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| May 08, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
27,105.39 |
94.08 |
0.35% |
| Re/US $ |
64.24 |
-0.93 |
-1.47% |
| Gold Rs/10g |
26,970.00 |
-230.00 |
-0.85% |
| Crude ($/barrel) |
66.22 |
3.55 |
5.66% |
| F.D. Rates (1-Yr) |
7.00% - 8.50% |
Weekly changes as on May 07, 2015
*BSE Sensex as on May 08, 2015
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Impact 
In India, e-commerce companies have attracted special attention in the recent times. Thanks to luring discounts offers that many are flocking on to them ...and that makes them a hot cake today.
The success of e-ticketing facility provided by the Indian railways shows that people in India can accept new mode of shopping. They can quickly adapt to technological changes too. As per the estimates of The Internet and Mobile Association of India (IAMAI), current size of India's e-commerce market is about U.S. $16 billion; out of which close to U.S. $9 billion is the share of travel related bookings. It is expected that, the market is ready to register jaw dropping growth in coming years.
But the big question is: Would e-commerce companies be an equal or a better hot cake if one were to invest in them? Well, to assess that read on...
Can E-commerce in India be a good investment alternative?
E-commerce is a sunrise sector. Nevertheless, for it to shine and make it worth holding in the investment portfolio, it requires robust underlying fundamentals.
As per the estimates of IAMAI, there are nearly 27.8 crore internet users in India as on October 2014. The number is expected to grow upto 30.2 crore by June 2015. The internet boom and Government's initiative such as Digital India is also expected to provide a fillip to the e-commerce industry.
The factors which may be supportive for the growth of e-commerce industry in India are:
- Demographic advantage with higher proportion of young population
- Technological advent and upgradation (where now we are talking about 4G wireless internet)
- Greater internet penetration with smart gadgets being used
- Growing middle class and even upper middle class
But high growth doesn't always mean high profits...
At present, many e-tailers in India are working to grab a chunk of the market share. Thus in this endeavour, they are doling luring offers repeatedly to hook consumers to their portals. But in the bargain, profits are being sacrificed while they are keeping high budgets for marketing, warehousing and technology. Therefore, now many of you may be wondering, how are they surviving? Well, thus far, they are blessed with massive funding from Private Equity (PE), venture capitals and even angel investors. But the fact remains that they have burned cash at an equally brisk pace as well.
Notwithstanding the above, growing competition and some inherent flaws threaten to derail the Indian e-commerce industry. Indians are buying goods online; but it is observed that many of them still prefer to pay on the delivery of goods or services. When a customer selects an option of Cash on Delivery (CoD), it costs an e-commerce company about 3% more. When goods are returned on delivery, it further hurts margins as costs increase.
PersonalFN is of the view that, the e-commerce fad catching up in India is to a certain extent similar to that experienced during the dotcom boom (1999-2000). Investors then, lapped up shares of I.T. companies with such zeal as if they were going to be billionaires overnight. Unfortunately, number of people who lost money during the dotcom boom was perhaps more than those who earned. Therefore, PersonalFN believes that even if e-commerce companies plan to raise money from individual investors, you shouldn't invest blindly getting swayed by the exuberance. Some legendary investors have been constantly questioning the business model of India e-tailers. After all how will an e-commerce company distribute dividends to you as investor, if it is not making profits?
Hence in the backdrop of the above, PersonalFN believes for now you would be better-off staying away from investing in e-commerce companies. It would be prudent to look at investment opportunities which are promising, yet tried and tested. If you do not have the expertise to pick stocks for the portfolio, invest in equity mutual funds and gain from host of benefits offered by them. But while you select mutual fund schemes, do it with enough care and prudence.
Do you think e-commerce companies in India would be able to make good profits in future? Share your views here.
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Impact
Whether you invest in mutual funds or in stocks, you have to comply with Know Your Customer (KYC) requirements. Not just to prevent money laundering but also to mitigate the risk of even more serious frauds in the financial markets, KYC norms are important. However, considering cost involved and time lapsed in the process, current KYC process leaves room for improvement.
The Securities and Exchange Board of India (SEBI) will soon come up with e-KYC format wherein, there would be an option of doing In-Person Verification (IPV) through webcams. This is expected to cut down the time presently required to complete the KYC process from 8-10 days to 1-2 days. It is also believed that the cost to the broker for acquiring new client may also drop drastically.
PersonalFN is of the view that, relaxing the processes for KYC without compromising on their stringency may help create investor friendly atmosphere. In India, the penetration of mutual funds is still very low. PersonalFN believes, there is no alternative to educating investors and help them understand fundamentals of investing. PersonalFN has worked passionately at several platforms to spreading awareness among investors and educating them appropriately.
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Impact
Despite concerted efforts of the Governments and central banks of various nations, achieving faster economic growth still seems to be a tough task for many. Surveys conducted by Markit Economics across the world, indicated that the manufacturing growth in April 2015 has weakened in some major economies. A slowdown in China has left many market participants and investors sceptical. As global demand slowed down, manufacturing activities eased off in the Euro- Zone as so has it in the U.S.
Falling Manufacturing Growth All Around...
Note: An index reading above 50 indicates expansion while below 50 reflects contraction.
(Source: Markit Purchasing Managers' Index™, PersonalFN Research)
The chart above also points out that for India too growth in manufacturing has been waning with a muted growth registered this April. These are not good signs for India while it endeavours to boost manufacturing growth. Prime Minister Mr. Narendra Modi is hard-selling the 'Make in India' initiative abroad, but ground realities have hardly changed over last 1 year.
So, where is 'Make in India' heading?
Modi-led-NDA Government has a vision to make India a manufacturing hub for businesses. This can help reduce imports, Current Account Deficit (CAD)...and even provide a fillip to economic growth as it aims to raise the share of manufacturing in GDP to 25% from present 13-14%.
To read more about this news and PersonalFN's views over it, please click here.
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Impact
A speedometer in a car tells you what speed you are driving at. Driving at a right speed is not only paramount for your safety, but can also enhance the performance of your car. Similarly, understanding the risk involved in a product before investing not only helps you get a right mix in your asset allocation, but also provides mental peace.
In 2013, the Securities and Exchange Board of India (SEBI) made it mandatory for the mutual fund houses to use product labels with colour codes to help investors assess the risk involved while investing in a respective mutual fund scheme. It made it obligatory on the part of mutual fund houses to disclose product labels carrying details of the scheme on the front page of initial offering application forms and they also be placed in common application forms and advertisements.
To read more about this news and PersonalFN's views over it, please click here.
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- The problem of red tape and bureaucratic delays is common across India. That makes it difficult for people of this country to obtain services from the Government departments in a timely manner.
But recently, the Government of Maharashtra passed an ordinance rendering people of Maharashtra state a right to timely public services. Initially, 14 departments of the state and 160 services would be covered under Maharashtra Guarantee of Public Service Act (MGPS). A penalty upto Rs 5,000 can be imposed on the public servant failing to deliver services in time.
The Act will cover Government departments, municipal corporations, zilla parishads, co-operatives controlled and / or financed by the Government among others. The Act aims to provide transparent, efficient and timely public services to the citizens in the State of Maharashtra.
However the critics opine that, there was no urgency to issue ordinance enacting the aforesaid law in its present form as it has too many loopholes. Activists fear that, the law with good cause may end up making bureaucracy stronger.
PersonalFN is of the view that, the Maharashtra Government should try to seal the loopholes for making MGPS more effective. Having said this, a step by the Government ensuring right to timely services should be welcomed.
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Venture Capital: "Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns."
(Source: Investopedia)
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Quote : "The challenge is not just to build a company that can endure; but to build one that is worthy of enduring. " - Jim Collins
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