax collections due to slower growth — especially in the export sector — as well as meet its spending requirements for physical infrastructure and social infrastructure programs.

    The budget is expected to meet its fiscal deficit target by an improved margin in case of a cut in plan expenditure on capital account.

    2016-17 presents challenges such as meeting higher expenses on account of the seventh pay commission’s recommendations, the One Rank One Pension (OROP) scheme, and investment outlays, which could be met through higher tax rates as well as the introduction of new taxes, duties, and cess.

    The fiscal deficit target for FY17 could be relaxed from its earlier target of 3.5% of GDP, but not by a large margin. Anything between 3.6% and 3.7% will give the government adequate room to meet its target while keeping its commitment to greater fiscal discipline.

    Government Unlikely to Breach the "Red Line" of Fiscal Deficit

    We expect the government to meet the fiscal deficit target of 3.9% of gross domestic product (GDP) for 2015-16.

    Contrary to media reports, the government may not risk breaching the fiscal deficit target’s "red line", despite temptations to dilute its stance amid a decelerating global economy and declining exports. Once breached, India has (historically) taken several years to restore fiscal discipline. This is particularly evident from the FY2009–14 period, when the country risked being downgraded to "junk" by global credit rating agencies due to its high fiscal deficit. We believe the current finance minister, Arun Jaitley, would strive to maintain this hard-won discipline.

    Fiscal Deficit as GDP%

    Fiscal Deficit as GDP%

    Aranca Estimates 2015-16 Fiscal Deficit at 3.85% of GDP

    Based on the actual figures for revenue and expenditure for April–December 2015 (as per the Ministry of Finance’s website) and the actual revenue and expenditure in the comparable period of the previous year (April–December 2014 as percentage of FY2014–15), we estimate the government’s fiscal deficit to be 3.85% of India’s GDP — beating its fiscal deficit target of 3.9%.

    A better-than-budgeted fiscal deficit (even by a small amount) has been the norm in recent years, and we expect a pleasant surprise from the government this year as well.

    All Amount (INR crore) 9MFY15 (% of BRE) 9MFY16 (Actual) 9MFY15 (% of BE) 2015–16 (Aranca Estimates) 2015–16 (BE) 9Assumptions
    Revenue Receipts 61.6% 803,808 70.4% 1,257,179 1,141,575 Revenue receipts to surpass BE due to higher indirect tax collections.
    Tax Revenue (net) 60.1% 622,247 67.6% 1,057,179 919,842 Indirect tax collections increased 34% in April 2015–January 2016.
    Non-tax Revenue 68.0% 8181,561 81.9% 200,000 221,733
    Non-debt Capital Receipts 24.2% 22,004 27.4% 30,000 80,253
    TOTAL RECEIPTS 60.2% 825,812 67.6% 1,287,179 1,221,828
    Non-plan Expenditure 72.8% 968,019 73.8% 1,312,200 1,312,200 Non-plan expenses to be maintained at BE, as in 2015
    Plan Expenditure 75.4% 345,978 74.4% 495,662 465,277 State packages, infrastructure programs to push up plan expenses.
    On Revenue Account 76.9% 230,656 69.9% 330,020 330,020
    On Capital Account 69.6% 115,322 85.3% 165,642 135,257
    TOTAL EXPENDITURE 73.5% 1,313,997 73.9% 1,807,862 11,777,477
    Fiscal Deficit 103.9% 488,185 92.6% 520,683 526,997 Marginally lower than BE, as in 2015
    Fiscal Deficit (%GDP) 3.85 3.9
    Source:, Aranca Research, BE - Budget Estimates, BRE - Budget Revised Estimates

    Cess and Increased Excise Rates on Fuel to Boost Revenue

    Direct tax revenue for the year is expected to fall short of budget estimates by INR 40,000 crore, as forecast by Revenue Secretary Hasmukh Adhia. On the other hand, indirect tax revenues went up 33% over April 2015–January 2016. We expect indirect taxes to surpass budget estimates by INR 53,546 crore, buoyed by higher tax rates (service tax increased to 14% from 12.36% in the previous budget), excise taxes (increased on fuel), customs duty (on steel imports), and the Swachh Bharat cess (0.5%).

    Capitalizing on the decline in global crude prices, the government has increased the excise duty on petroleum products multiple times since late 2014, including three times in January 2016.

    During April 2015–January 2016, customs duty revenue from electrical machinery and other machineries increased 34.4% and 27.8% respectively, indicating increased investment in the private sector. During this period, the average growth rate in tax collection from the services sector was 27.2%, while that from banking and financial services was 44.6%. The growth rate was 39.9% in work contract services and 41% in goods transportation services. Consequently, we expect tax revenues (net to the central government) to surpass budget estimates by INR 21,310 crore as a result of higher indirect taxes.

    Non-tax revenues are estimated to be closer to the actual collection of INR 1.8 trillion recorded for April–December 2015, with dividends paid by PSUs and the RBI accounting for the majority of this revenue. The other major components of non-tax receipts were interest receipts, spectrum charges, royalty, license fee, sale of forms, and RTI application fees.

    The government also expects to earn INR 100,651 crore in the form of dividends for FY 2015–16. Of this, INR 36,174 crore is estimated to come from Central Public Sector Enterprises (CPSEs) and INR 64,477 crore from banks, financial institutions, and the RBI. The central bank paid a dividend of INR 65,896 crore in FY 2016 so far, up 25% from the previous year.

    Direct and Indirect Taxes Revenue(INR Crore)

    Direct and Indirect Taxes Revenue(INR Crore)

    Non-plan Expenditure

    A major “fixed” expense that leaves little room for expense management.

    Non-plan expenditure is a major component of expenditure and comprises salaries, pensions, defense expenditure, and other similar “fixed expense” items with limited scope for any cuts. Almost 45% of the budget is committed, with INR 4.56 lakh crore (25.7% of total expense) allocated for interest payments, INR 0.89 lakh crore (5.0%) for pension payments, and INR 2.46 lakh crore (13%) for defense expenditure. Given their fixed nature, these expenses cannot be lowered.

    Breakdown of Expenditure

    Breakdown of Expenditure

    On the subsidy front, the government has benefited from falling crude and natural gas prices. The ongoing downturn in these internationally traded commodities has eased the government’s burden in terms of lower compensation to oil marketing companies that provide fuels such as kerosene and liquefied petroleum gas (LPG) at subsidized rates.

    Furthermore, schemes such as Direct Benefit Transfer (DBT) have helped weed out inefficiencies in subsidy distribution to a certain extent. Consequently, the petroleum subsidy expense is expected to significantly drop on a yearly basis, thereby leading to a drop in overall subsidy expense for the year for the first time in several years.

    It would be difficult to trim the subsidy bill substantially however.

    Budgeted at INR 2.44 lakh crore (13.7% of the total expenditure), the benefits of declining crude prices would not push fertilizer and food subsidies lower as the government has failed to cut expenditure on the same. As a result, fixed expenditure would constitute about 60% of the budget.

    Breakdown of Subsidary Expenditure

    Breakdown of Subsidary Expenditure

    In 2015, the government announced packages for several states, including Jammu and Kashmir (INR 80,000 crore) and Bihar (INR 1.25 trillion), and financial packages doled out by ministers (INR 34,000 crore for roads). Although this expenditure is spread over a longer period, a portion of the proposed disbursements may have been accounted for in this fiscal year. These expenses have not been accounted for in the 2015-16 budget, thereby giving rise to the possibility of non-plan expenditure breaching the estimated threshold.

    Cuts in Plan Expenditure

    An ace up the Finance Ministry’s sleeve.

    If non-plan expenditure surpasses budget estimates, the finance ministry could exercise the option of controlling plan expenditure in order to control its overall expenditure, thereby meeting its fiscal deficit target. India’s finance minister Arun Jaitley could emulate his predecessor P. Chidambaram, who deployed this method to control the fiscal deficit during FY 2013–14. Measures such as freezing fund disbursement to ministries after December have been repeated over the past few years. These have resulted in gaps between initial budget estimates for plan expenditure and actual spending under the category.

    Plan Expenditure

    Plan Expenditure

    Expense Expectations for Budget 2016-17

    High increase in expenditure on account of the seventh pay commission and OROP.

    The government has outlined objectives such as reviving investment growth and decreasing farmers’ poverty, among others, for Budget 2016-17.

    Before we can even consider what expenditure the government allocates towards these, certain additional expenses have already been identified in the form of payouts under the Seventh Pay Commission (SPC) and the One Rank One Pension (OROP) scheme. For instance, budget 2016–17 would have to allocate more than INR 1 lakh crore for the implementation of the seventh pay commission’s recommendations — which makes up for nearly 1% of GDP — thus putting strain on fiscal consolidation targets.

    To ease the pressure, the government could adopt measures such as staggering the recommended hike in pension or deferring the hike in house rent allowance (HRA) on account of a stagnant real estate market.

    While the pay commission and OROP would constitute substantial components of next year’s increase in expenditure, the need for increased outlays on the investment side is nonetheless important to push up domestic demand. We expect increased expenditure for physical infrastructure projects such as railways, roads, and ports due to their immediate effect on capital investments and long-term multiplier effect on the economic growth.

    The weak rupee has not been kind to the export sector, which has been declining for several months. The government may announce direct intervention (such as interest rate subvention and special packages) or impose import barriers (custom duty on steel imports) in response.

    The much-anticipated food security scheme — if implemented — would exert pressure on the delicate balance between declining revenues and rising expenses as well.

    Tax Expectations for Budget 2016-17

    Increase in rates imminent, some old taxes may be revived.

    To shore up revenues and meet the increased expenses, the finance minister would need to increase tax rates or introduce new taxes. Service tax, increased to 14% in the previous year, may be increased by another 1% to 2%.

    Considering the sharp fall in crude prices and low likelihood of an increase over the next year, the government has the option of reintroducing customs duty on imported crude, petrol, and diesel, which was removed in 2011, when crude prices had increased to over US$ 100 per barrel.

    New cess to fund initiatives such as Start-up India or Digital India and other programs could be introduced, similar to the Swachh Bharat cess levied last year. The percentage of Swachh Bharat cess could be increased as well.

    The government could increase import duty on gold, since gold imports have increased over the past year, partly contributing to the trade deficit and weak rupee on account of forex outflows.

    While the finance minister had announced reduction of corporate tax rates from 30% to 25% over next few years, he may keep the rates unchanged for 2016-17. In case the headline corporate tax rate is reduced, we expect the quantum of reduction to be small (~1%) and accompanied with withdrawal of concessions in taxes, which will effectively ensure net increase in tax collections, even after a reduction in rates.

    Fiscal Deficit Target for 2016-17

    More than 3.5% of GDP, but not by a large margin.

    The fiscal consolidation roadmap outlined previously by the finance minister targeted fiscal deficit to reach 3.5% of GDP in FY17 and 3% in FY18. These targets were predicated on an improving domestic economy, without provisions for large expense increases on account of the pay commission, OROP, or even the need for a higher investment outlay to compensate for weak private sector growth.

    While part of the expenses will be met by higher tax rates, they would not completely help meet the fiscal deficit target of 3.5% for FY17.

    We expect the fiscal deficit target for FY17 to be relaxed, with the timeline to attain a 3% fiscal deficit target (by FY18) extended by one more year. The target for FY17 is likely to be between 3.6% - 3.7%, which gives the government some leeway on the path toward fiscal consolidation. Even if the timeline or target were relaxed, it would still be commendable for India to commit itself to a fiscal consolidation program despite waning global growth.

    The finance minister’s key objective this year will be to improve his budget at the margins, not overhaul it.

  30. Apple 1Q Results: A Lucrative Lull for Long-term Investors?

    Apple’s 1Q2016 report card is out. Its average performance in the wake of the emerging economic weakness i

      to read | words

    Apple’s 1Q2016 report card is out.

    Its average performance in the wake of the emerging economic weakness in China — one of its largest markets — is quite expected.

    However, what is unexpected is that its management has softened its stand toward future expectations—a below par revenue guidance for 2Q with a decline of almost 10% y-o-y.

    What Happened

    A consensus-beating EPS of $3.28 (Street at $3.23) and an in-line revenue performance of $75.9 bn (Street at $76.6 and guidance at $75.5-77.5 bn) in 1Q should hardly be the cause to set alarm bells ringing. That said, a mere 0.4% y/y growth in iPhone shipments at 74.8 mn is indicative of things to come, at least in the near future. Sales of the iPhone are expected to decline in 2Q according to the management and for the first time since the product’s launch in 2007.

    What to Make of It

    Apple’s big bets on China have paid off handsomely in the recent past, with the region now accounting for nearly a quarter of its revenue — more than the whole of Europe.

    Clearly the company is expected to feel the heat of a slowdown in the world’s second largest economy. Given that the iPhone 6s and the Apple Watch have also fallen short of meeting high expectations, the company has certainly hit a bump in its road to fruition.

    We believe the company will continue to innovate and promote its Apple Watch whose performance, in our view, is dependent on the iPhone user base and should pick up with some lag. In the interim, headlines from China would play a role in shaping the company’s performances in the coming quarters.

    Our team in China had some interesting thoughts about the goings on on-the-ground.

    Clearly the features of iPhone 6s and 6s Plus weren’t enough to impact an upgrade, especially when an upgrade from iPhone 5 to iPhone 6 happened barely a year ago. Further, the large user base in China hasn’t warmed up to the Apple Watch — something our China analysts simply put down to consumer tastes, which is low on high-end technology consumption. Lastly, the recent market crash has also played its part. A majority of the public ownership of China’s stock market are retail investors, who have seen a size able chunk of their portfolios evaporate in this collapse. There is a high likelihood of big ticket buys (iPhones clearly qualify as one) getting postponed.

    What has also not worked in Apple’s favor is the strong surge in the dollar versus other global currencies, making its products more expensive in those markets. A $100 worth of Apple’s non-US revenue 15 months ago is worth nearly 15% less today. While investors would not penalize Apple for cross currency headwinds, headline numbers do look weak. For example, a 2% y/y growth in revenue this quarter would be 8% y/y in constant currency terms.

    What to Look Forward to

    It would be interesting to see how Apple copes with the pressure. Product innovation has always been the company’s hallmark; and now is as good a time to answer critics as ever.

    Another version of the iPhone is expected in 2016, and how Apple sets the tone for its launch would be important. In comparison to its flagship phone product, we believe other initiatives such as the Apple Watch, Apple Music, or even bytes around Project Titan (its ambitious electric car project set for launch in 2019) would take some sort of a back seat.

    As for the stock itself, we believe a lot of the expected weakness in growth rates and headwinds in sales of the iPhone are already priced in. The stock currently trades almost 30% cheaper than S&P 500 and clearly discounts a lot of what will get discussed post 1Q results.

    Apple 1Q Results

    Apple 1Q Results

    With a cash pile of over $200 bn, the company can consider maintaining its stock buy-back initiative that can further cushion the share price. Therefore, unless China spirals down into unchartered territory of significantly lower growth rates, long-term investors should fancy this blip to enter or accumulate.

  31. Abolishing Subsidies — Saudi Arabia’s Quest to Curb Deficit

    While low crude prices were fiscal boons to countries such as India and China, oil producing countries sweated

      to read | words

    While low crude prices were fiscal boons to countries such as India and China, oil producing countries sweated out lower revenues, curbed expenditures, and reporting deficits.

    Saudi Arabia — the OPEC’s largest oil producer — was struck by the slump over 2014 - 2015 and grappled with significantly lower revenues from crude oil.

    The 28th of December 2015 was a turning point for the Kingdom, with the Saudi government resorting to an increase in the prices of gasoline, electricity, diesel, kerosene, as well as water and sewage treatment services.

    This is the Saudi government’s first concrete step towards abolishing subsidies while improving its fiscal situation.

    Government Expenditure – Focus on Spending to Continue

    The 2016 Saudi Ministry of Finance budget suggests that government spending continued to grow in 2015, despite lower revenues from crude oil.

    Actual expenditure in 2015 is expected to reach SAR 975bn, widening the deficit to SAR 367bn (during 2014, Saudi government reported deficit of SAR 66bn) which is about 15% of GDP. The 2016 budget estimates combined revenues of SAR 514bn, while government expenditure is budgeted at SAR 840bn, with a deficit of SAR 326bn.

    Saudi Government Deficit

    Saudi Government Deficit

    Budgeted expenditure for 2016 is about 14% lower than that of 2015, primarily due to lower oil revenues. There is a contingency provision of SAR 183bn however, and the government may resort to bond issuance (as it did in 2015, with bonds totaling SAR 98bn) should the need arise.

    Saudi Non-Oil Revenue

    Saudi Non-Oil Revenue

    Fuel Reforms – A Step Toward Rationalization

    The Saudi government announced a 67%+ price hike in Octane 91 (low-grade) petrol and 50%+ price hike in Octane 95 (high-grade unleaded) petrol on the 28th of December, 2015.

    The government also hinted that prices of other fuels such as natural gas, diesel, kerosene, Arabian light and heavy crude oil, heavy fuel oil, ethane, and butane would be hiked, with revised prices applicable from the 11th of January, 2016. Utilities such as electricity, water and sewage treatment would also become costlier as their tariffs would be revised.

    Crude Oil Prices – No Near-term Surge Expected

    A weak but stable demand across developing countries, lower than expected demand from China, higher crude availability from non-OPEC countries, and the continued oversupply from OPEC, have made global oil prices less vulnerable to any intermittent shocks.

    OEPC in its recent World Oil Outlook 2015 suggested that the OPEC reference basket may reach USD 80/bbl by 2020.

    Subsidy Regime to Diminish Over the Next Few Years

    Saudi Arabia’s decision to hike fuel prices is a constructive step toward reducing fuel subsidies.

    Fuel prices in Saudi Arabia should be in sync with international prices over the next few years. Given the grim outlook for crude prices right now, the government shouldn’t have a hard time implementing this decision. The reduced subsidies would not only help curb deficits, but also reduce the excessive consumption of a precious natural resource.

    We believe that rather than reduce expenditure on development projects, the Saudi government will try to tap additional revenue streams from non-oil segments such as hiking fuel prices, levying taxes, and so on, which would help the government exchequer keep pace with its expenditure.

  32. 2015: The Year Of Divergent Monetary Policies and Falling Commodity Prices

    Global markets commenced 2015 with a strong positive momentum. The markets were optimistic due to the larger-than-expected stimulus announced

      to read | words

    Monetary Easing Provided Initial Thrust to Equities

    Global markets commenced 2015 with a strong positive momentum.

    The markets were optimistic due to the larger-than-expected stimulus announced by ECB President Mario Draghi to lift the sagging Eurozone economy and the likelihood of a delay in the US interest rate hike.

    China’s SSE Composite Index recorded outsized gains of over 59% on June 12, 2015, after PBoC announced monetary easing measures to support the economy.

    Eurozone benchmark DAX and CAC40 peaked with YTD gains of +26.2% and +23.3%, respectively, in April. US benchmark indices S&P500 and DJIA peaked with YTD gains of +3.5% and +2.7%, respectively, in May.

    Volatility and Uncertainty Reverse Gains

    Mid-2015 was challenging for global markets as support measures undertaken earlier failed to produce results and optimism gave way to concerns over global growth.

    The Greek debt crisis severely affected the Eurozone, resulting in investors contemplating the repercussions of a Grexit. Meanwhile, overvalued Chinese equities commenced downward correction, entering the negative territory to touch its 52-week low of 3,235 (-9.5% YTD) on August 26, 2015. This added to pressure on global equities.

    The sell-off in global equities intensified due to uncertainty over the US interest rate hike in September.

    Germany’s DAX erased all gains and entered the negative territory, touching its YTD low of -3.9% on September 24, 2015. All other indices traded near 52-week low.

    Light at the End of the Tunnel — US Interest Rate Hike

    A continuous decline in commodity prices kept denting the GDP growth estimates of commodity-export-dependent nations, especially Latin American and Middle Eastern economies. This resulted in fiscal pressure on governments. However, the Federal Reserve interest rate hike allayed investor anxiety near the end of the year. Investors cheered the US interest rate hike, expressing confidence in the gradual US economic growth as indicated by a surge in global equities.

    The DAX (+10.0%), CAC40 (+8.5%), Nikkei225 (+9.3%) and SSE Composite (+9.4%) rebounded to end 2015 in the green. DJIA (-2.2%), S&P500 (-0.7%), and FTSE100 (-4.9%) recovered from their lows, but ended in the red.

    Commodities Outlook for 2016

    The positive momentum is anticipated to continue in 2016, led by recovery in commodity prices from multi-year lows. The US economy is expected to provide impetus to export-dependent economies and help in gradual recovery of global growth.

    Commodities Outlook 2016

    Commodities Outlook 2016

    OPEC’s Double-edged Sword — The Fall of Oil Prices

    The struggle between the US and the OPEC to dominate the oil market intensified in 2015.

    OPEC Gulf indices exhibited a strong correlation with oil prices (0.65–0.90x), largely dictating investor sentiment in the region. The year began positively as oil prices stabilized momentarily and strong corporate earnings were reported for 2014. YTD gains peaked at 3–18% in the first four months of 2015, with the TASI outpacing the rest.

    GCC markets started gradually retreating mid-year, tracking the downtrend in oil prices. Investor sentiment deteriorated, following political unrest in Yemen and disappointing corporate earnings for 1Q15. Resultantly, YTD gains entered the negative territory, as oil prices hit a seven-year low of around US$42.7 per barrel on August 24, 2015, down 33% in two months.

    Meanwhile, Saudi Arabia lifted restrictions on direct foreign investments in the Tadawul on July 15, 2015. However, the negative global environment deterred investors; trading volumes remained at a record low in most Gulf markets as oil struggled to find its bottom.

    Thereafter, in the absence of positive catalysts, the markets kept falling to end 11.7–23.6% lower as of December 13, 2015 with credit downgrades of Saudi Arabia, Oman and Bahrain by S&P continue to exert pressure on the markets.

    Austerity Measures and Reforms — The Essential Compromise

    The US interest rate hike in mid-December lifted global sentiment, followed by a rebound in Gulf markets, leading to 2015 ending on a positive note. In addition, analysts welcomed reforms introduced in the 2016 budget announcements by the respective state governments to curb the widening fiscal deficit with focus on the long-term gains over short term pain.

    The Saudi government implemented austerity measures including a 125% hike in the price of water, 50% hike in petrol prices, and the imposition of a 2.5% tax on underdeveloped land, to contain the fiscal imbalance.

    Among sectors, petrochemical, energy and real estate witnessed sharp drops during the year. Banking stocks helped the markets contain losses amid anticipation of better lending margins, following the US interest rate hike.

    GCC Outlook for 2016

    We expect the beginning of 2016 to be challenging for Gulf nations due to record low oil prices and reforms (in the form of austerity measures) inhibiting economic growth. Nonetheless, with an emphasis on diversification and anticipated recovery in oil prices, GCC is expected to make a recovery in the second half of 2016.

    GCC Outlook for 2016

    GCC Outlook for 2016

  33. China’s Yuan — In The Big League!

    In the past decade, China has taken unprecedented steps to open its capital markets and internationalize its currency.

      to read | words

    In the past decade, China has taken unprecedented steps to open its capital markets and internationalize its currency. The recent announcement of the renminbi (RMB)’s inclusion into the IMF’s reserve currency basket is seen as a vote of confidence in the country’s efforts to liberalize its financial markets. It also reinforces China’s growing importance in the global economy - the Yuan is the only emerging market currency in the IMF’s elite reserve currency list, commanding a higher weight than the yen or pound.

    Yuan Rising Through the Ranks

    The Yuan’s inclusion does not come as a surprise, considering its current global rankings: fifth among the world’s most used currencies and the most-used currency for intra-regional payments in Asia-Pacific. This is indeed a notable achievement as the RMB, at the 14th position just three years back, has now overtaken six other currencies. Despite this, the Yuan remains a small player at the global level in terms of volumes, accounting for 2.45% share of transactions worldwide. We believe its inclusion in the SDR basket would help the currency gain further traction in the international market and (consequently) boost transaction volumes.

    Impetus for Further Reforms

    While China has made significant progress in its efforts to internationalize its currency, there is significant room to achieve full convertibility and move towards a market determined exchange rate. Status as a reserve currency alone does not guarantee the currency’s economic attractiveness, as investors still have limited access to China’s financial markets. The IMF’s endorsement of the efforts of Chinese policy makers is expected to act as a catalyst and drive further reforms towards making the currency ‘freely usable’ and liberalize the country’s capital account.

    Substantial Inflows in the Long Term

    The reweighting of the IMF’s SDR assets is not expected to have a significant impact on the demand for the Yuan in the short term (estimated to be approximately US$30 billion, a modest amount given the size of the Chinese economy). However, the impact is likely to be more pronounced in the long term as central banks, sovereign wealth funds and other major multilateral institutions reallocate their balance sheets to reflect the redistribution in SDR weights. It is estimated that as many as 70 central banks already have allocated some part of their reserves in RMB assets. Over the next decade the impact of the rebalancing could see reserves to the tune of up to US$1 trillion flowing into Chinese assets, significantly altering the global currency landscape.

    Positive Impact on Chinese Corporations

    The rapid internationalization of the Yuan and its growing use in cross-border trade settlements is expected to benefit Chinese corporations. Chinese firms, especially SMEs, will be able to use the RMB as an invoicing and settlement currency in cross-border trade, which would lower exchange rate-related risks and reduce transaction costs (the cost of transacting in US dollar is 2–3% higher than that of transacting in the local currency, according to PBOC). In addition, larger Chinese companies would be able to raise funds from international markets in the operating currency, instead of US dollar, thereby reducing their currency exposure.

    Neutral Impact on the Stock Market

    In our view, the reweighting may not have a direct impact on foreign investor appetite for domestic equities, especially after the pessimism triggered by the market meltdown and the nature of subsequent government intervention. However, the conferring of the SDR status on the RMB, perceived as IMF’s endorsement of China’s financial reform agenda, is likely to lift investor sentiment. In the medium to long term, the potential inclusion of Chinese A-share stocks in MSCI’s Emerging Markets index is expected to have far greater impact on inflows in the domestic stock markets.

  34. EIA Expects US Crude Production to Decline

    In its latest Short-Term Energy Outlook, the US EIA expects American crude production to decline by 0.5 million barrels

      to read | words

    In its latest Short-Term Energy Outlook, the US EIA expects American crude production to decline by 0.5 million barrels per day (mbpd) to average 8.8mbpd.

    It estimates that total US crude production declined by about 60,000 barrels per day (bpd) during the month of November as compared to the previous month. In April this year, US crude production peaked at 9.6mbpd before it began falling in May, averaging out at an estimated 9.2mbpd in November.

    The decline in production over 2015 and 2016 is attributable to low global crude prices, which made production from emerging and mature onshore fields as well as from shale assets unattractive. Low prices have impacted oil exploration companies’ investment plans, which may resurge only after oil prices show some signs of revival.

    Low US crude production may not impact the global oil balance in 2016, with OPEC likely to keep the oil market well supplied - supplemented further by global oil inventories.

    Additionally, the lifting of sanctions on Iranian crude will bolster global oil supply.

    With abundance in supply, oil prices aren't likely to see major surges during 2016. The outlook seems muted for the moment, with significant jump in prices unlikely aberrations.

  35. Weak Indian Rupee – Case of Win Some, Lose Some

    Since the end of the June quarter, Rupee has depreciated by c.1.9% against Dollar and c.5.0% vs. Euro.

      to read | words

    Since the end of the June quarter, Rupee has depreciated by c.1.9% against Dollar and c.5.0% vs. Euro. Several export-oriented sectors are gaining majorly from this weakness. Chief among them is the Indian IT Services domain. We believe the IT sector with net exports of 40% to 50% will benefit the most, because generally 1% depreciation in Rupee adds c.20-50bps to EBITDA margins that translate to c.2% increase in EPS.

    Impact on Operating Margins against USD

    Impact on Operating Margins against USD

    Rupee vs USD and EURO June to Sept'15

    Rupee vs USD and EURO June to Sept'15

    While the INR depreciation has come as a boon to the Indian IT sector in the near term, unstable economic growth in emerging markets (specifically China) and the world (largely the US and the Europe) and depreciation of local currencies against USD in recent months could weigh on the revenue growth of Global 2000 companies - the important customer base of Indian IT services providers.

    Having said that, weak Rupee may spell trouble on the other hand for importers and organizations with foreign currency loans. Several industries, such as power that relies on imported fuel, aviation that has a substantial share of its expenses in dollars, and auto component that imports raw materials are all negatively impacted by the weak Rupee. Moreover, firms with large dollar-denominated debts are extremely vulnerable to the weakening currency. We are also seeing high vulnerability in the telecom (equipment imports and dollar debt), metals (high dollar debt), and pockets of Infrastructure (power and ports) sectors.

  36. Commodities Outlook: What Are The Big Boys Saying?

    Over the past year, commodity prices have been under pressure.

      to read | words

    Over the past year, commodity prices have been under pressure. In fact in some cases, it has fallen to levels not seen since the global financial crisis of 2008-09. Slowdown in demand from China, the largest consumer of major commodities, and continued rise in supply have created a glut in the commodity market.

    Moreover, correction in China’s equity market and the recent devaluation of Yuan has resulted in financial market concerns impacting commodity trading further.

    Current Decline in Commodities Prices

    To understand where the commodity markets and prices are heading, we analyzed the outlook of major industry players and gathered their general consensus on the Street.

    Major Producer's commodity market outlook

    Commodity Price forecasts

    Cautiously Optimistic Outlook

    We believe the views and forecasts of the industry players as well as market analysts reflect cautious optimism. Consensus forecasts indicate expectations of a pick-up in commodity prices from their current levels; however, the increase is unlikely to be anywhere close to the levels witnessed during the previous boom-cycle.

    A strong recovery in the macro economic situation (read China) is the key requirement to drive recovery in the commodity markets. The low commodity prices should allow the demand-supply dynamics to come into alignment. It simply translates to reduced investments and output cuts on the supply side and gradual increase in consumption led by global macro-economic improvements on the demand side.

    As such, we expect the downward pressure on prices to ease going forward. The industry expects near-term growth driven by the US, and long-term growth driven by Emerging Markets. While the current expectations indicate that the commodity prices may have bottomed, they do little to change investor confidence significantly for now.

  37. Could A Weak Rupee Strengthen Tourism in India?

    With the western holiday season and India's own festive holidays just around the corner, the number of global

      to read | words

    With the western holiday season and India's own festive holidays just around the corner, the number of global tourists vacationing in India could see a rise as the rupee falls.

    USD to INR over past year

    USD to INR over past year

    Coupled with the potential for rapid growth in India's online travel sector, the recent drop in the rupee's value could resonate well for the nation's inbound travel industry. While vacationers travelling to India from the US and Western Europe can't look forward to leisurely holidays for a song just yet, foreign tourists could save up to 10% on their travel costs due to the rupee's depreciation against key global currencies.

    Foreign Tourist Arrivals in India - YoY growth

    Foreign Tourist Arrivals in India - YoY growth

    A weak rupee could also be good news for domestic tourism, with budget travelers favoring holiday destinations within the country in lieu of postponing their holiday plans or splurge on a vacation abroad.

    Industry sources expect an upswing in inbound tourism, hinting at an increasing number of travel inquiries about tourist destinations in India from abroad. With easy access already available to citizens of over 113 countries through the nation's convenient e-Visa facilities, vacationing in India ought to be a hassle-free affair that's light on your wallet.

  38. Click To Change Fashion!

    The fashion landscape has shifted. Window shopping and mannequins are passé. Notification bars, display pictures and status updates

      to read | words

    The fashion landscape has shifted. Window shopping and mannequins are passé. Notification bars, display pictures and status updates are in vogue. Spring and fall collections at London, Milan, Paris and New York are no more restricted to the runways. Social Media has emerged as the new normal that now influences how fashion is being proliferated, perceived and consumed around the world. In the digital era, new age consumers make fashion statements on their profile pictures on platforms such as Facebook and share their opinions on the emerging trends on micro-blogging sites.

    Statistically, American and European Union markets dominate the global fashion scenario with trades running into 3 Digit Billions and a staggering 68% market share in exported fashion. People are increasingly leveraging social media to boost their Social Presence, and in turn are utilizing the platform for what now is emerging as a new business line termed as ‘Personal Branding and Advocacy for individuals’.

    Thanks to the confluence of Techno-Commerce, e-retailers now assist brands to penetrate into developing economies and tap potential customer base. With low resource costs and easy access to markets, the industry is fast absorbing a ‘flexible assembly line’ to meet the growing consumer demands. Remember the good old Dell days where you had made to order PC’s?

    For example, once-diminished fashion trend ‘Western Outfit’ has found a newfound hold in the fashion scene at Asia, primarily in culturally conservative countries, where international brands no longer have to blend local fashion to suit the needs. In fact, local competitors are scrambling hard to adopt western styles in their designs to please the local market.

    Another online sales strategy widely adopted is flash sales, with offers like Buy One Get One. These offers alter the typical buying patterns of consumers in addition to the quirky ad campaigns that help drive bulk buying mentality.

    The innate need to customize is being well satiated by online shopping. A few known brands have partnered with tech companies to develop mobile and web platforms for customers to choose apparel, personalize it, accessorize virtually with interactive content, and try it online (Virtual Reality based applications that allow users to use their phones’ or computers’ camera to experience the merchandize).

    Comparative studies show that spending patterns are changing rapidly to choice-based spending on branded clothing and fine dining. Tier 1 clothing brands, such as Nike, Reebok, A&F, Levis, Pepe and M&S, are now a household name globally.

    For instance, in 2012 Prada’s brand value skyrocketed 63%, bringing it to $9.5 billion. That made Prada the fourth most valuable luxury brand in the world, and the number one riser in any category. Prada has multiple outlets in the east with websites that currently do not support online shopping functionality. They have partnered with a few e-retailers, albeit with offerings limited to accessories such as eyewear, belts and wallets etc.

    Louis Vuitton’s (brand valued at USD 22,719 million) continued success can be attributed to consistently upholding its core values and remaining loyal to its travel-centric heritage. Louis Vuitton has significantly improved its digital presence—from charting its history on Facebook to launching an app that enables customers to share travel experiences. A great move indeed.

  39. Japan’s Nuclear Reactor Restart: Commodities Investors Worry About LNG Import Cuts

    Japan, on 12th August, restarted its nuclear reactor after a two year long hiatus ending its nuclear shutdown

      to read | words

    Japan, on 12th August, restarted its nuclear reactor after a two year long hiatus ending its nuclear shutdown stance. The government approved the reopening of two reactors of Kyushu Electric Power Co's power plant of which Sendai 1 has begun to generate electricity. It is likely to operate at full capacity by September.

    The move comes after Japan decided to shut down all its 43 operable nuclear reactors in September 2013 as they failed to comply with stricter regulations introduced after the March 2011 triple meltdown of the Fukushima Daiichi nuclear-power plant.

    With its decision of nuclear free power in 2011, Japan had joined the likes of European nations including Germany, Belgium and Spain, before its U-turn.

    The public animosity against nuclear power plants in Japan continues to linger. However, the Prime Minister Shinzo Abe remained unfazed with the protests as he has been more concerned about Japan’s ballooning trade deficit owing to a rise in fuel import bill, especially in light of a weak yen.

    Until FY 2011, nuclear energy contributed approximately 30% of Japan’s total electricity generation. However, the aftermath of the disaster compelled Japan to shift to alternative fuels, importing huge amounts of coal, liquid natural gas (LNG) and other fuels, to meet the demand for electricity.

    In FY 2011, the 10 largest utility companies consumed 52.9 million tons of LNG, an increase of 27% over FY 2010. With all nuclear capacity offline in 2014, these power companies imported a record 56.6 million tonnes of LNG, worth ¥5.02 trillion. Given this background, it comes as no surprise that Japan spent a whopping ¥27.7 trillion on fuel imports, accounting for a third of the country’s total import bill in FY 2014.

    Japan’s currency played further havoc. The value of the yen, which reached a six year low in this period, aggravated the problem, resulting in trade deficits of ¥8.2 trillion in FY 2012, ¥13.8 trillion in FY 2013 and ¥9.1 trillion in FY 2014.

    Given the above economic pressure, the Japanese government was forced to reverse the previous administration’s decision of shutting all reactors, which was greeted with open arms by the business and industrial lobbies.

    However, the start of the nuclear revolution in Japan has several investors worried about the commodities market, especially LNG, which has been trying to make up for the loss of nuclear power generation in Japan. The country, which meets approximately 80% of its energy demands via imports, had bought ¥7.76 trillion of LNG (89 million tonnes) in FY 2014, accounting for 9.30% of its total imports and a third of global LNG shipments.

    This huge dependence on LNG imports is unlikely to change at least until January 2016 as most LNG imports to Japan are bought under long-term contracts linked to oil, which are on a take-or-pay condition.

    As part of Japan's long-term energy policy, the government has called for the nuclear share of total electricity generation to be at least 20–22% by 2030. However, the plan seems ambitious considering that obtaining approvals for restarting the reactors is a tedious task. Currently, the approvals come from both the country's Nuclear Regulation Authority (NRA) and from the local government bodies, which are fraught with hurdles.

    That being said, with a second reactor to restart in October 2015 and 11 more planned to be restored in 2016; it is likely that Japan would look to cut back on its LNG imports in the years ahead. Rough calculations indicate that if Japan were to boost its nuclear output to full capacity, it could save imports bills to the tune of ¥1.5 trillion.

    As such, Japan’s fallback to nuclear power seems a viable solution, at least for now. However, what remains to be seen is whether nuclear power in Japan would be able to achieve the highs of its pre-disaster era. Also, will it be able to restore faith among its countrymen who have borne the brunt of its fallacies. And, how will it impact the Japanese commodities market that seemed to be buoying lately with heavy imports of LNG.

  40. Moody's Lowers India's 2015 GDP Growth Forecast

    Owing to concerns regarding weak monsoons and a slower than expected pace of reforms by the current Indian

      to read | words

    Owing to concerns regarding weak monsoons and a slower than expected pace of reforms by the current Indian government, rating agency Moody’s has cut down India’s 2015 GDP growth forecast to 7% from an earlier stated 7.5%. The rating agency has however, maintained its 2016 forecast of 7.5%.

    Early last month, Fitch Ratings lowered India’s 2016 and 2017 GDP growth forecast to 7.8% (from 8%) and 8.1% (from 8.3%) respectively. While the rating agency said FY 2016 would be the first time India’s economic growth surpasses China’s; gains in demand, heightened investment activity and structural reforms would play a big role in ascertaining the pace of GDP growth.

    A number of factors provide resilience to the Indian economy's growth.

    Weak commodity pricing would benefit India, a net importer nation, by allowing the central bank to achieve its inflation targets and augmenting much needed fiscal consolidation. The lower than average rainfall would only have a short-term impact and India should be able to tide over its adverse effects in the next fiscal year. Additionally, slowing demand in China and an overall weak trade environment does not affect India as much as it affects other nations.

    There are however, certain indigenous factors that cast doubts on India’s economic performance.

    The reforms the government has implemented so far were easy to bring about. However, bigger and more impactful structural reforms such as the GST rollout, land acquisition, transformation of the agricultural sector, and many more, have still not seen the light of day and are fraught with various contentions. Poor credit quality and its unfavorable impact on the nation’s state-run banks is likely to weaken the country’s banking system and impede its role in economic growth. In December 2014, around 4.3% of the total loans at Indian banks were in default; more than double the figure of 2010. A lack of any substantial growth private sector investment is also compounding declining corporate earnings. However, a further decline in interest rates could encourage capacity expansion across sectors, provided that manufacturers see a material increase in demand.

    The current lows in oil and gold prices have been somewhat of a blessing for India.

    There's still a long way to go however, as India tries to address her structural inefficiencies and ensure sustainable economic growth.

  41. Early Start Of Festivities For Indian Car Manufacturers

    The cumulative sales of seven leading automobile manufacturers increased 18% y-o-y to 204,586 units in July 2015, indicating a strong recovery

      to read | words

    The cumulative sales of seven leading automobile manufacturers increased 18% y-o-y to 204,586 units in July 2015, indicating a strong recovery from the modest growth of 2% y-o-y seen in June 2015.

    As per SIAM, this has been the best ever July performance in the domestic passenger vehicle industry. The growth was supported by new launches, and reduction in fuel prices. Tata Motors, Hyundai, and Maruti Suzuki registered a significant increase of over 20% y-o-y in dispatches, followed closely by Honda and Volkswagen with 18–19%.

    Car Manufacturers - Indian Auto Report

    Of the seven automobile manufacturers who declared their sales numbers, only Mahindra reported a y-o-y decline as it continues to sell conventional utility vehicles and awaits new launches. GM, Nissan, Renault, Ford, and Datsun have yet to declare their dispatch numbers.

    The July sales figures suggest that the Indian automobile sector is likely to have a good second half in 2015. These numbers indicate a rise in consumer sentiment as inflation slows and urban residents are encouraged to spend more. Moreover, better-than-expected monsoons keeping inflation in control, continued weakness in oil prices amid soft commodity markets, and any rate cuts in the coming months could boost the sector.

  42. Chinese Checkers: Devaluing Yuan

    In a bid to support their stuttering economy, China has devalued its currency, leaving it 5% weaker than the

      to read | words

    An Exercise in Laissez-Faire

    In a bid to support their stuttering economy, China has devalued its currency, leaving it 5% weaker than the US Dollar over the last three days. Being the world’s largest trading and export economy, this move has rattled the financial markets across the globe. With severe ramifications and a fear that other export oriented economies will follow suit in order to remain competitive, this may open a Pandora’s box of depreciation.

    The Trigger and Consequence of Devaluation

    The devaluation signifies a major shift in the pricing regime by China, from a tightly controlled peg against the Dollar to a more liberalized exchange rate determined by market forces. While the PBoC communicated that the move is a “one time correction” a bigger question is “will China set a trend to propel the economy which is reeling under pressure?”

    This drastic measure comes on the back of lower trade numbers, with exports falling by 8.3% y-o-y (in Dollar terms) in the month of July against the consensus estimates of 1.5% (Bloomberg). This extreme action comes after a series of rate cuts since January meant to boost the sluggish economy, and it raises a key question over the state of the economic affairs in China that have left the global markets jittery.

    Given concerns about economic growth, the equity sell-off, and sustainability of the government’s intervention in the broad financial markets, we believe sentiment on RMB is already negative.

    Rate Cuts and reasons for Devaluation

    While an initial devaluation of 2% could be termed as insignificant, a larger move of say 5-10% could be the beginning of a global market tailspin. We fear, given fragile economic scenarios, that the risks to the downside are higher; especially now that the PBoC has signaled a shift in the weaker direction, and this would set in motion a trend of weakness in other emerging economies.

    China’s unexpected devaluation move could potentially pressurize central banks in other parts of world to depreciate their currencies in order to maintain export competitiveness and stabilize capital flows. RMB depreciation would also trigger a new bout of commodity weakness, which in our view, is not helpful. It could create deflationary pressures and push out any benefits from higher interest rates.

    Risk of currency war

    How Does The Devaluation Help or Impact Corporates?

    Any company reporting its financials in USD with Asian operations or exposure would witness an earnings pressure due to the devaluation of Asian currencies against the USD. Thus the RMB devaluation, which has triggered the depreciation of other Asian currencies, would act as a headwind for revenue and margins.

    There would however, be beneficiaries as well. Let’s look at a few winners and losers as a result of the fallout of the Chinese decision to let its currency depreciate. The biggest gainers are inarguably the exporters, supply chain managers such as Li & Fung, and I-phone assembler Foxconn to name a few. The higher wage cost in Southern China, which forced most of their factories to relocate their low-end production activities to other Southeast Asian countries such as Vietnam, could use this windfall of cheaper currency to cash in on the move. Global consumers would also emerge winners as the cheaper Chinese goods would make further inroads in the shopping markets across the US and elsewhere.

    Among the losers, the Chinese airline industry would be deeply impacted as a cheaper currency would make foreign travel expensive. Coupled with high fuel costs, this depreciation will severely dent their profitability, as payments for oil is denominated in US Dollars. A weaker RMB would hurt the sales of American companies that look at Chinese consumers as a major market for their products as well. For banks, apart from the translation effects, forex volatility could also affect asset quality.

    winners and losers currency war

    En Route Towards IMF SDR Basket Inclusion?

    China’s move to shift its currency quotation method from a fixed peg against the dollar to a market determined exchange rate could be viewed as part of China’s step towards IMF Special Drawing Rights (SDR) basket inclusion, which tends to confer on its members a status as a reserve currency. While there could be several other key operational concerns that the IMF would have, one of the reasons for this shift in the USD/CNY fixing policy can be attributed to the IMF document highlighting that a more “market - based representative RMB rate in terms of the US Dollar would be needed to value the RMB against the SDR” — which is an operational consideration hindering RMB’s inclusion in the SDR basket.

    Currency Devaluation — Beneficial or Detrimental?

    While there are ramifications across asset classes owing to the devaluation of the Yuan, the severity of it can be gauged only once it’s clear whether the depreciation is a one-off event or an on-going phenomenon designed to help exporters, in turn providing impetus to the economy. From a political perspective, this could add fuel to the ongoing criticism that China keeps the currency artificially lower to support its own manufacturers while harming companies in other countries that trade with China. A concurrent impact could also be on the additional capital outflows from China if the fear of further devaluation is not allayed. How China manages fixing the daily exchange rate and FX market flows in the coming days will be very interesting to watch out for.

  43. Top Four Reasons That Explain The Chinese Stock Market Bubble

    How would you envision a bubble of epic proportions? Consider this: in the last 12 months, the Chinese markets

      to read | words

    How would you envision a bubble of epic proportions? Consider this: in the last 12 months, the Chinese markets created value enough to give each individual on the planet about $900. During this time, China’s steep stock market climb created US$6.5 trillion in value. It was roughly about 70% of China’s GDP in 2013, or about 40% of the New York Stock Exchange’s total value. In fact, it was enough to pay off Greece’s debt 20 times over. No other stock market has ever grown in this proportion in absolute dollar terms across a 12-month period.

    This unimaginable propulsion has taken the play far beyond the fields of individual investors. Most companies in China have been finding stock investing an attractive option as the economy is struggling with weaker demand, excess industrial capacity, persistently high borrowing costs, and more. According to WSJ reports, 97% of the growth in Chinese manufacturers' profits now has been stemming from day trading. Manufacturing companies in China have been shutting down their operations and putting their cash in the stock market, with the hope to make some profit.

    And then the inevitable happened. The Chinese stock market is in a free-fall mode, with the Shanghai Composite Index 40% down since June 12th, 2015. The margin trading turmoil has shifted and could be equal to 6 trillion Yuan (U$970 billion) of borrowed money into the market, putting an equivalent of nearly 10% of China’s GDP at risk.

    Here are the four reasons for the Chinese stock market bubble:

    1. Leveraged Investing: Relentless Borrowing

    One of the main reasons for the mayhem is that millions of Chinese citizens have borrowed money and poured their cash into shares, which inflated prices to unjustifiable levels. When prices began to dip, these investors were forced to sell shares in order to repay the borrowed money and cover losses. The vicious circle of selling is creating panic and further pushing down prices.

    According to China Securities Depository and Clearing Co, the equity market currently has more than 90 million individual investors. Most companies whose share prices were rising were not actually improving; the prices were on the upward swing because demand was high and people were bidding relentlessly.

    Most retail investors were investing in shares beyond what they had to invest by using their money as collateral to borrow more money-a phenomenon termed as leveraged investing. In simpler words, China today is experiencing what the US had faced in 1929.

    SSE Composite Index

    Piling In-Number of new A-share accounts opened

    2. Unprecedented Mega Valuations

    In Shanghai Stock Exchange (SSE) Composite, about 94 percent of Chinese stocks have been trading at higher valuations than the index. Industry pundits suggest this as a consequence of its heavy-weighting toward low-priced banks. Here, we’d have to use average or median multiples to get a different picture. Chinese shares cost more than thrice than any of the world’s top 10 markets, and almost double of what they were priced at in October 2007 when the SSE Composite peaked.

    The Chinese Stock Market Bubble - Projected median

    3. Higher Volatility Than S&P

    Chinese stock market has always been more volatile than stocks globally because retail participation ranges at about 80% to 90% of trading in the Chinese equity markets. After climbing for months, the mainland exchanges recently witnessed its steepest drop since 2008. In fact, the Chinese stock market has witnessed bigger fluctuations over the past 30 days than any other market, except Greece.

    Higher Volatility Than S&P

    4. Disconnected Chinese Stock Market And The Real Economy

    Strangely enough, the stock market bubble still exists despite poorly performing Chinese economy. Its GDP, in the first quarter of 2015, grew by just 6% Y-o-Y, the slowest since 2009. Imports, retail sales and investments have also declined.

    The slowing economy and surplus supply in some cities have caused a price slump in the property market, which has long been considered a safe and reliable investment option for Chinese households. Hence, there’s a major shift of investments from property to the equity market.

  44. Egypt’s Fate Rides High On The New Suez Canal

    Egypt’s new dual Suez Canal is finally here for all to see. What the country has achieved i

      to read | words

    Egypt’s new dual Suez Canal is finally here for all to see. What the country has achieved in a short span of just a year is truly exemplary. Defying the most optimistic estimates of a three-year time frame, the Egyptian President dictated a year-long time frame and one year it is!

    On July 25th 2015, Egypt conducted the first trial run for its new Suez Canal, amid heavy security, with three container ships navigating the channel. Built under the Egyptian army's supervision, the new canal is hailed as the world’s fastest waterway allowing two-way passage of vessels.

    The dual canal, which opens for commercial operations today, symbolizes a new dawn for the economically ravaged country that has seen extreme political and militant insurgency following the collapse of the Hosni Mubarak government in 2011.

    The original Suez Canal, too narrow to allow for a two-way traffic, forced the ships to transit in convoys on fixed time. According to the Suez Canal Authority (SCA), the new waterway is slated to reduce the southbound transit time to 11 hours from 18 hours at present. Further, the waterway would have the capability to handle the passage of nearly 97 ships per day by 2023 from the current capacity of 50 ships per day.

    However, achieving this impressive feat was not an easy task. The construction of the waterway required 35 kilometres of dry digging up to a depth of 24 metres to step up the permissible draught to 66 feet, and widening and deepening the existing western bypasses up to 35 kilometres. The volume of dry excavation works amounted to 250 million cubic meters and required the support of 80 contractors plus six dredging companies along with the SCA dredgers.

    The project received swift funding in September 2014 when the Egyptians lapped up the government’s five-year canal investment certificates bearing an interest rate of 12% to raise US$8.17 billion within eight days. This was, after all going to be an emblem of Egyptian pride, much beyond its economic capabilities.

    Yet, this great work of art and technology has attracted its fair share of criticism for being too extravagant for a country that desperately needs investments to kick-start economic growth to pre-2009 levels. A recent Bloomberg article suggests that the Suez Canal expansion was not really required as the current maritime traffic on the canal is 20% less than the 2008 levels.

    To argue in the favour of the expansion, the geographical and economic importance of the Suez Canal to Egypt cannot be undermined. Built some 150 years ago, the Canal connected the Red Sea and the Mediterranean Sea to strike off some 7,000 kilometres of sea voyage for trading vessels between Europe and Southeast Asia. This longest canal with no locks and minimal difference in the sea level facilitates easy navigation and manages around 8% of the global sea trade. In 2014, the canal contributed around US$5 bn to Egypt’s national purse and is expected to fetch nearly US$13.2 billion annually by 2023, following the expansion.

    An establishment of such national importance was also required to stave-off rising competition from the Panama Canal that regained 51% of the Far East to US East Coast route market share in July 2015, as per the Journal of Commerce. Panama’s much awaited expansion, likely to conclude by mid-2016, would enable it to accommodate larger ships travelling from Asia to US east coast.

    The new Suez Canal project is not limited to the enhancement of the waterway alone, but extends to the more exhaustive Suez Canal Zone development project that entails the development of the entire region surrounding the Suez Canal. The strategic waterway would be converted to a comprehensive global business centre, which would provide maritime transport services and create over one million job opportunities over the next 15 years.

    In 2014, the North Mediterranean, Western Europe and Black sea regions together formed nearly 57% of the total inbound and outbound region-wise cargo traffic. In addition, oil tankers remain the second most important cargo type to pass through the canal, with a contribution of around 22%, surpassed only by containerized cargo.

    Although the SCA is optimistic about revenue and traffic in the coming years, a weak economy and poor demand could have an adverse impact on the future trade prospects through the Suez Canal. Any benefits that Egypt is banking on may be subject to the recovery of an uncertain European market as well as sliding oil prices.

    Even so, Egyptian authorities expect the new industrial area and the waterway to contribute to nearly a third of the Egyptian economy in the coming years. To sum it up in the words of the SCA head, Admiral Mohab Mameesh, the project will prove to be a ‘rebirth for Egypt’.

  45. The Great Media Sale Is On!

    The onset of digitization at the end of the 20th century has led to a prominent shift in

      to read | words

    The onset of digitization at the end of the 20th century has led to a prominent shift in the publishing industry. With technological advancements and changing user patterns on how news is consumed, the traditional print media business has been up for a radical evolution.

    A study conducted by Newspaper Association of America, highlights a consistent and unmistakable digital divide in media consumption. Nearly half of the survey respondents choose online/mobile medium over print as their primary source for news.

    This advent of large technology conglomerates into the business of creating and delivering news has made survival difficult for conventional newspapers already seeing a decline in their print circulation and advertising revenues. The sale of the family-controlled The Washington Post to Amazon for USD 250 million in 2013 is a good case in point.

    Likewise, Pearson (the British publishing and education firm) was unable to invest as much necessary to successfully sail the changing media landscape. This is despite the fact that historically it had architected a sophisticated business model and could pretty well wrestle the threat of online disruption (70% of the total subscriber base of 737,000). This marked the end of its 60-year custodianship of the Financial Times (FT).

    The famed British brand went into Asian hands – Japan’s Nikkei, Inc. The deal is subject to regulatory approvals with expected closure by 2015-end. Going by press reports, Pearson is now actively scouting for an able suitor for its 50% stake in the Economist. A formal announcement of the new match may be soon in the offing.

    Pearson's CEO John Fallon cites divestment of non-core assets (FT accounted for just about 6% of Pearson group’s total operating profit) and channelizing the proceeds to its core education software businesses, as one key reason for its exit (and forthcoming exits). Mr. Ken Doctor, a news industry analyst was quoted in the recent Wharton article, as saying, “Pearson wanted a good steward for the brand, [and] they badly wanted the money.”

    The question arises as ‘Why was the Nikkei-FT deal valued at USD 1.3 billion, five times of what Washington Post was bought in 2013?’. Few could have imagined that FT, with an operating profit of just USD 39 million, could command a multiple of over 40x (excluding Pearson’s stake in the Economist), an unreasonable valuation for a print media asset.

    But, Nikkei saw value and footed the bill! The acquisition seems to perfectly befit its going global strategy and aim of making it big in the premium-news global arena, the segment it rules at home. Nikkei believes with its capital and FT’s pink dye, particularly in worldwide reporting and online distribution, they can emerge as a strong global media brand. Management professor Emilie Feldman, was noted saying “Nikkei is clearly buying its growth outside of a slow and shrinking market.” in the same Wharton article.

    Pearson is not the first company to have disposed of a legacy print media brand at a luxury price. Change of ownership has been rather a frequent event in this space. It seems there is never a dearth of buyers for such assets. Some of the other massive deals in the past half-a-decade include Amazon–The Washington Post (2013), AOL–The Huffington Post (2011), and Bloomberg–BusinessWeek (2010), to name a few.

    The buyers apart from focusing on the potential of core print business intend to satiate the desire to get hands on a trophy asset with a global, long-established brand. Rupert Murdoch is a classic example of this approach. To quote from an article by former WSJ reporter Sarah Ellison, “So central are newspapers to Rupert Murdoch’s psychological well-being that the saddest years of the media mogul’s adult life probably came between 1988 and 1993—the only time that he lived in a city where he didn’t own a newspaper.” Murdoch paid considerably extra (a 65% premium over the company's trading price) for Dow Jones Corp and its key publication, The Wall Street Journal, roughly matching the valuation of the FT.

    To conclude, it definitely is very clear that with the international status some of the coveted legacy print media brands enjoy, they will probably almost always find buyers ready to open their war chests despite their weak profitability. However, it is hard to say they will continue commanding a premium unless they innovate and go the digital way.

  46. UAE to abolish fuel subsidies - other oil producers to follow suit

    In a first of its kind move by the OPEC’s third-largest oil producer, the UAE will abolish s

      to read | words

    In a first of its kind move by the OPEC’s third-largest oil producer, the UAE will abolish subsidies on transport fuels - gasoline and diesel - and align their prices with global oil markets. Fuel prices would be deregulated from August this year, which would increase gasoline prices. The cost of diesel is expected to decline however, considering its current international prices. According to the UAE’s Ministry of Energy, the move is ‘aimed at supporting the national economy, lowering fuel consumption, protecting the environment, and preserving national resources’.

    Revenue saved to be utilized for social service spending

    From an economic point of view, the collapse in oil prices is expected to strain the government’s budget in 2015 and onwards. Deregulating fuel prices in a low oil price environment would have dual benefits however. It would limit the increase in fuel prices (gasoline) without attracting significant public ire, and it would also provide additional revenues that can be utilized for budgetary expenditure.

    Despite fluctuations in oil prices, the UAE government’s social service expenditure has remained stable over the past 5-6 years (about AED 45bn per year) and fuel price deregulation would help the government continue its social service spending. IMF has estimated about USD 75/ bbl break-even oil price for balancing the UAE budget and deregulation would help to partially lower the break-even oil price.

    UAE - Rising Social Expanditure

    Greenhouse gas emissions to decline

    In 2013, the UAE’s transport sector accounted for over 22% of its total greenhouse gas emissions, amounting to 44.6 million tons of carbon dioxide. Fuel deregulation with subsequent rise in price of fuel (particularly gasoline) is expected to encourage people to utilize public transport systems and adopt fuel efficient vehicles (such as electric and hybrid cars) thus helping to reduce the greenhouse gas emissions.

    CO2 Emissions - UAE to abolish fuel subsidies

    Overall fuel consumption may decline

    A rise in the cost of fuel would cause a reduction in overall fuel consumption, thus preserving the UAE’s oil reserves for the future. Overall oil consumption in the UAE has been rising, with gasoline consumption rising even faster. A hike in gasoline prices and subsequent utilization of public transport systems may lead to lower gasoline demand, thus conserving UAE’s natural resources.

    Oil Consumption and Gasoline Consumption

    Minor impact on public pockets

    The cost of gasoline accounts for about 3%-4% of the average income in the UAE which is at a reasonable level compared to global peers. Fuel deregulation is not expected to have a major impact on public pockets.

    Petrol prices to climb up by c.25% while diesel prices to go down by c.30%

    As per the UAE Ministry of Energy announcement, petrol prices are set to climb up by c.25% from AED 1.72/lit. to AED 2.14/lit. While diesel prices would decline by c.30% from AED 2.90/lit. to AED 2.05/lit.

    Petrol prices up Diesel prices down

    Will other GCC economies follow suit?

    According to a recent study by the IMF, global post-tax energy subsidies are expected to remain high at USD 5.3tn in 2015 (6.5 percent of global GDP) from USD 4.2tn in 2011 (5.8 percent of global GDP). Petroleum subsidies are expected to be at USD 1.4tn in 2015 (1.7 percent of global GDP).

    Abolishing subsidies would enhance fiscal, environmental, and welfare benefits. The complete elimination of subsidies could raise government revenue by USD 2.9tn (3.6 percent of global GDP), cut global CO2 emissions by more than 20%, and cut deaths due to pre-mature air pollution by more than half. The higher energy costs faced by consumers would raise global economic welfare by USD 1.8tn (2.2 percent of global GDP).

    Energy subsidies in the UAE are projected to reach USD 29bn in 2015, however with a move towards deregulation, these subsidies are expected to decline. Over the last decade, subsidies have cost state-owned companies about USD 1bn every year. The UAE has initiated a deregulation drive; it’s now time to watch out for other GCC economies that could follow suit. Some consumer countries such as India, Indonesia and Mexico, among others, have already initiated steps to curb subsidies. However, Kuwait retracted a similar decision to abolish diesel subsidies after facing significant public outrage.

    Oil producing countries have upped their budgeted expenditure over the past few years while their oil revenues are expected to fall short. They will need to take concrete steps towards curbing subsidies and redirecting that revenue if they wish to maintain current socio-economic spending.

    The UAE has started a revolution; it’s now time for others to fall in.

  47. US Fed rate hike in September 2015: Who will be the top 4 winners and losers?

    The US Fed rate hike is a fascinating subject. Perhaps, one of the most discussed topic in the

      to read | words

    The US Fed rate hike is a fascinating subject. Perhaps, one of the most discussed topic in the financial world off late, as well. Interestingly, the question here is not ‘whether’ or ‘if’, but rather ‘when’ and ‘by how much’.

    Though the whole world is trying to find the answer, even the Fed Chief Janet Yellen herself wouldn’t be able to quantify it precisely because of a variety of factors affecting the decisions. However, continuous improvement in the US economy and the release of Jun’15 unemployment data of 5.3% (lowest in the last 7 years) must have comforted the Fed to go with the much hyped rate hikes starting September 2015, marking it as the end of an era of free money.

    Though it brings the good news that the most powerful economy of the world is back on track and can sustain a rate hike, it also brings certain unavoidable repercussions for the global markets including equities, debt, currencies, and commodities. Here’s our observation, as we identify certain winners and losers arising out of the Fed rate hike.


    The USD rally: As global investors invest more in the US economy for a better yield, the US Dollar will appreciate versus other currencies especially when other central banks are still cutting rates to boost their economy, which would weigh down their currencies. In fact, USD has already been on an uptrend on the back of rate hike news.

    The export oriented Emerging Markets corporate gain: The USD appreciation will bolster corporate profits of export oriented countries in the Asia-Pacific, which will in turn boost their stock market performance and economic growth.

    The US banks growth: The US Banks will benefit from higher lending rates, which will further spread to other sectors, boosting overall economy due to a strong domino effect.

    Impact on Bond markets: Predictably, the US bond market will improve with the rate hike. However, the impact will vary in direction and degree based on different types of bonds.

    • a. US short term bond yield curve to rise: The reallocation of money from existing short term bonds to new bonds offering lucrative rates would result in subdued bond prices and increase in yields leading to higher yield curve of short term bonds. The new issue of bonds would trade at higher price due to higher interest coupon with the same qualities of being safe havens amidst much higher confidence in the US economy on the back of improvements on multiple fronts - lower unemployment rate, higher non-farm payrolls, steady economic growth, lower trade deficit, etc. The overall short term bond yield curve, however, will behave according to the mix of existing and new issue and thus would likely shift upwards.
    • b. US long term bonds to remain stable leading to flattening of yield curve: US long term bond yields are more influenced by the inflation expectations and yields in Europe or Japan, than by the fed rates which directly impacts short term yields rather than longer term yields. The yields are likely to stay at current levels amidst tamed Inflation expectation (due to factors such as stronger USD likely to keep commodity prices down, and GDP to grow moderately) and very low or negative bond yields in other countries. The upward shifting of short term yield curve with unchanged long term yields would result in flattening of US bond yield curve.
    • c. Emerging Markets’ long term high yield bonds to gain traction: Fed rate hike would increase short term yields but long term yield will likely remain stable. In this case, long term bond investors are likely to go to other markets in search of high yield bonds such as Emerging Markets (EM) government bonds, corporate bonds, etc. Historically, these bonds with high risks and yields have performed better than the US-treasury bonds during periods of rate hikes.


    Suppressed US corporate profits: Rising interest rates will likely put pressure on corporate earnings. This is quite evident from the large number of loans corporate have been securing at current rates in order to escape borrowing at higher rates in future–the loan however is mostly being used for buy backs and dividends to look more attractive to investors.

    US exporters lose: USD appreciation would make the US-made products less competitive in the international markets. This is another reason why shale gas manufacturers are not finding it economical enough to produce, especially when crude oil prices have also been sliding.

    Global equities: Equity markets may lose some of its sheen versus the debt markets, as reduced risk premium would lead investors to resort to high yield bonds.

    Emerging Markets: EM currency and equity markets will increasingly feel the strain with USD appreciation and higher cost of capital. As such, EMs are quite vulnerable to FIIs’ sentiments and risk appetite; any sudden and higher than expected rate hike can cause a blood bath in these markets (we had witnessed one in 2013 when a statement by Ben Bernanke on possible QE tapering sent all the EMs in a tailspin). However, this time around, the Fed has been extremely careful and has given plenty of time to investors to adjust their exposures to avoid any jolts to the markets.

    How one or more of these parameters will play out and by how much, will depend on the pace of rate hikes and the ever changing scenarios in this contagion world. For instance, none of us knew in 2008 that Lehman Brothers’ collapse would in any way become this dramatic that would cripple the global financial markets, engulf many big companies and bring a lot of countries on their knees.

    This is not to say that the Fed rate hike in September 2015 will be that big an event. Rather, I feel it would most likely be a muted 25bps increase, which is anyway quite expected by the market. While, the world seems to anxiously wait for it to unfold new opportunities that it may bring to the table, I won’t really hold my breath.

  48. The Iran nuclear deal effect: Gushing in on an oversupplied oil market

    Iran and the six global powers consummated a closely watched nuclear deal amidst the backdrop of Greek financial

      to read | words

    Iran and the six global powers consummated a closely watched nuclear deal amidst the backdrop of Greek financial crisis. The deal would halt Iran’s nuclear program while simultaneously relieving sanctions on Iran, thus enabling the country to augment its oil exports in an oversupplied global oil market. What does this mean for the global oil market? The already oversupplied market is likely to gush with more oil supplies. Key questions remain about when these new supplies will hit the market and what their impact on oil prices will be.

    Although the deal is concluded, the actual effect on sanctions relief is not likely to happen for a period of at least six months. This implies that the Iranian oil is not expected to flow in the global market before the 2nd quarter of 2016. So, what happens once the deal is completely over? It is estimated that Iran is currently storing about 30mn barrels (bbls) of oil in tankers on the sea. Iran can start offloading this oil in the global market, albeit slowly, so that oil prices do not collapse or react aggressively to it. Even if Iran wants to offload the entire quantity in say three months, it would add about 300,000bpd supplies to the global market.

    Iran will take time to attain its earlier peak oil production

    Sanctions on Iran by the western world limited its oil exports, leading to lower oil revenues that cascaded further to lower investments in the development of oil fields. These sanctions not only stalled the development of some of the fields but also stalled foreign investments in the Oil and Gas sector. Iran reported peak oil production of 4.0mbpd in July 2005 and maintained oil production rate of about 3.5mbpd+ till end-2011. Towards the end of 2011, the US imposed sanctions on Iran’s Central Bank and further by mid-2012 the EU imposed an import ban and sanctions on shipping insurance in Iran’s oil sector. These sanctions led to Iran’s oil production decline to an average of about 2.7-2.8mbpd with lowest oil production observed in October 2013 (2.6mbpd).

    Declining Oil Production in Iran

    Iran would take considerable time to reach its peak production as it is technically difficult to raise oil production immediately. Secondly, Oil and Gas sector investments have come off significantly post the sanctions and instilling confidence among foreign players for future investments would certainly take a lot of time.

    Nonetheless, Iran with its 158bn bbls of proved reserves is the fourth largest country in terms of oil reserves in the world (after Venezuela, Saudi Arabia and Canada). So, eventually, may be 3-5 years down the line, we may witness more oil coming from Iran. On a broader basis lifting sanctions on Iran would keep the oil prices low for a considerable period of time.

    Largest Oil and Gas Reserves

    OPEC spare capacity to limit oil price upside

    Since global debt meltdown, although the OPEC spare capacity has declined, it still stands at about 2.0mbpd (a tad lower than an average of 2.2mbpd during 2004-2014). OPEC spare capacity acts as a buffer in the global oil ecosystem which helps to absorb shocks such as geopolitical issues affecting oil production, natural calamities affecting supplies and similar situations affecting the oil market. This spare capacity lies predominantly with Saudi Arabia as some of the other OPEC members are still struggling with a normalized oil production and geopolitical issues are restricting the development of their oil fields.

    OPEC Spare Capacity

    Mixed oil demand forecasts by global agencies

    International Energy Agency (IEA) in its July 2015 Oil Market Report (OMR) indicated that the global oil demand is forecasted to slow down from an average of 1.4mbpd in 2015 to 1.2mbpd in 2016. While OPEC in its July 2015 Monthly Oil Market Report (MOMR) indicated that the global oil demand is forecasted to increase from an average of 1.28mbpd in 2015 to 1.34mbpd in 2016. US Energy Information Administration’s (EIA) forecasts are largely in line with OPEC’s with oil demand projected to increase from an average of 1.3mbpd in 2015 to 1.4mbpd in 2016. Further, EIA forecasts oil prices to average at US$ 60/ bbl in 2015 (Brent prices averaged at US$ 59.4/ bbl in 1H2015) and averaging to US$ 67/ bbl in 2016. A word of caution; these forecasts were made before the consummation of the Iranian nuclear deal and we would certainly expect some further developments in future monthly reports.

    Oil Prices Market Intelligence

    Oil prices (Brent) fell from about US$ 115/bbl in June 2014 touching a low of about US$ 47/ bbl in January 2015. From the lows, oil prices started recovering and are currently trading at about US$ 60/ bbl. Oil prices did not increase linearly during the past six months however the increase was primarily due to some pullback in oil prices from the lows, growth in the US economy, expectations of US Fed rate hike, and global increase in oil demand. Despite low oil prices, OPEC is pumping more oil (supplies for June averaged at 31.7mbpd, a three year high) to save its market share.

    So, the already oversupplied oil market is expected to add more supplies in the global oil market with Iran’s incremental supplies. Although the timeline for Iran’s oil supplies is unclear, it would curb oil price increase over the next 6-12 months. Furthermore, how Iran progresses with the development of its oil fields is a key indicator to watch out for. China’s economy, a key driver in the global growth engine for oil demand, has lost its momentum and facing staggered growth.

    Hence, global oil market is expected to be sufficiently supplied if not oversupplied over the 3-5 years which implies oil prices are not likely to witness the three-digit level anytime soon.

  49. India emerges as an attractive option as lower Chinese PMI and steel output support the bears

    The recent number for the Chinese preliminary Purchasing Managers’ Index (PMI) in July surprised many on the downside, a

      to read | words

    The recent number for the Chinese preliminary Purchasing Managers’ Index (PMI) in July surprised many on the downside, as it stood at 48.2 versus the Bloomberg consensus estimates of 49.4. The PMI (previously known as HSBC PMI) from Caixin Media and Markit Economics indicates a contraction below the value of 50. Growth concerns spurred by the low PMI number also find support in lower crude steel output.

    In its latest release on July 22nd, the World Steel Association (worldsteel) posted a 1.3% decline in Chinese crude steel output for H1 FY15. Worldsteel represents approximately 170 steel producers (including 9 of the world's 10 largest steel companies), national and regional steel industry associations, and steel research institutes. China continues to see lower steel output due to a slump in the housing market, persisting credit crunch and weak infrastructure investments. This negatively impacts the steel demand in the region that accounts for 50% of global steel consumption.

    It is being argued by the market participants that Chinese steel industry may have peaked in 2014 and now the days of record-high steel consumption are over. This is also the result of the fact that China has been trying to move from an investment lead to a consumer driven economy.

    We argued in our recent post (read: that the recent stock crash and the ensuing reaction by the authorities may have greater negative implications than perceived by the market. The concerns are being shared by the governments, corporates and investors alike.

    The Chinese stock markets had recovered about 15% from their early July debacle, before the Shanghai Composite Index experienced its biggest one-day drop since 2007. It lost further 8.5% on July 27th. This is being attributed largely to the drastic steps the officials took—from halting trading of more than 1,400 companies, to banning major shareholders from selling stakes, to restricting short selling, and to suspending IPOs. The limited stock price recovery since July 8th followed by the biggest drop of index in last 8 years, the weak PMI and the steel data indicate the precarious situation that China may find itself in.

    On the other hand, a direct beneficiary of the Chinese stock rout has been the Indian stock market. International investors are pulling out of China and are looking at India as an attractive option. The Shanghai-Hong Kong exchange saw record outflows amidst the US$ 2.8 trillion plunge in the mainland equity values since June 12th. According to Blooomberg, the international investors have invested US$ 705 million in India over the same period, resulting in a world-beating 7% gain in the benchmark S&P BSE Sensex index.

    Slowing China, which was the driver of previous commodity super-cycle, has also had a direct impact on commodity prices that are on a downward trend. Lower commodity prices have not only helped the Indian government in tackling the Balance of Payments (BoP) situation, but also reduced the raw material cost for the Indian organizations.

    Here, similar to our views that we had earlier shared in our blog, our perspective remains unchanged that the global economy is at a greater risk from the slowing China. As a counter move, investors may find the Indian stock market more attractive and a less volatile option.

    India, as a net importer of goods and exporter of services, benefits from falling commodity prices. Weakness in China makes India an attractive investment destination for investors looking to allocate funds to their emerging market portfolio. Moreover, recent domestic buying in India indicates continued hopes in the strength in the growth story as the majority government strives to reform various sectors, though at a slower than expected pace.

    Investors could use current weakness in earnings to hunt for value in Indian stocks. In terms of positioning, the banking and industrials sectors have been punished due to high NPAs and a slow pick up in investment cycle, respectively. We could see a re-rating there towards year-end.

  50. Apple 3Q Results

    Euphoria built around the new iPhone’s sales and an expected push from the Apple Watch did little t

      to read | words

    Euphoria built around the new iPhone’s sales and an expected push from the Apple Watch did little to bolster Apple’s share price, which saw a sharp decline in reaction to the results, despite a promising 3Q performance on almost all accounts.

    While the company sold 47.5 mn iPhones during the quarter (ahead of the 47.2 mn estimate) the ‘whisper’ numbers were closer to 50 mn. The only blemish in their scorecard was a 4Q revenue guidance of $49-51 bn, marginally below the Street estimate of $51.05 bn.

    We believe their 3Q results don’t adequately capture the momentum seen after the launch of the iPhone 6, the iPhone 6 Plus, as well as the Apple Watch.

    With just 27% of the current iPhone user base having switched over to the new iPhone 6 or 6 Plus, there’s potentially a huge market opportunity that exists for Apple to get existing iPhone and Android users to migrate to the newer models. That, coupled with the increasing momentum from Apple Watch shipments and steady revenue from Apple Music as well as a slew of new product launches due next fall gives Apple some sunny days to look forward to.

    It’s likely that China will be a key market to accelerate Apple’s growth. Their market grew over 100% in 3Q and we believe should likely sustain this growth in the near-term. Our recent trips to Aranca’s newly opened delivery center in Shanghai also corroborate this view. We witnessed significant footfalls in Apple stores and a visible interest in the iPhone 6 as well as the Apple Watch. With Apple’s stock having gained over 40% y/y and 20% YTD, long-term investors could view this knee-jerk reaction to the results as a possible buying opportunity.

  51. China Bans Big Investors From Cutting Stakes For Next 6 Months

    On 8th of July this year, China took one of the most drastic steps to control the unprecedented

      to read | words

    On 8th of July this year, China took one of the most drastic steps to control the unprecedented collapse seen in its stock markets in the past few weeks. The country’s securities regulator banned investors from selling shares in companies with current holding in excess of 5% for a period of six months. The ban spans domestic institutions, government enterprises, promoters, and foreign institutional investors.

    This drastic step follows a spate of control measures taken by the government to arrest the market free fall. Some of these moves include fund support in excess of $40 billion to domestic brokerages by state-owned Securities Finance Corporation; boosting the state holding in companies; plugging the IPO market temporarily; reducing trading commissions; and allowing outright suspension of trading of mid-sized and small-cap companies.

    Although a small percentage of foreign institutional investors are affected by the ban, we believe that these steps could be more damaging to China’s perceived image among the global investors. Such damaging steps, actually, could counter-weigh the benefits of stemming the decline. This move could also dilute the government’s efforts to achieve financial market liberalization and greater transparency. In fact, the current slump in the market has, to some extent, taken the sheen of China A-shares’ expected entry into the MSCI Emerging Markets index. The market sell-off and the local regulator’s seemingly desperate reactions have clearly underscored the issues MSCI had raised with respect to Chinese stock markets.

    The impact of the Chinese wealth erosion may have much larger global implications, and the concerns are being shared by governments, corporates and investors alike. Majority of participants in China’s local equity markets are retail investors. If the free fall worsens, a significant drop in their portfolio asset values could trigger a wide-spread economic crisis that could impact consumption, imports and eventually investments. The global economy, it seems, could be at a greater risk from the ‘Orient’ than from the unfolding ‘Greek tragedy’.

  52. Trading Halt at NYSE: Bad Timing, but Nothing More!

    The NYSE trading halt yesterday couldn’t have come at a worse time.

      to read | words

    The NYSE trading halt yesterday couldn’t have come at a worse time.

    A ‘technical glitch’ at one of the world’s largest stock markets had investors guessing on several fronts: a likely cyber-attack, dubious trading activity, or the China rout spreading beyond its shores. With global markets already feeling the impact of the now battered Chinese stock markets, investors are bound to feel jittery.

    The stock exchange issued a statement blaming a fault in its computer systems for the halt, nothing beyond that. The exchange resumed trading after the three-and-a-half hour suspension. Further, the fact that NASDAQ and BATS continued to trade yesterday without a knee-jerk reaction to the trading suspension at the NYSE suggests there’s no subterfuge.

    Putting a finger on anything other than a system-related problem would be pure speculation.

    This isn’t the first time such a disruption occurred in one of US’ bourses, something similar happened fourteen years ago. Things have changed significantly since then, with more globally diversified trading than ever before.

    The one worry for investors, in our opinion, is how big an impact another event could have in light of the vulnerability of one of the most sophisticated exchange systems in the world.

    Given the multiple global listings for stocks these days, a similar event of longer duration and wider span (across the US exchanges) could create an unexpected lag from other global stock markets, short-term inefficiencies, or even arbitrage possibilities.

    While the actual cause of the issue and any justifiable need for caution would be clear once NYSE submits its findings to the SEC, traders and investors are questioning the impact of large volumes of high-frequency, algorithm-based trades that some technology-heavy US stock exchanges favor.

    Also, while a fragmented US stock exchanges market acted as a cushion yesterday, traders believe quite a few of the 10+ exchanges with a lower market share would be ill-equipped to deal with high volumes of redirected trading in events like these.