Can Bitcoins  still be ignored?

“A pessimist sees difficulty in every opportunity and an optimist sees opportunity in every difficulty”

Asset Class	CAGR* from Jan 2009 to Aug 2017
Bank FD	6.5%
Gold	12%
Nifty	19%
Bitcoin	1247%

*CAGR – Compounded Annual Growth Rate

On August 31, 2016, Nifty  was  at 8800. Currently, it is 9900, riding on bullish  sentiments and a strong reform- oriented BJP government, giving  a return of 12.5% p.a. Impressive!!

Bitcoin has risen from 575$ to 4600$ in the same time frame,  posting a staggering return of 700%. That’s 55 times the return on the stock market! Do you still think  the bitcoin  can be ignored?

When  bitcoin  was  found in 2009, Nandan Nilekani was  still serving his first  stint  as Chairman of the  IT giant Infosys,  Virat Kohli was  yet to make  his test  debut and Rahul Gandhi was  the blue-eyed boy of Congress and future superstar of Indian politics!  
It has been  almost  a decade since inception, yet the #4 most  searched query on Google(2014) “What is Bitcoin?” still puzzles most!

Bitcoin is a decentralized, paperless crypto-currency invented by an anonymous programmer in 2009.

Bitcoins are pieces of computer code -- mathematical algorithms, actually -- that  represent monetary units.  They need  no middle man  to transfer the funds. Unlike  modern fiat money, Bitcoins not controlled or backed by any bank or central government authority, like the  RBI. You don‘t  have  to ask anybody to use bitcoin. There is no gatekeeper.

Transaction are propagated nearly instantly in the network and  are confirmed in a couple of minutes. It doesn't matter if I send  Bitcoins to my neighbor or to someone on the other  side of the world, it will take the same time!

One  of  the  limitations of  bitcoin   is  that  once  a  transactions  verified by  network nodes and recorded in  a public  distributed ledger (blockchain), nobody can reverse it. There is no safety net. However, cryptography and the  magic  of big numbers makes  it almost impossible to break this scheme. A Bitcoin  address is more secure than Tihar Jail.

The  biggest  concern of regulatory authorities is that  neither transactions nor  accounts are connected to  real world identities. As  stated by Former Indian Minister of  State  for  Finance  Arjun  Ram  Meghwal, “Usage  of virtual currencies anonymous/pseudonymous  systems could subject  the users  to unintentional  breaches of anti-money laundering  and  combating the financing of  terrorism  laws.”You receive  Bitcoins  on  addresses, which are randomly seeming chains  of around 30 characters. It is almost impossible to connect  the  real  world identity of users  with  those addresses. You may be dealing with terrorists or Shah Rukh Khan, you never know!

Barring  these  limitations, what  works  best for bitcoins  is pure economics. The model  is designed in such  a way that  there  is a CAP of 21mn bitcoins that  can be generated by year 2140 and  currently approx. 16.5 mn bitcoins are in circulation. When supply is limited, and demand increases, we all know what  happens to the price.

In a mere  18 days  after  the  demonetization speech  of Prime  Minister Narendra Modi,  the  price  of bitcoins  on Zebpay, having1 million  users, had surged from  $750 to $1,020. 
If adoption by few billion  Indians can lead  to a 33% increment, imagine the level it would reach  when 1.3 billion  Indians get on it!! Now  imagine if the entire world gets on it.

In year  2013, no one thought Sachin  Tendulkar’s records could  be replicated. Four  years  later, with  Virat Kohli in rampaging form,  that possibility is not  far behind. The old  guard has  to make  way  for the  new generation. Bitcoin  is  risky  but  time  changes everything and  this change   brings   lot  of  opportunities to  capitalize. Can bitcoins  still be ignored?

                                                                         -CA Akshay Sirsalewala & CA Amish Makwana

Bad Loans is Good Business

Bad loans business is getting better as the banking regulator RBI tightens norms for dealing in stressed assets market.

The asset reconstruction companies (ARCs) now need enhanced net owned funds of Rs 100 crore as compared to just Rs 2 crore earlier. As a result, larger ARCs backed by strong promoter groups would be on a firm footing to attract capital from external sources as 100 per cent foreign direct investment is permitted in the sector, Crisil says in its report. Many of the smaller ARCs may be on way to consolidate through merger with top five players that account for 90% of total assets under management of 23 ARCs.

The recent tightening of ARCs' capital requirements will lead to consolidation in the industry and that bigger players stand to benefit from the move, says a report.

The Reserve Bank last week increased the net-owned funds for asset reconstruction companies (ARCs) to Rs 100 crore from a meagre Rs 2 crore. Last April it had increased the upfront payment requirement to 15 per cent of the asset value from 5 per cent.

Crisil believes these are among a series of steps taken by RBI to strengthen the ARC ecosystem that will attract players with deep pockets, enhance transparency in asset sales, improve recoveries and open up scope for consolidation.

Given the thicket of rule changes, larger ARCs will be on a firmer footing, especially those backed by strong promoter groups with the ability and intent to infuse capital, and relatively better capability to attract capital from external sources as 100 per cent foreign direct investment is permitted in the sector, says the report.

The ability and intent of promoters and investors in smaller ARCs to infuse capital will be a monitorable and would potentially be a catalyst of consolidation.

According to Crisil, of the 23 ARCs, six are comfortable in terms of the revised net-owned funds requirement and other stringent norms. But those struggling to infuse capital or raise external funds and lacking in specialist manpower will get marginalised further.

"The top five players (Edelweis, JM Financial, Arcil, Kotak etc) account for around 90 per cent of total assets under management. With tighter regulations, we believe their market share will consolidate further and smaller ones may merge with larger rivals, or they could become takeover targets for large private equity investors and stressed asset funds wishing to enter the business," the report said.

It can be noted that from April 1, 2017, the RBI has increased the provisioning requirement for banks investing over 50 per cent of the value of stressed assets (the limit subsequently to be reduced to 10 per cent from April 2018) sold by them in the security receipts issued in lieu.

The RBI intends to ensure that any NPA sale is a true sale conducted through a transparent process where the ARC ends up with significant skin in the game so as to maximise recoveries.

The strengthened framework will affect the volume of asset sales as banks are reluctant to take adequate haircuts, says the report, adding however, it will lead to more cash- based sale which would need higher capital.

Asset sales spiked in March quarter of fiscal 2017 before the new provisioning norm kicked in. According to its estimates, Rs 21,000 crore of NPAs were sold in the March quarter taking the total outstanding assets under management with ARCs to Rs 75,000 crore. 

Infrastructure Investment Fund (InvIT)

InvITs are mutual fund like institutions that can play a crucial role in meeting India’s huge infrastructure requirements, estimated to be Rs 4.3 lakh crore (Rs 4.3 trillion) over the next five years. The InvIT offers an opportunity to promoters of projects to sell their stake in completed projects to the trust, which in turn can raise long-term and tax-free funds from unit holders. Infrastructures developers like IRB, GMR, IL&FS and Reliance Infrastructure are keen to launch InvIT to raise funds, a move which can potentially pump in liquidity in the otherwise cash-strapped infrastructure sector.

Infrastructure is an asset class in India that is garnering attention among investors worldwide and could be the perfect asset for pension plans seeking to match long-term liabilities, diversify portfolio holdings, lower the risk of capital loss and, in some cases, hedge inflation as well.

Hence, large foreign pension plans, foreign endowment funds and many domestic yield focused funds are the targeted investors for InvITs.
InvITs will provide a suitable structure for financing/refinancing of infrastructure projects in the country.

Several existing infrastructure projects in India are delayed due to

·         Increasing debt finance costs

·         Locked up equity of private investors in projects

·         Lack of international finance

·         Project implementation delays caused by global economic slowdown, cost overruns, inability of concessionaire to meet funding requirements on time, etc.

InvITs, as an investment vehicle, may aid:

·       Providing wider and long-term re-finance for existing infrastructure projects.

·       Freeing up of current developer’s capital for reinvestment into new infrastructure projects.

·       Refinancing/takeout of existing high cost debt with long-term low-cost capital and help banks free up their funds for new funding requirements.

Consumer credit demand rebounds after note ban

The demand for consumer loans in India seems to be returning as the adverse effect of demonetisation on the confidence of households wanes.

Demand growth was flat in November 2016 over the same month a year before but moved up 15 per cent in January, according to TransUnion CIBIL, a leading credit information agency. The financial system had seen unprecedented consumer credit growth over the earlier four years, including loans for vehicles and homes, cards and other credit products. The announcement on demonetisation created short-term disruption in this, says the agency.

However, new data indicate a strong rebound in demand for loans from individuals. A promising indicator for the stability and growth prospects of the credit sector and the economy overall, said Amrita Mitra, vice-president at TransUnion CIBIL.

Public sector bank (PSB) executives said loan performance had remained stable after demonetisation but that it would take five to six months for credit demand to become normal.

While loan demand shows signs of an uptrend, the pace of credit disbursal remains a concern. Aggregate credit granted fell 12 per cent in November 2016 from a year before; December loan originations were similarly down 13 per cent. PSBs showed the largest decrease in originations among major lender types, down by a little over 50 per cent in December 2016, compared to December 2015.

A notable exception to the origination drop was in credit cards, where there was a 10 per cent year-on-year increase in November. The drive on digital payments, one of the objectives of demonetisation, has shown initial positive results. Mitra said the drop in originations was not a consumer demand issue but one of lender supply. The pace of credit expansion had slowed even before the demonetisation decision in early November. Banks turned cautious after the high pace of growth in 2015-16, to contain defaults. According to the Reserve Bank of India data, retail (to individuals) credit by banks grew 12.9 per cent in the 12 months till January 2017, down from 18.1 per cent in the preceding 12 months till January 2016. The loan book was Rs 15,23,600 crore.

In the light of generally stable consumer credit performance after demonetisation, this lender retrenchment might be unwarranted. Analysis of the delinquency trends (90 days or more past dues) in December 2016, compared to December 2015, shows relatively stable performance overall, with improvements in automobile loans and credit card delinquency rates offsetting some deterioration in two-wheeler and housing loans. “There are early signs of relatively stable delinquencies. Lenders might have curtailed origination activity in anticipation of a significant increase here but to date, we have not experienced that deterioration. The key challenge for lenders is how to prudently capitalise on this opportunity to meet higher consumer credit demand,” Mitra added.

With note ban, the traditional wholesale channel collapsed: Metro’s Mediratta

Traditional food and grocery retail accounts for 97-98% of consumer packaged goods sector’s overall sales, says Arvind Mediratta, CEO of Metro Cash and Carry India

After the government invalidated Rs500 and Rs1,000 currency notes, the traditional wholesale channel collapsed. It has also opened new opportunities for wholesalers in the organized sector.

“We are the preferred partner for most of the companies right now for new product launches,” says Arvind Mediratta, managing director and chief executive officer of Metro Cash and Carry India Pvt. Ltd, the local arm of the German retailer, in an interview. Edited excerpts:

Arvind MedirattaMD and CEO of Metro Cash and Carry India. 

What was the impact of demonetisation for you?

In the past, companies have relied on their distributors, sub-distributors and traditional wholesalers to service small stores. With demonetisation, the traditional wholesale channel collapsed. Manufacturers are now looking at us as their route to market for a lot of their product categories. They are planning exclusive products (stock keeping unit) for us as we have a wide reach and ability to sell a wider basket. This dialogue with companies has now gained momentum following demonetisation. We are the preferred partner for most of the companies right now for new product launches.

But didn’t your business also suffer as the retailer faced a cash crunch?

We ask our customers to pay in advance and then deliver. We don’t extend credit to our traders. Customers can buy as much and as often as they want. In the traditional system, they used to stock up for three days, a week or a fortnight, and this is not required when they buy from us. However, earlier we used to have a minimum requirement of Rs1,000 bill. Now, post-demonetisation, we have taken off this restriction, and people come to us more regularly. Small bills of Rs1,000 and below is 10% of business.  One of our stores in Delhi got ransacked because people thought salt prices would go up to Rs200 per kg and we saw people ransacking sugar, salt. We had to call the police. There were rumours prices would go up. But, in fact, they crashed as farmers didn’t know how to sell.

So, what was the kind of growth did you see during the December quarter and is this continuing in January? 

We saw double-digit like-to-like growth in the December quarter, it was very good for us. This is continuing in January. There have been some fundamental shifts, which is short-term. For instance, people are buying more essentials and basics. The frequency of visits have increased. People have cut back on their spends on electronics, apparel and household items. 

By when do you see sales getting back to normal? 

For non-food, it will take another quarter to come back to normal. For food and FMCG (fast-moving consumer goods), the impact lasted only for a week, and sales are back at normal now. 

What is the scope for cash and carry or modern wholesale in big cities where traditional wholesale channels are well established?

Cash and carry is nothing but modern wholesale. There are close to 10 million kirana stores in the country. Even the best of FMCG companies don’t directly reach more than 10-15% of this. So, they rely on the traditional wholesale channels to reach the other outlets. Contrary to what people say and even what’s written in the media, I personally believe that the mom-and- pop kirana stores are here to stay, at least for the next 25-30 years. The traditional food and grocery retail accounts for 97-98% of the FMCG sector’s overall sales. This includes FMCG, food, groceries, commodities and fresh—dairy, poultry, meat and seafood. In the non-food component or general merchandise, which is apparel, shoes, electronics, there, the modern trade share varies from 7-8%, but for food and groceries, modern trade is just 2-3%. 

However for some large FMCG companies modern trade now accounts for 15-20% of their overall revenues. 

It could be. But a large part of the consumer spends in food and groceries is on fresh, which is fruits and vegetables, dairy, meat, chicken and seafood. That is ballpark 30% of the total spend in an average Indian household.

Then, another 30-35% is spent on staples like atta (flour), chawal (rice), pulses, spices, dry fruits, sugar, salt. Another 30-35% is FMCG. So, even 15% for FMCG doesn’t necessarily mean 15% of modern trade for food and groceries. For instance, as much as 99% of commodities is bought from traditional stores and even when it comes to buying fresh, people still prefer to buy from the traditional markets. 

How much do kirana stores account for your overall revenue?

Traders account for 40% of the overall business, followed by hotels, restaurants and caterers at 20%, and the rest, which is offices and institutions; these could be corporate offices or even the army, self-employed professionals, which is 40%. 

So, are you saying that the traditional wholesaler could become redundant? 

There is a big opportunity for us to coexist with traditional distributors as they cater to only the larger stores. We are catering to the smaller stores which are anyways largely ignored by the traditional system. 

How much of the wholesale business do you see shifting to organized from unorganized? 

It is difficult to predict; but with GST (goods and services tax) also coming in, we see it becoming a level playing field and becoming more favourable for modern cash and carry trade, which is abiding by all the laws. 

How will you compete with local distributors and wholesalers who know the local market better? 

In India, what works in the north will not work in the south, and there are also a lot of local and regional brands. We are focusing on these local and regional brands, especially in food and groceries, because people want a particular brand of spice or oil. So, for instance, when we opened a store in Gujarat, we found people were using cottonseed oil, which is not common in other parts of the country. Likewise, there are brands in the south which are specific to that region. Likewise in apparel, in Punjab, we need to stock a lot more of large sizes, whereas in Bengaluru, the large sizes don’t sell. In Amritsar, we used to stock small thalis (plates) and small bowls, but we noticed nobody was buying those. So, these are things we have to localize according to the market. 

What prompted you to change your business model to equip the sales force with tablets in India? 

We piloted this about six months back in Jaipur and now have this facility in six-seven stores, and are rolling it out gradually. The concept here is very simple. It is the e-commerce version of cash and carry. If people cannot come to the store, you virtually carry the store to them on the tablet with a person. A lot of kirana storeowners will not shift online. They are used to having someone visit them for placing an order; to change the behaviour, we have to have e-commerce with a human interface. We need to understand these traditional shopkeepers, we can’t expect them to suddenly change their way of doing business. 

What are your plans for India? 

India is a priority market. We have 23 stores and have said earlier that by 2020 we will have 50 stores. Last year, we have stepped up on our expansion, opening five stores in one year. We want to become the dominant firm in markets we are present in and also enter into more states. 

What is the penetration of organized cash and carry in markets where you are present? 

We feel we have plenty of headroom for growth even in markets like Bengaluru, where we have six stores. While I can’t disclose our market share numbers, all I can say is we have a significant share of the $2-billion organized wholesale cash and carry market. In Bengaluru, we have 450,000 business customers across all three segments, of which traders would be 1.2-1.5 lakh. 

You have recently strengthened your top management and made operational changes. Why is that?

We are getting ready for rapid expansion and profitable growth. It took us quite some time to understand the Indian retail market. We now believe we understand it very well. Hence, we armed our sales force with tablets and are making other operational changes. Also we now believe the environment is coming together with demonetisation and GST, and that augurs very well for a modern cash and carry firm. Suddenly the stars seem to be aligned.

The Science of 

Superfoods

Kale and chia, goji berries and blueberries, salmon and spinach. JAMIE MILLAR investigates the science behind whether superfoods are the magic bullet that can cure all our ills, and which ones deserve their ‘super’ prefix

Tricky to study

  The proof of the superfood pudding is in the eating – by humans, not mice or rats. But unfortunately, most scientific research is not conducted this way. “Nutrition studies often don’t apply to real life on a 1:1 basis,” “If you want to test, say, the effect of grape juice on cognition, you’d give it enough time, plus you’d check to make sure they actually drink it. In real life, that almost never happens.” Lifestyle factors are difficult if not impossible to separate. And there are other problems, pilot studies and animal trials will often use larger dosages, while ‘acute’ studies will look at just the food without any other things consumed. Meanwhile, eating different foods together, which is what most of us do, can dramatically alter their effects for better or worse: “Co-consumption makes things more complicated.” 

  Another issue affecting superfood research is that it is often paid for by interested parties. “We’re funded by food and supplement companies in many of the studies we conduct,” admits Professor David Nieman,Director of the Human Performance Labs at Appalachian State Universityin North Carolina. “But the North Carolina university system demands contractual agreement that gives the primary investigator ‘academic

freedom’, or the right to publish the data, positive or negative. Many of the companies I work with are so convinced that their product has special effects that they sign these agreements.” What buyers should beware of are studies conducted in-house by companies, which are “close to worthless”, says Prof. Nieman. But while industry-funded doesn’t mean false, the anointed superfood might not be much better than a cheaper, less exotic equivalent that doesn’t have the same commercial imperative. The problem is not so much that superfoods are a con – many of them, like chia seeds (right) or kale,are highly nutritious – more that calling them ‘super’ gives unrealistic expectations of what they will do. “I prefer the concept of ‘high nutrient density’ foods, which is a central theme in the new 2015-2020 dietary guidelines for Americans,” says Prof. Nieman. “The term ‘superfood’ is not used by most scientists in the field, because the implication is that one can expect quick and high-end health benefits.” By all means, sprinkle some chia seeds on your oatmeal, and even stir in some blueberries. You’ll get a nutritional boost, you just won’t instantly become immortal: “What matters is the habitual eating pattern over months and years.”

The goji berry boosts more vitamin C than oranges, more beta carotene than carrots and more iron than spinach

Many of superfoods are highly nutritious, but calling them ‘super’ gives unrealistic expectations

A balanced diet

  By seeing superfoods as a magic bullet, we risk shooting ourselves in the foot. “Some people think if they eat one ‘superfruit’, they don’t need to eat the recommended 2-4 servings of fruit a day,” says Dr. Blumberg. But no one superfood is a panacea; nor will it make up for other deficiencies. “Adding superfoods to a good diet is fine,” says Dr. David Katz, Director of Yale University’s Prevention Research Center in the US. “Counting on them to compensate for a bad diet is not.” And undue emphasis on superfoods can be unhealthy. “The term helps companies sell product, and it ‘helps’ consumers oversimplify their diets,”. All the experts cited here stressed the importance of consuming a wide variety of natural, ‘whole’ foods, which in turn reduces their individual significance. “No single food or beverage is important enough to stand out from the overall lifestyle,” says Prof. Nieman

Inflated health benefits

The chia seed is a good example of how claims about superfoods can grow out of all proportion

  A variety of mint, over recent years chia has broken out of those novelty pet-shaped pot plants to become an Aztec warrior miracle food. It’s a complete protein with all the amino acids required to build muscle, plus more omega-3 than salmon, more fibre than flaxseed, and wealthier than Montezuma himself in antioxidants and minerals. Indeed, cheerleaders of chia allege you could eat it and nothing else. “It’s a good example of how companies and distributors promote the mystique and magical health benefits that go way beyond the science,” says Professor David Nieman, Director of the Human Performance Labs at Appalachian State University in North Carolina. “We conducted several randomised human trials showing that chia seeds provide good nutrition and can be included in a healthy eating pattern that over time – along with physical activity and weight management – is consistent with good health. But there’s nothing quick or miraculous about them.”

Centre must go full distance with cashless drive: Manappuram CEO

Having taken the trouble to demonetise higher denomination notes, the Centre should now think of going the full distance in moving India towards a cashless economy, according to VP Nandakumar, MD and CEO, Manappuram Finance, a leading gold loan company.

VP Nandakumar, MD and CEO, Manappuram Finance

Rather than adopt a top-down approach, it should devise an incentive mechanism that rewards cashless transactions, followed by some relatively mild disincentives on the use of cash, Nandakumar said in his views on what he expects from Budget 2017-18.

Lower tax

Particularly helpful would be a tax regime that levies a lower tax rate on cashless transactions. Once people see the prospect of monetary gain from going cashless, they will themselves seek out ways to get into cashless modes. Once positive incentives are in place, the government may then consider disincentives, such as a tax on cash withdrawal above a certain limit, which will then face less resistance.

The idea of a permanent withdrawal of all convenience fees, service charges and surcharges levied by government agencies (like utility service providers and for various payments by consumers to government) is worth implementing, Nandakumar said.

Tax on dividends

Budget 2016 had levied an additional 10 per cent tax on gross dividends in excess of ₹10 lakh per annum.

This tax is in addition to the dividend distribution tax already paid by the company and amounts to taxing the same income twice, Nandakumar said.

Further, if one considers that dividends are paid out of the post-tax profit of a company, this measure amounts to taxing the same income three times.

“This is not fair and it unnecessarily penalises the risk-taking entrepreneurial class who would have ploughed their personal wealth and savings in their businesses. As it stands, it is nothing but a tax on entrepreneurship and, therefore, should be revoked.”

Gold loans

Until 2011, gold loans given by NBFCs to eligible categories of borrowers (agriculture, MSME or micro-loans) were considered as priority sector, which allowed NBFCs to obtain refinance from banks on relatively better terms.

The subsequent withdrawal of priority sector status has pushed up borrowing costs for these borrowers as banks lack last mile reach and have largely been unable to fill the gap, Nandakumar said.